Rajagopal. Marketing Dynamics: Theory and Practice
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Marketing Dynamics: Theory and Practice
BUYER BEHAVIOUR AND DISTRIBUTION
Each different product mar-
ket consists of buyers, and
buyers are all different in
one way or another. They
may differ in their wants,
resources, locations, buying
attitudes and buying prac-
tices. Because buyers have
unique needs and wants,
each buyer is potentially a
separate market. For ex-
ample, in the health supple-
ments market, the seller
identifies market segments,
and develops different health
supplements products and
marketing mixes tailored to
each needs and wants. The
market for some products
like health supplements and
formal clothing appeal to many buyers irrespective of the age, income levels, price and other com-
petitive factors associated thereof. The consumers might have bought such products many times in
their life or some might have purchased at least once in life time. There is no single way to segment
a market. The Canon Mexico analyses the buyer behavior as exhibited in Figure 8.2. The most
important factors influencing a consumer’s involvement level are their perceived risks. The purchase
of any product involves a certain amount of risk, which may include:
• Product Failure – risk that the product will not perform as expected. (e.g., will the health
supplements make me feel better and prevent me from diseases?)
• Financial – risk that the outcome will harm the consumer financially (e.g., will buying a
formal suit cause me financial hardship?),
• Operational – risk that consists of alternative means of performing the operation or meeting
the need (e.g., is there any maintenance required for the ball dress?)
• Social – risk friends or acquaintances will decide the purchase (e.g., what will my friends
think of me in this dress?)
• Psychological – risk that the product will lower the consumer’s self-image (e.g., will I
look stupid, if I wear this dress?)
• Personal – risk that the product will physically harm the buyer (e.g., is this health tablet
meant to do me any good? Will it perform as it claims or will it ruin my health instead?)
Figure 8.2 Managing buyer behaviour: Canon way
Evaluation of
Alternatives
Purchase
decision
Post-purchase
evaluation
Information
search
Problem
recognition
• Product features
• Product benefits
• Price
• Advantages
• Service
• Product performance
• Warranty & service
The customer
will choose the
point of
purchase that
satisfies his
requirements
and provides
him a complete
imaging solution
• Needs
• Desires
• Technoloy recognition
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In a high degree of perceived risk, decisions in this case may require significant financial
commitments and involve social or psychological implications.
Sales force the company
is trained to understand the
consumer behaviour and
develop their strategies
accordingly. The needs,
desires and the technology
preference for the better
perceived use value of the
products are slated by the
staff of the company and
necessary information and
supports are pooled through
high involvement in the
subject, cost-benefit ratio of
the product purchase, referrals
and available point of purchase
sources with the dealers. The
alternatives are evaluated to
frame the customer focussed
decision on the basis of the product attribute analysis and comparative advantages in reference to
price, quality and services of the products of the company. The purchase decisions of the buyers is
stimulated by providing the point of purchase of their choice that satisfies their requirements and
optimizes the level of satisfaction in terms of personal attention and product handling. The post-
purchase evaluation is done in reference to the product performance, warranty administration and
customer services by the call centre division of the company. The purchase decision for a Canon
product takes 1-7 days on an average.
PRODUCT DISTRIBUTION AND SALES
Distribution strategy is considered to be the pivot of marketing functions that involves channels of
marketing, point of purchase options and focuses on the customer relationship management. The
strength of the distributor might include profits and cash flow, products and technologies, vendor
arrangements, intellectual property, consistent sales, brand recognition, and access to capital. It is in
the interest of the company to identify and use such strengths of the channel may be the wholesalers,
large or small retailers, to establish core competencies. This allows the company to find a niche,
where the firm can stand out as a recognized market leader. The product distribution system of
Canon involves distribution centre that manages the logistics operations with retailers and wholesalers.
The retail channels consist of specialised electronic stores, office equipment depots and superstores.
