A C T A U N I V E R S I T A T I S L O D Z I E N S I S FO LIA OECONOM ICA 17, 1982
A n d r z e j Banasiak *
M ARKETING D ECISIO NS IN INVESTM ENT PR O CESSES AND T H EIR IN FLU EN C E ON D ISTR IB U TIO N SYSTEM
1. A PP L IC A T IO N OF R ESU LTS OF M A RK ETIN G RESEAR CH ES IN INV ESTM EN T D ECISIONS
A reas of m ark e tin g research es a re g rad u a lly expanding. One of th e n e w e r areas of m ark e tin g research es is rep re se n te d by research es aiding in v estm e n t processes and aim ed a t m axim ization of socio-econom ic effectiveness of in v estm en t projects, resu ltin g in in cre m e n t (both q u a n -tita tiv e and qu alitativ e) of consum er goods supply. These research es — as fa r as w e know — w e re first in itia ted in th e U nited S ta te s w h e re th e y are fu rth e r developed a t p r e s e n t 1.
D em and for sim ilar research es seem s to exist also, or p e rh ap s first of all, in c e n tra lly p lan n ed economies. This is due to tw o reasons:
1. A ny in v estm e n t p ro je c t in conditions of th e c e n tra lly p lanned econom y is supposed to be op tim ally effective from socio-econom ic p o in t of view , its p o ten tial and plan n ed social effectiveness is gaining a grow ing im p ortance in th e socialist process of d istrib u tio n if a given in v estm e n t p ro je c t envisages a prospective increase of consum er goods supply;
2. In v e stm e n t decisions are supposed to possess a high degree of social accuracy, as its red u ctio n w ill sim u ltaneously increase social costs of p ro d uction and consum ption (the effects of w hich w ill obviously be fe lt la te r on), and dislocate — to some e x te n t — socioeconom ic p ro
-* D r, In s titu te of M ark etin g , U n iv e rsity of Łódź (Poland),
i See e.g. B. W i c k s t r o m , R esearch in M a rketin g at U n ive rsities in th e
U n ite d S ta te s and S w ed en . [In:] S elected P ro b lem s of M a rk e tin g , A cta U n iv e r-
sita tis1 L odziensis 1979, vol. 40, p. 165— 170. I t should, how ever, be ad d e d h ere th a t th e se re se arch e s a re m ain ly o rien ted a t m a x im iz atio n of econom ic, an d n o t so m uch, social effectiv en ess of in v e stm e n t plans. T h e ir c h a ra c te r in th e m a rk e t econom y does n o t seem to re q u ire a n y a d d itio n a l com m ents.
portions of th e plan. L ow er th a n d esirable degree of social accuracy of in v estm e n t decisions is especially dangerous in a situ a tio n w hen, on one h and, th e in v estm e n t p lan of th e n a tio n a l econom y is v e ry strain ed , w hile on th e o th e r han d th e re is eq u a lly stra in e d situ a tio n of th e m a r-k e t eq u ilib riu m — w hich is q u ite a com m on phenom enon in th e case of a ra p id ly developing econom y, as it is confirm ed by Poland.
T he need for m ark e tin g p rep a ra tio n of in v estm e n t processes aim ed a t increasing th e ir social effectiveness is, how ever, not alw ays perceived b y th e socialized investor. On th e c o n tra ry , it m ig h t be said th a t in m an y cases in v estm e n t processes a re n o t p ro p erly prep ared . T his so-m etiso-m es produces a paradoxical situ atio n : w ith tense in v estso-m e n t plans and in conditions of big m a rk e t tensions th e re a re ta k e n in v estm en t decisions, as a re s u lt of w hich th e re is lau n ch ed production of goods th a t, in tu rn , a re not approved by b u y e rs and a re e ith e r not accepted a t all in th e m a rk e t or a re accepted only to a sm all e x te n t. T his re fe rs m ostly to such in v estm e n t decisions w hich lead to in tro d u c tio n of new products into th e m a rk e t or new ty p es of p ro d u cts th e m a rk e t position of w hich is a lre a d y consolidated 2. Social costs of such u n d e rta k in g s a re especially high a lth o u g h — due to th e ir com plex c h a ra c te r — th e y a re difficu lt to estim ate.
T h ere is sim u ltan eo u sly dislocated th e ra tio n a lity and u sefulness of economic m anagem ent, w hich cannot be fu lly reconciled w ith guideli-nes of th e socialist p lan n in g system and developm ent of th e plan n ed economy.
