MBA 2016-2017: Management Information System

MBA 2016-2017: Management Information System: Introduction to MIS Management Information Systems (MIS), referred to as Information Management and Systems, is the discipline cov...

MBA 2016-2017: Management Information System

MBA 2016-2017: Management Information System: Introduction to MIS Management Information Systems (MIS), referred to as Information Management and Systems, is the discipline cov...

Managerial Economics (UNIT II)

Introduction: The concepts of demand and supply are useful for explaining what is happening in the market place. Every market transaction involves an exchange and many exchanges are undertaken in a single day. The circular flow of economic activity explains clearly that every day there are a number of exchanges taking place among the four major sectors mentioned earlier. A market is a place where we buy and sell goods and services. A buyer demands goods and services from the market and the sellers supply the goods in the market.  In economics, demand is “the quantity of goods and services that will be bought for a given price over a period of time”.     For example if 10 Lakhs laptops are purchased in India during a year at an average price of Rs.25000/- then we can say that the annual demand for laptops is 10 Lakhs units at the rate of 25,000/-.  This chapter describes demand and supply which is the driving force behind a market economy. This is one of the most important managerial factors because it assists the managers in predicting changes in production and input prices. The manager can take better decisions regarding the kind of product to be produced, the quantity, the cost of the product and its selling price. Let us understand the concept of demand and its importance in decision making.

Demand:  Demand means the ability and willingness to buy a specific quantity of a commodity at the prevailing price in a given period of time. Therefore, demand for a commodity implies the desire to acquire it, willingness and the ability to pay for it.

Law of demand:  The quantity of a commodity demanded in a given time period increases as its price falls, ceteris paribus. (I.e. other things remaining constant)

 Demand schedule:  a table showing the quantities of a good that a consumer is willing and able to buy at the prevailing price in a given time period. (Table – 1)

Demand Distinctions: Types Of Demand Demand may be defined as the quantity of goods or services desired by an individual, backed by the ability and willingness to pay.

Types Of Demand:

1.Direct and indirect demand: (or) Producers’ goods and consumers’ goods: demand for goods that are directly used for consumption by the ultimate consumer is known as direct demand (example:  Demand for T shirts). On the other hand demand for goods that are used by producers for producing goods and services. (example: Demand for cotton by a textile mill)

2.Derived demand and autonomous demand: when a produce derives its usage from the use of some primary product it is known as derived demand. (example: demand for tyres derived from demand for car) Autonomous demand is the demand for a product that can be independently used.  (example: demand for a washing machine)

 3.Durable and non durable goods demand: durable goods are those that can be used more than once, over a period of time (example: Microwave oven) Non durable goods can be used only once (example: Band-aid)

 4.Firm and industry demand: firm demand is the demand for the product of a particular firm. (example: Dove soap) The demand for the product of a particular industry is industry demand (example: demand for steel in India )

 5.Total market and market segment demand: a particular segment of the markets demand is called as segment demand (example: demand for 21 laptops by engineering students) the sum total of the demand for laptops by various segments in India is the total market demand. (example: demand for laptops in India)

6.Short run and long run demand: short run demand refers to demand with its immediate reaction to price changes and income fluctuations. Long run demand is that which will ultimately exist as a result of the changes in pricing, promotion or product improvement after market adjustment with sufficient time.

7.Joint demand and Composite demand: when two goods are demanded in conjunction with one another at the same time to satisfy a single want, it is called as joint or complementary demand. (example: demand for petrol and two wheelers) A composite demand is one in which  a good is wanted for several different uses. ( example: demand for iron rods for various purposes)

 8.Price demand, income demand and cross demand:  demand for commodities by the consumers at alternative prices are called as price demand. Quantity demanded by the consumers at alternative levels of income is income demand. Cross demand refers to the quantity demanded of commodity ‘X’ at a price of a related commodity ‘Y’ which may be a substitute or complementary to X.

Elasticity Of Demand

In economics, the term elasticity means a proportionate (percentage) change in one variable relative to a proportionate (percentage) change in another variable. The quantity demanded of a good is affected by changes in the price of the good, changes in price of other goods, changes in income and changes in other factors.  Elasticity is a measure of just how much of the quantity demanded will be affected due to a change in price or income. 

