Future Impact and Implication of BREXIT on the UK Construction Labour Market
Title: Future Impact and Implication of BREXIT on the UK Construction Labour Market. The construction Industry remains one of the most influential industries within the British economy. As the CBI (Confederation of British Industry) reported, for each £1 spent on construction output, a total of £2.84 in total economic activity is generated. With ambitious government plans and scheduled deadlines around the corner, it is essential for the construction industry to retain an access to the required resources.
The skills shortage remains an issue within an industry where a remedy has not been found to overcome the labour shortfall problem. The foreign workforce has been successfully used in recent years to fill the gap within the construction labour market, but the gap between the retiring workforce and the number of new entrants into the construction market remains significant. The 2016 EU Referendum resulted in a decision to leave European Union.
UK Construction Dissertation BREXIT
Although exact strategies of dealing with this decision are unknown yet uncertainty started affecting the construction industry immediately after the referendum result. At first, many foreign workers consider transferring their skills to other countries where access to the single market remains unaffected. This dissertation aims to analyse the effect of Brexit on the construction labour market and assess foreign workforce movement within the United Kingdom.
The aim of this dissertation is to analyse the current and potential future trends of foreign worker movement within the UK construction sector.
Dissertation Objectives
Provide a clear and precise analysis of the construction industry labour market in UK focussing on the foreign workers coming from EUA8 countries.
To evaluate the current tendencies within the market and make reliable assumptions towards the possible changes in trends resulting from Referendum decision.
1 – Introduction
Background
Aims and Objectives
Research Questions
Research Structure
2 – Literature Review
UK Construction – Labour Market
Foreign Workers in Construction Industry
Skills shortage and solutions
BREXIT
Effect of BREXIT on Construction Industry
BREXIT Strategies
3 – Research Methodology
Research Strategy
Quantitative Research
Qualitative Research
Primary Research
The Survey Approach
The Case Study Approach
Secondary Research
Research Ethical Practice
Limitations
4 – Data Analysis
Interviews
Interview Results
Questionnaire
Questionnaire Results
Office for National Statistics
5 – Conclusion
Research Purpose
Research Objectives
Research Limitations
Recommendations for further research
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A Summary of How Revenue is recognized within the Construction Industry under IAS 11
Title: Revenue Recognition: Construction contracts are designed to meet specifications for the negotiations on how assets are constructed or combined to meet their ultimate objectives (Buschhüter, Michael & Andreas 2011). Contract constructions may involve fixed prices where some are subjected to the cost escalation costs.
On the hand, a cost plus contract involves reimbursements or allowable and percentages of costs or the fixed rates present. The changes were made to meet the standards of Financial Accounting (IFRS 15 2014). Revenue is considered to be income earned from everyday activities as it goes by different names such as royalties, dividends, interest, fee or sales.
Revenues that are to be recognized would be from the selling goods, providing services royalties and interest. However, in this case, revenue is to be recognized from the construction of contracts. Construction contracts may be either fixed or cost plus contracts or a combination of the two (IAS 11 2011).
In this regard, a contractor needs to identify and determine what contract to use to know when to recognize revenue and costs as well. When the outcome can be properly estimated, the contract revenues and costs would be recognized as revenues and expenses respectively at the end of the contract period. A loss is also recognized as an expense by the accounting standards.
In fixed price contracts, construction contracts are estimated reliably once total contract revenues are reliable. The revenues are considered as benefits since the effects will be felt positively by any business. Stages of contract completion, as well as, the contract costs have been reliable to meet the standards. All contract costs are to be measured reliably to account for the actual contract costs that would be incurred when compared.
Similarly, for cost plus contract to be enforceable, the economic benefits of the contract have to be passed to the entity. The costs have to be also clearly and easily identified for measurements to be done reliably (IFRS 15 2014). The recognized revenue at the end of a contract is considered to be the percentage of completion. This whereby the contract revenues are matched with the contract costs and then reported in the books of account.
Revenue Recognition
Afterward, the contract revenues and costs are recognized as revenues costs in the profit and loss account. The expected excess of costs over revenues is treated as expenses. If the outcomes are not measured reliably, the revenues will not be recognized and perhaps not even recoverable in the business. An entity will then disclose the revenues recognized during the accounting period as techniques of arriving at the revenues will be recognized as well.
A Description of the Process of Developing New Standards IFRS 15
The International Financial Reporting Standard had to be formed by the Internal Accounting Standards Board; IASB to provide rules and procedures on how to account for revenues that are from customers. There were significant differences between IASB and the IFRS when it came to the definitions of revenue.
