Marketing Orientation

COMPANY ORIENTATION TOWARDS MARKETPLACE

1. PRODUCTION - EASY AVAILABILITY AND LOW COST

2. PRODUCT - SUPERIOR PRODUCTS, INNOVATIVE FEATURES

3. SELLING - AGGRESSIVE SELLING & PROMOTION

4. MARKETING / CUSTOMER - FOCUS ON CUSTOMER

5. SOCIETAL MARKETING - CUSTOMER & SOCIETY

3

HOLISTIC MARKETING DIMENSIONS

Internal Marketing

Marketing

Department

Senior

Management Other

Departments

Socially Responsible Marketing

Holistic

Marketing

Integrated Marketing

Communications

Product &Services

Channels

Integrated Marketing

Customers Channel Partners Ethics Environment Legal Community

SELLING V/S MARKETING

SELLING MARKETING

STARTING POINT

MEANS

ENDS

PRODUCT

AGGRESSIVE SELLING & PROMOTION

PROFITS THRU SALES VOLUME

CUSTOMER NEEDS

SUPERFLUOUS SELLING

PROFITABILITY THROUGH CUSTOMER SATISFACTION

PILLARS OF MARKETING / CUSTOMER ORIENTATION

1. CLEAR DEFINITION OF TARGET MARKET (DEMOGRAPHICS, PSYCHOGRAPHICS, MEDIAGRAPHICS, GEOGRAPHICS)

2. PERFECT UNDERSTANDING OF CUSTOMER NEEDS

3. INTEGRATE / COORDINATE ALL ACTIVITIES (INTER & INTRA DEPT)

4. PROFITABILITY THROUGH CUSTOMER SATISFACTION

THUS CUSTOMER ORIENTATION MEANS

1. OBSESSED WITH CUSTOMER & AWARE OF COMPETITOR

2. MONITOR UNFULFILLED NEEDS CONTINUOUSLY THROUGH RESEARCH.

3. FUTURISTIC - MARKETING EXPENDITURE AN INVESTMENT

4. MARKETING CULTURE - CUSTOMER OVERRIDES ORGANISATIONAL INTERESTS

5. SPEED IN RESPONSE TO CUSTOMER’S PROBLEMS

6. CONSISTENCY IN DELIVERY OF VALUES, SATISFACTION

7. CUSTOMER RETENTION STRATEGIES

8. MASS CUSTOMIZATION

9. INTERACTIVE AND CUSTOMER FRIENDLY DELIVERY SYSTEMS

10. LOOKING AT CONSUMPTION SYSTEM RATHER THAN PRODUCT FOR AUGMENTATION

11. ALL DEPARTMENTS THINK CUSTOMER

12. CUSTOMER SATISFACTION - GOAL & MARKETING TOOL

WHAT IS MARKETING

ALL ACTIVITIES DESIGNED TO GENERATE AND FACILITATE EXCHANGE OF PRODUCTS AND VALUES INTENDED TO SATISFY HUMAN NEEDS AND WANTS.

MARKETING MANAGEMENT IS THE PROCESS OF PLANNING AND EXECUTING THE CONCEPTION, PRICING, PROMOTION, AND DISTRIBUTION OF IDEAS, GOODS, AND SERVICES TO CREATE EXCHANGE THAT SATISFY INDIVIDUAL AND ORGANIZATIONAL GOALS.

MARKETER’S TASK

DEMAND MANAGEMENT (Level, Timing & Composition)

STATES OF DEMAND

NEGATIVE - Redesign Mix

NO DEMAND – Connect Benefits to Need

LATENT – Measure

FALLING – Creative Remarketing

IRREGULAR - Use Synchro Marketing

FULL – Maintain

OVERFULL – Use Selective Demarketing

UNWHOLESOME – Use Laws, Fear, Price Hike, Reduced Availability

CORE CONCEPTS OF MARKETING

NEEDS – Deprivation of basic satisfaction

WANTS –specific satisfiers of need

DEMAND-wants backed by ability and willingness to buy

PRODUCTS- anything( Physical good, service,person, idea0 that can satisfy a need or want

UTILITY & VALUE &-SATISFACTION

EXCHANGE-A value creating process

TRANSACTION-Trade of values between parties

RELATIONSHIPS-relationship marketing V/s transaction marketing

MARKETS-all potential customers

MARKETING

PRODUCTS

SERVICES

PERSONS

PLACES

ACTIVITIES

IDEAS

11

The Four P Components of the Marketing Mix

Marketing Mix

Product Product variety

Quality Design

Features Brand name Packaging

Sizes Services

Warranties Returns

Price List Price

Discounts Allowances

Payment period Credit terms

PromotionSales promotion

Advertising Sales force

Public relations Direct marketing

PlaceChannelsCoverage

Assortments Locations Inventory Transport

Target market

MARKETING MIX - 7 PS

PRODUCT

PRICE

PLACE

PROMOTION

PEOPLE

PACE (PROCESS)

PROOF OF PERFORMANCE

CHOICE OF MARKETING MIX DEPENDS ON TARGET MARKET & POSITIONING

13

Expanded Marketing Mix For Product/Service

Product Place Promotion Price

Physical good features Channel type - Promotion blend Flexibility

Quality level coverage - Salespeople Price level

Services Intermediaries Number CreditTerms

Packaging Outlet locations Selection Differentiation

sizes Training Payment period

Warranties Transportation Incentives Discounts

Storage - Advertising Allowance

Branding Targets

variety Media types

Design ,style Types of ads

Copy thrust

- Sales promotion

- Publicity

-direct mktg

14

People Physical evidence Process

- Employees Facility design - Flow of activities

Recruiting Equipment Standardized

Training Signage Customized

Motivation Employees dress - Number of steps

Rewards - Other tangibles Simple

Teamwork Reports Complex

- Customers Business cards - Customer involvement

Education Statements

Training Guarantees

RESPONSIVE V/S CREATIVE MARKETER

1. STATED NEED - PRODUCT DEMANDED E.g. INEXPENSIVE CAR

2. REAL NEED - FUNCTIONAL BENEFIT DESIRED E.g. LOW MAINTENANCE COST

3. UNSTATED NEED - EXPECTATION FROM COMPANY E.g. DEALER SERVICE

4. DELIGHT NEED-Eg COMPLIMENTARY GIFT

5. SECRET NEED - EMOTIONAL BENEFIT - E.g. SEEN BY OTHERS AS VALUE ORIENTED BUYER

CUSTOMER SATISFACTION V/S DELIGHT

PERCEIVED PERFORMANCE = EXPECTATIONS OK / SATISFIED

PERCEIVED PERFORMANCE < EXPECTATIONS DISSATISFIED/ UNHAPPY

PERCEIVED PERFORMANCE > EXPECTATIONS DELIGHTED

DELIGHTED CUSTOMERS HAVE EMOTIONAL AFFINITY WITH BRAND & HENCE LOYALTY.

EXPECTATIONS BASED ON PAST BUYING EXPERIENCE, ADVERTISEMENTS, FRIENDS, COMPETITORS EXPECTATIONS, PRICE, BENCHMARKING.

EXPECTATIONS DIFFER BASED ON PRODUCT, CUSTOMER.

17

Tools to track customer satisfaction

• Complaint and suggestion systems• Customer satisfaction surveys• Ghost shopping• lost customer analysis

• Cautions to be exercised in C.S. surveys• Definition in detail• Manipulation by customers and managers

18

The Customer-Development Process

Suspects

Prospects

First-timecustomers

Repeatcustomers

Clients

Members

Advocates

Partners

Disqualified Prospects

Inactive of Ex-customers

DEFINING CUSTOMER VALUE

EXCELLENT PRODUCT IS OF NO USE IF IT FAILS TO MEET CUSTOMER NEEDS. A COMPANY SHOULD BE SKILLED IN MARKET ENGINEERING NOT JUST PRODUCT ENGINEERING.

CUSTOMER DELIVERED VALUE

CUSTOMER DELIVERED VALUE is the difference between total customer value and total customer cost. TOTAL CUSTOMER VALUE is the bundle of benefits customers expect from a given product or service. TOTAL CUSTOMER COST is the bundle of costs customers expect to incur in evaluating, obtaining, and using the product or service.

CUSTOMER DELIVERED VALUE

PRODUCT

SERVICE

PERSONNEL

IMAGE

MONETARY VALUE

TIME COST

ENERGY COST

PSYCHIC COST

TOTAL CUSTOMER VALUE

TOTAL CUSTOMER COST

CUSTOMER DELIVERED VALUE

DELIVERING CUSTOMER VALUE

1. MICHAEL PORTER’S GENERIC VALUE CHAIN

2. BENCHMARK AGAINST COMPETITION

3. VALUE CHAIN OF SUPPLIERS, DISTRIBUTORS, CUSTOMERS TO CREATE SUPERIOR VALUE-DELIVERY NETWORK

23

GENERIC VALUE CHAIN

• PRIMARY ACTIVITIES• Inbound Logistics• Operations• Outbound Logistics• Marketing and Sales• Service• SUPPORT ACTIVITIES• Procurement• Technology development• Human resource Management• Firm Infrastructure

CORE BUSINESS PROCESS

1. NEW PRODUCT REALIZATION PROCESS

2. INVENTORY MANAGEMENT PROCESS

3. ORDER TO REMITTANCE PROCESS

4 CUSTOMER SERVICE PROCESS

5 MARKET SENSING PROCESS

6 CUSTOMER ACQUISITION PROCESS

7 CUSTOMER RELATIONSHIP MANAGEMENT PROCESS

CUSTOMER VALUE BUILDING APPROACHES - BERRY & PARASHURAMAN

1. ADDING FINANCIAL BENEFITS-FREQUENCY MARKETING PROGRAMS AND CLUBS

2. ADDING SOCIAL BENEFITS-INDIUALIZING AND PERSONALIZING RELATIONSHIPS

3. ADDING STRUCTURAL TIES-SUPPLY CUSTOMERS WITH SPECIAL EQUIPMENT OR COMPUTER LINKAGESTHAT HELP CUSTOMERS MANAGE THEIR ORDERS,PAYROLL, INVENTORY ETC

CUSTOMER RELATIONSHIP BUILDING

BASIC MARKETING – Simply Sell

REACTIVE MARKETING – Sell & encourage customer to call if any Questions, comments or complaints.

ACCOUNTABLE MARKETING – Salesman phones after sale

PROACTIVE MARKETING – Salesperson contacts from time to time with suggestions about improved product uses or new products

PARTNERSHIP MARKETING – Company works continuously with customer to discover ways to effect customer savings or help customer perform better.

LEVELS OF RELATIONSHIP MARKETING

HIGH MARGIN

MEDIUM MARGIN

LOW MARGIN

Many customers/ distributors

Accountable Reactive

Accountable

Basic or reactive

Proactive ReactiveMedium number of customers/ distributors

Proactive AccountableFew customers / distributors

Partnership

LIFE TIME VALUE OF CUSTOMER

1. Lost customer revenue

2. Lost opportunity revenue

3. Customer replacement costs

COST OF ACQUISITION

1. COST OF AVERAGE SALES CALL = TOTAL COST

(SALARY, COMMISSION, BENEFITS, TOTAL SALES CALLS

EXPENSES)

2. AVERAGE NUMBER OF SALES CALLS = TOTAL SALES CALLS

TO CONVERT AVERAGE PROSPECT TOTAL NO. OF NEW

TO CUSTOMER CUSTOMERS

3. COST OF ATTRACTING NEW CUSTOMER = 2 X 1

30

Service Encounters or Moments of TruthService encounters are the building blocks of service quality

& satisfaction

- Every experience with product, service or person which allows customer to judge/ form impressions about the qualityof service is a moment of truth.

- It takes 10 good moments of truth to wipe one bad moment oftruth.

- Disney Corporation 74 service encounters in amusementpark. Marriott Hotels - 4 of the top 5 factors come into play infirst 10 minutes of guest’s stay.

• Types of service encounters- remote, phone, face to face.- In remote - tangible evidence & technical quality important.- In phone- process quality - In face to face - customer also play role.

31

CUSTOMER / PRODUCT PROFITABILITY ANALYSISCustomers

Products

C1 C2 C3

P1 +

+

+

Highly profitable product

P2 +

Profitable product

P3 -

-

Losing product

P4+

-

Mixed bag product

High-profit customer

Mixed-bag customer

Losing customer

32

Sample Marketing Metrics

I. External II. Internal

Awareness Awareness of goals

Market share (volume or value) Commitment to goals

Relative price (market share value/volume) Active innovation support

Number of complaints (level of dissatisfaction) Resource adequacy

Customer satisfaction Staffing/skill levels

Distribution/availability Desire to learn

Total number of customers Willingness to change

Perceived quality/esteem Freedom to fail

Loyalty/retention Autonomy

Relative perceived quality Relative employee satisfaction

33

Sample Customer-Performance Scorecard Measures

•Percentage of new customers to average number of customers.

• Percentage of lost customers to average number of customers.

•Percentage of win-back customers to average number of customers.

