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What is Marketing?“Marketing affects almost every aspect of your daily

life”♦Marketing is often confused with selling.♦In fact the “aim of marketing is to make selling

superfluous.”♦Marketers do not require much selling,if they are

able to identify unfulfilled needs of customers and satisfy them.

Whether marketing deals only with the tangible products?

Products can be both tangible as well as intangible i.e. services, ideas.

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How do we define Marketing?

“ Definition -“The process of planning and executing the conception, pricing, promotion and distribution of goods, services and ideas to create exchanges that satisfy individual and organizational goals.”-American Marketing Association.

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What is Marketing Transaction?

• Both buyer and seller must experience mutual satisfaction through a process of exchange.

• Seller gets satisfaction through making profits, and

• Buyer through subsequent consumption of the product.

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Core Concepts of Marketing

Goods, services and ideas

Needs, wants and demands

Value, cost and satisfaction

Exchange and transaction

Relationships & Networks

Marketers and Prospects

Markets

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Human need

Human need: A state of deprivation of some basic satisfaction such a food, clothing, shelter, safety, a sense of belonging, esteem.

• These are not created by the society or by marketers.

• They are inherent in human biology and human condition.

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Wants

• Wants: Desires for specific satisfiers of needs.

• People’s needs are few, their want are many.

• Human wants are continually shaped and reshaped by social forces and institutions including business corporations.

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DemandsDemands: These are wants for specific products

that are backed by an ability and willingness to buy them.

Wants become demands when supported by purchasing power.

♦Marketers do not create needs; they exist prior to marketing.

♦Marketers influence wants and demands by making the product appropriate, attractive, affordable, and easily available to target consumers.

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Demand versus Marketing Tasks

Negative Demand People dislike the product e.g. vaccinations, vasectomies etc.

Product redesign, lower prices, positive promotion to change attitudes and beliefs.

No demand Consumers either unaware or uninterested in the product e.g. a new language course.

Task is to connect benefits of the product with consumers’ natural needs and interests.

Latent demand A strong need that is not satisfied by the existing products e.g. harmless cigarettes, non-polluting fuel.

Task is to measure the size of the market potential and develop the products to satisfy the demand.

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Declining demand Products in the last phase of PLC Analyze the causes of decline; stimulate demand by new target markets by changing product features, more effective communication and creative remarketing.

Irregular demand Demand varies on seasonal, daily or hourly basis.

Synchromarketing i.e. to alter the pattern of demand through flexible pricing, promotion, and other incentives.

Full demand Organizations are happy to maintain their volume of business.

The task is to maintain/improve quality and consumer satisfaction to face changing consumer preferences and increasing competition.

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Overfull demand Demand level that is higher than what organizations can handle.

Demarketing to reduce demand temporarily or permanently by raising prices and reducing promotion and services. Selective demarketing from less profitable pockets of market.

Unwholesome demand Organized efforts to discourage the consumption e.g. cigarettes, alcohol, hard drugs, x-rated movies, and large families.

Marketing task is to motivate people to give it up, using tools such as fear messages, price hikes, and reduce availability.

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Products-Goods, services and ideas

• A product is anything that can be offered to satisfy a need or want.

• The importance of physical products lies more in obtaining services they render.

• Manufacturers need to pay more attention to services produced by the products than to the physical products.

• Companies concentrating their thinking on the physical product instead of customer’s needs are said to suffer from marketing myopia.

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Value, cost and satisfaction:

• Value is “the satisfaction of customer requirements at the lowest possible cost of acquisition, ownership and use.”

• Value is ratio of Benefits to Cost.a) Benefits are sum total of functional and

emotional benefits.b) Costs include monetary cost, energy cost

and psychic costs.

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Exchange and Transactions

• An act of obtaining a desired product from someone by offering something in return.

• For exchange to take place, following condition must exist.

a)There are at least two parties.b)Each party has something that might be of

value to the other partyc)Each party is capable of communication

and delivery.

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a) Each party is free to accept or reject the exchange offer.

b) Each party believes it appropriate or desirable to deal with the other party.

c) When an agreement to exchange is reached, a transaction takes place.

• Transaction involves condition agreed upon, time of agreement, and a place of agreement.

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Relationships and Networks

• Aim is to build mutually satisfying long-term relationships with customers, suppliers, and distributors.

• Leads to building up of strong economic, technical and social ties among the parties.

• Cuts down on transaction costs and time.

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• Marketing network consists of customers, employees, suppliers, distributors, retailers, transporters, warehousing agencies, advertising agencies, business schools, research organizations.

• Competition is not between the companies but between the marketing networks.

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Markets♦ Market means a group of sellers and buyers,

usually producers and consumers bargaining over the terms of exchange for goods and/or services.

♦ Can be a face to face transaction at some physical location like farmers’ market, or indirectly through a complex network of middlemen who link buyers and sellers who are separated geographically i.e. wholesalers, retailers etc.

Markets can be• Consumer Markets• Business Markets.• Global Markets.• Nonprofit and Governmental Markets.

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Industry(a collection of sellers)

Market(a collection of buyers)

Goods/ Services

Money

Communication(ads/direct mail etc.)

Information(attitudes/ sales data etc.)

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Marketers and Prospects

• Marketer is someone seeking one or more prospects who might engage in the exchange of values.

• A prospect is someone whom the marketer identifies as potentially willing and able to engage in exchange of values.

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Marketplaces, Marketspaces and Metamarkets.

A. Marketplace versus Marketspace- The marketplace is physical, as when you

shop in a store.- Marketspace is digital, as when you shop on

the internet.B. Metamarkets- A cluster of complementary products and

services that are closely related in the minds of consumers but are spread across a diverse set of industries.

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- For example, the automobile metamarket consists of automobile manufacturers, new car and used car dealers, financing companies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines, classified auto ads in newspapers, and auto sites on the internet.

- In purchasing a car, a buyer will get involved in many parts of this metamarket, and this has created an opportunity for metamediaries to assist buyers to move seamlessly through these groups, although they are disconnected in physical space.

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• An example of metamarket is www.edmunds.com, a web site where car buyer can find the stated features and prices of different automobiles and easily click to other sites to search for lowest-price dealer, for financing, for car accessories, and for used cars at bargain prices.

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Evolution of Marketing Management Concepts

Companies have evolved the conduct of their marketing activities in the following stages.

1. The production concept2. The product concept3. The selling concept4. The marketing concept5. The social marketing concept

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The Production Concept Presumes that consumers favour products that are

available and affordable.• Focus is on achieving high production efficiency,

low costs, and mass distribution.• This orientation makes sense in following

situations (a) In developing countries such as China where the

largest PC manufacturer, Legend, and domestic appliance giant Haier take advantage of the country’s huge inexpensive labour pool to dominate the market.

(b) When a company wants to expand the market.

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The Product Concept Presumes that consumers favour the

products that offer maximum quality, performance and innovative features.

• The focus is more on continuous product improvements to increase the utility of the product leading to increased market share.

• In fact, managers are caught up in a love affair with their products.

The guiding principles are:• The company should concentrate on the task

of producing goods that are fairly priced.

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• Consumers are interested in buying products rather than solving particular problems.

• Consumers are aware of available brands.• Consumers choose among competing

brands on the basis of their quality and relative price.

A new or improved product will not necessarily be successful unless the product is priced, distributed, advertised, and sold properly.

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The Selling Concept• Presumes that consumers will not buy enough of

company’s products unless they are convinced by effective sales promotion techniques.

• Organizations must undertake aggressive selling and marketing efforts.

• The purpose of marketing is to sell more stuff to more people more often for more money in order to make more profit.

The assumptions are1.The main task of the company is to get sufficient

sales for its products.2.Consumers do not buy enough on their own

accord.

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3. Consumers can be induced to buy through various sales stimulating techniques.

4. Consumers will buy again, and even if they don’t there are many other consumers.

For the selling concept to work over a period of time, the following are felt necessary

• Dissatisfied customers soon forget their dissatisfaction.

• Dissatisfied customers do not talk very much about their dissatisfaction to other customers.

• The company does not have to depend on repeat business.

Selling concept is practiced most aggressively with unsought goods, goods that buyers normally do not think of buying such as insurance and encyclopedias.

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The Marketing Concept

4. The Marketing Concept • Marketing concept starts with the firm’s existing and

potential customers and their needs.• Profits are built on creating meaningful value satisfactions.• The satisfied customers buy more, stay loyal for a longer

period, and pay less attention to the products of competitors.

“Selling focuses on the needs of the seller; marketing on the needs of buyer. Selling is preoccupied with the sellers need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and whole cluster of things associated with creating, delivering and finally consuming it.”

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Contrast between the Sales Concept and the Marketing

ConceptConcept Starting

PointFocus Means Ends

Selling concept

Factory Products Selling & Promotion

Profits through sales volume.

Marketing concept

Target Market

Customer Needs

Integrated Marketing

Profits through customer satisfaction.

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5. The Social Marketing Concept

5. The Social Marketing Concept • Determine the needs, wants and interests of the target market.• Deliver superior value to its customers in such a way that improves

the consumer’s and society’s well being.

Societal Marketing Concept

Company’s profits Consumer wants Society’s interests

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Objectives of Social Marketing Concepts

Objectives of Social Marketing Concepts 1. Contribute for the creation of satisfied and healthy

customers and thus contribute for the quality of life.2. Promote benefits that are in the consumer’s interests.3. Avoid those products that are not in the best interests

of the customers.4. Ultimately the consumers will sense and patronize

these organizations that demonstrate concern for their satisfaction and welfare.

♦Thus, social marketing concept includes consideration of long run consumer and public welfare.

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Marketing Myopia♦Marketing Myopia leads to business obsolescence

due to the belief in the following:a) As population becomes affluent, markets expand

automatically i.e. more people buy the products. Thus, companies do not think imaginatively how to expand the markets.

b) There are no substitutes for the industry’s major products.

c) Per unit cost can be reduced by achieving economies of scale ignoring the demand and supply aspects.

d) Preoccupation with product development having synergy with the existing technology and manufacturing cost reduction.

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How to overcome Marketing Myopia?

How to overcome Marketing Myopia?• Be customer centric, not product oriented.• Market orientation should permeate

throughout the organization.• Managers need to be proactive and

visionary.

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Integrated MarketingIntegrated Marketing♦ When all the company’s departments work

together to serve the customer’s interests, the result is integrated marketing.

♦ Integrated marketing takes place at two levelsa) Various marketing functions such as sale

force, advertising, customer services, product management, and marketing research work together.

b) Other departments must also think customer.

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Traditional organization chart

Top Management

MIDDLE LEVEL MANAGERS

FRONT LINE SUPERVISORS

CUSTOMERS

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Customer-oriented organization

Top Management

MIDDLE LEVEL MANAGERS

FRONT LINE SUPERVISORS

CUSTOMERS

CustomersCustomers

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(C) Companies must practice internal marketing as well as external marketing.

♦ Internal marketing must precede external marketing.

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Evolution of marketing towards integrated marketing

(a) Marketing as an equal function

Production Finance

Marketing Human Resources

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(b) Marketing as a more important function

Production Finance

Human ResourcesMarketing

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(c) Marketing as the major function

Production

Fi

FFF FINANCE F F

Human Resources Finance

Marketing

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(d) The customer as the controlling function

Production Finance

H.R.Marketing

Customer

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(e) Customer as the controlling function and marketing as the integrative function

Production

H.R. Finance

Marketing

Customer

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Marketing Dynamics for 21st century

Marketing Dynamics for 21st century• Increasing competition• Fragmentation of markets• Shortening of product life cycles.• Consumers having easy accessibility to

useful and better information.♦Thus leading to increasing promotional

costs and shrinking profit margins of companies.

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How companies are responding & adjusting?

How companies are responding & adjusting?• Reengineering – Process of redesigning the organization

structure and business processes.Companies reengineer their processes when they experience:a) Decline in financial performanceb) Face intense competitionc) Erosion of market shared) Discover newer marketing opportunities.• Outsourcing- Focus on core activities and outsource

remaining activities.• E-commerce- Companies offering services and delivering

products over Internet.

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• Benchmarking- Continuous improvement of performance by setting the market leader’s performance as benchmark.

• Strategic alliances with suppliers- By reducing the supplier base and creating long term tie-ups with the suppliers, the problems of inventory, lead time and poor quality are eliminated.

• Global markets- Companies are exploring newer opportunities in global markets.

• Decentralization-Employees are empowered and are encouraged to take initiative. Cross-functional skills are widely in demand.

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How Marketers are responding and adjusting?

How Marketers are responding and adjusting?• Customization- Companies are inviting inputs

from customers and seeking their ideas in designing better and customized/tailor-made products.

• Customer Relationships -Companies have realized that it is costly to attract new customers in comparison with existing customers.

• Target marketing- Advances in communication technology and media have made it possible to target different customer segments.

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• Customer database -Companies maintain data warehouse to store information about the preferences and buying habits of individual customers to develop specific strategies and products.

• Integrated marketing communications-Availability and reach of different media has enabled companies to extract maximum benefits from their communication efforts.

• More emphasis on service concept and service delivery system

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Marketing Environment• Customer needs and wants are function of

environment.• Company’s performance depends on its

sale and sales depend upon the marketing environment.

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Firm

Internal Environment

Human Resources

Production Facility

R & D

Company Location

Financial Capability

Company Image

External Environment

Micro Environment

Macro Environment

. 

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Micro Environm

ent

Suppliers

Marketing Intermediaries

Customers

Macro Environment

Demographic

Legal

Political

Technological

Socio-cultural

Economic

Natural

 

   

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• Competition has a significance impact on marketing environment.

– Monopoly– Oligopoly– Monopolistic/ Imperfect competition– Pure / Perfect competition

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Macro Environmental Factors• Do not affect the operations of a company

and its relationship with its customers and suppliers, directly and immediately.

• However, they affect the company in the long run.

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Demographic EnvironmentA. Demographic Environment

– Deals with the characteristics of human population such as size, growth, density, distribution, gender, marital status, ethnic mix, educational levels, and standard of living of different cities, regions and nations.

– Demographic characteristics have a bearing on the way people live, spend their money and consume.

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– Demographic variables help in distinguishing consumer groups.

a) Infantsb) School going teensc) Young Adultsd) Adultse) Senior citizens♦ Other demographic factors influencing marketer’s

decisions are:a) Womenb) Singlesc) Occupation and Literacyd) Locatione) Cultural diversity

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Political Environment(B) Political Environment

– Government policies shape the economic conditions.

– Organizations must closely monitor the political environment of the countries in which they operate or planning to operate.

– Political stability of the country affects the level of investment in it.

a) Domestic politics– Marketers try to influence domestic politics and

lobby against proposed laws that can harm their interests or lobby in favour of revising the existing laws that can create opportunities.

– Businesses try to safeguard their interests by applying economic pressures.

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(b) International politics– Very important from the perspective of MNCs

and exporters.– MNCs try to influence foreign politicians and

governments through their domestic governments.

– Formation of trade alliances and regional economic groupings e.g. Russia, Ukraine, Kazakhstan and Belarus forming a Single Economic Zone encouraging free movement of goods, capital and labour.

– Enacting preferential trade agreements and according MFN status to the countries.

– Political unrest in a country is a major concern for the business.

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Economic Environment(C) Economic Environment

• Gross Domestic Product (GDP) is the measure of the economic performance of the country.

• Purchasing Power Parity (PPP), used for comparing incomes across countries takes into account the cost of standard basket of products (in US $) for the country without taking into account the subsides provided by the government.

• Higher the PPP of country, the more buyer power it will have.

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• Fluctuations in the economy usually follow certain pattern known as Business Cycle.

- Growth and Prosperity- Recession- Depression- Recovery• Growth &Prosperity – employment rate is high, interest

rates are low, inflation is low, and income is high.

♦Marketers expand their product offerings, increase their distribution, promotional budget, and increase the price of their products.

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• Recession- Companies focus on cost reduction thus jobs are slashed and willingness of people to spend money decreases and their buying decision depend more on price.

♦Companies develop innovative promotional strategies.

♦Market research becomes important to identify the functions/value customers are looking for in the product and its design to increase their interest in the product.

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• Depression- An intense recession is known as depression characterized by high rate of unemployment, low wages, low GNP and customers lacking confidence in the economy.

♦Government controls the money supply (monetary policy) and controls savings and expenditure through tax structure and government spending (fiscal policy)

• Recovery- High unemployment rate begins to decline, purchasing power increases and unwillingness to buy reduces slowly.

♦Businesses and consumers begin to gain the lost confidence in the economy.

♦Marketers gradually and cautiously plan for their efforts to recover the lost market.

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Buying power versus Marketing Efforts

Buying power versus Marketing Efforts• Marketers need to study the fluctuating buying

power to understand the demand for their products and develop appropriate strategies.

• Change in discretionary income will affect the sales of durables like appliances, furniture and automobiles.

• Depending upon the disposable income, the interest rates, size of down payment and monthly installments the customers decide to use credit.

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• Marketers lure customers to use credit by offering them attractive rates and payment plans.

♦ Marketers also study the customers’ willingness to spend money. When the prices of a substitute product fall, customer’ willingness to spend money on company’s product decreases.

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Socio-Cultural Environment

(D) Socio-Cultural Environment• Refers to attitudes, beliefs, norms,

values, and lifestyle of individuals in the society.

• Social forces determine what customers buy, how they buy, where they buy, when they buy, and how they use the products.

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Technological Environment(E) Technological Environment

-Technology has direct impact on the following business functions:

• Product- Technology helps marketers to study the effects of new

products and processes on the company, consumers, and competitors.

- Improving the product design-Reducing cost of manufacturing of the existing product-New Products Development.• Price (Cost)– Helps companies to reduce the cost of their products

and business processes.– Effective management of supply at reduced cost , and

improved customer service.

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• Promotion– Stores and super markets tie up with

phone service providers to promote them.Example: Hutch Cellular and Reliance

Infocom provide discount coupons for various products in select stores.

– Reduced time for transmission of data helps companies to achieve competitive advantage in the market.

– Creative ads can be developed in a short period of time with the help of technology.

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• Distribution - Technological advancement in transportation

and warehousing has made it possible for the companies to deliver their products more quickly and in a cost effective manner.

• Natural Environment– Many companies are realizing their

responsibility towards maintaining ecological balance.

– Companies are planning for judicious consumption of natural resources.

– Weather and climatic conditions create opportunities for marketers to cater to increased demand.

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– To control pollution companies are using recycled paper, paper bags, and gunny bags instead of polyethylene bags.

– Government intervention is called for to restrict the imports of goods that can cause ecological damage.

• Legal Environments– Marketing activities are greatly

influenced by legislations such as Drugs Control Act, Display of Price Order, Indian Patents Act,, Consumer Protection Act etc.

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Features of Consumer Protection Act

Features of Consumer Protection Act A consumer can seek legal help when(1) A trader adopts unfair trade practices or

restrictive trade practices.(2) Goods suffer from one or more defects.(3) A trader charges higher prices, which is more

than the fixed price of the product.(4) Services hired or availed suffer from

deficiencies.(5) Goods being offered to the consumers can be

hazardous to life and safety.

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Indian Business Environment versus MNCs

Indian Business Environment versus MNCs-Foreign Direct Investment* India received just US$ 2.3 billion in

comparison to US$ 52.7 billion FDI in China in the year 2002-03.

- Joint Ventures * Foreign companies are permitted to invest

capital in their Indian enterprise e.g. Unilever group, Cadburys, Singer, P&G, Philips, Coats, Pepsi Foods etc.

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- Licensing and Fully owned subsidiaries * Several foreign companies have entered either by

forming alliances with local companies or fully owned subsidiaries e.g. McDonalds, Kellogg’s, L’Oreal, Maybelline, Amway, Oriflame, and Baskin Robbins etc.

♦ Contribution of MNCs in developing Indian economy1. Help in improving technology through technology

transfers.2. By having manufacturing facilities, help in

increasing both direct as well as indirect employment.

