Introduction
According to the Enterprise Theory of Accounting, a company is considered as separate legal entity having the rights to make decisions independently; despite the fact that company’s capitals might be “rented” from banks or stockholders. Regardless of being the true owners of company’s assets, stockholders cannot interfere with company’s operations without approvals of the executive leaders. Only in certain periodical meetings, the CEO will address stockholders, reporting management’s performance and performance results during the period.
This principle has logically created sound issue of agency, which constitutes the concerns of whether managers and directors using the powers invested in them in the light of stewardship or not. Methods are developed in order to give owners of the company certain level of assurance regarding management’s performance.
Financial Statements is the company’s way to communicate with the world. It is their way to elaborate the company’s condition trough the financial period. Questions like, how is the company growing? Is it using its resources wisely? Is it safe to invest our money in it? , will be answered by paying attention to the small numbers of financial statements diligently. Financial statements are like companies’ report cards after a year in “the school” (Schuller).
The main parts of a financial statement (Balance Sheet, Income Statements, Cashflow and Retained Earnings Report) are figures describing the company’s performance over the period. But how could we asses the company’s performance over numbers? How could numbers form some explicit meaning causing it to describe the company’s overall condition? The answer is financial ratios.
Financial ratios are imperative analysis tool to define management performance and how best have the exploit available resources to maximize shareholders value. The ratios can be compared to similar industry or internal financial figures over a period of time (trend analysis). Beside its function as a tool of historical measurements, the ratios, to some extent, can be functioned as predictive tools also, especially to make suggestion on investment opportunities and risks (“Analyzing”). In this particular analysis, we will display a trend analysis of a garment and accessories distributor by the name of NEXT Group plc. Final suggestion of the definitive company performance will be stated in the final and conclusion chapter.
Historical Background
NEXT is a provider of quality clothes and fashion accessories retail shop. The company starts by opening a series of retail store in 1982 which turned out to practically re-shape the future of fashion retailing. The first store was for women wear and accessories, but the male collections and the children wear quickly followed. Today, NEXT have 380 stores in UK and Eire, and 80 franchise stores overseas (“NEXT-Background”).
Financial Analysis
As stated above, the solvency analysis displayed a downhill trend of NEXT’s long term and short term liquidity performance. Over the past 9 years it solvency ratio has declined over 40 %. The current ratio has also declined almost 40 % while the quick ratio displayed a 22% decrease over the past 9 years. The current and quick ratios present a significant decrease in the company’s ability to pay its current debt, while the solvency ratio might describes a high level of risk to shareholder. Lower liquidity performances suggest a higher investment risk, but they could also suggest that the industry (or the company) is under a high state of growth which required management to collect more cash-inflows to finance its developing business activities. To properly assess the company’s true condition, we cannot rely simply on these liquidity ratios (“Financial ratios”).
Efficiency ratios present a highly positive trend as the days required to receive payment over sales, to pay short term debt and to keep merchandise on storage growing significantly shorter. The ratios indicate that the company is growing vastly in its capability of efficiently manage its financial affairs.
Profitability analysis shows that the company presented an amazing increase during the year 2003 where its return on shareholder’s fund displayed a number of 121%. The profit margin drop significantly until the year 1999, afterwards, it displayed a relatively slow increase. As we could see, the profit margin and the return on shareholders fund did not suggest the same performance tendency. Despite the slow increase of profit (which could also mean that the company is under a state of expansion) (“Financial Ratios”), for the past 2 years, the company presented a remarkable profitability over shareholders value.
The company’s investor-related ratios display a quite positive trend. The EPS showed only one lack of performance, which is during the year 1998 where the EPS was lowered about 8%. Other years displayed a very positive performance measurement. The year 2003 even recorded a 34 % increase of EPS. The dividend per share ratio displayed a stable increase and an attractive performance. These ratios suggested a positive trend where its performance of company stewardship should encourage investor to make a quite profitable investment.
Z-Score Analysis
The Analysis was developed by Professor Edward I. Altman in order to define company’s health. The model which was developed in the late 1960’s incorporated five weighted financial ratios to measure company’s changes in doing business (“Z-Score Described”). Dr Altman is known to be the expert of statistical effort in predicting company failure (“The Altman Z-Score Analysis”). The performance on NEXT group plc between 1996 and 2004, under the Z-Score Analysis is as follows.
Under the Z-score analysis, a company is considered healthy if the total scores (Z) > 2.60 and considered unhealthy if the total scores (Z) < 1.1. Relating to the analysis results stated above, the company is considered to be in a very healthy condition. The best performance according the Z-score analysis was in the year 1998, where the total score equals 5.58.
X1 Component
The x-1 component (Working capital/Total asset) represents the operating performance of a company. A company which experienced repeated operating losses would generate a decrease in its working capital compared to its total assets (“Z-Score described”). The idea of the component is to measure the net liquid assets of the firm relative to the total capitalization. The working capital as the difference between the current asset and current liabilities is considered the most valuable analysis to describe the firm’s liquidity and operating performance. The other known ratios of liquidity (current and quick ratio) have proven to be less helpful and have been found to deceive investor in investing for a failing company (Altman).