Elasticity of Demand is a technical term used by economists to describe the degree of responsiveness of the demand for a commodity due to a fall in its price. A fall in price leads to an increase in quantity demanded and vice versa.  25 The elasticity of demand may be as follows: Ֆ

·         Price Elasticity

·          Income Elasticity and

·          Cross Elasticity

Supply Analysis

Supply of a commodity refers to the various quantities of the commodity which a seller is willing and able to sell at different prices in a given market at a point of time, other things remaining the same. Supply is what the seller is able and willing to offer for sale. The Quantity supplied is the amount of a particular commodity that a firm is willing and able to offer for sale at a particular price during a given time period.

Supply Schedule:  is a table showing how much of a commodity, firms can sell at different prices.

 Law of Supply: is the relationship between price of the commodity and quantity of that commodity supplied. i.e. an increase in price will lead to an increase in quantity supplied and vice versa.

 Supply Curve:  A graphical representation of how much of a commodity a firm sells at different prices. The supply curve is upward sloping from left to right. Therefore the price elasticity of supply will be positive. Graph - Supply curve.

Elasticity of Supply: Elasticity of supply of a commodity is defined as the responsiveness of a quantity supplied to a unit change in price of that commodity.  

 ΔQs   / Qs 

Es =            ------------     

 ΔP     /  P

 ΔQs =  change in quantity supplied

Qs =  quantity supplied 

ΔP =  change in price

 P =  price Kinds Of Supply Elasticity

Price elasticity of supply: Price elasticity of supply measures the responsiveness of changes in quantity supplied to a change in price.

 Perfectly inelastic: If there is no response in supply to a change in price. (Es = 0)

Inelastic supply: The proportionate change in supply is less than the change in price (Es =0-1) Unitary elastic: The percentage change in quantity supplied equals the change in price (Es=1) Elastic: The change in quantity supplied is more than the change in price (Ex= 1- ∞)

 Perfectly elastic: Suppliers are willing to supply any amount at a given price (Es=∞) 44 The major determinants of elasticity of supply are availability of substitutes in the market and the time period, Shorter the period higher will be the elasticity.

Economic Principles Relevant to Managerial Decisions

Economic Principles Relevant to Managerial Decisions

Key economic principles that are relevant to managerial decisions are discussed in the foil owing sub-sections.

1.4.1       Division of Labour

I put the division of labor first mainly because Adam Smith did argue that division of labor is the key cause of improving standards of living. Modern economics doesn’t do much with the concept of division of labor, but two closely related concepts are important:

1.              Returns to Scale: Returns to scale may be increasing, constant or decreasing. Increasing returns to scale is the case that leads to special results, and division of labor is one cause (arguably the main cause) of increasing returns to scale.

2.              Virtuous Circles in Economic Growth: For Smith, a major consequence of division of labor and resulting increasing productivity wasa" virtuoustirde” of continuing growth. Modern “virtuous arde” theories have more dimensions, but division of labor and increasing returns to scale are among them.

1.4.2       Opportunity Cost

The idea is that anything you must give up in order to carry out a particular decision is a cost of that decision. This concept |s applied again and again throughout modern economics.

1.              Scarcity: According to modern economics, scarcity exists whenever there is an opportunity cost, that is, where-ever a meaningful choice has to be made.

2.              Production Possibility Frontier: The production possibility frontier is the diagrammatic representation of scarcity in production.

3.              Comparative Advantage: A very important principle in itself and a key to understanding of international trade the principle of comparative advantage is at the same time an application of the opportunity cost principle to trade.

4.              Discounting of Investment Returns: Another application of the opportunity cost principle

that is very important in itself, this one tells us how to handle opportunities that come at different times. .  

1.4.3       Equimarginal Principle

This is the diagnostic principle for economic efficiency. It has wide applications in modern economics. Two of the most important are key principles of economics in themselves

1              The Fundamental Principle of Microeconomics This principle describes the circumstances under which market outcomes are efficient.

2              The Externality Principle It describes some important circumstances in which the markets are not efficient

3.              Marginal Analysis: It is also an important principle in itself and very widely applied in  

modern eoonomics. There is no major topic in microeconomics that does not apply marginal analysis and opportunity cost.

Market Equilibrium

The market equilibrium model could be broken down into several principles — the definitions of supply, demand, quantity supplied and demanded and equilibrium, at least — but these all complement one another so strongly that there is not much profit in taking them separately.