3. Help in human resources development by training their employees.

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Micro-Environmental Factors-Specific to the concerned business

Micro-Environmental Factors-Specific to the concerned business

1. Demand• Nature of the demand• Size of the demand-present and potential• Changes taking place in demand• Invasion of substitute products.• Changes taking place in consumption pattern/ buying

habits. 2. The Consumer- Only by keeping track of ‘what the customers want’

can one grab the opportunities emerging in environment.

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Factors to be monitored for customer analysis

According to the firm, what basic need the product serves?

Who are the consumers, where are they located?

According to the customer, what need it serves?

Purchasing power of the consumers.

What benefits customer looks for in the product?

Buying motives, buying habits.

Of many benefits customers look for, what are their preferences, /priorities/ rankings.

Lifestyles and trends.

Brand loyalty Brand switching, how loyalties are shifting?

Reactions of the consumers to the company’s and competing products.

Who among the competitors remains closest to the customer and why?

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3. Industry and Competition– Knowledge about industry and competition is an

important requirement for developing marketing strategy.

4. Role of Government– Often large purchasers of goods and services.– Provides subsidies to select firms and industries.– Protects domestic producers against foreign

competition.– Bans fresh entry in select industries.– Bans certain technologies and products.– Sometime, acts a competitor too. 5. Supplier Related Factors– Influence the cost of raw materials and other puts to a

firm and hence the profits of the firm.– Sometimes, suppliers themselves become direct

competitors to a firm.

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The five forces that shape competition and determine

profitability:

Industry Competitors

Rivalry among Existing firms

Potential Entrants

Suppliers Buyers

Substitutes

Threat of New Entrants

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitute products

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Global EnvironmentFramework of International Marketing

Marketing

Technical Social

Non-human Factors(b) Price(c) Cost(d) Brand

Human Elements (a) Behavior Pattern(b) Customs, attitudes(c) Value etc.

International Marketing to the extent visualized as social process, differs from Domestic Marketing.

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♦Variables: Markets and Human needs & wants

♦Process/Techniques: Conversion of potential exchanges to realized exchanges.

♦Process/Techniques involved will be more or less identical in both domestic and international marketing.

♦Variables will be totally different in case of international marketing.

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Definition: International Marketing is “the performance of business activities that direct the flow of goods and services to consumers or users in more than one nation” The characteristics are:

a) The exchanges take place beyond the frontiers.

b) Involves different markets and consumers might have different needs, wants and behavioural attributes.

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Challenges Involved• Different barriers to free trade which are created by

respective governments of sovereign and independent nations by enacting legislation for the control of foreign trade.

• Foreign exchange regulations have considerable impact on financing of overseas sales and operations.

• Logistics are another challenging area.

• Knowledge of different human needs, wants and attributes understanding of the environment, social and individual value system.

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Environmental Factors influencing International Marketing:

Environmental Factors influencing International Marketing: 1. Social Factors– National Legal System– Political situation– Marketing infrastructure– Culture– Language– Climate2. Economic factors– Commercial policy in respect of quotas, tariffs, and non

tariff barriers, licensing.– Currency restrictions

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3. Competition- Competition vis-à-vis producers in the importing country.- Competition vis-à-vis exporters from the competing

countries.- Competition vis-à-vis exporters from one’s own country.

4. Logistics– Availability of required mode of transport.– Costs of transportation.

5. Risks– Marine risks– Non receipt of foreign remittances

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Basis for International TradeBasis for International Trade

1. Theory of Absolute Differences in Cost• Country specializes in producing those products which it can

produce at less cost than other countries and exchange these products with other products.

2. Comparative Cost Theory• Business between the two countries is profitable when a country

produces one product at a lower cost than the other country.

• Business between the two countries is profitable when one country produces more than one product efficiently, but, when it produces one of these products comparatively at a greater efficiency than the other product.

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• Nations engage in international trade when one country specializes in product in which it has greater efficiency in production.

• Assumptions are:a)The only element of cost of production is labour.b)There are no trade barriers.c)Cost of transportation is not considered.

- Though the theory explains that differential labour productivity is the cause of price difference, it fails to tell us why labour productivity differs from country to country.

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3. The Opportunity Cost TheoryIt specifies the cost in terms of value of the alternatives which have to be

foregone.

4. The Factor Endowment theoryAs per this theory the reasons for comparative cost differences areDifferent prevailing endowments of factor of production,Different factors of production are used in different intensity for

producing different products.♦A country will specialize in production and export of goods utilizing

those factors of production, which it has in abundance.

5. The Productivity theory* Emphasizes the process of specialization by adapting and reshaping

the production structure of the trading country to meet the export demands.

* Countries increase the productivity by enhancing the efficiency of human resources and adapting the latest technology in order to utilize gains of export.

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6. The Surplus Theory• If the countries produce more than domestic demand,

they have to export the surplus to the other countries.

7. Mill’s Theory of Reciprocal Demand• Indicates a country’s demand for one commodity in

terms of another commodity.• Determines the terms of trade, relative share of each

country, and determines the equilibrium of trade.• Equilibrium= Quantity of product exported by country A/

Quantity of another product exported by country B.

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Consumer markets and Buyer Behaviour

- Studies how individuals, groups, and organizations select, buy, use, and dispose of goods, services, ideas to satisfy their needs and desires.

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7Os Framework of Consumer Research

Who constitutes the market? Occupants

What does the market buy? Objects

Why does the market buy? Objectives

Who participate in the buying? Organizations

How does the market buy? Operations

When does the market buy? Occasions

Where does the market buy? Outlets

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Stimulus-response Model of Buyer Behaviour• Marketing and environmental stimuli enter

the buyer’s consciousness.• Buyer’s characteristics and behaviour lead

to certain purchase decisions.Marketer has to understand what happens in

the buyer’s consciousness between the arrival of outside stimuli and the buyer’s purchase decisions.

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The key issues are:• How do the buyer’s characteristics –cultural, social, personal, and

psychological influence buying behaviour?• How does the buyer make purchasing decisions?

Marketing Stimuli

-Product-Price-Place-Promotion

Other Stimuli

-Economic-Technological-Political-Cultural

Buyer’s Character

istics

CulturalSocialPersonalPsychological

Buyer’s decision process

-Problem recognition -Information search-EvaluationDecision-Post purchase behaviour

Buyer’s decision

- Product choice- Brand choice-Dealer choice-Purchase timing-Purchase amount

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Factors Influencing Buying Behaviour

CULTURE

-Culture-Sub-culture-Social Class

SOCIAL- Reference groups- Family- Roles& Status

PERSONAL- Age& life cycle stage-Occupation-Economic circumstances- Lifestyle- Personality& self concept

PSYCHOLOGICALMotivationPerceptionLearningBeliefs and attitudes

BUYER

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Culture- Most fundamental determinant of person’s wants and behaviour.

• A set of values, perceptions, preferences, behaviour that is common to and binds the member of the society.

• Perceptions, wants and behaviour learnt by an individual influence his buying behaviour.

• Our culture reflects what we eat, what we wear the code of conduct, buying habits, consumption pattern, and the way we use and dispose of the products.

• Diversity of cultures across the world makes the marketers to adopt different strategies and use variations in their marketing mix to cater to the needs of those markets.

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Subculture• Each culture consists of smaller subcultures that

provide more specific identification and socialization for its members.

• Subculture includes nationalities, religions, racial groups, and geographical regions.

• These groups have similar habits, behaviour patterns, shared value system, buying behaviour on the basis of their age, religion, or geographical location.

• Subcultures make for important market segments and marketers design products and their marketing programmes tailored to their needs.

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Social Class• A social stratification that many times take

the form of caste system where members of different castes are trained for certain roles and cannot change their caste membership.

Categories of social Classes1) Upper class2) Upper middle class3) Middle class4) Lower class•

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Characteristics of social classCharacteristics of social class1) Person within the each social class tend to

behave more alike than persons from different classes.

2) Persons are perceived as occupying inferior or superior positions according to their social class.

3) Person’s social class is indicated by occupation, income, wealth, education, and value orientation.

4) Individuals can move from one social class to another-up or down-during their life time.

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Social FactorsConsumer behaviour is influenced by social factors such as

Reference groups, Family, and roles & statuses Reference groups♦Consist of all groups that have direct i.e. face to face or

indirect influence on the person’s attitudes or behaviour.

Primary reference groups

Secondary reference groups

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Primary reference groupsPrimary reference groups • Membership reference group– Holds membership and frequently interacts with

other members of the group.– Regular formal and informal contacts with the

members and directly influenced by them.• Aspiration reference group– Individual does not belong to the group but would

like to belong.– Tries to copy the attitudes and behaviour

including buying behaviour of the members of this group.

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• Disclaimant reference groups– Individual holds membership but does not

want to belong and thus all his actions would be opposed to that of the group.

– Tries not to be influenced by the attitudes, values and behaviour of the members of this group.

• Avoidance group– Does not hold any membership and thus

resents the values and beliefs

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Secondary Reference GroupsSecondary Reference GroupsReligious groups, professional association, trade unions

etc.The interaction of customer is formal and infrequent.♦Every reference group has its own set of opinion leaders

such as housewife, a doctor, celebrity, etc.♦Marketers identify the opinion leaders of their target group

for their specific product and then marketing efforts are directed through these role models.

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Family – Most influential primary reference group.

Family – Most influential primary reference group.

Parents & Siblings Spouse & Children

Family of orientation Family of procreation

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Traditional Product PatternHusband dominant Life insurance, automobiles,

televisions

Wife dominant Washing machines, carpets, furniture, kitchenware.

Equal Vacation, housing, outing

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♦Another shift in buying patterns is the increasing influence exercised by the children and teens.

Roles and Statuses – The person’s position in a group is defined in terms of role and status.

• Role: Activities that the person is expected to perform.

• Each role carries a status. People choose products that communicate their role and status in the society.

♦Marketers are aware of status symbol potential of products and brands.

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Personal factors - Buying behaviour is also influenced by personal characteristics such as

• Age, life cycle stage, occupation, economic considerations, personality and self concept.

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Age and lifecycle stageAge and lifecycle stage ♦Families go through various stages of life

cycle.♦Each stage creates demand for different

products and the buying behaviour of consumers is greatly influence by the stage of family life cycle.

♦The life cycle stages are • Young bachelors• Newly married couples

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• Couples marrying late in life• Couples with children• Couples with no children• Older couples with dependent children• Older couples with no dependent children• Solitary survivors

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Occupation

Occupation• A person’s occupation influences his or

her consumption pattern.• Marketers try to identify the occupational

groups that have an above average interest in their products and services.

• Companies even specialize its products for different occupational groups.

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Economic circumstances

Economic circumstances - consists of• Spendable income, savings, and assets• Borrowing power • Attitude towards spending versus buying.• Product choice is influenced by one’s

economic circumstances.

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Lifestyle ♦Person’s pattern of living as expressed by his activities, interests and

opinions. Lifestyle portrays the “whole person interacting with his/her environment.”

♦People coming from same sub-culture, social class, and occupation may lead quite different lifestyles.

• Marketers search for relationship between their products and lifestyle groups.

• Ad copy writers employ words and symbols that appeal to a particular lifestyle.

Belonging Lifestyle

Achiever Lifestyle

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How lifestyles are identified?Groups with greater resources:1. Actualizers: Successful, sophisticated, active

people- Purchase relatively upscale, niche-oriented products.

2. Fulfilleds: Mature, satisfied, leading comfortable lives- Favour durability, and functionality in products.

3. Achievers: Successful, career and work oriented- Favour established, prestige products that demonstrate success to their peers.

4. Experiencers: Young, enthusiastic, impulsive and rebellious- Spend a comparatively high proportion of their income on clothing, fast food, music, movies and videos.

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Groups with fewer resources1. Believers: Conservative, conventional, and

traditional. - Favor familiar products and established brands.

2. Strivers: Uncertain, insecure, approval-seeker, resource constrained. - Would favor stylish products to emulate the purchases of those with greater material wealth.

3. Makers: Practical, self-sufficient, traditional, family oriented. - Would favor products of functional utility.

4. Strugglers: Elderly, resigned, passive- Cautious consumers who are loyal to their favorite brands.

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The other major lifestyle male groups that have been identified are:

1. Self-made businessman2. Successful professional3. Devoted family man4. Frustrated factory worker.5. Retiring homebody.

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Personality and Self-concept ♦Person’s distinguishing psychological characteristics

leading to consistent responses to his environment.Self-confidence, dominance, sociability, adaptability.♦Useful variable when a strong correlation exists between

certain personality types and the product/brand choices.Related to the personality is the self concept i.e. self image. • Marketers try to develop brand images that match the

target market’s self image.

Actual self

concept

Ideal self concept

Others -self

concept

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• Personality can be useful variable in analyzing consumer brand choices.

• The idea is that the brands also have personalities and consumers are likely to choose brands whose personalities match their own.

• Brand personality is defined as specific mix of human traits that may be attributed to a particular brand.

• The following brand personalities have been identified

• (a) Sincerity: down to earth, honest, wholesome and cheerful.

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(b) Excitement: daring, spirited, imaginative, and up-to-date.

(c) Competence: reliable, intelligent, and successful.

(d) Sophistication: upper-class and charming

(e) Ruggedness: outdoors and tough.

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Psychological Factors♦Four major psychological factors influencing

consumer’s buying choices are:1. Motivation2. Perception3. Learning4. Beliefs & Attitudes.

Motivation♦A need becomes a motive when it is aroused to a

sufficient level of intensity.♦A motive is a need that is sufficiently pressing to

drive a person to act.♦An act to satisfy the need reduces the felt

tension.

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Theories of Human Motivation and consumer behaviour

Theories of Human Motivation and consumer behaviour 1.Freud’s Theory • Psychological forces shaping people’s behaviour are

largely unconscious.• People do not fully understand their motivations.Marketers use “in-depth interview” to uncover deeper

motives triggered by a product.• The techniques used are projective techniques such as

word association, sentence completion, and picture interpretation.

Examples:1. Men smoke cigars as an adult version of thumb sucking.2. Women like to bake cakes because this gives them the

feeling of giving birth.3. Whisky meets the need for social relaxation, status or fun.

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Maslow’s Theory2. Maslow’s Theory* Human needs are arranged in a hierarchy from

most pressing to the least pressing.* In order of importance these are physiological

needs, safety needs, social needs, esteem needs, and self-actualization needs.

* People will try to satisfy their most important needs first and then the next most important need and so on.

♦Helps to make marketers understand how various products fit into the need hierarchy of consumers segment the market and develop product marketing strategies.

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Herzberg’ two factor theory3. Herzberg’ two factor theory• There are satisfiers and dissatisfiers in any work

situation i.e. motivators and hygiene factors respectively.

• In context of marketing, hygiene factors are product quality, packaging, product warranty, training manual, and so forth.

• Motivators are factors like customer focused sales team, a good customer service.

Marketers identify the major satisfiers and actively supply them.

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McClelland’s theory of achievement motivation

4. McClelland’s theory of achievement motivation

(a) Need for belonging (affiliation need)(b) Need for power (influence)(c) Need for achievement♦Some products are seen to represent

achievement, while others are seen as power symbols and yet others are for satisfying the need for belonging.

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♦Marketers create their communications accordingly

Examples:• Credit card companies appealing to

people high on achievement.• Videocon’s advertisement for its washing

machine “you are ready for the show”.• Magi noodles “Just two minutes”.• Ford Ikon “Josh Machine” McClelland’s theory helps a firm to evolve

its strategies for people motivated by different needs.

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PerceptionsPerceptions• A process by which an individual selects,

organizes, and interprets information inputs to create a meaningful picture.

• Perceptions depend not only on the physical stimuli but also on conditions within the individual.

Different perceptions emerge because of1. Selective attention2. Selective distortion, and3. Selective retention.

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A. Selective attention means that marketers have to work hard to attract consumers’ attention. The real challenge is to explain which stimuli people will notice.

(a) People are more likely to notice stimuli that relate to a current need e.g. a person who is motivated to buy computer will notice computer ads; he or she will be less likely to notice DVD ads.

(b) People are more likely to notice stimuli that they anticipate i.e. you are more likely to notice computers than radios in a computer store because you do not expect the store to carry radios.

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(c) People are more likely to notice stimuli whose deviations are large in relation to the normal size of the stimuli e.g. you are more likely to notice an ad offering Rs 3000 off the list price of a computer than one offering Rs 300 off.

Though people screen out much of the surrounding stimuli, they are influenced by unexpected stimuli, such as sudden offers in the mail, over the phone, or from a salesperson.

Marketers have to promote offers to bypass selective attention filters.

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B. Selective distortion is the tendency to interpret information in a way that will fit our preconceptions.

(a) Consumers often distort information to be consistent with prior brand and product beliefs.

(b) One study found that consumers were equally split in their preference for Diet Coke versus Diet Pepsi when tasted both on blind basis. When tasting branded versions, however, consumers preferred Diet Coke by 65% and Diet Pepsi by only 23% while remainder seeing no difference.

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(c) Selective distortion can wok to the advantage of marketers with strong brands when consumers distort neutral or ambiguous brand information to make it more positive.

(d) For example,Beer may seem to taste better, a car may seem to drive more smoothly, the wait in a bank queue may seem shorter depending on the particular brands involved.

D. Selective Retention means people tend to retain information that supports their attitudes and beliefs.

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(a) Because of selective retention, we are likely to remember good points about a product we like and forget good points of the competing products.

(b) Selective retention again works to the advantage of strong brands.

(c) This is the reason why marketers need to use repetition in sending messages to their target market so as to make sure their messages are not overlooked.

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Learning ♦Learning is produced through interplay of cues, drives,

responses and reinforcement.♦Learning involves changes in an individual’s behaviour

arising from experience. Beliefs & Attitudes • A belief is a descriptive thought that a person holds

about something.• An attitude is a basis for evaluation, emotional

feelings and action towards an object or an idea.• People acquire beliefs and attitudes through

experience and learning that consequently influence their buying behaviour.

• Customer attitudes, whether positive, negative or neutral; get developed due to their past experience and also through their interaction and relationship with their reference groups.

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The Buying ProcessThe Buying Process - Marketers have to identify • Who makes the buying decisions?• Types of buying decisions.• Steps in buying decisions.

Roles people play in buying decisions• Initiator: A person who first suggests the idea of buying the

product or service.• Influencer: A person whose view or advice influence the decision.• Decider: A person who decides on any component of a buying

decision- whether to buy, what to buy, how to buy, or where to buy.

• Buyer: The person who make the actual purchase.• User: A person who consumes or uses the product or service.

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Buying BehaviourBased upon degree of involvement and degree

of differences among brands:

High Involvement Low Involvement

Significant differences between brands

Complex buying behaviour

Variety seeking behaviour

Few differences between brands

Dissonance reducing buying behaviour

Habitual buying behaviour

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Complex buying behaviour• Consumers indulge in this type of buying

behaviour while buying expensive, infrequently purchased an unfamiliar products.

• Consumers gather a lot of information regarding the various brands available in the product category and make well planned decision.

♦Marketers need to differentiate the brand’s features, use print media to describe the brand’s benefits and motivate stores personnel.

♦Sometimes tying up with various stores to promote the product is also resorted to.

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Dissonance-Reducing Buyer Behaviour

• Consumer is highly involved in a purchase but sees no difference in the brands.

• High involvement because the purchase is expensive, infrequent and risky.

• Buyer will buy fairly quickly mainly responding to a good price or to a purchase convenience.

• After the purchase, consumer might experience dissonance by noticing certain disquieting features of the brand or hearing favourable things about other brands.

♦Thus, the consumer would be alert to information that justifies his decision.

♦Marketers must provide ‘feel good’ communications to consumers to reinforce their beliefs.