Even though they were almost similar, the different understanding of revenue resulted in different ways of treating revenue in financial accounting. The IASB thought they had not given enough revenue standards, policies and procedures on how revenue was treated (IAS 18 1993).
The IASB began working on the issues to try and formulate ways it could solve the issue from 2002.Their first review paper was released in 2008 as they further discussed it and gathered information from relevant sources. Afterward, a release on the exposure draft was done proposing the new accounting standards in 2010 and 2011. After a long process of deliberations and reviews that took several years, the IASB issued the final standard on 28th May 2014.
Changes made about the IAS 18 included recognizing and measuring financial tools revised in 2003 and the 2004 revision of insurance contracts. In 2007, the presentation of financial statements was reviewed through amendments in the different terms used. Their first issued review in 2008, involved investment costs in jointly controlled entities and subsidiaries as well as improvements on the IFRS. The same year also saw IFRIC agreements on issues relating to the constructions of the real estate.
The IFRIC 15 also dealt with issues of the non-monetary contributions by investors in entities that are jointly controlled as they evaluated all legalities in leasing or substance transactions. Barter trade and service concession agreements were also made as they issued customer loyalty programs in 2007 (IAS 18 1993). The IFRS 15 model follows procedures that begin with the; identification of the contracts as well as all individual parties involved.
Transaction prices are also determined as the prices are allocated to the different obligations in accounting. Revenues are finally recognized as the performance obligations are fulfilled. The amount of revenue to recognize and when acquiring costs are capitalized as assets are under the guidelines of the IFRS 15. Any of the expenses not capitalized as assets are considered to be expenses incurred. After all proper recognitions are reporting is done, financials are to be properly disclosed by the company.
Why the Process of Developing New Standards has proven to be difficult and Time-consuming
The new revenue recognition standards had left out key areas that bring in revenue and had not been recognized. New standards on how to recognize revenue had to be set for businesses to follow by the relevant bodies. The objective of the new set of rules and procedures is to explain how the different revenues would be treated.
Revenue recognition is recognized when it estimated to bring economic benefits that are measurable to the business in the future. Therefore, practical guidance is given on how the criteria will be met. The International Accounting Standards Board adopted previously issued the construction contracts and the new standards of recognizing revenue.
IAS 18 was put in place to replace the former methods of recognizing revenue while the IAS 11 replaced some accounting rules on the construction of contacts (Buschhüter, Michael & Andreas 2011). This is to help in knowing how to treat costs and revenues that are associated with the nature of activities undertaken.
Also, due to the then existing rules, changing to new standards had to take long processes of deliberations that were time-consuming. Steps had to be followed as described above as company’s found it hard to easily and quickly adapt to the new set of rules. The new set rules had to be then applied first to see if they would meet the specifications with no interference of other accounts that would result in imbalances in the financial statement and misappropriation and misallocation of resources.
Changing one side would have to result in changing of the other side to cancel out the effects. For instance, in ledger accounts, a debit entry has to be followed a credit entry and vice versa is also true.
What people do not know is that different firms have different accounting rules they follow. A majority however, follow the international standards while others follow the U.S. GAAP principles (Kieso, Jerry & Terry 2010). Unlike the U.S. GAAP, the International Financial Reporting Standards does not always give extensive regulation prompting the need of having some exercises in judgments in some instances. The U.S. GAAP accounting is based on standards while the IFRS focuses more on principles.
The accounting differences have made the financial comparison between different organizations difficult. For instance, actuarial gains and losses are treated differently. They are treated as off-balance sheet items by the IFRS standards unlike under the U.S GAAP.
The off-balances in the balance sheets would cause volatilities and fluctuations. Therefore, the IASB is trying as much as it can to harmonize the differences in the standards. This would also take time as the harmonization would require changes in almost every aspect of accounting (IASB 2006). Adaptation by firms would take time as well making it a difficult and a long, tedious process.
A Summary of how the New Standard IFRS 15 would Deal with a Construction Contract where Construction Happened Over One Accounting Period
The important principle of IFRS is that a company would have to recognize revenue for it to be related to the transfer of the commodities and services that were promised and what the company is expected to get. Services rendered depend on the agreement of the specific time it should cover. The period might exceed one accounting period as would be expected.
