CUSTOMER RELATIONSHIP MANAGEMENT(As per Thiruvalluvar university Syllabus of II BBA)

Department of BBAM.M.E.S women’s College

Melvisharam

UNIT I

Unit I: Introduction – Definition - Need for CRM- Complementary layers of CRM - Customer Satisfaction - Customer Loyalty - Product marketing - Direct Marketing.---------------------------------------------------------------------------------

Definition of CRM:

Customer Relationship Management (CRM) is a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value and strong relationship with customers.

A commonly cited definition of CRM is that of CRM (UK) Ltd (2002), as follows:

“Customer Relationship Management is the establishment, development, maintenance and optimisation of long-term mutually valuable relationships between consumers and organizations”.

CRM is neither a product, nor service but a business strategy to learn more about customer behaviour and requirements in order to create long term relationship with them. CRM involves use of technology in attracting new and profitable customers while forming tighter bonds with existing one.

Needs / objectives of CRM:

1. Enable the company to identify, contact attract and acquire new customers:CRM allows the company to focus its limited marketing resources on the most promising target markets with the highest potential value. This is typically done using the information generated by CRM application which

a) Automatically generates customer and market profilesb) Identify and target market with high revenuesc) Generates, leads, tracks marketing campaigns across a variety of mediad) Selects appropriate contact media, plans promotions and incentivese) Manages the proposal process through negotiations to close.

2. Obtains a better understanding of the customers- their wants and needs:

CRM applications, often used in combination with data warehousing, e-commerce applications and call centers, allow companies to gather and access information about customers buying behavior, wants in terms of products or services provided by the company. The information is used in planning and execution go marketing campaigns. It enables customers to seek products and reveal their preferences in an interactive manner.

3. Defines the appropriate product and service offering and match it to the unique needs of the customer:CRM provides customization and personalization capabilities that gives customers the power to view the enterprise in a way that they can relate to, there by making it easier for them to do business with it. This includes configuration, pricing, quotation, catalog and personal generation capabilities that harness the power of Internet while ensuring the flexibility to respond quickly to changing technical and business conditions.

4. Manages and optimizes company’s sales cycle:The productivity of the sale process is increased by accurating the contracting process and improving revenue velocity. This is accompanied to capabilities such as online order entry, credit card processing, tax calculations, auctions, billing, order status and payment processing. CRM solutions also include tools, which provide the ability to communicate important information from supply chain modules to the customer interface in real time. These tools can help in determining feasibility, profitability and delivery dates, while understanding the constraints of the entire supply production and logistics chain across multiple channels and enterprises.

5. Increases retention of existing customers through improved sales, service and support:CRM applications document all post –close service and support related interaction with customers, record customer requests and collect feedback from variety of communication channels and use the information to anticipate the demand for service and technical assistance and maximize customer satisfaction and retention while maximizing customer service staff. The goal is to ensure greater customer loyalty. CRM provides capabilities for providing online support information, online product registration to an electronic help desk, self service support logging and tracking and integration with call centers.

6. Identifies Cross selling and up selling opportunities:CRM can help in identifying opportunities for cross selling and up selling of higher value added services to the existing customers, based on their past purchasing behaviour.

Complementary Layers of CRM / CRM perspectives

CRM is a term that is often referred to in marketing. However, there is no complete agreement upon a single definition. This is because CRM can be considered from a number of perspectives. In summary, the three perspectives are:

1. CRM from the Information Technology Perspective.

2. CRM from the Customer Life Cycle (CLC) Perspective.3. CRM from the Business Strategy Perspective.

1. CRM from the Information Technology Perspective.

From the technology perspective, companies often buy into software that will help to achieve their business goals. For many, CRM is far more than a new software package, the renaming of traditional customer services, or an IT-based customer management system to support sales people. However, IT is vital since it underpins CRM, and has the payoffs associated with modern technology, such as speed, ease of use, power and memory, and so on. Information Technology (IT) and CRM have three key elements, namely Customer Touch Points, Applications, and Data Stores. This section is based loosely upon Raisch (2001) The e-Marketplace.

Customer Touch Points are vital since your business has a marketing orientation and focuses upon the customer and his or her current and future needs. This is the interface between your organisation and its customers. For example you buy a new car from a dealership, and you enter a showroom. The dealership is a contact point. You meet with a salesperson whom demonstrates the car. The salesperson is a contact point. You go home and look at the car manufacturer's website, and then send the company an e-mail. Both are contact points. Other contact points include 3G telephone, video conferencing, Interactive TV, telephone, and letters.

Applications are essentially the software and programmes that support the process. Incidentally, this is what some would call CRM - but we know better. Applications serve

Marketing (e.g. data mining software* and permission marketing**), Sales (e.g. monitoring Customer Touch Points), and Service (e.g. customer care).

Data Stores contain data on every aspect of the customer, and the Customer Life Cycle (CLC). For example, an organisation keeps data on the products you buy, when you buy them, and where they are sent. Data is also kept on the web pages that you visit and the products that you consider, but then do not buy. Leads are stored here. Data on the life time value of individual customers is stored here, as well as details of how and when the customer was recruited, how - and for how long - individuals have been retained, and details of any products that have been extended to individuals are also stored. The data is analysed using Applications.

*Data Mining is where an organisation evaluates large Data Stores for patterns, or relationships between groups or individuals (or segments). Applications present 'patterns' in a format that can be used for marketing decision-making.

** Permission Marketing is where a customer elects to accept (or 'opt-in' to) marketing material from an organisation e.g. where you buy insurance and the vendor asks if you wish to receive further details from them, or similar organisations. It is so called because marketers need your 'permission' to market to you. Permission marketing can occur at any of the Customer Touch Points.

