Kotler Summary

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Social

Definition of

Marketing

Marketing is a

societal process by

which individuals

and groups obtain

what they need and

want through

creating, offering

and freely

exchanging

products and

services of value

with others.

Scope of Marketing A good marketer must be able to answer the following questions:

Understanding Marketing Management

Chapter 1

What is Marketing?

Marketing Management By Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha

SUMMARY by

Marketing is an essential art and science that is engaged in a vast number of activities

by both persons and organizations. It has become an increasingly vital ingredient in the

success of a business. Good marketing is the result of careful planning and execution.

There are two sides to marketing – the formulated side and the creative side. It is

important to lay the foundation in marketing concepts, tools, frameworks and issues of

the formulated side while at the same time instil the real creativity and passion for

marketing, as we shall come to see in this chapter.

Marketing is increasingly becoming an important function in all organizations to ensure

that demand for a product or service persists along with customer retention.

The formal definition of marketing is, Marketing is an organizational function and a set

of processes for creating, communicating and delivering value to customers and for

managing customer relationship in ways that benefit the organization and its

stakeholders.

Some of the common entities that are marketed are goods, services, events,

experiences, persons, places, properties, organizations, information and ideas.

What is Marketed?

A marketer is someone who seeks a response, attention, purchase, vote, donation etc

from another party called the prospect. Marketing managers are responsible for demand

management.

Eight demand states are possible:

• Negative demand

• Nonexistent demand

• Latent demand

• Declining demand

• Irregular demand

• Full demand

• Overfull demand

• Unwholesome demand

The key customer markets are consumer markets, business markets, global markets,

non-profit and governmental markets.

Chapter 1 - Understanding Marketing Management

• Needs - state of felt deprivation for basic items such as food and clothing and

complex needs such as for belonging. i.e. I am hungry.

• Wants - form that a human need takes as shaped by culture and individual

personality i.e. I want a hamburger, French fries, and a soft drink.

• Demands - human wants backed by buying power. i.e. I have money to buy this

meal.

• Target Markets are the market segments identified by the marketer which

present the greatest opportunity.

• Value Proposition is a set of benefits that companies offer to customers to

satisfy their needs. The intangible value proposition is made physical by as

offering. A brand is an offering from a known source.

• Value reflects the sum of the perceived tangible intangible benefits and costs to

customers. Satisfaction reflects a person’s judgements of a product’s perceived

performance.

• To reach a target market a marketer uses different marketing channels like

communication channels, distribution channels and service channels.

• Supply chain is a longer channel stretching from raw materials to components

to final products that are carried to final buyers.

Who Markets?

Core Marketing Concepts:

The five key

functions of a

marketing

manager or

CMO are:

• Strengthening

the brand

• Measuring

marketing

effectiveness

• Driving new

product

development

based on

customer needs

• Gathering

meaningful

customer

insights

• Utilizing new

marketing

technology

New

Marketing

Realities:

Some of the major

societal forces that

marketers have to

deal with today are

network

information

technology,

globalization,

deregulation,

privatization,

heightened

competition,

industry

convergence,

consumer

resistance, retail

transformation and

disintermediation.

The major marketing philosophies are:

• The Production Concept

o Consumers favor products that are available and highly affordable.

o Improve production and distribution.

• Product Concept

o Consumers favor products that offer the most quality, performance, and

innovative features.

• Selling Concept

o Consumers will buy products only if the company promotes/ sells these

products.

• Marketing Concept

o Focuses on needs/ wants of target markets & delivering satisfaction better

than competitors.

• Societal Marketing Concept

o Focuses on needs/ wants of target markets & delivering superior value.

• Holistic Marketing Concept

o Based on the development, design and implementation of marketing

programs, processes and activities that recognize their breadth and

interdependencies.

• Relationship Marketing

o Aims to build mutually satisfying long-term relationships with key

constituents in order to earn and retain their business.

Chapter 1 - Understanding Marketing Management

Company orientation towards Marketplaces:

Marketing Management Tasks: The following are the most important marketing management tasks:

• Developing Marketing Strategies and Plans

• Capturing Marketing Insights

• Connecting with Customers

• Building Strong Brands

• Shaping the Marketing Offerings

• Delivering Value

• Communicating Value

• Creating Long-Term Growth

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Supply

Chain

Many companies

today outsource less

critical resources if

they can obtain

better quality or

lower cost. Also,

many companies

partner with specific

suppliers and

distributors to

create a superior

value delivery

network, also

known as Supply

Chain.

Developing Marketing

Strategies And Plans

Chapter 2

The Value Delivery Process


SUMMARY by

In this chapter, mainly the following points have been discussed

• How does marketing affect customer value?

• How is strategic planning carried out at different levels of the organization?

• What does a marketing plan include?

Developing the right marketing strategy over time, through discipline and a creative

thought process can go a long way in the marketing management process. Firms must

constantly strive to improve every aspect of their strategy and the plans to guide the

marketing process.

In the new view of business processes, marketing is viewed at the beginning of the

planning stage. A smart competitor must design and deliver products for well-defined

micro-markets and cater to their specific wants, perceptions and preferences. The Value

Creation and Delivery Sequence can be divided into two segments of marketing:

Strategic Marketing and Tactical Marketing.

Core Competencies Core Competency refers to areas of special technical and production expertise, whereas

distinctive capability describes excellence in broader business processes. Market-driven

organizations generally excel in three distinctive capabilities: market sensing, customer

linking and channel bonding.

Holistic

Marketing

Holistic marketing

orientation means,

integrating the

value exploration,

value creation and

value delivery

activities with the

purpose of building

long-term,

mutually satisfying

relationships and

co-prosperity

among key

stakeholders. It

helps manage a

superior value

chain that delivers

a high level of

product quality,

service and speed,

in addition to

expanding

customer share,

building customer

loyalty and

capturing customer

lifetime value.

The value chain is a tool which is used for identifying ways to create more customer

value. There are 9 strategically relevant activities – 5 primary and 4 support.

Chapter 2 - Developing Marketing Strategies And Plans

Companies need to focus on the customer and organize to respond effectively to their

changing needs, to be known as master marketers. The marketing plan is the central

instrument for directing and coordinating the marketing effort. The marketing plan

operates at two levels: strategic and tactical.

• The strategic marketing plan lays out the target markets and the value

proposition the firm will offer, based on an analysis of the best market

opportunities.

• The tactical marketing plan specifies the marketing tactics, including product

features, promotion, merchandising, pricing, sales channels and service.

A firm must coordinate all the department activities to conduct its core business

processes, through cross-functional teams

• Market-sensing process

• New-offering realization process

• Customer Acquisition process

• Customer Relationship Management Process

• Fulfillment Management Process

Strategic Planning

Value Chain

Corporate Headquarters

All corporate headquarters undertake four planning activities

• Defining the corporate mission

• Establishing strategic business units

• Assigning resources to each Strategic Business Unit

• Assessing growth opportunities

Innovation in marketing is critical. Senior management should identify and encourage

fresh ideas from a youth perspective, from people new to the field and organization, to

gain an understanding and a new approach to marketing.

The best Mission Statement reflects a vision, an almost impossible dream that provides

a direction for the company for the next 10 or 20 years. A good mission statement

focuses on limited number of goals, links the company’s policies and values and gives a

long term view. It is as short, relevant and meaningful as possible.

Chapter 2 - Developing Marketing Strategies And Plans

Mission Statement

Business Unit Strategic Planning

The Business Unit Strategic Planning process consists of the following steps

1. The Business Mission: Each business unit needs to define its specific mission

within the broader company mission.

2. SWOT Analysis: The overall analysis of a company’s Strengths, Weaknesses,

Opportunities and Threats is called SWOT analysis. It is a way of monitoring the

external and internal marketing environment.

To evaluate opportunities, companies can use Market Opportunity Analysis.

3. Goal Formulation: Developing specific goals for a short term is known as Goal

Formulation. They are specific with respect to magnitude and time. Goals must

be consistent and realistic and could be a mix of various objectives.

4. Strategy Formulation: Strategy is a game plan for achieving the goals. It consists

of a Marketing Strategy, Technology Strategy and a Sourcing Strategy.

5. Program Formulation: The unit must plan programs in accordance with its goals

and strategy and thus work upon the various departments, to strengthen them

and integrate all of them together.

6. Implementation: Even a great marketing strategy can be sabotaged by a poor

implementation. It must coordinate its tasks to implement its plan properly.

These tasks must be in line with the interests of the stakeholders as well.

7. Feedback and Control: The key to organizational health is willingness to

examine the changing environment and adopt new goals and behaviors. In the

rapidly changing market environment, even large organizations which are

subject to inertia can be changed through strong leadership.

Strategic

Business Unit

A Strategic

Business Unit is a

single business (or

a collection of

similar businesses)

that can be

planned

separately from

the rest of the

company. By

identifying the

company’s SBUs, it

is easy to develop

separate strategies

and assign

appropriate

funding.

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MIS

(Marketing

Information

System)

Consists of people,

equipment and

procedures, to

gather, sort,

analyze, evaluate

and distribute

needed, timely and

accurate

information to

marketers.

Capturing Marketing insights

and Spotting Market Trends

Chapter 3

MIS (Marketing Information System)


SUMMARY by

To provide insight into an inspiration for marketing decision making, companies must

possess comprehensive, up-to-date information about macro trends as well as micro

trends particular to their business. This chapter deals with various modes of obtaining

this information and also looks into the major macroeconomic forces that affect

marketing decisions.

MIS can provide data e.g. Swiss eat most chocolates, Greeks eat most cheese. It relies

on internal company records, marketing intelligence activities and Market Research.

MIS provides information on market happenings and changes in environment. Purposes

of MIS have been noted below.

• Train the sales force for intelligence gathering by observing competitors

activities and listening to customer comments.

• Motivate retailers and distributors to pass intelligence. E.g. mystery shoppers to

identify customer treatment and possible flaws.

• Network externally using competitor’s annual reports, talking with their

retailers, distributors and employees, attending shareholder meetings. It should

be done ethically and legally.

• Use government sources (Census, NSSO reports) or purchase data from outside

suppliers (AC-Nielsen, etc)

• Create a panel of largest, sophisticated and important customers for feedback.

• Use online forums, sites offering customer and expert reviews, Customer

compliant sites,

Analyzing the

Macro

Environment

Fad –

Unpredictable,

short-lived, without

any economic or

social significance

Trend -

Sequence of events

that have

momentum and

durability, reveals

the future.