During the 9 period performances, Next plc described good, but rather unstable results. It experienced significant increases during the first four years, but dropped immensely by the year 2000 where the weighted ratio fell from 2.82 to 0.46. The drop in the year 2000 could result from a significant decrease in short term market demand due to certain economy-disturbing external events. This was later justified by having the performances raised again in 2001 and 2002.
However the significant decrease on the year 2003 and 2004 were not likely to be the result of the same event in the year 2000. Because the decreasing pattern stays for 2 years in a row, the company must also experienced internal changes in the way it handled the business. Relating to the previously stated positive trend of stewardship, the decrease of liquidity is most likely an effort of obtaining more capital for company expansion plan.
X2 Component
The X2 performance (Retained Earnings/Total Assets) describes the strength of the firm relating to its ability in maintaining surplus performance. What must be noted while using this ratio is the possibility of “manipulation” using quasi reorganization and stock dividend declaration. The usage of this ratio must also incorporate the consideration of the firm’s age. A recently established company might be discriminated by this ratio due to its young age which allows it no chance of building cumulative profits yet. But due to the fact that most ‘new’ companies fail in its first years, the usage of this ratio is considered relevant by many (Altman).
Next plc displays a moderate fluctuation in its X2 component performance, which suggested an unstable profitability. The pattern of the fluctuation is somewhat similar to the X1 component where the sudden decrease occur somewhere between 1999 and 2000 and then quickly bounced back. The significant profitability decline during 2003 and 2004 also describe a considerable change of company strategy.
X3 Component
The X3 (EBIT/TA) component displays the productivity of a company. The ratio is said to be the true measure of a company’s efficiency in using its assets. This ratio is incorporated in this Z-score failure analysis because the earning power of a company is its ultimate indication of success or failure. This ratio in its practice; has outperform other profitability measures like the cash flow measurement (Altman). Next plc produces a relatively stable performance of the mentioned ratio. The best performance is recorded in the year 1996 when the ratio shows a number of 1.21. Afterwards the company experienced a stable decrease until 1999 when the performance ratio number remain until 2004.
X4 Component
The X4 component describes a comparison between the combined market value of all equity of the company to the total liabilities existed. It is a measure of how much a company can decline in its assets’ market value before it became lower that the total liabilities and the company became insolvent. This ratio is used in this Z-score failure detection because in provide an insight of how much a company would survive in case of a crisis (Altman). Next plc delivers an increasing trend as the ratio number increase stably from 1996 until the year 2000; afterwards, the ratio suggested a light decrease until 2003. On 2003, the ratio displayed the similar trend displayed by other ratios. This ratio also dropped significantly.
Conclusion
From the efficiency ratios, we can conclude that the company presents an effective management performance. The numbers indicate that merchandises are quickly sold and receivables are quickly paid. A high number of receivable and stock turnover suggested that the company is having a healthy cash flow and profitability performance.
The company also displays a highly positive trend of the return of investor’s fund. Despite fluctuation in liquidity and profitability performance, dividend distributed and EPS growth showed a rather significant increase. The condition suggests that despite its ups and down, the company posses a high sense of responsibility toward its shareholders.
From the profitability and especially the liquidity performance, the company displays a negative trend where existing pattern described that the year 2003 and 2004 present a significant change in the way the company performs its operations. Economist and business analyst often mentioned that a company within expansion efforts usually displayed a rather downward shift over its liquidity performance, but remain overall profitable. The symptoms are similar to what has been experienced by the Next Group plc.
An indication of failure should start by the low performance of efficiency where the poor management results decreasing profitability, minimum cash flow and in the end draining company’s retained earnings and destroying liquidity. This case is not what happens to the Next Group plc. The company maintains a very high efficiency performance despite its downtrend liquidity performance. In several cases, this condition is usually the result of a major capitalization within the company. If managed successfully, the new resources would most likely present an increase in future performance of profitability.
Professor Altman’s method of detecting company failure, the Z-score analysis confirms the conclusion by displaying a very high performance under the analysis. The method -being a way to detect risks of company collapse- focus to some extent in the analysis of liquidity. Therefore, the analysis still displays a pattern of downward shift by the end of the periods. But the number still way above the crisis point (the lowest performance 1.33, while the crisis point is 1.1).
The company displays a very attractive performance relating to its efficiency performance, its EPS growth, dividend per share and P/E ratio. As a company’s main purpose is to increase shareholder’s value, we concluded that despite the short term decrease over liquidity performance, the company still poses as a profitable investment strategy.