2. CRM from the Customer Life Cycle (CLC) Perspective.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products of services that customers need throughout their lives. It is marketing orientated rather than product orientated. Essentially, CLC is a summary of the key stages in a customer's relationship with an organisation.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle (PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the customer i.e. looks at the products or services that customers NEED throughout their lives. It is marketing orientated rather than product orientated, and embodies the marketing concept. Essentially, CLC is a summary of the key stages in a customer's relationship with an organisation. The problem here is that every organisation's product offering is different, which makes it impossible to draw out a single Life Cycle that is the same for every organisation.

Let's consider an example from the Banking sector. HSBC has a number of products that it aims at its customers throughout their lifetime relationship with the company. Here we apply a CLC. You can start young when you want to save money. 11-15 year olds are targeted with the Livecash Account, and 16-17 year olds with the Right Track Account. Then when (or if) you begin College or University there are Student Loans, and when you qualify there are Recent Graduate Accounts.

When you begin work there are many types of current and savings account, and you may wish to buy property, and so take out a mortgage. You could take out a car loan, to buy a vehicle to get you to work. It would also be advisable to take out a pension. As you progress through your career you begin your own family, and save for your own children's education. You embark upon a number of savings plans and schemes, and ultimately HSBC offer you pension planning (you may want to insure yourself for funeral expenses - although HSBC may not offer this!).

This is how an organization such as HSBC, which is marketing orientated, can recruit and retain customers, and then extend additional products and services to them - throughout the individual's life. This is an example of a Customer Life Cycle (CLC).

Another important point is that a lifetime CLC is made up many shorter CLC's. So, for example, Volkswagen Cars retains a customer for many years and one can predict the products that meet a customers needs throughout his or her family lifetime. However the purchase of each car, will in itself be a CLC with many Customer Touch Points. The consumer may need a bigger vehicle as his or her family expands - so they visit VW's website and register.

The customer reviews models and books a test-drive with her or his local dealer. He or she decides to buy the car and arranges finance. The car is then delivered from the

factory, and returns every year for its annual service. Then after three years, the customer decides to trade in his or her car, and the cycle begins again. The longer-term life cycle is simply the shorter-term life cycles viewed consecutively.

3. CRM from the Business Strategy Perspective:

The Business Strategy perspective has most in common with many of the lessons and topics contained on this website, and indeed within the field of marketing itself. The diagram below shows the Marketing Teacher Model of CRM and Business Strategy. Our model contains three key phases - customer acquisition, customer retention and customer extention, and three contextual factors - marketing orientation, value creation and innovatove IT.

We now consider the Business Strategy Perspective on CRM. Here, we propose a model, which is a hybrid, and typical of many of the models and diagrams of CRM that you will find on The Internet and in popular books on the topic of eMarketing/eCommerce. The model has three key phases and three contextual factors:

Three key phases:

1. Customer Acquisition. 2. Customer Retention. 3. Customer Extension.

Three contextual factors:

4. Marketing Orientation. 5. Value Creation. 6. Innovative IT.

1. Customer Acquisition - This is the process of attracting our customer for the first their first purchase. We have acquired our customer.

Growth - Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase from us for the first time.

2. Customer Retention - Our customer returns to us and buys for a second time. We keep them as a customer. This is most likely to be the purchase of a similar product or service, or the next level of product or service.

Growth - Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase from us regularly.

3. Customer Extension - Our customers are regularly returning to purchase from us. We introduce products and services to our loyal customers that may not wholly relate to their original purchase. These are additional, supplementary purchases. Of course once our loyal customers have purchased them, our goal is to retain them as customers for the extended products or services.

Growth - Through market orientation, innovative IT and value creation we aim to increase the number of customers that purchase additional or supplementary products and services.

4. Marketing Orientation - means that the wholes organisation is focused upon the needs of customers. Customer needs are addressed by the Three Levels of a Product whereby the organisations not only supplies the actual, tangible product, but also the core product and its benefit, and also the augmented product such as a warranty and customer service. Marketing orientation will focus upon the needs of consumers for all three levels of a product. (N.B. 'market' orientation and 'marketing' orientation are not the same).

5. Value Creation - centres on the generation of shareholder value based upon the satisfaction of customer needs (as with marketing orientation) and the delivery of a sustainable competitive advantage.

6. Innovative IT - is exactly that - Information Technology must be up-to-date. It should be efficient, speedy and focus upon the needs of customers. Whilst IT and/or software are not the entire story for CRM, it is vital to its success. CRM software collects data on consumers and their transactions. Huge databases store data on individuals and groups of individuals. In some ways, CRM means that an organisation is dealing with a segment of one person, since every consumer displays different purchasing habits and preferences. Organizations will track individuals, and try to market products and services to them based upon similar buyer behavior seen in other individuals (e.g. When Amazon tells you those customers that viewed/bought the same product as you, also bought another product).

Customer Satisfaction:

Oliver defines Customer satisfaction as follows “Satisfaction is the customer fulfillment response. It is a judgment that a product or service feature, or the product or service itself provides a pleasurable level of consumption related fulfillment.”Satisfaction can be viewed as contentment. Satisfaction may also be associated with some sense of happiness. For those services that really surprise in the positive way, satisfaction may mean delight. And in some situations, where the removal of negative aspect leads to satisfaction, the consumer may associate a sense of relief with satisfaction.Retention in competitive markets is generally believed to be a product of customer satisfaction. Satisfaction is a psychological process of evaluating perceived performance outcome based on predetermined expectations.

