И.П. Агабекян, П.И. Коваленко 18 страница

In problems of market selection and product planning one of the key concepts is that of the Product Life Cycle. That products pass through various stages between life and death (introduction — growth — maturity — decline) is hard to deny. Equally accepted is the understanding that a company should have a mix of products with representation in each of these stages. Companies can make far more effective marketing decisions if they take time to find out where each of their products stands in its life cycle.

However, the concept of the product life cycle seems frequently forgotten in marketing planning, which leads to wrong decision-making. This may well be seen in the following story.

A supplier of some light industrial equipment felt that the decline in the sales of his major product was due to the fact that it was not receiving the sales support it deserved. In order to give extra sales support to this problem case, a special advertising campaign was run. This required cutting into marketing budgets of several promising products that were still in their «young» growth phase. In fact, the major product has long since passed the zenith of its potential sales, and no amount of additional sales support could have extended its growth. This became quite clear in the end-of-year sales results which showed no improvement. The promising products, however, went into gradual sales decline. In short, management has failed to consider each product’s position m its life cycle.

Задание 7.3. Answer the questions:

1. What is strategic planning?

2. Why is the Product Life Cycle considered one of the key concepts in marketing?

3. What is marketing management?

<^Text 4 ADVERTISING

Advertising is one of the largest industries. In 1986, for example, American business spent over $100 billion to advertise its products: Since consumers are the principal targets of these sales campaigns, we ought to know something about the services advertisers perform, as well as some of the techniques they use.

The Benefits of Advertising

Advertising benefits consumers and the economy in a number of ways:

• It provides us with information about prices, recent improvements in certain goods and services, and the availability of new ones.

• Advertising often results in lower prices. Large- scale production can reduce costs. By creating mass markets, advertising enables producers to reduce the costs of their products and pass those savings on to the consuming public.

• Advertising stimulates competition, and competition benefits us all. Advertising by one firm puts pressure on others within the industry to do at least as well to attract the consumer’s money.

• Advertising pays most of the cost of magazines and newspapers, and all of the cost of commercial radio and TV.

Advertising helps the economy as a whole by stimulating consumer demand. Consumer spending has a direct effect on the health of the economy. Advertising helps to keep that spending at healthy levels.

The Price We Pay for Advertising.

Not everyone agrees that advertising benefits the economy. Critics list the following points of its disadvantages:

• The information contained in advertising does not inform and often misleads the consumer.

• Because it costs money to advertise, this cost adds to the price consumers pay.

• Consumers are tempted to spend money for products they do not really need.

• Radio and TV are not really free because the cost of advertising on them is also passed on to the consumer.

Advertising Strategies

Three strategies that have been especially popular with advertisers can be classified as slogans, rational appeals, and emotional appeals.

Slogans. Advertisers often use slogans that sound great but mean little or nothing. Yet, advertisers seem to feel that such slogans, when repeated often enough, do increase sales.

Rational Appeals. Rational appeals rely upon logic or reason to convince the consumer to buy a product.

«Our Cookies Contain 25% Fewer Calories Than the Next Leading Brand.» This is an example of an advertisement that appeals to reason. Ads for health foods, pain relievers and home remedies tend to use this technique.

Emotional Appeals. Emotional appeals rely upon the use of psychology. The following is a sampling of such strategies:

• Testimonials. These are the advertisements in which famous people claim they use and enjoy a particular product. Ads for sports equipment frequently rely on this strategy.

• The Bandwagon. The bandwagon appeal implies that everybody is using a particular product, and that if you don’t, you will be left out. The term derives from the practice, during nineteenth-century circus or political parades, of jumping on or following behind the wagon carrying the band. Soft drink and automobile ads use this appeal.

• Popularity. Some advertisements suggest that simply by using the advertised product you will be popular or find romance. Toothpaste ads showing moments of romance between handsome young men and women are typical of these kinds of campaigns.

Every day you as a consumer are the object of the marketing efforts of American and foreign companies that want your business. The advertising on television and radio and in the newspaper flyers that come to your house are just some of the ways that sales promotions reach you. Can you think of other ways? Most of these marketing strategies represent honest efforts to convince you to buy a product or service. Nevertheless, you are responsible for evaluating advertising directed at you, separating fact from emodon, and deciding whether or not to buy the product.