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Habitual Buying Behaviour• Low consumer involvement and absence of

significant brand differences.• Low cost, routinely purchased products• Consumers do not search extensively for

information about the brands.• Consumers do not evaluate the post

purchase performance of the product.♦Marketing companies create brand

familiarity by ad repetition- high repetition and short duration messages.

♦Marketers use price and sales promotion to stimulate product trial, since buyers are not highly committed to any brand.

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Can low-involvement product be converted

into high involvement product?1. Link the product to some involving issue

e.g. Liril Soap with freshness, Close-up toothpaste to overcome bad breadth.

2. Link the product with some involving personal situation e.g. a coffee brand to shake-off sleepiness early in the morning.

3. By adding an important feature to a low involvement product e.g. complete health drink.

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Variety Seeking Buying Behaviour• Low consumer involvement but significant brand

differences.• A lot of brand switching occurs e.g. biscuits• Consumer may buy another brand next time out of

boredom or a wish for different taste.• Brand switching occurs for the sake of variety rather

than dissatisfaction.♦Market leaders will try to encourage habitual buying

behaviour by dominating the shelf space, avoiding stock out situation, frequent reminders through advertising.

♦Other marketers will encourage variety seeking by offering lower prices, free samples, schemes, and advertising for trying something new.

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The Stages of Buying Decision Process

How Marketer learn about stages in buying process?1. Introspective Method- How they themselves would act.2. Retrospective Method- Interview a small number of recent

purchasers asking them to recall the events leading to their purchase.

3. Prospective Method- Locate customers who plan to buy the product and ask them to think loud about going through the process.

4. Prescriptive Method.- Ask consumers to describe the ideal way to buy the product

Each method yields a picture of steps in consumer buying process.

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“Who, what, when, where, how and why of buying decision process”.

• Who buys our product or service?• Who makes the decision to buy the

product?• Who influences the decision to buy the

product?• How is the purchase decision made? Who

assumes what role?• What does the customer buy? What needs

must be satisfied?• Why do customers buy a particular brand?

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• Where do they go or look to buy the product or service?

• When do they buy? Any seasonality factors?• How is our product perceived by customers?• What are customers’ attitudes towards our

product?• What social factors might influence the purchase

decision?• Do customers’ lifestyles influence their decisions?• How do personal or demographic factors

influence the purchase decisions?

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Five-Stage Model of Consumer Buying Process

Problem Recognition Information search Evaluation of alternatives

Purchase decisionPost purchase behaviour

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Problem RecognitionProblem Recognition• Unsatisfied need • Need gets aroused either by internal

stimuli like hunger or external stimuli like packaging, advertisement etc.

♦Marketers gather information from number of consumers to identify the most frequent stimuli that sparks an interest in the product.

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Information SearchInformation Search• Information search helps the customer understand the

product features as well as competing brands better.• Past purchase experience helps the customer reduce the

time for information search and evaluation.• The sources of information area) Personal sources: Family, friends, neighbours and

reference groups.b) Commercial sources: Advertisements-Print and

Broadcasting media, Internet, dealers and other retail outlets, salespersons, packaging, displays.

c) Public sources: Articles in newspapers and journals, and consumer rating organizations.

d) Experiential sources: Free trials• Through information search consumer learns about

successive sets of brands.

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Total set Awareness

setConsideration

set Choice set Decision

IBMAppleDell

Hewlett-PackardToshibaCompaq

NECTandy

IBMAppleDell

Hewlett-PackardToshibaCompaq

IBMAppleDell

Toshiba

IBMAppleDell

???

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Evaluation of AlternativesEvaluation of Alternatives• Consumers evaluate the bundle of attributes sought to

satisfy their needs.The attributes may vary from product to product.• Cameras: Picture sharpness, camera speeds, camera size,

price.• Hotels: Location, cleanliness, ambience, price.• Mouthwash: Colour, effectiveness, germ-killing capacity,

price, taste/flavour.• Tyres: Tread life, road grip, and price.♦Marketers may reposition the product by modifying, or

altering the beliefs of consumer, or call for attention to neglected attributes.

♦Consumers forms preferences amongst the choice set and also the intention to buy the most preferred brand.

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Purchase Decisions

Evaluation of

alternatives

Purchase intention

Attitudeof

others

UnanticipatedSituational

factors

Purchasedecision

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Five purchase sub-decisions are:

Five purchase sub-decisions are:1. Brand decision2. Vendor decision3. Quantity decision4. Timing decision5. Payment method decision

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Post Purchase BehaviourPost Purchase Behaviour • After purchase consumers experience some level

of satisfaction or dissatisfaction.• Marketers have to monitor post purchase

satisfaction, actions, product use and disposal.• Buyer’s satisfaction is a function of closeness

between the buyer’s product expectation and its perceived performance.

• If the customer is satisfied, he will exhibit higher probability of repeat purchase. Dissatisfied customers may abandon or return the product.

• Marketers take suitable steps to minimize the consumer’s post purchase dissatisfaction.

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Post purchase use and disposal

Post purchase use and disposal• Marketers should observe how consumers

use the purchased product and how they dispose of their product.

• Consumers sometimes discover new uses of the products.

• Marketers should educate the consumers how to dispose the hazardous materials including refilling etc.

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Buyer Decision Process for New Products

Buyer Decision Process for New Products♦How do the potential customers learn about the new

products, try them, adopt or reject them?

• Adoption implies an individual’s decision to become a regular user of a product.

Consumer-adoption process

Consumer-loyalty process

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New Product Marketing Strategy• Mass-market approacha)Marketers would distribute the product

everywhere and advertise it to everyone presuming that most people are potential buyers.

The drawbacks are:1.Heavy marketing expenditures, and2.Many wasted exposure to people who are

not potential consumers.• Heavy-user target marketinga)Product is initially aimed at heavy users,

subject to identifying heavy users.b)Heavy users are early adopters.

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Early adopter theory

Early adopter theory• Early adopters have characteristics

markedly different from late adopters.• Early adopters tend to be opinion leaders.

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Stages in Adoption Process

• The consumer becomes aware of the innovation but lacks information about it.

• The consumer is stimulated to seek information about the innovation.• The consumer considers whether to try the innovation.• The consumer tries the innovation to improve his estimate of its value.• The consumer decides to make full and regular use of the innovation.

• ♦Innovation refers to any goods, service or an idea perceive by

someone as new.• ♦New product marketer aims to facilitate movement of consumer

through the stages mentioned above.

Awareness Interest Evaluation Trial Adoption

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Basic Truths about adoption process

• In each product area, there are consumption pioneers and early adopters.

• Adopter groups differ in their value orientation.a) Innovators are venturesome, willing to try new idea at

risk.: 2.5%b) Early adopters are opinion leaders in their community

and adopt new ideas early but carefully.:13.5%c) Early majority adopt new ideas before the average

person and rarely are the leaders.:34%d) Late majority adopt an innovation only after a majority of

people have tried it.:34%e) Laggards are tradition bound, suspicious of changes;

adopt innovation only when it becomes a tradition.:16%

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Characteristics features are:1. Innovative householders are more socially

active and high in social status.2. Early adopters tend to be younger in age,

have high social status, and have a favourable financial status.

Personal Influence: An important factor in the evaluation stage, more influence on late adopters and in risky situation.

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Characteristics of innovation affecting rate of adoption

1. Relative advantage • Degree to which it appears superior to

existing products.2. Compatibility• Degree to which it matches the values

and experiences of individuals in the community.

3. Complexity.• Degree to which it is difficult to

understand or use.

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4. Divisibility • Degree to which it can be tried on a limited

basis.5.Communicability• Degree to which the beneficial results of its

use can be observed and described to others.

6.Other factors• Cost, risk and uncertainty, scientific

credibility, and social approval.

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Marketing Research System♦Marketing research may be in the form market survey, a

product preference test, a sales forecast, and advertising effectiveness.

How Marketing Research is defined?“A systematic design, collection, analysis, and reporting of

data and findings relevant to a specific marketing situation facing the company.”

Suppliers of Marketing Research• Own marketing research departments.• Engaging students and professors to carry out marketing

research projects.• Using on-line information services• Checking out competitors • Marketing research firms.

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Types of Research

Business Research

PricingResearch

Product Research

DistributionResearch

PromotionResearch

BuyerBehavior

Industrytrends

Profitanalysis

Conceptdevelopment

Locationstudies

Motivationresearch

Brandpreference

Diversificationstudies

Priceelasticity

BrandNameGenerationtesting

ChannelPerformancestudies

Mediaresearch

Productsatisfaction

Market-shareanalysis

Competitivepricinganalysis

Testmarketing

ChannelCoveragestudies

AdvertisingEffectivenessresearch

Purchaseintention

Demand analysis

Packagingdesign

ExportMarketing studies

Sales forceTerritoryStructurestudies

Segmentationstudies

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Marketing Research Process

Define the problem and research objective

Develop the research plan

Collect the information

Analyze the problem

Present the findings

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1. Marketer must define the problem and arrive at research objectives carefully.

2. Designing a research plan calls for decision on data sources, research approaches, research instruments, sampling plan and contact methods.

a) Secondary data- collected for another purpose and already exist somewhere.

b) Primary data- gathered for a specific purpose or for specific purpose.

c) Survey researchd) Focus group research(e) Experimental research(f) Questionnaires- open ended as well as close ended questions(g)Sampling plan- Simple random sample, stratified random

sample, cluster random sample, Convenience sample, Judgment sample, Quota sample.

(h) Contact Method-Mail, Telephone or personal interview.

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3. Collect the information- Most expensive and prone to error phase.

• Computers and telecommunications have improved the data collection methods.

4. Analyze the information• Tabulate the data and develop frequency distributions.• Averages and measure of dispersion are computed for

major variables.• Advanced statistical techniques such as Multiple

regression, Discriminant analysis, and Factor analysis.

5. Present the findingsa) Major findings pertinent to marketing decisions facing

the management.

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INDUSTRIAL MARKETS♦Organizations buy products ranging from highly complex

machinery to small components.♦These products are bought either on regular basis or are

purchased very infrequently.♦Purchase manager’s experience affects the buying process to

a large extent.

Industrial versus Consumer Markets.♦ Time spent in the purchase process and the number of

people involved in it.♦Segmentation of markets• Consumer markets are segmented on the basis of

geographic, demographic and psychographic factors.• Industrial markets are usually segmented on the basis of

operating variables, purchasing approach, and situational factors.

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Industrial buying situations

Industrial buying situations1. New Purchase i.e. when the product is

bought for the first time.2. Straight rebuy i.e. regular repeat purchase.3. Modified rebuy i.e. change in specifications,

quantity, delivery schedules etc.4. Systems buying/selling i.e. the seller sell all

the inputs required by a purchaser.

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Types of Industrial Products

Types of Industrial Products1. Capital goods like Plant and Machinery.2. Raw Materials3. Engineering spares4. Consumables like fuel, lubricants,

solvents etc.5. Packing Materials.6. Office equipment.

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Participants in the Business Buying Process -Individuals participating in decision making are referred to as the decision making unit (DMU).

1. Initiators - can be users or others in the organization.

2. Actual Users- Many times users initiate buying proposal and define the product requirements.

3. Influencers- Provide information for evaluating alternatives. Technical consultants/designers are particularly important influencers.

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4. Deciders- take decision on product and or suppliers; both technical and commercial.

5. Buyers- Have a formal authority in selecting vendors and negotiating. Might include higher-level managers.

6. Approvers- Authorize the proposed actions of deciders or buyers.

7. Gatekeepers- People having power to prevent sellers or information reaching members of decision making unit (DMU).

♦Industrial marketer has to understand the whole decision process in the client’s organization in order to succeed.

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Characteristics of Business Markets 1. Fewer buyers- Normally industrial marketers

deal with far fewer buyers than the consumer markets.

2. High buyer concentration- A few large buyers do most of the purchasing.

3. Closer supplier-buyer relationship- smaller customer base and power of large customers makes the marketer to customize their offering to individual customer needs in terms of technical specifications and delivery requirements.

4. Derived demand- quite often the demand for industrial products is derived from the demand of consumer goods.

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5. Inelastic demand- the demand for many industrial products/services is inelastic i.e. not much affected by price changes. This is particularly applicable in the following situations.

• Demand is inelastic in short run as the manufacturers are unable to make quick changes in their production methods.

• Demand is inelastic for those materials that form a small percentage of the product’s total cost.

6. Fluctuating demand- a given increase in the demand for consumer goods leads to much larger demand for plant and equipment necessary to produce additional output. This is called acceleration effect.

7.Professional purchasing- goods are purchased by professionally trained materials managers who follow company’s purchasing policies, and use buying instruments such as requests for quotations, purchase contracts, purchase committee etc.

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8. Several buying participants- to influence several participants personal selling by well trained sales representatives and often sales teams are used.

9.Direct purchasing- Industrial purchasers buy directly from manufacturers rather than though intermediaries.

10. Reciprocity- industrial buyers may select suppliers who also buy from them.

11. Leasing- Industrial buyers many times lease their equipment instead of buying it.

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Factors considered by industrial buyers in their decision making.

(a) Continuous and reliable product performance.– Parameters like MTBF and MTR incase of

breakdown are increasingly being considered.– Conformance to national and global standards is

vital.(b) Guaranteed delivery– Buyers desire to have low inventories and hence

sellers have to manage their distribution function more effectively.

(c) Technological fit– Marketers may have to customize his products

to be suitable to the prevailing level of technology in the buyer’s factory.

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d) Price – Lower cost, credit terms, payment terms, mode of

payment, and financial arrangements made by the seller are important components in decision making.

(e) Service– Buyers demand better quality after sale services;

not just repairs and maintenance but more importantly training and guiding customers in product applications.

(f) Company sales force– Buyers expect sales force to be knowledgeable,

availability and willingness to help and resolve his problems.

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Variables influencing buyer decisions

Industrial Buyer

Environmental Factors-economy and government policy-rate of technological change-competitive developments in the industry.

Organizational Variables- organizational culture affecting buying decisions, centralized vs. decentralized purchasing.- inventory policies and payment policies.

Individual Variables- Age- Job position- Education

Interpersonal variables-Authority-Status-Group dynamics

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Influence of Internet on Industrial Buying • More and more customers are searching for suppliers on the net.• Net also offers an opportunity to marketer to sell without any

intermediary.• Savings in terms of time, cost and reduced level of intermediaries

motivates the company to embrace the internet..• Research studies have indicated thata) Customers use the internet for sourcing and buying information.b) Availability of quality purchasing information contributes to

competitive advantage of the enterprise.

Factors considered important in B2B business1. Ability to deliver an authentic product.2. Ability to guarantee the delivery with in a specified time.3. Capability to offer credit.4. Wide brand range available.5. Direct linkage to manufacturer of the product.

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Strategic Planning and Marketing Process

• What does strategic planning do in marketing?

1. Where should the company be in next five to ten years?2. Which are the markets it should serve?3. What are the products it should offer?4. Should there be any product line or brand extensions? If yes, at

what intervals?5. Should the company enter into collaborations in the near future or

do business independently?

♦Strategic planning involves• Devising product & brand strategy.• The sales & sales promotion strategy• Advertising strategy

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Basis of strategic planning♦Basis of strategic planningVision and Mission of the organization

Sense of purpose Long & Short term objectives♦Why Strategic Planning?-Companies need to formulate effective strategies to deal with* Emerging technological breakthroughs.* Ever changing customer needs* Turbulent market situation and increasing competition.* Changes in political, legal, social, economic and technological

environments

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Strategic Marketing Planning Defined- The process of communicating and sharing information

amongst different departments so as to collectively formulate and implement future strategies enabling organizations to respond proactively to needs of markets and thus stay ahead of competition.

Corporate and Divisional Strategic Planning ♦ All corporates undertake four planning activities

1. Defining the corporate mission2. Establishing strategic Business Units(SBUs)3. Assigning resources to each SBU.4. Planning new businesses, downsizing, or terminating

old businesses.

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Defining the corporate missionA. Defining the corporate mission-Organizations exist to accomplish something .e.g.

make cars, give loans, provide lodging etc.-Over a period of time companies may change their

mission in order to take advantage of new opportunities and market conditions. Amazon.com changed its mission from being the world’s largest online book store to the world’s largest online store.

How companies define their mission?1. What is our business?2. Who is the customer?3. What should our business be?

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♦Mission statements should not only be shared among managers & employees but also with customers.

♦Mission statements must be guided by vision, an almost “impossible dream”.

Characteristics of good mission statement.1. Must focus on limited number of goals.2. “We want to produce the best-quality products,

offer the most services, achieve widest distribution, and sell at the lowest prices”. – A very tall order.

3. Stress the major policies stipulating how the company will deal with various stakeholders.

4. Major scope within which the company will operate.

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Establishing Strategic Business Units

B. Establishing Strategic Business Units♦Many businesses define their businesses in

terms of products; viz. auto business, clothing business etc.

♦However, market definition of business is superior o product definition.

♦Business must be viewed as a customer-satisfying process rather than a goods producing process.

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Product-oriented versus Market-oriented Definitions

Company Product Definition Market Definition

Indian Railways We run trains. We are a people and goods mover.

Xerox We make copying equipment.

We help improve office productivity.

Balaji Telefilms We make T.V. Serials We market entertainment.

Indian Oil Corporation We sell fuel. We supply energy Videocon We make air

conditioners We provide climate

control in homes & offices.

Sterlite Industries We manufacture telephone cables.

We market connectivity.

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Characteristics of SBUs1. A single business or a collection of related

businesses that can be planned separately from the rest of the company

2. It has its own set of competitors.3. A separate department for strategic planning

and control.4. Profit performance is measured separately.

Purpose of SBUs1. Analyze business portfolios for profit

potential.2. Develop separate strategies, and

3. Assign appropriate funding.

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Business Portfolio Evaluation Models

1. Boston Consulting Group –BCG Matrix

STARS QUESTION MARKS

CASH COWS DOGS

Market

Growth

Rate

Relative Market Share

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The growth-share matrix is divided into four cells, each indicating a different type of business.

1. Question marks• Businesses operate in high-growth markets and have

low relative market shares.• Requires a lot of investment in plant, equipment, and

personnel to keep pace wit growing markets and also to overtake the market.

♦The company has to decide whether it should keep pouring money into it.

2. Stars• These are market leaders in a high growth market.• A star does not necessarily produce a positive cash

flow for the company.♦The company has to spend substantially to keep up with

the high growth market and also to fight off competitors attack.

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3. Cash cows• These are stars with falling growth rate that still have large

relative market share and produce a lot of cash for the company.

• The company does not have to finance any expansion because the market’s growth rate has slowed.

• Normally the business is the market leader with higher profit margins.

• If cash cow starts losing relative market share, the company will pump money back into it to maintain market leadership.

♦The company normally uses its cash cows to pay bills and support other businesses.

4. Dogs• Businesses that have weak market shares in low growth

market.♦The company needs to consider whether it is holding on to

these businesses for good reasons like an expected turnaround in the market growth rate or chances of market leadership.

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The General Electric Model2. The General Electric Model

• Each business is rated in terms of two major dimensions

Market attractiveness Business strength

• Companies are successful to the extent they enter attractive markets and possess the required business strengths to succeed in those markets.

• If one of these is factors is missing, the business will not produce outstanding results.

• Neither a strong company operating in an unattractive market nor a weak company operating in an attractive market will do very well.

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Factors used to measure market attractiveness

1. Market growth2. Fluctuation in demand3. Market size4. Industry potential.5. Competitive environment – both Micro & Macro6. Opportunities in the world market.

Factor used to measure business strength 1. Market share and its relative growth.2. Manufacturing capacity3. Brand value4. Strength of distribution channels5. Profits as compared to its competitors

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SBU StrategiesSBU Strategies♦Companies need to formulate strategy and assign budget

for each SBU.Four Different Strategies used are1. Build2. Hold3. Harvest, and4. Divest

Build strategy is suitable for question marks whose market shares must grow if they have to become stars.