Satisfaction drivers:

Cumby and Barnes suggest that driver exist on five levels and, that these generally involve progressively more personal contact with the service supplier:

1. Core product or service2. Support service and systems3. Technical performance4. Elements of customer interaction5. Affective dimension of services

1. Core Product or service: this is the basic product or service provided by the company and probably provides the supplier with the least opportunity to differentiate or add value.

2. Support services and systems: These include the peripheral support services that enhance the provision of the core product or services. The customer may well receive an excellent core product or service from the supplier but are dissatisfied with the supplier because of inferior support service and systems.

3. Technical Performance: The level of “customer satisfaction model” deals with whether the service provider gets the core product or whether service and the support services and systems are in place but they do not get them right on every occasion.

4. Elements of customer interaction: This level relates to the way the service provider interacts with the customer either face-to –face or through technology based contact.

5. Affective dimensions of service: Beyond the basic interaction of the company are the messages, sometimes subtle and often unintentional, that companies send to their customers that leave them with positive or negative feelings towards them. A considerable amount of dissatisfaction has nothing to do with core products and services. Indeed the customer may be satisfied with more aspects of interaction. The problem may lie with “little things” that may not be noticed by the staff.

It is quite possible for the supplier to get things right on the first four levels and to dissatisfy the customer because of something that happens on the fifth level. This emphasize the importance of ‘critical episode’ in the exchange process

Customer Satisfaction Process:

At the heart of any successful strategy to ‘manage’ customer satisfaction is the ability to “listen to the customer”. They suggest five categories of approach.1. Customer satisfaction indices2. Feedback3. Market research4. Front-line personnel5. Strategic activities

1. Customer Satisfaction Indices:Customer satisfaction indices are among the most popular methods of tracking or measuring customer satisfaction. Indeed, business of all sorts now divert consider energies into tracking customer satisfaction in this way.2. Feedback:Feedback in this context includes comments, complaints and questions ,It may be among the most effective means of establishing what the customer regards as a satisfactory level of performance and whether ‘dissatisfiers’ exist within the operation as it is based on actual performance rather than contrived situations.3. Market Research:In addition to research among customers and non-customers into potential ‘satisfiers’, ‘dissatisfiers’ and ‘customer expectations’, market research can be used as customer entrance (to establish drivers which bought the customer to the company) and customer exit (to establish those factors which cause the customer to go elsewhere).Again more valuable information may be achieved in the latter rather than the former as it is based on actual behavior rather than the perception.4. Frontline Personnel: Direct contact with staff can provide a good means of listening to the customer. As it is frequently suggested that many customers, rather than making a formal complaint to the company, will simply break the relationship. Frontline staff provides an opportunity for less formal sounding on complaints which might to otherwise not be heard. The crucial factor here is how this information is fed back into the decision-making process.5. Strategic activities:Actively involving in the customer in the company decision making may be means of pre-empting potential “dissatisfiers” and establishing potential “satisfiers”.

Benefits of Customer satisfaction

Many companies adopt strategies to improve customer satisfaction with the perceived objectives of strengthening bonds and achieving customer loyalty. Great claims are made regarding higher satisfaction levels. It is suggested that customer satisfaction:

Increases customer loyalty

Reduces price elasticity Insulates market share from competitors Lowers transaction cost Reduces failure rates and cost of attracting new customers Improves the firm’s reputation in the market place

Simple return on Relationship model

Except in a few rare cases, customer satisfaction is the key of securing customer loyalty and to generating superior long-term financial performance.

Customer Loyalty:

Definition of Loyalty:

Loyalty may be defined as “The biased behavioral response, expressed over time by some decision making unit with respect to one out of a set of processes resulting in brand commitment”.Loyalty must be seen as “biased repeat purchase behavior” or repeat patronage accompanied by a favorable attitude. Loyalty can originate from factors extrinsic to the relationship such as the market structure in which the relationship exists, but also in intrinsic factors such as relationship strength and handling of critical episodes during the relationship.

Advantages for setting up Loyalty:

1. Building lasting relationships with customers by rewarding them for their patronage.2. Gathering high profits through extended product usage and cross-selling3. Gathering customer information4. Decommodifying brands i.e., differentiating from crowds.5. Defending market position6. Planning against competitive activity.

Classification of customers with reference to Loyalty:

There are six classifications of customers in respect of loyalty:

Customer satisfaction

Customer Retention

Customer profitability

1) Current loyal customers who will continue to use the product or service2) Current customers who may switch to another brand3) Occasional customers who would increase consumption of the brand if the

incentives were right.4) Occasional customers who would decrease consumption of the brand if

competitor offered the right incentive.5) Non-users who could become customers.6) Non- users who could never become customers.

It is important to distinguish between loyalty to the generic product, the brand and particular supplier. Many people drink coffee as beverage. Those who drink considerable quantity of coffee can be described as having a product loyalty. Within the group, there will be some that buy just the cheapest coffee or drink whatever available. They are product loyal but not brand loyal. They are not disloyal as that implies that there has been a loyalty, but they have no loyalty at all to a particular brand. Those who have a particular brand loyalty, they always buy a particular brand or at least a brand from the same product.

Types of Customer Loyalty:

1. Supplier Loyalty:

Many customers are not only loyal to a particular brand, but also loyal to particular supplier, a type of customer known as hostage i.e., somebody who has no choice but to be a customer of a particular brand or supplier. Such a situation could occur in a small village community where there is only a shop selling perhaps just one brand of bread. A customer who is without transport could be forced, if they really want bread beans, to be loyal to that one brand and that one supplier. The term introduced for this is PSEUDO-LOYALTY.