Bibliography
- “Analyzing Your Financial Ratios.” N.d. Retrieved May 28, 2005 from http://www.va-interactive.com/inbusiness/editorial/finance/ibt/ratio_analysis.html
- Altman, Edward I. “Predicting Financial Distress of Companies.” 2000. Retrieved May 28, 2005 from http://pages.stern.nyu.edu/~ealtman/Zscores.pdf#search=’zscoreanalysis
- “Financial Ratios and Quality Indicators.” 2001. Online Women Business Center. Retrieved May 28, 2005. from http://www.onlinewbc.gov/docs/finance/fs_ratio1.html
- “NEXT-Background.” 2005. NEXT. Retrieved May 28, 2005 from http://order.next.co.uk/aboutnext/history.asp
- “NEXT Annual Report and Accounts.” 2005. NEXT. Retrieved May 28, 2005 from http://order.next.co.uk/aboutnext/CompanyResults/index.asp
- “The Altman Z-Score Analysis.” 2004. Jaxworks. Retrieved May 28, 2005 from http://www.jaxworks.com/zscore3.htm
- “Z-Score Described.” n.d. Sourcing Decision Support, Inc. Retrieved May28, 2005 from http://www.sdsnotebooks.com/finz.htm
NFC – Near Field Communication
Near Field Communication is a new and short range wireless connectivity technology.
It is evolved from a combination of existing contact less identification and interconnection
Technologies. NFC is widely used in mobile phones with high speed connections and signal clarity. Comparing to other technologies it is very small and compact in size. NFC is also used in other electronic devices. Most of the companies do research and development(R&D) in the field of NFC. It transfers data up to 424 bits/second and it’s operating speed is 13.56 Mhz. Using this technology is more simple and safe than any other technologies. NFC-compatible devices will work only if they are brought close to each other. The minimum distance is four centimeters for each device. Comparing to other technologies like wi-fi, and blue tooth technologies NFC transmission range is very short. A simple wave or touch will activate NFC-compatible device. But, NFC technology also work with wi-fi and blue tooth technology after the activation process is complete. NFC-enabled tranasactions are inherently secure for secure payments. Receiving and sending information through NFC is high in speed than any other device. Electronic devices like Television, Compact disc players, Mobile phones, Digital Camera etc use this technology for better performance and better accuracy. Comparing with other technologies using NFC-enabled devices eliminates the complexities of other traditional electronic device. Most of the mobile have internet connectivity, with inbuilt camera which can capture images and motion. In order to compete with these technologies the R & D team of NFC designed and implemented these concepts with more precision and speed than any other technologies. Three G mobiles with NFC technology is internet savvy. Data can easily be shared with two different devices, for example, mobile phone data can be transferred to desktop computer and vice versa. NFC is designed for shorter distance wireless communications, it is complementary to blue tooth, It works in any kind of environment and it does no require line of sight, it is easy and simple to connect, provides communication method to non-self powered device. Active and passive NFC mode has different transfer speeds from 106 to 424 kbps. NFC allows communication between two powered device and passive device. NFC makes life easier – it’s easier to get information, easier to pay for goods and services, easier to use public transport, and easier to share data between devices. You simply bring NFC-compatible devices close to one another, typically less than four centimeters apart. The benefits of NFC technology are so attractive that many branded service providers are using NFC technology to enhance their services and customer experience. NFC-enabled services are fast and easy to use without compromising existing service security. With an NFC enabled mobile device, its user can easily access services or operate his/her device functions, e.g. different connectivity options. The user just needs to touch a tag or share information or an object by bringing two devices close to each other.
When the user touches the tag, his/her device reads the content of the tag and executes it into action. The user only accepts the execution, e.g. opening a web page, calling a favorite number, or sending an SMS. Similarly, by touching an enabled device such as a TV, the mobile device can send a picture to it simply as a result of the touch. NFC (Near Field Communication) is for very short range two-way wireless connectivity, and is a short-range radio frequency (RF) technology that allows a reader to read small amounts of data from other devices or tags when brought next to each other. In Nokia’s solution, the reading distance is a few centimeters. NFC technology evolved from a combination of contactless identification or RFID (Radio Frequency Identification) and interconnection technologies. Touch-based interactions offer mobile phone users an intuitive and easy way to connect, collect and share with mobile devices.
Communication between various of kind of devices, For example, making a reservation could be as simple as possible by holding your mobile close to a advertising bill board. Without dialing or speaking to anyone we can buy tickets to film, book tickets for travel by using the credit card account information stored in mobile phone. This transaction is done without any user configuration. NFC is most successful because of its peer-to-peer communication [a communication model in which devices link directly to each other, without any intervention of any intermediary device or system]. Increased revenue from interactive services, mobile operators and content creators earn more revenue when users choose to use value added service NFC surrounds the user with advertisement and valuable information within easy reach. Consumer prefers for NFC-enabled services since users may have no choice about which ticket they use for a service, but they typically can choose how they pay.