Задание 7.4. Answer the questions:

1. In what way do consumers and the economy benefit from advertising?

2. What are the disadvantages of advertising?

3. What are the methods of advertising?

4. Does advertising influence your personal decisions to buy or not to buy?

5. What is your attitude to TV advertising?

6. What kinds of ads do you like?

Appendix А I Texts for additional reading

THE FIRST MODERN ECONOMISTS

The Mercantilists

Between the 16th and 18th centuries, the major countries of Europe believed in the economic theory of mercantilism. Mercantilists argued that nations should behave as if they were merchants competing with one another for profit. Accordingly, governments should support industry by enacting laws designed to keep labor and other production costs low, and exports (sales to foreign countries) high. In this way the nation could achieve what was called a favorable balance of trade.

«Favorable balance of trade» described a situation in which exports exceeded imports. The excess, which was like profits to a merchant, would result in an increase in the nation’s supply of gold or silver. And, as most people agreed in those days, the true measure of a nation’s wealth was its hoard of gold or silver.

To achieve favorable trade balances, the major European powers sought to acquire colonies. Colonies, it was thought, could provide the «mother country» with cheap labor, raw materials and a market for its manufactured goods. In an effort to attain these goals in their American colonies, the British, for example, enacted the Navigation Acts.

The Navigation Acts protected British industry by prohibiting the colonies from producing certain goods like hats, woolen products and wrought iron. The laws also listed certain «enumerated articles» (mostly raw materials) which could not be sold to buyers in countries other than England. Resentment towards the Navigation Acts was so great that they are regarded as one of the principal causes of the Revolutionary War.

Today there are people who still argue that our country should promote a «favorable balance of trade,» that the federal government should do what it can to restrict imports and promote exports. For that reason, they are often described as neo-mercantilists or «new» mercantilists.

The Physiocrats

For one group of 18th-century French philosophers and economists, the suggestion that nations should go out of their way to protect business and industry made no sense at all. These were the physiocrats. The physiocrats argued that the products of agriculture and other natural resources were the true source of wealth. Since these were God-given, it made little sense for government to go out of its way to help business and industry increase profits. For similar reasons, they opposed government efforts to promote a «favorable balance of trade.» In other words, since real wealth came from the land, it followed that the wisest thing government could do would be to keep its hands off business and let nature take its course. This idea was expressed in the slogan «laissez faire,» (let people do as they choose).

Interestingly, the 200-year-old argument between those favoring regulation of the economy and those supporting laissez. faire is still with us. Whether the problem involves individuals (like those living in poverty and unemployment) or institutions (such as a rising tide of business or bank failures), there are those who find the solution in government intervention, and others who favor «laissez faire,» letting natural economic forces take their course.

ADAM SMITH AND THE WEALTH OF NATIONS

Seventeen seventy-six, the year that we associate with the signing of the Declaration of Independence, also marked the publication in England of one of the most influential books of our time, The Wealth of Nations. Written by Adam Smith, it earned the author the title «The father of economics.»

Smith objected to the principal economic beliefs of his day. He differed with the physiocrats who argued that land was the only source of wealth. He also disagreed with the mercantilists who measured the wealth of a nation by its money supply, and who called for government regulation of the economy in order to promote a «favorable balance of trade.»

In Smith’s view, a nation’s wealth was dependent upon production, not agriculture alone. How much it produced, he believed, depended upon how well it combined labor and the other factors of production. The more efficient the combination, the greater the output, and the greater the nation’s wealth.

The heart of Smith’s economic philosophy was his belief that the economy would work best if left to function on its own without government regulation. In those circumstances, self-interest would lead business firms to produce only those products that consumers wanted, and to produce them at the lowest possible cost. They would do this, not as a means of benefitting society, but in an effort to outperform their competitors and gain the greatest profit. But all this self-interest would benefit society as a whole by providing it with more and better goods and services, at the lowest prices. To explain why all society benefits when the economy is free of regulation, Smith used the metaphor of the «invisible hand»:

«Every individual is continually exerting himself to find the most advantageous employment for whatever capital he can command. It is his own advantage, and not that of society, which he has in mind, . .but he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention, for the pursuit of his own advantage necessarily leads him to prefer that employment which is most advantageous to society.»

The «invisible hand» was Smith’s name for the economic forces that we today would call supply and demand, or the marketplace. He sharply disagreed with the mercantilists who, in their quest for a «favorable balance of trade,» called for regulation of the economy.

Instead, Smith agreed with the physiocrats and their policy of «laissez-faire,» letting individuals and businesses function without interference from government regulation or private monopolies. In that way, the «invisible hand» would be free to guide the economy and maximize production.

