Family Business

Introduction

A family business is a commercial organization in which decision-making is influenced by multiple generations of a family — related by blood or marriage or adoption — who has both the ability to influence the vision of the business and the willingness to use this ability to pursue distinctive goals. They are closely identified with the firm through leadership or ownership. Owner-manager entrepreneurial firms are not considered to be family businesses because they lack the multi-generational dimension and family influence that create the unique dynamics and relationships of family businesses.

Family business is the oldest and most common model of economic organization. The vast majority of businesses throughout the world—from corner shops to multinational publicly listed organizations with hundreds of thousands of employees—can be considered family businesses. Based on research of the Forbes 400 richest Americans, 44% of the Forbes 400 member fortunes were derived by being a member of or in association with a family business.

Some of the world's largest family-run businesses are Walmart (United States), Samsung Group (Korea) and Tata Group & Reliance Industries (India).

One Man Wonder in Family Business

When the family business is basically owned and operated by one person, that person usually does the necessary balancing automatically. For example, the founder may decide the business needs to build a new plant and take less money out of the business for a period so the business can accumulate cash needed to expand. In making this decision, the founder is balancing his personal interests (taking cash out) with the needs of the business (expansion).

Ex. Reliance & Bajaj broken down into pieces, when new generation came.

Conflicts Rising in Family Business

The interests of a family member may not be aligned with the interest of the business. For example, if a family member wants to be president but is not as competent as a non-family member, the personal interest of the family member and the well being of the business may be in conflict.

The interests of the entire family may not be balanced with the interests of their business. For example, if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive, the interests of the entire family and the business are not aligned.

Emotional Challenge

The challenge faced by family businesses and their stakeholders, is to recognize the issues that they face, understand how to develop strategies to address them and more importantly, to create narratives, or family stories that explain the emotional dimension of the issues to the family.

The most intractable family business issues are not the business problems the organization faces, but the emotional issues that compound them. Many years of achievement through generations can be destroyed by the next, if the family fails to address the psychological issues they face.

Most first generation owner/managers make the majority of the decisions. When the second generation (sibling partnership) is in control, the decision making becomes more consultative. When the larger third generation (cousin consortium) is in control, the decision making becomes more consensual, the family members often take a vote. In this manner, the decision making throughout generations becomes more rational.

Success of Family Business

We've spent a lot of time studying why some families stay financially successful over generations and others don't. (Actually, most don't.) There are three reasons why families succeed.

• First, successful families see important changes in their industry and adapt by diversifying into new activities that can grow. Simply put, successful families are entrepreneurial.
• Second, families succeed because they invest in productive activities (including the development of the next generation), emphasize growing assets, and consume relatively little of their wealth. These families maintain a culture that encourages family members to create things of lasting value. It's not surprising that these families encourage entrepreneurs.
• Third, successful families remain reasonably united, keeping supportive members loyal to one another and to the family's mission. Over generations, as families become more diverse, it is likely that only a few relatives per generation will directly work in the business. Outside-the-business members might still support family philanthropic efforts or social activities, and sometimes that level of involvement is enough to maintain family unity.

 Investing in family entrepreneurs has to be done objectively based on the feasibility of their business plans, and also fairly within the family. Even if some entrepreneurial projects don't succeed, these investments will help you spot talent to keep your business growing. And you are sending an important message: this family is committed to creating value.

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SHETH-NEWMAN GROSS MODEL OF CONSUMPTION VALUES

 According to this model, there are five consumption values influencing consumer choice behavior. These are functional, social, conditional, emotional, and epistemic values. Any or all of the five consumption values may influence the decision. Various disciplines (including economics, sociology, and several branches of psychology, marketing and consumer behavior) have contributed theories and research findings relevant to these values, (Sheth et al. 1991). Each consumption value in the theory is consistent with various components of models advanced by Maslow (1970), Katona (1971), Katz (1960), and Hanna (1980). Five consumption values form the core of the model:

The first value: Functional value To Sheth et al. (1991) the functional value of an alternative is defined as: "The perceived utility acquired from an alternative for functional, utilitarian, or physical performance. An alternative acquires functional value through the possession of salient functional, utilitarian, or physical attributes. Functional value is measured on a profile of choice attributes.