However, there are many applications and at least four important subsidiary principles;

1.     Elasticity and Revenue: These ideas are a key to understanding how market changes transform society

2.     The Entry Principle: This tells us that, when entry into a field of activity is free, profits (beyond opportunity costs) will be eliminated by increasing competition. This has a somewhat different significance depending on whether competition is "perfect" or monopolistic

3.     Cobweb Adjustment: This might give the explanations when the market does not move smoothly to equilibrium, but overshoots.

1.     Competition vs. Monopoly: Why economists tend to think highly of competition, and lowly of monopoly.

2.     Diminishing Returns      t

Perhaps the best-known of major economic principles, the Principle of Diminishing Returns is  much more reliable in short-run than in long-run applications, so the Long Run Short Run  dichotomy is an important subsidiary principle. Modern economists think of diminishing returns mainly in marginal terms, so marginal analysis and the equimarginal principle are cosely associated

3.     Game Equilibrium

Game theory allows strategy to be part of the story. One result is that we have to allow for several kinds of equilibriums.

3              Non-cooperative equilibrium

(a)            Prisoners’ Dilemma (dominant strategy) equilibrium

(b)            Nash (best response) equilibrium, (but not all Nash equilibrium are dominant strategy equilibrium),

4              Cooperative equilibrium

5              Oligopoly (few seller)

1.4.7 Measurement Principles

Economics is multidimensional, and that creates some difficulties in measuring things like production, incomes, and price levels. Some of the problems can be solved more or lees fully

1. Value Added and Double Counting One for which we have a pretty complete solution is the problem of double counting, the solution is, use value added.

Consumer behavior ( UNIT II)

What is Consumer Behavior in Marketing?

Marketing is so much more than creating a catchy phrase or a jingle people will sing for days. Understanding consumer behavior is a vital aspect of marketing. Consumer behavior is the study of how people make decisions about what they buy, want, need, or act in regards to a product, service, or company. It is critical to understand consumer behavior to know how potential customers will respond to a new product or service. It also helps companies identify opportunities that are not currently met.
A recent example of a change in consumer behavior is the eating habits of consumers that dramatically increased the demand for gluten-free (GF) products. The companies that monitored the change in eating patterns of consumers created GF products to fill a void in the marketplace. However, many companies did not monitor consumer behavior and were left behind in releasing GF products. Understanding consumer behavior allowed the pro-active companies to increase their market share by anticipating the shift in consumer wants.

The Three Factors

To fully understand how consumer behavior affects marketing, it's vital to understand the three factors that affect consumer behavior: psychological, personal, and social.
Psychological Factors
In daily life, consumers are being affected by many issues that are unique to their thought process. Psychological factors can include perception of a need or situation, the person's ability to learn or understand information, and an individual's attitude. Each person will respond to a marketing message based on their perceptions and attitudes. Therefore, marketers must take these psychological factors into account when creating campaigns, ensuring that their campaign will appeal to their target audience.
Personal Factors
Personal factors are characteristics that are specific to a person and may not relate to other people within the same group. These characteristics may include how a person makes decisions, their unique habits and interests, and opinions. When considering personal factors, decisions are also influenced by age, gender, background, culture, and other personal issues.
For example, an older person will likely exhibit different consumer behaviors than a younger person, meaning they will choose products differently and spent their money on items that may not interest a younger generation.
Social Factors
The third factor that has a significant impact on consumer behavior is social characteristics. Social influencers are quite diverse and can include a person's family, social interaction, work or school communities, or any group of people a person affiliates with. It can also include a person's social class, which involves income, living conditions, and education level. The social factors are very diverse and can be difficult to analyze when developing marketing plans.
However, it is critical to consider the social factors in consumer behavior, as they greatly influence how people respond to marketing messages and make purchasing decisions. For example, how using a famous spokesperson can influence buyers.

5 steps to understanding your customer’s buying process

 

1. Problem/need recognition

This is often identified as the first and most important step in the customer’s decision process. A purchase cannot take place without the recognition of the need. The need may have been triggered by internal stimuli (such as hunger or thirst) or external stimuli (such as advertising or word of mouth).

2. Information search

Having recognised a problem or need, the next step a customer may take is the information search stage, in order to find out what they feel is the best solution. This is the buyer’s effort to search internal and external business environments, in order to identify and evaluate information sources related to the central buying decision. Your customer may rely on print, visual, online media or word of mouth for obtaining information.

