Marketing
Marketing
Marketing
page i
Steven Hall
Editor
Texas A&M University-Corpus Christi
Dawn Martin
Co-Editor
Texas A&M University- Corpus Chrisiti
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ETHICS INADVERTISING156
Hershey H. Friedman, Ph.D, Brooklyn College
Barbara Jo Lewis, Ph.D., Brooklyn College
Robert B. Fireworker, Ph.D, St. Johns University
EXAM QUESTIONS SEQUENCING
EFFECTS ON MARKETING AND MANAGEMENT
SCIENCES STUDENT PERFORMANCE: AN EXTENDED
EMPIRICAL INVESTIGATION.. ..160
Michael Russell, St. Bonaventure University
Kathleen Premo, St. Bonaventure University
Carol M. Ficher, St. Bonaventure University
Michael J. Fische, St. Bonaventure University
HEALTHCARE MARKETING REPS NEED
A PROFESSIONAL VOCABULARY167
T.J. Halatin, Southwest Texas State University
Judy Dietert, Southwest Texas State University
J.R. Minifie, Southwest Texas State University
HOW COLLEGES AND UNIVERSITIES CAN
BENEFIT SUPPORTING NATIONAL SKILL STANDARDS
IN MANAGEMENT AND MARKETING COURSES...171
Jerry J. Field, Dr, Illinois Institute of Technology
HOW MARKET-ORIENTATED IS THE NEXT
GENERATION OF MANAGERS? A BASELINE MEASUREMENT..176
Richard Dailey M., DBA, University of Texas Arlington
Joon Seok Kim, MBA, University of Texas Arlington
INITIAL FOREIGN MARKET ENTRY STRATEGIES
AND REVISION TO HOME MARKET CENTERED
STRATEGIES OVER TIME196
Gerald Albaum, Ph.D, University of New Mexico
Kenneth G. Beker, Ph. D, University of New Mexico
George C.Hozier, Jr., Ph. D, University of New Mexico
Robert D. Rogers, Ph. D, University of New Mexico
David K. Tse, Ph. D, University of New Mexico
INTERNAL MARKETING APPLICATIONS IN ROMONA:
A CASE STUDY OF A LEADING MANUFACTURER...207
Dan Cernusca, Lucian Blaga University of Sibiu
Paul Thistlewaite, University of Western Illinois
Natalie Bondareva, University of Western Illinois
INTERNET AWARENESS, USAGE AND ATTITUDES
OF UNIVERSITY FACULTY: A CASE STUDY..215
Liviu Rosca, Lucian Blaga Univesity of Sibiu
Paul Thistlethwaite, University of Western Illinois
SUPPLY-CHAIN MANAGEMENT AND NEW
PRODUCT DEVELOPMENT....222
Peter M. Lynagh, University of Baltimore
William F. Grazer, University of Towson
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INTRODUCTION
Several studies have described the dynamics of radical innovations entering the market. These
studies can be divided roughly into two groups: those that describe the changes in the technologies and
those that describe the changes in the market. What has been missing, however, are studies on the
interplay of the two - the changes in the technology and the changes in the market, which consist of
changes both in the types of customers and in the applications that the technology is to perform. We
argue that the dynamics of industry-level effects on innovation are better explained through an
understanding of this interplay.
Studies on the dynamics of technology development consider issues such as the relationship
between product innovation and process innovation [1, 67], the timing of technological transitions [26,
27], the patterns of technology substitutions [19, 58, 59], the pre and post dominant design changes [1, 5,
67], and the differences in radical innovations versus incremental innovations [2, 3, 12, 22, 33, 66].
These studies most often are variants of punctuated equilibrium models, where radical innovation is
followed by periods of incremental innovation (for a good review of this literature see Lawless and
Anderson [42]). When a period of stability is interrupted by a radical innovation, turbulence ensues and
existing competitors can be swept from the market [12, 33, 66, 67]. These studies look mainly at the
technology dynamics and cannot really explain why some companies fail in turbulent states while others
succeed.
The other main research stream on innovation-market dynamics deals with the diffusion of
innovations or how customers change over the diffusion cycle. This literatures main impetus was from
the work of Rogers [52, 53] and has been fine tuned recently for high-tech products by Moore [48]. These
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studies typically describe how innovative users are different from majority users but do not take into
account how the technology and its application are also changing at the same time. An example in Moore
is that in going from an early adopter market to a mass market a company must pick the right application,
but is given no guidance as to how. In this paper we present a model to describe the interplay of
technology development and market development, and then present a detailed history of the personal
computer industry to validate the model. We close the paper with managerial implications derived from
the model.
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o'clock at the top. We can then see how each circle progresses through a full cycle and how one cycle
affects the other.
When a new fundamental technology is in the introductory stage, it is seldom obvious how and
why it will be used by the market at large [10, 12, 21, 28, 43, 44, 45, 57]. Products based on the new
technology typically sell in relatively small quantities to innovators who enter a period of experimentation
and exploration. During this period of indeterminateness, which lasts from approximately 12 to 3 o'clock
on the model, the innovators and technologists (generally for their own private reasons and passions)
attempt to find utility in the technology. The period of experimentation and exploration is often a time of
great excitement and promise, when a wide variety of options are explored. It is also a time in the
evolution of new technologies when small companies are formed with the aim to either supply other
innovators or to begin to commercialize some primitive but, apparently, promising application of the
technology.
A company in this technology-driven part of the cycle has limited, if any, salient market
information. Simply put, markets for the technology do not yet exist in a tangible and measurable way.
The companies who develop new fundamental technologies are forced to bet on a particular model of
technology usage. And, most likely, they will be wrong. Only a relatively small percentage of those early
explorers actually hit upon the unique application concept that will ultimately foster a complete cycle. In
the best cases, companies make cogent and perspicacious assumptions about markets that are forming.
Accurate assumptions result from prior knowledge and experience, anecdotal feedback from people who
are viewed as leading edge representatives of the formative market, or simple intuitive prescience. Each
success gained by the early players reinforces their vision and beliefs.
Thus, the early part of the cycle suffers from the necessary evil of supply-side or empathic
marketing [43, 57]. This type of market orientation represents the "I-know-what's-best-for-you" approach
to product and market development. A firm with this style introduces itself and its new product by telling
the market how important the product is, independent of how the market perceives its own needs. It is a
true technology push. While, as noted, this supply-side marketing phase necessarily results from limited
access to reliable market information, it also has two significant imbedded risks: The first is that the
decisions themselves may be wrong; the second is that the company may perpetuate a decision making
style that becomes non-responsive to growing market feedback.
The base technology and the products derived from it will begin to sell in increased volume when
one or more of these new companies, often run by inexperienced and undercapitalized entrepreneurs,
stumbles upon a use for the technology that has value for early adopters in the marketplace. This point,
which occurs around 3 o'clock on the model, marks a significant event in the evolution of the technology:
The emergence of a unique concept that differentiates the technology from previous technologies. A new
technology and market cycle are truly born when a unique concept arises making it possible to accomplish
something not feasible with prior technologies [12, 28].
Yet, even for those innovators who have struck upon the "right idea," the probability of eventual
success is fairly low. Timely discovery of the right concept only raises the other critical questions: What
is the product? How is it produced? What is the market opportunity? How rapidly will the market mature?
Who are the likely first adopters? How is the company financed? How will they sell the product? While
these issues, and others, significantly impact the eventual success or failure of a new venture, perhaps the
most important is the question of the product: What specific implementation best demonstrates this new
technology's unique value?
Getting the correct embodiment of the technology for a particular application, however, is the
necessary first step for success but does not guarantee it. To be successful at this stage a company must
evolve from a group of technologists to a group with management capabilities. Additional issues for
success become: Has anyone built a company before? How are priorities set? Who has responsibility for
what? How do you decide precisely what to make and how to sell it? Where does the money come from?
It is this critical period, between 3 and 5 o'clock, when the issues begin to shift from vision to
organizational ability and resources that becomes the next crucible for the evolving industry.
A selection process takes place that ultimately produces a great number of corporate failures. By
5 o'clock in the cycle, only a very small percentage of the original players survive the technology-driven
phase and successfully transition to the market-driven phase of the cycle [48, 50, 64]. The important
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point is that a company must pass through a number of gates before it can become a viable, cycle-long
vendor of new technology. Recognizing a new technology's importance and its promised revolutionary
application is only the starting point. Beyond the act of recognition, the companies must be able to
correctly gauge the new technology's best use and then must build and evolve products embodying that
concept.
Both the companies selling the underlying technology and those selling the applications and
products based on it soon will begin to grow rapidly as sales accelerate into the classic "S" curve of market
penetration. When the penetration reaches critical mass in the ten to fifteen percent range, one or more
technology "standards" usually become established in the marketplace, and a dominant design paradigm is
accepted [1, 5, 13, 52, 53, 67]. These standards are not always the apriori standards imposed by
organizations. Rather, a standard is most often established when the market begins to behave as if having
the new technology is no longer a competitive advantage for early adopters but, instead, not having it
creates a competitive disadvantage for the laggards. Once this happens, other forms of the technology
languish or disappear completely. As an example, the consumer video taping marketplace defined VHS
as the standard for VCRs, relegating Beta to footnote status.
A number of interesting things happen within the application cycle when the technology becomes
a standard at 6 o'clock on the double helix model. First, the original suppliers begin to deliver new and
improved versions of their original products. Second, as the installed base for the fundamental technology
(e.g., IBM PCs and compatibles) expands and becomes more ubiquitous, new players enter the market
with focused, niche market applications of the basic concept. This is a period of "variation and
refinement." Many technologies find that this can be a very long lived period, lasting many years and
even decades. The greater the general value the fundamental technology demonstrates, the longer this
period lasts.
A growing responsiveness to external input characterizes the market-driven part of the cycle that
commences around 5 o'clock on the model. The transition from a technology-driven to a market-driven
company is a critical one. The company in transition goes from "inside-out" thinking to "outside-in"
thinking. Typically, the technology-driven phase is dominated by an entrepreneur that champions the
vision embodied in the initial products. The vision is internally generated and the product springs as
"whole fruit" on the market. The accuracy and persistence of the vision of the champion creates the
product. The market in this phase has little or nothing to offer by way of direction for product
development. In other words, the technology-driven part of the cycle is dominated by a necessary
"arrogance of vision". A concern for understanding, expanding, and reselling the now well-defined
marketplace dominates the market-driven part of the cycle. Customers are suddenly recognized as having
important insight and input into the future direction of the company's products though they were
previously considered to be "too dumb" to understand how and why they might gain advantage from the
new technology.
Coincidentally, rapid growth in both the revenue and size of the company generally accompanies
the transition to a market-driven company. During this phase the old decision makers often give way to
new ones and both the market and new employees increasingly associate the company with a specific
product or service. Internally, marketing and sales begin to occupy positions of greater importance.
Upper level management increasingly relies on these parts of the organization to develop the plans to
move the company forward. The original entrepreneurial spirit rapidly declines, replaced by a more
process-oriented organizational perspective. The customers and, by association, the company's revenues,
become the only important measures of success.
Eventually, however, the underlying technology begins to "mature." Limits on what the
technology can reasonably accomplish are reached [26, 27]. This mature stage in a technology's evolution
inevitably demonstrates the need for the next cycle of technology and application development. Far
sighted individuals may sense the need for a new development well before the limits are reached. As the
limits are reached, it becomes obvious to technology and application suppliers that the time has come to
prepare for a new period of innovation, similar to the one that originally spawned their company.
We do not mean to suggest in Exhibit 1, that a new cycle cannot be started until an old one is
complete - quite the contrary. The 12 o'clock stage of a new cycle may start during the 6 to 9 o'clock stage
of the preceding cycle. The minicomputer did not immediately die when the new microcomputer
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technology was introduced. In fact, minicomputer technology continues to evolve and service customers
twenty-five years after microcomputers began to appear. A more realistic assessment of this phenomenon
is that new technologies can limit the available market for older technologies, eventually subsuming
significant portions of the old market. In the extreme, new technologies can potentially replace and,
therefore, kill the older technologies [19, 58, 59].
Indeed, as the cycles of one technology and marketplace mature, the seeds of the next cycles are
already planted. Each successive generation will follow this pattern. Together, the two cycles create a new
generation of products that will go through a linked, predictable and evolutionary life cycle with the wellrecognized stages identified above. We represent this important linking as a double helix.
The recent and rapid evolution of the personal computer industry provides an interesting test-bed
for assessing the double helix model. In many respects, the personal computer can be viewed as one
major cycle in the overall development of the computer industry. The personal computer, however, also
stands on its own as a series of quickly changing cycles moving from the primitive 8-bit microprocessors
of the mid 1970s to the 32-bit based machines of the 1990s. (See Exhibit 3 for a listing of the major
milestones in the development of the technology.) The different natures of these cycles and the obvious
impact they had on the companies attempting to exploit the market opportunities make the personal
computer an ideal subject for analysis using the double helix model.
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discovered, but these people were eager to explore. This was an exciting time for hobbyists and fanatics.
It was a time for experimentation and exploration: "What can I do with this thing? Is there a business
here? How do I make a better one?"
It was noon on the first cycle of the personal computer industry's double helix. The model
presents a view of this stage, from approximately noon to three o'clock, when ideas are explored without
being measured against customer value. The experimentation and exploration process, in and of itself,
justifies the effort. Discovery is paramount and is driven not by financial returns as much as by the energy
of the moment, and dozens of companies jumped in.
The Intel 8080 along with the MITS Altair were only the heralds of this new era of innovation.
Established companies like Texas Instruments and Motorola, along with upstarts like Zilog and MOS,
rapidly unveiled new and improved 8-bit microprocessors [17]. These chips harnessed into one wafer
more power than the original ENIAC at the remarkable price point of under $100. The new products had
arrived and were available to anyone who had an idea how they might be used. But what to do with them?
These new processors simply represented raw power and undefined potential; their producers did not even
put them in a package as primitive as the Altair.
The producers of the first microcomputers did not need to determine the application for their
products because the first customers were willing to do so on their own. These innovative users were
exemplified by the members of the Homebrew Computer Club.
The first meeting was held -- where else? -- in a garage in the Silicon Valley on March 5, 1975,
just after the introduction of the PC kit, the Altair. Thirty-two "enthusiasts," showed up, ready to
exchange information and swap products. [36]
Companies were started in basements and garages to serve the hobbyists desire for more. These
hobbyists, who tended to be disaffected engineers working for large companies and lonely outcasts with
nothing better to do, enlivened the years from 1975 to 1979 as a period of pure technical bravado and
swagger about what they could do with their own, home computer. The Homebrew Computer Club, and
its growing number of emulators, served as the primordial gene pool for the evolution of the personal
computer industry. Taking what they could from the more established computer industry, the search was
on for the "right" way to use these new little miracles: "Should we build robots? What kinds of games can
we make? Can we replace expensive lab and test equipment? Can we automate our homes?" These were
the questions that the club members asked. And every time they asked a question, the microprocessor
took on new possibilities [41].
These hobbyists, in the main, were not trying to improve the concept, and the actual realities, of
the personal computer for some greater societal purpose. They simply wanted to be the first to do
something no one else had done before. So advances within the hobbyist community quickly developed.
Instead of paper tape, cassette tapes provided programs and data. Instead of toggle switches and machine
code, keyboards and assembly language were added. Memory increased. Boxes came pre-assembled.
Monitors appeared. Graphics and sound were added. Chassis were created to plug boards in and create
even greater flexibility. But to what end? The motives of the original explorers were as varied as those of
all explorers: Some wanted wealth, some simply to occupy themselves, and some to achieve greatness. It is
with all of these motives, and more, that the initial cycle of the personal computer's double helix was
energized, but this was not enough to sustain an industry.
All technology/market cycles are, in the end, measured by their business success. This success is
a result of many things but, at its foundation, it must emerge from the entrepreneur's desire for success.
The personal computer industry was no different. Many "accidental" companies, such as MITS, Processor
Technology, Cromemco, Zilog, and MOS, were jump started during this technology driven period. These
were computers with nothing of external value to compute. It was a solipsistic, self-validating world in
which the inventors were often also the customers. This was an exciting world to live in but one without
long-term business prospects.
The application concept begins to emerge.
In our double helix model of the personal computer industry, we are now approaching the critical
point of three o'clock where an idea that provides value beyond the enthusiasts either comes to the fore or
the promise of the new technology will remain simply a dream. It is important to understand three things
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about the emergence of a seminal idea that drives a new technology into the market as a tool of value to
real people.
First, the technology by itself is not as important as is the application to which it is brought to bear.
Second, the application idea does not come from a market that is demanding it because the need is
latent; instead, it is created out of whole cloth in the mind of a visionary [43].
Third, the application, in order to truly be able to propel the continuation of the cycle, must
accomplish something important that was not possible in previous cycles [12, 28].
The personal computer industry was waiting for its visionary and the visionary was waiting for
the right personal computer. In 1978, this alchemy occurred in the brain of Daniel Bricklin, an MBA
student at Harvard. The designation of Dan Bricklin (inventor of Visicalc), as the originator of the "idea
that launched the personal computer industry" may surprise some. To many, Steve Jobs and Steve
Wozniak, the founders of Apple Computer would appear, first and foremost, to deserve this laurel. While
it is true that Jobs and Wozniak, with their entrepreneurial decision to design and market a personal
computer with both technical and ergonomic aspects likely to appeal to broader markets, in many ways
perfected the concept of the personal computer, they were, in the final analysis, still just makers of a basic
tool with an unsure purpose.
Probably the clearest indication that Apple, as a company, did not truly grasp the unique
potential for its invention is the fact that the first major software product, or application, that was
marketed under the Apple label was the Controller. The Controller, an integrated accounts payable,
receivable and general ledger accounting product, suggests that the leaders of Apple expected the market
to accept their new mighty mite as simply a small big computer providing essentially the same capabilities
as were popular on mainframe and minicomputers but in a cheaper and smaller package. By this action,
Apple demonstrated that it did not fully grasp the unique position that the personal computer could
achieve in the general population; they did not appear to appreciate that the personal computer could be
applied to new and valuable tasks that were beyond previous capability.
This is, on the other hand, exactly what Dan Bricklin did grasp. Bricklin, who was already
familiar with both traditional and personal computers, developed the idea that perhaps the new, smaller
computer could be applied to a more personal form of computing than had previously existed: personal
productivity computing. This idea was embodied in a program that could be used to visually and
mathematically explore various scenarios in a controlled, "what-if" environment. This program called
Visicalc, the first electronic spreadsheet, served as the idea that gave moment to the personal computer [8,
56]. Visicalc took the idea of the personal computer out of the realm of the enthusiastic hobbyist and gave
a large market the ability to solve problems, and gain a level of control and assurance, that had never
before existed [35]. Personal productivity computing, the paradigm that truly launched the personal
computer industry arrived on the market in the Fall of 1979.
It was now three o'clock on the double helix. Up to this point, it is clear that the evolution of the
personal computer industry was based on excitement, vision, and arrogance. External input from "the
market" was not only not needed but not wanted ("I know what I can make this thing do and, once they
see it, they'll want it"). This was a period dominated by technical, not market, forces. The double helix
model proposes that this is a natural part of the introduction of a new technology but that, inevitably, the
cycle's impetus transitions from being technology driven to being market driven. The model further
suggests that this transition occurs not as the market awakens to the new possibilities presented by the
new technology but at some later point. The question is when and how this transition took place during
the first cycle of the personal computer industry.
The introduction of Visicalc alone did not push the emerging industry from its iconoclastic
technology driven period to a more externally oriented, market driven orientation. While there were clear
indications that a number of analysts (e.g., Ben Rosen in his Rosen Electronic Letter [54]) realized that
Visicalc represented the vanguard of a remarkable new capability, the market was only beginning to wake
up to the possibilities. Acceptance of this new genre of computing and the product molding forces that
come with acceptance were still on the horizon, but that horizon was not all that far away. In a very real
sense, it was not the original innovators of the personal computer industry who developed the initial
products that would propel the technology into the market and, thus, create a broader desire for personal
computing. This impetus came from a new force - the computer store.
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The computer store is representative of a major component in the success of any new technology:
the establishment of a distribution channel. A distribution channel is more than a simple conduit for a
product from producer to market; it acts in a refining, clarifying and, in many cases, completion role
resulting in an ultimate match between product and market. This role is never more critical than during
the transition from the technology-driven to the market-driven part of the cycle when the channel becomes
the buffer, the explainer and the evangelist as the new technology begins to find its place as an accepted
part of the economy. Thus it was with the computer store.
The application gains acceptance.
The earliest computer stores were established around 1976 with the primary purpose to supply
hobbyists with the latest in gear and a limited level of support. These stores were generally started by the
hobbyists themselves who simply wanted to be able to serve their clubs and get new technology quickly
and cheaply. The stores, however, had to deal with business realities that forced them to look for, and
serve, a broader range of potential customers. As a result, the focus of innovation began to shift from the
garages and clubs to the computer stores [9].
The computer store owners had a few very simple lessons to learn: If potential customers did not
quickly perceive value, they were not going to buy. And if customers were confused by what was before
them, they were not going to buy either. Neither of these presented particularly high barriers when the
customers were hobbyists or engineers who knew what they wanted before entering the stores. This was
quite a different problem, though, when the customer was a manager in a company looking for solutions
to specific problems or a father trying to understand if this new "toy" was really going to help his son in
school. The stores, then, became the new focal point of innovation, and that innovation was integrating
components into a complete system package [38].
Before Visicalc, though, the problem was that there was not very much to package. Certainly
Visicalc was not the first product to come along that offered a "solution" built around a personal
computer. As pointed out earlier, Apple themselves produced an accounting solution. Following this lead,
there were other attempts to bring large-computer applications to the personal computer. Early word
processing programs emulated Wang systems; simple database programs copied larger systems from IBM
and DEC. These programs, stuffed in plastic bags and hanging on pegboards in computer stores, were
used as the basis for the first attempted commercial sale of personal computers. The shortcoming of all of
these attempts, however, was that they neither fit the user nor the computer. Visicalc was the first square
peg appropriately put in a square hole.
An Apple II with 48K of memory, two disk drives, a Centronics printer, a monitor and Visicalc
created the first ever microcomputer-based product that could be sold to the average accountant, the
average manager in a corporation, or the average small business owner, and provide real, unique value.
This "product" did not demand any prior computer knowledge (though a certain technical tolerance was
helpful). It was a product created in the computer store. Its components came from at least four different
vendors, none of which had much value without the others. Throw in a dash of training, and the personal
computer revolution was finally on its way [23].
It was now the end of 1979 and the personal computer's first cycle on the double helix was
rapidly progressing past four and then five o'clock. The new Visicalc/Apple package was the perfect
accountants tool and it took only a matter of months before the word spread. But Visicalc was more than
the exclusive toy of the accountant. The Visicalc/Apple combination created, in essence, the first "what
if?" machine. Anyone who dealt with various scenarios based on numerical assumptions would have a
major competitive advantage with this capability: investors analyzing stock data, businessmen developing
new budgets, scientists planning parameters for research projects. All of these, and more, stood to benefit
greatly. Before the end of 1979, articles started to appear in Business Week, the Wall Street Journal, the
New York Times and elsewhere touting the advent of this new personal power tool.
Fledgling computer stores suddenly found themselves swamped. Nascent distributors, usually a
side business of the stores themselves, could not keep up with demand. Apple IIs became scarce. And if
the computer was available, the disk drives or the monitor or the printer or, perish the thought, Visicalc
itself was not. Waiting lists became common. So did bribes and overcharges. If the manager in the office
next door had Visicalc, so did everyone else. It is not trite or an exaggeration to say that the industry
simply exploded.
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Stores quickly noticed that the hobbyist was no longer king. Hobbyists would come to a store,
browse and play for hours and then either leave or buy a couple of diskettes. Businessmen called up and
asked if three complete systems, with a list price of about $5000 each, could be delivered that afternoon.
The focus of the whole industry shifted overnight. What was technically exciting and new was less
important than what the customer wanted - solutions to problems. And customers were becoming very
vocal about what they wanted, which was a key factor in making possible the broader consumer
acceptance of personal computers [47].
Variation and Refinement.
The customer demands became many: more memory was wanted because spreadsheets were
running out of room, the Apple II's 40 column wide screen did not display enough data, training was
needed to get new users past the arcane command sequences to real productivity, onsite service contracts
were needed because Apples tended to break down with indeterminate repair delays, and customers began
asking what else could be done with the machine when it was not running Visicalc. By the beginning of
1980, the double helix was at six o'clock and had made the difficult transition from the technology driven
side to the market driven side of the cycle.
As the model would predict, the personal computer industry entered an exciting period of
refinement and variation. Refinement came from the Visicalc/Apple product's need to satisfy the
increasing demand for enhancement from the growing installed base. Variation came from taking the
underlying concept of Visicalc, personal productivity machines, and extending it to new applications
fulfilling different needs. Since the Apple II was quickly grabbing the public's imagination as the first
personal computer "for the rest of us," one could assume that it would dominate the remainder of the first
cycle of the personal computing helix. This was not to prove completely true. To be sure, the acceptance of
the Apple/Visicalc combination as a viable mass market product did represent a major transition for the
industry. Among the effects of this transition was the death of many of the initial pioneering personal
computer and software firms and the birth of a slew of new ones. Companies like IMSAI, MITS and High
Technology disappeared because they were not prepared to service a market broader and more demanding
than the traditional hobbyist market. The vacuum they left, though, was quickly filled by companies
established with the goal of servicing the emerging broader market.
The underlying nature of the double helix suggests a balanced and linked evolution over time
between a basic technology and a specific application of that technology. During the initial cycle of any
new double helix, this relationship appears to take on two major characteristics. The first is that the
market driven side of the cycle is relatively short in comparison to future cycles of the helix. The second is
that even with a compelling new application and market acceptance, the cycle remains fundamentally
technology centric. Both of these characteristics may well derive from the simple fact that the new
technology is, in relation to future cycles, always very primitive. This naturally leads to both the rapid
evolution of a more advanced version of the technology and an unavoidable and constant awareness by the
user of the limitations imposed by the primitive technology.
While the Apple II, with its built in capabilities, promised simplicity and market acceptance, it
was also constraining. To many, the Apple II was not seen as the pinnacle of possibilities for the personal
computer but only the vanguard of what could be. The Apple II was a closed system: Software or hardware
designed for it could not be used on any other system and there were clear limits to what you could do
within the Apple II world. If you wanted better graphics for an engineering project or a game, or you
needed more than two floppy disks, more memory, or a faster processor, in every case you had the same
choice: Wait for Apple to, maybe, add the feature to a future version or find a way to do it without Apple.
There were two ways to do it without Apple. The first was to develop add-ons for the Apple that created
the feature you wanted; a thriving cottage industry (e.g., Videx with its 80 column video card) sprang up
to do just that. The second was to reject Apple completely and develop a new standard that allowed
entrepreneurs and customers to create exactly the productivity oriented capability they wanted but with
different hardware, which is how CP/M entered the fray.
CP/M (Control Program for Microcomputers), from Digital Research, was the first real personal
computer operating system. It was the anti-Apple. It was, for most intents and purposes, an open
environment, mostly independent of the hardware on which it ran. Software written for CP/M, then,
might be able to run on computers from a variety of vendors. Computer systems could be designed that
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were suited to specific applications. CP/M provided Apple with the competition necessary to drive the rest
of the first cycle and establish the groundwork for the second major cycle in the personal computing
double helix. The battle that ensued was to prove a classic one, still evident today, between simplicity and
flexibility [11].
To a software developer, the Apple II was an intellectual delimiter; it told you what you could not
do with the trade-off that what you could do would be relatively simple and easy to understand. CP/M
allowed more flexibility and was, as a result, much more messy. CP/M said, if you follow a few rules (like
using either the Zilog Z80 or Intel 8080 microprocessor), you can try to do whatever you would like. This
was exciting but also more demanding on both the developer and the user than the Apple model. The
promise, though, of new markets and applications created excitement around CP/M and began to generate
a multitude of variations on the basic theme of productivity computing. The first cycle of the personal
computer was in full swing.
New computer systems using the CP/M operating system arrived from established electronics
names like Radio Shack (using a CP/M variant called TRS-DOS) and Zenith who quickly shifted from a
hobbyist to a commercial focus [4]. The growing demand for industrial strength micros (with more
memory, better graphics, hard disks, more reliability, and specialized interfaces) for military and
corporate use mobilized Vector Graphic, Alpha Micro, Altos, Cromemco and NorthStar. Durango saw the
need for a complete system package and introduced integrated computers with a built-in monitor and
printer. Commodore and Atari (with their own operating systems) recognized the possibility of a true
home computer market. And Osborne aimed to satisfy the needs of the mobile executive with the first fully
portable personal computer.
This is not to say that software ventures were unimportant or absent. As the double helix suggests
and Visicalc demonstrated, the most cost effective, feature laden and reliable hardware was useless
without applications to make it valuable. Hardware was also relatively slow and difficult to modify.
Software, on the other hand, had direct utility and was written and brought to market quickly. Clearly,
software developers, especially those who saw with amazement the impact of Visicalc quickly jumped in
with their own ideas about how to leverage the new microcomputers.
The battle raged on the two clear and separate fronts: Apple and CP/M. Almost overnight a raft
of new software products were introduced for the Apple. VisiTrend and VisiPlot, from Visicalc publisher
Personal Software (soon to be renamed "VisiCorp") became companion analysis and graphics products for
Visicalc. DBMaster gave the Apple the ability to easily store whatever personal or business information
the user desired and exchange information with Visicalc. Apple Writer became the first successful mass
market word processor. And for those periods when one needed a break, scores of games challenged both
mind and body. Even though these applications might have been simplistic and limited as dictated by the
Apple environment, they also offered a vast audience a glimpse into new worlds of possibility.
But all was not quiet on the CP/M front. Armed with the ability CP/M afforded to produce more
complex and "serious" applications, products like Ashton-Tate's dBase 2 [24], were quickly arriving on
the scene. While presenting the user with a true challenge that demanded tolerance and skill well beyond
that of the average Apple user, dBase also delivered on the promise of allowing the user to build complete
database applications that solved critical, real world needs. If users had the ability and the time, or the
money to hire a consultant, dBase would almost always give them a lot of what they wanted. What was
true for CP/M database applications was also true for word processing (e.g., WordStar from Micropro and
Magic Wand), accounting (e.g., MCBA and Peachtree) and spreadsheets (e.g., Sorcim's Supercalc) [34].
All of these CP/M applications provided a more technically savvy audience with the ability to do much
more of what they wanted on hardware of their choosing.
For the next two years, the battle between simplicity and limitation, on one side (the Apple), and
complexity and flexibility on the other side (CP/M) raged. While most people cede to Apple the mantle of
victor for the early years of the true personal computer industry, the truth is somewhat more informative.
It is true that Apple was the single largest supplier of personal computer products in 1982 and that it was
also the fastest growing company in the history of American business. What is also true is that, in 1982,
Apple only had about 23% of the personal computer market share [25, 37]. The vast majority of installed
machines were, in fact, based on the CP/M operating system. If a referendum had been held the message
would have been clear: the broader market wanted control and power over ergonomics and simplicity.
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Though Steve Jobs would tout that the world wanted simple "information appliances" the evidence
showed that the world was choosing more powerful "information toolboxes". While a certain percentage
of the rapidly expanding market wanted to get their computing in small, digestible bites, the vast majority
were ready to tear off chunks of computing and swallow what they could. The stage was being set for the
second cycle of the personal computer double helix.
Pushing the limits.
The first cycle of the personal computer industry had a fundamental and inherent limitation that
foreordained its end: It was based on the 8-bit microprocessor. With a maximum of 64 kilobits of random
access memory (RAM), slow speed and limited "on board" services, this class of processor could show the
future but could not deliver it. The more savvy a user became about his needs, the more pressure was
placed on the computer to try to deliver what it could not. Increasingly, the answer from the development
department to marketing, the new lightening rod for consumer demand, was "no"! As the double helix
model would predict, though, the personal computer cycle did not come to a crashing halt when market
demands hit up against the limits of the available technology. Instead, the proprietors of the technology
did what they could to fill the gaps and compensate for the limits. This was the dominant theme for the
years 1980-2.
Apple first tried to address this problem with an advanced version of the II, the II+, by improving
speed, putting more capabilities into stable memory (ROM) and by increasing reliability [60]. Along with
this effort, Apple made larger floppy drives, upgraded their operating system and improved graphics.
While sales continued to skyrocket, Apple could not help but hear the message that what they were
offering was not enough [63]. Increasingly, the Apple II's limitation was relegating it to a place in the
home and school [51], and it was becoming clear that the largest battlefield would not be in the home or
the school but in the office.
But CP/M class machines, though more suited for the tasks of business, also had their limits:
They were slow, they did not have the memory larger applications demanded, they were not reliable, and
worst of all, they came from companies that had no established track record with big business. By the
middle of 1982, the expansion of personal computers into the business world was beginning to lag. As
soon as 1981, both the Apple II family and the initial CP/M machines were starting to "push the limits" of
the 8-bit microprocessor. They were attempting to accomplish tasks that were fundamentally beyond the
technology's capability. Similarly, software developers were trying to design and implement programs that
could accomplish things that really needed more horsepower and a different architecture. Failure and
frustration were as common as success and excitement. The industry was rapidly approaching 10 o'clock
on the personal computer's first cycle of the double helix.
As discussed earlier, the double helix model does not suggest a sequential relationship between
consecutive cycles. One should not expect the introduction of a new technology to be coincident with the
disappearance of the prior technology. Rather, there is always a period when a new technology coexists
with the old technology. In fact, because the new technology starts out in an introductory phase without a
clear, unique application, quite often the old technology continues to thrive even in the presence of the
new innovation [19, 58, 59]. It would be best to think of noon for a new cycle to be equivalent to 9 o'clock
for the previous cycle. This was certainly the case as the first cycle of the personal computing helix drew
to a close and a new element was about to be introduced.
Second Cycle
A new technology in search for an application.
At the end of the summer of 1981, the sleeping giant of the computer industry, IBM, finally
decided to shed its corporate disdain for a device that, by its own definition, could not be a computer.
IBM announced that it had built a personal computer that overcame the limits of the Apple II and its
companions [39]. It incorporated a much faster 16-bit processor, could handle ten times as much memory
as the 8-bit machines, was a balanced blend of open and packaged, and, most importantly for the business
world where the battle for personal computer supremacy would be waged, it had IBM's name on it. Even
though this was a shock to the fledgling but established PC industry it should not have been. In a poignant
example of the effects of being overly caught up in the stages of the double helix, the leaders of the PC
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industry did not pay adequate attention to the fact that successors to the 8-bit processors, which were
rapidly becoming the bane of their existence, had already begun to arrive on the scene.
As early as 1979, the year Visicalc was introduced, Texas Instruments had debuted the TMS9900
and Motorola had shipped the 68000, both more powerful and capable 16-bit microprocessors. Since none
of the more popular personal computers were using technology from either of these companies, it is at
least understandable why they ignored the chips. But how could they ignore Intel? Intel had been working
on a successor for the 8080 (a Z-80 equivalent) for years. They delivered it to market in 1981, in the form
of the 8088/6 family, just in time for IBM to make it the heart of computing for the next 15 years!
The early personal computer vendors, almost to a company, were stuck with old technology while
new competitors prepared to jump in with the next generation of technology. Now this did not happen
overnight. There was still time to recover. The IBM PC, though exciting and impressive, was only a
limited answer to personal computer users' prayers. It was a machine without software. Old CP/M did not
work on it and surely Apple would not support it. A new version of CP/M, CP/M86 made especially for it,
did not support most of the old CP/M software and, in the rare cases it did, did not run the software any
better than a NorthStar. The operating system of choice, PCDOS from Microsoft, did not have any
application software at all!
IBM, with its massive resources and an intent to win in this new, evolving world, did what it
could to convince the established companies such as Micropro and VisiCorp to "port" their successful
personal computer software applications to the IBM PC to give it a necessary shot in the marketing arm.
So in the beginning of 1982 the market began to see the appearance of IBM PC versions of WordStar,
Visicalc, dBase 2 and other popular CP/M and Apple products. This, however, was not an indication that
the second cycle had taken hold and reached the critical 3 o'clock point. These applications were
unchanged in their functionality from their earlier versions except for the simple fact that they were made
to run on the IBM PC. If a spreadsheet in Visicalc could only be 64 kilobytes large on an Apple, the same
was true on the IBM even though the IBM had at least 128 kilobytes of memory available. As far as these
"established" software vendors were concerned, the IBM PC was nothing more than a faster NorthStar or
Apple; there was nothing unique about it, nothing new to accomplish.
With such limited value in a more expensive box, at least initially, the market was not buying.
The 8-bit world continued to thrive [49]. So was the arrival of the IBM PC a threat or an opportunity to
the proven PC leaders? We just saw that the software vendors viewed it as not much of either. The
established personal computer hardware vendors (e.g., Cromemco, NorthStar, Apple, Zenith, Durango,
Processor Technology, Vector Graphic) also seemed to greet the new entrant with a yawn. This despite the
fact that they keenly knew the need for more power and more features than the 8-bit computer could
deliver. They were as aware as anyone that there were new processors available that held the promise of
developing systems that would overcome current customer problems and help create new customers. But,
for whatever reason, they initially paid limited attention and then, finally, paid dearly.
The application concept begins to emerge.
By the end of 1982, the second cycle of the personal computer double helix was about to change
the world, and the change came in the form of 1-2-3 from Lotus Development Corporation. Lotus 1-2-3
was the representative of the new paradigm needed to jump start the second cycle. It was a product as
uniquely suited to take advantage of the IBM PC as Visicalc was to the Apple II. Where Visicalc delivered
an island of personal productivity to a tolerant and technically savvy market, 1-2-3 provided a broad
continent of productivity to a more technically naive market. Some might not consider Lotus 1-2-3 to be
the vanguard of a new cycle since, on its face, it may appear to have simply subsumed much of what had
been developed during the first cycle of personal computer software development. A closer look, though,
clearly shows that it took the major step that is emblematic of a new cycle.
Once the Lotus 1-2-3 spreadsheet program was introduced, the IBM PC became the de facto
leader. Personal computers were now machines that businesses could use. Individuality now
didnt count for much. [23]
A characteristic of the first cycle of a fundamental new technology, such as the personal
computer, is that it provides a capability that is dramatically, almost shockingly new. This is not usually
the case for subsequent cycles of the double helix. Instead, the succeeding cycles are characterized by
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some capability that extends the original paradigm in a way that could not be accomplished in the
previous cycle [28]. The Wright brothers shocked the world by flying a flimsy, low powered device at
Kittyhawk. The introduction of single winged craft with enclosed cockpits and multiple, powerful engines
was not nearly as dramatic but it heralded a whole new age of practical flight for the average person. Such
was the case with 1-2-3.
Beyond simply "slamming" together the features of the more popular Apple II software products
(a feat that, in and of itself, could not be accomplished in the Apple II), 1-2-3 created a fundamentally
new style of computer interaction for a new type of computer user. Using all of the power available in the
IBM PC, Lotus 1-2-3, the first integrated software product, appealed to novice and "power users" alike
[7]. For the novice user, Lotus used the larger memory and speed to provide a smooth on-ramp to personal
computing including a range of helpful features including an on-screen tutorial, a context sensitive help
facility and full word menu options. No longer did using a personal computer demand a degree in
electrical engineering or the passion of the hobbyist.
It was the power user, though, the already knowledgeable Visicalc user who really triumphed. 12-3 provided the ability to accomplish all that anyone would want in an advanced spreadsheet while
combining most of the abilities of VisiPlot and DBMaster into a single package. Beyond that, 1-2-3 was
programmable. Like dBase 2, advanced users could develop full applications for novices [29]. A secretary
could now do scheduling for her departments using a template developed on 1-2-3 by her boss. A
bookkeeper using another template could monitor his division's cash flow against pro-forma. A CFO could
quickly and automatically combine into one spreadsheet the budgets of every department for the board
meeting. A physicist could capture data on the behavior of neutrons in magnetic fields, do analysis, view
charts of the analysis and even write an article all without turning 1-2-3 off! Personal computing would
never be the same [65].
The application gains acceptance.
When 1-2-3 shipped in January of 1983, the second cycle had truly begun to leave the exploration
stage. By 1984, the IBM PC/Lotus 1-2-3 "machine" was the juggernaut of the industry, capturing 70% of
the personal computer market [18]. And what became of the hardware leaders of the first cycle? Sadly,
but predictably, almost to a company they declined or disappeared. Within a mere two years NorthStar,
Cromemco, Vector Graphic, Alpha Micro, Altos, Durango were all either in serious decline or had
already disappeared. Even Apple, with its almost religious following and iconoclastic (and therefore
difficult to dislodge) software base was in trouble, being increasingly relegated to the home and school
while it struggled to develop an IBM PC competitor.
Variation and Refinement.
It might be assumed that this corporate decimation was a direct result of IBM's dominance but
this would be a simplistic and erroneous conclusion. Within a very short amount of time a whole new
range of variations on the IBM theme reached the market with names previously unheard of or new to
computing (e.g., Compaq, Hyperion, Eagle, Convergent, MAD, Panasonic, Gavillan, and Olivetti). Some
of the participants in the first cycle tried to adapt but none of them ever succeeded in again leading (e.g.,
Osborne, Zenith, and Radio Shack). On the hardware side the baton had been passed and most of the
success stories of the first cycle receded into fading memory [55]. On the software side, the changing of
the guard was not quite as dramatic. Many of the established players quickly saw the errors of their ways
and scrambled to adapt to the new reality. Some even prospered from the changed world. Perhaps this is
an illustration of the old venture capital dictum that "hardware companies fail hard and software
companies fail soft".
Microsoft (PCDOS and Multiplan), Micropro (WordStar) and Ashton-Tate (dBase 2) found the
new environment to their liking and thrived [30]. It should be noted that each of these vendors had
products previously aimed at CP/M, providing applications that often ran up against the limits of the 8-bit
technology so they were natural candidates for success in the new era. But there were casualties. VisiCorp
(the most successful first generation software vendor), DBMaster, Software Arts, High Technology,
Software Resources and a raft of others fell by the wayside, unable to leverage their success as the market
changed.
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computing. During most of the 1980s, the PC software industry was ruled by a tacit agreement among the
major players to respect each other's territories. Lotus owned spreadsheets, Ashton-Tate had databases,
Micropro and WordPerfect ruled in the word processing arena and Microsoft did operating systems. But
what was an operating system?
From a technical point of view, an operating system is a layer of software that provides mediation
between a user application and the physical computer. Every computer has one. From a more practical and
user centric point of view, however, an operating system is the level of the computer that the user develops
the most comfort with: It is the level of the system where the user operates. During the first cycle of
personal computing it was irrelevant which definition was used because the operating system had to be
addressed by the user. To use a machine it was imperative that the user became fundamentally
comfortable with the lowest level of the computer because the applications that were available, including
Visicalc, did nothing to shield a user from the basic realities of the computer.
During the second cycle, however, a subtle shift occurred. The operating system, from a practical
perspective, was not MSDOS but, rather, 1-2-3. It was possible to turn on ones computer and have it
automatically launch into 1-2-3 without ever seeing the dreaded C: prompt in DOS. In fact, many
experienced and competent users, though aware that the C: prompt existed, became completely lost and
confused when confronted with it. As a result, for many, 1-2-3 became synonymous with using a PC.
Rather than attempt to exit 1-2-3 and traverse the operating system to get to another program, as early
users had eagerly done on CP/M and the Apple, second cycle users would try to do everything they could
within 1-2-3. They regularly found ways to make 1-2-3 do things that even its developers did not think it
could do; e.g., because of a simple label command, Range Justify, 1-2-3 became one of the most used word
processing products. 1-2-3 on an IBM PC was a world onto itself. A world about to be invaded.
Microsoft was in a very fortunate position. While not being the leading player in the second
cycle, it was a major beneficiary of its success. Just as Lotus made money just about every time an IBM
PC, or a clone, was sold, so did Microsoft. Though users tried to avoid it, the MSDOS software was a
critical component. So Microsoft had a cash generator and also was in a powerful position to see the
trends that were emerging. They also had the luxury of not having a leading application that would be
threatened when the new trends emerged.
Third Cycle
A new technology in search for an application.
The third cycle of the microcomputer double helix occurred with the merging of the 32-bit
generation PCs with Microsoft Windows in 1990. The radical computing power that lay in the heart of
the 80386 processor, which succeeded the 80286, was like the 80286 in that it was viewed as truly
revolutionary. No doubt, it is true that this was the case but it is also true that the 80386 made its
introduction in the Compaq Deskpro in 1986 [14]. PCs based on the 80386 could support massive
amounts of memory and do many tasks at once and they were blazing fast. But for four years the 80386,
like the 80286 before it, was viewed as nothing more than a faster version of the original IBM PC.
The introduction of Windows 3.0 in 1990 was the watershed event that allowed the third cycle of
the PC industry to move beyond the exploration stage. Why did it take four years for the application cycle
to catch up with the technology? What forces acted to stymie or foster the 80386s application cycle? The
answers to these questions are interesting because they point to how prior market evolution can affect how
a new technology is viewed and leveraged, independent of its unique fundamental capabilities.
When the 80386 was introduced, the market acceleration of the 8088/80286 application cycle
was in full swing. Sales and market penetration of both the basic computers and new varieties and
versions of productivity applications were still accelerating. The market was not ready to shift from its
tried and true operating system, 1-2-3, because its needs were being met [31, 46]. And the new business
interests in the PC industry were more than happy to take advantage of the situation. Established market
players, on both the hardware and software sides, were expanding, becoming profitable, building market
dominance and going public, creating massive wealth for founders and investors alike. There was limited
market or organizationally sponsored creative impetus to push new technology into new realms as
opposed to using new technology to simply support established demand.
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PC manufacturers saw the 80386 in the same light as the 80286 a faster version of what they
had always been selling. Software vendors followed suit recognizing that faster speed allowed them to
cram more features into already successful applications. Innovation was limited to making what already
existed more usable, more complex, more readily acceptable to larger populations and to address already
understood demands from more advanced, and often vociferous, power users.
Slowly, though, the rapidly expanding market was also becoming more dependent on and, thus,
more educated about computing and began to demand things that 1-2-3 and its brethren could not deliver.
"Kludges" were developed (such as little pop up programs that appeared to give one the ability to do two
things at once, and add-on graphical interfaces) that seemed to fill the gap. Products like QuarterDecks
DesqView provided the first glimmers of multi-tasking (if not multi-processing) computing to the growing
PC installed base, though with little fundamental capability that was not possible with the older, slower
processors. Even Microsofts introduction of Windows 1.0 could not catalyze the market because the
market both was not ready and the implementation was difficult, slow, error prone and, most critically,
did not support the previous work and knowledge of PC users. By the late 1980s, however, it was
becoming clear that 10 oclock on the second cycle was rapidly approaching.
The application gains acceptance.
As 1-2-3 undermined Visicalc by both providing what Visicalc could not and changing
simultaneously the paradigm of computing, in May, 1990 Windows 3.0 was poised to do the same to 1-23. It supplied the market with a new face, a new, intuitive way of doing the things the market had already
become convinced it wanted to do and it did it without demanding that established users abandon all they
knew or had already done. In short, it provided the world with a new operating system. The almost
seismic events that followed the introduction of Windows 3.0, not only ushered in the rapid decline of
Lotus's dominance but also set the stage for the eventual decline of other software industry leaders such as
Ashton-Tate, Borland, Micropro and WordPerfect. Whereas the transition from the first cycle to the
second brought the most havoc to the hardware vendors who had led the first cycle, the transition from the
second to the third cycle took its greatest toll on the software vendors who had dominated the second
cycle. Once again, though, the prediction held true: Those companies who experienced the greatest
success in one cycle were least prepared to prosper in the next.
DISCUSSION
The history of the personal computer industry follows closely the model of the double helix.
Each cycle began with an exploratory period of 3 to 5 years in which the technology was in search for an
application. Technologies that found a unique application that went beyond what was doable before
expanded into the broader market of a new cycle. Technologies that did not find a new application either
disappeared as a fad or continued as a better mouse trap within an already existing cycle, as did the
80286. As shown in Exhibit 4, the exploratory stages of later cycles overlapped the market-driven stages
of the earlier ones. The market-driven stages of later cycles lengthened from 3 to 8 years and then to
greater than 8 years in the third cycle. This lengthening occurred for two inescapable reasons. First, with
each successive turn of the application and technology helixes, the technology subsumed a greater part of
the potential market increasing the time needed for a technology generation to penetrate its ready market.
Second, the natural maturation of the application of the underlying technology during successive cycles
created greater functionality thus satisfying the needs of a larger percentage of customers for a longer
period of time. The net result was increased inertia and the siphoning off the impetus for both the
investment in and acceptance of new innovation and change. (Exhibit 5). The managerial implications
for the above patterns are many.
Entry of new companies into the earlier cycles was much less costly than entry into later cycles
because the market served, and therefore the concomitant capital requirements, were much smaller. The
initial PC companies started in garages with no money while the third cycle companies needed tens of
millions of dollars to enter. This also meant that the first cycles, even when they got to a broader, marketdriven stage, were most likely not true mass markets. One can argue that for PCs, it took until the third
cycle for them to become a true mass market attraction rather than one for early adopters.
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Entry and exit points arose at three distinct stages of each cycle: at the exploratory stage, at the
transition to market-driven stage, and at the transition to a new cycle. Hundreds of companies entered the
market during the first cycle exploratory stage. They provided many different embodiments of their vision
of what the PC might do. Neither the first companies to enter nor the companies with the best
technology eventually won. Rather, the first companies to find the right applications set themselves up to
succeed. The companies with the incorrect visions had difficulty remaining in the industry.
The companies with the correct applications became the winners and often dominated the rest of
the market-driven stages. They still encountered risks, however, because at the market-driven transition
(5 oclock) more companies entered the market with skills more related to marketing and manufacturing
than to product R&D. These new companies provided product variation to slice off segments of the
market and/or provide better value through marketing and manufacturing. Companies that could not
make the switch to the new market realities failed [48]. Those that did were more likely to keep market
dominance to the end of the cycle even if their market shares diminished, as happened to Apple.
The third entry/exit point was at the start of a new cycle. The companies established in an earlier
cycle found it difficult to leap to a new cycle or, in effect, to cross a second chasm that was probably more
difficult than the one at 5 oclock [48]. The number of companies we listed in the history of the PC
market that prospered in one cycle just to vanish in the next was large. The companies that unseated the
leaders of an earlier cycle were often new entrants or minor players in the earlier cycle. Lotus was a
startup that unseated VisiCorp, for example. The companies with the new technology attempting to create
a new cycle, moreover, had been in the market for several years in parallel with the established companies
in their cycle. The established companies, therefore, had several years of warning to what the new
companies were attempting but still could not make the leap to the new cycle [19].
Not all the exciting new technologies that were brought to market created new cycles. If the
companies were using their new technology to perform the same applications as the old, the new
technology did not start a new cycle. Rather, it either withered away or became a follow on technology
that did not disrupt the existing industry. Likewise, if the customers were not pushing the limits of the old
technology, the new technology was ahead of its time because customers did not shift over.
The double helix model, therefore, raises strategic issues such as what does it mean to be first to
market. Companies that entered the market first had no advantage over the companies who found the first
accepted application. Companies who had entered an earlier cycle had no apparent advantage over those
that came in on later cycles. Where first-mover advantages did seem to come in, however, was in being a
leading company in the market-driven stage. The companies looking for explosive growth were better
served entering the exploratory stage of a later cycle than challenging the established leader in the marketdriven stage of an earlier cycle. The risk, however, was that a new application had to be found, the limits
of the earlier cycle had to be reached, and sales remained small until the 3 oclock point was reached. In
other words, they were taking on the risk of creating a product ahead of its time. On the other hand,
taking on an established leader in an earlier cycle meant the expense of unseating a first-mover and
ending up as little more than a better mouse trap. [20]
The insights of the double helix are generalizable to other industries. We have not contradicted
earlier technology development and market development models, on the contrary we have used them to
support our model. What we have done is to provide a broader and dynamic framework in which to
incorporate the other models. The industries these models were based on, therefore, should fit our model.
In addition, studies of other industries that we have undertaken, such as the development of microwave
ovens, VCRs, and the internet also support the model. What we have demonstrated is that understanding
the dynamics of industry-level effects on innovation is made clearer through understanding the interplay
between technology development cycles and application development cycles. These two cycles go through
a linked, predictable pattern that we have laid out and call the double helix.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 18
Exhibit 3:
25-year history of microprocessor
Year
Microprocessor
1971
Intel 4004
1972
Intel 8008
1974
Intel 8080
1974
Motorola 6800
1975
Zilog Z80
1976
1978
MOS
Technologies
6502
Intel 8086
1979
Intel 8088
1979
Motorola 68000
1982
Intel286
1985
Intel386
1986
MIPS R2000
1987
Sun SPARC
1989
Intel486
Transistors
Description
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
1993
Intel Pentium
1993
IBM/Motorola
PowerPC 601
Intel
Pentium Pro
1995
page 19
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 20
INTRODUCTION
Theories of need satisfaction are important in understanding consumer behavior and salesperson
motivation. Probably the three most popular need theories are Maslow's (1954) Hierarchy of Need,
Herzberg's (1959) Motivational-Hygiene Theory and Alderfer's (1972) Existence, Relatedness and Growth
Theory.
These three theories are closely related to each other. Alderfer seeks to improve on Herzberg and
Maslow, and Herzberg seeks to improve on Maslow. The basic problem seems to concern the order in
which the needs are fulfilled. The actual number of needs seems more a function of how the theorist
describes the fulfillment process. For a complete discussion of this aspect of these three theories see Berl
(1983, Ch. 2).
In this paper basic economic concepts are applied to need satisfaction. The result is a different
approach to the subject. This approach is more realistic. It better lends itself to testing concepts in
consumer behavior and salesperson motivation.
Maslow is universally accepted but his theory has not
been proven (Wahba & Bridwell, 1976). There is no support for any of these theories. Berl (1983) showed
weak support for Alderfer and no support for Maslow or Herzberg in an experiment on salesperson
motivation.
The economic concepts themselves are simple, standard, well known and widely accepted so they
are not elaborated on or discussed here. See the Appendix for the relationship between some common
economic terms and the terms used here for the new need-satisfaction theory.
NEED SATISFACTION
Individual behavior (B) is a function of motivation (M). Motivation is a function of the
satisfaction (S) of needs. Satisfaction is achieved by fulfilling needs (N). Needs are fulfilled as a function
of effort (E). The effort required to fulfill a need is a function of ability (A) and incentives (I).
Individuals with more ability can use less effort to fulfill a need. The effort required to fulfill a need can be
reduced by using incentives. Incentive is narrowly defined here. Incentive is anything that reduces the
amount of effort required to satisfy a need.
B = function (M)
M = function (S)
S = function (N)
N = function (E)
E = function (A, I)
(1)
(2)
(3)
(4)
(5)
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Society can increase positive behavior of its members by using the right incentives.
Management can increase positive behavior (job performance) of employees by using the right incentives.
Sellers can increase positive behavior (purchase) of customers by using the right incentives. There are
negative behaviors and negative incentives. Thus if all other factors are held constant behavior is a
function of incentives.
B = function (I)
(6)
Ability is an important factor because a certain level of ability is necessary for some
kinds of performance (behavior) and good performance itself can aid need satisfaction. Also, people with
more ability can satisfy more needs. Ability can be changed over time. The goal (of society or
management) is to maximize satisfaction and motivation, to maximize positive behavior.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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The number of needs and the names given to these needs is not important to this discussion. In
this new theory, the focus is on the order that needs are fulfilled. How needs are identified (number and
relative importance) is critical to the order in which needs are fulfilled, but one does not need to know this
to either present or understand the new theory.
Proposition 6:
The amount of satisfaction one gains from fulfilling a given need differs from individual to
individual and from need to need.
Proposition 7:
One has a certain level of ability to satisfy needs. This level varies among individuals.
Individuals with more ability require less effort to satisfy a need. Ability can change over time.
Proposition 8:
Sales managers should vary incentives.
The effort required to satisfy a need varies with the incentives provided by management, so that
management can increase certain incentives that decrease the amount of effort required to satisfy a need.
The right incentives depend on where one is concerning marginal satisfaction. An incentive that reduces
the effort to fulfill a given need may not be right because one has no current interest in that need.
Proposition 9:
There does not have to be a relationship between the amount of effort required to fulfill a need
and the amount of satisfaction derived from fulfilling that need.
Obviously some needs that yield lots of satisfaction can be fulfilled with little effort (even less
with the proper incentive) while there are other needs that yield less satisfaction but require more effort.
Proposition 10:
Some needs must be satisfied repeatedly.
Proposition 11:
When a given need must be satisfied again can vary depending on the need.
Proposition 12:
All basic needs should be at least minimally satisfied.
There can be five basic needs (Maslow), three basic needs (Alderfer), or two basic needs
(Herzberg). See the comment after Proposition 5. Some individuals cannot satisfy all needs.
Proposition 13:
The amount of effort required to satisfy a given need can vary over time.
Proposition 14:
The satisfaction gained from fulfilling a given need can vary over time. This can be related to
what stage one is in the life cycle.
Proposition 15:
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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A change in the amount of satisfaction to be gained from satisfying one need can result in a
change in the amount of satisfaction to be gained in satisfying some other need.
These fifteen propositions make this point. Some part of a need is fulfilled first. Then some part
of a second need is fulfilled. Now there is a choice. One can fulfill some part of a third need or go back
and fulfill some more of the first need.
Rather than fulfill a higher need some individuals may want to fulfill even more of a lower need.
Others may fulfill a bare minimum of the lower need to fulfill more of a higher need.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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DEMAND CURVE
The net result of these two models is a demand curve for each need. The curve is negatively
sloped so increases in the amount of effort required to fulfill a need will result in decreases in the amount
of the need demanded (and vice-versa). With all other factors held constant, (effort required to fill other
needs, the overall desire for a given need that can change over time and ability), the quantity of a need
demanded is a negatively sloped function of the effort required to fill that need.
CONCLUSION
A new general theory of need satisfaction is presented here that is built on the work of
Maslow, Herzberg and Alderfer using well-known, generally accepted economic concepts. The basic
difference among the three traditional need-satisfaction theories is in the order or in the importance of
the various needs and the movement through the need hierarchy. The needs themselves are the same in
all three of these theories.
The new theory presented here uses both the marginal utility approach and the indifference curve
approach used by economist. See the Appendix for further details.
The individual who is only motivated by money or the individual who sacrifices the satisfaction
of lower needs to satisfy higher needs is better explained by the new theory presented in this paper.
The next step would be to quantify and test this new theory. The suggestion is made in the
introduction that the approach described in this paper, "better lends itself to testing concepts in consumer
behavior and salesperson motivation."
The advantage of this approach is it describes many different types of behavior. There is a chance
this approach explains so many different types of behavior that it is too general to be useful. The same
complaint has been expressed about the economist's traditional demand curve, yet many find this
economic analysis useful. Can anything be done with this new method of analysis in studying motivation?
APPENDIX
To illustrate the relationship between the traditional economic theory referred to in this paper
and the new theory of need satisfaction it is useful to look at the relationships outlined in Table 1. These
substitutions are simplistic but they help explain how the new need-satisfaction theory was developed from
traditional economic theory.
TABLE 1
TERMINOLOGY
Traditional
Economic Theory
New Theory of
Need Satisfaction
Price
Goods
Utility
Total Income
Income Changes
Price Changes
Effort
Needs
Satisfaction
Total Effort
Ability
Incentives
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Alderfer, Clayton P. (1972), Existence, Relatedness and Growth, New York: The Free Press.
Berl, Robert L. (1983). An Empirical Study of the Motivational Content Need Theories in an Industrial
Field Sales Management Setting, Ph.D. dissertation, Georgia State University.
Herzberg, Frederick, et. al., (1959). The Motivation to Work, New York: John Wiley and Sons.
Maslow, Abraham H. (1954). Motivation and Personality, New York: Harper and Row.
Wahba, M. A. & L. G. Bridwell, (1976). Maslow Reconsidered: A
Review of the Research on the Need Hierarchy Theory, Organizational Behavior & Human
Performance, 15, pp 212-240.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 26
A QUANTITIATIVE ANALYSIS OF
OPHTHALMOLOGISTS, OPTOMETRISTS AND
OPTICIANS
Dunlap, B.J.
Western Carolina University
[email protected]
INTRODUCTION
Literature regarding research on eye care from a marketing perspective is almost non-existent.
And, according to Blair (1994), the services offered by ophthalmologists and optometrists have been
difficult to discern existing differences. Traditionally, ophthalmologists have been caregivers who
specialize in the medical and surgical care of the eyes and visual system as well as the prevention of eye
disease and injury. This Doctor of Osteopathy has completed four or more years of college premedical
education, four or more years of medical training, at least one year of internship and three or more years
of specialized medical/refractive training with experience in eye care. An ophthalmologist is therefore a
medically trained specialist who can deliver total eye care primary, secondary and tertiary (i.e., vision
service, contact lenses, eye examinations, medical eye care and surgical eye care), diagnose general
diseases of the body and treat manifestations of systematic diseases.
An optometrist, however, is a health service provider who is involved exclusively with vision
problem They are specifically educated and trained by an accredited optometry college in a four year
course, but have not attended a medical school. They are, of course, state licensed to examine the eyes
and to determine the presence of vision problem. Optometrists determine visual acuity and prescribe
glasses, contact lenses and eye exercises. They may perform all services listed under the definition of an
optician and only in some states are they permitted to provide limited treatments of some eye conditions.
(American Academy of Ophthalmology, 1999).
While opticians are obviously more discernable than are ophthalmologists and optometrists, they
still should be studied from a marketing perspective. For clarification , an optician is a technician who
makes, verifies, and delivers lenses, frames, and other specially fabricated optical devices and/or contact
lenses upon prescription to the intended wearer. The optician's functions include prescription analysis
and interpretation, determination of the lens forms best suited to the wearer's needs, the preparation and
delivery of work orders for the grinding of lenses and the fabrication of eye wear, the verification of the
finished ophthalmic products and the adjustment, replacement, repair, and reproduction of previously
prepared ophthalmic lenses, frames, and other specially fabricated ophthalmic devices (American
Academy of Ophthalmology, 1999).
Today, there appears to be a movement toward a "blur" of which specialist provides which type(s)
of service. To illustrate, many ophthalmologists are tremendously expanding on-site dispensaries for
glasses and contact lenses in an effort to increase their practice cost enhancement, while optometrists in
many states are being permitted to write more prescriptions for eye infections/diseases. This is due to
President Clinton's Health Care Reform Proposal (Consumer Reports, 1984). Further, Continuing
Education courses/seminars (e.g., Lighthouse International) to further educate and/or sustain licensing
privileges are encouraging attendance by ophthalmologists, optometrists and opticians even though
educational backgrounds and services offered differ among the three groups ([email protected].,
1999).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 27
METHODOLOGY
Two pretests were conducted and only minor changes were warranted for each. The final test
instrument was comprised of 22 dichotomous questions, some of which included "Why" and "Why Not"
questions and six Likert statements. Five hundred and fifty consumers were surveyed who resided in a
large southeastern city in the United States for a 100% response rate. The purpose of the study was threefold: (1) to ascertain if respondents knew the difference between an ophthalmologist, an optometrist and
an optician (2) to determine which service provider they preferred, and visited, for eyecare treatment;
(3) to learn if they had ever visited an optical eye care chain retailer; and (4) where they would have a
prescription filled.
RESULTS
When respondents were asked if they perceived a difference between ophthalmologists,
optometrists, and opticians, a majority (94%) indicated that they did. For routine eye care, 33% preferred
an ophthalmologist because they felt s/he were more educated. Fifty-four percent preferred an optometrist
for several reasons; they felt the provider was more thorough, respondents believed s/he charged less, and
felt s/he was more specialized in eyecare treatment. The remainder of the population surveyed (17%)
indicated that they felt this type of provider offered more reasonable prices. And, 13% revealed they had
visited an optician (Figure 1). Further analysis on preference was analyzed based on respondents who
held a college degree. Of those sampled, 37% preferred an optometrist, 34% preferred an
ophthalmologist, while 29% preferred an optician. Clearly, those with a college degree did not prefer a
practitioner with higher training (Figure 2).
Figure 1: Preference for routine eyecare
Optician
13%
Ophthalmologist
33%
Ophthalmologist
Optometrist
Optician
Optometrist
54%
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Optician
29%
Ophthalmologist
34%
Ophthalmologist
Optometrist
Optician
Optometrist
37%
The sample was asked as to whom they would visit for specialized eyecare (e.g., pink eye, viral
infections, cataracts, etc.) Eighty-nine percent revealed they would choose an ophthalmologist for the
following reasons: because s/he was a medical doctor, for surgical reasons, and the respondents felt they
were more educated. Nine percent of them indicated they would visit an optometrist because, if needed,
Figure 3: Preference for specialized eyecare
Optometrist
9%
Optician
2%
Ophthalmologist
Optometrist
Optician
Ophthalmologist
89%
s/he could refer--if necessary---and that s/he charged less. The remaining who were sampled (2%)
indicated that they would choose an optician because they were more familiar with this type of practitioner
and the provider's charges were perceived to be much lower than the other two (Figure 3).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 29
Those sampled were asked to whom they would visit to have an eye glass or contact lens
prescription filled. Seventeen percent revealed that they would visit an ophthalmologist, 33% indicated a
choice of an optometrist, while over half (56%) indicated they would choose an optical retail outlet (e.g.,
LensCrafters, Pearle, Wal-Mart). Respondents were asked if they had visited an ophthalmologist, an
optometrist, or optician in the last year. Fifty-six percent indicated that they had. The percentages for
each were broken out as follows: ophthalmologist, 10%; optometrist, 70%; and optician, 20%. Clearly,
optometrists were greatly favored. When asked if they were satisfied with the service they received, 90%
indicated yes. The remainder indicated they were not satisfied because of the receipt of poor glasses.
Next, the consumers were asked if they were satisfied with the price(s) paid for the service(s) received.
Eighty percent indicated that they were, while 20% indicated they were not as the price(s) was/were too
high. Also, respondents were asked what was the usual eyecare fee per visit. Over half (61%) indicated
that it ranged from $50 to $79, 22% indicated the visit ranged from $20 to $49, and the remainder
revealed the fee ranged from $80 to over $110.
Respondents were asked if their eyecare provider's practice was located in their hometown. A
majority (66%) indicated that s/he was, while the remainder indicated that their providers were located
from approximately 50 to 150 miles away from their home base.
The sample was specifically asked if they had ever visited an optical eyecare retailer (e.g., Pearle,
H. Rubin, LensCrafters). The results were equally split (50%; 50%). Fifty-six percent indicated that they
preferred LensCrafters, while 33% indicated a preference for H. Rubin, and 11% indicated various other
in-store retailers such as Wal-Mart and Sears. When asked if they were satisfied with the service and the
price of such stores, all respondents indicated yes (Figures 4 and 5).
120
100
Percent Satisfied
80
60
40
20
0
Other
Pearle
LensCrafters
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 30
120
100
Percent Satisfied
80
60
40
20
0
Other
Pearle
LensCrafters
Regarding the Likert scales used, the following was found: (1) over 61% preferred lower prices
with less personal service; (2) only 44% indicated they preferred personalized service with higher
prices; (3) Eighty-three percent indicated that "little" extras (e.g., magazines, coffee, television, etc.)
would not influence their decision as to which provider they would use; (4) over 78% of the respondents,
in general, felt the optical retail outlets (e.g., Pearle, LensCrafters, Wal-Mart) definitely charged less than
ophthalmologists, optometrists and opticians. This partially supports earlier reported results; (5) Fifty
percent agreed that an ophthalmologist gave a more thorough examination than did an optometrist or an
optician. These results partially support the question as to whom they would visit for specialized eyecare,
but does not support whom they would choose for routine eyecare; (6) Seventy-eight percent agreed that
an optometrist gives a more thorough exam than does an ophthalmologist. This finding supports the
respondents' choice of an optometrist for routine eyecare.
In summary, it appears that ophthalmologists, optometrists, and opticians need to heavily
increase advertising to not only further educate consumers about educational differentials but to also
inform the public with regard to the services they offer. Further, the three groups should consider pricing
competitiveness, keeping in mind special price offerings, discounts, and payment plans. In addition,
informational public relations newspaper inserts would further increase visibility.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 31
BIBLIOGRAPHY
Buying Glasses, (1993). Consumer Reports. (August), Volume Fifty-Eight ,495-503.
Altucher, B. (1990). Optical Confusion, Health. (November), Volume Thirty-Four, 42-43.
Blair, A. (1994). Optometry Poised for Growth, 20/20. (January), Volume Four, 44.
DeGeroge, G. (1993). Contact Lens Sellers Just Dont See Eye-to-Eye, Business Week. (July),
29-29.
Herrick, T. (1994). Working Harder, Selling Higher, 20/20. (January), Volume Four, 37-38.
Norton, R. (1993). An Antidote to Health Costs, Fortune. (April), 24.
Soroka, M. (1991). Comparison of Examination Fees and Availability of routine Vision Care by
Optometrists and Ophthalmologists, Public Health Reports. (July-August), Volume
One-Hundred Eight, Number 4, 485-489.
Spencer, P. (1993). Contact Lens Shopping, Consumers Research.
Seventy-Six, 38.
(September), Volume
Williams, Carl (1999). Telephone interview on November 10, 9999, to American Academy of
Ophthalmology ([email protected]).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 32
INTRODUCTION
The literature relating to student course evaluations is extensive, bordering on the overwhelming.
Literally thousands of studies have been carried out in the area since the first work in the 1920s.
(Remmers and Brandenburg, 1927, Brandenburg and Remmers, 1927; Remmers, 1928). The emphasis or
research direction of the studies is extremely broad, from anecdotal and descriptive, to controlled
experimentation aimed at identifying or characterizing specific predictor variables. The benefits,
disadvantages, appropriateness of student course evaluations as a measure of course effectiveness and
learning have also been discussed exhaustively. In the 1980s meta studies appeared, their sole purpose
being to categorize and summarize the vast array of available research (e.g., Aleamori and Hesner, 1980;
Stumpf and Freedman, 1979). The amount of research is probably not surprising given the importance
many academic institutions often place on course evaluations for annual reviews and tenure and
promotion decisions. Nevertheless, in spite of this large volume of research, at grass roots level (e.g., at
formal and informal faculty meetings) topics such as "grade inflation", "differences in grade distribution
between professors, between departments, between part time and full time faculty, between upper and
lower division courses", "correlation of student course evaluations to course grades" and related other
topics usually lead to animated and/or emotive discussions, which are often based on some preconceived
ideas which, may or may not be supported by actual data.
LITERATURE REVIEW
A recent review by Wachtel (1998) contains some 150 references of earlier studies. He states that
"the majority of researchers believe that student ratings are a valid reliable and worthwhile means of
evaluating teaching" (see e.g. Centra, 1977; Koon and Murray, 1995; McKeachie, 1990; Ramsden, 1991).
Nevertheless, he notes that many authors expressed reservations about their use for personnel and tenure
decisions or opposed them outright (Dowell and Neal, 1982; Goldman, 1993; Seldin, 1993; Zoller, 1992).
Considerable anecdotal evidence of faculty hostility and cynicism toward the use of student ratings has
been also documented (e.g., Ryan et al, 1980).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Numerous variables and issues related to course evaluations have been studied. Wachtels
synthesis of the literature is divided into four sections relating to the administration of the evaluation
itself, and characteristics of the course, instructor and students respectively. In order to illustrate the
breadth of the research in this area Wachtels summaries are prcised in the following. Exceptions or
caveats are documented to nearly all of the conclusions, so, it is implied that any stated results should be
prefixed by "in general" or "most studies found that..."
1. Administration of the evaluation
The results of course evaluation were not significantly affected by when it was administered (e.g.,
the middle, or end of the semester, or beginning of the following semester), but some noted
distortions on exam days, etc. Instructor presence in the classroom tended to produce somewhat
higher ratings and anonymity of the forms tended to produce somewhat lower ratings (e.g., Frey,
1976; Blunt, 1991; Pulich, 1984).
2. Characteristics of the course
Instructors in elective or non-required courses were rated higher than those in required courses.
Similarly, higher level courses tended to receive higher ratings. The class meeting time (i.e., time
of day) was not related to ratings. Class size was studied extensively without a general consensus
emerging. Some studies indicated that class size was linearly related to student ratings whereas
others proposed a curvilinear relationship with small and large classes receiving higher ratings
than medium sized ones. The subject matter of the course affected the student ratings with the
mathematics, science and quantitative disciplines ranking among the lowest (e.g., Aleamoni,
1987; McKeachie, 1990; Marsh, 1987).
3. Characteristics of the instructor
Professors ranked above teaching assistants but academic rank as well as age and experience
were not significantly co-related with course evaluations. Similarly, most studies showed little or no
relationship between research productivity and teaching evaluations. No consensus emerged on the impact
of gender on course evaluation with widely conflicting results being reported (e.g., Brandenburg et al,
1977; Perry et al; 1974; Perry et al, 1979; Tatro, 1995; Feldman, 1992; Feldman, 1993).
4. Characteristics of students
Students with greater interest in the subject matter prior to the course tend to give more favorable
evaluations. Conflicting results were reported in studies between student gender and ratings. A
moderate positive correlation was reported between expected grade and student rating. However,
there is some controversy in the explanations proposed for this: is it that higher evaluations can
be obtained by lenient grading; or that more effective instructors motivate students to work
harder and achieve higher grades; or indeed some other variables (e.g., student prior interest)
that affects both the course evaluation and expected grade (e.g., Prave and Baril, 1993;
Aleamoni, 1987; Koshland, 1991; Goldberg and Callahan, 1991).
Based on meta studies and reviews such as Wachtels a consensus has emerged on some, but by
no means all, issues pertaining to course evaluations. The existing body of work has not been sufficient to
quell discussion or controversy regarding the uses of course evaluations by administrators. For example,
Cantor (1998) discusses the "tyranny of course evaluation" (i.e., teaching towards the course evaluation)
in the context of tenure and the bureaucratic character of American higher education. A recent empirical
study that continued to investigate the reliability and validity of student course evaluations is found in
Jirovec et al., (1998) who concluded that student evaluations of teaching ability are "closely linked to
concrete, identifiable teaching skills." They found that the key predictor of student ratings were the
organization skills of the instructor.
Finally, Williams and Ceci (1997) make the observation that although many studies have
examined the internal consistency and statistical properties of evaluations, there is little research on the
"basic fairness" of student evaluations. They conducted an experiment to examine the degree to which
students evaluations of instructors vary due to changes in instructor behavior that do not affect a courses
information content and learning value. As part of a faculty development effort at Cornell University, one
of the authors was encouraged to attend a teaching skills workshop during the break between the fall and
spring semesters. The authors took this opportunity to set up a controlled experiment where the faculty
member attending the workshop made every effort to teach the same course twice, once before and once
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 34
after the workshop. The only systematic difference being "a more enthusiastic presentation style" (i.e.,
more gestures, voice pitch variability, etc.,) as presented in the skills workshop. Extensive measures and
precautions were taken to ensure validity. These included taping the lectures during the fall semester and
the instructor listening to the tape prior to lecturing each class and "memorizing the delivery" for the
spring semester. Independent raters evaluated tapes of lectures from both semesters for consistency. The
two courses used the same textbook, exams, etc. The authors note that for obvious ethical reasons, the
study is not double blind. Substantial and significant improvements in student ratings were noted in the
spring semester on instructor characteristics such as accessibility, degree of organization, tolerance, and
knowledge, all of which were meticulously held constant over the two semesters. Similarly the results for
"amount learned," course expectation, grading policy, text used were significantly higher. Acknowledging
the limitations of the study the authors conclude that student evaluations are "far from bias-free indicators
of instructor effectiveness."
The present study intends to contribute to the research by providing a longitudinal investigation
as well as cross-sectional investigation of the course evaluation--course grade relationship. The course
grade is based on the actual course grade received, as opposed to the expected course grade used in most
studies.
The data for this study focuses on the examination of the second area of Wachtels
categorization, namely characteristics of the course. The specifics regarding the LMU situation are as
follows: course evaluations are administered during the last three weeks of the semester, the exact date
being the choice of the professor, but never on exam days. The professor is not present during the
evaluation and the evaluations are anonymous. The LMU data distinguishes between core vs. elective
courses and undergraduate vs. graduate courses. Class meeting time and class size was not addressed in
this study. As far as investigation of the subject matter is concerned all courses were business school
courses. However, these were administered through the departments of Accounting, Management,
Marketing, Finance and Computer Information Systems and these distinctions are investigated.
The methodology used follows on from Sailor et al., (1997) who examined correlations between
mean instructor rating and mean class grade for all 625 course evaluations during an academic quarter at
Utah State University. They found small positive correlations (0.29 and 0.28) for lower division and
upper division undergraduate courses and a correlation of 0.20 for graduate courses.
OBJECTIVES OF STUDY
The objectives of this study are to examine to what extent the research findings in the literature
are supported by five year's of data in a college of business administration at a liberal arts university.
Specifically, the average course grade and average course evaluation data from spring 1993 to summer
1998 for all courses taught in the College of Business Administration (CBA) at Loyola Marymount
University (LMU) will be examined by looking at differences across departments, faculty, semester,
undergraduate and MBA courses. Finally, the correlation between the average course grade and the
average course evaluation will also be examined.
METHODOLOGY
Data regarding course grades and course evaluations from spring 1993 through spring 1998 was
obtained from the Registrars Office. Data pertained to courses in the College of Business Administration
only. Information Services merged the data from two databases (course grades and course evaluations) and
provided it electronically arranged by course for each of the 17 semesters.
LMU's academic year consists of the fall and spring semesters and a summer school semester.
Course evaluations are required in the fall and spring semester but not during summer school. The CBA
has four departments (Accounting, Management, Marketing, Finance and Computer and Information
Systems). At the MBA level some courses (e.g., regional studies, special studies etc.) are not associated
with any one of the four CBA departments. For the purpose of this study these courses were considered to
be as if they were from a fifth department.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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All faculty in the CBA gave their permission to use the course grade and course evaluation data
provided it was stripped of specifically identifying characteristics. Therefore, fields that contained specific
identifying information, relating to courses and to faculty were replaced by randomly assigned codes as
shown in Appendix 1.
The data clean up phase had two distinct stages:
A. Cross-listed courses: A cross-listed course is one that has more than one course prefix associated with
it, i.e., the course contributes to the curriculum of more than one department. In the original data each
section of a cross-listed course appeared as a separate instance (i.e., a separate record) on the course grade
side, but only as one class on the course evaluation side. This is because course grades are given, and
recorded, under the course section in which the student was registered, whereas course evaluations are
recorded for "the complete course," arbitrarily taken to be one of the sections of the cross listed course.
Since the subsequent analysis would investigate the correlation between course grades and course
evaluations all sections of a cross-listed course, on the grade side of the data, were combined into one
course to match the course evaluation record. The following terminology was introduced:
Exclusive courses: stand alone courses that are not cross-listed with any other course.
Combined courses: a course that consists of the combination i.e., sum total of all grade information of all
its cross-listed sections.
B. Inconsistencies in the data: Several errors and inconsistencies were present in some data records. The
most frequent were
1. The number of letter grades assigned is less than the number of students registered at the end of
the semester.
2. Course enrolment as provided by the faculty evaluation side of data is often not consistent with
number of students registered on the grade side of the data.
3. Errors/inconsistencies related to cross-listed classes e.g., professor IDs listed on grade and
evaluation side of data do not match, classes indicated as cross-listed do not exist or do not
match.
There are several explanations for these inconsistencies, the main two being:
1. The time when the data was "frozen" on file (especially relating to incomplete, withdrawal, audit,
credit/no-credit etc., information) was not the same for the grade and evaluation databases
2. The different procedures for coding cross-listed course data prior to summer 1994 were not
consistent from semester to semester.
Data records with errors or inconsistencies were not included in the analysis.
After the data clean up the final data set used in the analysis consisted of 1662 records (i.e.,
courses) as shown in Table 1. Note that course evaluation data are not available during the summer school
semester, so the correlation analysis is based on the fall and spring semester data (1250 records in total).
Undergraduat
e
MBA
Total
Including
Summers
1107
Excluding
Summers
916
555
1662
334
1250
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and when taken over the five years of the study the evaluation form may actually indicate an equivalent
level of ability.
Consistent with results in the literature U/G students appear less demanding or critical in that the
average course evaluation (median=4.6) is significantly higher than the MBA average course evaluation
(median=4.5).
The ordering of the average course evaluation, when arranged by department is different for U/G
and MBA courses. At the U/G level, arranging the departments in increasing order of the median of the
average course evaluation we get: Dept D (median=4.54), Dept C (median=4.54), Dept B (median=4.64),
and Dept A (median=4.69).
At the MBA level we get: Dept B (median=4.40), Dept D (median=4.43), Dept C (median=4.54),
and Dept A (median=4.57) and Dept E (median=4.67).
Excluding department E, these orderings are almost the exact reverse to those obtained for the course
grades. The highest course evaluations are obtained in the more quantitatively oriented courses, which is
contrary to the results in the literature.
Lastly, it is interesting to note the following two results: the lowest average course evaluations at
U/G and MBA level were obtained by faculty for whom data are available for one semester only (during
the period 1993-1998). These were part-time faculty who presumably were not invited back in subsequent
semesters. At the other extreme, the highest average course evaluation at the U/G level was obtained by
faculty for whom data are available for two semesters only (during the period 1993-1998). At the MBA
level the highest average course evaluation is for faculty for whom data are available for one semester only
(during the period 1993-1998). Once again it appears that these stars were part-time faculty who moved
elsewhere. It is interesting to speculate whether they could have maintained such high scores consistently
or was this simply some reflection of novelty value?
For faculty for whom data are available for 2 or more semesters the ranges for the medians of the
average course evaluation (U/G and MBA combined) are as follows:
Minimum
Maximum
2.96
3.53
4.04
4.21
4.19
4.35
4.23
4.92
4.77
4.87
4.69
4.72
4.85
4.79
This shows, perhaps not surprisingly, that the more experienced faculty, with a long track record
(at least at LMU) have the highest course evaluations.
There is no significant difference in the average course evaluation between combined
(median=4.46) and exclusive (median=4.51) courses at the MBA level. At the U/G level combined courses
have a higher median average course evaluation (4.68) compared to 4.60 for exclusive courses, (but note
that the p-value=0.03).
RESULTS: CORRELATIONS
(Results are valid at all significance levels between 4% and 10%, unless otherwise noted).
There was a weak positive correlation (0.07, p-value=0.034) between the average course grade
and the average course evaluation at the U/G level, but no significant correlation at the MBA level.
There were some differences in correlation between the average course grade and the average
course evaluation when viewed by departments. For three departments there was little or no correlation:
No significant correlation was found at both the U/G and MBA levels for Dept A. (This is the department
with the lowest average course grade ranking). Dept B had no significant correlation at the U/G level but
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a weak negative correlation (-0.209, p-value=0.079) at the MBA level (i.e., significant for > 8%). Dept
D had a weak positive correlation (0.157, p-value=0.012) at the U/G level, but no significant correlation at
the MBA level. However, for the remaining two departments we have: Dept C exhibiting a moderate
positive correlation (0.356, p-value=0.000) at the U/G level, but no significant correlation at the MBA
level and Dept E exhibiting positive correlation (0.639, p-value=0.014). {Note that data for Dept E are
only available at the MBA level - this is the "fifth" CBA department, created for data convenience}.
When viewed by semester there was no significant correlation between the average course grade
and the average course evaluation for the fall semester data at both the U/G and MBA levels. A weak
positive correlation (0.095, p-value=0.032) was exhibited at the U/G level for the spring semester, but
none at the MBA level.
In most years (1993-1998) there was no significant correlation between the average course grade
and the average course evaluation at both the U/G and MBA levels. The only exceptions were 1995
(0.178, p-value=0.020) and 1997 (0.133, p-value=0.097) where a weak positive correlation was exhibited
at the U/G level. (Note however, that the latter result is only significant for > 9.7%).
At the MBA level there was no significant correlation between the average course grade and the
average course evaluation for both core and elective courses. At the U/G level a weak positive correlation
(0.125, p-value=0.003) was exhibited for core courses, but none for elective courses.
There was no significant correlation between the average course grade and the average course
evaluation for both exclusive and combined courses at the MBA level. At the U/G level a weak positive
correlation (0.066, p-value=0.048) was exhibited for exclusive courses (only significant for > 9.7%), but
none for combined courses.
No strong correlations were found between the average course grade and specific questions on the
evaluation form at both the U/G level (Table 2) and MBA level (Table 3).