Megatrend –

Large social and

economic influence,

slow in formation

but has lasting

effect.

Demographic 16.7% of World population in India; Male to Female ratio of 933:1000

Population Age mix : median age of 23.8 years, 34% b/w 12 and 25yrs, 24% b/w 25 and

34 years

Literacy level: 65.38% literate, 75.8% males and 54.16% females, 76% literacy between

15-24yrs age group, 64.5% literacy between 25-34yrs age group.

Economic Purchasing Power depends on income, savings, prices, credit availability. India’s GDP is

$1.2 trillion, per capital income of $3100

Income distribution: 77.7% of urban households have income up to Rs3000/month while

only 2.1% have income more than Rs 10,000/month.

Categories of Indian consumers: Destitute ( less than Rs16,000 annually, inactive

participants in market exchange), Aspirants ( Rs 16,000 to Rs22,000, new entrants in

consumption system), Climbers, (Rs 22,000 to Rs 45,000, have desire and willingness to

buy but has limited cash), Consuming Class ( Rs 45, 000 to Rs 2,15,000, majority have

money and are willing to pay), Rich ( more than Rs 2,15 000, have money and own a

variety of products).

Trend shows increasing % of Consumers and Climbers while a decreasing % of Destitute

and Aspirants.

Social-Cultural Society shapes beliefs, values, demands, and requirements. It affects dress codes, food

habits, brand preferences. Trend shows an increasing role of children on purchasing

decisions e.g. bicycles, computers, wrist watches, shoes and other FMCG goods.

Chapter 3 - Capturing Marketing insights and Spotting Market

Trends

• Order to Payment cycle - Customer places order for goods -> Sales team sends

invoice to various departments -> Sales team back orders out of stock items ->

Suppliers send goods and sales team pays suppliers -> Sales team delivers order and

receives payment. Purpose is to minimize number and duration of cycles.

• Sales Information System - Keeping constant track of sales, customers, etc. It can

help in identifying trends.

• Database / Data warehousing / Data Mining - Separate databases are there for

products, salespersons and customers. Purpose is to analyze (mine) data using

statistical methods and discover trends.

Major Macro Environmental Forces

Internal Company Records

Natural Deterioration of environment is a significant concern e.g. Greenhouse Effect, Ozone

layer and fossil fuel depletion. Government concerns in this aspect are Euro-2

emissions norms and CNG.

Although majority feels necessity of environmental friendly products, they do not buy

because

(a) Perception of green good being of inferior quality and (b) Perception that good does

not contribute majorly to the environment.

Corporate Environmentalism is recognizing the importance of environmental issues

affecting the firm and integrating those in its strategic plans is fast gaining ground. E.g.

Focus on Non-renewable sources like Jatropha oil, Pollution Control Systems like

landfills, recycling centers and focus on CNG initiatives.

Technological Four major trends are

(a) Accelerated Pace of Change: e.g. Apple selling 23.5 million in 2006

(b) Unlimited Opportunities for Innovation e.g. Developments in Bio-tech,

telecommunication, Robotics, aid vaccines, contraceptive pills.

(c) Varying R & D Budget: e.g. Increasing R & D in Pharmaceutical companies like Cipla,

Dr. Reddy’s, and Ranbaxy

(d) Increasing regulation of technological change e.g. Drugs and cosmetic act, control

on clinical trial, standard for drugs.

Political and Legal Two major trends are

(a) Increase in business legislation: to protect companies from unfair competition, to

protect consumers from unfair business practices, to protect society from unbridled

business behavior and to charge businesses with social costs created by their products

or processes

(b) Growth of special interest groups and improvements like the Consumer Protection

Act.

Chapter 3 - Capturing Marketing insights and Spotting Market

Trends

What is the

difference

between a

Fad and a

Trend?

A fad becomes a

trend when it

affects a large

number of people,

has functional

value, has lesser

number of

substitutes, and has

other trends

promoting it.

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What is

Marketing

Research?

Systematic Design,

collection, analysis

and reporting of

data and findings

relevant to a

specific marketing

situation facing the

company.

Why Marketing Research? Successful Marketing Managers need timely, accurate and actionable information about

consumers, competition and their brands to assess past performance, plan future

activities and take strategic decisions leading to successful product launch or increase

growth of a brand.

Conducting Marketing Research

and Forecasting Demand

Chapter 4

What are the major steps of Marketing Research

Process?


SUMMARY by

Step 6 : Make the decision

Step 5 : Present the findings

Step 4 : Analyze the information

Step 3 : Collect the information

Step 2 : Develop the research plan

Step 1 : Define the problem, the decision alternative and the research objective

Secondary

Data:

Already existing

somewhere which

was collected for

some other

purpose

Primary

Data:

Freshly gathered

data for research

only. Expensive to

collect.

Step 1:

Achieve clarity on the content, the scope of market research and what all decisions

to be made on the basis of research.

Step 2:

Primary Data c

Chapter 4 - Conducting Marketing Research and Forecasting

Step 3:

Data collection is one of the most expensive, time

market research as it entirely depends on availability, honesty and consistency of

respondents. However technology has eased the problem to a great extent.

Step 4:

This is the process to extract findings by tabulating the data and developing frequency

distributions in hope of discovering additional findings.

Step 5:

The researcher presents finding relevant to the major marketing decisions facing

management

Research Methods

•Observational Research: Observing

consumers, informal interviews, using

tools from anthropology to provide

deeper understanding of consumers.

•Focus Group Research: A meeting of a

group of people who represent potential

customers or important actors for

research discussing issues relevant to

research

•Survey Research: Companies undertake

descriptive research to learn about

people’s beliefs, preferences and

satisfaction.

•Behavioral Data: Customer’s actual

purchases do not match their

statements made in surveys always

hence certain techniques help in

exposing these discrepancies

•Experimental Research: This captures

cause and effect relationship in

observed findings.

Achieve clarity on the content, the scope of market research and what all decisions

to be made on the basis of research.

Primary Data can be collected through following:

Conducting Marketing Research and Forecasting

Data collection is one of the most expensive, time-taking and most error prone phase of




stributions in hope of discovering additional findings.


management.

Research Methods

Observational Research: Observing

consumers, informal interviews, using

tools from anthropology to provide

deeper understanding of consumers.

Focus Group Research: A meeting of a

group of people who represent potential

customers or important actors for

research discussing issues relevant to

Survey Research: Companies undertake

descriptive research to learn about

people’s beliefs, preferences and

satisfaction.

Behavioral Data: Customer’s actual

purchases do not match their

statements made in surveys always

hence certain techniques help in

exposing these discrepancies

Experimental Research: This captures

cause and effect relationship in

observed findings.

•Questionnaires: A set of questions

soliciting responses that is of relevance

to market situation. They can be either

open-ended or closed

•Qualitative Measures: Relatively

unstructured measurement approach

for exploring consumer’s responses

•Technological Devices: devices like skin

sensors brain wave scanners to

capture consumer’s response.

•Sampling Plan: A plan addressing

questions like whom all to survey, how

many people to survey, how should we

select people for survey.

•Contact Methods: Mail Questionnaire,

Telephone Interview, Personal

Interview, Online Interview.

Achieve clarity on the content, the scope of market research and what all decisions are

Conducting Marketing Research and Forecasting

taking and most error prone phase of





Research Tools

Questionnaires: A set of questions

soliciting responses that is of relevance

to market situation. They can be either

ended or closed-ended.

Qualitative Measures: Relatively

unstructured measurement approach

for exploring consumer’s responses

Technological Devices: devices like skin

sensors brain wave scanners to

capture consumer’s response.

Sampling Plan: A plan addressing

questions like whom all to survey, how

many people to survey, how should we

select people for survey.

Contact Methods: Mail Questionnaire,

Telephone Interview, Personal

Interview, Online Interview.

Step 6:

Market research is just a tool to provide insight to the managers. Depending on their

confidence in the findings, managers decide to use it

Barriers to Marketing Research

• Narrow approach to Marketing Research

• Uneven Caliber of researchers

• Poor framing of problem

• Late and occasionally erroneous findings

• Personality & presentational differences

Measuring Marketing Productivity

To assess the efficiency and effectiveness of marketing of marketing activities there are

• Marketing metrics to assess marketing effects

• Marketing mix modeling to estimate casual relationships and measure how

marketing activity affect outcomes

• Marketing Dashboard are a structured way to disseminate the insights gleaned

from these two approaches within the organizations

Types of Demand

Market Demand

• It is the total volume that would be bought by a defined customer group in a

defined geographical area in a defined time period in a defined marketing

environment under a defined marketing program

Company Demand

• It is the company’s estimated share of the market demand at alternative levels of

company marketing effort in a given time period

Current Demand

• It is the demand that companies attempt to determine by measuring total

market potential, area market potential industry sales and market share

Future Demand

• It is the demand that companies determine by surveying buyer’s intentions,

solicit their sales force’s input, gather expert opinions, analze past sales or

engage in market testing mathematical models, advanced statistical techniques

and computerized data collection procedures

To estimate current demand companies attempt to determine total market potential,

area market potential industry sales and market share

To estimate future demand companies’ survey buyer’s intentions solicit their sales

force’s input, gather expert opinions, analyze past sales or engage in market testing

mathematical models, advanced statistical techniques and computerized data collection

procedures are essential to all types of demand and sales forecasting.

Types of

Market

Potential

market

Set of consumers who

profess a sufficient

level of interest in a

market offer.

Available

market


have interest income

and access to a

particular offer.

Target market

The part of the

qualified available

market the company

decides to pursue.

Penetrated

market


are buying the

company's product.

Chapter 4 - Conducting Marketing Research and Forecasting

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Customer

Perceived

Value:

Customer

Perceived Value: It

is the difference

between the

prospective

customer’s

evaluation of all the

benefits and all the

costs of an offering,

and the perceived

alternatives.

Creating Customer Value, Satisfaction and Loyalty

Chapter 5


SUMMARY by

In the face of increasing competition, companies today face their toughest test of

survival. Moving from a product-to-sales philosophy to a holistic marketing philosophy,

however, may provide a better chance of outperforming competition. And at the

cornerstone of this philosophy are strong customer relations.

This chapter discusses the importance and various methods of creating customer value

and sustaining customer loyalty. As customers have become more informed and

educated than ever, organisations have started to adopt business models where the

customer is at the top.

Total Customer Benefit It is the perceived monetary value of the bundle of economic, functional, and

psychological benefits customers expect from a given market offering because of the

products, services, personnel and image involved.