Traditionally, functional value is presumed to be the primary driver of consumer choice. For example, the decision to purchase a particular automobile may be based on fuel economy and maintenance record.

The second value: Social value Sheth et al. (1991) defined social value of an alternative as: "The perceived utility acquired from an alternative association with one or more specific social groups. An alternative acquires social value through association with positively or negatively stereotyped demographic, socioeconomic, and cultural-ethnic groups. Social value is measured on a profile choice imagery."

Social imagery refers to all relevant primary and secondary reference groups likely to be supportive of the product consumption. Consumers acquire positive or negative stereotypes based on their association with varied demographic (age, sex, religion), socioeconomic (income, occupation), cultural/ethnic (race, lifestyle), or political, ideological segments of society.

The third value: Emotional value Sheth et al. (1991) defined emotional value of an alternative as: "The perceived utility acquired from an alternative’s capacity to arouse feelings or affective states. An alternative acquires emotional value when associated with specific feelings or when precipitating those feelings. Emotional values are measured on a profile of feelings associated with the alternative."

The fourth value: Epistemic value- Epistemic issues refer to reasons that would justify the perceived satisfaction of curiosity, knowledge, and exploratory needs offered by the product as a change of pace (something new, different). Entirely new experience certainly provides epistemic value. However, an alternative that provides a simple change of pace can also be imbued with epistemic value. The alternative may be chosen because the consumer is bored or satiated with his or her current brand (as in trying a new type of food), is curious (as in visiting a new shopping complex), or has a desire to learn (as in experiencing another culture).

The Fifth value: Conditional value - Sheth et al. (1991) defined the conditional value as: "The perceived utility acquired by an alternative is the result of the specific situation or set of circumstances facing the choice maker. An alternative acquires conditional value in the presence of antecedent physical or social contingencies that enhance its functional or social value. Conditional value is measured on a profile of choice contingencies."

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Howard-Sheth model of CB decision making

Howard-Sheth model is one of models that represent consumer behaviour on the market. It attempts to explain the rationality of choice of the product by the consumer under conditions of incomplete information and reduced processing capability. It analyses the external symptoms of behaviour, reactions and thought processes that cannot be subject to direct observation.

Howard-Sheth model (fig. 1) is based on the assumption that the consumer behaves rationally during purchase, process is repeatable and is result of incentives which have their source in the environment (input variables). It consists of four main groups of variables:

I. Input variables, i.e. stimuli arising from the marketing activities and social environment of the consumer. Include three different types of stimuli, which are:

·         significant incentives - physical characteristics and the attributes of a product, such as price, quality, originality and accessibility, brand characteristics,

·         symbolic incentives - verbal or visual characteristics of the product, form of product perceived by buyer/customer, effect of advertising and promotion messages used by seller,

·         social stimuli - whose source is the social consumer environment, family, reference groups, and society in genertal.

II. Hypothetical constructs, including the psychological variables influencing consumer behaviour during the decision-making process. It is regarded by the authors as abstract, not defined and not intended directly. They distinguished two main constructs:

·         perceptual constructs - describe obtaining and processing information, attention to stimulus, sensitivity to messages, receptivity, blocking information, prejudice, etc.,

·         learning constructs - how buyer forms attitudes, opinions, and knowledge influencing his buying decisions, evaluation after purchase, brand comprehension, etc.

III. Output variables: purchase intention, attitude, brand perception and attention. They are noticeable effects of internal processes, for example: decision to implement the purchase, disclosure of customer view and interest, as well as the declaration of other activities. The most important output variable from the point of view of marketing is actual purchase, because it involves carrying out activity based on consumer preferences. Hierarchy of output variables include:

·         attention - scope of information accepted after exposing buyer to stimulus,

·         comprehension - amount of information actually processed and stored in buyer mind,

·         cognition - forming attitude towards products,

·         intention - to buy or not to buy particular product,

·         purchase behaviour.

IV. External variables that have not been presented in the Howard and Sheth model and are not direct part of the decision-making process, however, have a significant impact on consumer decisions and are used in marketing activities as a criterion for segmentation. These include such variables as: value of purchase for the buyer, the character traits of the consumer, membership of a social group, the financial status of a consumer, the pressure of time.