A wide range of devices and machines are likely to become NFC enabled. Here are some examples:
Mobile phones
Turnstiles
Parking meters
Check-out cash registers or “point-of-sale” equipment
ATMs
Office, house and garage doors
Personal computers
Posters, street signs, bus stops, local points of interest (with NFC-readable tags only)
Product packaging
Manufacturers of NFC chips would include the same companies that currently make RFID tags, labels or chips, including Philips, Sony. ABI Research produce NFC-enabled cell phones as the initial driver in the market. By 2009 ABI Research estimates that up to 50% of cell phones will use NFC technologies. In Japan NFC 212 kbps passive mode contactless technology has already been implemented with payment as a killer application. Near field communication is based on inductive- coupling, where loosely coupled inductive circuits share power and data over a distance of few centimeters. NFC devices shares the basic technology with proximity (13.56.Mhz) RFID tags and contactless smart cards, but number of key new features. NFC devices are naturally interoperable as NFC is based on pre existing contact less payment and ticketing standards that are used on daily basis by millions of people and devices world wide, such as the physical requirements of the antennas, but also the format of the data to be transferred and the data rates for the transfer. NFC devices are unique in that they can change their mode of operation to be in reader/writer mode, peer-to-peer mode, or card emulation mode. The different operating modes are based on the ISO/IEC 18092 NFC IP-1 and ISO/IEC 14443 contactless smart card standards. In reader/writer mode, the NFC device is capable of reading NFC Forum mandated tag types, such as in the scenario of reading an NFC Smart poster tag. The reader/writer mode is on the RF interface compliant to the ISO 14443 and FeliCa schemes. In Peer-to-Peer mode, two NFC devices can exchange data. For example, you can share Bluetooth or WiFi link set up parameters, and exchange data such as virtual business cards or digital photos. Peer-to-Peer mode is standardized on the ISO/IEC 18092 standard. In Card Emulation mode, the NFC device itself acts as an NFC tag, appearing to an external reader much the same as a traditional contactless smart card. This enables contactless payments and eticketing.
These are the various wireless technologies, which are adopted by major electronic companies, and comparing the cost NFC is lower than any other wireless technologies. Here is a list of various wireless technologies. Field Communication (NFC) is a standards-based, short-range (a few centimeters) wireless connectivity technology that enables simple and safe two-way interactions among electronic devices, allowing consumers to perform contact less transactions, access digital content and connect electronic devices with a single touch.
Bluetooth wireless technology was designed to replace cables between cell phones, laptops, and other computing and communication devices within a 10-meter range.
Wi-Fi technology was designed and optimized for Local Area Networks (LAN); it provides an extension or replacement of wired networks for dozens of computing devices within a +100-meter range.
ZigBee wireless technology is a standard enabling control and monitoring capabilities for industrial and residential applications within a +100-meter range.
IrDA is a short range (< 1 meter), line-of-sight communication standard for exchange of data over infrared light. IrDA interfaces are frequently used in computers and mobile phones.
RFID (Radio Frequency Identification) is an automatic identification method, relying on storing and remotely retrieving data using devices called RFID tags. An RFID tag is a small object that can be attached to or incorporated into a product. RFID tags contain silicon chips to enable them to receive and respond to queries from an RFID reader/writer.
Contactless smart cards incorporate a chip (microprocessor) that communicates with a card reader through RFID technology. Examples of contactless smart card communications are ISO/IEC 14443 and FeliCa, which allow communications at distances up to 10 cm.
NFC devices are unique in that they can change their mode of operation to be in reader/writer mode, peer-to-peer mode, or card emulation mode. The different operating modes are based on the ISO/IEC 18092 NFC IP-1 and ISO/IEC 14443 contactless smart card standards.
In reader/writer mode, the NFC device is capable of reading NFC Forum mandated tag types, such as in the scenario of reading an NFC Smartposter tag. The reader/writer mode is on the RF interface compliant to the ISO 14443 and FeliCa schemes. In Peer-to-Peer mode, two NFC devices can exchange data. For example, you can share Bluetooth or WiFi link set up parameters, and exchange data such as virtual business cards or digital photos. Peer-to-Peer mode is standardized on the ISO/IEC 18092 standard. In Card Emulation mode, the NFC device itself acts as an NFC tag, appearing to an external reader much the same as a traditional contactless smart card. This enables contactless payments and eticketing, for example. Recent study performed by ABI Research projects that 50% of all cell phones would support Near Field Communication (NFC) technology by 2009, with NFC-enabled handset shipments of 500+ million by 2010. The study states that by 2007, higher-volume NFC deployments will be common, first in wireless handsets, then in other kinds of consumer electronics, from PCs to cameras, printers, set-top boxes and more. ABI Research concludes that the five-year implications of NFC technology – from NFC cellular handsets to NFC consumer electronics – show tremendous promise of enhancing end user experiences while reshaping communications, content and payment business models.
In Japan, NFC 212 kbps passive mode contactless technology has already been implemented with payment as a killer application.