The performance of the top dealers in Mexico, inclusive of the superstores and office equipment
depots is exhibited in Figure 8.3. The maximum sales is contributed by the Office Depot (18%)
Figrue 8.3 Retail sales of Canon products by channels in
Mexican market
1 Office Depot
2 Exel del Norte
3 DC Mayorista
4 Ingram
5 Sam’s
6 Daisytek
7 Office Max
8 Costco
9 Tonivisa
10 Liverpool
1234
5
6
78910
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Marketing Dynamics: Theory and Practice
followed by Exel del Norte
(16%) and DC Mayorista
(15%). The large super
markets who may also be
considered as the bulk
distributors, such as Costco
and Sam’s Club contribute
5 percent and 11 percent to
the total for the Canon
products of wide range
sales in Mexico.
Sales performance of
different Canon products
during 2001-2002, has been
exhibited in Figure 8.4 that
delineates the trends in the
sales in specific product
categories.
Sales of the printers and
scanners of Canon have
shown the declining trend in
2002 as compared to the previous year. The printer market had faced greater competition as compared
to the scanner markets as it remained below $15 Million Pesos all through the year 2002. The sales of
Figure 8.4 Sales performance of Canon products in Mexican market
(2001–2002)
Figure 8.5 Shipment and mark value relationship
across principal brands in Mexican market
(2001–2002)
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the scanners had also shown a declining trend and remained below $ 3 Million pesos during 2002
against its sales performance in 2001. The sales performance was also not very encouraging for the
MFP/Fax machines during the above referred period. However, the sales had shown an upward trend
for the PC Copier equipments that touched the sales revenue of about $7 Million pesos during 2002, as
compared to the previous year.
Company was loosing the gross profit in office equipments due to flaws in the management, the
product market, strong prospecting and efficient servicing. Besides the problems of inventory, in-
creasing competition and unfocussed promotion, approaches lead the causes for decline in the over-
all sales of office equipment products. This situation had a significant impact on the reduction of the
market share of the company products in office equipments category and piling losses in the stock
keeping units (SKUs). During this period the Canon Mexico received instruction from its controlling
counterpart Canon USA either to relinquish the office equipments division in Mexico or merge the
same with photo and video division. The company had increasing dependency on the Canon USA
for supplying office equipments in Mexican market. The prices were higher for the Canon products
as compared to its close competing brands and that situation had reflected also in Mexican market,
when indented from the company’s USA counterpart. The delivery of the products suffered inordi-
nate delays due to the shipment problems at the USA and Canada ports. The decline in the market
value had caused 64 percent negative growth to the company in reference to the inkjet printers due
to the delay in shipment. The Figure 8.5 exhibits the status of market value and shipment of office
equipments in Mexican markets during 2001-2002, across the principal brands. In the above referred
period the market value in general also did not grow favourably and the overall industry share for the
office equipment products marked only to 3 percent in the Mexican market. The most advantageous
brand during the reference
period was Lexmark as it re-
tain 47 percent of the market
value against 91 percent of its
product shipments to the coun-
try. The high price of the prod-
ucts posed many marketing
problems including their posi-
tioning against the competing
brands. Under the given con-
ditions the company could not
position the Cannon products
in Mexican market on the ba-
sis of price advantage, which
is one of the sensitive tools to
hold consumer behaviour in
favour of the brand. However,
the company had positioned the
office equipments in the high
price bracket on the basis of
Figure 8.6 The inkjet printer market share (2001–2002)
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Marketing Dynamics: Theory and Practice
the attributes and long term use values. This strategy with all sales force dynamics in the market
could not truly pull the sales graph upwards against its competing brands during 2002. In the third
quarter of 2001, Canon held 5 percent market share in inkjet printers in the country which was
augmented to 9 percent in the same quarter of 2002. The inkjet printer market share in Mexican
market during 2001-2002 is exhibited in Figure 11.6. Hewlett Packard remained the largest market
participant with 63 and 47 percent of market share during 2001 and 2002 respectively. However the
market share of HP had declined in 2002 against the previous year and all the other principal brands
gained the market share during the referred period. Epson was found to be the second leading brand
capturing 27 percent of the market share in inkjet printers during 2002.
Among variety of problems responsible for the low turnover of the Canon office equipment
products in Mexican market, the inadequate knowledge of the product and dealers is also significant.