Total Customer Cost It is the perceived bundle of costs customers expect to incur in evaluating, obtaining,

using, and disposing of the given market offering, including monetary, time, energy, and

psychological costs.

Very often, a customer value analysis is undertaken by managers to better understand

the company’s strengths and weaknesses in comparison with competition. It follows the

pattern below

1. Identify the major attributes and benefits that customers value.

2. Assess the quantitative importance of the different attributes and benefits.

Total

Customer

Satisfaction:

It is the measure of

a customer’s

feelings of pleasure

or disappointment

that results from

comparing a

product’s perceived

performance to

their expectations.

Satisfaction is

usually measured

with the help of

customer surveys.

The two major

factors involved in

customer

satisfaction are

complaint handling

and product/service

quality.

Chapter 5 - Creating Customer Value, Satisfaction and Loyalty

Trends

3. Assess the company’s and competitors’ performances on the different customer

values on each attribute and benefit.

4. Assess how customers in a specific segment rate the company’s performance

against a major competitor on an individual attribute or benefit basis.

5. Monitor customer values over time as the economy, technology, and features

change.

Customer profitability

A profitable customer is one that over time yields a revenue stream that is significantly

greater than that company’s cost stream for attracting, selling and servicing that

customer.

150-20 Rule The 20% most profitable customers generate as much as 150% of the profits of the

company; the 20% least profitable customers lose 100% of the profits.

Measuring customer profitability lies in the concept of Customer Lifetime Value (CLV).

CLV describes the net present value of the future stream of profits expected over the

customer’s lifetime purchases. CLV calculations are generally used by marketers to

develop a long-term perspective.

Customer Relationship Management (CRM) It is the process of carefully managing detailed information about individual customers

and all occasions where a customer encounters a brand/product to maximise customer

loyalty.

CRM can be conducted using the following 4 steps –

1. Identify your prospects and customers.

2. Differentiate customers in terms of their needs and their value to your

company.

3. Interact with individual customers to improve your knowledge about their

needs and to build stronger relationships.

4. Customize products, services, and messages to each customer.

The value of the customer base can be increased by improved by measures such as

reducing the rate of customer defection, increasing the longevity of the customer

relationship, making low-profit customers more profitable or terminating them, etc.

Building Customer Loyalty

It involves the following procedures –

1. Interacting with customers

2. Developing loyalty programs

3. Personalising marketing

4. Creating institutional ties

Database marketing It is the process of building, maintaining and using customer databases and other

databases to contact, transact and build customer relationships.

Customer Database It contains customers’ past purchases, past volumes, past prices and profits; buyers’

personal details, status of current contacts, the company’s share of the buyer’s

business, competitive suppliers, etc.

Datamining Through datamining, marketers can extract information about individuals, trends, etc.

from the customer database. It uses techniques such as cluster analysis, predictive

modelling, etc.

Disadvantages of Datamining and CRM 1. Building and maintaining a database requires huge amounts of investment in

terms of computer hardware.

2. Convincing employees to be customer oriented than using traditional methods.

3. Customer attitudes about privacy of personal data.

Probability of error of CRM methods or assumptions made thereof.

Chapter 5 - Creating Customer Value, Satisfaction and Loyalty

Trends

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Analyzing Consumer Markets

Chapter 6


SUMMARY by

Since marketing starts from the customer, it is of primary importance to understand the

psyche of the customers and their buying motives. This chapter talks about the various

behavioural patterns that govern the decision making process of a customer. A

marketer needs to understand these factors affecting the customer’s purchase

decisions so as to design an appropriate marketing strategy.

Factors affecting Consumer Buying

Behaviour 1. Cultural Factors

a. Culture - Frames traditions, values, perceptions, preferences. E.g. Child

learning from family & surroundings.

b. Sub-culture - Provides more specific identification and socialization. Include

nationalities, religions, racial groups and geographic regions.

c. Social Class – Homogeneous and enduring divisions in a society which are

hierarchically ordered. Members share similar tastes and behaviour.

2. Social Factors

a. Reference Groups – Have direct or indirect influence on person’s attitude

and behaviour. Primary groups: regular interaction, e.g. family, friends,

neighbours. Secondary groups: religious, professional, trade union groups.

Aspirational Groups: ones that a person hopes to join. Dissociative groups:

whose values or behaviour and individual rejects.

b. Family – Family of orientation: parents and siblings. Acquires orientation

towards religion, politics and economics, sense of personal ambition, self

worth and love. Family of procreation: spouse and children. More direct

influence on buying behaviour.

c. Roles and Status – Role consists of activities a person is expected to

perform. Each role carries a status. Marketers must be aware of the status

symbol of each product.

Chapter 6 - Analyzing Consumer Markets

3. Personal Factors

a. Age and Stage in the Life Cycle – Tastes are age related. Markets should also

consider critical life events or transitions.

b. Occupation and Economic Circumstances – Economic Circumstances like

spendable income, savings, assets, debts, borrowing power etc affect

consumption patterns.

c. Personality and Self Concept – Personality, set of distinguishing

characteristics that influence his/her buying behaviour. Consumers match

brand personality with their ideal self concept instead of their actual self

concept.

d. Lifestyle and Values

4. Psychological Factors

a. Motivation: Freud’s theory of id, ego and super ego; Maslow’s need

hierarchy theory; Herzberg’s two factor model.

b. Perception: Process by which we select, organize and interpret information

inputs. In marketing, perceptions are more important than reality.

c. Learning – Induces changes in behaviour arising from experience. Marketers

can build demand by associating the product with positive drives.

d. Memory – Short term and long term memory. Build brand knowledge and

brand recall as node in memory.

Problem Recogniton

Information Search

Evaluation of Alternatives

Purchase Decision

Postpurchase Behaviour

The Buying Decision Process

• Problem Recognition - Customer recognises a need triggered by internal or

external stimuli. Marketers need to identify circumstances that trigger needs.

• Information Search - Two levels of involvement – Heightened attention when

person becomes more receptive to information about the product. At next level

consumer may enter into active information search, looking for reading

material, phoning friends etc.

• Evaluation of Alternatives - Factors influencing a particular choice over the

other include attitudes, beliefs and expectancy value.

• Purchase Decision - Between purchase intention and purchase decision, 2

intervening factors come into play- Attitudes of others and Unanticipated

situational factors. Marketers should understand that these factors provoke risk

and should provide information to reduce it.

• Post purchase Behaviour - Marketers must monitor postpurchase satisfaction,

postpurchase actions, and postpurchase product uses.

Complex

Buying

Behaviour

Variety Seeking

Dissonance

Reducing

Habitual

Level of customer involvement

Chapter 6 - Analyzing Consumer Markets

Trends

Involvement

High Low

Differences in Brands

Insignificant Significant

1. Complex Buying Behaviour: When a customer purchases something for the

first time.

2. Variety Seeking: Consumers will keep switching varieties just out of

boredom. Eg- Biscuits. Marketer should keep introducing new products and

display the product prominently.

3. Habitual: Buying the same thing out of habit and not out of loyalty.

Distribution network should be excellent in this case. Maintain consistency

in product and advertising.

4. Dissonance Reducing: In case of repeat purchase of same product.

logo copy.tif

Organizatio-

nal buying

is the decision-

making process by

which

organizations

establish the need

for purchased

products and

services and

identify, evaluate,

and choose among

alternative brands

and suppliers.

Analyzing Business Markets and Buyer Behavior

Chapter 7


SUMMARY by

Business buyers purchase goods and services to achieve specific goals, such as making

money, reducing operating costs, and satisfying social or legal obligations. Therefore to

provide superior customer value to the business buyers this chapter familiarizes you

with the underlying dynamics and process of business buying.

Blanket contract establishes a long-term relationship in which the supplier promises to

resupply the buyer as needed at agreed-upon prices over a specified period. Because

the seller holds the stock, blanket contracts are sometimes called stockless purchase

plans.

Product value analysis is an approach to cost reduction in which components are

carefully studied to determine if they can be redesigned or standardized or made by

cheaper methods of production.

The Business Market versus the Consumer

Market • Fewer buyers: Business marketers normally deal with far fewer buyers than do

consumer marketers.

• Larger buyers: Buyers for a few large firms do most of the purchasing in many

industries.

• Close supplier customer relationship: Smaller customer base and importance of

larger customers, suppliers have to customize offerings to meet the needs of

individual customers.

• Geographically concentrated buyers

• Derived demand: Demand for business goods is derived from demand for consumer

goods, so business marketers must monitor the buying patterns of ultimate

consumers.

• Inelastic demand: Not much affected by price changes as producers cannot make

quick production changes.

•

Three types of

Business

Buying

Situations:

Straight rebuy:

situation in which

the purchasing

department

reorders on a

routine basis (e.g.,

office supplies, bulk

chemicals).

Modified rebuy:

situation in which

the buyer wants to

modify product

specifications,

prices, delivery

requirements, or

other terms.

New task:

situation in which a

purchaser buys a

product or service

for the first time

(e.g., office

building, new

security system).

Chapter 7 - Analyzing Business Markets and Buyer Behavior

• Fluctuating demand: Demand for business products is more volatile than consumer

products.

• Professional purchasing: Organizational purchasing policies and constraints are followed

• Multiple buying influences: More people typically influence buying decisions

• Multiple sales calls: Multiple sales calls to win most business orders, and the sales cycle

can take years.

• Direct purchasing: Business buyers often buy directly from manufacturers rather than

intermediaries

• Reciprocity: Business buyers often select suppliers who also buy from them.

• Leasing: Many industrial buyers lease rather than buy heavy equipment to conserve

capital, get the latest products, receive better service, and gain tax advantages.

The Buying Center

(Decision-making unit of a buying organization)

Seven roles in the purchase decision process:

• Initiators: People who request that something be purchased

• Users: use the product or service; often, users initiate the buying proposal and help

define product requirements.

• Influencers: People who influence the buying decision, including technical personnel.

• Deciders: Those who decide on product requirements or on suppliers.

• Approvers: People who authorize the proposed actions of deciders or buyers.

• Buyers: People who have formal authority to select the supplier and arrange the

purchase

• Gatekeepers: People who have the power to prevent sellers or information from reaching

members of the buying center

Major Influences on Business Buying Environmental Factors

Attention to numerous economic factors, including interest rates and levels of production,

investment, and consumer spending. Business buyers also monitor technological, political-

regulatory, and competitive developments.

