Predicting Purchasing Behavior Patterns in Stationary Markets

Predicting patterns of consumer behavior can be difficult. To date no one has developed a perfect model as each has its own particular short-comings. The Dirichlet model is well-established that both describes and predicts purchasing behavior patterns in stationary markets. The researchers McCabe, et. al. (2012) focuses on the success of the model for companies trying to gain market share. 

It should be first understood that all purchasing is based in habits of purchase. Customers follow certain patterns based upon how they associate the information among competing brands. Marketing nudges individuals to make one choice over another to expand their repertoire of purchasing behaviors. Strong marketing creates memories that become associated with products and services. 

Structural changes in behavior can occur when changes force choices beyond day-to-day decisions. Even though industrial marketing and purchasing is long-term and stable it can change. These changes usually are a result of introduction and reminding of products during purchasing cycles. For consumers, original patterns of purchasing can return right after promotion and therefore be short-lived changes. 

The authors used a collaborative procurement to understand the purchasing power of an organization that spends 20 billion pounds on third-party products. They observed purchasing behavior over a 12 week period to determine penetration, frequency and share of category by particular suppliers.  They found some switching patterns among suppliers in term of amount and quantity of purchases. 

Supplier B increased market share at the company over Supplier A. Even though there were no new products or services offered that would attract purchasers it was found that Supplier B invested in its regional sales force prior to the change. The Dirichlet model did well with predicting market changes before, during, and after marketing campaigns. Even when it was not accurate it worked as a benchmarking tool. 

Comment: Marketing is a process of raising a company’s voice within a particular market. The more different the culture of the target market to that of the parent the more difficult it is to find the right voice. When done properly consumers will have more memories of the product/service which raises their chances of making a purchase. Some advertisements can create motivation based upon the individual needs of the consumer. Purchasing managers are not immune to the same needs, motivations, and memory processes as general consumers. They only become more sophisticated in how they process the information and make decisions. 

McCabe, J. (2012). The power of before and after-How the Dirichlet can analyze the sales impact of promotional activity. Journal of Advertising Research, 10.

Book Review: Darwin among the Machines by George Dyson

Darwin among the Machines by George Dyson delves into the evolution of global intelligences. Even though it does offer some scientific tid bits it is primarily a philosophical book that explores the growing field of artificial intelligence. Darwin discovered organisms working under various laws to Turning’s simple thinking machine.  The Internet provides a global platform for creating global intelligence where constant streaming of information can be incorporated into brighter minds and machines. The process of development is based in principles found by Darwin and others. 

His work is a historical understanding of intelligence that starts with Thomas Hobbes (1588-1679) and moves all the way into modern theory. Thomas Hobbes wrote in the book Leviathan “Nature (the Art whereby God hath made and governes the world) is by the Art of man, as in many other things, so in this also imitated, that it can make an Artificial animal”.  In other words, the laws of nature can be put within a theoretical understanding and then into machinery (automata). 

His work then moves into John von Neumann’s (1903-1957) who discusses the connections between neural activity and Game Theory.  Intelligent machines are able to handle a flow of information and convert that information into logic. John von Neumann’s discovery of replication in complex creatures was a precursor for DNA and modern neurobiology. 

He stated, “To understand high-complication automata and, in particular, the central nervous system... this process logic will have to undergo a pseudomorphosis to neurology to a much greater extent than the reverse.” The thinking machine will need to change and replicate itself in much the same way as biological beings. That change and process of information comes from the central processing system (i.e. central nervous system). 

The author argues that the whole world has collective intelligence above and beyond the intelligence of the individual parts. Machines may someday be able to process that intelligence but they are projections of the human mind and therefore have limitations. The human race will continue to develop and reach higher heights in understanding. The risks humans face is that they may disintegrate and collapse like other species. It is not sure if machines have the same risks. 

The book is relevant for modern day changes in robotics and artificially intelligence. If you follow the technology industry you may be surprised by announcements related to robotic development, artificial intelligence, micro-manufacturing, and acquisitions within particular companies. This development has been growing for many generations and is often marked by misunderstanding, myth, lore and fear. There will sure be greater scientific understandings of human intelligence as developers seek to mimic and understand these functions for other uses. 

Dyson, G. (1997). Darwin among the Machines-The Evolution of Global Intelligence. NY: Basic Books

 Other Reviews:

 

http://develintel.blogspot.com/2006/07/review-darwin-among-machines.html

http://davidsasaki.name/2009/08/review-darwin-among-the-machines/

http://www.123compute.net/dreaming/dysondarwin.html

http://www.mikiko.net/library/weekly/aa060897.htm

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Creating Localized Customer Service through Digital Technologies

Digital technologies are an important development in service management.  The paper by Setia et. al (2013) discusses how digital technologies can create higher customer-oriented businesses in localized markets. They focus on two customer service capabilities such as customer orientation capability and customer response capability. To gather their results they used 170 branches of a large Indian bank.

