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CHAPTER II LITERATURE STUDY

2.1 Furniture

Furniture is the mass noun for the movable objects which may support the

human body (seating furniture and beds), provide storage, or hold objects on

horizontal surfaces above the ground. Storage furniture (which often makes use of

doors, drawers, and shelves) is used to hold or contain smaller objects such as

clothes, tools, books, and household goods.

Furniture can be a product of artistic design and is considered a form of

decorative art. In addition to furniture's functional role, it can serve a symbolic or

religious purpose. Domestic furniture works to create, in conjunction with furnishings

such as clocks and lighting, comfortable and convenient interior spaces. Furniture can

be made from many materials, including metal, plastic, and wood. Furniture can be

made using a variety of woodworking joints which often reflect the local culture.

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2.2 Marketing

The American Marketing Association (AMA) states, "Marketing is an

organizational function and a set of processes for creating, communicating and

delivering value to customers and for managing customer relationships in ways that

benefit the organization and its stakeholders."

Marketing deals with identifying and meeting human and social needs. One of

the shortest definitions of marketing is “meeting needs profitably”. Marketing

practice tends to be seen as a creative industry, which includes advertising,

distribution and selling. It is also concerned with anticipating the customers' future

needs and wants, which are often discovered through market research (Kotler and

Keller, 2006).

In the early 1960s, Professor Neil Borden at Harvard Business School identified a

number of company performance actions that can influence the consumer decision to

purchase goods or services. Borden suggested that all those actions of the company

represented a “Marketing Mix”. Professor E. Jerome McCarthy, also at the Harvard

Business School in the early 1960s, suggested that the Marketing Mix contained 4

elements: product, price, place and promotion.

• Product: The product aspects of marketing deal with the specifications of the

actual goods or services, and how it relates to the end-user's needs and wants.

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The scope of a product generally includes supporting elements such as

warranties, guarantees, and support.

• Pricing: This refers to the process of setting a price for a product, including

discounts. The price need not be monetary - it can simply be what is

exchanged for the product or services, e.g. time, energy, or attention.

• Promotion: This includes advertising, sales promotion, publicity, and personal

selling, branding and refers to the various methods of promoting the product,

brand, or company.

• Placement (or distribution): refers to how the product gets to the customer; for

example, point-of-sale placement or retailing. This fourth P has also

sometimes been called Place, referring to the channel by which a product or

service is sold (e.g. online vs. retail), which geographic region or industry, to

which segment (young adults, families, business people), etc. also referring to

how the environment in which the product is sold in can affect sales.

These four elements are often referred to as the marketing mix which a marketer

can use to craft a marketing plan (Perreault, Cannon and McCarthy, 2008).

2.3 Business Marketing

Industrial or B2B marketing must account for the long term contractual

agreements that are typical in supply chain transactions. Relationship marketing

attempts to do this by looking at marketing from a long term relationship perspective

rather than individual transactions.

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Business Marketing is the practice of individuals, or organizations, including

commercial businesses, governments and institutions, facilitating the sale of their

products or services to other companies or organizations that in turn resell them, use

them as components in products or services they offer, or use them to support their

operations

In the broadest sense, the practice of one purveyor of goods doing trade with

another is as old as commerce itself. As a niche in the field of marketing as we know

it today, however, its history is more recent. Industrial marketing has been around

since the mid-19th century, although the bulk of research on the discipline of business

marketing has come about in the last 25 year (Dwyer and Tanner, 2006).

For many years business marketing took a back seat to consumer marketing,

which entailed providers of goods or services selling directly to households through

mass media and retail channels (Morris, Pitt and Honeycutt, 2001).

2.4 Business Marketing Vs Consumer Marketing

Although on the surface the differences between business and consumer

marketing may seem obvious, there are more subtle distinctions between the two with

substantial ramifications. Business marketing generally entails shorter and more

direct channels of distribution.

While consumer marketing is aimed at large demographic groups through

mass media and retailers, the negotiation process between the buyer and seller is

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more personal in business marketing. Most business marketers commit only a small

part of their promotional budgets to advertising, and that is usually through direct

mail efforts and trade journals. While that advertising is limited, it often helps the

business marketer set up successful sales calls (Hutt and Speh, 2001).