Organizational Factors

Business marketers need to be aware of the following organizational trends in purchasing:

• Purchasing department upgrading: Strategically positioned and highly

• Cross-functional roles: strategic, technical, team-oriented, and involving more

responsibility

• Centralized purchasing: recentralized their purchasing, to gain more purchasing clout and

savings.

• Decentralized purchasing of small-ticket items

• Long-term contracts: Buyers are increasingly initiating long-term contracts

• Internet purchasing: Low transaction and personnel costs reduce time between order and

delivery, purchasing companies moving towards internet purchasing.

• Purchasing-performance evaluation & incentive systems and buyers’ professional

• Lean production: incorporates just-in-time (JIT) production, stricter quality control,

development frequent and reliable supply delivery, suppliers locating closer to

customers, computerized purchasing, and stable production schedules.

8 stages of PURCHASING PROCESS Stage 1: Problem Recognition

Someone in the company recognizes a problem or need that can be met by acquiring a good

or service. Internally, developing a new product, need for new equipment and materials or

to obtain lower prices or better quality. Externally, occur when a buyer gets new ideas at a

trade show, sees a supplier’s ad, or is contacted by a sales representative offering a better

product. Business marketers can stimulate problem recognition by direct mail,

telemarketing, effective Internet communications, and calling on prospects.

Stage 2: General Need Description

The buyer has to determine the needed item’s general characteristics and the required

quantity. In this stage, business marketers can assist buyers by describing how their products

would meet such needs.

Stage 3: Product Specification

Company assigns a product value analysis (PVA) to engineering team. By getting in early and

influencing buyer specifications, a supplier can significantly increase its chances of being

chosen.

Stage 4: Supplier Search

The supplier should get listed in online catalogs or services develop communications to reach

buyers, and build a good reputation in the marketplace. After evaluating each company, the

buyer will end up with a short list of qualified suppliers

Stage 5: Proposal Solicitation

The buyer invites qualified suppliers to submit proposals. When the item is complex or

expensive, the buyer will require a detailed written proposal from each qualified supplier.

After evaluating the proposals, the buyer will invite a few suppliers to make formal

presentations.

Stage 6: Supplier Selection

The buying center specifies desired supplier attributes (such as product reliability and service

reliability) and indicate their relative. A blanket contract may be established. The buyer’s

computer automatically sends an order to the seller when stock is needed, and the supplier

arranges delivery and billing according to the blanket contract.

Stage 7: Order-Routine Specification

The buyer negotiates the final order, listing the technical specifications, the quantity needed,

the delivery schedule, and so on. In the case of MRO items, buyers are moving toward

blanket contracts rather than periodic purchase orders.

Stage 8: Performance Review

The buyer periodically reviews the performance of the chosen supplier(s). Three methods

are used. The buyer may contact the end users and ask for their evaluations. Or the buyer

may rate the supplier on several criteria using a weighted score method. Or the buyer might

aggregate the cost of poor supplier performance to come up with adjusted costs of

purchase, including price.

Chapter 7 - Analyzing Business Markets and Buyer Behavior

Major

Influences on

Business Buying:

Interpersonal Factors

Buying centers usually

include several

participants with

differing interests,

authority, status,

empathy, and

persuasiveness.

Individual Factors

Each buyer carries

personal motivations,

perceptions, and

preferences, as

influenced by the

buyer’s age, income,

education, job position,

personality, attitudes

toward risk, and

culture.

Cultural Factors

Marketers carefully

study the culture and

customs of each region

to better understand

the cultural factors that

can affect buyers and

the buying

organization.

logo copy.tif

Mass

Marketing:

The seller engages

in mass

production, mass

distribution and

mass promotion

of one product for

all buyers

Identifying Market Segments and Targets

Chapter 8

Marketing ManagementBy Philip, Kevin Lane Keller, Abraham Koshy, Mithileshwar Jha

SUMMARY by

This chapter deals with one of the quintessential concepts of Marketing:

Segmentation, Target and Positioning. It explains different levels of Market Segmentation,

bases for Segmenting Consumer Markets, choosing target Markets & finally analyses the

various requirement for effective segmentation.

Steps in market segmenta

1. Market Segmentation

2. Target Marketing

3. Market Positioning

Levels of Market Segmentation: Micromarketing

A. Segment marketing

characteristics, or wants who might require separate products or marketing mixes.

Segment Marketing offers key benefits over Mass Marketing as the company can

offer better design, price, disclose

better reflect competitors marketing.

B. Niche Marketing

distinctive mix of benefits. Marketers usually define niches by dividing segments into

sub segments. For e.g. Ezee, the liquid detergent from Godrej is a fabric washing

product for woolen clothes.

Identifying Market Segments


SUMMARY by

This chapter deals with one of the quintessential concepts of Marketing:



various requirement for effective segmentation.

Steps in market segmentation, targeting and

positioning

•Identify bases for segmenting the market

•Develop segment profiles

1. Market Segmentation

•Develop measure of segment attractiveness

•Select target segments2. Target Marketing

•Develop positioning for target segments

•Develop a marketing mix for each segment3. Market Positioning


Segment marketing: Dividing a market into distinct groups with distinct needs,



offer better design, price, disclose and also can fine

better reflect competitors marketing.

Niche Marketing: A niche is a more narrowly defined customer group seeking a


egments. For e.g. Ezee, the liquid detergent from Godrej is a fabric washing

product for woolen clothes.


This chapter deals with one of the quintessential concepts of Marketing: STP i.e.



tion, targeting and

Identify bases for segmenting the market

Develop segment profiles

Develop measure of segment attractiveness

Select target segments

Develop positioning for target segments

Develop a marketing mix for each segment


Dividing a market into distinct groups with distinct needs,



and also can fine-tune the marketing program to

is a more narrowly defined customer group seeking a


egments. For e.g. Ezee, the liquid detergent from Godrej is a fabric washing

Chapter 8 - Identifying Market Segments and Targets

C. Local Marketing:

needs and wants of local customer groups in trading areas, neighborhoods and even

individual stores is called as Local Marketing. E.g. Many Banks in Kerala have special

‘NRI Branches’ to cat

abroad.

D. Individual Marketing:

one”,” customized marketing” or “one

customers to de

Paints retailers facilitate customers to mix and match colors of their choice from a

catalogue.

Bases for Segmenting Consumer MarketsA. Geographic Segmentation:

such as nations, cities, states, regions, neighborhoods etc

• Region: South India, Western Region, North, East

• City: Class

• Rural, urban , semi urban areas

B. Demographic Segmentation:

age, family size, family life cycle, gender, income, occupation, education, religion etc.

Demographic variables are easy to measure and are directly associated with customer

needs and wants

Stage1: Bachelorhood

Stage2: Honeymooners

Stage3: Parenthood

Stage4:Post

Stage5: Solitary Survivor(SS)

C. Psychographic Segmentation:

basis of psychological/personality traits, lifestyles or values.

• Lifestyle:

done on three parameters:

• Personality:

D. Behavioral segmentation:

attitude toward, use of, or response to a product. The behavioral variables are as

follows:

• Occasions:


Local Marketing: Target marketing that involves marketing programs tailored to the



‘NRI Branches’ to cater to the needs of customers whose relatives remit money from

Individual Marketing: This is the ultimate level of marketing that leads to “segments of

one”,” customized marketing” or “one-to-one marketing”.

customers to design the product and service offering to their choice. For e.g. Asian


catalogue.

Bases for Segmenting Consumer MarketsGeographic Segmentation: Division of the Market into different geographical Units


Region: South India, Western Region, North, East

City: Class-I cities, class-II cities, Metro cities etc

Rural, urban , semi urban areas

Demographic Segmentation: The market is divided on the basis of variables such as



needs and wants

FAMILY LIFE CYCLE STAGES

•Single,Focus of expenditure on selfStage1: Bachelorhood

•Young married couple without kids,focus on building home and relation

Stage2: Honeymooners

•Full Nest-I,1 child less than 6 yrs old

•Full Nest-II,youngest child under 6

•Full Nest-III: all adult children

Stage3: Parenthood

•Children not living with parents

•Empty Nest1 :Working

•Empty Nest2: Not Working

Stage4:Post-ParentHood

•One spouse dies

•SS-I: Working

•SS-II: Not Working

Stage5: Solitary Survivor(SS)

Psychographic Segmentation: Here buyers are divided into different groups on the


Lifestyle: Culture-oriented, sports oriented, outdoor oriented. Classification is

done on three parameters: AIO-Activities, Interests and Opinions.

Personality: Compulsive, gregarious ,authoritarian ,ambitious

Behavioral segmentation: Buyers are divided on the basis


Occasions: Regular, Special


Target marketing that involves marketing programs tailored to the



er to the needs of customers whose relatives remit money from

This is the ultimate level of marketing that leads to “segments of

one marketing”. Customerization empowers

sign the product and service offering to their choice. For e.g. Asian


Bases for Segmenting Consumer Markets into different geographical Units


The market is divided on the basis of variables such as



LIFE CYCLE STAGES

Single,Focus of expenditure on self

Young married couple without kids,focus on building

I,1 child less than 6 yrs old

II,youngest child under 6

III: all adult children

Children not living with parents

Empty Nest2: Not Working

Here buyers are divided into different groups on the


oriented, sports oriented, outdoor oriented. Classification is

Activities, Interests and Opinions.

Compulsive, gregarious ,authoritarian ,ambitious

Buyers are divided on the basis of their knowledge of,


• Usage Rate:

• Loyalty Status:

• Readiness Stage:

buy

• Attitude towards Product:

Requirements for Effective Segmentation

Chapter 8 - Identifying Market Segments and Targets

Evaluating and Selecting Market SegmentsFive patterns of target market selection that can be followed are:

• Single Segment Concentration

strong knowledge of segments needs and acquires a strong market presence

• Selective Specialization

attractive and appropriate, there may be little or no synergy between the segme

• Product Specialization:

different market segments.

• Market Specialization:

customer.

• Full Market Coverage:

products they may need. E.g. Coca Cola (non

(Software Market) etc.

P = Product

M = Market

Usage Rate: Light, Medium, Heavy

Loyalty Status: None, medium, strong, absolute

Readiness Stage: Unaware, aware, informed, interested, desirous, intending to

buy

Attitude towards Product: Enthusiastic, positive, indifferent, negative, hostile



Evaluating and Selecting Market SegmentsFive patterns of target market selection that can be followed are:

Single Segment Concentration: Concentrated Marketing


Selective Specialization: a firm selects a number of segments. Each objectively

attractive and appropriate, there may be little or no synergy between the segme

Product Specialization: The firm makes a certain product that it sells to several

different market segments.

