Marketing & Consumerism : Intro

"Although the scope of marketing is to understand and fulfil consumer’s needs and wants, the influence exercised by various marketing activities is such that may create needs. This distortion may generate economic imbalances, but in particular, it raises important ethical questions. This literature review undertakes a journey in the world of the marketing practice to understand how and why marketing can lead to over-consumption. 

Foreword

In 1979, on the eve of the American presidential election, Jimmy Carter, in his infamous “Crisis of Confidence” speech, warned that “too many of us worship self-indulgence and consumption”.

However, what followed this discourse was the victory of his opponent Ronald Reagan, the rise of Wall Street and ten years later the collapse of the Berlin Wall. 

Today, in 2009, after having experienced the demise of the Communism ideology and enjoying thirty years of incredible global economic growth, the world is urging for all the possible measures to fix a system (the Capitalism) on the brink of collapse has never been seen since the 1929 Depression.

Hence, on the streets, in the media and in the parliaments, the warning words of Jimmy Carter are echoing again. 

The present economic downturn has certainly questioned the validity of a model that despite guaranteeing the perfect functioning of a democratic society; today is blamed for having contributed to the rise of materialistic values and in particular to have cultivated a consumerist society.

Consumerism, as defined in the Oxford English Dictionary (1989), is “the doctrine advocating a continual increase in the consumption of goods as a basis for a sound economy”; though nowadays consumerism is perceived as a culture or a social order characterised by disproportionate consumption and excessive attachment to material possessions (Abela, 2006).

Although, anti-consumerism has always been present in society, the most puzzling aspect of this criticism is that much of condemnation often takes aim at the most successful and lauded companies; Nike, McDonald’s, Microsoft and Starbucks, to cite some, are relentlessly singled out as the cause of the consumerist degeneration of  society.

Indeed, the common denominator amid those big multinationals is that they are the same brands that today dictate trends, command a semi-religious following and interpret the needs of the population more than any politician or religion; but , most of all, they are the same brands that have taken the marketing concept to heart and industriously applied it (Holt, 2002).

Marketing is the management process responsible for identifying, anticipating and satisfying customers’ requirements profitably” (C.I.M cited in Adcock, Halborg and Ross, 2001 p.3).

It includes access to voluntary exchange processes, (the process of exchange in society is marketing; Kotler cited in Quelch and Jocz, 2008) and it facilitates this process with information and a distribution (of the product/service) that aims to reach as many consumers as possible (inclusion).

Still, despite these remarkable benefits, marketing does not do a good job in marketing itself (Quelch, 2009); in reality, the practice has always been at the centre of a criticism that has put in agreement religious, politicians, anti-global movement and academics as well.

Indeed, the critics argue that firms, through marketing, pursue only a single objective: to encourage consumption, thus generating over-consumption, waste and social disequilibrium.

Therefore, this accusation presumes the ability of marketing to influence consumers’ behaviour to an extent that it convinces consumers that Wiis and iPhones are necessary (Barber B. cited in The New York Times, 2007), thus creating needs.

The recent sophistication of marketing activities has certainly helped the practice to well understand and anticipate consumer requirements. Indeed, the commercial study of consumer behaviour and the web, presents nowadays the possibility to reach infinite consumers and the likelihood of getting to know a great deal about them.

Moreover, the persistent tentative of marketers to build a closer relationship with their customer has somehow raised the brand status (in the eyes of the latter) to a level where they can influence behaviour; definitely, a huge leap forward for marketing activity, though also an interesting ethical issue.

In fact, there is no doubt that nowadays brands command huge following; they have a great influence on the consumer’s preferences, attitudes, and purchasing decisions; the consumer buys not only into the product but also into the proposed lifestyle. A lifestyle that very often values wealth, success and power.

However, it is ‘In Brands We Trust’ and it is consumption, which defines meaning (Smith, 2007). Indeed, numerous are the examples of marketing activities that, making extensive use of the technique of persuasion to influence the consumer’s purchasing behaviour, imply that the consumption of particular goods can earn the acquisition of the social status represented.

Therefore assuming that marketing influences behaviour and that this influence promotes materialistic values, does the marketing practice promote consumerism?

Considering the various perspectives involved, the topic is very controversial; in reality, the search of an absolute truth that is a correlation between marketing and consumerism, so far has not produced relevant results.

Therefore,  before attempting any answer to the question, it is particularly important to test the hypothesis made above, hence a Positivist philosophy.

Thus, the deductive approach to the vast narrative available allows the drawing of a conceptual framework, or rather of a theory that would imply the responsibilities of marketing in the rise of consumerism. 

The structure of the literature review initially aims to analyse the marketing concepts and consumerism in the light of its socio-economic structure and consequently to focus on the perspectives regarding consumerist behaviour and ethics.   

However, in order to avoid generalising this complex topic that regards people and behaviour, an Interpretivism approach is utilised to draw the conclusions. 

Indeed, the research methodology follows an explorative and descriptive approach in order to test the hypothesis; in particular three areas are individuates as key to understand the causes for the inference (marketing and consumerism) to subsist.

Hence, the objectives of this study are:

1. To explore the extent of the influence of marketing practices on consumer behaviour;
2. To discuss the status of ethical standards in marketing; 
3. To investigate the validity of the marketing concept in the current economic environment.

continue reading.....

Marketing and Consumerism

"Although the scope of marketing is to understand and fulfil consumer’s needs and wants, the influence exercised by various marketing activities is such that may create needs. This distortion may generate economic imbalances, but in particular, it raises important ethical questions. This literature review undertakes a journey in the world of the marketing practice to understand how and why marketing can lead to over-consumption. 