An accounting period is often considered to take one year. This, therefore, means that more than one accounting period takes more than one year. The work done at construction contracts usually take more than one accounting period. Therefore, rules have to be set that best suit the situation. One of the methods is to recognized revenues or profit at the end of the contract. This would be through following the IAS 18 – Revenue (IAS 18 1993).
Revenue Recognition and Profit
Recognizing profit at the end of the period does not show that profit was accrued. Under the IAS 11 all revenues and costs will be matched to the accounting period and documented at the end of each financial period (IAS 11 2011). Recognition of profit at the end of the contract would see the company reporting spikes or rises in profits that may not often be matched with the accruals. This is because the revenues would have accumulated to amounts exceeding what would have been recognized in one accounting period (Ursachi, Antonela, & Geanina 2014).
In this regard, revenues and costs are only recognized once estimations of the outcome are reliable. As stated earlier, properly estimated outcomes from contracts should be reliable for use and interpretation. An expected contract loss should be recognized immediately. The completion stage would be calculated on the basis of sales, costs, and physical proportions.
Revenue recognition done at the end of the construction contracts is known as the percentage of completion method. The reported revenue and costs would later be credited to the proportion of work that was completed (IAS 11 2011). The contract revenue is recognized as revenues while the contract costs as expenses in the profit and loss accounts. Similar to when accounting was done in one accounting period, expected amount that exceeds when contract costs are more than contract revenues are treated as expenses.
Buschhüter, M & Andreas S 2011, ‘IAS 11–Revenue Recognition & Construction Contracts’, Kommentar Internationale Rechnungslegung IFRS. Gabler, 374-391.
International Accounting Standards Board Revenue Recognition: (IASB) 2006, ‘International Financial Reporting Standards (IFRS’s): Including International Accounting Standards (IAS’s) and Interpretations’, International Accounting Standards Board.
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Determinants of Bank Profitability in South Africa
Dissertation Title: Determinants of Bank Profitability in South Africa. The prime rationale for conducting the research is to find the factors that affect the bank’s profitability in the South African region so that appropriate measures can be taken to improve the financial performance. This research provides empirical evidence based on the analysis of the bank’s real financial data in support of the determinants of the bank’s profitability. Thus, this research is considered to be useful in enhancing the knowledge of the bank professionals, as well as the students pursuing higher studies in finance and banking.
The banking sector has been blamed the most for the financial crisis that happened in the recent past. Therefore, it has been perceived to be very important to research and find the factors that affect the bank’s profitability so that the situation could be controlled in the cases of the financial crisis. In this context, this research explores the relationship of the factors such as liquidity, management efficiency, capital adequacy, the scale of operations, productivity of assets, growth in gross domestic product, and inflation with the return on equity.
Bank Profitability Dissertation
The primary aim of this dissertation is to explore the determinants of bank’s profitability in the South African region. For this purpose, the research is aimed to find the crucial factors that affect the bank’s profitability in the South African region. Further, in this regards, the degree of influence of the factors on the bank’s profitability has also been evaluated in this dissertation. With regards to the research aim, the following objectives have been developed, which are to be addressed in this research:
To review, research, and understand the regulatory framework prevailing in the South African region
To study the bank system in South Africa through developed models and evaluate the factors, which contribute to the bank’s profitability
To explore the determinants of bank’s profitability in the South African region
Dissertation Contents
Introduction
Background of the Research
Rationale for Doing the Research
Aim and Objectives
Research Question
Significance of the Research
Organisation of the Research
Literature Review
Bank Specific Factors Affecting the Profitability
Size of the Bank
Capital
Credit Risk Management
Product and Service Portfolio
Efficient Management Team
Liquidity Management
Industry or Sector Specific Factors
Banking Regulation in South Africa
Gross Domestic Product
Inflation
Prime Lending Rates
Taxation and Foreign Trade
Topic Description
Research Methodology
Research Question
Research Approach
Research Design
Data Collection Method
Selection and Justification
Sample Size and Sampling Strategy
Data Analysis Process and Tools
Ethical Considerations
Limitations of the Research
Data Analysis
Analysis of the CAMEL Ratios
Liquidity
Capital Adequacy
Efficiency
Non-Performing Loans
Net Interest Margin
Productive Asset Ratio
Size Ratio
Advance and Loans to Deposit Ratio
Analysis of the Gross Domestic Product
Analysis of the Inflation
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The mixed method approach to evaluating research data may be applicable to studies that are designed to gather both qualitative and quantitative information. This technique is often used in disciplines such as psychology, sociology or certain types of medicine. The continued development of these fields may depend on data that is derived from standardized scales or rating systems in addition to that gleaned from interviews, ‘focus group’ sessions and other similar tools. Therefore, the mixed method may be appropriate in a new project on a complex issue or situation that generates complex and highly individualized answers to research questions. Examples of these may include the societal impact of homelessness or the treatment of a lost or diminished sense. The data here may need to cover detailed and varied feedback (or ‘self-reports’) on the effect(s) of these target variables, as well as scores from formal quantitative tools typically used within the research community in question. One data type does not give a complete ‘picture’ of the outcome(s) without the other. Therefore, a methodology that incorporates both to analyse the data set as a whole is necessary.