3. Evaluation of alternatives

As you might expect, individuals will evaluate different products or brands at this stage on the basis of alternative product attributes – those which have the ability to deliver the benefits the customer is seeking. A factor that heavily influences this stage is the customer’s attitude. Involvement is another factor that influences the evaluation process. For example, if the customer’s attitude is positive and involvement is high, then they will evaluate a number of companies or brands; but if it is low, only one company or brand will be evaluated.

4. Purchase decision

The penultimate stage is where the purchase takes place. Philip Kotler (2009) states that the final purchase decision may be ‘disrupted’ by two factors: negative feedback from other customers and the level of motivation to accept the feedback. For example, having gone through the previous three stages, a customer chooses to buy a new telescope. However, because his very good friend, a keen astronomer, gives him negative feedback, he will then be bound to change his preference. Furthermore, the decision may be disrupted due to unforeseen situations such as a sudden job loss or relocation.

5. Post-purchase behaviour

In brief, customers will compare products with their previous expectations and will be either satisfied or dissatisfied. Therefore, these stages are critical in retaining customers. This can greatly affect the decision process for similar purchases from the same company in the future, having a knock-on effect at the information search stage and evaluation of alternatives stage. If your customer is satisfied, this will result in brand loyalty, and the Information search and Evaluation of alternative stages will often be fast-tracked or skipped altogether.

  Four types of buying behaviour

1. Complex Buying Behaviour:

Consumers go through complex buying behaviour when they are highly involved in a purchase and aware of significant differences among brands. Consumers are highly involved when the product is expensive, bought infrequently, risky and highly self-expressive. Typically the consumer does not know much about the product category and has much to learn. F01 example, a person buying a personal computer may not know what attribute to look for. Many of the product features like “16K.memory” “disc storage”, “screen resolution” carry no meaning to him or her.

This buyer will pass through a learning process characterized by first developing beliefs about the product, then attitudes, and then making a thoughtful purchase choice. The marketer of a high-involvement product must understand the information-gathering and evaluation behaviour of high-involvement consumers.
The marketer needs to develop strategies that assist the buyer in learning about the attributes of the product class, their relative importance, and the high standing of the company’s brand on the more important attributes. The marketer needs to differentiate the brand’s features, use mainly print media and long copy to describe the brand’s benefits, and motivate store sales personnel and the buyer’s acquaintances to influence the final brand choice.

2. Dissonance-Reducing Buying Behaviour:

Sometimes the consumer is highly, involved in a purchase but sees little difference in the brands. The high involvement is again based on the fact that the purchase is expensive, infrequent, and risky. In this case, the buyer will shop around to learn what is, available but will buy fairly quickly because brand differences are not pronounced. The buyer may respond primarily to a good price or to purchase convenience.
After the purchase, the consumer might experience dissonance that stems from noticing certain disquieting features of the product or hearing favourable things about other brands. The consumer will be alert to information that might justify his or her decision. The consumer will first act, then acquire new beliefs and end up with a set of attitudes. Here marketing communications should aim to supply beliefs and evaluations that help the consumer feel good about his or her brand choice.

3. Habitual Buying Behaviour:

Many products are bought under conditions of low consumer involvement and the absence of significant brand differences. Consider the purchase of salt. Consumers have little involvement in this product category. They go to the store and reach for the brand. If they keep reaching for the same brand, it is out of habit, not strong brand loyalty.
There is good evidence that consumers have low involvement with most low-cost, frequently purchased products. Consumer behaviour in these cases does not pass through the normal belief/attitude/behaviour sequence. Consumers do not search extensively for information about the brands, evaluate their characteristics, and make a weighty decision on which brand to buy.
Instead, they are passive recipients of information as they watch television or see print ads. Ad repetition creates brand familiarity rather than brand conviction. Consumers do not form a strong attitude towards a brand but select it because it is familiar. After purchase, they may not even evaluate the choice because they are not highly involved with the product. So the buying process is brand beliefs formed by passive learning, followed by purchase behaviour, which may be followed by evaluation.
Marketers of low-involvement products with few brand differences find it effective to use price and sales promotions to stimulate product trial, since buyers are not highly committed to any brand. In advertising a low-involvement product, a number of things should be observed. The ad copy should stress only a few key points Visual symbols and Imagery are important because they can easily be remembered and associated with the brand.
The ad campaigns should go for high repetition with short- duration messages. Television is more effective than print media because it is a low-involvement medium that is suitable for passive learning. Advertising planning should be based on classical conditioning theory where the buyer learns to identify a certain product by a symbol that is repeatedly attached to it.