Foreword

In 1979, on the eve of the American presidential election, Jimmy Carter, in his infamous “Crisis of Confidence” speech, warned that “too many of us worship self-indulgence and consumption”.

However, what followed this discourse was the victory of his opponent Ronald Reagan, the rise of Wall Street and ten years later the collapse of the Berlin Wall. 

Today, in 2009, after having experienced the demise of the Communism ideology and enjoying thirty years of incredible global economic growth, the world is urging for all the possible measures to fix a system (the Capitalism) on the brink of collapse has never been seen since the 1929 Depression.

Hence, on the streets, in the media and in the parliaments, the warning words of Jimmy Carter are echoing again. 

The present economic downturn has certainly questioned the validity of a model that despite guaranteeing the perfect functioning of a democratic society; today is blamed for having contributed to the rise of materialistic values and in particular to have cultivated a consumerist society.

Consumerism, as defined in the Oxford English Dictionary (1989), is “the doctrine advocating a continual increase in the consumption of goods as a basis for a sound economy”; though nowadays consumerism is perceived as a culture or a social order characterised by disproportionate consumption and excessive attachment to material possessions (Abela, 2006).

Although, anti-consumerism has always been present in society, the most puzzling aspect of this criticism is that much of condemnation often takes aim at the most successful and lauded companies; Nike, McDonald’s, Microsoft and Starbucks, to cite some, are relentlessly singled out as the cause of the consumerist degeneration of  society.

Indeed, the common denominator amid those big multinationals is that they are the same brands that today dictate trends, command a semi-religious following and interpret the needs of the population more than any politician or religion; but , most of all, they are the same brands that have taken the marketing concept to heart and industriously applied it (Holt, 2002).

Marketing is the management process responsible for identifying, anticipating and satisfying customers’ requirements profitably” (C.I.M cited in Adcock, Halborg and Ross, 2001 p.3).

It includes access to voluntary exchange processes, (the process of exchange in society is marketing; Kotler cited in Quelch and Jocz, 2008) and it facilitates this process with information and a distribution (of the product/service) that aims to reach as many consumers as possible (inclusion).

Still, despite these remarkable benefits, marketing does not do a good job in marketing itself (Quelch, 2009); in reality, the practice has always been at the centre of a criticism that has put in agreement religious, politicians, anti-global movement and academics as well.

Indeed, the critics argue that firms, through marketing, pursue only a single objective: to encourage consumption, thus generating over-consumption, waste and social disequilibrium.

Therefore, this accusation presumes the ability of marketing to influence consumers’ behaviour to an extent that it convinces consumers that Wiis and iPhones are necessary (Barber B. cited in The New York Times, 2007), thus creating needs.

The recent sophistication of marketing activities has certainly helped the practice to well understand and anticipate consumer requirements. Indeed, the commercial study of consumer behaviour and the web, presents nowadays the possibility to reach infinite consumers and the likelihood of getting to know a great deal about them.

Moreover, the persistent tentative of marketers to build a closer relationship with their customer has somehow raised the brand status (in the eyes of the latter) to a level where they can influence behaviour; definitely, a huge leap forward for marketing activity, though also an interesting ethical issue.

In fact, there is no doubt that nowadays brands command huge following; they have a great influence on the consumer’s preferences, attitudes, and purchasing decisions; the consumer buys not only into the product but also into the proposed lifestyle. A lifestyle that very often values wealth, success and power.

However, it is ‘In Brands We Trust’ and it is consumption, which defines meaning (Smith, 2007). Indeed, numerous are the examples of marketing activities that, making extensive use of the technique of persuasion to influence the consumer’s purchasing behaviour, imply that the consumption of particular goods can earn the acquisition of the social status represented.

Therefore assuming that marketing influences behaviour and that this influence promotes materialistic values, does the marketing practice promote consumerism?

Considering the various perspectives involved, the topic is very controversial; in reality, the search of an absolute truth that is a correlation between marketing and consumerism, so far has not produced relevant results.

Therefore,  before attempting any answer to the question, it is particularly important to test the hypothesis made above, hence a Positivist philosophy.

Thus, the deductive approach to the vast narrative available allows the drawing of a conceptual framework, or rather of a theory that would imply the responsibilities of marketing in the rise of consumerism. 

The structure of the literature review initially aims to analyse the marketing concepts and consumerism in the light of its socio-economic structure and consequently to focus on the perspectives regarding consumerist behaviour and ethics.   

However, in order to avoid generalising this complex topic that regards people and behaviour, an Interpretivism approach is utilised to draw the conclusions. 

Indeed, the research methodology follows an explorative and descriptive approach in order to test the hypothesis; in particular three areas are individuates as key to understand the causes for the inference (marketing and consumerism) to subsist.

Hence, the objectives of this study are:

1. To explore the extent of the influence of marketing practices on consumer behaviour;
2. To discuss the status of ethical standards in marketing; 
3. To investigate the validity of the marketing concept in the current economic environment.

Marketing and Market Economy

Marketing (and the market economy) is the perfect arrangement to ensure that the consumer exercises his freedom of choice and “choice stimulates consumption, economic growth and facilitates personal expression” (Quelch, 2009); as a result, a consumerist society would be a society that guarantees the basic human rights.