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Nicosia Model of Consumer Behavior

Nicosia Model of Consumer Behavior was developed in 1966, by Professor Francesco M. Nicosia, an expert in consumer motivation and behavior.  This model focuses on the relationship between the firm and its potential consumers. The model suggests that messages from the firm (advertisements) first influences the predisposition of the consumer towards the product or service.  Based on the situation, the consumer will have a certain attitude towards the product.   This may result in a search for the product or an evaluation of the product attributes by the consumer.  If the above step satisfies the consumer, it may result in a positive response, with a decision to buy the product otherwise the reverse may occur. Looking to the model we will find that the firm and the consumer are connected with each other, the firm tries to influence the consumer and the consumer is influencing the firm by his decision.

The Nicosia model of Consumer Behavior is divided into four major fields:

1.       Field 1: The firm’s attributes and the consumer’s attributes. The first field is divided into two subfields. The first subfield deals with the firm’s marketing environment and communication efforts that affect consumer attitudes, the competitive environment, and characteristics of target market. Subfield two specifies the consumer characteristics e.g., experience, personality, and how he perceives the promotional idea toward the product in this stage the consumer forms his attitude toward the firm’s product based on his interpretation of the message.

2.       Field 2: Search and evaluation. The consumer will start to search for other firm’s brand and evaluate the firm’s brand in comparison with alternate brands. In this case the firm motivates the consumer to purchase its brands.

3.       Field 3: The act of the purchase. The result of motivation will arise by convincing the consumer to purchase the firm products from a specific retailer.

4.       Field 4: Feedback of sales results. This model analyses the feedback of both the firm and the consumer after purchasing the product. The firm will benefit from its sales data as a feedback, and the consumer will use his experience with the product affects the individual’s attitude and predisposition’s concerning future messages from the firm.

The Nicosia model of consumer behavior offers no detail explanation of the internal factors, which may affect the personality of the consumer, and how the consumer develops his attitude toward the product. For example, the consumer may find the firm’s message very interesting, but virtually he cannot buy the firm’s brand because it contains something prohibited according to his beliefs. Apparently it is very essential to include such factors in the model, which give more interpretation about the attributes affecting the decision process.

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Diffusion of Innovation in Consumer Behaviour

Innovation

An innovation is an idea, practice, or product, perceived to be new by an individual or a group .A product is said to be an innovation when it is perceived by the potential market as a change, and not by a technological change brought in it.
New products or new services have been classified as under:
Firm Oriented
If the product is new to the company, it is said to be new.
Product Oriented
It focuses on the features inherent in the product and the effect it has on the consumer’established usage pattern. This leads to three types of product innovation continuous,dynamically continuous, discontinuous innovation.
Market Oriented
It stresses on how much exposure consumers have on the new product:
(i) It can be new if purchased by a small percentage of customers in the market.
(ii) It is new if it has been for a relatively short period in the market.
Consumer-oriented Items
It is based on the consumer’s perception of the product. If he judges it to be new. For example,the Polaroid camera can be considered as an innovation, because a whole lot of people who constitute the market, use it, and can get photographs in minutes. Microwave oven for example is an innovation. It does wonders for cooking and warming of foods. Similarly, mobile phones (cell phones) can be considered an innovation. Not only are they popular, but they were unthinkable a decade or two back. Innovation can be of various degrees. For instance, a microwave oven is more of an innovation than sugar-free cola. In innovation, behavioral change stake place. These behavioral changes can be small, modest, or large. The innovation can be continuous or, dynamically continuous or, discontinuous.

Continuous innovation
In this type of innovation, minor behavioral changes are required for adoption of the product,from ordinary cookware to Teflon-coated cookware, where minor behavioral changes are required.
A modified product, e.g., a new scuba watch, new car model or, low-fat yogurt, etc.
Dynamically continuous innovation
Communicator behavioral changes are required for the adoption of the product. Products in this category include compact disk players, cellular phones, erasable ink pen and disposable diapers.

TV has led to related innovation

Discontinuous innovation
Here the adoption of the product requires major behavioral changes and the product is new,and requires high involvements of the user, along with extended decision-making, which consists of the following steps:

Stages in innovation

• Innovators

• Early adopters

• Early majority

• Late majority

• Laggards.

