STAKE HOLDERS, CONSUMERS AND

BUSINESSUnits 4 and 5

Prof. Prabha PanthMay 3, 2023

Stakeholders in Business• Stakeholders: Individuals and groups with

interests, expectations, and demands about what business should provide to society.

• Business should consider stakeholders’ expectations under:– Legitimacy: the validity of the stakeholder’s claim, – Power: the ability of the stakeholders to affect the

firm’s operations,– Urgency: the degree of immediate attention of the

stakeholder’s claim.2

Stakeholders and Business

Business

1. Government 2. Employees

3. Owners

4. Consumers 5. Society

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6. Environment

Types of Stakeholders• Primary stakeholders: with direct stake in the

organisation and its success – owners, managers, share holders, and workers.

Includes:– Core stakeholders: essential to the survival of the firm, – Strategic stakeholders: vital to the organisation and to face

its threats and opportunities – owners and managers• Secondary stakeholders: public or special interest stake

in the organisation – consumers, government, civil society, neighbourhood, environment. Also called:– Outside stakeholders

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Stakeholder Management StrategyStakeholder’s Potential for Threat to Organisation

HIGH LOW

Stakeholder’sPotential forCooperationwith Organisation

H IGH

LOW

Stakeholder Type 1Supportive

Strategy:Involve

Stakeholder Type 2Marginal

Strategy:Monitor

Stakeholder Type 3Non-supportive

Strategy:Defend

Stakeholder Type 4Mixed Blessing

Strategy:Collaborate

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The Clarkson Principles of Stakeholder Management

1. Acknowledge: and monitor concerns of legitimate stakeholders.2. Listen and communicate with stakeholders,3. Adopt mechanisms sensitive to stakeholders’ claims and

requirements,4. Interdependence and distribution: recognise the

interdependence of interests, and distribute benefits accordingly.

5. Cooperate with other public and private entities – to reduce any negative impacts of the business, and to pay compensation,

6. Avoid activities that infringe rights of stakeholders, e.g. right to life, property, and clean environment.

7. Transparency of activities, reporting of actions taken to address stakeholders’ requirements.

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• In perfect competition, firms work in a no risk environment, with equal shares in the market, and equal profits

• But in the real world, there is no perfect competition, only oligopoly or monopolistic competition,

• Businesses have to face different types of competition risks, affects their market size and profits

• SWOT analysis – Strengths, Weaknesses, Opportunities and Threats

Competitive forces

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Porter’s - Five Forces

• Porter: to diagnose the principal competitive pressures in a market and assess its strength and importance to the firm.

• He identifies five forces that affect the competitive structure of firms.

• The five forces are external forces that impact on a company’s ability to compete in a given market.

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Porter’s - Five Forces

Threat of new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitutes

Rivalry among competing firms

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1. Rivalry among firms: cut throat competition, oligopoly, high fixed costs, no product differentiation.

2. Threat of new entrants: low barriers to entry, government licensing policy, economies of scale, expected retaliation.

3. Bargaining power of buyers: monopsony, consumers’ knowledge, undifferentiated products (no brand loyalty)

4. Bargaining power of suppliers: supplies from few firms, vertical integration, few or no substitutes. Influences input prices (oil)

5. Threat of substitute products: rivals develop substitutes, technology, adv campaigns

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CONSUMING CLASSES IN INDIA• In recent times consumerism is growing in India.• Factors affecting consumerism in India:

1. More access and availability of consumer durables and luxuries, imports and local production

2. Growth of service sector, and incomes,3. Growth of middle class, 600 million effective consumers4. Change in lifestyles,5. Credit cards, consumer loans and credit,6. Growth of shopping malls, 7. Change in attitudes towards consumption,8. Larger share of younger generation in population.

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• Indian retail market is considered to be the second largest in the world in terms of growth potential.

• The market growing at 11-12% pa.• C-durable expenditure accounts for around

10% of GDP. • Attracts global retail giants • Investments estimated in C-durables: Rs 200

billion by end of 2010.

Indian Retail Market

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India: consumer classes (NCAER)

Indian Consumer classes - forecast

19651995

20052015

2025

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0 1 7 12 202 5 6 8

24

6 817

35

36

15

32

46

35

17

77

54

2410

3

Globars Strivers Seekers Aspirants Deprived 14

Cars Motorcycles CTV regular Refrigerators White goods0

2000

4000

6000

8000

10000

12000

14000

276760

1785 1850

34373466

8369

9957

6774

13149

Consumer durables ('000)

1995-96 2001-02 2005-06 2009-10 15

Forecast of Consumers’ Profile1. Income group: domination of middle class,2. Demography: average age in India (2020) - 29, in

China and the US – 37, Europe 45.3. Urban: 35-45% population living in towns and cities

by 2050.4. Demonstration effect: rural population copies

urban, urban copies Western C-patterns.5. Brand loyalty: will decrease, as younger generation

are not brand loyal, also more choice,6. Health conscious: with more education, awareness

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Consumer protection• In Economics, consumers are supposed

to have full knowledge of the product.• Is there Consumer’s Sovereignty?• Unscrupulous business – can sell unsafe,

substandard, dangerous products.• Incorrect advertisements forcing

consumer’s to buy their products.• Consumers have no bargaining power.• Both international and national policies

to protect consumers and educate them.

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International Forum for Consumers• International’s Charter of Consumer Rights (UN

1982), to be implemented by governments.• Eight rights

1. Right to basic needs - Food, clothing, shelter, health care, education, water and sanitation

2. Right to safety – in consumption, lead in toys, Bt fruits and vegetables,

3. Right to information – inputs, expiry dates, reactions, impacts, technology

4. Right to choice – safer and healthier substitutes

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4. Right to be heard – through media, courts,5. Right to redress – compensation – health effects6. Right to education – about product, what it

contains, how it impacts consumers,7. Right to healthy environment – environmental

safety, protection.

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Consumer Protection Act, 1986• COPRA : based on UN Guidelines for Consumer

Protection in 1985 recognising the rights of consumers,• To protect and save consumers from exploitation, from

adulterated, substandard goods and deficient services,– setting up of consumer protection councils at the central

and state levels, – Central Consumer Protection Councils (CCPC) and State

Consumer Protection Councils. – District consumer protection councils.– National Consumer Policy to ensure that goods and services

are available to consumers at reasonable prices and acceptable standards of quality.

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Consumer complaints• A number of NGOs have taken up the cause of consumer’s

complaints :– International Consumer Rights Protection Council (ICRPC), Consumer

court, Jagoo Party,However, despite Government policy on consumer rights and

consumer protection, consumers are a helpless lot in the legal system of India.

The consumer court system of our country is one of the highly inefficient and impotent systems in the world.• Years of legal battles (10-15 yrs), • High costs• Corrupt bureaucracy,• Industry power and clout

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Business Ethics

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Business ethics : refers to the behaviour that a business adheres to in its daily dealings with the world. (1) avoid breakingthe criminal law in one’s work-related activity; (2) avoid action that may result in civil law suits against the company; and (3) avoid actions that are bad for the company image

Includes: • Labour management, safety in

production, and of final product,

• Environmental safety and protection,

• Pricing of products,• Proper and not misleading

advs.• Avoid promises of products,

that cannot be kept,• Ethical behaviour of workers,

staff and managers

• Many large companies flout ethics due to their money power.– Coca cola – exploitation of labour in South and

Central America, pesticide content – India, – Union Carbide – Bhopal gas tragedy,– Nestlé - selling genetically modified food in some

Asian countries without labelling them explicitly.– Health drinks (Complan, Horlicks) – as substitutes

for a balanced diet, increase intelligence!