In its latest analysis of the Near Field Communication market, ABI Research forecasts that by 2012, some 292 million handsets — just over 20 percent of the global mobile handset market — will ship with built in NFC capabilities. 2007 will be critical for NFC technology as key standards and operator trials complete the foundations for the first real deployments. “NFC in mobile phones promises a quicker and easier way to execute a host of key tasks by just waving the phone,” says senior analyst Jonathan Collins. “Making payments, unlocking doors, downloading content, even setting up wireless networks and many other applications, can all be enabled from an NFC handset.” But early enthusiasm for NFC adoption in handsets — fuelled by its functionality and flexibility — has been tempered by the complexity of the ecosystem required to support multiple, revenue-generating NFC applications. ABI Research believes that NFC will not become widely available in the handset market until wireless operators are confident they will see a clear return from specifying NFC in their latest handsets. “As the dominant mobile handset purchasers in the world, mobile operators stand as the gatekeepers of NFC’s entry into new handsets,” notes Collins, “and until they are comfortable with getting a return on the investment in those handsets, NFC will not reach a mass market.” While the simplicity of NFC use reflects its lineage in already-deployed contactless payment, ticketing and access control technologies, the multiple applications NFC facilitates bring a host of complexities and interoperability issues when it comes to creating the business relationships required to enable and manage NFC applications on each handset. Success in developing NFC relationships, primarily between card issuers, contactless transportation ticketing providers and mobile operators, will determine the speed and shape of deployment and consumer availability of NFC in handsets.
In December 2002, a group comprised of communication giants like Nokia, Philips and Sony had a conference at ECMA International [an industry association dedicated to the standardization in information technology and telecommunication, adopted NFC overseeing the new technology emergence of NFC. NFC Standards are acknowledged by ISO/IEC (International Organization for Standardization / International Electrotechnical Commission), ETSI (European Telecommunications Standards Institute), and ECMA (European association for standardizing information and communication systems). NFC Forum compliant devices in NFC Forum Reader/Writer mode must support the RF requirements for ISO/IEC 14443A, ISO/IEC 14443 B and FeliCa as outlined in the relevant parts in the ISO 18092. NFC data transmission is measured in Kilo Bits Per Second (kbps). The NFC standard supports varying data rates, again to ensure interoperability between pre-existing infrastructures. The current data rates are 106kbps, 212kbps and 424kbps.
80C51 microcontroller core with 32 KB ROM and 1 KB RAM
Highly integrated analog circuitry to demodulate and decode card response
Buffered output drivers to connect an antenna with minimum number of external components
Integrated RF level detector
Integrated card mode detector
Integrated hardware and embedded firmware support for:
ISO 14443A reader/writer mode
MIFARE® Classic encryption and MIFARE® higher baudrate communication up to 424 kbit/s
contactless communication according to the FeliCa™ scheme at 212 kbit/s and 424 kbit/s
NFC standard ECMA 340: NFC IP-1 interface and protocol
Supported host interfaces
USB 2.0 full speed device
SPI interface
I²C interface
2.5 – 3.3 V power supply
The underlying layers of NFC technology are ISO, ECMA, and ETSI standards. NFC applications can be split into the following four basic categories:
The PN531 IC uses an 80C51 processor with 32 Kbytes ROM and 1 Kbytes RAM. It fully supports ISO 18092, MIFARE® and FeliCa™ read/write modes. It can also act as a smart card in combination with a security controller IC. Furthermore the embedded firmware and the internal hardware support the handling and the host protocols for USB 2.0, I2C, SPI and serial UART interfaces.
NFC is fully compatible with both NXP’s MIFARE® and Sony’s Felica contactless smart card platforms. These proven systems provide a solid foundation for the introduction of NFC-enabled devices. This enables NFC devices, like your mobile phone or PDA, to act as an electronic key to access your home, office, or car, or to pay for – as well as to act as – your transport ticket.
NFC applications can be split into four basic categories.
Touch and Go
Applications such as access control or transport/event ticketing, where the user only needs to bring the device storing the ticket or access code close to the reader. Also, for simple data capture applications, such as picking up an Internet URL from a smart label on a poster.
Touch and Confirm
Applications such as mobile payment where the user has to confirm the interaction by entering a password or just accepting the transaction.
Touch and Connect
Linking two NFC-enabled devices to enable peer-to-peer transfer of data such as downloading music, exchanging images or synchronizing address books.
Touch and Explore
NFC devices may offer more than one possible function. The consumer will be able to explore a device’s capabilities to find out which functionalities and services are offered.
This NFC technology cost is very low comparing to other technologies. In future each and every electronic device will have NFC technology. At present NFC technology is extensively used in mobile phones and other consumer products.
In future small and medium sized companies may utilize this technology for their products since the cost for implementing near field communication technology will be much lower than now.
Bibliography
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Available from: <http://www.rfidsolutionsonline.com/content/news/article.asp?docid={aeb4b131-e9da-49ce-b030-54150f5716c2}> [Accessed 26 April 2007].
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<http://www.electronicstalk.com/news/ivi/ivi125.html> [Accessed 26 April 2007].