•Percentage of customers falling into very dissatisfied, dissatisfied, neutral, satisfied, and very satisfied categories.

•Percentage of customers who say they would repurchase the product.

•Percentage of customers who say they would recommend the product to others.

•Percentage of target market customers who have brand awareness or recall.

•Percentage of customers who say that the company’s product is the most preferred in its category.

•Percentage of customers who correctly identify the brand’s intended positioning and differentiation.

•Average perception of company’s product quality relative to chief competitor.

•Average perception of company’s service quality relative to chief competitor.

STRATEGIC PLANNING

STRATEGIC PLANNING

MARKET-ORIENTED STRATEGIC PLANNING - is the managerial process of developing and maintaining a viable fit between the organizaiton’s objectives, skills, and resources and its changing market opportunities. The aim of strategic planning is to shape and reshape the company’s business and products so that they yield target profits and growth.

Thus strategic planning is concerned with

1. Treating business as an investment portfolio.

2. Building game plan for each business – based on industry position opportunity, resources, mission, objectives.

3. Future potential and not just current potential.

SEE APPENDIX – 18 (THE STRATEGIC PLANNING, IMPLEMENTATION, AND

CONTROL PROCESS)

Corporate planning

Division planning

Business planning

Product planning

Measuring Results

Diagnosing results

Taking correctiveaction

Organizing

Implementing

Planning Implementing Controlling

CORPORATE & DIVISION STRATEGIC PLANNING

• DEFINING THE CORPORATE MISSION

• ESTABLISHING STRATEGIC BUSINESS UNITS (SBUS)

• ASSIGNING RESOURCES TO EACH SBU

• PLANNING NEW BUSINESSES

DEFINING THE CORPORATE MISSION

• Shaped by History, current preferences of owners and management, market environment, resources, distinctive competences.

• Provides sense of purpose, direction, and opportunity.

• Good mission statements, limited number of goals and values and major competitive scopes.

• Provides direction for 10 – 12 years.

ESTABLISH STRATEGIC BUSINESS UNITS AND ASSIGN RESOURCES

Assigning resources by evaluating by using analytical tools for classifying its

businesses by profit potential.

1. Boston Consulting Group Model

2. General Electric Model

40

Boston Consulting Group Model

Stars Question Marks

Cash Cow Dogs

10 X

4 X

2 X

1.5

X

1 X

0.5

X0.

4X0.

3 X

0.2

X

0.1X

Relative Market Share

20%18%16%14%12%10%

8%6%4%2%

0

Mar

ket

Gro

wth

Rat

e

BCG’s GROWTH SHARE MATRIX

1. An unbalanced portfolio would have too many dogs or question marks and/or too few stars and cash cows.

2. BUILD – for stars

HOLD - strong cash cows

HARVEST – weak cash cows, question marks, dogs.

DIVEST – dogs, question marks.

3. SBUs - change their position in the growth-share matrix.

GENERAL ELECTRIC MODEL

Each business is rated in terms of two major dimensions, market attractiveness and business strength.

1. MARKET ATTRACTIVENESS – Overall market size,,mkt growth rate,profit margin,competitive intensity,inflationary vulnerability.,technological requiremnets,environmental impact..

2. STRENGTH OF SBU / FIRM = Market share,share growth,product quality,brand reputation,distribution network,promotion effectiveness,production capacity,productive effeciency,R&D performance,managerial personnel,

Each of these factors is assigned weights and business is measured of 5 point scale.

43

(a) Classification

BUSINESS STRENGTH

Hydraulicpumps

Fuel Pumps

Aerospacefittings

Flexible

diaphragms

Clutches

Reliefvalues

Joints

Strong Medium Weak

5.00 3.67 2.33 1.001.00

2.33

3.67

5.00

44

(B) StrategiesBUSINESS STRENGTH

PROTECT POSITION

• Invest to grow at maximum digestible rate.• Concentrate effort on maintaining strength.

BUILD SELECTIVELY• Invest heavily in most attractive segments.• Build up ability to counter competition.• Emphasize productivity by raising productivity.

PROTECT AND REFOCUS•Manage for current earnings.• Concentrate on attractive segments.• Defend strength.

MANAGE FOR EARNINGS

•Protect position in most profitable segments.•Upgrade product line.• Minimize investment.

DIVEST• Sell at time that will maximize cash value.•Cut fixed costs and avoid investment meanwhile.

SELECTIVITY / MANAG FOR EARNING• Protect existing program.•Concentrate investmentsin segments where profitability is good and risks are relatively low.

LIMITED EXPANSIONOR HARVEST•Look for ways to expand without high risk;otherwise, minimize investment and rationalize operations.

INVEST TO BUILD• Challenge for leadership.• Build selectively on strengths.• Reinforce vulnerable areas

BUILD SELECTIVELY• Specialize around limited strength.• Seek ways to overcome weaknesses.• Withdraw if indications ofsustainable growth arelacking.

Strong Medium Weak

CORPORATE NEW BUSINESS PLAN

When gap between future desired sales and projected sales, then three options.

1. INTENSIVE GROWTH – current business

2. INTEGRATIVE GROWTH – build or acquire businesses related to the company’s current businesses.

3. DIVERSIFICATION GROWTH – opportunities in unrelated business.

GROWTH STRATEGIES

INTENSIVE GROWTH – (Ansoff’s Product / Market Expansion Grid )

INTEGRATIVE GROWTH – Backward, Forward, Horizontal

DIVERSIFICATION GROWTH – Concentric (Same technology / Marketing synergy), Horizontal (Appeals to current customers), Conglomerate (No relationship to the company’s current technology, products, or markets).

47

1. Market- penetration strategy

(DiversificationStrategy)

2. Market- development

strategy

3. Product- development

strategy

Current Product New Product

Current Markets

New Markets

THE BUSINESS STRATEGIC PLANNING PROCESS

1. BUSINESS MISSION

2. SWOT ANALYSIS

3. GOAL FORMULATION

4. STRATEGY FORMULATION

5. PROGRAM FORMULATION

6. IMPLEMENTATION

7. FEEDBACK AND CONTROL

OPPORTUNITY AND THREAT

• A MARKETING OPPORTUNITY - is an area of buyer need in which a company can perform profitably.

OPPORTUNITIES - can be classified according to their attractiveness and their success probability.

• AN ENVIRONMENTAL THREAT - is a challenge posed by an unfavorable trend or development that would lead, in the absence of defensive marketing action, to deterioration in sales or profit.

Threats should be classified according to their seriousness and probability of occurrence.

50

CHECKLIST FOR STRENGTHS / WEAKNESSES ANALYSIS

Importance of factor(High ,Medium , Low) and performance rating (Major/minor strengh,Neutral,,Major/Minor weakness)on dimensions in

Marketing –Company reputation,marketshare,product/service quality,pricing/distribution/advtg/salesforce/innovation effectiveness,geog coverage

Finance-cost/availability of capital,cash folw/,financial stability

Manufacturiing-facilities,economies of scale,capacity,mfg skill ,dedicated workforce

Organization-visionary leadership,dedicated employees,entrepreneurial orientation,flexible/responsive

GOAL FORMULATION

• OBJECTIVES MUST BE HIERARCHICAL

• QUANTITATIVE

• REALISTIC

• CONSISTENT

STRATEGY FORMULATION

MICHAEL PORTER’S THREE GENERIC STRATEGIES

• OVERALL COST LEADERSHIP – firms should be good at engineering, purchasing, manufacturing and distribution.

• DIFFERENTIATION – on key customer benefit area e.g. services, quality, style, technology.

• FOCUS – on narrow market segment and pursue either cost leadership or differentiation.

• “CLEAR STRATEGY IMPORTANT” - “Don’t be middle of the roaders”

• Firms pursuing same strategy in same to market constitute strategic group.

53

STRATEGIC ALTERNATIVES

Long -term profits

Growth insales or market

share

Market Development

Market Penetration

New segments

Existing Customers

Convert nonusers

Competitors’customers

New product developments

Efficiency,short-run profits

Decrease inputs

Increase outputs

Reducecosts

Increase price

Improveasset

utilization

Improvesales mix

PROGRAM FORMULATION AND IMPLEMENTATION, FEEDBACK & CONTROL

PROGRAM FORMULATION - Develop programs in line with strategy e.g. Technology leadership – strengths – R&D, gather technological intelligence, develop leading edge products, train technical sales force, develops ads to communicate technology leadership.

IMPLEMENTATION – The McKinsey 7-S Framework(Hardware-strategy,structure,systems and Software-Style, Staff, Skills, Shared Values)

FEEDBACK & CONTROL - Need to review and revise implementation, programs, strategies, or even objectives.

MARKETING PROCESS

Involves

1. Analysing Marketing Opportunities

2. Developing marketing strategies (Differentiating and positioning)

3. Developing marketing programs (Marketing mix)

4. Managing marketing effort through

- Annual plan control (Achievement of sales, profits and other goods).

- Profitability control (Analysis of profitability of products, customers, trade channels and order sizes, Marketing profitability analysis and marketing efficiency studies).

- Strategic control (Appropriateness of companies marketing strategy to market conclusions through marketers audit).

A GOOD MARKETING STRATEGY

• CO-ORDINATES FUNCTIONAL AREAS OF ORGANISATION

• ALLOCATES RESOURCES EFFICIENTLY

• HELPS PRODUCT ATTAIN MARKET POSITION

• COMPETITIVE

OBJECTIVES OF MARKETING PLAN

TO,

1. Define current situation facing the product (and how we got there)

2. Define problems and Opportunities

3. Establish objectives

4. Define strategies and programs necessary to achieve objectives

5. Pinpoint responsibility to achieve

6. Encourage careful and disciplined thinking

7. Establish customer-competitor orientation

CONTENTS OF A MARKETING PLAN

I. Executive summary and table of contents

Presents a brief over of the proposed plan

II. Current marketing situation Presents relevant background data on the market, product, competition, distribution, and macro-environment.

III. Opportunity and issue analysis Identifies the main opportunities/threats, strengths/weaknesses, and issues facing the product line.

IV. Objectives Defines the plan’s financial and marketing goals in terms of sales volume, market share, and profit

V. Marketing strategy Presents the broad marketing approach that will be used to achieve the plan’s objectives.

VI. Action programs Presents the special marketing programs designed to achieve the business objectives.

VII. Projected profit-and-loss statement Forecasts the plan’s expected financial outcomes.

VIII. Controls Indicates how the plan will be monitored

FREQUENT MISTAKES IN PLANNING PROCESS

1. Speed of planning

2. Amount of data collections

3. Who does the planning

4. Structure

5. Length of plan

6. Frequency of planning

7. Number of courses of action considered

8. Who sees the plan

9. Insufficient senior management leadership

10. Tying compensation to efforts

MARKETING ENVIRONMENT

MARKETING ENVIRONMENT ANALYSIS

OUTSIDE - IN VIEW TO TRACK TRENDS, OPPORTUNITIES & THREATS

FOLLOWED BY MARKET RESEARCH TO DETERMINE AN OPPORTUNITY’S PROFIT POTENTIAL.

OPPORTUNITIES CAN BE CLASSIFIED ON ATTRACTIVENESS & SUCCESS PROBABILITY (COMPETITIVE ADVANTAGE).

THREATS ARE CLASSIFIED ON BASIS OF SERIOUSNESS & PROBABILITY OF OCCURRENCE.

CHECKLIST FOR STRENGTHS / WEAKNESSES ANALYSIS

Importance of factor and performance rating on dimensions in

Marketing –Company reputation,marketshare,product/service quality,pricing/distribution/advtg/salesforce/innovation effectiveness,geog coverage

Finance-cost/availability of capital,cash flow/,financial stability

Manufacturing-facilities,economies of scale,capacity,mfg skill ,dedicated workforce

Organization-visionary leadership,dedicated employees,entrepreneurial orientation,flexible/responsive

MARKETING ENVIRONMENT

I. MAJOR FACTORS - (MACROENVIRONMENT)

A) DEMOGRAPHIC - (BREAKUP & CHANGES IN AGE, INCOME, SEX, EDUCATION, URBAN-RURAL, LIFE EXPECTANCY, OCCUPATION, PERSONS PER HOUSEHOLD).

B) SOCIO / CULTURAL - (FAMILY STRUCTURE, DECISION-MAKING, PESTERPOWER VALUES LIFESTYLES).

C) TECHNO LOGICAL - (CREATIVE DESTRUCTION, IMPACT ON PRODUCT, PACKAGING, ADVERTISING).

D) POLITICAL / LEGAL - (LAWS TO PREVENT UNFAIR COMPETITION, CONSUMERS & SOCIETY).

E) ECONOMIC - (PER CAPITA INCOME, CREDIT AVAILABILITY, SAVINGS, STAGE OF BUS CYCLE).

F) PHYSICAL - (GOVTAL INTERVENTION, NEW OPPORTUNITIES).