Innovators (2.5%) – Innovators are the first individuals to adopt an innovation. Innovators are willing to take risks, youngest in age, have the highest social class, have great financial lucidity, very social and have closest contact to scientific sources and interaction with other innovators. Risk tolerance has them adopting technologies which may ultimately fail. Financial resources help absorb these failures. (Rogers 1962 5th ed, p. 282)

Early Adopters (13.5%) – This is the second fastest category of individuals who adopt an innovation. These individuals have the highest degree of opinion leadership among the other adopter categories. Early adopters are typically younger in age, have a higher social status, have more financial lucidity, advanced education, and are more socially forward than late adopters. More discrete in adoption choices than innovators. Realize judicious choice of adoption will help them maintain central communication position (Rogers 1962 5th ed, p. 283).

Early Majority (34%) – Individuals in this category adopt an innovation after a varying degree of time. This time of adoption is significantly longer than the innovators and early adopters. Early Majority tend to be slower in the adoption process, have above average social status, contact with early adopters, and seldom hold positions of opinion leadership in a system (Rogers 1962 5th ed, p. 283)

Late Majority (34%) – Individuals in this category will adopt an innovation after the average member of the society. These individuals approach an innovation with a high degree of skepticism and after the majority of society has adopted the innovation. Late Majority are typically skeptical about an innovation, have below average social status, very little financial lucidity, in contact with others in late majority and early majority, very little opinion leadership.

Laggards (16%) – Individuals in this category are the last to adopt an innovation. Unlike some of the previous categories, individuals in this category show little to no opinion leadership. These individuals typically have an aversion to change-agents and tend to be advanced in age. Laggards typically tend to be focused on “traditions”, likely to have lowest social status, lowest financial fluidity, be oldest of all other adopters, in contact with only family and close friends, very little to no opinion leadership.

 

Diffusion of Innovation in Consumer Behaviour

Diffusion is process by which a new product is accepted and spreads through a market. It is group phenomenon, in which first an idea is perceived, then it spreads throughout the market, and then individuals and groups adopt the product.

Definition
Diffusion is a process by which the acceptance of an innovation/new product, a new idea, a new service, is spread by communication to members of a social system over a period of time.

DIFFUSION PROCESS
Diffusion process is the manner in which innovations spread throughout the market. Spread refers to the purchase behavior where a product is purchased with some continuing regularity. Spread of innovation can be of three types as shown in the Figure below:

The diffusion process follows a similar pattern, overtime, irrespective of the social group or innovation. The typical diffusion process shows a slow growth or adoption. It later rises rapidly, and then a period of slow growth is noticed. In fast diffusion process, the product clicks immediately. The spread of innovation is very quick. People patronize the product immediately, and later on there is again slow diffusion.

In slow diffusion process, the product takes a lot of time to diffuse or spread, and the consumer follows a pattern of adoption slowly by getting acquainted with the product.

Stages of Diffusion Process

(1) Knowledge:

Consumer is exposed to the innovations existence and gains some understanding of how it functions. In this stage, consumers are aware of the product but have made no judgment concerning the relevance of the product to a problem or recognized need. Knowledge of a new product is considered to be result selective perception and is more likely to occur through the mass media than in late stages which are more influenced by opinion leaders.

(2) Persuasion:

In this stage, usually attitude formation takes place that is consumer forms favorable or unfavorable attitudes toward the innovation. Consumer may mentally imagine how satisfactory new product might be in use, i.e., “vicarious trial” of the product in consumer’s mind.

It is also considered as the evaluation of consequences of using the product. This means consumers weigh the potential gains from adopting the product against the potential losses of switching from the product now used.

A person may seek out new stories, pay particular attention to advertising for the product, subscribe to product rating services, talk to experts in that product category etc. This is basically done to reduce perceived risk in adopting new products. Each of the above information search and evaluation strategies has an economic and/or psychological cost.

Many persuasion methods are used by marketers. One of the common arid effective methods is catalogues, specially used for new products because this provides more information than the typical retail setting. For example – marketer can show the advantages ones present solutions of hair problems.

(3) Decision:

Consumer engages in activities that lead to a choice to adopt or reject the innovation (i.e., adoption or rejection). Adoption can be defined as a decision to make full use of an innovation as the best course of action. This means continued use of the product unless situational variables (lack of availability, or money etc.) prevent usage. Rejection means not to adopt an innovation.

