Interactive Economic

Institutional School of ThoughtFunctionalist School of ThoughtManagerial School of ThoughtMarketing TheoryInteractive EconomicPresented by Farrah Zeba

DS 1 (Dr. Debajani Sahoo)Marketing as a Social and Economic Process (1910)

Social and economic processes rather than as a set of managerial activities

Farm sector (1910) created a concern for agricultural markets and the processes by which products were brought to market and prices determined

The analysis was centered around commodities and the institutions involved in moving (activities) them from farm, forest, sea, mine, and factory to industrial processors, users, and consumers.

Interactive - EconomicA Bridge between past and future school of thoughtWithin this tradition, three separate schools evolved that focused on the commodities themselves,

on the marketing institutions through which products were brought to market, especially brokers, wholesalers, and retailers in their many forms and variations (Breyer 1934; Duddy and Revzan 1953), and

finally on the functions performed by these institutions (McGarry 1950; Weld 1917).

Comparatively DynamicPhysical CharacteristicsActivities PerformedShift in perspective: Social and Economic to ManagerialAll of these (Commodity, Functional, Regional, Institutional) approaches tended to be descriptive (What?)

Functional being the most analytical (Normative Why?)

Leading to the development of a conceptual framework for the marketing discipline (Barters 1962; Rathmell 1965)

Institutional SchoolChannel EfficiencyThe expanding industrial marketplace complex business process

Marketing institutions represent those that do the work of marketing such as wholesalers, agents, brokers, and retailers (Shaw and Jones, 2005)

Numerous early writers sought to identify and explain the role of various institutions within a channel (Alderson, 1954; Breyer, 1934; Butler, 1918, 1923; Duddy and Revzan, 1947; Weld, 1916)

A central focus of this effort was on channel efficiency which has been a longstanding concern of marketing scholars (Weld, 1916)

The institutional school and the functionalist school that follows in the next section of the paper have similarities that should be noted. Both schools have a focus on the channels of distribution (Clark, 1922, p. 5-7), as well as containing significant writings by Wroe Alderson (1954, 1957, 1965)Specialisation versus CentralisationL.D.H Weld the Founding Father of the Institutional School The Marketing of Farm Products Market Channel Efficiency

The period following the second world war saw further developments in the institutional literatureUtilities created by Middlemen Butler (1923)Elementary Utility - Wheatsupport life (Farmer)

Form Utility Wheat grounded into flour (Mill Owner)

Place Utility Millers house in Minneapolis to hungry man in New Orleans

Time Utility Storage from January to JulyMarketing Channel1930 - 1940Breyer (1934) Need for market institution Complex task cannot be tacked alone by producer

Converse & Hungry (1940) Vertical Integration Helps in reducing cost but leads to management and coordination issues

Duddy & Revzan (1947) Changing pattern of institutional organisation is a sub-set of the cultural environment within which exchange takes place

1954 - 1973The institutional school reached its peak intellectual advancement & popularity among marketing scholars

To utilize economic theories to analyse critical issuesThe emergence marketing channels, the evolution of channel structures, andThe design of effective and efficient institutional frameworks

Wroe Alderson (1954) Factors governing the Development of Marketing ChannelsEconomic efficiency criteria design & evolution of marketing channel

He sought to explain in the most basic terms the logic of a central market intermediary

The central marketing intermediary reduces the number of transactions in the channel system, lowering its overall cost

By providing a central market between buyers and sellers, the individual transactions between every buyer and seller are eliminated

Economic Variable vs. Sociological & Psychological VariableBert McCammon (1963) Innovation (analogy Technology)Initiator of behavioural dynamics (Reflects in the Organisational Dynamics)

F.E. Balderston (1964) Normative approachseeking to explain how marketing channels should be designed for optimal benefit of marketing practitioners (Single channel vs. Global channel design)

McCammon (1965) Converse & Heugy (1940) Centrally coordinated marketing systems (Corporate Marketing System, Administrative Strategies, Contractual Agreements)Capital (Higher fixed costs)Profit (RRI)Complexity of marketing processesEconomies of scale (Integration)Newer Jargons Structure of Marketing ChannelsBucklin (1965)Postponement (shift of risk of owning goods to others) Manufacturer -produce except to orderMiddlemen purchase - (backward next day delivery and forward made a sale)andSpeculation Converse of postponement Creation of stages of inventories