MARKETING ENVIRONMENT

II. ACTORS - (MICROENVIRONMENT)

A) COMPANY

B) SUPPLIERS

C) MARKETING INTERMEDIARIES

D) CUSTOMERS

E) COMPETITORS

F) PUBLIC - ASCI, CONSUMER ACTION GROUP

65

A Socioeconomic Classification (SEC) Matrix – India (Urban)

Occupation Education

School School SSC/HSC Graduate/ Graduate/

up to 5-9 Non- Postgraduate Postgraduate

Illiterate 4 Years Years SSC/HSC Graduate (General) (Professional)

Unskilled workers E2 E2 E1 D D D D

Skilled workers E2 E1 D C C B2 B2

Petty traders E2 D D C C B2 B2

Shop owners D D C B2 B1 A2 A2

Businessmen/

Industrialists with

number of

employees:

*None D C B2 B1 A2 A2 A1

*1-10 C B2 B2 B1 A2 A1 A1

*10 + B1 B1 A2 A2 A1 A1 A1

Self-employed/ D D D B2 B1 A2 A1

Professionals

Clerical/ D D D C B2 B1 B1

Salesmen

Supervisory D D C C B2 B1 A2

level

Officers/ C C C B2 B1 A2 A2

Executives-

Junior

Officers/ B1 B1 B1 B1 A2 A1 A1

Executives –

Middle/Senior

66

B Socioeconomic Classification (SEC) – India (Rural)

Education Type of House

Pucca

Semi-Pucca K

ucv

Kuccha

Illiterate R4A

R4A R4A R4B

Below SSC R3A R3B R4A

SSC/HSC R2 R3A R3B

Some college, Not Graduate

R1 R2 R3B

Graduate/Postgraduate R1 R2 R3A

(General)

General/Postgraduate

(Professional) R1 R2 R3A

67

Socioeconomic Distribution of Class-Wise Households

Socioeconomic class % of Households

Urban

A1 A2 B1 B2

CD

E1 E2

1.01.82.52.46.16.63.05.0

28.4

Social(Urban)

Rural

R1R2R3R4

2.68.0

26.734.371.6

Subtotal (Rural)

Total (Urban + Rural)**100

(** Estimated number of households (in thousands) = 198,457

(Source: Adapted from The Marketing White book, 2005, pp. 54 [Based on IRS 2003 – 2004]

68

Estimated Number of Indian Households by

Income Groups 1999-2000

Households (millions)

Income Groups

(Annual Household Income

Rupees at 1999 – 2000 prices) Urban Rural Total

Up to 40,000 8.2 56.0 64.2

(low) (16.0) (44.7) (36.3)

(lower middle)

40,001 -80,000 16.7 43.7 60.4

80,000-1,20,000

(middle)

11.8 15.5 27.3

(32.5) (34.8) (34.2)

1,20,000 – 1,60,000

(upper middle)

(23.0) (12.3) (15.5)6.9 5.6 12.5

(13.5) (4.5) (7.1)

Above 1,60,000 7.7 4.5 12.2(high) (15.0) (3.7) (6.9)

Total 51.3 125.3 176.6

(100) (100) (100)

69

Projected Age Distribution of Population

Year-wise Population (million)

Age Group 2001 2006 2011 2016

0-4 366 362 355 343

15-59

(35.6) (32.5) (29.7) (27.1)

598 673 747 811

(58.2) (60.4) (62.5) (64.0)

60+ 65 78 94 113

(6.3) (7.0) (7.9) (8.9)

Total 1,027 1,114 1,194 1,268

(100) (100) (100) (100)

TYPES OF COMPETITION

1. BRAND COMPETITOR - PEPSI / COKE

2. FORM COMPETITOR - COLA / LIME / ORANGE

3. GENERIC / CATEGORY - SOFT DRINKS / CONCENTRATES / SYRUPS

4. DESIRE / BUDGET - SPENDS ON DRINK / FOOD

COMPETITION - WHAT DO YOU NEED TO KNOW

1. WHAT ARE THEIR CURRENT / FUTURE OBJECTIVES - GROW, HOLD, HARVEST, DIVEST.

2. WHAT ARE THEIR CURRENT / FUTURE STRATEGY.

3. WHAT ARE THEIR STRENGTHS / WEAKNESS

4. WHAT ARE THE REACTION PATTERNS

HOW STRONG THEY ARE

ASSESSING COMPETITIORS STRENGTHS / WEAKNESS

1. BOTH CORPORATE & BRAND LEVEL

2. ANY INVALID ASSUMPTIONS

3. SHARE OF MARKET, MIND, HEART

4. SATISFACTION / DISSATISFACTION AREA

CONSUMER BEHAVIOUR

7 O’s FRAMEWORK

• WHO BUYS - OCCUPANT

• WHAT DOES HE BUY - OBJECT

• WHY DOES HE BUY - OBJECTIVE

• WHEN DOES HE BUY - OCCASION

• WHERE DOES HE BUY - OUTLET

• HOW DOES HE BUY - OPERATIONS

• WHO ARE INVOLVED - ORGANISATION

MODEL OF BUYER BEHAVIOUR

Marketing stimuli Other stimuli

Product Economic Price TechnologicalPlace PoliticalPromotion Cultural

Buyer’s Buyer’scharacteristics Decision

Process

Cultural Buying rolesSocial Buying typesPersonal Buying StagesPsychological

Buyer’s decisions

Product choiceBrand choiceDealer choicePurchase timingPurchase amount

Factors influencing behavior

CULTURAL

• CULTURE

• SUBCULTURE

• SOCIAL CLASS

SOCIAL

• REFERENCE GROUP

• FAMILY

•ROLES AND STATUSES

PERSONAL•AGE AND LIFE CYCLE STAGE

• OCCUPATION

•ECONOMIC CIRCUMSTANCES• LIFESTYLE

•PERSONALITYAND SELF-CONCEPT

PSYCHOLOGICAL• MOTIVATION

•PERCEPTION

•LEARNING

•BELIEFS ANDATTITUDES

BUYER

BUYING ROLES

• INITIATOR

• INFLUENCER

• DECIDER

• PURCHASER

• USER

BUYING BEHAVIOUR TYPES

High Involvement Low Involvement

Difference between brands perceived

Difference between brands not perceived

COMPLEX

B A P

VARIETY

SEEKING

WB P A

DISSONANCE

REDUCING

B P New B A

HABITUAL

WB P A

STAGES OF BUYING DECISION PROCESS

• PROBLEM RECOGNITION

• INFORMATION SEARCH – Criteria, Alternatives

• EVALUATION OF ALTERNATIVES

• PURCHASE DECISION

• POSTPURCHASE BEHAVIOUR

INFORMATION SEARCH SOURCES

• PERSONAL SOURCES

• COMMERCIAL SOURCES

• PUBLIC SOURCES

• EXPERIENTIAL SOURCES

SUCCESSIVE SETS INVOLVED IN CONSUMER DECISION MAKING

TOTAL SET

AWARENESS SET

CONSIDERATION SET

CHOICE SET

PURCHASE DECISION

POST-PURCHASE BEHAVIOUR

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Profiling the Customer Buying Decision Process

1) Introspective method – Marketers think how they would act if they were consumers

2) Retrospective method – Ask consumers who have bought to recall the event

3) Prospective method – Ask prospective consumers who plan to buy to think aloud.

4) Prescriptive method – Ask consumers ideal way.

ALTERNATIVE EVALUATIVE TECHNIQUES

COMPENSATORY MODEL

• EXPECTANCY VALUE MODEL

• IDEAL BRAND MODEL

NON-COMPENSATORY MODEL

• CONJUNCTIVE MODEL

• DISJUNCTIVE MODEL

• LEXI COGRAPHIC MODEL

EXPECTANCY VALUE MODEL OF CONSUMER CHOICE

CAR ATTRIBUTES

ENGINE CAPACITY

EXTERIORS PRICE MILEAGE PERCEIVED VALUES

WTS. 0.4 0.2 0.3 0.1

FORD ESCORT 10 8 6 8 8.2

OPEL ASTRA 8 9 6 6 7.4

HONDA CITY 6 10 8 9 7.7

CIELO 4 6 5 5 4.8

STRATEGIES FOR MARKETERS

• MODIFY THE BRAND – REAL REPOSITIONING

• ALTER BELIEFS ABOUT THE BRAND – PSYCHOLOGICAL REPOSITIONING

• ALTER BELIEFS ABOUT COMPETITOR’S BRAND – COMPETITIVE DEPOSITIONING

• ALTER IMPORTANCE WEIGHTS

• CALL ATTENTION TO NEGLECTED ATTRIBUTES

• SHIFT BUYER’S IDEALS

PERCEIVED RISK

• FINANCIAL

• PHYSICAL

• SOCIAL

• PERSONAL

87

Organizational Buying Behavior

Organizational buying behaviour

• Organizational Buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify , evaluate, and choose among alternative brands and suppliers.Organizations could be corporate, manufacturing firms,Service firms,Institutional & Government markets.

Business Market V/S Consumer Market1. Fewer buyers

2. Larger buyers

3. Close supplier-customer relationship - Customization

4. Geographically oriented buyers

5. Derived demand -business marketer must closely monitor buying patterns of ultimate consumers.

6. Inelastic demand - in short run as producer cannot make quick changes in production methods, also small percentage of items total cost.

7. Fluctuating demand - given 10% increase in consumer demand can cause 200% increase in business demand.

8. Professional purchasing - Policies, constraints, requirements.

9. Several buying influences - buying committees

10. Direct purchasing

11. Leasing - e.g. Heavy construction equipment, computers, etc.

12. Reciprocity - Chemical manufacturer & Paper manufacturer

Buying Situations1. Straight rebuy - recorder on routine basis automatic recording

system from approved list of suppliers. Insuppliers & outsuppliers strategy.

2. Modified rebuy - modifying in product specifications. Prices, delivery requirements or other terms.

3. New task - Buying for first time

* Greater cost or risk, more the decision participants & greater the information gathering.

* Missionary sales force used by marketer

* Mass media in awareness stage, stage sales people in interest stage & technical sources in evaluation stage.

Participants in Business Buying Process

• Straight rebuy & modified rebuy situations- purchasing agent important.

• New buy- engineering or other departments.

• Purchasing agent dominate in selecting suppliers.

Buying roles in Buying centre1. Initiators - Users or others.

2. Users - Users may initiate & help define product requirements.

3. Influencers - help define specifications & provide information for evaluating alternatives technical personnel.

4. Decider - decide on product requirements & suppliers.

5. Approver - authorize actions of decider buyer.

6. Buyer - formal authority to select suppliers, negotiate.

7. Gatekeeper - Prevent sellers or info reaching buying center. e.g. - purchasing agents, telephone, operators, receptionists.

Major influences on Industrial Buying Behaviour

• Business buyers responds both to economic & personal factors. Personal (treatment etc)when similarity in supplier offers.

ENVIRONMENTALLevel of demand •Economic outlook•Interest rate•Rate of technological change•Political and regulatory developments•competitive developments•Social responsibility concerns

ORGANIZATIONAL

•Objectives

•Policies

•Procedures

•Organizational Structures

•Systems

INTERPERSONAL

•Interest

•Authority

•Status

•Empathy

•Persuasiveness

INDIVIDUAL

•Age•Income• Education• Job position•Personality•Risk attitudes•Culture

BUSINESSBUYER

Trends in Organizational Buying1. Purchase department upgrading

2. Centralized purchasing - in multidivisional companies

3. Decentralized purchasing for small ticket items.

4. Long-term contracts

5. Purchasing performance evaluation & rewards hence pressure put on suppliers.

6. Just- in-time

7. Single sourcing & early supplier involvement.

Purchasing / Procurement Process(Buy Phases)

1. Problem recognition - as a result of internal or external stimuli

2. General need description - items general characteristics, attributes & quantity.

3. Product specification- Technical specifications.

4. Supplier search - buyer can examine trade directories, computer search, trade shows, advertisements, recommendations of others.

5. Proposal solicitation - Buyer invites qualified suppliers to submit proposal, make presentations.

6. Supplier selection - based on important factors e.g. product reliability, technical service, price, supplier flexibility, reputation.