There may be some persons who first consider adopting an innovation or at least give a trial, but then deciding not to adopt it. This is called an active rejection. Others never consider the use of the innovation, known as passive rejection.

(4) Implementation:

Implementation means consumer, puts the innovation into use. Until this stage, the process is a mental exercise, but in this stage behavioral change is required Marketing plan is the determinant of whether a good product has been communicated effectively (i.e., actually sales). Marketing mix planned should be such that purchase is made easy. This means proper coordination of the channels of distribution with new products and their communication process.

(5) Confirmation:

Consumer seeks approval/reinforcement for the innovation decision, but may reverse this decision if exposed to conflicting messages about the product. This stage is also influenced by communication sources and consumers evaluate their purchase experiences. After evaluating, they try to support their behaviour and later decide to continue or discontinue using the product.

Marketers consider studying discontinuance to be equally important as the rate of adoption. They study so that marketing strategies can be tailor made with respect to the reasons for the same. It is seen that people who adopt the product later than early adopters, are more likely to discontinue. Therefore, marketers try to upgrade follow – up service and feedback as sales of a new product expands.

Stages in adoption process

1.                  Awareness

·         Consumer in first expose to the product innovation.

·         Lacks in information about the product

·         May only know the name of product and its basic features.

2.                  Interest

·         Consumer is interested in product and search for additional information.

·         He wants to know what is it, how it works and what its potentialities are.

3.                  Evaluation

·         Consumer decides whether or not to believe this product or service.

·         Will it satisfy his needs and requirements?

·         Individual makes a mental trial of the idea.

4.                  Trial

·         Consumer uses the product on a limited basis.

·         During this stage the individual determines the usefulness of the innovation and may search for further information about it.

·         The trial stage is characterized by small-scale experimental use, when it’s possible.

5.                  Adoption or Rejection

·         If trail in favorable consumer decides to use the product

·         If unfavorable the consumer decides to reject it.

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Opinion Leadership

One of those people, who indulge in informal product related communication, usually provides information about a product or product category, whether it would useful to buy, how it would be used etc. He would also offer advice as to which of several brands is the best and from where it should be bought. This person is known as the Opinion Leader and the process is known as Opinion Leadership.

In some cases, the Opinion Leader just likes to talk and discuss about a product or service category. He voluntarily provides information about the product and product category and/or about brands. The people who form the audience and listen to him are called Opinion Receivers.

There is a two-way exchange of information, and both opinion leaders and opinion receivers/seekers interact with each other. Opinion leaders provide the receivers/seekers with product information, advice, and relate to them their experiences. In return for this, they gather more information, personal opinion and personal experiences from the receivers/seekers.

ROLE PLAYED BY OPINION LEADERS:

Opinion leaders play a key role and act as a vital role between the marketer and the consumer. He communicates informally about product and service offerings and/or brands; he gives product news and advice to consumers (current and potential) and also narrates his personal experience to others. The major roles played by opinion leaders are,

i)                   Authority figure

ii)                Trend setter

iii)              Local opinion leader.

These roles are discussed as follows:

Authority figure: The role that is played by an Opinion Leader when he gives product news and advice, and also narrates his personal experiences to consumers, is known as the authority figure role. By providing product news and advice, as also narrating his personal experiences, he helps current and potential consumers satisfy their needs and wants.

Trend setter: Opinion Leaders act as trend setters. They are inner oriented and do not bother about what others in the society say or do. They are also innovative and often go in for purchase of new product and service offerings (of their interest category) and through the purchase and usage, they set the trend. Opinion Leaders play the trend setter role when they narrate accounts of their personal experiences to others to copy and emulate. In other words, if they purchase a new innovative product of their interest, they speak of their experience as acts of behavior that the audience (opinion receivers/opinion seekers) should emulate. Unlike the authority role (of providing news and advice), they emphasize more on narrating their personal experiences. Rather than knowledge and expertise being the source of credibility, it is the personal experience that provides credibility.