0.061
-0.030
-0.083
0.105
0.105
0.168
0.141
0.020
0.063
0.364
0.012
0.001
0.001
0.000
0.000
0.553
X
X
X
X
X
X
X
X
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Q1: The professor was available for consultation during office hours
Q2: The classroom presentations appeared organized with a sense of direction to
the instruction
Q3: Class time was used effectively
Q4: Out of class assignments or projects were relevant to defined course content
Q5: The professors presentations facilitated learning of the course content
Q6: Tests were representative of the course content
Q7: The professor provided helpful and timely oral or written evaluation
regarding tests, assignments and/or performances
Q8: The professor provided a description of grading standards and procedures at
the beginning of the course
At the U/G level there was a weak positive correlation (only significant for > 6.3%) between
the average course grade and Question 1 (The professor was available for consultation during office
hours), Question 4 (Out of class assignments or projects were relevant to defined course content),
Question 5 (The professors presentations facilitated learning of the course content), Question 6 (Tests
were representative of the course content), and Question 7 (The professor provided helpful and timely oral
or written evaluation regarding tests, assignments and/or performances) on the evaluation form. A weak
negative correlation was obtained for Question 3 (Class time was used effectively).
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At the MBA level there was a weak positive correlation (only significant for > 5.7%) for
Question 4 (Out of class assignments or projects were relevant to defined course content), and Question 5
(only significant for > 5.0%) (The professors presentations facilitated learning of the course content).
Weak negative correlation were obtained for Question 2 (The classroom presentations appeared organized
with a sense of direction to the instruction), Question 3 (Class time was used effectively), and Question 8
(The professor provided a description of grading standards and procedures at the beginning of the course).
Overall, little or no correlations were obtained between the average course grade and the average course
evaluation, which is consistent with the results reported in the literature. By and large the LMU data
appear to confirm the results reported in earlier studies, irrespective of which cut or view of the data is
taken.
However, an observation worthy of note occurs when the data is viewed by professor. For 67% of
professors there was no significant correlation between the average course grade and the average course
evaluation, which is consistent with the majority of results quoted in the literature. However it is
interesting to note that for the remainder of the professors positive as well as negative correlations were
observed. A weak negative correlation was observed for 11% of the professors and a strong negative
correlation was observed for 9% of the professors. A weak positive correlation was observed for 6% of the
professors and a strong positive correlation was observed for 6% of the professors. (Percentages do not
sum to 100% because of rounding). These two extremes may in some way explain the strong opposing
feelings and discussions on this issue in the corridors of academia for approximately one third of
professors who are at either extreme of the distribution.
CONCLUSIONS
In general the results reflected previous studies recorded in the literature but with some
interesting exceptions. MBA courses received higher grades than undergraduate courses but had lower
evaluations, presumably reflecting the higher abilities and expectations of the graduate students. Course
subject matter appeared to produce differences in course grade and course evaluation across departments.
These differences appeared to be inversely related. Course grades were significantly higher during the
summer semester (when course evaluations were not required). Contrary to most of the results in the
literature there was no significant difference in the average course evaluation between core and elective
courses at both undergraduate and MBA levels. Little or no correlation was found between course grades
and course evaluations. However, an interesting finding relates to the observing both positive and negative
correlations between the average course grade and average course evaluation for about a third of the
faculty.
REFERENCES
Aleamoni, L.M. (1987). Student Rating Myths Versus Research Facts. Journal of Personnel Evaluation
in Education, (1), 111-119.
Aleamoni, L.M., & Hexner, P.Z. (1980). A Review Of The Research On Student Evaluation And A
Report On The Effect Of Different Sets Of Instructions On Student Course And Instructor
Evaluations. Instructional Science, (9), 67-84.
Blunt, A. (1992) The Effects Of Anonymity And Manipulated Grades On Student Ratings Of
Instructors. Community College Review, 18(4), 48-54.
Brandenburg, D.C., Slinde, J.A., & Batista, E.E. (1977). Student Ratings Of Instruction: Validity And
Normative Interpretations. Research in Higher Education, (7), 67-78.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Brandenburg, G. C., & Remmers, H. H. (1927). A Rating Scale For Instructors. Educational
Administration and Supervision, (13), 399-406.
Cantor, P.A. (1998). Its Not The Tenure, Its The Radicalism. Academic Questions, Winter 97/98,
11(1), 28-37.
Centra, J.A. (1977). Student Ratings Of Instruction. American Educational Research Journal, 14(1),
17-24.
Dowell, D.A. & Neal, J.A. (1982). A Selective Review Of The Validity Of Student Ratings Of
Teaching. Journal of Higher Education, 53(1), 51-62.
Feldman, K.A. (1992). College Students Views Of Male And Female College Teachers: Part I
Evidence From The Social Laboratory And Experiments. Research in Higher Education, 33(3),
317-375.
Feldman, K.A. (1993). College Students' Views Of Male And Female College Teachers: Part II
Evidence From Students Evaluations Of Their Classroom Teachers. Research in Higher
Education, 34(2), 151-211.
Frey, P.W. (1976). Validity Of Student Instructional Ratings: Does Timing Matter? Journal of Higher
Education, 47(3), 327-336.
Goldberg, G., & Callahan, J. (1991). Objectivity Of Student Evaluations Of Instructors. Journal of
Education for Business, (66), 377-378.
Goldman, L. (1993). On The Erosion Of Education And The Eroding Foundations Of Teacher Education
(Or Why We Should Not Take Student Evaluation Of Faculty Seriously). Teacher Education
Quarterly, 20(2), 57-64.
Jirovec, R.L., Ramanathan, C.S., & Alvarez, A.R. (1998). Course Evaluations: What Are Social Work
Students Telling Us About Teaching Effectiveness? Journal of Social Work Education, 34(2),
229-237.
Koon, J. & Murray, H.G. (1995). Using Multiple Outcomes To Validate Student Ratings Of Overall
Teacher Effectiveness. Journal of Higher Education, 66(1), 61-81.
Koshland, D.E. (1991). Teaching and research. Science, 251-249.
Marsh, H.W. (1987). Students Evaluation Of University Teaching: Research Findings, Methodological
Issues, And Directions For Future Research. International Journal of Educational Research,
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McKeachie, W.J. (1990). Research On College Teaching: The Historical Background. Journal of
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Perry, R.P., Abrami, P.C., Leventhal, L., & Check, J. (1979). Instructor Reputation: An Expectancy
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Perry, R.P., Niemi, R.R., & Jones, K. (1974). Effect Of Prior Teaching Evaluations And Lecture
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851-856.
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Prave, R.S., & Baril, G.L. (1993). Instructor Ratings: Controlling For Bias From Initial Student
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Pulich, M.A. (1984). Better Use Of Student Evaluations For Teaching Effectiveness. Improving College
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Ramsden, P. (1991). A Performance Indicator Of Teaching Quality In Higher Education: The Course
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Remmers, H.H. (1928). The Relationship Between Students Marks And Students Attitudes Toward
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Remmers, H.H., & Brandenburg, G.C. (1927). Experimental Data On The Purdue Rating Scale For
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609
three random digits in range 610199
Faculty name
Ignored
Faculty ID
Five digits in range 80000-99999
Department information (course prefixes relate to Dept A, Dept B, Dept C, Dept D,
courses taught through the four CBA departments). Dept E
At the MBA level some courses (e.g., regional
studies, special studies etc.) are not associated (or
cross-listed) with any one of the four CBA
departments. These were considered to be as if they
were from a fifth department.
Appendix 2: Course Evaluation Form Questions
Demographic Information - - Questions A-E on Evaluation Form
A. Class Year:
5. Freshman
4. Sophomore
3. Junior
0. Other
Major? ___________________________________
B. LMU Accumulated GPA:
5. Under 2.0
4. 2.0-2.49
3. 2.5-2.99
C.Your Class Attendance:
5. Always
4. Almost Always
3. Usually
2. Senior
1. Graduate
2. 3.0-3.49
1. 3.5-4.0
2. Occasionally
1. Rarely
2. Yes
1. No
2. Yes
1. No
Q1
Q2
Q3
Q4
Q5
Q6
Q7
Q8
2: Seldom
1: Almost never
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0: N/A
page 45
INTRODUCTION
Fine art is a multibillion-dollar global business. However, business schools and academicians
have largely ignored the fine arts as an area of concentration. This is unfortunate because of the financial
size of the industry and because the expressive nature of fine art works which provides a unique
opportunity to extend the marketing exchange inquiry into the realm of study referred to as symbolic and
social values (Bagozzi, 1975). Whereas symbolic and social values may stand alone in exchange
situations, in the case of fine arts marketing, symbolic and social values become an intrinsic value of the
product which impacts the monetary value of the individual transaction. In this paper we use the term
fine arts to refer to painting in all media including watercolor, oil acrylic and mixed media, as well as
sculptor and ceramic works including carvings, castings, and hand-constructed objects. Further, in this
paper we view decisions to purchase fine art as intrinsically risky with most market valuations being
fraught with uncertainty. Standards for valuation are ambiguous and little consensus exists outside of the
work of recognized masters and gallery experts. The position taken here is that operators of commercial
galleries facilitate trust by providing social definitions that legitimate artworks by setting standards
through categorizing and evaluating process. Consideration is given in this article to the nature of fine art
as a product, the artist as the producer, the art buyer as a consumer, and the art gallery as the marketing
intermediary. It is the theme of this article that the art gallery adds value by reducing buyers perceived
risks through expertise attribution.
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the artist with celebrity status, and to associate the buyers decision with similar decisions by reputable
collectors and investors. While marketing intermediaries typically perform similar functions in many
personal selling situations, such value enhancing roles may be especially important in fine arts marketing
as there is a high dependency of the product on personal experiences, definitions, and reputation by the
gallery.
CONCLUSION
The commercial art gallery is in an unusually strong position in the channel of distribution as a
result of the artist attitude toward being involved in commercial transactions. The lack of a large enough
seller base and/or the existence of a central organization to bargain for the artists best interest adversely
affect the artist income and their ability to sell their art. The value in a work of art is highly dependent
upon the reputation and expertise of the art gallery, which is the most significant exchange element in an
exchange transaction. This is point at which the art gallery must be most effective as the broker for the
artist. It is anticipated that the gallery as the channel leader will bring the social definition to the work of
art to the marketplace for the artist. It appears only well known artist have the ability to impact the value
of their art by name recognition. The combines of the artists reputation along with the social definition as
previously developed, provides the greatest amount of value to both the artist and the buyer.
The Gallery is an especially effective value added reseller of art performing a multitude of tasks
to elevate the work of art to a favorable status level in the eyes of the buyer by affecting several intangible
dimensions of the work. The commercial art gallery uses the social definition of the art industry and art,
the artist production experience, and the potential buyers consumption experience to establish the value
of the work of art. This creation of wealth by the commercial art gallery industry provides them a strong
power base and establishes the gallery as the leader in the channel of distribution.
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REFERENCE
Bagozzi, Richard P. (1975), Marketing as Exchange, Journal of Marketing, Vol. 39 (October): 32-39.
Berger, Peter L. and Thomas Luckmann (1966), The Social Construction of Reality, Doubleday and
Company, Garden City, NY.
Durkheim, Emile (1954), Elementary Forms of the Religions Life, Translated by Joseph W. Swain, The
Free Press, Glencoe, IL.
Delehanty, Randolph (1996), Art in The American South: Works from the Ogden Collection, Louisiana
State University Press, Baton Rough, LA.
Houston, Franklin S. and Jule B. Gassenheimer (1987), "Marketing and Exchange," Journal of
Marketing, Vol. 51 (October), 3-18.
Koretz, Gene (1999), Portrait of the Artists, Business Week, May 3, 1999, p. 27
Kotler, Phillip (2000), Marketing Management, Prentice Hall, Upper Saddle River, NJ.
Marx, Karl (1962), Alienated Labor, in Eric Josephson and Mary Josephson, Man Alone: Alienation in
Modern Society, Dell Publishing Company, New York, 93-105.
Meah, Johnny (1999) A conversation with the artist, November 14, 1999.
Porter, Michael (1980), Competitive Strategy: Techniques for Analyzing Industries and Competition, Free
Press, New York.
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EXECUTIVE SUMMARY
An experiment was conducted to analyze differences between Japanese and American risk taking
propensity. Japanese were found to be more negative or risk averse.
The study involved the gain or loss of a physical resource. That is, the subjects in the study could
either win a free dinner, or wash dishes if they lost in a gamble. The result was that the Japanese were
more negative than Americans about the prospect of losing in the present as well as in the future.
The managerial implications of the study may be that the Japanese are less optimistic than
Americans in viewing the probability of a loss occurring. The Japanese subjects seemed to dwell on the
occurrence of negatives, especially for the future and may also have a different perception of time
duration. That is, the Japanese may have a longer time horizon for viewing the future than Americans
and see future events as being more immediate. Numerous business examples support this notion that the
U.S. is short-term focused.
INTRODUCTION
Consumers and marketing managers alike commonly make decisions where good and bad
outcomes may occur either in the present or in the future. For example, overconfident American
automotive executives in the 1970's gambled on domestic consumer preferences and lost when U.S.
automakers avoided short-term costs by delaying the redesign of their cars for fuel economy. In turn,
Japanese automotive executives carefully made lower risk decisions to enter the U.S. automobile market
with inexpensive, gas efficient cars at a time when economy was quickly becoming paramount.
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The example above illustrates that decisions may be influenced by the perceived level of risk
(Bauer, 1960), the timing of the outcome (Mowen and Mowen, 1991), and how the outcome is framed
(Kahneman and Tversky, 1979). While the relationships between risk, outcome framing, and timing of
outcomes have been previously studied in the behavioral decision literature (e.g., Lipschitz, 1989; Mowen,
Bristow, and Amyx, 1994), they have been virtually ignored within the cross-cultural literature. Risk
perception has been identified as a salient dimension to compare individuals and organizations across
cultures (Clark, 1990). However, there is scant evidence of any theoretical underpinnings in crosscultural research as the studies tend to be fragmented and isolated (Clark, 1990).
Given the need to develop more integrative, theory-based cross-cultural research, the authors propose a
study which compares individuals from Japan and America to understand whether culture significantly
influences one's assessment of a choice involving a known level of risk. Time and Outcome Valuation
model (TOV) is used to explain and predict the differences between individuals from Japan and America
given culture-based propensities for risk in combination with varying time duration's between one's
decision and the outcome of that decision.
THEORY DEVELOPMENT
The TOV model describes the impact of time on the valuation process by integrating Kahneman
and Tversky's (1979) prospect theory and Miller's (1959) approach-avoidance conflict theory. Like
prospect theory, TOV forwards that how gains or losses are framed (e.g., negatively or positively)
influences how they are psychologically valued, where losses are weighted more heavily than gains. TOV
adds a time dimension to prospect theory and proposes that time systematically influences how individuals
value the worth of losses and gains, such that the psychological value of a loss is discounted over time
more quickly than that of a gain (Mowen and Mowen, 1991). In addition, the TOV model incorporates
approach-avoidance conflict theory (Miller, 1959) by proposing that the delay of a gain is considered a
loss, while the delay of a loss in viewed as a gain. Other researchers (Benzion, Rapoport, and Yagil,
1989; Loewenstein, 1988) agree with the claim that individuals discount losses more quickly than gains.
Cross-cultural research has yet to develop any paradigms (Nasif, Al-Daeaj, Ebrahimi, and
Thibodeaux, 1991) but in an effort to move forward, research here should be more integrative and theorybased (Ricks, 1985). Realizing these concerns, the authors seek to integrate a model of decision making
with cross-culture based issues of risk taking
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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American Culture
The use of probabilities to assist decision making under conditions of uncertainty is an important
assumption within decision theory (McDaniels and Gregory, 1991). Within decision theory, risk is
typically a reflection of the variation in the distribution of possible outcomes, their probabilities, and their
subjective values (March and Shapira, 1987).
Assess Probability
Research about Americans' ability to use probabilities to make decisions has been somewhat
mixed. In a study by Kahneman, Slovic, and Tversky (1982), North Americans were considered to be
poor users of probabilistic material. However, other research (Phillips and Wright, 1977; Wright and
Phillips, 1980) appears to contradict Kahneman et al. (1982). In a study using British students, these
subjects were able to express uncertainty in calibrated, well-defined degrees of probability. Although the
subjects were not American, strong similarities between British and U.S. cultures based on managerial
decision-making ability exist (Haire, Ghiselli, and Porter, 1966).
Financial/Managerial Decisions
In terms of financial/managerial decisions, Americans may be generalized with an emphasis on
individual responsibility rather than group responsibility. It is common for individuals to be singled out
for management errors (Sullivan, Suzuki, and Kondo, 1986). In addition, American managers may tend
to emphasize innovation and creativity, with strongly emphasized and explicitly written short-term
profitability goals (Lazer, Murata, and Kosaka, 1985).
Perceive Risk
In terms of risk, Americans seem to be more concerned with unknown risks, while other cultures
seem to be more concerned with known risks (Kleinhesselink and Rosa, 1991). However, there is
evidence that American perceptions of risk may be changing (Keown, 1989).
In addition, Americans may be viewed as possessing risk-like qualities. In a study by Barnlund
(1975), American students rated themselves and were rated by Japanese students on a number of
individual characteristics. Interestingly, American students were perceived in a composite cultural profile
as being very "spontaneous," "impulsive," as not seeking "a protective relationship," and not at all
"cautious."
Japanese Culture
Assess Probability
In terms of the ability of Japanese to use probabilities to help make risky decisions, Asians have
been found to exhibit more extreme and unrealistic views regarding estimates of risk (Wright, 1984). One
possible explanation for such findings could be the relative "fate-orientation" found in Asian cultures
(Phillips and Wright, 1976).
Financial/Managerial Decisions
Concerning financial/managerial decisions, Japanese tend to plan and think for the long term
(Neff, 1989) but have been criticized for emphasizing implementation over change, creativity, and
innovation. Japanese emphasize group decisions and consensus building where individual behavior is
merged with group functioning (Befu, 1980; McDaniels and Gregory, 1991; Lazer et al., 1985; Sullivan,
Suzuki, and Kondo, 1987) and the employees are the firm's shareholders as well (Lazer et al., 1985).
That is, there is no distinction between the firm's employees and the firm's shareholders.
Perceived Risk
The extensive use of "groupism" (Befu, 1980) and consensus building may be a mechanism to
share risk and reduce any ambiguity or perceived risk (McDaniels and Gregory, 1991; Sullivan et al.,
1987). For example, the effect of a "risky-shift" has been observed for members working together in
groups. Sims, Harley and Weiner (1974) noted a tendency toward risk-taking behavior in group decisions
compared to risk levels taken by the same people individually. Thus, the use of groups by Japanese should
be considered as a potential influence on decision making given risky alternatives.
Japanese appear to be most concerned with known risks. In a study of risk perceptions by
Kleinhesselink and Rosa (1991), Japanese students viewed nuclear issues as "old and known," compared
with American students who viewed them as "new and unknown." The cumulative findings seemed
somewhat of a "mixed bag" of similarities and preferences but the greatest differences between U.S. and
Japanese students were between "known" and "unknown" risks (Kleinhesselink and Rosa, 1991).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Japanese have been viewed as possessing risk-averse qualities. In a study by Barnlund (1975),
Japanese students assessed themselves and were also profiled by American students as being very
"cautious" and seeking "a protective relationship."
In sum, Japanese seem to have some distinct differences in their outlook on managerial decision
making and attitudes toward risk. Compared to Americans, Japanese appear to be more averse to known
risks. They have been generalized as more cautious, and more likely to look to the long term, rather than
the immediate future. Based on the review of the U.S./Japanese cross-cultural decision making literature,
the final hypothesis is forwarded.
HYPOTHESIS
H1: Where known risks are given, Japanese subjects tend to be less willing to take risks toward
physical losses and more risk averse toward physical gains, when compared to American subjects.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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8 of the 24 people in the contest will each spend one night washing dishes at a favorite restaurant. The
drawing is tonight. The 8 names chosen will wash dishes in (3 days; 6 months).
Physical Loss (Japanese Version)
(Scenarios 7 and 8)
Imagine you have a chance to spend one night washing dishes at a favorite restaurant in a drawing at a
bazaar sponsored by a club you belong to. (The time spent washing dishes benefits a worthwhile charity.)
8 of the 24 people in the contest will each spend one night washing dishes at a favorite restaurant. The
drawing is tonight. The 8 names chosen will wash dishes in (3 days; 6 months).
Please note that the subjects had a one in three probability of having his/her name drawn. After reading
the scenario, the subjects rated their attitudes about the drawing in the scenario. The following dependent
measures were used.
Dependent Variable 1: Feeling if Name is Selected
How would this drawing make you feel if your name were drawn?
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Very
Neutral
Very
Bad
Good
Dependent Variable 2: Overall Feeling About Drawing
Overall, how do you feel about this drawing?
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Very
Neutral
Very
Bad
Good
Dependent Variable 3: Perceived Risk of Drawing
How risky do you feel that this drawing is?
5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100
Very
Neutral
Very
Bad
Good
RESULTS OF STUDY
The results of the study yielded main effects for the variables "national origin" and "outcome of
the drawing" for each of the three dependent measures of risk taking. The results indicated that in all
cases, Japanese viewed the drawing more negatively and risky than the Americans. In addition, the
subjects viewed losing significantly more negative (at the 0.05 level) than winning.
Of particular interest was an interaction between national origin and outcome of the drawing for
the dependent measure of "feeling if name is selected" (F:4.24, p<0.05). Given the chance of a physical
loss, the Japanese (mean=42.7) viewed such a prospect significantly more negatively than the U.S.
subjects (mean=61.7). Other differences were noted between the cultures regarding the prospect of a
physical loss. The Japanese felt significantly more negative about losing in the present (i.e., in 3 days)
than Americans for each of the three measures of risk taking (feeling F:10.14; overall feeling F:5.54;
perceived risk F:6.12). However, there were no statistical differences regarding a physical loss 6 months
in the future.
A major difference between the two cultural groups was noted based on how the members felt
when the outcome of losing or winning was delayed over time. For the Americans, there was significant
difference between winning or losing in the present (F:9.76), yet they held no preference regarding a gain
or loss in the future. In contrast, the Japanese felt significantly worse (i.e., if their name was drawn) about
losing both in the present (F:16.64) and the future (F:4.71).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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DISCUSSION
The tentative findings from the study offer support for the idea that Japanese and Americans have
different views about the timing of outcomes and the probability of those outcomes occurring. Most
interestingly, the study found some consistency in the Japanese' aversion to losses. In addition, the
Japanese felt more negatively about a physical loss versus a gain in both the present and in the future
while the Americans indicated negative feelings toward a physical loss versus a gain only in the present.
Immediate physical losses are often preferred to delayed losses as there may be a "dread" effect in
waiting for the negative event (Loewenstein, 1987). However, the Japanese were less optimistic about
such losses than the Americans. Thus, the valuation and rate of discounting of losses over time may vary
based on cultural factors. Consequently, further effort should be made to investigate the differences
between physical gains and losses in combination with differences in cross-cultural valuation of such
resources over time.
CONCLUSION
In conclusion, the study found significant differences between Japanese and American students
on measures of risk taking. The study found the Japanese to view physical losses in the present more
negatively than Americans. These findings have implications for managerial planning horizons, and lay a
foundation for further study in cross-cultural comparisons of risk using an integrative theory.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
Internet retail sales have escalated dramatically in recent years and this rapid growth looks set to
continue. Estimates indicate that US online retail sales will reach US$20 billion in 1999 and soar to
US$184 billion in 2004 (Forrester Research Inc., 1999). Accordingly, retailers are beginning to
understand that the key to assessing potential online sales of their products is by gaining a deeper insight
into the characteristics and behavior of Internet users (Reynolds, 1997). Examining consumers shopping
orientations is one way of achieving this. It has been suggested that shopping orientations are a consumer
characteristic with significant influence on retail outlet choice (Neal, Quester, and Hawkins, 1999).
Shopping orientations have been used in a variety of retail contexts to identify groups of consumers who
have a preference for particular types of shopping behavior (e.g. Darden and Ashton, 1975; Dholakia,
Pedersen, and Hikmet, 1995; Gehrt and Carter, 1992; Lesser and Hughes, 1986; Lumpkin, 1985;
Moschis, 1976; Reynolds, 1974; Westbrook and Black, 1985; Williams, Painter, and Nicholas, 1978).
The purpose of this research is to examine the extent to which shopping orientations influence
consumer purchase of products via the Internet. Although the retail literature has a considerable history of
research regarding shopping orientations and selection of retail patronage mode, no prior study has
empirically investigated the relationship between shopping orientation and online purchase behavior.
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potential customers. In reality, this is not the case. Due to consumers diverse shopping preferences, it
has been suggested that retailers should develop strategies contingent upon consumers shopping
orientations (Gehrt and Carter, 1992). Shopping orientations refer to the general predisposition of
consumers toward the act of shopping (Gehrt, Alpander, and Lawson, 1992).
A consumers shopping orientation influences both the general type of outlet selected and specific
store choice. For example, a person who is primarily concerned with convenience and time-saving may be
more inclined to shop at a local store with fast service. Another individual who enjoys browsing or
window shopping may prefer to spend their leisure time in a mall with numerous types of stores. Studies
of shopping orientation have provided useful insights into the behavior of certain groups of consumers and
have a valuable role to play in the future of retail management (Neal, Quester, and Hawkins, 1999).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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A more simplified approach to segmenting consumers on the basis of shopping orientation was
proposed by Bellenger and Korgaonkar (1980). Based on earlier work by Bellenger, Robertson, and
Greenberg (1977), they conceived a shopper typology consisting of two general groups: 1) the recreational
shopper and 2) the economic-convenience shopper. The recreational shopper is defined as a person who
enjoy[s] shopping as a leisure-time activity (Bellenger and Korgaonkar, 1980, p.78). In the current
study, this recreational approach to shopping is termed shopping enjoyment.
For a detailed review of other shopping typologies, see Westbrook and Black (1985) and Lesser
and Hughes (1986). A summary of the findings of several important shopping orientation studies is
presented at Table 1.
Table 1: Summary of Major Shopper Typologies
Author(s)
Sample
Makeup
Department
store
shoppers
Analysis
Method
Cluster
Analysis
Buyers of
apparel,
shoes, and
toys
Cluster
analysis
Store-loyal
Compulsive/recreational
Convenience
Price-bargain-conscious
Darden and
Reynolds
(1971)
167
Female
heads of
households
Canonical
correlation
Economic
Darden and
Ashton (1975)
116
Female
grocery
shoppers
Cluster
analysis
Buyers of
cosmetics
Factor
analysis
Special
Brand-loyal
Store-loyal
Problem-solving
Psycho-socialising
Name-conscious
Williams,
Grocery
Cluster
Low-price
Stone (1954)
Sample
Size
124
298
Shopper Types
Economic
Personalising
Ethical
Apathetic
Chain storedepersonalising
Ethical
Apathetic
Apathetic
Demanding
Quality
Fastidious
Stamp preferer
Convenient location
Stamp hater
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Painter, and
Nicholas
(1978)
page 62
shoppers
analysis
Convenience
Involved
Apathetic
Bellenger and
Korgaonkar
(1980)
324
Adult
shoppers
Discriminant
analysis
Recreational
Economic-convenience
Lumpkin
(1985)
373
Elderly
shoppers
Cluster
analysis
Apathetic
Economic
Active
Westbrook and
Black (1985)
203
Adult
shoppers
Factor
analysis
Shopping process
involved
Choice optimisation
Shopping process
apathetic
Apathetic
Economic
Nondescript
Lesser and
Hughes (1986)
6808
Heads of
households
Q-Factor
analysis
Inactive
Active
Service
Traditional
Dedicated fringe
Price
Transitional
Gehrt and
Carter (1992)
297
Heads of
households
Factor
analysis
Catalog convenience
Store recreational
Catalog recreational
Merchandise intensive
Impulse
Shim and
Mahoney
(1992)
872
Elderly
shoppers
Factor
analysis
Instrumental clothing
usage
Fashion conscious
Price conscious
Shopping interest
Shopping confidence
Credit user
Catalog preference
Brand conscious
Time conscious
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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conventional shopping (Rowley, 1996). Conversely, it is implied that individuals who dislike the
shopping process (i.e. apathetic shoppers) may be more amenable to purchasing online.
H3:
There will be a significant negative relationship between shopping enjoyment and the prior
purchase of products via the Internet.
Consumers who feel an obligation to purchase from merchants in their local community may also
demonstrate less willingness to buy from vendors over the Internet.
H4:
There will be a significant negative relationship between consumer loyalty to local merchants and
the prior purchase of products via the Internet.
In addition, if consumers enjoy personalised relations with store personnel they may be even
more unlikely to purchase via the Internet. The face-to-face service encounter is unavailable to most
online shoppers, at least until real-time video communication technology becomes more sophisticated,
affordable, and widespread. Some consumers may be resistant to new ways of purchasing products,
especially when the new way represents loss of personal contact (Moutinho, 1992). Support for such a
view comes from Moutinho and Meidan (1989) who, in a study of services in the banking industry, found
that many consumers placed considerable importance on the human factor in commercial transactions.
H5:
There will be a significant negative relationship between the importance of a personalised
shopping experience and the prior purchase of products via the Internet.
Research has suggested that there is a strong correlation between Internet usage rate and online
purchasing (APT Strategies, 1998), with the majority of online shoppers accessing the medium on daily
basis. It is therefore expected that Internet usage rate will covary in the effect of shopping orientation and
online purchase behavior. In addition, it is expected that individuals who are innovative in the domain of
technology products will be more likely to purchase products via the relatively new distribution medium of
the Internet than less innovative technology users. Those consumers who are less innovative in the use of
technology products may be more inclined to seek for product information only and commit their
purchasing to conventional retail outlets. To allow for the anticipated mediating effects of Internet usage rate
and technological innovativeness, it is hypothesised that:
H7:
Internet usage rate and technological innovativeness will be significant covariates in any main
effect from shopping orientation to prior online purchase.
METHODOLOGY
Sampling and Data Collection. A total of 964 US Internet users were randomly selected from a
mailing list owned by a US online market research firm, then contacted by e-mail and requested to
participate in the research. Two groups of 482 potential respondents were each directed to one of two Web
addresses. In order to reduce the order effect of survey items, a separate questionnaire was used for each
group so that the order in which constructs and items were presented could be manipulated.
To complete the questionnaire, participants were required to fill out the form online. In an effort
to minimize the number of missing responses, an on-screen message was presented to respondents if they
filled out the questionnaire incorrectly. They were then given the option of amending their responses or
submitting the questionnaire in its current, incorrect format. Participants were not compelled to amend
their responses in order to avoid the possibility of them becoming offended and dropping out of the study
altogether.
A total of 440 responses to the online questionnaire were received of which 437 responses were
useable. This represented an overall response rate of 45.64%, which is favourable by comparison with
mail surveys (Yu and Cooper, 1983).
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Demographic Profile of Respondents. Of the 437 useable responses, 302 were from males
(69.11%) and 135 from females (30.89%). Males therefore outnumbered females more than two to one.
Several recent studies of Internet users indicate that the number of women using the Internet is almost as
high as that of men (Georgia Institute of Technology, 1998; Iconocast, 1998). Age distribution was
measured using seven categories ranging from under twenty years of age to older than sixty-five years.
There was a relatively normal distribution across age categories with the majority of respondents
(approximately 75%) falling between the ages of twenty-five and fifty-four.
In terms of the education level of survey participants, the vast majority (86.96%) of respondents
confirmed that they have attended or graduated from college or a higher education institution.
Examination of respondents income revealed no unusual patterns, with decreasing numbers of survey
participants earning increasingly larger incomes. The exception was those individuals reporting income
below $30000 per annum, who constituted 18.54% of the sample. The majority (64.29%) of consumers
indicated annual earnings of between US$30000 and $80000.
The sample was separated into five broad employment categories: 1) computer-related (23.74%),
2) education (21.23%), 3) professional (14.62%), 4) management (15.98%), and 5) other (24.43%). This
classification method is consistent with methods used in previous research on Internet users (e.g. Georgia
Institute of Technology, 1998).
With the exception of gender, no substantial bias exists within the demographic makeup of the
sample to indicate it is unrepresentative of the Internet user population in general. Estimates of the gender
ratio vary widely with some studies (e.g. Georgia Institute of Technology, 1999) putting the percentage of
female users as low as 35.8%. The gender ratio for the current study is not especially skewed given that
most research acknowledges that male Internet users outnumber female.
Measurements. Shopping enjoyment. Shopping enjoyment was operationalized using a multiitem, summated scale developed by Bloch, Sherrell, and Ridgway (1986). The instrument consists of five
Likert-type statements with responses ranging from strongly disagree (1) to strongly agree (5). In the
study by Bloch, Sherrell, and Ridgway (1986), the authors reported a Cronbachs alpha coefficient of 0.84,
indicating good reliability.
Personalizing Orientation. To assess the extent to which individuals possess a personalizing
orientation toward shopping, a three-item scale, first used by Hawes and Lumpkin (1984), was included in
the questionnaire. Hawes and Lumpkin showed that the scale is reliable with an alpha of 0.84 recorded in
their original study. Factor analysis of the items indicated the scale was unidimensional and exhibited
evidence of discriminant validity.
Convenience. Convenience was operationalized in this study using a three-item, summated,
Likert-type scale initially employed by Shamdasani and Ong (1996) to measure the importance of
convenience to in-home shoppers. Their research resulted in a Cronbachs alpha of 0.86 for the scale and
was therefore considered appropriate for the current research.
Loyalty to Local Merchants. The degree to which consumers patronize local stores out of moral
obligation to their community was referred to by Hawes and Lumpkin (1984) as loyalty to local
merchants. The itemized scale used to measure this construct consisted of three Likert statements. In the
Hawes and Lumpkin research, the instrument exhibited reliability with a Cronbachs alpha of 0.76.
Price Consciousness. Consumers propensity to be price conscious when engaging in shopping
activities was measured using a four-item, Likert-type scale developed by Tat and Schwepker (1998). The
summated scale was a modified version of the original instrument used by Wells and Tigert (1971).
Reliability testing resulted in alpha coefficients of 0.71 and 0.70 for both studies respectively.
Apathetic Orientation. In this study, the apathetic shopping orientation was not measured
directly but was implied by low scores on the shopping enjoyment orientation.
In this research project, it was expected that Internet usage rate and technological innovativeness
might influence the relationship between shopping orientation and purchase behavior. To control for this
influence, analysis of covariance was used as the method of analysis and the variables were treated as
covariates in the main effects.
Technological Innovativeness. Consumer innovativeness in the domain of high technology
products was measured using a modified version of Goldsmith and Hofackers scale (1991). Suggested
high technology products included computers, modems, mobile phones, pagers, personal organizers,
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Internet accounts, cable TV, and hand-held computers. The multi-item scale consisted of six Likert-type
statements of which three were reverse scored. Goldsmith and Hofacker (1991) reported high reliability
across a range of product categories with coefficient alpha levels above 0.80.
Internet usage rate. Internet usage rate was measured by asking respondents to state how many
hours per day, on average, they use the Internet.
Prior Purchase. Prior purchase was measured by asking respondents how many purchases they
had ever made completely via the Internet.
Pretest. To test whether the final questionnaire could be completed in its present form or required
modifications, a pretest was conducted using a sample of 40 students from an undergraduate marketing
class. The intention of the pilot study was not to analyse relationships between variables but to assess the
questionnaires overall performance in terms of wording, ease of completion, and reliability of multi-item
scales. No modifications to the final instrument were required.
RESULTS
A total of six summated variables were used in the study. Each was tested for internal consistency
reliability using Cronbachs alpha and all exceeded the minimum recommended by Nunnally (1978) of
0.70. Descriptive statistics outlining the reliability of the scales as measured by Cronbachs alpha, are
presented at Table 2.
Table 2: Reliability Coefficients of Scales Used in Research
Cronbachs Alpha
Scale
Number of Items
Shopping Enjoyment
5
Convenience
3
Personalizing Shopper
3
Loyalty to Local Merchants
3
Price Consciousness
4
Innovativeness
6
n=437
Source: analysis of survey data.
0.79
0.70
0.87
0.80
0.74
0.82
Effect
df
MS
Effect
MS
Error
Main Effects
Shopping Enjoyment
Personalizing
1, 386
1, 386
3.146
7.412
12.244
12.244
0.257
0.605
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0.613
0.437
Convenience
Price-Consciousness
Loyalty to Local Merchants
page 67
1, 386
1, 386
1, 386
7.795
0.611
0.000
12.244
12.244
12.244
0.637
0.050
0.000
0.425
0.823
0.997
911.04
6
12.241
74.407
*0.000
Covariates
To test for any significant interaction between the covariates and the main effects, a within cells
regression was performed for each of the two analyses of covariance. Results of the within cells regression for
the main effect of shopping orientation and purchase intention appear at Table 4.
Table 4: Within Cells Regression Analysis for Covariates of Technological Innovativeness and
Internet Usage Rate
Covariates
Innovativenes
s
Usage Rate
Standard
Error
.0252
.090
Beta
0.172
3.952
*0.000
0.485
R = 0.28
11.171
*0.000
n = 219
* Significant at p < .001
Source: analysis of survey data.
It is evident from Table 4 that both innovativeness and usage rate are significant covariates. The
results confirm that the relationship accounts for a relatively large proportion of the variance (R2 = 0.28).
Hypothesis 7 is therefore accepted.
DISCUSSION
The significance of this study lies in exposing the erroneous assumption that consumers who
purchase products online are primarily convenience-oriented shoppers. The results are in apparent
contradiction to the findings of several other studies (APT Strategies, 1998; Burke, 1998; Georgia
Institute of Technology, 1998; Jarvenpaa and Todd, 1997), which suggest that convenience is the primary
motivation of those who use the Internet for purchasing. It also contradicts the popular belief that people
who enjoy the shopping process itself are less likely to purchase products in an online environment. Based
on the findings, it might be suggested that the population of online purchasers is coming to resemble that
of many mainstream retail buyer markets, wherein a range of shopping orientations have been observed.
The results are also consistent with the retail literature on catalog shopping that suggests
consumers do not necessarily purchase solely for convenience purposes. Based on these findings, it might
be suggested that online retailers whose primary strategy is based on appealing to consumers perceptions
of convenience, may be misguided. Efforts directed at facilitating price comparisons or enhancing
enjoyment of the online shopping experience could prove to be equally effective.
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The outcomes of this study may be of use to managers of firms who currently engage, or are
planning to engage, in retail trade via the Internet. It has been widely assumed that the majority of
consumers who purchase online do so primarily for convenience. This perhaps overly simplistic view is
not supported by the research presented here. The results indicated that consumers who shop online do
not predominantly exhibit any one type of shopping orientation.
There are challenges to online retailing and profitable Internet retailers are said to be among the
minority. Rather than conceptualizing the Internet as a purely convenience-oriented patronage mode,
retailers may be better served by taking a more holistic approach with their marketing strategies. By
acknowledging that multiple groups of Internet shoppers exist and appreciating that they are driven by
fundamentally different shopping motivations, online vendors can employ tactics that meet the needs of
each of these consumer groups. For example, although convenience is clearly important to many Internet
shoppers, the design of a Web site might also incorporate elements that enhance the enjoyment of the
product acquisition process or the ability to compare prices with other firms.
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REFERENCES
APT Strategies ((1998)), APT Strategies Newsletter July (1998),
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INTRODUCTION
With the increasing pace of globalization over the past decades, it is imperative that firms in the
international arena fully comprehend the dramatic changes underway in Europe. The movement towards
a unified economy and a common currency, the Euro, will have a significant impact on the way businesses
in the United States must compete. Particularly challenged will be small to mid-sized regional businesses
who have become increasingly affected by global business, but are limited in their ability to analyze the
changes underway.
Experience has demonstrated that for businesses to be successful globally, it is essential that there
be a cadre of well-trained business professionals fluent in the languages of the countries in which trade is
conducted and who are sensitive to cultural nuances that underlie their social and political fabric
(Weathersby, 1997). It is also critical that these business leaders understand the dramatic changes that are
shaping the underlying economic principles upon which international business is based. Unfortunately,
there is a shortage of such business professionals at the entry level and only limited numbers of highly
trained experts having knowledge of the economies and markets of foreign countries (Leonidou, 1997).
This is particularly true for smaller regional firms with access to large commercial centers. Of all the
economic events that have taken place on the international scene, the one that has the potential for the
greatest impact, yet probably the least understood, is the introduction of the Euro.
The purpose of this paper is to describe the changes currently underway in the European
Community which will have lasting impact upon those American businesses who wish to initiate or
expand their involvement with European markets. Specifically, the paper discusses the advantages and
disadvantages of the introduction of the Euro to American businesses, with an emphasis on smaller,
regional firms. An overview of the context of the development of the Euro is presented, as well as some of
the potentially positive and negative impacts on global business. Finally, the paper details some specific
areas of business operations that managers must address in order to successfully compete in Euroland.
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U.S. dollar has reigned supreme as the worlds default medium of exchange, challenged only occasionally
by the Japanese yen. Now the dollar will, in all likelihood, have to share the stage with the Euro, also. A
weaker dollar may mean more inflation and higher interest rates in the U.S.
One of the most widely touted benefits of the Euro is that it will greatly simplify many aspects of
traveling and doing business in Europe. When the Euro is fully operational, tourists will no longer have
to endure multiple currency exchanges and price/exchange rate comparisons. An American traveler can
convert dollars to Euros at the prevailing exchange rate and then can spend those Euros anywhere from
Lisbon to Helsinki for products priced in terms of a single currency.
The simplification of exchange rates will also eliminate the need for businesses to involve
themselves in complex currency market transactions or to pay financial institutions to do this for them.
For small companies doing business in Europe, the cost saving from avoiding such transactions is
estimated to be around 1% to 2% of their sales and purchases (U.S. Department of Commerce). However,
even more important than these savings is that companies can focus more of their attention on production
and marketing decisions, rather than exchange rate considerations.
Some of the advantages of the Euro to Europeans can also have indirect benefits to businesses in
America and elsewhere. For instance, a single pricing unit will allow European consumers to compare
prices across the continent as easily as they compare prices across town. This will enhance competition,
helping to lower prices, and expand purchasing power. Lower interest rates can also be expected as a
result of the lessened price pressures and increased competition within the financial system. Lower
interest rates tend to spur economic growth. And, to the extent that the Euro promotes faster economic
growth and enhanced consumer affluence, it will expand export opportunities for the EMUs trading
partners, including the U.S.
Against these and many other expected benefits, there are also some very real and potentially
frightening risks associated with the new European monetary regime. Simply put, the monetary policy
structure that underlies the Euro is designed to deal with economic problems that affect the entire
currency area in a fairly uniform way. This monetary structure may not be so effective in situations where
there are wide discrepancies in the type of problems that the EMU nations experience. In fact, the Euro
structure may actually exacerbate such problems.
In general, if a country is in a recession, it can use monetary policies to lower its interest rates
and exchange rates, in order to provide domestic and international stimuli to the economy. A country can
also marshal the governments tax and spending system to stimulate the economy with fiscal policy.
Likewise, restrictive monetary and fiscal policy combinations can be used to keep a healthy expansion
from turning into an inflationary spiral. The U.S. can do this and so could the member nations of the
EMU -- prior to their joining the EMU.
Consider the potential difficulties if some EMU member countries experience economic
weakness, while rapid growth threatens to create inflationary pressures in some other member nations.
Under terms of the EMU, countries cannot pursue independent monetary policy to adjust interest rates and
exchange rates to deal with problems in their own economies. Also, countries with weak economies may
be prevented by the EMUs deficit/debt limitations from using independent fiscal policy to stimulate
business conditions.
Other forms of adjustment are also unlikely. Language and cultural differences in Europe remain
a significant barrier to workers ability to move from where labor demand is weak to where it is strong.
At the same time, long-standing inflexible regulatory structures make wage and price adjustments
difficult.
A pessimistic assessment would suggest that the Euro will cause higher unemployment in
Europe, political unrest, and ultimately will lead to the painful disintegration of the EMU and the
European Union itself. The optimistic counterpoint would suggest that the Euro will actually engender a
process of institutional reform that will eliminate the sources of rigidity, resulting in a win-win situation
for the members of the EMU. Which of these scenarios is correct is impossible to predict. Suffice it to say
that neither the success of the Euro nor its failure is a foregone conclusion.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Are you Ready for the Upcoming Euro, Altis Conseil on Management, http://www.altis.fr/us
Euro-Europe United Through a Single Currency, Association for the Monetary Union of Europe,
http://amue.lf.net/q_a/qa_index.htm
Leonidou, Leonidas C. (1997). "Stimuli and Barriers to Global Business: Exporters Versus Importers",
Journal of Global Business, Volume 8, Number 15, Fall 1997.
U.S. Department of Commerce, http://www.mac.doc.gov/Euro/benefitquestions.htm#1
Weathersby, George B. (1998). "Competing in a Global Economy", Management Review, Volume 87,
Number 7, July-August 1998.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
Organizations around the world spend millions of dollars every year to secure the rights to
certain athletes and sports figures, believing that, by utilizing these famous individuals in advertisements
and promotions, adolescent consumers will attempt to emulate these athletes and buy the products being
endorsed (Ohanian 1990). Although it has been suggested that famous athletes influence the self-views of
young adults (Lockwood and Kunda 1997), and that sports stars are a popular choice among national
advertisers today (Lafferty and Goldsmith 1999), research analyzing the explanation for, and effectiveness
of, utilizing athletes as product endorsers has been relatively scant.
The teenage market in the U.S. represents tremendous opportunity to advertisers. Recent figures estimate
that teens spend nearly $100 billion a year (Zollo 1995). Projections indicate that by 2010, the teenage
population will have grown to approximately 31 million, exceeding their number in any of the baby boom
years of the 1960s (Miller 1994). Moreover, Zollo (1995) posits that teens are extremely important targets
because: 1) they influence the monetary outlays made by their parents, 2) of the money they will spend in
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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THEORETICAL FOUNDATIONS
Adolescents are often influenced by a variety of outside interests while adopting their own set of
self-image, lifestyle, and consumption patterns. A significant amount of research in the social sciences
has been devoted to determining how consumers develop these particular consumer behaviors and what
variables or factors influence consumers. Two models of human learning, the cognitive-psychological
model and the social learning model, have been utilized extensively to explain and predict how consumers
make consumption-related decisions (Moschis and Churchill 1978). In communication and advertising
research, the social learning model has often been a popular choice for explaining consumer behavior
(Moschis and Smith 1985). Proponents of social learning theory suggest that individual consumers
develop consumption-related attitudes and behaviors through learning experiences. These experiences
can occur in a variety of contexts as consumers are exposed to a multitude of different influences and
adventures, and are extremely important in shaping the consumer behavior of young adults and
adolescents (King and Multon 1996).
Previous research has established that these learning experiences may be vicarious,
indicating that consumers learn or model behaviors, values, attitudes, and skills through the observation
of other individuals, or through observations of electronic or print media (Bandura 1977). Positive
reinforcement from these outside individuals or media can reinforce preferences in deciding which
behaviors, values, attitudes, and skills are appropriate or accepted in a social context (Mitchell, Jones, and
Krumboltz 1979). Hence, previous research recognizes that people acquire a significant portion of their
behavioral tendencies through the observation and imitation of others in a social context (Bandura 1986),
and that these individuals are often considered role models (King and Multon 1996).
Included in the social learning process is the more specific acquisition of consumption-related
behaviors. Through exposure to social models, consumers acquire the knowledge, skills, and dispositions
needed to make purchase decisions (Ward 1974). The concept of consumer modeling or socialization has
been utilized to determine, among other things, how consumers learn thought processes and consumption
behaviors through modeling (Moschis and Churchill 1978). Role models for consumers can be anyone the
individual consumer comes in contact with that potentially can influence the consumers consumption
decisions (Bandura 1977). From this conceptual definition of role models, it is obvious that parents,
teachers, peers, or relatives can all be considered role models. In fact, many recent research studies have
analyzed how parents and/or peers influence the consumption attitudes of individual consumers (Bush,
Smith, and Martin 1999; Carlson et al. 1994; Keillor, Parker, and Schaefer 1996; Laczniak, Muehling,
and Carlson 1995).
What many current research studies ignore, however, is the impact of role models with which the
adolescent has little or no direct contact. A recent study examining the impact of role models on the selfviews of young adults recognized that individuals of outstanding achievement can serve as role models to
others, motivating young adults to adopt certain self-images and lifestyle patterns (Lockwood and Kunda
1997, p. 91). Included in this category of role models would be models from electronic or print media that
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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influence consumer consumption attitudes and patterns without ever directly contacting or meeting the
consumer. These role models are the vicarious role models acknowledged by Bandura (1986).
RESEARCH QUESTIONS
Most previous analyses of adolescent role models have concentrated on direct role models, or role
models with whom the adolescent has some type of direct contact. Therefore, direct role models include
fathers, mothers, teachers, and peers, each of which has been analyzed in previous adolescent role model
research studies (Laczniak, Muehling and Carlson 1995; Keillor, Parker and Schaefer 1996; Bush, Smith
and Martin 1999). What many current research studies ignore, however, is the potential impact of
vicarious role models, or the group of individuals with whom the adolescent has no direct contact. A
recent study proposes that these vicarious individuals can be very influential on adolescent consumer
behavior and attitudes (Lockwood and Kunda 1997). Included in this category of vicarious role models
would be the athletes and sports figures utilized in various television and print advertisements targeted to
the adolescent consumer. Therefore, our first research question seeks to determine if the favorite athletes
of adolescent consumers are seen as role models.
Research Question 1:
Is the favorite athlete of an adolescent consumer seen as a role model?
An important distinction to recognize in terms of role model influence is that adolescents are free
to choose their own vicarious role models, as opposed to the assigned role models of parents. Previous
investigations into the concept of role models indicate that vicarious role models, including athletes, are
likely to be selected as role models based on specific demographic characteristics with which the
adolescent can identify. In simpler terms, the adolescent consumer will likely select vicarious role models
that are similar to himself or herself. This predisposition usually leads adolescents to select vicarious role
models of a similar ethnic background and gender (Dates 1980; King and Multon 1996). As
organizations continue to utilize athletes and sports figures in their commercials and product endorsement
spots, identifying why adolescents select certain athletes as their favorites becomes extremely important
(Ohanian 1990). Therefore, the following research questions attempt to determine if adolescent
consumers select their favorite athletes based on certain demographic characteristics.
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Research Question 2:
Research Question 4:
RESULTS
To answer research question 1, the summated mean of the five-item role model scale was
examined. As the scale was answered on a seven-point strongly disagree to strongly agree continuum, an
overall mean value greater than 4 (the midpoint of the scale, indicating indifference or no response) would
indicate that the adolescent respondents viewed athletes as positive role models. Each of the five items
from the scale had a mean of at least 5.41, with an overall summated mean of 5.57. Therefore, it appears
that adolescent consumers do, in fact, perceive their favorite athletes as positive role models.
Research questions 2 and 3 attempt to investigate the relationship between the ethnic background
and gender of the adolescent, and the ethnic background and gender of their favorite athlete. As AfricanAmerican and Caucasian adolescents were the most predominant ethnic groups examined in the study,
these two groups of adolescents were the only ones utilized for comparisons in analyzing research
questions 2 and 3. The results indicate that adolescents do select favorite athletes based on similar ethnic
backgrounds. Of the 59 African-American adolescents providing their favorite athlete, 53 (90%) chose an
African-American athlete. There were 125 Caucasian adolescent responses, with 66 of these individuals
selecting a Caucasian favorite athlete (53%). Hence, African-American adolescents almost exclusively
selected favorite athletes of the same ethnic background, while Caucasian adolescents selected favorite
athletes of similar ethnic background slightly more than one-half of the time. A chi-square analysis
indicated that there is a significant difference between the two races in terms of the ethnic background of
2
their favorite athletes (X = 37.17; p < .00), lending further evidence to the conclusion that adolescents
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Table 1
Favorite Athletes Selected - Separated by Ethnic Background and Gender
Female Respondents
Top 5 Athletes Named
1. Michael Jordan
33
2. Mark McGwire
12
3. Mia Hamm
5
4. Brett Farve
4
4. Dominique Dawes 4
Caucasian Respondents
Top 8 Athletes Named
1. Michael Jordan
33
2. Mark McGwire
9
3. Mia Hamm
5
4. Grant Hill
4
4. John Elway
4
4. Jeff Gordon
4
4. Dennis Rodman
4
4. Brett Favre
4
Male Respondents
Top 5 Athletes Named
1. Michael Jordan
26
2. Mark McGwire
7
3. Grant Hill
3
3. Shaquille ONeal 3
3. Dennis Rodman
3
1.
2.
2.
4.
4.
4.
African-American Respondents
Top 6 Athletes Named
Michael Jordan
26
Terrell Davis
3
Dominique Dawes 3
Karl Malone
2
Sheryl Swoops
2
Shaquille ONeal 2
Research Question 4 was analyzed using an individual regression analysis, utilizing the athletes
overall role model influence as the independent variable, and the purchase decision response as the
dependent variable. This was done to determine if the perceived influence of the athlete as a role model
was influential in predicting the purchase behavior of the adolescent consumer. The results, listed in
Table 2, appear to indicate that the favorite athlete of an adolescent does significantly influence his or her
purchase behavior, as the model is significant (p < .002), and has a strong standardized beta coefficient
and t-value.
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IMPLICATIONS
The findings from this study can provide important information for organizations attempting to
develop mass communication programs aimed at adolescents. The results of this study strongly indicate
that athletes are not only seen as role models, but that these individuals have a strong influence on
adolescent purchase behavior as well. Past research indicates that many adolescents receive their
consumer socialization learning through watching television (Keillor, Parker, and Schaefer 1996).
Therefore, organizations wanting to establish brand loyal adolescent consumers can concentrate their
efforts on utilizing appropriate athletes as product endorsers.
The identification of appropriate endorsers to utilize has also been a focus of this research
investigation. It appears that adolescents identify with favorite athletes of a similar ethnic background.
This behavior suggests that organizations wanting to reach certain ethnically-similar adolescent target
markets should concentrate on identifying which ethnically-similar athletes are the most popular within
that sub-culture. This will likely allow greater penetration into the desired target market.
The results also suggest that utilizing male athletes might be the optimal strategy for
organizations attempting to target adolescents in general. While some female adolescents have favorite
athletes who are also female, the majority of the female respondents chose a male athlete as their favorite.
However, organizations must be careful in their approach of utilizing predominantly male athletes as
product endorsers. Do the female respondents in the present study list predominantly male athletes as
their favorites because they actually admire the male athletes to a greater degree than they do female
athletes, or because they have many more opportunities to view male athletes, both in action and in
product endorsements? The contradiction in gender effects observed in the results of the present study
could stem from the argument that there are few well-known female athletes present in the United States.
The results might suggest that female adolescents are searching for female athletes with which to identify.
If this is the case, the first organization to provide such an opportunity for female adolescents will likely
reap significant rewards in terms of purchase loyalty from the adolescent female.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Bandura (1977). Social Learning Theory. Englewood Cliffs, NJ: Prentice Hall, 1977.
Bandura (1986). Social Foundations of Thought and Action: A Social Cognitive Theory. Englewood
Cliffs, NJ: Prentice Hall, 1986.
Basow & Howe (1980). Role-Model Influence: Effects of Sex and Sex-Role Attitude in College
Students. Psychology of Women Quarterly, 7, Summer 1980, 558-572.
Bush, Smith, & Martin (1999). The Influence of Consumer Socialization Variables on Attitude Toward
Advertising: A Comparison of African Americans and Caucasians. Journal of Advertising,
(forthcoming).
Carlson, Walsh, Laczniak, & Grossbart (1994). Family Communication Patterns and Marketplace
Motivations, Attitudes, and Behaviors of Children and Mothers. Journal of Consumer Affairs,
28, Summer 1994, 25-53.
Christiansen (1979). Television Role Models and Adolescent Occupational Goals. Human
Communication Research, 5, Summer 1979, 335-337.
Dates (1980). Race, Racial Attitudes and Adolescent Perceptions of Black Television Characters.
Journal of Broadcasting, 24, 4, 549-560.
Keillor, Parker, & Schaefer (1996). Influences on Adolescent Brand Preferences in the United States and
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King & Multon (1996). The Effects of Television Role Models on the Career Aspirations of African
American Junior High School Students. Journal of Career Development, 23, Winter 1996, 111125.
Laczniak, Muehling, & Carlson (1995). Mothers Attitudes Toward 900-Number Advertising Directed
at
Children. Journal of Public Policy & Marketing, 14, Spring 1995, 108-116.
Lafferty & Goldsmith (1999). Corporate Credibilitys Role in Consumers Attitudes and Purchase
Intentions When a High Versus a Low Credibility Endorser is Used in the Ad. Journal of
Business Research, 44, February 1999, 109-116.
Lockwood & Kunda (1997). Superstars and Me: Predicting the Impact of Role Models on the Self.
Journal of Personality and Social Psychology, 73, 1, 91-103.
Miller (1994). That is Where Its at for Todays Teen Market. Marketing News, (August 15), 6-7.
Mitchell, Jones & Krumboltz (1979). Social Learning and Career Decision Making. Cranston, RI:
Carroll Press, 1979.
Moschis (1985). The Role of Family Communication in Consumer Socialization of Children and
Adolescents. Journal of Consumer Research, 11, March 1985, 898-913.
Moschis & Churchill (1978). Consumer Socialization: A Theoretical and Empirical Analysis, Journal
of Marketing Research, 15, November 1978, 599-609.
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page 84
Moschis, Moore, & Smith (1983). The Impact of Family Communication on Adolescent Consumer
Socialization, in Advances in Consumer Research, Volume 11, Thomas C. Kinnear, Editor.
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Moschis & Smith (1985). Consumer Socialization: Origins, Trends and Directions for Future
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Ohanian (1990). Construction and Validation of a Scale to Measure Celebrity Endorsers Perceived
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
The concept of an optimal currency area appeared in the literature in the 1960s (Mundell, 1961;
McKinnon, 1963; Ingram, 1969; Kenen, 1969). The concept posits that as nations in a region of the world
experience similar economic conditions and develop similar economies, it may be possible to harmonize
the fiscal and monetary policies of the individual countries and to develop a single pan-regional currency.
The concept of an optimal currency area is operationalized by the nations of a region enacting a treaty for
economic cooperation and developing convergence criteria for the formation of an economic union with a
common currency.
The development of the European Union and the new pan-European euro currency is a case
example of the formation of an optimal currency area. As an optimal currency area develops, there are
significant implications for management of firms operating in the area or exporting to the area.
This manuscript describes the concept and development of an optimal currency area, examines
the European Union as a case study of an optimal currency area, and develops implications for the
management in product, price, promotion, and place when operating in an optimal currency area.
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Among the economic similarities expected in nations comprising an optimal currency area are similar
inflation rates in the areas countries, similar employment rates as well as similar unemployment rates,
similar fiscal policies (i.e., countries having similar government spending levels and similar taxation
policies), similar monetary policies (i.e., countries and their central banks having similar policies about
the creation of money and about control of a nations money supply by its central bank), similar current
account deficits, similar wage rates, free movement of labor throughout an area, and an absence of the
potential for asymmetric shocks in the nations of the area (Davis, 1994; Euro Brief, 1998a). Put simply,
an optimal currency area is a region in which the nations follow similar economic policies based on low
inflation, healthy public finances, and stable monetary conditions and policies, so as to exhibit low interest
rates, a strong climate for investment growth, and, as a result, a potential for high economic growth and
job creation (Santer, 1997).
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Europe should move toward full Monetary Union by adopting the euro as the currency-in-use across all of
Europe.
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Inflation less than 1.5% higher than the average of the rates of the three countries in the euro area
with the lowest inflation
Long-term interest rates less than 2% above the average of the rates of the three countries in the euro
area with the lowest long-term rates
A countrys exchange rate must have remained within the normal fluctuation margins of the ERM &
no devaluation of its currency
Budget deficit less than 3% of a countrys GDP
Outstanding government debt must be no more than 60% of a countrys GDP.
An independent national central bank.
As the European countries strive to achieve the convergence criteria, Europe, in the opinion of
the authors, is moving toward becoming an optimal currency area. As evidence, there has been
remarkable convergence among the European economies in preparing to meet the criteria for admission to
the euro. In the several years after the Maastricht Treaty (Holling, 1993; Buiter, 1995) and prior to
introduction of the euro, the countries of Europe enjoyed relatively stable exchange rates and lower
inflation. Additionally, European interest rates have moved toward lower levels, as have budget deficits.
In sum, Europe is approaching being an optimal currency area as its countries focus on the convergence
criteria in order to be eligible to participate in the euro currency. Of the 15 euro-land countries, 11
satisfied the convergence criteria to join the euro at its launch in January 1999.
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Luxembourg
Netherlands
Portugal
Spain
page 89
40.3399 LUF
2.20371 NLG
200.482 PTE
166.386 ESP
The euro-11 countries closely match the United States as an economic entity. The euro-11s
combined 1997 GDP is US$6.5 trillion, compared to a United States 1997 GDP of US$8.1 trillion. The
euro-11s share of international trade outside the euro area is 19%, larger than the 17% experienced by
the United States. (Euro Brief, 1998b) At 290 million people, euroland is slightly larger than the United
States. It accounts (Briones, 1998) for 19.4% of world GDP, compared with 19.6% for the U.S.
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Saves management time as well as the expense of a constant search for lower
product component costs in order to maintain a stable and predictable profit margin within a
pricing structure.
Provides the consumer a more stable pricing situation and prevents price
inflation or gouging by various middle elements such as wholesalers and government
(taxation).
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reported that 60-70% of treasurys work was from currency rate adjustments from
surrounding European countries).
Implications identified in the strategic area of promotion included:
A single European currency will create a more rational basis for promotional development.
Promotional costs will become fairly stable, particularly if companies are able to standardize
promotional messages across Europe.
A single currency should provide a more competitive arena in the sourcing of promotional
development and services.
Enables the grouping of creative promotional messages to specific multinational and
multicultural targets.
A single currency may better enable target marketing and positioning.
On price-related promotions, a single currency will allow deals to run longer or become
more specific because currency swings are eliminated.
Provides for more strategic and long-term promotional planning across the euro area instead
of planning for each of the individual European countries.
Reduces the overall cost of promotion.
In the strategic area of place or distribution, the following implications were identified:
All specific elements of distribution definitely will be stabilized if not reduced due to the
elimination of dramatic currency swings.
Distribution costs within various countries can be rationalized, adjusted or replanned.
Costly distribution points within and between countries may be eliminated.
Time consuming and costly monitoring of distribution costs will be brought down to
manageable levels.
A single currency will stabilize distribution. Stabilizing distribution also contributes to
stabilizing pricing.
Should distributors be involved as part of the distribution chain, a one currency situation will
assist in eliminating or reducing protected territories and pricing inflation.
The playing field will be leveled across countries and more and better competition will be
stimulated.
CONCLUSION
The euro hopefully will contribute significantly toward a unified market in Europe. In that
unified market, the euro should enable simplification of products and of branding, price transparency
across national borders, more unified advertising and promotional approaches, and simplified distribution
channels. Companies will no longer be able to mask price differences with currency exchange rates.
Consequently, price transparency is likely to erode revenues and profit margins (Kehoe, 1999),
particularly in the short run. Firms that are successful in the new euro regime will have harmonized prices
across the euro-11 countries.
The euro links the countries of Europe in a community of solidarity and creates a zone of
monetary stability for Europe (Randzio-Plath, 1998). It removes exchange-rate risks from the internal
European market, reduces the cost of transactions throughout Europe, and leads to greater certainty in
business planning, forecasting, and strategy.
Over the long run, the benefits of the euro may ameliorate concerns about its initial
implementation difficulties. Among its benefits are that the cost of currency conversions, significant in
Europe, should be reduced substantially, there should be greater stability in exchange-rate movements
across Europe, and capital markets should flourish. Additionally, marketing in Europe should be less
cumbersome and less costly as the range of prices under management is reduced; reporting and control
activities should be less cumbersome; advertising should be easier to design, implement, and manage;
distribution cost should be reduced significantly; and the many business and marketing functions
previously in place in each of the euro-11 countries should be consolidated, making it easier to do business
across Europe as the result of the euro.
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REFERENCES
Andrews, John (1996). The European Union: Family Frictions, in Harry Costin, The European Union:
Managing in the Global Economy. Fort Worth, TX: The Dryden Press, 1996, 201-225.
Boone, Laurence and M. Maurel (1999). An Optimal Currency Area Perspective of the EU Enlargement.
London, UK: Centre for Economic Policy Research, 1999, 1-14.
Briones, M.G. (1998). The Euro Starts Here. Marketing News, July 20 1999, 1and 39.
Buiter, Willem H. (1995). Macroeconomic Policy During a Transition to Monetary Union. London, UK:
Centre for Economic Policy Research, 1995, 1-56.
Colchester, Nicholas (1996). The European Community: Into the Void, in Harry Costin, The European
Union: Managing in the Global Economy. Fort Worth, TX: The Dryden Press, 1996, 149-176.
Costin, Harry (1996). The European Union: Managing in the Global Economy. Fort Worth, TX: The
Dryden Press, 1996.
Coy, Peter (1999). Why Mundell Won the Nobel: For Work that Led to the Euro, Not for his Supply-Side
Theory. Business Week, October 25, 1999, 46.
Davis, Mary (1994). Unsustainable Parties: The Exchange Rate Mechanism in Turmoil. Bank of Ireland
Treasury Group Policy Paper 94/3, (http://www.economics.tcd.ie/TEP/Pp943.htm).
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Edwardes, Michael (1998). The Business Implications of the Single Currency. The Bruges Group, May
21, 1998, (http://www.eurocritic.demon.co.uk/bg-rsrc2.htm).
Euro Brief (1998a). The Economist, October 24, 1998, 1-4.
Euro Brief (1998b). The Economist, November 14, 1998, 89-90.
Euro Brief (1999). The Economist, November 13, 1999, 51.
Euromoney Report (1999). The Quick and Dirty Way Into EMU. Euromoney, October 1999, 28-31.
European Central Bank (1998). Determination of the Euro Conversion Rates.
(http://www.ecb.int/press/pr981231_2.htm).
European Central Bank (1999). Blue Book on EU Accession Countries.
(http://www.ecb.int/press/pr990831.htm).
European Parliament (1998). The Single Currency and the European Parliament. London, UK:
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Offices of the European Parliament, 1998.
European Research Group (1999). The Euro: Bad for Business.
(http://www.eurocritic.demon.co.uk/bad4bis.htm).
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Franklin, Daniel (1996). The European Community: A Rude Awakening, in Harry Costin, The Europea
Union: Managing in the Global Economy. Fort Worth, TX: The Dryden Press, 1996, 177-200.
Holling, Wilhelm (1993). Monetary Policy After Maastricht. London, UK: The Macmillan Press, 1993.
Ingram, James (1969). The Currency Area Problem, in Robert A. Mundell and A. K. Svoboda (eds.),
Monetary Problems of the International Economy. Chicago, IL: University of Chicago Press,
1969.
Jonung, Lars (1998). Euro: The Great Experiment. Euro Debate Series,
(http://www.cnn.com/Specials/1998/euro/euro.debates/jonung.html).
Kehoe, William (1999). Summary Brief The Euro: Implications for Pricing Policies & Management.
Advances in Marketing Theory, Society for Marketing Advances, 1999, 98-100.
Kenen, P.B. (1969). The Theory of Optimum Currency Areas: An Eclectic View, in Robert A. Mundell
and A. K. Svoboda (eds.), Monetary Problems of the International Economy. Chicago, IL:
University of Chicago Press, 1969.
McKinnon, Ronald I. (1963). Optimum Currency Areas. American Economic Review, Volume FiftyThree, Number Four, September 1963, 717-725.
Mundell, Robert A. (1961). A Theory of Optimum Currency Areas. American Economic Review,
Volume Fifty-One, Number Four, September 1961, 657-665.
Randzio-Plath, Christa (1998). With the Euro into the 21st Century. The Single Currency and the
European Parliament. London, UK: Information Offices of the European Parliament, 1998, 2425.
Santer, Jacques (1997). External Aspects of the Euro. Speech at the Global 24 Conference, Frankfurt,
July 1, 1997, (http://europa.eu.int/en/comm/js/js010797.html).
The Euro (1999). Ready Money. The Economist, November 6, 1999, 79.
Acknowledgements: The lead author acknowledges the McIntire School of Commerce at the University of
Virginia and Dean Carl P. Zeithaml for providing a grant to support this research. The second author
acknowledges Skyline College and Dean Linda Avelar for supporting the research. Both authors
acknowledge particularly Mr. Lucien L. Bass, III, Mr. Rouben V. Chakalian and Dr. Andrew A.
Proacassini for their insightful comments about the research.
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in relatively small quantities to the final or ultimate consumer. A second form of electronic consignment
auction is the more wholesale oriented, large quantity types of auction sites.
Common Personal Type Electronic Consignment Auction Sites:
eBay.com
Amazon.com
Yahoo.com
Excite.com
Common Wholesale Type Electronic Consignment Auction Sites:
Processors.com
Ubid.Com
Merchandise-online.com
Tradeout.com
Regardless of the form of electronic consignment auction site, each also allows the seller to
choose from various categories of merchandise to be listed under. eBay, for example, provides an
opportunity to market merchandise in more than 1,600 categories including collectibles, antiques, sports
memorabilia, computers, toys, dolls, coins, stamps, books, music, pottery, photography, electronics,
jewelry, and more.
Auctioneers or electronic auction site providers subtract or withhold a percentage of the highest
bid refereed to as a consignment fee. Consignment fees vary from one consignment auction outlet to
another. For traditional consignment auction outlets, consignment fees start as low as 10% and may
exceed 35%. The national average consignment fee is approximately 23%. For personal electronic
consignment auctions, the consignment fees are usually 5% but various mandatory and optional fees exist.
For example, most personal consignment auctions charge 25 cents to list a given item. Optional fees
include bold face enhancements, which may require the seller to pay an additional $1.00 fee. To include a
picture of an item, a fee of $2.00 is commonly required. Enhanced placement of an item, such as in a
special electronic auction gallery may require a fee of as much as $100.00. Effective electronic
consignment auction sales results can be accomplished without the optional fees for the minimal item
insertion fee of 25 cents and the consignment fee of 5% of the highest bid. Wholesale type electronic
auctions commonly waive any insertion or listing fees but commonly require a 10% consignment fee.
Promotion is a vital concern for the effective consignment of merchandise. For the traditional
consignment auction, an initial verbal presentation regarding the merchandise to be sold will promote the
merchandise into the outlet. With each shipment, a well-written description of each item consigned
should be included. These verbal and written descriptions should be presented in a way to attract the
consignment auction liquidation outlets attention and desire. Specifically mentioning various positive
selling features and benefits will accomplish this need. Descriptions can assist the auctioneer in more
effectively promoting merchandise whether in auction advertisements or in their verbal descriptions
during the actual auction. For the electronic consignment auction, a well-written description of each item
consigned is even more important as bidders are not able to physically handle and inspect merchandise
consigned. As mentioned earlier, for additional fees, promotional enhancements can include a picture of
the merchandise, the use of boldfacing to attract attention and the inclusion of merchandise within special
auction sites/galleries.
Whether selling merchandise through the traditional consignment auction outlets or the
electronic consignment auction outlets, a number of optional physical distribution options are available.
However, the electronic consignment auction liquidation marketing method allows the seller to assign
shipping costs to the highest bidder. Regardless, when shipping merchandise, ground transportation
modes are recommended in order to provide an au affordable and yet timely delivery of merchandise. The
two primary variables, which determine the cost of shipping merchandise, are weight and distance.
Achieving enough revenues sufficient to exceed expenses and to provide profitability is
challenging for all business enterprises including consignment auction liquidation operations. Cashflow
analysis, the tracing of cash disbursements and receipts is somewhat more predictable for electronic
consignment auctions as the seller has possession of the merchandise until sold. The average number of
days an item is placed on the electronic auction block is 7 days. It takes an average of 23 days from the
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first day an item is listed electronically until the seller receives payment. Cashflow analysis for the
traditional consignment auction is somewhat unpredictable due to the fact that merchandise shipped to a
consignment auction may be sold immediately or perhaps much later. The average number of days
between shipping merchandise to a consignment auction liquidation outlet and receiving a payment is
approximately 45 days.
Financial performance analysis indicates that electronic consignment auctions provide bids that
average 15% higher compared with bids on then exact same merchandise consigned through traditional
consignment auctions. Videos, for example, resulted in 19% higher bids. Toys resulted in 15% higher
bids. Specialty items such as porcelain dolls and sports memorabilia items resulted in 11% higher bids
when auctioned online. Furthermore, traditional consignment auctions require a consignment fee, which
is 78% higher, and require the seller to pay for all shipping costs.
The Uniform Commercial Code provides insight into the governmental regulations covering
consignment auctions. In order for purchasers attending auctions to not be imposed on nor the owners of
property sold at auction to be defrauded, reasonable regulations are imposed (Willner, 1996). A unique
method of self-regulation exists within the electronic consignment auction community whereby both
sellers and buyers of merchandise are encouraged to leave public comments regarding electronic auction
transactions. These comments may be positive or negative and result in a long-term historical profile of
each bidder and seller. This self-regulatory mechanism helps provide protection against fraud or other
unreasonable behavior.
The consignment auction liquidation marketing method, whether traditional or electronic, yields
the opportunity for profitable liquidation of merchandise. In comparing the two methods advantages and
disadvantages of both arise. The electronic consignment auction liquidation method does yield
significantly higher bids and allows freight out costs to be diverted. The costs of electronic consignment
can also be much less. Two primary disadvantages include the lack of quantity, which can be liquidated
at a time, often only one item. Secondly, electronic consignment auction opportunities for wholesaling
large quantities of merchandise is newer and therefore currently less responsive. An advantage of
traditional consignment auction liquidation includes the opportunity to sell in higher quantities by
shipping multiple units of multiple items to multiple consignment auction outlets. Disadvantages include
lower bids received, shipping costs required of the seller, and a lack of control over merchandise shipped.
In summary, at this point, due to the quantity advantage, traditional consignment auctions may
be preferred by wholesale and large quantity sellers while sellers of personal, individual items may benefit
more from electronic consignment auction liquidation marketing opportunities. Although this researcher
traditional consignment auction is somewhat unpredictable due to the fact that merchandise shipped to a
consignment auction may be sold immediately or perhaps much later. The average number of days
between shipping merchandise to a consignment auction liquidation outlet and receiving a payment is
approximately 45 days.
Financial performance analysis indicates that electronic consignment auctions provide bids that
average 15% higher compared with bids on then exact same merchandise consigned through traditional
consignment auctions. Videos, for example, resulted in 19% higher bids. Toys resulted in 15% higher
bids. Specialty items such as porcelain dolls and sports memorabilia items resulted in 11% higher bids
when auctioned online. Furthermore, traditional consignment auctions require a consignment fee, which
is 78% higher, and require the seller to pay for all shipping costs.
The Uniform Commercial Code provides insight into the governmental regulations covering
consignment auctions. In order for purchasers attending auctions to not be imposed on nor the owners of
property sold at auction to be defrauded, reasonable regulations are imposed (Willner, 1996). A unique
method of self-regulation exists within the electronic consignment auction community whereby both
sellers and buyers of merchandise are encouraged to leave public comments regarding electronic auction
transactions. These comments may be positive or negative and result in a long-term historical profile of
each bidder and seller. This self-regulatory mechanism helps provide protection against fraud or other
unreasonable behavior.
The consignment auction liquidation marketing method, whether traditional or electronic, yields
the opportunity for profitable liquidation of merchandise. In comparing the two methods advantages and
disadvantages of both arise. The electronic consignment auction liquidation method does yield
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 97
significantly higher bids and allows freight out costs to be diverted. The costs of electronic consignment
can also be much less. Two primary disadvantages include the lack of quantity, which can be liquidated
at a time, often only one item. Secondly, electronic consignment auction opportunities for wholesaling
large quantities of merchandise is newer and therefore currently less responsive. An advantage of
traditional consignment auction liquidation includes the opportunity to sell in higher quantities by
shipping multiple units of multiple items to multiple consignment auction outlets. Disadvantages include
lower bids received, shipping costs required of the seller, and a lack of control over merchandise shipped.
In summary, at this point, due to the quantity advantage, traditional consignment auctions may
be preferred by wholesale and large quantity sellers while sellers of personal, individual items may benefit
more from electronic consignment auction liquidation marketing opportunities. Although this researchers
own field experience has provided evidence indicating a satisfactory judgement it will now be essential to
provide further field testing of both of these methods of distribution.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 98
REFERENCES
Berkowitz, Kerin, Hartley & Rudelius, Eric (2000) Marketing. (6th ed.) Boston, Massachusetts: Irwin
McGraw-Hill.
Gallup Organization. (1993) National Auctioneers Association Market Research Report. Princeton, New
Jersey: The Gallup Organization.
Keefhaver, Joseph G. (1997) Interview and Promotional Materials: From The National
Auctioneers Association. Overland Park, Kansas.
Kotler, Philip & Armstrong, Cary (1996) Principles of Marketing. (7th ed.) Englewood Cliffs, New
Jersey; Prentice Hall.
National Auctioneers Association. (1999) The Auctioneer. April 1999. The National
Auctioneers Association. Overland Park, Kansas.
Willner, Lara L (1996) The Uniform Commercial Code Legal Forms. (3rd ed.) Clark, Boardman, and
Callaghan: Deerfield, Illinois.
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INTRODUCTION
International franchising has seen explosive growth in the last quarter of the twentieth century.
According to the International Franchising Association (IFA), one half of all U.S. franchisors without
foreign units plan to expand internationally; and 93 percent of current international franchisors plan to
increase their foreign operations (IFA, 1992). Moreover, Aydin and Kacker (1990) say that U.S.
franchisors added foreign outlets at twice the rate of domestic outlets from 1970 to 1990; and U.S.
Department of Commerce records show that 94 percent of all foreign outlets of U.S. franchisors are
established through the use of foreign franchisees. By 1999, IFA statistics indicate that just over 13
percent of U.S. franchisors now have foreign operations (International Herald Tribune, 1999).
As a result of this sustained growth, a research stream attempting to understand global
franchising has emerged concurrent with its development. Various aspects of the global franchising
phenomenon have been studiedmost prominently, the characteristics that distinguish global franchisors
from their purely domestic counterparts (Lindquist, 1996; Shane, 1996; Kedia, et. al., 1994; Huszagh, et.
al., 1992; Aydin and Kacker, 1990).
This paper assimilates the literature to date on global franchising, tracing its origin and evolution
as a research stream, and offers a research paradigm to guide future study.
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early (Hunt, 1973) and subsequent research support (Brickley and Dark, 1987; Combs and
Castrogiovanni, 1994; and Carney and Gedajlovic, 1991).
The administrative efficiency theory derives primarily from agency theory. It suggests that firms
use franchise agreements to expand because managers (agents) of company-owned units are less
motivated to perform efficiently than owners (agents) of franchise units whose interests are better aligned
with those of the franchisor. This perspective has also received empirical support (Mathewson and
Winter, 1985; Carney and Gedajlovic, 1991; and LaFontaine and Kaufmann, 1994) but has been studied
less.
The risk management theory states that firms use franchising agreements to expand into
locations that have higher risk due to such factors as geographic distance or cultural differences. This is a
newer paradigm which more recent study has shown to be separate from administrative efficiency-although it is a complementary idea under the agent monitoring approach (Combs and Castrogiovanni,
1994)and which has been used to empirically explain the expansion rate of domestic franchises (Miller,
1992).
The second research stream to contribute to the understanding of global franchising is that which
concerns international expansion strategies. Historically, this research stream has focused on the decision
to export versus the use of foreign direct investment. In summary, early research showed that firms
progress in their commitment to and involvement in a foreign market as they gain experience in its
business traditions and culture (see e.g. Contractor, 1984). Ultimately, the increased involvement and
understanding gives the firm the confidence to extend itself by foreign direct investment. Yet changes in
the global business environment make this progression less applicable today. More recent research shows
that international new ventures altogether forego the lengthy life cycle of domestic development (Oviatt
and McDougall, 1994) and that international firms may take a variety of formsincluding that of
franchisesdepending on host country responsiveness and the need for global integration (Bartlett and
Ghoshal, 1989).
Both streams of research have produced theoretical underpinnings for the study of global
franchising. The following sections of the paper discuss the study of global franchising from the
perspective of each of the franchising-emergence models and its evolution relative to the theories of
international expansion.
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internationalization; the other suggests types that follow from franchisors existing levels of international
franchising capabilities.
The first taxonomy of franchisors was produced by Carney and Gedajlovic (1991). To classify
franchisors, they examined thirteen variables associated with the resource constraints and administrative
efficiency models of franchise development. Their analysis of these thirteen variables revealed five
significant factors (eigenvalues greater than one) which they used as the bases for distinguishing five
franchisor types: (1) rapid growers, (2) expensive conservatives, (3) converters, (4) mature franchisors,
and (5) unsuccessfuls.
Castrogiovanni, et. al. (1995) tried to replicate the study using a much larger sample of U.S.
franchisors but failed to produce consistent results. Only two factors emergedthose that closely
resembled the rapid growers and converters from the previous research. These researchers concluded
based on a posteriori cluster analysis given the factor solution that franchisors generally are concerned
with both administrative efficiency and resource scarcity, though their concern with one relative to the
other may vary with circumstances (p. 53) and that researchers need not account for franchisor type
until further evidence is generated (p. 52).
Somewhat later, as new evidence surfaced showing international franchisors may be
distinguished by their international franchising capabilitiesparticularly the ability to monitor
franchisees and reduce opportunism(Shane, 1996), a new taxonomy emerged. Fladmoe-Lindquist
(1996) argues that not all franchisors possess capabilities to the same degree. She then uses resourcebased theory to show the importance of not just possessing capabilities, but the capacity for learning or
developing new capabilities (Amit and Schoemaker, 1993). The resulting combinations of high/low
existing capabilities with high/low capacity to develop capabilities produce four types of international
franchisors:
1. Integrating Franchisors - have few existing international capabilities but considerable capacity to
develop them;
2. Conventional Franchisors - have existing international capabilities but diminished capacity for further
development;
3. Worldwide Franchisors - have a high level of existing capabilities and a significant capacity for
further development; and
4. Constrained Franchisors - have little or no existing capabilities and little capacity to develop them.
The framework is a first step toward integrating the existing information regarding international
franchising capabilities into a taxonomy. The model has not yet been empirically tested.
CONCLUSION: Not all international franchisors possess international franchising capabilities
to the same degree. Franchisor types may be linked to the extent to which franchisors exhibit levels of
international franchising capabilities.
METHODOLOGICAL ASSESSMENT
While the theory of international franchising has seen significant development over the last
quarter century, much improvement stands to be made in the area of research methods applied within the
field. First, all the studies produced throughout the 1980s and 1990s have been descriptive studies of
international versus domestic-only franchisors. Now with the identification of a fairly large set of
descriptive characteristics of international franchisors, we should turn our attention to identifying factors
that contribute to international franchise profitability or effectiveness. Studies that attempt to discover
causal relationships may necessarily require the greater use of field studies or experiments rather than the
reliance on secondary data exhibited for the past decade within the field.
Along a similar vein, past studies have relied almost exclusively on data from the U.S.
franchisors perspective rather than that of the foreign franchisee. Indeed, with the exception of a single
study focused on the differences in ethics codes of franchise associations around the globe (Preble and
Hoffman, 1999), research using international samples is virtually nonexistent.
Finally, as researchers derive a host of antecedent variables that lead to a predisposition for
international franchising (Shane, 1996; and Fladmoe-Lindquist, 1996), there is a need for more rigorous
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Studies are needed to operationalize and clarify the concepts of franchisee monitoring and
risk management and assess the extent to which they portend global franchising.
Studies are needed to operationalize the constructs of distance management capability,
cultural adaptability, host country policy evaluation, and exchange rate management
capability and relate them to the requirements for overseas expansion.
Studies are needed to operationalize the constructs of level of economic turmoil, level of
political turmoil, and level of activity of a franchise development association and relate
them to the tendency toward global franchising.
Finally, several global franchise researchers have noted the need to study the effects of
telecommunications and information technology advancements on a firms franchisee monitoring
capabilities (Huszagh et. al., 1992; Bergen et. al., 1992). As technology increases the exchange of
information and the ease of that exchange, it should become easier for franchisors to monitor the behavior
of franchisees, reducing the risk of global franchising while simultaneously increasing administrative
efficiency. Hence the old theories of franchise evolution may eventually be supplanted by new,
technology-based theories. What a wonderful world!
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REFERENCES
Amit, R. and Schoemaker, P. J. H. (1993). Strategic Assets and Organizational Rent. Strategic
Management Journal, Volume Fourteen, Number One, 1993, 33-46.
Aydin, Nizamettin and Kacker, Madhav (1990). International Outlook of US-based Franchisers.
International Marketing Review, Volume Seven, Number Two, 1990, 43-53.
Bartlett, C. A. and Ghoshal, S. (1989). Managing Across Borders: The Transnational Solution, Harvard
Business School Press, 1989.