7. Routine order specification - Trend especially in MRO items is blanket contract/ stockless purchase plan.

8. Performance review

Buying stages in buying classes

BUYCLASSES

NEW TASK MODIFIED STRAIGHTREBUY REBUY

1. Problem recognition Yes Maybe No

2. General need description Yes Maybe No 3. Product specification Yes Yes Yes

4. Supplier search Yes Maybe No

BUYPHASES 5. Proposal solicitation Yes Maybe No

6. Supplier selection Yes Maybe No

7. Order-routine specification Yes Maybe No

8. Performance review Yes Yes Yes

Vendor analysis

An example of vendor Analysis

Rating scale

ATTRIBUTES IMPORTANCE (1) (2) (3) (4)

WEIGHTS POOR FAIR GOOD EXCELLENT

Price .30 X

Supplier reputation .20 X

Product reliability .30 X

Service reliability .10 X

Supplier flexibility .10 X

Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5

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COMPETITION

99

PORTER’S MODEL

Threat of new entrants

Intensity of Competitive rivalry

Bargaining power of buyers

Bargaining power of suppliers

Threat of substitutes

100

Five Forces Determining Segment Structural Attractiveness

Potential entrants(Threat of

mobility)

Suppliers (Supplier

Industry competitors

(Segment rivalry)

Substitutes (Threat of substitutes)

power)

Buyers (Buyer power)

101

Identifying Competition A. Industry Concept of Competition – Group of firms

that offer a class of products that are close substitutes classified on basis of

I. Number of sellers & degree of differentiation

a) Pure monopoly

b) Oligopoly – Pure oligopoly (oil, steel) & differentiated oligopoly (auto, computers)

c) Monopolistic competition – restaurants

d) Pure competition – stock market

II. Entry, mobility & exit barriers.

102

Identifying Competition Contd of Slide …. III. Cost structure – shapes strategic conduct

e.g. steelmaking involves heavy manufacturing & raw material costs

IV. Degree of vertical integration V. Degree of globalization – some industries

are highly local (babycare) others are global (e.g. oil, cameras)

B. Market Concept of competition – Brand/Form/Category/Desire

103

COMPETITIONWHAT DO YOU NEED TO KNOW

• WHO ARE OUR COMPETITORS - IDENTIFY & SELECT

• WHAT ARE THEIR OBJECTIVES

• WHAT ARE THEIR STRATEGIES

• WHAT ARE THEIR STRENGTHS & WEAKNESSES

• WHAT ARE THEIR REACTION PATTERNS

104

IDENTIFYING COMPETITION

• CORRECT DEFINITION IMPORTANT TO MARKET PLANNING & STRATEGY

• KEY QUESTION IS DEGREE EXTENT

• BALANCE BETWEEN TOO MANY & TOO FEW

• NOT EASY AS EMERGING COMPETITION

• WRONG DEFINITION LEADS TO

a) MARKETING MYOPIA

b) AMBIGUITY IN MARKET RELATED STATISTICS

105

IDENTIFYING COMPETITORS

I. INDUSTRY CONCEPT OF COMPETITION -

II. MARKET CONCEPT OF COMPETITION

106

INDUSTRY CONCEPT OF COMPETITION

• 1)Number of sellers and degree of differentiationa)Pure Monopolyb)Oligopoly- a small no. of large firms Pure eg oil,steel Or

Differentiated automobiles,refrigeratorsc)Monopolistic competition—Many competitors and

differentiated eg restaurants,beauty parlorsd)Pure competition eg stock market2)Entry,Mobility,exit barriers3)Cost structure4)Degrree of vertical integration5)Degree of Globalisation

107

Market concept of competition

• Stimulates long run strategic market planning• Key to identify is mapping product/market

grid• Opens eyes to broader set of actual &

potential competitors• a) Brand • b) Product form competition• c) Category / Generic / Industry Competition • d) Desire / Budget

108

COMPETITIVE LEVEL & TASKS

Competitive Level

Brand

(inward oriented)

Product Form (inward)

Generic / Category

(Outward)

Desire / Budget

Product Manager’s task

Convince customers brand is better than others in product form

Convince product form is best in the category

Convince product category is best to satisfy need

Convince Generic need / benefit is best way to spend discretionary income

109

METHODS FOR DETERMINING COMPETITORS

I. PREDETERMINED CATEGORIES - ORG

II. MANAGERIAL JUDGEMENT

III. CUSTOMER BASED MEASURES

a) PURCHASE DATA FOR BRAND SWITCHING MATRIX

b) CROSS ELASTICITY OF DD

c) CONSUMER JUDGEMENTS

c.1. JUDGED OVERALL SIMILARITY

c.2. SIMILARITY OF CONSIDERATION SET

c.3. PRODUCT DELETION SET

c.4. SUBSTITUTION IN USE

110

BRAND SWITCHING MATRIX

A

.6

.2

.2

0

.1

B

.2

.3

.3

.1

0

TIME (++1)

C

.2

.4

.5

.1

0

D

0

.1

0

.5

.4

A

B

C

D

E

E

0

0

0

.3

.5

TIME

t

111

FIGURE 3.13: METHODS VERSUS COMPETITION LEVELS AND INFORMATION REQUIRED

Typical Data Sources Level of Competition

Approach Brand Product

Form

Generic Budget Primary Secondary

Existing definitions X X X

Technology substitution X X X X

Managerial judgment X X X X

Customer behavior based:

Brand switching X X X

Interpurchase times X X X

Cross-elasticities X X X X

112

FIGURE 3.13: METHODS VERSUS COMPETITION LEVELS AND INFORMATION REQUIRED

Typical Data Sources Level of Competition

Approach Brand Product

Form

Generic Budget Primary Secondary

Customer evaluation based:

Overall similarity X X X X

Similarity of consideration X X X X X

sets

Product deletion X X X X

Substitution in use X X X X

Note: An X indicates that either the method is useful for determining competition at that level or it employs data of a certain type.

113

IDENTIFYING COMPETITORS STRATEGIES

• A group of firms following same strategy in given target market is called a strategic group.

• Dimensions include level of technological sophistication,geographicalscope,

manufacturing methods,marketing strategies etc

114

ASSESSING COMPETITOR’S CURRENT STRATEGY

1. TARGET MARKET

2. CORE MARKETING STRATEGY

a) POSITIONING

b) DIFFERENTIAL ADVANTAGE

3. MARKETING MIX

115

ASSESSING COMPETITOR’S CURRENT OBJECTIVES

• growth v/s hold v/s harvest v/s divest.

•Short term v/s long term profits, satisfycing v/s maximizing profits, cash flow,,market sharegrowth,,technological/,service /cost leadership

• objectives shaped by size, history, management perspective, financial situation, place in larger organisation

• objectives can be assessed

a) from strategy

b) geographical home of parent

c) ownership of firm - private / public/ government

116

ASSESSING COMPETITOR’S STRENGTHS & WEAKNESSES

1. THROUGH

- SECONDARY DATA

- PERSONAL EXPERIENCE

- PRIMARY SOURCES (CUSTOMERS, SUPPLIERS, DEALERS)

2. ANALYSIS SHOULD BE FOR BOTH CORPORATE & BRAND LEVELS

3. ANY INVALID ASSUMPTIONS THAT COMPETITOR IS MAKING

4. SHARE OF MARKET, MIND, HEART

5. SATISFACTION / DISSATISFACTION AREA

6. COMPARISION VIS-A-VIS OUR BRAND

117

ESTIMATING COMPETITOR’S REACTION PATTERNS

DEPENDS ON

a) IMPORTANCE OF BUSINESS OR PRODUCT

b) HOW COMMITTED IS THE COMPETITOR (PHILOSOPHY, MIND-SET)

c) AGGRESSIVENESS OF MANAGERS

118

ESTIMATING COMPETITOR’SREACTION PATTERNS

TYPES OF COMPETITORS

• LAID BACK

• SELECTIVE

• TIGER

• STOCHASTIC

119

1. COSTLY SIGNALS

2. CHEAP TALK SIGNALS

PRODUCT MANAGER MUST COLLECT BOTH TYPES OF INFORMATION BUT BE WARY OF (2)

DESIGNING COMPETITOR

INTELLIGENCE SYSTEM

120

I. SECONDARY

II. PRIMARY

III. OTHERS

IV. UNETHICAL

SOURCES OF INFORMATION OF COMPETITORS

121

SELECTING COMPETITION

1. LEVEL

2. SELECTING COMPETITOR FOCUS

CHOOSING WHO TO COMPETE HAS IMPLICATIONS ON PERFORMING STDS (MARKET SHARE) & COMPETITIVE STRATEGY

DEPENDS ON

a) TIME HORIZON

b) STAGE OF PLC

c) RATE OF CHANGE OF TECHNOLOGY

122

1. STRONG V/S WEAK COMPETITORS

2. CLOSE V/S DISTANT

3. GOOD V/S BAD

SELECTING COMPETITORS TO ATTACK & AVOID

123

BALANCING CUSTOMER & COMPETITOR ORIENTATION

124

COMPETITIVE POSITIONS

• DOMINANT-Controls behavior of other competitors ,wide choice of strategic options

• STRONG-can take independent actions and maintain its long term position

• FAVOURABLE-exploitable strength and above average opportunity to improve position

• TENABLE-exists at sufferance of dominant company and has lesser than average opportunity to improve position

• WEAK-poor performance.must change or exit

• NON-VIABLE-poor performance and no opportunity for improvement

125

MARKET LEADER STRATEGIES

I. EXPANDING TOTAL MARKET

II. DEFENDING MARKET SHARE

III EXPANDING MARKET SHARE

126

Market- Leader Strategies Expanding Total Market

NEW USERS :

Non-users or competitors users (Market penetration)

Different segments (New Market Strategy)

Geographical segments (Geographical Expansion Strategy)

NEW USES :For example Vaseline as lubricant. Skin ointment, healing agent, hair dressing.

MORE USAGE :Shampoo

127

MARKET LEADER DEFENSIVE STRATEGIES

a) POSITION DEFENSE – not enough today. e.g. Coke has also diversified.

b) FLANK DEFENSE – Erect outposts to protect a weak front or serve as an invasion base for counter attacking. E.g. Asian Paints Tractors.

c) PREEMPTIVE DEFENSE – Launch attack before enemy starts offense across market with many models.

Through continuous innovation, increasing competitive effectiveness and value to customers.

128

Market Leader Defensive Strategies

d) COUNTER OFFENSIVE DEFENSE – e.g. HLL reaction to Tide.

e) MOBILE DEFENSE – Stretch Domain over new territories through market broadening i.e. shifting focus from current product to generic need E.g. Bank to insurance, Mutual Funds etc. Aquafina & Kinley

f) CONTRACTION DEFENCE- Recognising that there is no sense to spread too thin. (Strategic withdrawal)

129

EXPANDING MARKET SHARE

• Increased market share above 40% earns ROI of 38.5%,more than 3 times that of those firms with shares under 10%

• But important to consider 3 factors• Provoking monopolist action• Economic cost—holdout customers• Wrong marketing mix

130

MARKET CHALLENGER STRATEGIES

Firms that occupy 2nd,3rd or lower ranks are called runner ups. These firms can either attack leader and make aggressive bid for further market share( market challenger ) or play ball and not rock boat ( market follower)

131

Market challenger strategies

1. Can attack Market leader- high risk-high payoff.Makes good sense if false leader

2. Can attack firms of own size that are not doing well or are under financed.

3. Small and regional firms

132

MARKET CHALLENGER STRATEGIES

• FRONTAL ATTACK-attacking opponent’s strength rather than weakness.Matching opponent on product,advertising,price with 3:1 advantage otherwise cant succeed

•MODIFIED FRONTAL ATTACK-Match leader’s offer on all and beat on price

• FLANK ATTACK-Blind spots. Flank attack can be geog or segmental eg Nirma. Much more likely to succeed than frontal attack

•

133

MARKET CHALLENGER STRATEGIES

•ENCIRCLEMENT ATTACK-Comprehensive Blitz attack on front,sides rear.Offer everything opponent offers and more

• BYPASS ATTACK-is an indirect assault strategy.like diversifying into unrelated products,new geographical markets and leapfrogging into new technology

• GUERRILLA ATTACK-waging small intermittent attacks. Harass , Demoralise eg price cuts, promotional blitz,legal action

134

MARKET FOLLOWER STRATEGIES

1. COUNTERFEITER

2. CLONER-The cloner emulates the leader’s products,distribution, advertising etc Sudar dust

3. IMITATOR-copies some things of leader but maintains differentiation on packaging, advertising, pricing etc

4. ADAPTER –adapts or improves leader’s product. Can become future challenger E.g. Japanese firms

Company prefers to follow than to challenge.

135

MARKET NICHER STRATEGIES

• SPECIALIZATION- Customer, geographic product line,

• MULTIPLE NICHING BETTER THAN SINGLE NICHING

136

MARKETING ROLES NICHE SPECIALIST ROLES The key idea in successful nichemanship is specialization. Here are some possible niche roles:

End – user specialist:

Vertical-level specialist:

Customer-size specialist:

Specific-customer specialist:

Geographic specialist:

Product or product – line specialist:

Product - feature specialist:

Job – shop specialist:

Quality – price specialist:

Service specialist:

Channel specialist:

SEGMENTATION, TARGETING & POSITIONING

138

Levels of Market Segmentation 1) Segment Marketing

2) Niche Marketing

3) Local Marketing

4) Customerization or segments of one or customized marketing or one to one marketing.

139

Steps in the Segmentation Process Description

1. Need-Based Segmentation Group customers into segments based on similar needs

and benefits sought by customer in solving a particular consumption problem.

2. Segment Identification For each needs-based segment, determine which demo-graphics, lifestyles, and usage behaviors make the

segment distinct and identifiable (actionable).

3. Segment Attractiveness Using predetermined segment attractiveness criteria (such as market growth, competitive

intensity, and market access), determine the overall attractiveness of each segment.

4. Segment Profitability Determine segment profitability.

5. Segment Positioning For each segment, create a “value proposition” and product-price positioning strategy based on that

segment’s unique customer needs and characteristics.