Marketing to a business trying to make a profit (Business-to-Business

marketing) as opposed to an individual for personal use (Business-to-Consumer, or

B2C marketing) is similar in terms of the fundamental principles of marketing. In

B2C, B2B and B2G marketing situations, the marketer must always:

• successfully match the product/service strengths with the needs of a definable

target market;

• position and price to align the product/service with its market, often an

intricate balance; and

• Communicate and sell it in the fashion that demonstrates its value effectively

to the target market (Hutt and Speh, 2006).

2.5 The Customer in B2B Industry

While "other businesses" might seem like the simple answer, Dwyer and

Tanner (2006) say business customers fall into four broad categories: companies that

consume products or services, government agencies, institutions and resellers.

The first category includes original equipment manufacturers, such as

automakers, who buy gauges to put in their cars, and users, which are companies that

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purchase products for their own consumption. The second category, government

agencies, is the biggest. In fact, the U.S. government is the biggest single purchaser

of products and services in the country, spending more than $300 billion annually.

But this category also includes state and local governments. The third category,

institutions, includes schools, hospitals and nursing homes, churches and charities.

Finally, resellers consist of wholesalers, brokers and industrial distributors (Dwyer

and Tanner, 2006).

2.6 The differences between B2B and B2C marketing

A B2C sale is to an individual. That individual may be influenced by other

factors such as family members or friends, but ultimately it’s a single person that

pulls out their wallet. A B2B sale is to an organization. And in that simple distinction

lies a web of complications that differ because of the organizational nature of the sale

and which vary widely by firm graphic (i.e., “demographic” for segmenting

businesses) such as business size, location, industry and revenue base.

The marketing mix is affected by the B2B uniqueness which includes

complexity of business products and services, diversity of demand and the differing

nature of the sales itself (including fewer customers buying larger volumes).[2]

Because there are some important subtleties to the B2B sale, the issues are broken

down beyond just the original 4 Ps developed by McCarthy (Perreault Jr, Cannon,

and McCarthy, 2008).

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2.7 Organizational Buyer Behavior

Figure 2. 1 Reward Measurement Theory

Reward-Measurement Theory is an expectancy theory of organizational buyer

motivation, similar to expectancy theories you may have been introduced to in

management. It points out that buyers are motivated by both intrinsic rewards, and

those rewards they give themselves (feelings of satisfaction, for example), and

extrinsic rewards, or rewards given by the organization (e.g., salary, promotion).

Valence or the degree of importance or value attached to a reward. Perceived

probability or the perception of effort on a particular set of tasks will lead to

accomplishment of performance outcomes that will in turn lead to the desired

rewards.

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Figure 2. 2 Behavior Choice Theory

Behavior choice theory states that buyers go through a choice process to

arrive at decision of how they will buy, as opposed to the choice process of what will

be bought, modeled as part of the buy grid.

Role theory suggests that people behave within a set of norms or expectations

of others due to the role in which they have been placed. When a person makes a

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purchase decision alone for an organization, the decision is said to be autonomous.

When more than one person involved, the group of participants in the company are

called the buying center or decision-making unit (DMU). Role theory helps us to

understand how those participants interact because it defines the roles people take

when involved in purchases.

Buying determinants theory describes behavior as due to the combined effects

of four factors: environmental factors such as government regulations and

technology; market factors, such as size and number of competitors; organizational

factors, including company size, corporate culture, and policies; and individual

factors, like age, experience, and education of any individual person involved in the

decision.

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Figure 2. 3 Buying Determinants Theory (Dwyer and Tanner, 2006)

2.8 SWOT Analysis

SWOT analysis is a simple framework for generating strategic alternatives

from a situation analysis. It is applicable to either the corporate level or the business

unit level and frequently appears in marketing plans. SWOT (sometimes referred to

as TOWS) stands for Strengths, Weaknesses, Opportunities, and Threats. Because it

concentrates on the issues that potentially have the most impact, the SWOT analysis

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is useful when a very limited amount of time is available to address a complex

strategic situation.

The following diagram shows how a SWOT analysis fits into a strategic

situation analysis:

Situation Analysis

/ \

Internal Analysis External Analysis

/ \ / \

Strengths Weaknesses Opportunities Threats

|

SWOT Profile

Figure 2. 4 SWOT Analysis

The internal and external situation analysis can produce a large amount of

information, much of which may not be highly relevant. The SWOT analysis can

serve as an interpretative filter to reduce the information to a manageable quantity of

key issues. The SWOT analysis classifies the internal aspects of the company as

strengths or weaknesses and the external situational factors as opportunities or

threats. Strengths can serve as a foundation for building a competitive advantage, and

weaknesses may hinder it. By understanding these four aspects of its situation, a firm

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can better leverage its strengths, correct its weaknesses, capitalize on golden

opportunities, and deter potentially devastating threats.