Hold strategy is appropriate for strong cash cows if they continue yielding large positive cash flows.

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Harvesting strategy is used to increase short-term cash flow regardless of long-term effect.

• Harvesting implies decision to cash on its ‘crop’ to ‘milk its business’

• Harvesting involves eliminating R&D expenditures, not replacing the physical plant, not replacing salespeople, reducing advertising expenditures etc.

→Appropriate for weak cash cows whose future is dim.

→May also be used for dogs and question marks. Divest strategy is to sell or liquidate the

business because resources can be better used elsewhere.

→Appropriate for dogs and question marks that are acting as a drag on the company’s profits.

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What must be decided by the companies?

1. Whether harvesting or divesting is a better strategy for a weak business?

a) Harvesting reduces the business’s future value and therefore the price at which it would be sold later.

b) An early decision to divest is likely to produce fairly good bids if the business is in good shape and of more value to another firm.

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The SBU life cycle– Successful SBUs have a life cycle starting

as question marks.– Then they become stars, then cash cows,

and finally dogs.→Therefore, companies must continuously

examine their position in the growth-share matrix and accordingly formulate the strategy.

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Planning new businesses & Downsizing older businesses

-If there is a gap between future desired sales and projected sales, corporate will have to develop or acquire new businesses to fill it.

Intensive Growth Integrative Growth Opportunities

Diversification Growth Opportunities

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1. Intensive growth

• To identify opportunities to achieve further growth within the current business.

1. Market –penetration 3. Product-strategydevelopment strategy

2. Market-development 4. Diversification strategy strategy

Current products New Products

CurrentMarkets

New Markets

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2. Integrative growth• To identify opportunities to build or acquire

businesses those are related to current businesses.

→Sales and profits can be increased through backward, forward, or horizontal integration.

3. Diversification growth• To identify opportunities to add attractive

businesses those are unrelated to the current businesses.

(a) Concentric diversification• A company tries to diversify by serving a new

customer base with products that are related to the existing product category. e.g. Britannia trying to diversify into producing wheat flour.

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b) Horizontal diversification• A company tries to attract current customers with

new products even if the company has to acquire a new manufacturing capability e.g. Britannia entering into ice-cream industry

(c) Conglomerate diversification • Company tries to perform totally unrelated

business activities e.g. Britannia venturing into manufacturing of bicycles or wrist watches.

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Downsizing older businessesDownsizing older businesses• Removing old and sick businesses that are not adding

value any longer.→Paves the way for management to allocate the resources

employed in the older businesses to new and lucrative business activities.

• Laying-off employees is another form of downsizing with an objective of enhancing financial performance.

• Downsizing, though results in cost reduction, may result in inefficiency in the form of decreased loyalty, insecurity and decline in employee morale.

• Frequent lay-offs may reflect poorly on the management.• Along with downsizing, programmes like quality

improvement and business process reengineering must be simultaneously adopted.

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Strategic Business Planning• Must be proactive rather than reactive. The steps involved

are– Prepare a statement describing which business the firm is in

and what are the firm’s products that the customers need.– Develop mission statement– Analyze the company’s past performance.– Evaluate the impact of changes taking place in the market.– Compare the image of the company with the customers’

expectations.– Search for Critical Success Factors of the firm.– Analyze the opportunities available to the firm and its

innovative capability.– Check the performance of management.– Search for ways to enhance the performance. →Strategic plan must be reviewed every three to four months

to ensure they are being adhered to.

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The stages of strategic planning

Determining business mission

SWOT analysis

Strategies Strategic alliances

ImplementationFeedback & Control

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Business Mission

Business Mission • Must reflect the requirements of the

customers, suppliers, distributors, stockholders and employees of the organization.

• Must convey the fundamental and unique purpose of its existence.

Mission statement of Infosys “Powered by intellect-Driven by values”.

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SWOT AnalysisSWOT Analysis• Strengths and weaknesses are internal to the organization

whereas opportunities and threats are external to the organization.

Strengths of the organization can be as under:1. Infrastructure2. Employees3. Marketing team4. Product innovation 5. International quality standards6. Proximity to market. →Strengths add value to the organization.

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Weaknesses of the organization

Weaknesses of the organization can be as follows:

1. Incompetent managers2. Untrained employees3. Unevenly trained sales force4. Poor marketing strategies5. Low quality products6. Lack of proper financial capabilities.→Weaknesses may hamper the growth of an

organization.

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Opportunities may include:1. New markets with substantial potential and scope for

growth.2. Opportunity to have collaborations- partnerships /

strategic alliances.

Threats to an organization may be:1. A new competitor in the market.2. Price reduction in the competitions’ product.3. New product introduced by the competitor that may

eat into company’s market share. Strategies Methods and techniques used to achieve the long term and short term goal of an organization.

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How do we define Strategy?“Creation of a unique and valuable position involving

different set of activities”→Company performs different activities as compared to its

competitors or performs similar activities in different ways.

Porter’s Generic Strategies(1) Overall cost leadership-company needs to excel in engineering, purchasing,

manufacturing, and physical distribution.(2) Differentiation-company achieves superior performance in respect of an

important customer benefit valued by large part of market.

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(3)Focus- company focuses on one or more narrow market

segments.- pursues either cost leadership or differentiation

within the target segment.

Strategic Alliances• Companies form alliances to ensure greater

market share, provide better services and create a greater sales impact at lesser cost.

• For alliances to be successful, managers should have ability to form and manage partnership as core skill.

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Implementation→Principal strategy is implemented by supporting activities.(a) For instance, a business has a strategy to attain

technological leadership. To achieve this company will have to undertake activities as under:

• Strengthen its R&D department.• Gather technological intelligence• Develop leading-edge products• Train the technical sales force.• Develop ads to communicate its technological leadership.→Marketing programme is estimated for its cost, and the

following questions are addressed:• Is participating in a particular trade show worth it?• Will a specific sales contest pay for itself?• Will hiring another salesperson contribute to the profitability?→ Activity based costing must be used to determine that the

programme produces sufficient results to justify the cost.

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Mckinsey’s 7-S framework for business success

A. Hardware of success *Strategy* Structure* Systems B. Software of success* Style- Company’s employees have a common way of

thinking and behaving.* Skills- Employees are trained to have skills to carry out

the company’s strategy.* Staffing-Company has to hire able people, and assign

them to the right job.* Shared values- Employees share the same guiding

values.

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Feedback and control• Regular feedback and control mechanism is

needed to ensure implementation of strategies.

• Many times environments are so volatile that some changes in the strategy become necessary.

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Marketing ProcessMarketing Process• The task of any business is to deliver

customer value at a profit.• The value-delivery sequence can be

viewed as under:

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(a) Traditional physical process sequence

• The traditional view assumes that the company knows what to make and the market will buy enough units to produce profits for the company.

• Marketing takes place in second half of the process.

Design the product

Procure Make Price Sell Advertise/Promote

DistributeService

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(b) Value creation and delivery sequence

Customer Segmentation

Market Selection/focus

Value Positioning

Productdevelopment

Service development

Pricing SourcingMaking

Distributing

Servicing

Sales force Sales promotion Advertising

{Choose the value} -Strategic Marketing

{Provide the value}-Tactical Marketing

-Tactical Marketing

{Communicate the value}

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1st Phase: choosing the value- Marketing staff must segment the market, select

the appropriate market target and develop the value positioning.

- The formula “segmentation, targeting and positioning (STP)” is the essence of strategic marketing.

2nd Phase: Providing the value- Marketing must determine specific product

features, prices, and distribution as a part of tactical marketing.

3rd Phase: Communicating the value - Marketing utilizes sales force, sales promotion,

advertising, and other promotional tools to inform and communicate the product, also a part of tactical marketing.

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Steps in marketing planning process

Analyzing marketing opportunities

Developing MarketingStrategies

Planning marketing programmes

Managing marketing effort

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Analyzing marketing opportunities

– To conduct market research to estimate the market potential for the product, identify segments to be targeted, and search for appropriate channels of distribution.

– To focus on product features and benefits that customers would expect.

– To determine company’s ability to produce and sell the product i.e. suppliers, marketing intermediaries, customers and competitors.

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Developing marketing strategies• To segment, select a target market and develop

positioning strategy.– Should the company position its products at

premium price with excellent service and strong advertising?

– Should it launch a simple, low price product aimed at more price conscious consumers?

– Should it develop a medium quality, medium price product?

• Initiate new product development, test marketing and launching.

• Modify strategy at different stages in the product life cycle.

• Strategy should take into account emerging global opportunities.

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Planning marketing programmes

• To consider the marketing mix variables- product, price, place and promotion.

a) Product- features, design, quality, packing

b) Price- discounts, credits limits etc.c) Place- distributors, locations, market

coverage etc.d) Promotion- advertising, offers, public

relations etc.

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Managing marketing effort– To organizing marketing resources,

implementing and controlling the deviations, if any.

– To build a marketing organization– Formulation and allocation of budget.– Better coordination with all functional areas.

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How to present marketing plan?

Executive summary

Opportunity & issue analysis

Marketing strategy Action programme

Projected profit & loss statement

Control measures

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Market Segmentation and Market Targeting

To compete effectively, many companies are now embracing target marketing.

- Instead of scattering their marketing effort, a la “shotgun” approach, they focus on those consumers they have the greatest chance of satisfying, a la”rifle” approach.

Effective target marketing requires that marketers:1. Identify and profile distinct groups of buyers who differ

in their needs and preferences i.e. market segmentation.

2. Select one or more market segments to enter i.e. market targeting.

3. For each target segment, establish and communicate the distinctive benefits of the company’s market offering.

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What is segmentation? – Dividing the market by grouping the customers

with similar tastes.

Why market segmentation?– Segmentation helps marketers understand the

needs of different customers better and serve them with better value proposition.

– Appropriate Marketing-mix can be designed to suit the customer in the segment.

- Segmentation also helps marketers to increase customer loyalty as marketers can focus on these segments with enhanced service and quality features.

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– Segmentation becomes important as markets consist of customers who differ in their wants

A logical question: Would a firm not reduce its market share by introducing different products of the same product line?

- Answer is No. Research has shown that market share has risen for carefully launched products e.g. Surf, Rin, and Wheel are brands in same product line but are leaders in different segments.

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Market Segmentation LevelsThe starting point is mass marketing wherein the seller

engages in the mass production, mass distribution, and mass promotion of one product for all buyers.

- Examples: (a) Ford Motors offering Model –T Ford in one colour, black.(b) Coca cola selling only one kind of Coke in standard size

bottle. Companies are turning to micro marketing, depending

upon the strategy and nature of products; the different levels of segmentation adopted by companies are:

• Segment Marketing• Individual Marketing• Niche Marketing• Local Marketing

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Segment Marketing– Customers are segmented on the basis of broad

similarity with regard to some attribute such as tastes, preferences, etc.

– Marketers then provide solutions to the segment.– Sometimes marketers target more than one

segment when it is economically not feasible to design products and services for individual segments.

– Focus is to provide enhanced service to customers by offering customized products that will satisfy needs and wants of customers in that particular segment.

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• Examples: Product: Tanishq Jewelery(a) Segmentation: On the basis of level of purity

required by people.(b) Target: People who wanted 24 carat gold unlike

gold being sold by conventional jewelry stores. • Product: Oyzterbay (a) Segmentation: On the basis of usage of jewelry.(b) Target: People who want to have daily wear

jewelry priced between Rs 500 and Rs 5000. *Product: Cars- Segmentation helps marketers to distinguish

between car buyers who are primarily seeking low-cost basic transportation, those seeking a luxurious experience, and those seeking driving thrills and performance.

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A word of Caution- We must never confuse a segment and a sector. - A car company might say that it will target young,

middle- income car buyers.- Young middle-income car buyers may differ

about what they want in a car.- Some will want a low-cost car and others may

want an expensive car.- Young, middle-income car buyers are a sector,

not a segment. - Marketers do not create the segments; their task

is to identify the segments and decide which one to target.

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Individual Marketing– Extreme level of segmentation in which marketers

focus on individual customers.– Business to business making is individual

marketing.– Companies approach individuals through e-mails

to promote their products and services.• Example: Amazon.com keeps track of tastes and

preferences of individual customers and sends mail alerts whenever a book is introduced that suits their preferences.

- This is the ultimate level of segmentation that leads to “segments of one”, also known as “customized marketing” “one-to-one marketing”.

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- More online companies today are offering customers a Choiceboard,, an interactive online system that allows individual consumers to design their own products and services by choosing from a menu of attributes, components, prices, and delivery options.

- The customer’s selections send signals to the supplier’s manufacturing system that set in motion the process of procurement, assembly, and delivery.

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Customization is certainly not for every company as it may be difficult to implement for complex products such as automobiles.

• Customization can raise the cost of goods by more than the customer is willing to pay.

• Some customers may not even know what they want unless they see the actual products.

• Customer cannot cancel the order after the company has started to work on the product.

• The product may be hard to repair and have little sales value.

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Niche MarketingMarketers position their products or services in

smaller markets having similar attributes.– Invariably such sub segments are neglected by

other marketers.– The market segment when divided in to sub

segment to identify and cater to the unsatisfied needs of small group is called a niche.

Difference between segment & niche- Segment is usually broader market where many

competitors operate.

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• Examples: A. Mid-size car segment:

a) Maruti Zen, Alto, Wagon-R, Tata Indica, Fiat Palio etc.

B. Niche segment: (b) DCM Benetton having specialized product

offering to adult only and also mother-child stores.

(c) Hallmark –segments its greeting card business targeted to very specific market segments.

(d) Cartier, Gucci, Omega, TAG Heur-wrist watches.

• Company should continually enhance its products and services thus making it difficult for others to enter the industry.

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Local Marketing Product adaptation- Local marketing leads to marketing programmes

tailored to the needs and wants of local trading areas, neighbourhoods, even individual stores.

- Examples(a) Citibank provides different mixes of banking

services in its branches, depending on neighbourhood demographics.

(b) Kraft helps department stores to identify the cheese assortment and shelf positioning that will optimize cheese sales in low, middle and high income neighbourhood areas.

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– Marketers having global presence tend to offer customized products to suit local markets. ‘Think global act local’

– Sometimes even if the product proves to be successful at national or international level, it may fail utterly at local level because of unmatched local tastes and preferences.

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Patterns of Market Segmentation One of the important methods of carving of market is to to identify

preference segments. Suppose ice cream buyers are asked how much they value

sweetness and creaminess as two product attributes. The following three patterns can emerge.

1. Homogeneous preferences – Market where all the consumers have roughly the same

preferences. – There are no natural segments.– It can be predicted that existing brands would be similar and

cluster around the middle of the scale in both sweetness and creaminess.

Creaminess

Sweetness

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2. Diffused Pattern- Consumer preferences may be scattered throughout, indicating that

consumers vary greatly in their preferences.- The first brand to enter in the market is likely to position itself to

appeal to the most people. - A second competitor could locate next to the first brand and fight for

the market share.- It could also locate in a corner to attract a customer group that was

not satisfied with the centre brand. - If several brands are in the market, they are likely to position

themselves throughout the space and show real differences to match consumer preferences.

Creaminess

Sweetness

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3. Clustered preferences- Exhibits distinct preference clusters, called natural market

segments.- The first firm in this market has three options:(a) It might position in the centre, hoping to appeal to all groups.(b) It might position in the largest market segment I.e.

concentrated marketing.(c) It might develop several brands, each positioned in a different

segment.(d) If the first firm developed only one brand, competitors would

enter and introduce brands in other segment.

Creaminess

Sweetness

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Market-segmentation Procedure(a) Criteria– Profitable proposition– Company should be able to serve the segment

economically.– Size of each segment– Accessibility of segments. Consumer markets are mostly segmented on the

basis of:• Geographic,• Demographic, and • Psychographic features of the customers.

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Major Segmentation Variables for Consumer Markets

• Geographic region: North,East,Northeast, South,West,Southwest, Central etc.

• City or metro-size: Under 5,000; 5,000-20,000; 20,000-50,000; 50,000-1,00,000; 100,000-250,000; 250,000-500,000; 500,000-1,000,000; 1,000,000-4,000,000; 4,000,000 and above.

• Density: Urban, suburban, rural.• Climate: Summer, Winter, Spring, Monsoon

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• Demographic age: Under 6, 6-11, 12-19, 20-34; 35-49; 50-64, 65+

• Family size: 1-2, 3-4, 5+• Family life cycle: Young single; young married with no

kid; young married with youngest child under 6; young married with youngest child over 6; Older married with children; Older married with no children; Older single; any other.

• Gender: Male, Female.• Monthly Income: Under Rs 10,000; Rs 10,000-15,000;

15,000-20,000; 20,000-30,000; 30,000-50,000; 50,000-1,00,000; Above 1,00,000

• Occupation: Professional and technical; managers, Govt. officials, clerical, salesmen; craftspeople; operatives; farmers; retired; students; housewives; unemployed.

•

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• Education: High school and less; Graduate; Postgraduate; others.

• Religion: Hindu; Muslim; Sikh; Jew; Zoroastrian; Protestant; Catholic; any other.

• Race: Asian; White; Black etc.• Generation: Baby boomers; Generation X.• Nationality: Indian; America; German; Italian;

Japanese etc.• Social class: Poor; Lower income; Middle income;

Upper income; Wealthy.• Psychographic lifestyle: Culture-oriented; sports-

oriented; Outdoor-oriented etc.• Personality: Gregarious; Authoritarian; Ambitious.

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• Behavioural occasions: Regular, Special occasion.

• Benefits: Quality; Service; Economy; Speed.• User Status: Non user; Ex-user; Potential user;

First-time user; Regular user.• Usage rate: Light user; Medium user; Heavy

user.• Loyalty status:None; Medium; Strong; Absolute.• Readiness stage: Unaware; Aware; Interested;

desirous; Intending to buy.• Attitude toward product: Enthusiastic; Positive;

Indifferent; Negative; Hostile.

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(A) Geographic segmentation– Market is divided according to geographical areas such

as localities, regions, cities, states, countries etc.– Marketer may offer a single product for the entire market

and my also some minor adjustments to suit local needs.

(B)Demographic segmentation– Market is divided into groups based on attributes such as

age, gender, income, occupation, religion, race, nationality, social class, family size, family life cycle etc.

– Segmentation on the basis of demographic variables is quite effective as most customers’ tastes and preferences are based on these attributes and are easily measurable.

– Many times marketers focus on geodemographic segmentation as well.

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Some of the demographic variables used are:(a) Age and life cycle- Tastes and preferences of customers keep

changing with time.(b) Gender- Products like garments, jewelry, wristwatches,

magazines etc are segmented according to gender.

- There are certain brands which are exclusively positioned for specific sex e.g. Raymond is a brand exclusively for men.

(c) Income- Markets for products and services such as

apparels, automobiles,cosmetics, financial services, travel etc are segmented on the basis of income groups.

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However, this segmentation may not completely reflect the buyer behaviour as even middle income group customers have easy access to luxuries such as cars because of soft loans an installment facilities extended by financial institutions.

→ Companies like Titan have recognized the potential of lower end income groups and have started targeting them.

(d)Generation- another variable for segmenting markets.

- Generation X is demanding segment as far as services are concerned.

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(e) Social class– Customer choices of automobiles, interior

decorations, reading habits, clothing preferences etc are influenced by social classes.

– Tastes and preferences of social classes change over a period of time.

→Allen Solly focusing on female western wear highlights the changing social habits.

(C) Psychographic Segmentation - Within each demographic variable, the

psychographics such as motivation, values, beliefs, lifestyle, and personality can vary significantly.

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- Helps in determining the motivation behind showing the same behaviour.

- People buy the products reflecting their lifestyle. - A person moving in Mercedes, wearing Omega

wristwatch, using Joy perfume and Monte Blanc pen definitely reflects his lifestyle.

- Psychographic segmentation helps marketers to design appropriate communication programme targeted to right audience.