6. Segment “Acid Test” Create “segment storyboards” to test the attractiveness of each segment’s positioning strategy.

7. Marketing-Mix Strategy Expand segment positioning strategy to include all aspects of the marketing mix: product,

price, promotion and place.

REQUIREMENTS FOR EFFECTIVE MARKET SEGMENTATION

• RELEVANT

• MEASURABLE

• SUBSTANTIAL

• ACCESSIBLE

• ACTIONABLE

STEPS IN SEGMENTATION

1. IDENTIFY BASES OF SEGMENTATION

2. PROFILING

BASIS FOR SEGMENTING CONSUMER MARKETS

I. CONSUMER CHARACTERISTICS

1. GEOGRAPHIC (REGION, URBAN-RURAL)

2. DEMOGRAPHIC (AGE, SEX, OCCUPATION, INCOME, EDUCATION, FAMILY LIFE CYCLE, FAMILY SIZE).

3. PSYCHOGRAPHICS (SOCIAL CLASS, LIFESTYLE, PERSONALITY)

II. CONSUMER RESPONSES

1. BENEFITS SOUGHT

2. OCCASIONS

3. USAGE RATE (HEAVY, MEDIUM, LIGHT)

4. USER STATUS (EX, CURRENT, NON, POTENTIAL, REGULAR, 1ST TIME)

5. LOYALTY STATUS (HARDCORE, SOFT CORE, SHIFTING, SWITCHERS)

6. BUYER READINESS (UNAWARE, AWARE, INFORMED, INTERESTED)

7. ATTITUDE TO PRODUCT (ENTHUSIASTIC, POSITIVE, INDIFFERENT, NEGATIVE, HOSTILE).

MAJOR SEGMENTATION VARIABLES FOR BUSINESS MARKETS

DEMOGRAPHIC

1. Industry : which industries should we serve?2. Company size: What size companies should we serve?3. Location: Which geographical areas should we serve ?

OPERATING VARIABLES

4.Technology : What customer technologies should we focus on?5. User / customer status: Should we serve heavy users, medium users, light users, or nonusers?6. Customer capabilities: Should we serve customers needing many or few services?

PURCHASING APPROACHES

7. Purchasing -function organization : Should we serve companies with highly centralized or decentralized purchasing organizations?8. Power structure: Should we serve companies that are engineering dominated, financially dominated, and so forth?9. Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies?10. General purchase policies: Should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding?11. Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

MAJOR SEGMENTATION VARIABLES FOR BUSINESS MARKETS

SITUATIONAL FACTORS12. Urgency: Should we serve companies that need quick and sudden delivery or

service?13. Specific application: Should we focus on certain applications of our product

rather than all applications?14. Size of order: Should we focus on large or small orders?

PERSONAL CHARACTERISTICS15. Buyer-seller similarity: Should we serve companies whose people and values

are similar to ours?16. Attitudes toward risk: Should we serve risk- taking or risk-avoiding

customers?17. Loyalty: Should we serve companies that show high loyalty to their suppliers?

STEPS IN MARKET TARGETING

1. DEVELOP MEASURE OF SEGMENT ATTRACTIVENESS AND EVALUATE.

2. SELECT TARGET SEGMENTS.

BASIS FOR EVALUATION & SELECTION OF TARGET SEGMENTS

1. SIZE

2. GROWTH

3. STRUCTURAL ATTRACTIVENESS (PORTER’S MODEL)

4. OBJECTIVES & RESOURCES

5. ECONOMIES OF SCOPE

PATTERNS OF TARGET MARKET SELECTION

1. SINGLE SEGMENT CONCENTRATION

2. MARKET SPECIALISATION

3. PRODUCT SPECIALISATION

4. SELECTIVE SPECIALISATION

5. FULL MARKET COVERAGE

ALTERNATIVE TARGETING STRATEGIES

CO’S MARKETING MIX WHOLE MARKET

MARKETING MIX 1

M M 2

M M 3

SEGMENT 1

SEGMENT 2

SEGMENT 3

DIFFERENTIATED MARKETING

SEGMENT 1

SEGMENT 2

SEGMENT 3

MARKETING MIX

CONCENTRATED MARKETS

UNDIFFERENTIATED MARKETING

149

Additional Considerations

1) Segment by segment invasion plans – mega marketing to counter blocked markets

2) Updating segmentation schemes – market partitioning

3) Ethical choice of Target markets

4) Counter segmentation.

DIFFERENTIATION & POSITIONING

DIFFERENTIATION IS THE ACT OF DESIGNING A SET OF MEANING DIFFERENCES TO DISTINGUISH THE COMPANY’S OFFERS FROM COMPETITOR’S OFFERS.

POSITIONING IS THE ACT OF DESIGNING COMPANY’S OFFER AND IMAGE SO THAT IT OCCUPIES A DISTINCT AND VALUED PLACE IN THE TARGET CUSTOMER’S MIND.

151

Developing a Positioning Strategy Involves:

1) Defining the Target Market

2) Competitive frame of reference

3) Points of Parity & Points of Difference

152

Choosing POPs & PODs POP are driven by needs of category membership (to create category POPs) & need to negate competitors PODs ( to create competitive POPs).

Consumer desirability criteria for PODs.

1) Relevance – e.g. tallest hotel (irrelevant)

2) Distinctive

3) Believable & credible

153

Choosing POPs & PODs Contd. Of slide …Deliverability criteria

1) Feasibility – in terms of resources,image of company

2) Communicability – Verifiable evidence or proof points need to be created e.g. zpto

3) Sustainability – enduring

Marketers must decide at which level (s) to anchor brand’s PODs – At lowest level are brand attributes, then brand benefits & at top are brand values.

EFFECTIVE POSITIONING REQUIRES

1. DETERMINING IMPORTANT DIMENSIONS

2. ASSESSING IDEAL POSITIONS

3. ASSESSING CURRENT POSITION OCCUPIED BY COMPETITORS

STEPS IN POSITIONING

1. DEVELOP ALTERNATIVE POSITIONING CONCEPTS

2. SELECT POSITIONING STRATEGY

3. SIGNAL THROUGH MARKETING MIX

156

Positioning Strategy

1. ATTRIBUTE – for e.g. clinic with zpto2. BENEFIT –3. USE/ APPLICATION4. USER5. COMPETITOR6. LEADERSHIP – quality , technology, service7. PRODUCT CATEGORY DISASSOCIATION8. EXCLUSIVE CLUB

POSITIONING STRATEGY TO BE AVOIDED

1. UNDERPOSITIONING - VAGUE IDEA

2. OVERPOSITIONING - TOO NARROW AN IMAGE

3. CONFUSED POSITIONING

4. DOUBTFUL POSITIONING

158

PRODUCT REPOSITIONING

1. CHANGING TARGET CONSUMER PROFILE

2. COMPETITOR TOO CLOSE

3. INCREASE MARKET - E.g. CADBURY

4. COMMUNICATE TECHNOLOGICAL ADVANCEMENT / UPGRADATION IN THE PRODUCT - E.g. SURF.

5. CHANGING CUSTOMER NEED.

DIFFERENTIATION VARIABLES

PRODUCT SERVICES PERSONNEL CHANNEL IMAGE

Features Ordering ease Competence Coverage SymbolPerformance Delivery Courtesy Expertise Written andConformance Installation Credibility Performance audiovisualDurability Customer training Reliability mediaReliability Customer consulting Responsiveness AtmosphereReparability Maintenance and communication EventsStyle repairDesign Miscellaneous

160

MEASURING CUSTOMER EFFECTIVENESS VALUE - METHOD FOR COMPETITIVE ADVANTAGE SELECTION

FEATURE COMPANY COST CUSTOMER VALUE CUSTOMER EFFECTIVENESS

(1) (2) (3 = 2/ 1)

Rear window defrosting $100 $200 2Cruise control 600 600 1Automatic transmission 800 2400 3

161

Technology 8 8 L L M HoldCost 6 8 H M M MonitorQuality 8 6 L L LMonitorService 4 3 H H LInvest

Methods for competitive - Advantage selection

2CompanyStanding

3CompetitorStanding

1CompetitiveAdvantages

4Importance ofImprovingStanding(H-M-L)*

5Affordabilityand speed(H-M-L)

6Competitor’s Ability toImprove standing(H-M-L)

7RecommendedAction

* H = High; M = Medium; L= Low

PRODUCT & BRANDING

5 LEVELS OF PRODUCT

1. CORE BENEFIT

2. BASIC PRODUCT - FEATURES, BENEFITS, DESIGN & STYLE, PACKAGING, BRAND NAME.

3. EXPECTED PRODUCT - CREATES NO PREFERENCE

4. AUGMENTED PRODUCT - TOTAL CONSUMPTION SYSTEM

5. POTENTIAL PRODUCT

THE 5 LEVELS CONSTITUTE CUSTOMER VALUE HIERARCHY WITH EACH LEVEL ADDING MORE CUSTOMER VALUE.

CLASSIFICATION OF PRODUCTS-CONSUMER GOODS

DURABILITY & TANGIBILITY

1. NON-DURABLE GOODS – tangible, consumed in few uses. Many locations, small mark up, heavy advertising.

2. DURABLE GOODS – personal selling, guarantees, higher margin.

3. SERVICES – intangible, variable, credibility of supplier very important.

SHOPPING HABITS

4. CONVENIENCE GOODS – staples, impulse & emergency goods

5. SHOPPING GOODS – comparison shopping .Homogenous & heterogenous strategies differ.

6. SPECIALITY GOODS – goods with unique characteristics and or brand identification.Location should be advertised.

7. UNSOUGHT GOODS – advertising and personal selling.

Classification Of Products

Most goods Most servicesEasy to evaluate

Difficult toevaluate

{{ {High in search qualities {{High in experience qualities {High in credence qualities

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The Product Hierarchy 1) Need family – thirst 2) Product family – All product classes that

serve a core need with reasonable effectiveness – Non-alcoholic beverages, alcoholic beverages

3) Product class – A group of products within a product family having certain functional coherence e.g. Aerated soft drinks

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The Product Hierarchy Contd of Slide …. 4) Product line – A group of products within a

product class that are closely related because they perform a similar function, are sold to same customer groups, are marketed through same outlets or channels or fall within price ranges. Soft drink

5) Product type – share same form. Cola drink. 6) Item – (SKU or variant) Coke 300 ml.

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Product systems & Mixes A product system is a group of diverse but related items that function in a compatible manner.

A product mix (product assortment is set of all products & items a particular seller offers for sale.

A product mix has width, length, depth & consistency.

PRODUCT LINE DECISIONS

1. PRODUCT LINE ANALYSIS

A. PRODUCT LINE SALES & PROFITS

B. PRODUCT LINE MARKET PROFILE - PRODUCT MAPPING

C. PRODUCT LINE LENGTH - UPWARD / DOWNWARD / TWO WAY STRETCH

D. LINE MODERNIZATION

E. LINE FEATURING

F. LINE PRUNING

BRAND

A BRAND IS ESSENTIALLY A SELLER’S PROMISE TO CONSISTENTLY DELIVER A SPECIFIC SET OF FEATURES, BENEFITS AND SERVICES TO BUYERS.A BRAND IS ABOUT INTANGIBLE AND TANGIBLE ASSOCIATIONS

171

Brand

A brand is a product or service that is differentiated on dimensions – functional, rational, tangible (brand performance) and/or symbolic, emotional, intangible (what brand represents).

BRANDING DECISIONS

1. BRAND OR NOT – Advantages of branding – easy processing, legal protection, brand loyalty, segmentation ,corporate image. Also distributors and consumer s prefer brands.

2. SPONSOR – Manufacturer / Distributor / Licensed

3. BRAND NAME – Individual / Blanket / Separate family / Co. + Individual.

Company names legitimizes and individual name individualizes

4. BRANDING STRATEGY – Line extensions (success rate higher), Brand extensions (risk of brand dilution test association), Multi-brands, New brands, Co brands (also called dual branding).

5. REPOSITIONING – shifting customer preferences or competitor too close.

173

Devising a Branding Strategy 4 General Strategies:

1) Individual names or house of brands

2) Blanket family names or branded house

3) Separate family names

4) Corporate name + individual product name.

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Devising a Branding Strategy Contd of Slide …. - Brand extension – line extensions & category

extensions- Parent brand & sub brand- Brand line consists of all products – original as well

as line and category extensions – sold under a particular brand.

- Brand mix (or brand assortment) is the set of all brand lines that a particular seller makes available to buyers.

- Licensed brands, co-branding, ingredient branding.

