Presented by Farrah Zeba DS 1 (Dr.

Debajani Sahoo)

Marketing Theory
Interactive Economic

Institutional School of Thought Functionalist School of Thought Managerial School of Thought

Marketing as a Social and Economic Process (1910)

Social

and economic processes rather than as a set of managerial activities

Farm sector (1910) created a concern for agricultural markets and

the processes by which products were brought to market and prices determined
The

analysis was centered around commodities and the institutions involved in moving (activities) them from farm, forest, sea, mine, and factory to industrial processors, users, and consumers.

Interactive - Economic
A Bridge between past and future school of thought Within this tradition, three separate schools Physical evolved that focused Characteristics
on the commodities themselves, on the marketing institutions through which products were

brought to market, especially brokers, wholesalers, and Comparatively retailers in their many forms and variations (Breyer 1934; Dynamic Duddy and Revzan 1953), and
Activities Performed
finally on the functions performed by these institutions

(McGarry 1950; Weld 1917).

Shift in perspective: Social and Economic to Managerial

All of these (Commodity, Functional, Regional, Institutional) approaches

tended to be descriptive (What?)

Functional being the most analytical (Normative Why?) Leading to the development of a conceptual framework for the marketing

discipline (Barters 1962; Rathmell 1965)

Institutional School

Channel Efficiency
The expanding industrial marketplace complex business process
Marketing institutions represent those that do the work of marketing

such as wholesalers, agents, brokers, and retailers (Shaw and Jones, 2005)
Numerous early writers sought to identify and explain the role of

various institutions within a channel (Alderson, 1954; Breyer, 1934; Butler, 1918, 1923; Duddy and Revzan, 1947; Weld, 1916)
A central focus of this effort was on channel efficiency which has

been a longstanding concern of marketing scholars (Weld, 1916)

The institutional school and the functionalist school that follows in the

next section of the paper have similarities that should be noted. Both schools have a focus on the channels of distribution (Clark, 1922, p. 5-7), as well as containing significant writings by Wroe Alderson (1954, 1957, 1965)

Specialisation versus Centralisation

L.D.H Weld the Founding Father of the

Institutional School The Marketing of Farm Products Market Channel Efficiency

The period following the second world war

saw further developments in the institutional literature

Utilities created by Middlemen Butler (1923)

Elementary Utility - Wheatsupport life

(Farmer)
Form Utility Wheat grounded into flour (Mill

Owner)
Place Utility Millers house in Minneapolis to

hungry man in New Orleans

Marketing Channel Time Utility Storage from January to July

1930 - 1940
Breyer (1934) Need for market institution

Complex task cannot be tacked alone by producer

Converse & Hungry (1940) Vertical Integration

Helps in reducing cost but leads to management and coordination issues

Duddy & Revzan (1947) Changing pattern of

institutional organisation is a sub-set of the cultural environment within which exchange takes place

1954 - 1973
The institutional school reached its peak

intellectual advancement & popularity among marketing scholars

To utilize economic theories to analyse

critical issues
The emergence marketing channels, the evolution

of channel structures, and The design of effective and efficient institutional frameworks

Wroe Alderson (1954) Factors governing the Development of Marketing Channels

Economic efficiency criteria design & evolution of marketing

channel
He sought to explain in the most basic terms the logic of a

central market intermediary

The central marketing intermediary reduces the number of

transactions in the channel system, lowering its overall cost

By providing a central market between buyers and sellers, the

individual transactions between every buyer and seller are eliminated

Economic Variable vs. Sociological & Psychological Variable

Bert McCammon (1963) Innovation (analogy Technology) Initiator of behavioural dynamics (Reflects in the Organisational

Dynamics)
F.E. Balderston (1964) Normative approachseeking to explain

how marketing channels should be designed for optimal benefit of marketing practitioners (Single channel vs. Global channel design)
McCammon (1965) Converse & Heugy (1940) Centrally

coordinated marketing systems (Corporate Marketing System, Administrative Strategies, Contractual Agreements) Capital (Higher fixed costs) Profit (RRI) Complexity of marketing processes

Newer Jargons Structure of Marketing Channels

Bucklin (1965) Postponement (shift of risk of owning goods to others) Manufacturer -produce except to order

Middlemen purchase - (backward next day delivery and

forward made a sale)and Speculation Converse of postponement Creation of stages of inventories