Indeed, as effectively illustrated by Quelch and Jocz (2008), marketing can be conceived as a consequence/precursor of democracy and therefore of the basic libertarian rights.

In fact “individual should be free to do what they want to do, provided that their actions are purely self –regarding and do no harm to others” as stated by the British philosopher John Stuart Mill (1806-1873, cited in O’Shaughnessy  and O’Shaughnessy, 2002) and precluding choices would be against the values of modern society.

Thus, it is difficult to sanction any other alternative to a market society since free-market rejectionists, such as Marx, have only idealised a system (Communism) that has resulted in scarcity and authoritarianism.

However, the marketing/democracy equivalence bases itself on the assumptions that the market is always right, self-correcting, self-policing and self-regulating. An assumption that presupposes the efficiency of the market, and thus, the effectiveness of marketing in determining the offering that matches the consumer’s wants and the decision on continuing basis what offering to add, subtract, modify and upgrade (O’Shaughnessy J. and O’Shaughnessy N.J., 2002)

Therefore, marketing only responds to a consumer‘s inclination and it is in the latter that the responsibilities of the process lie; a supposition that evokes Adam Smith’s theory (1723-1790; cited in Csikszentmihalyi, 2000) that production is justified by consumption; that needs of consumer dictate what the economy should provide.

However, if through consumption, consumers seek to improve their prosperity and welfare and exercise their freedom of choice (Quelch, 2008); what does over-consumption imply? 

According to Csikszentmihalyi (2000), the reality is opposite, it is the imperative to produce that is dictating the need and the whole economic structure necessitates an increasing demand to function. Consuming has become a social act, an action needed in order to keep the whole community alive (Csikszentmihalyi M., 2000).

Hence, an economy that can sustains its profitability by only creating needs; thus, convincing the consumers that Wiis and iPhones are necessary (Barber B. cited in The New York Times, 2007). In reality, it stimulates a demand that is not sustainable unless the consumer pushes himself into debt.

Indeed, this uneconomic process (Hans Kjellberg, 2008) has been one of the factors that have contributed to the present financial crisis where unwarranted credit was offered solely in order to keep the demand artificially high. 

Thus, Consumerism is detrimental for society and does not pose the basis for a sound economy as shown by the present economic crisis where although an evident distortion of the marketplace has not resulted in scarcity (but instead in abundance), has, in any case, presented a price to pay for it (recession, uncertainty and waste).

Hence, the creation of needs goes beyond the concept of satisfying consumers’ needs and much further than the notion of efficiency. An economy where wants are constructed is an economy destined to failure.

Marketing and Consumer behaviour 

Consumerism is associated with reduced consumer well-being in terms of quality of human relationship and levels of happiness (Csikszentmihalyi and Kasser, cited in Abela, 2006); a condition according to Burroughs and Rindfleisch (2002; cited in Abela, 2006) resulting from the conflict between an individualistic orientation of materialist values and collective-oriented values such as family and religion. 

Although many researchers acknowledge the harms of consumerism, it is more difficult to find such a consensus when individuating the responsibilities of marketing in encouraging a consumerist society.

It may be obvious that “Materialism is a part of human conditions long before the first advertising executive” (O’Shaughnessy and O’Shaughnessy, 2002). Still, it is also evident that an increased sophistication of the marketing practices in recent years has paralleled a notable rise of consumerism (though, according to Abela (2006), it is not clear if the former is a consequence of the latter or vice versa). 

The assumption that marketing promotes consumerist behaviour implies that the practice does have an influence in shaping consumer behaviour; to this regard, there is huge narrative that portrays marketers as cultural engineers that organise how people think and feel through branded commercial products (Holt, 2002).

Moreover, there is no doubt that the logic of mass marketing leads to the least common denominator goods that produce conformity of style, marginalize risk taking, and close down interpretation (Horkheimer and Adorno,1996; cited in Holt D.B., 2002) and that market segmentation is about “classifying, organizing, and labelling consumers” (rather than providing product differences that are substantive). 

Nevertheless, wants cannot be created, there must be an underlying appetite for products”, (O’Shaughnessy and O’Shaughnessy, 2002) and consumers are NOT motivationally empty until injected by marketers with wants created by advertising as opposed by Campbell (1987, cited in O’Shaughnessy and O’Shaughnessy ,2002)); yet, both propositions are too simplistic since they focus solely on the marketing demand/offer process.

In reality, marketing is a neutral tool (Kjellberg, 2008) and therefore it acts as a mediator between consumers’ wants and available resources, (in terms of products/service); though, it is in its important role of creating the offer that matches consumers’ needs that marketing show a materialistic influence.

Marketing activities involves value creation (Quelch, 2008) and therefore the creation of a prosperous society able to satisfy its basic needs (survival, safety, love and belonging; Maslow cited in Kotler et al, 2008 p.269-73). 

Superior needs (esteem and self-actualisation) instead, are less predictable wants (Csikszentmihalyi, 2000) and marketing met this demand fostering the idea that esteem can be achieved by consumption; though promoting and advertising goods with images of success, societal status, power, beauty, etc has therefore promoted the message that the meaning of life is to be discovered through acquisition (O’Shaughnessy and O’Shaughnessy, 2002)

Therefore, Consumerism sets in motion a race to conform to persistent models offered by the marketing activity; a frustrating pursuit that causes reduced well being (Csikszentmihalyi, 2000) and may incite criminality (O’Shaughnessy and O’Shaughnessy, 2002). 