This made the sales people underachieve their monthly quotas. The customer visit schedule of the
sales representatives and support services integration are interrelated and play key role in improving
the overall performance. The sales representatives of photo and video products express that there is
lack of adequate demand for the office equipment products while the sales representatives of the
office equipments division find that there is no adequate market for the photo and video products of
Canon. The sales staff of either division of the company had enough time to refresh themselves with
contemporary skills and update their action points for improving the sales performance in the market.
ORGANIZATIONAL RESTRUCTURING
Recession has resulted in layoffs everywhere. But employees at small outfits may have less to worry
about than those at corporate giants. This has demanded organizational re-structuring for sales and
marketing in many large corporate firms as well as in Canon Mexico. The reorganization has been
tuned in the company with reference to hiring process, responsive departmental network, integrated
coordination and financial incentives to the sales staff. Bruce Phillips, a senior economist at the
National Federation of Independent Business, USA said that “If you went industry by industry, you’d
find that more small firms are hiring than big ones. That’s always true in recessions. Large firms are
more labour-intensive, and people don’t stay as long at small firms as they do at big ones.” Selling is
not a competition, it’s a connection. Rather than putting the competitive instinct in overdrive, devote
your energies to making connections with customers, their co-workers, the people in the organization,
and beyond. This strategy will not only increase sales and profits, it will speed up the sales cycle. It
is necessary for the large organizations like Canon to optimize their staff strength and prune, the low
productive sales resources. Too many salespeople, especially those new to the profession, rush right
into discussing the specifications, financing, or advantages of their wares. On the contrary the seasoned
professionals know better the markets and clients. They establish the personal, professional or both
types of contacts well before the sales conversation moves on to the details and get to close the deal.
More effort salespeople put into analyzing the competition, the less time they will have left to
understand, cultivate, and maintain connections with customers. This can be a fatal mistake, since it
opens the door to the very competitors they were worried about in the first place! Never forget, your
customers are your competitors’ prospects.
4
Some companies require their salespeople to make a
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Marketing Dynamics: Theory and Practice
calculators in the range of office equipments. The photo and video products constituted the compact
cameras, SLR and digital cameras, lenses, camcorders, binoculars and projectors.
COMPENSATION PROGRAM
Compensating sales people by commission is a simple proposition made difficult by many companies.
While commission-based compensation isn’t the only–or even necessarily the best–way to compensate
a sale force, it is predominant in most industries that rely on a direct personal sales force to market
their products or services. The basic problem with many of these commission plans is that they are
expected to encourage the sales person to produce, as well as to shape other behaviors. And that’s
where the problems lie. There are three basic issues to be considered while developing the compensation
plan for the sales force:
• Plan should offer an immediate positive reward to the salesperson for doing well the things
you want done well.
• It should be clear and simple to understand.
• It should be relatively free of influence from factors outside the salesperson’s control.
Figure 8.7 (b) Sales organizational structure of Canon Mexico after merger:
consumer imaging group
Canon president
CIG director
Marketing
manager
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A sales commission plan based on these three principles will reward the company by encouraging
profitable selling efforts by the sales force. The financial incentives to the sales force of the company
was revised on the following line:
• Sales contests
• Incentive payments for enhanced market coverage
• Commissions, Salary and
• Periodical benefits to the sales personnel over the basic or fixed pay.
Focus group
5
interviews with the employees of the company, revealed a new sales commission
plan aimed at providing more income to the sales staff with higher degree of motivation. It has been
felt by the group that the incentives plan needs to be of broader perspective and should also be able
to motivate the sales people who have poor performance. The discussion of the focus group discussions
envisaged that higher commissions need to be awarded to that sales staffs who over-achieves the
given quotas. The changes in the new compensation plan were suggested towards the mix of salary
and commission to the sales people.