The mixed method may combine and synthesize this data through a process called triangulation. This may involve the conversion of qualitative data into quantitative data. Such a form of triangulation is most applicable to data resulting from the administration of structured interviews or surveys, provided that data is sufficiently standard or homogeneous across respondents to be coded or scored effectively (i.e. without bias or other forms or statistical inadequacy). In this way, it may be converted to quantitative data, and compared or analysed in accordance with the requirements of the study design (e.g. subjected to a form of analysis such as a paired t-test). On the other hand, the qualitative data may be too individualized and/or complex to be coded. In this case, a thematic analytical technique may be used, incorporating findings such as significant differences among the quantitative data points as a theme or concept.
Mixed Method Research Design
The aim of triangulation is the full integration of both data types to generate contiguous concepts or conclusions. This leads to another advantage of the mixed method: i.e. that it can address research aims that do not stem from standard null hypotheses. Questions, in other words, along the lines of ‘Does this novel treatment result in an improvement in the life quality of patients with hearing loss?’ rather than statements such as ‘This treatment improves hearing loss [in comparison to an existing alternative]’ to be confirmed or denied.
The mixed method is not, however, without disadvantages or detractors. Critics of this methodology often cite the risk of the ‘incompatibility paradox’; the probability that one data type will be inadequately analysed compared to the other. A prominent example of this risk is known as ‘pragmatism’, or the perception that researchers who use the mixed method value ‘experiential data’ (i.e. self-reports recorded from respondents) at the expense of quantitative data. The use of the mixed method may also be subject to preconceptions, judgement or other forms of observer bias that a researcher may impose on qualitative data in the course of its collection. These risks can be ameliorated, mainly through the skill and training of the individual researcher. Under these conditions, the mixed-method technique can be applied to generating full, comprehensive conclusions for non-standard research questions.
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References
Brown RA, Kennedy DP, Tucker JS, Golinelli D, Wenzel SL. Monogamy on the Street: A Mixed Methods Study of Homeless Men. Journal of Mixed Methods Research. 2013;7(4):328-346
Windsor LC. Using Concept Mapping in Community-Based Participatory Research A Mixed Methods Approach. Journal of mixed methods research. 2013;7(3):274-293
Robson C. Real World Research. 2 ed. Oxford: Blackwell; 2002
Mertens DM, Hesse-Biber S. Triangulation and Mixed Methods Research: Provocative Positions. Journal of Mixed Methods Research. 2012;6(2):75-79
Lieber E, Weisner TS. Meeting the practical challenges of mixed methods research. SAGE handbook of mixed methods in social and behavioral research. 2010;2:559-579
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Different Brand Advertising Campaign: Case Study of P&G
P&G Brand Advertising Campaign: As prescribed by different researchers and organizations, the cost of doing business is in the recent years is increasing (Amyx 2005; Williams and Page 2009). This is as a result of increasing competition within the market environment, where different businesses are doing everything possible to woo as many customers as possible. As a result of this, consumers of different products are the beneficially since all the extensive researches conducted are geared toward improving the quality of different products; hence, enhance consumer satisfaction. To achieve such objective, while still remaining relevant and competitive, the organizations need to formulate resilient strategies that build on distinctive competencies and provide a lasting competitive advantage.
On the same right, the said strategies ought to be sensitive and dynamic so as to encompass any eminent changes that are inevitable in any competitive market. Among the market strategies that different organizations are engaging in is the different brand advertising campaign. Advertising, as different researchers have claimed plays a key role in determining the success of a given product in the market. In regard to a different brand advertising campaign, the emphasis is on product differentiation, where the company tries to convince their customers, and other potential ones that their products are superior to similar products offered by their competitors. This is specifically done, in a bid to increase sales, command the market share and win new customers for increased profitability. Nevertheless, adopting a different brand advertising campaign is not a smooth ride but there a variety of handles that the marketers need to contend with at different levels. This is even true when a firm is facing competing rivals who also keep strengthening their advertising and product strategies with an aim of dominating the market (Brewster and Palmer 2001).