Marketing Ethics 

The marketing conception depicted by Theodore Levitt (Harvard Business Review, 1960)  highlighted a shift from mass-production to a customer-orientated approach; therefore a move from the selling concept to the marketing management philosophy  which holds that achieving organisational goals depends on determining the needs and wants of target markets and delivering the desired satisfaction more effectively and efficiently than competitors do  ( Kotler et al, 2008 p.16).

Hence, this notion of marketing does not motivate consumerism; on the contrary, it encourages an efficient allocation of the resource (O’Shaughnessy and O’Shaughnessy, 2002; Quelch, 2008) and the alignment of the firms and consumers’ interests.

While the consumer seeks benefits in the consumption of the product or service offered, for most companies profits are the main priority; however, this equilibrium is regulated by a set of principles motivated by what it is morally right or wrong, that is ethics.

Practising ethics in marketing means deliberately applying standards of fairness to marketing decision-making (Swope, 2001); though, very often firms (and marketers) attend to their internal interests rather than seek to meet consumer wants and needs (Holt, 2002)

The promotion of conspicuous consumption and especially the targeting of vulnerable segments such as children, clearly would symbolise  a denial of ethical morals , or rather  that what the brand stands for is only motivated by the profits as put by Naomi Klein in “No Logo”(2001 p.167).

Moreover, profits are also for marketing the main source of anxiety because of the need to quantify its effort and its longing for recognition; for this reason, marketers are more concerned with the mechanism of selling (Morrell, and Jayawardhena, 2008) and therefore of increased profits.

Consequently, new exotic marketing techniques such as “Massclusivity” (the exclusivity for the masses; Trendwatching.com, 2009), and the “luxury democracy” are often no other, than a way to sell superfluous stuff with an attached brand value (Hamilton, 2006). 

However, selling is not marketing (Levitt, 1960; cited in Morrell, and Jayawardhena, 2008), marketing is about the consumer too. The appeals to the masses, the segmentation and the data presuppose the construct of the consumer as passive, predictable, and perhaps manipulable (Morrell, and Jayawardhena, 2008); a perception of the consumer, that as put by Horkheimer and Adorno (1996; cited in Holt, 2002), leads to a channelling of culture that erases idiosyncrasies.

The true understanding and satisfying of consumer needs is not managerial relevant, as argued by Kjellberg (2008); more important is to identify the mechanisms that induces the consumers to purchase more than they need or can afford.

Nowadays, the major privately owned marketing agencies led by great creative talent have given way to publicly owned holding companies that are led by business people (Drumwright and Murphy, 2009), though shareholders’ interests and stakeholders’ ones  not always combine. 

Though shrugging off any responsibilities by arguing, that marketing should not interfere with consumer decision (Quelch, J. 2008) may be theoretically right, but it seems certainly to be very profitable; and above all, it definitely denotes a lack of moral judgment of the whole practice.

Conclusions

The goal of this research was to individuate any relationship between marketing and consumerism; hence, for this purpose three objectives were outlined.

1. To explore the extent of the influence of marketing practices on consumer behaviour;
2. To discuss the status of ethical standards in marketing; 
3. To investigate the validity of the marketing concept in the current economic environment

On the subject of the first objective (marketing’s influence), the data collected and the opinions obtained, suggest that marketing exercises a heavy pressure on consumers, though the influence is not such that it creates needs.

Indeed, the key assumption of this paper that marketing manipulates consumers’ behaviour tends to diminish the role of the individuals in the demand/offer process.

In fact, the principle of submission to the cultural authority of marketers dismiss the ability of the consumer to react to a sort of marketing dominance; a reaction that it is real, and that is demonstrable by the existence of the about narrative itself.

However, I believe that there is a strong materialistic influence in the marketing’s process of persuasion.

Marketing may not be directly responsible for an irreversible societal process that is materialism (O’Shaughnessy and O’Shaughnessy, 2002); indeed, materialism and individualism are characteristics of the whole western civilisation (Huntington, 1996 p.131) and that a decreasing influence of religious principles or the failure of them has certainly facilitated the emersion of alternative values.

Even so, it is strongly perceived the marketing’s consideration of the consumer is of an individual to exploit rather than explore it; hence a persistent targeting of the person’s weakness (his tendency to sin) and the promotion of a “happiness” more easily attainable.

Moreover, shrugging off any responsibilities by arguing that marketing should not interfere with consumer decision (Quelch, J. 2008) denotes a lack of moral judgment of the whole practice; hence, the disregard of what it is ethically right and wrong.

Despite all the excuses, the distinctions and the numerous example of “good marketing”, it is apparent that, nowadays, marketing decision are made solely on profitability basis rather than ethical ones.

Indeed, Community Marketing, Eco-Marketing, Societal Marketing and Relationship Marketing, despite being hailed as ethical approaches to consumers, represent, in the eyes of the authors of this essay, a marketing of the ethics rather than ethical marketing.

To this regard and to the third objective of this research,  the marketing concept is still very relevant and probably the best available option; however, and that marketing in its incessant pursuit of profits will inevitably fail to adjust to the current economic environment and therefore it will continue to promote consumerist behaviour even if the recent failure of this process would suggest otherwise.

However, the public perception is that there is a need for a more humane brand of capitalism, based not only on better regulation but also on better values (Layard, 2009). The new “Age of Responsibilities” as heralded by Robert Zoellick (Financial Times, 2009) is what it is hoped will emerge from the ruins of this economic collapse; it will require co-operation, engagement and especially social responsibilities from all the societal players, including marketing.