Consumer Behaviour And Changes
“The consumer orientation, first developed as a by-product, and an outlet, of the industrial pattern of control, has been finally prised from the original stem and transformed into a self-sustained and self-perpetuating pattern of life” (Bauman 179: 1982). The consumer behaviour reflects the pre and post buying behaviours of individuals of the society, it depends on product’s nature and at times market’s nature. The starting point of any analysis of consumer demand must be the enabling conditions represented by income, assets, and debts, as well as by such demographic facts as population growth and the age distribution of the population. Over a period of several years these conditions may vary substantially. From one quarter to the next, however, changes in them are usually insignificant. Consumer sentiment, on the other hand, though sometimes unchanged over fairly long periods, may occasionally undergo swift changes. What is the origin of these changes? Do they originate exclusively in financial considerations, either national or personal? Or may the origin sometimes lie elsewhere? It will be shown that changes in consumer attitudes and expectations may be unrelated to changes in consumer incomes. In addition to their origin, the effects of changes in consumer sentiment on the economy must be studied. It is necessary to find out which types of consumer demand are and which types are not influenced by perceptions, attitudes, hopes, and fears of consumers. Segmentation, in case of American Apparel, is the base for identifying any behaviour the consumer may possess.
“The Changing Consumer we hope to chart the nature of that change and to discuss why it is that consumption is so important to the state of the world in which we live, and what role, if any, consumption plays in actively underpinning social, economic and political transformation. The papers in this collection originate from a conference entitled Consuming Markets”. (Anderson, Meethan, Miles 1: 2002).
Segmentation:
Variable
Typical Breakdowns
Geographic
City:
London.
Estimated audience:
80% (Say 80,000 Potential customers)
Demographic
Age:
20 – 25, 26 – 30.
Sex:
Male, female
Family size:
1-2, 3-4, 5+
Family life cycle:
Young single; young, married, divorced, no children; young,
married, youngest child under 6; young, married, divorced,
youngest child 6 or over; older, married, with children; older,
married, divorced.
Income:
Minimum of Pounds 24,400.
Occupation:
Students, professional & Technical, Businessmen.
Education:
O & A Levels, Undergraduate.
Psychographic
Social class:
Lower middle, upper middle, lower
upper, upper.
Personality:
Entertainment seekers, extroverts.
Behaviouristic
Purchase state:
Aware, Informed.
Attitude toward service
Positive, indifferent, negative.
Market segmentation refers to marketing efforts to group potential buyers by demographic characteristics, geographical region, lifestyle, usage patterns, and behavioural factors. Thus, submarkets are frequently established on the basis of income, age, sex, occupation, and complex behavioural dimensions. The successful application of the strategy of product differentiation should result in an increased horizontal share of a generalised market. Product differentiation refers to the marketing efforts that distinguish a basically homogeneous product from competitors’ products. Methods used to accomplish this include altering the product’s physical characteristics, or branding, advertising, and packaging that is targeted to the stimulation of the individual’s five senses. These promotional appeals can be especially successful in an affluent society. A strategy of market segmentation can aid in developing particular market segments in contrast to a strategy of product differentiation that distinguishes a product among many similar products. Alternate strategies of product differentiation and market segmentation are frequently complementary and used together. Until and unless the audience does not become clear, the marketing efforts may go useless or may be in relation to cost effectiveness. Therefore it seems vital to entertain the actual targeted audience of American Apparel rather then going for new one. In National Fisheries Marketing, the products such as fish is only provided to the vendors, not the general public, because of which all the efforts are directed towards the vendors, otherwise the risk factor is involved and high costs may result in severe loss.
The Consumer Decision Process:
The buyer decision process begins long before the actual purchase and continues after the purchase. Consequently, marketers should focus attention on the entire decision process rather than just the purchase decision. Although this model seems to imply that the consumer passes through all five stages of the decision process, in second world items purchase some stages may be skipped or even reversed.
Problem Recognition: The consumer becomes aware that he or she has a purchasing problem; awareness of the problem can occur through internal thinking or through environmental stimuli such as the advertisements by American Apparel or retailer or the word-of-mouth communications by a neighbour. Word-of-mouth social cues are received through friends, family members, and others which have a strong impact in brining more of the people in the second world. Another type of stimulus is an advertisement either seen in a newspaper or magazine or heard over radio or television. Willingness to appear stylish in a virtual world may also be a factor accompanied by a desire to socialise.
Information Search: The consumer engages in internal memory scanning for relevant information on the product or store alternatives and in external seeking of information from a variety of sources. The search would necessarily be there as the access to virtual world is difficult and further customers would not know how to dress their avatar. Overt search by the consumer tends to reduce risk of uncertainty and thereby risk in purchasing situations. Methods of reducing risk would be applied depending upon the situation. Endorsements or testimonials may be used as a risk reliever provided the buyer has confidence in the individual who gives the product endorsement, of course the loyal customers of American Apparel would contact the management directly for clearance of any doubts.