Bergen, Mark, Dutta, Shantanu, and Walker, Orville C. Jr. (1992). Agency Relationships in Marketing:
A Review of the Implications and Applications of Agency and Related Theories. Journal of
Marketing, Volume Fifty-six, July 1992, 1-24.
Brickley, J. A. and Dark, F. H. (1987). The Choice of Organizational Form: The Case of Franchising.
Journal of Financial Economics, Volume Eighteen, Number Two, 1987, 401-420.
Carney, M. and Gedajlovic, E. (1991). Vertical Integration in Franchise Systems: Agency Theory and
Resource Explanations. Strategic Management Journal, Volume Twelve, Number Eight, 1991,
607-629.
Castrogiovanni, Gary J., Bennett, Nathan, and Combs, James G. (1995). Franchisor Types:
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INTRODUCTION
The problem of too few organs available for needed organ transplants is one which is increasing
worldwide. This is due in part to the advancing transplant technology which has resulted in numerous
medical diagnoses suggesting organ transplant as a viable and desirable means of treatment. This is
complicated by the fact that rates of organ donation have not demonstrated a comparable increase during
the same period of time.
The U.S. is not alone in these problems, nor has it been alone in attempts to market the idea of
organ donation to its resident population. Such organized marketing efforts exist in virtually all advanced
countries as well as a large percentage of newly industrialized and emerging nations. Not only do the
relative needs for organ donation differ across countries, but so do the success rates of their marketing
efforts to increase donations.
Very little writing or research in this area has penetrated the marketing literature to this point,
though there are a few notable exceptions (Pessemier et al., 1977; Cosse and Weisenberger, 1997; Cosse
and Weisenberger, 1998). As the problems being addressed are those of educating, attitude creation and
attitude change, and behavior stimulation, examining and applying the relevant marketing dimensions
seems to be a natural and compelling progression.
This paper reviews a variety of literature from medical journals and behavioral science
periodicals to investigate the nature of these differences. The primary dimensions to be examined are: 1)
varying legal dictates regarding organ donation, 2) religious and other cultural influences on organ
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donation, and 3) differing approaches and success rates in organ donation marketing programs. From this
some preliminary conclusions and hypotheses may be formed about countries similarities and
differences in the identifiable obstacles to organ donation as well as the appropriate marketing strategies
and tactics.
.
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Association). Central registries also allow coordination in the matching and exchange of donor organs
both within and across countries (Cohen et al., 1997).
The other very significant legal issue affecting organ donation is the determination of when a
cadaveric donor is actually dead. In many Asian countries people are only considered dead when the
heart stops beating. This however leaves the heart, as well as most other organs, unsuitable for transplant
(Wallach & Mukerjee, 1996). This has been the major obstacle to organ donation in Japan as the
government refuses to recognize brain death as the determining criterion (Jordan, 1996). In Italy, which
has one of the poorest organ donation rates, a newer definition of cerebral death has brought about an
increase in these gifts. (Mirone & Triolo, 1996). Declaration of death is also an issue outside the law but
within different religious groups. However, that subject is addressed in the following section on religion
and culture.
Finally, there is the issue of financial payment in exchange for transplantable organs. In most
countries this is not a legal practice. In India, until 1995, a kidney could be bought from a doctor for
$30,000, while the doctor only paid the donor $1,000. Understandably such incidents fostered
widespread allegations of organ stealing and inequity to donors (Wallach and Mukerjee, 1996). However,
the issue of whether financial or other incentives should be offered in exchange for organ donation is
frequently raised in debates over how to increase the number of donors and organs (i.e., Krauthammer,
1999).
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The major tenet of the Jewish faith which supports and even encourages organ and tissue
donation is pikauch nefesh which states that the obligation to save human life if it is in our power to
do so takes precedence over every other command. Many Jewish leaders are now actively promoting organ
donation among those of the faith.
Within the Middle East, religious beliefs significantly decrease public willingness to donate
organs, and Egyptian fundamentalists are strongly opposed (Nasto 1996). In the Muslim tradition, it is
forbidden to violate the human body which would preclude organ donation. However the law of Islam
declares that necessities always overrule prohibition, and that choosing the lesser of two evils must be
done if both cannot be avoided (www.islamicity.org/science/organ.html ). Saving a life clearly overrides
restrictions against body mutilation.
Additionally, Islam believes that the soul ascends and does not require the body to be burned as some
religions may (Rashed, 1997). As for the Islamic definition of death, brain death has been made the
criterion. This decision was based on an old rule which recognized the concept of fatal injury, and brain
death meets that classification.
Very similar to that of the Jewish religion, the Quran says that whoever saves a life, it would be
as if he saved the life of all people ( www.islamicity.org/science/organ.html ). Thus a major tenet of
Muslim faith also supports and encourages organ donation, although many Muslims are not clearly aware
of it. It has been suggested that those who can influence the general public and solve the problem are
religious scholars and leaders. Many Muslim scholars not only approve of donating organs, but also
appeal to people to do so (Rashed, 1997).
Christianity as a faith is consistent with organ donation, and no Christian denominations forbid
it. The Catholic Church supports organ donation and most protestant denominations promote organ
donation. Many have formal statements to this effect. Indeed, Jesus said that the second of the two great
commandments was to love our neighbors as ourselves. Buddhists and Hindus honor those who donate
but consider it an individual decision and do not make appeals for people to donate. Gypsies are possibly
the only group which specifically rejects organ donations and transplants because they believe that a
person spends a year retracing his/her steps after death. All body parts must be intact as the soul
maintains a physical shape (Smith).
Other cultural beliefs, norms, values and traditions can affect the success of increasing the
numbers of organs and organ donors. In Argentina, Brazil, and Chile, such cultural resistance appears to
be changing, and rates of donation have steadily increased (Nasto, 1996). In the Middle East, it is
particularly necessary to respect the grief period after informing relatives of brain death occurrence,
though this is an issue which generally needs attention worldwide (Shaheen et al., 1996).
Given the vast diversity and numbers of cultures across the globe, it would be impossible to
elaborate on how every cultures nature would directly impact the success of stimulating organ donation.
As such, one example will be used to illustrate how cultural values and norms do make an impact. The
resistance of Indian Sikhs to organ donation seems to be more a function of lack of knowledge and
understanding than with religious factors, although Indian Islamic leaders can be hostile towards the
practice. Lack of awareness and knowledge is attributed in part to the cultural belief that issues of death
and dying are inappropriate subjects for open discussion. Elders in this culture are given a great deal of
status and feelings were strong that Sikh elders would be less receptive to organ donation. Therefore arises
the fear that while younger Sikhs would be more sympathetic to organ donations and transplants, they
would be reluctant to agree to it because it would require going against the wishes of elders. Given the
strong family ties among the Sikhs, live donations to benefit family members would probably be received
more positively than organ donation in general. Finally, Sikhs also indicated that campaigns should be
tailored to emphasize the giving culture of the Sikh faith (Exley et al. , 1996). These observations do give
justification to the idea that individual cultures must be considered in developing the most effective
marketing approaches.
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Several programs and campaigns designed to increase organ donation have achieved positive
results, while other have failed miserably. Sometimes an approach which is very successful in one or
more countries achieves nothing in others. Frequently the dynamic behind this cannot be explained. For
example, Austria, Belgium, France, and Spain have utilized presumed consent and have generated more
donors. But Switzerland, Greece, and Italy have presumed consent and have lower transplant rates than
countries using a voluntary, opting in system. As such, there seems to be no clear-cut relationship
between presumed consent and high donation rates (Wolfslast, 1992).
Across Europe and perhaps the world, Spain has the highest cadaveric kidney donation rate in
the world, about 30 per million population (Nasto, 1996). It has a decentralized network of specifically
trained transplant coordinators (most are physicians in Intensive Care Units) at the national, regional,
and local (hospital) levels. These coordinators are responsible for the whole process, from donor
detection to organ and tissue retrieval. This approach helped significantly in overcoming obstacles such as
untrained or inadequately trained staff, failure to identify potential donors, and reluctance to approach
grieving families. With the execution of this program, donor rates increased by 75% and the number of
available organs doubled (Matesanz, Miranda, Felipe, & Naya , 1996). Spain has also partnered with the
Eurotransplant International Foundation and the Partnership for Organ Donation (U.S.) to create Donor
Action programs. This approach was also designed to improve hospital donation processes. Donor
Action provides a comprehensive package of tools, resources, guidelines, and training to help hospitals
diagnose their own potential for organ donation and improve their donation related procedures. In
conjunction with the training of individual health professionals, programs like Donor Action are deemed
to be the most effective method to increase organ donations in individual hospitals (Cohen et al., 1997).
Some countries have tried to duplicate Spains experience with less success. For example, Italy
has charged its hospitals just to copy how the Spaniards do it, but have not supplemented with the
necessary training and support (Simini, 1997). To address these problems the European Donor Hospital
Education Programme (EDHEP) was designed to meet the widely perceived need to help health
professionals deal effectively with bereaved relatives of potential organ donors. EDHEP holds interactive
skills awareness workshops, sharpens communication skills, heightens sensitivity to bereaved
families, and teaches professional coordinators how to make effective donation requests. As a result of the
efforts of EDHEP, statistically significant learning effects have been demonstrated in the Netherlands and
the UK. Also encouraging is that the program adapts well to all national, religious, cultural, and
educational needs. Israel and Japan are two countries who have shown some success with the program
(Cohen et al., 1997).
While Italys copycat strategy has produced disappointing results, two other events have
spurred willingness to donate organs in that country. One was the new, more favorable definition criteria
for cerebral death. The other was the consent to multiorgan donation by the parents of an American child
killed while vacationing in Italy. His organs saved the lives of several Italians and publicity was
widespread. Also, Italy has recently organized a Health Regional Office to educate and inform people
about donation and transplants (Mirone and Triolo, 1996).
Attitudes toward organ donation in Japan also received a significant boost from the tragic death
of a five-year old American boy who was living in Japan with his family. His kidneys were given to two
young Japanese boys whose lives were saved because of their transplants. Since Japan does not admit
death until it is too late to use most organs, Japanese transplants have been possible only through the
donation of organs by non-Japanese people. Four thousand Japanese doctors, fed up with the refusal of
Japanese lawmakers to permit organ donations upon brain death, forged an agreement with US military
hospitals in Japan to provide these needed organ donations (Jordan, 1996).
An organization named TRIO (Transplant Recipients International Organization) started in
Pittsburgh to provide donor education and awareness raising with an international viewpoint. Ironically,
Japan established TRIOs first international chapter. It serves two major roles. One is to provide a
means of mutual support among transplant recipients, waiting patients, and their families. The other is to
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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provide education to enlighten Japanese society by highlighting how transplant recipients are now able to
lead meaningful lives (Aoki et al.,. 1992).
Another effective strategy is to use well-known and respected opinion leaders in changing
negative attitudes and behaviors regarding organ donation. This is consistent with the use of Muslim
religious scholars to promote organ donation (Rashed, 1997) and the Sikhs use of respected health
professionals to do the same (Exley et al. 1996). Also, community leaders and organizations have been
used effectively to increase organ donation in African American communities (Exley et al., 1996). Formal
religious organizations should be called upon to do the same.
Sadly, ineffective generation of donated organs causes many patients to leave their country or
obtain organs donated from other countries for needed transplants. Germanys shortage of organs is quite
severe, and most organs obtained for German transplant patients have been donated from other European
countries (Simm, 1966). Many Italian patients have gone overseas for transplants (Simini, 1997), as have
Japanese patients (Aoki et al., 1992). Many others die without receiving life-saving transplants.
CONCLUSIONS
Across the world there are many encouraging similarities between countries and cultures with
respect to organ donation. Virtually no country or religion rejects or bans some form of organ donation
and transplantation, and efforts to increase the availability of transplant organs are underway almost
everywhere. However, some critical differences in laws, religion, and culture do exist which affect how
marketing of organ donation may or may not be optimal.
Trends in legal systems can be seen to be both negative and positive. Concerning countries
systems of legislating how the decision about being an organ donor is made, the trend is a move towards
more voluntary, informed consent, opting in systems. At face value this would appear to be a threat to
increased organ donation because people have to take conscious action to become donors, while in
presumed consent systems people must take conscious action to defer from donation. However, some
countries employing the opting in approach do have higher rates of donation than some countries which
implement presumed consent. More research is needed to determine what the mediating variables might
be. Trends appear favorable in terms of defining the point at which patients can be declared dead. With
a few lagging exceptions, most countries use brain death as the criterion or are moving rapidly in that
direction. This allows for maximum opportunities to harvest healthy and usable organs.
Trends in religious attitudes and support towards organ donation also appear to be favorable.
Only rare instances of outright rejection of organ donation and transplantation can be identified, and this
is usually among fringe groups. As well, religious organizations and leaders have in the past taken a
typically passive stance regarding a persons decision to become a donor or to defer. Increasingly these
groups and individuals who are persuasive opinion leaders to many people of faith are actively promoting
and facilitating the choice to become an organ donor. Some religious restrictions on what organs may be
given, by whom, and under what conditions remain though most are not critical or insurmountable
obstacles.
Nonreligious cultural values, norms and behaviors present both a threat as well as numerous
opportunities for the organ donation movement. Differences in important cultural dimensions across
varying parts of the world pose their biggest threat when they are either not properly identified, or worse,
when they are identified but ignored. On the other hand, understanding these cultural differences and
tailoring marketing approaches to incorporate them respectfully offer great opportunities to meaningfully
improve the organ donation situation globally. As outcomes suggest, approaches which are successful in
some markets fail miserably in others so a strictly undifferentiated strategy is not appropriate.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Strategies and campaigns designed to increase organ donation have suffered somewhat through a
trial and error period, but now it is becoming more apparent which basic types of approaches yield the
most positive results. Among the most promising are appointing transplant coordinators who handle the
donation and transplant process and who have been extensively trained in how to do their jobs, crosscountry cooperation in creating cross-border computer data base registries of potential donors and
recipients as well as in forming joint organizations and programs to promote organ donation, applying
culture sensitive techniques, and using high profile, respected opinion leaders to destroy harmful
misconceptions and to hasten progress in increasing the numbers of donors and organs donated.
Still, some events which affect attitudes and behaviors regarding organ donation cannot be
directly controlled, such as sensationalistic or untrue publicity or the tragic deaths of youths whose
compelling stories bring organ donation into the media spotlight. But responses to these occurrences are
controllable and can turn negative situations and untimely deaths into a means to change attitudes and
behaviors involving organ donation.
REFERENCES
Aoki et al., (1992), How to Increase Cadaver Organ Donation in Japan: A Transplant Recipients
Approach,
Transplantation Proceedings, Volume 24, number 5, October, 2064-2065.
Awuonda (1997), Swedish organ-donation drive set for success,
1401.
Cohen, DAmaro, De Meester, & Persjin (1997), Changing patterns in organ donation in
Eurotransplant, 1990-1994", Transplantation International, Volume 10, 1-6.
Cosse & Weisenberger (1997), Perspectives on the Use of Financial Incentives for Human Organ
Donation, in Jerry W. Wilson (edt.), Marketing: Innovative Diversity Proceedings Atlantic
Marketing Association 1997 Annual Conference, Nashville, TN: Atlantic Marketing Association,
89-100.
Cosse & Weisenberger (1998), Words versus Actions about Organ Donation: A Four Year Tracking
Study of Attitudes and Self Reported Behavior, Proceedings of the Society for Marketing
Advances 1998 Annual Conference, New Orleans, LA: Society for Marketing Advances.
Dobrusin (1996), Organ Donation in Jewish Law, a rabbinical presentation and discussion given at
Beth Israel, June 26.
Exley, Sim, Reid, Jackson & West (1996), Attitudes and Beliefs Within the Sikh Community Regarding
Organ Donation: A Pilot Study, Social Science in Medicine, Volume 42, number 1, 23-28.
Hong Kong Medical Association, The Hong Kong Medical Association Donation Register,
www.hkma.org/bregist.htm.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Jordan (1996), Organ donation from U.S. boy stirs Japan into action,
2.
Krauthammer (1999), YES, Lets Pay for Organs,
page 115
Matesanz, Miranda, Felipe, & Naya (1996), Continuous Improvement in Organ Donation: The Spanish
Experience, Transplantation, Volume 61, number 7, April 15, 1119-1121.
Mirone & Triolo (1996), A Regional Program for Expanding the Donor Pool: Experience in Piedmont,
Italy, Transplantation Proceedings, Volume 28, number 1, February, 236.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 116
Pessemier et al., (1977), Willingness to Supply Human Body Parts: Some Empirical Findings,
of Consumer Research, Volume Four, December, 131-140.
Journal
Rashed (1997), The false stigma of organ donation, www.arab.net/arabview/articles/, May 10, 1-3.
Shaheen et al., (1996), The Causes of Family Refusal to Consent for Organ Donation from a BrainDeath Relative in Saudi Arabia, Transplantation Proceedings, Volume 28, number 1, February,
387.
Simon (1995), Organ Transplants and Donation in Jewish Law, a rabbinical presentation given to the
Oxford University Jewish Society.
Smith (date unspecified), in UNOS Donation and Transplantation Medical School Curriculum, at
www.unos.org.
Wallich & Mukerjee (1996), Regulating the Body Business,
12-13.
Journal of
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BACKGROUND
Writers and researchers have identified that learning styles, goal setting skills, time management,
information processing, note taking and test taking skills are important variables that contribute to
effective and meaningful learning. (Ellis, 1994, McWhorter, 1996, Wong, 1994). In particular, interactive
study guides have been found to be an effective method for moving students from passive reception to
active learning (Forsyth and McMillan 1991). Moreover, it has been shown that an interactive study
guide helps students manage the flow of information presented during lectures, cases, videos and class
presentations. Interactive study guides also help students to know how to proceed with class assignments,
how to make the most of each class session, how to prepare for tests and how to monitor personal progress
throughout the course. Through an interactive study guide the instructor can provide distinct examples or
ideas and concepts, point out topic transitions and identify key concepts.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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METHODOLOGY
At the beginning of the semester the class was organized into student learning teams (SLT).
Each SLT was required to complete several power point presentations that covered the chapters and the
cases in the textbook. In addition, assignments covering videos, discussion questions, and testing were
made. Each student was required to use an interactive study guide during the semester. At the end of the
semester a survey was administered that asked for the following information.
1. What is your sex?
2. What is your age?
3. What is your major?
4. The study guide helped me organize the course material.
5. The study guide improved my test scores.
6. The study guide was boring?
7. The study guide gave me more useful feedback that I get in other courses.
8. The study guide increased my motivation to learn the material.
9. The study guide was busy work.
10. Each class session was more meaningful because I used the study guide.
11. The study guide improved my grasp of the course material.
12. How frequently did you use the study guide?
13. In the average week, how many minutes did you spend using the study guide?
14. Do you have any comments regarding the study guide and the value of using it?
RESULTS
The students agree that using an interactive study guide is helpful in improving class organization
and clarity. Moreover, the study guide was found to be an effective teaching tool for giving feedback to
students and in helping students to identify difficult themes or concepts. Finally, the study guide was
helpful in creating learning experiences that encourage active rather than passive learning.
CONCLUSION
Those instructors who plan to design an interactive study guide must consider the variables that
contribute to meaningful and motivated student learning. With todays increased emphasis on student
learning teams and computer technology, an interactive study guide is an important teaching tool that
helps move students from passive listeners to active learners. By designing and/or using an interactive
study guide the classroom instructor will foster behavior that invite student teacher interaction, increase
active learning and promote feedback that promotes learning. Ultimately, these behaviors will contribute
positively to the students feelings about their learning and to the work they devote to class activities and
assignments.
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REFERENCES
Cyrs,T.E, and Smith F. A, Designing Interactive Study Guides with Word Pictures for Teleclass
Teaching, Tech Trends l991, 36 (1), 37-39.
Ellis, David B. Becoming A Master Student. Rapid City, South Dakota College Survival, Ins. 1993.
Forsyth, d. R., and McMillan, J.H. Practical Proposals for Motivating Students, In R. Menges and M.
Svinicki (eds), College Teaching: From Theory to Practice, New Directions for Teaching and
Learning, no. 34 San Francisco: Jossey-Bass, l991.
McWhoter, Kathleen, Study and Thinking Skills in College, Little Brown, Boston Mass 1996.
Wong, Linda, Essential Study Skills, Houghton Mifflin Company, Boston Mass. L994
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INTRODUCTION
This study will examine consumer behavior in an online auction environment. A field
experiment will be conducted to examine three hypotheses regarding online auction bidding behavior.
The results of this study should provide insights to online sellers and buyers, as well as companies
involved in online auction services. The three factors we propose to be particularly important to online
buyers bidding amounts are as follows: 1) whether or not a picture of the item is available for the buyer
to view; 2) the experience of the buyer (measured by buyers feedback ratings); and 3) the reputation of
the seller (measured by sellers feedback ratings). The data used for the study will be 120 proof sets of
coins that can be considered a commodity product. Common sense dictates that none of the above factors
should influence the purchasing price of a commodity, but marketing theory, as well as the authors and
others intuition and informal observations indicate that these factors may indeed be important to the
amount bid on items in electronic auctions.
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assure the buyer that the seller has experience and expertise in online auctions. Both of these functions
help reduce the high level of perceived risk that is inherent in buying situations where the buyer cannot
personally inspect the item being sold or the person selling the item. The picture may also influence the
bidders attitude toward the seller and the item being auctioned.
While research has not been conducted on the effect of pictures on product choice or
perceived risk, there is an extensive research stream on the presence of pictures in advertising. Pictures
have long been used in advertising to convey information about the brand, to show its users and uses,
and/or to create an image or personality for the brand (Edell & Staelin, 1983). Prior research on the
subject has focused predominantly on the effect of pictures on consumers attitudes (Mitchell & Olson,
1981; Mitchell, 1986) and/or memory (Childers & Houston, 1984; Houston, Childers & Heckler, 1987;
and Heckler and Childers, 1992). As memory of an auction item does not seem to be an issue when the
bidder has the whole array of items for sale immediately accessible on a Website, it is the attitude toward
the brand that will be the focus of this discussion.
Mitchell (1986) suggests that visual elements of advertisements may affect brand
attitudes in at least two ways. First, individuals may form inferences about the advertised brand based on
the visual elements presented. These inferences may result in the formation or change of beliefs about the
advertised brand. Second, if the visual component of the advertisement is positively or negatively
evaluated, it may have an effect on brand attitudes that operates through attitudes toward the
advertisement. In other words, if a picture is negatively evaluated, the viewer has a negative attitude
toward the advertisement that is then transferred as a negative attitude toward the brand in the
advertisement. Other research studies have demonstrated varying levels of support for these hypotheses.
Mitchell and Olson (1981) found that a picture of an attribute created a stronger belief that the brand
possessed that attribute than an explicit verbal claim. However, Edell and Staelin (1983) found that a
framed picture (in which the verbal information is a restatement of the picture) and a verbal message
alone elicited similar reactions from consumers. Therefore, the picture did not reinforce beliefs about the
brand. Despite these mixed research findings, which may be due to individual differences in the ability
and preference to process visual or verbal information (Childers, Houston and Heckler, 1995), some
support does exist that pictures reinforce consumers attitudes toward the brand in an advertisement.
Based on the above findings, intuition and informal observation by the authors and
others (Bauerly, 1998) of eBay auctions, we propose that pictures will influence potential buyers attitudes
and thus the amounts they are willing to bid on auction items. We propose the following hypothesis:
H1:
The presence of a photographic image in the item description will positively influence the
amount bid on the item.
Two reasons for this positive relationship may exist. First, the presence of a picture elicits
stronger beliefs about the attributes associated with the items placed in the auction. In turn, these stronger
beliefs reduced the buyers perceived risk associated with buying a product sight unseen.
SOURCE CREDIBILITY
Another factor that we propose to be important in consumers assignment of bids to items in an
online auction is the credibility of the seller. Seller credibility is measured in eBay by the comments that
buyers provide about the sellers. Sellers that received a large number of positive comments from buyers
are given a colored star to indicate their rating. Sellers with high credibility, or in other words, a high
seller feedback rating, would be instrumental in reducing the amount of risk perceived by consumers in
the online auction environment. In other words, buyers could see that the seller had been rated highly by
other buyers and realize that they will be getting a fair deal.
The idea of seller credibility fits with marketing research on source credibility. According to
Sternthal, Phillips and Dholaki (1978), source credibility consists of two components: expertise and
trustworthiness. Both of these components could be important to the buyer who is deciding which seller
to give his/her business. Also, highly credible sources often have resulted in more behavioral compliance
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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than have sources that have less credibility (Sternthal, Phillips & Dholaki, 1978). Thus, we propose the
second hypothesis of this study:
H2:
A high seller feedback rating will positively influence the amount bid on the item because a
higher rating implies higher seller credibility.
CONSUMER EXPERTISE
The influence of the buyer expertise should also be considered. Similarly to the seller ratings,
eBay allows for sellers to post positive or negative comments about the buyers they with whom they have
dealt. These buyer feedback ratings provide information on previous transactions by that buyer.
Many studies have focused on the difference between experienced consumers and novices (Alba
& Hutchinson, 1987; Bettman & Park, 1980; Brucks, 1985; Maheswaran, Sternthal & Gurhan, 1996;
Mitchell & Dacin, 1996; Rao & Seiben, 1992). Alba and Hutchinson (1987) identify two dimensions of
consumer expertise: expertise and familiarity. Familiarity is defined as the number of product-related
experiences that have been accumulated by the consumer, while expertise is defined as the ability to
perform product-related tasks successfully. While the eBay buyer feedback ratings do not measure the
consumers expertise in the product category, they do provide an indication of the consumers familiarity
with the online auction medium and possibly with the product category. In general, increased product
familiarity results in increased consumer expertise (Alba & Hutchinson, 1987).
Studies have indicated that experts have greater ability to analyze information presented to them
and isolate that which is most important and task relevant (Alba and Hutchinson, 1987). Thus experts
should realize that the pictures of commodity products are irrelevant as no differences between brands
exist. Thus knowledgeable consumers should be less willing to pay prices that are not commensurate with
the quality of the product than consumers who are not knowledgeable (Rao and Sieben, 1992). However,
facilitating the novices message processing by providing a picture would enhance their learning of the
appeal and thereby the favorableness of the message evaluations (Maheswaran, Sternthal and Gurhan,
1996). Therefore, we propose the following:
H3:
A high buyer feedback rating will negatively influence the amount bid on the item; whereas a low
buyer feedback rating will positively influence the amount bid on the item.
page 123
Website tracking company (Turner, 1999). Media Metrix reported in June of 1999 that EBay users
average 111 minutes on the site making it the third most popular Website by user minutes (eBay Website,
1999). In a study conducted by Vanderbilt Universitys Owen Graduate School of Management of 10
major online auction sites, eBay was rated highest for the level of customer support it provides (PC Week,
1999).
Online auctions are creating new variables in a companys marketing mix including the concept of
dynamic pricing. A wide range of goods is being priced at what the market will bear (Business Week,
1999a). However, online auctions are not without their drawbacks. Levels of perceived risk tend to be
higher when consumers cannot examine either the merchandise or the sellers. A study by Advertising
Age (Maddox, 1998) surveyed consumers who are unwilling to shop on the Internet. They found that the
first reason for resisting Internet shopping was security and the second most important reason was the
inability to examine the merchandise before purchasing it. Internet auctions have the additional hurdle of
trust as anyone with a browser can place a bid or auction goods. Sellers remain wary of getting paid and
buyers are concerned about the shipment of an item and its quality (Busch, 1999). To circumvent this
obstacle, eBay has devised a reputation rating system to help traders judge each other. Buyers and sellers
may leave public comments, known as feedback about transactions on the site. Each positive entry is
assigned a point and tallied to give a numerical rating. Each negative comment lowers the score by a
point (Mannix, 1999; eBay Website, 1999).
When placing an item up for auction on eBay, the seller must choose from several different
auction formats. These formats include a standard auction based on the English open-outcry mechanism,
reserve price auction, private auction, Dutch auction, and restricted access auction. The standard auction
displays a current bid, bid increment, and minimum bid. The minimum bid is the current bid plus the bid
increment. The amount of the bid increment varies according to predefined price ranges published on the
eBay site. The reserve price auction is similar to the standard auction with the exception that the seller
has established a minimum price at which he or she will sell the item. A private auction differs from the
standard auction in that the identity of the bidders is not displayed. At the conclusion of the auction the
buyers identity is revealed only to the seller. A Dutch auction is used when the seller has more than one
of an item available for auction. In the Dutch auction the seller specifies the quantity available and a
minimum price. All winning bidders in the Dutch auction pay the same price for the item, the lowest
successful bid. The restricted access auction is used to sell adult-oriented items. The restricted access
auction requires that the buyer have a credit card on file with eBay thus providing some level of assurance
that the buyer is an adult.
As stated above, when an item is placed up for auction using a standard auction format the
current bid, bid increment, and minimum bid are displayed. A bidder may bid the minimum price or may
choose to use what eBay describes as an automated proxy. When using the automated proxy, the bidder
enters the maximum price he or she is willing to pay for an item. The automated proxy will bid the
minimum bid on the item and, if outbid, will raise the bid. The automated proxy will continue this
process until the auction closes or the maximum amount the bidder is willing to spend is reached. The
amount bid by the automated proxy will be the new minimum bid or the maximum amount of a competing
automated proxy plus the bid increment.
METHODOLOGY
The experimental design for this study is a 2 x 2 x 2 grid consisting of independent fixed
variables of the picture/no picture conditions and the high seller feedback rating/low seller feedback rating
conditions; and an independent random variable of the high buyer feedback rating/low buyer feedback
rating conditions. The site for data collection will be eBays online auction and the data will consist of
120 proof sets of coins from the years 1969 to the present. There will be four matched sets of proofs so
that there will be 30 observations in each of the fixed variable conditions (picture/no picture; high seller
feedback rating/low seller feedback rating). A proof set is a set of one of each denomination coin for a
given year. They are struck using new polished dies and are manually transferred from the die into hard
plastic cases. A proof set from any given year should have the same value and can be treated as a
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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commodity, thus a picture should make no difference in the amount an individual is willing to bid on the
set. The book value of the coins will be considered a covariant in this study.
The 120 proof sets will be sold on eBay over a 6 week period with the order of presentation
randomized. Care will be made to offer the coins during similar times of day and days of the week to
avoid interference of heavy and low eBay usage. This data collection will occur in January and February,
2000.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Alba & Hutchinson (1987), Dimensions of Consumer Expertise. Journal of Consumer Research,
Volume 12, March, 411-454.
Bauerly (1998), Online Auction Services: Selling Made Easy. Proceedings of the Annual Meeting of
the American Society of Business and Behavioral Sciences. Volume 1.
Bettman & Park (1980), Effects of Prior Knowledge and Experience and phase of the Choice Process on
Consumer Decision Processes: A Protocol Analysis. Journal of Consumer Research. Volume
7, December, 234-248.
Binmore (1992), Fun and Games: A Text on Game Theory. D.C. Heath and Company, Lexington, MA.
Brucks (1985), The Effects of Product Class Knowledge on Information Search Behavior. Journal of
Consumer Research. Volume 12, June, 1-16.
Busch (1999), Wanted: Better Auctions. Information Week. March 22, 164.
Business Week (1999a), Going, Going, Gone. Business Week. April 12, 30.
Business Week (1999b), All the Worlds an Auction. Business Week, February 8, 120.
Childers & Houston (1984), Conditions for a Picture-Superiority Effect on Consumer Memory. Journal
of Consumer Research. Volume 11, September, 643-654.
EBay Website (1999), www.eBay.com. December 1.
Edell & Staelin (1983), The Information Processing of Pictures in Print Advertisements. Journal of
Consumer Research. Volume 10, June, 45-61.
Heckler & Childers (1992), The Role of Expectancy and Relevancy in Memory for Verbal and Visual
Information: What is Incongruency? Journal of Consumer Research. Volume 18, March, 475492.
Houston, Childers & Heckler (1987), Picture-word Consistency and the Elaborative Processing of
Advertisements. Journal of Marketing Research. Volume 24, November, 359-369.
Maddox (1998), Survey Shows Increase in Online Usage, Shopping. Advertising Age. Oct 26, S6.
Maheswaran, Sternthal & Gurhan (1996), Acquisition and Impact of Consumer Expertise. Journal of
Consumer Psychology, Volume 5, Number 2, 115-134.
Mannix (1999), Whos Been Naughty and Whos Been Nice. U.S. News and World Report. Volume
127, September 27, 60.
Mitchell (1986), The Effect of Verbal and Visual Components of Advertising on Brand Attitudes and
Attitude Toward the Advertisement. Journal of Consumer Research. Volume 13 (June) 12-24.
Mitchell & Dacin (1996), The Assessment of Alternative Measures of Consumer Expertise. Journal of
Consumer Research. Volume 23, December, 219-240.
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Mitchell & Olson (1981), Are Product Attribute Beliefs the Only Mediator of Advertising Effects on
Brand Attitude? Journal of Marketing Research. Volume 18, August, 318-332.
PC Magazine (1999), eBay. PC Magazine. March 9, 198.
PC Week (1999), Strategies Digest: Study Concerning Online Auction Sites. PC Week. November 15,
140.
Petersen (1999), New Breed of Auctioneer Moving Into Mainstream. PC Week. November 8, 30.
Rao & Sieben (1992), The Effect of Prior knowledge on Price Acceptability and the Type of Information
Examined. Journal of Consumer Research. Volume 19, September, 256-270.
Seltzer (1999), Bidding Frenzy. PC Magazine. March 9, 191.
Sternthal, Phillips & Dholakia (1978), The Persuasive Effect of Source Credibility: A Situational
Analysis. Public Opinion Quarterly. 287-314.
Turner (1999), Winning Bid: The Hot Web Auction Site eBay is Addictive, For Sure. But is it Any Way
to Shop. Money. Volume 28, March 1, 201-202.
Wu and Schaffer (1987), Susceptibility to Persuasive Appeals as a Function of Source Credibility and
Prior Experience with the Attitude Object. Journal of Personality and Social Psychology. April,
677-688.
Acknowledgement: The authors would like to thank Donald W. Ottaway for providing the proof
sets used as data for this study and helping in the implementation of the data collection.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
Electronic communication has begun to revolutionize the workplace. Anyone who has every
pushed send has experienced the feeling of power from moving tasks and responsibilities from his or
her desk to someone elses in box. There is no question that this relatively new form of communication is
an extremely productive method of communication. It requires little effort, leaves an organized record of
data, has the ability to reach large numbers of people simultaneously and seems to be without problems.
But anyone who has ever received a rude e-mail knows that electronic communication sometimes causes
human relations problems, which ultimately take more time to resolve than a face-to-face meeting
initially would have taken.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Never substitute e-mail when a face-to-face meeting is more appropriate. Its not human to
reprimand via e-mail. Go see the person involved and keep it private.
You must engage in human moments on a regular basis for them to have a meaningful impact
on your life.
Choose your method of communication carefully. Updates and notifications of meetings are two
examples of an appropriate use of e-mail. Other moments where interaction can be productive
require human contact.
CONCLUSION
All of us need to use technology to be more productive; but productivity should not be the only
goal of the business world. Whether its in the Healthcare industry or any other segment of our modern
world. Our first question should be What method of communication is appropriate for this message?
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Barlow, Jim (1999) E-mail Etiquette Has Its Own Rules Houston Chronicle (March 11) p1.
Eadie, Alison (1999) Business File: E-mail Gives the Wrong Message: Management Matters The Daily
Telegraph (September 2).
Eisenberg, Daniel (1999) The Net Loves Old Print and TV Get A Windfall of Ads From Dot.coms
Desperate for Attention Time Magazine (November 1) p60+.
Hallowell, Edward (1999) The Human Moment At Work Harvard Business Review (January/February)
p58-66.
Johannes, Laura (1999) Medical Journal Faces Questions Over Web Deal The Wall Street Journal
(October 26) pB1.
McCarthy, Michael (1999) Now the Boss Knows Where Youre Clicking The Wall Street Journal
(October 21) pB1.
Rafter, Michelle (1999) For the E-mail Challenged, Some Useful Tips Reuters English News Service
(October 27).
Reisner, Neil (1999) E-Mail Replaces Workplace Water Cooler, Consultants Say World Reporter
(October 25).
Staff writer (1999) The Dangers of E-Mail in the Work Place; Protecting Your Business from
Unnecessary E-Mail Litigation PR Newswire (September 7).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
The Internet is an important marketing communications tool. Transaction-based online systems
allow organizations not only to communicate with the consumer but to sell online as well. If a firm wants
to build brands and inform it will operate at cognitive and attitude levels of the hierarchy of effects,
perhaps utilizing information publishing, web advertising and other promotional techniques (Strauss and
Frost, 1999).
Along with the boom of personal computer use that began in the late 1980s, came the advent of
personal finance programs. Programs such as Dollars & Sense, Quicken, and MicroSoft Money have been
helping millions of Americans to track their expenditures, print checks, and even pay bills electronically
for over a decade (Barrier, 1998). But until recently, the programs have had no connection to your bank,
and the missing link has kept customers from accessing bank accounts and information.
These automated checkbooks led to consumer demand for additional electronic services. Larger
banks responded by providing electronic bill paying services in conjunction with their checking accounts.
Unfortunately, electronic bill paying is really a misnomer. Consumers transmit a list of bills to be paid to
a third party such as CheckFree who then prints and mails paper checks. More than 95% of electronic bill
payments are processed in this manner (Barrier, 1998).
Many banks have taken the first step toward an Internet presence by posting a web site.
However, the bulk of current banking-related web sites serve up little more than glorified online brochures
(Baig, 1997). These web sites may describe various product offerings and services, and they may even
offer job postings and an e-mail link. But they typically offer little in the way of interactive tools, and
usually no connection to the consumers accounts.
As banking firms evolve from an online brochure web site into true electronic banking, the elite
realize the need to load their web sites with interactive tools to help customers make financial decisions.
Some have even developed Internet communications that allow customers to open accounts, apply for
loans and services, and receive targeted e-mail communications.
Even without a connection to the banks data service, web sites can contain some of these jewels
which keep customers coming back. Calculators are a popular tool which consumers can use for financial
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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planning. For instance, a customer can enter his or her monthly income and monthly debts, and receive
the size of a mortgage loan for which they could qualify. Or, by entering the desired monthly payment
and current interest rate, the consumer can calculate the price of a new car that they can afford. There is a
myriad of uses for calculators including retirement planning, college financial planning, and refinance
decisions. Rate watch services are another popular tool for banking web sites. A consumer who is
contemplating refinancing a mortgage, for example, can ask to receive an e-mail notification when the
rate hits his stated threshold. Online account openings and loan applications turn the site into an
additional sales force.
The limited web site can lead to true electronic banking when connectivity to the banks
mainframe is added. Customers can then log on and view balances, check for cleared items, transfer
funds among accounts, and pay and receive bills online. According to Ernst & Young, LLP., less than 10
percent of all U.S. banks currently offer this level of Internet banking (Gerwig, 1998).
Banks must move with the times to maintain the value of their electronic offerings. As banks
shift away from online brochures and towards a more interactive web presence, online brochures will lose
any value they currently possess. Since most banks and brokerages will offer online transactions over the
next two to three years, the competitive value of an online brochure will disappear, and even the value of a
transactional site will fade, says Octavio Marenzi, (1998) research director for Meridien Research.
Meridien Research predicts that 90 percent of North American banks will offer Internet-based transactions
by 2000. Firms are already working to help smart cards turn PCs into ATMs. A card reader fitting into
the PCs 3 inch disk drive would load value on a smart card and deduct the amount from the
cardholders bank account.
CONSUMER PROFILE
It is assumed that electronic banking usage will follow Internet usage trends. At the end of 1998,
there were over 40 million people online in any given week according to Media Metrix (Kutler, 1998).
This is up substantially from 25 million weekly users in 1997. The number of web sites these users can
access is also growing at a rapid pace. There are over one million web sites in common usage and 3,000
new domain names are registered every day (Reed, 1997).
Of the 40-plus million weekly Internet users, 6.9 million check bank balances and 5.1 million
perform banking transactions according to a Nielson Media Research study conducted in July 1998
(Kutler, 1998). The following table shows recently-released projections of Forrester Research of
Cambridge, Massachusetts for the number of households using electronic banking or a combination of
electronic banking and investing (Kutler, 1998).
Projected Households Using Internet Financial Services
18
16
Households in Millions
14
12
10
8
6
4
2
0
19
97
19
98
19
99
20
00
20
01
20
02
Year
Banking Only
In addition to the numbers of users increasing, the frequency of use is also on the rise. Jupiter
Research, a market research firm, reports that there were 155 million online transactions in 1997 and they
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expect that number to climb to 286 million by the end of 1998. Their predictions call for 1.4 billion
transactions in 2002 (Baig, 1998).
PROFITABILITY
Electronic banking offers the promise of reduced transaction costs to financial institutions.
According to Booz, Allen & Hamilton, a transaction in a full-service branch costs $1.07; the average
telephone transaction costs 54 cents. An ATM transaction costs only 27 cents at a proprietary machine
and a web transaction costs only a penny. While Internet banking costs just a fraction of traditional,
personal service, banks typically charge between $3 and $7 per month for online banking and electronic
bill paying services (Baig, 1998).
Even though per transaction costs are lower for electronic banking, major savings have not yet
been realized. Wayne Cutler, vice president of First Manhattan Consulting Group, believes this is due
largely to channel optimizers - people who maximize transaction volumes because of easy accessibility
(Kutler, 1998). This trend is confirmed by Meridien Research whose findings show that the major impact
of electronic banking thus far has been to increase the number of contacts the consumer has with financial
institutions (Stroper, 1998). Meridien Research estimates that consumers had 59 billion contacts with
financial institutions in 1997 and they predict this it will grow to 75 billion in 2002. The following table
shows the composition of these transactions.
Number of Contacts in
Billions
80
70
60
50
40
30
20
10
0
4.6
0.3
7.6
12.8
2.0
4.7
32.7
37.0
16.4
14.8
Electronic Channels
1997
2002
Year
Attended Phone
Automated Phone
ATM
Branch
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delayed or no response to e-mails (70%) in conjunction with bank web sites (Power, 1998). Netsmart
reports that 83% of users leave bank sites out of frustration.
Electronic bill paying is a major draw for consumers considering banking online. However, this
system has two major pitfalls to be considered. First, since electronic bill paying is really not electronic
95 percent of the time, it can add several days to the process and cause late charges to be incurred.
Second, payees occasionally arent sure what to do with an electronic payment when they receive it
(Barrier, 1998). Because they receive a check but no payment coupon or stub, payees must take the
initiative to correctly post the payment. And since a third party is actually responsible for making the
payment, following-up on late or missing payments is not always simple.
For consumers attempting to bypass trips to the bank altogether in favor of electronic banking,
there are still more pitfalls. First, when deposits are mailed in, the consumer is at the mercy of the U.S.
Postal Service. These consumers will have slower access to their funds than those who deposit them in
person (Goldwasser, 1998). Some services, such as cashiers checks are unavailable through electronic
means. Finally, if a consumer chooses a virtual, or branchless, bank they may find ATM transactions
costly. While many virtual banks offer free ATM transactions worldwide, if they dont own machines in
the consumers vicinity, surcharges will likely be imposed (Goldwasser, 1998).
Average Age
S1
1995
1996
1997
Year
High incomes mean increased earnings potential for financial institutions. Customers with
higher incomes typically have more relationships with an institution, are less adverse to fees, and hold
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larger deposits than other customers. According to the Georgia Institute of Technology survey mentioned
above, the average household income of Internet users is $60,800. In addition, a 1996 survey by SRI
Consulting Group showed that in excess of 65 percent of Internet users have household incomes greater
than $50,000, compared with 35 percent of the U.S. population as a whole (MediaWeek, 1997). The
level of education demographic can help marketers determine how to approach households. According to
the previously mentioned SRI study, 75 percent of Internet users have attended college, as opposed to 46
percent of the total population (MediaWeek 1997).
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Wayne Cutler, vice president of First Manhattan Consulting Group, says his firm has found that
Internet banking customers are up to 50 percent more affluent than the industrys average customer
(Kutler, 1998). Not only are they more affluent, they are also twice as profitable as others, according to
Edgar Brown, senior vice president at First Union Corporation (Costanzo, 1998). This finding was
substantiated by Michael DeVico, executive vice president of BankAmericas Interactive Banking
Division. BankAmericas customer segmentation analysis shows that the segment that
leverages the Internet banking channel is very profitable (Costanzo, 1998). Huntington
Bancshares of Ohio has found that Internet customers as a rule have three times as many
banking relationships with their firm as others. Contrary to typical customers who use an
average of three financial institutions, they tend to aggregate all of their accounts so they
can view and manipulate them online (Costanzo, 1998).
POTENTIAL CONSUMERS
The potential consumers of online banking can be delineated in a fairly straightforward manner
by looking at households who possess the needed computer equipment. In December 1998, this potential
market, those owning PCs and modems, stood at 36 percent of all U.S. households (Costanzo). This
segment grew 23 percent between 1996 and 1997, but growth slowed to 13 percent between 1997 and
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1998, according to PSI Global, a Tampa-based research firm (Stone and Tanaka, 1998). PSI Global also
reports that only four percent of U.S. households currently use online banking services. This leaves 32
percent of all U.S. households able to use online banking, but not yet doing so. A more precise target
audience would be frequent Internet users. According to Nielson Media Research, there are almost seven
million current consumers of online banking and another 33 million weekly Internet consumers without
online banking (Kutler, 1998).
Unlike face-to-face service, potential customers do not need to reside near their online bank.
This broadens the potential market from a traditional ten-mile radius around a physical location to the
entire country. Some of the larger online banking providers have found that as much as 30 percent of
their online customers reside in states where there are no physical locations (Baig, 1998). Virtually any
institution offering online banking tremendously broadens their potential market. Online banking thus
poses two lines of potential; the potential to attract customers outside the normal service area, and the
potential to consolidate the relationships of customers within the market area.
COMPETITIVE ANALYSIS
As financial institutions flock to the Internet with varying degrees of interactivity, banks feel the
need to get online to keep up with competitors. But defining competition is becoming more difficult.
There are direct competitors such as other banks, thrifts, and credit unions. There are also indirect
competitors who offer financial services such as insurance, investments, or banking services without any
physical locations, or personal service.
At this point, banks are most likely paying attention to their direct competitors in their market
areas, says Christopher Musto, senior analyst at Gomez Advisers Inc. (Costanzo, 1998). But as Internet
banking grows in popularity, they will also have to contend with direct competitors who are not located
right down the street, but possibly across the country. And, If companies like E-Trade are successful in
gaining a foothold on the Internet and establishing a branch they can use to cross-sell products, that is a
threat, Mr. Musto said (Costanzo, 1998).
In evaluating Local Federal Banks competition in online banking, one should first consider
direct competitors serving the same markets. Local Federal operates 50 branches in 22 Oklahoma
communities including the Oklahoma City and Tulsa metropolitan areas. Within the 22 communities,
Local competes directly with commercial banks, thrifts, and credit unions. Virtually all peer institutions
in Oklahoma currently have a web presence; most of them provide online banking services. In fact, the
Oklahoma Bankers Associations web site offers links to 45 bank web sites. Of Local Federals top five
competitors; Bank of Oklahoma, BankOne, NationsBank, MidFirst Bank, and BancFirst; all offer
Internet banking currently except MidFirst Bank. Their web sites allow customers to log on and check
account balances, transfer balances and download account information into financial management
software. The table below shows major competitors pricing for Internet banking.
MidFirst Bank
BancFirst
Free
Free
N/A
$5.00
Being one of only two major institutions in Oklahoma not offering Internet banking places Local
Federal at a disadvantage. The degree of this disadvantage grows with the popularity of the service. This
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convenience-related weakness is compounded by the fact that Local Federal is also the only major
institution without a strong ATM presence or a 24-hour call center. Therefore, convenience-oriented
customers are at risk of migrating to more technologically-advanced institutions.
A new threat also looms from financial institutions outside Oklahoma. David Weisman, director
of money and strategies at Forrester Research, says, You no longer have to settle for whatever the local
bank offers. (Baig, 1998). He backs up his statement with the fact that 30 percent of Bank of Americas
home banking checking customers reside outside the 11 states in which the bank has a retail presence. In
the future, an attractive web site, low pricing and aggressive marketing may be the attributes that draw
customers instead of convenient locations.
Virtual banks are beginning to spring up and grab market share from all over the country.
Because these virtual banks draw customers from such a broad market and carry extremely low overhead
costs, their pricing is often superior to community banks (Baig, 1998). Kiplingers Personal Finance
Magazine advocates virtual banks for checking accounts because their fees are usually much lower than
traditional banks (Goldwasser, 1998).
RECOMMENDATION
After reviewing the functionality of Internet banking, usage trends, profitability impacts, user and
potential user profiles, and the competitive environment, the recommendation is that Local Federal Bank
add Internet banking to its product line. As a late adopter, offering Internet access defensively would
allow Local Federal to maintain market share. By eliminating the convenience advantage currently held
by other institutions due to Locals lack of ATMs, 24-hour call centers, or Internet access, the accounts of
Local Federal Bank and other institutions can again compete based on features, service, and pricing.
While Local Federal should not expect the market to bear a fee for Internet account access, the institution
should implement a fee in the range of $5 per month for electronic bill paying services in conjunction
with Internet banking. This new income stream will help offset the expenses associated with the initiation
of Internet access.
CONCLUSION
According to the Internet Advertising Bureau during the first quarter of 1998 most ad spending
was generated from the following product categories: computing (27%), consumer related (25%), telecom
(14%), financial services (13%), and new media(10%).
An interactive web site serves to inform and empower users. Interactive featured provide a
communication channel with the customer feedback and customer service. The site can provide
information concerning product selection, product recommendation and retailer referrals and assist in site
navigation (Strauss and Frost, 1999).
Once the decision has been made to offer electronic banking services, thought must be given to
how best to promote the new product. Traditional bank marketing focuses on two areas, educating the
consumer about a product and selling the benefits of a product. Because Local Federal currently has no
web presence, the introduction of online banking will require a great deal of customer education. This
product introduction is very similar to Locals late introduction of check cards. As one of the last large
institutions to offer check cards, it was assumed that little effort would be necessary in the area of
consumer education. This turned out to be an incorrect assumption. The check card program is now
almost two years old and consumer education still plays an important part in marketing efforts. Benefit
promotion plays an increasing role as consumers become more educated about the product and its use.
Internet banking must take into account the product adoption process. This process evolves from
the article Diffusion of Innovations developed by Everett Rogers in 1962.
In Internet banking, Local is again a late adopter of a new technology. Therefore, Local is
advised to enter with a competitively priced, branded product and take the lead position in promotion and
consumer education. This will allow Local to leverage the exposure other programs have already had.
Relationship marketing plays an important role in analyzing Internet consumer behavior research
and indicates that internet consumers are less loyal due to six major forces: (1) the abundance of choice,
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(2) availability of information, (3) entitlement, (4) nothing stands out, (5) insecurity and, (6) time scarcity.
Relationship programs that can retain customers are a vital part of a companys marketing program
(Copulsky and Wolf, 1990).
A market roll out to current customers is a wise first step. This not only gives the institution an
opportunity to iron out any problems during a period of controlled growth, it also gives current customers
the privilege of adopting the product first. The obvious media choice for this product roll out is direct
mail utilizing Local Federals system for targeting the consumer.
After the initial introduction, a blitz to promote recognition and adoption should occur. Due to
the young, upscale skew of Internet users, Local would be wise to depend on cable TV, radio and direct
mail which can all be targeted to the proper demos. These types of media can be used for education about
the product as well as branding. In-branch merchandising, statement stuffers and statement messages can
help drive the message home to customers who have not yet adopted. Billboard advertising can help build
brand awareness. Newspaper advertising should be used sparingly due to the age skew towards youth.
Once the public has been exposed to the brand and the campaign, Local could begin to do some
supplementary education such as seminars. Seminars would give participants an opportunity to preview
the product and learn of its advantages and benefits in a non-threatening environment with skilled support
readily available. Another educational tactic employed by Wachovia Corporation in conjunction with
their Internet banking program is to distribute CD-ROMs containing interactive video demonstrations,
instructions and frequently asked questions (Power, 1998).
After the initial education blitz, education through internal marketing channels should continue,
and a follow-up effort to support the brand identity should occur within six months. This will solidify the
brands awareness and position. Later efforts can be made in a maintenance mode.
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page 138
REFERENCES
Baig, E. (1997). Your friendly banker, the Web. BusinessWeek Online, May 12, 1997 1-4, Retrieved
December 28, 1998 from the World Wide Web:
http://www.businessweek.com/1997/
19/b3526129.htm.
Barrier, M. (1998). Online banking. Popular Science Online, Dec. 28, 1998 1-12, Retrieved December
28, 1998 from the World Wide Web: http://www.popsci.com/content/computers/features/
onlinebanking.
Copulsky, Jonathan and Wolf, Michael J. (July-August, 1990). Relationship Marketing: Positioning for
the Future, Journal of Business Strategy:16-20.
Costanzo, C. (1998). Internet services add to costs bust can attract profitable customers. American
Banker, 163, 2A-4A.
Friedman, M. (1997). Off-the-shelf banking apps bridge legacy data with Web. Internetweek, Issue 692,
19-21.
Gerwig, K. (1998). BellSouth packages E-banking. Internetweek, Issue 744, 18-20.
Goldwasser, J. (1998). Glitches in Internet banking. Kiplingers Personal Finance Magazine, 52, 76-78.
Kutler, J. (1998). Promise of online banking grows with Internet boom. American Banker, 163, 8-11.
Power, C. (1998). Ads for online banking paid off big for Wachovia. American Banker, 163, 11-13.
Power, C. (1998). Survey of online shoppers finds them unimpressed with most banks web sites.
American Banker, 163, 16-18.
Reed, G. (1998). The Internet: Making consumer inroads advantage. Retrieved 12-28-98 from the
World Wide Web: http://www.magicline.com/theinternet.html.
Rogers, Everett (1962). Diffusion of Innovations, 20-24.
Stone, B. & Tanaka, J. (1998). Point, click and pay. Newsweek, 132, 66-68.
Strauss, and Frost (1999). Marketing On the Internet, 10-11.
Stroper, A. (1997). Meridien findings: Financial institutions still in early stages of Internet sales of
retail products and services.
Retrieved 12-28-98 from the World Wide Web:
http://www.meridien-research.com/pages/press/releases/stroper/Nov97/cons_ed_nov97.html.
Stroper, A. (1998). Meridien findings: Branches unlikely to disappear, but elec-tronic channels add to
selling
opportunities.
Retrieved
12-28-98
from
the
World
Wide
Web:
http://www.meridienresearch.com/pages/press/releases/stroper/May98/cons_ed_may98.html.
Why (1997). Why Internet advertising? MediaWeek, 7, 8-13
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 139
INTRODUCTION
A large portion of the economic health of many communities rests with the economic health of
the retail sector. Although measured as secondary employment, retail sales historically represent at least
50% of communities effective buying income and account for significant employment and local tax
receipt activity. Although the economic health of a retail sector can be supported by population growth,
employment growth, and effective buying income growth to name but a few, a strong retail sector is
commonly characterized by inshopping in which local retail sales are supported to some extent by
shoppers and retail dollars originating outside the defined local market or trade area. Conversely,
outshopping occurs when the local population spends retail dollars outside of the defined local market
or trade area. The identified inshopping and outshopping activity can be net on an aggregate retail
sales basis or further identified or approximated on a standard retail sector or segment basis.
Wendell R. Smiths (1956) classic treatise on segmentation stated that segmentation is
disaggregative in its effects and tends to bring about recognition of several demand schedules where
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 140
only one was recognized before[It] consists of viewing a heterogeneous market (one characterized by
divergent demand) as a number of smaller homogeneous markets in response to differing product
preferences among important market segments.
As such, retail sector strength and activity
(inshopping/outshopping) should most logically be approached as a number of smaller homogeneous
markets reflecting different retail sector preferences most commonly classified as food, eating/drinking,
general merchandise, furniture/appliances, automotive, and drugs by Sales and Marketing Managements
Survey of Buying Power(1999). Obviously, retail sector strength and usage rate will vary by retail group
classification as well as by community and benchmark base employed.
One of the most widely known usage rate segmentation studies was written by Dik Twedt(1964)
which introduced the heavy-half concept in which a collection of shoppers representing 50% of the
population accounted for significantly more than 50% of purchases. Heavy user segments with indexes or
ratios greater then one were identified as potentially very attractive markets. The purpose of the submitted
paper is to explore and employ a number of different retail sector sales or usage indexes to identify the
most productive or reasonable estimates of inshopping/outshopping activity and intermarket retail
patronage patterns. As identified by Anderson and Glascoff (1990), It should be apparentthat there
are multiple methods by which heavy-user indexes may be developed and also that the method selected
has, in most cases, a profound effect on the resulting indexes and identified heavy user segments.
Various approaches have been used to assess the economic health of retail segments of a given
market area. In particular, studies by Anderson and Kominsky (1985), LaForge, Reese, and Stanton
(1984), Lillies and Hawkins (1974), and Papadopoulous (1980) utilize time consuming subject purchase
recall methodologies to estimate retail sector intermarket behavior. Of more practical significance are two
identified studies employing secondary data and similar but differently based usage indexes. The study
by Young (1990) utilized a location quotient defined as the percentage of local sector retail sales
divided by the percentage of benchmark sector retail sales to approximate intermarket retail sales flows
for all Minnesota counties and MSAs. The study by Brockway and Mangold (1988) utilized a sales
conversion index defined as a market areas retail sales expressed as a percentage of total EBI (effective
buying income) divided by the benchmark areas retail sales expressed as a percentage of total EBI. This
paper compares and contrasts both of these indexes for a Tennessee military MSA using five (5)
different benchmark assumptions.
INDEXES
A number of indexes have been developed and used to assist business managers in
assessing retail market strength and opportunity. Sales and Marketing Management (1999) calculates the
Buying Power Index (BPI), the Sales Activity Index and the Quality Index as follows:
1. Buying Power Index: The BPI is calculated as .5x(%EBI) + .3x(%U.S. Retail Sales) + .2x(%U.S.
Population) and measures the overall retail demand in an area expressed as a percentage of
total demand in the U.S.
2. Sales Activity Index: This index is calculated by dividing a retail areas percent of U.S.
population into its percent of U.S. retail sales. A high Sales Activity Index may indicate a
strong influx of nonresident purchasers or inshopping.
3. Quality index: This index is calculated by dividing a retail areas percent of U.S. population into
its calculated BPI as above. A high Quality Index may indicate an above average buying power
of residents, inshopping, or both.
LaForge, Reese, and Stanton (1984) produced the Net Trade Flow Index which expresses retail
sales as a percentage of effective buying income(EBI) divided by an assumed 50% EBI retail conversion.
Based on this assumption, a retail conversion rate in excess of 50% indicated a strong retail sector. This
index is similar to the aforementioned Sales Conversion Index (SCI) but on an assumed and aggregate
retail sales conversion basis.
Most retail textbooks include some discussion of the Index of Retail Saturation (IRS) and the
Market Expansion Potential (MEP). In particular, these concepts are discussed by Ghosh (1994) as
follows:
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 141
1. Index of Retail Saturation: This index is calculated by dividing area retail sales by retail square
footage to produce, in effect, a calculation of sales per square foot. A high IRS indicates an
attractive retail trade area or segment category(food) because of either high sales per normal
square footage or normal sales associated with reduced retail square footage allocated. The IRS
is only truly meaningful in comparison with some kind of norm or benchmark as a denominator
such as industry sales per square foot or some management standard.
2. Market Expansion Potential: This index is calculated in dollar terms by subtracting from actual
retail area sales benchmark estimated sales potential (the benchmark sales conversion index
times local trade area EBI subtracted from actual retail area sales).
Of particular interest to the present study are the Location Quotient developed by Young
(1990) and the Sales Conversion Index developed by Brockway and Mangold (1988) as follows:
1.Location Quotient: This index is expressed by the following formulae:
LQ = ns/Ns
Where
:
nb/Nb
LQ = Location Quotient
ns = Area retail sales in ith sector
Ns = Area total retail sales
nb = Benchmark retail sales in ith
sector
Nb = Benchmark total retail sales
As such, the percentage of local retail sales in a particular sector is divided by the percentage of
benchmark sales in the same particular sector. A location quotient in excess of one indicates that the
sector is generating a sales surplus or inflow (inshopping). Quotients less than one are indicative of
outshopping and supportive of Market Expansion Potential. Additional relationships can mathematically
be established from the above basic formulae/relationship as follows:
a. ES =
nb
(Ns)
Nb
To the extent that the local economy is a microcosm or subset of the benchmark economy, the
ES relationship provides the expected retail sales in a sector for the local economy and a basis to
approximate the dollar amount of Market Expansion Potential.
ns b. SR =
nb
(Ns)
Nb
ns
The above Specialization ratio expresses the dollar amount of retail sector inflows/outflows as a
percentage of local retail sector base. As such, a specialization ratio of -.20 would indicate that the local
retail sector sales were 20 percent lower than they would have been if local retail sector sales proportions
had the same degree of specialization as the benchmark economy.
2.Sales Conversion Index: This index is expressed by the following relationship:
A Market areas Retail Sector Sales expressed as a percentage of its Total EBI
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 142
The Benchmark areas Retail Sector Sales expressed as a percentage of its Total EBI
As such, the local areas sales conversion factor (by sector) is divided by the benchmark areas
conversion factor (by sector) as a relative measure of a local trade areas ability to convert buying income
into retail sales (by sector) as compared to a benchmark trade area. The Sales Conversion Index has the
distinct advantage of taking into consideration variations in household income (EBI) and regional
differences in non-retail expenditures such as housing, utilities, etc. As such, a comparison of the
Location Quotient (total retail sales based) and the Sales Conversion Index (total EBI based) is relevant.
In addition and for both indexes, the appropriate selection of benchmark trade areas is of vital concern.
The benchmark trade area should be similar to the local area of study to provide a useful and unbiased
basis of comparison. The appropriate benchmarks are intuitively paired as rural/rural, MSA/MSA, and in
this particular case, military/military to provide an unbiased estimating denominator and real or
unbiased measures of trade area strength by sector.
METHODOLOGY
Data was collected from the most current Sales and Marketing Management Survey of
Buying Power (1999) for five(5) retail sectors(food,eat/drink,general merchandise, furniture/appliances,
and automotive) for Montgomery County, Tennessee to be compared with the following benchmark trade
areas:
1. Contiguous Counties: (Stewart,Dickson,Houston,Cheatham,Robertson)
2. Non-metro Counties in Tennessee
3. MSA Counties in Tennessee
4. State Average in Tennessee
5. Military Counties: (Fayettville,NC and Killeen,TX)
Simple averages were calculated for each of the five(5) multiple benchmark trade areas. A
comparison of Location Quotients, Sales Conversion Indexes, Specialization Ratios, Estimated Sales, and
Inflows/Outflows was performed for all five (5) benchmarks in an attempt to identify the most reasonable,
productive and unbiased trade area analysis and methodology. Montgomery County, Tennessee was
selected as the researched local trade area due to its atypical nature and retail profile challenge. Prior
unpublished work on retail sector profiles and trends for Montgomery County produced distinct and large
SCI and LQ indexes when based on contiguous county benchmarks. As home to the 101st Air Assault
Screaming Eagles (25,000 authorized troop strength), demographic profiles are skewed relative to age,
family size, household income, education, etc. and the state and nation as a whole. Prior LQ and SCI
calculation on 1994 data indicated significant outshopping for food and eat/drink establishments and
significant inshopping for automobiles using surrounding county benchmarks and trade flows. As such,
the present research function was to compare LQ and SCI indexes on a multiple benchmark trade area
basis to block out benchmark bias and assess net local retail economic strength by retail sector/category.
RESULTS
Tables One through Five present calculated LQ, SCI, Specialization Ratio, and
Inflows/Outflows for Montgomery County by contiguous county, non-MSA county, MSA county, state
average, and military county benchmarks respectively. Table Six summarizes LQ and SCI indexes by
benchmark category with grand average computed. A number of observations are possible as follows:
1. For all tables and benchmarks, Food outshopping is significant ranging from losses of
approximately $240,000,000 (contiguous counties) to $76,000,000 (metro counties). Military
commissary food sales(non taxable or reported) and border state Kentucky lower sales tax
outshopping is blamed.
2. Calculated net retail sales are negative (outshopping) for all five tables and benchmarks but
turn positive for all five benchmarks when the identified unreported commissary and Kentucky
food sales are eliminated (net inshopping). Table Five aggregate and by sector SCI and LQ
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 143
indexes are most balanced (approximate one) for the military county benchmark comparison as
would be expected.
3. Table Six summary of LQ and SCI indexes by trade area benchmark demonstrate large variance
by index and benchmark community with the following observations:
a. Food sector indexes are less than one for all benchmarks indicative of food outshopping
by any measure.
b. General Merchandise sector indexes are greater than one for all benchmarks indicative
of General Merchandise inshopping by any measure.
c. Automotive sector indexes are greater than one for all benchmarks (except LQ MSA)
indicative of automotive inshopping by almost any measure.
d. Eating/Drinking sector indexes are balanced for LQ measures and positive for SCI
measures indicative of general Eating/Drinking inshopping.
e. Furniture/Appliance sector indexes are largely mixed indicating inshopping by
contiguous counties (SCI) and overall outshopping by remaining noncontiguous
benchmarks and counties.
CONCLUSIONS
The results of study data analysis were basically as expected. The more comparable and unbiased
the benchmark retail community, the less significant the inshopping/outshopping profile. As such, the
magnitude of local military market inshopping/outshopping was drastically reduced with military market
benchmark comparison. SCI and LQ indexes varied widely regardless of benchmark employed indicative
of buying power and non-retail cost of living differences. The results of this study indicate the need to
seriously consider benchmark community characteristics when computing SCI and LQ indexes and the
further need to consider relative effective buying income influences in retail market strength/attractiveness
determination.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 144
REFERENCES
Anderson, Carol H. and Mary Kominsky (1985). The Outshopper Problem: A Group Approach for Small
Business Retailers. American Journal of Small Business, Spring 1985, 34-35.
Anderson, Steven J. and David W. Glascoff (1990). Index Number Calculation Procedures Involving
Product Usage And Volume Segmentation. Progress in Marketing Thought : SMA Proceedings,
4-9.
Brockway, Gary and W. Glynn Mangold (1988). The Sales Conversion Index: A Method for Analyzing
Small Business Market Opportunities. Journal of Small Business Management, April 1988,
V26, n2, 38-48.
Ghosh, Avijit (1944) Retail Management, 2nd ed. Orlando: The Dryden Press. Pp 258-260.
LaForge, Raymond, Richard Reese, and Wilbur Stanton (1984). Identifying and Attracting Consumer
Outshoppers. Journal of Small Business Management, January 1984, 22-29.
Lillis, Charles M. and Delbert I. Hawkins (1974). Retail Expenditure Flows in Contiguous trade Areas.
Journal of Retailing, Summer 1974, 30-42.
Papadopolous, N.G. (1980). Consumer Outshopping Research : Review and Extension. Journal of
Retailing, Winter 1980, 41-58.
Smith, Wendell R. (1956). Product Differentiation and Market Segmentation as Alternative Marketing
Strategies. Journal of Marketing, 21 (July) 3-8.
Survey of Buying Power (1999). Sales and Marketing Management, August 1999.
Twedt, Dik Warren (1964). How Important to Marketing Strategy is the Heavy User? Journal of
Marketing, 28 (January) 71-72.
Young, Mark R. (1990). Measures of Intermarket Retail Sales Flows. Progress in Marketing Thought :
SMA Proceedings, 363-366.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 145
INTRODUCTION
In recent years, marketing researchers have increasingly used econometric modelling techniques
(classical and new) to measure the effects of various components of the marketing mix. For example, the
long-run effectiveness of advertising and the relationship between both brand sales and product category
sales with advertising have been modelled by Baghestani (1991), Zanias (1994), and Dekimpe and
Hanssens (1995). Chowdhury (1994) modelled the relationship between aggregate advertising
expenditure and macro-economic fluctuations. Franses (1994) estimated the product life cycle of a brand
as a function of macroeconomic variables. Kalyanam, et. al. (1998) formulated a Bayesian Spline
Regression model to trace the time path of irregular price changes. Foekens, et. al. (1999) modelled the
own and cross price effects of promotional price cuts. Similarly, Dekimpe, et. al. (1999) estimated the
long-run effects of price promotions for four different food product categories employing unit-root
econometric theory. In 1999, The Journal of Econometrics devoted a special volume (89) to seventeen
articles applying econometric techniques to marketing.
This study extends the above econometric applications. It addresses the problem of the
simultaneous estimation of demand functions over a broad product line or products mix with
complementary and substitute product demand interrelationships. Elasticity measures are derived that will
assist the product manager to assess the net revenue effect of one or more price changes over the relevant
planning period. In addition, a net revenue matrix (or spreadsheet) is formulated to trace the effects of any
pattern of price change across the product line. Specification, estimation, and validation issues are also
considered.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 146
The models and measures developed are applied to the actual product line of the New York
Telephone Company (now Bell Atlantic) as of 1990. The data is from the official record of the New York
Public Service Commission Case 28961 (1990). The models presented may be easily adjusted to reflect the
new products and competitive environment of the twenty-first century.
The remainder of the study is organized as follows: (1) application of own and cross price elasticities; (2)
demand model specification; (3) tests of model evaluation; (4) demand model results; (5) price effects
algorithm; and (6) conclusion and recommendations. The Appendix shows how the price effects can be
calculated over time.
Table 1
Business Segment
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 147
Table 2
Identification of Product Relationships
C
C
C
C
Other Services
Local Coin
Directory Assistance
WATS
S
C
Non-Recurring Charges
Supplemental Services
Business Access
Price components /
Demand category
Residence Access
Business Access
Residence Inside Wire
Business Inside Wire
Supplemental Services
Non-Recurring Charges
Private Line Services
Residence Local Calling
Business Local Calling
Residence Intralata Toll
Business Intralata Toll
WATS
Semi-Public Coin
Access
Directory Assistance
Local Coin
Other Services
Residence Access
C
C
C
C
C
C
S
C
C
S
C
C
C
C
C
C
page 148
delayed demand response tends to produce long-run price elasticities that exceed short-run price
elasticities.
The exponential form of the demand equation is used because it provides the greatest fit, is easy
to estimate, provides immediate interpretable results and minimizes potential heteroscedastic problems
(that is, the statistical problem associated with an increasing stochastic error term over time).
As noted above, the relationship between demand and the explanatory variables of demand are
not generally contemporaneous. The most common lag structures used in applied regression modelling are
the Almon polynomial lag and the Koyck geometric lag. In this instance, both lag structures produce
similar results for the telephone demand models. Only the Koyck results are reported in this study.
Appendix B shows how the Koyck elasticities are derived for different time periods.
Price-deflated revenue is used as a proxy for the quantity variables of the various models.
Laspeyres weighted price indexes were developed from historical rate schedules filed with the New York
Public Service Commission (NYPSC) during the 1960-1990 period.
Most of the demand models use a time trend variable to reflect the effects of demographic factors.
However, since such a variable plays so many roles in a regression model (e.g., compensating for an
autocorrelated dependent variable), no interpretation has been placed on its regression estimate.
Quarterly seasonal dummies are used to account for seasonal influences and in some cases, other
dummy variables are used to reflect short-lived effects on demand.
page 149
Table 3
Own and Cross Price Elasticities
One-Year Price Elasticity
Service Category
1 Residence Access
2 Business Access
3 Business Measured Access
4 Business Flat Access
5 Total Access
6 Residence Inside Wire
7 Business Inside Wire
8 Non-Recurring Charges
9 Private Line
10 Supplemental Service
11 Residence AMU
12 Business AMU
13 Total AMU
14 Residence MTS
15 Business MTS
16 WATS
17 Directory Assistance
18 Local Coin
19 Semi-Public Coin Access
20 CENTREX
21 Other Exchange
22 Aggrgate
OWN
-0.054
-0.045
-0.101
-0.112
-0.042
-0.168
-0.206
-0.304
-0.292
-0.301
-0.262
-0.314
-0.206
-0.265
-0.209
-0.230
-0.288
-0.515
-0.165
-0.385
-0.314
-0.209
Complementary
-0.016
-0.066
-0.076
-0.203
-0.231
-0.159
-0.289
-
Substitute
+0.16
+0.206
+.356
+.148
+.063
+.243
+.209
-
Tables 4 and 5 below present the complete statistical details for two of the twenty models, namely,
residence and business usage (the additional message unit category on the telephone bill). The business
usage model includes a price interaction term to account for the increasing competition in this market. As
can be seen from Tables 4 and 5, the statistical properties of the models are very good. R2 exceeds 0.99,
Durbin-h tests for autocorrelation are well below 1.64 (95 percent level) and the model coefficients
significantly exceed their standard errors. Comparable results were achieved for the other models.
Table 4
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 150
LnQ
LnP
LnPc
LnY
D1
S2, S3, S4
=
=
=
=
=
=
- 1.11939
(0.81069)
+ 0.61895LnQt-1
(0.13046)
- 0.15265LnPt
(0.05203)
- 0.11826LnPct
(0.06775)
+ 0.59950LnYt
(0.21292)
+ 0.06985 D1
(0.02018)
- 0.010882 S2
(0.00846)
- 0.01908 S3
(0.00730)
+ 0.0456 S4
(0.00886)
R2
F(9, 42)
Durbin-h
S.E.E.
=
=
=
0.9919
=
694
-1.0263
0.018040
Note: Values in parentheses beneath the coefficients are the standard errors of the coefficients.
Table 5
LnQt
LnPt
LnPct
Toll
LnPst
+ 3.06838
(0.95822)
+ 0.53665LnQt-1
(0.12388)
- 0.19288LnPt
(0.06849)
- 0.14562LnPct
(0.04995)
+ 0.09340LnPst
(0.03753)
+ 0.30591 LnBAIt
(0.08903)
+ 0.028 S2
(0.00533)
- 0.00543 DLnPt
(0.00248)
- 0.1490 S3
(0.00600)
+ 0.00122 S4
(0.00536)
=
=
=
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
LnBAIt
D1
S2, S3, S4
DLnPt
=
=
=
=
page 151
=
=
=
=
0.9944
1020.13
-0.8178
0.0137
Note: Values in parentheses beneath the coefficients are the standard errors of the coefficients.
Dekimpe, et. al. (1999, p. 275) remarks that the Koyck specification precludes the detection of
any persistent effects, such as, the over-time effectiveness of price promotions. As shown in the appendix,
the Koyck model is capable of estimating immediate, intermediate and long run effects. The model can
also be specified to reflect changes in market conditions including number and behavior of competitors.
Dummy variables (intercept and/or slope specifications) can be used to assess the effectiveness of
promotions to shift the demand function or to affect price elasticity measures.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 152
would in effect, be a scalar multiplier of the own price term). One plus the percentage increase in price or
(Pn/P0) may be obtained as follows:
Pn/ P0 = 1 + (GVRC/R0) (6.6)
where GVRC represents the gross value of the rate change from the following definitional relationship:
Restriction = GVRC-NVRC
(6.7)
The net revenue effect of the price change equals
Net Revenue = GVRC-Restriction (6.8)
Illustration
The elasticity estimates can be used with the price calculation methodology presented in this
section to trace through the effects of an across the board increase in the prices of various telephone
services. In 1990, the New York Telephone Company (now Bell Atlantic) proposed an increase in tariffs
to realize an increase in net revenue of $675.3M (NYSPSC Case 27896).
Table 6 presents a detailed matrix (or spreadsheet analysis) of the product line price changes and
their effect on category and total revenues and net profits. Price changes were defined in terms of both
tariff and related tax changes. The total gross price changes of $848.9 million (column F) produced a net
revenue effect of $675.3 million (column H) and a net profit (after cost change adjustments) of $700.3 M
(column J).
The demand restriction values (column G) represent the net revenue restriction effect (restriction
less stimulation), including both the own and cross elastic effects of the proposed price changes. The cross
elastic effects include both substitute and complementary demand relationships. Substitutes represent
services which are alternatives for each other, such as, WATS and Toll. Complements represent a set of
services that are used in combination, such as access and local calling.
Residence
Access
Business
Access
Supplemental
Services
Nonrecurrent
Charges
Private Line
Services
Residence
Usage
Business Usage
WATS
2.4
1.0
2.7
0.4
77.3
9.4
67.9
1.4
69.3
-40.2
-1.4
-0.5
-1.5
-0.2
-43.9
-13.9
-30.0
-2.0
-32.0
32.1
1.1
0.4
1.2
0.2
35.0
11.2
23.8
1.6
25.4
0.0
0.0
0.0
0.0
0.0
2.0
-2.0
0.3
-1.7
71.0
2.4
0.9
1.9
0.4
76.6
88.4
-11.8
12.7
0.9
-14.4
0.0
-0.5
0.0
-0.4
0.0
-1.2
0
-0.1
0.0
-16.5
0.0
6.5
0.2
-23.0
-0.2
0.9
0.0
-22.1
-0.2
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Semi-Public
0.0
Coin Access
Directory
41.7
Assistance
Other
0.0
Exchange
CENTREX
0.0
Local Coin
0.0
Misc Prem
0.0
Eqpt
Late Payment
0.0
Charge
Carrier Access 0.0
Total
779.4
page 153
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.4
0.6
1.6
0.2
45.5
14.5
31.0
2.1
33.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
26.4
10.3
28.3
4.4
848.9
173.6
675.3
25.0
700.3
Defined more rigorously, service A is a substitute for service B if, as the price of A increases
(decreases), the demand for B increases (decreases); service A is a complement for service B if, as the
price of A increases (decreases), the demand for B decreases (increases).
page 154
Q(t) = + w i P(t i) + ( t)
(1)
i =0
or
(3)
(4)
Note that the error term in Equation (4) is u (t) = (t) w (t-1).
Equation (4) is easily estimated from observed data. If equilibrium is assumed, the time subscripts may be
dropped, and equation (4) may be expressed as:
Q e = (1 - w) + wQ e + Pe
(5)
or,
Qe = +
Pe
1 w
(5A)
i
1
w =
1 w
i=0
wi =
1 w
i=0
(6)
In general, the long run demand response of any explanatory variable of the Koyck model is
E j (LR) =
(7)
1 w
where the subscript j denotes a particular explanatory variable and wj represents the coefficient of the
lagged dependent variable. The intermediate run elasticity value, defined in terms of the cumulative
demand response for any number of quarters may be calculated as follows:
n
E j (for n quaters) = j w t
t =0
(8)
= j + w j + w j + L + w j ,
2
j >1
Thus, the cumulative elasticity effect over three quarters equals the sum of the first three terms in equation
(8). For example, assume that w = 0.4, and j = 0.2. The cumulative elasticity for the first four quarters
are:
Quarter
Q1
Q2
Q3
Q4
Cumulative
Elasticity
0.2
0.28
0.312
0.325
The long-run elasticity value, from equation (7), is 0.33. Thus, in this example, almost 99 percent of the
long run effect is realized by the first four quarters.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 155
REFERENCES
Baghestani, H. (1991), Cointegration Analysis of the Advertising Sales Relationship, Journal of
Industrial Economics, 34, 671 681.
Bemmaor, A. C. and Mouchoux, D. (1991), Measuring the Short-Term Effect of In-Store Promotions
and Retail Advertising On Brand Sales : A Factorial Experiment, Journal of Marketing
Research, 28, 202 214.
Blattberg, R. C. and George, E. I. (1991), Shrinkage Estimation of Price and Promotional Elasticities:
Seemingly Unrelated Equations, Journal of the American Statistical Association, 86 (414), 304
315.
Blattberg, R. C. , Briesch, R. and Fox, E. J. (1995), How Promotions Work, Marketing Science, 14, 122
- 132.
Chintagunta, P. K. (1993), Investigating Purchase Incidence, Brand Choice and Purchase Quantity
Decisions of Households, Marketing Science, 14, 184 208.
Chowdhury, A. R. (1994), Advertising Experiments and the Macro-Economy: Some New Evidence,
International Journal of Advertising, 13, 1-14.
Dekimpe, M. G. and Hanssens, D, M, (1995), The Persistence of Marketing Effects on Sales, Marketing
Science, 14, 1 21.
Dekimpe, M. G., Hanssens, D, M and Silva-Risso, J. M. (1999), Long Run Effects of Price Promotions in
Scanner Markets, Journal of Econometrics, 89, 269 291.
Doran, H. E. (1989), Applied Regression Analysis in Econometrics, N. Y. : Marcel Dekker, Inc.
Engle, R. F. and Mc Fadden, D. L. (Eds.) (1994), The Handbook of Econometrics, Amsterdam: Elsevier
Science, v.4.
Foekens, E. W. et al. (1999), Varying Parameter Models to Accommodate Dynamic Promotion Effects,
Journal of Econometrics, 89, 249 268.
Franses, P. H. (1994). Modeling New Product Sales: An Application of Cointegration Analysis,
International Journal of Research in Marketing, 11, 491 502.
Kalyanam, K. and Shivly, T. S. (1998), Estimating Irregular Pricing Effects: A Stochastic Spline
Regression Effect, Journal of Marketing Research, 35, 16 29.
Mela, C., Gupta, S. and Lehman, D. R. (1997), The Long Term Impact of Promotion and Advertising on
Consumer Brand Choice, Journal of Marketing Research, 34, 248 261.
Papatla, P. and Krishnamurthi L. (1996), Measuring the Dynamic Effects of Promotions on Brand
Choice, Journal of Marketing Research, 33, 20 35.
White, H. (1994), Estimation, Inference and Specification Analysis, Cambridge: Cambridge University
Press.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 156
Zanias, C. P. (1994), The Long Run Causality, and Forecasting in the Advertising Sales Relationship,
Journal of Forecasting, 13, 601 610.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 157
ETHICS IN ADVERTISING
Hershey H. Friedman, Ph.D.
Brooklyn College (C.U.N.Y.)
[email protected]
Barbara Jo Lewis, Ph.D.
Brooklyn College (C.U.N.Y.)
Robert B. Fireworker, Ph.D.
St. Johns University
[email protected]
INTRODUCTION
It is very important for every industry to improve its public image. This is especially important
for the advertising profession, an industry that has great visibility. Unfortunately, there is a considerable
amount of evidence that the public is quite annoyed with the advertising industry [Wells, Burnett, and
Moriarty (1998), p. 43]. Surveys show that the public believes that advertisements talk down to them.
Even advertising executives are concerned about the large number of bad advertisements. The industry
continues to work on improving its image and curbing abuses. Towards this end, the advertising
profession has established guidelines. For example, the American Association of Advertising Agencies
(4As) has developed a Standards of Practice which can be downloaded from the world wide web at:
http://www.aaaa.org/inside/standards/index.html. The American Advertising Federations booklet, The
Advertising Principles of American Business, also provides ethical guidelines for advertisers.
The more the advertising industry knows about how it is viewed by the public, the easier it will
be for the industry to improve its image. Research by Storholm and Friedman (1989) demonstrates how an
understanding of the myths and unethical practices of direct marketing professionals about their industry
could be used to better the image of that industry. This paper examines advertising professionals
perceptions of the myths and unethical practices in their industry.
page 158
major industry associations -- the American Association of Advertising Agencies, the American
Advertising Federation, and the Association of National Advertisers -- are involved in self-regulation
through their work with the National Advertising Division (NAD) of the Council of Better Business
Bureaus.
Table 2 indicates that advertising professionals believe that the major unethical advertising
practices are: misrepresentation of a products benefits, dishonest testimonials and claims, and offensive
advertising. The advertising industry does work with the Better Business Bureau to monitor deceptive
advertisements. However, NAD only has limited resources and often handles less than 100 cases per year.
Many of the complaints handled by (NAD) involve false claims. Given the results of this study, perhaps
the advertising industry should expand the operations of NAD.
In addition, advertisers should be encouraged to create advertisements that do not stereotype any
minority groups. Advertisements that degrade women or members of minority groups hurt the entire
industry. Advertisers that continue to run offensive advertisements should be criticized not only by
consumer groups, but by concerned industry executives as well.
This paper highlights the fact that many advertising professionals believe that there exist various
myths about the advertising business. These myths disparage the profession and are essentially untrue. It
is thus important for the industry to do all in its power to dispel these myths. The industry should embark
on a public campaign to clarify what advertising attempts to accomplish and what advertising does not
endeavor to achieve.
In addition, there are beliefs regarding the use of unethical advertising practices by the industry
that should be eradicated. Advertisers have to make sure that the performance of products are not hyped
too much in advertising. Testimonials and endorsements should be honest product evaluations.
Future research should focus on the beliefs of the general public regarding the myths and
unethical practices in the advertising industry. The perceptions of the public can then be compared to
those of advertising professionals.
*The authors wish to thank Mr. Richard Pafundi for his invaluable assistance in collecting the data used
in this study.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 159
REFERENCES
Storholm, Gordon and H. Friedman (1989). Perceived Common Myths and Unethical Practices Among
Direct Marketing Professionals, Journal of Business Ethics, 8: 975-979.