The Wealth of Nations goes on to describe the principal elements of the economic system. In a famous section, Smith turned to the pin industry to demonstrate how the division of labor and the use of machinery increased output.

«One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations...»

Although modern technology has improved the methods by which pins are produced, the principles pertaining to the division of labor remain unchanged.

Similarly, other sections dealing with the factors of production, money and international trade are as meaningful today as when they were first written.

DAVID RICARDO (1772-1823)

Classical Champion of Free Trade

David Ricardo is one of history’s most influential economists.

Born in England, Ricardo made a fortune on the London Stock Exchange. This wealth gave him the time to write and to serve in Parliament’s House of Commons. His most famous work, Principles of Political Economy and Taxation (1817), marked him as the greatest spokesman for classical economics since Adam Smith.

Ricardo is especially famous in international economics for demonstrating the advantages of free trade. Free trade is a policy in which tariffs and other barriers to trade between nations are removed. To prove his point, Ricardo developed a concept we now call the principle of comparative advantage. Comparative advantage enabled him to demonstrate that one nation might profitably import goods from another even though the importing country could produce that item for less than the exporter.

Ricardo’s explanation of comparative advantage went as follows:

Portugal and England, both of whom produce wine and cloth, are considering the advantages of exchanging those products with one another.

Let’s assume that:

• x barrels of wine are equal to (and therefore trade evenly for) у yards of cloth.

• In Portugal 80 workers can produce x barrels of wine in a year. It takes 120 English workers to produce that many barrels.

• 90 Portuguese workers can produce у yards of cloth in a year. It takes 100 English workers to produce у yards of cloth.

We can see, Ricardo continued, that even though Portugal can produce both wine and cloth more efficiently than England, it pays them to specialize in the production of wine and import English cloth. This is so because by trading with England, Portugal can obtain as much cloth for 80 worker-years as it would take 90 worker-years to produce themselves.

England will also benefit. By specializing in cloth, it will be able to obtain wine in exchange for 100 worker- years of labor rather than 120.

As a member of Parliament, Ricardo pressed the government to abandon its traditional policy of protection. Though he did not live to achieve that goal, his efforts bore fruit in the 1840s when England became the first industrial power to adopt a policy of free trade. There followed 70 years of economic growth during whichthe nation became the world’s wealthiest industrial power.

ALFRED MARSHALL (1842-1924)

Price Theory Pioneer

His textbook Principles of Economics (1890), and the doctrines that it discussed, became the standard for the teaching of that subject until well into the 1940”s. Marshall spent most of his adult life as a professor of economics at Cambridge University. His most famous pupil, John Maynard Keynes, described Marshall as «the greatest economist of the 19th century.» Interestingly, Keynes went on to become the most influential economist of the 20^th century.

Marshall is best known for the order that he made out of the theories of the earlier «classical economists» like

Adam Smith, David Ricardo and John Stuart Mill. («Classical» is the name given by modern economists to the theories of those whose views were most widely held during the 75 years following the publication of The Wealth of Nations.) Despite the passage of 100 years since the publication of his Principles, his analysis of market forces is still relied upon to explain economic events.

In Marshall’s world, economic events could be explained in terms of the equilibrium market price resulting from the interaction of supply and demand. One of Marshall’s lasting contributions was differentiating between supply and demand in the short run and the long run. Comparing the two forces to the blades of a scissors, he argued that neither could function without the other. But, just as (depending on how the scissors is held) one blade can be more active than the other, so supply and demand vary in importance in the long and short run. In the short run, the quantity of available goods is more or less fixed (because crops have been planted, production schedules set, etc.). Therefore it is the demand for those items that will be most influential in determining their price. In the long run, he went on, the opposite is true. Both farmers and businesses can add to or reduce their production facilities as the needs dictate. In that way the supply side of the market becomes most influential in determining price.

JOHN MAYNARD KEYNES (1883-1946)

Theorist Who Brought Economics into the Twentieth Century

John Maynard Keynes stands with Adam Smith and Karl Marx as one of the world’s most influential economists. The son of a noted British economist, Keynes amassed a fortune through speculation in stocks and commodities. He served the British government as a financial adviser and treasury official through most of hisadult life and was a key participant in the negotiations following both World Wars I and II.