ESSENTIALS OF A GOOD BRAND NAME

1. Easy to pronounce, spell and remember.

2. Suggest about benefits, quality, use or action.

3. Unique, distinctive.

4. Versatile – can be added to new products / global reach.

5. Registered and protected.

BRAND NAME TESTS

A. ASSOCIATION TEST

B. LEARNING TESTS (PRONOUNCABILITY)

C. MEMORY

D. PREFERENCE

E. GLOBAL REACH

PACKAGING TESTS

1. ENGINEERING2. VISUAL3. DEALER & CONSUMER TESTS

BRAND - MEANING

1. ATTRIBUTES

2. BENEFITS - FUNCTIONAL & EMOTIONAL

3. VALUE

4. CULTURE

5. PERSONALITY

6. USER

DEEP V/S SHALLOW BRAND

Brand-nameand symbol

Product attributes

Intangibles

Customer benefits

Relative price

Use/application

User/customerCelebrity/personLifestyle/personality

Product class

Competitors

Country/geographic area

BRAND ASSOCIATIONS

HOW VALUES AFFECT BRAND CHOICE

BRAND CHOICE

CONDITIONALVALUE

SOCIAL VALUE

FUNCTIONAL VALUE

EMOTIONALVALUE

EPISTEMICVALUE

BRAND EQUITY (DAVID AAKER)

1. BRAND AWARENESS

2. PERCEIVED BRAND QUALITY AND FUNCTIONALITY

3. POSITIVE BRAND MENTAL & EMOTIONAL ASSOCIATIONS

4. BRAND LOYALTY

5. OTHER ASSETS - PATENTS, TRADEMARKS ,CHANNEL RELATIONSHIPS

ATTITUDE TOWARDS BRAND

1. CUSTOMER WILL CHANGE BRAND FOR PRICE REASONS

2. CUSTOMER IS SATISFIED - NO REASON TO CHANGE

3. CUSTOMER IS SATISFIED & WOULD INCUR COSTS BY CHANGING BRAND

4. CUSTOMER VALUES THE BRAND AND SEES IT AS A FRIEND

5. CUSTOMER IS DEVOTED TO BRAND.

BRAND EQUITY IS RELATED TO 3, 4, 5.

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IMPORTANCE OF PROPER PACKAGING

1. PROTECTION

2. ADVERTISING VALUE

3. CONVENIENCE TO CONSUMERS

4. BENEFIT TO RETAILERS

5. AFTER-USE VALUE

6. IDENTIFICATION

7. INFORMATION

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FACTORS TO BE CONSIDERED FOR PACKAGE DESIGNING

1. LANGUAGE

2. COLOUR

3. SIZE

4. CLIMATE

5. NATURE OF THE PRODUCT

6. LENGTH OF DISTRIBUTION CHANNEL

7. ACCEPTED NORMS

8. METHOD OF TRANSPORT USED

9. TRENDS IN PACKAGING

10. COST-BENEFIT ANALYSIS

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PACKAGING

1. PRIMARY

2. SECONDARY

3. SHIPPING

DECISIONS

1. The first task is to establish packaging concept. What packaging should be or do. e.g. protection, novel dispensing method, visibility.

2. Decision on packing elements

3. Tests – engineering tests, visual tests, dealer tests and consumer tests.

4. Labeling – identify, describe and promote.

185

Introduction to Services

186

Services Characteristics V/s GoodsGoods Services Resulting implications

Tangible Intangible - Services cannot be inventoried.- Patented.- Readily displayed or communicated.- Pricing is difficult.

Standardized Heterogeneous - Service delivery and customer satisfaction depend on employee actions.

- Service quality depends on uncontrollable factors

Production Simultaneous production - Customers & employees affect the serviceseparate from and consumption outcome. consumption

Nonperishable Perishable - Difficult to synchronize supply and demand with services.

- Services cannot be returned or resold.

187

The services triangle and technology

Providers Customers

Company

Technology

Internal MarketingEnabling promises

Interactive MarketingKeeping promises

External MarketingMaking promises

188

Expanded Marketing Mix For Services

Product Place Promotion Price

Physical good features Channel type - Promotion blend Flexibility

Quality level Exposure - Salespeople Price level

Accessories Intermediaries Number Terms

Packaging Outlet locations Selection Differentiation

Training

Warranties Transportation Incentives Discounts

Product lines Storage - Advertising Allowance

Branding Managing channels Targets

Media types

Types of ads

Copy thrust

- Sales promotion

- Publicity

189

People Physical evidence Process

- Employees Facility design - Flow of activities

Recruiting Equipment Standardized

Training Signage Customized

Motivation Employees dress - Number of steps

Rewards - Other tangibles Simple

Teamwork Reports Complex

- Customers Business cards - Customer involvement

Education Statements

Training Guarantees

190

Consumer Behaviour in Services

Most goods Most servicesEasy to evaluate

Difficult toevaluate

High in search qualities High in experience qualities High in credence qualities

Continuum of evaluation for different types of products

192

Consumer decision making and evaluation of services

Information Search

• Use of personal sources• Perceived risk high

Culture• Language• Values and customs• Material culture * Aesthetics

Postpurchase Evaluation• Attribution of dissatisfaction to self & less complaints• Innovation diffusion slow• Brand loyalty high due to more search costs

Purchase and Consumption

• Emotion & mood• Service provision as drama• Service roles and expected scripts• Compatibility of customers

Evaluation of Alternatives• Evoked set smaller

193

Gaps Model of Service Quality

194

Gaps Model of Service Quality

Expected Service

Perceived Service

Service Delivery

Customer-driven service designs and standards

Company perceptions of consumer expectations

ExternalCommunications

to customersGap 4

Customer

Gap 3

Gap 2

Company

Gap 1

Customer Gap

195

The provider gaps are the underlying causes behind the

customer gap:

Gap 1 -- Not knowing what customers expect.

Gap 2 -- Not selecting the right service designs and standards.

Gap 3 -- Not delivering to service standards.

Gap 4 -- Not matching performance to promises.

196

Customer Expectations of Service

197

Customer Expectations of Service - The Zone of Tolerance

Desired Service Expectations

Adequate Service Expectations

Zone of Tolerance

198

1. Desired service which reflects what customers want.

2. Adequate service what customers are willing to accept;

3. Predicted service what customers believe they are likely to get.

199

- Zone of tolerance is range in which customers do not notice service

performance.- A customers desired service expectation is same for all service providers

within a category e.g. Service expectations from fast food restaurants V/s fine dine restaurants.

- Adequate service expectation level varies for different firms within a category.- Zone of tolerance expands or contracts for a customer from time to time. E.g.

Customer hard pressed for time will have narrow zone of tolerance.- Zone of tolerance varies for different customers.- Zone of tolerance varies for service dimensions. E.g. unreliability will be least

tolerated.- Zone of tolerance varies for first time & recovery service.

200

Nature and determinants of customer expectations of service

Enduring Service Intensifiers

* Derived expectations from others (customers) family

* Personal Service Philosophies of your own trained

standards.

Personal Needs

Explicit Service promises

* Advertising

* Personal Selling

* contracts

* Other communications

Implicit Service Promises

* Tangibles

* Price

Word of Mouth

* Personal

* “Expert” (Consumer Reports,

publicity, Consultants,

surrogates)

Past Experience

Across Industries

Predicted Service

Zone of

Tolerance

Desired

Service

Adequate

Service

Expected Service

Perceived Service

Gap 5

Transitory Service Intensifiers

* Emergencies

* Service problems earlier

Perceived Service Alternatives

Self- Perceived Service Role

e.g. articulate customer

Situational Factors

* Bad weather * Catastrophe

* Random overdemand

201

Customer Perceptions of Service

202

Customer perceptions of quality and customer satisfaction

Reliability

Responsiveness

Assurance

Empathy

Tangibles

Service

Quality

Product

Quality

Price

Situational

Factors

Customer

Satisfaction

Personal Factors - emotions,

attributions for service

success or failure,

Perceptions of equity or fairness

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* Service quality is a focused evaluation that reflects the

customer’s perception of specific dimensions of service:

reliability, responsiveness, assurance, empathy, tangibles.

Satisfaction, on the other hand, is more inclusive: it is

influenced by perceptions of service quality, product quality,

and price as well as situational factors and personal factors.

* Satisfaction is the customers’ evaluation of a product or

service in terms of whether that product or service has met

their needs and expectations.

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Service Quality Dimensions

• Reliability : Ability to perform the promised service dependably and accurately.

• Responsiveness: Willingness to help customers , solves problems and provide prompt service, be flexible.

• Assurance : Employees knowledge and courtesy and their ability to inspire trust and confidence.

• Empathy: Caring individualized attention given to customers.• Tangibles: Appearance of physical facilities, equipment, personnel and

written materials.Sometimes customers will use all of the dimensions to determine service quality perceptions, at other times not. For example,in a remote encounter such as an encounter with an ATM, empathy is not likely to be a relevant dimension.

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Perceived Performance V/s Expectations

Perceived Performance > expectations delight

Perceived Performance = expectations Happy / Ok/ Satisfied

Perceived Performance < expectations unhappy/disgusted/ dissatisfied

Improving performance & hence perceptions is virtually impossible in

basics/ core/ technical elements. Hence process is where one can play

around.

206

Service quality perceptions

- When technical quality cannot be evaluated accurately (e.g. Professors, doctors,) customers form impressions, of service including technical quality from own shorthand cues.

Technical Outcome quality Process quality

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Service Encounters or Moments of Truthservice encounters are the building blocks of service quality

& satisfaction

- Every experience with product, service or person which allows customer to judge/ form impressions about the qualityof service is a moment of truth.

- It takes 10 good moments of truth to wipe one bad moment oftruth.

- Disney Corporation 74 service encounters in amusementpark. Marriott Hotels - 4 of the top 5 factors come into play infirst 10 minutes of guest’s stay.

• Types of service encounters- remote, phone, face to face.- In remote - tangible evidence & technical quality important.- In phone- process quality - In face to face - customer also play role.

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Marketing Information System

Marketing Information System

Helps develop &manage information necessary to conduct marketing activities.

MARKETING INFORMATION

MARKETING INFORMATIONMARKETING INFORMATION

SYSTEMS

MARKETING ENVIRONMENT

• Macro environment

• Target market

• Marketing channels

• Competition

• Public

INTERNAL REPORTS SYSTEM

MARKETING RESEARCH SYSTEM

MARKETING INTELLIGENCE SYSTEM

ANALYTICAL MARKETING SYSTEM

MARKETING MANAGERS

• Analysis

• Planning

• Implementation

• Control

MARKETING DECISIONS & COMMUNICATIONS

Marketing Information System• Internal Records System (result data) - Order to

payment cycle (invoices, bills), sales reporting system (sales reports, call reports).

• Marketing intelligence system(happening data)- * Newspapers, trade publications, talking to

customers, suppliers, distributors, trade show, analyzing products & ads. talking to competitors, employees, syndicated reports (ORG).

*Need to train sales representatives & motivate distributors & retailers.

• Marketing research - formal study of specific problem / situation.

• Marketing decision support systems - Statistical tools, models & optimization routines.

SCOPE OF MARKETING RESEARCH

1. NEW PRODUCTS - Concept testing,Brand name generation,& testing,Product testing,packaging tests, Test-marketing, Market feasibility.

2. PRODUCT RESEARCH - Competitive - product studies,

3. SALES & MARKET - Market potential, Market characteristics, Market share analysis, Sales analysis, Distribution channel studies.

4. PROMOTION - Copy research, Media research, Ad effectiveness, sales promotion effectiveness.,public image studies, sales force effectiveness

5. BUSINESS & CORPORATE RESEARCH - Business trend studies,, International scope studies, Internal employees studies, Operations research, Location studies etc.

6. CORPORATE RESPONSIBILITY - Ecological studies, Values

7. PRICING-Competitive pricing analysis,price elasticity

8. BUYING BEHAVIOUR-Brand preference, attitude,product satisfaction,purchase behaviour,purchase intentions,brand awareness,segmentation studies

THE RESEARCH PROCESS

I. DEFINE THE PROBLEM - not too broad or narrow, watch for symptoms.

II. RESEARCH OBJECTIVES - measurable and specific (except exploratory)

III. RESEARCH DESIGN APPROACHES

A) EXPLORATORY

B) DESCRIPTIVE CONCLUSIVE

C) CAUSAL

IV. DEVELOP RESEARCH PLAN

A) DATA SOURCES SECONDARY CENSUS

PRIMARY SAMPLE

B) SAMPLING PLAN

SAMPLE UNIT SAMPLING FRAME SAMPLE SIZE SAMPLING PROCEDURE

A) PROBABILITY B) NON-PROBABILITY

THE RESEARCH PROCESS

E) CONTACT METHODS -MAIL,TELEPHONE,PERSONAL(ARRANGED,INTERCEPT)

COLLECT INFORMATION-Problems of not at home,non co-operation,biased,dishonest

answers or fudging

vi) DATA ANALYSIS

vii) REPORT & PRESENTATION

Sampling proceduresA) PROBABILITY SAMPLING :1. Simple Random Sampling : random selection through lottery without

replacement.Unrestricted random sampling is with replacement.

2. Systematic Sampling : involved a system of selecting every nth item in sampling frame after 1st name / unit is selected at random.

3. Random Route sampling: used for sampling households, shops etc. An address is selected at random & every nth address is selected therefrom.

4. Stratified Random Sampling: Population is divided into mutually exclusive groups & within each group, units are selected through random methods.

5. Cluster (Area) sampling: The area to be surveyed is broken into smaller areas. A few of these areas are then selected by random methods. Every unit or some units randomly selected may be interviewed in these selected areas.