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Behavioural Segmentation– Markets are divided on the basis of behaviour

that consumers show towards the usage of the products.

– Past purchase behaviour is a significant tool for segmentation.

– The various variables used are• Occasions• Benefits• User status• Usage rate• Loyalty

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Occasions-Markets are classified on the basis of various

occasions that customers encounter because people need different products for different occasions.

→Kellogg’s promoted its cereals as breakfast item.

→Archies promotes its cards for special occasions such as Father’s day, Mother’s day, Friendship day, Valentine’s Day etc.

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Benefits - Buyers can be classified according to the benefits

they seek such as premium service, convenience, low price etc.

- Mobil in the US , through its research, identified following benefit segments and their sizes:

(a) Road Warriors: Premium products and quality services (16%)

(b) Generation F: Fast fuel, fast services, and fast food (27%)

(c) True Blues: Branded products and reliable services (16%)

(d) Home Bodies: Convenience (21%).(e) Price Shoppers: Low prices (20%).

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User Status- Markets can be segmented into non users, ex-

users, potential users, first time users, and regular users.

- Mothers to be are potential users of baby products who will turn into heavy users.

– Market share leaders focus on attracting potential users because they have the most to gain.

– Smaller firms try to attract current users away from the market leader.

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Usage rate – Market can be segmented into heavy,

medium and light users.– Heavy users patronize more of

product/service. • Indian Airlines gives the frequent flyer

status to its heavy users. • Frequent flyers earn mileage points that

can be exchanged from different services ranging from free stay in luxury hotel to free travel to foreign destinations.

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Loyalty status

-According to the intensity of loyalty, market can be divided as under:

(a)Hardcore loyals- extremely brand loyal sometimes attributing a cult status e.g. Beetle automobile of Volkswagen.

→Market consists of high percentage of hard-core brand loyal buyers.

→Toothpaste market and Beer market are fairly high brand loyal markets.

→Companies selling in a brand-loyal market have difficulty in gaining more market share, and also companies find it difficult to enter such markets.

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(b) Split loyals- consumers using more than one brand. Their loyalty is divided among two or three brands e.g. customers using two or three brands of perfumes.

(c) Shifting loyals- Customers shifting their loyalty from one brand to another brand. For example, a customer using Cinthol soap might shift to Dove.

(d) Switchers- Customers who are not brand specific. This segment of customers buys on impulse and seeks variety.

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Marketers, by analyzing the degree of loyalty can design their marketing programme as under:

1. By studying hard core loyals, the company identifies its products’ strengths.

2. By studying its split loyals, company can pinpoint which brands are most competitive with its own.

3. By looking at customers who are shifting away from its brand, the company learns about its marketing weaknesses and attempt to correct them.

A word of caution : A high brand loyal purchase pattern may reflect sheer habit, indifference, a low price, a high switching cost, or non-availability of other brands.

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Behavioural Segmentation Breakdown

Target Market

Unaware Aware

Not tried Tried

Negativeopinion

Neutral Favourableopinion Rejected Not yet

repeatedRepeated

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Repeated

Loyal to other brand

Switcher Loyal tobrand

Light user Regular user Heavy user

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Buyer-Readiness stageBuyer-Readiness stage Market consists of customers in different stages of

readiness to buy a product.– Unaware of the product– Aware of the product– Desire to buy the product.– Actual intention to buy the product.→A relative numbers of customers in different

stages of readiness make a big difference in designing marketing programme.

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Attitude- Five attitude groups found in the market are:

1. Enthusiastic2. Positive3. Indifferent4. Negative, and5. Hostile→Attitudes help companies to develop

effective marketing strategies.

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Multi attribute segmentation-Geoclustering

– In practice, companies combine several attributes to segment markets to identify smaller, better-defined groups

For example: A bank identifies a group of wealthy retired adults as one segment. The geoclustering approach will distinguish several segments within the larger segment based on following variables:

• Current income• Assets• Savings• Risk preferences.

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Criteria for Segmenting Industrial Markets

1. Demographic variablesa) Industry: which industries should we serve?b) Company size: what size companies should

we serve? c) Location: what geographical areas should

we serve?Information is obtained from industrial

directories, government publications, and reports published by market agencies etc.

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Operating variables2. Operating variablesa) Technology: what customer technologies

should we focus on?b) Product and brand use status: users of a

particular brand or product share certain similar experiences with the product or brand.

c) Customer capabilities: knowledge about customers’ financial, technical and operational capabilities.

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Purchasing approaches3. Purchasing approachesa) Purchase function organization: should we serve

companies with highly centralized or decentralized purchasing organization?

b) Power structure: should we serve companies that are engineering dominated, financially dominated, etc.?

c) Nature of existing relationships: should we serve companies with which we have strong relationships or simply go after the most desirable companies?

d) General purchase policies: should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?

e) Purchasing criteria: should we serve the companies that are seeking quality? Service? Price?

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Situational factors4. Situational factors(a) Urgency of order fulfillment: should we serve

customers requiring products that are to be used on a regular basis, products that are needed for urgent replacement of existing parts etc.

(b) Product applications: Application and usage of the product helps in segmenting industrial markets.

(c) Size of the order: should we focus on large or small orders?

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Personal characteristics5. Personal characteristics(a) Buyer-seller similarity: should we serve

companies whose people and values are similar to ours?

(b) Attitude towards risk: should we serve risk-taking or risk-avoiding customers?

(c) Loyalty: Should we serve companies that show high loyalty to their suppliers?

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Business markets can further be segmented as follows

1. Sophisticates- : want speed, product customization, and high technical support.

2. Programmed buyers: buy as a routine, usually pay a full price and require less service, product is not very important; a very profitable segment.

3. First –time prospects.: want to buy from a vendor whom they can trust

4. Relationship buyers: regard product as moderately important, are knowledgeable about competitive offerings. Prefer vendors who are price competitive.

5. Transaction buyers: Product is very important to their operations, insist on discount an above average service.

6. Bargain hunters: Product is very important, demand highest discount and best service. Bargain very hard and switch at the slightest dissatisfaction. Not very profitable but are useful for volumes.

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Effective Segmentation→The characteristics of segmentation variables for effective segmentation

are:(1) Measurable• A variable like the purchasing power of potential customers.(2) Substantial• Each segment must consist of adequate number of customers worth

catering to so as to make an economic sense.(3) Accessible• The selected market segment should have accessibility with respect

to the appropriate media, its coverage, and distribution facilities.(4) Differentiable• Each market segment should be different from others in terms of its

needs and wants. →For instance, people buying motor cycles for fuel efficiency are different

from people them for style. These two segments would need different marketing strategies.

(5) Actionable• Marketers must be able to attract and serve potential customers

effectively.

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Market Targeting→After the firm identifies the market segment, it has to

decide how many and which ones to target. Evaluating the market segments– Overall attractiveness such as size, growth, profitability,

economies of scale and low risk.– Company’s long term objectives to mesh with

attractiveness of segments.Selecting the market segments1. Single segment concentration - Advantage of high sales - Vulnerable to losses, if consumers stop patronizing the product.- Mercedes concentrating on only upperincome group customers.

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- Volkswagen concentrates on small-car and Porsche on the sports car market.

- Through concentrated marketing the firm gains a strong knowledge of the segment’s needs and achieves a strong market presence.

- The firm enjoys operating economies through specializing its production, distribution, and promotion.

- If it captures segment leadership, the firm can earn a high turn on its investment.

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Selective specialization2. Selective specialization-Company focuses its resources on a few selected market segments and develops its expertise in fulfilling the needs of these segments.- By concentrating on different segments company minimizes its risks.- Santro, Accent and Sonata cater to segments with

different level of incomes.

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Product specialization3. Product specialization-Company makes a certain product and sells to several segments.- Gains substantial reputation in manufacturing such products.- A textile company marketing Bed/Bath linen for hotels, hospitals & Govt. institutions.- A firm selling microscopes to university, government and

commercial laboratories.- Vulnerable to competitor developing breakthrough

technology.

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Market specialization4. Market specialization- Involves concentrating on different needs of customer groups-A company catering to laboratories sells an assortment of products only to college/university labs.- A company gains a strong reputation in serving this particular customer group.– If the customer reduces its purchase budget, the

marketer suffers.

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Full Market Coverage5. Full Market Coverage- Company targets the full market rather than any specific segment.-Only very large companies such as IBM, GM, Coca Cola and H.P. can serve all customer groups with the productsthat they need.-Range of printers from H.P. start from Rs 3000/- for home and

small office segments to heavy duty printers which cost more than Rs 1,00,000/-.

Full Market coverage can be achieved in two ways1. Undifferentiated marketing- one offer for the whole market.2. Differentiated marketing- operating in several segments

and designs different offers for each segment.

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Other considerations– Ethical choice of market targets(a) Encouraging children to consume high fat foods,

cheap liquor to poor people, promoting lotteries.(b) Marketers should take adequate care not to

promote harmful products by adopting enticing marketing strategies to lure potentially vulnerable customers.

- Interrelationships of segments & super segments.(a) A super segment is a set of segments that are

similar and marketers utilize this similarity ti increase their sales.

(b) Important while targeting more than one segment to optimize cost and performance.

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(a) For example, Hyper city at Malad targets people who want to buy apparels, kitchenware , electronic goods, vegetables, furniture, groceries etc. thus targeting super segments rather than an individual segment.

- Segment-by-segment invasion plans(a) In order to target super segment, better to go step by

step by first gaining a foothold in a market and then enter new segments with products.

(b) Maruti began by introducing small cars, then expanded into midsize cars, and finally into luxury cars.

- Intersegment cooperation(a) A marketer must develop mutual cooperation and

information sharing procedures amongst the segments he is targeting.

(b) This will help to offer better products with efficient service to the customers of each segment.

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Competitive Differentiation & PositioningCompetitive Advantage: Companies achieve competitive

advantage in the market either bya) Offering the products at a low cost and gain cost

leadership, orb) Differentiate their products

How Companies achieve Product Differentiation? – Physical attributes of products– Services– Types of distribution– Positioning A Key Important decision for a Marketer

– How to position their products as positioning influences

other elements of Marketing-mix such as advertising, pricing etc.

– Repositioning involves high costs.

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Scope of differentiation– Little scope of differentiation in case of commodities

such as meat, steel, cement etc.– Products like home appliances, electronic

equipments etc provide wider scope for differentiation.

Basis of Differentiation– Form– Features– Quality– Durability– Reliability– Reparability– Style &Design

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Product formProduct formProduct form is sum total of the physical

attributes of the product.– Products can be differentiated based on

size, shape, and any other physical attributes of the products.

For example, medicine in the form of tablet, syrup or injection. Soap in the form of liquid or bar etc.

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Design

Design– Design takes care of functionality or usefulness

such as easy to use, easy to maintain etc.– Important for products such as Apparels,

packaged goods, Audios, Automobiles etc. For example, Tata Motors differentiating Indica

on the basis of 1400cc engine, easy shift gears, better suspensions, wide tread tyres, sporty new look, stylish interiors, chrome-lined grill, etc

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FeaturesFeatures – Product characteristics to allow a product to

perform certain functions.– Adding new features enhances the value of the

product. For example, Indigo having features like

independent three-link suspension shock absorbers and new front seats providing additional lumbar and thigh support; fire preventing inertia switch to minimize fuel leakage and a steel monochrome frame to offset frontal impact in case of an accident.

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Size of Package

Size of Package– Firms differentiate their products on the

basis of size and weight of the pack. For example, Pepsi captured sizeable part

of Cola market in India by changing the packaging of their products.

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Product QualityProduct QualityQuality refers to conformance of the product to

the expectations of customer and leads to repeat purchases, customer loyalty and word of mouth publicity.

For example, Sony Corporation enjoys a competitive edge over its rivals because it is reputed for manufacturing products of excellent quality.

- Companies try to achieve ‘six sigma’ level in quality to eliminate products defects totally.

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Durability

Durability– Customers are willing to pay premium if

the product is durable.– Advantage of durability gets reduced if the

technology and hence the product becomes obsolete.

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Reliability

Reliability– A measure of the probability that a product

will not malfunction or fail within a specified period.

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Reparability

Reparability– A measure of the ease of fixing a product

when it malfunctions or fails.– Many computer hardware and software

companies offer technical support over the phone or advise the user how to correct them.

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StyleStyle– Describes the product’s look and feel to the

buyer.– Aesthetics play a key role in certain brands of

Pens, Motorbikes etc.– Creates distinctiveness that is difficult to copy

but may not always mean high performance. – Packaging is used as a styling weapon

especially in food products, cosmetics, toiletries, and small consumer appliances etc.

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Service DifferentiationService Differentiation– Companies are now beginning to differentiate their products

on the basis of services they offer along with their products.– In fact service is becoming a part of the corporate vision

thereby companies calling themselves service companies that also manufacture products.

Customer services can include the following:(1) Ease of ordering: refers to the ease with which

customer can place the order for the product.Example, Dell computers and Amzon.com

(2) Delivery: refers to how well the product has been delivered to customer. Speed and care are important factors.

Example, FedEx, UPS and Domino’s Pizza.

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(3) Installation: vital differentiation factor in Industrial markets particularly when heavy equipment is purchased.

a) Ease of installation helps a company to capture a significant share of market.

b) Software companies offering step by step instructions on how to install the software in the system.

c) Heavy machinery manufacturers provide free installation of transformers, control and relay panels for transmission of electric power.

(4) Guarantees– Companies differentiate their services through

guarantees. The normal guidelines followed are:• Service guarantee should be unconditional.• Guarantee should be comprehensive &

communicative.

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(5) Financial arrangements(a) Companies tie up with financial institutions that offer loans to

help customers purchase new products through easy installments schemes.

Example, MUL has tied up with financial institutions such as Citicorp, ICICI, HDFC Bank, ABN-AMRO Bank, Kotak Mahindra , Sundaram Finance to help its customers with car finance.

(6) Customer Training Companies also train their customers or customers’ employees

to use the equipment.(7) Maintenance and repairs(a) Increasingly repeat purchases by customers are affected to a

large extent on whether his experiences of maintenance and repair services from the company have been good or bad.

(8) Disposal(a) Companies also differentiate their products on the basis of

disposability of the product after use.(b) This strategy helps to increase the sales as well as

establishing it as an environment-friendly organization.

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Personnel Differentiation– People in the organization can provide

sustainable advantage.– A well trained employee can serve

customers efficiently and effectively.– Organizations differentiate themselves on

the basis of the characteristics of their employees.

(a) Competence, (b) Courteousness, (c) Credibility, (d) Reliability and responsiveness, (e)Good communication skills

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Channel DifferentiationChannel Differentiation– A firm’s choice of distribution channel, its coverage,

expertise and performance helps to differentiate itself from it competitors.

– Involves making the product available to customers in places where competitors have not entered.

• Availability of products everywhere makes the customer’s search process less complicated, less expensive and more habitual.

Example: MUL opened ‘True Value Outlets’ for catering to second hand car markets.

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Image DifferentiationImage Differentiation – Many customers base their purchase decision on the image

of the company.– Companies create and promote features that foster a

unique image or value for their products.– Companies communicate their image through:a) Ethical management practices such as accurate and

transparent company audits, corporate social responsibility e.g. Infosys, Wipro

b) Symbols help differentiate the company from its competitors on the basis of its image.

c) Logos project certain public image though emblem, graphic picture or a sign. Used in audio-visuals or print media.

d) Atmosphere by creating right ambience, colour and lighting, furnishings, and architecture.

e) Events: Company builds its image based on the type of events it sponsors.

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PositioningWhat is positioning?→It is an act of designing the company’s offering and image

to occupy a distinctive place in the mind of the target market with a view to create a successful customer-focused value proposition.

→Though positioning starts with a product, it is not what you do to a product. Positioning is what you do to the mind of the customer i.e. you position the product in the mind of a customer.

→Usually well known products hold a distinctive position in the customer’s mind.

Product positioning refers to all the activities undertaken by a marketer to create and maintain the concept of value regarding its brand in the minds of customer as against competitor's brands.

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How Positioning is done?How Positioning is done?• Product positioning follows market segmentation as

companies create appropriate product concept in the minds of the customers in a given segment.

• A company develops a unique selling proposition (USP) for each of its brands.

• USP can be any special attribute about a brand such as quality, service, price, value, safety provisions, customization, user friendliness, technology, etc.

How many ideas to promote?→Companies must decide how many ideas to convey in its

positioning to its target customers.• Promoting only one central benefit by developing USP has

worked well.Example: Close-up toothpaste consistently promotes mouth

freshness.

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→Positioning on the basis of a single attribute or USP is not always beneficial especially when there are competing brands claiming to be better on any of the attributes.

Example:(1) Meswak Toothpaste is promoted highlighting a)Formulated from the extracts of Miswak plant.b)Its bactericidal properties help reduce tooth decay,

fight plaque and prevent gum diseases. (2) Aqua fresh toothpaste claims to provide triple

benefitsa)Healthy teeth b)Better breathc)Whiteness of teeth(3) Volvo double-positions its automobiles as “safest”

and “most durable”.

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Getting into the mind of the consumer

• First mover advantage1. Customers find it easy to remember products that

were introduced first in the market.2. Subsequent products in that category, however

good they may be, are difficult to bring to mind. • For a marketer who is not first in market,

occupying a unique position in consumer’s mind becomes a challenge.

1. Tide detergent gives whitest wash compared to all detergents.

2. Tata Indica positioned as economy car with a larger space.

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Positioning of a leader- Research studies have indicated that

• Number one brand in the market occupies twice the market share of the number two brand.

• Likewise, number two brand occupies twice the market share of number three brand.

• Companies have failed when they introduced a product in other categories where it did not have market leadership.

Examples: IBM, a leader in computers failed in plain paper copiers in competition with Xerox.

Positioning Strategy for a market leader • Reinforce the fact of first mover in its positioning strategy.• Introduce multiple brands from time to time in order to

cater to the changing needs of the customers.• Introduce new brands and create a unique position for

each brand.

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Positioning strategy for a follower• Identify an unoccupied position where the brand

can be the first.Example: Though Maruti was not the first car in

India, it successfully launched an 800 cc capacity car. It was the first in small car segment.

The Power of the name– Names revealing something about product’s utility

create a unique position in the minds of the customer and therefore have a large recall value.

Examples: Uncle Chipps, Pepsodent, Close Up, Head & Shoulders, Clinic All Clear, Timex, Speed etc.

– Large companies take advantage by using a series of their initials.

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RepositioningRepositioning: Why repositioning?– Competitors start positioning for the same

segment and market become overcrowded.– Target segments do not turn out to be as

attractive as forecasted.Example: Tata Sumo initially positioned “takes the

rough and tough smoothly” was repositioned as “Multi-utility” vehicle for urban markets as rural markets id not turn out to be attractive and also Toyota Qualis came out earlier than expected.

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Pitfalls in Positioning– Under positioning: Positioning on the basis of obvious

aspects of product features fail to draw desired benefits e.g. “clarity” may not be perceived to be an important benefit in a soft drink.

– Over positioning: Buyers may have a very narrow image of the company’ brand especially when company initially promotes a premium brand. For example, customers perceive Tanishq jewelry brand to be very high priced, where in reality Tanishq offers jewelry that suits every budget.

– Confused positioning: occurs when company makes too many claims or changes brand’s positioning too frequently. For example a computer company (NeXT) positioning its desktop first for students, then for engineers, and then for businesspeople.

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– Doubtful positioning: occurs when companies start promoting heavily even before positioning the brand clearly in the market thereby leading to a negative attitude towards the brand. For example, the dot com companies spent heavily on advertising without themselves being clear about what they were selling.

– Attributes not matching expectations: occurs when products are positioned on wrong attributes or the ones that have no interest to customers. For example, Le Sancy, a toilet soap, was positioned as a long lasting soap, but consumers wanted freshness rather than longer life of the soap and hence the product failed.