Wells, William, J. Burnett, and S. Moriarty (1998). Advertising: Principles and Practices. Upper Saddle
River, NJ: Prentice-Hall, Inc.
Table 1
Myths of Advertising
(n=100)
Myth
Number of Mentions
Advertising sells people stuff they really dont want or need
35
Advertising is untruthful and cannot be trusted
22
Advertising can sell anything
12
Advertising is evil, bad, or immoral
11
Advertising is a fun business where you make a lot of money
10
Advertising exploits people
7
Advertising is packed with subliminal advertising
6
Research cant tell you anything that you dont already know
5
A celebrity automatically adds impact and selling power to a brand
4
Three-martini lunch
4
Advertising sets trends and determines culture
3
No great ad is going to make up for a lousy product
3
Advertising agencies are too expensive; it can be done cheaper in-house
3
Once they try our product they will keep coming back
3
Advertising is an expense rather than an investment
2
Dont waste money on advertising; just spend more on your salesforce
2
An advertising agency thats strong on creativity is weak on marketing
2
Advertising agencies love to spend their clients money
2
There are no myths
2
Features, features, featuresits the only way to sell
1
Advertising agencies think their clients never have good ideas
1
Total
140*
-----------------------------------------------------------------------------------------------------------------------*NOTE: The total added up to 140 because of multiple responses
Table 2
Number of
48
15
8
7
6
6
3
3
Las Vegas, 2000
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 160
2
2
100
page 161
INTRODUCTION
Marketing and Management Sciences instructors may utilize multiple versions of a single
examination as a deterrent to student cheating, particularly for multiple-choice or other objective
questions. Understanding the impact of multiple exam versions on student performance is therefore
important because such an understanding aids instructors in designing equitable or unbiased
examinations (i.e., exams that do not unfairly advantage or disadvantage particular students simply
because of the version of the exam that they are given). Additionally, identifying situations in which
student performance is affected by the order in which questions are presented may have broader
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 162
implications for Marketing and Management Sciences education by providing insights into the
organization of student knowledge structures and the manner in which students access their knowledge
when confronted by Marketing and Management Sciences problems.
There is very little research that has examined evidence of exam question sequencing impacts on
Marketing and Management Sciences student performance. The results of this limited body of research in
this area is mixed. While some researchers have found relatively strong evidence of exam question
sequencing impacts, others have failed to find any impact of exam question sequencing on student
performance, and still others have found evidence of impact only in some courses, or for certain subsets of
students within the studied courses.
The purpose of the research presented in this paper is to extend our knowledge of exam
questioning sequencing impacts on Marketing and Management Sciences student performance.
Specifically, this paper reports on a series of investigations that examined evidence of multiple-choice
question sequencing impacts across six courses taught by two instructors. Additionally, the paper
discusses the implications of the results of this stream of research for Marketing and Management
Sciences educators and provides direction for future research.
The remainder of this paper is organized into four sections. The first provides a summary of
previous studies that have examined test question sequencing impacts. The second section describes the
design and execution of our research and the third section presents our results. Finally, the fourth section
discusses the implications and limitations of this research.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 163
TABLE 1
Summary of Experimental Conditions
# of
Course
Format: # of
MC questions/
Exams (% of total exam)
# of
Versions
Students
Advertising
(2 Sections)
Fall, 1999
100 (100%)
85 (100%)
200 (100%)
Ordered
Reverse ordered
Scrambled
51
51
51
Social Roles of
Organizations
Fall, 1999
27 (54%)
21 (35%)
26 (33%)
Ordered
Reverse ordered
Scrambled
45
26 (43%)
32 (45%)
30 (45%)
Ordered
Reverse ordered
Scrambled
14
14
14
57 (71%)
61 (85%)
47 (62%)
Ordered
Reverse ordered
Scrambled
64
64
64
Sales Management
Fall, 1999
Principles of Management 3
(2 Sections)
Fall, 1999
45
48
This design was intended to allow for the examination of the impact of multiple-choice question
sequencing. In an effort to provide more reliable evidence concerning sequencing effects, we replicated
the design across several different courses and used it for each exam administered in each of the courses.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 164
We also collected data related to student quality. However, we were primarily interested in determining
whether there was a systematic difference in students performance on the multiple-choice questions based
on the version of the exam taken.
ANALYSIS OF RESULTS: ANOVA, using a randomized block design, was chosen to analyze the
results of this experiment since the variation in student ability needed to be minimized. The results of
three classes are presented below. All of the required exams had not been administered in each
experimental class at the time this article was written. Results for the remaining classes will be made
available during the conference.
TABLE 2
ANOVA: Two-Factor Without Replication
Principles of Management Sciences Classes
Source of Variation
Students
Examinations
Error
Total
SS
6134.9800
591.6078
6019.7250
df
33
2
66
12746.3100
MS
185.9085
295.8039
91.20796
F
2.038292
3.243181
P-value
0.007053
0.045341
F crit
1.612216
3.135924
101
As shown in Table 2, there is a significant difference ( = .05) for the type of examination used
in the two sections of Principles of Management. When compared against Table 4, it appears that
students perform least successfully with the scrambled format.
TABLE 3
ANOVA: Two-Factor Without Replication
Social Roles in the Organization Class
Source of Variation
Students
Examinations
Error
Total
SS
5104.5930
508.4593
5094.8740
10707.9300
df
44
2
88
MS
F
116.0135 2.003815
254.2296 4.391121
57.8963
P-value
0.002891
0.015213
F crit
1.514726
3.10007
134
As shown in Table 3, there is a significant difference ( = .05) for the type of examination used in the two
sections of Principles of Management. Again, when compared against Table 4, it appears that students
perform least successfully with the scrambled format.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 165
TABLE 4
Mean Average of Examinations by Class and Format of Examination
Social Roles in the Organization
Ordered Reverse Ordered
Scrambled
73.56% (2)
74.26% (1)
71.66% (3)
78.11% (1)
73.29% (3)
72.76% (2)
82.70% (1)
78.70% (3)
79.52% (2)
The average response for each examination by class and format is presented in Table 4. In addition, the
ranking of each exam in each class is provided. Although no definitive conclusions can be established,
the table suggests that the ordered format is the most successful format based on student scores.
page 166
constrained as the body of research on intertopical ordering effects suggests, perhaps students are not
being well prepared for the professional world that they will be encountering after graduation.
Despite the growing body of research in the area of Marketing and Management Sciences
education, we still clearly do not have a well-developed understanding of the factors affecting student
exam performance.
Many studies that have examined the impact of exam question sequencing on student
performance have not examined the effects of question sequencing on sub-groups of students within
courses. Following the lead of earlier researchers, we intend to extend our analysis to explore the impacts
of exam question sequencing on sub-groups of students partitioned based on their cumulative GPAs.
Despite the mixed results of research that has examined the impacts of question sequencing on student
sub-groups to date, we believe that this may still be a fruitful direction for future inquiries.
In conducting our research, we attempted to control for established factors, other than exam
version (such as student SAT scores and cumulative GPA) that may be related to student exam
performance. Additionally, we attempted to increase the generalizability of our findings by extending our
investigation over four different courses, representing six sections snd taught by two instructors over the
course of one semesters. However, all of these courses were taught at a single university.
The limitations of our work notwithstanding, we believe that the research presented here
meaningfully extends our understanding in this important area of Marketing and Management Sciences
education and provides useful direction for future inquiries.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 167
REFERENCES
Aiken, Lewis R. (1990). Testing with Multiple-choice Items, in Research and Testing, edited by Donna L.
Street, Ashton C. Bishop, and Ralph L. Benke, Jr. Harrisonburg, VA: Center for Research in
Marketing and Management Sciences Education, School of Marketing and Management
Sciences, James Madison University.
Araujo, J. and G. Semb (1979). Effects of Item Order on Student Performance, paper presented at the 8th
Annual Conference of the American Psychological Association, New York.
Balck, William R. (1989). Item Order Affects Performance on Multiple-Choice Exams. Teaching of
Psychology, Volume 16, Number 2, April, 1989, 75-77.
Chidomere, Roland C. (1989). Test Item Arrangement and Student Performance in Principles of
Marketing Examination: A Replication Study. Journal of Marketing Education, Fall, 1980, 3640.
Flaugher, Melton and Meyers (1968). Item Arrangement Under Typical Test Conditions. Educational
and Psychological Measurement, Volume 28, 813-824.
Kleinke,D. J. (1980), Item Order, Response Location, and Examinee Sex and Handedness on
Performance on Multiple-Choice Tests. Journal of Educational Research, Volume 74, 225-228.
Pettit, Kathy L., Kenneth G. Baker, and Laura D. Davis (1986). Unconscious Biasing of Student
Examination Scores: A Case of Sequential Versus Random Information Retrieval. Journal of
Marketing Education, Fall, 20-24.
Sax, G. and T. R. Cromack (1966). The Effects of Various Forms of Item Arrangement on Test
Performance. Journal of Educational Measurement, Volume 3, 309-311.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 168
INTRODUCTION
Many college graduates begin their professional careers in positions which involve marketing.
Companies and organizations offering products and services to the health care industry may prefer and
seek new employees who are recent college graduates as these prospective employees are viewed as
educated, motivated, trainable, and literate. These employers may even assume and expect that recent
college graduates can effectively communicate through reading, writing, listening, and speaking.
Communication skills are an important part of the job for a marketing representative involved
with the health care industry. The representative can expect to communicate with customers, clients, and
colleagues who may be less educated to very highly educated, versed and fluent in medical terminology,
affluent, and business minded.
Marketing representatives will need a vocabulary appropriate for the specific audience. The
ability to select the appropriate vocabulary for the current situation and receiver may be just as important
as possessing a strong vocabulary. This vocabulary will include the highly specialized technical terms
used by health care professionals involved in specialties or general practices. In addition, the marketing
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 169
representative will need a generalized vocabulary of words that are spoken, heard, read, and written in
daily life.
A QUESTION OF FAMILIARITY
Prospective employers may expect and assume that college graduates and graduating seniors
posses a generalized vocabulary which is adequate for the business environment. It may be expected and
assumed that these prospective employees are familiar with the words used in general publications such as
Business Week. These expectations and assumptions lead to a real questionAre college students
familiar with the words used in publications such as Business Week?
This question was the basis for a study of college students levels of familiarity with selected
target words in Business Week. A measure of familiarity can be described as a persons ability to
recognize and understand the words used in a specific situation or scenario. In this case the scenario was
a single issue of Business Week.
THE STUDY
A test of familiarity was developed which focused on specific words in a single issue of Business
Week. A jury of academicians read articles in the selected single issue of this publication and identified
target words that might be challenging or unfamiliar to the readers. The jury selected thirty-three target
words that would be used for the test of familiarity.
An instrument was designed which presented each target word in the same sentence as it
appeared in the selected issue of Business Week. The only modification to the quoted sentence was to
change the names of individuals to generic terms such as the manager. The target word in each
sentence was underlined and the instructions on the instrument referred to the target word as the
underlined item.
Participants were instructed to read each sentence and describe familiarity with the underlined
item. Participants could select the A response to indicate that the underlined item was a word and
correctly used in the sentence, the B response if the underlined item was a word but not correctly used
in the sentence, or the C response if the underlined item was not a word.
Participants in the study were 143 upper-level students enrolled in business courses at a public
university. Sixty-one (42.7 percent) of the participants were female and 82 (57.3 percent) were male.
Ages of the participants ranged from 20 to 52 with an average of 24.67 years. Grade point averages
(GPA) ranged from a low of 1.87 to a high of 3.92, with a mean GPA of 3.05 on a 4.0 scale.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 170
Table 1
Frequency of Word Recognition
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Target Word
Frequency of Correct
Responses
Percent of Correct
Responses
Daunting
Precariously
Abyss
Fret
Evocative
Vaulting
Purging
Dire
Porous
Exacerbated
Myriad
Whiff
Juggernaut
Tenuous
Eclectically
Starkly
Deluging
Malaise
Heft
Edgy
Fratricidal
Maelstrom
Hyperbole
Hidebound
Foundering
Cannily
Contagion
Zipless
Rout
111
107
103
95
88
86
86
85
83
83
81
78
71
70
66
64
60
56
56
49
47
44
41
40
39
39
33
33
31
78%
75%
72%
66%
62%
60%
60%
59%
58%
58%
56%
55%
50%
49%
46%
44%
42%
39%
39%
34%
33%
31%
29%
28%
27%
27%
23%
23%
22%
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
30
31
32
33
Plaudits
Tranche
Winnow
Tony
page 171
29
28
27
14
20%
20%
19%
10%
DISCUSSION OF FINDINGS
The findings from this study present several interesting points for consideration by those who
have selected a career as a marketing sales rep in the health care industry. Effective communication is
important in all aspects of life and crucial in some. There will, in all likelihood, be great differences in
familiarity with general words used in popular publications such as Business Week. Unfamiliarity with
general words can lead to communication breakdowns, misunderstandings, loss of credibility, and even
embarrassment.
Health care marketing reps will be communicating on a number of different levels with health
care providers and office managers/staff members who are current customers or prospective customers,
competitors, and those within their own company. It is important to select and correctly use appropriate
words for the various receivers of your message. Appropriate vocabulary in one situation may not
necessarily be appropriate in another. For example, the vocabulary used when the receiver is the health
care provider may be somewhat elevated over that which is used with the office staff.
CLOSING COMMENTS
It is hoped that the results of this study will be a call for action by both health care marketing
reps as well as those responsible for training and managing these reps. Several suggestions and
recommendations follow.
Marketing reps should read materials that their current and prospective customers are reading.
Extra effort should be made to learn the meanings and uses of unfamiliar words. This is an important
step in building a generalized vocabulary. This can be carried a step further in that the health care
marketing rep can be building an industry-specific vocabulary at the same time.
Additionally, attention should be given to the vocabulary used by and with current and
prospective customers. Word selection should be determined by the situation and the receiver. It is
important to use appropriate words to make the sales presentation and to close the sale; however, it is
equally important to avoid words that have the potential to confuse, intimidate, or embarrass the customer
or client.
Although it is reasonable to assume that recent college graduates are educated, motivated,
trainable, and literate, it is important to remember that each is an individual who has different strengths
and weaknesses as well as a different level of familiarity with general words. It is also reasonable to
assume that, because of these anticipated traits or characteristics, they will be successful in their attempts
to improve their vocabulary if they are willing to expend a little effort.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 172
page 173
ability to supervise and continually develop the skills of the workers. This highly skilled work force is a
key issue for the retention and recruitment of manufacturing in Chicago. And there is no doubt that the
same holds true for every part of the country. Stating it as simply as I can, without a highly skilled work
force you cannot have an economic development program and there will be little if any retention of your
present marketing base. The marketing base includes all phases of marketing.
More accurately stated, we have an excellent start on developing a highly skilled work force. We
need skill standards and we need more industry input, and cooperation from the educational delivery
system at all levels to insure increased productivity and workers retention.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 174
school that can demonstrate that it can produce a well trained student can consider offering corporate
training both at the college and on site at a corporate location.
There is an important factor in dealing with the schools. Often a manufacturer will ask that the
curriculum be changed. This is an unusual hardship on the school administration. The process involves
the instructor, the department head, the dean of the school, the faculty review committee and up to the
state level for final approval. It easy to understand if you work in a academic setting that to effect a
curriculum change requires several layers of approval and a few years of paper work and processing.
In reality, changing a few modules in a course and bringing them up to date may not require a change in
the entire curriculum. The upgrading of a few classes of a specific course may not require layers of
approvals.
As an example, a course in business administration did not have any modules on marketing. We
submitted and wrote three modules to be inserted into the course. One module was the history of
marketing with another module on the economic contributions of marketing to our society. A third module
was on the future of marketing.
SUMMARY
The need for skill standards is a major concern of industry and should be a key factor in every
college and university.
Economic development is an essential element of our national growth. Retention and recruitment
of businesses to remain in the area is dependent upon a highly skilled and well developed workforce.
Schools must understand that the key to a schools retention and expansion program is based on if
students can use their learned skills to enter a career track and an academic track.
Working with industry schools need additional programs and revision of some modules in specific
courses. New modules need to be developed to meet the demands of the rapid growth of advanced
technology.
Setting skill standards is a key element to continued economic growth.
Working with economic development councils will support the manufacturers and the community.
Skill standards need to installed on all levels, from high schools to community colleges and approved and
mandated by the state education department as soon as possible. Skills will always change and need to be
updated. Getting accepted on all levels is necessary.
Students of management who enter an executive career track will be required to assess the skills
of the workers and will need to continually evaluate new skill standards as new machinery, technology
and new marketing processes are developed.
McKee, Keith and Field Jerry.
Field, Jerry
Darnell, Dale
-------------------------------
page 175
1.
2.
3.
4.
5.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 176
REFERENCES
Business Week. December 21, 1998.
Business Week. July 12, 1999, p116-118.
Newsweek, July 19, 1999, p43.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
Market orientation occupies a central position in marketing and strategic management literature.
During the last decade, market orientation has been the subject of an increasing number of empirical
studies (Kohli & Jaworski, 1990; Narver & Slater, 1990; Jaworski & Kohli, 1993; Slater & Narver, 1994;
Greenley, 1995; Siguaw, Brown, & Widing, 1994; Pelham, 1997; Kumar, Subramanian & Yauger, 1998;
Siguaw, Simpson & Baker, 1998; Han, Kim & Srivastava, 1998). Market orientation research has
primarily followed four general themes (Greenley & Foxall, 1998): instrument development, instrument
testing, measuring market orientations main effects on performance, and measuring the impact of
external moderating variables on the relationship between market orientation and performance.
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Market orientation studies typically collect behavioral data, from senior management and other
key employees of organizational strategic business units where the focus is on customer and competitor
stakeholder groups. Current research represents a void with respect to collecting individual market
orientation data from stakeholder groups other than customers and competitors. The void is particularly
acute with respect to undergraduate and undergraduate business students. This lack of research exists
even though there is an implicit assumption stakeholder orientation is positively associated with firm
performance (Greenley & Foxall, 1998). Consequently, the potential significant impact other stakeholder
groups market orientation has on firm performance has been relatively ignored.
The purpose of this exploratory study is two folds in nature. First, this study seeks to develop a
conceptual framework for broadening the scope of market orientation measurement to include
undergraduate business students as a stakeholder group. Second, this study strives to provide a baseline
measure of market orientation principles of marketing students bring to their first formal marketing
course. Data pertaining to students initial levels of market orientation will enable faculty to develop and
implement teaching strategies that will increase overall student market orientation. This study is one of
the first to address the issue of student market orientation and as such, makes a significant contribution by
developing a model that expands the scope of market orientation research, increases awareness of College
of Businesses responsibility to produce market-oriented graduates, and calls for student market
orientation to be utilized as a measure of teaching effectiveness.
LITERATURE REVIEW
Although the precise definition of market orientation has been the subject of significant
discussion (Shapiro, 1988; Day, 1998), most attempts to define the construct stem from conceptualizations
of the marketing concept (Siguaw, Simpson & Baker, 1998). Further, most attempts to define market
orientation tend to incorporate elements Kohli and Jaworskis (1990, p.6) definition which views market
orientation as: .....the organizationwide generation of market intelligence pertaining to current and
future customer need, dissemination of the intelligence across departments, and organizationwide
responsiveness to it.
Presentation of market orientation research for literature review purposes is classified according
to four main themes: instrument development, instrument testing, market orientations effect of
performance, and moderating variable effect.
Instruments designed to measure market orientation have been developed by several researchers.
Kohli and Jaworski (1990), Narver and Slater (1990), and Kohli, Jaworski, and Kumar (1993) are among
the earliest researchers to develop market orientation scales. Additional scales have been developed by
Siguaw, Brown, and Widing (1994), Deshpande, Farley, and Webster (1993), as well as Deng and Dart
(1994). Best (1997) has developed an instrument for measuring individual managers market orientation.
Instrument refinement, and subsequent evidence of validity and reliability, has been reported by
Jaworski and Kohli (1992) and Deng and Dart (1994). Deshpande and Farley (1996) examined the scales
developed by Narver and Slater (1990), Kohli, Jaworski, and Kumar (1993), and Deshpande, Farley, and
Webster (1993) and concluded each scale correlates with performance data. Bests (1997) instrument has
undergone extensive empirical validity and reliability examination. Kumar, Subramanian, and Yauger
(1998) refined and revalidated Narver and Slaters (1990) scale. Perhaps the most comprehensive
examination of validity and reliability issues relating to market orientation instruments has been
performed by Wrenn (1997). Wrenns research provides guidelines for appropriate utilization of
categorical, Likert, and Thurstone scales for measuring market orientation.
Several studies have examined whether environmental variables mediate the relationship between
market orientation and firm performance. Demand-side and supply-side variables moderating business
performance were identified by Kohli and Jaworski (1990). Hart and Diamantopoulos (1993) identified
competitive hostility as a moderating variable on sales growth. Slater and Narver (1994) established
limited support for a moderator role of competitive environment on the market orientation-performance
relationship. The path from market orientation to profitability and share has been described an indirect
by Pelham (1997).
Market turbulence and technological change exhibit moderator effect on
organizational performance (Greenley, 1995). The role of technical and administrative innovations as a
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mediator of the market orientation-performance relationship was confirmed by Han, Kim, and Srivastava
(1998). Moderator variables have also been identified by Pelham and Wilson (1996), Appiah-Adu (1997),
and Greenley and Foxall (1998).
The relationship between market orientation and organizational performance has been
extensively researched. Organizational performance, like market orientation, has been defined in a
variety of ways. Top managers assessment of a SBUs profitability in terms of return on assets relative to
competitors was utilized by Narver and Slater (1990). Kohli and Jaworski (1990) identify return on
investment, profits, sales volume, market share, and sales growth as indicators of favorable business
performance. Sales growth and new product success, as related to return on assets were cited by Slater
and Narver (1994) and indicators of organizational performance. Greenley (1995) identified return on
investment, new product success rate, and sales growth as indicators of company performance.
Profitability in terms of return of equity, gross margin, and return on investment, was employed by
Pelham (1997) to indicate firm performance. Greenley and Foxall (1998) utilized market share, new
product success, return on investment, and sales growth to define company performance. Business
performance measures were assessed on income growth and return on assets by Han, Kim, and Srivastava
(1998).
Initial attempts to measure the market orientation/performance relationship primarily
concentrated on large domestic manufacturing based firms (Kohli & Jaworski, 1990; Narver & Slater,
1990; Jaworski & Kohli, 1993; Slater & Narver, 1994). However examination of the literature reveals the
scope of research examining the market orientation/performance relationship has been expanded to
include a wide variety of industries and countries. A summary of the most significant US studies is
presented in Table 1. Table 2 presents a summary of the most significant international studies.
Table 1
Summary of the Market Orientation/Performance Relationship for US Studies
Study
Narver & Slater (1990)
Ruekert (1992)
Jaworski & Kohli (1994)
Slater & Narver (1994)
Raju et. al. (1995)
Pelham & Wilson (1996)
Pelham (1997)
Van Egeren & OConner
(1998)
Han, Kim, & Srivastava
(1998)
Kumar, Subramanian, &
Yauger (1998)
Sample
113 SBUs in 1 corporation
5 SBUs in 1 corporation
Sample 1: 222 companies
Sample 2: 230 companies
107 SBUs in 2 Fortune 500 firms
176 hospitals
68 firms in various industries
160 small industrial firms
70 service firms from the
5000,7000, & 8000 SIC categories
134 banks
Relationship
Positive
Positive
Positive
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Positive
Positive
Positive
Positive
Positive
Positive
Positive
page 180
Examination of Table 1 reveals extensive support for the positive relationship between market
orientation and organization performance. Support for the relationship is exhibited across a variety of
large and small firms in various manufacturing and service industries. The positive relationship holds
within and between firms and industries.
Table 2
Summary of the Market Orientation/Performance Relationship for International
Studies
Country
Sample
Relationship
Japan
87 companies
Positive
UK
50 quadrads from
various industries
148 NZ & 41 HK
hotels
240 large companies
(various industries)
158 manufacturing
& 117 service firms
200 Maltese firms
from various
industries & 161 UK
firms
59 manufacturing &
51 service firms
30 branch banks
73 textile firms
Not identified
115 manufacturing
firms
34 children & youth
centers
400 public sector
expert service firms
Weak
Study
New Zealand
Hong Kong
UK
Atuahene-Gima
(1996)
Pitt et. al. (1996)
Australia
Malta & UK
Appiah-Adu (1997)
UK
Bhuian (1997)
Ngai & Ellis (1998)
Greenley & Foxall
Bhuian ( 1998)
Saudi Arabia
Hong Kong
UK
Saudi Arabia
Hong Kong
Finland
Not identified
Not direct
Mixed
Weak
Positive
Unrelated
Positive
Positive
Positive
Positive
Positive
Studies presented in Table 2 reveal support for the positive relationship between market
orientation and performance. Specifically a positive relationship was identified in seven of the 12
international studies. Although results of these studies are more mixed than for US studies, the positive
relationship exits across and within firms, industries, and countries. Collectively, data presented in
Tables 1 and 2 demonstrate the robustness of the market relationship between market orientation and firm
performance.
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CONCEPTUAL FRAMEWORK
A primary thesis of this paper concerns the importance of expanding the scope of market
orientation measurement to include undergraduate business students as a stakeholder group. Existing
market orientation literature provides support for measuring additional stakeholder groups market
orientation.
Slater and Narver (1992b), Jaworski and Kohli (1993), and Best (1997) address the issue of other
stakeholder groups market orientation. Slater and Narver (1992b) conclude there is much more to being
market-oriented than being attuned to customers and being dependent upon the marketing department.
Accordingly, importance of the marketing department becomes significantly reduced as all employees
become market-oriented. Jaworski and Kohli (1993) indicate it would be useful to compare perceptions of
managers and nonmanagers from different levels of an SBU. Best (1997) argues it would not be possible
for a firm to have a strong market orientation, unless managers and key employees possess individual
market orientations. Consequently, an organizations market orientation is the collective sum of market
orientations possessed by individuals comprising the organization.
Jaworski and Kohli (1992), Siguaw, Brown, and Widing (1994), Greenley and Foxall (1996 and
1998), Menguc (1996), and Siguaw, Simpson, Baker (1998) provide empirical support for measuring the
market orientation of additional stakeholder groups. Jaworski and Kohli (1992) indicate market
orientation increases employees organizational commitment and esprit de corps. Market orientation was
found to significantly influence salespersons job attitudes and customer orientation (Siguaw, Brown &
Widing, 1994). Menguc (1996) replicated Siguaw, Brown, and Widings study and concluded a firms
market orientation impacts salespersons customer orientation, role conflict, role ambiguity, and
organizational commitment. Supplier market orientation affects distributor market orientation, and
commitment to the supplier/distributor relationship has a direct effect on distributor trust and perception
of cooperative norms (Siguaw, Simpson & Baker, 1998).
Greenley and Foxall (1996) suggest the balance between competitor and customer orientation can
be extended by adding employees to the model, and calls for broader investigation of stakeholders role in
strategic alliances. Such a broadening will result in understanding of advantages that can be obtained
from strengthening associations between customer orientation and orientations to other stakeholder
groups. Greenley and Foxall (1998) argue that in order to be successful, firms should address the interests
of all stakeholder groups, and achieving effective consumer orientation is partly dependent on orientations
to other stakeholder groups. Accordingly, market orientation will be more effective if all employees are
educated to recognize marketing as part of their responsibility. As a result of determining different types
of stakeholder orientations are associated with different measures of performance, Greenley and Foxall
(1998) call for investigation of stakeholder orientation to be expanded to include distributors, suppliers,
and other value-chain organizations.
The concept of distributors, suppliers, and other value-chain organizations combined with the
role individual employees market orientations play in determining a firms overall market orientation,
provide the linkage for considering business students as appropriate stakeholder groups for measuring
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market orientation. The major suppliers to American corporations are university-based education
programs. In order to continue their position of dominance in this market, business schools must continue
to meet the needs of student-executives and their employers (AACSB, 1991). Dubas, Ghani, Davis, and
Strong (1998) conclude a customer driven approach in curriculum design enables students to make an
immediate contribution to employers.
Compelling support for business schools role in developing students market orientation is
provided by Narver and Slater (1989, p. 1) when they state: The superiority of a market orientation
over and internal orientation commands a central place in the teaching and practice of marketing
management. Best (1997) maintains marketing education plays a key role in developing individual
market orientations of all employees and managers. That is, individuals with higher levels of marketing
education have higher levels of market orientation, and an individual managers ability to build a stronger
market orientation for a business is related to the managers marketing education. A solid marketing
education foundation facilitates building a market-driven business (Best, 1994).
The relationship between marketing education and student market orientation is presented in
Figure 1. This relationship provides the basis for expanding the scope of market orientation measurement
to include undergraduate and graduate business students.
Figure 1 considers student market orientation, as affected by moderating variables, to be a
function of marketing education. Upon employment, student market orientation is modified further by a
particular organizational culture. Organizational cultures impact upon student market orientation can be
positive, negative, or neutral. The level of individual market orientation students bring to their
employment, as modified by corporate culture, becomes the foundation for individual strategy decisions.
Although the Figure 1 does not attempt to predict levels of student market orientation, four observations
can be made. First, the stronger the level of market orientation students bring to an organization, the
stronger the market orientation students retain as employees. Second, student market orientation in
conjunction with marketing skills and knowledge become resources to be utilized for strategy formulation
and implementation. Third, the stronger the level of individual employee market orientation, the stronger
the level of overall organization market orientation. Fourth, the stronger the level of overall organization
market orientation, the more successful an organization will be in formulating and implementing,
marketing strategies which increase customer/employee satisfaction/retention, and organization
performance. The relationship between student market orientation and organization performance
presented in Figure 1 can be summarized as follows:
Marketing education, as influenced by moderating variables, is the foundation of student market
orientation. Student market orientation, as influenced by organizational culture, is the foundation of
individual employee market orientation. Individual employee market orientation drives overall
organization market orientation, which drives organizational strategy formulation and implementation.
Strategy formulation and implementation drives customer/employee satisfaction and retention, which
drives organizational performance.
HYPOTHESES
Interestingly, a literature search reveals a virtual scarcity of research designed to measure
students market orientation. Best (1994) measured marketing attitudes of 600 first-year MBA students at
the beginning and end of a marketing management course. Students average marketing attitude score
increased from 88 to 114. The market orientation of the Executive MBA Program at Saint Josephs
University (Philadelphia) was measured by Dubas, Ghani, Davis, and Strong (1998). Importance and
satisfaction ratings for 12 skills and knowledge areas were obtained from current students and recent
graduates. Respondents ranked customer and market focus sixth in importance, but tenth in satisfaction.
The authors concluded customer and market focus needed more attention in order to provide the necessary
skills and knowledge needed by middle and upper level managers.
A major thrust of this study is to demonstrate the importance of including student market
orientation in measuring teaching effectiveness and to foster development of a market-based measure of
teaching effectiveness. However, the lack of research designed to examine student market orientation
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restricts the ability to utilize empirical research for hypothesis formulation purposes. Consequently, the
authors over 30 years experience teaching numerous undergraduate and graduate marketing and
management courses at several accredited public and private Colleges of Business Administration
provides the primary basis for hypothesis formulation.
Specifically, unsettlingly low levels of student understanding of fundamental marketing concepts
and theories are being observed on a more frequent basis. Although low levels of understanding of
marketing are certainly not new, todays increasingly market-driven competitive environment renders
such misunderstanding significantly more perilous. This decrease in understanding appears to be
applicable to undergraduate and graduate students alike, and is compounded by students apparent
inability to think strategically. This lack of knowledge and an inability to think within a marketing
strategy framework tends to be revealed in students statements concerning marketing mix variables.
Most marketing faculty have probably heard such statements as: Marketing equals advertising/selling.
Advertising equals promotion. Marketers employ marketing schemes to lure consumers into buying
things consumers do not need. Advertising causes prices to increase. Price is determined by costs. A
firms market is defined in terms of the product/service it produces. Form utility is superior to time,
place, and/or possession utility. Such statements tend to reflect students true level of market orientation
and provide the basis for the following primary research hypothesis:
H1: Principles of marketing students initial overall market orientation is low.
In order to adequately evaluate the initial level of market orientation principles of marketing
students possess, hypotheses were developed for each component of market orientation. Analysis of these
hypotheses provides data necessary for developing teaching strategies that strengthen student market
orientation.
Students have typically completed three to six hours of course credit in accounting and economics
prior to taking principles of marketing. In fact, principles of accounting and economics are usually
prerequisites for principles of marketing. As a result of this exposure to accounting procedures dealing
with cost (expense) concepts and microeconomic price theory, the following hypothesis is offered for
student market orientation with respect to market-based pricing.
H2: Principles of marketing students initial market orientation is low with respect to marketbased pricing.
During the past decade markets have become increasingly competitive and as a result individual
firms and industries have become more market-driven. This, combined with a shift in channel power
from manufactures to retailers has resulted in consumers being exposed to increasing numbers of
marketing strategies designed to implement relationship marketing. The changing market place has
placed increasing emphasis on customer satisfaction. Consequently, the following hypothesis with respect
to customer focus is offered:
H3: Principles of marketing students initial market orientation is strong with respect to customer
focus.
The concept of strategic planning has significantly influenced management and marketing texts
and courses during the past two decades. The focus of strategic planning concerns a firms ability to
maintain a strategic fit between the firms resources and an increasingly changing external environment.
A primary component of the external environment concerns the actions of competitors. Business students
are exposed to the role competition plays in affecting organizational marketing strategies numerous times
during their academic careers. However, students often receive their first exposure to the strategic
planning model in a principles of marketing course. Therefore, student appreciation for competition and
other uncontrollable variable tends to be developed after enrollment in principles of marketing. This
situation results in the following hypothesis being offered with respect to competitor orientation:
H4: Principles of marketing students initial market orientation is low with respect to competitor
orientation.
At the time of enrollment in principles of marketing, students have typically completed multiple
courses in economics and accounting. These courses provide students with significant exposure to profits
role in ensuring organizational survival. Factors of production, matching of expenses and revenue, profit
maximization, and short-run versus long run equilibrium are a few of the profit-related concepts students
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encounter prior to enrolling in principles of marketing. Consequently, the following hypothesis is offered
with respect to profit orientation:
H5: Principles of marketing students initial market orientation is strong with respect to
profit orientation.
The importance of team based management techniques have received increased attention in
academia and industry. Team-based projects have replaced individual case analyses and other individual
projects. Platform teams, team selling, and matrix management are team-based methods organizations
employ to facilitate strategy formulation and implementation. However, student exposure to, and
experience with, team approaches tends to be somewhat limited prior to enrollment in principles of
marketing and other junior level courses. This limited exposure results in the following hypothesis with
respect to team approach:
H6: Principles of marketing students initial market orientation is low with respect to team
approach.
Figure 1 indicates moderating variables affect the level of student market orientation. In order to
test for the impact of moderating variables, several corollary hypotheses are presented. Although
empirical research is somewhat limited, support for such hypotheses development is provided in the
literature. Best (1997) measured the individual market orientation of over 2,500 managers in 30 Fortune
500 firms. Variation in market orientation was, in part, explained by differences in marketing education,
marketing knowledge, job function, marketing experience, need for marketing training, and familiarity
with marketing tools and concept. Specifically, Bests research indicates individual market orientation
was highest for managers with higher levels of marketing knowledge, education, and experience.
Conversely, managers with lower levels of market orientation were more likely to be in nonmarketing
jobs, be less familiar with marketing concepts, and need marketing training. These results provide the
basis for development of eight hypotheses with respect to moderating variable influence on student market
orientation.
Although not an indicator of marketing knowledge, student grade point average is assumed to be
related to student market orientation. Specifically, the relationship between GPA and market orientation
is summarized as follows:
H7: Principles of marketing students initial overall market orientation is positively related to
overall grade point average.
Higher levels of marketing experience are assumed to be associated with higher individual
market orientation. Thus, the following hypothesis is presented:
H8: Principles of marketing students initial level of overall market orientation is positively
related to employment marketing relatedness.
Formal marketing education is considered to have a moderating effect on individual marketing
education. That is, individual market orientation tends to increase as formal education increases.
Therefore, the relationship between student market orientation and student classification (junior versus
senior) is expressed as follows:
H9: Principles of marketing students initial overall market orientation is positively related to
student classification.
Individual market orientation is deemed to be related to academic discipline. Thus, students
majoring in marketing should demonstrate higher levels of market orientation than students majoring in
other disciplines. The relationship between academic discipline and student market orientation is
hypothesized as follows:
H10: Principles of marketing students majoring in marketing possess higher initial levels of
overall market orientation than nonmarketing majors.
In order to fully develop the exploratory nature of this study, the presence of additional
moderating variables is examined. Additional hypothesized moderating variables pertain to gender, parttime versus full-time student status, day versus evening student status, and domestic versus international
student status. Accordingly, the following hypotheses are presented:
H11: Principles of marketing students initial overall market orientation is independent of
gender.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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H12: Principles of marketing students initial overall market orientation is independent of fullversus part-time student status.
H13: Principles of marketing students initial overall market orientation is independent of dayversus evening-student status.
H14: Principles of marketing students initial overall market orientation is independent of
domestic versus international student status.
METHODOLOGY
In order to accomplish the objective of this study, market orientation data were collected from
420 undergraduate principles of marketing students enrolled marketing and management courses during a
Fall semester at a North Texas, AACSB accredited, College of Business Administration. Thirty-four
questionnaires with missing responses were eliminated from consideration, resulting in a usable sample of
386 respondents.
In order to reduce the effect of initial student adds and drops on course enrollment,
questionnaires were administered during the class period corresponding to either the university official
census date, or the first class period immediately after the census date. Census date enrollment is often
referred to as 12th or 14th day enrollment.
Although several market orientation instruments have been developed, the instrument developed
by Best (1994) was adopted for this study. The instrument consists of 15 Likert-type, seven-point,
marketing attitude statements. Collectively, the statements are designed to measure five components
(dimensions) of individual market orientation (Best 1997). These dimensions of individual market
orientation are (1) customer focus, (2) competitor orientation, (3) profit orientation, (4) market-based
pricing, and (5) team approach. Narver and Slater (1990), as well as, Kumar, Subramanian, and Yauger
(1998) identified five dimensions (components) of market orientation.
Utilization of attitude statements to measure market orientation is supported in the literature.
Ames (1970) discusses the importance of achieving attitude change to ensure market needs are given
principal importance. Masiello (1988) indicates market orientation is often not achieved because the
necessary attitudes are not established. Greenley (1995a) concludes market orientation is about a set of
attitudes designed to create and enhance customer value. Wrenn (1997, pp. 35-38) examined 32
published market orientation/concept studies. Of the studies reviewed, attitude was the focus of
measurement for five studies. Attitude and behavior was the focus of measurement for eight additional
studies. Ngai and Ellis (1998, p. 124) state scholars concerned with market orientation generally
measure those attitudinal behavioral variables which are presumed to reflect this underlying culture.
For the purposes of this study, the most significant reason for adopting Bests market orientation
instrument concerns the instruments objective of measuring individual, not organizational, market
orientation. Market orientation studies typically measure organization market orientation by collecting
behavioral data from CEOs, managers, and other key employees of a particular firm. With respect to
measuring student market orientation, collection of firm specific behavioral data, is considered to be
inappropriate. Therefore, a market orientation instrument designed to secure firm-neutral data is a
more appropriate choice for measuring student market orientation.
Instrument reliability was evaluated by using Cronbachs coefficient alpha (Churchill, 1979).
Results of this analysis are presented in Table 3. The overall coefficient alpha of 0.6028, for the
individual market orientation variable, exceeds the threshold of 0.50 to 0.60 recommended by Nunnally
(1967). Alpha values for deletion of individual scale items are also presented in Table 3. Alpha values
associated with 11 items are lower than the overall coefficient alpha and alpha values for the remaining
four items are very close to the overall coefficient alpha value. These results indicate scale reliability
would be not improved by eliminating scale items, and are consistent with Churchills recommendation
(1979, p. 68). Additional support for instrument reliability is provided by an extensive two-year study
designed to text and validates the instruments ability to measure marketing attitudes (Best, 1994).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 186
Table 3
Item to
Total
Correlation
0.1940
Alpha if
Item Deleted
0.3735
0.5577
0.4428
0.5425
0.0849
0.6079
0.3335
0.5686
0.1860
0.5937
0.2553
0.5820
0.0146
0.6140
-0.0383
0.6191
0.0491
0.6150
0.3320
0.5681
0.4470
0.5457
0.1600
0.5980
0.3037
0.5770
0.2263
0.5876
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
0.5936
page 187
Reliability analysis was also conducted on the hypothesized moderating variables using
Cronbachs coefficient alpha and is presented in Table 4. The overall coefficient alpha for moderating
variables of 0.5463 is within the range of acceptable values suggested for early stages of basic research
Churchill (1979, p.68). Alpha values for deletion of individual hypothesized moderating variables are
also presented in Table 4. Alpha values associated with seven moderating variables are lower than the
overall coefficient alpha and the remaining six alpha values are very close to the overall coefficient alpha,
thereby providing additional support for hypothesized moderating variable reliability.
Table 4
Hypothesized Moderating Variable Reliability Analysis
Moderating Variable
Course Enrollment
Classification
Undergraduate major
Graduate major
Gender
Full-time or part-time student
Day or night student
Employment Status
Marketing related employment
Number of previous
undergraduate marketing
courses
Number of previous graduate
marketing courses
Overall GPA
International student
Coefficient alpha value for
moderating variables
0.3872
1.4903
0.0628
-0.2813
0.5463
0.5751
0.5648
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 188
Table 5
Mean Values* for Individual Components of Market Orientation
Component
Market-Based Pricing
Customer Focus
Competitor
Orientation
Profit Orientation
Team Approach
Overall Mean
Mean Score
35.7
60.3
62.5
64.9
74.9
59.7
*Mean values have a potential range of zero to 100. Higher mean values represent stronger levels of
market orientation. n=386
MODERATING VARIABLES
Hypotheses 7 through 14 predict student market orientation is influenced by several moderating
variables. Data pertaining to moderating variable influence are presented in Table 6.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 189
Table 6
Dimension
F Value
3.03
Market-Based Pricing
0.70
Customer Focus
Competitor Orientation 1.75
4.39
Profit Orientation
2.75
Team Approach
0.82
Employment Marketing Market-Based Pricing
0.87
Relatedness
Customer Focus
Competitor Orientation 3.14
1.76
Profit Orientation
2.90
Team Approach
Classification
Market-Based Pricing
6.45
Customer Focus
1.95
Competitor Orientation 5.48
Profit Orientation
9.24
Team Approach
6.17
Major
Market-Based Pricing
0.92
Customer Focus
1.10
Competitor Orientation 2.15
Profit Orientation
3.70
Team Approach
1.02
Gender
Market-Based Pricing
8.30
Customer Focus
1.59
Competitor Orientation 0.50
Profit Orientation
2.35
Team Approach
1.08
Full-time/Part-time
Market-Based Pricing
5.56
student
Customer Focus
0.27
Competitor Orientation 4.14
Profit Orientation
4.47
Team Approach
0.00
Day/Night student
Market-Based Pricing
5.54
0.05
Customer Focus
Competitor Orientation 7.46
Profit Orientation
5.94
Team Approach
3.87
Domestic/International
Market-Based Pricing
0.49
Student
Customer Focus
13.04
Competitor Orientation 9.30
Profit Orientation
7.41
Team Approach
0.02
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Prob.
.00
.69
.08
.00
.00
.55
.52
.00
.11
.00
.00
.10
.00
.00
.00
.50
.36
.03
.00
.42
.00
.21
.48
.13
.30
.02
.61
.04
.03
.96
.00
.95
.00
.00
.02
.49
.00
.00
.00
.88
Las Vegas, 2000
page 190
Hypothesis seven assumes a positive relationship between overall GPA and initial student market
orientation. This positive relationship is supported for the market-based pricing ( p=.00), profit
orientation (p=.00), and team approach (p=.00) components of student market orientation. The
relationship is not supported for customer focus (p=.69) and competitor orientation (p=.08) These results
support H7.
A positive relationship between employment marketing relatedness and initial student market
orientation is assumed by H8. Customer focus (p=.52), market-based pricing (p=.55), and profit
orientation (p=.11) do not support this relationship. Competitor orientation (p=.00) and team approach
(p=.00) support this relationship. These results do not support H8.
H9 assumes a positive relationship between student classification (junior versus senior) and
initial student market orientation. A positive relationship is supported for competitor orientation (p=.00),
market-based pricing (p=.00), profit orientation (p=.00), and team approach (p=.00). Customer focus
(p=.10) does not support the relationship. H9 is supported by these results.
H10 suggests marketing majors will posses higher levels of initial market orientation than
nonmarketing majors. This relationship is supported by the competitor orientation (p=.03) and profit
orientation components (p=.00). Customer focus (p=.36), market-based pricing (p=.50), and team
approach (p=.42) do not support the relationship. H10 is not supported.
Initial student market orientation is assumed to be independent of gender (H11). This
relationship is supported by the customer focus (p=.21), competitor orientation (p=.48), profit orientation
(p=.13), and team approach (p=.30) components. Market-based pricing does not support the relationship
(p=.00). H11 is supported by these results.
H12 assumes initial student market orientation is independent of full-time/part-time student
status. Customer focus (p=.61) and team approach (p=.96) support this relationship; competitor
orientation (p=.04), profit orientation (p=.03), and market-based pricing (p=.02) do not. H12 is not
supported.
Day/evening student status and initial student market orientation are assumed to be independent
(H13). Customer focus (p=.95) supports this relationship; competitor orientation (p=.00), market-based
pricing (p=.00), profit orientation (p=.00), and team approach (p=.02) do not. These results do not
support H13.
H14 suggests international/domestic student status and initial student market orientation are
independent. Market-based pricing (p=.49) and team approach (p=.88) support this relationship. The
relationship is not supported by customer focus (p=.00), competitor orientation (p=.00), and profit
orientation (p=.00). H14 is not supported.
DISCUSSION
The purpose of this exploratory study is to develop a conceptual framework for expanding the
scope of market orientation measurement to include undergraduate business administration students, and
to provide a baseline measurement of market orientation students bring to their first formal marketing
course. Evidence is provided for accomplishment of this purpose.
Results of this study indicate undergraduate students bring low levels of initial overall market
orientation to principles of marketing. Although a measurement of initial overall market orientation is
useful, more meaningful insight is provided by examining students market orientation with respect to
each individual component of market orientation. Principles students market orientation is low with
respect to the market-based pricing, customer focus, competitor oriented, and profit orientation
components.
Results concerning principles students initial overall market orientation tend to be consistent
with expectations. Principles of marketing is the first, and for many students, the only, exposure they
receive to the marketing concept. Consequently, intuition suggests initial student overall market
orientation would be low. These results demonstrate the critical role principles of marketing plays in
undergraduate students curricula.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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IMPLICATIONS
This study provides significant implications for marketing education and educators. Results
indicate that in terms of initial market orientation, not all components are created equal. Consequently, if
market-oriented graduates are to be produced, classroom-teaching strategies should be adjusted to devote
appropriate attention to each individual component of market orientation. Also, given the role of market
orientation in impacting organizational performance, measurement of student market orientation should
be included in measurements of teaching effectiveness for principles of marketing courses.
The relatively low levels of initial overall student market orientation indicate the need for
marketing educators to closely examine what is being taught in the classroom, as well as how it is being
taught. Although improvement in each individual component of market orientation is needed, this need is
particularly important in terms of customer focus and market-based pricing. From a marketing
educations viewpoint, producing graduates who are less than slightly market-oriented in terms of
customer focus is very disturbing. Clearly, a strong customer focus should be one of the most important
concepts undergraduate students learn in a principles of marketing course. The low ranking of customer
focus indicates market faculty should devote additional resources to improving students understanding of
a strong customer focus role in developing and implementing successful marketing strategies.
From a revenue and profit perspective, market-based pricings poor ranking is cause for concern,
given price is the only marketing mix variable directly producing revenue. Market-based pricing is the
weakest individual component of student initial market orientation and is primarily responsible for initial
overall student market orientation being low. Clearly, attention must be devoted to examining how
pricing concepts and theory is being taught in principles of marketing courses. Accounting and
economics have been successful in instilling costs role in determining price. Marketing must devise
teaching methodologies that provide principles students with a thorough understanding and appreciation
of market-based pricings role in firm profitability.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 192
Moderating variable results provide insight into development of more effective teaching
strategies, course development, and curriculum design. Utilizing differences in variables such as GPA,
full/part-time status, day/night status, domestic/international status will enable marketing educators to
develop and implement teaching strategies that will produce greater uniformity between individual
components of market orientation and higher levels of overall student market orientation.
Results indicating marketing majors do not have higher levels of initial market orientation are of
particular interest. Unequivocally, marketing majors should have higher levels of market orientation than
nonmarketing majors. Absence of such a relationship for principles demonstrates the critical role
principles of marketing plays in marketing majors formal marketing education.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 193
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INTRODUCTION
During the past 10 to 15 years two topics that have been of fundamental interest to researchers
are global marketing standardization or adaptation (Levitt, 1983; Samiee and Roth, 1992; Szymanski,
Bharadwij, and Varadarajan, 1993) and export marketing. In order to be able to assess export marketing
behavior, attention has been directed to export performance (Brooks and Rosson, 1982; Cavusgil and
Nevin, 1981; Cavusgil, 1984; Madsen, 1987; Samiee and Roth, 1992).
Levitt (1983) argued that world markets were becoming homogeneous and, thus, global. This
meant that in order for a company to reap the benefits of such a marketplace, standardized marketing
activities and strategies would be needed. If such markets did indeed exist, it was believed that companies
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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using standardized strategies would outperform companies using adapted strategies by either economies of
scale or managerial experience. Reporting on an empirical test of this relationship in the early 1990s,
Samiee and Roth (1992, p. 1) summarize their findings as follows: "in the critical area of performance,
no difference is observed between firms stressing global standardization and others." More recently,
Cavusgil and Zou (1994) found a positive relationship between export performance and product
adaptation but an unanticipated--by them--moderate and inverse relationship between performance and
promotion adaptation. Szymanski, Bharadwij and Varadarajan (1993) examined the extent to which it
would be desirable for companies to standardize their strategic resource mix across marketing mix
variables when serving multiple Western markets. Their findings show that the strength and form of the
relationships between the various marketing mix, other competitive strategy, market structure, and
business performance factors are relatively similar across the U.S., U.K., Canadian, and Western
European markets. In short, a standardized approach of resource allocation evoked similar performance
responses from these markets. Transference, on the other hand, is viewed as being on a continuum
ranging from total-transfer to no-transfer-at-all. More formally, we define transference, for operational as
well as conceptual purposes, as the extent to which a marketing activity or strategy is performed the same
in a foreign market compared with the market where it comes from, usually the home market.
There are some basic advantages in extending (i.e., transferring) marketing activities and
strategies in such a way. First, it may be very hard to generate successful tactics and strategies routinely.
If a company can successfully transfer something to as many foreign markets as possible, there will be a
saving in the time and effort that otherwise would have to be devoted to searching for "new" ways to do
things. Second, direct transfer can lead to lower cost of developing and implementing marketing
activities. Finally, some managers may be more comfortable in handling their duties if they are less
complex and varied. But, there also is the risk that transfer may not work out as intended. First, the
nature of foreign environments differ and may be harder to understand than the home market
environment. Also, if management does not fully understand why its domestic strategy has been
successful, i.e., there is no model or theory explaining its success--it will be risky to extend to less familiar
foreign markets.
Transfer and standardization are different in that transfer is concerned with how marketing
activities arrive in a foreign market while standardization is an end result where activities are performed
the same in a set of foreign markets. A company may transfer marketing activities and strategies and yet
not have a fully standardized marketing approach unless it does this in all markets. In contrast, it is
possible for a company to have standardized operations in foreign markets, yet not have these developed
on the basis of transfer from the home market, or from any other market. The major purpose of this paper
is to illustrate that companies, overtime, tend to modify their initial foreign market entry strategies to
match home market strategies.
page 199
activities and the relationship of such transfer with alternative measures of export performance. Seven
marketing variables were examined, and export performance was defined as "the composite outcomes of
the export sales of the exporting companies" (Shoham and Albaum, 1994, p. 226). The performance
composite was based on three dimensions: (1) sales, (2) growth, and (3) profitability. Each dimension
was operationally measured by multiple indicators. For example, profitability was measured by perceptual
measures such as satisfaction with meeting expectations about profit. One overall finding is that
companies that transfer marketing strategies and activities from one market to another do not perform as
well as companies that adapt for each market separately. This relationship holds regardless of the type of
product and the cultural distance between the countries.
The present study differs from that of Shoham and Albaum (1994) in that the number of
marketing activities to be examined is expanded, a different sample of companies is studied, and the
market areas covered are broadened.
METHODOLOGY
A survey of managers responsible for international marketing activities was conducted in Hong
Kong, which during the 1990s has been consistently ranked among the world's top fifteen trading
economies. Firms there actively export a wide spectrum of products to all the world's major regional
markets.
The original sample of companies was selected randomly by the Hong Kong Trade Development
Council, the agency of the Hong Kong Special Administrative Region Government that facilitates Hong
Kong's external activities, from their database of all exporters (about 1,500) actively involved in Hong
Kong's six major export product categories--clothing and textiles, electronics, watches and clocks, jewelry,
plastic products, and printed materials. Only companies with at least 5 people in the firm were included
in the original sample of 400 companies.
A "modified" mail survey technique was used to study adaptation of marketing strategies in
foreign markets. A four-contact process was used for data collection: 1. A letter was sent as a preliminary
notification of the survey, 2. A few days later a telephone call was made to solicit participation and to
ensure that the proper person was being contacted as a potential respondent, 3. Questionnaires were then
mailed to all those who indicated a willingness to participate and return were to be by mail and 4. After a
period of two weeks, a follow-up contact was made with respondents, including another questionnaire.
This process resulted in responses from 196 companies yielding a response rate of 49%. This response
rate exceeds what has been reported in the literature for similar populations (Fraser and Hite, 1990;
Samiee and Roth, 1992; Shoham and Albaum, 1994).
MEASUREMENT
Eleven items were used to measure transfer of marketing activities presented in Table1.
TABLE 1
Marketing Variables Used to Measure Transference
Product Strategy
Distribution Strategy
Product Design
Product Quality
Pricing Strategy
Service Strategy
Advertising/Promotion Strategy
Marketing Research
Personal Selling Practices and Strategy
Product Function
Product Function
Within a context of a specific foreign market, respondents were asked to indicate the extent to
which they changed each marketing variable from that used in the domestic market when first entering
the market, using a five-point scale (1=very significant change, 5=no change). Similarly, respondents
reported the extent to which each variable was being performed today differently than that for the
domestic market, using the same five-point scale. Finally, perceived importance of each of the 11
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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activities in the success of company operations in the specific market was reported using a five-point scale
(1=very significant, 5=none).
A split ballot approach was used to obtain the responses. Each respondent was assigned
randomly to respond for one of the following market areas: China, USA/Canada, Western Europe
Countries, Asia (other than China). If a company did not have any operations in the assigned market
area, it was free to choose any market; the company was asked to indicate for which foreign market it was
responding.
TABLE 2
Ownership and Orientation by Market Area
Percent Distribution
Other
USA/
Western
China
Ownership:
Independent Hong Kong Company
Subsidiary of Hong Kong Company
Subsidiary of Foreign Company
Joint Venture of HK and Foreign Companies
Other
Orientation:
Hong Kong (Ethnocentrism)
Specific Foreign Market (Polycentrism)
Group of Foreign Markets (Regiocentrism)
All Markets (Geocentrism)
All Companies
Asia
Canada Europe
61.1
13.0
18.5
5.6
1.9
100.0
78.9
7.9
2.6
5.3
5.3
100.0
89.7
2.6
2.6
5.1
0.0
100.0
86.0
7.0
5.3
0.0
1.8
100.0
40.0
28.0
8.0
24.0
100.0
26.5
44.1
0.0
29.4
100.0
20.0
17.1
11.4
51.4
100.0
42.6
18.5
11.1
27.8
100.0
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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The difference in ownership may not be that surprising since a major reason for foreign
companies being in Hong Kong is that it served as a gateway to China, particularly Southern China.
Subsidiary companies who were first "assigned" another market area in the sampling process probably did
not do business in the assigned area so they responded for China. This might also help explain the
distribution of responses by market area since the obtained sample distribution differed from the original
sample distribution. Although Hong Kong is under Chinese Sovereignty, it is a Special Administrative
Region and many of the "old" relationships with China and elsewhere remains in force.
TABLE 3
Mean Values of Extent of Transfer and Perceived
Importance to Success*
Initial
Marketing Variables
Difference
Importance
Entry**Today***Difference
to Success +
Brand Name
2.98
3.00
0.02
2.99
Marketing Research
2.98
2.99
0.01
2.83
Advertising/Promotion Strategy
2.99
2.88
-0.11
2.80
Distribution Strategy
2.83
2.88
0.05
2.74
Personal Selling Practices and Strategy
2.96
2.98
0.02
2.71
Product Function
2.92
3.01
0.09
2.71
Service Strategy
2.68
2.84
0.18
2.34
Product Design
2.45
2.61
0.18
2.30
Product Strategy
2.43
2.58
0.15
2.24
Pricing Strategy
2.13
2.32
0.19
2.01
Product Quality
2.34
2.60
0.26
2.01
*Number of respondents varied from 165 to 181.
**Measured on a scale of 1 - 5 where 1 = very significant change and 5 = no change.
***Measured on a scale of 1 - 5 where 1 = very significant difference and 5 = no difference.
+Measured on a scale of 1 - 5 where 1 = very significant importance and 5 = no importance.
For initial entry into foreign markets, the data in Table 3 show that the greatest change was made
in pricing strategy and then in the product (quality, design, and strategy). The least change was in
advertising/promotion strategy and then in brand name, marketing research and personal selling practices
strategies. Using the data in Table 3, initial entry change and difference today were compared using the ttest for Related Samples. Significant differences were observed for product strategy (t = 2.22, p < .03),
product design (t = 2.32, p < .03), pricing strategy (t = 2.43, p< .02), product quality (t = 3.97, p .001),
and service strategy (t = 2.89, p < .01). In all cases mean values were greater for extent of difference
today, and the greater the mean value the less there is a difference from the domestic Hong Kong market.
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There is an interesting pattern in the data in terms of the marketing strategy and its importance
to success. The marketing variables that were deemed to be most important to success, had the greatest
difference from home market strategies. The two most important strategies were pricing and product
quality with product strategy, product design and service strategy following. The least important
strategies of brand name and marketing research varied little from home market strategies, followed by
advertising/promotion, distribution, personal selling practices and product function strategies. As one
might expect, the strategies that were most like the home market strategies changed little over time but
what change did take place, reflected a move to being even more similar to the home market strategies
except for advertising/promotion strategy. The most important importance to success strategies also
changed to become more like the home market strategies but with more pronounced changes.
The explanation for pronounced difference between the home market and initial foreign market
entry strategies might be that those marketing variables deemed to be important were modified because of
the importance of them to potential success whereas the less important variables, if not modified, would
have little impact on success. Another possible explanation is, reflecting Levitts contention, global
markets are homogeneous or the global market is becoming more homogeneous over time. Thus the need
for unique or modified strategies is not required.
In Table 4, the data shows the difference of initial foreign market entry strategies by market.
There are several significant differences between countries. The market entry strategies are significantly
different between China and USA/Canada and China and Western Europe for product design. There is a
significant difference between China and USA/Canada for personal selling practices strategy as well as a
significant difference between China and other Asia countries for brand name strategy.
An interesting pattern emerges from the data. The smallest changes in foreign market entry
strategies compared to the home market is China. This would be expected since Hong Kong was strongly
tied to China. The largest changes in foreign market entry strategies compared to home market is split
between the USA/Canada and Western Europe markets.
TABLE 4
Mean Values of Extent of Change for Initial Market Entry
By Market Area Entered
Other
USA/ Western
Significant
2.44
2.29 .27
2.18
2.14 .003
b,c
1.91
2.19
.22
2.71
3.06
.14
2.58
2.98
.02
b
2.85
2.84
.24
2.18
2.06 .054
2.59
2.52
.43
2.59
3.04
.11
2.71
2.75 .054
3.00
3.17
.01
a
d Other Asia USA/Canada contrast
e Other Asia Western Europe contrast
f USA/Canada Western Europe contrast
In Table 5, the data shows the difference of initial market entry strategies and home market
strategies today by market. There are several significant differences between countries. The market entry
strategies are significantly different between China and Western Europe for product strategy. There is a
significant difference between China and USA/Canada as well as a significant difference between China
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 203
and Western Europe for product design strategy. In addition there are significant differences between
China and USA/Canada as well as between China and Western Europe for advertising/promotion strategy.
TABLE 5
Mean Values of Extent of Change for Difference Today
By Market Area Entered
Other
USA/ Western
Significant
2.58
2.32
.04
c
2.36
2.33 .007
b,c
2.18
2.22
.38
2.63
2.74
.01
b,c
2.82
2.70 3.08
.08
2.79
2.84
.07
2.42
2.36
.09
2.55
2.70
.06
2.70
2.96
.13
2.76
2.92
.28
3.09
3.00
.17
d Other Asia USA/Canada contrast
e Other Asia Western Europe contrast
f USA/Canada Western Europe contrast
The same pattern holds for this set of data in that the China market strategy today is most similar
to home market strategies. This would be expected since Hong Kong was tied to China. The largest
differences compared to todays home market strategies are split between the USA/Canada and Western
Europe markets.
In Table 6, the data shows the importance of each strategy across the four markets. There are
several significant differences between countries. The importance of the product design strategy is
significantly different between other Asia countries for distribution importance and China and Western
Europe markets for importance of brand name.
TABLE 6
Mean Values of Importance of Marketing Variable to Success
By Market Area Entered
Other
USA/ Western
Significant
2.21
2.59
1.98
2.70
3.00
2.28
2.22
2.45
2.83
2.70
2.54
2.22
2.13
.51
2.06
2.00 .007
e
1.83
2.06
.58
3.06
2.59
.18
2.69
2.50 2.69
.32
2.89
2.89
.01
a
1.83
1.81
.09
2.15
2.30
.56
2.78
2.81
.98
2.36
2.80
.12
3.36
3.07
.02
c
d Other Asia USA/Canada contrast
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 204
The pattern for this data is different from the two preceding tables in that the importance of the
strategies is more important in the USA/Canada and Western Europe markets compared to China and
other Asia markets. This is likely the result of the perceived homogeneity of the China and other Asia
countries to the Hong Kong home market.
CONCLUSIONS
Based on the data in table 3, overall, it appears that there is a tendency for the responding
companies to "return" to what they "know" best over time. That is, over time many companies appear to
be reverting their foreign market marketing program back to that being used in Hong Kong. This
conclusion is consistent with past research, especially supporting Levitts (1983) argument on global
homogeneity. In addition, although this research did not investigate the issue of strategies being a macro
marketing activity, the authors speculate that what might be different are the more micro marketing
activities, namely the tactics used by organizations to execute marketing strategies.
FUTURE RESEARCH
The key issues needing further exploration are the reasons for the differences in initial market
entry strategies and why these strategies tend to become more like the home market strategies over time.
Another likely important element is the differences in tactics used to execute the marketing strategies.
Other related issues, such as, the type of organization structure and foreign market relationships impact
on initial and long-term market entry strategies could also be investigated.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 205
REFERENCES
Aaby, N. E. and Slater, S. F. 1989. "Management Influences on Export Performance: A Review of the
Empirical Literature 1978-88." International Marketing Review, Vol. 6, No. 4, pp. 7-26.
Bonoma, T. V. and Clark, B. H. 1988. Marketing Performance Assessment. Boston, MA: Harvard
Business School Press.
Brooks, M. R. and Rosson, P. J. 1982. "A Study of Export Behavior of Small- and Medium-sized
Manufacturing Firms in Three Canadian Provinces," in Czinkota, M. R. and Tesar, G. (Eds.),
Export Management. Praeger, New York.
Cavusgil, S. T. 1984.
"Differences among Exporting Firms based on their Degree of
Internationalization." Journal of Business Research, Vol. 12, pp. 195-208.
Cavusgil, S. T. and Nevin, J. R. 1981. "Internal Determinants of Export Marketing Behavior: An
Empirical Investigation." Journal of Marketing Research, Vol. 18, January, pp. 114-119.
Cavusgil, S. T. and Zou, S. 1994. "Marketing Strategy-Performance Relationship: An Investigation of the
Empirical Link in Export Market Ventures." Journal of Marketing, Vol. 58, No. 1 (January), pp.
1-21.
Dunn, S. W. 1966. "The Case Study approach in Cross-cultural Research." Journal of Marketing
Research, Vol. 3, February, pp. 26-31.
Dunn, S. W. 1976. "Effect of National Identity of Multinational Promotional Strategy in Europe."
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Ekeledo, I. and Sivakumar, K. 1998. "Foreign Market Entry Mode Choice of Service Firms: A
Contingency Perspective." Journal of the Academy of Marketing Science, Vol. 26, No. 4 (Fall),
pp. 274-292.
Evangelista, F. U. 1994. "Export Performance and Its Determinants: Some Empirical Evidence from
Australian Manufacturing Firms." Advances in International Marketing, Vol. 6, pp. 207-229.
Fiegenbaum, A. and Karnani, A. 1991. "Output Flexibility -- a Competitive Advantage for Small Firms."
Strategic Management Journal, Vol. 12, pp. 101-114.
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Jain, S. C. 1989. "Standardization of International Marketing Strategy: Some Research Hypotheses."
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Kashani, K. 1989. "Beware of Pitfalls of Global Marketing." Harvard Business Review, Vol. 67,
September/October, pp. 91-98.
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136-145.
Perlmutter, H. V. 1969. "The Tortuous Evolution of the Multinational Corporation." Columbia Journal
of World Business, Vol. 4, January/February, pp. 9-18.
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Shoham, A. 1991. "Performance in Exporting: a State-of-the-Art Literature Review and Synthesis and
Directions for Future Research." National Conference of the Academy of International Business,
Miami, Florida.
Shoham, A. and Albaum, G. 1994. "The Effects of Transfer of Marketing Methods on Export
Performance: an Empirical Investigation." International Business Review, Vol. 3, No. 3, pp.
219-241.
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EPRG Framework." Journal of Global Marketing, Vol. 8, No. 3/4, pp. 9-37.
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Szymanski, D. M., Bharadwaj, S. G., and Varadarajan, P. R. 1993), "Standardization versus Adaptation
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Wind, Y., Douglas, S. P. and Perlmutter, H. V. 1972. "Guidelines for Developing International
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 208
INTRODUCTION
During a professional trip to Romania during July 1998, an opportunity occurred that would
entail the need to study the attitudes of employees of Futego, a "large" manufacturer in a Romanian
community. This company employed over 1900 persons and was interested in their views about the
company. The company was implementing a new program concerning employees and wanted an
assessment of the employees' current thinking about the company.
A marketer can take a number of approaches in performing the different marketing functions,
whatever they may be. As Figure 1 indicates, one can use a customer orientation or a company focus. A
customer orientation indicates that the needs and wants of the customer should be upper most in the
marketer's mind when developing products, broad marketing strategies or specific marketing tactics. A
company focus indicates that the marketer is more concerned with the needs of company first and the
customer becomes an afterthought. This can occur whether or not you are marketing to external
customers or your internal customers (employees). Futego wanted to use a customer focus in redesigning
its human relation's area.
BACKGROUND
Internal marketing is not a unique phenomenon. It is an application of the marketing concept
approach to the internal side of the organization. The person credited with identifying the concepts
concerning internal marketing was Leonard Berry in the early 1980's. He studied the employees of a bank
and generalized this approach so that others could study the methods and concepts.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 209
People in management have probably studied employee attitudes for decades. People in
marketing like to apply their concepts to other areas. The two areas are probably not far apart in their
thinking or application. Some companies have adopted an employee attitude perspective. The Shell
corporation had over 1100 employees (of different organizations) interviewed concerning their jobs.
Different categories of employees were developed: Fulfillment Seekers, High Achievers, Clock Punchers,
Risk Takers, Ladder Climbers and Paycheck Cashers. (Who We Are at Work, 1998). But performing
these kinds of surveys is not limited to a particular discipline or country. Conducting employee studies is
very popular. A review of all of the sources is not the purpose of this article. But they have been listed in
the References section.
Internal
Customers
Marketing
Orientation
Company
Orientation
External
Customers
METHODOLOGY
Two of the authors met with the Human Relations manager for the company, Futego (an assumed
name). They identified 10 different areas concerning the problem definition. They determined that the
manager was interested in learning about 6 different concepts and about 50 different variables. After
reorganizing these concepts and variables, the researchers examined a book containing a number of
different studies. This Handbook of Marketing Scales by Bearden and Netemeyer (1994) provided one
study that seemed to capture the essence of the concepts and variables that were developed with the
manager. This article, "Job Satisfaction of Industrial Salespersons: INDSALES," gave 95 different
statements evaluated on a traditional Likert Scale method. Approximately 50 statements from this article
were added to 35 other questions to form the first draft of the questionnaire. After much discussion with
management, the final questionnaire was administered to the employees during the fall of 1998. Out of
1997 questionnaires that were distributed, 1931 were returned. This excellent return formed the basis of a
thorough investigation of the employees' attitudes.
EMPLOYEE ATTITUDES
This sample of respondents is probably fairly representative of a manufacturing situation. In
Table 1, we notice that 45% of the employees are between 35 and 45 years old. Also there is an almost
equal proportion of those who are 25 to 34 years old and those who are 45 to 54 years old, accounting for
24% and 25% of the total number of employees respectively. Most of the respondents were workers (75%)
while managers represented only 3% of the respondents. Clerks accounted for 20% of the surveyed
employees while 2% were foremen. The majority of the respondents were men (68%). The employees
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 210
are fairly well educated since only 38% have a high school degree or less. Only 14% have a college
degree.
TABLE 1.
24
< 25
25 to 34
3%
35 to 44
45 to 54
55 and over
Total
Female
Male
45
Education
25
3
100%
(n=1882)
Middle school
Vocational school
igh school
Technical school
College degree
Graduate degree
Total
Occupation
Worker
Foreman
Clerk
75%
2
20
Manager
3
100%
(n=1862)
Total
32%
68
Total 100%
(n=1880)
5%
38
33
10
13
2
101%
(
n
=
1
8
9
3
)
Employees were asked their extent of agreement concerning statements about their job. Table 2
highlights that more than half of the employees (58%) agree that their work gives them a sense of
accomplishment. However, 43% of them consider their job to be routine. Also 58% of the respondents find
their work environment satisfactory while about a third of the employees think that their work is stable.
However, the majority of the respondents think that more instructions would increase the stability of their
job. Only 29% of employees agreed with the statement that their wage is reflecting the importance of
their job. About 4 in 10 agreed that they could get training in the field they are interested in. One
important area is job appraisal. Almost three-fourths of the employees considered their current job
appraisal method to be unfair. Many also feel that their opportunities are very limited.
Disagree
Neutral
Agree
Strongly
Agree
9%
14%
19%
48%
10%
13
8
14
24
21
14
22
32
23
21
30
16
36
48
28
23
7
10
6
6
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
my job.
I can get training in the field I am
interested in.
More instruction increases the stability
of my job.
The current job appraisal method is
fair.
My opportunities for advancement are
limited.
page 211
15
26
21
31
6
17
12
25
15
32
50
22
17
4
11
14
21
40
16
In addition to evaluating their particular job, the employees evaluated the management of Futego.
Instead of evaluating their particular boss, the employees were asked about Futego's management in
general. A fairly high degree of "neutrality" was present for these questions with a range of 21% to 36%.
Only one of the statements was positive by more than 50%of the employees. This focused on the
"progressiveness" of management but only 51% felt that management is progressive. The two lowest
areas concerned wages. Less than one-fourth of the employees agreed that the wages were higher
compared to other companies or that the wage was fair compared to other Futego's employees' wages. It
seems that "everyone else" is making more.
TABLE 3.
(n=1896)
FUTEGO'S MANAGEMENT .
. .
Really
tries to get their employees'
ideas.
Is progressive.
Operates efficiently and smoothly.
Lives up to their promises
Does a good job helping
employees develop their own
potential
Instills confidence in the fairness
and honesty of management.
Pays wages here are higher
compared to other companies
around
Makes my wage fair compared to
other Futego's employees' wages
Strongly
Disagree
Disagree
Neutral
Agree
Strongly
Agree
13%
17%
32%
34%
5%
10
11
11
15
13
18
15
20
25
34
36
36
42
31
33
24
9
5
6
5
13
14
30
34
21
23
32
18
27
28
21
19
The employees felt more positive about their supervisors than management in general. At least
53% of the employees felt that their supervisors were helping them live up to their professional potential.
This may seem low but is positive given the vast number of employees who felt that advancement
opportunities were limited. The next lowest percentage was 68% for management living up to their
promises.
TABLE 5.
MY SUPERVISOR . . .
has always been fair in dealing with
me
did a good job helping ME to
develop MY own
Professional potential
Lives up to his promises.
Strongly
disagree
Disagree
Neutral
Agree
Strongly
agree
6%
8%
15%
54%
18%
13
26
41
12
17
51
17
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 212
13
55
20
16
48
26
Lastly, the employees were asked about their fellow employees. The majority of the employees
said the other employees are sincere, 53%. All other comments about employees were very positive. At
least 65% of them said that their peers were responsible, fair, moral, and humorous or friendly. They feel
positive about this part of the work environment.
FELLOW WORKERS
...
are friendly
are sincere
are fair
Are responsible
Are moral
Have humor
2%
3
2
2
2
2
Strongly Agree
Disagree
Neutral
Agree
4%
10
9
8
7
5
12%
34
30
26
21
16
62%
40
45
51
56
55
20%
13
14
14
15
22
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 213
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 214
REFERENCES
Adler, P.S. and Borys, B. 1996. Two Types of Bureaucracy: Enabling and Coercive. Administrative
Science Quarterly, 41: 61-90.
Akaah, I.P. (1992). Social Inclusion as a Marketing Ethics Correlate. Journal of Business Ethics, 11 (8):
599-608.
Bearden, W.O. & Netemeyer, R.G. (1994). The Handbook of Marketing Scales. Thousand Oaks: Sage
Publications, 260-268.
Brayfield, A. H. and Rothe, H. F. (1951). An Index of Job Satisfaction. Journal of Applied Psychology, 5:
543-565.
Churchill, G., Ford, N. and Walker, O. (1974). Job Satisfaction of Industrial Salespersons: INDSALES.
Journal of Marketing Research, 11, 254-260.
Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach. Boston: Pitman/Ballinger.
Grayson, M.A. (1992). Benchmark TQM Survey Tracks a New Management Era in Administration.
Hospitals, 66(11), 26-27.
House, R. J. (1995). Leadership in the Twenty-First Century: A Speculative Inquiry.
(Ed.), The Changing Nature of Work. San Francisco: Jossey-Bass.
In Howard, A.
Jauch, L. R.; Glueck, W. F.; and Osborn, R. N. 1978. Organizational Loyalty, Professional Commitment,
and Academic Research Productivity. Academy of Management Journal, 21: 84-92.
Locke, E. A. (1976). The Nature and Causes of Job Satisfaction. Handbook of Industrial and
Organizational Psychology, 1297-1349.
Mowday, R. T.; Steers, R. M. and Porter, L. W. (1979). The Measurement of Organizational
Commitment.
Journal of Vocational Behavior, 14:224-247.
Mueller, C. W.; Boyer, E. M., Price, J. L. and Iverson, R. D. (1994). Employee Attachment and
Noncoercive Conditions of Work: The Case of Dental Hygienists. Work and Occupations, 21(2):
179-212.
Rousseau, D. M. and Parks, J. M. (1993). The Contracts of Individuals and Organizations. In L. L.
Cummings and B. M. Staw (Eds.), Research in Organizational Behavior, 15: 1-43. Greenwich,
Conn.: JAI Press.
Schuler, R. S. and Harris D. L. (1992). Managing Quality: The Primer for Middle Managers. Reading,
MA: Addison-Wesley.
Slocum , J.W. (1971). A Comparative Study of the Satisfaction of American and Mexican Operatives.
Academy of Management Journal, 14, 89-97.
Slocum, JW Jr, Topichak, PM. (1972). Do Cultural Differences Affect Job Satisfaction? Journal of
Applied Psychology, 56, 177-178.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 215
Who We Are at Work: Six Types of Employee Attitudes, (November 1998). Workforce: Workforce
Extra Supplement. ACC Communications.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 216
INTRODUCTION
This paper presents results of a study about attitudes and behaviors of 106 faculty members of
College of Engineering from Lucian Blaga University of Sibiu, Romania during the month of October
1999. The study aimed to determine the computer usage at home and at the office, the degree of Internet
awareness, and attitudes about the in construction Intranet network, developed by a group of faculty and
students, called the Intranet Team. The study had been initiated as a result of the poor response of the
faculty toward the necessity of establishing an Intranet network in the College of Engineering and degree
of usage of such internal Internet-like networks. Also, the Intranet Team wanted to determine the
computer ownership and literacy of the faculty as a means to successfully create and facilitate the use of
this network.
page 217
Home
Hardware
Considerations
Computer
Usage
Software
Considerations
Office
%
35.0%
61.5%
95.2%
64.7%
92.9%
55.6%
66.7%
67.9%
Out of 14 managerial positions in the College and University held by the faculty, only 5
answered the questionnaire (36%). This is interesting since the college's management had initiated the
project. The faculty is an experienced faculty since 48% were over 40 years of age. Most of the
respondents were men.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 218
5%
95
TABLE 3.
OFFICE.
<lG
1G <4G
4G or >
IBM
Macintosh
Home
75%
(n=48)
20%
46
33
Office
79%
94%
6
19%
59
22
100%
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Ownership of a Printer
Type of Printer
Matrix
page 219
65%
Dot
Ink Jet
Laser
23%
60
18
44%
90%
61
39
73
28
SOFTWARE USAGE
As indicated in Table 4, the faculty is using Word instead of Word Perfect, both at home and at
the office. They prefer Excel to Quattro Pro but Fox Pro was used more than Access. Less than five
percent of the faculty did not indicate the usage of any of the programs. Interestingly, about half of the
faculty indicated the use of only one program while about 46% used more than one program. It appears
that the faculty is computer literate and active.
page 220
university in their hometown. Changing universities is not common. Concerning vacations, many people
either go to the mountains or to the Black Sea and therefore do not need other information. Only 2 of the
12 activities were searched for on a daily or weekly basis. Another three activities were done by at least
40%.
The faculty is not using the internet in their jobs yet. Over 50% had never used the internet for
seven of the nine job related activities. Only "teaching courses" and "obtaining information to prepare for
the courses" had been used by more than 50% of the faculty.
When the faculty had used the internet for searching the web, only 2 of the 11 sources had been
used by more than 50% of the faculty, "single search engine" and Yahoo. Even though 43% of the faculty
had never used Yahoo, it was the most used 'search engine" since 47% had used it daily or weekly.
TABLE 5.
Daily/
Weekly
Monthly
Less than
Monthly
Never
1%
0
4
11
35
17
38
4%
3
22
17
14
14
21
21%
32
22
24
10
29
14
74%
65
51
49
42
40
28
49
43
46
50
57
13
21
18
18
24
13
15
15
13
7
26
21
21
19
13
Daily/
Weekly
Monthly
Less than
Monthly
Never
3%
0
7
3
8
6
11
22
31
3%
6
1
7
6
13
14
11
17
11%
11
14
15
14
18
18
19
22
83%
83
78
75
72
64
57
47
31
Daily/
Weekly
Monthly
Less than
Monthly
Never
3%
6%
4%
88%
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Hotbot
Web crawler
Infoseek
Excite
Lycos
Specialized searching software
Multiple engines
Alta Vista
A single search engine at the time
Yahoo
page 221
6
6
11
10
13
21
44
35
33
47
4
7
14
6
4
8
7
10
13
6
3
6
8
8
13
6
6
4
8
4
88
82
78
76
71
65
63
51
46
43
CONCLUSIONS
A faculty at a university in a developing country has access to computers and software that
persons in more developed countries have. It would seem that the experience curve is probably about 4
years behind at this university concerning the nature of the computer equipment and type of software used.
The faculty does have access to computers and to relatively good computers. They also have access to the
internet. But one of the problems in Romania, especially at universities, is the slow response time. One
should expect the faculty in a developing country to have access to the world wide web information just
like their counterparts in more developed countries.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 222
REFERENCES
Bean,L. and Cummings, M. (1997). An Investigation into the Issues Corporations Are Facing With
Intranet Technology. In Proceedings of Decision Sciences Institute, San Diego, California, 627
Bennett, G. (1999). Introducing Intranets. QUE Publishing, Indianapolis, IN.
Chou, D.C., Yen, D.C. and Chang, C. (1997). Developing an Intranet: Tool Selection and Management
Issues. In: 1997 Proceedings of Decision Sciences Institute, San Diego, California, 558..
Dunning, K.S., and Vijayaraman, B.S. (1997). Barriers to Entry In The Use Of The World Wide Web
For Educational Purposes". In: 1997 Proceedings of Decision Sciences Institute, San Diego,
California, 559-561.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 223
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 224
distribution channel. Income enhancement may be achieved by reducing costs or enhancing revenues.
Both would increase profitability.
The literature in general indicates that the rush toward PC banking has begun, but no one seems
to have directly consulted with banks. The consulting firm of Booz, Allen & Hamilton Inc. of New York
surveyed financial institutions with an address on the World Wide Web, but excluded from the study all
financial institutions that were not on the web. Thus, the intentions of large and small commercial banks,
savings institutions and other institutions that are not on the web are not known. Do these financial
institutions plan an Internet presence, and if so, how far toward full service on-line financial capabilities
do they intend to go?
PURPOSE OF STUDY
The purpose of this study is to determine the present status and plans of financial institutions
regarding an Internet presence. In addition, percieved obstacles to movement onto the Internet are
explored.
METHODOLOGY
A questionnaire was mailed to 500 randomly selected CEOs of financial institutions in the
United States. This group was targeted because it was felt that CEOs were most likely to know the shortterm goals and objectives of their institutions. The survey instrument was numbered and sent to the
sample in three different mailings, or until a response was received. Address labels were purchased from
an outside research company that randomly generated the names of CEOs of financial institutions in the
United States and its possessions. A single page, two-sided questionnaire was developed and tested by a
control group for ease of use and understanding. Modifications were made to the questionnaire in
response to recommendations from the control group. The questionnaire was first mailed out in August
1998. Mailings were repeated in September and November 1998.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 225
Four increasing levels of Internet involvement for financial institutions are shown in Table 2.
Each succeeding level identifies the incremental number of institutions at that level. A Level 1 Internet
presence provides information about the financial institution with no interaction between the institution
and the customer other than a possible e-mail link. Similar to a digital bulletin board, the web site usually
shows the name, address and other information about the institution. Level 2 allows the customer to
submit information, such as loan or credit card applications, to the institution via the Internet. This type
of site will usually have a fill in application form (more than a return e-mail link). Level 3 allows sharing
of information, such as account balance information, with the customer. The web site will allow the
consumer to access the institutions data. For instance, one can determine whether a check has cleared or
check the balance on a loan. Level 4 allows the customer to process information that belongs to the
institution, such as fund transfers or loan payments. Level 0 was used when a financial institution
expressed no intention of going onto the Internet.
Presently 64.9 percent of all respondents are not on the Internet. Of those reporting a presence
on the Internet, 57.7 percent only provide information (Level 1). Another 21.1 percent of those presently
on the Internet can receive information from the customer (Level 2). Two point nine percent of
responding institutions on the Internet share information (Level 3). Full service banking is provided by
6.4 percent of all respondents with an Internet presence (Level 4).
Table 2. Present level of Internet involvement by financial institutions
Table and data to be presented at ASBBS 2000 conference.
When responding financial institutions were compared according to type of institution (bank or
credit union), no significant differences were found as shown in Table 3. Banks had a higher percentage
(60.4 percent) of respondents offering information (Level 1) than credit unions (50.0 percent). Credit
unions had a higher percentage of institutions (33.3 percent) that received information (Level 2) than
banks (17.0 percent). No bank reported their Internet presence as being one of information sharing (Level
3), but 11.1 percent of credit union respondents report this level. Eighteen point three percent of the
responding financial institutions report that their current presence offers information-processing
capabilities. This capability was reported by 22.6 percent of banks and 5.6 percent of credit unions.
Though the percentage differences look large, no significant differences could be established because of
the relatively small number of credit union represented (n=18). It is interesting to note that credit unions
use all levels of Internet presence, and provide more presence at Levels 2 and 3 (44.4 percent) than do
banks (17 percent).
Table 3. Present level of Internet involvement by type of financial institution
Table and data to be presented at ASBBS 2000 conference.