2. Supra-Loyalty :Supra-loyalty is a term that can be applied to those who are extremely loyal to an organization, product or service. In the case of loyalty to an organization, that have normally build up a personal relationship with the organization over a period of time or in these of product/service, their identify themselves with it. It is as if they have internalized relationship and consider themselves almost part of the organization instead of being a customer.

3. De-loyalty:A customer who makes a deliberate decision to move to another organization because he or she has been let down by an organization that they were previously loyal can be described as being DE-LOYAL. This is not same as disloyalty, which suggests that it is the customer who is doing something wrong. In the case of de-loyalty, it is the organization which has let the customer down. There is evidence that people are willing to forgive one mistake or one case of poor service. Customer loyalty can be retained even after a mistake provided that rectification (an apology) is speedily forthcoming. However, if a super-loyal customer becomes disenchanted, they may take their business else where,

in effect becoming de-loyal. if they are very disappointed they may become ANTI-LOYAL, seek retribution against the organization.

4. Disloyalty:It is a mute point as to whether a customer can actually be disloyal. Customers owe nothing, in terms of loyalty to suppliers. Many customers may feel that they are being disloyal if they go else where but feeling disloyal is not the same as being disloyal. The only obligation actually placed on the customer is to render payment for the product or service provided by payment of monetary and other terms.Organizations, having a responsibility to their customers, can be disloyal too. Disloyalty is not providing a product or service deliberately to a previously loyal customer. An example of this would be an organization that treated a new customer better, deliberately or unintentionally than the existing customers. In this case, the organization would be being disloyal to relationship that had been built up. If the existing customer decides to go elsewhere, then they would be making a perfectly valid and proper decision. Disloyalty implies an act and not the customer is capable of such an act. The customer may be a – loyal, de-loyal or even anti-loyal but never disloyal

Comfort Zones:

Tice has developed the concept of comfort zone in which people operate. Change of any type even if for the better, can be very uncomfortable. People become frozen into a particular situation and whilst it may not be the better situation available, the effort and uncertainty of changing can inhibit even a change for the better. Any movement away from the zone of comfort is it for better or worse is resisted.In terms of relationship between customer relations and loyalty, the concept of comfort zones can be used to explain why customers stay loyal to an organization or product even if another is convenient. Customers tend to stick to what they know. This form of loyalty is termed as Comfort Loyalty.Linked to the effect of comfort zones is the cost of customer of switching to no other supplier or product. In the case of everyday house hold goods (FMCG) ,there may be no cost. However, switching, say computer operating systems may require a purchase of new software, Changing to another make of a car may require building up a relationship with a new supplier and dealer and these costs can be perceived as too high. They may not be monetary at all, often they are time and effort consuming and costs the consumer never the less.

Customer Life Time Value:

Customer lifetime value has intuitive appeal as a marketing concept, because in theory it represents exactly how much each customer is worth in monetary terms, and therefore exactly how much a marketing department should be willing to spend to acquire each customer. In reality, it is difficult to make accurate calculations of customer lifetime value. The specific calculation depends on the nature of the customer relationship. Customer relationships are often divided into two categories. In contractual or retention

situations, customers who do not renew are considered "lost for good". Magazine subscriptions and car insurance are examples of customer retention situations. The other category is referred to as customer migrations situations. In customer migration situations, a customer who does not buy (in a given period or from a given catalog) is still considered a customer of the firm because she may very well buy at some point in the future. In customer retention situations, the firm knows when the relationship is over. One of the challenges for firms in customer migration situations is that the firm may not know when the relationship is over (as far as the customer is concerned).Most models to calculate CLV apply to the contractual or customer retention situation.

These models make several simplifying assumptions and often involve the following inputs:Churn rate The percentage of customers who end their relationship with a company in a given period. One minus the churn rate is the retention rate. Most models can be written using either churn rate or retention rate. If the model uses only one churn rate, the assumption is that the churn rate is constant across the life of the customer relationship.

Discount rate The cost of capital used to discount future revenue from a customer. Discounting is an advanced topic that is frequently ignored in customer lifetime value calculations. The current interest rate is sometimes used as a simple (but incorrect) proxy for discount rate.

Retention cost The amount of money a company has to spend in a given period to retain an existing customer. Retention costs include customer support, billing, promotional incentives, etc.

Period The unit of time into which a customer relationship is divided for analysis. A year is the most commonly used period. Customer lifetime value is a multi-period calculation, usually stretching 3-7 years into the future. In practice, analysis beyond this point is viewed as too speculative to be reliable. The number of periods used in the calculation is sometimes referred to as the model horizon.

Periodic Revenue The amount of revenue collected from a customer in the period.

Profit Margin Profit as a percentage of revenue. Depending on circumstances this may be reflected as a percentage of gross or net profit. For incremental marketing that does not incur any incremental overhead that would be allocated against profit, gross profit margins are acceptable.

Product Marketing:

Marketing is any business activity that is designed to plan, place, promote, distribute want satisfying products, services and ideas to target markets so that an organization can achieve its objectives.

* IDENTIFY CUSTOMERS* ATTRACT THEIR ATTENTION* SATISFY WANTS

Product Marketing: - Definition"The essential element of marketing is customer want satisfaction. The customer’s want satisfaction is the economic and social reason for an organisation’s existence."

The Marketing Plan: - Definition".... a document prepared for the purpose of providing guidelines for a business units marketing programmes and allocations over a prescribed planning period."

Marketing Planning - Definition : Marketing planning is vital for all successful companies because the business environment is highly complex, dynamic, and competitive. Marketing and market planning is relevant to large and small organisations in both public and private sectors.

The Marketing Plan:

1. Market Research: - Situation Analysis

A situation analysis is broken down into several different areas. These are: SWOT Analysis, Customer Analysis (to establish a target market), Competitor Appraisal, and Resource Analysis.