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Various possibilities of positioning

• Attribute positioning- positioning on the basis of an attribute such a size or number of years in existence.

• Benefit positioning- positioning as a leader in certain benefit such as service.

• Use or application positioning- positioning on the basis of some use or application such as entertainment.

• User positioning-positioning the product as best for some user group such as “thrill seekers”.

• Competitor positioning- product position claiming to be better in some way than a named competitor.

• Product category positioning- product positioned as a leader in a certain product category e.g. a resort not just a picnic spot but a heritage site as well.

• Quality or price positioning- positioning on the basis of offering “best value” for money.

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Marketing Information Systems• MkIS consists of a set of efficient procedures

and techniques utilized by the employees of the organization to collect, evaluate, analyze, tabulate, sort and generate reports for marketing managers to assist them in effective decision making.

• MkIS department gathers information regarding marketing-mix allocations, consumer behaviour, product acceptance in the market, sales analysis, industry and competitor analysis and any other information that may be relevant for marketing.

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• MkIS department supplies three types of information to the marketing department.

1. Recurrent2. Monitoring, and3. Requested information.Recurrent information- Recurrent information is the one that is

supplied on a periodic basis and includes information on market share, customer satisfaction, customer purchase intentions.

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Monitoring information - Monitoring information is obtained by scanning of

information sources on a continuous basis and includes information on the industry, competitors, etc obtained from newspapers articles, magazines, trade journals, government reports and other annual reports.

Requested information- Requested information is the information

generated in response to an explicit request by the marketing department and may include information pertaining to market share of competitors, level of customer satisfaction of competitors etc.

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MkIS Components The components of MkIS are1. Internal record system2. Marketing research system3. Marketing intelligence system4. Marketing decision support systemInternal Record system consists of two

parts.• Order to payment cycle• Sales reporting system

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• Order to payment cycle- Used to deal effectively with supply and

logistics problems by getting latest information from sales representatives, dealers and distributors.

- By using this information, companies can serve their customers and supply them products in right quantity at the right place.

• Sales reporting system- Enables sales representatives to provide

the latest information about the market, customers and movement of products to their head office.

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• Sales people can send real time information to dealers and wholesalers etc.

• Head office can also provide latest information about the prices, product specifications, and relevant marketing information to its sales people through internet or other available networks.

Marketing intelligence system• Helps marketing manager to analyze the marketing

environment by providing relevant information.• It is developed through constant interaction with

customers, dealers, and suppliers, and information from trade related articles, journals and various other such publications and also through constant monitoring of the of competition and their strategies…

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Marketing decision support system• Collects and processes information using

computer software programmes and advanced statistical tools such as conjoint analysis and cluster analysis.

- For example, conjoint analysis gives information about the different ranks given by the respondents for each of the product attributes shown to them.

- Cluster analysis informs marketing department about the segmentation on the basis of the exclusivity.

- Factor analysis, Multidimensional scaling, discriminant analysis, and multiple regression are some of the other statistical tools used.

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Demand Forecasting• Companies conduct marketing research to find

out credibility of the product in the market, its sales patterns, buyer acceptance levels and to forecast future sales.

• Accurate sales forecast gives the company an idea about requirements of finance, the plant capacity, the human resource base, inventory levels, etc. that can be planned for.

• Invariably, sales forecasts are estimated on the basis of market demand for which marketers must have a clear idea about the market classification and then estimate the demand accordingly.

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Market Classification(a) Size of the market(b) Potential market(c) Available market(d) Qualified available market, (e) Target market, and(f) Penetrated market• The number of prospects who are likely to become

customers and buy a product represents the size of the market.

• A market, which represents the set of buyers interested in buying a product, constitutes a potential market.

- For example, all men aged above 18 yeas who shave regularly are potential customers for razors and other shaving accessories.

- The available market refers to the number of buyers who have an interest in the product as well as purchasing capacity and access to the market.

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- When access to a product or service is restricted to a certain group of customers, even though others have an interest in the product, purchasing capacity and access to the market is referred to as the qualified available market.

- For example, government does not permit people below 21 years of age to pubs and bars, and therefore for bar and pubs people above 21 constitute the qualified available market.

• The target market is the part of available qualified market that a company is focusing its sales and promotional activities on.

- For example, if an educational institute starts a post graduate programme in Retail Management, all graduates interested in Retail Management are qualified available market and if Institute targets only BMS graduates, they are its target customers.

* The penetrated market is the market that comprises of customers who have already purchased the product.

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- For NIIT launching a computer course for housewives, all educated housewives willing to learn computers become the target market for NIIT.

Market Potential• Refers to the optimum sales volume that can be

reached where any further increase in marketing efforts will not have any significant impact in increasing the sales in the given environment.

- Market potential can be measured by using secondary data and historical trends e.g. market potential for Cell phones can be determined by using information on the number of current subscribers, telephone infrastructure, population, gross national product, income distribution, travel patterns, occupations and so forth.

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Company Demand- Company demand is measured on the

basis of its marketing efforts with respect to its competitors.

- Effective promotional and advertising strategies, pricing patterns, distribution of the products and effective after sales service determine the company’s market share of the product.

- Other things being constant, market share of the company’s product depends on the amount of expenditure spent on marketing relative to the competitors.

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Company Sales Forecast- After determining the company demand, the

firm determines the level of marketing efforts that are needed to generate expected sales volume.

- The sales forecast refers to the amount of sales a firm expects to generate with a chosen marketing plan in a given marketing environment.

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Current Demand Estimation• The current market demand can be

estimated using factors such as total market potential, area potential, total industry sales etc.

- For instance, the total market potential for a premium automobile product such as Mercedes Benz is the number of people in the highest income group not yet possessing the same car or an equivalent car.

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How do we estimate market potential for an industrial product, say, SKO (superior Kerosene Oil).

- SKO can be used as a substitute in a large scale industrial generators.

(a) First find out the list of all industries which are currently using diesel generators.

(b) Find out potential customers who are willing to shift to a low cost substitute.

(c) Estimate the monthly or weekly requirements of SKO in litres.

(d) Analyze the capacity of the company to supply that quantity.

- For Consumer markets, usually a marketer estimates the sales in a specific region and the extrapolates it in proportion to the population of that area.

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How do we estimate market potential for a consumer product, say, a laptop.

(a) Estimate the sales potential of laptops in Karnataka, assuming that maximum sales of laptops in India being in Bangalore.

(b) If this figure is 4% of the total population of Karnataka, it can be extrapolated that the total total market for laptops in India is around 4% of the total population of India.

(c) However, this is not accurate method and the factors like computer literacy, number of technology savvy persons etc would also affect sales of such products.

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Future Demand Estimation• The forecasts are made with the help of techniques

mentioned under:(a) Composite sales force opinion(b) Survey of buyer intentions(c) Expert opinions Composite sales force opinion- Company asks its salespeople to estimate sales

patterns in the near future depending upon their experience in the market.

- Different sales people project sales very differently on the basis of their intuition.

- Providing incentives for proper projections help to motivate sales people and make them more responsible.

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Survey of buyer intention- As consumer behaviour patterns vary from time to

time, it becomes essential to conduct consumer research surveys.

- Surveys are aimed at determining the factors which will give an idea of consumers’ demand patterns in the near future.

Expert opinion- Companies take the help of experts in the field to

estimate sales on the basis of their experience and knowledge.

- Experts can be dealers, suppliers and consultants who can share their expertise in the projection of future sales.

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Past Sales Analysis- Sales forecasts are develop on the basis of

past sales i.e.Time series analysis taking into considerations four components as under:

- Trends, Cycle, Seasonal, Promotion, and Erratic.

• Mathematically forecast is expressed asFt+1= (Bt x St x Tt x Ct x Pt) + I, where- Ft+1= forecast quantity for period t+1

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- Bt= base level sales demand (average sales level) for period t

- St= seasonal factor for period t- T= trend component (quantity increase or

decrease per time period)- Ct= cyclic factor for period t- Pt= promotional factor for period t- I= irregular or random quantity. All forecasts may not include all

components

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(a) Moving Averages(b) Weighted Moving Averages(c) Exponential Smoothing(d) Method of Least Squares SMA=( D1+ D2 + D3 + D n) N WMA ={C1 D1 + C2 D2 + C3 D3 + C n D n}{C1 + C2 +

C3 + C n }Exponential SmoothingFt+1 = Dt + (1- )Ft, where• Ft+1 = Forecast for the next period ‘t+1’• Dt = Demand for the current period ‘t’• Ft= Forecast for the current period ‘t’ = Weightage factor for current demand.

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Method of Least SquaresFitting the straight line trend The equation of straight line is y= a+bx,

where ‘a’ and ‘b’ are constants a= Intercept on Y-axis, and b = Slope

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Product and Product Lines- A concept

A want satisfying attribute a consumer receives in exchange.

Product benefit

Physical Psychological

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• Physical benefits are incorporated in the factories, whereas

• Psychological benefits are what the consumers want in the form of bundle of benefits.

Components of a Product

PRODUCT

Physical attribute Brand

Guarantees/ Warranties

Product support servicesSafety

Special Features

Brand Image

Intangible psychological benefits

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Product Classification• Based on the ultimate users(a) Consumer products – purchased by the

households and the ultimate users. (b) Industrial products- used for producing other

products or in rendering services. Classification of Consumer Products• Based on the consumer behaviour, these are

divided into three categories.(a) Convenience products(b) Shopping products(c) Specialty products• Important for developing suitable marketing

programme.

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Convenience Products• Are bought with ease and without consuming any

time e.g. milk, vegetables, food products, newspapers, Ice creams, soft drinks etc.

• No extensive shopping is needed.• Consumers have high knowledge about these

products.• More or less commodity products.• Consumers do not show brand loyalty.• Substitution of one with another is done easily.• Distribution becomes critical and hence intensive

distribution is needed.• The onus of promoting convenience products lies

on the manufacturer.

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Shopping Products• Factors like price, quality and style become

more important.• More information is sought by the consumers.• Not purchased frequently/ regularly.• High visibility.• Minimum brand loyalty• Distribution is not intensive but the promotion

plays a vital role.

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Specialty Products• Unique characteristics and hence strong brand

identification.• No reasonable substitute.• Willing to pay a high price.• Availability at a few select outlets.• Distribution is less important and the

promotional budget is shared by the manufacturer and the retailer.

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Comparative Analysis of Consumer Products

Characteristics Convenience Shopping Specialty

Example Grocery items Clothing, Fashion items

Fancy goods, appliances

Major Motive Easy availability Make an effort to choose the item of personal taste

Make long deliberations before making the final selection of brand.

Knowledge prior to purchase

High Medium Low

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Effort made to acquire the product

Minimal Moderate As much as necessary

Frequency of purchase

Regular Season/occasion Varies

Willingness to accept substitutes

High Moderate None

Buyer behaviour

Low information search

Compares options to acquire best within the budget

Intensive consultation before actual purchases

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Classification of Industrial Products

Based on how they enter the production process and their relative costliness.

Can be grouped into three categories.1. Materials and parts(a) Raw Materials

Farmproducts

Naturalproducts

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(b) Manufactured materials and parts

Component material Component parts

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2. Capital Items(a) Installations(b) Equipment3. Supplies & Business Services(a) Operating supplies(b) Maintenance & repair supplies(c) Maintenance & repairs services(d) Business advisory services

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Marketing Practices for Industrial ProductsFarm Products1. Many producers2. Marketing intermediaries3. Sorting, grading, storing, transporting and selling.4. Very little advertising, and promotional activities.Natural Products1. Fewer and larger producers2. Great bulk and low unit value3. Substantial transportation is required4. Long-term supply contracts5. Price and delivery reliability are critical factors for

selection of suppliers.

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Component Materials1. Standardized nature2. Price and supplier reliability are crucial factors.Component Parts1. Orders placed once a year.2. Price and services are major considerations.3. Branding and advertising are less important issues. Installations1. Major purchases2. Bought directly from the manufacturer.3. Personal selling preceded by a long negotiation.4. Customized manufacturing.5. After sales service is a vital issue.6. Personal selling is more important than advertising.

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Equipment1. More often intermediaries are used for selling.2. Market is geographically dispersed3. Buyers are numerous and orders are small.4. Quality, features, price, and service are

important considerations.e5. Personal selling is more important than

advertising. Supplies1. Equivalent of convenience products in the

industrial field.2. Purchased with the minimum effort.3. Normally marketed through intermediaries.

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Maintenance and repair services1. Usually supplied under contract.2. Maintenance services are provided by

small producers.3. Repair services are available original

equipment manufacturers.Business Advisory Services1. Usually purchased in a new task-buying

situations.2. Suppliers’ reputation is very important

consideration.

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Five Levels of a Product1. Core benefit2. Basic product3. Expected product4. Augmented product5. Potential productExample : A Hotel Room for a guest (a) Core benefit: Rest and Sleep(b) Basic product: A hotel room with a bed, bathroom,

towels, desk, dresser, and a closet.(c) Expected product: a satellite television with a

remote control,a high speed internet access, phone lines and a noiseless air-conditioning.

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(d) Augmented product: Product that exceeds customers’ expectations and here the branding and positioning activities become important. Activities like quick check-in and check-out, a complimentary glass of wine on arrival, a bowl of fresh fruits in the room, breakfast on house, etc.

(e)Potential product: Companies continuously search for newer ways to satisfy customers and distinguish their products.

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A Potential Hotel Room of Tomorrow• A sleep environment that helps you to overcome jet

lag with bed that adjusts to your body and monitors your blood pressure as you sleep.

• Voice activated light, heat, a/c, window curtains and music.

• A super shower that is also a steam room, with spray jets from head to toe.

• A pint-size robot that cleans your room, gives you a massage and mixes you a cocktail.

• A bacteria destroying “bomb” that sanitizes your room at the simple touch of a button.

• A gentle wake up call- a gradual environment change, curtains slowly open, the coffee maker starts up and you hear your favourite kind of music.

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Product-Mix• A product mix also called product assortment is

the set of all products a particular seller offers for sale.

• A product mix consists of various product linesExamples(a) Godrej Agrovet division has a wide range of

products in animal feeds,agricultural inputs, horticulture, and tissue culture.

(b) The consumer product portfolio of Nirma Limited consists of Fabric-care products,personal care products, food products, and scouring products and in each of these categories, company has different brands and variants.

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• A company product mix has a certain width, length,depth, and consistency.

The width of a product mix refers to how many different product lines the company carries.

The length of a product mix refers to the total number of items in the mix.

The depth of the product mix refers to how many variants are offered of each product in the line.

The consistency of the product mix refers to how closely the various product lines are in end use, production requirements, distribution channels, etc.

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Product –Mix Width and Product Line Length for HLL

Product –Mix Width

Home and Personal Care Foods

Personalwash Laundry Skin care Oral care Hair Care Tea Ice Cream

LuxLifebuyoy

LirilHamamBreezeDovePears

Rexona

SurfExcel

Rin

Wheel

Fair andLovely

Pond’s

Pepsodent

Close-Up

SunsilkNaturals

Clinic

Brooke Bond

Lipton

KwalityWalls’

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• The example herein shows a product-mix width of seven lines (In fact HLL has other product lines as well such as Deodorants, Colour cosmetics, Coffee and Foods).

• In the given example, the length of the product-mix is twenty. The average product-mix length can be considered as 3 that is obtained by dividing the total length (20) by the number of lines (7).

• Since Lux comes in four scents (exotic flower petals, almond oil and milk cream, fruit extracts and honey in milk cream, and sandal saffron in milk cream) and in two size, it has a depth of eight.

• The average depth of HLL’s product mix can be calculated by averaging the number of variants within the brand groups.

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• HLL’s product lines are consistent to the extent that they are consumer goods that go through the same distribution channels but less consistent considering that they perform different functions for the buyers.

• Based upon the above product mix dimensions the company may expand by adding new product lines thus widening its product mix, lengthen each product line or add more product variants to each product and deepen its product mix.

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Product Line Stretching• Line stretching occurs when a company lengthens its

product line beyond its current range.• The company can stretch its line down-market, up-market,

or both ways.Down-Market Stretch: A company positioned in the middle

market may want to introduce a lower-priced line for any of three reasons.

1. The company may notice strong growth opportunities as mass retailers attract growing number of shoppers who want value-priced goods.

2. If the company has been attacked by a low-end competitor, it often decides to counter attack by entering the low end of the market.

3. The company may find that the middle market is stagnating or declining.

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• A company faces a number of naming choices in deciding to move down-market. For example, Sony faced three choices.

(a) Use the name Sony on all of its offerings.(Sony did this)

(b) Introduce lower-priced offerings using a sub-brand name, such as Sony Value Line. The risks are that Sony name lose some of its quality image and that some Sony buyers might switch to the lower priced offerings.

(c) Introduce the lower-priced offerings under a different name, without mentioning Sony; but Sony would have to spend a lot of money to build up the new brand name, and the trade may not even accept a brand that does not carry the Sony name.

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Moving down-market carries risks as highlighted in the following example.

• Kodak introduced Funtime film to counter lower priced brands, but it did not price Kodak Funtime low enough to match the low priced film.

• Also it found some of its regular customers buying Funtime, so it it was cannibalizing its core brand. Therefore, it withdrew the product.

• On the other hand, P&G introduced Ariel detergent at upper end of the market and once the brand name was established, economical products like green Ariel and the washing bar were introduced in the market.

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Up-Market Stretch: Companies may wish to enter the high end of the market for more growth, higher margins, or simply to position themselves as full line manufacturers. The examples are

• The leading Japanese auto companies have each introduced an upscale automobile viz, Toyota’s Lexus, Nissan’s Infiniti, and Honda Acura.

• Thee above companies invented entirely new names rather than using or including their own names.

• After several decades of low-priced brand Lifebuoy soap moved upwards by becoming Lifebuoy Gold and Lifebuoy liquid soap.

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Two-Way Stretch: Companies serving the middle market might decide to stretch their line in both the directions as highlighted below.

• Texas Instruments (TI) introduced its first calculators in the medium price, medium quality end of the market.

• Subsequently, it added calculators at the lower end taking the market share from Bowmar and at higher end to compete with Hewlett-Packard.

• This two-way stretch won TI early market leadership in the hand-calculators market.

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Product Life Cycle• A typical product goes though four stages in its life. (a) Introduction(b) Growth(c) Maturity, and(d) Decline • Studying the patterns of PLC from time to time, helps

the business a better understanding in managing their profitable products and eliminating the unprofitable ones.

• As the product moves from one stage of its life cycle to another, marketers try to evaluate and adjust strategies for promoting, pricing and distributing the product.

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Intro

Growth

Maturity

Decline

Profitability

Sales

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Introduction: The product is introduced to the customer and the introduction stage is marked by negative profits and negligible sales.

• Initially revenues generated are low and promotional expenses are at their highest because company needs to

(a) Inform the customer about the product.(b) Induce product trial(c) Secure distribution in retail outlets• Advertising is one of the most effective tools at

this stage of PLC because marketers must communicate their product ‘s features, usage and advantages to potential customers.

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Strategies for Introduction Stage• Keeping only price and promotion in mind Marketers can

adopt strategies as under:(a) Rapid skimming- Marketers launch the product at a higher price and

higher promotional level to skim the market rapidly and build brand preferences.

- This strategy is more successful when a large part of the potential market is unaware of the product.

(b) Slow Skimming - Marketers launch the market at a higher price and low

promotional level.- Strategy is feasible when the market is aware of the

product, the market size is limited, competition is not intense and customers are ready to pay a higher price for the product.

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(c) Rapid penetration - Refers to launching of a product at a lower price with heavy

promotion.- Applied when market is large in size, customers are

unaware of the product, they are price sensitive and a strong competition is present.

- Unit manufacturing cost comes down with the company’s scale of production.

(d) Slow penetration - Calls for launching the product at a lower price and a low

level of promotion.- Used when market is large in size, customers are highly

aware of the product are price sensitive, and there exists a potential competition in the market.