The study work at hand intends to explore some of the potential problems that a marketer may experience in his/her bid of using a different brand advertising campaign as his/her ultimate marketing strategy. To achieve the intended objective, the study will use P&G as its case study and will explore some of the challenges, and benefits it has achieved by employing the said marketing strategy instead of using the conventional advertising strategy. In addition, the research will propose some of the methods that can be employed to override those problems.
Brief description of P&G
William Procter and James Gamble are credited as the founders of Procter and Gamble (P&G) business that has in the recent past expanded to the international market; both in developed and developing countries. It has been regarded as one of the Fortune 500 American multinational corporations that have established its roots far and beyond its boundaries of Cincinnati where it was first established. The industry is supposedly the American biggest producer of household products and pharmaceutical goods. In particular, company is credited for providing over 250 brands that are grouped into six distinct categories. These groups include laundry and detergents, paper products like toilet papers, beauty care, food and beverages, sanitary towels and health care products.
In addition, the company also makes other products like pet food and PUR water filters and chemicals that are used internally and also by other chemical processing companies. As a way of attracting and retaining new clients, especially female consumers, the P&G also engages in production and sponsoring of Soap Operas that serves to distinguish its brand advertising strategies (A Company History: 1837- Today 2006). In fact, P&G is among business that have been credit with successful business innovations especially on brand management such as Connect and Develop innovation. According to Nielsen Company, P&G business is also among those companies that spend a fortune in advertisements alone. It is said to have had the highest advertising budget of all companies listed in United States by 2007 (Johnson 2012).
Brand Advertising
Despite all these positive aspects, the company also faces some challenges that demand prompt actions. Among such challenges is the continuous demand for new innovative and brands differentiation. The pressure originates from stiff competition that is posed by other small and larger competing companies. In addition, advancement in technology and new demands for new brands, the company is in a dilemma in deciding which brands to retain and those to discard. For instance, though soap and candle were the main products that the company produced in its initiation stages, candles have become obsolete due to the invention of electric lights among other products that rendered it irrelevant. Attracting, retaining and satisfying the clients are the main challenge that the company contend with all the time.
To handle this challenge effectively, the company has come up with different strategies that are also sensitive to the increasing cost of production in the company. In regard to this fact, as was observed by Jeff Neff of Ad Age, the company had even lost its usual top post in shopper magazine ranking. The failure to retain the top slot went on for three years making shareholders wary. The challenge is thought to have been as a result of effective advertising by its competitors like Unilever (Neff 2013).
In regard to its budget, as per its 2010 annual report indication, P&G is said to be spending cash amounting to over $10 billion in advertisements alone. According to the report, the percentage of Ads as a portion of sales for the said years was approximately 11.3%. This is an increase from the previous years’ where the same ratio was 10.9% and 9.8% in 2010 and 2009 respectively (Johnson 2012). Such increasing figures in advertising is said to have its toll on company’s inability to reward its faithful shareholders effectively (Edwards 2011).
Psychology of advertising
Advertising, since time in memorial, has been used in different circumstances by business to build powerful business force. In definition, as proposed by Brewster & Palmer, 2001, advertising may be referred to the purchased publicity conducted in a pre-planned way to seduce potential clients to act, think or behave as per the advertisers’ desires. According to Robert Hearth, advertisement is a tool that is most effective in persuading any potential and existing consumers to consumer certain products. According to him, companies that use advertising are amongst the most successful ones in the world (Heath 2012).
The same claim is echoed by Krugman’s idea who asserted that TV advertising has a direct influence on individuals even when processed inattentively. This is what is supposedly referred to by a number of individuals as subconscious seduction. Advertisers take advantage of this fact, first, to influence individuals’ mind and secondly, to influence their decision making in regard to certain products. Some psychologist believes that advertisements have both negative effects and positive effect on different individuals of a society. They also believe that the presence of advertisements on available media; whether television, newspapers, magazines, journals, radio and internet among others make all individuals target. They thus believe that advertisements have subliminally stimulated the way different individuals react in different situations (Amoto and Laudati 2001).