Mallen (1973) borrowed George Stigler (1951) Functional SpinoffEfficiency (outsourcing), economies of scale (volume changes), resume marketing function, sub-function (outsourcing), different markets (diff strategies 1&3), industry (mix of func & sub fun spunoff), market size directly related optimum scale size (no. increase), tech inversely related optimum scale size (no. decrease)

Lois Stern (1969) Behavioural Concepts (Power, Cooperation & Conflicts)More focus shifted to Organisation Dynamics School of thoughtFunctionalist SchoolFounded on the work of Single Person, Wroe Alderson (1957,1965)New and intriguing approach to the marketing intellectual community

The heart of Aldersons conceptualisationFundamental importance of exchange processThe heterogeneity of demand and supply

Apart from fresh orientation creative vocabulary

Criticism: Consolidation of prior literature and ambiguous writing style

Relevance: Still generating considerable interest in marketing

Central ConceptHe laid the fundamental importance to the exchange process and the heterogeneity of demand and supply

He viewed marketing from systems perspective where marketing institutions (Institutions School) are sorting and transforming commodity (Commodity School) to match the heterogeneous demand (Consumers groups) with heterogeneous supply (Producer groups).

Hunt, Muncy and Ray (1981)Aldersons primary propositions (Sets, behaviors and expectations)

Marketing is the exchange which takes place between consuming groups and supplying groups

The household is one of the two principal organised behaviour systems in marketing

The firm is the second primary organised behaviour system in marketing

Given heterogeneity of demand and heterogeneity of supply, the fundamental purpose of marketing is to effect exchanges by matching segments of demand with segments of supply

A third organised behaviour system in marketing is the channel of distribution

Given heterogeneity of demand, heterogeneity of supply, and the requisite institutions to effect the sorts and transformations necessary to match segments of demand with segments of supply, the marketing process will take conglomerate resources in the natural state and bring about meaningful assortments of goods in the hands of consumers

Firm (Second Primary Organised Behaviour System)Towards General Marketing Theory contd CommodityMiddlemenConsumersMicro Level Simple TransactionActivitiesSystems Approach - Macro Level Simple TransactionSupplying Group (Heterogeneity of Supply)

Consuming Group (Heterogeneity of Demand)ExchangeHousehold (First Primary Organised Behaviour System)Institution (Third Organised Behaviour SystemSorts and transformations (Matching segments of demand with segments of supplyOrganised Behaviour SystemTowards General Marketing TheoryIn effect group of producers and their channel partners are mobilising the natural resources in desired forms to the group of consumers

This mobilising can result in perfect market when each element of supply is matched with the each element of demand

This can be achieved only through communication (two-way information processing)

Key ConceptsIn fact he coined some terms in marketing perspective (Deciphered in current context can enrich the marketing discipline in a significant way)TransformationsSorting - breaking heterogeneous collections into homogeneous groups

Accumulation-building up of large homogeneous collections

Allocating-dispersal of goods to intermediaries

Assortment-building of heterogeneous collections for the consumers

Transvections - complete sequence of exchanges (transactions) and all the transformations

Conglomerates - A number of different things or parts that are put or grouped together to form a whole but remain distinct entities

Evaluation of these three theories on the basis of meta-theory criteria

Syntax Structure (Good classification criteria) and Specification (No contingency i.e. variation):

Institution Grounded in economic aspects and

Functionalist Many terms still very ambiguous

GoodSemantics Testability (Reliability) and Empirical support (Validity):

Institution school score very low on this dimensionsIt is not testable as there is no consensus of what can be the right criteria to measure efficiency and productivity

Its concept has not been quantified and just has face validity (i.e. good case history and practice oriented validation of concepts like vertical marketing system and creation of utilities by middlemen)

The functionalist school scores even lower that the institution school in these aspectsDespite its organisational elegance, Alderson has failed to provide the basis of testing his theory

Moreover, his theory has good conceptual framework but lacks the empirical support

Bad to worstPragmatics Richness (Generalizability) and Simplicity (Easily communicated and implemented): Institution school is not very rich as it is very narrow on its focus (marketing channels) But it is easy to communicate and implement (especially the value added functions performed by the middlemen)

Unlike institution school, Andersons functionalist school is very rich as it generic enough to accommodate all specialised domains of marketing (industrial, social and services) But it is not easy to communicate and implement (ambiguous and can only be used as an analytical tool rather implementing in organisation structure and functional responsibities)AAAAverageThank You!