SAMPLING PROCEDURES

B) NON - PROBABILITY SAMPLING used when

a) Probability sampling not feasible because population not known or no suitable sampling frame.

b) Random sampling too costly & time consuming.

c) When information is exploratory in nature.

SAMPLING PROCEDURES

B) Non probability sample:

1. Convenience sample: The researcher selects the easiest population members from which to obtain information.

2 Judgement sample: The researcher uses his/ her judgement to select population members who are good prospects for accurate information.

3. Quota sample: The researcher decides on prescribed no. of people in each category (age, gender, income) & then finds & interviews.

Contact MethodsContact Methods

TELEPHONE MAIL PERSONAL

- Quick

- Interview should be short.

- Cannot be personal.

- Not strictly representative.

- Screening of calls.

- Non-verbal cues missing.

- Poor response rate

- No chance of clarification

- Most versatile - Non- verbal cues-Costly- Bias- Cold calls to prevent mall intercept interviews.

QUESTIONNAIRE

Open - ended

(Useful in exploratory research)

Close - ended

(Easy to interpret and tabulate)

1. Completely unstructured

2. Word association

3. Sentence completion

4. Story completion

5. Picture completion

6. Thematic apperception test (TAT)

1. Dichotomous (2 choice)

2. Multiple choice (3 or more)

3. Likert scale 5 point scale of agree-disagree

4. Semantic Differential

5. Importance Scale

6. Monadic Rating

7. Intention to buy scale

QUESTIONNAIRE

• Most common instrument must be carefully developed, tested and debugged before they are administered on a large scale.

• Each question should contribute to research objectives.

• Logical sequence

• Wording / Styling Simple, direct, and unbiased.

• Not too long. Lead question should be interesting.

• Sensitive questions at the end and give range.

A QUESTIONABLE QUESTIONNAIRE

1. What is your total income to the nearest dollar.

2. Are you an occasional or frequent flyer.

3. Do you like this restaurant?

4. How many ads did you see on TV last week?

5. What are the most salient factors in buying a car ?

6. Do you think it is right for the government to ban common salt and deprive a lot of people of jobs ?

Characteristics of good Marketing Research

• Scientific method

• Creativity

• Multiple methods

• Value & cost of information

• Look at background - Classic failure of coke. Don’t look at problem in isolation.

• Don’t give in to temptations of giving management what they want to hear.

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Emerging Trends in Marketing

Emerging Trends in Marketing • Markets1. Cause related marketing - Social cause, (P & G) ecological cause (Orchid Hotels).2. Ambush Marketing (Coke 1996 world cup official sponsor, Reebok Atlanta

Olympics 1996).3. Viral Marketing - hotmail4. Mousetrapping - (on internet)5. Guerilla marketing - (unconventional & creative attention grabbing techniques).

E.g. Burger king used McDonalds Ronald.6. Buzz marketing - By revealing only partial information. (JJKN).7. Glocalization - McDonalds, Coca-Cola, L & G Sampoorna, Nokia 1100.8. Permission marketing (Seth Godin)9. Experience Marketing - Sony’s CD stores,Parryware experiencentres, Shoppers

Stop10. Collaborative Marketing - design (DC car ) Pricing (Zodiac grill)

segmentation (Dell)11.Lifestyle marketing - adopt promotional activity to customers lifestyle. E.g.

Cellphones.12. Ethical marketing - Pfizer, J & J Tylenol

• Customer Management : 1. Relationship management - Jet airways flying returns,Shoppers stop First

Citizens Club.2. Affinity group & online communities.

• Product & Branding :1. Mass customization - e.g. Scorpio, Asian Paints, Dell.2. Umbrella Branding

• Pricing :1. Target pricing2. Announcing price upfront

• Packaging :1. Sachet marketing • Distribution :1. Non- traditional methods - Multilevel (Avon , Oriflame ),Party plan

(Tupperware)

•Advertising, Media, sales promotion:1. In film advertising - Baghban, Castaway (Fedex)2. Surrogate advertising.3. Comparative advertising.4. Use of new, unconventional media, below the line

media. (e.g.. Surf Vans).5. Increase in sales promotion.6. Using colours & sensory methods - e.g. Blue (Cool),

Red (Hot).

PRICING

PRICING

I. CONSISTENT WITH TARGET MARKET & POSITIONING

A) PRICE - DETERMINED BY OBJECTIVES - SURVIVAL, PROFIT OR MARKET SHARE OR SIGNALLING LEADERSHIP.

B) METHOD - COST BASED V/S CUSTOMER BASED V/S COMPETITOR BASED.

C) UNDERSTAND CUSTOMER PRICE SENSITIVITY (PRICE ELASTICITY OF DEMAND)

D) OTHER FACTORS

Setting the Price

Selecting the pricing objective

Determining demand

Estimating Costs

Analyzing competitor’s costs, prices and offers

Selecting a pricing method

Selecting the final price

6 MAJOR PRICING OBJECTIVES

• SURVIVAL

• MAXIMUM CURRENT PROFIT

• MAXIMUM CURRENT REVENUE

• MAXIMUM MARKET SHARE(penetration pricing)

• MAXIMUM MARKET SKIMMIMG

• PRODUCT QUALITY LEADERSHIP

• ANY OTHER - SOCIAL OBLIGATIONS ETC.

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Determining Demand - Each price will have a different level of demand - Demand curve captures affect of alternative prices on resulting

demand- Higher the price, lower the demand (except in prestige goods)- Price band width - Price Sensitivity factors - Estimating demand curves through a) Statistical analysis (longitudinal or cross –sectional past datab) Price experiments c) Surveys of purchase intentions - Price elasticity of demand & price indifference band.

ESTIMATING PRICE SENSITIVITY

NAGLE HAS IDENTIFIED FOLLOWING FACTORS FOR LESS SENSITIVITY

1. UNIQUE VALUE EFFECT

2. SUBSTITUTION AWARENESS

3. DIFFICULT COMPARISION Eg. CARPETS, DOCTORS

4. TOTAL EXPENDITURE EFFECT (VIS-A-VIS INCOME) Eg. SALT

5. END COST EFFECT - PRODUCT SMALL PART OF END PRODUCT

6. SHARED COST EFFECT

7. SUNK INVESTMENT - PRODUCT USED IN CONJUNCTION WITH ASSETS PREVIOUSLY BOUGHT

8. PRICE - QUALITY EFFECT

9. INVENTORY EFFECT - CANNOT STORE PRODUCT

IF DEMAND ELASTIC, LOWER PRICE

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Factors Leading to Less Price Sensitivity

T

The product is more distinctive.

Buyers are less aware of substitutes.

Buyers cannot easily compare the quality of substitutes.

The expenditure is a smaller part of the buyer’s total income.

The expenditure is small compared to the total cost of the end product.

Part of the cost is borne by another party.

The product is used in conjunction with assets previously bought.

The product is assumed to have more quality, prestige, or exclusiveness.

Buyers cannot store the product.

234

Estimating Costs - Types of costs (variable, fixed/overhead, total costs,

average cost - Accumulated production leads to experience or

learning curve- Activity Based Cost accounting - Target Costing.

Selecting the Pricing Method

• Markup pricing

• Target return pricing

• Perceived value pricing

• Value pricing

• Going rate pricing

• Sealed bid pricing

Selecting the Final Price

• Psychological pricing

• Influence of other marketing mix elements on price

• Company pricing policy

• Impact of price on other parties

237

Pricing Consumer Psychology & Pricing

1) Price threshold – low & higher (Price bands)

2) Reference price

3) Price – quality inferences

4) Price cues – odd end pricing.

Adapting the Price

I. Geographical pricing

II. Pricing discounts & allowance

III. Promotional pricing

IV. Discriminatory pricing

V. Product mix pricing

Adapting the Price

I. Geographical pricing

II. Price Discounts & allowances - Cash discounts, Quantity discounts, functional discounts, seasonal discounts, allowances(trade in allowances,promotional allowances).

Adapting the price

III. Promotional Pricing

1. Loss leader pricing

2. Special event pricing

3. Low interest financing

4. Larger payment terms

5. Warrantees & service contract

6. Psychological discounting - e.g. Rs. 1000/- earlier now Rs. 800.

7. Rebates

IV. Discriminatory Pricing

1. Customer segments2. Product form3. Image4. Location5. Time - e.g. Where yield is important.6. Channel Pricing

V. Product mix pricing1.. Product line pricing2. Optional feature pricing3. Captive product pricing4. Two parts pricing - (Fixed + Variable)

e.g. telephone operators5. Byproduct pricing6. Product bundling pricing

PRICING TERMINOLOGY

VALUE PRICING - GIVING MORE VALUE IN RELATIONSHIP TO PRICE PAID.

PENETRATION PRICING - CHARGING LOWER PRICE TO GAIN MARKET SHARE.

SKIMMING PRICING - CHARGING AS HIGH AS POSSIBLE TO GET FIRST LAYER OF CUSTOMERS AND THEN PROGRESSIVELY LOOK DOWNWARDS.

TARGET COSTING - DETERMINE PRICE AT WHICH PRODUCT MUST SELL GIVEN ITS APPEAL AND COMPETITION AND THEN WORK BACKWARDS.

PENETRATION

SKIMMING

1. WHEN PROFITS POSSIBLE THROUGH VOLUMES

2. PRICE-SENSITIVE MARKET

3. HIGH COMPETITION

4. COST IS MORE FIXED THAN VARIABLE

1. HIGH PRICE-PERCEIVED QUALITY RELATIONSHIP

2. PRICE INSENSITIVITY

3. COMPETITION IMMINENT

4. COST IS MORE VARIABLE THAN FIXED.

MEASURING PERCEIVED VALUE

I. PV > PRICE > V COST

MAY BE DELIBERATE

II. PRICE > PV > VC

REDUCE PRICE OR INCREASE PERCEIVED VALUE

III. PRICE > VC > PV

FAILURE SCENARIO

IV. OPTIMAL IS PRICE = PV > VC

METHODS FOR CALCULATING PERCEIVED VALUE

1. DIRECT PRICE RATING METHOD

WHAT PRICE WILL YOU PAY FOR C IF A IS RS. 90/-

2. DIRECT PERCEIVED VALUE RATING METHOD

GIVE MARKS OUT OF 100 TO A B C. IF PRICE OF A IS 90. WHAT SHOULD BE PRICE OF C.

3. DIAGNOSTIC METHOD

PRODUCT

ATTRIBUTES IMP A B C

METHODS FOR CALCULATING PERCEIVED VALUE

4. ECONOMIC VALUE TO CUSTOMER

REFERENCE NEW NEW

PRODUCT A PRODUCT Y PRODUCT Z

(SAME AS X) WITH INCRE-

MENTAL

FEATURES

PURCHASE PRICE 300 600* 700*

STARTUP COSTS 200 100 200

POST PURCHASE COSTS 500 300 400

1000 1000 1300

OTHER FACTORS

1. PRICE AS INDICATOR OF QUALITY

2. BUYERS HAVE REFERENCING PRICING IN MIND - FAIR PRICE, PRICE BANDWIDTH.

3. PSYCHOLOGICAL PRICING BARRIER

4. ODD END PRICING SHOULD BE AVOIDED IF HIGH PRICE IMAGE IMPORTANT.

5. HOW IMPORTANT IS PRICE TO INDIA IN PURCHASE DECISION_-JUST ASKING CUSTOMERS THROUGH SURVEYS IS NOT ENOUGH (CONJOINT ANALYSIS BETTER).

INITIATING PRICE CHANGES

INITIATING PRICE CUT

INITIATING PRICE INCREASE

REASONS

1. Excess capacity

- Might trigger a price war

2. Declining market share

3. Drive to dominate through lower costs

4. Economic recession

Risks

- Low Quality trap

- Fragile Market Share trap. Buyer loyalty is not ensured

- Shallow pocket trap. Reserves are less. Staying power is less.

REASONS

1. Expected improved profitability

2. Cost Inflation

3. Overdemand

BETTER METHOD THAN INCREASING PRICE (ESPECIALLY PRICE SENSITIVE MARKET)

1. Shrink amount of product

2. Substitute less expensive materials

3. Reduce or remove product features / services

4. Less expensive packaging or promoting larger pack sizes.

5. Reducing number of models / sizes

6. Creating new economic brands

REACTIONS TO PRICE CHANGES

CUSTOMER’S REACTIONS

COMPETITOR’S REACTIONS

TO PRICE CUT

1. Product might be faulty

2. Not selling well

3. Financial trouble. Company may go out of business.

4. Prices may fall further. Hence wait.

5. Quality is reduced

6. New model

TO PRICE INCREASE

1. Item is hot

2. Item has good value

3. Seller is greedy

Competitor will react when few firms, product homogeneous, buyers highly informed. It is important to estimate the competitor’s likely reactions before affecting a price change.