Market Specialization: The firm concentrates on serving many needs of a particular

customer.

Full Market Coverage: The firm attempts to serve a

products they may need. E.g. Coca Cola (non-alcoholic beverage segment), Microsoft

(Software Market) etc.

P = Product

M = Market

med, interested, desirous, intending to

Enthusiastic, positive, indifferent, negative, hostile



Evaluating and Selecting Market Segments Five patterns of target market selection that can be followed are:

: Concentrated Marketing where the firm gains a


: a firm selects a number of segments. Each objectively

attractive and appropriate, there may be little or no synergy between the segments

The firm makes a certain product that it sells to several

The firm concentrates on serving many needs of a particular

The firm attempts to serve all customer groups with all

alcoholic beverage segment), Microsoft

logo copy.tif

Technological

leapfrogging

is a bypass strategy

practiced in high-tech

industries. The

challenger patiently

researches and

develops the next

technology and

launches an attack,

shifting the

battleground to its

territory, where it has

an advantage.

Dealing with Competition

Chapter 9


SUMMARY by

Building strong brands requires a keen understanding of competition. To effectively devise and

implement the best possible brand positioning strategies, companies must pay attention to

their competitors. Markets have become too competitive to just focus on the consumer alone.

Vertical Integration is to integrate backward or forward i.e. with suppliers and

costumers which often lowers costs and can manipulate prices and costs in different parts of

the value chain.

Benchmarking is the art of learning from companies that perform certain tasks

better than other companies.

Competitive Forces (Michael Porter’s 5 forces) 1. Threat of intense segment rivalry - segment is unattractive if it contains numerous, strong,

or aggressive competitors.

2. Threat of new entrants - segment's attractiveness varies with the height of its entry and exit

barriers. The most attractive segment has high entry barriers and low exit barriers.

3. Threat of substitute products - A segment is unattractive when there are actual or potential

substitutes for the product.

4. Threat of buyers' growing bargaining power - A segment is unattractive if buyers possess

strong or growing bargaining power.

5. Threat of suppliers' growing bargaining power - A segment is unattractive if the company's

suppliers are able to raise prices or reduce quantity supplied.

Identifying Competitors Industry Concept

• Number Of Sellers And Degree Of Differentiation

• Entry, Mobility, And Exit Barriers

• Cost Structure

• Degree Of Vertical Integration

• Degree Of Globalization

Marketing Concept

According to marketing approach, competitors are companies that satisfy the same customer

need. The market concept of competition reveals a broader set of actual and potential

competitors. By mapping the buyer's steps in obtaining and using the product a company's

direct and indirect competitors can be identified.

Chapter 9 - Dealing with Competition

Trends Analyzing Competitors • Strategies: What strategies a company uses to enter/survive in the market?

• Objectives: What are the objectives of the competitor’s and what drives its behavior?

Factors shaping a competitor’s objectives include size, history, current management,

and financial situation.

• Strengths and Weaknesses: A company needs to gather information on each

competitor's strengths and weaknesses.

Three Important Variables for analyzing competitors

• Share of market - The competitor's share of the target market.

• Share of mind - The percentage of customers who named the competitor in

responding to the statement, "Name the first company that comes to mind in this

industry."

• Share of heart - The percentage of customers who named the competitor in

responding to the statement, "Name the company from which you would prefer to buy

the product."

Companies that make steady gains in mind share and heart share will inevitably make gains in

market share and profitability.

Competitive Strategies for Market Leaders Expanding the Total Market

New customers: Potential new users maybe divided into three groups:

• Those who might use it but do not (market-penetration strategy)

• Those who have never used it (new-market segment strategy)

• Those who live elsewhere (geographical-expansion strategy)

More usage: Two ways of increasing usage

• Increasing the level or quantity of consumption: through packaging or product

design or by increasing the availability of product

• Increasing the frequency of consumption: identifying completely new and different

ways to use the brand and communicate the advantages of using the brand more

frequently

Defending Market Share The most constructive response is continuous innovation. The leader leads the industry in

developing new product and customer services, distribution effectiveness, and cost cutting. It

keeps increasing its competitive strength and value to customers.

• Position Defense: It involves occupying the most desirable market space in the minds

of the consumers

• Flank Defense: the market leader should also erect outposts to protect a weak front or

possibly serve as an invasion base for counterattack.

• Preemptive Defense: A more aggressive maneuver is to attack before the enemy starts

its offense. A company can launch a preemptive defense in several ways

• Counteroffensive Defense: the leader can meet the attacker frontally or hit its flank or

launch a pincer movement. An effective counterattack is to invade the attacker's main

territory so that it will have to pull back to defend the territory.

• Mobile Defense: In mobile defense, the leader stretches its domain over new

territories that can serve as future centers for defense and offense through market

broadening and market diversification.

• Contraction Defense: giving up weaker territories and reassigning resources to

stronger territories.

Selecting

Competitors:

Strong versus Weak:

Weak require fewer

resources per share

point gained. The firm

should also compete

with strong

competitors to keep

up with the best.

Close versus Distant:

Most companies

compete with

competitors who

resemble them the

most

"Good" versus "Bad":

should support its

good competitors

(Play by the rules)

and attack its bad

competitors.

Expanding Market Share A company should consider four factors before pursuing increased market share:

• The possibility of provoking antitrust action

• Economic cost

• Pursuing the wrong marketing-mix strategy

• The effect of increased market share on actual and perceived quality

Competitive Strategies for Market Challengers

Defining the Strategic Objective and Opponent(S)

A market challenger must decide whom to attack:

It can attack the market leader. This is a high-risk but potentially high-payoff strategy

It can attack firms of its own size that are not doing the job and are underfinanced

It can attack small local and regional firms

Choosing a General Attack Strategy

• Frontal Attack: The attacker matches its opponent's product, advertising, price, and

distribution

• Flank Attack: Identifying shifts in market segments geographic areas that are causing

gaps to develop, and then rushing in to fill the gaps and develop them into strong

segments.

• Encirclement Attack: The encirclement involves launching a grand offensive on

several fronts. Make sense when the challenger commands superior resources

• Bypass Attack: It means bypassing the enemy and attacking easier markets to

broaden one's resource base. Three lines of approach: diversifying into unrelated

products, diversifying into new geographical markets, and leapfrogging into new

technologies to supplant existing products.

• Guerrilla Warfare: Small, intermittent attacks to harass and demoralize the

opponent and eventually secure permanent footholds (selective price cuts, intense

promotional blitzes, and occasional legal action)

Few more specific strategies: Price discount, Lower price goods, Value-priced goods and

services, Prestige goods, Product proliferation, Product innovation, improved services,

Distribution innovation, Manufacturing-cost reduction, Intensive advertising promotion

Competitive Strategies for Market-Nicher The nicher achieves high margin, whereas the mass marketer achieves high volume. Nichers

have three tasks: creating niches, expanding niches, and protecting niches. Because niches

can weaken, the firm must continually create new ones therefore multiple niching is

preferable to single niching. The key idea in successful nichemanship is specialization. Here

are some possible niche roles:

• End-user specialist: The firm specializes in serving one type of end-use customer.

• Customer-size specialist: The firm concentrates on selling to small, medium-sized, or

large customers.

• Geographic specialist: The firm sells only in a certain locality, region, or area of the

world.

• Product-feature specialist: The firm specializes in producing a certain type of

product or product feature

• Quality-price specialist: The firm operates at the low- or high-quality ends of the

market

• Channel specialist: The firm specializes in serving only one channel of distribution

Chapter 9 - Dealing with Competition

Competitive

Strategies for

Market

Follower:

A market follower must

know how to hold

current customers and

win a fair share of new

customers. It must keep

its manufacturing costs

low and its product

quality and services

high. Four broad

strategies can be

distinguished:

• Counterfeiter -

duplicates the

leader's product and

package and sells it

• Cloner - emulates the

leader's products,

name, and

packaging, with slight

variations.

• Imitator - copies

some things from the

leader but maintains

differentiation in

terms of packaging,

advertising, pricing,

or location.

• Adapter - takes the

leader's products and

adapts or improves

them.

logo copy.tif

Brand:

A name, term, sign,

symbol or design, or a

combination of them,

intended to identify

the goods or services

of one seller or group

of sellers and to

differentiate them

from those of

competitors.

Creating Brand Equity

Chapter 10


SUMMARY by

It is important for the marketer to create a strong brand and maintain customer loyalty. This

chapter talks about the concepts of brand and how branding works. We will understand

what brand equity is, how it is built and measured as well as the decisions involved in

branding strategy.

Brand Equity Added value endowed on products and services. Reflected in way consumers think, feel and

act with respect to a brand. Customer based brand equity – differential effect brand

knowledge has on customer response to the marketing of a brand. Maybe positive or

negative depending on how consumers respond. It has three key ingredients –

• Brand equity arises from differences in customer response

• Differences in response are a result of consumer’s knowledge of the brand. Brand

Knowledge consists of all thoughts, feelings, images, experiences, beliefs and so on that

become associated with the brand

• The differential response is reflected in perceptions, preferences and behaviour related

to all aspects of the marketing of the brand

Marketer must build a strong brand that ensures that the consumers have the right

experiences.

Brand Promise Marketer’s vision of what the brand must be and do for the consumers. The true and future

value depends on customers, their brand knowledge and their likely response to marketing

activity.

Chapter 10 - Creating Brand Equity

Trends Brand Equity Models

Brand Asset Valuator It provides comparative measures of the brand equity of thousands of brands across

hundreds of different categories.

Brand

Element:

Those trademark able

devices that identify

and differentiate the

brand. Most strong

brands employ

multiple brand

elements. Brand

element choice

criteria includes 6

main parameters –

first three being

memorable,

meaningful and

likable (‘brand

building’) and last

three being

transferable,

adaptable and

protective

(‘defensive’).

Up and coming/Niche

JetBlue

Ikea

TiVo

Redbull

Leaders

Google

USA Declining

Pringles Leaders

Nike Kodak

AAA

Tide

New/Undeveloped

Blackberry

Sephora

SAP

Brtish Airways

Eroded/Commoditized

Centrum

Entertainment Weekly

Wells Fargo

Budget Rent-A-Car

Energized Brand Strength

(Differentiation, Relevance, Energy)

Brand Structure

(Esteem & Knowledge)

(E There are the five key components of the model –

1. Differentiation – degree to which a brand is seen as different from others

2. Energy – brand’s sense of momentum

3. Relevance – breadth of brand’s appeal

4. Esteem – how well the brand is regarded and respected

5. Knowledge – how familiar and intimate customers are with the brand

Brand Resonance Model Creation of significant brand equity requires reaching the top or pinnacle of the brand

pyramid, which occurs only if the right building blocks are put into place.