2. M A R K ETIN G V A R IA B LES IN INV ESTM EN T PRO CESSES
L et us assum e th a t an econom ic organization in ten d s to lau n c h pro -duction of a single, new p ro d u ct and th a t th is in te n tio n can be carried out on ly on th e w ay of c o n stru ctin g a n ew in d u stria l p lan t. L e t us assu -me, fu rth e rm o re , th a t th is in te n tio n w as carried out and th a t production w as sta rte d . The volum e of p ro d uction of th e new p la n t can be de-scribed by m eans of th e production function e.g. of th e Cobb-D ouglas type:
2 S uch a n in v e stm e n t p ro jec t, w h ich lacked p ro p e r m a rk e tin g p re p a ra tio n , w as c o n stru c tio n of a big in d u s tria l p la n t in Łódź w h ich w as to p ro d u ce b isto r fa b ric s (of cre m p len e type). In th is case a n ew p ro d u c t w as n o t accep ted in th e m a rk e t — to th e ex p e cted deg ree — w h ich c re ate d a n ee d fo r g ra d u a l sh ift of p ro d u ctio n (alm ost fro m its s ta rt) to w a rd s ap p lic a tio n of tra d itio n a l r a w m a te -rials. U n d o u b ted ly in th is case poor ac cu rac y of e a rlie r in v e stm e n t decisions led to c o n sid erab le in cre ase of social costs a n d eq u a lly d ra stic decrease of socio- -econom ic effectiv en ess of th is in v e stm e n t project.
Q = g(xi, x 2) (1) w h ere: x b x 2 a re th e so-called production factors (xi — fixed assets, x 2 — em ploym ent).
Since fo r a given in v estm e n t v a ria n t w e can accept th a t fixed assets a re fixed, th e n th e only in d ep e n d e n t v a riab le of th e production size w ill be em ploym ent. Its m easure can be to ta l w orking tim e of people d ire c tly em ployed in production (w). T hus th e fu n ctio n (1) w ill ta k e th e form of:
Q = g(w) (ľ )
T hus th e v ariab le (w) w ill provide a ste e rin g v a riab le of th e p ro -d u ction size. O bviously it m u st m ee t th e re q u ire m e n t of
w < W (2)
w h ere: (W) is m axim um to ta l w orking tim e of people d ire c tly em ployed in production.
On th e o th e r hand, th e level of d em and for a new ly produced good (D) depends, fro m th e m a rk e tin g point of view, on th e price fixed for it (P) assum ing th a t th e econom ic o rg an izatio n possesses rig h ts to fix (to som e ex ten t) prices for its products, and on ou tlay s for prom otion (N). T his co rre la tio n can be described by m eans of th e follow ing function:
D = f(P, N) (3)
In any period a com pany ste e rin g th e production of a given p ro duct w ill be fixing it a t such a level th a t th e p ro d uction volum e does not exceed dem and, w hich can be fo rm a lly described as:
f = (P, N) > g(w) (4)
Econom ic effectiveness of a lre a d y ex istin g pro d u ctio n of a new p ro d u ct is described by th e rev e n u e (profit) fu n ctio n of th e economic organization. In the case discussed by us th is function w ill tak e th e form of:
m ax Z — P g(w) — N — cw (5)
w here:
Z — rep re se n ts th e rev e n u e (profit) of th e econom ic organization, w ith th e economic organization being in te re ste d in m axim ization of this m agnitude,
с — p a ra m e te r of costs understood, for exam ple, as average value of one w orking hour.
O bviously, w hile m axim izing th e m ag n itu d e Z th e re should be observed th e follow ing, a lre ad y listed, conditions, a n d nam ely:
(6)
( ? )
P, N, w > 0 (8)
On th e o th e r hand, it can be accepted, th a t from th e m ark e tin g point of view th e social effectiveness of p ro d uction of a new pro d u ct w ill be d e term in ed by a p p ro p ria te ly high d em and for it, w hich w ill im ply in practice a high degree of th e p ro d u ct’s acceptance in th e m ark et.
T h a t w ould be a sim plified m odel of p ro d uction of a new p ro d u ct a lre ad y sta rte d , in w hich th e o n ly ste e rin g (decisional) v a riab le w ill be, in accordance w ith (5), th e consum ed w orking tim e of those d ire c tly em ployed in production.