Table 4 shows the institutions classified by asset size. As might be expected, larger institutions
have a higher likelihood of present or future involvement in on-line banking. Only 23.1 percent of those
under $1,000,000 are presently on or planning to be on the Internet. It is interesting to note the pattern
that emerges when institutions are grouped above and below $10,000,000 in assets. Over 71 percent of
the smaller institutions have no plans to develop an Internet presence, whereas only 23 percent (35) of the
larger institutions reported having no plans for an Internet presence. Of the 35 institutions with no
Internet plans, 63 percent have an asset size of less than $50,000,000. In the sample collected, those
financial institutions that have asset size in excess of $50,000,000 have a significantly higher probability
of going on the Internet. Within two years, almost all institutions in excess of $50,000,000 in asset size
expect to be on the Internet. Conjecturally, it would be reasonable to expect that banks, with their
typically larger asset size, are more likely to be on or moving onto the Internet than credit unions. As asset
size increases, the number of credit unions in the equivalent population decreases. Growth in Internet
presence will be taking place among the larger financial institutions, because smaller institutions do not
see the demand for Internet usage at this time.
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Table 8. Obstacles identified by financial institutions on the Internet or going on the Internet for not
seeking total interactive banking.
Table and data to be presented at ASBBS 2000 conference.
Interestingly, among institutions on the Internet or planning to be on, the primary reason for not
progressing to fully interactive banking is seen as financial security. It is reasonable to speculate that
demand for this type of service may grow significantly beyond today's anticipation, requiring that the
banks solve the security issue so that demand can be met. This is especially true because of the growth of
Internet access in households.
When financial institutions without Internet plans are classified by type of institution as shown in
Table 9, two notable differences emerge. The perception of loss of personal contact as a deterrent is
different. Banks perceive loss of personal contact to be of more concern than credit unions, in contrast to
the popular perception that credit unions focus more on their members. Banks and credit unions both
perceive that programming difficulties to be of little importance. Among institutions not going on the
Internet, there is general agreement as to why. All believe that there is not sufficient demand to warrant
that move. Another variable that concerns these institutions is the cost of Internet operations. The
ranking of the last three perceived obstacles (financial security, other variables and programming
difficulties) is similar for banks and credit unions.
Table 9. Obstacles for not going on the Internet when broken down by Banks and Credit Unions
Table and data will be presented at ASBBS conference.
Table 10 shows that among institutions classified by asset size, a greater concern for cost than
loss of personal contact exists among smaller institutions whereas larger institutions are more concerned
over loss of personal contact. The other four obstacles identified in the study show no significant
differences when compared by asset size. An interesting side note is that financial institutions exceeding
$1,000,000,000 in assets view financial security as a greater obstacle than inadequate demand. To the
extent that smaller institutions are more likely to be located in smaller towns with greater ease of access,
there may be some validity to these concerns.
Table 10. Obstacles for not going on the Internet when broken down by Asset Size
Table and data will be presented at ASBBS 2000 conference.
CONCLUSIONS
Financial institutions are moving on to the Internet rapidly. Two-thirds of all financial
institutions are either currently on or plan to be on the Internet within the next two years. As might be
expected, more of the larger institutions will be on the Internet than those smaller. Financial institutions
that established a presence on to the Internet prior to 1998 are almost twice as likely to offer "full service"
banking now or in the future than institutions establishing subsequent presences. Banks are currently
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twice as likely as credit unions to be represented on the Internet, but that ratio is declining as more and
more credit unions move to participate. Lack of demand and financial security are widely perceived as the
primary obstacles to offering full service banking on the Internet. Demographics of the typical on-line
user, together with the rapid expansion of households with Internet connections, show that American
households are rapidly moving to the Internet. It is interesting to note that the perception of lack of
demand decreases as the asset size of the responding institutions increases. It can be predicted that the
rate of Internet expansion of financial services will accelerate beyond that currently planned given a
heated competitive environment, technological advances, and the drastically reduced cost per transaction
experienced on the Internet.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCE
Digital Insight (October 1997). Internet Home Banking: Market Penetration and Market Methods Study,
White Paper, pgs. 2-16.
Editor, (June 1996). An Internet Banking Boom is ComingReally, United States Banker, 106(6). P.
20.
Gandy, Anthony (Apr 1998). 'Brokers take to the Net,' The Banker, 148(866), p. 84.
McConochie, Roberta M. (April 1997). Summary of Arbitron NewMedias Pathfinder Study, Available:
http://www.commercepark.com/AAAA/casie/arbitron/execsum.html, cited 1998 December 15.
Odyssey L.P. (Spring 1998). Homefront: tracking study released twice a year, in the spring and fall,
Available: http://www.commercepark.com/AAAA/casie/comp/odyssey.html, cited 1998 June 8.
Orenstein, Alison (Feb 1998). 'Internet Banking,' Bank Systems & Technology, 35(2), pgs,24-30.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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INTRODUCTION
The millennium is here and with it comes a new business environment. It is a global business
world, one where new, ever-changing internet technology and the explosion of e-commerce present
opportunities and challenges of monumental proportions. There are many critical aspects of business but
certainly two crucial areas are the pressing need to develop new products, and the ability to move these
products through marketing channels to target customers, i.e., create greater consumer value.
This paper will look at the current status of New Product Development (NPD) and Supply-Chain
Management (SCM). This will be followed by some observations regarding the areas of SCM that should
be taken into consideration at various points in the new product development process. Some observations
will then be made about some new products, e.g., the Fire Storm line of tools by Black and Decker, and
the role of SCM. Lastly, the authors would hope that this paper would lead them to develop an empirical
study of the relationships between NPD and SCM.
In terms of this paper a new product is one that falls into one of five categories. These categories
would be: new-to-the world products; new category entries; additions to product lines; product
improvements (Crawford & DiBenedetto, 2000). (See Figure 1)
FIGURE 1
ACCEPTED CATEGORIES OF NEW PRODUCTS
New to the World
Laser Printer
Additions to
New Category
Entries
AT&Ts
Product Improvements
Clorox
Advantage
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Product
Society Lines
of Business and Behavioral Sciences,
Volume
7, Number 4
Tide Liquid
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SUPPLY-CHAIN MANAGEMENT
Simchi-Levi, Kaminsky, and Simchi-Levi define SCM as a set of approaches utilized to
efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced
and distributed at the right quantities, to the right locations, and at the right time, in order to minimize
system wide costs while satisfying service level requirements. (Samchi-Levi, Kaminsky, & Samchi-Levi,
2000). Lambert, Stock and Ellram look at SCM as the integration of business processes from end user
through original suppliers that provides products, services, and information that add value for consumers
(Lambert, Douglas, Stock, & Ellram, 1998). In good supply chains partnering-orientated business
relationships are established between and among members to facilitate activities. Members of the chain
must work together as one entity in order to maximize productivity. Donald Bowersox of Michigan State
Universitys School of Marketing & Supply Chain Management feels that in SCM alliances where
retailers, manufacturers, and logistics Service Companies team up, everyone wins (Bowersox, 1990). In
order for everyone to win it is imperative that all partners pool their assets and create a synergistic effect.
It is important to form alliances to share information vital to efficient SCM. There is a long list
of such activities, and variations will occur depending on the specific chain, but there are prime areas of
interest. Lambert, et al view SCM as consisting of Logistics Management and Key Business Processes.
The business processes are: customer relations management, customer service management, demand
management, order fulfillment, manufacturing flow management, procurement, returns channel and
product development and commercialization (Lambert & Stock, 1998). This paper will focus on seven
major areas of logistics that will improve the product development and commercialization process (See
Figure 2).
Technology makes the job of cooperation easier, but problems remain in getting all partners to
work together to maximize the operation of the total chain. Several studies are now available that indicate
that the rewards are there for those who do practice good SCM practices. A study of several hundred
firms including Xerox, Hewlett-Packard, and Merck says that members can get back as much as 7 per cent
of their annual revenue. A study by Pittiglio, Rabin, Todd & McGrath found that the top companies
involved in SCM function with significantly less inventory days than competitors; have a 40-60 percent
advantage in cash-to-cash cycle time; get more productivity per employee; and provide higher levels of
customer service (Traffic World, April 28, 1997). A study by A.T Kearney for chemical companies
indicates that up to $30 billion can be derived in SCM savings (Saccomeno, 1997).
FIGURE 2
LOGISTICS FUNCTIONS
Customer Service
Inventory Management
Materials Handling
Order Processing
Packaging
Transportation
Warehousing
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RELATIONSHIPS
As the new product process develops, it is important to think about the relationship between the
marketing of the new product and supply-chain activities. Initially there should be action taken to see that
the SCM relationships established provide for the opportunity to have ideas flow smoothly from the end of
the chain back to the beginning. This can be labeled PULL factors. The identification and selection of
new product ideas can come from all members of the chain. For example, careful analysis of inventory
shifts can give direction to the development of ideas. Myriad pull factors can trigger the development of
new product concepts. Shifts in inventory can provide direction for new product ideas. For example,
shifts in cereal away from sweet and sugary types to low fat, fiber rich ones might be a tip off to start
thinking new healthy cereals. A perusal of orders processed might show that consumers are buying
products in smaller sizes and this could lead to new types of packaging. A review of complaints from
warehouse operators and or transportation carriers might very well provide direction for new product
ideas.
Push factors; on the other hand, come from the new product developers and set forth the possible
potholes that might take place along the road toward commercialization. Many possible SCM problems
might occur as the new product process evolves from opportunity to launch. A toy manufacturer might,
perhaps, think about the supply chain as they search for opportunities. If there appears to be an
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opportunity for new toy X, what are the supply chain implications? How will this effect inventory
management, order processing, transportation, etc? An opportunity might be more feasible if it is
congruent with the existing supply chain. On the other hand, the opportunity might be less appealing if it
is more divergent, e.g., a larger, less dense toy that would be harder to package, palletize, store, transport,
etc. Each step in the new product process calls for a serious consideration of supply chain implications. It
might even be important to have the SCM factors included as part of the Product Innovation Charter
(PIC), the summary statement of strategy that will guide a department or project team in their effort to
generate new product volume (Crawford & Merle, 1997).
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FIGURE 3
BASIC NEW PRODUCT PROCESS
Phase 4: Development
A. Technical Tasks
Specify the full development process and its
deliverables. Undertake to design prototypes; test
and validate prototypes against protocol; design
and validate production process for the best
prototype; slowly scale up production as necessary
for product and market testing.
B. Marketing Tasks
Prepare strategy, tactics, and launch details for
marketing plan; prepare proposed business plan
and get approval for it, stipulate product
augmentation (service, packaging, branding, etc.)
and prepare for it.
Phase 5: Launch
Commercialize the plans and prototypes from development phase; begin distribution and sale of the new
product (maybe a on a limited basis); and manage the launch program to achieve the goals and objectives
set in the PIC (as modified in the final business plan).
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CASE HISTORY
A review of two very different type products recently introduced to the market will help illustrate
the role of SCM in the New Product Development Process. FIRE STORM (Ivey, 1999) Black
&Decker is a firm with a solid brand image and has instituted practices that have led to the introduction
of many new products, e.g., the SnakeLight, Quantum Tools, ToolLight, Bullet high performance drill
bits, Pilot Point tip design, Pivot Driver two-position screwdriver, and Sand Storm 3-in-1 sander. Black
& Decker is also a leader in SCM and is linked with major retailers such as Home Depot, Lowes, WalMart, K-Mart, etc. Information flowing back to Black & Decker from these retailers indicated a drop in
orders for traditional power tools and a significant increase in consumer complaints.
A team was formed, including several young, consumer oriented Product Managers, to analyze
the problem and make recommendations about potential new products. This team began to realize that
the consumers were interested in better cordless power tools. Black & Decker had two lines of cordless
power tools. One was the VersaPak powered line targeted to meet the needs of the traditional B&D
consumer- the do-it-yourselfer. The other was the DeWalt line targeted for the professional power tool
user, and designed to be sturdy and to hold up under daily rigorous use. The VersaPak had a maximum
power of 7.2 volts while the DeWalt line ran from 9.6 to 18 volts. Consumer value could be enhanced
with a line of tools positioned somewhere between the traditional do-it-yourself and the professional lines.
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Hence the Fire Storm line was developed to fill this void. The color red was selected to go along with the
new brand name, and to make it stand out in the retail environment.
The next decision was to select the cordless tool that would kick off the line. Information that
flowed back from consumers indicated that the drills were a major problem. The decision was to develop
a cordless drill in 9.6, 12, 14.4, and 18 volt models. These drills were similar to the DeWalt line in that
they had a high output cooled motor, 24 position clutch, variable speed, an electronic break that stops the
chuck in less than 1 second, and a balanced mid-handle design. The differentiating factors were that the
Fire Storm, unlike the DeWalt, did not have an industrial grade keyless chuck, had an inferior motor and
gears, and did not come with a one hour rapid charger or an extended run time battery. The second
product in the Fire Storm line was a cordless, 14.4 volt circular saw. The saw is sold by itself, by itself in
a kit-box and in a combo kit with a 14.4volt drill and a kit box.
The Fire Storm is a new product that would fall into the additions to product lines category, i.e.,
a product that is a line extension in B&Ds current markets. Many of the SCM problems that the Fire
Storm would encounter would not vary greatly from those met with the VersaPak line or the DeWalt line.
Those responsible for NPD considered at each stage of the development process such things as the impact
of adding additional items to order processing and the burden this new line would have on inventory
management, e.g., would stock outs increase? Would the cost of carrying inventory increase? Would
EOQs be effected? A lot of effort went into the development of the new package from a marketing point
of view, e.g., designing it so that it will sell itself, but the package must also withstand the rigors of
warehousing, transportation, materials handling etc. The Fire Storm must conform to palletizaion
requirements, and should be in conformity with the shelf space needs of retailers. Would the Fire Storm
create transportation problems, e.g., loading configuration, increased rates, contract considerations, loss
and damage, etc.? SCM implications may not have been extremely critical with the Fire Storm because of
the structure of the company and recent experiences with such new products as the Quantum line of tools
(21). However, a new product launch of this magnitude requires teamwork, and those involved in SCM
are a vital part of that team.
OTEC (Gay, 1999) - The aforementioned Fluff Stuff cotton candy developed by OTec would
create many more and varied SCM problems. The newly developed package would keep the cotton candy
fresh, but would it withstand the punishment it would take as it moved through the chain. As it turns out,
the product is extremely hardy, and holds up well in all temperatures and under almost all conditions. As
one can envision with little trouble, shipping a product like this creates a plethora of transportation
problems. For example, a trailer would cube out with no weight at all. This might require that a heavy,
dense product, one that would weight out before cubing out, be loaded in the bottom of a container with
the pallets of cotton candy loaded on top. Similar problems would arise with respect to warehousing. In
certain cases order processing would be affected. For example, transportation carriers may restrict the
number of pallets they will accept due to the size and the lack of weight. This in turn might limit the
number of orders that can be processed. The number of orders would then have an impact on inventory
management.
The two new products discussed above are very different with many different SCM twists and
turns. They are presented here as examples of the importance of SCM in the New Product Process. They
illustrate how good supply chain systems can be an excellent source of new opportunities and new
concepts. In addition, they present a clear picture of the kinds of things that must be considered as those
opportunities turn into concepts that eventually result in the launching of a new product.
page 237
with them is often the key to a firms success and survival (Perreault & McCarthy, 1999). The demand
for new products is great, but the cost of developing a loser is costly too. For example, Mennen spent $14
million advertising Real Ultra Dry Roll-On, only to have it fail (Berkowitz, et al, 2000). In todays
global, high-tech environment, NPD should be a continuous learning process, one that has as its loci the
increase in consumer value (Chafin, 1996). There are myriad ways that this process can be improved, but
one is to stress the importance of SCM in the two critical ways.
First, a well-organized and efficiently managed supply chain can be an excellent source of new
product ideas. Fresh and creative concepts can smoothly and timely filter back to the first link in the
chain. Likewise, a good supply chain provides an excellent conduit for getting good ideas from one
channel member to other channel members (Gordon, 1995). Second, Once the new product process
begins, those responsible for managing it must take into consideration supply chain functions in order to
insure that the new product is successfully launched and is a hit rather than another Edsel.
The environment is conducive to the blending together of SCM and NPD. Educational
institutions like Michigan State University provide students in the Board School of Business the
opportunity to study both of these fields. These students will be the future managers. The growth and
development of organizations like the Council of Logistics Management and the New Product
Development Association indicate that both are growing, thriving organizations. This bodes well for the
improvement of the process of developing new products that increase consumer value.
It is A Brave New World we live in. In this era of e-commerce and sophisticated internet and
intranet systems, there are new products arriving every day and more just on the horizon. New systems
are themselves new products, but they also force the development of new products. Thus a never-ending
circle is created. However, it is risky to focus on today. Generation M (Those born around the
millennium) will be demanding new and unfathomably different products as well as new versions of
Crest, Coke, etc. Hopefully, SCM and NPD will be working together to successfully help create these new
products that will provide real value to Generation M as well as to those in Generations X and Y who will
be getting older and demanding unique new products too.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
(1997). New Study on Supply Chain Rewards. Traffic World, April 28, 1997, 35.
(1999). USA Today, Bonus Section E, November 15, 1999, 15.
Berkowitz, et al (2000). Marketing, 6th ed., Irwin/McGraw-Hill, 296.
Bowersox (1990). The Strategic Benefits of Logistics Alliances.
August 1990, 36.
Cassidy (1997). Back to the Chain Gang. Traffic World, May 12, 1997, 22.
Chafin (1996). Turning New Product Development into a Continuous Learning. Journal of Product
Innovation Management, March 1996, 89.
Crawford (1997). New Products Management, 5th ed., Richard D. Irwin, 487.
Crawford, ibid, 5.
Crawford, ibid, 25.
Crawford & DiBenedetto (2000). New Products Management, 6th ed., Irwin/McGraw-Hill, 11.
Gordon (1995). Ten Ways. Journal of Product Innovation Management, June 3, 1995, 214.
http://www.bus.msu.edu/msc/scm
http://www.foodexplorer.com/business/products/newproducts/pf02795b.htm
http://www.pdma.com
Ivey (1999). Independent study, University of Baltimore, Baltimore, MD, July 1999.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 239
Saccomano (1997). A Shorter Chemical Chain. Traffic World, July 21, 1997, 27.
Samchi-Levi, Kaminsky & Samchi-Levi (2000). Designing and Managing the Supply Chain: Concepts,
Strategies & Case Studies, Irwin/McGraw-Hill, 1.
Speech given by Robert Gay, Vice President of Sales, OTec, Inc., American Marketing Association
Chapter, Baltimore, MD, October 21, 1999.
Stewart-Allen (1999). Coordinate Logistics when E-tailing to Europe. Marketing News, November 22,
1999, 18.
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INTRODUCTION
The importance of segmentation in the development of an effective marketing strategy is well
established in business literature. There are many bases used for market segmentation including
geographic, psychographic, and usage factors, but demographic characteristics such as age, occupation,
income level, educational attainment, and race are frequently used to identify key markets. Race is
important as a segmentation variable because it has been shown that race can influence consumption
patterns and because racial minorities have come to represent a larger and larger proportion of the U.S.
population. The sheer numbers of the largest minority group, African-Americans, and the improving
economic status of many of its members, make this racial minority especially attractive, and it has been
shown that purchase and consumption behavior of African-American differs from that of whites.
However, there has been little empirical study of these differences in the financial services sector. It is the
purpose of this study to determine if African-American shopping and purchase patterns are different from
those of whites in the case of financial service purchases. Moreover, if differences are identified, a further
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purpose is to determine how these differences are manifested, so that marketers of financial services can
best approach the African-American niche.
BACKGROUND
The number of African-Americans in the U.S. has grown rapidly. In the ten-year period from 1985
to 1995 for example, there was an increase of more than 4.5 million blacks in the U.S., a nearly 16
percent increase. (The terms "African-American" and "black" are used synonymously in this paper
because there is no clear preference for either term among members of this racial group.) (Morris, 1993).
The corresponding percentage increase for whites in the same period was just under 8 percent. During the
same ten-year period, the number of black households grew by 23 percent; white households grew by only
11 percent. Moreover, the total U.S. population of blacks is predicted to increase by as many as 17
million by the year 2020. This represents a projected 53 percent increase over the 25 years from 1995; the
white population is forecast to grow only 28 percent during the corresponding period (U. S. Department of
Commerce, 1998).
Nevertheless, a mere increase in numbers of people does not mean that a particular group is an
attractive segment. Other factors must be present. In the case of the black minority, at the same time that
it is increasing in numbers, its household income is also increasing. From 1985 to 1995, median money
income of African-American households increased 51 percent while white household median money
income increased less than 44 percent. The increase in black household income is reflected in declining
poverty levels in the group. From 1985 to 1995 there was more than a six-percent drop in the number of
black persons below the poverty level; the comparable drop in the percentage of whites below the poverty
level was two percent. Nevertheless, even though the percentage of blacks dropped to less than 30 percent
(lower than it had been for more than 35 years), the large number of African-Americans below the poverty
level means that not all members of the group have participated equally in the upward economic
movement (U. S. Department of Commerce, 1998).
Yet for those who have experienced income growth, some of the growth can be explained by changes
in occupational status. For example, the number of blacks employed in managerial and professional
specialties increased by more than 32 percent, an increase of more than 1,375,000 workers, from 1983 to
1996. During this period increases in some specific occupations were as follows: financial managers, 86
percent; engineers, 69 percent; college and university teachers, 48 percent; dentists, 41 percent;
physicians, 37 percent; and lawyers, 35 percent. These career advancements were supported by increases
in the college enrollment of many African-Americans, and generated a significant increase in degrees
awarded. From 1985 to 1995 the increase in degrees awarded to African-Americans was as follows:
bachelors degrees, 32 percent; masters degrees, 73 percent; doctors degrees, 44 percent; and first
professional degrees, 57 percent (U. S. Department of Commerce, 1998).
Beyond attainments in income, professional employment and education, many blacks have also
advanced entrepreneurially. From 1987 to 1992 there was a 42 percent increase in black-owned
businesses. This growth of nearly 200,000 businesses, in the five-year period, helped to generate an
increase of 63 percent in sales receipts to black-owned businesses. Thus, by 1992 sales receipts of blackowned businesses totaled $32,197,000,000 (U. S. Department of Commerce, 1998). These statistics mean
that there are members of the black minority that comprise an attractive market segment for the products
and services offered by the finance industry. Indeed, one study noted that the phrase the emerging black
middle class is passe; the group has arrived (Lach, 1999).
Similar to any other racial or ethnic segment of the population, the African-American segment is
really a number of segments. One major study of African-American markets in the U.S. combined
demographic and behavioral data to identify four unique black consumer groups (The 1993 Minority
Market Report). One of the groups, identified as Upwardly Mobile, was characterized as financially
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were more likely to invest in stock than were black households of similar age and educational levels.
Perhaps a reason for this is suggested by a 1997 study finding that 77 percent of black respondents feel
they know "just some or very few of the things needed to make good investment decisions, compared to
only 46 percent of whites (Lach, 1999, p. 59.) A survey of families with household incomes of at least
$50,000 found that 63 percent of African-American investors were conservative; the comparable figure for
whites was 53 percent (Scott, 1998).
Another study found that in households with incomes in excess of $50,000 annually, black women
are the least likely group to be invested in stocks (Mincer, 1999). The reluctance of African-American
women to invest in stocks, attributed to cultural and demographic factors, is especially important because
women are the primary financial decision makers in 21 percent of African-American households; in white
households only ten percent of wives take this role (Smith, 1997). This conclusion, based on a 1997
nationwide survey of 974 adults, supports previous analysis of the role of the wife in black household
consumption (Scanzoni, 1971). The 1997 survey further asserted that because blacks have not had parent
and grandparent investors to emulate, they are more reluctant than whites to take the risks necessary to
achieve higher returns. Nevertheless, they seek annual investment returns more than three percentage
points higher than whites and are more likely than whites to rely on financial advisors rather that family
or friends (Smith, 1997).
These fragmented findings provide a glimpse into where the African-American market is being
under-served by financial services marketers. However, in order to reach this underserved sector, it is
necessary to determine how blacks gather information about the products of the financial services
industry. In addition to understanding communication channels, it is also important to know what
distribution channels (in person, mail, computer, for example) are preferred. This information would give
a clearer picture of which communication and distribution channels show the most promise for reaching
this high-potential sector.
METHODOLOGY
Data for this study were gathered from the 1995 Survey of Consumer Finances (SCF) prepared by
the Board of Governors of the Federal Reserve System in cooperation with the Statistics and Income
Division of the Internal Revenue Service. Conducted triannually since 1983, the SCF provides detailed
information on the financial characteristics of U.S. households, including financial asset and liability
holding patterns, real estate ownership, and household net worth. Also included are demographic and
attitudinal characteristics covering age, sex, race, educational attainment, income, and other classificatory
variables useful for characterizing household balance sheet characteristics across different subgroups
within the American population. A more complete description of the SCF dataset is given by Kennickell,
Starr-McCluer, and Sunden (1997).
The SCF dataset uses a dual-frame-sampling plan that incorporates both an area-probability sample
and a special list sample derived from IRS tax records. The area-probability sample provides information
on financial variables that are widely distributed in the general U.S. population, such as automobile
ownership and home mortgages, while the list sample represents a special oversample of relatively
wealthy families designed to capture financial data items that are highly concentrated within a relatively
small proportion of the population, such as commercial real estate holdings and household trust fund
ownership. This dual-frame sample provides reliable information on data items that are relatively easy to
generalize from a standard, geographically-based random sample of the population, as well as items that
are narrowly observed within a cross section of the population that is subject to a heightened rate of survey
nonresponse (Board of Governors of the Federal Reserve System, 1997).
Given its unique sampling methodology, however, the SCF sample is not an equal probability
design. The oversampling of households more likely to be wealthy means that the data must be weighted
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to generate valid sampling estimates that are projectable to the entire U.S. population. Thus, the
weighting scheme used to combine the area probability sample with the list sample adjusts the main
dataset for the oversampling of relatively wealthy families in the full, unweighted sample. The results
reported below focus on the moderate to higher income households in the racial subgroups, rather than a
general description of the U.S. population across all income strata. As such, these results are derived from
the full, unweighted version of the SCF sample, including both area-probability and list sample results, to
gain maximum benefit from the reporting of financial information by relatively wealthy families
concerning information channels and financial services shopping patterns.
The SCF handles missing data attributable to item nonresponse using a multiple imputation
procedure. Multiple imputation uses stochastic multivariate methods to replace each missing value with
two or more values generated to approximate the sampling distribution of missing values. In the SCF
dataset, multiple imputation replaces each missing value with five surrogate values, so that the reported
proxies can be averaged to produce a more accurate estimate of what the missing value would have been
in the absence of item nonresponse. In addition, multiple imputation allows for the estimation of
corrected variance estimates, modified from the original item variance statistics to reflect the additional
variability introduced within the dataset due to the uncertainty surrounding item nonresponse and the use
of five imputed responses to proxy the original missing response (Montalto & Sung, 1996).
Multiple imputation offers the advantage of increased response estimation efficiency and the ability
to incorporate additional respondent information to reduce unit nonresponse. In addition, this technique
can be used to estimate the increased variability introduced within the dataset due to the estimation of
missing values. The multiply imputed dataset provides for more valid statistical inference and
significance testing, provided that researchers take advantage of each of the five imputed responses
associated with every item nonresponse.This is achieved by combining results across the five complete
datasets, known as implicates, within the full SCF dataset. Using observations from multiple complete
datasets is known as repeated imputation inference (RII), and this procedure forms the basis for all of the
descriptive statistics reported below. Accordingly, while the full 1995 SCF dataset surveys 4,299
households, including 2,780 families from the area-probability sample and 1,519 from the list sample, the
descriptive information reported below derives from a total of 21,495 potential observations, reflecting the
use of RII to capture results from all five SCF implicates (Board of Governors of the Federal Reserve
System, 1995). The sample sizes for various subgroups reported below are normally less than the 21,495
potential observations, because the study uses information covering only two racial subgroups in the
population and eliminates some item responses considered irrelevant or invalid in the context of
household financial statement information.
The household responses to specific survey questions contained in the SCF dataset are organized
according to primary economic units (PEUs). Each PEU represents an economically dominant single
individual or couple in a given household, and includes information for all other individuals in the
household who are financially dependent on the dominant individual or couple. Thus, the balance sheet
data and shopping preferences reported below profile the entire PEU rather than the behavior of a single
individual, such as the head of household, within the primary economic unit.
Finally, the data presented below follow the reporting convention used in Kennickell, StarrMcCluer, and Sunden (1997), providing descriptive financial statistics and sample proportions without
including item standard errors or identifying statistically significant differences between paired financial
characteristics. This is intended to highlight differences between the portfolio financial holdings of
different racial subgroups, rather than focusing on individual differences in specific financial asset
categories across the two racial subgroups included below. The intent is to highlight composite, portfolio
differences in financial asset holding patterns and shopping preferences across the sample of black and
white PEUs, rather than emphasizing any single individual difference in financial holdings across a
particular asset category.
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higher rate of consultation with finance professionals including accountants, lawyers, financial planners,
and brokers than white families in similar circumstances.
While Legett (1994) reported a higher rate of radio listenership and television viewership within
black households, these families do not turn to television and radio in large numbers for financial advice.
Rather, print media outlets including magazines and newspapers represent a popular source of
financial information for both black and white families and black households in the higher-income
categories utilize this source more often than whites. Surprisingly, neither group sees traditional
commercial bankers as a popular source of financial advice, but white households are somewhat more
likely to seek counsel from banks. This may reflect the greater rate of commercial bank patronage
reported by white households.
Finally, it is surprising that colleagues and business associates information sources register such
low usage rates across both racial groups within the SCF survey. This might reflect the notion that
personal financial matters tend to be private affairs not frequently discussed in the workplace. While both
racial groups show a willingness to seek outside information from financial vendors, friends and family,
and a host of finance professionals when buying financial products, these discussions do not extend into
the workplace for most respondents, regardless of race.
In terms of distribution channels and patronage patterns, the SCF data also show some surprising
trends. Perhaps the most striking finding is the apparent desire to deal in person at a branch of a financial
institution rather than through any other means. As can be seen in Table 2, as many as 90 percent of
high-income (over $100,000) African-American households preferred the "in person" channel, and in no
instance did this percentage drop below 63 percent. This finding would seem to call into question the
movement to discourage such interactions by some larger providers of financial services.
Also noteworthy is the fact that the use of the computer as a financial channel never exceeded 6
percent in either racial category. However, these findings were obtained from 1995 SCF data; if similar
data were available for 1999, undoubtedly the reported percentages would be higher. Perhaps the usage of
automatic teller machines (ATM) would also be higher with more current data, but there is a wide
divergence between those who indicate that they prefer ATMs and those who actually use them. The
higher usage rate may be a reaction to availability; if "in person" services were available the data suggest
that they would alter patronage patterns. Nevertheless, the preferences for ATMs and actual usage of
ATMs is universally higher for blacks than whites in all but one income category. This may indicate that
because blacks prefer to do business in their own communities (Jamison, 1993), the ATM may be the
avenue most available to them.
Looking at other patronage patterns, debit card usage and direct deposit usage are quite similar
across all racial and income categories, although black usage is always marginally higher than whites'.
On other hand, in each income category, whites' usage of direct bill payment always exceeds that of
blacks. Marketers of financial services should seek to determine why this is so, especially if offering such
services results in cost savings to either the user or provider.
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Third, it is apparent that African-Americans are less likely than whites to use self-consultation in
making financial decisions. Thus, informational seminars should be offered by financial planners and
directed to the black community to meet an apparent need, while at the same time building source
credibility. It would appear that banks especially could profit from employing such an approach because
they are not frequently seen as a
reliable source for financial information. This lack of recognition does not bode well as the distinction
fades between bank offerings and those of other financial service providers.
Last, being able to deal personally with a provider of financial services was frequently cited as a key
information and distribution vehicle for African-Americans. Thus, marketers of financial services would
be wise to include a large commitment to personal selling in their marketing. Doing so at the expense of
electronic means would seem to be inconsistent with current market trends, yet the data from this study
would suggest otherwise.
In conclusion, it is clear from the descriptive statistical information presented here and a review of
relevant literature that discusses purchase and consumption behavior across different racial groups that
black people are not dark-skinned white people, as one astute advertising executive noted (Spadoni,
1984). Indeed, there are differences as well as similarities in financial service shopping behaviors and
purchasing channel preferences between black and white households. Marketers of financial services
must recognize and understand these differences to address effectively the needs of the rapidly growing
African-American sector.
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REFERENCES
Berry (1991). "Six Myths About Black Consumers." Adweeks Marketing Week, May 6, 6-19.
"Black American Spending Power Rises Seven Percent, Study Says." (1997). Jet, Volume 95, March 15,
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"Black Consumers." (1993). American Demographics, Volume 15, Winter, 4.
Board of Governors of the Federal Reserve System (1997). "Family Finances in the U.S.: Recent
Evidence from the Survey of Consumer Finances." Federal Reserve Bulletin, January, 1-24.
Board of Governors of the Federal Reserve System (1995). Codebook for 1995 Survey of Consumer
Finances, Washington, D.C.: Federal Reserve System.
Boyce (1998). "Blacks are Bearish on Wall Street Says New Survey." The Wall Street Journal, April 9,
C-21.
Bristor, Lee, & Hunt (1996). "African-American Images in Television Advertising: Progress or
Prejudice?" Journal of Public Policy and Marketing, Volume 14, Spring, 48-62.
Collins (1987). "The Meaning of Motherhood in Black Culture." Scholarly Journal of Black Women,
SAGE Womens Educational Press.
Gutter, Fox, & Montalto (1999). "Modeling Racial Differences in Investor Decision Making Using an
Afrocentric Influenced Model." Unpublished manuscript.
Jamison (1993). "Marketing to the African American Segment." Bank Marketing, Volume 25, Issue 12,
21-23.
Jensen (1993). "Blacks Favor Fox, NBC." Advertising Age, April 12, 28.
Kennickell, Starr-McCluer, & Sunden (1997). "Family Finances in the U.S.: Recent Evidence from the
Survey of Consumer Finances." Federal Reserve Bulletin, Volume 20, January, 1-24.
Lach (1999). "The Color of Money." American Demographics, February, 59-60.
Legette (1994). "How to Reach Lucrative Minority Market." Orlando Business Journal, Volume 10, 18.
Mincer (1999). "Cultural Factors Hamper Blacks in Stock Market." The Charlotte Observer, June 15,
6D.
The 1993 Minority Report (1993). Coral Gables, FL: Market Segment Research, Inc.
Montalto & Sung (1996). "Multiple Imputation in the 1992 Survey of Consumer Finances." Financial
Counseling and Planning, Volume 7, 133-146.
Morris (1993). "The Difference in Black and White." American Demographics, Volume 15, January,
44-49.
"Motorola Gets Signal on Blacks Pager Use." (1996). The Wall Street Journal, June 24, 6B.
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Nobles (1978). "Toward an Empirical and Theoretical Framework for Defining Black Families." Journal
of Marriage and the Family, Volume 40, November, 679-688.
OHare (1987). "Blacks and Whites: One Market or Two?" American Demographics, Volume 9, March,
44-48.
Reynolds (1993). "Courting Black Consumers." Black Enterprise, September, 43.
Robinson, Landry, & Rooks (1998). "Time and the Melting Pot." American Demographics, Volume 19,
June, 18-24.
Scanzoni (1971). "The Black Family in Modern Society." Boston: Allyn and Bacon, Inc.
Schiffman & Kanuk (1997). Consumer Behavior, Upper Saddle River, N. J.: Prentice-Hall, Inc.
Schlossberg (1993). "Many Marketers Still Consider Blacks Dark Skinned Whites." Marketing News,
Volume 1, January 18, 13.
Scott (1998). "Dont Let the Bull Market Pass You By." Black Enterprise, Volume 28, June, 243.
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Spadoni (1984). "Marketing to Blacks-How to Media Segment the Target Audience." Advertising Age,
November 19, 43.
Stevenson (1993). "The Portrayal of Blacks in Business Publication Advertising." Journal of Marketing
Management, Volume 2, 26-33.
Taylor, Lee, & Stern (1995). "Portrayals of African, Hispanic, and Asian-Americans in Magazine
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Ward (1992). "What Roles Do Ads Play in Racial Tension?" Advertising Age, Volume 1, August 10, 35.
Williams & Qualls (1989). "Middle-Class Black Consumers and Intensity of Ethnic Identification."
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Wynter (1996). "Group Finds Right Recipe for Milk Ads in Spanish." The Wall Street Journal, March
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Zhong & Xiao (1995). "Determinants of Family Bond and Stock Holdings." Financial Counseling and
Planning, Volume 6, 10
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INTRODUCTION
The field of marketing has gone through several stages. The first stage was product orientation,
next was sales orientation and then consumer orientation. Present day Web sites are back in the first stage
of marketing, i.e., product orientation. A good example of product orientation is Henry Fords classic
statement "You can have any color you want--as long as it's black." Most Web sites are essentially like
that--a "one size fits all" approach.
A product orientation on Web sites is understandable. A Web designer has little control over
who accesses the site so an undifferentiated site simplifies design. However if a Web-based marketing
program is to help build or maintain a competitive edge, it must shift from a product orientation to a
targeted consumer orientation.
INTERMARKET SEGMENTATION
Intermarket segmentation, which has its origins in the field of international marketing (Jain,
1996), provides a useful model for introducing target marketing to Web sites. International marketers
typically use either a single standardized approach to marketing, or the opposite, which is a customized
marketing approach targeted to a country or region. Intermarket segmentation, on the other hand, groups
potential customers across country boundaries. For example, an intermarket segment for an agricultural
marketer might consist of all rural agricultural areas in the world regardless of country boundaries.
The Web marketer faces a situation similar to that of an international marketer who uses a
standardized approach to marketing. In both cases the marketer is usually aware that there may be target
segments "out there" someplace, but how to define such groups and market to them is not clear.
International marketers who might wish to adopt an intermarket segmentation approach can do so easier
than a Web marketer because they have a degree of control over who receives their message (via media
selection) and control over what message each segment receives. The Web marketer, on the other hand,
has little control over who visits the site. Therefore if the concept of intermarket segmentation is to be
utilized in Web marketing, it must be done after the visitor arrives at the site. In effect, the customer must
be led to a Web page specifically tailored to their psychographic characteristics.
Three possible alternatives for tailoring Web pages to specific psychographic targets include:
1.
VALS
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2.
3.
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The criteria for evaluating these three approaches is conceptual soundness and actionability, e.g., can it be
easily used in Web page design.
VALS
VALS is the acronym for the Values and Lifestyles approach to market segmentation. It was
originally developed by the Stanford Research Institute (SRI). It is now a commercial product offered by
SRI Consulting (Bearden, Ingram, and LaForge, 1998). The currently available product is the second
version of VALS.
VALS is a questionnaire-based approach whereby respondents are asked questions about their
demographics, lifestyle, and personal preferences (Winters, 1992). Demographic factors such as age,
education, sex and income are combined with the sociographic and psychographic variables to form the
following eight segments:
1.
2.
3.
4.
5.
6.
7.
8.
Struggles
Makers
Fulfilled
Achievers
Experiencers
Believers
Strivers
Actualizers
The VALS survey is now conveniently available on the Web at http://future.sri.com and can be
taken by anyone. In addition to the demographic questions, there are multiple choice questions that use a
4-point scale from Mostly disagree to Mostly agree.
SRI also has a Japanese version of VALS (Winters, 1992). The Japanese version is designed to
clarify the distinct differences between Western and Japanese values and behavior. The research of
Tsunoda (1985) suggests that there are indeed differences in thought processes between the Japanese and
non-Japanese.
GLOBAL SCAN
Global Scan was designed to be a proprietary resource available to the clients of the advertising
agency Backer Spielvogel & Bates Worldwide (Winters, 1992). Global Scan began in 1985. Each year
consumers from eighteen countries were interviewed and the results added to a database. Responses were
clustered into the following groups:
1.
2.
3.
4.
5.
Strivers
Achievers
Pressured
Traditionals
Adapters
As expected, the size of each of the five groups varied from country to country.
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GRAVES THEORIES
The late psychologist Clare Graves of Union College developed a theory of the emergence in
human history of successive clusters of individuals, each with its own predominant way of thinking and
behaving. Graves research on the integration of biological, psychological and sociological factors was
presented in his 1970 article in the Journal of Humanistic Psychology (Graves, 1970).
Graves theorized that the psychology of the mature human is an emergent process marked by the
progressive subordination of older ways of thinking and behavior to newer higher-ordered ways of
thinking and behaving. The process is potentially open-ended for the whole of mankind. Although
humanity is evolving upward psychologically the individual settles into one cluster and takes on the needs,
values, aspirations, behaviors and predisposition for that particular cluster. These clusters are:
Type 1: Primitive
Type 2: Tribalistic
Type 3: Egocentric
Type 4: Absolutistic
Type 5: Materialistic
Type 6: Relativistic
Type 7: Systemic
It is difficult to determine precisely the number of individuals of each type. Dr. Graves' research
(Graves, 1970) suggests the proportion of each type in the total United States is as shown below. These
percentages vary from country to country.
ASSESSMENT
VALS and Global Scan are essentially descriptive categorizations that lack a theoretical basis
(Winters, 1992). Although they represent sophisticated lifestyle and/or purchase behavior systems, they
are of limited use for proactive marketing of any type, especially Web-based marketing. Knowing what
category a consumer is in, if it can be determined, provides only superficial clues regarding the
psychological characteristics of the individuals in that group.
For example, knowing that the Global Scan Achievers expect high levels of service gives some
insight into what could be said on a Web site designed for achievers, but gives no directions regarding
how it should be said. Without insight into the psychological characteristics of individuals, it is difficult
to know how to present product features and benefits.
Only Graves theories provide both theoretical and practical guidance for the design of targeted
Web pages. The disadvantage of using Graves theories is that categorization of individuals is difficult.
Dr. Graves used an open ended write a story approach in most of his research. He did not believe that
the typologies could be identified with simple multiple-choice questions. New instruments need to be
developed before Graves theories can be effectively used in Web-based psychographic segmentation.
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SUMMARY
In summary, Web-based marketing currently uses a "one size fits all" approach that is
inconsistent with the concept of market segmentation, a key component of the consumer orientation era.
This is analogous to the situation in international marketing in which a standardized approach is used.
By borrowing the concept of intermarket segmentation from the field of international marketing, Web
marketers can conceptualize how individuals in cyberspace can be "clustered" to form target segments
based on psychographic or lifestyle factors. These segments could then be addressed with targeted
messages. Of the three approaches discussed in this paper, the theories of Clare Graves offer the most
potential for market segmentation on the Web because his theories have a strong conceptual basis.
Additional work needs to be done to determine how to best capitalize on Graves theories.
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REFERENCES
Bearden, W. O., Ingram, T. N., & LaForge, R. W. (1998). Marketing Principles & Perspectives (2nd ed.).
Boston: Irwin McGraw-Hill.
Graves, C. (1970). Levels of Existence. Journal of Humanistic Psychology, Volume 10, Number 2, Fall
1970 131-155.
Jain, S. C. (1996). International Marketing Management (5th ed.). Cincinnati, Ohio: South-Western
Publishing.
Tsunoda, T. (1985). The Japanese Brain: Uniqueness and Universality. Tokyo: Taishukan Publishing
Company.
Winters, L. (1992). International Psychographics. Marketing Research, Volume 4, Number 3,
September 1992, 48-49.
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THE INTERNET
An increasingly important way that both public and private organizations are networking
internally and with other organizations is through the Internet. The Internet is perhaps the most wellknownand the largestimplementation of networkinglinking millions of individual networks all
over the world. The Internet has a range of capabilities that organizations are using to exchange
information internally or to communicate externally with other organizations. This giant network of
networks has become a major catalyst for electronic commerce (e-commerce).
The Internet is based on client/server technology which is a model for computing that splits the
processing between clients, the user point of entry for the required function; and servers, the networks that
satisfy some or all the users requests for data and/or functionality. Users of the Net control what they do
through client applications, using graphical user interface or character-based products that control all
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functions. All the data, including e-mail messages, databases, and Web sites, are stored on servers.
Servers dedicated to the Internet or even to specific Internet functions are the heart of the information on
the Net (Kenneth & Jane, 1998).
Major Internet capabilities include e-mail, Usenet newsgroups, LISTSERVs, chatting, Telnet,
FTP, gophers, Archie, Veronica, WAIS, and the World Wide Web. The World Wide Web is at the heart
of the explosion in the business use of the Net.
Organizations are deriving many benefits from the Internet, some include:
1. Reducing communication costs
2. Enhancing communication and coordination
3. Accelerating the distribution of knowledge
The Internet is rapidly becoming the technology of choice for electronic commerce because it
offers businesses an even easier way to link with other companies or individuals at very low cost. The
Internets global connectivity and ease of use can provide companies with access to businesses and
individuals that would normally be outside their reach. Web sites are available to consumers 24 hours a
day. Marketers can use the interactive features of the World Wide Web (the Web) to hold consumers
attention and can tailor communications precisely to individual customers. The Web shifts more
marketing and selling activities to the customer, as customers fill out their own on-line order forms
(Hoffman, Novak, and Chatterjee, 1995). New marketing and sales channels can be created. Businesses
can find new outlets for their products and services abroad because the Internet facilities cross-border
transactions and information flows (Quelch & Klein, 1996). Handling transactions electronically can
reduce transaction costs and delivery time for some goods, especially those that are purely digital (such as
software, text products, images, or videos).
Companies large and small are using the Internet to make product information, ordering, and
customer support immediately available and to help buyers and sellers make contact. According to CNN
(1999), TravelWeb, is a Web site that offers prospective vacationers pictures and electronic information
on more than 16,000 hotels in 138 countries. Travelers can book reservations with a credit card number if
they are using a secure Internet browser.
Using the Internet and the Web offers businesses new flexibility because they can update their
Web page offerings as often as needed. AMP, Inc., a $5 billion electronic components manufacturer,
publishes 400 catalogues a year at an annual cost of $8 to $10 million. By placing its catalogues on the
Web, the company hopes to reduce and eventually eliminate these costs while offering catalogues that are
always up-to-date. AMP Connect, AMPs Web-based product catalogue, has 30,000 registered users and
33,000 hits per day. AMP is capitalizing on its success by creating AMP eMerce Internet Solutions, a
division that will help manufacturers and other companies develop Internet-based product catalogues and
selling mechanisms (Wilder & Stahl, 1996).
Companies find that through e-mail they can answer customer questions rapidly and usually at
lower cost than by staffing a telephone system. Dell Computer has established a Dell newsgroup on the
Net and other on-line services to receive and handle customers complaints and questions. They answer
about 90 percent of the questions within 24 hours. Dell also does free market research through these
newsgroups rather than paying a professional organization for the same information (Kenneth & Jane,
1998).
The Internet is also performing electronic marketplace functions, directly connecting buyers and
sellers. By skirting intermediaries, such as distributors or retail outlets, purchase transaction costs can be
reduced.
The Internet is automating purchase and sales transactions from business to business as well as
transactions between businesses and individuals. Cisco systems, a leading manufacturer of networking
equipment, sells more than $1 billion per year through its Web site. Order taking, credit checking,
production scheduling, technical support, and routine customer support activities are handled on-line
(Caisse, 1999).
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intelligent and interactive environments that continue to attract more visitors, keep them engaged longer,
and create the opportunity to building lasting, sustainable relationships.
page 260
annual sales of less than $1 million. As expected, the larger the company, the larger the Web site
investment. Of those with annual sales of more than $50 million, 80% of hybrids, 54% of consumer
catalogers, and 44% of business-to-business catalogers spend more than $100,000 on maintaining their
electronic catalogues. The survey median annual cost to maintain a Web site is $19,700.
More catalogers have come to believe that designing a Web site ought to be left in the hands of
experts. Of this years survey respondents, 44% used an agency to design their electronic catalog,
compared to 20% last year.
About one-fifth (21%) of survey respondents view their web sites as a prospecting toolan
economical and convenient method of finding new customers, as well as of obtaining more information
about existing competitors. But 55% of survey respondents do not bother using any sort of user
registration to track existing customers, down 15 percentage points from last years 70%. Of the 455
participants whose sites include user registration, only 16% require visitors to register before shopping,
the remainder says that registration is optional. As expected, 97% of respondents that have registration
collect e-mail addresses from visitors. Only 18% ask users about their products, interests, and
preferences, and just 17% ask for demographic information such as age, gender, and income.
While many Web catalogers collect data from on-line visitors, some still do not know what to do
with the information. But the numbers this year do indicate they are learning. Only 20% of respondents
this year admit they do nothing with this information, compared to a much higher 41% last year. Of those
participants that use the collected data, nearly 38% send e-mail messages about special offers to on-line
visitors, 11% customize the site for individual customers according to past purchases, and only 3% sell the
data to or trade it with other electronic marketers. (Oberndorf, 1999)
Internet retail sales in the U.S. over the 1998 holiday shopping season topped $8.2 billion, nearly
seven times more than the $1.2 billion sold a year earlier, according to a new report by the Marketing
Corporation of America (MCA), a unit of Interpublic Group of Cos. Inc., which studied holiday on-line
shopping.
According to MCA report, books were the most popular on-line purchase, followed by computer
hardware and accessories, music and video products and computer software, MCA said.
The MCA study also found that the average on-line buyer spent $365, with women spending an
average of $495 and men spending an average of $260. Based on reports from retailers and anecdotal
evidence, Internet shopping is exploding and will continue to grow as consumers opt to browse the Web
for holiday gifts and purchases other times of the year (Direct Marketing, 1999).
Internet service provider America On Line (AOL) reports the holiday on-line shopping is up 35%
among its 14 million subscribers. Thats a total of 750,000 people who are buying over the Net (Traffic
World, 1999).
SUMMARY
An increasingly important way that both public and private organizations are networking
internally and with other organizations is through the Internet. The Internet is rapidly becoming the
technology of choice for electronic commerce because it offers businesses an easier way to link with other
companies or individuals at very low cost. Organizations are deriving many benefits from the Internet,
which include: reducing communication costs; enhancing communication and coordination; and
accelerating the distribution of knowledge.
Among the lessons that can be learned from on-line marketing pioneers is Dont forget solid
marketing principles. Other principles for success are: build strategies around a clear goal; learn what
users want, and how they want to get it; track on-line behavior to build relationships; build user profiles to
create marketing tools; mine data to personalize service; and, strategic planning is the key to success.
Even though on-line orders still constitute a small percentage of many marketers overall sales,
catalogers are spending more money in hopes of reaping the fiscal rewards later. More catalogers have
come to believe that designing a Web site ought to be left in the hands of experts.
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Internet retail sales in the U.S. over the 1998 holiday shopping season topped $8.2 billion, nearly
seven times more than the $1.2 billion sold a year earlier. Books were the most popular on-line purchase,
followed by computer hardware and accessories, music and video products and computer software.
Women spend more money shopping on-line than men and many on-line retailers target women.
REFERENCES
Andrews, K.J. (1999). Special Report Internet: Briefing. Zip/Target Marketing, February, 1999, 93-95.
Anonymous (1999). Online U.S. Holiday Sales Surged in 98. Direct Marketing, February, 1999, 6-7.
Anonymous (1999). E-commerce Comes of Age. Traffic World, February, 1999, 17.
Caisse, K. (1999). Cisco to Use Web to Reach Resellers. Computer Reseller News, February, 1999, 32.
Hoffman, Novak, and Chatterjee (1995). Commercial Scenarios for the Web: Opportunities and
Challenges. JCMC, December, 1995, 39.
Kenneth and Jane (1998). Management Information Systems. New Jersey: Prentice Hall.Robinson.
Oberndorf, S. (1999). Reaping Web Rewards. Catalog Age, March, 1999, 43-51.
Wilder, C. (1996). Commerce Gets Webbed. Information Week, September, 1996, 39-44.
Quelch, and Klein (1996). The Internet and International Marketing.
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INTRODUCTION
The globalization of the business classroom can be understood in two different ways. It can
describe the process of internationalizing the curriculum in order to expose students to the worldwide
economic, political, and social changes that have occurred over the past decade and have dramatically
changed the world. Several events and developments, such as the break-up of Eastern Europe, the
emerging markets in Latin America, the progress of European Union and NAFTA, the rise and fall of
Asia's economy, and the globalization of consumer and business markets have provided opportunities and
threats that business students need to comprehend.
On the other hand, the globalization of the business classroom can also address the origin-related
diversity of the student body itself. Besides an ever growing number of international students pursuing an
education in the United States (Lambert, 1995), ethnic groups in the United States, such as Hispanics, are
growing and are increasingly entering business classrooms (Perez, 1997; Ryan & Kanellos, 1995). This
leads to situations where inherently global business classrooms are being further internationalized through
globalized curricula. When such a process is attempted on introductory levels, the situation appears to be
even more complicated.
The present paper describes experiences made in the process of globalizing the introductory-level
business curriculum of predominantly Hispanic students by the means of distance learning. More
specifically, a computer simulation was utilized in order to reengineer traditional approaches to teaching
introductory-level courses, and to enhance active and interactive learning by placing the course in the
context of a global environment. Active knowledge gathering and knowledge application were
emphasized. Universities from several countries were participating.
Before summarizing the experiences, the terms "Hispanic" and "Simulation" may need some
theoretical consideration. First of all, drawing upon definitions from previous literature (e.g., Aleman,
1994; Gimenez, 1996; Padilla, 1997; Tan, 1994), the term Hispanics refers to people of Latin American
descent who were born, live, work, or study in the United States or elsewhere. The term Hispanic appears
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to be most appropriate to describe the ethnic group under consideration and, for practical purposes only,
this term will be exclusively used. The author recognizes, however, that the term Hispanic may potentially
be biased, stereotyping, and over-generalized, as contended by Gimenez (1996) and other authors. Second,
a computerized business simulation can be described as a dynamic environment that integrates a
computer-coded simulator, students competing through interaction and decision-making, and an
instructor who directs, supports, and observes the behavior of the participants (Carvalho, 1991). A vast
number of authors has described why simulations became so attractive from the pedagogical point of view
(e.g., Curry & Moutinho, 1992; Engeholm & Bigel, 1996; Kang 1995; Keys et al., 1994; Lyles et al.,
1992; Montgomery et al., 1997; Towne, 1995; Walters et al., 1997; Weiner & Boyer, 1993; Windschitl,
1998). However, despite of the extensive research on simulations, two potentially problematic issues
emerge. First of all, none of the previous articles and studies has addressed the issue of whether the
advantages and limitations of computer simulations differ when Hispanic students are participating.
Second of all, how does the introductory level affect the utilization of the simulation in general, and the
performance of the Hispanic students in particular. As will be outlined, these two issues may require
several adjustments.
INSTRUCTOR'S ROLE
Although students participating in simulations need to spend a significant amount of their time
by themselves, the instructor should always be present in the classroom or computer lab. It is very
tempting to just let students do their simulation work without any interference. This situation may actually
work out for many students, but for Hispanic students it is the wrong approach. The experience of the
author has shown that Hispanic students hesitate to take initiative and make decisions until they were able
to discuss their solutions with the instructor. Although simulations introduce uncertainty about the
correctness of decisions, Hispanic students need instructor presence and instructor approval to perform
well.
Similarly, feedback and rewards should be given regularly and often. Hispanic students need
more personal feedback than other students, and also need rewards even if their performance in the
simulation is not meeting the instructor's expectations. Since rewards provided by the simulation are
expressed in non-personal information such as increased market shares or better financial ratios, the
rewards by the instructor should be of personal nature. Simple individual attention may often be sufficient.
METHOD'S ROLE
The participation in simulations is primarily a thing- or idea-centered activity. This aspect does
not compare well with the Hispanic culture of relationship focus. However, several adjustments can be
made to de-emphasize the technology. Most importantly, the instructor should focus on individual
characters involved, such as the "Chief Executive Officer", "Financial Manager", or "Marketing
Manager." By assigning those roles, Hispanic students see more personal characteristics introduced into
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the simulation. Additionally, comprehensive and semester-long simulations should be divided into
smaller, if possible, daily tasks. By doing so, the Hispanic student's preference for short-term over longterm assignments does not inhibit his or her overall performance.
Another important solution to increase Hispanic student's performance in global simulations may
be reached by de-emphasizing the competitive character of the simulation. Hispanic students tend to avoid
peer competition. Since competition is part of simulation games, the instructor should focus on
cooperation between company teams, rather than using the competitive character to motivate the student's
participation.
INSTRUCTOR'S ROLE
An enthusiastic instructor is the most important variable in determining the success of business
simulations in introductory courses. Freshmen and sophomores, more than upper-level students, will only
be enthusiastic about the simulation if their instructor is enthusiastic, too. The uncertainty and, at times,
frustration during the initial stages of a simulation can be overcome if the instructors stay motivated and
repeatedly emphasize how excited they are about having the students participating in a simulation. This is
of additional importance for Hispanic students.
However, despite all enthusiasm, an over-involvement is not recommended. As outlined before,
simulations should lead to learning-by-doing situations. Particularly Hispanic introductory students often
expect the instructor to make the decisions. Nevertheless, besides all consideration of the Hispanic factors,
it is of utmost importance that introductory students make their decisions themselves, and experience
possible negative outcomes. In the past, teams that went out of business came back with the best results.
METHOD'S ROLE
In the beginning, introductory level students will be overwhelmed with the information and
knowledge that seems to be required by the simulation. A sense of frustration will spread rapidly,
inhibiting all globalization efforts. At this point it is important to let the students know that this is a
normal, expected situation. In most simulations, the first few decisions consist of trial-and-error
approaches. Once introductory students understand and accept this, they feel more comfortable and take
failure less personal.
In this respect, another important aspect is that most textbooks for introductory business courses
are identical in that the areas of accounting and finance are covered somewhere in the back of the book.
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For a successful participation in a simulation, however, knowledge about financial statements is needed
before most of the other chapters. Instructors should, therefore, switch as soon as possible to accounting
and finance, before covering other areas.
CONCLUSION
Computer simulations are increasingly used in the process of globalizing the business classroom
(Connor et al., 1997; Keys et al., 1994, Schlais et al., 1998). However, culturally influenced learning and
communication patterns may inhibit the success of Hispanic students, when global simulation approaches
are not adjusted to specific Hispanic cultural traits. It is a challenge for globalizing educators to
implement necessary changes. This paper has suggested some initial adjustments based on experiences
made by the author. It is important that all students feel comfortable when participating in a classroom
globalization process, not just those students whose cultural characteristics appear to match with the
process requirements. The accommodation of an origin-related diversity of students in the
internationalization process would represent the ultimate globalization approach.
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REFERENCES
Aleman, N. L. (1996). The Quality of Education and the Level of Academic Satisfaction Among
Mexica/Chicano and Latino Students at The University of Minnesota Twin Cities. Ann Arbor, MI:
UMI Dissertation Services.
Carvalho, G. F. (1991). "Evaluating Computerized Business Simulators for Objective Learning Validity."
Simulation & Gaming, 22, 174-195.
Curry, B., & Moutinho, L. (1992). "Using Computer Simulations in Management Education."
Management Education and Development, 23(2), 155-167.
Dunn, W. (1993). "Education Diversity." American Demographics, 15(4), 38-43.
Engeholm, G. M., & Bigel, K. S. (1996). "The Evaluation of a Management Simulation as a Method of
Learning." Business Education Forum, 50(4), 21-24.
Gimenez, M. E. (1996). "Latino/Hispanic Who Needs a Name?: The Case Against a Standardized
Terminology." In: Darder, A., Torres, R. D., & Gutierrez, H. (eds.) Latinos And Education. New
York: Routledge, 225-238.
Gonzalez, M. L. (1998). "Successfully Educating Latinos." In: Gonzalez, M. L., Huerta-Macias, A., &
Villamil-Tinajero, J. (eds.). Educating Latino Students. Lancaster, PA: Technomic Publishing, 3-28.
Grossman, H. (1995). Educating Hispanic Students Implications for Instruction, Classroom
Management, Counseling and Assessment. Springfield, IL: Charles C. Thomas.
Kang, S. (1995). "Computer Simulations as a Framework for Critical Thinking Instruction." Journal of
Educational Technology Systems, 23(3), 233-239.
Keys, J. B., Wells, R. A., & Edge, A. G. (1994). "The Multinational Management Game: A Simuworld."
Journal of Management Development, 13(8), 26-37.
Lambert, R. D. (1995). "Foreign Student Flows and the Internationalization of Higher Education." In:
Hanson, K. H., & Meyerson, J. W. (eds.) International Challenges to American Colleges and
Universities. Phoenix, AZ: The Oryx Press, 18-41.
Lyles, M. A., Near, J. P., & Enz, C. A. (1992). "A Simulation for Teaching Skills Relating to
Organizational Self-Renewal." Organizational Self-Renewal, 11(7), 39-47.
Montgomery, K. K., Brown, S. C., & Deery, C. (1997). "Simulations: Using Experimental Learning to
Add Relevancy and Meaning to Introductory Courses." Innovative Higher Education, 21(Spring),
217-229.
Padilla, F. M. (1997). The Struggle of Latino/a University Students: In Search of a Liberating Education.
New York: Routledge.
Perez, J. (1997). "Where are Students Now." Hispanic Business, 19(12), 14.
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Ryan, B., & Kanellos, N. (eds.) (1995). Hispanic American Almanac. New York: UXL.
Scarpaci, J. L., & Fradd, S. H. (1985). "Latin-Americans at the University Level: Implications for
Instruction." Journal of Multicultural Counseling and Development, 13(10), 183-189.
Schlais, D., Davis, R., & LeMaster, J. (1998). "Distance Learning Through the Global View Network."
Working paper presented at the Academy of International Business, Vienna, Austria, October 8,
1998.
Schuhmann, A. M. (1992). "Learning to Teach Hispanic Students." In: Dilworth, M. E. (ed.). Diversity in
Teacher Education. San Francisco, CA: Jossey-Bass Publishers, 93-111.
Tan, G. G. (1996). Dropping Out Among Mexican-American Students: A Multicultural Perspective. Ann
Arbor, MI: UMI Dissertation Services.
Towne, D. M. (1995). "Learning and Instruction in Simulation Environments." Instructional Science,
23(11), 455-459.
Walters, B. A., Coalter, T. M., & Rasheed, A. M. A. (1997). "Simulation Games in Business Policy
Courses: Is There a Value for Students?" Journal of Education for Business, 72(1), 170-174.
Weiner, J., & Boyer, G. (1993). "Simulation, Video, and High-Tech Applications." In: Vance, C. M. (ed.).
Mastering Management Education. Newbury Park, CA: Sage Publications, 79-86.
Windschitl, M. (1998). "A Practical Guide for Incorporating Computer-Based Simulations Into Science
Instruction." The American Biology Teacher, 60(2), 92-97.
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INTRODUCTION
The use of simulations to study and evaluate changes in different elements/variables that affect
potential outcomes is not new by any means. Industry and business have harvested the benefits of
simulations by being able to analyze and evaluate complex situations in a very cost effective way. From
engineering applications to business solutions, simulations have demonstrated their ability, agility,
flexibility, and adaptability by providing greater insights into complex dynamic environments.
Simulations are able to replicate, by means of sophisticated mathematical models, business or otherwise
environmental conditions with a high level of realism. General Electric for instance, has successfully
used simulations in management training to teach their managers the trade-off of short-term versus longterm planning (Thorne, 1992). Several years of experience in pricing strategy can be achieved in a
relatively short time by experimenting with a computer simulation. Participants from an information
service firm were able to evaluate in a simulated environment the impact of their pricing decisions on
company results (Matanovich and Cressman, 1996). At Price Waterhouse, consultants learn what it takes
to manage a knowledge-intensive company through the use of a business simulation. The simulated
environment, identified as Tango, requires the consultants to work on projects for fictitious customers
and to compete with others for potential growth (Stewart, 1997). Corporate managers and field sales
managers team up and make use of a simulation to develop a new sales compensation plan. After
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conducting a number of simulations to see how their plans impacted sales personnel, the group selected a
plan that emphasized both growth and profitability (Blessington, 1992).
In the service industry
simulations have assisted managers in decision-making and helped them achieve business objectives.
They have been used as a planning tool to assure good use of resources and the quality of service (Smith,
1994).
In a similar way and with no less impact the use of simulations in the educational field has
provided educators with the wonderful opportunity of challenging the new generation of decision-makers
with replications of the business environments and its complexities. In addition to the direct benefits of
manipulating variables and experiencing outcomes, simulations have been instrumental in exposing
students to an even more crucial issueteam workallowing students to acquire team management skills
so important in todays total quality orientation. There are simulations specifically designed to address
this important issue. For example, a simulation called Self-managed Work Teams provides the
participants a deliberately charged environment where they have a chance to increase their self-awareness
and monitor their own behavior (Solomon, 1993). In industrial engineering, which also includes aspects
of management, simulations are being used to place students in an environment that emulates the
industrial setting. Here students make a series of decisions on purchasing, production, marketing and
other aspects (Bringelson, Lyth, Reck, and Landeros 1995). Marketing simulations like the Sales
Management Simulation (SMS) that offer orientation and training for employees, screening for managers
or would-be managers, and management training, are essential in the development of the skills students
will need to succeed as professionals (Faria and Dickinson, 1994). It is a fact that management education
needs to change because of the evolving nature of business. There are useful market-based simulations
that require decisions on target segments, positioning, and the allocation of resources that could become a
sort of strategic thinking laboratory and where team dynamics can be observed (Matanovich 1993).
Many times, however, due to time restrictions, limited resources, heavy teaching and/or
administrative commitments, faculty membersespecially those in smaller institutionsavoid getting
involved. The reason is simple enough, simulations require time, resources, and dedication. The lack of
detail information available (from the author(s) and/or publishers) in some respects, and the excessive
amounts of information in others, complicate the situation. The following is intended to throw some light
into the mystery behind simulated environments.
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results and provide feedback to both the students and the faculty coordinator/administrator (usually under
a contractual agreement with the provider). Secondly, and most importantly, time requirements or
constraints. Time requirements have to be evaluated from three different perspectives: Input, processing,
and output conditions. In reference to the input, what level of sophistication does the program offer? Is it
manual input? Is it automatic from a students diskette? Is it on-line? How much time does the
coordinator/administrator (faculty) has to spend during this stage? When looking at the processing part,
how many stages does the processing take? Does the system process one case at a time and then combine
them to get the results? Is the process transparent to the coordinator/administratorone keystroke? Does
it require more that one step to assure proper backup of the system and/or students disks? As part of the
output, consideration should be given to the requirements for printing the students results and summary
for the coordinator/administrator, as well as the printing time. Does the system offer an alternative to
printinglike printing to a file (students diskette or control file in the main frame).
Another very important aspect is support. Support refers to the resources provided by the
author(s) and the publisher to facilitate the process of running, maintaining, and controlling the
necessary operational elements of the simulation. Careful attention should be paid at the materials and
other services available. These include, among others, the software, instructor manual, student manuals
or book, and on-line support systems. In addition, if problems occur the coordinator/administrator should
be clear on who will provide support (technical or otherwise). Is it the author(s)? Is the publisher
assuming that responsibility? Is there a direct access to the previously mentioned sources? What kind of
access? 1-800 number... e-mail... other? All of these questions become very important should something
unexpected occur when one is in the middle of running a simulation and need answers immediately.
The next crucial step is testing the simulation. The simulation should be run on a trial bases
using ones own data and parameters. The coordinator/administrator must evaluate different scenarios that
can occurfor example, a students group did not input the decisions, or students disk got infected,
broken, or lost. Does one have flexibility in those instances or in any other circumstances? What does the
system offer in terms of flexibility, processing, and accuracy? What if it is a coordinators/administrators
mistakefor example, he/she inputs a number in error. Can the error be repaired? The acid test of any
simulation is based on the total outcome. The total outcome should include answers to the following
questions: Does the simulation serve the coordinator/administrators needs? Does it run as expected?
What kinds of problems were encountered and were they relatively simple to solve? The test should serve
as a confirmation of what the author(s) and publisher(s) are offering. If the simulation does not pass the
test then it does not meet the coordinators/administrators objectives. It all comes down to the final test
because in paper something can be easily overlooked.
Finally, after careful evaluation of all the precedent phases and the consideration of the
limitations or issues that are acceptable and those that are not, a coordinator/administrator has to make a
decision for adoption or rejection. If he/she is not completely sure about the decision, it is a good idea to
take some extra time and reconsider some of the aspects that are unclear. If in doubt, the
coordinator/administrator should ask the author(s) and/or the publisher all the necessary questionsin
most instances they will be happy to clarify any concerns.
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The implementation phase consists of two main areas. First, the evaluation of time factors, and
then the control factors.
In the planning phase, at the beginning of the simulation, the coordinator administrator needs to
create or define the simulations framework. This requires the definition of how many industries one
needs to create. In cases where there is more than one class (same level), where the same simulation will
be used, different parameters need to be created to assure a unique version per class. The
coordinator/administrator must also consider the number of periods the simulation will run, how many
products to use (if more than one is offered and there is flexibility to select), how many segments to use (if
alternative segments are offered and there is flexibility to decide). In addition, questions such as: how
many teams per class (some simulations have limits as to how many companies are allowed in an
industry)? and how many students per team (this will vary greatly with the level of complexity of the
simulationusually from two to five members)?
In this initial phase the coordinator/administrator has to consider the materials needed to prepare
ahead of time. This part will also vary greatly with the level and complexity of the simulation and the
intended objectives. For instance, planing an introduction to the simulation for a lower level class
(Principles of Marketing 300-level class) can be as easy as preparing enough information for two
sessions. This should cover all the essentials. It may take four or five sessions to be able to relate the
details of a more complex simulation and expectations to an upper level class (Marketing Management
400-level class). When dealing with more complex simulations, handouts that include procedures,
guidelines, expectations may need to be provided. The coordinator/administrator should also consider if
any other forms require preparation (i.e., decision forms), or if those forms are provided and ready to use.
If students disks for each team need to be prepared and if certain files need to be cleared every time a new
simulation starts (most of the time decision files and some cumulative files have to be cleared). In
addition, the coordinator/administrator needs to be clear about the procedures required to initialize the
simulation every time a new one is started.
During the simulation coordinator/administrator needs to consider what forms are available to
provide feedback to the students. In most instances the forms are provided by the system and vary in
complexity and quantity depending on the simulation. Some simulations offer a short format that
summarizes income statement details, combined with other selective information (i.e., inventory control,
marketing research). Others offer multiple forms that include more detailed analysis of sales by
salesperson and sales regions, production costs and transportation charges, as well as more detailed
research analysis (i.e., analysis of demand by regions). Depending on what is available the
coordinator/administrator could require the students to prepare different kinds of analysis that will
enhance their learning experience. The more complex the level of the simulation, the more detailed
analysis is usually required.
The closing phase of the simulation involves making decisions about the units of measure the
coordinator/administrator wants to select to determine the final position of the participating
groups/companies. Some relevant issues are: Does the system provide some standard units of measure
(i.e., profits, market share) or is there a need to create other measures by combining some of the ones
available (i.e., an index measure)? Whatever the decision, the coordinator/administrator needs to make
sure to use more than one standard measure to include different elements when evaluating final results
and distributing the points assigned to the simulation. In addition, it is highly recommended that the
coordinator/administrator prepare a summary evaluation of the results of the simulation so students can
understand the way the final results and subsequent distribution of points occurred.
The implementation phase will revolve around precise definitions of the time factors and control
mechanisms/forms. In reference to the time factors the coordinator/administrator has to determine the
following time constraints: (a) A time frame for the simulationhow many iterations/periods will it run
(i.e., four quarters, eight quarters). This will depend on the number of days/weeks of available scheduled
classes. On a semester system you will be able to run up to three full years of operations (12 quarters),
while on a quarter system the time frame is much more restrictive. (b) A time scheduled for decisions
when will students turn in their decisions (specific day of the week). (c) A time scheduled for
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processingwhen to run the simulation. (d) A time scheduled for feedback (results)when will students
get the results (specific day of the week). And finally, (e) a time scheduled for additional assignments (if
additional work or analysis prepared in a team environment is expected). All of these time factors have to
be well synchronized to avoid bottleneck situations or other delays in the process. One must make sure
there is flexibility of actionespecially when it comes to processing time. Here is where the unexpected
usually occurs (i.e., a glitch in the system, a bad diskette). With respect to the control mechanisms/forms
the coordinator/administrator has to be very clear about the reports that are available, not only for his/her
use but also for the students and the industry in general. The information available will depend on the
type of simulation program being usedcertain simulations offer more detailed control reports than
others. Some of the typical reports available for the coordinator/administrator include: decision summary,
results summary, cumulative statistics, or other measurement factors (i.e., profits, sales lost to date), and
research information available (i.e., demand factors, industry sales). The students usually receive a
balance sheet, an income statement, selective information on inventory control, and in some specialized
simulations (i.e., Sales Management Simulation) more detail reports on sales by salesperson and districts
or regional areas. In addition, the students could receive a variety of research reports that could be as
simple as the demand factor for next period or as complex as a full analysis of the demand factor
breakdown by regions, products, etc. This last option is subject to the amount of money students are
willing to spend on research information.
Finally, industry reports usually will include, company
rankings, market share (i.e., overall, by product, by territory), and sometimes control indexes. A clear
perspective in all of these areas of control is essential for the success of managing a simulated
environment.
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CONCLUSION
Computer simulations have extended their benefits to a vast array of sciences (i.e., physical,
behavioral, social) proving their usefulness in the practical and applied environments of industry and
business and also in the pedagogically oriented environment of education. In both instances, simulations
have proven effective by providing opportunities to manipulate, evaluate, and study the impact of changes,
or variations of an almost unlimited spectrum of elements/variables. There is no doubt that the
involvement in simulations not only requires detailed evaluation of what is being offered (by different
authors and publishers), but also detailed planning and timely implementation to ensure the achievement
of the intended objectives.
I hope the preceding details offer a sort of road-map that complements the materials provided by
the authors and publishers of simulation books, and helps to clarify the intricate details of what is involved
behind the scenes of the mysterious world of simulations. Also, by taking the mystery out, I hope to
motivate some colleagues, business people, or interested parties, to engage and embrace the almost
unlimited possibilities offered by simulated environments in the business and educational arenas.
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REFERENCES
Thorne (1992). New Stimulus for Those Simulations. Management Today, Dec. 1992, 66-67.
Metanovich & Cressman (1996). Pricing Information Services. Marketing Management, Volume Five,
Number Two, Summer 1996, 46.
Stewart (1997). The Dance Steps Get Trickier All the Time. Fortune, Volume One Hundred Thirty
Five, Number Ten, May 26, 1997, 157-160.
Blessington (1992). Revising the Pay Plan: How One Company Did It. Sales & Marketing Management,
Volume One-Hundred and Forty-Four, Number Four, April 1992, 122, 124.
Smith (1994). Computer Simulation Applications in Service Operations: A Case Study for the Leisure
Industry. Service Industries Journal, Volume Fourteen, Number Three, July 1994, 395-408.
Solomon (1993). Simulation Training Builds Teams Through Experience. Personnel Journal, Volume
Seventy-Two, Number Six, June 1993, 10-14.
Bringelson, Lyth, Reck, & Landeros (1995). Training Industrial Engineers with an Interfunctional
Computer Simulation Game. Computers & Industrial Engineering, Volume Twenty-Nine,
Number One-Four, September 1995, 89-92.
Faria & Dickinson (1994). Simulation Gaming for Sales Management Training. Journal of
Management Development, Volume Thirteen, Number One, 1994, 47-59.
Matanovich (1993). Getting Dino-Sized Results from Marketing Education. Marketing News, Volume
Twenty-Seven, Number Twenty-Three, November 8, 1993, 4-5.
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INTRODUCTION
Tracing the evolution of Marketing in the US in an article is a daunting task from several
perspectives. One must ask and answer the questions of what to put in and what to leave out. If we
restrict ourselves solely to the word marketing we begin with the turn of the 20th century. But, we
know that marketing had its embryonic history and evolution in the field of economics, which was
initially heavily influenced by philosophy. It might be said that in the natural course of the economic
development society progresses through predatory, hunting, pastoral, agricultural, craft, manufacturing,
and marketing stages (Smith in Bartels, 1988). Adam Smith conceived of man as the economic man
bent upon constant effort to better his condition. An opposite view was held by Ricardo, who foresaw the
uncertainties of an expanding economy. David Ricardo was less idealistic and more pessimistic than
Smith, as he viewed the growing disparity of interests in the rising factory system (Smith in Bartels,
1988). Certainly buying and selling activity of people, whether with money or barter has gone on at least
from the beginnings of recorded history. During the period of pre-recorded history until the development
of agriculture, all property was held in common for the social good. everything belonged to one, and
everything to all. And there was nothing of which everybody could not use and take advantage (Mercado
in Sheth and Fullerton, 1994).
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FOUR UTILITIES
Eventually economists began to delineate the various kinds of utilities (capacity to satisfy
customer wants) going beyond the early idea that only agriculture provided value. Form utility is created
in the production process of transforming raw materials such as steel into a table or chair. However
earlier economists only considered the extractive industries such as mining, agricultural milling, and
manufacturing as producing form utility. Time utility is created in making goods and services available to
customers when they desire them, such as after working hours or on Saturday. Place utility provides the
goods and services in locations where customers can easily access them such as in their local
neighborhoods. Possession utility allows for the transfer of ownership to whom it is desired such as in the
purchase of a car or house. Three of these four utilities, time, place, and possession became the basis for a
new field called distribution, and this field later emerged into marketing.
DISTRIBUTION
When distribution was separately identified as a field in the late 1800s, it was the task of the
distributor to deliver goods to customers when they wanted them, where they wanted them, and to provide
for the legal transfer of ownership. The three utilities soon incorporated all four as it was quickly realized
that without the product none of the other three utilities could be provided. The four utilities provided the
foundation for the human productive activities of distribution. It was argued that labor employed in
carrying commodities from where they are produced to where they are to be consumed, and in dividing
them into minute portions, so as to suit the wants of consumers, are really as productive as if they were
employed in agriculture or manufacture (McCullock, 1844). These ideas were expanded to include order
processing, bulk breaking, branding, packaging, transporting, warehousing, inventorying, promoting,
guaranteeing, and eventually providing credit.
MARKETING
Marketing has always existed in history, but the use of the term applied to a unique field and its
use as a noun instead of a verb occurred between 1906 and 1911 (Bartels, 1988). Ralph Starr Butler, then
a professor at the University of Wisconsin tells how he conceived marketing. In brief, the subject
matter that I intended to treat was to include a study of everything that the promoter of a product has to do
prior to his actual use of salesmen and of advertising. A name was needed for this field of business
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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activity. I remember the difficulties I had in finding a suitable name, but I finally decided on the phrase
Marketing Methods (Bartels, 1988). Originally, the market was the central place in the town where
people went to purchase goods for their families. Bartels (1988) argued that marketing is not simply a
business practice, but a social institution which meets and satisfies certain needs of people. Sociologists
would agree that marketing certainly is a social institution which incorporates many sociological concepts
of the group including the concepts of social class, status, and reciprocity or gift-giving. Holidays provide
a major source of revenue for businesses of all type whether the holiday is a day such as Christmas with
extensive exchange of gifts or a vacation period where travel agencies, hotels, restaurants, and tour
organizers benefit. But there was probably no product class that was affected more by marketing or
affected marketing more than the automobile.
to $360 in 1913. In the second decade of the century well over half the cars sold in the
world were Model Ts. By 1923 Ford was producing 2.1 million perfectly identical cars
and still had 50 percent of the world market. Every time I reduce the price of the car by
one dollar, I get one thousand new buyers, Henry Ford exulted.
Marketing became well developed during this period in American history. General Motors used
marketing research to find that customers wanted different color cars and provided them any color car
they wanted instead of the basic black provided by Ford. It turns out that rather than its supposed
organizational shortcomings, it was Fords stubborn refusal to match General Motors development of a
diversified product line that accounted for Fords declining fortunes during those [early] decades (OBrien
in Hausman, 1989). GM overtook Ford during the 1920s and 1930s not because its production and
inventory systems were superior, but because its products were better than Fords. In the interwar
automobile industry, as one suspects in the automobile industry of the 1980s, companies made and lost
money more on the basis of the products they were producing than on the way these products were being
produced OBrien in Hausman, 1989). GM was better than Ford at developing the marketing concept:
produce what the customer wants, when the customer wants it, where the customer wants it, at a price the
customer can afford., and realize a handsome profit in the process.
ACADEMIC MARKETING
The American Marketing Association and the Journal of Marketing dominated the first halfcentury of efforts to organize the discipline of marketing and disseminate the results of scholarly activity.
The Journal of Marketing was first published in July, 1936. It was a consolidation of the American
Marketing Journal and the National Marketing Review. The American Marketing Association grew out
of the merger between the American Marketing Society and the National Association of Marketing
Teachers in January, 1937 (Lewis and Owen, 1993).
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The table below represents the subject matter included in the Journal of Marketing from its
inception to 1967.
SHIFTS IN FOCUS
Early marketers focused on the product, then on production methods, and then on selling
techniques. Each of these was labeled an era and was included in all early marketing texts. Later
marketers were interested in the marketing concept and the societal marketing concept. Keehn (1985)
examines how a century of external changes prompted marketing responses by the manufacturers of
Jockey underwear. Holden and Holden (1995) document how U.S. sheet music publishers responded to an
overnight change in the 1917 environment with a flood of new products. A case study of the 1939 New
York Worlds Fair by Holden (1994) shows that nonprofits also could be quite adept at marketing in the
interwar period (Holden, 1998). The core concepts of needs, wants, demands, products, exchanges,
transactions, and markets penetrate all aspects of the field of marketing. Marketing acumen grew.
Adding to the previously delineated functions of marketing were concepts such as Market Strategic
Planning, Designing, Marketing Research, Segmentation, Targeting, Positioning, Pricing, Social
Marketing, and Relationship Marketing. Marketing has been adopted in the business sector both
nationally and internationally and in the non-profit sector. But, the biggest changes of all in the field
occurred after the war.
CONSUMER BEHAVIOR
During the late 1960s the influences of the behavioral sciences--social psychology, psychology,
and sociology culminated in the development of the further specialization of marketing with the
emergence of consumer behavior studies. The scholars who helped initiate this stream of research felt
that the traditional economic concepts of economic/rational man were simply irrelevant. They helped
incorporate sociological and psychological theories of human behavior to help explain consumers actions
and the reasons behind them (Ottum, 1993). The Journal of Marketing Research emerged to provide an
outlet for research in consumer behavior. Harold H. Kassarjian of UCLA is considered one of the
founding fathers of this school of thought. James Engel, David Kollat and Roger Blackwell worked
together to produce the first book called Consumer Behavior in 1968. The field grew, but American
consumers faced new challenges when oil prices skyrocketed in the early 70s.
INTERNATIONAL MARKETING
The oil shock of the early 70s caused Americans to realize they no longer lived in an isolated
world with an ocean on the east and west, an empty country on the north and a poor country on the south.
There was no gasoline to be had because the middle eastern countries had decided to retaliate against the
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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US for its involvement in the Arab-Israeli conflict. Suddenly the world outside the US took preeminence
in the minds of Americans. While International Marketing can be traced back for centuries, its
emergence in the minds of the masses can be traced to this period of time. America was no longer self
sufficient. The US had to begin to build allies across the globe. Richard Nixons trip to China in the
early 70s and the opening of that country to US interests was part of the process of internationalizing the
US. The consolidation of the European countries into the European Union resulted in the US creating the
North American Free Trade Agreement (NAFTA). This allowed for relatively free trade between Canada,
Mexico, and the US. Various additional free trade agreements are on the horizon for both world blocs
the US and the EU. The consolidation of currency for most of the European countries beginning in 1999
is putting tremendous pressure on the US dollar, which may lose it preeminence. Concepts from the elder
statesmen, Adam Smith and David Ricardo reemerge into discussion on competitive and comparative
advantage of nations in terms of which nations should produce which products. The success and
acceptance of the field [International Marketing] as a science will likely depend upon the ability of its
tools and techniques to explain, predict and control the volatile and complex environment which hosts the
international business phenomena (Eroglu and Eroglu, 1993).
page 281
anyone interested in buying. Since there are no laws that outright ban the sale of personal information on
the Internet, a significant number of World Wide Web sites sell Social Security numbers to anyone with a
few dollars, a computer, and a telephone (Mierzwinski, 1998). Internet providers can track who visited
their sites and pass this information on to marketers interested in reaching these consumers, who tend to
be in their target market in terms of income, education, and occupation. The market place is no longer
the local village retail store. The future of marketing is extraordinarily fluid.
SUMMARY
This article traces the evolution of marketing in the US through its mother scienceEconomics.
Concepts of economics permeate the field today such as the four utilities, economic and rational man,
needs, wants and demands, exchange and transactions. Some academics call marketing micro
economics. Whatever its name it affects all aspects of life for the modern human being. Advertising and
promotion make us aware of new goods and services and innovations such as the personal computer and
the Internet make our lives easier and in some cases much more productive. The Internet now allows us
to search the globe for goods not available at home. Marketing is both transformed and transforming as
time marches forward.