Resonance

Judgement Feelings

Performance Imagery

Salience

• Brand Salience – how often and how easily customers think of the brand under

various purchase or consumption situations.

• Brand Performance – how well the product or service meets customers’ functional

needs

• Brand Imagery - describes the extrinsic properties of the product or service; also the

way in which brand attempts to meet customers’ psychological or social needs

• Brand Judgements – focus on customers’ own personal opinions and evaluations

• Brand Feelings – customers’ emotional responses and reactions with respect to the

brand

• Brand Resonance – nature of the relationship customers have with the brand and the

extent to which they feel they’re “in sync” with it

Brand Audit – consumer focussed series of procedures to assess the health of the

brand, uncover its sources of brand equity and suggest ways to improve and leverage its

equity.

Brand Valuation – Job of estimating the total financial value of the brand.

Devising a Brand Strategy When a firm introduces a new product it has 3 choices –

• Develop new brand elements for the new product

• Apply some of the existing brand elements (Product is called brand extension)

• Use a combination of new and existing brand elements (Maybe called a sub brand)

Brand Portfolios Marketers need multiple brands to cater to multiple markets. The reasons for diversifying

the brand portfolio -

1. Increasing shelf presence and retailer dependence in the store

2. Attracting customers seeking variety who may otherwise have switched to another

brand

3. Increasing internal competition within the firm

4. Yielding economies of scale in advertising, sales, merchandising and physical

distribution

Customer Equity Sum of lifetime values of all customers. The aim of Customer Relationship Management

(CRM) is to produce high customer equity.

Chapter 10 - Creating Brand Equity

Trends

Brand

Reinforcement

Brand needs to be

managed so its value

does not depreciate.

Brand equity

reinforced by

marketing actions that

consistently convey the

meaning of the brand

in terms of what it

represents and how it

makes the products

superior. Reinforcing

requires innovation

and relevance

throughout the

marketing program.

logo copy.tif

Positioning:

Positioning is the act

of designing the

company’s offering

and image to occupy

a distinctive place in

the minds of the

target market.

Positioning requires

determining on a

frame of reference

based on the

following factors:

1. Identifying the

target market.

2. Analyzing the

competition.

Crafting the Brand Positioning

Chapter 11


SUMMARY by

This chapter illustrates how a firm can choose an effective positioning in the market and

differentiate its brand. It describes the various strategies a firm can employ at each stage of a

products life cycle and finally shows the implications of Market evolution for marketing

strategies.

Developing and Communicating a Positioning Strategy

Category Membership: products or set of products with which the brand

competes and which function as close substitutes.

Points of Difference (POD): Attributes or benefits consumers strongly

associate with a brand, positively evaluate and believe they could not find to the same extent

in another brand.

Points of Parity (POP): They are associations that are not unique to the brand

but in fact maybe shared with other brands. It has two forms:

• Category Points of Parity: Associations customers view as essential to a legitimate and

credible offering within a certain product or service category.

• Competitive Points of Parity: Associations designed to negate a competitor’s points-

of-difference.

Choosing POPs and PODs POPs: They are driven by the needs of category membership (to create category POPs) and the

necessity of negating competitors’ PODs (to create competitive PODs)

PODs: The following two criteria are considered while choosing POP’s

Desirability Criteria Deliverability Criteria

Relevance Feasibility

Distinctiveness Communicability

Believability Sustainability

Chapter 11 - Crafting the Brand Positioning

Establishing category membership The typical approach to positioning is to inform consumers about a brands category

membership before stating its points of difference. Initial advertising often concentrates on

create brand awareness and subsequent advertising attempts to craft the Brand Image.

Differentiating Strategies

Competitive Advantages It is a company’s ability to perform in 1 or more ways that competitors can’t match. Two

sustainable competitive advantages are:

• Leverageable Advantage: is one that a company can use as a springboard to new

advantages

• Customer Advantage: is an advantage that a customer sees in the company’s

offering

Dimensions to differentiate Market Offerings

• Personnel differentiation: Better trained employees E.g. smartly dresses flight

attendants of Kingfisher Airlines.

• Channel Differentiation: more effectively and efficiently designed channels,

coverage, expertise and performance.

• Image differentiation: Companies can craft powerful compelling images. E.g.

Marlboro’s “macho cowboy” image.

Product Lifestyle Marketing Strategies Most product life-cycle curves are portrayed as bell shaped curves.

Straddle

Positing:

It is a common

positioning technique

used when a

company tries to

straddle between two

frames of reference.

E.g. BMW through a

well crafted

marketing program

straddled ‘Luxury’

and ‘Performance’ as

both POD and POP.

A company’s positioning and differentiation strategy must change as the product, market and

competitors change over the product life cycle (PLC).

Introduction Growth Maturity Decline

Characteristics

Sales Low Sales Rapidly rising

sales

Peak Sales Declining Sales

Costs High Cost per

customer

Average Cost per

customer

Low cost per

customer

Low cost per

customer

Profits Negative Rising Profits High Profits Declining Profits

Customers Innovators Early Adopters Middle majority Laggards

Marketing

Objectives

Create product

awareness and

trial

Maximize market

share

Maximize profit

while defending

market share

Reduce

expenditure and

milk the brand

Strategies

Product Offer a basic

product

Offer product

extensions,

service, warranty

Diversify brands

and items models

Phase out weak

products

Price Charge cost-plus Price to penetrate

market

Price to match or

best competitors’

Cut price

Distribution Build selective

distribution

Build Intensive

distribution

Build more

intensive

distribution

Go selective: phase

out unprofitable

outlets

Advertising Build product

awareness

among early

adopters

Build awareness

and interest in

mass market

Stress brand

differences and

benefits

Reduce to level

needed to retain

hard-core loyals

Sales Promotion Use heavy sales

promotion to

entice trial

Reduce to take

advantage of

heavy consumer

demand

Increase to

encourage brand

switching

Reduce to

minimum level

Summary of Product Lifecycle Characteristics,

Objectives and Strategies

Chapter 11 - Crafting the Brand Positioning

Trends

Market Evolution • Emergence: Before a market materializes it exists as a latent market. Here the

entrepreneur has three options:

1. Single Niche Strategy: Design a product to meet preferences of 1 segment of the

market

2. Multiple-Niche Strategy: Launch 2 or more products simultaneously to capture 2 or

more parts of the market

3. Mass Market Strategy: Design a product for the middle of the Market

• Maturity

• Decline: Eventually demand for the current products will begin to decrease because

either:

1. Society’s total need level declines

2. New Technology replaces the old

Maturity:

When the

competitors cover all

major segments of

the market maturity

stage occurs.

Competitors invade

each others profits

and as market growth

slows down, market

splits into finer

segments and market

segmentation occurs.

This is often followed

by market

consolidation caused

by the emergence of

a new attribute that

has greater appeal.

Mature markets

swing between

fragmentation and

consolidation.

logo copy.tif

Product:

Anything that can

be offered to a

market to satisfy a

need or want,

including physical

goods, services,

experiences,

events, persons,

places, properties.

Setting Product Strategy

Chapter 12


SUMMARY by

Product is the first and the most important element of a marketing mix. This chapter deals

with various product strategies for making coordinated decisions on product mixes, product

lines, brands, packaging, labeling and warranties and guarantees.

Product Levels Marketers need to address 5 product levels:

• Core Benefit: The benefit a customer really buys. E.g. Hotel guest buys rest and sleep

• Basic Product: e.g. hotel room includes bed, bathroom, desk, dresser, closet, towel etc

• Expected product: attributes that buyers normally expect along with their product.

• Augmented product: attributes that exceed buyer expectations. In developed countries,

brand positioning and competition take place at this level, while in developing countries

it takes place at ‘expected product’ level.

• Potential product: it encompasses all the augmentations and transformations the

product or offering might undergo in the future.

Product classification • Durability and tangibility

1. Nondurable goods: tangible goods that are normally consumed in a day or two. E.g.:

soaps, soft drinks. They are purchased frequently, thus should be made available in

many locations, charged a small markup, and advertised heavily to induce trial.

2. Durable goods: tangible goods that survive many uses. E.g. Clothes, machines.

Require more personal selling, higher margins, more seller guarantees.

3. Services: intangible, variable, perishable products. E.g. Haircuts, repairs. Require

more quality control, supplier credibility, adaptability.

• Consumer goods classification: done on the basis of shopping habits. 4 types-

1. Convenience goods: purchased frequently, immediately, with minimum effort

� Staples: purchased on regular basis

� Impulse goods: purchased w/o planning e.g. Chocolates

� Emergency goods: purchased when need is urgent e.g. Umbrellas

Product Differentiation

Form: this includes size, shape, physical structure.

Features: they supplement the basic function of the product. Company must compare

customer value v/s company cost for each potential feature.

Customization: requires gathering and using information about consumers. Mass

customization is the ability of a company to meet each customer’s requirements.

Performance quality: it is the level at which a product’s primary characteristics

operate. 4 performance levels- low, average, high, and superior. The level must be

appropriate to the target segment and not necessarily the best.

Conformance quality: the degree to which all produced units is identical and meets the

promised specifications.

Durability: buyers generally pay more for more durable products. However, the extra

price must not be excessive and the product must not be subject to rapid technological

obsolescence

Reliability: probability that a product will not fail within a specified time period.

Reparability: the ease of fixing a product when it malfunctions or fails

Style: the product’s look and feel. Creates distinctiveness that is difficult to copy.

Chapter 12 - Setting Product Strategy

2. Shopping goods: goods that consumer compares based on suitability, price etc

� Homogeneous: similar in quality but different in price.

� Heterogeneous: similar in price but different in product features.

3. Specialty goods: they have unique characteristics for which consumers can spend more.

E.g. Cars, men’s suits etc. they don’t require comparison.

4. Unsought goods: those that consumers do not know about or think of buying. E.g.

Insurance, reference books. Require advertising and personal selling.

• Industrial goods classification: done on the basis of relative cost and how they enter the

production process-

1. Materials and parts: those that enter the manufacturer’s product completely.

� Raw materials: 2 kinds- Farm products, which are seasonal and require special

marketing apart from advertising, and Natural products, which are limited in supply

� Manufactured materials and parts: 2 kinds- component materials (e.g. Iron,

cement. These are usually fabricated further), and component parts (e.g. Motors,

tires. These enter the final product w/o change.)

