Lecture 2

1. Lecture 2 Objectives -Understanding growth and marketing. -Understanding wealth creation and wealth allocation. -Understanding marketing systems- Structure and Function. -Exploring marketing systems outcomes.

2. Marketing System revisited Define marketing system from last week lecture What is flow in marketing system briefly explain different exchange in marketing system Distinguish macro and marketing.

3. Marketing system (definitions) revisited - A marketing system is a network of individuals, groups, and/or entities linked directly or indirectly, through sequential or shared participation in economic exchange but creates, assembles, transforms, and makes available assortments of products, both tangible and intangible, provided in response to customer demand’ (Layton, 2007). - Marketing system as a complex set of multi-layered, near-and-far relationships in which the choices and actions of market participants have long-term consequences beyond their firms, partners and customers’’ (Mick 2007, p. 291). - Takes the argument further, noting that ‘‘all micromarketing activities occur within and thus derive meaning from some larger marketing system.’’ (Shultz 2007, p. 294). - In principle, a market system could explicitly be recognized as a multi-faceted collective good . . . chosen collectively in view of its benefits and costs to the society as a whole (Gilles and Diamantaras 2005, 51).

4. The search for growth -Where there is specialization there must also be trade, and, over time, where there is trade there will also emerge the specialized roles and market structures needed to handle trade efficiently. -These specialized roles and market structures, which will be called marketing systems, identify the third essential set of factors needed for growth to occur.

5. Economic growth in Marketing: Wealth Creation or Wealth Allocation -The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity and judgement with which it is anywhere directed, or applied, seem to have been the effects of the division of labor. • Specializationwas then the key to wealth, greatly increasing the productivity of the workforce, thereby lowering costs and creating tradable surplus. • Allocation of scarce resources • Wealth creation

6. Economic growth in Marketing: Wealth Creation or Wealth Allocation • The rivalship of competitors who are all endeavouring to jostle one another out of employment, that leads prices to gravitate to a natural price for every commodity. This process is one where each individual is ‘‘led by an invisible hand to promote an end which was no part of his intention. • Marshall met the challenge by introducing the idea of externalities or spillover effects into partial equilibrium analysis, and noting that while increasing returns might lead to the dominance of some firms in the short run, this would disappear in the long run, and overall diminishing returns would again apply. - What if economics had developed the economics of specialization in parallel with the marginalist approach? And marketing as an merging discipline had drawn inspiration from both streams of thought?

7. Economic growth in Marketing: A new direction - The extent of the market now was not simply measured by the size of the relevant population, but by the number of goods and the proportion of all goods that were traded. - Emergence of the firm and of the patterns of intermediate trade Emergence of a dual structure between the urban and the rural sectors of an economy • Important insights into the positive and negative effects of increasing network size, with implications for e-commerce and globalization. - Lusch(1987) recognized the importance of this link when he proposed the first of four fundamental axioms—‘‘As division of labor increases the number and complexity of exchange dyads expands.’’ In Smith-Young terms, diversity and specialization mutually interact to provide a mechanism for growth.

8. Assortment increases with specialization -Look for wider choices both within and between product categories. • Assortment or variety increases, so do the opportunities for specialization open to innovative entrepreneurs.

9. What are the factors influencing change in assortment? - High transaction costs or low levels of development- marketing systems establish connecting links (linking routes and markets), then assortments offered in both systems will change. - The newly formed linkages led to a steadily widening and deepening assortment becoming available, diffusing slowly though changing distribution channels to reach ever wider sections of the communities. - Marketing systems highlights the pivotal role of assortment or diversity in traded goods (and services) as specialization grows.

10. Outcomes of assortments • Consumers seek and acquire assortments that match their needs, and producers will seek to put together product combinations that build on accessing the distinctive competences needed to reap the benefits of specialization through increasing returns. • In this world view, technology and the growth of knowledge, as well as the emergence of supporting institutions, play essential roles in reducing or managing transaction and coordination costs, in facilitating the transactions needed for the system to function and in generating innovative responses to new sets of needs on the part of consumers as they become aware of the opportunities generated by new knowledge.

11. Linking Assortment to Layton’s definition - Marketing systems can be identified with regions or locations (e.g., Maponya Mall, Soweto, Johannesburg), each of which provides a distinctive social matrix in which exchange occurs, with products (including services, experiences, and ideas such as cigarette marketing system, advisory services, tourism marketing systems), with economic sectors (e.g., pharmacy distribution in China) with firms or groups of firms or enterprises (e.g., WalMart, Microsoft), with technologies (e.g., social operating systems such as Facebook), and may be limited to a single transaction of exchange, or embrace the patterns of exchange characterizing an aggregate marketing system.

12. Marketing Systems—Structure and Function • Increasing specialization networks of trade connections linking sellers and buyers become increasingly dense increasing specialization within markets lead to a next generation of patterns or emergent structures. • See Figure 3 • It is important to keep in mind that a marketing system is often best thought of as a multilayered or multilevel system, where the individual agents or actors may themselves be marketing systems with similar or perhaps quite different sets of structures and functions.