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page 282
REFERENCES
Arnst, Catherine, Telecommunications, Business Week, January 13, 1997, p. 108.
Bartels, Robert, The History of Marketing Thought, 3rd Ed., Columbus: Ohio, Publishing Horizons, Inc.,
1988, p. 7 and p. 13, p. 3, p. 24.
Eroglu, Dogan and Sevgin , International Marketing: The History and Impact of a Field,
Contemporary Marketing History: Proceedings of the Sixth Conference on Historical
Research in Marketing and Marketing Thought, Atlanta, GA sponsored by Michigan State
University, 1993.
Farrell, Christopher, Mandel, Michael J., & Weber , Joseph, Riding High: Corporate America now has
an edge over its global rivals, Business Week, October 9, 1995, pp. 134-5.
Holden, Alfred C. and Laurie, Marketing History: Illuminating Marketings Clandestine
Subdiscipline, Psychology and Marketing, Volume 15/No. 2, March, 1998, p. 119.
Lewis, Phillip A. & Owen, Robert S. Early History of the American Marketing Association and the
Journal of Marketing,, Atlanta, GA sponsored by Michigan State Contemporary Marketing
History: Proceedings of the Sixth Conference on Historical Research in Marketing and
Marketing Thought University, 1993.
McCullock, J. R., The Principles of Political Economy, Edinburgh: Adam and Charles Black, 1844, in
Eric H. Shaw, The Utility of the Four Utilities Concept in Research in Marketing: Exploration
in the History of Marketing, Jagdish N. Sheth and Ronald A. Fullerton, London, England: JAI
Press, Inc., 1994, p. 49-50.
Mercado, T. (1571), Suma de Tratos Y Contratos, Seville, Spain: Hernando Diaz, p. 18 in Scholastic
Marketing Thought in Spain, The School of Salamanca, Sigfredo A. Hernandez in Research in
Marketing: Exploration in the History of Marketing, Jagdish N. Sheth and Ronald A.
Fullerton, London, England: JAI Press, Inc., 1994, p. 38.
Mierzwinski, Catherine, Data Dealers Seizing Control of Our Lives, At Home With Consumers, Vol.
19, No. 1, May, 1998, Direct Selling Education Foundation, Washington, D.C.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 283
OBrien, Anthony Patrick, How to Succeed in business: Lessons from the Struggle Between Ford and
General Motors during the 1920s and 1930s in Business and Economic History, William J.
Hausman, ed., Papers presented at the thirty-fifth annual meeting of the Business History
Conference, 1989, Boston, MA., p. 79, p. 87.
Ottum, Brian D. Differences Between Two Streams of Early Marketing Philosophy and Their
Relationship to Contemporary Theory, Contemporary Marketing History: Proceedings of the
Sixth Conference on Historical Research in Marketing and Marketing Thought, Atlanta, GA
sponsored by Michigan State University, 1993.
Shaw, Eric H., The Utility of the Four Utilities Concept in Research in Marketing: Exploration in the
History of Marketing, Jagdish N. Sheth and Ronald A. Fullerton, London, England: JAI Press,
Inc., 1994, p. 49.
Smith, Adam, The Wealth of Nations, New York: The Modern Library, 1776, p. 639 in Eric H. Shaw,
The Utility of the Four Utilities Concept in Research in Marketing: Exploration in the
History of Marketing, Jagdish N. Sheth and Ronald A. Fullerton, London, England: JAI Press,
Inc., 1994, p. 49.
Vitoria, F. (1957), Comentarios a la Secunda Secundae de Santo Tomas, pp. 72-101 in Francisco de
Vitoria: Una Teoria Social del Valor Economico, edited by D. Iparrigue, Bilbao, Spain:
Editorial del Mensajero Corazon de Jesus., p. 75 in 18 in Scholastic Marketing Thought in
Spain, The School of Salamanca, Sigfredo A. Hernandez in Research in Marketing:
Exploration in the History of Marketing, Jagdish N. Sheth and Ronald A. Fullerton, London,
England: JAI Press, Inc., 1994, p. 38 and p. 20.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 284
INTRODUCTION
As we begin a new millennium, the life insurance industry can learn from the past and adjust to
the demands of the future. A major issue that will continue for years to come is equal employment
opportunities for minorities with life insurance companies and other financial institutions. Life insurance
companies continually strive for increased sales and higher profits. With the rising numbers of minority
groups and their upward mobility, highly qualified minority employees may be a partial solution to the life
insurance companies drive for greater success and profits.
Life insurance companies can profit from the changing demographic trends by utilizing sales
approaches that appeal to diverse and nontraditional markets. Women, African-Americans, Hispanics,
and Asians are a growing market and demonstrate upward mobility. Insurers who are successful in
working with minority groups warn against treating everyone alike. James H. Major, Jr., of Metropolitan
Life says that focusing on ethnic markets and hiring people within those markets has improved agent
retention rates (Novak, 1992).
The Life Insurance Marketing and Research Association predicts that the insurance industrys
traditional agent recruiting and marketing patterns will be revised by the changing demographics. Delvin
Benjamin, human resource development consultant for LIMRA says that people like to purchase insurance
from people like themselves who are sensitive to their traditions and values. Benjamin recommends
recruiting successful minorities to work as agents in their own communities (National Underwriter, 1992).
The insurance industrys history of recruiting women and minorities has generally lagged behind
efforts of other service industry sectors. Jo Anne Roslansky and Richard Weylman recommend that life
insurance companies expand participation of minorities in their sales forces and provide them with the
training and support necessary to develop the minority market (Schwartz, 1994 and Weylman, 1993). As
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 285
the minority groups increase in size and spending power, insurers are beginning to realize the potential of
marketing to the long-ignored ethnic groups.
Although some insurance companies make a sincere effort to attract minority representatives and
underwrite minority policies, many companies still practice redlining of these groups. The life insurance
industry can not afford to neglect this huge market and companies that have focused marketing plans
directed at minority segments will grow profitably (Flowers, 1995). Allan Baker, senior vice president of
Lincoln Financial Group, notes that two-thirds of the worlds migration is to America and that Americans
of African, Asian, and Hispanic descent command over $650 billion in purchasing power annually
(Panko, 1997). Life insurance companies potentially can capture billions of dollars in untapped sales to
minority consumers by employing minority agents (Pasher, 1996).
THE PROBLEM
The problem involves the determination of the extent of participation of women, AfricanAmericans, Asians, Hispanics, and Native Americans as active brokers and agents in the life insurance
industry in the southern United States. In addition, this study examines the minorities level of education,
professional designations attained, job position, and job satisfaction. Because of the tremendous increase
in the African-American and Hispanic population in this region, life insurance companies could reap
substantial gains by implementing strategies that focus-in on minority agents developing their own
minority clients. Life insurance companies that embrace minority involvement may not only enhance
their success, but also economically benefit the minority licensees and their clients. Although there has
been considerable discussion concerning the targeting of the growing minority groups, this study
examines whether this is actually occurring in the market place.
METHODOLOGY
Data are derived from a random sample of 375 active life insurance agents and brokers in an
eight state area. Respondents were from Texas, Louisiana, Arkansas, Mississippi, North Carolina,
Kentucky, Utah, and Arizona. Included in the sample were only active and practicing life insurance
agents and brokers. Respondents are comprised of sales agents or representatives, sales managers, district
managers, and independent agents and brokers. Retired licensees and others holding licenses who did not
work full-time in the life insurance business were excluded.
A questionnaire was developed and tested to provide data concerning the respondents age,
gender, race, job position, job satisfaction, and education. To collect the data, each agent and broker was
surveyed by either personal interview, telephone, or mail. Of the 375 questionnaires, 200 provided usable
data giving a 53 percent response rate.
To identify key relationships, the data were statistically analyzed by using percentages, and
arithmetic means.
The findings will be helpful to discover the extent progress is being made concerning minority
participation and may lead to important implications for the life insurance industrys hiring practices.
FINDINGS
Respondents had a mean age of 41 years and have been in the life insurance industry for an
average of 10.87 years. By job classification, the sample included: 61 percent life insurance agents or
representatives; 9 percent sales managers; 6 percent district managers; and 24 percent independent life
insurance brokers. By ethnic background, the respondents were 89.5 percent Caucasian, 9.5 percent AfroAmerican, and 1 percent Hispanic. No Native Americans or Asians were represented in the sample. Of
the 200 respondents, 62.5 percent were male and 37.5 percent female Data tends to indicate that women
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and especially the minority ethnic groups are poorly represented in the life insurance industry in the
selected southern states included in this study.
Compared to minority ethnic groups, participation of women in the life insurance industry is
relatively stronger. Women represented 39 percent of the sales agents and representatives, 36.84 percent
of the sales managers, 16.67 percent of district managers, and 36.73 percent of the independent agents
and brokers. By job classification, Table 1 shows that the predominately minority ethnic groups play an
extremely small part in the life insurance companies represented in this sample.
TABLE 1
PERCENTAGE OF MINORITY RACE PARTICIPATION BY JOB
CLASSIFICATION
Job Title
AfroHispanic
Native
Asian
American
American
11.38%
0.0%
0.0%
0.0%
Sales
Agents
Sales
Managers
District
Managers
Independent
Agents
15.79%
5.26%
0.0%
0.0%
0.0%
8.33%
0.0%
0.0%
2.04%
0.0%
0.0%
0.0%
Data indicates that women tend to have lower levels of education than men and the minority
races tend to be fairly close to the same level of education as Caucasions. Seventy-two percent of the men
have bachelors or masters degrees whereas only 32 percent of the women have the same level of
education. Furthermore, 57.15 percent of the minority races have bachelors and masters degrees relative
to 56.98 percent of the Caucasion group. Table 2 shows the specific breakdown. A closer look at the
minority races indicated that 52.63 percent of the Afro-Americans and 100 percent of the Hispanics have
bachelors or masters degrees. The percentage of each group that held degrees with majors in Business
Administration are: 16% of the women, 20% of the men, 17.32% of the Caucasions, 21.05% of the AfroAmericans, and 100% of the Hispanics.
TABLE 2
EDUCATION LEVELS OF WOMEN, MEN, MINORITY RACES AND
CAUCASIONS BY PERCENTAGE
Education
Women
Men
Minority
Caucasions
Level
Races
29.33%
12.0%
19.05%
18.44%
High School
Diploma
22.67%
11.20%
9.52%
16.20%
2 Years of
College
17.33
5.60%
14.29%
9.50%
Associate
Degree
26.67%
60.80%
38.10%
49.16%
Bachelors
Degree
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Masters
Degree
5.33%
page 287
11.20%
19.05%
7.82%
Because professional designations are an integral part of continuing education and the success of
the agent, the percentage of each group holding a CLU, CHFC and other designations is examined.
Thirty-one percent of the respondents had a CLU designation. The data indicated a similar percentage
holding designations in each group. It is interesting to note that the percentage of Afro-Americans and
Hispanics holding CLUs was slightly higher than caucasions and all other groups. Specific percentages
for each race and gender are shown in Table 3.
TABLE 3
PERCENTAGE OF WOMEN, MEN, MINORITY RACES, AND CAUCASIONS
HOLDING A CLU, CHFC OR OTHER PROFESSIONAL DESIGNATION
Gender or Race
Women
Men
Afro-American
and Hispanic
Caucasion
CLU
CHFC
Other Designation
29.33%
32.0%
38.10%
6.67%
6.40%
4.76%
6.67%
18.40%
9.52%
30.17%
6.70%
14.53%
The final objective of this study is to determine the relative degree of job satisfaction for women
and the minority races. As illustrated in Table 4, on a scale from 1 to 10 respondents rated their job
satisfaction with 1 as least satisfaction and 10 as their most job satisfaction. Data indicated that women
are relatively less satisfied with their jobs than men. Eighty-eight percent of the men rated job satisfaction
between 7 and 10, whereas only 78.66 percent of the women rated their job satisfaction between 7 and 10.
The highest level of job satisfaction among races is from the Hispanics with 100 percent, and AfroAmericans with 89.47 percent rating their job satisfaction between 7 and 10. Overall, Hispanics and
Afro-Americans perceived their jobs as more satisfying than all other groups.
TABLE 4
RATING OF JOB SATISFACTION ON A SCALE FROM 1 TO 10 WITH 10
BEING MOST SATISFACTION BY GENDER AND RACE BY PERCENTAGE
Gender and
1-4
5-6
7-8
9-10
Race
6.67%
14.67%
45.33%
33.33%
Women
2.40%
9.60%
44.80%
43.20%
Men
4.47%
11.73%
43.58%
40.22%
Caucasion
0.0%
10.53%
57.89%
31.58%
AfroAmerican
0.0%
0.0%
50.0%
50.0%
Hispanic
CONCLUSIONS AND IMPLICATIONS
Although numerous articles have stressed the benefits of insurance companies and agencies
employing members of ethnic groups and minority races, the findings from this study show that this has
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page 288
not taken place in practice. Women represented slightly more than one-third of the respondents.
However, there were no Asian or Native American licensees represented. Only 9.5 percent of the
respondents were Afro-American and 1 percent were Hispanic. Sales agents included zero Asians, zero
Native Americans, zero Hispanics and only 11.38 percent Afro-Americans. In a region that is highly
populated by these groups, the implications are that insurance companies could increase sales and profits
by recruiting more minorities who sell to their own groups.
Education does not seem to be a major difference among the groups. Generally, the percent of
Afro-Americans and Hispanics with four-year degrees and graduate degrees is basically equal to that of
Caucasions. Interestingly, a larger percent of Afro-Americans hold masters degrees than the Caucasions.
Furthermore, a larger percent of Afro-Americans and Hispanics hold CLU designations than the
Caucasions.
Although women perceived their jobs as less satisfying than men, the Hispanics and AfroAmericans were more satisfied with their jobs than their Caucasion counterparts.
If the findings of this study are representative of the life insurance industry, implications are that
insurance companies and agencies could strive to broaden their employee base by employing more
minorities. Recruiting a greater proportion of minorities could not only expand the demographic markets
but also increase sales and profitability. Data tends to indicate that the life insurance industry could more
aggressively target the minority markets by developing a highly qualified minority sales force.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 289
REFERENCES
Flowers, Stephen (1995). Insurers Need To Recognize Growing Minority Markets. National
Underwriter, Volume Ninety-Nine, January 9, 1995, 13-14.
National Underwriter (1992). Minority Recruitment Advice:
Underwriter, Volume Ninety-Six, October 19, 1992, 7.
National
Novak, Catherine (1992). Profiting From Diversity. Bests Review, Volume Ninety-two, March 1992,
18-22.
Panko, Ron (1997). Selling To Americas Rainbow. Bests Review, Volume Ninety-Seven, February
1997, 46-48.
Pasher, Victoria (1996). Insurers Urged to Target Untapped Minority Market. National Underwriter,
Volume One-Hundred, June 10, 1996, 7.
Schwartz, Matthew (1994). Targeting Women and Minorities. National Underwriter, Volume NinetyEight, March 28, 1994, 4.
Weylman, Richard (1993). Finding Your Niche In New Demographic Markets. National Underwriter,
Volume Ninety-Seven, August 2, 1993, 20.
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page 290
CURRENT TRENDS
A number of recent, positive trends are making music copyrights even more valuable. As the
popularity of American culture is spreading around the world, there has been an incredible proliferation in
the growing number of uses of intellectual copyrights creating demand for content. Separately, an
increase in royalty collections throughout the world can be traced directly to the enactment and
enforcement of copyright laws protecting intellectual property, the growing professionalism of the
collection societies and the continued privatization and expansion of commercial broadcasting. (Trigon)
Additionally, the introduction of digital technology and the increase in sales of music via the
internet, telecommunications and other media will continue to expand the publishing industry in the
future. With the growth on the Internet, rapid advances in technology are allowing flawless copies of
music to be sent digitally around the world and downloaded by users. While the vastly different countries
of the world are increasingly interconnected, the concept of a global community is drawing closer to
reality. New artist development and marketing opportunities will be created employing this direct link, as
barriers to reaching consumers are greatly reduced. Therefore, the publisher must position itself now to
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 291
exploit these new possibilities, and further evolve the technologies necessary to manage, license and
account for catalogue usage.
It is also interesting to note a recent phenomenon in the music publishing business: the
securitization of projected future royalty income from copyrights. As enforcement of copyright use in
emerging technologies is developed and is available, the potential for future earnings will also grow. CDROMS, DVDs, and the use of the WEB broadens possibilities for profit potential, although it also will
pose collection difficulties. As a result of these expanding markets and the potential to exploit the usage of
copyrights, some catalogues that contain seemingly timeless classics are being securitized. Given their
consistent and predictable future royalty streams, the investment banking community is able to
collateralize these cash flows in a fashion similar to the way federal agency debt is collateraized by
principal and interest payments from commercial and residential mortgages.
For example, in February of 1997 David Bowie, a popular pop artist in the 1980s, securitized his
future royalty payments from a 250 song catalogue. The bond issue raised $55 million in 10 year debt at a
coupon of 7.9%. Interestingly, 10 year U.S. Treasury-Notes (risk free fixed income instruments) issued
at this time had coupons of 6.3%. It is also interesting to note that Moodys Investor Services rated the
bonds investment grade (single A3) and that the entire issue was immediately purchased by an
institutional investor, Prudential Insurance.
Following David Bowies lead, in 1999 a few other popular artists have decided to securitize their
copyrights. For instance, the rock band, Iron Maiden, raised $30 million on its catalogue. The legendary
Motown songwriting trio of Holland/Dozier/Holland also raised $30 million in a bond underwriting
backed by its catalogue of best selling R&B hits. In November of 1999 Michael Jackson announced that he
was considering a debt underwriting worth $100 million, securitized by future royalties from catalogues
that he currently owns.
page 292
expected result is that the publisher will collect a license fee for the limited use of its songs. It is important
to note that the collection of fees, the majority of which are typically performance and mechanical
royalties, is normally completed by various organizations set up to perform this task (Whisett). Such
organizations include both the mechanical rights organizations like the Harry Fox Agency as well as the
performing rights organizations such as ASCAP, SESAC, and BMI.
The most significant risk assumed by a publisher is its ability to identify the publics tastes and
acceptance of its song collections. A publisher also risks capital that is tied to writers advances, the
acquisition and promotion of songs and the opportunity cost of forgoing other opportunities. These capital
expenses can be broken down into several layers:
Product acquisition
Signing writers, buying copyrights
Product Development
Cost of producing demo tapes and masters, writer salaries
Marketing
Pitching and marketing songs to users
Copyright Administration
Copyright registration, legal fees
Operating Overhead
Office supplies, equipment, support, salaries, etc.
To compensate for such risk and expense, what level of royalty income can a publisher expect? Why
are investors interested in the music publishing industry? To answer these questions, it is important to
consider that the ownership of a catalogues copyright has a potentially endless life. For instance, new
copyrights issued today are protected under private ownership for the life of the owner +70 years. Also, it
is important to realize the appreciation in market value some copyrights can achieve given the popularity
of certain songs within a catalogue. Recently, Paul McCartney lost his bid to buy the ATV catalogue,
consisting of Beatles copyrights. The copyright representing the entire catalogue of Beatles songs had
been purchased for $40 million and sold ten years later to Sony for $110 million (Whitsett). In another
example, the Otis Redding catalogue was purchased for $1 million and sold six years later for $10 million.
Further, Polygram sold its Chappel Music catalogue in 1984 for $100 million. To Polygrams regret, the
Chappel catalog was also recently sold for $200 Million (Whitsett).
In light of these examples, the music publishing business can be incredibly profitable if a publisher
can acquire a catalogue of popular songs that will have future demand from users. As a result, success in
this business is not solely dependent on ones ability to provide or create a competitive good or service that
is innovative and superior in quality. Instead, a music publishers success is dependent on good fortune,
insight into future trends within the music business, the ability to recognize the potential use of a
catalogue and the ability to successfully promote a catalogue. As expected, the initial cost and anticipated
royalty income of a catalogue containing lifeless Beatles hits is entirely different than a catalogue
containing songs from a new writer and unknown artist.
Attempting to quantify the initial investment in a catalogue and the future cash inflows (royalties)
that eventually spawn from the investment can be difficult, at best. A catalogue is obviously not a tangible
product with a limited and defined shelf-life. It is a challenge to project and quantify both the initial
expense of a catalogue as well as its future royalties. As a result, it is the purpose of this paper to use a
historical example to offer an explanation on how the cost of a catalogue is derived and measured. In
terms of future royalty inflows, it is seemingly impossible to accurately predict their size and length.
Therefore, the remainder of this paper will focus on the sources of such income.
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Fortunately, there is an industry standard when trying to project the initial cost of a catalogue.
Most publishers will grade the value of a catalogue based on its past Net Publishers Share (NPS) of the
royalties and a subjective multiple.
Typically, the first step in deriving a present value of a catalogue is to calculate the average NPS
for the past 3, 4 or 5 years. The NPS, in this case, includes receipts of any portion of the publisher share in
revenues, including the writers share and less any third party payments. Chart 1 will best illustrate how
the NPS is derived.
Process in Calculating the Initial Cost of the Catalogue:
When a publishing company is considering purchasing all or part of a song catalogue, its first
obvious consideration is determining what the catalogue should actually be worth. In order to derive such
a value, it usually follows a step-by-step process. The first step in calculation is the establishment of past
royalty statements and the average Net Publishers Share per song (NPS). This involves collecting and
totaling the gross royalties. Total performance royalties are subtracted as these fees go directly to the
writer and publisher. The remainder is the total royalties from Mechanical and all other incomes. This is
multiplied by .5 (50%), or whatever other percentage of ownership is due the writer. This amount equals
the total due to the writer. The final step is to subtract the writers share from the total gross royalties.
This is the NPS or Net Publishers Share.
Aside from the historical average NPS, the multiple used is the most important number used to
calculate the present day value of a catalog of copyrights. To derive the final cost of the catalogue, the
purchasing publisher simply multiplies the past years average NPS times a multiple. Therefore, the value
assigned is the multiple of the average annual net earnings. Commonly, multipliers used are ranging
between 5-15, with the Nashville average in country music ranging between 6-9 (Smith). Seven and eight
multiples are common in the industry and are not known to raise any financial eyebrows. As buyers wish
to maximize the risk, a buyer is more disposed to a conservative multiple; however, the limit on a multiple
seems to be as much on the writers estimation on their potential worth, plus the actual value of the current
catalog. The factor derivation is purely subjective. Factors weighed into the valuation are as follows:
1.) The duration of the copyrights:
This will allow an expectation of future cash flows as well as a general feel on the maturity of the
copyrights. Older more mature copyrights, which are still generating income beyond a general 8 year
span, are considered classics that are expected to maintain a steady revenue stream in the future. In the
country market these are songs such as Crazy performed by Patsy Cline, or King of the Road,
performed by Roger Miler, and in the pop world songs such as Rock around the Clock. These are
expected to supply uses through licensing and even re-recording by current artists, as well as performance
license fees from use in movies, television and radio.
2.) Contractual commitments to writers advances:
Are there copyrights that are attached to writer advances still maintained within the purchase?
3.) Advances owed to publisher by writers:
Are there allowances for repayment of advances to writers due to publishers in cases where advances are
cross-collateralized (This is where song advances are recouped or collected from total earning of writer
share? In this case advances, demo costs, etc., are used to collect monies due to publisher before
disbursement of writers share.)
4.) Income trend over the past several years:
Is the copyright use matured or still in the initial release. Are there monies in the pipeline (Are there
units sold that have not been collected yet.)
5.) The appraisers opinion of the catalogs future worth:
This is based on the subjective reputation and past performance of the writer.
The final step is to assign a multiple and calculate the ultimate cost given the two combined
catalogues. In this case a mixture of scenarios is given to demonstrate the effects of a change in the
multiple. Again, the multiples are simply multiplied by the average Annual NPA or Net Publishers
Average. This is a straight average with no weight on either the age of the catalogue or the distribution of
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hit (i.e., is the catalogue weighted to one or two hits, or is there an even distribution of strength or
breadth of the collection?).
page 295
E.)
Foreign royalties represent all performance, mechanical, print, synchronization and digital
royalty income from outside the U.S. Given geographical constraints, publishers are typically dependent
on performing rights organizations in other countries to track and collect these fees. Also, piracy overseas
poses problems for collecting such royalties.
F.)
Digital royalties represent all types of musical usage on the WEB. The designer of the Web page
usually deals directly with the publisher to negotiate a fee based on how a song is used (print, audible
recording). Given that the use of the internet is a relatively new form of communication, these royalties
are difficult to track by PROs and copyright owners.
For a more comprehensive outline of the various types of royalty income in music publishing, see
the attached Sources of Royalty Income.
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Relative to other investment opportunities, the above discount rates should be compared to the expected
rates of return and measurements of risk on alternative investment choices. This would enable the
potential buyer to gauge these potential returns
CONCLUSION
Since music publishers exist as agents, or brokers of a commodity in this case a catalogue of
copyrights, it is our ultimate hope to quantify the initial cash outlay as well as the future cash inflows
(NPS) with a high degree of consistency and predictability. Also, our ability to measure such cash flows
would certainly be aided by a definite period of time; specifically, a date when royalty income would
completely cease.
Instead, we are limited to trying to value and measure the profitability of a set of outflows and
perpetual inflows that are dependent on hundreds of subjective variables and industry trends. As a result,
it is difficult to use a Net Present Value or Internal Rate of Return calculation to measure the profitability
of such flows.
Regardless, exploring the music publishing industry for investment opportunities is intriguing. It
is interesting that every song played on the radio, used in a tavern or recorded on a CD can be rooted
back, through general licensing arrangements and statistical sampling, to the owner of its copyright who
ultimately will receive a royalty payment for such a use. As the industry evolves and adapts to changes in
technology, it will also be interesting to monitor a catalogues cost and multiple as well as its future
royalties from various licensing arrangements.
Relevant to other traditional investment opportunities, copyright ownership through catalogue
acquisition is now being viewed as a viable alternative. Given the recent trend in investment banking to
securitize future royalties on established catalogues, this industry may still become more lucrative and
profitable as potential investors seek ownership in song copyrights.
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INTRODUCTION
With rapid new product introduction being the norm in many industries, it is important that
firms plan for their new product introductions with great care. To protect oneself against possible failure
of a new product in the marketplace, firms should develop a sufficiently large number of product ideas so
that a number of new products of the right type and market size enter into the market. This means that
firms should have a sufficiently large number of new product projects in their portfolio, as the success rate
of NPD projects is not very high hardly one out of ten NPD projects are successful in the market (Wall
Street Journal, 1992). Having a large number of NPD projects is obviously resource draining. To get the
best use from the R&D resources, a firm should plan on having an optimum portfolio of NPD projects.
Firms embark on new product developments based on inputs from any number of sources marketing, sales, R&D, engineering and so on. The new product ideas are subjected to a preliminary
analysis to determine the size of the market and its profitability, as well as the production and distribution
issues. Consideration is also given to the technological aspects of developing the new product, especially if
the project requires developing new technology. With this information, the product idea is screened for its
feasibility for its promotion to the full-scale development stage. Many methods of screening projects have
been developed and discussed in the literature. See for example Balachandra (1989) or Martino (1995)
for a comprehensive discussion of R&D project selection.
The projects meeting the selection criteria are then ranked according to certain criteria
(depending on the firm). Budget is then allocated to the projects in the order of their rank until the budget
is exhausted. The projects with budget allocation comprise the portfolio of projects. In the past, very little
consideration had been given to the composition and mix of these projects. These issues would have been
subjectively considered at the time of ranking and approving the project for development and budget
allocation.
With the growing concerns towards making organizations and their product lines a viable source
of competition, there is a perceived need for developing an optimal portfolio of NPD projects. Such a
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portfolio would bring in a continuous stream of new products timed perfectly for matching the market
needs and to replace tired, old and obsolete products from the product line. It gradually replaces the
unprofitable ones by new and profitable products. And of course, the firm should accomplish these tasks
within the planned resources. It should also be consistent with the firms strategy.
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progressive firm with a long-term outlook may have a few projects in the quadrant with the high-risk
values for both dimensions. However, linking the positioning of the projects with the companys strategy
is not clear with this representation.
Though the matrices using any combination of the above listed dimensions can represent the
portfolio of NPD projects, it is very difficult to make a link between the portfolio and the strategy of the
firm. Ideally, one would like to have projects all in the upper right hand quadrant in the matrix, as that is
the most attractive quadrant in terms of potential for success and profitability. But that is not always
possible; there should be an optimum mix. Moreover, some of the unattractive projects may possibly be
made attractive by infusion of additional funds or by some breakthroughs in technology.
There is a second problem with these representations the timing of the projects and their
completion is not considered at all. Some projects in the portfolio may be completed within the next few
months, while others may take a number of years. Linking these times of completion to the life cycles of
existing products has not been attempted.
The contextual framework developed by Balachandra and Friar (1997) provides a way out of
some of the difficulties. After an exhaustive study of the success factors for R&D and NPD projects in the
literature, it was observed that not only were there too many factors identified as success factors (72 in the
20 studies they examined), but also some of the findings were contradictory in nature. For example, while
some studies claimed that an exhaustive market research was necessary for the success of an NPD, some
others claimed that it was unnecessary or even useless in some cases (radical innovations). The authors
suggested that the reasons for the plethora of success factors and the seeming contradictions are because
there are essential differences in the nature of the projects. These differences require that different sets of
factors be applied to evaluate them, as well as different sets of importance measures for these factors.
With such reasoning, the authors develop a contextual framework to characterize R&D and NPD projects.
The framework consists of a three dimensional matrix. To simplify matters at this stage, each of the three
dimensions has only two values, resulting in a contextual cube with eight cells. (See Figure 2)
The three dimensions are:
Market Existing, New
Type of Innovation Incremental, Radical
Technology Familiar, Unfamiliar
A brief description of the three dimensions follows.
a) The Market Dimension:
In an existing market, the new product meets an existing need but with some improvements, and
therefore the market uncertainty is relatively low. In a new market, the new product is expected to meet a
latent need, and therefore, the uncertainty of the market can be very high. The market analyses for the
two types are completely different (Maidique and Zirger, 1984).
In existing markets, the customers are fairly cognizant of the nature and uses of the product.
They may also have discovered some weaknesses in the product and may have been craving for changes.
Such information is easy to collect, and transmit to the design team. The size of the market is also
relatively easy to estimate, as there is considerable data about past sales not only for the product but also
for competing products. Using simple statistical and econometric methods one can estimate the market
size. It is relatively easy from there to estimate the size of the potential market for the product based on
the expected market share.
Though the approach seems simple, it is not necessarily easy to estimate the market for versions
of existing products. The perceptions of the customers regarding the new product may be vastly different
from the test panel's perceptions, throwing market estimates based on the test panel into the winds. Still,
there is usually an abundance of data regarding the market, the customers, and other useful factors so that
market analysis can be more thorough.
In new markets, on the other hand, there are many unknowns. The actual customer profile itself
can be wrongly defined. The potential use of the product may not be identified correctly. One has to
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make a number of assumptions about the customer profile and the likely usage for the product.
Consequently, the size of the market cannot be estimated with any degree of certainty (Shanklin and
Ryan, 1987).
The quality of the information one can discover about the market and customers will differ
between the two. As Maidique and Zirger (1984) found, market understanding for existing markets
comes from proactive approaches such as market and customer surveys, while in new markets it comes
from passive understanding of user needs using gut feel or experience. This gut feel may play an
important role in the decisions about the market size.
Take the case of a small US printer manufacturer, who wanted to enter the Far East Market,
introducing a slightly modified version of their US product. There was practically no competition. Being
a new product in this area, with very little competitive presence, there was no information about the
market size. The company had to literally make some educated guesses about the size of the market.
b) The Innovation Dimension:
In an incremental innovation the basic technology and product configuration remain essentially
the same, and only minor modifications are made to the performance, flexibility, appearance and other
similar characteristics. It has a higher probability of technical success as the technology is well understood
and has been working successfully in the earlier product. The budgeting and scheduling of the project
activities are simpler as the tasks required for completing the project are well defined, and the project
milestones can be clearly established. These activities, however, take on a more important role, as the cost
and time pressures are more acute. New ink jet printers and the Sony Walkmans are good examples of
incremental innovation.
The success factors for this type of project are more oriented towards success in the market place,
and the organizational issues of the project. The technology factors are not so important as the technology
is well understood and there are usually no surprises.
In a radical innovation, the product design may be solely based on the creative instincts of the
designer by understanding the user needs through empathy with the user world (Leonard-Barton and
Wilson, 1994). The way companies organize for projects of a radical innovation type has been shown to be
completely different from the way they do for incremental innovations (Balachandra and Friar, 1997;
Johne and Snelson, 1988). The budgeting and scheduling activities have to be more flexible to take into
account the larger uncertainties in completing the technical tasks. The probability of technical success
will generally be lower as the technology may not be well understood, though sometimes it may be
familiar. There may be many practical problems in implementing some of the required design features. It
requires a more flexible organizational structure.
The market success factors are not so important for this type of project as the market may not be
well defined. Organizational issues are more oriented towards developing a more flexible approach.
Product superiority may also be difficult to judge, as there may be no comparable products in the market.
For example, when Apple introduced Newton, there were hardly any other products in the market to
compare with. Strategic alliance with the company's product line may take on a more important role than
for the incremental innovation. These projects differ from the incremental innovation type projects in a
number of other characteristics as well.
This phenomenon can be illustrated with the case of Apple's Lisa Computer introduced in the late
70s. When it was introduced into the market, it was a completely new product with the interface being so
much different from the available computers. It had the mouse and the icons. There was no data about
who the customers would be. Consequently, it was not very easy to estimate the market demand. The
internal estimates of sales in the first year ranged from 1000 to 50,000, showing the degree of uncertainty
that can exist even with people familiar with the product.
This aspect is further confounded by a phenomenon recently discussed by Friar and Balachandra
(1999). Their study showed that radical innovations in new technologies do not usually replace current
applications of older technologies which the new technology was expected to replace. Instead, the new
technologies often find completely new applications, leading to highly uncertain market estimates.
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Existing
Te
ch
no
log High
y
Lo
w
Incremental
Innovation
Radical
Figure 2
Contextual Cube for NPD Projects
New
Market
Some examples of NPD projects belonging to the different cells are given in Table I.
TABLE I
EXAMPLES OF NPD PROJECTS
No Inn. Mkt. Tech
Cell
Example
1
I
E
F
IEF
Tartar control toothpaste
2
I
E
U
IEU Windows 98
3
I
N
F
INF Water Pik Oral Hygiene Machine
4
I
N
U
INU Microwave Wave Disposal System
5
R
E
F
REF Continuous casting steel mill
6
R
E
U
REU MPP Super computers
7
R
N
F
RNF Home Cappuccino Machine
8
R
N
U
RNU Digital Video Disk
Notes:
E - Existing Market; F - Familiar Technology; I - Incremental Innovation; N - New
Market
R - Radical Innovation; U - Unfamiliar Technology
STRATEGY AND NPD PORTFOLIO
As discussed earlier. It is important to relate the NPD and R&D project portfolio with the
strategy of the firm to derive an optimum portfolio. The NPD portfolio should fit the strategic vision of
the firm in terms of:
Technology
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Growth
Areas of Business
The representations usually used by firms as described in an earlier section do not show how the
projects in the portfolio fit the strategic needs of the company. What one needs is a representation that
can clearly identify the holes in the portfolio if it were to meet the needs of the organization. It should
also show whether the portfolio is consistent with the strengths of the firm. And finally, it should also
show where there may be an over representation of projects.
The contextual cube helps to resolve these issues. It clearly shows where the holes in the
portfolio are, and where the over representation of projects is. Using this representation one can develop
an optimum portfolio of NPD projects consistent with the strategy of the firm, and determine the
appropriate number and type of projects one should have in each of the cells of the contextual cube.
For example, if the firms strategy is to grow and maintain strength in the current markets, the
portfolio should have more projects in the cell corresponding to Existing Markets, Incremental
Innovation, and Familiar Technology. A significant proportion of the R&D budget should be apportioned
to these projects. On the other hand, if the strategy is to enter new related markets and grow, then there
should be more projects in the cells corresponding to New Markets, Radical Innovation and Either
Familiar or Unfamiliar Technology.
Consider the NPD portfolio of a hypothetical company shown in Table II.
TABLE II
NPD PROJECT PORTFOLIO
Cell
IEF
INF
REF
RNF
IEU
INU
REU
RNU
Innovation
Incremental
Incremental
Radical
Radical
Incremental
Incremental
Radical
Radical
Market
Existing
New
Existing
New
Existing
New
Existing
New
Technology
Familiar
Familiar
Familiar
Familiar
Unfamiliar
Unfamiliar
Unfamiliar
Unfamiliar
Project
A, F
B
E
C
G
D
H
Budget
2.0, 0.5 MM
0.75 MM
1.0 MM
0.8 MM
2.0 MM
0.75 MM
1.0 MM
Total
The portfolio is shown in the contextual cube in Figure 3. From figure 3, we can see that the
portfolio appears to be well balanced. It has two projects (A and F) which appear to be incremental
improvements for existing projects. This is good for maintaining the current market position. Project B is
a project capitalizing on an existing product and familiar technology, but attempting to enter a new
market. Project E is for a product that is a radical innovation but aimed at current customers, while
project C is aiming at a related new market.
The firm has also invested heavily in Project G planned for a new market, but requiring new
technology. The decision to embark on such a project may be based on the long-term goals of the
organization, which may want to enter new markets. Project D may need new technology and a radical
departure but may cater to the current market. Project H is the pie in the sky project. It is planned for
new, unfamiliar technology, involving a radical innovation, and is being planned for new market.
Is this portfolio optimum? It depends on the strategy and goals of the firm. If the firm had wanted to
maintain a strong position in its current markets, while exploring new markets for the future, this appears
to be balanced portfolio.
The type of mix of projects in the portfolio for a specific strategy has to be determined based on
the strengths and weaknesses of the firm, as well as the managerial style of the organization. A very
general set of guidelines is proposed in table III below. This takes into account the nature of the projects,
the type of effort involved and the strategic fit of the projects with the firms strategy. Since there can be
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many variations of strategy for any firm regarding its product line, this table shows only a few of the more
common types of strategies.
TABLE III
Some Common strategies and their appropriate NPD portfolios
No.
1
Strategy
Maintain and improve strength in
current markets
e.g., P&G, Coca Cola etc.
Portfolio
1.Focus on projects in the IEF cell (80% of
budget).
2. Have a few in the INF cell (10% of budget).
3. Have one or two projects in the RNU cell (10%
of budget).
1. Focus on the INF cell (60% of budget).
2. Have a few in the INF cell (10% of budget).
3. Have a number of projects in the RNU, and
INU cells (30% of budget)
1. Focus on the IEU cell (60% of budget)
2. Distribute remaining budget in INU and RNU
cells.
CONCLUSION
This paper presents an approach towards developing an optimum portfolio of NPD projects. It is
based on the contextual cube for classifying projects. This classification can be used to determine whether
the portfolio of projects is in consonance with the strategic goals of the organization. If it is not, the
scheme informs where the discrepancies are whether some types of projects are more than what the firm
needs, and whether there are some types of projects that the company is neglecting.
The question of timing has not been addressed in this paper. Also, the issue of whether a truly
optimum portfolio can be developed using a mathematical programming approach has not been
considered. These two issues are currently being studied.
REFERENCES
Balachandra, R., (1989) Early Warning Signals for R&D Projects, Lexington, MA: Lexington Books,
1989.
Balachandra, R., and Friar, J.F., (1997) Factors for Success in R&D Projects and New Product
Innovation: A Contextual Framework, IEEE Transactions on Engineering Management, Vol.
EM-44, No. 3, pp. 276-287, August 1997.
Cooper, R.C., Edgett, S.C., and Kleinschmidt, E.J.,(1998) Portfolio Management for New Products,
Reading, MA: Addison Wesley, 1998
Friar, J.F., and Balachandra, R., (1999) Spotting the customer for emerging technologies,
Research*Technology Management, vol. 42, no. 4, pp.37-43, July August, 1999
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 307
Johne, F.A., and Snelson, P.A., (1988) Success factors in product innovation: A selective review of
literature, J. of Product Innovation Management, vol.8, pp.240-251.
Leonard-Barton, D., and Wilson, E., (1994) Commercializing technology: Imaginative understanding of
user needs, Harvard Business School, Cambridge, MA, Case Study, No. 9-694-102.
Maidique M.A., and Zirger, B.J.,(1984) A study of success and failure in product innovation: The case of
the U.S. electronic industry, IEEE Transactions on Engineering Management, vol. EM-31, no.
4, pp. 192-203.
Martino, Joseph, P. (1995) R&D Project Selection, New York, NY: Wiley Interscience, 1995.
Shanklin, W.L., and Ryans, J.K., (1987) Essentials of Marketing High Technology, Essentials of
Marketing High Technology, Lexington, MA: Lexington Books.
Wall Street Journal, (1992) January 13, 1992, p. B1.
page 308
INTRODUCTION
Several recent articles in the marketing literature have generated interest in the culture that
organizations cultivate and maintain (Deshpande and Webster 1989; Deshpande, Farley and Webster
1993; Webster 1991; Webster 1990). Of specific interest to marketing scholars and practitioners is a
culture that will "put the customer in the center of the firm's thinking about strategy and operations"
(Deshpande and Webster 1989, p. 3). Consequently, such a culture may be expressed as the degree to
which an organization has adopted the marketing concept.
A review of the marketing literature regarding organization culture reveals that two types of
research methods have been used. The first method focuses on the comparison of culture types to
determine which culture type is most effective. Deshpande, Farley and Webster (1993) used this approach
to examine the four culture types of hierarchy, clan, adhocracy and market. Their analysis indicated that
of these culture types, the market culture resulted in the highest performance.
The second method focuses exclusively on the relationship between marketing culture and
performance. Narver and Slater (1990), Kohli and Jaworski (1990) and Jaworski and Kohli (1993)
examined the construct of Market Orientation, which has been defined as the implementation of the
marketing concept. Results of these studies indicate that a positive relationship exists between market
orientation and business performance.
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While each of the studies using the above research methods do take into account the operating
environment external to the firm, none account for specific strategies used by firms. However, many
believe strategy to be important. Calori and Sarnin (1991), for example, explicitly state that the relationship between organization culture and economic performance is contingent upon factors such as "the
firm's strategy, the competitive system, and the macro-cultural environment" (p. 50). This view is
consistent with the earlier work of Schwartz and Davis (1981) who argue that the successful
implementation of a strategy depends upon the "fit" between the existing culture and the proposed
strategy. Further support for the importance of a "fit" between an organization's culture and strategy is
provided by Schien (1985) who relates:
Many companies have found that they can devise new strategies that make sense from a
financial, product, or marketing point of view, yet they cannot implement these
strategies because they require assumptions, values, and ways of working that are too far
out of time with the organization's prior assumptions. (p. 30)
Marketing culture and business level strategy have each been identified as important factors that
influence firm performance. Several authors have contended that the culture and strategy of an
organization should be consistent in order for the organization to maintain a high level of performance.
The effect of the fit or consistency between culture and strategy on performance has not, however, been
empirically investigated.
PURPOSE
The purpose of this study is to examine the relationship of the fit, congruence or coalignment of a
firm's marketing culture and strategy to the performance of the firm. This framework is functionally
grounded in contingency theory. As such, superior performance is contingent upon the fit of marketing
culture and strategy at the business level.
BACKGROUND
There has been a great amount of theoretical research dedicated to examining organizational
culture, but little empirical work. Each stream of research regarding the topic differs depending on how
the researcher perceives the concept of culture. Smircich (1983) provides a review of five paradigms
associated with organizational culture. The relevance of each of these paradigms to marketing has been
elaborated upon by Deshpande and Webster (1989) and will consequently not be discussed here.
While each paradigm discussed by Smircich (1983) and Deshpande and Webster has some
degree of merit, the most useful paradigm to marketers is generally identified as the contingency
paradigm. Under the contingency paradigm, culture is perceived as a variable that can be consciously
changed, managed, or modified by the marketing manager. This perspective holds that culture is an
independent variable where beliefs and values are unique to the organization. Organizations are seen as
the producer of not only goods and services, but of culture as well (Deshpande and Webster 1989).
The basic research agenda associated with the contingency management paradigm focuses on
how culture may be manipulated. More specifically, research using the contingency paradigm focuses on
how the manipulation of culture can enhance business performance, customer response, and employee
response. The contingency perspective is the perspective on which this study will focus.
Regardless of the paradigm, a commonly recurring theme identifies culture as a pattern of shared
beliefs and/or knowledge. For instance, Schien (1990) defines culture as:
A pattern of basic assumptions, invented, discovered, or developed by a given group as it
learns to cope with its problems of external adaptation and internal integration, that has
worked well enough to be considered valid and, therefore is to be taught to new
members as the correct way to perceive, think and feel in relation to these problems.
(p. 111)
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The central theme of "shared beliefs and/or knowledge" has been well received in the marketing
literature. The focus in marketing has been primarily on a culture that Aputs the customer in the center of
the firm's thinking about strategy and operations" Deshpande and Webster 1989, p.3). Deshpande and
Webster (1989) identify the culture of interest as the marketing concept.
The typical attitude associated with the marketing concept is that the profit of a firm is related to
the creation of opportunities to more effectively satisfy customer needs within a certain set of limitations
(Payne 1988). The most current definition of the marketing concept focuses on the actual implementation
of the marketing concept and is termed the market orientation. Market Orientation is the term used to
describe the actual implementation of the marketing concept and concerns a firm's ability to generate,
disseminate, and respond to market intelligence (Kohli and Jaworski 1990). The definition follows:
Market Orientation is the organization wide generation of market intelligence pertaining to
current and future customer needs, dissemination of the intelligence across departments, and
organization wide responsiveness to it. (p. 6)
Narver and Slater (1990) provide a slightly different, but consistent conceptualization of
market orientation. These authors propose the following definition of market orientation:
The market orientation is the organization culture that most effectively and efficiently creates the
necessary behaviors for the creation of superior value for buyers and, thus, continuous superior
performance for the business. (p. 21)
The above definition was refined by Narver, Park and Slater (1992, p. 1) to "a business culture in which
all employees are committed to the continuous creation of superior value of customers."
The strategic management literature is rich with discussions, definition, and typologies relating
to strategy. However, many studies do not make distinctions between corporate and business level
strategies. Beard and Dess (1981) provide a discussion of such distinctions. Under their framework, a
corporate level strategy is concerned with determining which business to compete in. The authors further
explain that a corporate strategy is concerned with the "distribution of firm assets, sales, employment,
capital budget, or other indexes of firm resources among the range of existing industries" (Beard and Dess
1981, p. 666).
Alternatively, a business level strategy may be defined in terms of variation in firm
characteristics relevant to competitive successes or failures within a given industry" (Beard and
Dess 1981, p. 666). According to this view of business level strategy, a firm will have a different operating
strategy for each industry in which it competes.
The intra-industry oriented definition of business level strategy has historically been examined
using strategic typologies. While many such typologies exist in the literature, those proposed by Miles and
Snow (1978) and Porter (1980) are the most frequently recognized in the strategic management literature.
The basic premise behind strategic typologies is that given a particular set organizational characteristics
and environmental conditions, one specific type of strategy will provide a firm with a competitive
advantage, thus allowing that firm to outperform competitors.
The ideal strategies proposed by Miles and Snow (1978) and Porter (1980), however, represent
the endpoints of a continuum along which all firms are represented.. Venkatraman (1989a) labels such
typologies as the classificatory approach. By classifying or categorizing strategies, much information may
be lost. The information loss is similar to the situation in which length is measured with a ruler having
only a 1-inch and a 12-inch indicators. Variation between 1 inches and 12 inches is vague and inexact.
Using broad strategy classifications that define the endpoints of a continuum is also vague and inexact.
Venkatraman (1989a) argues that the comparative approach is a much more fruitful method and states
(1989a, p. 943- 944) that under the comparative approach, "the focus in less on categorization into one
particular cell of the typology, but on measuring the difference along a set of characteristics that
collectively describe the strategy construct."
Of particular interest to marketers is a strategic dimension that considers the degree of forward
thinking in terms of customers, competitors, and environmental trends. Venkatraman (1989a) terms such
a strategic dimension as Proactiveness. Venkatraman (1989a) further indicates that the proactive strategic
dimension will be evident in firms that seek new opportunities, introduce new products and brands ahead
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of their competition, and strategically eliminate operations in the mature or declining stages of the product
life cycle.
The discussion above has identified the marketing culture and business level strategy as
individual antecedents of firm performance. Furthermore, a synergistic effect between culture and
strategy is proposed. The synergistic effect is based on the fit, congruence, or coalignment between
culture and strategy. The greater the consistency or fit between a firm's culture and
and strategy, the greater the probability of attaining organizational goals (i.e., performance).
Consequently the following hypothesis is proposed.
H1: The greater the degree of fit, congruency, or coalignment between a firm's marketing culture
and strategy, the greater that firm's performance.
Fit, congruency, or coalignment however, can and should be assessed from several different perspectives.
Van de Ven and Drazin (1985, p. 358) recommend that "contingency studies should be designed to permit
comparative evaluations of as many forms of fit as possible." Along similar lines, Venkatraman (1989b)
calls for explicit justification of the specification of fit and promotes the use of competing models or
perspectives, "especially in cases in which the extant research may not be powerful enough to suggest
rejecting theories outright" (p. 440). Such is the case with the variables of marketing culture, strategy and
performance. The current study makes use of two different analytical perspectives in testing the hypothesis
above.
METHODOLOGY
Hoover's Masterlist of Major U. S. Companies was chosen as the sampling frame for this study.
It was deemed the most efficient in terms of time and cost. From this sampling frame, a random, national
sample of 2200 organizations was generated.
Both the CEO and CFO were initially contacted by FAX to ask for their cooperation in this study.
These individuals, as key members of top management, are intimately familiar with the overall picture of
marketing within an organization. As stated by Lusch and Laczniak (1987, p. 4), "executives are the
makers and executors of decisions in an organization. They respond and adapt to the competitive
intensity. They develop and foster the culture of the organization."
It must be noted, however, that when collecting information from top management executives,
there is a possibility that in responding, the executives may rationalize their present and past decisions or
may vary their responses according to a desired rather than an actual behavior or state (Huber and Power
1985). To reduce such possibilities, respondents were instructed to respond in a manner consistent with
actual behaviors or beliefs of interest. Huber and Power (1985) make several specific recommendations
regarding the selection of strategic-level managers as key informants. Each of these recommendations
was used in collecting information for this study.
Approximately 2,200 publicly traded firms were contacted requesting that they participate in the
study. A willingness to participate was expressed by 342 firms. Respondents were also asked to indicate
whether they wanted the questionnaire mailed or faxed. Of the 342 firms who indicated a willingness to
participate, 118 returned completed questionnaires. While response rates were not as high as hoped for,
sufficient responses were obtained for the exploratory nature of the current study. The firms represented
in the sample came from 82 distinct industries as classified by the primary four digit Standard Industrial
Classification code.
The marketing culture variable referred to in earlier sections is operationalized as the
implementation of the marketing concept and termed market orientation. More formally, Kohli, Jaworski,
and Kumar (1993, p. 468) define the market orientation of a firm as "the organization wide generation of
market intelligence pertaining to current and future needs of customers, dissemination of intelligence
within the organization and responsiveness to it." Operationalizing the marketing culture of a firm in such
a manner has been questioned by Deshpande, Farley and Webster (1993) who claim that market
orientation is synonymous with customer orientation. It is the contention of the current study that the
generalized concept of culture, defined as "the pattern of shared values and beliefs that help individuals
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understand organizational functioning and thus provide them with the norms for behavior" (Deshpande
and Webster 1993, p. 4), allows for many alternative manifestations of culture. Thus, implementation of
the marketing concept or market orientation represents the manifestation of marketing culture dealing
primarily with the generation, dissemination and responsiveness to market information.
As operationalized above, marketing culture was measured using the MARKOR scale developed
by Kohli, Jaworski, and Kumar (1993). The scale consists of twenty, seven-point likert type items
(anchored by 1 = Strongly Disagree to 7 = Strongly Agree) designed to measure intelligence generation,
intelligence dissemination and responsiveness activities associated with market oriented firms. Internal
consistency associated with the measurement of marketing culture was assessed using Cronbach's Alpha.
Alpha was estimated at 0.90 which exceed the threshold level recommended by Nunnally (1967) and are
comparable to those reported by Jaworski and Kohli (1993).
Strategy is operationalized in this study as a pattern of critical decisions made at the business
level which focus on the means adopted for enabling firms to achieve their desired goals. Defined as such,
the domain of the strategy construct allows for the examination of the relationships between strategies and
goals in different contexts (Venkatraman 1989a). In addition, Venkatraman (1989a) states that the
examination of strategy at the business level facilitates an understanding of strategic response to
competitive moves, technological changes, and the entry and exit of competitors. Strategy, as defined
above, can vary among many different, yet related dimensions. However, for the purposes of the study at
hand, the strategy relating to the proactive behavior of a firm is the primary focus. The proactive strategy
of a firm was measured using five, seven-point likert type items (anchored by = Not At All and 7 = To An
Extreme Extent / summated range from 5 to 35). Content of these five items focused on a firm's strategic
thinking in terms of competitive response, brand introductions, and the overall product mix. Cronbach's
Alpha was estimated at 0.57. This low reliability estimate will be discussed as a limitation.
Each industry maintains different standards for above average, average and below average
performance. Consequently, the performance of a firm must be defined and measured in a manner relative
to the industry in which the firm operates. In this study, industry is defined as the principle four digit SIC
industry in which the firm is normally placed (Venkatraman and Ramanujam 1987). In addition to
industry standards, performance should reflect the overall operating performance of a firm as opposed to
functional performance (i.e., earning per share is primarily a financial indicator). Keeping these concerns
in mind, this study defines performance as the degree to which a firm maintains above average business
returns in relation to its competitors.
A multitude of performance indicators have been identified in the organization culture and
strategy literature. Measures generally are either self-report, multi item scales (Venkatraman 1989a;
Jaworski and Kohli 1993; Deshpande Farley and Webster 1993; Govindarajan and Fisher 1990) or
financial indicators (Beard and Dess 1981; Dess and Davis 1984; Narver and Slater 1990). Given the
definition provided above, a combination of subjective and objective performance indicators was used. A
linear combination of six separate indicators was used to provide a profile of the overall operating
performance of respondent firms. The first indicator was composed of the composite score of five items
introduced by Lusch and Laczniak (1987). The second indicator was composed of the composite score of
the four item scale utilized by Deshpande, Farley and Webster (1993). The third indicator, relative return
on sales, provided an objective indicator of firm performance. Relative return on sales refers to the return
on sales of the respondent firm minus the return on sales in the primary industry. This value was then
scaled to a seven point scale with a seven indicating a return on sales that is a great deal above the
industry average and a one indicating a return on sales that is a great deal below the industry average.
ROS data was obtained from information filed with the Securities and Exchange Commission and
industry norms were obtained from Dun and Bradstreet's Industry Norms and Key Business Ratio 19931993. The remaining three indicators asked respondents to compare product profitability, new product
success rate, and market share growth rate with their competition. This highly diverse, six indicator
composite measure of organizational performance resulted in an estimate of Cronbach's alpha of 0.71
which exceeds the threshold level identified by Nunnally (1967).
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RESULTS
As previously indicated, this study makes use of two separate and distinct models of fit. Analysis
from two different analytical perspectives greatly enhances the generalizability of the findings of the
current study. A general discussion relating to the rationale for each perspective and the results of analysis
are presented below
Van de Ven and Drazin (1985) define the scope of the interactionist perspective of fit as relating
to the dependence of organizational performance on the blending of contextual factors within the
organizational setting. Specifically, these authors operationalize this perspective as "the interaction of
pairs of organizational context-structure factors on performance" (p. 335). Interaction effects may be
examined from several slightly differing analytical methods. The current study utilizes the analytical
framework provided by Joyce, Slocum and Von Glinow (1982) as it allows for distinctions between three
competing forms of alignment within the interactionist perspective. More specifically, the Joyce, Slocum
and Von Glinow (1982) framework allows for interactions to be associated with effect, general, or
functional types of congruency. Effect congruency is additive in nature and occurs when two independent
characteristics combine to make independent and linear contributions to the dependent variable. General
congruency proposes interaction effects that emphasizes the matching of levels of independent variables.
Functional congruency represents a more general model and focuses on the existence of substitution or
blocking effects. As indicated in the Joyce, Slocum, and Von Glinow (1982) framework and by
Venkatraman (1990), the linear combination of scores for both the culture and strategy dimensions were
calculated and then dichotomized. Dichotomization was performed using a median split (Table 1).
Analysis of variance (Table 2) indicates that the both the main effects (F2,100 = 19.01, p < 0.000) and the
two way interaction (F1,100 =4.36, p < 0.039) between culture and strategy are significant. Examination of
the cell contrasts suggested by Joyce, Slocum, and Von Glinow (1982) reveal that a form of functional
congruency exists.
To examine the sensitivity of ANOVA results to the method of dichotimization, a second analysis
using the upper and lower 40% of consitutent scores (middle 20% of scores was excluded) of the
dimensions of interest was performed. Again, both the main effects (F2,72=16.374, p<0.000) and the two
way interaction(F1,72=7.588, p<0.008) between culture and strategy are significant. Functional congruency
was again determined to exist using the contrasts identified by Joyce, Slocum, and Von Glinow (1982).
The second specification of fit employs a profile deviation analysis. Van De Ven and Drazin
(1985) explain this method of analysis as "testing at the aggregate level by analyzing deviation in the
pattern of a given organizational unit from its ideal type pattern or mode" (p.348). The basic assumption
of this analytical mode is that each of the cultural and strategy components contribute to overall firm
performance. In the context of the current study, an ideal mix of the culture and strategy components will
result in maximal performance outcomes. Any deviation from the ideal profile will result in lower levels
of performance. Completion of the profile deviation analysis requires the completion of three steps. First,
an ideal profile must be either theoretically or empirically derived (Van de Ven and Drazin 1985;
Venkatraman 1989a). In the current study, the ideal type was derived empirically by using a calibration
sample consisting of the top 10% of performers (n= 11, some cases were excluded due to missing values).
The mean scores of the culture and strategy elements were then calculated for this calibration group.
These mean scores represent the ideal amount of each element. The second step involves determining the
extent to which firms not included in the calibration sample differ from their ideal types. This is
accomplished by the following Euclidean distance formula (Venkatraman 1990):
Misalign =jnj=1(Xij -xij )2
where:
Xij: = the score for the unit along the jth cultural dimension
xij= the mean for the calibration sample along the jth cultural dimension
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The third and final step involves examining the relationship of the criterion variable, in this
instance firm performance, and the derived distance measure of Misalign for firms not included in the
calibration sample. It is expected that the greater the Euclidean distance from the ideal cultural - strategy
pattern, the lower the performance of a firm. Stated simply, a significant, negative correlation should
exist.
As presented in Table 3, a significant, a negative correlation does exist between the derived
Euclidean distance measure of Misalign and the firm's level of performance. To examine the sensitivity of
the results to calibration sample size, two additional sets of analyses were completed using the upper 15th
(n=17) and 25th (n=28) percentiles as the calibration sample Results appear to be robust to variations in
the calibration sample size. In each case, the negative correlation was found to be statistically significant
at the 0.01 level,
page 315
Consequently, research that specifically addresses the relationship of the functional sub-cultures to the
dominant marketing culture is needed. Operationializing constructs such as marketing culture, overall
firm strategy, and performance is difficult at best. Even more complex are the issues of designing
measures of these constructs. The psychometric properties of the multi-item scales utilized in the current
study have been examined extensively (Deshpande, Farley, and Webster 1993; Jaworski and Kohli, 1993;
Kohli and Jaworski 1993, 1990;Venkatraman, 1989b;Lusch and Laczniak 1987). However, psychometric
analysis is only one piece of evidence necessary towards establishing the validity of these measures (Peter
1981) and of the research in general. In this particular study, analysis of reliabilities revealed that the
measure of proactive strategy maintained a low reliability. While this potential problem is acknowledged,
the robust study design and analytical framework make it unlikely that the overall study findings were
invalidated due to this low reliability estimate. A similar situation is documented in Desphande, Farley
and Webster (1993).
Finally, there is a need for longitudinal studies regarding the evolution of marketing culture and
strategy. Organizational culture and strategy are in a continual state of flux. In other words, the
relationships between marketing culture and strategy are in a dynamic state. Longitudinal studies provide
the means necessary to examine such a dynamic relationship.
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REFERENCES
Beard, Donald W. and Gregory G. Dess (1981). "Corporate-Level Strategy, Business-Level Strategy, and
Firm Performance." Academy of Management Journal, 24 (4), 663-688
Calori, Roland and Philippe Sarnin (1991). "Corporate Culture and Economic Performance: A French
Study." Organization Studies, 12 (1), 49-74.
Deshpande, Rohit, John U. Farley, and Frederick E. Webster, Jr. (1993). "Corporate Culture, Customer
Orientation, and Innovativeness in Japanese Firms: A Quadrand Analysis." Journal of
Marketing, 57 (January), 23-27.
Deshpande, Rohit and Frederick E. Webster, Jr. (1989). "Organizational Culture and Marketing: Defining
the Research Agenda." Journal of Marketing, 53 (January), 3-15.
Dess, Gregory G. and Peter S. Davis (1984). "Porter's (1980) Generic Strategies as Determinants of
Strategic Group Membership and Organizational Performance." Academy of Management
Journal, 27 (3), 467-488.
Govindarajan, V. and Joseph Fisher (1990). "Strategy, Control Systems, and Resource Sharing: Effects on
Business-Unit Performance." Academy of Management Journal, 33 (2), 259-285.
Huber, G. P. and Power, D. J. (1985). "Retrospective Reports of Strategic-Level Managers: Guidelines for
Increasing Their Accuracy." Strategic Management Journal, 6, 171-180
Jaworski, Bernard J. and Ajay K. Kohli (1993). "Market Orientation: Antecedents and Consequences."
Journal of Marketing, 57 (3), 53-70.
Joyce, W., J. Slocum, and M. Von Glinow (1982). "Person-Situation Interaction: Competing Models of
Fit." Journal of Occupational Behavior, 3, 265-280.
Kohli, Ajay K. and Bernard J. Jaworski (1990). "Market Orientation: The Construct, Research
Propositions, and Managerial Implications." Journal of Marketing, 54 (April), 1-18.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 317
Kohli, Ajay K., Bernard J. Jaworski and Ajith Kumar (1993). "MARKOR: A Measure of Market
Orientation." Journal of Marketing Research, 30 (November) 467-77.
Lusch, Robert F. and Gene R. Laczniak (1987). "The Evolving Marketing Concept, Competitive Intensity
and Organizational Performance." Journal of the Academy of Marketing Science, 15 (3), 1-11.
McKee Daryl O., P. R. Varadarajan, and William M. Pride (1989). "Strategic Adaptability and Firm
Performance: A Market-Contingent Perspective." Journal of Marketing, (53 (July), 21-35.
Miles, Raymond E. and Charles C. Snow (1978). Organizational Strategy, Structure, and Process, New
York: McGraw-Hill Book Company.
Narver, John C. and Stanley F. Slater, (1990). "The Effect of a Market Orientation on Business
Profitability." Journal of Marketing, 54 (October), 20-35.
Narver, John C., Swong Y. Park, and Stanley F. Slater (1992). "Market Orientation, Information, and
Marketing Strategies." American Marketing Association Summer Educators Conference.
Nunnally, Jum (1967). Psychometric Theory, New York: McGraw-Hill Book Company
Payne, Adrian F. (1988). "Developing a Marketing Oriented Organization." Business Horizons, (MayJune), 46-53.
Peter, J. Paul (1981). "Construct Validity: A Review of the Basic Issues and Marketing Practices." Journal
of Marketing Research, 18 (May), 133-45.
Peters, Thomas J. (1987). Thriving on Chaos, New York: Harper and Row
Porter, M. E. (1980). Competitive Strategy, New York: The Free Press.
Schein, E. H. (1985). Organizational Culture and Leadership, San Francisco: Jossey-Bass
Schein, E. H. (1990). "Organizational Culture." American Psychologist, 45 (2), 109-119.
Schwartz, Howard, and Stanley M. Davis (1981). "Matching Corporate Culture and Business Strategy."
Organizational Dynamics, (Summer), 30-49.
Smircich, Linda, (1983). "Concepts of Culture and Organizational Analysis." Administrative Science
quarterly 28 (September), 339-358.
Van de Ven, Andrew H. and Robert Drazin, "The Concept of Fit in Contingency Theory. Research in
Organizational Behavior, 7, 333-365.
Venkatraman, N. (1989a). "The Concept of Fit in Strategy Research: Toward Verbal and Statistical
Correspondence." Academy of Management Review, 35 (August), 942-962.
Venkatraman, N. (1989b). "Strategic Orientation of Business Enterprises: The Construct, Dimensionality,
and Measurement." Management Science, 35 (August), 942-962.
Venkatraman, N. (1990). "Performance Implications of Strategic Coalignment: A Methodological
Perspective." Journal of Management Studies, 27 (1), 19-41
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page 318
Venkatraman, N. and Van de ven Ramanujam (1987). Measurement of Business Economic Performance:
An
Examination of Method Convergence." Journal of Management, 13 (1), 109-122.
Webster, Cynthia (1991). "A Note on Cultural Consistency within the Service Firm: The Effects of
Employee Position on Attitudes toward Marketing Culture." Journal of the Academy of
Marketing Science, 19 (4), 341-346.
Webster, Cynthia (1990). "Toward the Measurement of the Marketing Culture of a Service Firm." Journal
of Business Research, 21, 345-362.
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TABLE 1
PERFORMANCE MEANS & STANDARD DEVIAIONS
Low Proactiveness
High Proactiveness
Cell 1
Median Split = 3.87
Std. Dev. = 1.00
Cell 2
Median Split = 5.38
Std. Dev. = 0.85
Cell 3
Median Split = 4.17
Std. Dev. = 1.02
Cell 4
Median Split = 4.88
Std. Dev. = 0.74
TABLE 2
RESULTS OF ANOVE (INTERACTIONIS PERSPECTIVE)
Possible
Contrasts in
ANOVA Design
Row Effects
Cell 1 vsCell 2
Cell 3 vsCell 4
Column Effects
Cell 1 vsCell 3
Cell 2 vsCell 4
Diagonal Effects
Cell 1 vsCell 4
Cell 3 vsCell 2
Contrasts Required
for Functional
Congruency
(Blocking Effect)
T-Value
D.F.
Pr>T (two-tail)
Cell 1 Cell 2
Cell 3 Cell 4
-4.85
-2.12
34
40
0.00
0.04
-1.29
2.11
36
38
0.204
0.04
Immaterial
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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TABLE 3
RESULTS OF PROFILE DEVIATION ANALYSIS
Calibration Sample
Means
Market
Orientation Proactiveness
Upper 10% of
Performers
11
6.11
5.46
102
-0.339
0.001
Upper 15% of
Performers
17
6.10
5.26
96
-0.306
0.010
Upper 25% of
Performers
28
5.87
5.08
85
-0.29
0.010
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INTRODUCTION
The Internet began as a tool of the US military. The military built this network of networks
during the Cold War to ensure ongoing communication in the event of a nuclear war. It was a single
network called the Advanced Research Project Agency Network. It began as a US Department of Defense
project in 1969. The primary concern was how to communicate within the US following a nuclear attack.
A single command center was ruled out because it would be a primary target and it was apparent that
wires and switches of a network could not be protected from a nuclear explosion. The solution was to
build a network with no central command center, allowing it to continue operations piecemeal if
something happened to a portion of it. The network could accommodate different computers and
communications equipment as long as they used standard protocols. Essentially, a military-motivated
solution in 1970 provided the basis for what was to become the Internet (Callon, 1996).
In 1995, Netscape Corporation introduced the first user-friendly browser capable of using the
Internet to surf the World Wide Web (the Web) and open it up to commercial use. Prior to that, large
corporations could trade electronically only with companies that could afford to do business over private
networks, using an older technology called Electronic Data Interchange (EDI). EDI is usually used over
private networks and is somewhat expensive, complex and inflexible. The system transmits rigidly
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formatted electronic documents. EDI systems are still in use with an estimated $250 billion of business
transactions expected to occur in 1999 (Reinhardt, 1998).
Today, the term e-commerce relates to buying and selling transactions conducted on the Web
using the Internet. The marketing focus is at the consumer as well as the industrial level for both products
and services. It is the newest and most profound paradigm shift in how firms do business since the
assembly line changed the way manufactured goods were produced in the early 1900s.
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Since the Internet allows easy communications from anywhere, the hierarchical structure of the
organization will also change. Employees will no longer be sitting in an office, but will be able to work,
make necessary contacts, acquire information, and conduct meetings from anywhere there is an online
connection. It appears that the trend of outsourcing employees will accelerate as e-commerce continues to
increase in importance. This will have a profound and important effect on human relations departments.
While all these changes and developments are equally important, a field of distribution becomes
a subject which is highly sensitive to the use of e-commerce. After all, e-commerce results in direct
distribution at times by eliminating some of the traditional parties who are the traditional members of
traditional channels.
CONCLUDING REMARKS
Most senior managers no longer need convincing that the Internet is the wave of the future. A
recent worldwide survey of some 500 large companies indicates that more than 90 percent of the top
managers believe the Internet will have a big impact on the global marketplace by the year 2001. It is also
projected that Internet sales will double every year over the next five years, surging from $43 billion in
1998 to $1.3 trillion in the year 2003. If the value of services exchanged online were included, the figures
would be even more staggering.
The effect of e-commerce has already been tremendous. E-commerce came of age early in the
computing and electronics industries. It is estimated that the effect will move from a handful of earlystart companies such as Cisco Systems, General Electric, Dell Computer, Ford Motor Company and Visa
to a myriad of suppliers and customers. As both buyers and sellers reduce costs and increase efficiency by
investing in the capacity to do business on the Web, it is in their interest to persuade more and more of
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their business partners to do the same. This will create a self-reinforcing circle. On the other hand, many
managers have already been through outsourcing, downsizing and re-engineering during the last decade.
Some have implemented packaged information-technology applications designed to automate internal
processes and manage supply chains, know collectively as enterprise resource planning and are still
wondering whether it was worth spending all those millions of dollars. Nearly all embraced the low cost
and flexibility of personal computer based called client/server computing at the start of the 1990s, only to
discover the perils of decentralized data and distribution complexity. And, of course, over the past several
years, they have invested lots of time and money into nothing more exciting than the hope of avoiding a
systems meltdown on the first day of the new millennium. As a result, most of these managers are
naturally wary of consultants and visionaries who promise new paradigms and tidal wave technology. A
recent global survey of chief executives attitudes about already-implemented information technology
indicates that only 25 percent believe it made a significant contribution to the bottom line and more than
80 percent are disappointed by its contribution to the competitiveness of the company.
Finally, the potential changes that use of e-commerce brings into the marketing channels create
another consideration area for those managers. While traditional channels are subject to numerous
problems, there is a significant amount of uncertainty about how channel members and participants adopt
and cope with the changes initiated by the use of e-commerce. One needs to remember that this
uncertainty has to be eliminated to avoid any potential conflict in channels. That might mean that one
may need to be patient and examine the results of current practices before automatically adopting them.
Unfortunately, this course of action may also result is being late in the marketplace and being left out. It
appears that the right strategy is mostly situation-specific and almost subjective, which makes that
traditional analysis completely unrealistic. It is hoped that the recognition of this confusion will provide
the channel researchers with added incentives to study the marketing channels with more practical
insights brought up by the use of e-commerce.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Callon (1996). Competitive Advantage Through Information Technology. Mc-Graw Hill, Co., Inc., San
Jose, CA.
Christensen (1997). The Innovators Dilemma. Harvard Business School Press, Boston, MA.
Machlis (1998). Channel Conflicts Stall Web Sales. ComputerWorld. Volume Thirty-Two, Number
Seven, February 16, 1998, 2.
Reinhardt (1998). Log On, Link Up, Save Big. Business Week, June 1998, 1-9.
Van del Poel, & Leunis (1999). Consumer Acceptance of the Internet as a Channel of Distribution.
Journal of Business Research, Volume Forty-Five, Number Three, Fall 1999, 249-256.
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Digital downloading technology has created a Pandora's box for the music industry. On the one
hand, this technology has created unique opportunities for the marketing and distribution of recorded
product over the Internet. On the other hand, Internet pirates have illegally copied music files and placed
them on the Internet, thus infringing on the rights of the songwriters, music publishers, artists and record
labels. Recently, EMI Group, PLC let consumers buy and then download David Bowie's latest album, via
the Internet, using digital downloading technology. (Peers, 1999) EMI noted that this would be the first
time that an entire album, from a major artist, was available for digital downloading (it should be noted
that the album's music was available for digital downloading for two weeks, beginning September 21,
1999. Thereafter, the album itself was available for sale at record stores on October 5, 1999).
The primary facilitator of unauthorized Internet copying of songs is MP3 (otherwise known as
MPEG1, Layer 3 audio standard) technology. MP3 compression technology was released in 1992 (the
first widely used device utilizing MP3 compression technology was Diamond's Rio Player, also called a
portable device). MP3 technology resulted from an intergovernmental attempt to create standards for
interactive television. In its present form, MP3 allows music files to be easily copied (due to the
compression technology), vicariously encourages piracy and does not provide for an accounting to the
copyright holders of the downloaded music. (Anonymous, 1999).
The music industry had no way of knowing the potential impact of MP3. During the early
1990's, several factors were emerging that would lead to the success of MP3: first, the Internet was
creating a world-wide web connecting millions of music listeners around the world; and second, Intel's
Pentium chip allowed personal computers a degree of processing power that enabled the real-time
decoding of MP3-like files. MP3 allows a person to take music copied from a CD, compress it and either
send it to a friend or post it on a private Web site, allowing unlimited and unrestricted copying of the
copyrighted work. (Dibbell, 1999)
As a result of the dramatic increase in unauthorized digital downloading of music, the Secure
Digital Music Initiative (SDMI) was formed in late 1998. SDMI consists of more than 120 companies
and organizations from information technology and consumer electronics businesses, Internet service
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providers, security technology companies and members of the worldwide recording industry. SDMI
provides a forum to develop the voluntary, open framework for playing, storing and distributing digital
music. There are two tracks being developed by SDMI: the first track has already produced a standard, or
specification, for portable devices. The second track, scheduled for completion in late 2000, will provide
the framework for an overall architecture for delivery of digital music in all forms. It should be noted that
SDMI will not produce a single format but allows a variety of competing technologies and download
formats to be used within its system. Ultimately, SDMI aims to create a framework where artists, labels,
songwriters and publishers may protect their music while providing consumers with the ability to digitally
download music in a secure format.
SDMI's members promote the concept that copyrights should be protected over the Internet and
that digital downloading should be encouraged, but in an arena where adequate digital rights management
is in place. Digital rights management will include blocking the playing of illegal copies of newly released
songs, as well as the incorporation of predetermined digital usage rights. (Anonymous, 1999) Initially,
SDMI specifications will apply to portable devices and PC software, but future specifications will address
other devices such as car stereos. Portable devices and compatible software, manufactured for sale during
the 1999 holidays, will contain an audio watermark technology developed by ARIS Technologies Inc.
(Anonymous, 1999) This watermarking technology will indicate when software used by the Phase I, or
portable devices, should be upgraded to incorporate Phase II technology. (Anonymous, 1999) Until that
time all music, whether in a protected or unprotected format, will be playable. (Robinson, 1999) When
Phase II technology is available, and a consumer attempts to play new music releases incorporating SDMI
technology, the Phase I device's detection of the watermark will automatically let consumers know that
their software can be upgraded to play the new music. If the consumer chooses not to upgrade, the device
will not play new music releases that incorporate SDMI technology. (Livingston, 1999)
In December 1999, SDMI published a document outlining the technical functionality for the
Phase II screening technology for portable devices and future applications. SDMI will soon issue an
official Call for Proposals inviting responses from interested technology vendors. The Phase 2 Screen
shall determine whether the content (a file that has been digitally downloaded) has undergone
unauthorized compression. It will need to transmit and detect a "no more copy' status as well as to remark, re-encode or otherwise change the state of particular content (e.g. "one generation copy allowed" to
"no more copies"). The key technical factors likely to be considered by SDMI, from companies
submitting proposals for Phase 2 Scrreening requirements include:
1. audibility;
2. robustness;
3. tamper resistance;
4. reliability (e.g. no false positives);
5. renewability;
6. ease of implementation;
7. commercially practicable;
8. efficiency of operation (e.g. computational requirements); and
9. should not significantly affect the abIlity to compress the content.
CONCLUSION
The digital downloading of music over the Internet has created an environment where the legal
rights of copyright owners are continuously infringed. With compression technology such as MP3, web
users may place copyrighted music on the Internet for illegal downloading or retrieve digital downloads
from sites that have not obtained the copyright owners permission. As an industry response to the ever
increasing priacy of music over the Internet, SDMI was formed. SDMI consists of over 120 companies
representing the recording, technology and computer industries. The purpose of SDMI is to facilitate the
creation of technolgy that will allow the distribution of music, in a secure format, over the Internet.
SDMI will implement its sweeping recommendations in two phases. Phase I was completed in the fall of
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1999 and included audio watermarking technology, developed by ARIS Technologies Inc,. for use in the
initial Phase I portable devices. Phase 2 technology (to be completed by late 2000), will allow detection of
the watermark and allow consumers to upgrade their Phase I devices. If the consumer chooses not to
upgrade, the device will not play new music releases that incorporate SDMI technology. By providing a
way for music to be delivered in a secure format, SDMI systems will protect the copyright owner's rights
while expanding the opportunities for music to be marketed and distributed over the Internet.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Anonymous (1999). "The Big Five Hit The Web." The Economist, Volume 351, May 1999, 63-64.
Anonymous (1999). "Science and Technology: Dgital Rights and Wrongs." The Economist, Volume
352, July 1999, 75-76.
Anonymous (1999). "SDMI Watermark Selected." Electronic News, Volume 45, August 1999, 22.
Anonymous (1999). "SDMI Grounds The Rumors." Audio, Volume 83, September 1999, 25-26.
Dibbell, Julian (1999). "A Chat with Mr. MP3." Rolling Stone, Volume 812, May, 1999, 97-98.
Livingston, Brian (1999). "Readers Share Their Opinions about The New Music Standard and Why It
Will Fail." InfoWorld, Volume 21, August, 1999, 46.
Robinson, Sara (1999). "Recording Industry Escalates Crackdown on Digital Piracy." New York Times, C
(October 4, 1999), 5.
Yoshida, Junko (1999). "Secure Digital Music Initiative Hits Sour Note." Electronic Engineering Times,
Issue 1080 (September 27, 1999), 4.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 330
INTRODUCTION
The lifestyle of individuals has been of much interest to marketers. During the late 1960's, in
response to the pressing need to better understand their customers, marketers started to combine
demographic analyses of their customers with information on their customer's lifestyles. This research, in
which the patterns in which people live were examined, came to be known as psychographic research, and
consisted of analyzing the consumer's Activities, Interests, and Opinions (AIO). As a result, the term AIO
research and psychographic research have come to represent the same type of lifestyle analysis.
Although the actual psychographic research is quantitative in nature, it is also qualitative in that
it offers marketing practitioners an understandable portrait of their customers. Thus, lifestyle research
plays an integral part in the quest to better understand the consumer. Marketers have, over the past
decade, developed measures of individual lifestyle that have proven to be both reliable and valid. The
technique used is known as AIO research or psychographic research. This research questions individuals
as to their activities, interests, and opinions. If the unit of analysis is changed from the individual to the
family, many of the same AIO techniques should be appropriate for conducting sociographic research on
the family lifestyle (Wind and Green, 1974). This change in terms of unit of analysis is in line with other
behavioral sciences, which have used the lifestyle concept to analyze not only individuals, but also groups
such as families (Hawkins, Best, and Coney, 1998).
The logic behind utilizing the same techniques for the measurement of family lifestyle as an
individual's lifestyle is the premise that within the family relationship, individuals develop and maintain a
shared perspective of the world (Olson, et al., 1983). Therefore, rather than considering just an
individual's perception of the world, it is possible to consider a family's view of the world (Reiss, 1981).
In order to measure the family's view, couple average lifestyle scores were computed for the AIO items,
i.e., families were conceptualized as having a shared perspective on their activities, their interests, and
their opinions.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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METHOD
The data analysis presented determined if the concept of family lifestyle is useful in predicting
family purchasing behavior for both new and used cars for families in the Preschool Age Stage of the
family life cycle purchase. Purchasing behavior is often considered an integral part of the lifestyle
conceptual frameworks (Cosmas, 1982). Therefore, it was logical to include purchase variables as
indicators of the purchasing habits of the family, rather than the individual, and thereby link the family
consumption process with the family lifestyle. The analysis determined if there were significant
differences in family lifestyle scores between families that purchased new and used cars vs. families that
did not purchase an automobile. H1 is the general null hypothesis investigated.
H1 For families in the Preschool Age Stage of the family
life cycle, the family lifestyle scores will not be significantly different on the basis of
purchase behavior.
In line with the above, a pool of AIO statements was analyzed to determine those which were
compatible with the concept of family lifestyle. These AIO statements were based on general patterns of
lifestyle as opposed to product-specific AIO analysis (Engle, Warshaw, and Kinnear, 1994). Most of the
AIO statements in the pool came from the research conducted by Wells and Tigert (Wells and Tigert,
1971). These general AIO statements have been successfully utilized by numerous other marketing
researchers (Burnett, 1981). The analysis resulting in picking 36 AIO statements which measured eleven
conceptual factors. The eleven conceptual factors were:
Sports Orientation
Orientation
Price Consciousness
Depth of Horizons
Community Orientation
Adolescent Orientation
Financial Satisfaction
Credit Orientation
Market Innovativeness
Financial Optimism
Cultural
Home Orientation
page 332
scores for the family lifestyle variables that are significant different between the families that purchased
new or used cars vs. those that didn't are presented.
RESULTS
In Table 1, the significance levels of family lifestyle scores vs. the number of new and used cars
purchased in the last 24 months are presented.
Table 1
Significance Levels of Family Lifestyle Scores vs. Number of Cars Purchased in Last 24 Months
Significance
New
Used
Sports Orientation:
Cars
L04 I thoroughly enjoy conversations about sports.
Cars
.630
.136
.442
.087
.054
.788
Community Orientation:
L07 I do volunteer work for a hospital or service organization on a fairly regular basis.
.893
.249
.861
.039
.728
.077
.487
Credit Orientation:
L15 It is good to have charge accounts.
L19 We like to pay cash for everything we buy.
L20 We buy many things with a credit card or a charge card.
.004
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.000
.013
.000
.115
.000
page 333
.965
.024
Cultural Orientation:
L01 I enjoy going through an art gallery.
.480
.003
.414
.776
Price Consciousness:
L02 In our family, we usually watch the advertisements for announcements of sales .
.038
.539
.198
L23 A person can save a lot of money by shopping around for bargains.
.148
.994
L29 I find myself checking the prices in the grocery store even for small items.
.031
.642
Significance Levels of Family Lifestyle Scores vs. Number of Cars Purchased in Last 24 Months
Significance
New
Used
Adolescent Orientation:
Cars
Cars
L10 We take a lot of time and effort to teach our children good habits.
.582
.018
L33 Our children are the most important thing in our lifes.
.561
.013
L34 When our children are ill in bed, we drop most everything else
.686
in order to see to their comfort.
.786
.281
Market Innovativeness:
L25 I often try new brands before my friends and neighbors do.
.874
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.362
page 334
L26 When I see a new brand on the shelf, I often buy it just to see what it's like.
.531
.597
.657
Home Orientation:
L09 I like parties where there is lots of music and talk.
.626
.668
L18 I would rather spend a quiet evening at home than go out to a party.
.807
.479
L22 I am a homebody.
.886
.603
Depth of Horizons:
L11 We'd like to spend a year in London or Paris.
.507
.471
.664
Financial Satisfaction:
L13 Our family income is high enough to satisfy nearly all our important desires.
.059
.000
L21 No matter how fast our income goes up, we never seem to get ahead.
.412
.000
.120
Financial Optimism:
L05 We will probably have more money to spend next year than we have now.
.685
.641
L12 Five years from now the family income will probably be a lot higher than it is now.
.333
.284
NEW CARS
As indicated by Table 1, four of the family lifestyle variables for purchasing of new cars are
significant at the .01 level or greater. In Table 2, the mean scores for the family lifestyle variables that are
significantly different between the families that purchased new cars vs. those that didn't are presented.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Table 2
Average Lifestyle Scores vs. Purchase Data
L 13 = Our family income is high enough to satisfy nearly all our important desires.