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Growth: This stage is characterized by increase in sales, heavy demand for the product and peaking of profits.

- This is a crucial stage for product’s survival because the reactions of the competitors to the product’s success will affect the product’s life expectancy.

- Companies increase their level of promotional expenditure to meet the competition.

- The profit of the firm increases initially as(a) Promotional costs are spread over a larger

volume, and(b) Unit manufacturing cost falls.

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Strategies for the growth stage- Firms restore to aggressive pricing,

including price cuts to attract price sensitive customers.

- Emphasize the product’s benefits in order to create a competitive niche in the market.

- Improve product quality and add new features and models, including making the products available in different sizes, flavors, etc.

- Introduce new distribution channels.- Enter new markets.

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Maturity: This stage is marked by a steady decline in profits.The sales tend to

(a) Grow,(b) Stabilize, and(c) Start to decline- Sales growth rate slows down as the distribution

channels get exhausted.- Sales flatten or stabilize on per capita basis as the

market reaches its saturation.- Finally sales start declining and customers try out

new products and substitutes. Competition is fierce , many brands compete with

each other, each competitor tries to improve his product and highlight the product benefits and weaker competitors and smaller firms are squeezed out of market.

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Strategies for maturity stage: To stimulate sales in maturity stage, firm adapt the following:

- Abandon weaker products and concentrate more on profitable products.

- Increase advertising and sales promotion by introducing fresh advertising campaigns, new packaging and even product re-launches during this stage.

- Invest more in R&D to bring about improvement in the product and product line extensions.

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Decline: Eventually the sales and profits of almost all products and brands tend to decline.

- The reason for decline in sales could be due to:(a) Technological advances(b) Increase in competition(c) Shift in consumer’s tastes and preferences.- Sales of the product fall rapidly forcing firms to

withdraw from the market.- The intensity of exit barriers influence the

capacity of the firms to withdraw to a great extent.

- Lower the exit barriers, the easier it is for fims to leave the industry.

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Strategies for the decline stage• Pruning of product lines, especially those

products that are not earning any profits.• Cutting promotional budgets and prices.• Cutting down the distribution channels and

the distributors with poor sales. • Ultimately withdrawing totally form the

market or withdrawing from weaker segments and weaker trade channels.

• Increase firm’s investment to strengthen its competitive position.

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• Selectively decrease the firm’s investment level by dropping unprofitable customers groups and strengthen the firm’s investment in profitable niches.

• Harvest the firm’s investment to recover the cash quickly.

• Divest the business through disposal of assets.

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Limitations of PLC concept1. Some products may continue at the same

stage for long e.g. Cadbury’s Diary Milk Chocolate has survived for decades in the mature stage of PLC.

2. Increase in marketing activities like promotion may alter the shape of the PLC’s sales curve to a considerable extent.

3. It is not possible to predict when maturity/ decline will begin and so limits forecasting as a tool.

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Packaging• Packaging is defined as all activities of

designing and producing the container for a product.

• Packages might include up to three levels of materials.For example

(a) A shampoo comes in a bottle (primary package)

(b) One dozen bottles are in a card board box (secondary package)

(c) And six dozen boxes are in a corrugated carton (shipping package).

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• Well designed packages can create convenience and promotional value.

• In products like food, cosmetics, toiletries and small consumer appliances packaging is used as styling weapon.

• Packaging is the buyer’s first encounter with the product and is capable of turning the buyer either ‘on’ or ‘off’.

Various factors have contributed to the growing use of packaging as a marketing tool.

(a) Self service

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- In a typical supermarket, which stocks 15,000 items, a shopper passes by 300 items per minute and given that 50% of all purchases are made on impulse, the effective package must perform many of the sales tasks viz attract attention, describe the product's features, create consumer confidence, and make a overall favourable image.

(b) Consumer affluence- Rising consumer affluence means consumers are

willing to pay a little more for convenience, appearance, dependability, and prestige of better package.

(c) Company and brand image- Packages contribute to instant recognition of the

company brand.

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Objectives of Packaging• Identify the brand• Convey descriptive and persuasive

information.• Facilitate product transportation and

protection.• Assist at-home storage.• Aid product consumption.

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• To achieve marketing objectives, the aesthetic and functional components of packaging must be chosen correctly.

Aesthetic considerations relate to a package size and shape, material,colour,text and graphics.

• Colour must be chosen carefully : Blue is cool and serene, red is active an lively, yellow is medicinal and weak, pastel colours are feminine, and dark colour are masculine.

• The meaning and interpretation of colours is influenced by culture to a large extent.

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• In India, colour ‘green’ is associated with “freshness” and saffron with “divinity”

From functional point of view, the structural design of packaging is critical.

• Poor design may cause wastage and loss while transporting and storing.

Testing of Packaging after designing• Engineering tests to ensure that package stands up

under normal conditions.• Visual tests to ensure that script is legible and

colours harmonious.• Dealer tests to ensure that dealers find the

packages attractive and easy to handle.• Consumer tests to ensure favourable consumer

response.

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Environmental Issues• Increasing concerns on environmental

degradation caused by excessive use of plastic in packaging.

• Some state governments have taken a decision to ban the use of certain types of plastic shopping bags.

• Some companies are showing increasing sensitivity to these issues and are using more environmentally friendly alternatives and packaging materials such as Jute.

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BrandingDefined by the American Marketing association as

“a name, symbol, or a design or a combination of them which is intended to identify the goods or services of one seller or a group of sellers and to differentiate them from those of competitors.

A brand name is defined by American Marketing Association as “a brand or part of the brand consisting of a word, group of words, or letters comprising of a name which is intended to identify the goods or services of one seller or a group of sellers and to differentiate them from those of competitors.

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Advantages of Branding - Enable the purchaser to identify the product or service

he desires.- Brands identify the firm behind the product.- Branded products tend to improve in quality over the

years.- Increases the chances of success through advertising

and sales promotion programmes, as branded products are generally considered to be of higher quality by the consumers.

- Helps the brand owner to stimulate repeat sales and protects himself from product substitution.

- Helps in differentiating a product and enables the brand owner to establish a price that cannot be easily compared with price of competing goods.

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- The prices of well known brands tend to fluctuate less than those of non-branded items.

- If a firm has one or more lines of branded goods, it can add a new item to its product mix much more easily than a company selling unbranded merchandise. Thus branding facilitates stretching of product mix.

- A well known brand helps a manufacturer to withstand the effects of severe price competition.

- Branding facilitates building of corporate image and goodwill.

- The middle men will be more wiling to stock branded products which are successfully promoted.

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Characteristics of a good brand• The brand name should be short and simple.• Should be easy to pronounce, spell and

remember.• Should be pleasing when read.• Should suggest something about a product’s

benefits, its end use, characteristics, quality and action.

• Should be adaptable to packaging and labelling requirements.

• Should not be offensive, obscene or negative.

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Classification of Brands-Individual versus Family Brands

1. If a manufacturer uses the same brand name for all his line of products, it is known as family brand e.g.Godrej.

2. IF a manufacturer uses different brand names for all his line of products, it is known as “individual brand.”

3. On the basis of ownership, brands may be classified into two viz, producer’s brand and retailer's brands; also known as ‘national’ brand and ‘private label’.

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Conditions favouring successful branding

• Large demand for the product to support a profitable marketing plan involving additional promotional cost.

• Quality of the product should be the best and it should be easily maintained.

• There must be consistent supply and ompt availability of the product.

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New Product Development• The new product planning process, progresses from

the idea stage to the production and marketing stage. The steps involved are:

1. Exploration of new product ideas2. Evaluation of new product idea3. Business analysis4. Development5. Test marketing6. Commercialization.• In each stage management decides whether (1) to

move on to the next stage, (2) to abandon the product or (3) to seek additional information.

•

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1. Sources of new product ideas:- Internal sources such as company’s engineers,

managers, marketing department, workers in the form of suggestion box ideas.

- External sources such as company’s wholesalers, distributors, retailers, customers, R&D laboratories, outside consultants.

- Marketing information system may also supply the new product ideas.

- Each idea, regardless of source, should be evaluated on its own merits considering both market needs and opportunities and the company’s capabilities.

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2. Evaluation of new product ideas.- The first critical stage of the new product development process

is the creening of new ideas.- The vital considerations are market potential and profitability of

the new product, other important factors to be evaluated are:• Existing production facilities.• Existing marketing organization.• Availability of raw materials for the production of new products.• Possibility of using existing plants.• Availability of finance.• Compliance to existing laws.• Image of the firm.- Involves thorough investigation of competitive market situation

and company resources with respect to each idea.- Hence, evaluating or screening new product ideas is of great

importance.

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3. Business analysis- Development group must determine whether it is possible to

produce and sell the the product profitably.- For converting idea into concrete business proposal, following

need to be considered:• Product’s market potential.• Production problems and the production cost.• Capital required to introducing the product.• Distribution problems that may be encountered.• Investment in R&D that will be necessary before product can

be marketed.• Intensity of immediate competition.- Market research at this stage becomes important to

determine the product’s market potential.- Adequate time is spent on developing the technical aspects of

the product.

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4. Product development- Idea on paper is converted into physical product.- First stage of the development stage is to manufacture

model products in small quantities so that the same can be subsequently taken to the market for use testing.

- Use testing is important because products often perform differently in actual use than they do under laboratory conditions, where operating variables can be closely controlled.

- Frequently, company takes several prototypes of the product for field testing, in order to uncover and rectify the technical problems that may creep into the product regardless of the capabilities of the designers.

- This stage is quite time consuming and costly.- Throughout new product planning programme, economic

feasibility of the product is evaluated.

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5. Test marketing- Up to this stage potential customers are asked to

react to one or more product features and to comment on the advertising appeals.

- In test marketing stage, commercial experiments in limited geographic areas are conducted in order to ascertain feasibility of full marketing programme.

- Test marketing is more frequently used by consumer product companies than industrial companies.

- Test marketing determines the potential success or failure of a ne product prior to full scale launching.

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- During the test marketing, the following can be learnt by the company:

(a) A product fault that might have escaped the attention in the product development stage.

(b) Information regarding distribution problems.(c) Richer understanding of various segments in the

market.- Some manufacturers prefer to forego test

marketing because it is expensive and time consuming.

- Test marketing suffers from a serious limitation as it cannot show what will happen when competitive products that are close substitute to new products enter the market.

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- At the conclusion of test marketing, results must be analyzed to determine the final design of the product, price and packaging before launching the product into the market.

- At this stage manufacturer can decide whether to discontinue his plans for market introduction or to proceed with a full scale launching of the product.

- This is the point of a final management review that leads to a go/ no-go decision.

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Methods of Test Marketing(a) Consumer goods market testing- First trial purchase- First repeat purchase- Adoption of new product. (b) Sales Wave Research- Product is offered free of cost- Product is offered at reduced price- Estimates the repeat purchase rate.- Test the effectiveness of advertising.(c) Simulated Test Marketing- Measures the effectiveness of the copy to induce a trial.- Consumers are asked to give their feedback.

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Actions to be taken

Outcome Inference

High trial and repurchase rate

Full market launch

High trial and low repurchase rate

Modify or redesign.

Low trial and high repurchase rate

Consumers are satisfied but need to be motivate more people; make promotion more effective.

Low trial and low repurchase rate

Drop the product.

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6. Commercialization - If the results of test marketing are favorable for the

introduction of the new product, then full sale production and marketing programmes are planned.

- Firm must invest in new equipment and facilities to make a large scale production possible

- Must arrange for promotional programmes with its agency - Product is generally introduced in the prime markets and

regions and then at national level. - If the results are very encouraging, the company may try

to introduce the product commercially.- Up to this stage, the management has a complete control

over the product and once the product is ‘born’ the external competitive environment becomes a major determinant of its destiny.

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Why Do New Products Fail ?(a) Neglect of Consumers’ preferences- Inability to determine the buying motives and

habits e.g. Newport Jeans, Daisydee Salwar Suits(b) Product problems- Includes defects in product function, poor quality,

poor external appearances, defects in design and packaging, inconsistent performance e.g. Spreadit or Merrigold Margarine, Kinetic Merlin, Matiz etc.

(c) Promotional problems- Wrong appeals, failure to cooperate with

distribution system, inadequacies in sales force training and motivation e.g. Milkfood Yogurt, Top Rameen Smoodles.

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(d) Pricing Problems- High prices lead to lower sales volume than

anticipated e.g. Jet Fighter an insect repellent in competition to All Out.

( e) Timing problems - Poor timing of introduction either too premature

or too late e.g. Godrej Powerwash washing machines

(f) Improper distribution channels- Montage soap launched by Burroughs Wellcome

through chemists shops.

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Pricing Policies, structures and methods

The price of the product is major determinant of the demand, firm’s market share and its competitive position.

Perception of some consumers about quality directly varies with price. Higher the price, the better is the quality of the product.

Pricing Objectives • To achieve a target returns.• To maximize profits.• To increase sales volume.• To increase market share.• To meet competition.

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1. Pricing for target returns- A firm may price its products to achieve a

target returns.- Target is normally to secure a specified

percentage return on its sale or on its investment.

- For instance, a retailer or a wholesaler may set a target at 10% to 15% return on investment.

- This objective is used by industry for short periods.

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2. Maximize profit- A profit maximization objective is beneficial to the

company if pursued over a long period of time.- To achieve the above objective, firms initially

have to accept the modest profit over a short period.

- For example, a firm introducing anew product, initially sets a low price to build large consumer base.

- Over a long period, the customers would go for repeat purchases thereby enabling the firm to maximize profits.

- Maximization of profits does not mean profiteering.

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3. Increase sales volumes- This objective is adopted to achieve rapid growth.- The higher sales volume can be achieved by

aggressive pricing strategy or by offering discount sale.

- For instance, Textile shops offer discounts during off season to increase sales volume.

4. Increase market share- Many companies-big or small- set the pricing objective

to increase the market share.- This objective enables the company to achieve

economies of scale and higher profits. - Companies lower the price of the product in

comparison to rival product with a view to capture the market, such as air lines reducing the fares to capture the market share.

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5. Stabilize price- During depression period, the firms work to

keep prices from falling down too low and during periods of good business, they try to stop prices from rising to high.

- Companies seeking price stability try to avoid price wars when demand is falling.

- Price leaders tend to take a long term view in achieving stability

- Price stabilization is an objective to be achieved in industries where the product is highly standardized.

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6. Meet competition- If a company is its industry price leader, it

may set prices to discourage new competitors from entering the market.

- Companies that are price followers set their prices in order to meet competitors prices.

Stabilizing prices and meeting competition are closely related but least aggressive objectives and are used by the company to maintain status quo.

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Factors influencing price determination

• Demand for the product- Each price that firm fixes will lead to a different level

of demand, as there is a relation between price charged and the resulting demand.

- The companies are required to determine(a) What price the market expects, and(b) Estimate what the sale would be at different prices.- The expected price of a product is the price which

the consumer thinks the product worth and is usually expressed as a range of price rather than as a specified amount.

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- A manufacturer must also consider a middlemen’s reaction to price.

- Retailer or wholesalers can make an accurate estimate of selling price that the consumer will accept for the product.

- Manufacturers of industrial products can find out the expected price by eeking advice of technical persons working for the customers.

- An effective approach is to market the product in a few limited test areas.

- By quoting different prices under controlled conditions, a reasonable range of price may be determined.

- Once the expected price is known the volume of sales at different price levels can be computed.

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- When the demand is elastic, the seller will consider lowering the price which will result into increase in quantity sold and increase in total revenue.

- Demand is said to be inelastic when the price change and the resulting change in total revenue go in the same direction.

• New or established product- Pricing an established product is usually

less difficult as compared to pricing a new product.

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• Distribution channels- The channels and types of middlemen selected will

influence manufacturer’s pricing.- The price to wholesalers is usually lower than to

that of retailers.• Promotion- The extent to which the product is promoted by the

manufacturer or the middlemen and methods used are other considerations in pricing.

• Cost of a product- A manufacturer’s total unit cost is made up of

several types of cost such as fixed cost, variable cost etc and each cost reacts differently to changes in the quantity produced.

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• Competitive reactions- Competition in the form of similar products,

available substitutes and unrelated products seeking the same disposable income also influences price determination.

- The threat of potential competition is greatest when the field is easy to enter and profit prospects are encouraging.

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Pricing Policies 1. Cost based pricing policy2. Demand based pricing policy, and3. Competition based pricing policy.Cost based pricing policy- The price is set on the basis of cost of production plus an additional

margin of cost. A fixed percentage is added to the unit cost.- Selling price= Cost of production+ anticipated profits.- Target pricing is an example of cost based pricing where

manufacturer fixes a target returns on its total cost.- Manufacturer use break even analysis for deciding cost plus

pricing.- BE analysis studies the relationship between cost, volume and

profit over various time periods and helps in estimating the effects of different prices on profits.

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- The firm can determine the price that would give the desired profit.

- The cost of manufacturing is divided into fixed cost and variable cost.

- Fixed cost such as rent, insurance etc remain constant irrespective of number of units produced.

- Fixed cost deceases per unit when production increases.

- Variable cost such as material and labour varies in direct proportion to the number of units produced.

- Break even point is the point at which there is neither profit nor loss and can be mathematically represented as:

B.E.P= Fixed Cost Contribution, and Contribution = Selling Price – Variable Cost

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Demand based pricing - Price is fixed by adjusting to the market conditions I.e.

a high price is fixed when the demand is high and a low price is charged when the demand is low.

- Price discrimination is also adopted under such market condition i.e. price varies from consumer to consumer.

- Through test marketing, management can select the price which ensures the maximum revenue.

- For determining right price, both cost and demand are considered; cost serves as a floor and demand serves as ceiling.

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Competition based pricing- Many firms set prices based on the competitive

conditions prevailing in the market.- In a perfect market conditions where a firm’s

product is not differentiated significantly from competing products the management may set the price of a product at the market level.

- It is a variation of market based pricing and the companies set the price below the level of main competitor.

- Sometimes, manufacturers set their prices above the prevailing market level, especially when the product is distinctive or superior.

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Pricing Strategies• Pricing strategies change as the product

passes through its life cycle. • The four pricing strategies are as under:

Overcharging Premium

Economy Good Value

High

Low

Low High

P

R

I

C

E

Q U A L I T Y

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1. Premium strategy : Producing a high quality product and charging the highest price.

2. Economy pricing strategy: Producing a lower quality product but charging a low price.

3. Good value strategy: Producing high quality product but fixing a low price.

4. Overcharging : Overcharging the product in relation to its quality.

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• The premium strategy and economy pricing strategy can coexist in the same market as long as the market consists of two groups of buyers i.e. those who seek quality and those who seek prices.

• The good value strategy is a way to attract the buyers who want premium product and save money.

• Overcharging strategy will not work in the long run and so this strategy should be avoided.

• Companies introducing new products can choose between two strategies viz. Market-skimming pricing and Market-penetrating pricing.

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Skimming pricing- Involves setting a very high price for a new product

initially and to reduce the price gradually as competitors enter the market.

- Manufacturer aim at profit maximization at shortest period when market conditions are favourable.

- The price is brought down when competitors enter into the market.

- The initial high price serves to skim the market that is relatively insensitive to the price.

- For example, Intel is the prime user of this strategy; when it introduced a new computer chip , it charged the highest price.

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- Skimming pricing is suitable in the following situations.

(a) The product’s quality supports its higher price and adequate buyers want the products at that price.

(b) Competitors are not able to enter the market easily.

Penetrating pricing- Sets low initial price in order to penetrate the

market quickly and deeply.- The low price is fixed to attract a large number

of buyers quickly and win a large market share.- For example, Dell uses penetrating pricing to sell

high quality computer products through low cost mail order channels.

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- Their sales increased when IBM, Compaq and other competitors selling through retail stores could not match their prices.