Although Adam Smith had written The Wealth of Nations about the time of the American Revolution, by the 1930”s little had changed in the thinking of mainstream economists. Most would have agreed with Smith, that the best thing government could do to help the economy would be to keep its hands off. They reasoned that as long as the economy was free to operate without interference, the forces of supply and demand would come into balance. Then, with total supply and demand in equilibrium, everyone looking for work could find a job at the prevailing wage, and every firm could sell its products at the market price.

But the 1930”s was the period of the Great Depression. Despite the assurances of the classical economists, the fact was that unemployment and business failure had reached record proportions in the United States and the rest of the industrialized world. It was at this time (1936) that Keynes’ General Theory of Employment, Interest, and Money was published. The General Theory transformed economic thinking in the 20th century, much the way that The Wealth of Nations had in the 18th.

Keynes demonstrated that it was possible for total supply and demand to be at equilibrium at a point well under full employment. What is more, Keynes demonstrated that unemployment could persist indefinitely, unless someone stepped in to increase total demand.

The «someone» Keynes had in mind was government. He reasoned that if, for example, government spent money on public works, the income received by formerly idle workers would lead to increased demand, a resurgence of business activity and the restoration of full employment.

The suggestion that government abandon laissez faire in favor of an active role in economic stabilization was regarded as revolutionary in the 1930”s. Since then, however, the ideas advanced by the «Keynesian Revolution)» have become part of conventional wisdom. Now, whenever a nation appears to be entering into a period of recession or inflation, economists and others immediately think of steps the government might take to reverse the trend.

THOMAS ROBERT MAFTHUS (1766-1834)

Prophet of the «Dismal Science»

Standards of living in many developing nations continue to decline because the growth in population is greater than economic growth. If world economic growth continues to average about two percent annually, nearly half the world’s people will live in countries where population growth exceeds economic growth.

This was foretold by an 18th-century English .economist, Thomas Malthus. In his Essay on Population (1798) Malthus warned of the dire consequences of uncontrolled population growth. His argument was direct and simple. While food supplies can be increased through the addition of land and labor, the rate of growth is in an arithmetic progression (2, 4, 6, 8, 10 and so on). But population growth expands in a geometric progression (2, 4, 8, 16, 32, 64 and so on).

Given the difference between the rate of populatior growth and that of food production, Malthus concludes that a large portion of humanity was doomed to a life of misery. Worse yet, as the arithmetically increasing food production fell short of satisfying the geometrically increasing population, malnutrition and disease would take their toll until the rising death rate restored the balance between food and population.

Other than urging the poor to have fewer children, there was nothing that society could do to reduce starvation or suffering, Malthus thought. For that reason, he opposed legislation to provide relief and housing for those living in poverty. In his view, such aid would simply encourage the poor to have more children and worsen their lot. It is little wonder that after reading the Essay on Population, Thomas Carlyle, a contemporary British writer, called economics the «dismal [depressing] science.»

Since Malthus’s day several factors have prevented the fulfillment of his prophecies. The most visible of these has been the enormous increase in food production, on the one hand, and declining birthrates in the industrialized nations on the other. Food production increased far beyond anything he could have foreseen, owing to scientific and technical advances in farming. Meanwhile, declining birthrates have brought several European countries near zero population growth.

Critics of Malthusian theory argue that the focus on population misses the main causes of hunger and starvation.The fact is that the agricultural nations grow enough to feed themselves and the rest of the world. However, not enough food reaches those in need because poor nations do not have the international currency with which to purchase it from world suppliers.

Thomas Malthus, a controversial figure in his own time, remains one today. To some he was a great prophet whose theories are still relevant. To others, his opinions are as shortsighted and inappropriate today as they were nearly two hundred years ago.

IRVING FISHER (1867-1947)

Pioneer In Monetary Theory

Irving Fisher spent most of his adult life as a professor of economics at Yale University. An accomplished mathematician, he used those skills to explain many of his theories. In his best known formulation, the equation of exchange, Professor Fisher showed the relationship between the quantity of money in circulation and the level of prices.

The equation of exchange is stated as follows:

MV = PQ, where:

M = money supply V = velocity of circulation P = average price of goods and services Q = quantity of units sold

Simply stated, the equation of exchange tells us that total spending is equal to the total value of the goods and services produced by the economy. Let’s see why. M is the total amount of money in circulation, and V is its velocity. Velocity is simply the number of times that money turns over in a year. In other words, the amount of money in circulation, multiplied by the number of times it is spent (MV) is equal to the total amount of money spent by the economy in the course of the year. To illustrate, let’s suppose that each student in your class produced a product for sale, and that the selling price of each item is $1. Your teacher buys the product from the student sitting in the first row, first seat. That student uses the dollar to buy the product from the student in the second seat.