Table 8.2 Plan of Recommended Incentives
Quota VMC Trimester bonus
achievement Entitlement Entitlement
(percent) (percent)
200 percent
or more 200 300
175-199 250
150-174 200
125-149 150 150
110-124 125 125
100-109 100
90-99 80
80-89 50 60
60-79 40
Less than 59 40 No Bonus
Source. Focus Group
Salary component was suggested to constitute 60 percent of the total compensation offer and 40
percent should be earned by the employee towards the variable monthly compensation(VMC) spread
into trimester bonus and monthly commission of 20 percent in each period. The formula suggested
that the monthly commission may be fixed in the range of 50-200 percent and the trimester bonus
should have maximum 300 percent entitlement on the quota achieved during the given period by the
5 Given the situation of the company a focus group discussion was conducted by the students of the
course on Advanced Selling System covering 12 marketing and sales personnel. The discussion of the
focus group was informally recorded and analysed to know the emerging solutions to most of the issues
raised in the cases. The issue of compensation is one among them to be addressed.
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Marketing Dynamics: Theory and Practice
sales person. The Table 11.2, discusses the plan of monthly commission and trimester bonus as
emerged from the focus group discussion. The group also suggested that the trimester bonus should
be made recoverable and not lapsable. In case of under achievement of the targets by the sales
persons in any month of the trimester, the trimester bonus should be calculated on the basis of the
total achievement. The following example shown in Table 8.3 explains the calculations of the
trimester bonus:
Table 8.3 Bonus Calculation Table
Period Quota Achievement Bonus Entitlement
January 110 150 73
February 130 160 81
March 260 190 # 137
Semester 500 500 100
# Under Achievement
Group suggested that the trimester bonus may be paid on the sales achievement on the selected
products like Powershot S-100 of the company. The employee may opt for either monthly variable
commission or the semester bonus which has the advantage of recovering the lost bonus in the
stipulated period unlike the monthly commission.
It has been broadly agreed during the discussions that the reward system for the sales persons
should also be positive, not negative, in nature. Be sure that the compensation system adds to the
salesperson’s income when he or she succeeds. A structure which instead removes income for
failure to produce also removes all incentives except fear. And fear is a short-lived motivator with
ultimate negative results for the company. On the contrary a group of discussants argued that a
frequently-encountered commission system which violates all of these rules is the one basing the
commission rate on achievement of a budget or quota set by management rather than the sales
person. Shortening the quota period to move the reward closer to the sale would seem to be the
logical answer to this problem, but since it’s impossible to figure out what an individual sale earns
before the sales person works on it, the commission plan can’t have a positive effect on their efforts.
FUTURE PERSPECTIVES: BEYOND CUSTOMER SATISFACTION
A satisfied Canon customer is the one who is likely to choose Canon again in the future. This is why
customer satisfaction is an integral marketing priority, and why the company continues to devote significant
resources to this end. The Canon support desk, responds swiftly to myriad customer queries via telephone,
facsimile, e-mail and other means. It also collects and analyzes people’s opinions and provides valuable
feedback to individual product divisions for future product developments and services. Canon is expanding
its solutions business on a worldwide basis, helping customers improve their ability to conduct business
on the Web while raising their productivity. The company is pursuing absolute customer satisfaction by
making performance, operability, design and other modifications as requested by customers. The reach
of the company towards building customer loyalty by creating trust on the brand would be the most
significant philosophy. The Appendix ‘A’ explains the categorical discussion on building the trust among
the customer segments in fray of competition of the corporate giants.
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REFERENCES
Bresnahan, Timothy F, Reiss, Peter C. : Entry and Competition in the Concentrated Markets, Journal
of Political Economy, 99 (5), 1991, 997-1005
Canon Inc. : Annual Report, 2003
Elie Ofek : Customer Profitability and Lifetime Value, Harvard Business School Publications,
January 2002, 1-7
Internet sources : www.canon.mx, www.businessweek.com
Kimberly D. Elsbach : How to Pitch a Brilliant Idea, Harvard Business Review, September 2003, 1-9
Mitchell Colin : Selling the Brand Inside, Harvard Business Review, January 2002, 5-11
Robert J. Frank, Elizabeth A. Mihas, Laxman Narasimhan, Stacey Rauch : Competing in a Value
Driven World, McKinsey & Company, 2003, 1.14
Varian, Hal R. : A Model of Sales, American Economic Review, 70 (4), 1980, 651-659