Richard Pollay, in his book, The Distorted Mirror: Reflection on the Unintended Consequences of Advertising claim that advertising seem to pop up in every part of the society, include the intimate space of customers’ homes. According to him, advertisements are created to attract attention, cause a change of attitude and influence consumer behavior toward certain ways (Pollay 1986). Nevertheless, some researchers still hold the idea that, though, advertisements has almost direct influence on individuals viewing them, businesses and individual marketers need to formulate their advertisement perfectly so as to inform customers of their products; hence, woo them toward buying (Hansotia and Wang 1997).
According to researchers, customers are highly responsive to advertisements, especially those that are aimed at informing them of new products in the market. Such advertisements are said to carry information persuading the customers to purchase a certain brand of products due to their superiority in quality and customer friendly prices. Depending on the response of the customers on product differentiation message contained in the adverts, firms are said to take appropriate actions; whether to increase or decrease their sizes. In cases where the customers’ responses are deemed positive, firms are said to increase their market size appropriately as they also adjust the prices of their products accordingly (Ferguson 20012).
Possible problems associated with advertising
As describe above, advertising is one of the strongest and most effective tool that businesses can adopt to reach their targeted customers. Nevertheless, in the process of designing, formulating, implementation and monitoring a myriad of potential problems may haunt the business. Such challenges are the center of interest in the succeeding discussion. The problems may include, but not limited to cost implication, consumer attitude, stiff competition from competing businesses, and product differentiation among others.
Cost implications
According to a discussion paper prepared by Kyle Bagwell of University of Columbia, Department of Economics on The Economic Analysis of Advertising, advertising is a sizeable business. According to him, in the year 2003, major companies like General Motors $3.43 billion, Procter and Gamble $3.32 billion and Pfizer $2.84 billion among other companies experienced such greater advertising expenses (Bagwell 2005). The high costs of advertising are to some extent influenced by the stiff competitions that exist in the market. In the case of P&G, though the company was the pioneer of so many products like cleaning detergents, health care products like shampoos and chemicals, a large number of potential competitors like Unilever have come up with similar products. In some instances, such competitors are said to outdo P&G Company in terms of quality of some products. They also do well in reaching out for consumers through their effective advertising and rebranding strategies.
In regard to adopting a different brand advertising campaign like it has been done by P&G, the cost of selling the idea would mean adjusting the advertisement budget upward. In a conventional advertising budget, the cost would be influenced by a number of factors such as the frequency of advertising, competition and clutter, market share of the brand being advertised and the product life cycle stage. In regard to frequency of advertisement, advocating for a different brand would mean that the cost would be relatively higher than that of already established products. The need for increasing the frequency of advertising is to try and ensure that the target consumers are convinced that the target product is superior to the ones being offered in the market (Brewster and Palmer 2001).
A company using a different brand advertising campaign is also expected to bear more financial burden in regard to competition and clutter. Clutter in this case refers to number advertisements that are run in a given media. P&G is expected to incur extra cost since it requires having more clutter than its competitors. In addition, the cost of designing such advertisement would cost them more than that of an already established product that have already been accepted widely and can still dominate the market even without the need for an advert.
Selling a different brand will also require the company to emphasis on the quality of the product it is selling. According to psychologists, consumers are always looking for a product that would not only satisfy them in terms of financial implication, but also one that meet their quality expectation. This will auger well with how well the product has gained ground in terms of market share. In addition, a new brand will demand that the advertisement be of high quality and eye catching and unique. To achieve all these, the company will require engaging experts in its production lines who will ensure that the quality of the product is not compromised. They should also ensure that their packaging line is managed by individuals who are experienced and understand how the markets work. The packaging material should also be appealing and unique so that it can stand-out amid competition. All the above objectives are only achieved if the company’s advertising budget is relative higher than that of the competitor.
In some instances, companies, including P&G are bound to rebrand their products in the form of product differentiation. This will mean that even an existing product, which has undergone such changes, would look as new product. To convince the existing consumers and also the potential consumers that the products are the same or relatively better will call for serious and extensive campaign. In order to reach all the clients, the company would not trust only one form of media, but would opt for a number of them that would be accessible by the target clients. For instance, in a bid to remain relevant and competitive in the sale of women product, P&G is said to be producing and supporting some soap operas both in TV and Radio. This means that its advertisement budget is higher than that of its competitors. With increased advertising budget together with other running expenses that companies incur in their bid remain competitive and attract to both customers and potential and existing investors, the company may fail to meet its long-term objectives.