The process continues around the room as each student uses the dollar from the preceding student to buy the product of the next student. Assuming that there are 30 class members (including the teacher), 30 items will be sold. One dollar bill will be exchanged 30 times. Applying the equation of exchange, the total amount of money in circulation will be $30 because:

M = $1; V = 30; and MV = $1 x 30 = $30.

The equation of exchange helps to explain why prices (and therefore the value of money) fluctuate. Since MV = PQ, it follows that when V and Q are constant, any change in the money supply will directly affect prices. In otherwords, when the money supply increases, so will prices, and vice versa. We can also see that increases in the money supply will not result in price increases if the output of goods and services is increased at the same or a faster rate.

KARL MARX (1818-1883)

Prophet of Socialism and Communism

For more than half of Europe and a third of the world’s population, history’s greatest economist was Karl Marx. Born in Germany, Marx’s revolutionary activities got him into trouble with the authorities, and from 1842 until his death in 1883 he lived his life in exile.

In 1849, Marx moved to London, England, where he studied, wrote, and produced his greatest work ’’Capital”.

Marx’s single-minded dedication to his studies made it all but impossible for him to earn a living. Were it not for the financial help he received from his friend Frederick Engels, a wealthy textile manufacturer from Manchester, England, he and his family might have starved to death. As it was, they lived a life of poverty.

In 1845, the League of the Just (later to change its name to the Communist League) asked Marx and Engels to prepare a statement of beliefs. They wrote The Communist Manifesto. The Manifesto, which contains some of the most memorable lines of revolutionary literature, concludes with:

«... Let the ruling classes tremble at a Communistic revolution. The proletarians [workers] have nothing to lose but their chains. They have a world to win. Working men of all countries unite!»

The Economic Theories of Karl Marx

It is not possible to summarize briefly everything that Karl Marx had to say about the world in which he lived. However, the following paragraphs describe some of his more important theories.

The economic interpretation of history. In Marx’s view, the course of history has been determined almost solely by economic forces. Forget about things like great men and women, religion, patriotism, and the like. Look instead, he said, at the economic events of the time to find the real reasons why people and states behaved the way they did.

He also asserted that history has been a series of struggles between economic classes. For example, in Ancient Rome the landed aristocracy struggled for power with small farmers and city workers. In medieval times, guildmasters and journeymen, nobles and serfs struggled with one another for economic supremacy. Similarly, the French Revolution could be explained in terms of a struggle between merchant classes and the agrarian (agricultural) aristocracy.

The exploitation of labor. According to Marx, goods and services had value because of the efforts of laborers. But according to the economic theory of the day, workers were only paid enough to enable them to stay, alive. Whatever was left over (profits) was pocketed by the factory owner—the capitalist. Profits, therefore, represented surplus value which should belong to those who created it: the workers.

The inevitability of capitalism’s collapse. Under this system, the rich would get richer and the poor, poorer. Because workers were underpaid, Marx went on, they would be unable to buy the goods and services they produced. Even tually, the system’s excesses would lead to the final class struggle. In this, workers would overthrow the capitalists who had been exploiting them. In the new order that would follow, Marx concluded, class struggle would no longer be necessary, and the state could simply «wither away.» Each worker would perform «according to his ability» and be rewarded «according to his needs.»

Appendix В Frequently used business abbreviations

A1 первый класс, первоклассный AA (Advertising Association) рекламная ассоциация AAA первоклассные ценные бумаги (условное обозначение)

AAR (against all risks) против всех рисков (в страховании)

АС 1. (average costs) средние издержки, 2. (account current) текущий банковский счет (в Англии), открытый счет (в США), 3. (assistant cashier) помощник кассира а/с или ACC (account) счет асс 1. (acceptance) акцепт, тратта, 2. (accepted) принятый,3. (accidental) случайный АСЕ (active corps of executives) корпус действующих должностных лиц AD (aggregate demand) совокупный спрос ad 1. (advertisement) рекламное объявление, 2. (administration) администрация, 3. (advice) извещение, авизо a/d (after date) от сего числа

ADP (automatic data processing) автоматическая обработка данных

adt (advertisement) рекламное объявление Adv. (advance) кредит

AFC (average fixed costs) средние постоянные издержки

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