Ciro Scognamiglio

Dummy variables

In regression analysis the dependent variable is often not influenced just by ratio scale variables but also by variables that are qualitative or nominal scale that are not measurable in quantitative terms such as sex, race, and nationality. Indeed, Dummy variables are used to capture the effects of these qualitative factors. 

There are numerous social science applications in which dummy variables play an important role. For example, any regression analysis involving information such as race, age group, would use dummy variables. For example, holding all other factors constant, female workers are found to earn less than their male counterparts. This pattern may result from sex discrimination, but whether the reason, qualitative variable such as sex seem to influence the regressand and clearly should be included among the explanatory variables, or regressors.

Dummy variables indicate the presence or the absence of an attribute, such as male or female. One way we could “quantify” such attributes is by constructing artificial variables that take on values of 1 or 0, 1 indicating the presence (or the possession) of that attribute and 0 otherwise. There are two types of dummy variables: intercept dummies and slope dummies.

• Intercept dummy variables pick up a change in the intercept of the regression
• Slope dummy variables that pick up a change in the slope of the regression

For example : 

1.  You are investigating the impact of years of work experience on earnings. In your sample you have information on a number of individual characteristics including gender and type of occupation (manual, non manual, or mix)

D1_i=1 if the individual is female, 0 otherwise.

D2_i=1 if the individual has a manual occupation, 0 otherwise.

D3_i=1 if the individual has a non-manual occupation, 0 otherwise

Italy and Berlusconi

This comment was posted as response to an article on "The Economist" on 10/10/09

The fact that Mr.Berlusconi doesn't accept the decision from the Court and he's trying hard to undermine it is not new and in true it's pretty boring now. Even when he lost in the precedent general election he refused to accept the outcome invoking electoral frauds. Was at time the will of people not to be respected? No, unless Mr Berlusconi doesn't get his way. To be honest, in 1994,I did believe that the actual PM would have been a good thing for my country, I thought that his experience and his entrepreneurship would have given modernity to a nation that has underachieved in the past 20 years. However, soon I became disillusioned by his antics, his inability to do anything concrete for the country apart from resuscitate old communist ghosts when it was time to look forward and to exacerbate the political debate to an extent that today I don't see how we (italians) will ever be able to work together again to make Italy a better place. And so, nowadays it seems to assist the show of little boy that just can't lose, that cries foul and doesn't respect anything. If he ever loves his country, he should leave his place to whoever but not him, in order to reinstitute a bit of dignity to our beloved Italy. I'm not a leftist and I would love to see a modern, liberal and conservative government in Italy that would make those reforms that are urgently needed, but I'm sorry Berlusconi is obviously not the person to do that, he's unfit and dangerous.
Moreover, I'd love to understand, why with all the leftist judges and communist press, the left is not even able to form a coherent opposition or at least be able to govern when needed. I think is just an excuse and an enormous lie, pretending that the left controls everything and that it's going to destroy democracy in Italy.
Finally,to everyone thinking that the Lodo Alfano was in place to guarantee our PM to dedicate his precious time for governing, I'm afraid but I don't believe anyone with such unclear past should be able to messed up my country and then being processed at a latter stage. If he's clean as he affirms he should have clarified his justice's problems before entering in politics.
Mr. Berlusconi I truly regret having voted you 15 years ago, you are the scorn of our Nation..please, for Italy's sake, leave as soon possible!

Marketing & Consumerism Presentation

The UK Restaurant Market : YUM! Brand

“It is useless to tell a river to stop running; the best thing is to learn how to swim in the direction it is flowing.”

Anonymous

Preface

According to the Deloitte^[1]’s reports “Leadership for Growth” and “Marketing in 3D”, one third of chief financial officers do not believe that marketing is crucial to devising strategy. (Economic Times, 2008)

Except that, Peter Drucker once stated that “Marketing is the distinguishing, unique function of the business.^[2]" (Forbes, 2006); hence, marketing should be viewed as an investment rather than an expense.

Nowadays, while a looming global Recession is arousing fears in the whole business world, these different perceptions of effectiveness are present as ever; thus, particularly at this time, (it is) meeting the budget opposed to gaining market share.

This report, focusing on the Restaurant Industry, will illustrate how an effective Strategic market planning or rather “maintaining a strategic fit between the firm’s goals and capabilities and its changing market opportunities” (Kotler, Armstrong, Saunders, & Wong, 2005 p.49) can help to identify and take advantage of environmental changes while still being committed to budgets and long term plans.

The Market

The UK Restaurant market, as defined in the Keynote’s Restaurant report^[3] (2008), is an £13.25bn marketplace with 26,675 enterprises employing circa 637,000 people (1.8 million people including the whole catering sector).

The sector is characterized mainly by the presence of small operators; however, big multinationals and private equity groups hold a larger market share. (Keynote, 2008)

McDonald’s Restaurants Ltd is the market leader with a turnover^[4] of £1,098.0 m; its nearest competitor is Yum! Restaurants Europe Ltd, owner of the Pizza Hut and KFC brands, which with 1325 outlets is the largest in the sector. (Keynote, 2008)

Other important operators in the industry are Whitbread’s, leader of pub-restaurants sector and owner of the Costa Coffee chain; Tragus Group (Strada, Caffe Rouge) owned by the largest private equity group, Blackstone; Gondola Group Ltd (Pizza Express) and The Restaurant Group PLC. (Keynote, 2008)

In the past four years (2004-08) the Restaurant Industry has recorded a growth (at the current price) of 10.2 %; Pub-Restaurant and Italian/Pizza sectors have increased by 22.8% and 18.6% while the fast-food sector has seen a decrease of 6.7% since 2004. (Keynote, 2008)^[5]

Fig.1

According to the “Pizza & Pasta Restaurant” Report (Mintel, 2008), an increasing affluence (UK GDP in the 2003-07 period + 6.%; Keynote, 2008)^, has been the main factor behind the growth, so that “eating out” is regarded as an “affordable part of today’s lifestyle instead of an occasional treat”.