W e should point out h e re th a t th is sta te m e n t re fe rs to a situ a tio n w hen as a re s u lt of p reviously tak e n in v estm e n t decisions, th e p ro -duction has a lre ad y been launched, w hile th e size of fixed assets, w hich can be described by th e size of th e econom ic organization, and its cap ital in te n sity and au to m atio n level, has a lre a d y been d e te rm in e d an d th u s decided upon b y those e a rlie r m ade in v estm e n t decisions. W e can th u s d raw a conclusion th a t th e to ta l w orking tim e of those d ire c tly em ployed in production c o n stitu te s a function of fixed assets (M) em ployed in th e in v estm e n t process, th a t is:
In oth er w ords, the size of production in a p la n t already p u t on stre a m w ill be dterm ined, first of all, by earlier in v estm en t decisions defining th e level of fix ed assets em ployed in th e construction of a new plant. To sim plify it, let us accept th a t th e level of em ploym ent of fixed assets w ill be c h aracterized by th e size of th e p lant, by w hich w e u n d e rsta n d its technical and technological s tru c tu re (a big p la n t is a p la n t possessing a big production capacity expressed by big p ro -duction cap acity of fixed assets it has been equipped w ith a t th e con-stru c tio n stage).
If w e rem e m b e r h e re about th e co rrelatio n 3 su p p lem en ted by c o rre lation 9, an d if w e tak e into account o ur sh o rt com m ent on th ese c o rre lations, w e can say th a t s tric tly m ark e tin g in v estm e n t v ariab le s in -clude 3:
w = h(M) (9)
3 We a re o m ittin g here, of course, costs co nnected w ith th e p ro d u c t p ro m o -tio n as th e y a re r a th e r connected w ith p o stin v e stm e n t m a rk e tin g a c tiv ity .
1. The expected level of dem and for th e p ro d u ct to be tu rn e d out by a given p la n t on th e basis of e a rlie r tak e n and c a rrie d o ut inve-s tm e n t deciinve-sion,
2. T he level of price fixed for th e product.
B oth these v ariables of decisional c h a ra c te r d e te rm in e th e accuracy of decisions concerning th e size of th e p la n t to be co n stru cted , and th e size of pro d u ctio n to be lau n ch ed as a re s u lt of co n stru ctio n of th e p la n t of a d efin ite size.
3. U T IL IZ A T IO N OF M A R K ETIN G V A R IA B LES IN D EC ISIO N A L INV ESTM EN T PRO CESSES
A sta rtin g point for ou r an alysis of th is problem is a thesis th a t an econom ic organization, m aking an in v estm e n t decision in th e field of pro d uction of a new or re la tiv e ly new consum er p ro d u ct an d involving ‘co n stru ctio n of a new production p lan t, op erates in conditions of a fa r
reach in g u n c e rtain ty . This u n c e rta in ty is due to tw o facts:
1. A p rio ri lack of in fo rm atio n about th e expected level of dem and fo r a given product, and
2. L ack of an y ra tio n a l (ap a rt from cost) c riterio n of price fixing fo r th e product.
L et us b rie fly analyze th e first problem . The econom ic organization m ay accept a p rio ri th a t th e envisaged d em and fo r a given p ro d u ct w ill be big, m edium , or sm all. The m a tte r w ould be q u ite sim ple if th e level of th e envisaged dem and (w hich m ig h t be ro u g h ly estim a ted by m a rk e
-tin g researches) w as to d e te rm in e th e size of th e in v estm e n t p roject, i.e. th e bigger th e expected dem and — th e bigger th e need fo r con-s tru c tio n of a bigger plant. T here aricon-se h e re con-some d ifficultiecon-s w hile tw o of th em seem to be m ost im p o rtan t. F irstly , th e re is á need for con-d u ctin g h e re v e ry th o ro u g h ancon-d extensive m ark e tin g research es aim econ-d a t definition (even v e ry general) of th e expected level of dem and. As it w as a lre ad y m entioned by us, th e economic practice still r a th e r u n -w illin g ly applies m a rk e tin g research es a t th e level of c re a tin g inve-s tm e n t deciinve-sioninve-s giving p referen ce here, to a larg e e x te n t, to deciinve-sioninve-s of v o lu n ta ry type.