2. Capital items: long lasting goods that facilitate developing or managing the finished

products. They include-

� Installation: includes buildings and heavy equipments. Advertising less important

that personal selling

� Equipment: includes portable factory tools and equipments. Sales force more

important than advertising.

3. Supplies: short term goods that facilitate developing or managing finished products.

They include-

� Maintenance and repair items. E.g. Paint, broom.

� Operating supplies. E.g. Lubricants, writing paper, pencils.

4. Business services: short term services that facilitate developing or managing finished

products. They include-

� Maintenance and repair services. E.g. Air conditioner maintenance.

� Business advisory services. E.g. Management consulting, advertising.

Differentiation

Straddle

Positing:

It is a common

positioning technique

used when a

company tries to

straddle between two

frames of reference.

E.g. BMW through a

well crafted

marketing program

straddled ‘Luxury’

and ‘Performance’ as

both POD and POP.

Services Differentiation

Ordering ease: ease of placing an order

Delivery: includes speed, accuracy, and care throughout the process.

Installation: work done to make a product operational in its planned location. Becomes

a selling point when the target market is technologically novice.

Customer training: training customer’s employees to use vendor’s equipment

efficiently and properly.

Customer consulting: data, information and advice services that seller offers to buyers.

Maintenance and repairs: helps customers keep products in working order.

Returns: they are of two types-

1. Controllable: result from problems, difficulties, or errors of seller or customer and

can be eliminated with proper strategies.

2. Uncontrollable: can’t be eliminated by the company in the short run.


Product Hierarchy 1. Need family: the core need that underlies the existence of a product family. E.g.

Security.

2. Product family: product classes that satisfy a core need. E.g. Savings and income

3. Product class: a group of products within a family that have functional coherence

4. Product line: a group of products within a class that perform similar function, are sold

to same customers, are marketed through same channels. E.g. Life insurance.

5. Product type: a group of items within a line that share of possible forms of the

product. E.g. Term life insurance.

6. Item: a distinct unit within a brand or product line distinguishable by size, price,

appearance, etc. ICICI prudential term life insurance.

Product system: a group of diverse but related items that function in a

compatible manner.

Product Mix

It is the set of all products and items a particular seller offers for sale.

• Width: how many product lines the company carries.

• Length: the total no. of items in the mix.

• Depth: how many variants are offered of each product in the line?

• Consistency: how closely related the various product lines are in end use.

Product line Product line analysis: based on –

• Sales and Profit: a company can classify its products based on the margins.

o Core products: basic products that have a high sales volume but with low margins

as they are essentially undifferentiated commodities. E.g. Basic computers.

o Staples: lower sales volume, higher margins, no promotions. E.g. Faster CPU

o Specialties: lower sales volume, highly promoted. E.g. Installation, delivery.

o Convenience items: peripherals selling in high volumes, less promotion, high

margins. E.g. Software, carry cases.

• Market Profile: product line managers must review how the line is positioned against

competitor’s lines.

Product line

length:

Companies seeking

higher market share

have longer product

lines, those seeking

higher profitability

have shorter product

lines. They lengthen

over time. Excess

manufacturing forces

production of newer

items. However,

other costs increase

and thus some non

performing items are

eliminated.


Line stretching: occurs when companies try to go beyond their current range

offered. Companies stretch in the following ways-

• Down Market Stretch: introducing lower-priced line than the one being offered. It can be

risky as the price may not be less enough for competitors or some customers may shift the

cheaper version.

• Up-Marker Stretch: entering high end of market for better growth, higher margins.

• Two way Stretch: middle level companies entering both high end and low end markets.

Helps in establishing market dominance. E.g. Titan started as mid level watch, and then

introduced Sonata for low end and Edge, Xylus for high end.

Note: a high end model of a low end brand is preferred over a low end model of a high end

brand.

Line filling: lengthening product line by introducing more items in the present range.

Line modernization, Featuring and Pruning: product

lines need to change with the times. Can be done piecemeal or all at once. Piecemeal allows

company to gauge the effect of change on consumers, but allows competitors to copy and

pose greater challenge. Improvements must not occur too early (as they will affect sales of

current product) and too late (as competitors would get more time).

The company may choose between featuring their most selling items and promoting their

weak items from time to time.

Companies also need to optimize their brand portfolio. For this, they need to identify the weak

items, and weed them away. E.g. Unilever found only 400 of its 1600 items generated 90% of

company’s profits.

Product-Mix Pricing: searching for a set of prices that maximizes profits on

the total mix.

• Product Line Pricing: companies develop product lines and introduce price steps. Their

task is to establish perceived quality differences that justify price differences.

• Optional Feature Pricing: e.g. Automobile cos. Advertise entry level models at low prices

to attract more customers. These modes are stripped of several features that buyers

usually end up buying.

• Captive Product Pricing: e.g. Manufacturers of razors price them low and set high markups

on razor blades. If price is too high, counterfeiting and substitutions can erode sales.

• Two-Part Pricing: fixed fee+ variable usage fee. Fixed fee should be low to encourage more

sales; profit can be maximized from variable fees.

• By-Product Pricing: e.g. Production of petroleum products produces several by products. If

producer can sell these to the customer, he can price the main product lower.

• Product Bundling Pricing

1. Pure bundling: products offered only as bundles. E.g. tour operators bundle stay and travel.

2. Mixed bundling: products offered individually as well as in bundles. E.g. Auto

manufacturers. Customers may not plan to buy all components, but may be lured by the

saving.


Co-Branding: 2 or more brands are combined into a joined product or are

marketed together in some fashion. It includes same company co-branding (Gillette launched

Mach 3 Turbo with its shaving gel), joint venture co-branding (Indian oil and Citibank co-

branded credit cards), multiple sponsor co-branding ( Taligent, a one time alliance of Apple,

IBM and Motorola) and retail co-branding (2 retail establishments using the same location to

optimize space and profits).

It allows products to be convincingly positioned and generating greater sales as 2 well known

images are combined.

However, consumer expectations with the level of involvement are high, so an unsatisfactory

performance will be damaging for the partner company as well.

For co-branding to succeed, both brands must have brand equity, and must fit in terms of

values, goals and capabilities.

Packaging: activities of designing and producing containers for a product. Packages

may include 3 levels of materials. Package is the buyer’s first encounter with the product.

Factors leading to growing use of packaging:

• Self service

• Consumer affluence

• Company and brand image: package leads to instant recognition of brand

• Innovation opportunity: packaging can be used to target different segments.

Packaging needs to achieve the following objectives:

• Identify the brand

• Convey descriptive and persuasive information

• Facilitate product transportation and protection

• Assist at-home storage

• Aid product consumption

After designing, the packaging needs to be tested:

• Engineering tests: ensure that package stands up under normal circumstances

• Visual tests: ensure that script is legible and colors harmonious

• Dealer tests: dealers should find package attractive and easy to handle

• Consumer test: buyers must respond favorably

Labeling: labels identify the product, grade the product, describe the product and

promote the product (through attractive graphics).

Warranties and Guarantees: warranties are formal statements of

expected product performance by the manufacturer. Products under warranties can be

returned to the manufacturer for replacement, repair.

Guarantees reduce the buyer’s perceived risk. They are especially helpful when the company is

not well known or when product quality is superior to that of competitors.

Ingredient

Branding:

special case of co-

branding. It created

brand equity for

materials,

components, parts

that are contained

within other branded

products. Ingredient

brands create

preference for their

products so that

customers do not but

a host product which

does not have that

ingredient.

logo copy.tif

Designing and Managing

Services

Chapter 13


SUMMARY by

Today as product companies find it harder and harder to distinguish their physical products,

they turn to service differentiation. Service providers find significant profitability in delivering

superior services.

How do we define and classify services and how do

they differ from goods• A service is any act or performance one party can offer to another that is

intangible and does not result in the ownership of anything .Its production may or may

not be tied to physical product Categories of services mix.

• Services can be equipment based or people based & they differ in their objectives and

ownership.

• Service companies can choose among different processes to deliver their service.

• Services needs client presence & may meet a personal or business need.

Pure Tangible Goods

Tangible Goods with

accompanying services

Hybrid

Major service with

accompanying minor

goods and services

Pure Service

Service

marketing is

different from goods

marketing as service

consumer relies on

word of mouth, they

rely heavily on price,

personnel & physical

cues to judge

quality. They are

highly loyal to

service providers

who satisfy them &

because switching

costs are high,

consumer inertia

can make it

challenging to entice

a customer away

from a competitor.

Designing and Managing

3


SUMMARY by


service differentiation. Service providers find significant profitability in delivering

superior services.


they differ from goods A service is any act or performance one party can offer to another that is



Services can be equipment based or people based & they differ in their objectives and

ownership.

Service companies can choose among different processes to deliver their service.

Services needs client presence & may meet a personal or business need.

Categories of services mix

• No services accompany the product. E.g

Soap,toothpastePure Tangible Goods

•The offering accompanied by one or more services E.g

Computers, Cell Phones & cars

Tangible Goods with

accompanying services

•The offering contains equal parts goods and services. E.g

restaurantsHybrid

•The offering consists of major service along with

additional services or supporting goods. E.g Airplane

travel alog with its services

Major service with

accompanying minor

goods and services

•The Offering consists of only a service.E.g psycotherapyPure Service



service differentiation. Service providers find significant profitability in delivering


A service is any act or performance one party can offer to another that is essentially



Services can be equipment based or people based & they differ in their objectives and

Service companies can choose among different processes to deliver their service.

Services needs client presence & may meet a personal or business need.

Categories of services mix

No services accompany the product. E.g

The offering accompanied by one or more services E.g

Computers, Cell Phones & cars

The offering contains equal parts goods and services. E.g

The offering consists of major service along with

additional services or supporting goods. E.g Airplane

The Offering consists of only a service.E.g psycotherapy

Chapter

External Marketing

•It describes the normal

work of

preparing,pricing,distribut

ion,and promoting the

service to customers.

Intangibility

Inseparability

Variability

Perishability

Distinctive Characteristics of Services

Developing Brand Strategies for services

Identify what is most valuable to customer and include repair & maintainence services

Create a brand hierarchy and brand portfolio that permits positioning, targeting of

desgin marketing communication, information programs and building brand personality

Chapter 13 - Designing and Managing Services

Holistic Marketing for Services

External Marketing

It describes the normal

preparing,pricing,distribut

ion,and promoting the

service to customers.