The Industry is very competitive and presents very high barriers of entry (economies of scale, access to supply and distribution channels) at a national level, which are exacerbated by the presence of many multinationals operating in UK (such as McDonald’s, Yum! Brands).

In a wider competitive context, “eating out” competes with the whole Leisure sector (holidays, clothes) to grab the largest share of consumer’s expenditure.

Internally, the major threats come from take-away outlets, home-delivery chains (such as Domino’s) and supermarkets selling own-label pizzas and ready meals (Mintel, 2008; Keynote, 2008)

After a continuous growth, rising commodities costs and a tough trading environment have set the condition for a “Shake-out” of the Industry (The Industry Life Cycle cited in Johnson, Scholes and Whittington, 2008 p.68); indeed, as noted in the “Restaurant” Report (Mintel, 2008), a decline in profitability could also result in high-profile casualties^[6].

However, albeit the Industry will eventually reach a Maturity stage as “barriers will tend to increase...and market share and cost (margins) will be key to survival” (Johnson et al, 2006 p.68), a progress to a Decline Stage is very unlikely since demand, as predicted by the Keynote Report (2008), will probably stay strong due to social factors^[7].

Such key-drivers for changes^[8] will possibly set the background for a Re-Development of the Industry in UK, as “Differentiation of the Offer” and “Innovation of the Service” are both identified by the Keynote (2008) and Mintel (2008) reports as necessary to succeed.

The Market

The UK Restaurant market, as defined in the Keynote’s Restaurant report^[9] (2008), is an £13.25bn marketplace with 26,675 enterprises employing circa 637,000 people (1.8 million people including the whole catering sector).

The sector is characterized mainly by the presence of small operators; however, big multinationals and private equity groups hold a larger market share. (Keynote, 2008)

McDonald’s Restaurants Ltd is the market leader with a turnover^[10] of £1,098.0 m; its nearest competitor is Yum! Restaurants Europe Ltd, owner of the Pizza Hut and KFC brands, which with 1325 outlets is the largest in the sector. (Keynote, 2008)

Other important operators in the industry are Whitbread’s, leader of pub-restaurants sector and owner of the Costa Coffee chain; Tragus Group (Strada, Caffe Rouge) owned by the largest private equity group, Blackstone; Gondola Group Ltd (Pizza Express) and The Restaurant Group PLC. (Keynote, 2008)

In the past four years (2004-08) the Restaurant Industry has recorded a growth (at the current price) of 10.2 %; Pub-Restaurant and Italian/Pizza sectors have increased by 22.8% and 18.6% while the fast-food sector has seen a decrease of 6.7% since 2004. (Keynote, 2008)^[11]

Fig.2

According to the “Pizza & Pasta Restaurant” Report (Mintel, 2008), an increasing affluence (UK GDP in the 2003-07 period + 6.%; Keynote, 2008)^, has been the main factor behind the growth, so that “eating out” is regarded as an “affordable part of today’s lifestyle instead of an occasional treat”.

The Industry is very competitive and presents very high barriers of entry (economies of scale, access to supply and distribution channels) at a national level, which are exacerbated by the presence of many multinationals operating in UK (such as McDonald’s, Yum! Brands).

In a wider competitive context, “eating out” competes with the whole Leisure sector (holidays, clothes) to grab the largest share of consumer’s expenditure.

Internally, the major threats come from take-away outlets, home-delivery chains (such as Domino’s) and supermarkets selling own-label pizzas and ready meals (Mintel, 2008; Keynote, 2008)

After a continuous growth, rising commodities costs and a tough trading environment have set the condition for a “Shake-out” of the Industry (The Industry Life Cycle cited in Johnson, Scholes and Whittington, 2008 p.68); indeed, as noted in the “Restaurant” Report (Mintel, 2008), a decline in profitability could also result in high-profile casualties^[12].

However, albeit the Industry will eventually reach a Maturity stage as “barriers will tend to increase...and market share and cost (margins) will be key to survival” (Johnson et al, 2006 p.68), a progress to a Decline Stage is very unlikely since demand, as predicted by the Keynote Report (2008), will probably stay strong due to social factors^[13].

Such key-drivers for changes^[14] will possibly set the background for a Re-Development of the Industry in UK, as “Differentiation of the Offer” and “Innovation of the Service” are both identified by the Keynote (2008) and Mintel (2008) reports as necessary to succeed.

 “Putting a YUM on customer’s face around the world”

Yum! Brands Inc., the world's largest restaurant company, is an American-based company with more than 35,000 restaurants in more than 110 countries and territories (Yum website, 2008) and in UK operates with Yum! Restaurants Europe Ltd.

Its brand portfolio comprises Pizza Hut, Kentucky Fried Chicken (KFC), Taco Bell, A&W All American Food and Long John Silver's. (Yum, 2008)

The group, pursue an aggressive growth strategy in term of geographical coverage (primarily in China), aiming for a long-term return for shareholder value. (Yum, 2008)

The “Customer Mania” programme epitomise a “customer-oriented culture” that consider “rewarding the staff” as the key to deliver results and achieve 100% customer satisfaction.