Secondly, even if w e assum e th a t such research es w ill be c arried out, th e y w ill encom pass m ostly th e period of p re p a ra tio n and im plm en ta tio n of in v estplm en t projects, and not th e ir p o stin v estplm en t p e-riod — w hich ap p ears to be qu ite n o rm al and obvious. On th e o th er hand, dem and rep re se n ts a m a rk e t category being changeable in tim e
and accordingly th e r esu lts of research es on it, based on e a rlie r periods, can be p ro p erly ap p ro x im ated fo r la te r periods.
T he problem becom es still m ore com plicated w hen we h ave to tak e into account th e level of expected d em and jo in tly w ith th e expected level of prices in in v estm e n t decisions. T h a t is due to th e fac t th a t th e cost basis w ill not suffice fo r estab lish m e n t of a new price. T h ere m u st be ta k e n into account h e re also o th e r elem en ts of th e price-form ing ty p e and p rim a rily price rela tio n s of „ o u r” p ro d u ct to prices of oth er pro d u cts being a lre ad y in th e m a rk e t (especially prices of su b stitu te s in rela tio n to „ o u r” product) and coefficients of price e la stic ity for products sim ilar in th e ir p ro p ertie s to „ o u r” product. F inally, in condi-tions of only p a rtia l decen tralizatio n of pricing decisions and of fixing some price b ra c k e ts by th e economic cen tre, th e price of „ o u r” p ro d u ct m u st ab so lu tely correspond to th e price b rac k e t d eterm in ed by th e centre.
Thus, w hile d e te rm in in g th e optim al size of th e in v estm e n t p ro ject to be co n stru c te d w e shall be dealing, according to th e level of m a rk e -tin g variables, w ith several v a ria n ts of th e expected dem and and expected (estim able) level of prices sim ultaneously. O bviously, am ong these v a ria n ts w e shall be looking fo r an optim al v a ria n t w ith reg a rd to th e expected v alue of p ro d u ct sales w ith a given level of dem and and prices, w hich — in tu rn — w ill allow us to c re a te am ong o th ers p rere q u isite s for selection of th e optim al size of th e pro jected plant.
It is im possible to p rese n t a concrete n u m erical exam ple in a b rie f article. F u r th e r alth o u g h scarce exam ples concerning th is problem can be found in specialist m ark e tin g lite ra tu re 4.
Of g re a t in te re s t are, on th e o th e r h and, m ethods of d e te rm in a tio n of m ark e tin g a ttitu d e s in relatio n to selection of th e optim al size of a pro jected p lan t, and in th is w ay th e y w ere p rese n ted by us. These a re g e n e ra lly speaking m ethods belonging to th e th e o ry of decision-m aking, and m ore precisely — c rite ria of decisions m ade u n d e r u n c e rta in -ty. T he basic c riterio n applied h e re is th e a lre ad y m entioned criterio n of th e expected value of sales. A pplying th is c rite rio n and d e te rm in in g th e expected values of sales w e can, am ong others, co n stru ct th e so- -called payoff m a trix and use fu rth e r on th e m inim ax criterio n , or co n stru ct th e so-called re g re t m a trix and ap p ly th e m inim um re g re t criterion.
O bviously in conditions of a big risk, none of th e above m entioned c rite ria can be considered — as it is u n d e rlin ed in th e econom ic
lite-4 See e.g. P. K o t i e r , M a rketin g Decision M aking. A M odel B uilding A pproach, A H olt In te rn a tio n a l E dition, L ondon 1974, p. 257 a n d on.
ra tu r e of th e su b ject — as d o m in a n t or best. This, a t a n y rate , depends on circum stances in w hich th e y are applied, and especially on th e type of in v estm e n t processes and goods th e y re fe r to. H ow ever, in a n y case, th e socio-econom ic calculus acom plished by th e ir m eans aim s a t achie-ving optim al decisions in th e field of th e size of th e n e w ly -b u ilt p lan t a t th e expected d em and and price, and th u s by ap p ly in g an in stru m e n t of decisional m ark e tin g variables.
4. M A R K ETIN G D ECISIO NS IN INV ESTM EN T PR O C E SSE S AND TH EIR IM PA C T ON T H E D IS T R IB U T IO N SYSTEM
It is h a rd to say th a t m ark e tin g decisions in in v estm e n t processes d ire c tly affect th e d istrib u tio n system . These a re relatio n sh ip s of ra th e r in d irect ch aracter. We w ere try in g to p re se n t th e ir g en e ra l idea in th e first p a rt of this paper. These rem a rk s should, how ever, be su p p lem en -ted by a sh o rt com m ent.