The business must make a Situational Analysis based on the influences of the Macro environment, as well as the proximate environment

Market Segmentation (target market) involves dividing up groups of people into buyers of certain products/services

A. Customer Analysis:

A target market can be established by looking at the following factors: Where it is accessible (both the product and message) The demography (the population in a group or area(s)) of an assortment of

places What size should the market be - In numbers (Sizeable?)- And in boundaries

(Measurable) What are the identifiable factors of this market (how it differs to other target

markets) Psycho graphically - Lifestyle based/image of the target market Geographically - Which regions/areas Benefit - Focus on the benefit the product provides, for this target market, not

on the customer characteristics

Size - Frequency of use/level of demand in the target market, being either heavy, medium, or light

Using the above factors in formulating a group which satisfy all of the above points, you have now established a target market

B. Competitor Appraisal: Once a target market has been established you must then analyse the competition (if any). There two three types of competition a company can have:

1. Direct Competition - When one business approaches the customers of another business and attempts to win them over. This only happens when two or more companiesare producing the same product

2. Substitute Products - Another type of competition which can come from one company producing a substitute product of another companies product line

Competitor Monitoring:

This is a vital part of the market research. The best form of competitor monitoring, is to calculate their market share by estimating the total value of the market. If a competitor is gaining a greater market share, it is time for the company to re-organise their marketing plan.Competitive advantage refers to all things an organisation can do better than its competitors.

C. Resource Analysis:Once you have completed a competitor appraisal you must then do a resource analysis. The businesses resources are broken down into three areas, these are:

1. Staff - The marketing plan should analyse the skills of every employee involved in marketing. Your staff should be promoting the image you wish the public to think of the company. They should be well trained in areas such as the art of selling, good customer relations, and more. The people should have the following skills: Alertness, good knowledge of product, good appearance, good communication skills, and dedication to maintain the product in a competitive environment.

2. Finance- Finance is needed for different methods of advertising or promoting the product. These needs vary according to the life cycle of the business. Finance is necessary for the promotion or development of new products

3. Assets - The fixed assets of a business will determine the capacity of the production system. A successful product can be stopped from greater production if resources are at full usage. The marketing plan should recognize:

The availability of assets The degree of utilization of assets

D. SWOT Analysis:This needless to say means an analysis of the:Strengths - which areas a business excels compared to its competitorsWeaknesses - which areas other businesses has to improve on in relation to its competitorsOpportunities - All things which benefit the businessThreats - All things which can threaten a businesses survival, or a product's survival

Aspects which influence a SWOT analysis are:

- Market share - Sales - Profits - Competition - Advertising - Size of customer base - Pricing - Innovative potential. - Product characteristics (company reputation, price, design, colour uniqueness, quality, warranty, packaging, sales support, and positioning in market)

2. Objectives and Strategies:

A. Specific Objectives:Establishing objectives it is usually thought of as the most important feature in the planning process. The success and failure of a marketing plan are determined by how well the marketing objective reflects the organisations needs. Therefore it is vital objectives are set based around the companies overall goals. This is reflected in the diagram below: Goals | Opportunities | Resources |________ Marketing ________| Objectives ____________ | ____________ Diagram of the | Marketing Strategies | Objectives of a | (Marketing program) | Business |--------------------------| | Selection | Development | | & analysis | of Marketing| | of target | Mixes | | market | | |____________|_____________|

- Essential marketing objectives include the following: Increasing market share Expanding product range Targeting the geographical representation And expansion of marketing opportunities

1. Market share: An increase in a companies market share shows how the company is gaining on competitors. To attain greater market share, the following strategies, which are generally thought of as sure winners include:

More aggressive pricing (lowering price or providing discounts) Search for new outlets to distribute your products to A change in some features of your products, to open up to a possibly wider

market

2. Product Range: By expansion of a company’s product range, a company can attract a wider market than it's initial market, and maybe also expand into other markets

3. Geographical Representation: Some geographical markets offer greater market potential than others, and is in the interests of the firm to invest there to reach these markets whether they be regional, national or international. This allows a company to maximise on it's profits.

4. Expansion: (I) Through exporting (II) Maximizing customer service

B. Strategies to achieve objectives:Marketing strategies are the way marketing objectives are achieved. Development of a strategy involves: - Selecting and analyzing a target market - Creating and maintaining a marketing mix - Creation of advertising and promotional ideas

When properly implemented, the firm achieves objectives.

1. Selection and analyzing of Target market: This area must be separated into three areas, as different areas have different needs, these areas are: (I) Retail market (II) Wholesale market (III) Industrial market

2. Creating and maintaining of Marketing Mix: This broken down into the four P's, they are:

Marketing Mix - Breakdown :

PRODUCT: PRICE: PROMOTION: Quality R.R.P. (List Price) Advertising Features Bulk Discounts Personal/DirectSelling Options Other Discounts/Offers?? Sales Promotions Style Allowances Publicity

Brand Name Payment Period Packaging Credit Terms PLACE: Sizes Transport Service Channels Warranties Coverage Returns Locations Positioning Inventory

An additional part of the marketing mix now exists, it is called 'Service'. Factors here include:

Customer Needs Installation, Maintenance, and repairs Guarantees/Warranty period After-sales Service Complaints & returns procedures Comparison to competitors Credit offered

3. Creation of Advertising and Promotions: Once the marketing mix has been established, the company’s promotional aspects have now to be completed; these can be made up of plans to do:

Advertising Personal or direct selling Sales Promotion Publicity (Public relations) Packaging and design

4. Staff Motivation: The effectiveness of the companies market will depend heavily upon the staff, and their degree of motivation.