Mallen (1973) borrowed George Stigler (1951) Functional

Spinoff Efficiency (outsourcing), economies of scale (volume changes), resume marketing function, sub-function (outsourcing), different markets (diff strategies 1&3), industry (mix of func & sub fun spunoff), market size directly related optimum scale size (no. increase), tech inversely related optimum scale size (no. More focus shifted to decrease) Organisation Dynamics School of
thought

Functionalist School

Founded on the work of Single Person, Wroe Alderson (1957,1965)

New and intriguing approach to the marketing intellectual

community
The heart of Aldersons conceptualisation Fundamental importance of exchange process The heterogeneity of demand and supply Apart from fresh orientation creative vocabulary Criticism: Consolidation of prior literature and ambiguous writing

style
Relevance: Still generating considerable interest in marketing

Central Concept
He laid the fundamental importance to the exchange process and

the heterogeneity of demand and supply

He viewed marketing from systems perspective where marketing

institutions (Institutions School) are sorting and transforming commodity (Commodity School) to match the heterogeneous demand (Consumers groups) with heterogeneous supply (Producer groups).

Hunt, Muncy and Ray (1981) Aldersons primary propositions (Sets, behaviors and expectations)
Marketing is the exchange which takes place between consuming groups and

supplying groups
The household is one of the two principal organised behaviour systems in

marketing
The firm is the second primary organised behaviour system in marketing

Given heterogeneity of demand and heterogeneity of supply, the fundamental

purpose of marketing is to effect exchanges by matching segments of demand with segments of supply
A third organised behaviour system in marketing is the channel of distribution

Given heterogeneity of demand, heterogeneity of supply, and the requisite institutions

to effect the sorts and transformations necessary to match segments of demand with segments of supply, the marketing process will take conglomerate resources in the natural state and bring about meaningful assortments of goods in the hands

Towards General Marketing Theory contd

Micro Level Simple Transaction Commodity Middlemen Activitie s Consumers

Systems Approach - Macro Level Simple Transaction Organised Behaviour System

Supplying Group (Heterogeneity of Supply)

Household (First Primary Organised Behaviour System)

Exchange

Consuming Group (Heterogeneit y of Demand)

Firm (Second Primary Organised Behaviour System)

Institution (Third Organised Behaviour System

Sorts and transformations (Matching segments of demand with segments

Towards General Marketing Theory

In effect group of producers and their channel partners are

mobilising the natural resources in desired forms to the group of consumers

This mobilising can result in perfect market when each element

of supply is matched with the each element of demand

This can be achieved only through communication (two-way

information processing)

Key Concepts
In fact he coined some terms in marketing perspective (Deciphered in

current context can enrich the marketing discipline in a significant way) Transformations Sorting - breaking heterogeneous collections into homogeneous groups
Accumulation-building up of large homogeneous collections

Allocating-dispersal of goods to intermediaries

Assortment-building of heterogeneous collections for the consumers

Transvections - complete sequence of exchanges (transactions) and all

the transformations
Conglomerates - A number of different things or parts that are put or

grouped together to form a whole but remain distinct entities

Evaluation of these three theories on the basis of meta-theory criteria

Syntax Structure (Good classification criteria) and Specification (No contingency i.e. variation):

Institution Grounded in economic aspects and

Functionalist Many terms still very ambiguous

Good

Semantics Testability (Reliability) and Empirical support (Validity):

Institution school score very low on this dimensions
It is not testable as there is no consensus of what can be the right

criteria to measure efficiency and productivity

Its concept has not been quantified and just has face validity (i.e.

good case history and practice oriented validation of concepts like vertical marketing system and creation of utilities by middlemen)

The functionalist school scores even lower that the institution school in these aspects
Despite its organisational elegance, Alderson has failed to provide

the basis of testing his theory

Moreover, his theory has good conceptual framework but lacks the

empirical support
Bad to worst

Pragmatics Richness (Generalizability) and Simplicity (Easily communicated and implemented):

Institution school is not very rich as it is very narrow on its focus

(marketing channels) But it is easy to communicate and implement (especially the value added functions performed by the middlemen)
Unlike institution school, Andersons functionalist school is very rich

as it generic enough to accommodate all specialised domains of marketing (industrial, social and services) But it is not easy to communicate and implement (ambiguous and can only be used as an analytical tool rather implementing in organisation structure and functional responsibities)

Average AAA

Thank You!