(1 = strongly agree, 5 = strongly disagree)
Number of New Cars Purchased in Last 24 Months
None
u = 2.809
One or More
u = 2.372
Overall
u = 2.622, T = 5.237, Sig. = .000
L 21 = No matter how fast our income goes up, we never seem to get ahead.
(5 = strongly agree, 1 = strongly disagree)
Reverse Scored
Number of New Cars Purchased in Last 24 Months
None
u = 3.353
One or More
u = 3.005
Overall
u = 3.226, T = 3.802, Sig. = .000
An analysis of the above table allows us to gain significant insight into families that have
purchased new cars within the last 24 months. Family lifestyle variables L13 and L21 both measure the
concept of Financial Satisfaction. The mean of variable L13 goes from 2.809 for families that have not
purchased a new car to a mean of 2.372 for families that have purchased a new car. This movement
indicates that families which have purchased a new car are more likely to agree with the statement that
"Our family income is high enough to satisfy nearly all of our important desires." The mean of variable
L21 goes from 3.353 for families that have not purchased a new car to a mean of 3.005 for families that
have purchased a new car. Since this variables is reverse scored, the movement indicates that families
which have purchased a new car are more likely to disagree with the statement that "No matter how fast
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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our income goes up, we never seem to get ahead." Therefore the purchasers of new cars are more likely to
be satisfied with their financial position.
Family lifestyle variables L15 and L20 both measure the concept of Credit Orientation. The
mean of variable L15 goes from 3.177 for families that have not purchased a new car to a mean of 2.874
for families that have purchased a new car. This movement indicates that families which have purchased
a new car are more likely to agree with the statement that "It is good to have charge accounts." The mean
of variable L20 goes from 3.605 for families that have not purchased a new car to a mean of 3.185 for
families that have purchased a new car. This movement indicates that families which have purchased a
new car are more likely to agree with the statement that "We buy many things with a credit card or a
charge card." Therefore the purchasers of new cars are more likely to be users of credit. In summary,
purchasers of new cars are more likely to be both satisfied with their financial position and users of credit.
USED CARS
As indicated by Table 1, three of the family lifestyle variables for purchasing of used cars are
significant at the .01 level or greater. In Table 3, the mean scores for the family lifestyle variables that are
significantly different between the families that purchased used cars vs. those that didn't are presented.
Table 3
Average Lifestyle Scores vs. Purchase Data
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An analysis of the above table allows us to gain significant insight into families that have
purchased used cars within the last 24 months. Family lifestyle variables L01 measures the concept of
Cultural Orientation. The mean of variable L01 goes from 3.086 for families that have not purchased a
used car to a mean of 3.314 for families that have purchased a used car. This movement indicates that
families which have purchased a used car are more likely to disagree with the statement that "I enjoy
going through an art gallery."
Family lifestyle variables L15 and L20 both measure the concept of Credit Orientation. The
mean of variable L15 goes from 2.938 for families that have not purchased a used car to a mean of 3.223
for families that have purchased a used car. This movement indicates that families which have purchased
a used car are more likely to disagree with the statement that "It is good to have charge accounts." The
mean of variable L20 goes from 3.337 for families that have not purchased a used car to a mean of 3.574
for families that have purchased a used car. This movement indicates that families which have purchased
a used car are more likely to disagree with the statement that "We buy many things with a credit card or a
charge card." Therefore the purchasers of used cars are less likely to be users of credit and less likely to
enjoy cultural events. In summary, purchasers of new cars are more likely to be both satisfied with their
financial position and users of credit as opposed to purchasers of used cars who are less likely to be users
of credit or less likely to enjoy cultural events.
CONCLUSIONS
The purpose of this study was to determine if a non-multivariate analysis of family lifestyle
variables would result in a better understanding of purchasers of various durable products. An
examination of the results indicates that the family lifestyle is a most useful concept in that it truly helps
marketing practitioners provide an understandable portrait of their customers. Thus, family lifestyle
research plays an integral part in the quest to better understand the consumer.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Burnett, J. (1981). Psychographic and Demographic Characteristics of Blood Donors. Journal of
Consumer Research, 8, 62-66.
Cosmas, S. (1982). Life Styles and Consumption Patterns. Journal of Consumer Research, 8, 453-455.
Engel, J., Warshaw, M. & Kinnear, T. (1994). Promotional Strategy: Managing the Marketing
Communications Process. 158.
Ferber, R. and Lee, L. (1974) Husband-Wife Influence in Family Purchasing Behavior. Journal of
Consumer Research, 1, 43-49.
Hawkins, D., Best, R. and Coney, K. (1998). Consumer Behavior. 434.
Kotler, P. (1997). Marketing Management: Analysis, Planning, Implementation, and Control. 180.
Murphy, P. and Staples, W. (1979), A Modernized Family Life Cycle. Journal of Consumer
Research, 6, 12-22.
Olson, D., et al. (1982). Families: What Makes Them Work.
Reiss, D. 1981. The Family's Construction of Reality.
Wells, W., and Tigert, D. (1971) Activities, Interest, and Opinions. Journal of Advertising
Research, 11, 27-35.
Wind, J. and Green, P. (1974). Some Conceptual, Measurement, and Analytic Problems in
Life Style Research, in Life Style and Psychographics, ed., Wells, 99-126.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 340
SALES MANAGERS
IN DISTRIBUTION CHANNELS
Mehta, Rajiv
New Jersey Institute of Technology
Rosenbloom, Bert
Drexel University
Anderson, Rolph
Drexel University
ABSTRACT
Some scholars and practitioners have speculated that sales managers are de facto channel
managers whose responsibilities go far beyond traditional sales management tasks and functions. To
learn to what extent sales managers may be involved in distribution channel management, a national
survey of sales managers was conducted. Findings revealed that many sales managers are indeed heavily
involved in managing their firms distribution channels.
INTRODUCTION
Evidence from related distribution channel management research suggests that there is a
general absence of channel managers in firms (Jackson and Walker 1980; Walker, Keith and
Jackson 1985). Therefore, it has been argued theoretically that sales managers are the de facto
channel managers, responsible for the administration of their firms distribution channels
(Rosenbloom 1985). Thus, the primary intent of this study was to bridge a gap in the literature by
empirically verifying the extent to which sales managers are engaged in distribution channel
management.
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RESEARCH APPROACH
This study sought to determine whether or not sales managers are also channel managers
involved in administering their firms distribution channels. A national sample of sales managers was
undertaken to assess sales manager involvement in distribution channel management practices from
the perspective of the sales managers. In part one, a self-administered survey was used to gather
information from sales managers on the extent to which they were involved in performing tasks
pertaining to the seven core decision areas of distribution channel management. In part two,
information was sought on general company characteristics and personal data of respondents. The
survey was pre-tested using a convenience sample of thirty sales managers. From 500 surveys mailed,
a total of 178 questionnaires or 36 percent were returned.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Ghemawat, Pankaj (1986), Sustainable Advantage, Harvard Business Review, September-October,
53-58.
Jackson, Donald W., Jr. and Bruce J. Walker (1980), The Channels Manager: Marketings Newest
Aide? California Management Review, 23 (Winter), 52-58.
Kotler, Philip (1997), Marketing Management: Analysis, Planning, Implementation, and Control,
9th Edition, Englewood Cliffs, New Jersey: Prentice-Hall, Inc.
Moore, James and Donald W. Eckrich (1976), Marketing Channels From a Manufacturers
Perspective: Are They Really Managed? in Marketing 1776-1976 and Beyond, Kenneth L.
Bernhardt et al. (eds.)., Chicago, IL: American Marketing Association.
Rosenbloom, Bert (1999), Marketing Channels: A Management View, 6th Edition, Hinsdale, IL:
The Dryden Press.
Rosenbloom, Bert (1995), Channel Management, in Encyclopedia of Marketing, Michael J. Baker
(ed.), London: Routeledge, 551-570.
Walker, Bruce J., J. E. Keith and Donald W. Jackson, Jr. (1985), The Channels Manager: Now,
Soon Or Never? Journal of the Academy of Marketing Science, 13 (Summer), 82-96.
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page 344
ACCESS PROVIDERS
The gold miners' options to get to California were relatively few, including the railroads, ships,
wagons, or even walking, resulting in more a choice of necessity as opposed to a discretionary one. Once
they arrived, getting to a specific local destination for the purpose of mining, even fewer options existed ,
as they typically walked or rode horses or even mules. Fortunately, today's Internet users, in contrast, can
make a more informed decision as to their Access Provider, or link to the Information Highway, and can
consider such competitive criteria as cost, reliability, convenience, speed of service, etc. While there is a
dominant Internet Service Provider (America On-Line or AOL currently has some 20 million subscribers
since the acquisition of Netscape), competitive and technological challenges to this dominance abound,
including: a recent merger of two ISPs, MindSpring and EarthLink, resulting in some 4 million
subscribers, making this new firm #2; recent upstarts such as Freeserve and Netzero offer free Internet
access (vs. AOL's $20 monthly fee), anticipating enough revenue from advertisers will keep them solvent;
also, with AOL's dependence on dial-up services, a need for increased capital expenditures to convert to
broadband capabilities seems imminent; finally, a major competitive threat looms from computer
manufacturers who are bundling Internet access at no charge with the purchase or lease of their
equipment.
Another supplier segment of Access Providers are the "portals", or "search engines", who provide
a linkage to a specific Website, typically with the use of key descriptors or search terminology. Dominant
in this category is Yahoo!, who recently surpassed AOL in user activity. Their growth has been fueled by
acquisitions that generate revenue from subscribers as well as advertisers, as evidenced by GEOCITIES
and Broadcast.com joining the Yahoo! Family. While these Access Providers have become very
profitable, their capital intensity requires large usage and multiple revenue services including usage fees
as well as advertising. The dynamics will certainly charge based on increased consolidation with
anticipated entry by joint ventures headed up by Microsoft, Apple, and AT&T, acquiring such portals as
Excite/@Home, Infoseek, Peoplelink, Prodigy, and Alta Vista.
MINERS/PROSPECTORS
As previously indicated, the Internet has not only created a tremendous demand for goods and
services sold by the Access Providers (ISPs and portals) and the Equipment and Services Providers
(hardware and software), but it in addition has or will significantly affect the marketing and distribution
of goods and services of all other industries. For our Gold Rush analogy, the Miners/Prospectors are those
who sell products and services via the Internet and whose risk/reward trade-off seems much higher then
the two previously discussed categories. For example, in the case of books and music CD's,
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Amazon.com's annual sales are some $1.2 billion, with an anticipated loss of over $150 million, and a
market capitalization of over $21 billion. In contrast, Barnes & Noble, operating as a conventional
retailer, will generate greater sales this year than Amazon, will turn a profit, but has a market
capitalization of only $1.8 billion. Why the huge difference regarding how investors value the two
companies? The answer is pretty straightforward and typical of the Internet-related efficiencies that can
be realized. Amazon's sales are being achieved with a capital and equipment investment of some $56
million. In order for Barnes and Noble to sell $1.2 billion worth of books and CD's, it requires an
investment more then four times that of Amazon to build and operate some 240 stores. In addition,
Amazon's investment generates the capacity to sell up to $15 billion. Business Week projects E-business
related to retailing alone will increase from $18.2 billion in 1999 to some $108 billion in 2003. Existing
E-businesses sell such products direct to consumers as cars, computers and electronics, apparel and shoes,
sporting goods, jewelry and watches, groceries, pet supplies, financial services including stocks, bonds,
and insurance; appliances, furniture, musical instruments, travel and transportation services, toys, art and
antiques, bridal registry/wedding planning services, health products such as prescription drugs and
vitamins, cosmetics, and many others. However, as encouraging as future Internet sales projections are,
many of these Miners/Prospectors may go broke waiting for prosperity, due to their relatively high breakeven points resulting from significant start-up costs, including capital investment and promotion
expenses, as well as the difficulty in building a sustainable competitive advantage resulting in high
customer loyalty. In contrast to the Amazon.com model, which includes the consumer marketing example
cited above whereby losses will typically endure for years, four Miner/Prospector models or strategies will
be proposed which demonstrate profitability can be achieved via Internet marketing in relatively short
order. These include first, business-to-business (B2B) marketing, second, being an electronic broker (of
both products and information services), third, generating subscription fees, and fourth, practicing niche
marketing with its inherent relationship-building capabilities.
ELECTRONIC BROKERS
In contrast to sellers of products over the Internet such as Amazon.com, whose gross margins are
some 10 to 20% due to high investments in warehouses, inventory and accounts receivables, brokers or
auctioneers such as eBay and ONSALE receive a commission on products with no corresponding
investments, and thus generate margins of over 80%. A related concept to this that is gaining momentum
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is the "reverse auction", whereby those desiring to buy a product or service post their target purchase bid
on the Internet, and suppliers then either accept or reject this offer. Examples include Priceline.com,
which focuses on travel, lodging and car rental services, as well as Ewanted.com, which deals in a broad
range of products. As previously mentioned, Freemarket.com also operates under a reverse auction format
in the B2B sector.
NICHE MARKETERS
Just as being a niche marketer (or being a big fish in a little pond) has historically rewarded
entrepreneurs or innovators, similar experiences exist on the Internet, as illustrated by eBay's origins
resting on the interest of collecting and trading Pez dispensers. Some examples of Internet firms with a
narrow /niche offering but a deep assortment include first, Salami.com, specializing in Italian meat,
cheeses, and pasta. This firm, which is located in New York, has generated very loyal Japanese
customers, who even though their shipping costs can be nearly equal to the product costs, are loyal due to
total cost savings and greater quality relative to Japanese suppliers of similar products. Similarly,
HOT2HOT.com has an international clientele while offering 160 brands of chili sauce as its total product
line. Special Exped.com offers trips to destinations having unique ecological, geological, or sociological
elements with experts providing education to a select clientele group. As a result, these niche marketers
can often provide interactive services for their clientele through chat rooms, contests (sweb-stakes),
educational programs and other means of building and maintaining relationships to further a customer's
special interests, such as a vacation or hobby.
In summary, while the Internet offers entrepreneurs and innovators a myriad of opportunities, the
relative risks and rewards need to be assessed when selecting a market target and product/service offering.
For the miners/prospectors who attempt to strike gold via Internet marketing, appreciating the four
avenues or strategies to early profitability discussed herein can make the difference between failure and
success.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Auerbach, Jon G. (1999). "Internet Giants Pool Their Bids for Auction Site to Rival eBay." The Wall
Street Journal. September 17, B1.
Brown, Eryn (1999). "9 Ways to Win on the Web." Fortune. May 24, 112-125.
Eldridge, Earle (1999). "Auto Selles Growing Tangled Web." USA Today. September 21, 3B.
Forest, Deon (1999). "EarthLink to AOL: Watch Your Review Mirror." Business Week. October 11,
130.
Grover, Mary Beth (1999). "Land Grab." Forbes. August 23, 90-91.
Gunther, Mark (1999). "The Newest Addiction." Fortune. August 2, 122-123.
Hof, Robert D. (1999). "eBay vs. Amazon.com." Business Week. May 31, 128-140.
Hof, Robert D. (1999). "A New Era of Bright Hopes and Terrible Fears." Business Week. October 4, 8489.
Maloney, Janice (1999). "The E-trade Stampede." Time. September 6, Time Select Business.
Page, Susan (1999). "E-World Fuels World's Economy." USA Today. June 22, 1A-2A.
Reinhardt, Andy (1999). "Meet Mr. Internet." Business Week. September 13, 128-140.
Wingfield, Nick (1999). "Products to Watch." The Wall Street Journal. July 12, R34.
Zellner, Wendy and Stephanie Anderson Forest (1999). "The Big Guys Go Online." Business Week.
September 6, 30-32. (1996). "Making Money on the Net." Business Week. September 23, 104115.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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page 349
Furthermore marketers employ deceptive practices in advertising messages and engage in unethical
business practices. The topic is especially appropriate for the study of marketing majors because students
described a sales career with words such as "insincerity, deceit, high pressure" (Dubinsky 1978, p 8).
The results reported by Hunt and Chonko (1984) were contrary to expectations. Marketers were
no more Machiavellian than the rest of society. They concluded that the positive regression between
income and Machiavellian in their sample was attributable to age. The relationship was not significant
when the regression controlled for age. Another contrary finding was that women had a higher
Machiavellian score that did men. Hunt and Chonko concluded that it is indeed appropriate for your son
or daughter to marry a marketing person.
The research we report examined the Machiavellian tendencies of college students. If we
conclude from the literature that Machiavellian tactics do not guarantee business success, does the
contemporary college student recognize this lack of relationship? Is the propensity toward Machiavellian
related to major and type of school? Our data were collected from two groups of students: a midwest
regional public business college, and a small southern private university with strong, fundamental
religious ties.
RESEARCH QUESTIONS
Previous research has used various demographic variables as descriptors for the sample.
Generally, younger people tend to have higher Machiavellian scores. Christie and Geis (1970) reported
that college students had higher Machiavellian scores that did college-educated adults. Christie and Geis
suggest that less educated, older adults may be more willing to admit to Machiavellian tendencies than
would the college student. They also concluded that demographic-type variables do not explain much of
the variance in the Machiavellian scores. Rayburn and Rayburn (1996) reported that students paid more
attention to ethical considerations than did business people. They reported that a higher IQ hides
Machiavellian tactics. These results offer interesting questions for further examination. Furthermore, do
college students, regardless of educational major exhibit similar Machiavellian tendencies? Should
students be grouped together (i.e., one size fits all), or does the focus of the respective academic program
impact a student's perception of how to "get ahead"? Does the supposed adherence to a particular
religious dogma suggest an unwillingness to resort to Machiavellianism and instead display a more
socially acceptable demeanor? The specific research questions examined in this research are the
following:
RQ 1: Can college students be delineated by certain descriptor variables?
RQ 2: Does the academic focus impact the student's reported behavior?
METHODOLOGY
Sample
We asked two distinct groups of business college students to complete the questionnaire. One
group was students from a public midwest university with an accredited business college. The university
has an admission policy that requires a specified ACT score and high school rank. The student body is a
mix from rural areas and a major metropolitan area. The second group of students was from a private,
southern university with a religion affiliation. The university has a diverse student body from rural
communities and a smaller metropolitan area. The nature and purpose of the study was not revealed to
students. The researchers believed this to be important because of the desire to measure tendencies and
beliefs, and avoid demand effect as much as possible. That is, the research methodology sought to
measure reported behavior, not what the individual believed to be the appropriate or the socially desirable
behavior. A minimal amount of explanation was provided to students to preclude, or at least reduce the
confounding influence of socially unacceptable responses.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Students in upper-level business classes were asked to complete the questionnaire. Although this
method constitutes a convenience sample and therefore compromises the generalizability of the results to a
student population, it is nonetheless appropriate for a preliminary research effort that will serve as a pilot
study. The researchers propose to employ a more formal and rigorous methodology with the conclusions
drawn from the research reported here. A total of 280 usable questionnaires were received. A summary
of the sample is presented in Table 1.
Table 1
Description of Samples
Public University
Religion Affiliated University
Public
MEN
WOMEN
Major
Major
Marketin
g
Other
Business
NonBusiness
Marketin
g
Other
Business
NonBusiness
32
23
11
37
37
Marketin
g
Other
Business
NonBusiness
Marketin
g
Other
Business
NonBusiness
49
14
10
49
N = 149
Religion
Affiliated
N = 131
Measures
The 20-item Mach IV scale, developed by Christie & Geis (1970), was used in the research
(Appendix A). The Likert format, anchored by Strongly Disagree (1) and Strongly Agree (7), included
reverse scored items so that a high score indicated a high Machiavellian score. Following the format used
in previous research (Christie and Geis 1970; Hunt and Chonko 1984), a total Machiavellian score is
computed by summing the 20 items and adding a constant of 20 to all scores. Therefore, the maximum
score is 160 (7.0 * 20 items + 20), and the minimum score is 40 (1.0 * 20 + 20). The data reported in the
tables reflect this method of computation. The total Machiavellian score is labeled "Mach" in the research
tables.
The 20-item Christie and Geis scale measures the facets of the construct. Nine items measure
Machiavellian tactics, e.g., "The best way to handle people is to tell them what they want to hear." This
facet is labeled "tactics" in our research tables. Nine items measure views of human nature, e.g., "It is
hard to get ahead without cutting corners here and there." This facet is labeled "views" in the research
tables. Two items measure abstract morality, e.g., "All in all, it is better to be humble and honest than
important and dishonest." This facet is labeled "morality" in the research tables. We computed mean
scores for the facets identified by Christie and Geis and report the means in the tables. The computed
Cronbach's alpha of .68 indicates the scale is an appropriate measure of the construct and, although a
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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lower Cronbach's alpha, compares favorably with previous applications, i.e., Christie and Geis (.79) and
Hunt and Chonko (.76).
We included an additional classification question to further distinguish the student groups and to
possibly capture the underlying influence. Specifically, students provided their major field of study which
was collapsed into three categories: marketing, other business, and non-business. Table 1 presents a
summary comparison of the two schools.
RESULTS
A Machiavellian score of 100 or more is generally considered to be high Mach (Hunt and
Chonko 1984). A summary comparison of our results and some of the previous research results is
presented in Table 2. This comparison follows the presentation format used by Hunt and Chonko and
therefore facilitates the discussion. The current student results indicate higher Mach scores for both
sample groups than the previous research results. However, the current sample groups had the lowest
standard deviation, thereby indicating less variance among student responses. The cell sizes were too
small to permit statistical comparisons among the major fields of study. This aspect of the research
project will be examined in a larger and more comprehensive data collection methodology in the future
research suggested by this pilot study.
TABLE 2
Machiavellian Scores of Different Populations*
Mean
S.D.
Reference
108.3
12.9
Touhey (1973)
99.6
12.6
Chonko (1982)
94.0
10.7
Present Research
90.9
9.6
Present Research
90.7
14.3
1782 students
85.7
13.2
84.5
Not reported
1076 marketing
professionals
1477 adults
page 352
men only (public versus private), and for women only (public versus private). Again, higher levels of
Machiavellianism are reported for the public school students.
TABLE 3.1
Public versus Religion Affiliated
All Students
Measure
Significance
Mean*
Public
Religion
Affiliated
Mach
.01
94.04
Tactics
.00
29.95
View
N/S
Morality
.00
7.38
(*Higher mean indicates a higher level of Machiavellianism)
90.89
27.12
5.92
TABLE 3.2
Public versus Religion Affiliated
Men Only
Measure
Significance
Means*
Public
Religion
Affiliated
Mach
.034
95.35
Tactics
.001
30.31
Views
N/S
Morality
.007
7.53
(*Higher mean indicates a higher level of Machiavellianism)
91.76
27.00
6.40
TABLE 3.3
Public versus Religion Affiliated
Women Only
Measure
Significance
Means*
Public
Religion
Affiliated
Mach
Tactics
Views
Morality
.094
.012
N/S
.000
93.00
29.65
90.05
27.25
7.25
5.43
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 353
TABLE 4.1
Men versus Women
All Students
Significance
Means*
Men
Mach
N/S
Tactics
N/S
Views
N/S
Morality
.09
Women
6.96
6.45
Means*
Men
Mach
N/S
Tactics
N/S
Views
N/S
Morality
N/S
Women
TABLE 4.3
Men versus Women
Religion Affiliated Students Only
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 354
Significance
Means*
Men
Mach
N/S
Tactics
N/S
Views
N/S
Morality
.024
Women
6.41
5.43
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 355
REFERENCES
Grant, E. W., Jr. and L. S. Broom (1988), "Attitudes Toward Ethics: A View of the College Student."
Journal of Business Ethics 7, 617-619.
Hunt, Shelby D. and Lawrence B. Chonko (1984), "Marketing and Machiavellianism." Journal of
Marketing 48, 30-42.
La Barbera, Priscilla A. and Zeynep Gurhan (1997), "The Role of Materialism, Religiosity, and
Demographics in Subjective Well-Being." Psychology & Marketing 14, no 1, 71-97.
Likierman, Andrew (1989), "Ethical Dilemmas for Accountants: A United Kingdom Perspective."
Journal of Business Ethics 8, 617-629.
Petersen, Andrea (1999), "All the Hot Gen X Pundits, Like, Vanished." Wall Street Journal August 31,
1999, B1.
Rayburn, J. Michael and L. Gayle Rayburn (1996), "Relationship Between Machiavellianism and Type A
Personality and Ethical-Orientation." Journal of Business Ethics 15, 1209-1219.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 356
APPENDIX
Please respond to the following statements candidlythere are no "right" or "wrong" answers. Use the
following scale to report your agreement with the following statements. Write a number to the
left of the statement on the blank line.
1._____ The best way to handle people is to tell them what they want to hear.
2.
When you ask someone to do something for you, it is best to give the real reasons for wanting it,
rather than giving reasons which might carry more weight.
3.
4.
5.
6.
It is safest to assume that all people have a vicious streak, and it will come out when they are
given a chance.
7.
Never tell anyone the real reason you did something unless it is useful to do so.
8.
9.
10.
All in all, it is better to be humble and honest than important and dishonest.
11.
Barnum was very wrong when he said there's a sucker born every minute.
12.
People suffering from incurable diseases should have the choice of being put painlessly to death.
13.
14.
15.
16.
Most men forget more easily the death of their father than the loss of their property.
17.
Most people who get ahead in the world lead clean, moral lives.
18.
Generally speaking, men won't work hard unless they're forced to do so.
19.
The biggest difference between most criminals and other people is that criminals are stupid
enough to get caught.
20.
Gender
Your Major______________________
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 357
INTRODUCTION
The growth of supermarkets in Hong Kong accelerated in 1973 and showed signs of maturing
around 1985 with some 500 outlets reported (Ho, 1994). Now, the total number of supermarkets in this
special administrative region (SAR) of China has grown to approximately 760 where the two main
supermarket chains, Wellcome and ParkN Shop, alone account for 380 of them. In fact, supermarkets
was the only sector to experience any growth in 1998 (Ma and McAllister, 1999).
In order to increase efficiency, in April 1991 the big and medium-sized supermarket chains in
Hong Kong installed the Electronic Point of Sale Scanning System. The primary objectives were to speed
up retail transactions, minimize pricing errors, save labor costs, improve operational efficiency and
inventory control, and capture critical data to help the supermarkets make better business strategies.
The Consumer Council in mid-1993 tested these scanner systems in 59 different retail outlets (51
of which were from the two big supermarket chains) and found pricing errors in about 3% of the products
surveyed. This error percentage was slightly higher than that found in the United States (Supermarket
Business, 1999). Considering that a large supermarket chain such as Wellcome has more than 200
supermarket stores and 13 million monthly visitors, an error of $0.1 or 0.1gram can cause consumers to
be overcharged millions of dollars more per month.
Surprisingly, while the number of complaints received by the Consumer Council relating to
supermarkets had been on the rise in recent years, it is relatively small considering the volume of yearly
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 358
transactions (Ho, 1994). Only 125 of the 26,800 complaints lodged in 1993 pertained to supermarkets. Ho
(1994) surmised that that the problems might have been resolved at the store level. Given that complaints
related to supermarkets appear in newspapers and magazines regularly, it suggests we may not know the
full extent of consumers concerns in this regard.
In this study, we wish to evaluate the adequacy of Hong Kongs consumer protection laws
concerning product weights and measures and false label problems; test the accuracy of point-of-sales
scanners and scales in a sample of selected supermarkets; and discuss implications for supermarkets and
the Hong Kong government.
METHOD
We chose three of Hong Kongs largest supermarket chains for this study. The Wellcome
supermarket and ParkN shop chains were included because they constitute the largest chains in Hong
Kong, each with over 150 shops in Hong Kong. Jusco, a Japanese hypermarket chain, was included as the
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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third subject because of its increasing popularity and success. In all, thirty-seven supermarkets were
surveyed. Since it was not the purpose of this study to evaluate the performance of individual supermarket
chains, every effort has been made to protect the identity of the chains and branches. Only aggregate
results are reported whenever possible.
In this study, we considered a price scan as accurate when it matched the price labeled on the
product. For products with only an aisle price display, we considered the price scan as accurate if it
matched the displayed price on the shelf.
From previous experience, we know that scanner errors happen most often with newly changed
price codes. So we randomly tested goods that had just been advertised in a discount curricular during the
week of data collection. As the three supermarket chains all use Central Pricing Systems, we did not
believe the selection of which scanner to test was important.
We tested scale accuracy in two ways. Some scales inside the stores were attached to checkout counters
and were accessible to customers. For those, we loaded a coin purse to exactly 150g on the scale and
used it to check the scales accuracy.
To test the weights of pre-packaged goods, we bought goods in the selected stores and weighed
them in a certified scale.
RESULTS
Scanner results from our survey are reported in Table 1. Price scans of items tested in the ChainA and Chain-C stores were 100% accurate. But out of 28 price scans tested in Chain-B stores, only
92.86% were accurate. The aggregate accuracy across 59 price scans in 37 stores was 96.6%. Overall, the
error rate was only 3.4%. In fact, if results from this survey were generalizable to all supermarkets in
Hong Kong, it would indicate no significant departure from the Consumer Council findings in 1993.
Table 1:
Chain
A
B
C
Total
No. of Products
Tested
17
28
14
59
No. of Correct
Scans
17
26
14
57
Accurac
y
100%
92.8%
100%
96.6%
Overall results of scale accuracy are reported in Table 2. In Chain A, the unit of measurement
used in its electronic scale was in kilogram (kg) with increments of 0.005kg(5g). We tested 56 scales in 15
store, only 3 were inaccurate. Two had discrepancies of +5g while the third was off by +20g. In Chain B,
the unit of measurement used in its electronic scale was in pound (lb.) with increments of 0.01lb. (0.16
oz.). We tested 63 scales in fifteen stores, 11 of them were inaccurate. They discrepancies varied from +
0.21 lb. to 0.16 lb.
In Chain C, there wasnt any scale in the cashier counters. Hence, we purchased the goods then
weighed them afterwards. Out of eleven items, the weights posted on the labels were by and large correct.
However, the packaging materials amounted to anywhere from 0.5% to 2.4% of the weight on which the
final prices were based.
Worth noting is that Chains A and B use net weight to measure their meats, fruits and
vegetables but Chain C does not. It means that consumers should not overlook the weight of packaging
materials used in pre-packaged products sold in Chain C.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 360
A
B
C
Total
56
63
n.a.
119
No. of Correct
Reading
53
52
n.a.
105
Accuracy
94.6%
82.5%
n.a.
88.2%
DISCUSSION
Although the price scans tested were by and large accurate, it only meant that the scanner
systems were updated properly to reflect new price changes. However, we uncovered serious discrepancies
between the price tags on the shelves and the price labels on the goods. In Chain A, almost all information
on price and weight posted on the shelves was different from that shown on the labels of the products. In
some cases, unit prices for individual items in the same vegetable bin varied. For example, wombok
vegetable that was packed on 01/30/99 showed $5.9/kg but the ones packed on 2/2/99 were tagged
$6.9/kg.
We asked the manager in a Chain-A store about these discrepancies. He replied that the prices of
the meats, vegetables and fruits shown on the shelves were just for reference. These were not actual prices.
This was because the purchase prices of meats, fruits and vegetables could vary from day to day; hence
their retail prices would be different. Moreover, when a pack of vegetable had not been sold after a few
days, he added, the store would remove the spoiled sections, re-pack it, re-scale it and re-label it according
to the market price provided by the buyer. Customers would only be charged the price that was shown on
the label of the product.
We also found serious mistakes in the vegetables & fruits counters, meat freezers and seafood
freezers in four out of seven Chain-C stores we visited. Most of the prices shown on the shelves were
different from the information on product labels. The fact that Chains A and B use net weight when
pricing their goods but Chain C uses gross weight makes comparison difficult.
Even a representative of the Custom & Excise Department we spoke to admitted that it was very
difficult to judge the weight accuracy of a pack of vegetable, fruit or meat because it is measured when it is
packed. It means that if the weight of a pack of vegetable is different from the weight shown on its label,
we still cannot say that it is inaccurate because weight might have been lost after packing for a number of
reasons such as, among others, evaporation. But he assured us that consumers are encouraged to report
any discrepancy between weight printed on price labels and actual weight to the Custom & Excise
Department immediately because the Custom & Excise Department investigates only when it has received
a complaint. No wonder customers in Hong Kong have gotten tired of problems at the checkout counters
(Bickers, 1998).
We found fewer such price discrepancies in Chain-B stores. Perhaps because they only showed
the name of the goods and have shied away from displaying unit price on shelves altogether. However, it
had a different problem. Chain B had been promoting its Price Watch program for some time before our
survey was conducted, which guaranteed the lowest price of any product on its Price Watch list. However,
we found at least one item, the 95g PRINGLES Potato Crisps, priced 9% higher than in another
supermarket chain. Although the manager offered to send a floor clerk to verify our claim and sell it to us
at the lower price, he said he wouldnt be able to change the price on the floor even if our claim were
proven valid. One couldnt help but wonder how many unsuspecting customers would be charged the
higher price.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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IMPLICATIONS
Our study has shown that the notion of consumer sovereignty remains a privilege and continues
to elude the average Hong Kong customer. We have uncovered the low level of awareness Hong Kong
consumers have and how easy the retailers can use improper methods to increase their profits.
Unfortunately, it doesnt surprise us to learn that the government does not check the accuracy of
supermarkets scanners and scales regularly, and few retailer in Hong Kong have ever been fined for
overpricing, left alone brought up on criminal charges.
Examples of the Hong Kong governments lax attitude towards consumer protection can be found
in other incidents as well. Take fraud in Chinese herbal medicine sales for example. In 1999 the
Consumer Council has numerous complaints related to the same handful of Chinese medicines and health
food stores that had been exposed in local newspapers for misapplying unit price to defraud unsuspecting
tourists on ginzeng and other expensive medicinal products. It took the government till the end of 1999 to
launch an undercover investigation of these violations. Consider another recent case where a highly
sought-after kindergarten had received HK$10 million in ill-gotten gains from illegally over-enrolling
students beyond its licensed limit over a two-year period. Yet the school was fined HK$50,000.
Clearly, neither the existing legal or voluntary regulatory mechanism is adequate. The time has
come for the Hong Kong government and businesses to take proactive measures to restore consumers faith
in their purchases. The Hong Kong Tourist Association promotes Hong Kong as a shopping paradise
and has been touting the completion of a Disneyland in Hong Kong by 2005 to revitalize the local
economy. Until the increasing number of consumer complaints could be controlled and the Hong Kong
government demonstrates an earnest effort to take direct actions against consumer-fraud offenders, it will
mean a slow but certain demise to Hong Kong's image as a shopping center.
CONCLUSION
A scanner survey in 1998 conducted by the deputy agricultural commissioner for San Diego
County and sealer of weights and measures, showed that more than 10 percent of the merchandise that
went through the checkout scanners in San Diego County stores might be mispriced (Ignelzi, 1998). And
the odds were the mistakes would be overcharges, not undercharges. The authority estimated that scanner
overcharges cost county consumers $33.5 million annually, and cost consumers statewide a total of $250
million every year. It appears the citizens of Hong Kong six thousand miles away are suffering from the
same misfortune.
As Hong Kong citizens become more knowledgeable about their rights, the consumer movement
gains momentum, and multinational corporate giants continue to aggressively promote their service
guarantees, long-term profitability and survival will be determined by lifelong relationships with
customers. Supermarkets and other local businesses alike can only hope to create and retain customers by
surprising them with honesty and trust.
Meanwhile, consumers should keep a close eye on the cash register at time of checkout.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 362
REFERENCES
(1999). Supermarkets Found Best for Scanner Accuracy. Supermarket Business, Vol. 54, No. 1, 11.
(1997). Store Scanners Still Flawed. Tribune News Services, November 27, 3.
(1994/95). Household Expenditure Survey. Census and Statistics Department of Hong Kong.
Bickers, Charles (1998). Check This Out. Far Eastern Economic Review, Vol. 161, No. 13, 64-65.
Ho, Suk-ching (1994). Report on the Supermarket Industry in Hong Kong. Hong Kong Consumer
Council.
Hong Kong Department of Justice (1998). Sale of Goods Ordinance. Current English Ordinance,
Chapter 26 (available at www.justice.gov.hk).
Hong Kong Department of Justice (1997). Weights and Measures Ordinance. Current English
Ordinance, Chapter 68 (available at www.justice.gov.hk).
Hong Kong Department of Justice (1997). Trade Descriptions Ordinance. Current English Ordinance,
Chapter 362 (available at www.justice.gov.hk).
Hong Kong Department of Justice (1997). Public Health and Municipal Services Ordinance. Current
English Ordinance, Chapter 132 (available at www.justice.gov.hk).
Hong Kong Department of Justice (1997). Consumer Council Ordinance. Current English Ordinance,
Chapter 216 (available at www.justice.gov.hk).
Ignelzi, R.J. (1998). Why the Total on Your Store Receipt Doesnt Always Add Up. The San Diego
Union-Tribune, November 5, E-1.
Ma, Canny and McAllister, David (1999). Retail Industry Profiles-Selected Economies: Hong Kong
SAR. Stores, Vol. 81, No.2, Section 2, S40.
Reda, Susan (1999). Supermarket Payments. Stores, Vol. 81, No. 2, Section 1, 22-26.
Ross, Julie Ritzre (1997). Study Validates Industry Efforts to Improve Price Scanning
Accuracy. Stores, Vol. 79, No. 1, 90-96.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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for all involved in delivering services to guard against service failures, as well as to monitor citizen
satisfaction and to take appropriate corrective actions as needed.
While all residents must be satisfied with services provided by the city, service failures may lead
some citizens to engage in more direct efforts to resolve problems related to the failures than others did.
These individuals may be the most likely to engage in unfavorable word-of-mouth and to file complaints
with service providers. They may also be the most critical in their evaluations of city management and
employees. It is therefore most important to understand the type of person most likely to engage in such
behaviors, as well as to determine the causes of their dissatisfaction. Consequently, the purpose of this
paper is to examine the complaining citizen.
BACKGROUND
In order to understand satisfaction with city services and the responses demonstrated by
complaining, dissatisfied citizens, three sets of factors should be considered. First, personal characteristics
such as age, gender, years of residence in a community, and income level may predispose some citizens to
be more critical of services and providers than are other citizens. Second, the nature and extent of past
personal experiences with service failures and personnel involved in correcting the failures (service failure
recovery) can be expected to influence the extent to which citizens will engage in complaining behavior.
Third, complaining behavior can be expected to be related to the ways in which city employees and
management respond to service failures, sometimes referred to as service recovery strategies. These
include being prompt and courteous in dealing with complaints, making a concerted effort to resolve
problems as they occur, and exhibiting employee professionalism.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 365
Ones gender may also be related to satisfaction. While men and women might be expected to be
equally likely to evaluate such things as cleanliness of streets and neighborhoods, street conditions, and
many other city aspects, men might be expected to more often play an instrumental role when dealing
with city service related problems (Assael, 1998). Purely as a matter of conjecture, men might therefore be
expected to feel less satisfaction and be more likely to engage in complaining behavior.
Education is another of the demographic variables that may or may not be related to complaining
behavior. Better-educated individuals may have more knowledge of what should realistically be expected
from city service and better informed about city management and problems. They may also be more active
in community activities and projects and provide greater input regarding what the city should and should
not do. Because of these and other factors, the response of city employees might be quite different from
how they would respond to less well educated residents. But, it does not necessarily follow that the bettereducated citizen will be more satisfied and better treated. He or she might also have higher expectations
that must be met for satisfaction to occur. Based on these conflicting possibilities, no a priori position can
be taken regarding the relationship of education, satisfaction, and complaining behavior.
PAST INCIDENTS
There are three logical sources of satisfaction or dissatisfaction with services. These include: (1) a
previous experience in which the service rendered was satisfactory (or better), (2) a previous dissatisfying
experience, and (3) exposure to unfavorable word-of-mouth influences in which the individual bases his or
her responses to city services based on what others have said. Both dissatisfactory experiences leading to
unfavorable evaluations and negative word-of-mouth may be reduced if the individual feels attempts at
resolving problems (service recovery) are adequate. The failure to resolve such problems in a timely
manner will further alienate dissatisfied individuals. Others, who have not personally experienced service
failures, may also become alienated from negative word-of-mouth.
Filing a complaint over service failure and/or recovery efforts potentially reflects a response
substantially more negative than simply feeling dissatisfied. For the complaint to be filed, the problem
must have been perceived as being significant. Efforts to alleviate the problem prior to the filing of the
complaint must also have been insufficient. Complaining behavior therefore can result from actual failures
to solve the problem through effective service recovery efforts or from perceived deficiencies in providing
service recoveries. The first failure (inadequate solution) is caused by not fixing the problem. The cause of
the second failure is less tangible, and may stem from perceptions of "how" service providers respond to
service failures (inappropriate response). As discussed in the next section, appropriateness of response
may be discerned from the interactions between dissatisfied citizens and city personnel. In these
interactions, dissatisfied residents should be made to feel that their concerns are being quickly and
correctly addressed, and that they are being treated in a professional, courteous manner.
MANAGEMENT STRATEGIES
The service recovery literature deals with how firms handle dissatisfaction with a given product
or service along with the actions employed to satisfy or remedy the customer's dissatisfaction (Hoffman,
Rotalsky, 1995). The processes used in this setting provide analogies for understanding citizens served by
cities. Customers who are dissatisfied with a product or service can be recovered. In fact, customers will
often rate their experience more favorably after a firm has successfully corrected dissatisfying experiences
(McCollough and Bharadwaj, 1992), and often the degree of satisfaction will be even higher than with
previous other, more agreeable, interactions. Citizens might be expected to behave similarly if their
problems are adequately handled. This suggests that citizens, who might otherwise be angry, complain,
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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and engage in negative word-of-mouth in telling others of their experiences, might be converted to highly
satisfied if city management and personnel correctly resolve service failures through their service recovery
efforts.
Five basic forms of service recovery are identified in marketing literature (e.g., Johnston and
Hewa, 1997). They include: (1) the squeaky wheel approach, where the firm reacts to complaints on a
case-by-case basis; (2) a systematic response method, where the firm attempts to provide a reliable system
to respond to failures; (3) a distant early warning (DEW) line, where the company tries to generate a
proactive warning system before the failure occurs; (4) a zero defects approach, in which there are no
failures in service delivery; and (5) the on-deck method where the firm responds to failures by other firms.
Complaining citizens represent very good examples of the squeaky wheels city personnel must respond
to on a case-by-case basis. The squeaky wheel approach is the most easily implemented service recovery
strategy and is widely practiced. The problem associated with this method is that only the most vocal
customers tend to complain. They may represent the proverbial icebergs tip. Many others who are
dissatisfied may never complain and therefore receive no redress for their complaints. In city government
experiences, the citizens personifying the squeaky wheel represent potential catalysts, who may further
agitate dissatisfied, non-complaining individuals. Such citizens can be expected to experience increasing
dissatisfaction and anger over time. Correctly accommodating complaining citizens is therefore of more
importance than the sheer number of complaining citizens would suggest.
Complaining behavior, as earlier stated, will occur only if citizens feel they have been offered an
inadequate solution and/or inappropriate response. Inadequate solutions represent service recovery
efforts that have simply not worked sufficiently well to solve the problem. Storm or sewage drainage
problems may, for example, require rebuilding drainage systems or by re-designating some areas as flood
planes. Given the nature of city finances, less expensive solutions will often be employed. The drainage
system may be cleaned instead of replaced. The procedures to follow to improve satisfaction and decrease
the likelihood of complaints stemming from inadequate solutions are relatively straightforward. Since
errors in resolving problems result from what is done, find and use appropriate solutions. Dissatisfaction
arising from inappropriate response, on the other hand, results from perceptions of deficiencies in how
city personnel respond to service failures. The service recovery literature suggests four important methods
by which constituents will respond more positively to service providers. These methods would appear to be
equally applicable to municipalities. They include promptness, courtesy, effort, and a sense of
professionalism.
Promptness means the customer or citizen received a quick response to a problem, even if the
reply was unsatisfactory. For example, a phone call questioning a new city ordinance may not yield a
change in the ordinance, but the caller may be impressed that his or her questions were answered
expediently. Since there are so many stories about slow and cumbersome reactions to problems with city
services, a citizen who is pleasantly surprised by a prompt action or answer should feel more satisfaction
with both the city service and the manager who is in charge of that service (Johnston and Hewa, 1997).
Conversely, if responses are not prompt, lower levels of satisfaction will occur. This is one of the factors
potentially contributing to complaint related behavior. Complaining citizens may feel city personnel do
not deal with their problem(s) promptly.
Courtesy is also expected to build satisfaction with city services, and service in general. In
governmental settings, it is not unusual to expect uncaring, impolite, even rude interactions with
employees. Therefore, one who receives what is perceived to be a polite response should report greater
satisfaction as a result.
A concerted effort to resolve a problem is going to impress the recipient of any service. Again,
even if the result is less-than-satisfactory, the simple effort made to garner a favorable solution should
generate greater satisfaction with city leaders and the services they try to provide (Hoffman, Kelley, and
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Rotalsky, 1995). Thus, discourteous treatment is an additional factor capable of resulting in complaining
behavior.
Complaining behavior may also reflect perceptions of lack of professionalism in handling
problems, since it has been shown to be related to satisfaction with services provided (Folkes, Koletsky,
and Graham, 1987). Most customers feel more assured and comfortable when they believe they are
dealing with someone who "knows what (s)he is doing."
Perceptions of inappropriate responses, and complaining behavior, can result from any of the
above. Therefore, to ensure service recovery efforts succeed, city managers should create managerial
strategies to increase promptness, courtesy, effort, and professionalism exhibited by employees. Hiring
practices, training and education programs, reward systems, reminders, and even discipline can be
tailored to focus city workers on the importance of providing not only quality services, but also quality in
terms of the manner in which those services are provided to local citizens.
HYPOTHESES
In summary, five hypotheses were tested in this research effort. Stated as the null, they were:
METHODOLOGY
The authors of this study were retained to prepare, distribute, and analyze a citizen survey in a
small Midwestern city. As part of the arrangement, the authors were given permission to write academic
reports based on additional analyses of the data. The data were collected via a random-sample mailing.
The city was divided into quarters, with one portion of town receiving a slightly higher percentage of
surveys, due to the socio-economic conditions in that area. This area was a lower-income neighborhood,
where lower response rates would ordinarily be expected. The tactic worked, and a more representative
sample was achieved. A total of 1,500 questionnaires were sent to individual households within the
community. A cover letter written by the mayor encouraged recipients to respond, and the local media
provided significant coverage of the process. Following a two-week waiting period, a second mailing of
questionnaires was sent to non-respondents.
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SAMPLE
Seven hundred and seven (707) usable questionnaires were returned, representing a 47.1%
response rate. The small size of the community (15,000 persons) was believed to have contributed to the
high response rate. Demographic information regarding this sample is as follows:
The sample consisted of 41% male and 59% female participants.
The ages of respondents were:
18 to 24 years old, 71 persons (10%);
25 to 34 years old, 105 persons (15%);
35 to 49 years old, 201 persons (29%);
50 to 64 years old, 126 persons (18%);
65 years or older, 195 persons (28%).
The income levels of respondents may be summarized as follows: under $15,000, 141 respondents
(22%); $15,000-$29,000, 175 persons (27%); $30,000-$49,999, 170 people (26%); and $50,000$74,999, 63 people (10%).
The average years of residence in the city was 26.2. Only 46 (7%) of the surveys indicated that the
individual had lived in the city one year or less. The two most common answers regarding their
workplace were: (1) the respondent worked locally, or (2) was retired. Similar results were obtained
regarding the workplaces of respondents' spouses.
Two hundred and forty-two of 707 respondents indicated that they had voiced complaints with one or
more departments within the city government.
MEASURES
Discussions with city management, concerned citizens, elected officials, and community and
business leaders generated a list of 16 city services respondents were asked to rate through the use of a five
point bipolar scale ranging from 1 = very poor to 5 = very good. The last item of the list asked for an
overall rating of city services through the use of the same scale. Respondents were also asked to follow a
similar process to rate city administration and six different functional areas or departments identified as
service providers. Respondents were given the opportunity to indicate not applicable (coded as a missing
value) for areas with which they had no interaction. Additional rating scales were used to evaluate the
citizens interactions with City employees in general over variables of promptness, courtesy, effort, and
professionalism. Each was assessed through the bipolar scale 1 = very poor to 5 = very good.
Demographic information was collected as follows. Age was reported in various ranges, including 1824,25-34, up to 65 and older. Years of residence were reported as ranges, beginning with one year or less
and with 30 years or more at the other extreme. Income was reported in $15,000 increments, beginning
with less than $15,000 at one extreme; and over $75,000 at the other. Reporting a past complaint with the
city was measured through a dichotomous yes-no choice.
ANALYSIS
Multivariate analysis of variance was employed to produce all data used in examining the studys
hypotheses. This procedure permits the testing of joint and individual means for multiple dependent
variables across groups, as well the use and testing of the nature and effects of covariates (Hair, Anderson,
Tatham and Black, 1998). This study examined three different group comparisons. Two groups were
formed, persons having filed one or more complaints versus persons not filing a complaint. The groups
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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were then compared over (1) the 17 items used in rating city services, (2) the seven items involved in
ratings of City administration and six departments or functional areas, and (3) the ratings of the four
items of employee professionalism, courtesy, efforts, and promptness. In each of the analyses, complaining
and non-complaining citizens were compared over their joint answers to the specific set of items.
Multivariate analysis of variance also produces univariate f-test results that indicate which specific items
of an examined set contribute significantly to differences identified in joint mean comparisons. These
univariate results were used to more specifically identify how complaining residents differed from noncomplaining. Finally, selected demographic characteristics were used as covariates in all analyses. These
covariates were examined to determine whether demographics were or were not related to complaining
behavior.
RESULTS
The original hypotheses were stated in the null. Results generated from the analyses indicate that
all five hypotheses must be rejected in favor of the alternative. Tables 1 through 4 contain data related to
each hypothesis tested. The first hypothesis tested was:
H1: Complaining citizens will not differ significantly from non-complaining citizens in satisfaction with
services provided by the city.
As the data of Table 1 Indicate, this hypothesis was rejected. Complaining citizens differed in
their joint responses to the various items measuring satisfaction with city services (sig.=.000). The
univariate results indicate the groups differed significantly over satisfaction with removal of snow and ice,
residential street lighting, general condition of streets, debris, weed, and junk removal, neighborhood
storm drainage, removal of storm debris, animal control service, and police department service. They also
differed in their overall satisfaction with services provided by the city. It would therefore seem that
complaining citizens were primarily dissatisfied with the overall cleanliness of the city, efforts to handle
drainage problems, and with the condition of streets and lighting. However, complaining citizens did not
differ significantly from non-complaining citizens in their satisfaction with fire department services,
recreational programs, airport facility and services, memorial auditorium events, water services, and
downtown parking.
page 370
The second and third hypotheses, which follow, examined group satisfaction with City
administration and various departments or functional areas.
H2: Complaining citizens will not differ significantly from non-complaining citizens in overall
satisfaction with city management.
H3: They will not differ significantly in how satisfied they are with each department of city management.
The process through which these hypotheses were tested differs from those used in other tests.
This was necessary because respondents were given the option of indicating they had not interacted with
the various areas. Such responses were assigned a missing value code. Consequently, there was some
variation in the number of respondents evaluating each area. MANOVA analyses exclude missing values
list wise. Only those who answered all items are included. The number of respondents doing so was
substantially less than the total number of participants (324 of 707). Consequently, to provide a more
complete comparison of the two groups, separate oneway analysis of variance comparisons were
conducted for each item. This permitted the inclusion of all respondents evaluating a specific item. Table
2 contains the results of both the multivariate and oneway analyses. The procedures produced highly
similar results. The sole difference was satisfaction with the police department. When all respondents
rating the departments were included, complaining citizens differed significantly from non-complaining.
The two groups did not differ in the multivariate analysis.
Hypotheses 2 and 3 were rejected. As the data of Table 2 indicate, complaining citizens differed
significantly from their non-complaining counterparts over all but one of the items (satisfaction with the
fire department) included in evaluating City administration and departments. The multivariate analyses
indicate the differences were joint and global; complaining respondents exhibited overall lower levels of
satisfaction. As illustrated by the univariate results, the means for this group were consistently lower than
for non-complaining citizens. They assigned lower scores to City administration, parks and recreation, the
finance department, both departments of Public Works (engineering and codes and streets and sewers),
and the police department.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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_______________________________________________________________________
The final hypothesis implied there would be no significant differences in demographics between
the two groups:
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---
page 373
.218 .000
.141 .000
---
--
--.329
-.222 .031
--
.162
.246
.001
.295
.279
.177
.000
-.000
-.191 .000
.000
-.000
-.000
--
---
-.277 .021
---.254 .042
--
.185
.139
.147
.121
.211
.336
.149
.001
.006
.004
.042
.000
.000
.000
--------
--------
--.251 .007
.186 .048
.236
.157
.164
.158
.000
.000
.000
.000
-----
-----
--
-----
________________________________________________________________________
_____________
DISCUSSION AND CONCLUSIONS
As noted earlier, this study investigated the effects of both controllable and non-controllable,
demographic factors which might influence perceptions of satisfaction with city services and
consequential complaint behavior. The findings reveal that age is the single non-controllable factor
consistently correlated with evaluations of city services and complaint behavior. Gender is a factor of only
occasional influence. Income and education are of even less importance. It therefore appears satisfaction
and complaint behavior stem primarily from controllable factors. These are the things the city does or
does not do to solve problems and the perceived manner, in which employees do or do not do those things.
Inadequacies in these areas were earlier identified as insufficient solutions and inappropriate
responses. All cities will inevitably experience service failures. Storm damage happens. Water rises and
sewer systems overflow. Litter and trash accumulate, ad infinitum. If elected officials, city management,
and city employees want to prevent dissatisfaction, negative word-of-mouth and complaint behavior,
service recovery strategies must offer both sufficient and appropriate problem solutions and responses.
Each of the analyses indicate a significant global effect will occur in how dissatisfied,
complaining residents respond to service failures. If they reach the point of complaining, they will be
dissatisfied with more than simply the area(s) related to the complaint(s). This study showed that most of
the city services examined were rated lower by complainants than by non-complainants. This global effect
will apply to ratings of city management as well. Residents reaching the point of filing complaints will
perceive the city manager and his or her departmental or functional managers and employees less
favorably than residents not filing complaints will. These individuals will be less well satisfied with the
behavior of employees with which they interact, rating them lower on professionalism, courtesy, efforts to
resolve problems, and the promptness with which they respond.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 374
Earlier, the squeaky wheel approach, systematic response method, distant early warning (DEW)
line, zero defects approach, and the on-deck method were identified as ways firms handle dissatisfaction
with a given product or service along with the actions employed to satisfy or remedy the customer's
dissatisfaction (Hoffman, Rotalsky, 1995). The squeaky wheel approach emphasizes taking care of the
most noticeable of dissatisfied customers. For cities, complaining citizens represent the wheel that squeaks
loudest. As noted in the service recovery literature, a person who has a problem effectively resolved is
more likely to report greater satisfaction with the organization (McCollough and Bharadwaj, 1992).
Similarly, citizens will react to correctly solved problems positively. Therefore, the clear message for city
managers and their employees is to effectively and positively resolve as many complaints as possible to
generate greater levels of goodwill toward the city's government. Residents can be expected to respond
positively when their contacts with the city are met with appropriate responses. While managers may
lack the ability to immediately offer sufficient solutions to all problems, they can and should make
concerted efforts to improve relations with the public. These efforts should include instilling employees
with the importance of prompt, courteous and professional attempts to resolve problems and answer
complaints. Employee reward systems should include commitment to quality service as a most important
component.
Future studies may be geared toward better understanding how other factors influence
dissatisfaction and complaining behavior. There should be an attempt to develop a better understanding of
how citizens form their perceptions regarding the employees courtesy, professionalism, promptness, and
efforts to resolve problems. These are abstract concepts. They may be formed as a result of specific
behaviors engaged in by employees, or by inferences drawn from things not done by employees. It may not
be possible to develop effective training and educational programs and strategies to increase the level of
satisfaction with city services without knowing how such perceptions are formed. Furthermore, additional
research might address the issue of what constitutes an acceptable level of these behaviors. This could
provide more specific information for use in creating more appropriate responses in service recovery
efforts. Future studies might also attempt to determine how strategies other than the squeaky wheel
approach might be employed to reduce citizen dissatisfaction and complaining behavior. While it is not
realistic to expect providers of city services to provide zero defects, since many of the problems cities
encounter are uncontrollable, some cities may use the systematic response method in anticipating the
needs of citizens. Others may rely upon a distant early warning (DEW) line approach. Still others may use
the on-deck method. Research might compare the satisfaction of residents of either of the latter types of
cities to that of residents of other cities using a squeaky wheel approach to determine which provides the
highest levels of satisfaction.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 375
BIBLIOGRAPHY
Assael, Henry (1998). Consumer Behavior and Marketing Action. Cincinnati, OH: South-Western, 6
edition.
Baack Donald and Kenneth E. Clow (1996). Organizational Commitment Levels Among Clergy: An
Empirical Investigation. Journal of Ministry Marketing and Management, Vol.2 (2), 8 1-95.
Baack Donald, Kenneth E. Clow, and Jerry D. Rogers (1998). Service Failure, Service Recovery, and
Satisfaction with City Services. Proceedings, Southern Marketing Association meeting, New
Orleans, Louisiana.
Clow, Kenneth E. and Altan Erdem (1998). The Role of Consumer Expectations on Attributions, Service
Recovery, and Brand Attitude in Service Failure Situations, Proceedings OF the Southwest
Decision Sciences Institute, meeting, Dallas, Texas, in press.
Cohen, Jacob and Patricia Cohen (1983). Applied Multiple Regression/Correlation Analysis for the
Behavioral Sciences. Hillsdale, NJ: Lawrence Edbaum Associates, Publishers, second edition.
Folkes, Valarie S., Susan Koletsky, and John L Graham (I 987). A Field Study of Causal Inferences and
Consumer Research Reaction: The View From the Airport. Journal of Consumer Research, Vol. I
3 (March), 534-539.
Hair, F. H. Jr., R. E. Anderson, R. L. Tatham, and W. C. Black, (1998). Multivariate Data Analysis.
Upper Saddle River, NJ: Prentice Hall, fifth edition.
Hart, Christopher W.L, James L. Heskett, and Earl W. Sasser (1990). The Profitable Art of Service
Recovery. Harvard Business Review, Vol.68, July/August, 148-I 56.
Hoffman, K. Douglas, Scott W. Kelley, and Holly M. Rotalsky (1995). Tracking Service Failures and
Employee Recovery Efforts. Journal of Services Marketing Vol.9, No.2, 49-61.
Johnston, Timothy C. and Molly A. Hewa (1997). Fixing Service Failures. Industrial Marketing
Management, 26, 467-473.
Mathieu, J.E. and D.M. Zajac, (1990). A review and Meta-Analysis of the Antecedents Correlates, and
Consequences of Organizational Commitment. Psychological Bulletin, Vol. 108 (2), 171-194.
McCollough, Michael A. and Sundar G. Bharadwaj, (1992). The Recovery Paradox: An examination of
Consumer Satisfaction in relation to Disconfirmation, Service Quality, and Attribution Based
Theories. Marketing Theory and Application, C.T. Allen, ed. Chicago: American Marketing
Association.
Warren, William E. and Faye W. Gilbert, (1993). Complaint Intentions and Behavior for Products Versus
Services. Th Journal of Marketing Management, Vol. 3, Spring/Summer, 12-22.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 377
Our first prerequisite in marketing is to know the product, in this case the business school. This
means knowledge of the assets and down side of the business schools faculty, staff and ability to help
place graduates in career track jobs. Each member of the marketing department faculty should know
the product and should be able to compare with the best marketers in their geographic location. Now the
situation is to present that product to the best of the business schools abilities. Each of the marketing
professors should be able to analyze the market. They should be able to develop the print
and other materials needed to encourage students to look toward a business school education. The same
principle would apply to the other disciplines in the business school that might vary from college to
college.
There are jobs in most every phase of marketing, management and administration. I would
include the accounting sequence in the administration area. This is a situation that most CPAs would
differ.
Our plan basically pin points all the different career tracks and positions that one can achieve
with a business degree. There is a another plan of paid internships and part time jobs that can enhance the
ability of the student to be part of our Working Through School program. This is not just a summer type
job, but the start of a career track.
The balance of the paper describes the successful marketing program that has taken the
Manufacturing Technology program to just under 100 students within three and a half years. The key
issue is placing students in the business school by utilizing the community college pre-business program.
The key elements of the program are involvement, follow up, designing events that will attract
the students and cooperation from the business community.
During this past summer the need for skilled machinists posed a situation for a community
college. The college needed to fill job request from their advisory board and faced the low enrollment for
summer. Using the basic marketing principles, a hard look was taken at the program. No high school
student wants to attend a summer program, no matter how with while. Going back to his neighborhood a
telling his friend he in summer school denotes less than acceptable. The popular concept is that the
dummies go to summer school. The fact that after successfully completing the summer program they
would qualify for an internship at $7.50 to $10.00 per hour does change the summer school dummy
syndrome. By changing the name of the summer program to Advance Placement Program in
Manufacturing Technology and Machining and advertising the program would only take 12 students for
the summer, if qualified was an unusually successful. The class was fill and 10 of 12 had job at the end of
summer. Most will continue on with their education and have a job to pay for school.
Another special tour of the Illinois Institute of Technology campus was the cooperation of the
community outreach program at the Instrumented Factory for Gears (INFAC) program. The program
sponsored by the U.S. Army Aviation and Missile Command and the IIT Research Institute. The tour is
especially interesting for students as they can see first hand what is involved in manufacturing and learn
about the gear industry.
At the high school level one college invited seniors to visit an ad agency, a factory and an
accounting firm each an experience that should the students the practical aide of several career track
positions. In the sales area visits were conducted at newspapers and other media firms that are in
desperate need of sales staffs along with customer service people. The one rule we had was the students
can asked any questions, but talking about jobs was not permitted.
In another case a career night was held at a local factory. This enabled the parents to come
along and see a modern plant, complete with carpets on the floor and robots on the floor. They parents
learned quickly that very good paying jobs are available. The fact that two parents obtained jobs at the
plant in addition to three internships was a plus for the evening.
In summary a good look should be take a using modern marketing techniques to increase the
enrollment in the business school. The best job security is a full enrollment.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 378
REFERENCES
McKee, Keith E. and Field, Jerry J. (1997) Report on the Bachelor of Manufacturing Technology
Program. 1997.
Peter Johnson and Field Jerry J. (1997)Report on Activities for the Fund for the Improvement of
Post Secondary Education. (FIPSE) 1997 and 1996.
Parnell, Dale. (1995) Why Do I have To learn This. 1995. Cord Publishing, Waco Texas. ISBN 1-55502519-6
Boyett, Joseph H, and Boyett Jimmie T. Beyond Workplace 2000. 1995.Dutton, New York, ISBN Not List
in pre- publication
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valuable lecture time or office hours to discussions of formal exam content and format. The challenge for
researchers in the next few years is to provide much needed evidence that these opportunities produce
very real benefits. The study reported here is just an initial step in providing that evidence and it is
hoped that it will be followed soon by further relevant research so that marketing educators can make
informed choices among the many options available to them.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 381
REFERENCES
Divine, Richard L., J. Holton Wilson, and Hugh G. Daubek (1997), Antecedents of Student Attitudes
toward Computers, Journal of Marketing Education, Summer, 54-65.
Kulik, James A., Chen-Lin C. Kulik, and Robert L. Bangert (1984), Effects of Practice on Aptitude and
Achievement Test Scores, American Educational Research Journal, Summer, 21:2, 435-447.
Phipps, Ronald A., Jane V. Wellman, Jamie P. Merisotis (1998), Assuring Quality in Distance Learning:
A Preliminary Review, A report prepared for the Council for Higher Education Accreditation
Institute for Higher Education Policy, Washington, CD: Institute for Higher Education Policy.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 382
INTRODUCTION
Researchers have investigated numerous factors in order to determine their effectiveness in
stimulating potential sample members to participate in a mail survey. In recent years, particular aspects
of a data collection methodology first proposed by Dillman (1978) and subsequently revised by Salant and
Dillman (1994) has received considerable attention and widespread use.
The following are the principal features of the methodology: (1) a prior notification letter is
mailed to potential respondents shortly before the arrival of the survey package, (2) the questionnaire is
contained in booklet form with an attractive front cover and an open back cover where respondent
comments can be written, (3) each questionnaire is number coded so as to be able to identify respondents
from non-respondents, (4) the survey package contains a personalized cover letter that is individually
signed, (5) a follow-up reminder postcard is mailed to all sample members between four and eight days
after the original mailing of the questionnaire, (6) an incentive to respond is provided, (7) a stamped
return envelope is enclosed and (8) a second questionnaire and a new personalized, individually signed
cover letter is sent approximately three weeks after the first mailing of the questionnaire to all nonrespondents. Additional details are provided in Salant and Dillman (1994).
In 1999, the authors of this paper conducted a large-scale national automobile safety survey that
allowed for various aspects of the Salant and Dillman approach to be tested for their effectiveness. In the
next section of this paper, the factors identified for investigation are discussed. The presentation and
discussion of the research design, the experimental results and the implications for the conduct of future
mail surveys follow this section.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 383
FACTORS
Three pages of survey questions were required in this study. The questionnaire that was
constructed was contained in a booklet and all selected sample members were provided with an
individually signed cover letter, an incentive to respond and a postcard follow-up that was mailed five
days after the initial mailing of the questionnaire. First class postage was used and a stamped return
envelope was provided. While all potential respondents received the above, the remaining aspects of the
data collection strategy differed as four factors (each at two levels) were isolated for investigation.
More specifically, this study sought to determine the relative effectiveness of (1) prior notification
letters, (2) second mailings of the survey questionnaire, (3) alternative methods for identifying
respondents from non-respondents and (4) alternative formats for the design of the questionnaire booklet.
Each of these factors is discussed below.
The purpose of the prior notification letter is to get potential respondents interested in the study
so that they would at least open up the survey mailing when it arrived. Past studies have indicated that
the use of either a prior notification letter or postcard has increased the response rate (Yammarino,
Skinner, and Childers, 1991). Offsetting this positive aspect of a prior notification mailing, however, is
the additional cost that is involved in terms of both money and time.
The purpose of the second follow-up mailing, which is sent to only the survey non-respondents, is
to highlight, once again, the importance of each selected sample member to the ultimate success of the
study. In the design stage of most mail surveys, especially those with financial cost constraints, questions
often arise as to (i) whether a second follow-up mailing (which includes a copy of the questionnaire and a
return envelope) is worth the additional cost and (ii) whether a prior notification letter or a second followup mailing would bring about the greatest increase in the response rate. Previous studies, conducted some
time ago, have suggested that repeated mailings will produce a somewhat higher response rate compared
to prior notification letters and that including a copy of the questionnaire will produce a small increase in
the response rate compared to follow-up reminders that do not include another copy of the questionnaire
(Linsky, 1975; and Heberlein and Baumgartner, 1981).
Because only non-respondents receive a second mailing of the survey questionnaire, it is
necessary that there be some means for identifying the survey respondents from the non-respondents. In
the Salant and Dillman approach, each questionnaire contains an identification number. In order to
alleviate any respondent concerns about this number code, sample members are told in the cover letter
that the reason for such a coding is to enable the researchers to be able to check each respondent's name
off of the mailing list once their questionnaire is returned. In the present study, respondents were also
told that the number code had another purpose. This was that the number code would serve as their entry
number into a raffle in which a new color television set would be awarded to three randomly selected
survey participants.
An alternative approach, which guarantees anonymity to respondents, was tested in this study in
order to determine its relative effectiveness versus the Dillman and Salant questionnaire number coding
approach. More specifically, selected sample members received a postcard in their original survey
package that contained an identification number on it. These potential respondents were told to mail back
their postcard separately at the same time they mailed back their completed questionnaire. Potential
respondents were told that this identification number would enable the researchers to check their name off
of the mailing list and also be used as their entry into a raffle in which three sample members would be
randomly selected to receive a new color television set. No past studies were found in which the effects of
number coding a questionnaire versus the use of a postcard had been tested.
Salant and Dillman stress the importance of the placement of the questionnaire in booklet format,
which includes an attractive front cover so as to make the questionnaire look interesting. They also
indicate that the back cover of the questionnaire booklet should contain as much open space as possible so
as to enable respondents the opportunity to write-in any final comments regarding the survey that they
might wish to make. As indicated previously, a three page questionnaire was required in this study. Two
booklet versions were tested. The first consisted of an attractive front cover and used the two inner pages
of the booklet and the back cover for the survey questions. The second version of the questionnaire used
the front cover and the two inner pages for the survey questions and left the back cover open for
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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comments. Thus, the specific approach suggested by Salant and Dillman (attractive front cover and blank
back cover) could not be tested due to questionnaire length. However, this study will give some indication
as to which has the greatest impact on the response rate -- an attractive front cover or a blank back cover
which provides space for respondent comments.
RESEARCH DESIGN
A full-factorial design in which there were four factors, each at two levels, was used in this study.
More specifically, the design is shown in Exhibit 1.
Second questionnaire
questionnaire
Number Postcard
Code
Code
No second
Number
Postcard
Code
Code
Prior notification letter
As shown above, there were sixteen different treatments (A-P) used in this full factorial design.
Sixteen replicate samples, each containing ninety sample members, received questionnaires using the
descriptions provided above. For example, in the cell labeled A, each of the ninety sample members
received a prior notification letter, a number coded questionnaire that had an attractive front cover and a
second replacement questionnaire (if their original questionnaire was not returned). Similar descriptions
apply to the remainder of the cells. Thus, in total, there were 16x90=1,440 potential respondents.
The population consisted of households within the United States and the sample was obtained
from a nationally known firm specializing in the production of high quality and representative samples.
The subject matter of this survey consisted of respondent opinions regarding proposed rules and
regulations related to various automobile safety issues. If a particular survey questionnaire package was
returned due to an incorrect address or because the selected respondent had recently moved, a replacement
questionnaire was mailed to another randomly selected respondent.
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EXPERIMENTAL RESULTS
Five hundred twelve of the 1,440 (35.5%) questionnaires were completed and returned by the
survey cut-off date. The smallest percentage of completed returns came from cell G where only 24.4%
(22/90) questionnaires were returned. The highest rate of response came from cell A where 44.4%
(40/90) of the questionnaires were returned. The response rate for each of the sixteen cells is given in
Exhibit 2.
Standard procedures (Davies, 1967) were used to determine main and interaction effects of the
four factors. The results of this statistical analysis are given in Table 1. Two of the main effects were
found to be significant -- one at the .01 level and the other at the .05 level of significance. More
specifically, the use of the second follow-up mailing (40% vs. 31%) was highly significant at the .01 level
and the use of the prior notification letter (38% vs. 33%) was significant at the .05 level. Neither of the
other two main effects -- the number coding of the questionnaire or the type of booklet that was used
significantly affected the decision to respond. The same result was obtained for all of the two-way and
higher order interaction effects.
44.4%
42.2%
30.0%
35.5%
37.7%
24.4%
38.9%
43.3%
32.2%
38.9%
41.1%
33.3%
40.0%
Attractive front cover
25.6%
30.0%
Open back cover
No prior notification letter
28.9%
Exhibit 2. Response Rate by Cell
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 386
Table 1
Analysis of Variance Table
Source of variation
Effect
Mean Square
DF
F ratio
Main effects:
Attractive front cover (A)
- .007
.5625
.046
68.0625
.16
7.12*
Number code on questionnaire (C)
- .013
5.0625
297.5625
.53
Second mailing of questionnaire (D)
31.12**
Two-way interaction effects
AB
AC
AD
BC
BD
CD
..040
.013
.001
.010
.007
.004
.096
52.5625
5.0625
.0625
3.0625
1.5625
.5625
1
1
1
1
1
1
9.5625
5.49
.53
.06
.32
.16
.06
5
DISCUSSION
As indicated previously, each of the n=1,440 potential respondents in this survey received a
personalized, individually signed cover letter, a stamped return envelope, an incentive to respond and a
postcard follow-up mailing five days after receipt of their survey package. This particular experimental
study looked at the incremental effects of four additional factors that were thought to affect the overall
response rate. The experimental results indicated that a second mailing of a duplicate questionnaire and
the use of a prior notification letter significantly increased the response rate. Further, the results indicated
that these effects were additive.
The use of a number coded return postcard to guarantee anonymity to respondents was shown not
to be worth the additional cost compared to the number coding of the questionnaire as recommended by
Salant and Dillman. Similarly, it does not appear to matter whether an attractive front cover or a blank
back cover is used. Ideally, both could be used in a survey although this was not possible in this
experiment.
In summary, given the basic ingredients of a mail survey data collection strategy of (1) an
individually signed, personalized cover letter, (2) a stamped return envelope, (3) an incentive to respond
and (4) a follow-up postcard mailing, these results indicate that a significant increase in the response rate
can be achieved by using both a prior notification letter and a follow-up mailing which includes a
replacement questionnaire.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 387
REFERENCES
Davies, Design and Analysis of Industrial Experiments. New York:Hafner Publishing Company, 1967.
Dillman, Mail and Telephone Surveys: The Total Design Method. New York:John Wiley & Sons, 1978.
Heberlein and Baumgartner (1981), "Is a Questionnaire Necessary in a Second Mailing," Public Opinion
Quarterly, Volume Forty-five, Number One, 102-108.
Linsky (1975), "Stimulating Responses to Mailed Surveys: A Review," Public Opinion Quarterly, Volume
Thirty-nine, Number One, 82-101.
Salant and Dillman, How To Conduct Your Own Survey. New York:John Wiley & Sons, 1994.
Yammarino, Skinner, and Childers (1991), "A Meta-analysis of Mail Surveys," Public Opinion Quarterly,
Volume Fifty-five, Number Four, 613-669.
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page 388
INTRODUCTION
This paper represents an approach to teaching international or global marketing. It is also a
primer for anyone who wants to expand a business beyond their national boundaries.
There are three steps in discussing international or global marketing. The first is to explain why
a firm would go global. The second is a brief outline of the various methods of going global. The third
looks at the problems in going global. This is important because there is still a belief that the whole world
can be satisfied with a single marketing mix.
WHY GO GLOBAL?
Ansoff's (1965) growth matrix explains why a firm would expand beyond its national boundaries.
Ansoff identified four growth opportunities, Market Penetration (old product - old market), Product
Development (new product - old market), Market Development (old product - new market) and
Diversification (new product - new market). A foreign market represents a clear opportunity for Market
Development, a new market for the existing product.
There is an adage that, it is better to own a market than to own a product. This thinking leads to
the suggestion that Product Development is superior to Market Development. The problem is that
domestically there are a limited number of opportunities for a new product to the old market.
Internationally there are so many new markets that no one global company has yet to cover them all.
Although new products to the old market might represent a better opportunity, there are many more
opportunities in going global to find new markets for the old product. As will be discussed in the third
part of this paper, new markets do pose special problems.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Another way to view going global is that it is market segmentation, specifically geographic
segmentation. A new country not only represent a new segment, but as will be noted below further
segmentation within a country is required.
HOW TO GO GLOBAL
Table 1 covers the various methods of entering and operating in a foreign market. To some
extent, this list is sequential. The farther down Table One, the more involved the firm is in international
marketing. The risk-reward situation changes as the firm progresses down Table One. Risk increases as
the firm becomes more deeply involved but so does the reward.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 390
TABLE ONE
ENTRY & OPERATING STRATEGIES FOR A FOREIGN MARKET
I. Export
A. Indirect Export
1. Domestic Export Distributor
2. Domestic Export Agent
3. Cooperative Export Organization
B. Direct Export
1. Domestic Export Department
2. Foreign Distributors or Agents
3. Traveling Export Salesperson
4. Foreign Sales Office or Branch
II. Joint Ventures
A. Licensing
B. Management Contracting
C. Contract Manufacturing
D. Joint-Ownership Ventures
III. Direct Investment
A. Foreign Marketing Subsidiary
B. Foreign Assembly
C. Foreign Manufacturing
IV. Multinational (Global) Marketing
This is a modification of a Figure by Kotler.
TABLE TWO
AREAS OF DIFFERENCES IN ENVIRONMENT AMONG COUNTRIES
1. Culture
A. Aesthetics
B. Religion
C. Education
D. Social groups
E. Technology
2. Politics and government
A. Type of Government
B. Instability and political risk
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C. Political parties
D. America's image
3. Legal factors
A. Code law versus common law
B. Commercial disputes
C. Arbitration
D. Jurisdiction
E. Intellectual property rights
4. Economic factors
A. Overall level of the economy
B. Economic change
C. Evaluating economic data
D. Business cycles, inflation, unemployment
5. Trade barriers
A. Barriers prohibiting foreign trade and investment
B. Restrictions on the movement of goods
C. Restrictions on the movement of currency
D. Restrictions affecting business structure
E. Restrictions affecting business operations
This table is based on the work of Cateora and Keaveney.
FIGURE ONE
PRODUCT-PROMOTION STRATEGY FOR INTERNATIONAL MARKETS
PROMOTION (COMMUNICATION)
STANDARDIZE
STANDARDIZE
LOCALIZE
I
Typical Export,
Old Marketing Mix
III
Promotion Adaptation,
Old Marketing Mix
except for Promotion
II
Product Adaptation,
Old Marketing Mix
except for Product
IV
Total Adaptation
New Marketing Mix
PRODUCT
LOCALIZE
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5) Exchange and
6) Adaptation.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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open to new ideas or to needed revisions of old success patterns. It is an example of why expansion into
different environments is more difficult and riskier.
LANGUAGE
A word, a phrase, a color, or a symbol can be interpreted differently from one language to
another. Thoughts can lose something in the translation to another language. At other times, a thought
gains something that was not intended. Some examples verified by linguists taken off the Internet by
Schuster and reported by Carpenter (1998):
1) The Dairy Association's brought its "Got Milk?" advertising campaign to Mexico.
The problem was the Spanish translation said, "Are you lactating?"
2) Clairol introduced the "Mist Stick," a curling iron, into Germany only to find "Mist"
is slang for manure. Few people wanted a "manure stick."
3) An American T-shirt maker in Miami printed shirts for the Spanish market honoring
the Pope's visit. Instead of "I saw the Pope" (el Papa), the shirts read "I saw the
potatoes." (la papa).
4) Coors slogan, "Turn it loose," came out in Spanish as "Suffer from diarrhea."
Jokes can be a problem because they may not be understood in another culture.
TRAINING PROGRAM
The politics, history and economics of the foreign country must be studied because they have a
major impact on attitudes. Kemper (1998) discusses the need for and importance of training.
Training programs are required for understanding, being comfortable and being effective in
foreign environments. Family members should be included in these studies where appropriate because the
support system requires information, orientation and consideration as well.
According to Duan (1997), "when in Rome, do as the Romans" refers to success by knowing and
understanding the culture. Protocol Training Services offers etiquette programs as well as many other
organizations that enhance knowledge and behavior of people in other countries. A lack of sensitivity to or
understanding of cultural differences can damage deals. A well meaning American may not know most of
the aspects of protocol when doing business overseas, however they should. This knowledge can be key
asset. Employees are ambassadors of their companies. When they get into uncomfortable situations in
dealing with customers and counterparts in other countries, it looks as bad for the company as it does for
them.
"Employees who are going to be interacting with people overseas need to have the same type of
diplomacy training as a high-ranking diplomat," says Sandra Morisset. She is a graduate of the Protocol
School of Washington and a former United Nations employee who runs her New York based firm,
Protocol Training Services. All levels of employees from corporate officers to project managers and
engineers need to learn the ins and outs of proper behavior.
Kemper (1998) discusses how the increased globalization of business significantly affects the
training profession. In today's environment, training professionals and organizational consultants have to
have intercultural skills and understanding. Training must be adjusted for multi-cultural settings.
Learning how to be flexible and change ideas and approaches according to the specific country is
important.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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EXPERIENCE
Keeping in a protective mode and limiting contact with different people and experiences can
cancel the benefits of crossing national borders. The information gathered and training will familiarize
one with things to know, avoid, and do. It is impossible to learn everything ahead of time and there is no
substitute for being there, doing it, seeing it, asking, listening, and observing.
Hartley goes on to discuss the situation in early 1994 when PepsiCo tried to tap into the Brazilian
market. It was worth a try. Brazil had the third largest soft-drink market in the world, behind only the
U.S. and Mexico due to a growing teen population. It also gave them a chance to compete with their
archrival Coca-Cola, who was already established in Brazil.
This was not the first time Pepsi tried to enter this market. Earlier campaigns had failed. This
time they vowed to be more aggressive. Pepsi planned its strategy around Charles Beach who had been in
the business but had a bad experience with Coke. He was indited on charges of price fixing. He soon
expanded Pepsi in Latin America by building bottling plants, buying new trucks and introducing products
and packages. It was a failure. Pepsi's plants were running at a third of capacity and they were in major
debt. Coca-Cola was following every step with success. Coca-Cola leads the way in almost every foreign
market. The contrast with Coca-Cola is significant. Seventy percent of Pepsi's beverage profits come from
the U.S. Coca-Cola gets eighty percent from overseas.
What exactly were the Pepsi's mistakes? It tried to expand too quickly. It should have established
relationships and moved in more slowly. It also did not watch foreign operations closely enough or soon
enough to prevent rash expansion of facilities and burdensome debt. Did Pepsi learn from its past
mistakes? Finally, it may be that Pepsi is not doing a bad job, it may be that Coke is doing a better one.
EXCHANGE
The flow of ideas, goods and services between countries is how and why the world is becoming a
global economy. As in marketing, the goal is a mutually satisfying exchange. Exchange is how we satisfy
our wants and needs.
Exchange goes beyond goods and services. There is a crucial need for understanding and respect.
Knowledge exchange should be a part of the marketing process. This is as important as the actual goods
or services.
A product's use and meaning can differ from one culture to another. Shoes are forbidden in
Muslim mosques and Buddhist temples. They should never be worn in Japanese homes or restaurants
unless the host insists. In Indian and Indonesian homes, if the host does not wear shoes, the guest should
not. Whenever shoes are taken off, they should be placed neatly together facing the door their owner came
in - particularly in Japan. Marco (1998) notes that doing business overseas is a new ball game.
Understanding the meaning and practice of shoes is a part of marketing shoes.
ADAPT
"When in Rome do as the Romans" is not an outdated adage. It is key for a successful experience
whether it be personal or professional. This adage suggests giving the respect deserved to an established
culture. Cultural understanding can be an important learning experience and mind-opener as well as an
important part of a successful business experience.
In Japan, for example, the giving and receiving of business cards is such a serious occasion there
is actually a name for it meishi. It relates to the ceremony that goes into the exchange of business cards
where much reverence and attention is given to this activity. Giving a Chinese National a watch is about
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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as bad as giving a Hindu a briefcase made out of cow leather or a Muslim a bottle of wine. Duan tells us
the Chinese consider clocks and timepieces to be symbols of death, the ticking away of ones life.
Some areas the astute marketer will consider adapting to the existing environment concern the
product or service itself (for example, steering wheel on the right for the Japanese automobile market), the
message, presentation, strategy, advertising, sales technique, taste, colors, symbols, characters used, the
language and even intonations. Marketing principles of marketing are the same across national
boundaries. It is the specifics that vary.
CONCLUSION
"Going Global" is a growing focus throughout the world. It is crucial that the firm be sensitive to
the global environment. According to Maggie Gillian, President, Gillian & Co.:
"I think a big store cannot just transplant what it has in the U.S. and expect it to fly
overseas. They have to adjust to prevailing market conditions" (Curan, 1998).
Gilbert Harrison, chairman of Financo, adds to this view,
"Every company that has failed, failed because it refused to adapt to the cultural changes
in one country as compared to another" (Curan, 1998).
To quote the title of Curan's (1998) article, "Going Global? Act Like a Local."
1)
2)
3)
4)
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 397
McElroy, John (1998). Blunder of the Decade: Will Acura, Lexus and Infiniti Go Down As The Greatest
Business Blunders of the 1990's, Automotive Industries, November, p.92 (1).
McQuaid, Kevin L. (1999). Overseas next target for outlets, The Baltimore Sun, September 15, p.C1.
Okumura, Earle and Robinson, Raymond G. (1997). Japan and the U.S.: A Winning Combination, Los
Angeles Business Journal, July 28, p.47 (2).
Pachter, Barbara (1997). The Five Biggest Mistakes Americans make when Doing Business Abroad,
Agency Sales Magazine, December, p.40 (2).
Rasmusson, Erika (1997). Beyond Miss Manners: The Importance of International Business Etiquette,
Sales and Marketing Management, April, p.84 (1).
Ricks, David A. (1993). Blunders in International Business, Cambridge, Blackwell Publishers, Inc.
Snoddy, Raymond (1997). ITN's Acquisition may have Found Hidden Treasure, Marketing, December 4,
p.12 (1).