C. Cost/Benefit Analysis:As plans and objectives are developed, statements should be produced which should say what the marketing strategy is to accomplish. There are two ways of evaluating the actual performance of these plans, these are sales analysis and cost analysis.

1. Sales Analysis: Sales is usually the best way to measure the performance of a marketing plan. This analysis should be broken down into:

Marketing area (geographical) Company decision Individual/Groups of sales representatives (Quota of sales Vs Individual/Group's

sale)2. Cost Analysis: This is a detailed study of the business' operating section of the organisation's profit and loss statement. With cost analysis costs which occurred as a result of the marketing sector of a business are declared as profitable or unprofitable. This can be broken down into: (I) Research costs (II) Order-getting costs (Promotional costs)

(III) Order-filling costs (Distribution and insurance costs)

Marketers use different tools in order to get the desired response from the customer or best satisfy their needs. These tools are know n as The Marketing Mix. Marketing Mix is probably the most famous term in marketing.

Marketing Mix

Marketing Mix is a combination of marketing tools that a company uses to satisfy their target customers and achieving organizational goals. McCarthy classified all these marketing tools under four broad categories:

Product Price Place Promotion

These four elements are the basic components of a marketing plan and are collectively called 4 P’s of marketing. 4 P’s pertain more to physical products  than services.  Below is an illustration for marketing mix.

Price

Product

Place

Promotion

Target customers

The important thing to note is that all these four P’s (variable) are controllable, subject to internal and external constraints of marketing environment. Marketers, using different blends of these variables, can target different group of customers having different needs. So, a customer may call  marketing  mix “the offering”.

Product

Product is the actually offering by the company to its targeted customers which also includes value added stuff. Product may be tangible (goods) or intangible (services).

While formulating the marketing strategy, product decisions include:

What to offer? Brand name Packaging Quality Appearance Functionality Accessories Installation After sale services Warranty

Price

Price includes the pricing strategy of the company for its products. How much customer should pay for a product? Pricing strategy not only related to the profit margins but also helps in finding target customers. Pricing decision also influence the choice of marketing channels. Price decisions include:

Pricing Strategy (Penetration, Skim, etc) List Price payment period Discounts Financing Credit terms

Using price as a weapon for rivals is as old as mankind. but it’s risky too. Consumers are often sensitive for price, discounts and additional offers. Another aspect of pricing is that expensive products are considered of good quality.

Place (Placement)

It not only includes the place where the product is placed,  all those activities performed by the company to ensure the availability of the product tot he targeted customers.

Availability of the product at the right place, at the right time and in the right quantity is crucial in placement decisions.

Placement decisions include:

Placement Distribution channels Logistics Inventory Order processing Market coverage selection of channel members

Promotion

Promotion includes all communication and selling activities to pursuade future prospects to buy the product. Promotion decisions include:

Advertising Media Types Message Budgets Sales promotion Personal selling Public relations Direct marketing

As these costs are huge as compared to product price, So it’s good to perform a break-even analysis before allocating the budget. It helps in determining whether the new customers are worth of promotion cost or not.

It often takes time and requires market research to develop a successful marketing mix. You should not depend on one mix always try new mixes. While designing the mix, make changes to all mixes in such a way that all conveys the same message. Don’t confuse your customers by just changing one variable and keeping the rest same.

Limitation of Marketing Mix

Marketing mix (4 P’s) was more useful in early 19’s when production concept was in and physical products were in larger proportion. Today, with latest marketing concepts , marketing environment has become more intergrated. So, in order to extend the usefulness of marketing mix, some authors introduced a fifth P and then seven P’s (People, Packaging, Process). But the foundation of Marketing Mix still stands on the basic 4P’s.

Seven phases to new product development Process:

Only a few ideas are good enough to reach commercialization. Ideas can be generated by chance, or by systematic approach. Need a purposeful, focused effort to identify new ways to serve a market. New opportunities appear from the changes in the environment.

Idea Generation: Continuous systematic search for new product opportunities. Marketing oriented sources--identify opportunities based on consumer needs, lab

research is directed to satisfy that research. Laboratory oriented sources--identify opportunities based on pure research or

applied research. Intrafirm devises--brain storming, incentives and rewards for ideas are given.

Ideas should not be criticized, no matter how off-beat they are.

Product Screening and Evaluation New product check list; list new product attributes considered most important and

compare each with these attributes. Check list is standardized and allows ideas to be compared.General characteristics, Marketing Characteristics and Production Characteristics.

Ideas with the greatest potential are selected for further research. Do they match the organizations goals (DuPont and ICI have many patents that

they have not exploited for this very reason.) Look at companies ability to produce and market the product. Need to look at the nature and wants of the buyers and possible environmental

changes.

Concept TestingSample of potential buyers is presented with the product idea through a written or oral description to determine the attitudes and initial buying intentions. This is done before investing considerable sums of money and resources in Research and Development.This help to better understand product attributes and the benefits. Customer’s opinion on the product is most important on the following aspects:

Would they like to buy the product? Would they replace your current brand with the new product? Would this product meet real needs?

Business AnalysisAnalyze potential contribution to sales, costs and profits.

Does the product fit into the current product mix? What kind of environmental and competitive changes can be anticipated? How will these changes effect sales etc.? Are the internal resources adequate? Cost and time line of new facilities etc.? Is financing available? Is there Synergies with distribution channel etc. MIS to determine the market potential sales etc.

Find out if it is technically feasible to produce the new product.If you can produce the new product at a low enough cost so as to be able to make a profit.

Product Development Develop a prototype, working model, lab test etc. Attributes that consumers have identified that they want must be communicated

through the design of the product.