In conditions of tense m a rk e t eq u ilib riu m and in th e case of p re -dom inance of th e s e lle r’s m ark e t, an econom ic organization acting the role of both an in v esto r and p ro d u cer reduces its activ itie s in th e field of m ark e tin g analysis of p rein v e stm en t processes proceeding fro m qu ite a sim ple (and also qu ite logical) assu m p tio n th a t — b rie fly speaking — w h a te v e r w ill be produced, in q u a n tita tiv e and q u a lita tiv e sense, w ill be also sold. This even so sim ple situ a tio n poses a lre a d y a p o ten tia l da n g e r of social c h a ra c te r: it does not im ply a t all th a t th e consum er, on th e social scale, w ill accept a p ro d u ct being a re s u lt of e a rlie r m ade decisions of th e in v estm e n t production type. He is u su ally forced to accept these decisions in th e m a rk e t due to lack of o th e r a lte rn a tiv e s in th e m ark e t, w hich obviously does not im ply th a t such acceptance is synonym ous w ith full satisfaction of his rea l m a rk e t and consum ption needs. Thus in conditions of th e s e lle r’s m a rk e t consequences of inaccu-ra te in v estm en t decisions a re borne not by th e d istrib u tio n system b ut by th e consum er.
The situ a tio n becom es q u ite d iffe re n t w h en a new in v estm e n t p ro -ject, aim ed a t production of consum er goods, provides for production of such a group of com m odities in rela tio n to w hich, w e can say, th e re h a s been form ed and consolidated th e s e lle r’s m ark et. L ack of m a rk e
-ting p rere q u isite s for in v estm e n t processes m ay lead h e re (and m ost often leads) to considerable dislocations ju st in th e d istrib u tio n system . In such a situ atio n lack of a d a p ta tio n of su p p ly to d em and in th e sense of predom inance of su p p ly over d em and produces in sta n ta n e o u sly a problem of excessive and indisposable stocks in tra d e , a need for
application of m ore elastic (w hich does not im ply m ore favourable) p ri-cing policy, increase of storage costs, ou tlay s for prom otion of a p ro d u ct etc. All these facto rs to a d iffe re n t — b u t to ta lly q u ite considerable degree — reduce economic effectiveness of th e d istrib u tio n system . A nalyzed on th e social scale — th e y reduce th e socio-econom ic e ffe c ti-veness of th e system .
It seem s ju stified to realize th e im p ortance of th e problem alread y now, all th e m ore so th a t along w ith developm ent of ou r econom y and m ark e t the problem of p ro p er ad ap ta tio n of supply to dem and (and not vice versa) w ill becom e a comm on problem and w ill call for m u ltid i-rectio n al activities and m ark e tin g decisions, including also decisions concerning m ark e tin g p rep a ra tio n of in v estm e n t processes.
A n d r z e j B anasiak
D ECYZJE M A RK ETIN G O W E W PRO CESA C H INW ESTYCYJNYCH ORAZ ICH W PŁYW NA SYSTEM D YSTRYBUCJI
P ra c a dotyczy b a d a ń zw iązanych z m a rk e tin g o w y m przy g o to w an iem pro cesów inw esty cy jn y ch . J e s t to sto sunkow o n ow y obszar badaw czy m a rk e tin g u n a b ie ra ją c y szczególnego znaczenia w d ziałalności in w e sty c y jn o p ro d u k c y jn e j o rg a -n iz acji gospodarczych, w gospodarce p la -n o w a -n ej ce -n tral-n ie.
W o p rac o w a n iu zw rócono szczególną u w ag ę n a w p ły w n ie k tó ry c h zm iennych m a rk e tin g o w y ch (postulow any poziom cen, spodziew any poziom p o pytu) na d ecyzje dotyczące p ro je k to w a n ej w ielkości zam ierzonej in w esty cji i za in sta lo w a -n y ch w -niej m ocy p ro d u k cy j-n y c h .
W y k o rzy stu jąc klasyczne m etody z z a k resu te o rii p o d ejm o w an ia decyzji p o -k azan o m ożliw ość w y znaczenia o p ty m a ln e j w iel-kości now o budow anego za-k ład u w o parciu o pew ne zn an e sta ty sty c zn o -m a tem aty c zn e k ry te ria decyzyjne. O m ów iono rów n ież k ró tk o w p ły w decy zji i u sta le ń m a rk e tin g o w y ch n a sy stem d y s try -bucji.