2.8.1 Internal Analysis

The internal analysis is a comprehensive evaluation of the internal environment's

potential strengths and weaknesses. Factors should be evaluated across the

organization in areas such as:

• Company culture

• Company image

• Organizational structure

• Key staff

• Access to natural resources

• Position on the experience curve

• Operational efficiency

• Operational capacity

• Brand awareness

• Market share

• Financial resources

• Exclusive contracts

• Patents and trade secrets

The SWOT analysis summarizes the internal factors of the firm as a list of

strengths and weaknesses.

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2.8.2 External Analysis

An opportunity is the chance to introduce a new product or service that can

generate superior returns. Opportunities can arise when changes occur in the external

environment. Many of these changes can be perceived as threats to the market

position of existing products and may necessitate a change in product specifications

or the development of new products in order for the firm to remain competitive.

Changes in the external environment may be related to:

• Customers

• Competitors

• Market trends

• Suppliers

• Partners

• Social changes

• New technology

• Economic environment

• Political and regulatory environment (Kotler and Keller, 2006)

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2.9 The Five Forces of Competition

Figure 2. 5 Five Forces of Competition

2.9.1 Rivalry in the Industry

Not all business faces the same amount of price pressure from their

competitors in the same business. Like the lodging business, other industries are

partitioned by natural boundaries or customer purchasing constraints. If industry

rivals offer relatively undifferentiated products or if demand is significantly less than

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overall capacity, firms will tend to find intense rivalry. Price competition frequently

intensifies in declining markets because firms try to grab market share to cover fixed

expenses that can’t be shrunk as rapidly as the market.

2.9.2 Powerful Customers

Their abilities to contract for large purchases make large customers attractive

to many business markets. The seller’s risk is that large buyers may press hard for

price concessions, effectively squeezing out profit opportunities. Another possibility

is delayed payments or returned products, both of which can sink an undercapitalized

firm.

2.9.3 Powerful Suppliers

A manufacturer that relies heavily on a unique input for its products becomes

vulnerable to price hikes or other means of “holdup” from the supplier. Of course, the

unique input may provide a means of differentiation for the manufacturer. The buying

firm must carefully weigh the benefits from depending on a powerful source of

supply. A key question may be what the future supply situation looks like. Perhaps

there will be alternative suppliers when patent protection expires or when another

source – maybe even one internal to the firm – has been brought up to speed.

2.9.4 Threat of Substitutes

Industries are typically defined by their channel position and their output. Are

they manufacturers or distributors? Do they sell chemicals or rolled wire? Notice that

user considerations get no mention. But clearly, if a buyer regards the products from

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two different industries as substitutes, the makers of those products must be

considered competitors. The competitive pressure from products in a different

industry can affect prices just as well as substitutes within the industry. A trucking

firm will vie for business from some shippers that can also ship the commodity by

rail or plane. Soft-drink bottlers can use corn syrup or cane sugars as sweeteners.

Frankly, this competitive force has been the cornerstone of competitive

analysis in marketing since the infancy of survey research. A hospital purchasing

manager may not only compare prices and capabilities of different makers of

diagnostics equipment, she may also examine the services of independent

laboratories. But, while marketing research has long aimed to describe competition in

terms of customer perceptions of substitutes, we may have underplayed the

importance of some of these other structural dimensions of competition.

2.9.5 Threat of Potential Entrants

Rapidly growing or profitable markets tend to attract new sellers. And

newcomers can change the competitive landscape in several ways. First, new

participants in the market increase the productive capacity serving the market;

therefore the existing demand from customers has to cover more fixed costs. Second,

a new rival will fight to increase market share, perhaps displacing incumbents in the

assortments of resellers or underbidding the established firms. Third, new rivals can

bring new or substantial resources to the fray. Resources might be a reputable brand

name brought to a new arena (e.g. 3M in fertilizers) or could include technical

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expertise (Samsung in the Asian auto market) or financial muscle (Wal-Mart in food

service) (Dwyer and Tanner, 2006)

2.10 Stages in Consumer Decision Making Process

Figure 2. 6 Consumer Decision Making Process (Solomon, 2006)

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2.10.1 Problem Recognition

Problem recognition occurs whenever the consumer sees a significant

difference between his current state of affairs and some desired or ideal state. Need

recognition can occur in several ways. The quality of the person’s actual state can be

diminished simply by running out of a product, by buying a product that turns out not

to adequately satisfy needs, or by creating new needs. Opportunity recognition often

occurs when a consumer is exposed to different or better-quality products. This

happens because the person’s circumstances have somehow changed. As the person’s

frame of reference shifts, he or she makes purchases to adapt to the new environment.