Internal Marketing

•It describes the training

and motivating

employees to serve the

customers well.Engage

every employee in the

organization to practise

marketing

• Services are intangible Service marketers must be able to transform

intangible services into concrete benefits.Intangibility

• Services are typically produced and consumed simultaneously .Thus

service providers must learn to work in larger groups to provide

services to customersInseparability

•Services are variable and buyers are aware of this variability and often

talk to others about quality before selecting a services.

•Invest In Good Hiring

•Standardize the service-performance process

•MonitorCustomer Satisfaction process

Variability

•Services cannot be stored hence there is always a mismatch between

demand & supply.Stratgies that marketers must use :

•Demand Side - Differential Pricing,Nonpeak Demand,Complementary

Services,Reservation Systems

•Supply Side - Part-Time employees ,Peak Time efficiency,Increased

consumer participation,shared services,Facilities for future expansion

Perishability



Provide Post-Sales support


Devising Branding Stratgey


different market segments

Establishing Image Dimensions


Chosing Brand Elements

Focus on logos,symbols,slogans to build brand awareness

Designing and Managing Services

Marketing for Services

Interactive Marketing

•It describes the employee

skills in serving the client

Services are intangible Service marketers must be able to transform

intangible services into concrete benefits.

Services are typically produced and consumed simultaneously .Thus

service providers must learn to work in larger groups to provide

Services are variable and buyers are aware of this variability and often

talk to others about quality before selecting a services.

performance process

Services cannot be stored hence there is always a mismatch between

demand & supply.Stratgies that marketers must use :

Differential Pricing,Nonpeak Demand,Complementary

Time employees ,Peak Time efficiency,Increased

consumer participation,shared services,Facilities for future expansion



Sales support


Devising Branding Stratgey


Establishing Image Dimensions


Focus on logos,symbols,slogans to build brand awareness

Best Practices of Service Quality Management

Chapter 13 - Designing and Managing Services

Trends

STRATEGIC

COMPONE

NT

•Top

companies

are

customer

obsessed

•They have

clear sense

of target

customer

and their

need

TOP

MANAGEM

ENT

COMMITME

NT

•Thorough

commitme

nt to

service e.g

Marriot,Xer

ox

•Both

financial &

service

performanc

e

monitored

by top

manageme

nt

HIGH

STANDARDS

•Setting

high

service

standards

•developing

reliable,resi

lient &

innovative

customer

Intefrace

systems

SELF-

SERVICE

TEHNOLOGI

ES

•replacing

person to

person

interaction

s with self

service

technologie

s e.g ATMs

•Helping

customers

to use

these

facilities

MONITORIN

G SYSTEMS

•Auditing

service

performanc

e of own &

competitor

s

SATISFYING

EMPLOYEES

&

CUSTOMERS

•Instilling a

possitive

attitude

about

customer

satisfaction

in

employees

logo copy.tif

Pricing

Environment:

Many firms are

nowadays following

the low-price trend

and have seen success

in converting the

acquired customers to

more expensive

products by

combining unique

product formulations

and engaging

marketing campaigns.

Developing Pricing Strategies and Programs

Chapter 14


SUMMARY by

Traditionally, price has been the major determinant of a buyers’ choice. And this is still the

case with large segments of markets across the world. Although non-price factors have

recently risen in importance, pricing remains an important factor in determining sales and

profitability. Also, price is the only component in the marketing mix that provides revenue and

not costs.

Buyers can : • Get instant price comparisons from thousands of vendors: Websites like

pricescan.com offer data about products like prices and reviews from hundreds of

merchants.

• Name their prices: The consumer can state his desired price for a product and find the

seller willing to meet this price on sites like priceline.com. Also, volume-aggregating

sites collate orders from many customers and press the supplier for a deeper discount.

• Get products free: The open source software movement has eroded margins for

almost any major software player. Also, the recent emergence of low-cost airlines

providing tickets only for the amount of taxes levied on a ticket is an example how

firms have been successful with free offerings.

Sellers can : • Monitor customer behaviour and customize offers: Firms use software to analyse

pricing requests with pricing factors such as past sales data, discounts, etc. to reduce

processing time of these requests greatly.

• Offer certain customers special prices: Certain customers are offered lower prices by

firms in order to capture a certain market segment on ensure the loyalty of existing

customers further.

Setting the price Firms set a price when they introduce a new product, or venture into a new market with an

existing product. This is usually achieved by following a six-step process as follows

Chapter 14 - Developing Pricing Strategies and Programs

Step 1: Selecting the Pricing Objective – The firm first decides where it wants to position

its market offering. The five major pricing objectives are

• Survival: Companies pursue survival if they are plagued with over-capacity, intense

competition, or changing consumer wants.

• Maximum current profit: Many firms try to set a price that maximises their current

profits and delivers a high return on investment.

• Maximum market share: Here, firms believe that a higher sales volume will lead to

lower unit costs and higher long-run profits and thereby maximise their market

share.

• Maximum market skimming: Companies offering new technologies often set high

prices initially in order to gain high profits from various segments of the market

early on.

• Product-Quality Leadership: Many firms aspire to be the product-quality leader in

the market.

Step 2: Determining Demand – Each price leads to a different level of demand and

therefore has a different impact on a company’s marketing objectives. The factors

entailing this are

• Price Sensitivity: The relation between price and demand, i.e. the demand curve can

be analysed to determine the market’s probable purchase quantity at various prices.

This helps a firm to maximise its profits.

• Estimating Demand Curves: Most companies use the following methods to estimate

demand curves: Market Surveys, Price Experiments, Statistical Analysis, etc.

• Price Elasticity: Marketers need to know how responsive, or elastic, the demand

would be, to a change in price. If the price elasticity is high, increasing prices would

lead to a great reduction in demand, while decreasing prices would lead to increase

in demand. Hence, marketers prefer inelastic markets where price changes do not

elicit great shifts in demand.

Step 3: Estimating Costs – While demand sets a ceiling on the range of price a firm can

charge for its product, costs determine the floor.

• Types of Costs and Levels of Production: Costs are classified as Fixed costs and

Variable costs. Fixed costs include salaries, electricity bills, etc. which do not depend

upon quantity produced. Variable costs include processing costs, packaging costs,

shipping costs, etc. which depend upon quantity produced. Hence, companies must

decide on a level of production which will more or less guarantee no losses on the

cost of production.

• Accumulated Production: As firms gain experience in production of a good, the

costs involved begin to decline. This is due to various factors such as workers finding

shortcuts, smoother flow of materials, etc. This decline in cost with production

experience is called experience curve.

• Target Costing: Other than production scale and experience, costs also change a

result of concentrated efforts by designers, engineers, purchase agents etc. They

examine each cost component and try to find ways to reduce the costs involved in

each of these.

Consumer

psychology and

pricing:

• Reference prices:

Consumers often employ

reference prices,

comparing an observed

price to an internal

reference price or a posted

‘regular retail price’.

Sellers manipulate this by

product positioning,

suggesting that the actual

price of the product is

much higher or by

pointing to a competitor’s

high price.

• Price-Quality inferences:

Many consumers use price

as an indicator of quality.

High-price cars are

perceived to be of higher

quality and vice versa.

• Price cues: Consumer

perceptions of prices are

also affected by the

manner in which prices are

displayed. Many sellers

believe setting a price of

Rs.2999 puts a product

into the 2000 range

instead of the 3000 range

as perceived by the

consumer. Putting ‘Sale’

signs near the price

display have also been

known to be effective.

Step 4: Analyzing Competitors – The introduction of any change in price, cost, offers given by

any seller can elicit a response in the market.

A firm must analyse the value offered by a competitor to a customer in terms of prices, add-

ons, post-sale services, etc. and thereby modify its own price in order to be competitive in the

market.

Step 5: Selecting Pricing Methods – There are six major pricing methods:

• Mark-up Pricing: The most elementary pricing method is to add a standard mark-up to

the producer’s cost.

• Target-return Pricing: In target-return pricing, the firm determines the price that would

yield its target return on investment.

• Perceived-value Pricing: Perceived-value pricing is made up of several factors like the

buyer’s image of the product, the channel deliverables, warranty quality, customer

support, supplier’s reputation, etc.

• Value Pricing: Here, high quality products are assigned a fairly low price. The basic aim

here is to attract a value-conscious customer base by reengineering the company to

become a low-cost producer without sacrificing quality.

• Going-rate Pricing: Here, firms base their prices largely on competitors’ prices, charging

nearly the same as major competitors in the market do.

• Auction-type Pricing: There are three types in this pricing method –

English Auctions (Ascending bids): Here, the seller puts up an item and the bidders raise

the price until the top price is reached.

Dutch Auctions (Descending bids): Here, the seller announces a high price and then goes

on lowering the price until a bidder accepts it. Or, a buyer announces his desire for a

product and sellers compete to offer him the lowest price.

Sealed-bid Auctions: Here, potential suppliers submit their bids without knowledge of

other bids made and the best bid is selected.

Step 6: Selecting the Final Price – After the pricing methods have narrowed the range of the

price, the company selects the final price by taking into account factors as listed below:

• Impact of other marketing activities: The final price must take into account the brand’s

quality and advertising relative to the competition.

• Company Pricing Policies: The final price must be compliant with the company’s pricing

policies.

• Gain-and-Risk-sharing Pricing: Buyers may resist accepting a supplier’s proposal because

of a high perceived level of risk. Hence, the seller has the option of offering to absorb part

or all of the risk if the promised value is not delivered.

• Impact of price on other parties: The final price’s effect on other parties such as

distributors, dealers, competitors, government should also be taken into account by the

management.

Adapting the Price • Geographical Pricing

• Price Discounts and Allowances

• Promotional Pricing

• Differentiated Pricing

Chapter 14 - Developing Pricing Strategies and Programs

Trends Initiating and

responding to

price changes:

• Initiating price

cuts: Companies

sometimes initiate

price cuts in order to

dominate the market

through lower prices.

• Initiating price

increases: Companies

initiate price increase

to increase their profits

by taking into account

the feasibility of the

price rise. A major

factor leading to these

price increases is over

demand, where the

company cannot

supply all its customers

and hence raises its

prices.

• Responding to

competitors’ price

changes: Firms respond

to price cuts/raises by

competitors by

considering various

factors like the

product’s stage in the

life cycle, its

importance in the

company portfolio, etc.

Kotler Summary

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