For instance, it is said that P&G had in some years failed to provide substantial returns to its shareholders due to increasing cost of production and running costs. Here, with a quick glance at the 2012 P&G annual report, the company’s net earnings reduced from $ 15,495 to $13, 292 despite an increase in net sale to $83, 680 from $81,104 in the year 2011 and 2012 respectively. This led to a decrease of $ 0.73 in net earnings per common share from continuing operations (P&G 2012; Johnson 2012). The increase in sales may be attributed to the progressive and active advertisement, but this lead to increased operation costs that have lead to reduction in net earnings. With the company failing to satisfy its shareholders, some are bound to withdraw their support while others may invest in competing companies. Such a move would be detrimental to the company and its products.
Consumer attitude and perception
Psychologically, individuals are said to react with a lag of diverse period in terms of changing their decision due to changes in certain issues (Gujarati 2007). In regard to the question at hand, individuals would also be cautious to jumping into buying new or rebranded products due to the natural nature of human being of the fear of unknown. In addition, as expressed in the previous section, customers are subjective to seduction borne in different advertisements. In cheer realization that other competing companies are as well striving toward winning more consumers, such companies are bound to benefit more when a company decide to go beyond the usual products. In addition, some researchers have argued that, the relevance and importance of a certain ad would be determined highly with how the consumer has interacted with ads In cases where the consumer do not have access to the ad, it would mean that they would be blind to the product being targeted (Rubin 1981). On the same note, the different brand advertising campaign may not encompass enough information to change the decision of the clients as Fernandez and Rosen (2000) found out in his research on goal-oriented consumer’s response.
Effect of competition on advertisement
According to economists, companies come up with advertisements for various reasons that are all directed to customers. On the same note, economists believe that marketers and advertisers retain ultimate right to decide on the content of advertisements, and customers have no option but to take the information carried by the ads. For this reason, consumers do not all the time openly accept the information. Instead, they are said to interpret advertisements differently. Therefore, adopting a different brand advertising campaign is bound to experience more challenges than the conventional way. In addition, since advertisements are bound to affect pricing of different products before consumers are fully persuaded that the different products are superior and selling at fair prices, the company may experience low growth as consumers opt to buy from their competitors (Kirmani 1990). Similar assertion are echoed by Sutton (1991) who said that though advertising is bound to improve customer perception toward a certain brand; hence, creating some barrier to entry, it is bound to increase competition; thus, forcing some firms to reduce their expenditure to avoid the ultimate effects of fierce price competition.
Economists, to some extent, agree that advertising is majorly adopted by monopolistic firms, to gain product differentiation and achieve market control. With product differentiation objective achieved, the firm is as well said to have gained some ground in controlling the market. In the study’s case scenario, P&G Company is not a monopolistic but is surrounded by able rivals and even potential entrant. For this reason, convincing the customers that their products are superior would mean increasing its advertisement clutters; adopt alternative campaign strategies among other ways. Different brand advertising campaign may also, instead of increasing awareness of the product increase the demand for a rival company’s product at the expense of the marketer.
On the same right, such advertising strategy would reversely lead to a decline in consumer value especially in developed market due to increased commodity prices to counter the extra financial experiences trigger by the ads. For instance, P&G sponsored the US Olympic Team and had an advert dubbed ‘Thank you Mom’. Inasmuch as the ad had gained popularity in the US, P&G Company may have not scored properly due to the high cost of running the advert. According to a report released by the company in 2012, the ‘Thank you Mom’ advertisement required the company to think globally. This would involve formulating a communication objective that would cut across board; hence, requiring an expansive and expensive plan to articulate (P&G 2012).
Product differentiation
One of the key pillars toward a successful advertisement campaign is price differentiation. Firms and companies that have successfully managed to persuade their customers that their products are overly different from others in terms of quality, outcomes and costs are said to have been rewarded with unequivocal market share and dominance. In regard to product differentiation, a firm opting to conduct a different brand advertisement campaign is bound to employ either the horizontal or vertical differentiation. In definition, horizontal differentiation consumers are said to differ in what they prefer in a product. That is; the characteristics like color, taste, and sources bestowed on a given product. On the other hand, in regard to vertical differentiation, the emphasis is on product characteristics that make consumer go for quality. Therefore, a problem of ensuring that the products under scrutiny in different brand advertising campaign are purely different from other may arise.