13. Marketing Systems—Structure and Function • Exchange contexts can develop overtime- includes products, services, experiences, and ideas, often bundled together, all of which may often require close cooperation between buyer and seller if the desired values are to be created. • For exchange to take place, buyers and sellers must be brought directly or indirectly into contact, which requires flows of ownership, possession, finance, risk, and of information. • As specialization grows, the network of linkages between buyers and sellers becomes more complex, specialists emerge and take on buyer–seller roles, in the process adding to the complexity of the network. Linkages become relationships and may crystallize into alliances, mergers, and acquisitions. Networks develop based on shared or common interests. • Organizing principle governing the operation of the system autarchic exchange among autonomous producer/consumers usually develops into emergent exchange systems characterized by specialized roles, locations, and prices. Sooner or later, these generalized patterns among individual traders give way to the formation of firms, groups, or alliances, and the establishment of business networks (Wilkinson 2008) and concentration of market power in the form of structured marketing systems begin to develop (cf., Carroll and Hammond 2000).

14. Marketing Systems—Structure and Function • Customers/Buyers: The process begins with an identification of the customers or customer groups specification of the boundaries of the marketing system. • Customers may at one level be thought of as individuals, households, or managers, or at another level be considered in aggregate as segments, groups, or perhaps communities or regions. • Customers may at one level be thought of as individuals, households, or managers, or at another level be considered in aggregate as segments, groups, or perhaps communities or regions.

15. Marketing Systems—Structure and Function • Purchasing may be considered in terms of individual or single purchases of goods or services, or in the form of ‘‘shopping baskets’’ created to meet diverse needs. • Purchase involves strong elements of coproduction or cocreation of value. • The heterogeneity of the resource endowments or capabilities of purchasers, including capacity to pay. • In a negative sense, the consequences of lack of capability such as might be experienced by the illiterate or disabled purchasers are also important factors in system design. This leads directly to a review of demographics and of decision processes at both the individual and the group level. • it is often the case that purchasing is not an isolated event. Rather it is an occasion for social interchange and as such the physical settings become important providing a distinctive set of benefits.

16. Marketing Systems—Structure and Function • Marketing systems may be autarchic, emergent, structured, or purposeful, they have one primary social function and that is to provide assortments that will serve the needs and interests of the agents or elements, buyers and sellers, comprising the system. • Physical presentation will be an important factor, or failing that the ability to communicate the depth and width of an assortment through catalogue displays, through Internet access, or through a virtual reality will all play an important part. • An assortment is discrepant if elements of an assortment are sought by customers but not found, and if there are elements in the assortment that are not sought by customers. • Depending on location in a marketing system perceived, discrepancy may lead to product or service additions or changes through the opening of new links between or among existing systems.

17. Innovation, Entrepreneurship, andInstitutions • ......factors dominating growth, noting that innovation not only created private benefits to the innovator but also generated public or external benefits from the creation of new knowledge. From this point onward, the growth of knowledge captured in human capital was seen as a central, albeit discontinuous, driver of economic growth and wealth. • ....... new production methods, and new sources of raw materials or semifinished goods, and three were product innovations in the forms of new products, new markets, and new industry structures.

18. Innovation, Entrepreneurship, andInstitutions • Schumpeter (1934) recognized the critical role of the entrepreneur, noting that innovation was far more than simply invention and required an act of will and risk taking if it were to take place. • Entrepreneurship is central to free market innovation machine—in this sense the creation of knowledge and the emergence of new technology is endogenous.

19. Innovation, Entrepreneurship, andInstitutions • Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction. • Institutionscould be thought of as ‘‘systems of rules, beliefs, norms and organizations (social structures) that guide, enable, and motivate behaviour in various transactions. • Institutions are the written and unwritten rules, norms and constraints that humans devise to reduce uncertainty and control their environment, • Distinguishing these from organizational arrangements, which refer to the ‘‘different modes of governance that agents implement to support production and exchange”. • Institutions are the product of the history of a community (i.e., are path dependent) and have the capacity to influence the trajectory likely to be followed in future.

20. Outcomes—growth, quality of life, and externalities • Success or failure (of marketing systems ) is ultimately concerned with the delivery of a standard of living or quality of life to the participants and the communities of which they are part, and this in turn is a consequence of the affordability, quality, relevance, and accessibility of the assortments created by the marketing system. • The growth set is concerned with direct measures of system performance, including those relating directly to economic growth and related outcomes, while the second, a well-being set, is more focused on wider social outcomes and externalities.

21. Outcomes—growth, quality of life, and externalities • Measure of well-being • Cultural, religious, economic value impacts • Happiness • Distributive justice, fairness • Externalities.

22. Break Time

23. Class Activities