Evaluation of Alternatives: The consumer compares and contrasts the alternatives in relation to the motives and evaluative criteria significant to the consumer. Economic buying motives would include product efficiency in operation, dependability in quality, or economy in use. Emotional buying motives would include emulation, pleasure, prestige, ambition, or romance. Product buying motives would include simplicity in operation or ease of installation. Patronage buying motives would include reliability of the seller, variety for selection, or fulfillment of exact specifications. This stage can be waived as the virtual second world has got lesser completion when it comes virtual dressing. In case of National Fisheries Marketing, the company has to provide many attached services and sales promotional offers to keep the customer loyal as there are numerous alternatives for them.
Purchase Decision: The consumer selects an alternative from the set of alternatives that could solve the purchasing problem. Personal influence may be especially important for individuals who lack confidence in their ability to evaluate the value of a product, this include those who are although loyal o American Apparel but are not so social or may have less knowledge of computer and internet usage. The purchase act includes deciding where to buy, agreeing to terms of sale, and learning.
Postpurchase Behaviour: After the purchase the consumer can exhibit one or a combination of three types of behaviour: dissonance reducing behaviours, satisfying and dissatisfying behaviours, and further purchasing behaviours. Dissonance reducing behaviours are necessary if the consumer feels considerable conflict about whether it really was the best decision or not. Dissonance can be reduced by providing reassuring information that supports the original decision. In National Fisheries Marketing, the company tries to reduce the dissonance by allowing customers to return the purchased material (ice, fish) if they find any fault, the company pays back the entire sum of money and next time it gives discount to that particular customer to keep him loyal.
Factors Influencing Customer Decision Making Process:
The factors influencing the customer decision-making process are personality, lifestyle, mood and attitude, perceptions, perceived risk, individual motivations and needs, purchase habits, culture and learning.
Personality: Many marketing specialists segment their markets using personality terminology, i.e. they talk about brands and buying types in terms of traits, or they explain the process whereby individual differences are systematically related to purchasing decisions. Competition and secrecy mean that few publish or disclose the data upon which they base their consumption types. Many companies have tried to describe product-using types more in terms of lifestyle analysis than according to personality traits, American Apparel is no different as it is trying to bring those people out of its customers who are willing to socialise and have got some sense.
Lifestyle: The notion of lifestyle has no meaning when applied to traditional contexts, whereas in modern societies, lifestyle choices are … constitutive of daily life. Today’s consumer faces a world of unprecedented consumption opportunities. More of us than ever before can almost instantaneously call up information, people and places that for practical purposes were inaccessible only a decade ago. If a person or place that we call up on our computer screen looks interesting, we can press a few more buttons and procure airline tickets so we can physically visit them. Ordering the material ingredients that define a consumer lifestyle (increasingly conflated with a human lifestyle), has also never been easier. We can manage finances and investments, borrow money, pay bills, gamble, and find jobs from the comfort of our home computers. We can work, educate ourselves, and shop without leaving home. We can meet mates, enjoy works of art and music, and go to online sites where we can chat and exchange information and opinions with those who share common consumption interests with us while looking even cooler through our second world dressing (thanks to American Apparel). We can follow our favourite sports team, sing the praises of our favourite automobile, play a computer game with someone in Bangkok, or get mutual support for a consumer boycott without getting up from our chairs. When these devices fail us, we may wonder not only where we are, but who we are. This feeling is something which drives people to move forward so that they can facilitate their lives even more.
Mood & Attitude: Mood or affect intensity and sensitivity are clearly important, both in responding to advertisements and in decision-making about purchases. When in a naturally good mood, or on having their mood changed by in-store characteristics (e.g. music, lighting, smells), it does seem that people are more likely to buy. Values, too, are important, particularly those related to materialism and possessions, which do predict what kind of purchases individuals make. Moods are naturally good when people move out for shopping, American Apparel is not going to face any problems for that.
Attitudes are shaped by demographics, social factors, and personality. There are many different definitions of attitudes. The most recent definition in substance maintains that attitudes stem from opinions and beliefs. Consequently consumers develop many opinions and beliefs about products and their attributes as well as retail stores where they shop. Attitudes are often difficult to change, but marketers may be able to accomplish attitude change through communications, particularly if buyers’ perceptions about the brand are incorrect. Buyers’ attitudes toward brands are important because these attitudes do influence consumer behaviour. Attitude change revolves around changing the motivational function associating the product with a special group or event, which is easy to be done in case of American Apparel. The functional approach is a theory that shows how changing basic motivations can change attitudes.
Perceptions: Perception is the process by which the consumer experiences the universe. For example, to a mature individual all teenage music may sound alike, but each song sounds different to the teenager. Therefore, perception is the process by which the individual selects, organises, and interprets stimuli into a meaningful and coherent picture. Two people can be exposed to the same stimuli but perceive them in different ways. Examples of stimuli include products, packages, brand names, and advertisements.
What an individual perceives may be determined by his own system of values and needs. This may be based upon activities, interests, and opinions that are developed in the process of interaction with others. For example, people tend to perceive chatting a way to show themselves even smarter, such people would prefer to dress well in the second world.