In regard to P&G, as documented in its 2012 annual report, its main objectives is to have brands with strong equities in the minds of consumers, those that retailers are demanding and those that are platforms for innovation. Achieving such objectives is not a significant challenge to P&G since it has financial, technological and manpower strength. Nevertheless, the same notion is sure in its rival competitors’ agenda. The only sure way to ensure that its product retain their reputation is to ensure total differentiation, which in part is supported by effective and extensive advertisement (Barroso and Llobet 2011).
In this right, Roberts and Lattin (1991) found out consumers reaction toward consuming a certain brand is more influenced by their choice sets later than their awareness sets. According to them, the consumers’ awareness is highly influenced by such things like advertisements while the choice set is determined by the consumers purchasing decisions. Therefore, a firm that is determined to employ a different brand advertisement strategy should emphasis on influencing both awareness and choice set factors, something that may be problematic to balance and achieve as (Goeree 2008) found out.
Shon Ferguson (2012), in his study on Endogenous product differentiation, market size and price stated that consumer love for diversified brands leads them to becoming more sensitive to product differentiation efforts by different firms; hence, uncontrollable increase of differentiated products in the larger market. In respect to this, he argued that expansion of market base by firms through product differentiation and advertisement may eventually lead to higher prices of such products. If this does happen, consumers are then said to divert their attentions to other similar commodities that are offered at lower prices. This is because, with polarized market, consumers have a wide variety of commodities that they can choose from; hence, the notion of consumer loyalty does not hold (Ferguson 20012).
This is true even to the case of P&G Company that, though having been among the market pioneer is competing with so many other late entrants. In addition, as some researchers have argued, so much concentration on the need for price differentiation would eventually lead to a compromise in terms of prices or quality (P&G 2012). Therefore, the most appropriate advice that researchers have offered is for firms to remain cognizant of the consumers’ need and marshal toward satisfying them by and large.
Grossman and Shapiro while investigating the effect of informative advertising realized that advertising help the elasticity of demand faced by each participating firm. According to them, the lower the cost of advertising, the more the advertisement clutter will increase and the better informed the consumer will become (Amoto and Laudati 2001). In such instances, where the customers are well informed, and more firms are engaged in advertisements, a firm that spend more money in advertisements is bound to suffer since advertising in a market where consumers have full knowledge of the market does not necessary mean increasing your customers.
Recommendation
To avoid the potential problems that are associated with different brand advertising campaign effectively, marketers would need to take a number strategic measure. First, as it has extensively been discussed in the previous section, the marketers should constrain their budgets in such a way that they adhere to the company’s objective. This can be done by ensuring that the advertisements are perfectly formulated to reach the target group effectively while at the same time, minimizing the cost of running those adverts in different media.
In regard to consumer perception and attitude, the adverts should carry exceptionally, convincing and persuasive messages that reflect, if possible, the actual reality of the brand being advertised. This would auger well since customers who have had the potential to purchase the product can pass the same information to them that are aware of the brand but have not made a positive choice of purchasing them. In addition, this would give the company a competing edge against its potential rivals and potential entrants.
The company should also formulate its advertisement with cheer realization that the advert can have an anti-competing outcome, where it promotes the products of the competing firms. The company should also have its shareholders and investors in mind; hence, it would continually receive financial and other forms of supports even in times of turmoil.
Conclusion
P&G Company, like many other large and small companies, engages in intensive advertisement in a bid to weather down any potential competition. In fact, Procter and Gamble is said to be the leading company in terms of advertisement. This is true even with the fact that it is always in the top three of the most profitable multinational company. The need for regular advertising, where it is reported to collaborate with other firms and sponsor is said to emanate from the need to inform its customers regularly of its superior brands that have dominated the market. In a bid to advertise, like any other companies, it faces challenges that drag down its objectives.
Among the advertising strategies that a company adopts, different brand advertising campaign is one that can lead to greater success in reaching customers. Nevertheless, there are a myriad of challenges that are attached to the strategy as discussed in the previous section. In particular, the campaign would be more expensive than the conventional methods employed by many companies. It requires maximum time to convince the customers that truly, the brand the company is selling is superior and better than the similar ones in the market. Again, the customers may not be fully convinced; hence, though having the awareness of the product may opt to consume those offered by competitors. The strategy is also said, sometime, to work against the company where it indirectly promotes the products of its competitors. Therefore, as much as the company would love to use this strategy, it should be wary of the challenges; hence, plan appropriately. The advert should be formulated in such a way that all the unnecessary costs are avoided while at the same time, targeting to reach all the potential customers.
References
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