“We know that if we put the customer first in everything we do, then we're running great restaurants”. (CEO David Novak cited in Yum! Annual Report, 2008)

In 2006, the last financial year available, the European subsidiary registered a fall of the combined sales of Pizza Hut and KFC of 44.51%, continuing a negative trend started in 2004; however, the group oversaw a rise of pre-tax profits of nearly 5% after a disastrous 2005 which saw a 63.77% decrease. (Keynote, 2008)

Applying the Ansoff model (cited in Doyle and Stern, 2006 p.96) to analyse the firm’s recent results (Appendix II); it appears that the group’s responses to declining sales (continuing in 2007 with Pizza Hut UK recording pre-tax losses of £6,133.000; Keynote, 2008) has failed to improve the business consistently.

On the contrary, Yum! China^[15] has reported an outstanding success^[16]; an achievement due to a strategy focused on adapting to local tastes and lifestyles.

“Pizza Hut is the cheapest of the cheapest restaurants in the United States, but in China, Pizza Hut is seen as a classy, upscale place for dining." (Shaun Rein^[17] cited in International Herald Tribune, 2008)

Consequently, while investing heavily in Asia, in Europe and US, its business model is showing signs of “leader’s complacency in a hypercompetitive industry”. (Johnson et al, 2006 p.69)

The Pasta Hut experiment (see Appendix III) is finally dealing with this contradiction; especially as increasing competition^[18] in China and a predicted slowdown of that market^[19] is threatening the efficacy of the (expansionistic) strategy.

Thus, a new approach in Europe, adapted to the changed environment, could ultimately hedge the potential risk of overexposure on the Asian market.

The Macro Environment

“Survival and fit depend upon the adaptability of the organisation and management’s ability to match strategy to this changing world” (Doyle, 2006 p.22)

Currently, two major macro-environmental changes are re-defining the Restaurant Industry: an environmental shock characterised by financial events (the “credit crunch”) and the creation of new market segments driven by a general healthier lifestyle.

“Businesses do not have to be wiped out by an economic downturn or caught short in a boom....they can take advantage of changes in an economic environment” (Kotler et al, 2005, p. 104)

The most severe crisis since the 1930 Great Depression^[20] will undoubtedly affect the global trading environment for the next few years.

The restaurants market is actually suffering from the crisis, “which is making consumers think twice about paying for restaurant meals with credit cards”, as noted in the “Restaurant” Report (Mintel, 2008).

However, while Prezzo Plc warns of "an extended period of more challenging conditions”^[21], and is putting on hold further expansion plans; it appears that the whole fast-food sector is going to benefit from downtrading consumers.

"People who can't afford to go to mid-priced restaurants but still want to go out - we've benefited from that" (Burger King CEO John Chidsey cited in Reuters, 2008)

Therefore, the economic downturn that is hitting the world economy, although painful, is presenting a perfect strategic window to be used to advantage if Yum! Brands is to improve its position and increase its market share; in fact the brand’s

association with reasonable priced food could appeal to budgeting consumers^[22].

However, as consumers are spending downmarket, they have not lost their appetite and interest in eating well. In fact, the recent cultural shift toward a healthier lifestyle has motivated an increasing attention to the dangers of an unbalanced diet; a trend fuelled particularly by the mainstream media and government action. (Mintel, 2008)

Mounting concerns about obesity^[23] have put the fast food chains under intense scrutiny. McDonald’s, as market leader and prominent example of such culture, has been the main target of criticism for its menu; consequently, also Yum! Brand has been persuaded to make some of its existing recipes healthier, in line with Food Standards Agency (FSA) guidelines. (The Independent, 2008)

However, in the long term the challenge is to win back disaffected customers, therefore the Pasta Hut test represents the biggest and toughest challenge for the group in UK to overcome its association with junk food.

In this direction and across all the business units, the implementation of healthier dishes as well as a “buy-back ownership” programme started in US (Yum!, 2008), seems to confirm a process of “re-appropriation” of the brand in order to strength the group’s “transformational” course, necessary to stay ahead of the competition and keep the firm in sync with the macro-environment.

The Competitive Environment: Strategic Group Analysis

“Strategy is an essential part of any effective business plan. By using an effective competitive strategy, a company finds its industry niche and learns about its customers” (Porter M. cited in Emerald, 2006)

The diagram in Fig. 2 represents a strategic map of the Restaurant Industry in UK in terms of extent of product diversity (scope of the organisation’s activities) and the type of service offered (resource commitment).

The extent of product diversity is variable important to the restaurant industry since key social trends have highlighted an increasing demand for innovative foods due to a characteristic “British acceptance of foreign cuisines and willingness to try something new”. (Keynote, 2008)

However, while there is a growing demand for simple and quick services (due to a rising UK full-time working population), the same consumers are also asking for added “values” such as “restaurant experience” and better quality of the food. (Mintel, 2008)

Therefore, the type of service refers to the product/service offered to fulfil these consumers’ needs and wants; it represents the best instrument to differentiate the organisation within the industry (market sector) and it also mirrors the firm’s cost position^[24].

