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Friday, June 08, 2012

“Catch the Attention” a New Mantra of Business


(Evolution of Global Markets)

 (Photo Courtesy : Internet)

Let us first understand the basics of economics to understand the meaning of above title.  We need to understand the theory of demand to know how the demand drives the economic growth of any country.

Theory of Demand

The Theory of Demand says that “Demand is defined as the quantity of a good or service that consumers are willing and able to buy at a given price in a given time period. Each of us has an individual demand for particular goods and services and the level of demand at each market price reflects the value that consumers place on a product and their expected satisfaction gained from purchase and consumption.” The Market Demand is the sum of the individual demand for a product from each consumer in the market.

Initial world markets have grown and touched to a certain height unless the demand and supply crossed the optimum growth level. After certain years/decades, the height / optimum level had become the constant (with small ups and down trends) demand from a particular area or geographical location or a country. In this way there is a very small space left for growth of the markets in terms of new demand and higher profits for the companies.

In this scenario, a new wave of thought or vision that has hit the world economies and that is called as “Free Trade”. The Free Trade was being introduced in the world through the treaties like GAT(). The “Globalization” and “Liberalization” are two child entities / terms of this Free Trade.

What is Free Trade?

Free trade is a system in which goods, capital, and labour flow freely between nations, without barriers which could hinder the trade process. Many nations have free trade agreements. It usually benefits the larger, wealthier countries whose big companies are looking to expand and sell their goods abroad. Globalisation has made the world a much smaller place.

Using this new way of trading across world, many developed countries have accumulated wealth. But, still there are several economies / countries where the markets are not completely open in all the sectors for global players. In fact, there are pros and cons of implementing the Globalization in any country. We are not going to discuss about them here. After introduction of this free trade, initially the companies were able to make profit, but, gradually it started to diminish or become constant again. The paramount reason for this trend is the decreasing demand.

Why Demand Decrease or Become Constant After Sometime?

The demand for any good or commodity decreases in the long run due to three reasons.

  • The company or its product has reached to every one residing in the target location, due to which there is no chance of expansion of market further. Or

  • The maximum demand for the product(s) has been reached to its expected targets and there is no further potential for growth.

  • A stiff competition from other competitors. A new product in the similar category is available cheap or with greater quality or features.

For e.g.

Say an X company selling a Television (TV) opened up an outlet in your area, which consist around Y number of homes. Every household would purchase single TV. Within 5 years the company X has almost sold 500-600 TVs to the people residing in the locality. So, there is no more demand unless there are splits in the home (Nuclear families). J

Or consider a tooth paste tubes, any house hold would purchase 1 or max 2 tooth paste tubes every month. Once this purchase pattern is set by all the people residing in a particular area then there is very less possibility to increase the demand for that product in that area. However they even do have competition from other companies.

How to Overcome this Stagnation or Create New Demand? 

There are two ways that the world marketing leaders have employed to create a short period and illusionary demand. These both ways are under use in the current market.

  • One, the demand is being created by stocking the commodities/food stuffs for a certain amount of period and releasing it when the demand is high. So, they can sell the product with higher price. This type of demand can be created only by stocking eatables, vegetables, groceries, etc…

  • Second one is created through advertisement. It works completely contrary to the existing Theory of Demand. It believes that an illusionary demand can be created through advertisement. In many cases people do not know about many products in the bazaar. They even do not have any necessity of those products in their Life, but, still they buy. That is due to the advertisement and its influence on our mind and purchasing instinct.

The modern market believes manly into this theory. The business people have tried all the techniques to constantly increase the demand for their products in the market for ever. They reached every nook and corner of the world, every door step to sell their products. Then, they tried converting the local markets into global markets with the introduction of Free Trade. Even after employing all these techniques, they failed to ensure always increasing demand for their products. This is the main reason for yielding to advertisement, which may even help in fighting completion to a certain extent.


How the Advertisements Create Demand?

Well, we all agree that advertisements create demand. They create an unnecessary demand (because necessary good we purchase anyhow), influence us to purchase/enjoy, tempt us to spend, guide us to decide the brand. Advertisement is a technique that all most all the companies use to endorse their products. Many big companies, international brands, spend 20%-25% their total expenditure on advertisements. Advertisement through all the channels like print and visual medias, holdings, pamphlets, etc… Why this huge investment is needed? It is to catch your attentions for few seconds.

 “Catch the Attention” a New Mantra of Business

Advertisement to endorse the product is good. But, However the current advertisement is not just means of introducing the product. It is to create demand for it and make your mind to purchase it or own it. Advertising is the a major selling trick in today’s world.

When the companies are competing with each other to gain the attention of consumer for their product over the other competitor’s products, they try advertising using different means of promotion, like advertising in major dailies of all languages, magazines, on roadside holdings and on audio and visual menses like radio and TV. Either you watch TV or listen to a radio or read news paper, you should see the product everywhere and hear its name unless it gets into your mind.  So, today’s business is shifted from demand driven to attention driven.

Why we buy foreign or multinational products? We purchase them neither because of quality nor because they are the best in their category. We buy them because of myth and hype created through heavy advertisement.  For instance, If any cosmetic or soap is going to make us look fair glowing then there should not be any one left black or whitish in the world. We know it is not possible. But, still we buy because of the false notion created in our mind that they have the best quality, they are definitely going to make me look smart. We need to understand the conspiracy and stop yielding to these ads. This will save our money from flowing to foreign countries, which will strengthen our nation down the line. 

But, we as end consumer should be aware about such trading techniques. Collective boycott of foreign products has the major strength to put our nation on the path of speedy development. Let us try not get swayed by these tricks. Save our economy Save India!

-      K Kalyan

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