Marketers can try to convert the low-involvement product into one of higher involvement. The ways are:
i. This can be accomplished by linking the product to some involving issue, as when Crest toothpaste is linked to avoiding cavities.
ii. The product can be linked to some involving personal situation, for instance, by advertising a coffee brand early in the morning when the consumer wants to shake oft sleepiness.
iii. The advertising might seek to trigger strong emotions related to personal values or ego defense.
iv. An important product feature might be added to a low-involvement product, such as by fortifying a plain drink with vitamins,
These strategies at best raise consumer involvement from a low to a moderate level, they do not propel the consumer into highly involved buying behaviour.

4. Variety-Seeking Buying Behaviour:

Some buying situations are characterised by low consumer involvement but significant brand differences. Here consumers are often observed to do a lot of brand’ switching. An example occurs in purchasing cookies. The consumer has some beliefs, chooses a brand of cookies without much evaluation, and evaluates it during consumption. But next time, the consumer may reach for another brand out of boredom or a wish for a different taste. Brand switching occurs for the sake of variety rather than dissatisfaction.
The marketing strategy is different for the market leader and the minor brands in this product category. The market leader will try to encourage habitual buying behavior by dominating the shelf space, avoiding out-of-stock conditions, and sponsoring frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, deals, coupons, free samples and advertising that presents reasons for trying something new.

Notes and Assignment Of FOM

Programmed and non-programmed decisions:

Programmed decisions are concerned with the problems of repetitive nature or routine type matters.

A standard procedure is followed for tackling such problems. These decisions are taken generally by lower level managers. Decisions of this type may pertain to e.g. purchase of raw material, granting leave to an employee and supply of goods and implements to the employees, etc. Non-programmed decisions relate to difficult situations for which there is no easy solution.

These matters are very important for the organisation. For example, opening of a new branch of the organisation or a large number of employees absenting from the organisation or introducing new product in the market, etc., are the decisions which are normally taken at the higher level.

2.                    Routine and strategic decisions:

Routine decisions are related to the general functioning of the organisation. They do not require much evaluation and analysis and can be taken quickly. Ample powers are delegated to lower ranks to take these decisions within the broad policy structure of the organisation.

Strategic decisions are important which affect objectives, organisational goals and other important policy matters. These decisions usually involve huge investments or funds. These are non-repetitive in nature and are taken after careful analysis and evaluation of many alternatives. These decisions are taken at the higher level of management.

3.                    Tactical (Policy) and operational decisions:

Decisions pertaining to various policy matters of the organisation are policy decisions. These are taken by the top management and have long term impact on the functioning of the concern. For example, decisions regarding location of plant, volume of production and channels of distribution (Tactical) policies, etc. are policy decisions. Operating decisions relate to day-to-day functioning or operations of business. Middle and lower level managers take these decisions.

An example may be taken to distinguish these decisions. Decisions concerning payment of bonus to  employees are a policy decision. On the other hand if bonus is to be given to the employees, ^r calculation of bonus in respect of each employee is an operating decision.

4. Organisational and personal decisions:

 When an individual takes decision as an executive in the official capacity, it is known as organisational decision. If decision is taken by the executive in the personal capacity (thereby affecting his personal life), it is known as personal decision.

Sometimes these decisions may affect functioning of the organisation also. For example, if an executive leaves the organisation, it may affect the organisation. The authority of taking organizational decisions may be delegated, whereas personal decisions cannot be delegated.

5. Major and minor decisions:

Another classification of decisions is major and minor. Decision pertaining to purchase of new factory premises is a major decision. Major decisions are taken by top management. Purchase of office stationery is a minor decision which can be taken by office superintendent.

6. Individual and group decisions:

When the decision is taken by a single individual, it is known as individual decision. Usually routine type decisions are taken by individuals within the broad policy framework of the organisation. Group decisions are taken by group of individuals constituted in the form of a standing committee. Generally very important and pertinent matters for the organisation are referred to this committee. The main aim in taking group decisions is the involvement of maximum number of individuals in the process of decision- making.