- This method of pricing is desirable uner the following conditions:

(a) The market must be sensitive to low price.(b) Production and distribution cost must fall

as sales volume increase.(c) The low price must help to keep the

competition out.

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Product-mix pricing strategies• When the product is a part of current product mix,

companies usually adopt product-mix pricing strategies that will maximize profits.

• There are five product-mix pricing strategies.1. Product line pricing- Companies decide on the price steps between the

products in line.- For instance, Kodak offering an assortment of films

such as Kodak film, Kodak Royal Gold Film, Funtime films etc.

- The price steps should take into account cost differences between the products in line, customers’ evaluation of different features and competitors’ pricing.

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- The customers will buy more advanced product if the price difference between two successive product is small.

- If the price difference is large, customers will generally buy less advanced product.

2. Optional product pricing- Many companies offer to sell optional or accessory

products along with their main product.- For example, car manufacturers offer, radio, CD

player, power window etc along with a car.- These companies use optional product pricing.- The limitation of this strategy is to decide which

item to be included in the base price and which to offer as an option.

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3. Captive product pricing- Captive product pricing refers to setting price

for products that must be used along with a main product such as films for a camera, blades for razor etc.

- Manufacturers of main products often price them low and set high price on the supplies.

- For instance, Vidyut Metallics prices its ‘Supermax’ brand razors low because it gets profits on the blades it sells.

4.By-product pricing - A price is set for by-products in order to make

the main products price more competitive.

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- In industries like chemicals, sugar, saw mills etc there are often by-products which little value.

- Using by-product pricing, the manufacturer, gets a market for the by-product and accept any price that would cover the cost of storing and delivering them.

- This allows the manufacturer to reduce the main product’s price.

Product bundle pricing- The sellers combine several of their product and

offer the bundle at a reduced price.- For example, a travel agency arranges specially

priced packages which include hotel booking, transport, sight seeing etc.

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Price adjustment strategiesCompanies adjust their basic prices for

various customers in varying situations.The price adjustment strategies include the

following1. Discount and allowance2. Segmented pricing3. Psychological pricing4. Promotional pricing5. Value pricing6. Geographical pricing/ International pricing

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1. Discount and allowance pricing- Customers are rewarded for responses

such as volume of purchase, prompt payment of bills, off season buying etc.

- The reward may take the form of cash discounts or allowances.

(a) Cash discount• Cash discount is given to customers who

pay their bills promptly.• Such discounts help to improve the

sellers’ cash position, reduce bad debts,and credit collection costs.

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(b) Quantity discount• Quantity discount is a price reduction to buyers

who buy large volumes and provide an incentive to customers to buy more from one given seller rather than from different sellers.

(c) Trade discount• A functional discount is allowed in the form of

deductions from the list price.• Manufacturers give trade discount to wholesalers

and retailers as a consideration for performing certain marketing functions to be performed by them.

(d) Seasonal discount• Allowed on purchasing during slack season.

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• For example, air conditioners are given discounts to encourage sales during winter season.

• Seasonal discounts help sellers to smoothen production fluctuations during the entire period.

(e) Allowances• Special types of allowances are offered to

retailers who are expected to perform promotional activities such as participating in advertising and sales support programmes to push up the sales.

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2. Segmented pricing- Company sells a product or service at two or

more prices and can be of following types.(a) Customer-segmented pricing• Different prices are charged for the same product

or services from different customers.(b) Product form pricing• Different versions of the product are priced

differently but not according to difference in cost.• For example, fully automatic washing machine is

priced higher than semi automatic machine though the extra features costs only minimum amount to make.

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(c) Location pricing• Different locations are priced differently,

even though the cost of offering each location is the same.

• For example, cinema theatres have different rates for their seats depending on their locations.

(d) Time pricing• Price vary by the season, the month and

even the day.• The telephone company charges half the

rate during nights and on Sundays.

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3. Psychological pricing- Since many consumers consider the price as an

indicator of quality therefore the sellers consider the psychology of prices and not simply the economics.

- A study for determining the relationship between quality perceptions of cars and price showed that consumers perceive high priced cars as having high quality.

- Another aspect of psychological pricing is ‘reference price’.

- Buyers use the reference price when looking at a given product and sellers use the reference price when fixing price for a product.

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- For example, textile shops keep the silk sarees in a Air Conditioned room and sarees kept in a plush ambience are assumed to be of superior quality.

- Retail shops use ‘odd pricing’ wherein prices are set at odd amounts such as Rs 99.75 instead of Rs 100.

- Though the actual difference is only 25 paise but the psychological difference is much higher.

- According to some psychologists each digit has a symbolic and visual qualities that should be considered in pricing.

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4. Promotional pricing - Temporarily pricing products below the list

price and even sometimes below the cost to increase short run sales is known as promotional pricing.

- For example, super markets price a few product at a very low price to attract customers in the hope that they will buy oher products also.

- In a highly competitive consumer durable industry, manufacturers offer zero interest financing, longer warranties, fre maintenance etc.

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5. Value pricing- Value pricing involves redesigning existing

products in order to offer more quality for a given price or the same quality for a lesser price.

6. Geographical pricing/ International pricing - When customers are located in different

parts of the country or world, a company must decide how to price its products.

- Some companies may set a uniform price worldwide whereas others may adjust their prices to meet different conditions and expectations in different markets.

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Price Changes• Companies sometimes face situations in which

they must initiate price changes or respond to changes by the competitors.

• The following are the situations in which a price cut is desirable.

(a) When firms have excess capacity but cannot increase the sales despite best sales efforts, product improvement or other marketing initiatives, the price cut becomes vital to boost sales.

(b) Falling market share in the face of stiff competition.

(c) Sometimes price cuts are effected to dominate the market through lower costs.

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• Companies also resort to price increase in certain situations; one of the major factor being inflation such as rising cost of inputs.

• Excess demand can also lead to price increase.Firms initiating the price change must anticipate

probable reaction of suppliers, middlemen and the government.

The following actions may be taken by the companies concerning price changes.

Company can reduce its price to match the competitors’ price.

Company can maintain its price and enhance perceived quality of its offer.

Company can improve the quality and increase the price.

Company can launch a low priced product.

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Promotion PolicyA. Advertising• Advertising in a broader sense can be

considered as anything that turns attention to an article or service.

• In a limited sense,it is usually considered as any form of paid public announcement intended to aid directly or indirectly in the sale of a commodity or service.

• The American Marketing Committee defines advertising as “Any form of Non-personal presentation and promotion of ideas, goods, or services by an identified sponsor.”

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• Advertising involves the use of following media:

• Magazines and Newspaper space.• Motion pictures.• Outdoor• Novelties.• Radio & Television.• Catalogues• Directories• Events

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Objectives of advertising • The company can fix one or more of the following

as its advertising objectives:- Introduction of a new product in the market.- Expansion of the market for the existing products/

brands.- Building a long term consumer franchise for the

firm.- Countering competition.- Reminding customers.- Reassuring the customers by removing pos

purchase dissonance.- Building up brand image and company image.- Supporting other sales promotion activities.

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- Stimulating impulse buying.- Enthusing the channel to stock the product.- Supporting and supplementing the

salesmen’s selling efforts.- Supporting and supplementing the dealer’s

selling efforts. Advertising MediaMajor types of advertising media are as under:1. Newspapers(a) Metropolitan1. Daily morning2. Daily Afternoon / Evening 3. Sunday

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(b) Rural2. Magazines(a) Consumer1. General2. Specialize interests3. Women’s magazines.(b) Industrial and trade(c) Professional journals(d) Technical journals(e) Farm publications. 3. Television(a) Network(b) National spot(c) Local

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4. Radio(a) National(b) Local5. Direct Mail6. Outdoor Advertising (a) Bill Boards(b) Signs7. Transit Advertising8. Motion Pictures9. Point of purchase displays.10. Miscellaneous like trade directories,

house journals, annual reports etc.

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Press Advertising Refers to advertising in Newspapers,

Magazines and Journals which are read by a large number of people.

(1) Merits of Newspapers- Extensive coverage at a low cost.- Can be adopted to local social and economica

conditions.- Advertisements can be prepared in sort period

as ell as cancelled by giving a short notice.- The copy can be changed frequently.

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1 (a) Demerits of Newspapers- Life of a newspaper advertisement is very

short because the paper remains with the reader for a short time.

- Has a poor attention value unless it is a ful page advertisement, thus it may either be lost or buried easily.

- Very little selectivity. Unless the product is purchased by a wide cross section of the population, newspaper advertisement may be quite expensive.

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1 (a) Demerits of Newspapers- Life of a newspaper advertisement is very

short because the paper remains with the reader for a short time.

- Has a poor attention value unless it is a ful page advertisement, thus it may either be lost or buried easily.

- Very little selectivity. Unless the product is purchased by a wide cross section of the population, newspaper advertisement may be quite expensive.

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2 (a) Merits of Magazines and Periodicals- An excellent medium when a high quality of

printing and colour is desired in advertisement.

- Through the use class magazines, an advertiser is able to reach a selective audience.

- Longer life than newspapers.- Often stored for future reference and

therefore advertisement in them are remembered for longer duration.

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2(b) Demerits of Magazines- Comparatively circulation of magazines is

limited and thereby making advertisements expensive.

- Mostly read by upper income group thereby missing a potential but lower income group.

- Magazines go to the press weeks in advance and therefore last minute changes in advertisement copies are not possible.

- The cost of photographic blocks, illustrations etc is high.

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Outdoor advertising- Includes posters,vehicular advertising,

hoardings, glow signs, balloons etc.1 (a) Merits of Outdoor advertising- Has a long life and hence has a

repetitive effect.- Powerful eye-catching medium

demanding very little reading efforts and time.

- Easy to localize the appearance.

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- Essential where repetitive advertising is required.

- Posters and hoardings permit the use of colours and attractive pictures to catch the attention of the traffic.

1 (b) Demerits of outdoor advertising- Great details cannot be given as they are

generally not noticed by the traffic.

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- Obtaining national coverage through this medium is relatively costly.

- Expensive to change the messages frequently.

- Can be a safety hazard and lead to an accident.

- Generally difficult to measure the effectiveness of this type of advertising.

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Advertising Copy• A written or spoken material of advertising

communication and includes the headline, name and the address of the advertiser, as well as the main text of the message.

• Advertising copy is a creative business demanding a lot of creativity and imagination.

• Well-designed advertising copy uses four basic steps in selling, as mentioned below-AIDA:

1. Attracting attention.2. Developing interest.3. Arousing desire, and4. Finally generating action

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Characteristics of a good advertising copy• Attention value• Suggestive value.• Memorizing value.• Conviction value.• Sentimental value.• Educational value.• Instinctive value.Attention value- Must attract the attention of target audience.- Attention can be drawn by placing it at prominent

places, using bold and beautiful way of presentation.

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- For example, Brands like Glaxo, Complan, Boost, and Horlicks may be advertised on sports pages especially full page advertisement in popular magazines.

Suggestive value- Should be able to suggest to the consumers

the advantages of and uses to which the product may be put.

- Simple but repetitive slogans will go a long way.

- For example Soft drinks, Mosquito repellants. Detergents etc.

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Memorizing value- Catchy slogans, phrases, photographs,

pictures so as to create a lasting impression.- They need to be repeatedly advertised to

create memorizing value such as “Thanda Matlab Coca cola”.

- Even sales catalogues etc are sent to prospects frequently so as to create memorizing value.

- Branding activities are carried to have a good memorizing value.

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Conviction value- Copy must have the convincing arguments with

regard to the products.- For example Vatika Hair Oil, Heads and

Shoulders shampoo etc.Sentimental value- Sentiments refer to the personal attitude of

individuals towards others individuals and materials.

- Advertiser must attempt to satisfy the sentiments of as many prospects as possible.

- For example, Johnson Baby Hair Oil, D’ Damas Diamond Jewelry set.

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Educational value- As the primary objective of advertising is demand

creation,the advertising copy should educate the people especially in case of new products.

- For example, Reader’s Digest carrying a supplement in the name of ‘Guide to family health and hygiene.’

Instinctive value- Advertiser should try to appeal to instincts inherent in

men and women.- For example, Banks and Insurance companies

arousing the instinct of savings for your as well as your children's future.

- Sometimes, even a compliment is offered to the buyer such as appreciating a fair complexion after using ‘Fairness Cream’.

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Arguments for Advertising• Advertising stimulates production, employment, and

income thereby leading to rising purchasing power and better living standards.

• Accelerated public acceptance of innovations , new products etc. can be realized due to effective mass communications or advertising.

• Informative advertising enables consumers to secure relevant and adequate information about all rival products and their relative merits thereby enabling a consumer to make an intelligent purchase decision.

• Builds up brand preferences and brand loyalty.• Helps consumers in adopting new ways of life and a

higher standard of living.

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Arguments against advertising • Advertising leads to increase in the price of the products.• Advertising can be a wasteful activity as many people may not

read, hear or view advertisements, press releases, radio etc. TV advertising have short life span and relatively costly per unit of time.

• A few large firms in an industry utilize advertising to prevent entry of small firms in the market thus creating monopoly or oligopoly. Only giant manufacturers or retailers can afford to spend lavishly on extensive an intensive advertising to retain and even enlarge their market share.

• Some advertising is fraudulent, or deceptive causing consumers to buy products that they do not want. In fact high decibel advertising does coerce the ignorant buyers to purchase many unwanted and shoddy goods.

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Sales Promotion • Sales promotion is referred to activities other

than personal salesmanship, advertising and publicity which stimulates consumer purchasing and dealer effectiveness.

• Includes displays, exhibitions, and showrooms, demonstrations, free samples, coupons, premiums and various other non-recurring selling efforts.

• The objectives of sales promotion are two fold.(a) To increase buying response by ultimate

consumers.(b) To stimulate selling efforts by dealers as well as

sales personnel.

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Why undertaking sales promotion?

1. Seeking attention to new products and product improvements.

2. Informing buyers of new brands and new package.3. Improving market share.4. Increasing usage rate by present customers.5. Maintaining customer patronage and brand loyalty.6. Obtaining dealer outlets.7. Securing additional shelf space and added display.8. Creating talking points for salespersons.

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Types of sales promotion• Consumer promotions.• Dealer promotions.• Sales force promotions.Consumer promotion• Sales promotion directed at consumers may be

undertaken either:(a) To increase the product’s use among the existing

consumers, or(b) To attract a new customers to the product, or(c) To retaliate against a competitor’s sales activities,

or(d) To reduce a seasonal decline in sales.

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• Consumer promotions may be undertaken as under:1. Free samples- Free samples are distributed to ultimate consumers,

where the unit value of the article is low or her miniatures can be produced as in case of soaps.

- Free samples attract consumers easily and hence suitable for introducing a new product, though expensive.

2. Bonded offers- Use of an existing, well known brand to carry a free

sample of another non-competing product.- Both products may be produced by the same

company e.g. soap and a toothpaste by HLL or complimentary products of different producers e.g. instant coffee and mugs.

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• Dual advantage of increasing sales of the carrying brand while securing trial of the carried brand.

3. Coupons- A certificate that entitles the consumer a specified

saving on the purchase of a specified product.- These coupons r usually issued by the

manufacturers either directly by mail or through retailers.

4. Free gifts- May be contained in a package like plastic animals

in a pack of breakfast cereals.- Such promotions encourage a collecting habit

thereby achieving an extended trial as the consumer builds up the collection.

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5. Contests- Popular device for brand promotion.- An opportunity is provided to consumers to participate in a

contest or game with chances of winning cash prizes, free air tickets etc.

Dealer or Trade promotion - Dealer promotions induce the dealer to keep a large stock

of the manufacturer's product.1. Buyer allowance- Certain percentage on price is deducted on each minimum

quantity of the product purchased during a certain period.2. Display and advertising allowance- To compensate the dealer for the space given for display

of the manufacturers’ products.

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3. Premiums- Offered to dealers or their salesmen based

on sales result as an incentive for extra efforts.

Sales force promotion - Incentive bonus may be paid to the sales

force if sales exceeds specified targets.- Contests may be arranged among the

members of the sales force.- Frequent sales meetings, conventions and

conferences may be arranged.

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Difference between advertising and sales promotion

• Advertising deal with media owned and controlled by others while sales promotion ties to inform and persuade groups though tools and methods controlled by the company itself.

• Sales promotion deals with non recurring in contrast to advertising and personal selling.

• While most companies cannot exist profitably without advertising or personal selling they can do away with sales promotion.

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Personal Selling • Personal selling refers to oral presentation in

conversation by a sales representative with one or more prospective customers for the purpose of making sales.

• Personal selling involves convincing the prospect, closing the sale, and transferring the title from the seller to the buyer.

• Highly distinctive and only form of selling effort involving face to face relationship or interaction between a sales person and one or more prospective customers.

• Two way rather than one-way communication.

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• Two way flow of information is as under:(a) Salesman secures information about customer

needs and wants that are yet to be satisfied.(b) Salesman provides information about

merchandise and services to the prospects. How do we define Personal Selling? * American Marketing Association defines

salesmanship as “ The process of inducing and assisting a prospective buyer to buy a product or service or to act favourably upon an idea that has commercial significance to the seller.”

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Importance of salesmanship in modern distribution

• Acts as link between the producer and the consumer.

• Assists the producer and the distributor.• Assists the consumer in the satisfaction of

their wants. • Making goods available at the point of

consumption.

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Salesmen’s DutiesA. Sales• Make regular calls• Sell the product line, demonstrate• Handle questions and objections.• Check stocks.• Highlight product features to the customers.• Estimate customer potential/ latent needs. • Emphasis quality.• Explain company’s policies on price,

delivery and credit.• Get the order.

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B. Service• Install products for display.• Report products drawbacks, and complaints.• Handle returns, discounts and allowances.• Handle requests for credits.• Handle special orders for premium

customers.• Establish priorities• Analyze local conditions for customers.

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C. Territory Management • Arrange route for best coverage.• Maintain sales portfolio,samples, kits.• Balanced efforts with customer vis a vis his

potential.D. Sales Promotion • Develop new prospects/new accounts.• Distribute sales literature, catalogues, list

prices.• Assist dealer’s sales people.• Train distributor's selling staff.• Present survey reports and proposals.

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E. Goodwill• Counsel customers on their problems.• Maintain loyalty and respect for the firm

represented.• Attend local sales meetings held by the

customers.F. Executive• Each evening make a daily work plan for next

day.• Organize field activity for minimum travel and

maximum calls.• Prepare and submit special reports to head office.• Investigate lost sales and the reasons thereof.

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Marketing Performance and Control

A. Annual Plan Control- Budgeting & Monitoring • Sales analysis• Market share analysis• Sales to expense ratio• Credit control- aging analysisB. Profitability control: Profitability by • Product.• Territory• Customer• Segment• Trade channel• Order size.

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C. Efficiency control : Efficiency of• Sales force• Advertising• Sales promotion• Distribution.D. Strategic control• Marketing effectiveness rating.• Company ethical and social responsibility

review.

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1.Sales force efficiency• Average number of calls per salesperson per

day.• Average sales call time per contact.• Average revenue per sales call.• Entertainment cost per sales call.• Percentage of orders per 100 sales call.• Number of new customers per period.• Number of lost customers per period.• Sales force cost as a percentage of total

sales.

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2. Advertising efficiency• Advertising cost per thousand buyers

reached by a media vehicle.• Percentage of audience who noted, saw, or

associated and read most of each print ad.• Consumer opinions on ad’s content and

effectiveness.• Before and after measures of attitude

toward the product.• Number of inquiries stimulated by ad.• Cost per inquiry.

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3. Sales promotion efficiency• Percentage of sales made on a deal.• Display cost per sales rupee.• Percentage of coupons redeemed.• Number of inquiries resulting from a

demonstration.4. Distribution efficiency• Logistics costs as a percentage of sales.• Percentage of orders filled correctly and

completely.• Percentage of on-time deliveries.• Number of billing errors.