Stedman, Craig and Vijayan, Jaikumar (1998). News: Going Global Forces Changes, Computer World,
March 16,
p.3 (1).
Tansey, Lori A. (1996). Taking Ethics Abroad, Across the Board, June, p.56 (2).
Wilterdink, Nico (1994). Images of National Character, Society, Nov-Dec. 1994, p.43 (9).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 400
INTRODUCTION
Listening is the process of receiving, constructing meaning from, and responding to verbal and/or
nonverbal message components (International Listening Association, 1995). There is little doubt that
listening effectively represents an important communication skill and as such has been widely studied
both as personal communication listening skills (Raudseep, 1993; Robertson, 1994; Schramm and Wayne,
1993; Stull and LaBonty, 1993) and as listening skills of employees within corporate settings (McKenzie
and Clark, 1995; Miles, 1994; Stitt-Gohdes, 1996; Wolvin and Coakley, 1992).
As important as this skill might be, many people are not aware that they may be poor listeners.
Without any formal training in listening, the average person listens at a 25 percent efficiency level
(Robertson, 1994). Further, Raudseep (1993) concluded that only about 10 percent of Americans listen
properly. Steil (1980) determined that faulty listening costs American businesses at least $1 billion per
year. This calculation was based on the estimate that each of America's over 100 million workers
commits at least one $10 listening error each year. No doubt this total estimate is much higher today,
given inflationary effects and a larger work force. Thus, training and development programs which
enhance listening skills potentially represent an important cost saving investment, particularly as changes
in the work environment will create a greater need for enhanced listening skills.
One of the earliest researchers in listening skills (Mehrabian, 1971) discovered that 93 percent of
the total impact of a message comes from the nonverbal aspects, both vocal and visual, of a
communication. Other studies in nonverbal communication have found that as much as 90 percent of the
impact of messages is based on the nonverbal aspects (Robertson, 1994; Samovar and Porter, 1994). Reik
(1972) referred to this concept as listening with the "third ear;" i.e., the eyes.
Becker (1995) interviewed 31 marketing executives from a variety of United States corporations.
All expressed the belief that listening and language skills, including knowledge of nonverbal skills, are
essential for organizational efficiency and personal success. Further, people are not usually satisfied when
others simply tell them that they are listening; they want to see for themselves the evidence that listening
is occurring (Cole 1991); that is, reacting to the message, eye contact, and attentiveness, for example.
An essential activity in the improvement of listening competence is training in nonverbal
communication. But, to be effective, such training requires an understanding of the nonverbal behavioral
aspects of the trainee. Thus, to demonstrate the relationship between listening ability and nonverbal
behavior, the present research investigates two research questions: (1) Is there a significant relationship
between the nonverbal listening component and the demographic variables year in school, work
experience, and type of major? and (2) Does listening ability improve as academic class category changes
from freshman to senior.
METHODOLOGY
Undergraduate business students at a large midwestern university were chosen as the subjects of
the present research. They were thought to be representative of the more general student population and
represent future employees of business firms. A total of 596 students were used in the study.
A questionnaire was designed based on the research of Wolvin, Coakley and Halone (1995).
Thirteen items were selected to measure the nonverbal behavioral dimension of listening competence.
Each item consisted of a statement about listening to which the subject responded using a 5-point scale:
(1) almost always; (2) often; (3) occasionally; (4) seldom; and (5) never. An ANOVA procedure was used
to test for significant differences among the responses.
RESULTS
Table 1 presents the overall average score of all respondents by class standing. These results
show significantly different scores as students move from freshman to senior standing, indicating a
significant improvement in the nonverbal dimension of listening competence.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 401
Table 1
Year in School
Class Standing Mean Scores
Class
Freshman
Sophomore
Junior
Senior
Between Groups
Within Groups
Total
Mean
2.0225
1.9981
1.9630
1.8310
ANOVA Behavioral Nonverbal Average
Sum Sq
df
Mean Sq
F
3.780
4
.945
4.186
135.463
600
.226
139.244
604
Sig
.002
Full-time work experience was significant but inconsistent with the nonverbal behavioral
dimension as presented in Table 2. However, all students, regardless of the amount of full time work
experience reported higher levels of listening competence.
Table 2
Full Time Work Experience
Work Experience - Mean Scores
Experience
Mean
None
2.0652
1-12 months
1.9152
13-24 months
1.9902
25-36 months
1.8497
37+ months
1.8693
ANOVA Behavioral Nonverbal Average
Sum Sq
df
Mean Sq
F
Between Groups
2.732
4
.683
3.019
Within Groups
130.548
577
.226
Total
133.280
581
Sig
.018
Part-time work experience produced results similar to those of full-time work experience (Table
3). Students reported higher levels of listening competence if they had part-time work experience. Tables
2 and 3 together clearly show the positive effects of work experience on the nonverbal behavioral
component of listening competence. This result has implications for approaches to business education
which encourage students to gain work experiences either through employment or internship programs.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 402
Table 3
Part Time Work Experience
Work Experience - Mean Scores
Experience
Mean
None
2.1464
1-12 months
1.9217
13-24 months
1.9492
25-36 months
2.0082
37+ months
1.8738
ANOVA Behavioral Nonverbal Average
Sum Sq
df
Mean Sq
F
Between Groups
2.752
4
.688
3.044
Within Groups
129.304
572
.226
Total
132.056
576
Sig
.017
Choice of major also had a significant impact on the nonverbal behavioral dimension of listening
competence, perhaps because of differing amounts, nature, and importance given to the communication
process in the area of study.
Table 4
Major Course of Study
Major - Mean Scores
Major
Mean
Marketing
1.8169
Business Admin
1.8706
Accounting
1.9366
Finance
1.9537
Management
1.9761
Operations Mgmt & Info Systems
2.0332
ANOVA Behavioral Nonverbal Average
Sum Sq
df
Mean Sq
F
Between Groups
2.433
4
.608
2.812
Within Groups
108.786
503
.216
Total
111.219
507
Sig
.025
DISCUSSION
Listening competency is behavior that is "appropriate" and "effective". Appropriateness requires
the understanding of the content of the interaction and does not violate conversational norms or rules.
Competency is the successful adaptation to situations and the achievement of intended or desirable results
through communication. A competency perspective may represent a productive approach for listening
researchers and listening educators to further understanding of this complex behavior and develop
meaningful measures of what the listener knows, does, and feels about listening (Wolvin and Coakley,
1994).
Listening competence may be as significant as reading skills or academic aptitude in college
students' achievement and retention. In business it is important in both entry-level positions and in long
term career competence and organizational success. Because of listening's importance to success, it may
be one of the most essential skills a business student and manager can acquire. In contrast, colleges and
universities have devoted much less time and effort to building listening skills than have business and
industry. Certainly, the business community is looking to higher education to address listening
competency skills in college graduates.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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Marketing relies heavily on communication skills, and listening in particular is critical to several
marketing areas (cost, et al 1992). According to Weitz, et.al (1998), 50 percent of the information people
acquire in face-to-face communication comes from nonverbal behavior.
This study surveyed 596 college of business students from freshman to senior. A 13 item scale
adapted from Halone et al (1998) was used to measure the nonverbal behavior dimension of listening.
Results showed significant differences in listening competency associated with the areas of (1) year in
school, (2) full-time work experience, (3) part-time work experience, and (4) major.
In general, achievement of higher scores on the nonverbal behavioral dimension of the listening
competency scale require a sensitivity to nonverbal signals. Students' self reported listening competencies
in nonverbal responses (e.g., body, eyes, face, etc.) increased from freshman level to senior level. This
result could indicate increased empathy and desire to relate to others as students move through their
academic degree program.
A significant finding from the study was the positive impact of work experience with the
nonverbal behavioral dimension. Findings support the relevance of work with students' nonverbal
listening behavior. Perhaps with work experience students learn to "read" others and adapt more
effectively. This result would certainly support and encourage the increased use of internship experiences
to improve listening competency.
Findings from the study also seem to support curricular improvement efforts designed to place
increased emphasis on integrating communications skills into business curricula over the past several
years. It appears that students, as self-reported, are benefiting from this increased emphasis with their
nonverbal listening competence. It may be that faculty are both teaching and role modeling these
behaviors in interactions in and outside the classroom to the benefit of students.
An ability to effectively practice nonverbal listening skills is universally beneficial. Through
appropriate eye contact, body language, and facial expressions, a listener can encourage a friend, coworker, or client to openly communicate. Nonverbal behaviors, when done effectively, suggest openness
and trust on the part of the communicator and often lead to enhanced relationships. Certainly marketing
educators and practitioners value those outcomes.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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REFERENCES
Becker (1995). "Listening Across Cultures: An Exploratory Study of Perceived Training Needs Among a
Group of Internet Executives." Unpublished doctoral dissertation, The Union Institute, 1995,
ProQuest-Dissertation Abstracts International, Volume Fifty-six, Number Three, 1028A, AAC
9522948.
Castleberry and Shepherd (1993). Effective Interpersonal Listening and Personal Selling. Journal of
Personal Selling & Sales Management, Volume 13, Winter, 35-49.
Cole (1991). "Paying Attention Pays Off." Working Mother, Volume Fourteen, March, 34-37.
Cost, Bishop & Anderson (1992). Effective Listening: Teaching Students a Critical Marketing Skill.
Journal of Marketing Education, Spring, 41-45.
Halone, Wolvin & Coakley (1997). "Accounts of Effective Listening Across the Life Span: Expectations
and Experiences Associated with Competent Listening Practices." International Journal of
Listening, Volume Eleven, 15-38.
Halone et al (1998). "Contextual Characteristics Influencing the Listening Process: Implications for the
Measurement of Listening Competence." Listening Dimensions, Kansas City, MO: Annual
Convention of the Annual Listening Association, 1-33.
International Listening Association (1995). "A ILA Definition of Listening." ILA Listening Post, Volume
Fifty-three, April, 1-4.
McKenzie and Clark (1995). "The All-in-One Concept: How Much Must Listening Research Include?"
International Journal of Listening, Volume Nine, 29-43.
Mehrabian (1971). Silent Messages, Belmont, CA: Wadsworth.
Miles, (1994). "Preparing Students for a Changing Work World." In A McEntee (Ed.), Expanding
Horizons in Business Education Yearbook, Reston, VA: National Business Education, Number
32, 66-80.
Raudseep (1993). "Listening Lessons: Poor Listening Habits Cost Qualified MBAs Job Offers and
Promotions." Minority MBA, 36-39.
Reik (1972). Listening with the Third Ear, New York: Pyramid Publications.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 405
Robertson, (1994). Listening for Success: A Guide to Effective Listening, Burr Ridge, IL: Irwin
Professional Publishing.
Samovar and Porter (1994). Intercultural Communication: A Reader, Seventh Edition, Belmont, CA
Wadsworth.
Schramm and Wayne (1993). "Can Listening Skills Be Taught in Business Communication Classes?"
NABTE Review, Volume Twenty, 25-32.
Steil (1980). "Secrets of Being a Better Listener." U.S. News & World Report, Volume Eighty-eight, 6566.
Stitt-Gohdes (1996). "Business and Industry Need Qualified Workers." In H.R. Perreault (Ed.), Classroom
Strategies: The Methodology of Business Education, National Business Education Yearbook,
Reston, VA National Business Education Association, 1-9.
Stull and LaBonty (1993). "Teaching Interpersonal Skills in Entrepreneurship." Business Education
Forum, Volume Forth-seven, Number Three, 10-12.
Weitz, Castleberry & Tanner (1998). Selling: Building Partnerships, Third Edition, Burr Ridge, IL:
Irwin-McGraw Hill.
Witkins (1990). "Listening Theory and Research: The State of the Art." Journal of the International
Listening Association, Volume Four, 7-32.
Wolvin and Coakley (1992). Listening, Fourth Edition, Dubuque, IA: William C. Brown Publishers.
Wolvin and Coakley (1994). "Listening Competency." Journal of the International Listening Association,
Volume Eight, 148-160.
Wolvin, Coakley and Halone (1995). "A Preliminary Look at Listening Development Across the Life
Span." International Journal of Listening, Volume Nine, 62-83.
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page 406
APPENDIX A
LISTENING SURVEY
I encourage the speaker to talk by looking at him/her.
I refrain from doodling and drawing pictures while I am listening.
I avoid doing personal grooming chores (picking hangnails, cleaning eyeglasses, etc.) while I am
listening.
I encourage the speaker to talk by maintaining an "open" body posture.
While someone is talking to me, I refrain from engaging in some other task (such as reading, watching
television, etc.)
I refrain from wearing a judgmental/evaluative/critical face while I am listening.
I vary my note taking style according to the speaker's style of presenting and according to my need to
take notes.
I avoid walking away from a speaker while he/she is speaking to me.
I avoid faking attention to a speaker.
I am aware of the nonverbal responses (vocal, body, facial, etc.) that I send while I am listening.
I recognize and "read" the speaker's nonverbal cues.
I write down important points when I am listening to an oral presentation.
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INTRODUCTION
In 1977, the National Trust for historic preservation developed a program designed to promote
the economic redevelopment of the business districts of American small towns, which had been in decline
since the 1950s and 60s. The Main Street program comprises a multi-faceted approach aimed at utilizing
a communitys historic built environment as the cornerstone for promoting economic revitalization. By
identifying a communitys assets, including its historic buildings, and coordinating its promotion and
design activities, the Main Street approach allows downtown business districts to compete more
successfully with malls and strip shopping centers. Assessing the needs of the downtown businesses as
well as the communitys perceptions of downtown business and historic preservation is, as outlined in this
study, an important first step in the establishment of any successful downtown revitalization effort. Using
the experience of Cape Girardeau, Missouri, this paper details the modifications of the standard business
survey instrument to meet the needs of Cape Girardeaus Main Street Steering Committee, and reports the
surveys assessment of the strengths and weaknesses of existing businesses and the communitys attitudes
toward preservation of the citys historic built environment.
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MAIN STREET
Established in 1977 as a pilot program involving three communities, the Main Street program
has grown into a national and international success. Kennedy Lawson Smith, Director of the National
Main Street Center, reported that by 1995 almost 1,100 towns and cities in 40 states and the
Commonwealth of Puerto Rico . . . launched local Main Street programs. Smith also noted that Main
Street served as a model for downtown revitalization programs in Canada, Venezuela, the United
Kingdom, Australia and New Zealand (Smith, 1995, p. 51). In its pilot program, the National Trust
provided the three communities they selected (Galesburg, Illinois; Madison, Indiana; and Hot Springs,
South Dakota) with architectural and economic consultants who assessed the strengths and weaknesses of
each communitys downtown district, and recommended appropriate changes to stimulate economic
revitalization. The Trust hired full-time managers for each community to coordinate promotion and
redevelopment activities. Acting as catalysts for change, these program managers helped work out the
basic guidelines of the Main Street Approach (National Trust for Historic Preservation, n.d.). Based on the
pilot projects success, the National Trust established the National Main Street Center to promote the idea
and disseminate information about how to make it work. Initially restricted to cities and towns under
50,000 in population, the Main Street Center launched a program to include cities with populations larger
than 50,000, and in 1988 expanded it to include both neighborhood districts in very large cities and very
small towns with populations under 5,000 (National Trust for Historic Preservation, n.d.). Today,
communities as varied as Clarkesville, Missouri, population 480, and the City of Boston, which began
with 10 neighborhood commercial centers in 1995 and hopes to ultimately involve up to 20 separate
districts, have signed on to the Main Street Approach (Menino, 1995).
The basic guidelines of the Main Street Approach were worked out in the initial three-city pilot
project, and refined in the subsequent six-state, thirty-city expansion begun in 1980. The pilot project
established the fundamental importance of having a strong public-private partnership, a committed
organization, a full-time program manager, a commitment to good design, quality promotional programs
and a coordinated, incremental process (National Trust for Historic Preservation, n.d., p. 2). In
expanding the pilot program, the Main Street Center realized the importance of establishing state
coordinators who could help develop networks, mobilize resources, coordinate state efforts, and share
experiences. Another key change involved having the communities hire their own full-time staff so they
could be stronger advocates for their communities.
The continued success of the Main Street Approach lies in its ability to promote positive
economic change in the communities that adopt it. During the three years of the initial pilot project,
significant economic advances occurred. The National Main Street Center reports that seven new
businesses opened in Hot Springs, six in Madison and thirty in Galesburg. Sales tax revenues increased by
25 percent in Hot Springs, while the downtown occupancy rate in Galesburg rose to 95 percent. In
addition, and perhaps more importantly, for every dollar spent on developing and running the Main Street
program, the private sector invested approximately $11 dollars in rehabilitation and adaptive-use projects
(National Trust for Historic Preservation, n.d.). Over the long term the results are even more impressive.
Kennedy Smith reports that nationally, by 1993, every dollar a participating community spent to manage
its local Main Street program was leveraging an average of more than $25 in new investment in physical
improvements. According to Smith, when you factor in increases in property values, retail sales, wages,
jobs, etc., the actual average reinvestment ratio tops $60+ for every local administrative dollar (Smith,
1995, p. 52). In Missouris participating downtowns alone, over 500 new businesses and 1,500 jobs have
been created since the program began in 1989. In addition, these towns have also seen 465 building
renovations and over $56,000,000 in local reinvestment (Missouri Department of Economic Development,
n.d.).
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vested interest in the economic viability of the downtown district, each sector has a role to play. Working
in a partnership under the umbrella of Main Street will enable each to be more successful than they could
acting alone (Missouri Department of Economic Development, n.d.; National Main Street Center, n.d., a).
Perhaps one of the key guiding principles, and the one that sets Main Street apart from other revitalization
efforts, is the emphasis on identifying and capitalizing on existing assets. For most downtowns, this refers
to the unique environment created by the collection of historic buildings and streetscapes. Downtown
districts built during the early-twentieth century and before tend to offer a more pedestrian-friendly and
welcoming environment than do business buildings built with the automobile in mind. These historic
resources, and the unique shopping environment they offer, lie at the core of all of Main Streets
revitalization efforts (Missouri Department of Economic Development, n.d.; National Main Street Center,
n.d., a).
The last three principles suggest Main Street organizations, and the programs they offer, need to
reflect quality, be implementation-oriented, and recognize both the need for and inevitability of change.
Part of the reason downtowns declined in the 1960s and 70s is because of a perceived decline in quality,
both of the physical environment and of the goods and services offered. Reversing these perceptions
requires emphasizing the genuine quality of the buildings (they really dont build them like they used to
anymore), the goods and services offered by todays businesses, and the organization and its programs.
Keeping the organization implementation-oriented ensures people see that something is being done are
more willing to lend a hand. Witnessing the small changes that occur downtown, and realizing changes in
both attitudes and practices are necessary to improve economic conditions, can help public support grow
as the program itself grows. Following these eight principles in enacting the four points of the Main Street
Approach has helped over 1,000 communities across the United States improve their economies and
revitalize their downtowns (Missouri Department of Economic Development, n.d.; National Main Street
Center, n.d., a).
RETAILING TRENDS
The Main Street Program has a proven track record of addressing retailers concerns in
downtown areas: low store traffic; diminishing sales trends; lack of cultural and entertainment attractions
in the downtown area; and an overall poor image associated with the downtown area. Downtown
merchants are not alone in resolving retailing patronage issues. Recent trends indicate that mall patronage
is declining. Wakefield and Baker (1998) report three reasons for this decline, based on information from
the shopping center industry. First, there are numerous malls that offer much of the same merchandise,
with few distinguishing merchandise. Second, more consumers feel time-pressed, making fewer trips to
the mall. When consumers shop, they seek to maximize their shopping time (Ashley 1997). The third
reason relates to a finding that fewer consumers enjoy the experience.
Despite these problems with retail center patronage, there are success stories. Ashley (1997)
indicates that even though consumers lives are more time-pressed, they will find the time to engage in
activities they enjoy. Furthermore, they will drive past weaker malls to reach destinations that have the
best variety of stores and merchandise. Mall developers strive to entice customers by creating an exciting
mix of shopping and entertainment activities. Similarly, those involved in the revitalization of downtown
shopping areas desire to obtain an attractive mix of stores, merchandise, entertainment and cultural
experiences to better attract customers.
The concept of experiential consumption may be valuable in understanding the factors which
consumers feel are necessary to improve a downtowns offerings. In the context of consumer habitats, a
location may itself be a source of pleasurable experiences consumed by visitors (Bloch, Ridgway, and
Dawson, 1994, pg. 25). The physical habitat itself (downtown) may reflect the experiential consumption
desires apart from merchandise-focused activities. In their study of consumption benefits pertaining to
malls, Bloch, Ridgway, and Dawson (1994) found a variety of perceived benefits that motivate consumer
presence in mall habitats: aesthetics (an appreciation of the physical design or appearance of the mall);
escape (relief from boredom and an escape from routine); exploration (desires for variety or novelty in
exploring products or stores); flow experiences (pleasurably absorbed so as to lose track of time);
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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knowledge gains (receipt of information about new stores and new products); and social (opportunities to
talk to and socialize with others).
Parallels can be drawn to the consumer habitat of the downtown shopping district. The concept of
aesthetics includes the maintenance and preservation of historical buildings often found in downtowns. In
addition, the natural environment of the downtown (the green-space, the scenery of the area) should be a
motivating factor drawing consumers to the area. Many downtown revitalization efforts have tried to
create excitement in the downtown area by creating special events, with a focus on entertainment and
cultural experiences. This effort would be consistent with the motivating factors of escape, flow
experiences and social dimensions. Efforts to improve the tenant variety (stores, dining and related
services) in the downtown area would address the remaining factors of exploration and knowledge gains.
The concept of excitement in a shopping location was studied by Wakefield and Baker (1998).
Excitement had a significant positive effect on desire to stay at the mall, which was the type of shopping
center studied. The results of their study suggests that an exciting shopping environment is more likely to
generate repeat patronage and become a part of the customers shopping routine. The opposite would be
true of low excitement levels. Factors which were found to have an influence on excitement were tenant
variety (food service, stores, and entertainment), involvement with shopping, and physical environment
(ambience, interior design and dcor, and layout). Leaders in downtown revitalization efforts similarly
focus on improvements to tenant variety and physical environment in order to alter emotional states
toward downtown as a shopping area.
In an effort to change both the reality and perception of downtown, in early 1999 the citizens and
merchants of Cape Girardeau, Missouri formed a committee to explore the benefits of enacting the Main
Street Approach. As the committee was being formed it became clear that involving as broad a spectrum
of the community as possible would be key to the success of the program. In an attempt to both assess the
needs of the downtown and broaden support for the program, the Main Street Steering Committee
commissioned Southeast Missouri State University to conduct a study of residents attitudes toward
shopping in the various shopping districts of the city, and their feelings about the historic building fabric
downtown and its preservation.
METHODOLOGY
The research design consisted of intercept interviews (personal interviews at shopping
districts), a non-probability technique. The intercept interviews were conducted in the major shopping
districts of Cape Girardeau, Missouri: Downtown, a major strip center and a regional mall. This technique
was selected due to the desire to interview shoppers and the need to show participants a map of the
shopping areas being discussed during the interview process.
The questionnaire for the intercept interviews was based on typical customer satisfaction
measures and shopping center characteristics (Shim and Eastlick,1998 and Bellenger, Robertson, &
Greenburg, 1977). The instrument was pretested on a subset of subjects and then revised prior to the final
interview procedure. Students in a marketing research class underwent three hours of training on the
interview process as well as on-going monitoring by the professor during the entire research process. In
order to obtain a sample which was representative of the Cape Girardeau adult population, age and gender
quotas were given to the interviewers, a technique typically used in intercept interviews. Store coupons
were given to those agreeing to be interviewed as a sign of appreciation for their participation.
Student interviewers (21) completed 310 surveys of individuals who had been to downtown at
least once during the past year. Excluded from the interviews were retailers and employees of any retailers
in the shopping districts in this study. Also excluded were those less than 18 years of age. The interview
period was from April 6-18, 1999, covering all days of the week and all day parts (10:00 AM to 8:00 PM)
at multiple locations for each of the three shopping areas (Downtown with 23% of responses; the strip
center with 31% of the responses; and the regional mall with 46% of the responses).
The studys sample was representative of the population characteristics of Cape Girardeau
County with a few noted exceptions. The study had a slightly greater proportion of females (58% in the
study as compared to 52% in the 1990 Census). The project had more affluent demographics (29% in the
$50,000 annual family income level and up as compared to 23% in this category noted in the 1998 Survey
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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of Buying Power, Sales and Marketing Management Magazine). Additionally, the study had a higher
percentage in the 18-34 age group (57% in the study versus 31% in the 1990 Census).
RESULTS
Participants in the survey research project were asked to identify the major strengths of the
downtown area and rank them in priority order. Items ranked as being first in priority order included the
following: seeing the Mississippi River (18.7%); dining (14.8%); atmosphere (12.9%); nightlife (11.9%);
history of the buildings and area (10.6%) and variety of shops (10.0%). When these open-ended responses
were combined across all respondents rankings, topics involving the river, scenery and the general
atmosphere were mentioned by 27.1% of the respondents. Shopping topics were addressed by 15.1% of
the respondents. Similarly, 15% of the respondents mentioned architecture or historical buildings of the
downtown area. Topics on dining received a 13.4% response rate and entertainment/nightlife was
addressed by 12.2% of the respondents.
A four-point scale of importance (not important, somewhat important, very important and
essential) was used to assess how important respondents felt particular services and historic preservation
were for Downtown Cape Girardeau. The historic preservation questions received the highest ratings of
importance. Thirty-seven percent of respondents rated maintaining the distinctive architecture from the
past as essential, followed closely by an essential rating for the preservation of historic buildings
by 36% of the respondents. Adding more fixtures and dcor which build on the historic identity of
downtown was rated as essential by 22% of the survey participants. The combined ratings of the top
two importance levels (essential and very important) yielded the following percentages of responses across
all respondents: preservation of historic buildings = 81%; maintaining the distinctive architecture from
the past = 82%; and adding more fixtures and dcor which build on the historic identity of downtown =
70%.
Historic Preservation
Essential
Concept
Maintaining the distinctive
architecture from the past
36.5%
Preservation of historic
buildings
35.5%
Adding more fixtures and
dcor which build on the
historic identity of downtown 21.6%
Very
Important
Somewhat
Important
Not
Important
45.8%
14.8%
2.9%
45.5%
14.8%
4.2%
48.4%
25.5%
4.5%
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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revealed that Downtown had higher ratings (using a comparison of both mean ratings and top box
ratingscombination of somewhat satisfied and very satisfied) than the other two shopping districts
on the features of variety of food/dining choices, special events and activities, and types of
entertainment. Customer service of Downtown received a slightly higher mean rating than the other
two areas, but the top box rating was lower than that of the mall. Downtown was rated higher than the
strip center in the areas of attractiveness of window displays and shopping atmosphere. Downtown
had lower satisfaction ratings than the strip center and the mall in the following areas: variety of stores;
parking convenience; shopping hours; up-to-date merchandise; quality of products and services; safety of
parking and shopping areas; and value for money spent.
An analysis of derived importance of attributes and satisfaction levels of consumers was conducted to
diagnose the direction leaders in Downtown could take to improve its performance.
Primary Areas to Maintain: (Consumers have expressed high levels of satisfaction and high
importance for each of these areas. These are areas Downtown is doing well relative to expectations and
should continue to maintain.) These areas include shopping atmosphere (including capitalizing of the
River and Historical dimensions); cleanliness and maintenance; and window displays.
Secondary Areas to Maintain: (Consumers have expressed high levels of satisfaction and low
importance for each of these areas. Downtown is sufficiently addressing these areas to meet expectations
and should continue to maintain, but perhaps place secondary importance on these areas in their
strategies.). These areas involve customer service; dining (variety of food choices); types of entertainment
choices; and special events and activities.
Secondary Opportunity Areas: (Respondent consumers have expressed lower satisfaction levels
and lower importance associated with these areas. Attributes within this category represent areas in which
Downtown is not performing well, and which are also lower in priority for improvement strategies.).
These areas comprise value for money spent and safety.
Primary Opportunity Areas: (These are attributes which are highly important to customers yet
satisfaction with these attributes is lower. The Downtown area should concentrate on these areas to
improve performance in order to increase overall satisfaction.). These areas include variety of stores;
parking convenience; shopping hours; quality of products and services; and up-to-date merchandise.
CONCLUSIONS
The survey results support the notion that the preservation of historic buildings in a downtown
area is an effective economic development strategy. In this study customers of the community placed a
high level of importance on historic preservation dimensions in their downtown. The Main Street
approach emphasizes that the rehabilitation of historic properties leads to an improvement of the
downtown image and furthermore to its economic revitalization.
The results of the study also support the concept of the downtown area as an experience to be
consumed. The consumption experience of a downtown should be focused on its uniqueness, rather than
the replication of a mall environment. Customers in this study enjoyed the historic atmosphere of the
downtown area and its natural environment since it was adjacent to the Mississippi River. The
desirability of shopping, dining, sightseeing and socializing in the atmosphere of the downtown area were
found to be appealing to respondents. However, this study also highlights areas for improvement that are
typical of downtown centers: safety; variety of stores; parking convenience; more convenient shopping
hours; and image of the product offerings (quality and latest styles).
The Four-Point Approach of the Main Street Program provides a framework for maintaining and
improving this downtown area as well as others. The Main Street approach has been formalized in Cape
Girardeau, Missouri by the creation of four committees to address issues in economic restructuring,
design, promotion and organization. The four committees are now equipped with vital information about
customers perceptions of downtowns strengths and weaknesses in order to implement necessary changes
to the area.
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REFERENCES
Ashley, Barbara (1997). Are Malls in Americas Future? Arthur Andersen Retailing
Issuer Letter, 9 (6), Texas A & M University Center for Retailing Studies.
Bellenger, Danny, Dan Robertson and Barnett Greenberg (1977). Shopping Center Patronage Motives.
Journal of Retailing, Volume 53, Number 2, 29-40.
Bloch, Peter, Nancy Ridgway, and Scott Dawson (1994). The Shopping Mall as Consumer Habitat.
Journal of Retailing, Volume 70, Number 1, 23-40.
Menino, Thomas (1995). Boston and the Main Street Program, Historic Preservation Forum, Spring,
47.
Missouri Department of Economic Development, (n.d.) Missouri Main Street Program.
National Main Street Center (n.d., a), Main Street Committee Members Handbook (National Trust for
Historic Preservation), 2-4.
National Main Street Center (n.d., b), Main Street Guidelines: Board Members Handbook (National
Trust for Historic Preservation), 1.
National Trust for Historic Preservation (n.d.), The Main Street Approach to Downtown Revitalization.
Shim, Soyeon and Mary Ann Eastlick (1998). The Hierarchical Influence of Personal Values on Mall
Shopping Attitude and Behavior, Journal of Retailing, Volume 74, Number 1, 139-160.
Smith, Kennedy Lawson (1995). Main Street at 15, Historic Preservation Forum, Spring, 51-52.
Wakefield, Kirk and Julie Baker (1998). Excitement at the Mall: Determinants and Effects on Shopping
Response. Journal of Retailing, Volume 74, Number 4, 515-539.
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page 415
INTRODUCTION
The value of relationship marketing and the importance of retaining a loyal customer base have
become matters of central concern to marketing theorists and practitioners alike. In relationship
marketing, the marketer focuses on building long-term relationships with the target customers, who are
encouraged (through a variety of incentives) to continue their involvement with the marketer and to
develop loyalty to the product (Kotler & Andreasen, 1996). Customer loyalty is a multidimensional
concept that includes not only past purchasing behavior and purchasing intentions, but also the customers
attitudes and value system. Loyalty to certain products can be intimately connected to a customers value
system and self-concept (Sudharshan, 1995). Indeed, the more intimately connected it is, the more stable
the customer loyalty, because changing an attitude towards the product would involve changing a number
of other beliefs and attitudes that the customer holds about him or herself.
The present study examines the stability of customer loyalty and its sensitivity to changes in the
ethical behavior of an organization, which was in this case a not-for-profit public radio station. Customer
loyalty to non-profit organizations can be very strong because of the way such organizations and their
causes tend to be linked to a customers value system and self-concept. We tested the strength and
vulnerability of customer loyalty to a non-profit organization when the organizations ethical standards
change and could become a matter of concern.
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METHODOLOGY
Respondents were selected from a comprehensive list of all current member-supporters of a
public radio station broadcasting in a large metropolitan area of the Eastern U.S. Each member became
listed after voluntarily paying the yearly subscriber fee. Respondents for this study were chosen from the
complete list of members on the basis of a probabilistic sampling technique known as systematic
sampling. A total of 148 respondents participated in the study.
The radio station members were contacted by telephone, and were interviewed by MBA students
from a marketing research class. The interview lasted approximately 10-15 minutes, and consisted of 40
questions. Two different measures of the members satisfaction levels were taken. In addition, several
questions were designed to ascertain customer loyalty by measuring the members likelihood to renew
their membership under current conditions as compared with different hypothetical conditions in which
the ethical behavior of the radio station changes. The hypothetical circumstances proposed were meant to
test the vulnerability and sensitivity of customer loyalty to questions of ethics.
In order to obtain a baseline measure of customer loyalty, we asked the respondents: How likely
are you to renew your membership? The respondents used a five-point scale to respond, with choices
ranging from Very Likely to Likely, Neutral, Unlikely and Very Unlikely. Later, to measure
the sensitivity of their loyalty to matters of ethics, they were asked to use the same five-point scale to rate
their likelihood to renew their membership if a company or organization that you believe has engaged in
some unethical practices becomes an underwriter of this radio station. In a second hypothetical
scenario, the members were asked their likelihood to renew if a company that you believe behaves
ethically but supports a cause you do not agree with, were to become an underwriter of this radio station.
Responses to these three questions were compared and the results are presented in the next section.
Demographic information was collected for the entire sample, covering the education, income,
age, and gender of respondents, as well as other background information. There was a nearly even break
in the number of male and female respondents. The sample proved to be a highly educated one, with over
80% of respondents having earned a college degree. The income of 28% of respondents was under
$50,000, another 20% of the sample reported incomes between $50,000 and $75,000, and 20% reported
incomes above $75,000. (Seven percent of the sample declined to answer the income question.)
RESULTS
Two different measures of satisfaction of the radio station members were taken, and both
concurred in finding the members to be highly satisfied. Specifically, when asked to rate the way the
station has treated its members, over 75% said they were either satisfied or very satisfied (the top two
levels of satisfaction on a five-point scale). Similarly, when asked to rate the way the station has used its
revenues from membership fees, over 80% stated they were either satisfied or very satisfied. Taken
together, these results suggest a highly satisfied group of customers.
As an indication of customer loyalty, we took a baseline measure of the respondents likelihood to
renew their yearly membership. The results revealed an extremely high level of customer loyalty, with
62% reporting they were very likely and another 22% reporting they were likely to renew (see Table 1
below). These results, combined with the responses to the two questions above regarding customer
satisfaction, suggest clearly that the radio station membership is exceedingly satisfied and plans to
continue its relationship with the station into the future.
After establishing a baseline for likelihood to renew, we posed two hypothetical scenarios (as
mentioned in the methodology section) to see how customer loyalty (operationalized as likelihood to
renew) might be affected. When asked to rate their likelihood to renew if a company that you believe
behaves ethically but supports a cause you do not agree with, were to become an underwriter of this radio
station, the members likelihood to renew dropped considerably from the baseline measure. Indeed, only
21% reported they would be very likely and 30% likely to renew. This drop from the baseline
measure proved to be statistically significant ( =142.2, <.001; see Table 1).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
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TABLE 1
Likelihood to Renew Membership under Current Conditions, When the Radio Station Accepts an
Ethical but Disagreeable Underwriter, and When the Radio Station Accepts an Unethical Underwriter
LIKELIHOOD TO RENEW
Very Likely
Likely
Neutral
Unlikely
Current conditions
62%
24%
7%
2%
Very
Unlikely
5%
Disagreeable
underwriter
Unethical
underwriter
21%
30%
23%
11%
16%
14%
20%
22%
15%
29%
In the other scenario, we asked the respondents to use a five-point scale to rate their likelihood to
renew if a company or organization that you believe has engaged in some unethical practices becomes an
underwriter of this radio station. The likelihood to renew dropped precipitously from the baseline, with
only 14% reporting they would be very likely and 20% reporting they would be likely to renew. This
fall from baseline levels of likelihood to renew also proved to be highly significant ( =342.7, <.001).
Finally, when the levels of likelihood to renew under the two hypothetical circumstances were compared
with each other, the differences also were found to be highly significant ( =19.9, <.001; see Table 1
below).
DISCUSSION
The results of the current study strongly demonstrate just how tenuous customer loyalty can be,
and the important role that an organizations ethical behavior can play in destabilizing that loyalty. We
examined a customer base (member-supporters of a radio station) that showed a very high level of
satisfaction and high likelihood to continue as loyal customers. By any measure, this group is very
strongly attracted to their product (the radio station and its broadcasts). While a company or organization
should not take its customers or supporters for granted, these radio station members did not initially
appear to be at risk for leaving the franchise.
It is therefore quite significant to find that even among satisfied, loyal customers with whom a
strong relationship has developed, this bond can be easily and dramatically broken. In this study, an
organization that hypothetically behaved ethically but became associated with an unpopular cause would
lose many loyal and satisfied customers. If the company were associated with an unethical activity, the
defection would be even greater.
While we could split hairs and possibly discuss the fact that ethical but unpopular behavior does
not have quite as strong an impact on the relationship between customer and marketer as does unethical
behavior, both behaviors significantly and dramatically sever the basic tie between the two parties. The
current findings are of special importance to charitable and non-profit organizations in particular. These
organizations are very vulnerable to the effects of seeming to support, or being supported by, unpopular
and/or unethical groups and causes. Such connections pose a serious threat to the individuals value
system and self-concept. In addition, an intrinsic reward for supporting a charity or non-profit
organization is the feeling of being altruistic, and the enhancement of ones self-concept as a result. If
anything interferes with this feel-good feeling, support will obviously decline.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 418
In summary, the present study highlights in a dramatic fashion just how vulnerable customer
loyalty can be to the ethical behavior of an organization. If there are lessons to be learned from this
research, they are: 1) Even among highly satisfied, loyal customers, a relationship can be quite easily
broken; 2) association with unpopular causes or behaviors, even if ethical, can have a very strong negative
impact on customer loyalty, at least in the case of non-profit organizations; 3) unethical behavior by an
organization can have an even stronger negative impact on customer loyalty; 4) given the observed impact
of unethical behavior and association with causes that an organizations supporters do not support, these
factors must be carefully considered.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 419
REFERENCES
Kotler, Philip and Alan Andreasen, Strategic Marketing for Nonprofit Organizations, NJ: Prentice Hall,
1996.
Sudharshan, D. Marketing Strategy: Relationships, Offerings, Timing, and Resource Allocation, NJ:
Prentice-Hall, 1995.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 420
NON-COMMERCIAL BEHAVIOR
Hostility
against
Foreign
Countries
Foreign
Cultures
COMMERCIAL BEHAVIOR
(e.g., Non-Purchase, Deferred
Foreign
Firms
Foreign
People
Foreign
Product
NON-COMMERCIAL
BEHAVIOR
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 421
INTRODUCTION
According to the results of the April 1999 Internet Demographic Survey, conducted by
CommerceNet and Nielsen Media Research, the number of Internet users in North America has now
reached 92 million, 46 percent of them being female. The number of online shoppers, defined by the study
as researching and comparing the price and features of products and services online, regardless whether
or not an actual online purchase was made, has reached 55 million, 41 percent of them female
(CommerceNet, 1999). Research by Forrester Research Inc. shows that minorities are not excluded from
this rapid development, predicting that by the end of 1999, 32 percent of black households in the U.S., 43
percent of Hispanic, and 67 percent of Asian-American households will be online (Crocket, 1999). These
overwhelming numbers have led to a controversial discussion on the addictive effects of this medium, with
most of the discussion to be found in the popular literature. Activities that can have addictive or
compulsive effects include playing computer games, commitment in unmoderated newsgroups or chat
rooms, surfing the net, browsing for programs, cracking system security for amusement, and perhaps even
programming itself (Neumann, 1998). Newsweek is reporting that according to experts, 2 to 3 percent of
the online community have serious internet addictions (Hamilton, & Kalb, 1995). Other articles show
cases of a research lab assistant who spends up to six hours of her workday sending e-mail to friends and
playing electronic games (Seaman, 1998), the confession of an individual who got addicted to Internet
while recovering after an accident (Stephen, 1998), or people who are trading stocks, buying at auctions,
or doing bets in a compulsive manner via the Internet (Wilcox, 1999). On the other hand, some authors
are more cautious when using the term internet addiction, arguing that according to that logic, many
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 422
behaviors like long hours of reading had to be classified like addiction (Potera, 1998), or simply deny the
existence of such a phenomenon (Levy, 1996).
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 423
OBSESSIVE-COMPULSIVE DISORDERS
Spitzer, & Sigmund (1997:7) describe obsessive-compulsive disorder (OCD) as a situation where
the patient experiences inappropriate thoughts or images intruding into the mind causing distress and
anxiety. The patient knows that these ideas make no sense and are foreign to his mind, but he cannot
control and easily dismiss them. Because most people probably can tell to have such experiences from
time to time, a more concrete definition is needed that provides a clear cut-off criterion. A very
comprehensive definition is offered by the American Psychiatric Association (APA) in their Diagnostic
and Statistical Manual of Mental Disorders (DSM-IV, 1994). APA distinguishes between obsessions and
compulsions, defining obsessions as 1) recurrent and persistent thoughts, impulses, or images that are
experienced, at some time during the disturbance, as intrusive and inappropriate and that cause marked
anxiety or distress, 2) the thoughts, impulses, or images are not simply excessive worries about real-life
problems, 3) the person attempts to ignore or suppress such thoughts, impulses, or images, or to neutralize
them with some other thought or action, and 4) the person recognizes that the obsessional thoughts,
impulses, or images are a product of his or her own mind. Compulsions, on the other hand, are defined as
1) repetitive behaviors or mental acts that the person feels driven to perform in response to an obsession,
or according to rules that must be applied rigidly, and 2) the behaviors or mental acts are aimed at
preventing or reducing distress or preventing some dreaded event or situation. Jakes (1994) emphasizes
that there is widely consensus in literature that subjects do not derive pleasure from their compulsive
thoughts or activities, although they provide a release of tension. While the majority of people with OCD
seems to engage in compulsive acts of cleaning, e.g., compulsive handwashing, and compulsive checking,
up to 25 percent fall in the category of pure obsession, wherein cognitive, but not behavioral rituals
predominate (Spengler, & Jacobi, 1998).
Further comparison between compulsive consumption and obsessive-compulsive disorder shows
that both definitions have important points in common, but on the other hand do not overlap completely.
Compulsive consumption can be distinguished from OCD especially by the condition that the behavior
will ultimately cause harm to the individual and/or to others.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 424
make themselves over-dependent on people, things and what they will. He argues that some of these
people have severe personality disorders (PD) that are expressed in different ways. In psychiatric terms,
these tendencies are referred as comorbidity (Faber, Christenson, de Zwaan, & Mitchell, 1995).
Further research has to concentrate on the development of a reliable scale or screener to measure
internet addiction, and should then try to find correlations or common patterns between IA and other
forms of compulsive behavior. Because impulse control disorders like compulsive buying are normally
skewed on the basis of gender (Faber, & OGuinn, 1992), it would be interesting if any skewness of
internet addiction can be observed. Only if no relations between IA and other forms of disorders or
compulsive behavior can be found, IA should be treated like a specific disorder.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 425
REFERENCE
American Psychiatric Association (1994). Diagnostic and Statistical Manual of Mental Disorders (DSMIV). Washington, D.C.: American Psychiatric Association.
CommerceNet (1999). CommerceNet and Nielsen Media Research Issue Results of Spring 1999 Internet
Demographic Study. www.commerce.net/news/press/fact0699.html.
Crocket, Roger O. (1999). A Web that Looks like the World. Business Week, Issue3621, March 22, page
EB46-47.
DuPont, Robert (1998). Addiction: A New Paradigm. Bulletin of the Menninger Clinic, Vol. 62, Issue 2
(Spring), 231-242.
Ellis, Albert (1998). Addictive Behaviors and Personality Disorders. Social Policy, Vol. 29, Issue 2
(Winter), 25-30.
Faber, Ronald J. (1992). Money Changes Everything. American Behavioral Scientist, Vol. 35, Issue 6
(July/August), 809-819.
Faber, Ronald J., & Guinn, Thomas C. (1992). Clinical Screener for Compulsive Buying. Journal of
Consumer Research, Vol. 19 (December), 459-469.
Faber, Ronald J., Christenson, Gary A., De Zwaan, Martina, & Mitchell, James (1995). Two Forms of
Compulsive Consumption: Comorbidity of Compulsive Buying and Binge Eating. Journal of
Consumer Research, Vol. 22 (December), 296-304.
Grossman, Michael, & Chaloupka, Frank J. (1998). A Survey of Economic Models of Addictive
Behavior. Journal of Drug Issues, Vol. 28, Issue 3 (Summer), 631-642.
Guinn, Thomas C., & Faber, Ronald J. (1989). Compulsive Buying: A Phenomenological Exploration.
Journal of Consumer Research, Vol. 16 (September), 147-157.
Hamilton, Kendall, & Kalb, Claudia (1995). They Log On, But They Cant Log Off. Newsweek, Vol.
126, Issue 25 (December 18), 60-61.
Hirschman, Elizabeth C. (1992). The Consciousness of Addiction: Toward a General Theory of
Compulsive Consumption. Journal of Consumer Research, Vol. 19 (September), 155-179.
Hirschman, Elizabeth C. (1995). Professional, Personal, and Popular Culture Perspectives on Addiction.
American Behavioral Scientist, Vol. 38, Issue 4 (February), 537-552.
Jakes, Ian (1994). The Definition of Obsessive-Compulsive Disorder. Journal of Mental Health, Vol. 3,
Issue 3 (September), 287-299.
Levy, Steven (1996). Breathing is also Addictive. Newsweek, Vol. 128, Issue 27 (December 30), 52-53.
Michaels, Robert J. (1988). Addiction, Compulsion, and the Technology of Consumption. Economic
Inquiry, Vol. 26 (January), 75-88.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 426
Neuman, Peter G. (1998). Are Computers Addictive? Communications of the ACM, Vol. 40, Issue 3
(March), 128.
Potera, Carol (1998). Trapped in the Web. Psychology Today, Vol. 31, Issue 2 (March/April), 66-69.
Roberts, James A. (1998). Compulsive Buying among College Students: An Investigation of its
Antecedents, Consequences, and Implications for Public Policy. Journal of Consumer Affairs,
Vol. 32, Issue 2 (Winter), 295-314.
Seaman, Debbie (1998). Hooked Online. Time, Vol. 152, Issue 15, 114-115.
Spengler, Paul M., & Jacobi, David M. (1998). Assessment and Treatment of Obsessive-Compulsive
Disorder in College Age Students and Adults. Journal of Mental Health Counseling, Vol. 20,
Issue 2 (April), 95-111.
Spitzer, Manfred, & Sigmund, Dieter (1997). The Phenomenology of Obsessive-Compulsive Disorder.
International Review of Psychiatry, Vol. 9, Issue 1 (March), 7-13.
Stephen, Andrew (1998). An Internet Addict Confesses. New Statesman, Vol. 127, Issue 4390, 26.
Wilcox, Melynda D. (1999). Coming: A 12-Step Plan for Computer Addicts? Kiplingers Personal
Finance Magazine, Vol. 53, Issue 9, 23-24.
Wolfe, Alexander (1996). Cyber Junkies. Electronic Engineering Times, Issue 896 (April 8), 1-2.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 427
INTRODUCTION
Existing banking theory is mostly based on Cost/Benefit Analysis and offers an understanding
of the rationale for the existence of financial intermediation in general. Benston and Smith [1976],
Campbell and Kracaw [1980], Cebenoyan et al. [1993], Fama [1985] and Santomero [1984] describe this
relationship. Most of the literature that develops this theory is from the perspective of corporate clients
and the role of proprietary information generation and utilization by banks to mitigate credit and other
risks. Relatively little work exists from the perspective of personal/individual banking accounts and how
banks efficiently deliver this service.
TRENDS IN BANKING
The US banking industry has experienced increasing competition from other financial and nonfinancial firms, both domestic and foreign. Deregulation, wide-ranging technological innovation, the
recent repeal of the Glass-Steagall Act, and the need to continuously enhance product and service
offerings are all challenges to growth and competitive position. A generally well-accepted theory of
multinational banking relies on the Follow the Customer thesis to explain the international location of
bank branches as a service-enhancing strategy.
A similar motivation seems to exist among banks to
establish SMBs go where your customers are and avoid having them captured by competitors.
The banking industry is evolving due to two strong forces:
1) The need for increased
innovation due to intense deregulation-induced competition, and 2) The need for large capital
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 428
expenditures to enhance product and service delivery capabilities such as investing in technologicallyenhanced information processing, monitoring and communication systems.
Decision-making has been impacted as a consequence of these forces. Improved technology
facilitates decision-making by extending the reach of banking services such as lending, and automating
various banking activities such as bookkeeping, accounting, and monitoring of transactions. More
detailed, more reliable information about large numbers of individual clients is quickly available. This not
only permits an improved decision-making process, but also allows banks to extend levels of service once
only available to a few larger customers. More service can be provided at a speedier pace, such as faster
turnaround in loan applications. This improved decision-making enhances customer service and bank
profitability. Additionally, risk management can be improved, e.g. better scoring, standardized criteria or
artificial intelligence or neural network systems that enable delegation of decisions lower down in the
bank hierarchy can be developed.(See Gilbert, Krishnaswamy, and Pashley, November/December 1998,
for a review of neural network applications.)
In addition to the trends described above, interest-rate volatility has increased during the last 20
years and rates are currently on an upswing. This has resulted in a major component of bank operating
costs, the cost of funds, becoming more volatile and recently increasing. On the asset side, increased
volatility has resulted in larger interest rate exposure, especially for longer duration assets. Banks must,
therefore, be more proactive in managing this exposure and increase the use of Asset-Liability
Management techniques to control this risk on a whole-bank basis. The greater range and sophistication
of available financial market instruments assist banks management of exposures as they continue to
provide client-demanded products. The level and stability of Interest Rate Spreads, a component of Net
Interest Margins, are carefully monitored and controlled. However, the limited ability of individual banks
to impact interest rates, both for deposits and for loans, makes it critical for banks to focus on controlling
the non-interest expense components of their costs and, at the same time, retain or enhance the banks
ability to provide services.
The non-interest cost component essentially represents the banks Fixed Cost, to use the term
from manufacturing firms. Table 1 illustrates that the occupancy expenses per banking facility, i.e., the
number of main offices plus branches, increased at a dramatic rate during the period of 1980 to 1993.
The average amount of money spent on employee salaries and benefits also increased during the same
period, even in the face of decreasing numbers of employees.
When confronted with the need to control costs, manufacturing firms enhance asset turnover
[utilization]; i.e. limit their asset base while continuing to maintain the same level of output and revenue.
Economic lessons from Corporate Finance about asset utilization are being applied more regularly to
banking. Economic Value Added (EVA) is more frequently being utilized in the asset acquisition,
retention and disposition decisions of firms.
Banks, either consciously or as a competitive response, are now considering reducing the asset
intensity of their operations. Large banks were among the first to divest significant fixed asset
investments and do sale-leaseback deals, especially for large real estate investments. These transactions
released funds for more profitable utilization while providing continued access to operating facilities. In
effect, brick and mortar edifices were transformed through reallocation of those funds into income
producing technological assets such as computers and labor-saving software. For instance massive
employment of ATMs resulted in the reduction of tellers and in the lowered number of bank employees
during most of the time periods since 1990. [Table1] The cost cutting measures Wells Fargo implemented
with the help of SMBs is a further example. (King and Lipin, January 24, 1996 and Weigers and Marsh,
April 24, 1995).
Automated Teller Machines (ATMs) essentially enabled banks to move a large percentage of
routine transactions out of the more expensive office-based manual system to an automated, remote and
relatively inexpensive system. This reduction in the cost of bank operations also greatly benefited bank
customers. Transactions could now be accomplished at thousands of convenient locations 24 hours a day
through the use of multibank accessed ATM networks. In short, what was a financial advantage to the
banking industry was simultaneously a benefit to millions of retail customers. Over the past decade and a
half ATMs have become ubiquitous.
This explosion of ATMs, though reducing bank administrative expenses, has not, however, been
cost-free. Noticeable defects of the ATMs are the lack of a single bank identity and the depersonalization
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 429
of the bank-client relationship. This change can have several unwanted side effects. For example,
multibank cash machines offer no opportunity for a bank to reinforce its bank-client relationship. In
addition, there is reduced possibility to cross-sell other products and services such as safe deposit boxes,
CDs, money market accounts and similar income and/or fee producing services. Finally, having reduced
banking to contact with an impersonal machine, rather than tellers who know them personally, the ATM
system more easily permits customers to change banks. This, in turn, increases the cost of customer
retention. In short, lowered transaction costs are now coupled with higher marketing costs. A comparison
of the characteristics of full fledged branches, SMBs and ATMs is contained in Table 2. SMBs seem to
provide an excellent via-media solution to the customer service dilemma for several reasons, enumerated
in the next section.
TABLE 1
1980
1985
Number of
14,434
14,417
Bank (Main
Offices)
Number of
38,738
43,293
Branches*
Total
53,172
57,710
Banking
Units*
Number of
1,433,000
1,545,000
Employees**
Employees
24,675,000 40,003,000
Salaries &
Benefits
Employee
431,100
657,000
Salaries &
Benefits
Bank Unit
Occupancy
7,354,000
13,301,000
Expenses***
Occupancy
128,500
218,440
Expenses/Ba
nk
Number of
160
210
SMBs
Number of
18,500
60,000
ATMs
* Statistical Abstract of the US
** US Industrial Outlook
*** Annual Report Board of Gov. (Table
13)
1990
1991
1992
12,347
11,927
11,466
50,406
51,969
51,935
62,753
63,896
63,401
1,565,000
1,539,00
0
53,111,0
00
1,518,000
51,765,000
54,816,000
728,000
831,210
864,592
17,429,000
17,883,000
260,350
17,731,0
00
277,498
921
1203
1533
80,200
83,500
87300
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
282,062
page 430
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 431
TABLE 1 CONTINUED
1993
1994
1995
1996
1997
10,960
10,450
9,941****
9,528
9143*
52,868
55,144
56,513
57,788
60320*
63,828
65,594
66,454
67,316
69436*
1,503,000
1,521,000
1,532,000*
58,204,000
60,607,000
63,439,000
67,047,000
53,416,000
911,888
923,972
954,630
996,004
18,471,000
18,911,000
19,618,000
20,729,000
289,387
288,304
295,212
307,936
1,938
2,505
3,142
4,800^
94,800
109,100
16,280,000
165,000^^
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 432
TABLE 2
TRADITIONAL
BRANCHES
IN-STORE
BRANCHES
HISTORY
NUMBER
Banks: 9,534(1998),
9216(1999)
Branches:
61394(1998)
Total # of offices:
70,150(1998)
1,500 sq ft minimum
SIZE
HOURS
EMPLOYEES
CUSTOMER
RELATIONSH
IP
MARKET
SHARE
PRODUCT
ACTIVITY
FOCUS
ADVERTISIN
G
COMPETITIO
N
SUCCESS
ALL
ELECTRONIC
BRANCHES
since 1970s
ATMs: 165,000
(mid 1997)
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
TRAFFIC
COST
Hinterland:
City:
$.5 M City:
$1-1.5 M
brick/mortar
page 433
NA
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 434
operating leases, they usually carry longer maturities, that may be harder or costlier to terminate than
selling a bank owned facilty.
If the location was a reason for customers to choose the bank in the first place and the new
facilities are elsewhere, the bank may lose such customers. This would occur especially in the case of
retailers who for safety and expediency reasons want to deposit cash and checks frequently and safely in a
bank nearby and who have no interest in combining banking with grocery shopping.
Freeing up employees from services that can be automated, e.g. by ATMs, and employing them in SMBs
may backfire. Customers used to personal banking services may be disgruntled and go elsewhere. SMB
employees should be sensitized to such problems and help especially older customers with automated
transactions.
In any case, whether replacing a current facility or instituting a new one, the cost of a bank clerk
for an SMB will increase over the pay for a teller beyond the initial training cost. Previous tellers or loan
officers were never expected to be salespeople. They were trained to do only a limited number of
activities. The new job, however, demands the same employee to handle assertive selling in the aisles,
process more complicated loan applications which could not be computerized, sell investment products, as
for instance mutual funds, and give advice in those matters that the ATMs and loan machines do not
handle. (Britt, July 1998.) People that are able to fulfill all these different functions in rather crammed
conditions and at extended hours will demand higher pay, or their turnover will be high. Banks that view
SMBs just as another branch, although in a supermarket, will not be successful as shown by the Dallas
Equitable Bank which sold its unsuccessful SMBs after seven years to Nationsbank (American Banker,
8/22/95). SMB employees must be sellers more than tellers. (Davidson, June 1998.)
Reports on SMBs (News Release: International Banking Technologies 1/4/96, Philadelphia
Business Journal 8/18/95 ) usually stress that much of the new business picked up occurs in the lending
area. There are no reports on the profitability of these loans and whether or not that increase in lending
occurs mainly to marginally profitable borrowers or is evenly spread across all customer types. Thus the
bank should carefully consider the clientele of the targeted supermarket before the implementation of
SBMs and afterwards watch the risk of the banks loan portfolio. An increase in risk could be overcome
through portfolio management techniques, but would increase the cost of lending.
Bankers should not rely on the name and identity of the supermarket alone, both Bank America
and Key Bank can attest to that. They learned that de novo SMBs are unsuccessful without a strong
identity of the bank name itself - astonishingly this happened even to Bank America despite its strong
national presence as a credit card issuer. Nonetheless its SMBs in the Chicago area did not become
profitable in the first two years and were sold at a loss in Fall of 1997 to TFC Financial Corporation. Key
Bank, located mainly in Maine, found it necessary to change its marketing approach, going beyond the
confines of the supermarkets in New Hampshire to make a name for itself and to establish its own
relationship with the locals. (Wellman, December 1997 and Davidson, January 1998.) More attention
grabbing designs of the space also help communicate that in-store banks are not just transactions centers
to cash checks and make deposit, but are sources of multiple products, some of which are more profitable
to the banks.
PERFORMANCE OF SMBS
A recent estimate puts the number of in-store banks close to 7,000 or about 10% of total bank
branches in the US (Shmuklen, February 1999). This is up from 1000 ten years before. While the growth
of this phenomenon is unquestionable, the evidence regarding the level of success achieved by SMBs is
mixed. Simmons and Conway (1998) report that mature SMBs have, on average, only about 40% as
many customers as traditional branches and much lower average deposit balances, 50-60% of what a
traditional branch has. Non-interest checking account balances are larger for SMB customers, however.
IRA and time accounts for SMBs are about 90% of what they are at a traditional branch, perhaps due to
promotions offering higher yields than those offered in traditional branches. Lower entry and exit costs
should also be noted, however. And while foot traffic does not seem to pay off in higher
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 435
deposits(obtaining banking services is perhaps not really an impulse buy activity), at the very least, the
in-store bank is highly visible and can be thought of as a valuable billboard promoting the banks name.
On the other hand, anecdotal evidence is plentiful, describing case after case of successful
utilization of the in-store banking strategy. Wells Fargo with Starbucks Coffee has created financial
marketplaces where latte, loans, and laundry are handled simultaneously. Wells Fargo (Ferris, 1998) has
also established hundreds of mini in-store banks, 27 to 60 square feet with small staffs of 1-2 people but
offering close to full service. First Citizens and other banks have opened SMBs in Wal-Mart, often using
Wal-Marts greet concept to successfully attract customers. (Ferris, 1998) CFS Bank, a bank subsidiary of
Haven Bancorp of Woodhaven, New York, had, as of February 1998, 38 of its 47 banks in an in-store
format with plans to add more. Heritage Bank, a small, aggressive and innovative bank in Atlanta,
opened several SMBs in Kroger stores, and facilitated its growth in a way that would not have been
possible with full-fledged branches.
SUMMARY
SMBs represent the fastest growing channel for banks to extend their reach, and the pace of
growth has picked up considerably in the past few years. They have evolved as a logical response to the
conditions facing the industry, and are an excellent strategic response to the need to increase the branch
network at the lowest possible costs while continuing to provide access to personal, convenient, one-onone banking. Their relatively low fixed cost component, the ability to cross-sell, generate ancillary
business (besides just transactions), and relieve the physical branches of all but the most complicated
personal, and commercial transactions, make them an attractive way for banks to grow. As the emphasis
on Asset Intensity Reduction as an operational imperative continues to grow, we can expect to see more
banks use this mode of expansion. As further indicated, there may be a reduction in the benefits, as
obstacles to former leases may have to be overcome, employees retooled and new ones hired. A likely
increase of salaries per employee is to be expected because of the greater versatility demanded on the job.
A few customers may jump ship because of location or automation in the event of full-fledged branches
being replaced by SMBs. It also seems that SMBs are generating a great amount of loans, therefore, care
must be taken to watch and manage possibly increased risk to the banks loan portfolio. In any case the
strategic aspects of locational advantages of SMBs are high enough to induce in the US the appearance of
European supermarket chains invading banks.
Yet to receive much attention from academic researchers, this relatively new phenomenon is
worthy of investigation, since its importance seems likely to increase in the years ahead. Even newer
developments include in-branch stores, such as a caf in the South Umpqua Bank in Roseburg, Oregon
(Clayton, 1998) and mobile branches (OSullivan, May 1998). As data are accumulated, it would be
interesting to see whether market participants realize the competitive advantages of banks adopting SMBs
as growth vehicles and price them differently.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 436
REFERENCES
Academic Literature
Benston and Smith (1976). A Transactions Cost Approach to the Theory of Financial Intermediation.
Journal of Finance, Vol. 31, 215-231.
Campbell and Kracaw(1980). Information Production, Market Signaling, and the Theory of Financial
Intermediation. Journal of Finance, Vol. 35, 863-882.
Cebenoyan, Cooperman, Register, and Hudgins (1993). The Relative Efficiency of Stock vs. Mutual
S&Ls: A Stochastic Cost Frontier Approach. Journal of Financial Services Research, Vol 7.
Gilbert, Krishnaswamy and Pashley (November/December 1998). Neural Networks:
Financial Prophecy? Corporate Finance Review, Vol. 3, # 3, 16-24.
Tools For
Santomero (1984). Modeling the Banking Firm: A Survey. Journal of Money, Credit and Banking,
Vol. 16, 576-602.
King and Lipin (January 24, 1996). Wells Fargo Sets Big Cuts in California After Merger. Wall Street
Journal.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 437
Orlando Business Journal (August 12, 1994). Supermarket Branches Produce for Longwoods First
National. Vol.11 #10, 1(2).
OSullivan (May 1998). A Branch in All But Name. U S Banker, Vol. 108, Iss. 5, 18.
Philadelphia Business Journal (August 18-24, 1995). Few Local Banks have followed Mellons Move
into Supermarkets.
Phillips (May 12-18, 1995). Lettuce on Aisle 1, Loans on 2. South Florida Business Journal, 31A.
San Diego Business Journal (June 27, 1994) Banks Put New Meaning In Term Green Grocers. p 14.
Shmulker (February 1999). Wake up and Smell the Coffee in Your Bank. Americas Community
Banker, Vol. 8, Iss. 2, 22-26.
Simmons (December 1998). Supermarket Branches: More Myth Than Magic. U S Banker, Vol. 108,
Iss. 12, 28.
Stroup (Winter 1998). Beyond In-store Banking at Star Bank. Journal of Retail Banking Services, Vol.
20, Iss. 4, 19-26.
Tully(September 20, 1993). The Real Key to Creating Wealth. Fortune, 38-49.
Wellman(December 1997). Rethinking the Relationship. Supermarket Business.
Wiegers and Marsh(April 24-30, 1995). Loan to Linguine at Local Market. San Jose and Silicon
Valley Business Journal, 3.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 438
INTRODUCTION
Attitudinal research for Management (see Zikmund, 1984) and Marketing (see Malhotra, 1996)
relies heavily on rating scales such as the Likert scale. Customer attitudes about products, employee
attitudes about upper management, and company attitudes about business school programs are examples
where these scales have been used.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 439
Development of scales has received considerable research in the Social Sciences. DeVellis (1991)
outlines its rich history, including problems associated with deciding which statistical methods to use in
order to make inferences about populations and constructs. The appropriate statistical method depends on
statistical assumptions about the data. A major assumption has to do with the probability distribution
underlying the data. If this underlying distribution is normal, common practice is to use normal
distribution methods such as Analysis of Variance. When considered to be continuous but not normal,
common practice is to use nonparametric methods, as advocated by Miller (1991). If it is considered
categorical, then methods such as logit and loglinear models are endorsed by Agresti (1990). Other
methods, such as those based on normal distribution assumptions such as Analysis of Variance, are
robust. That is, they are powerful even if the assumptions are not exactly satisfied.
These controversies underscore the need to study and understand rating scale data. An approach
taken by Babakus and Ferguson (1988) is to assume an attitudinal measurement follows a probability
distribution that may exist on a continuum. Common continuous distributions in Statistics are the normal,
lognormal, beta, gamma, Weibull, uniform, and exponential. This can be studied using statistical
simulation, such as are spelled out in Law and Kelton (1991). We take this approach in this paper.
Zeis, et al (1998) examine underlying distributions for common continuous probability
distributions including the normal, lognormal, beta, gamma, and Weibull using goodness-of-fit tests
applied to actual survey responses. They found that one or more of these common continuous distributions
are not unreasonable fits for around half of the four hundred eighty four sample cases of 5-point Likert
scale responses, from nine different survey sources, that they analyzed. The normal distribution was found
to be a not unreasonable fit for 29% of these cases, tested at the 20% level of significance.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
strongly
agree
agree
1
2
neutral or
indifferent
3
disagree
4
strongly
disagree
5
page 440
Survey respondents are usually asked to circle their most appropriate choice. The numbers generated are
1s, 2s, 3s, 4s, and 5s. They are not decimal or fractional, and they are reported as discrete, not
continuous.
SITUATIONS SIMULATED
The sampling situations considered are: a) two-independent-samples (normal) with sample sizes
n1=25 and n2=25, b) two-independent-samples (normal) with sample sizes n1=50 and n2=50, and c) twoindependent-samples (normal) with sample sizes n1=100 and n2=100.
Random normal samples are generated for the two-independent-samples situations using syntax
TM
code in SPSS-X . Parameter values for the mean and standard deviations are selected from those
typically obtained according to goodness-of-fit test results reported in Zeis, et al (1998). They are:
mean values = 1.75, 2.25, and 2.75, and
standard deviations = .75, 1.0, and 1.25.
Each mean and standard deviation combination is used, resulting in nine separate combinations. The
assumption for analyzing validity for two-independent-samples is that the means and standard deviations
are the same for both groups. Statistical analyses should not conclude the means are different more or less
than the percentage determined by the significance level of the test.
Simulation experts such as Gentle (1998) and Mooney (1997) recommend checking simulated
samples for validity of the random number generation process. Therefore, we checked the samples for
validity using goodness-of-fit tests and by performing Anova on the original data. We refer to the Anova
checks on the original, uncoded data as bench Anova tests. It will be seen that the bench tests are
exactly as would be expected for normally distributed data.
interval:
Strongly
Agree
Agree
below 1 1 to 2
Neutral or
Indifferent
2 to 3
Disagree
3 to 4
Strongly
Disagree
4 to above
The basic assumption is the original responses follow a normal distribution in the interval (, 5) .
Babakus and Ferguson (1988) point out that respondents may not actually follow this coding scheme when
responding to survey questions.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 441
inconclusive levels. Guyon et al (1998) imply the use of .10, .05, and .01 for character recognition
applications. Occasionally, researchers use significance levels up to .20 . (See Chow (1996).)
We key on the common levels .01, .05, .10, and .20 to determine intervals to check p-values. We
divide the range of possible p-values (0,1) into groups as follows:
group
range
percent
expected
total
100%
10,000
The expected row corresponds to what we expect when 10,000 samples are generated, when p-value
results of significance tests validly follow their significance levels.
Again, the statistical analysis is valid if it does not conclude the means are different by more or
less than the expected number of times determined by the significance level of the test. This is tested using
the multinomial hypothesis
Ho: p1 = .01, p2 = .04, p3 = .05, p4 = .10, p5 = .80 ,
where the ps are the proportions corresponding to the expected ranges above.
The chi-square for this multinomial hypothesis thus provides a measure of lack-of-fit of the
observed and expected numbers. The p-value for this multinomial hypothesis can be used to assess how
poorly the test performs, and thus is a measure of validity (or, more correctly, lack-of-validity) of the test.
When the p-value of this multinomial hypothesis is small, it indicates the test is invalid because the
observed number of times the interval is achieved does not match what is expected.
SIMULATION PROCEDURE
Ten thousand (normal) samples are generated for each of the nine two-independent-sample
TM
situations described. Since menu-driven procedures in SPSS-X
and other statistical packages typically
TM
run for limited numbers of samples, we wrote SPSS-X
syntax programs to perform the analyses. PTM
values were found for each case using SPSS-X
cumulative probability distribution functions.
SIMULATION RESULTS
Summary results are given in Tables 1, 2, and 3. They include the bench analyses, described
under the SITUATIONS SIMULATED section.
1.75
Standard Deviation
mean
.75
1.0
1.25
.06219
.13911
.93917
2.25
.79978
.41054
.71753
2.75
.38206
.22072
.94853
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Anova
Kruskal-Wallis
1.75
page 442
1.75
2.25
2.75
.84773
.40926
.06983
.33923
.92831
.51793
.68186
.47551
.09180
.15025
2.25
2.75
.22027
.77952
.00802
.65451
.23684
.31012
.48837
.22295
1.75
2.25
2.75
.88291
.08566
.00891
.00000
.00073
.07098
.62452
.61491
.94928
Median
Crosstabs/Pearson
(Contingency Table)
1.75
2.25
2.75
.21817
.14206
.27963
.00208
.44696
.19249
.09599
.21466
.41145
Crosstabs/LR
(Contingency Table)
1.75
2.25
2.75
.01220
.01754
.00661
.00118
.56545
.13335
.05539
.19155
.31657
1.75
Anova
Kruskal-Wallis
Median
1.75
Standard Deviation
mean
.75
1.0
1.25
.40317
.02162
.26826
2.25
.40320
.75054
.25322
2.75
.46066
.99812
.82531
1.75
2.25
2.75
.53427
.12236
.02790
.49167
.67838
.96086
.43610
.89035
.24013
.01352
2.25
2.75
.97718
.46955
.00004
.19234
.39157
.81092
.32942
.38791
1.75
2.25
2.75
.00003
.00161
.00003
.83493
.00617
.44709
.00033
.00299
.00695
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
Crosstabs/Pearson
(Contingency Table)
1.75
2.25
Crosstabs/LR
(Contingency Table)
1.75
2.25
2.75
page 443
.80000
.07046
.60834
.32790
.57535
.14712
2.75
.00000
.02535
.25749
.20203
.01735
.00000
.00170
.00164
.00000
.34042
.04876
.00000
1.75
Anova
Kruskal-Wallis
1.75
Standard Deviation
mean
.75
1.0
1.25
.99184
.83370
.72323
2.25
.52841
.42296
.87388
2.75
.57655
.29761
.21772
1.75
2.25
2.75
.41736
.84522
.08572
.76101
.20754
.59780
.44354
.78508
.08987
.30458
2.25
2.75
.39019
.46889
.00662
.27812
.52752
.38783
.79679
.32202
1.75
2.25
2.75
.00432
.01423
.00117
.00002
.00000
.00434
.01544
.00000
.00004
Median
Crosstabs/Pearson
(Contingency Table)
1.75
2.25
2.75
.04053
.30256
.01702
.34184
.78608
.00000
.02662
.02522
.00000
Crosstabs/LR
(Contingency Table)
1.75
2.25
2.75
.04156
.08420
.00000
.00001
.00126
.00000
.00049
.00000
.00000
DISCUSSION
Tables 1, 2, and 3 give results for different sample size situations described earlier: table 1 uses
n1=n2=100, table 2 uses n1=-n2=50, and table 3 uses n1=n2=25.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 444
In general, we judge a test procedure to be invalid when p-values given are too small, which
indicates the test is finding differences between the two independent samples, which are from the same
normal distribution. Small p-values indicate the tests are finding differences when none exist.
First of all, note the bench tests are all as expected. We expect a chi-square result to be smaller
than .10 about 10% of the time, and that is approximately what we observe. There is one p-value below
.10 in tables 1 and 2, and none in table 3.
It can be seen from all three tables that Anova p-values follow the expected pattern more often
than any of the other tests, followed by Kruskal-Wallis and then the other three. Furthermore, the
likelihood ratio (LR) Contingency Table Analysis has more cases of unacceptably small p-values than the
Pearson ones for all three sample sizes.
The Median Test also has unacceptably small p-values, as does both Contingency Table Analyses
for certain combinations and sample sizes. P-values are smaller for smaller sample sizes more often than
larger ones, for Median Test, and for both Contingency Table Analyses.
FURTHER RESEARCH
We can modify these procedures to analyze for validity of other continuous distributions. Other
possibilities are uniform, exponential, gamma, beta, and Weibull. They can also be extended to rating
scales of other lengths: 3,4,6,7,8, and 9 point scales.
The major step that remains to be done for assessing these methods is to run power tests for all
the above situations. This means generate random datasets with known differences between the two
groups, and calculate p-values to assess how well each of the above five statistical tests analyzes the cases.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 445
REFERENCES
Agresti, Alan (1990). Categorical Data Analysis, John Wiley & Co.
Babakus, Emin; and Ferguson, Carl E. Jr. (1988). On choosing the appropriate measure of association
when analyzing rating scale data, Journal of the Academy of Marketing Science, Volume Six,
Number One.
Chow, Siu L. (1996). Statistical Significance, Rationale, Validity, and Utility, Sage Publications, London.
Conover, W.J. (1971). Practical Nonparametric Statistics, John Wiley and Sons, Inc., New York.
DeVellis, Robert F. (1991). Scale Development, Theory and Applications, Applied Social Research
Methods Series, Volume Twenty Six, Sage Publications, Inc., Thousand Oaks, CA.
Gentle, James E. (1998). Random Number Generation and Monte Carlo Methods, Springer-Verlag, New
York.
Guyon, I., Makhoul, J., Schwartz, R. and Vapnik, V. (1998). What Size Test Set Gives Good Error Rate
Estimates?, IEEE Transactions on Pattern Analysis and Machine Intelligence, Volume Twenty,
Number One, January, 1998.
Holmes, Cliff (1974). Statistical evaluation of rating scales, Journal of the Market Research Society,
Volume Sixteen, Number Two, April, 1974.
Kendall, M.G. and Stuart, A. (1973). The Advanced Theory of Statistics, Volume one, Distribution
Theory, and Volume two, Inference and Relationship, Hafner Publishing Co., New York.
Kvanli, Alan H., Guynes, mC. Steven, and Pavur, Robert J. (1996). Introduction to Business Statistics, A
Computer Integrated Approach, Fourth Edition, West Publishing Company.
Law, Averill M. and Kelton, W. David (1991). Simulation Modeling and Analysis, Second Edition,
McGraw-Hill Book Company, New York.
Malhotra, Naresh K. (1996). Marketing Research, an Applied Orientation, Second Edition, Prentice-Hall,
Upper Saddle River, N.J.
Miller, Delbert C. (1991). Handbook of Research Design and Social Measurement, Fifth Edition, Sage
Publications, Inc., Thousand Oaks, CA.
Mooney, Christopher Z., (1997). Monte Carlo Simulation, Sage Publications, Inc., Thousand Oaks, CA.
Pearson, K. (1900). On a criterion that a given system of deviations from the probable in the case of a
correlated system of variables is such that it can be reasonably supposed to have arisen from
random sampling, Philos. Mag., Series five, number fifty, 157-175. Reprinted in Karl Pearsons
Early Statistical Papers, edited by E.S. Pearson, Cambridge University Press.
Zeis, Charles, and Hailu Regassa, Abhay Shah, and Ahmad Ahmadian (1998). Implementing Goodnessof-Fit Tests for Rating Scale Data, The International Business Schools Computing Association
26th Annual Conference Proceedings, Denver, Colorado.
Zikmund, William G. (1984). Business Research Methods, The Dryden Press, New York.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 446
INTRODUCTION
There has been a need for information about the readability of manuscripts for many years in
many professions. Journalists need to tailor their writing levels to match that of their targeted audience,
either the current readership or the readership that the publication would like to have. Educators are
concerned that the readability of a textbook matches the age and grade level of the students who will be
using the book. Publishers (and authors) are concerned about the readability of (potentially) popular
books, striving for a level high enough to make the book interesting but not so high as to scare off less
sophisticated readers (often perceived to be the mass market).
Those needing a measure of readability have been faced with the problem that readability is a
concept, which cannot be measured with the scientific accuracy that a physicist might measure the atomic
weight of gold. Traditionally, publishers relied on experienced and trained editors to read and evaluate
the material to determine if it was appropriate for the intended audience. However, relying on human
judgement poses at least three problems. First, such reading evaluations are subjective and therefore vary
from one expert to the next. Secondly, training and keeping good quality editors is an expensive
proposition. Thirdly, wholesale customers (such as school boards) often demand a quantitative,
reproducible measure of readability to make choosing between competing products easier and, in
appearances at least, more scientific.
Therefore, several techniques using methods that are intuitively appealing have been developed
by researchers to give some usable measure of the readability of passages of text. These techniques use
such measures as sentence length, word size, syllables per word and paragraph lengths to indicate how
readable a document is. More difficult writing is presumed to use longer sentences and longer words;
longer, polysyllabic words are more likely to be abstract, less used in everyday conversation, and are
consequently viewed as more difficult.
MEASURING READABILITY
The readability measure chosen for this project was the Flesch Reading Ease Formula. The
Reading Ease Formula was developed by Rudolf Flesch in 1946, has been widely used by educators and
researchers for several decades, and is available in the Word word-processing program.
The Flesch Reading Ease Formula accounts for average word length and average sentence length
the longer the words and sentences; the more difficult the passage is presumed to be. More specifically,
the Flesch Formula is as follows:
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 447
Reading Ease Score = 206.835 - Average Word Length (.846) - Average Sentence Length (1.015)
If the words and sentences are short, the resulting Reading Ease Score will be high, indicating
that the document is easy to read. If the words and sentences are long, the Reading Ease Score will be
low, indicating that the document is difficult to read.
LITERATURE REVIEW
A large number of articles have been published on the topic of readability with the bulk of them
being in the area of education. Several articles in the business discipline have addressed the issue of
applying readability formulas to business documents. Of particular interest here may be Stevens, et al
(1992), which discussed whether readability formulas and the cloze procedure are meaningful when used
to analyze business communications. Stevens suggests that while the cloze procedure is superior to
readability formulas, both fall short when analyzing business communications. His major concern with
the appropriateness of the procedures was that they dont take into account the fact that the business
audience is a specialized adult population with expertise in the topical area of the manuscript. Therefore,
the readers are probably better able to read the documents and better comprehend what is being written
than the formulas report. While Stevens conclusions and assertions are reasonable, we still choose to use
the readability formulas in this paper.
Subramanian, et al (1993) studied the readability of annual reports of profitable and unprofitable
corporations. They report that companies that were more profitable produced annual reports that were
more readable. It appears that the companies that were unprofitable were trying to de-emphasize their
performance and obscure useful information from the reader. McConnell (1986) found that Presidents
Letters conveyed useful information and should not be dismissed lightly. Abrahamson (1996) also found
that the Presidents Letter could be used to indicate a companys future performance. Courtis (1984)
found that the chairmans address and footnotes were written well above the reading level of the general
population but softened the implicit criticism of this observation by pointing out that most annual reports
went to shareholders and this subgroup of the population was far better educated than most. Jones (1986)
found that chairmans narratives had become less readable since 1952 and that they became less readable
if the company became a public limited company. Moore (1993) reviews the readability of product
warranties as required by federal law (which required that the warranties be easy to read and
understand) and found them to be full of legalese and written at levels well above the education level of
most Americans. Mader (1997) found that the Emergency Research Consent Form was written at levels
above Americans reading level, and that the reading difficulty increased as the medical procedure became
riskier (comment: reflecting, perhaps, greater legal protection for the medical personnel at the expense of
the sick or injured?).
Hartley and Meadows (1988) reviewed the results of ten studies, which examined the relationship
between readability measures of journal articles and the journals prestige rankings. Little evidence
supported the hypothesis that prestige is inversely related to reading difficulty. In contrast, support for
the inverse prestige/readability hypothesis is provided based on work by Armstrong (1982). An
experimental study based on rewritten passages from 10 management journals showed that faculty seemed
to be more impressed with the articles that were less readable. In fact, when the content of an article was
poor, a lack of clear communication was especially helpful. It could be argued that journals are simply
written to the level of their audience. Despite the fact that prestigious academic journals are written
primarily by individuals with a doctoral education, the Journal of Marketing asserts that it seeks to bridge
the world of the academic with that of the practitioner. This second audience is less likely to be enamored
with difficult writing.
Based on the readability literature we posit two hypotheses;
Hypothesis 1:
The articles in the Journal of Marketing have been difficult or very difficult to read over
the last twenty-five years.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 448
This period coincides with the advent of high-speed computer technology and increasing use of
multivariate statistics.
Hypothesis 2:
Readability of the Journal of Marketing has declined over the sixty-year study period.
SAMPLING
Samples were taken from the introductions of the first five articles in the first issue of the Journal
of Marketing in each five-year period, beginning in 1936, and continuing through 1996. A total of 65
articles were sampled over the 60-year period. Readability techniques recommend a minimum sample
size of 100 words; these samples ranged from 200 to 400 words. All samples were taken from the
introductory section of each article. Sampling from the same place in each article increases
comparability. In addition, the samples avoid the most technical sections of the articles. Such samples
can therefore be argued as offering an even stronger test of the readability hypotheses. These passages
may well overstate the readability ease.
RESULTS
Based on the 13 sample mean Flesch reading ease scores (see Table 1), seven were difficult to
read (< 50) and six were very difficult to read (< 30). The overall mean was 28.5 (very difficult) with the
range from 43.4 to 14.6. The standard deviation was 9.81. Hypothesis one is therefore supported. The
reported mean Flesch reading score of under 30 is considered very difficult by Flesch (1948) standards.
1936
1941
1946
1951
1956
1961
1966
1971
1976
1981
1986
1991
1996
40
Year
Flesh
Score
Mean
35.66
43.40
37.06
32.80
34.88
35.06
38.02
22.16
14.60
20.78
14.88
17.76
23.80
30
20
10
1936
YEAR
1946
1941
1956
1951
1966
1961
1976
1971
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
1986
1981
1996
1991
Overall Mean:
1936-96
= 28.5
page 449
The relationship between readability and time, as expressed by hypothesis 2, was tested using
simple linear regression analysis (see Table 2). Results revealed a coefficient beta of -.823, significant at
the .001 level with 12 degrees of freedom. The model generated an Adjusted R Square of .649. This
reflects a significant downward trend in readability over time as stated in Hypothesis 2. A separate
student t-test of the 1936-66 mean vs. the 1971-96 mean, showed a significant difference at the .001 level,
(36.7 vs. 19.0 respectively).
TABLE 2
50
40
30
20
10
1936
YEAR
1946
1941
1956
1951
1966
1961
1976
1971
1986
1981
1996
1991
Evidence supporting both readability hypotheses was found. The Journal of Marketing has
become significantly more difficult to read, especially so in the past 25 years. A large decline in
readability scores occurred during the period of from 1966 to 1971,and 1976. This coincides with the
advent of computer technology and multivariate statistics. But this finding is based on introductory
passages and not the method sections. Future research might examine the more technical passages found
in top journals. It should also be noted that the most recent periods examined, 1991 and 1996, showed
modest improvements in readability, but were still well below those of thirty years earlier. It remains to be
seen if the recent trend toward moderately less difficult readability will be maintained.
Readability was assessed using the Flesch index and of only one journal in marketing. The
Flesch index is based only on syntactical complexity and word features. Measures of actual reader
experience with these articles might be preferred if an appropriate method of assessing was available. But
even given this proviso, a longitudinal assessment offers a worthwhile developmental picture of past and
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 450
present readability trends as reflected in the most respected and longest lived journal in marketing. While
the current study should be viewed as exploratory, future research might replicate these findings in other
journals within the business fields and beyond.
Previous research suggested that academic faculty may perceive articles that are more difficult to
read as higher in quality. A quote by an unnamed professor goes to the heart of this issue; If our
undergraduates can understand your paper, it will never get published in a good journal. But if clarity of
a journal is the goal, it is up to the editors of top ranked journals to provide the necessary leadership.
Proceedings of the American Society of Business and Behavioral Sciences, Volume 7, Number 4
page 451
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