Local Opinion Leader: People like to behave like others in their reference groups. They desire social approval from contractual (membership) and aspirational (non-membership) groups. People from such groups directly or indirectly provide information and advice that helps consumers to make purchase decisions, and buy such goods and services and/or brands that the contractual and aspirational groups approve off. Opinion Leaders are said to act a local opinion leaders when a) they constitute a person’s positive reference group; and b) they provide information about such product and service offerings and/or brands that help satisfy their needs and wants of the consumer group in a manner that is consistent with group values and norms. As local opinion leaders, they provide knowledge and advice, and narrate personal experiences about product and service offerings. Their credibility lies in the fact that as they belong to the same group as others who approach them, they are able to advise on the “good” or “bad”, and thereby guarantee social approval and appreciation.

MOTIVES BEHIND OPINION LEADERSHIP:

Both Opinion Leaders and Opinion Receivers/seekers have their own reasons for providing information and receiving/seeking product information and advice.

These explain the motives behind the Opinion Leadership process.

·      Why do Opinion Leaders provide information?

Opinion Leaders like to give product news, provide expert advice and also love to share their experiences with others. This is because they are involved and interested in a product or service category, and love to talk about it (product involvement).

As they possess knowledge, expertise and experience with a product category, they feel important and powerful when people approach them for information and advice.

·   Why do Opinion Receiver/Seekers request for information?

Opinion Receivers/Seekers gather information so that they can make the right purchase decision, with respect to the right product and service offering, the right brand, at the right price, from the right store and at the right time. They obtain information about new-product or new-usage. It reduces the physical and cognitive effort that the Opinion Receivers/Seekers has to take to gather information, evaluate alternatives and take the right decision.

DYNAMICS OF OPINION LEADERSHIP PROCESS:

i)                   Opinion Leaders provide product information, advice and narrate experiences

ii)                 Opinion Leaders provide both positive and negative information.

iii)               Opinion Leaders are influential and persuasive.

iv)               Opinion Leaders are not generic in nature. They are specific to a product or service category, and possess expertise and specialization in it.

v)                 Opinion Leaders could also become Opinion Receivers/Seekers

TRAITS AND CHARACTERISTICS OF OPINION LEADERS:

i)                    Opinion leaders possess high levels of involvement and interest in a specific product or service category. They gather information from various sources (print, electronic and audio visual, internet and websites etc.) about product development, and are updated about information. They have greater interest for exposure to media and news specifically relevant to their subject areas of interest and specialization.

ii)                  They are subject experts and have tremendous knowledge about the specific product or service category. They are well-informed about product attributes and features, benefits and utility, knowledge about brands, price and availability. Because of their knowledge and expertise, people turn to tem for advice. They are authority figures and provide information, advice and narrate experiences to Opinion Receiver/Seekers.

iii)                They are product or service category specific; a person who is an opinion leader in a particular product/service category would be an Opinion Receiver/Seeker for another.

iv)                In most cases, Opinion Leaders are also consumer innovators. Because of their interest in a product or service category, they have a tendency to purchase a new product offering as soon as it is launched in the market.

v)                  Opinion Leaders also possess certain personal characteristics; by nature, they are self-confident and gregarious. Because of the knowledge and experience that they possess, they are self-confident.

vi)                As far as characteristics related to social class and social standing are concerned, Opinion leaders generally belong to the same socioeconomic group as Opinion Receivers/Seekers. The reasons for this are quite logical. First, Opinion Leaders indulge in informal communication, and the Receivers/Seekers would in most cases be their own friends, neighbors, peers and colleagues.

RELEVANCE OF OPINION LEADERSHIP FOR A MARKETER:

·         The study of informal interpersonal communication, particularly through Opinion Leadership holds relevance for a marketer. The Opinion Leader provides product news, advice and experience to Opinion Receivers/Seekers (potential consumers). This reduces the latter’s physical and cognitive effort associated with the purchase decision making process. It also reduces their level of perceived risk. Marketer realizes that Opinion Leaders are regarded as credible sources of WOM communication.

·         As Opinion Leaders act as a vital link between marketers and consumers, the marketers should concern themselves with the identification of Opinion Leaders.

·         Marketers should also measuring and analyze the impact of the Opinion Leadership process on consumption patterns and consumption behavior. This would help him understand those amongst Opinion Leaders who are genuine and powerful and those who are fake and superficial. This is because they can then focus more on the former than on the latter.

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