Because the modern market requires a more rapid pace of innovation, shorter product cycles, adjusting customer needs and international commerce there is a need for companies to differentiate themselves based upon better customer service.  Through strong customer oriented strategies and responses they are better able to align their operations to local customer needs.

The goal is to create stronger business outcomes that raise customer retention, lower operational costs, and increase market impact. To do this well requires collecting the right information and using that information to improve upon corporate strategy. How that information is collected and processed will determine the digital design and information quality.

There are four characteristics of information quality:

1.) Completeness that provides enough useful information to impact employee performance.

2.) Accuracy that the information is correct.

3.) Format that presents the information for useful purposes.

4.) Currency that represents the newness of information.

The researchers found that the information quality influences customer service capabilities.  There is need for a fundamental shift from resource acquisition to capability building platforms. The use of proper data collection and usage can create better methods of localizing services for greater impact. Decision makers will need to turn this information into human action that raises customer service perceptions and performance.

Setia, P., et. al. (2013). Leveraging digital technologies: how information quality leads to localized capabilities and customer service performance. MIS Quarterly, 37 (2).

Pictures of Leo Carrillo Ranch

Leo Carrillo Ranch Historic Park is located in Carlsbad California and was once home to the actor Leo Carrillo. It is a 27 acre well manicured location that has been restored to its original beauty. One can find various plant life, flowers, old fashion buildings, and much more that represents the early settlers and history of California.  You will not want to miss the peacocks and groove on the property.

Leo Carrillo was from a long line of California notables. He was an actor and civil servant that spent a great many years doing both.  Born in 1881 and died in 1961 he spent a great amount of time as a conservationist that tried to protect the land. He was part of the California Beach and Parks Commission.

It is open most days of the week and is free for visitors. Free does not mean that it is not in need of funds, donations, and support. You may want to view and contact the Friends of Carillo organization to see how you may help at their website or the City of Carlsbad website.

Address: 6200 Flying Leo Carrillo Ln, Carlsbad, CA 92009

Phone:(760) 476-1042 

Saving or Spending for Economic Growth?

Neoclassical growth theory states that higher saving rates can increase long-term wealth while Keynesian economics indicates that higher saving rates can lower consumption. Yun-Kwong Kwok in his paper creates a bridge between the two theories by studying the links of the Solow diagram (neoclassical) and IS-LM curves (Keynesian).  These two concepts are often covered separately in college because they do not easily mesh into a single framework.  People are left wondering if we should save or spend?

The first concept to understand is that the neoclassical model is a long-term model while the Keynesian model is more short-term.  One focuses on a longer-term trend while another focuses more on immediate needs. This is one reason why decision-makers who are looking for immediate results often use the Keynesian model. 

In the long-run Solow model, the total output Y of an economy is produced by capital K and labor L: Y=F(K,L).  Capital accumulates through net investment. Output is absorbed through consumption. Stability occurs when accumulation and consumption match. Standard of living improves to match total accumulation until the system is equal in inputs and outputs. 

An assumption of the Keynesian model is that when prices and wages are flexible the economy will be at full employment. Because prices are sticky, the economy deviates for a period from full employment. When demand for certain products produced by a country declines, so will the employment rate. In other words, you cannot keep producing if no one is buying and that means lay-offs and higher unemployment. 

The author found that an increase in the savings rate will first lead to short-run recession but will eventually create long-term growth. He argues that as the central bank increases the money supply it will decrease the interest rate and increase output. A recessed economy with cash infusion will move toward its long-run potential. If that potential is high then it can create benefits. However, an infusion of money that is working against a poor long-run potential will cause prices to increase and output, consumption, and investment to decline. Policy makers must understand the positive or negative long-term potential to determine if infusion, infrastructure improvements, or other policies will result in higher growth.

Comment: It would appear that a major miscalculation is the long-term productivity of the economy. When an economic system loses its fundamental competitive nature through not keeping up with worldwide competition an increase in debt/liquidity during a recession may improve the short-run situation but damage long-term growth through greater debt servicing expenses and lower productivity.  Yet it is a well-known tool that is easy to use and grab when situations become difficult. The question becomes what do we do with this debt once we get back to a normal economy that cannot afford to service it? Creating sustainable systems that continuously reinvest parts of their working capital and saves a percentage of their profits from lower transaction costs (improved profits) through infrastructure improvements allows for greater cash infusion with long-term liquidity and investment prospects. The problem we face is knowing which infrastructure improvements will raise business prospects, tax capital, and business investment. Since businesses work in an infrastructure platform improvement upon that platform raises their opportunities for success but needs to be done in a fiscally responsible manner. Doing so in a smaller hub allows for the proper experimentation for national policy development. 

Kwok, Y. (2007). To save or to consume: linking growth theory with the Keynesian Model. Journal of Economic Education.