Perceived Risk: Perception plays a major part in the perceived risk in purchasing a product or service. Perceived risk represents the anxieties felt because the buyer cannot anticipate the results of a purchase but feels uneasy since negative consequences might be involved. When a purchaser perceives some degree of risk in a buying transaction, a number of different strategies may be used. First, perceived risk can be reduced in some way by decreasing the probability of failure. Second, the buyer can shift from one type of perceived risk to another type that is of less impact on the realization of objectives if this method fails. Third, the purchase transaction can be postponed, thus delaying a situation of great risk. Fourth, the purchase can be made and this risk absorbed. Many business firms selling to consumers have intentionally provided risk reduction methods for consumers, but some firms, especially service firms, have been lax in this regard. Same is the issue with American Apparels, it is so obvious to them that people who understand the system and have a proper knowledge of using this unique service would log on to the second world, it is perhaps their saving grace.
Individual Motivations and Needs: Marketers cannot observe motivation. A motive is an internal state of the purchaser. While consumer behaviour is observable, motives can only be inferred. Motivation is a result of a learning process. Motives affect how people process information. Whereas some motives may be biologically based, a great many motives are a result of a social conditioning process. Factors such as perception, personality, and attitudes will influence how consumers react and respond to their environment. Multiple motives generally operate rather than single motives in consumer behaviour situations. Multiple motives help consumers to develop and identify their fundamental strivings. These strivings take the form of general goals that concern such elements as safety, romance, belongingness, or other desired states that consumers seek to achieve. Motives thus guide consumer behaviour in activities and decision-making. For a consumer using the American Apparel in the second world, the motivation might be to look good, people may associate those virtual clothes with the pricing (if pricing is high). For a customer of National Fisheries Marketing, the motivation might be the Profit, buying at a lesser price and selling at a bit higher.
Purchase Habits: There are people in the society who prefer to try out every new and interesting service or product, such people definitely look for further entertainment and new activities. American Apparel is providing them with a great opportunity to explore a different world. However, purchase habits are not always same for every product or service, they differ. For a person who although tries out every new service, if finds a new barber, would hardly go for cut from him and remain stick to the old one.
Culture: Cultural meaning is located and moves in the culturally constituted world, in the transfer and exchange of consumer goods, and in the consumption rituals of the consumer. Perhaps the most important categories of culture segments are the distinctions of social class status, gender, age, and occupation. Each specific culture establishes its own special vision of a constituted society that develops a system of verbal and nonverbal symbols of the values shared by their society. These symbols associated with a culture serve as a powerful unconscious force that shapes consumer attitudes and behaviour. Within the United Kingdom there are many subcultures that are determined by age, geographical location, religion, and other factors. This modern era possess a modern culture, every one is free to live, allowed to do whatever one is willing to do. American Apparel has therefore got a fair chance of survival as the culture is also supporting it.
Learning: Learning refers to consumer behaviour that results from repeated experience and thinking. Associative learning involves making a new connection between two events in the environment. Classical conditioning is a part of associative learning. Four variables operate in classical conditioning: drive, cue, response, and reinforcement. A drive is a fundamental need. The degree or intensity of drives is difficult to measure but they are developed by motives. A cue is a stimulus or symbol perceived by consumers. A response is the action to satisfy the drive. Reinforcement represents the reward. Modeling is another part of associative learning. Modeling is vicarious learning. Socialization is the process whereby this type of learning is developed, and observation in teenagers is a very important part of it. Associative learning is the most basic type of learning. American Apparel has come up with a unique concept which is merely new for the world of Internet users and therefore the learning has to take place, but users are aware of many associated activities such as online chatting etc. therefore they can predict the excitement.
Marketing Implications:
Determining why people buy and why they make the purchase choices that they do is quite complex. Purchase decisions extend from routine to major nonroutine purchases requiring deliberation and planning over extended time periods. Learning what motivates consumer purchasing behaviour is not easy. Basic fundamentals of motivation include: Motives are not permanent. Motives change throughout the life cycle. Aspirations tend to grow with achievement and decline with failure. Motivation is influenced by the performance of other members of the group to which a person belongs and by that of reference groups. Consumers are actively learning and acquiring new wants. The adoption of direct selling to the consumer has influenced the success enjoyed by some firms. Many consumers have rearranged their shopping priorities and prefer to shop at home. This new trend might have been caused by a combination of factors such as increased education, more women in the work force, spending leisure hours in other pursuits, or confidence that the seller is reputable and reliable.
Conclusion:
Consumer behaviour is based on many things. For the service provider or product manufacturer, the system starts from segmentation. A proper segmentation is the base for the success in the long run. For customer, the system starts from the decision process. The buyer decision-making process and the factors that influence the decision process go hand in hand. The decision making process consists of five steps that are problem recognition, information search, evaluation of alternatives, purchase decision and post purchase behaviour. There are several factors affecting the decision of the buyers, such as personality, lifestyle, mood and attitude, perceptions, perceived risk, individual motivations and needs, purchase habits, culture and learning. There are many implications for the marketers as well, the marketers do not have any control over the customer’s motivation, learning, mood and lifestyle.
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