Test Marketing Test Marketing helps to observe actual consumer behavior. Limited introduction

in geographical areas chosen to represent intended market. It aims to determine the reaction of probable buyers.It is the sample launch of the Marketing Mix.

Determine to go ahead, modify product, modify marketing plan or drop the product.

PROS are: Lessens the risk of product failure. Reduces the risk of loss of credibility or undercutting a profitable product. Can determine the weaknesses in the MM and make adjustments. Can also vary parts of the MM during the test market. Need to select the appropriate MM and check the validity.

CONS are: Test market is expensive. Firm's competitors may interfere. Competitors may copy the product and rush it out..

Alternatively , can use a simulated test market. Free samples offered in the mall, taken home and interviewed over the telephone later.

Commercialization Corresponds to introduction stage of the Product Life Cycle. Plans for full-scale marketing and manufacturing must be refined and settled. Need to analyze the results of the test market to determine any changes in the

marketing mix. Need to make decisions regarding warranties etc (reduces consumers risk). Warranties can offer a competitive advantage. Spend a lot on advertising, personnel etc. Combined with capital expenditure

makes commercialization very expensive.

Product Life Cycle :

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

In theory it's the same for a product. After a period of development it is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilises and the product becomes mature; then after a period of time the product is overtaken by development and the introduction of superior competitors, it goes into decline and is eventually withdrawn.However, most products fail in the introduction phase. Others have very cyclical maturity phases where declines see the product promoted to regain customers.

Strategies for the differing stages of the Product Life Cycle.

Introduction.The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.

Growth.Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise.

Maturity.Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media.

Decline.At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.

Problems with Product Life Cycle.In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go

from introduction to decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.

Product Line:

A product line is a group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through the same types of outlets, or fall within given price ranges. For example, Nike produces several lines of athletic shoes, Motorola produces several lines of telecommunications products, and AT&T offers several lines of long-distance telephone services.

Product Mix :

A product mix (or product assortment) consists of all the product lines and items that a particular seller offers for sale. Avon’s product mix consists of four major product lines: cosmetics, jewelry, fashions, and household items. Each product line consists of several sublines.

A company’s product mix has four important dimensions: width, length, depth, and consistency. Product mix width refers to the number of different product lines the company carries. For example, Procter & Gamble markets a fairly wide product mix consisting of many product lines, including paper, food, household cleaning, medicinal, cosmetics, and personal care products. Product mix length refers to the total number of items the company carries within its product lines. Procter & Gamble typically carries many brands within each line. For example, it sells eleven laundry detergents, eight hand soaps, six shampoos, and four dishwashing detergents.

Product line depth refers to the number of versions offered of each product in the line. Thus, Procter & Gamble’s Crest toothpaste comes in three sizes and two formulations (paste and gel). Finally, the consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way. Procter & Gamble’s product lines are consistent insofar as they are consumer products that go through the same distribution channels. The lines are less consistent insofar as they perform different functions for buyers.

Customer Segmentation :

Customer segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. Using segmentation allows companies to target groups effectively, and allocate marketing resources to best effect. Customer segmentation procedures include: deciding what data will be collected and how it will be gathered; collecting data and integrating data from various sources; developing methods of data analysis for segmentation; establishing effective communication among relevant business units (such as marketing and customer service) about the segmentation;

and implementing applications to effectively deal with the data and respond to the information it provides

Direct Marketing:

Definition:

Direct Marketing is an interactive Marketing system that uses one or more advertising media to affect a measurable response and / or transaction at any location.

Today, many direct marketers see direct marketing as a broader role, that of building a long-term relationship with the customer (Direct Relationship Marketing). Direct Marketers occasionally send birthday cards, information materials or small premiums to select numbers in their customer database. Airlines, hotels and other business build strong customer relationship through frequency award programmes and club programmes.

Advantages of Direct Marketing:

The following are the advantages of Direct Marketing-1) Delivers near-perfect solutions to customer’s problems2) Gives individual attention to customers3) Facilitates finalizing of offers through interaction with the manufacturers,

wholesalers or retailers as the case may be.4) Offers customized products as per the preference of the customers.5) Helps achieve excellence in products/services6) Eliminates the hassles of going through marketing channels / stores.7) Facilitates sharper segmentation and targeting, ultimately each individual

becomes a specific target market.8) Facilitates relation building with the customers9) Is better measurable, compared to mass marketing10) Is more cost effective11) Saves channel costs for the most part12) Saves advertising cost almost totally13) Is a versatile form of marketing, helps being selective in treating customers and

pay special attention to large accounts.14) Benefits the customers too by enabling them to shop by sitting at homes save their

precious time15) With every development in IT, Direct marketing’s efficiency keeps increasing,

cost keeps decreasing.

Differences between Conventional/Traditional marketing and Direct Marketing (DM):

Conventional Marketing Direct Marketing

1. Conventional marketing is mass marketing

DM is de-massified marketing, it deals with customers one-to-one

2. Conventional marketing deals with customers indirectly

DM deals with them directly

3. Conventional marketing is a one way activity

DM is interactive marketing, with two-way communication between the firm and each one of the customers

4. Conventional marketing relies heavily on marketing channels/stores

DM is Channel-less

5. Conventional marketing relies heavily on advertising/ mass promotion

DM does not involve them

Forms of Direct Marketing:

Direct Marketing has several forms as it incorporates a variety of media. Direct –Mail Marketing is one form of Direct Marketing. Customized Mailing through databases and “Mail Merge” of word processing is the medium used here. Telemarketing is another form of Direct Marketing. Here, the phone is the medium used. Today, Direct Marketing uses the new age tools such as Computers, Mobile phones and the Internet for reaching prospects customers individually. Their availability at a low-cost and high-reach has substantially enlarged the Direct Marketing Opportunities.