2.10.2 Information Search

Once consumers recognize a problem, he or she needs adequate information

to resolve it. Information search is the process by which the consumer surveys the

environment for appropriate data to make a reasonable decision.

2.10.3 Evaluation of Alternatives

Much of the effort that goes into a purchase decision occurs at the stage in

which we must make a choice from the available alternatives. After all, modern

consumer society abounds with choices. So, how do we decide which criteria are

important, and how do we narrow down product alternatives to an acceptable number

and eventually choose one instead of others? The answer varies depending on the

decision making process we are using. Consumers engaged in extended problem

solving may carefully evaluate several brands, whereas someone making a habitual

decision may not consider any alternatives to his or her normal brand. Furthermore,

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some evidence indicates that more extended processing occurs in situations in which

negative emotions are aroused due to conflicts among the choices available. This is

most likely to occur where difficult trade-offs are involved, as when a person must

choose between the risks involved in undergoing a bypass operation versus the

potential improvement in his or her life if the operation is successful.

2.10.4 Product Choice

Once a person has assembled and evaluated the relevant options from a

category, he or she must choose among them. Recall that the decision rules guiding

choice can range from very simple and quick strategies to complicated processes

requiring much attention and cognitive processing. Integrating information from

sources such as prior experience with the product or a similar one, information

present at the time of purchase, and beliefs about the brands that advertising has

created can influence the choice.

2.11 Organizational Decision Making

Many employees of corporations or other organizations make purchase

decision on a daily basis. Organizational buyer behavior are people who purchase

goods and services on behalf of companies for use in the process of manufacturing,

distribution or resale. These individuals buy from business-to-business marketers,

who specialize in meeting the needs of organizations such as corporations,

government agencies, hospitals, and retailers. In terms of sheer volume, B2B

marketing is where the action is: Roughly $2 trillion worth of products and services

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change hands among organizations, which is actually more than end consumers’

purchase.

Organizational buyers have a lot of responsibility. They must decide on the

vendors with whom they want to do business and what specific items they require

from these suppliers. Obviously, there is a lot at stake in understanding how they

make these important decisions.

A number of factors influence the organizational buyer’s perception of the

purchase situation. These include the expectations of the supplier (e.g. product

quality, the competence and behavior of the firm’s employees, and prior experiences

in dealing with that supplier), the organizational climate of the company (i.e.

perceptions regarding how the company rewards performance and what it values),

and the buyer’s assessment of performance (e.g. whether the believes in taking risks).

Like other consumers, organizational buyers engage in a learning process in

which members of the firm share information with one another and develop an

“organizational memory” consisting of shared beliefs and assumptions about the

proper course of action. Just as buyer is influenced by “market beliefs” when he or

she goes shopping with the family on the weekend, the same person is also an

information processor at the office. He or she (perhaps with the fellow employees)

attempts to solve problems by searching for information, evaluating alternatives, and

making decisions.

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2.12 Organizational Decision Making Versus Consumer

Decision Making

Many factors distinguish organizational and industrial purchase decisions

from individual consumers’ decisions. Some of these differences are as follows:

Purchase decisions companies make frequently involve many people,

including those who do the actual buying, those who directly or indirectly influence

this decision, and the employees who will actually use the product or service.

Organizational and industrial products are often bought according to precise

technical specifications that require a lot of knowledge about the product category.

Impulse buying is rare (industrial buyers do not suddenly get an “urge to

splurge” on lead pipe or silicon chips). Because buyers are professionals, their

decisions are based on past experience and a careful weighing of alternatives.

Decisions often are risky, especially in the sense that a buyer’s career may be

riding on his or her demonstration of good judgment.

The dollar volume of purchases is often substantial, dwarfing most individual

consumers’ grocery bills or mortgage payments. One hundred to 250 organizational

customers often account for more than half of a supplier’s sales volume, which gives

the buyers a lot of influence over the supplier.

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Business-to-business marketing is often involves more of an emphasis on

personal selling than on advertising or other forms of promotion. Dealing with

organizational buyers typically requires more face-to-face contact than is necessary in

the case of end consumers (Solomon, 2006).