The resulting strategic group including McDonald, Burger King and Yum! Brand can be identified, according to the Bowman’s Strategy Clock model, (Johnson et al, 2006 pp. 224-5) as group focusing on an unattractive market segment (Fast Food) pursuing a low price strategy or rather “seek to achieve a lower price than competitors whilst maintaining similarly perceived product or service benefits to those offered by competitors” (Johnson et al, 2006 pp. 224-5)

Indeed, Yum Brand Inc. as member of this group enjoys a position hardly attainable by members of others strategic groups, due to ““mobility barriers” (see Figure 3) that often involves a cost of entry that effectively gives a cost advantage over potential entrants.

Hence, this membership has allowed the firm to concentrate on a successful expansion strategy, to develop new markets (e.g. China), finance massive marketing campaigns^[25]and to take part in aggressive price-wars with its group rivals.

On the other hand, the pitfall is a reduction of the profit margins (due to price-wars) being compounded by a recent rise food prices.

However, important social and economic environment changes are providing opportunities to fill new strategic spaces.

Actually, while the current economic slowdown should strengthen the low-cost strategic group, the fact that consumers are going to downtrade to an extent never seen before will mean that many are likely not to go out at all; hence, a possible rise of the demand for home-delivery, though influenced by a healthier lifestyle trend and an interest in foreign cuisine

The “Facebook” application (see Appendix III) goes in this direction but the “Pizza Hut”   menus is limited only to Pizza^[26], reflecting therefore a short term objective to gain a larger market share in the younger segment of the market.

On the other hand, the Pasta Hut “makeover”, although, will probably generate a lot of curiosity (a PR stunt? ask N.Christie in Marketing Week; 16/10/08), it indicate an intent to improve the “customer experience” and differentiate the offer, profiting of the difficulties of “Italian Style” Restaurant groups, which, being mostly owned by private equity group, have been hit by the “credit crisis” more than others. (FT, 2008)

Thus, the key for the group in the present and future climate is to change and adapt in line with the marketing environment. Hence, whether it's changing the menus or changing the target customer base, the key to maximising the business is to fully understand the market.

---

[1] Deloitte Touche Tohmatsu (also branded as Deloitte) is one of the largest professional services firms in the world and one of the Big Four auditors, along with PricewaterhouseCoopers, Ernst & Young, and KPMG. (www.deloitte.com)

[2] “The business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.(Drucker cited in Forbes, 2006)

[3] The report defines restaurants as eating places that supply meals or food for consumption on the premises by UK consumers, except roadside catering and contract catering.

[4] At the end of 2006 financial year

[5] The same report forecasts a growth of 22.5% between 2009 and 2013; however with the UK economy heading towards a Recession this projection is likely to be revised downward.

[6] “The result is that there will be several high-profile casualties as the growth that was servicing debts evaporates and companies are unable to meet their obligations”. (Mintel: Restaurant, 2008)

[7] Necessities (time-poor workers), willingness to try new food and  an higher sophistication of the consumer’s taste are mentioned  by all three report consulted: Restaurant 2008 (Keynote) Pizza &Pasta Restaurant 2008 and Restaurant  2008 (Mintel) as the factors supporting  future demand

[8] Key Drivers for changes are environmental factors that are likely to have an high impact on the success or failure of strategy. (Johnson et al, 2006 p.56)

[9] The report defines restaurants as eating places that supply meals or food for consumption on the premises by UK consumers, except roadside catering and contract catering.

[10] At the end of 2006 financial year

[11] The same report forecasts a growth of 22.5% between 2009 and 2013; however with the UK economy heading towards a Recession this projection is likely to be revised downward.

[12] “The result is that there will be several high-profile casualties as the growth that was servicing debts evaporates and companies are unable to meet their obligations”. (Mintel: Restaurant, 2008)

[13] Necessities (time-poor workers), willingness to try new food and  an higher sophistication of the consumer’s taste are mentioned  by all three report consulted: Restaurant 2008 (Keynote) Pizza &Pasta Restaurant 2008 and Restaurant  2008 (Mintel) as the factors supporting  future demand

[14] Key Drivers for changes are environmental factors that are likely to have an high impact on the success or failure of strategy. (Johnson et al, 2006 p.56)

[15] The Yum! China Division (includes mainland China, Thailand and KFC Taiwan).

[16] Five year average annual growth rate of over 25% ( Yum, 2008)

[17] Managing director of the China Market Research Group

[18]Burger King joins McDonald’s and Yum! In China announcing plans to open between 250 and 300 outlets over the next five years ( The Economist, 2008)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

[19]  “China slowdown: after years of boom, powerhouse sends world a warning” (The Guardian, 2008)

[20] “An once-in-a-lifetime crisis, and possibly the largest financial crisis of its kind in human history”.( Charlie Bean, deputy governor of the Bank of England cited in The Times Online, 2008)

[21] In September 2008  the group reported a 39 per cent fall in first-half pre-tax profits, while Tragus, said like-for-like sales increased 3.4 per cent in the 12 months to May 25, compared with a 9.7 per cent increase seen the year before. (FT, 2008)

[22] "We are better suited than most to perform even in times of economic turmoil” (Novak D. cited in Forbes,2008)

[23] Today's figures from Diabetes UK show five million people are registered as obese by their GPs, up from 4.8 million in 2006-07 ,( The Independent, 2008)

[24] Indeed, a quick-service restaurant often offers simple menus with ordinary foods that can easily obtained on the wholesale market and consequently be low-priced. On the other hand, fine-dining restaurants tend to offer rare dishes that require a more expensive preparation. 

[25] Yum Brand has spent in UK in 2008 a combined £35,626,000 with the Pizza Hut and KFC brands

[26] And KFC obviously only to chicken

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