1. Direct Mail Marketing:Direct Mail Marketing is similar to Mail Order Marketing / Catalogue Marketing. Usually, when a trading house markets various products by mail order, it is referred to as Mail Order Marketing and when a manufacturer practices the same method it is known as Direct Mail Marketing. Certain softwares allow creation of personalized letters, messages and offerings. In direct mail marketing, not only letters / brochures are mailed to the prospects, but product samples, gifts and complaints are also mailed, depending on the context.Example: Mother Care India does Direct Mail Marketing .It targets the mothers who buy items meant for kids.

2. Direct Response Marketing:Direct Response Marketing is another expression of direct marketing. Direct Response Marketing uses different media (including letters / mailers), like telephone, radio, TV and Internet. Some direct response marketing campaign, rely totally on television “infomercials” (Commercials which give information about products, benefits and usage aspects and obtain responses). Toll-Free telephones too serve as a useful tool of direct response marketing. Toll free telephones help better ordering by the customer, better dialogue between the customers and the company and better service to the customer.Example: Dell Computers is one Company that heavily relies on toll free numbers to elicit customer responses.

3. Database Marketing:Data base Marketing is yet another expression in direct marketing. Although all forms of direct marketing are data base-driven, some experts treat database marketing as distinct form of direct marketing.

4. Tele-Marketing:Telemarketing is yet another form of direct- marketing tool. Hence, the marketer goes direct to the customer using telecom / IT facilities. Telemarketing is less expensive as compared to most other forms of selling. Moreover, it can be used in respect of different types of products. It suits industrial products, services and consumer durables. Telemarketing is usually done through special campaigns. Contact is established with hundreds of prospects in a campaign that normally runs through a few days. Several tele callers are hired for the tele-call operations. The Call Centre is the real operation theatre in telemarketing.

5. Tele-shopping /Home Shopping:Tele-shopping, alternately known as home shopping is yet another of direct marketing. One of the major characteristic of Teleshopping is that it is a low cost retailing system. Here, the marketer hawks the products on air and the consumer watches it on his TV screen at home, phone up the marketer and buys his requirement. With tele-shopping, in addition to the convenience, discounts, gift offers are also given to the customers.Example: Doordarshan, for example allowed its channel for tele-shopping by Dee’s network on a profit sharing basis. DD gained a share from every item sold by the network.

6. Face to Face Selling:The original and oldest form of direct selling is the field sales call. Today most industrial companies rely heavily on a professional sales force to locate prospects, develop them into customers, and grow the business or to hire the manufacturers representative agents to carry out the direct selling task. In addition, many consumer companies use a direct selling force. Insurance agents, stock brokers and distributors working for direct sales organizations such as Avon, Amway, Mary kay and Tupperware.

7. Email marketing:Email marketing is also a direct marketing tool. A major concern is spam, which actually predates legitimate email marketing. As a result of the proliferation of mass spamming, ISPs and email service providers have developed increasingly effective email filtering programs. These filters can interfere with delivery of e-,mail marketing campaigns, even if the person has subscribed to receive them as legitimate email marketing can possess the same hallmarks as spam.

8. Door to Door Leaflet marketing: Leaflet distribution services are used extensively by the fast food industries, and many other business focusing on a local catchments business to consumer business model. similar to direct marketing, this method is targeted purely by area, and costs a fraction of

the amount of a mailshot due to not having to purchase stamps, envelopes or having to buy address lists and the names of home occupants.

9. Voice Mail Marketing:Another type of direct marketing which has emerged is personal voice mail boxes and business voice mail systems. Voice mail marketing is a cost effective means to reach people with warmth of human voice. More recently, business has utilized guided voice mail (an application where pre-recorded voice mails are guided by live callers) to accomplished personalized business-to- business marketing formerly reserved for telemarketing. As there are abundance of “voice spam”, jurisdictions have passed many laws for regulating consumer voice mail marketing.

10. Multi level Marketing:Multi level marketing is a modified version of direct selling .Some times, it is referred to as network marketing, member to member marketing and affiliate marketing. Only firms which do not mind experimenting in reading customers practice it. The Process begins with sales person cum distributors introduced to the company by a sponsor. Each distributor picks up a product worth a certain sum and sells directly .After they have sold first consignment, they are allowed to pick up next. The distributor can recruit a second ring of distributor. The distributor earns commission at two levels and the process goes so on. Amway, Avon, Oriflame are the largest MLM outfits in the world. The Indian firm Modi care also sell its range of house hold and personal care products.

11. Online Marketing:As many people find way onto Internet, the cyberspace population is becoming more mainstream and diverse. As a whole, Internet population is younger more affluent and better educated, they are more likely to use Internet for entertainment and socialising. Marketers are doing on-line marketing by creating an electronic presence on the Internet, placing ads online, participating in forums, newsgroups, bulletin boards and web communities, and using e-mail and web casting.

Other direct selling forms:Some direct marketers also use media such as door hangers, coupons, package inserts, magazines, newspapers, radio, television, email, internet banner ads, digital campaigns, pay per click ads, billboards, transit cards etc.

Direct Marketing in India:While direct selling has thrived in India all along in the Insurance business, in other businesses, it has been catching up in the country only in recent years. But the progress has been rapid in the short period. Amway, Avon, Oriflame, Tupperware are all present in India. And Modi care has been using the method for selling its homecare and personal care products. Hindustan Unilever has also set up in more schemes, its direct selling outfit for its Aviance range of cosmetics.

*************