The factors to be considered are :

1. Competitor’s Financial Position

2. Competitor’s Sales and Capacity, Customer loyalty

3. Competitor’s Corporate Objectives

• Market Share - Likely to match p/c

• Profit Maximisation - Likely to improve Quality & Sales Efforts

4. Customer Loyalty

RESPONDING TO COMPETITOR’S PRICE CHANGES

Homogeneous-product Market

• Little choice but to match price cut

• However, price increase need not be matched. Ultimately competitors will be forced to reduce.

Nonhomogeneous product Market Factors

Price Quality Realiability Service

Strength of these factors may desensitize buyers to price changes

Analyse the problem on the following lines:

• Why was the price reduced?

• Is it permanent?

• How are other competitors likely to respond?

• What will happen to company’s market share and profits if it does not respond?

Response varies with situation - importance of product in Co’s portfolio, stage of PLC, markets price sensitivity, behaviour of costs with volume. It is better to anticipate than to react.

RESPONDING TO COMPETITOR’S PRICE CHANGES

Reactions:

1. Maintain Price when -

• Not likely to lose market share

• Might regain market later

• Would lose too much profit if price reduced

2. Raise perceived quality while maintaining price

3. Reduce Price when -

Costs fall with volume

Market is price sensitive

Difficult to rebuild market share later

4. Increase price aned improve quality

5. Launch lower price fighter line

PRICE-REACTION PROGRAM FOR MEETING A COMPETITOR’S PRICE CUT

HAS COMPETITOR CUT HIS PRICE?

HOLD THE PRICE AT PRESENT LEVEL…CONTINUE TO WATCH COMPETITOR’S PRICE.

IS THE PRICE LIKELY TO HURT PRESENT SALES?

IS IT LIKELY TO BE PERMANENT PRICE CUT?

HOW MUCH HAS THE PRICE BEEN CUT?

BY < 2% INCLUDE DISCOUNT COUPON FOR THE NEXT PURCHASE

BY 2-4% DROP PRICE BY HALF OF THE COMPETITOR’S PRICE CUT

BY > 4% DROP PRICE TO COMPETITOR’S PRICE

NO

NO NO

YES

YES YES

DISTRIBUTION

DISTRIBUTION

A COMPANY LAUNCHING A PRODUCT NEEDS

1. SALES CHANNEL (TALKING ABOUT PRODUCT)

2. DELIVERY CHANNEL (HOME DELIVERY, INSTALLATION)

3. SERVICE CHANNEL

THE 3 NEED NOT BE SAME.

Marketing Channels

M

M

M

C

C

C

M C

M

M

C

C D

No of contracts = 9No. of contracts = 3

Marketing Channels

customer marketing channels

Manufacturer

Wholesaler

RetailerManufacturer

Manufacturer Consumer

Consumer

Consumer

Retailer

Eureka Forbes

Medicines

Bombay Dyeing

Marketing Channels

Industrial marketing channels

Manufacturer

Manufacturer’ssales branch

Industrialdistributor

Manufacturer

ManufacturerIndustrialConsumer

IndustrialConsumer

Industrial Consumer

Industrialdistributor

ABB

Bombay Dyeing

Car spares

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Marketing Channels & Value Networks

Marketing channel/trade channel/distribution channel are set of intermediaries involved in process of making product or service available for use or consumption.

- Merchants (wholesalers, retailers)

- Agents (Brokers, sales agents, manufacturer’s representatives)

- Facilitators (transportation companies, independent warehouses, banks, insurance companies)

In Managing its intermediaries, a firm must decide how much effort to devote to push vs. pull strategies.

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Channel Development

- Hybrid channels- Value networks for superior value delivery - Channel functions (information, stimulate

purchase, financing, risk-sharing, storage, breaking down, time, place, possession gaps)

- The question is not whether various channel functions need to be performed (they must be) but rather, who is to perform them

- 5 marketing flows in the marketing channel are physical flow, title flow, payment flow, information flow, promotion flow.

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The Hybrid Grid

Internet

National account

management

Direct sales

Telemarketing

Direct mail

Retail stores

Distributors

Dealers and value-

added resellers

Advertising

Lead

Generation

Qualifying

sales Presales Close of sale

Post sales

service

Account

management

V

E

N

D

O

R

C

U

S

T

O

M

E

RMa

rke

tin

g C

ha

nn

els

an

d M

eth

od

s

Multichannel architecture optimizes coverage, customization, & controlwhile minimizing cost & conflict.

CHANNEL LEVELS

EACH INTERMEDIARY WHO BRINGS PRODUCT AND ITS TITLE CLOSER TO BUYER CONSITUTES CHANNEL LEVEL.

• ZERO CHANNEL(Direct marketing channel) - Door to door ,home parties, mail order, telemarketing, TV selling,,internet selling manufacturer stores.

• ONE LEVEL

• TWO LEVEL

• THREE LEVEL

CHANNEL DESIGN DECISIONS

I. CHANNEL DESIGN IN TUNE WITH MARKETING OBJECTIVES.

II. CUSTOMER’S DESIRED SERVICE OUTPUT LEVELS - Eg. CONVENIENCE, WAITING AND DELIVERY TIME,FASTER SERVICE, PRODUCT VARIETY, SMALL LOT SIZE ETC.

ESTABLISH CHANNEL CONSTRAINTS

A. PRODUCT CHARACTERISTICS - PERISHABLE, NON-STANDARDISED, BULKY.

B. S/W OF DIFFERENT INTERMEDIARIES

C. COMPETITORS CHANNEL

D. COMPANY’S STRENGTH & RESOURCES.

E. ENVIRONMENTAL CONDITIONS - Eg. IN RECESSION, SHORTER CHANNEL & WITHOUT NON-ESSENTIAL SERVICES.

Decide what is ideal, feasible, available

IDENTIFYING MAJOR CHANNEL ALTERNATIVES

A. TYPES OF INTERMEDIARIES - Eg. CELL PHONES. SEARCH FOR INNOVATIVE CHANNEL BECAUSE LESS DOMINANCE.

B. NO. OF INTERMEDIARIES - EXCLUSIVE V/S SELECTIVE V/S INTENSIVE.

C. TERMS & RESPONSIBILITIES OF CHANNEL MEMBERS - E.g. TERRITORIAL RIGHTS, MUTUAL SERVICES & RESPONSIBILITIES.

(Franchisees)

EVALUATING CHANNEL ALTERNATIVES

I. ECONOMIC - AGENT FOR SMALLER FIRMS, LOW VOLUME TERRITORIES.Each channel alternative will produce a different level of sales and costs.eg internet vsSalesforce.Company will try to switch their customers to low cost channels asumimg no loss of sales or deterioration of service quality.

II. CONTROL - LESS ON AGENT.

III. ADAPTIVE

CHANNEL MANAGEMENT DECISIONS

I. SELECTING CHANNEL MEMBERS - NO. OF YEARS, OTHER LINES CARRIED, REPUTATION, CO-OPERATIVENESS, GROWTH AND PROFIT RECORD.

II. MOTIVATING - THROUGH TRAINING, SUPERVISION & SHARING

INFORMATION. - Using power (coercive,reward, legitimate, expert & referent power) to get co-operation.

III. EVALUATING CHANNEL MEMBERSagainst standards as sales qouta attainment,avg inventory levels,customer delivery time,treatment of damaged or lost goods,cooperation in training and promotional programs..

IV. MODIFYING CHANNEL ARRANGEMENTSdue to ineffectiveness, consumer buying pattern changes,market expands,new competition areises,innovative distribution channels emerge,product life cycle.

V. MANAGING CHANNEL CONFLICT

Channel dynamics

• A conventional marketing channel comprises an independent producer, wholesaler(s), and retailer(s). Each is a separate business entity seeking to maximize its own profits,even if this goal reduces profit for the system as a whole.

• A vertical marketing system (VMS), by contrast, comprises the producer, wholesaler(s), and retailer(s) acting as a unified system. One channel member owns the others or franchises them or has so much power that they all cooperate. The vertical marketing system can be dominated by the producer, the wholesaler, or the retailer.

I. Vertical marketing Systems

1. Corporate VMS - combines successive stages of product & distribution under single ownership.I.e. vertical integration.

2. Administered VMS - Co-ordinates successive stages of production & distribution through size & power of one of the members . E.g. HLL commands high level of cooperation from reseller in terms of shelf-space, displays etc.

3. Contractual VMS - consists of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economies and /or sales impact than they could achieve alone.E.g. retailer co-operative, franchise organizations.

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I. Horizontal Marketing Systems - In which two or more unrelated companies put together resources or programs to exploit on emerging marketing opportunity ( called symbiotic marketing). E.g. SBI & Management.

III. Multichannel Marketing Systems - Occurs when a single firm uses two or more marketing channels to reach one or more customer segments.

Channel Conflict

• Types of conflict

1. Vertical channel conflict

2. Horizontal channel conflict

3. Multichannel conflict

Causes of channel conflict

• Goal incompatibility - dealers want short-term profits while company wants long-term customer satisfaction.

• Unclear roles & rights.

• Differences in perception - of market, customer needs, economic outlook e.g. company optimistic, dealer pessimistic).

• Intermediaries great dependence on manufacturer.

Why are marketing intermediaries used & why not direct marketing

• Lack of financial resources for direct marketing.

• Not feasible / practical.

• Channel members add time, place, possession, form utility. Thus it is not whether various channel functions need to be performed but rather who is to perform them.

• Key Functions

– Information

– Promotion

– Ordering

– Financing

– Risk taking

– Physical possession

– Payment

– Title

INTRODUCTION TO INTEGRATED MARKETING COMMUNICATIONS

And Yet Another… by AAAA … a concept of marketing communications

planning that recognizes the added value of a comprehensive plan that evaluates the strategic roles of a variety of communications disciplines-for example, general advertising, direct response, sales promotion and public relations-and combines these disciplines to provide clarity, consistency, and maximum communications’ impact through the seamless integration of discrete messages

Thus IMC can help us deliver

• Different media for same message:

• Consistency over time: Lux

• Different message over different audience: Fair & Lovely- Urban Vs Rural areas

• Same message in different languages: Coke

WHY IMC?• Market: Cluttered• More competition: Less Buyers • Media Exposure is very high• Media Fragmentation: Many TV Channels

and even more newspapers and weekly newsmagazines

• Lifestyle change: Malls and Cafes• Technology – Email, net, mobile, SMS -

easy access to information for customer

AND..

• Shrinking budgets and demand for accountability • And acceptance by marketing managers that

specialization is important

Advertising

Sales Promotion

Public Relations

Direct Marketing

Event Marketing

Internet Marketing

IMC

MARKETING COMMUNICATIONS MIX

ALSO CALLED PROMOTION MIX CONSISTS OF

1. ADVERTISING

2. SALES PROMOTION

3. PUBLIC RELATIONS AND PUBLICITY

4. PERSONAL SELLING

5. DIRECT MARKETING

6. MERCHANDISING

7. EVENT SPONSORSHIP

8. PRODUCT DESIGN

9. ONLINE ADVERTISING

10. WORD OF MOUTH RECOMMENDATION

COMMON COMMUNICATION PLATFORMS

Catalogs

Mailings

Telemarketing

Electronic shopping

TV shopping

Fax mail

E-mail

Voice mail

Sales presentations

Sales meetings

Incentive programs

Samples

Fairs and trade shows

Press kits

Speeches

Seminars

Annual reports

Charitable donations

Sponsorships

Publications

Community relations

Lobbying

Identity media

Company magazine

Events

Contests, games, sweepstakes, lotteries

Premiums and gifts

Sampling

Fairs & trade shows

Exhibits

Demonstrations

Coupons

Rebates

Low-interest financing

Entertainment

Trade-in allowances

Continuity programs

Tie-ins

Print and broadcast ads

Packaging—outer

Packaging inserts

Motion pictures

Brochures & booklets

Posters and leaflets

Directories

Reprints of ads

Billboards

Display signs

Point-of-purchase displays

Audio-visual material

Symbols and logos

Videotapes

DIRECT MARKETING

PERSONAL SELLING

PUBLIC RELATIONS

SALES PROMOTION

ADVERTISING

ELEMENTS OF COMMUNICATION PROCESS--MACROMODEL

SENDER Encoding Message

Media

Decoding RECEIVER

Noise

ResponseFeedback

DEVELOPING EFFECTIVE COMMUNICATIONS

1. UNDERSTAND COMMUNICATION PROCESS

2. UNDERSTAND CONCEPTS OF SELECTIVE ATTENTION, DISTORTION, RETENTION

DEVELOPING EFFECTIVE COMMUNICATIONS -

• IDENTIFY TARGET AUDIENCE – affects what to say, how to say, when, where and to whom to say.

• SITUATION ANALYSIS & DETERMINE COMMUNICATION OBJECTIVES

• DESIGNING THE MESSAGE

• SELECT THE COMMUNICATION CHANNELS

• ESTABLISH TOTAL PROMOTION BUDGET

• DECIDE ON PROMOTION MIX

• MEASURE PROMOTION RESULTS

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Determining Communications Objectives

1) Category need (for new to the world products)

2) Brand awareness – recognition & recall

3) Brand attitude

4) Brand purchase intention.

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MICRO MODEL OF CONSUMER RESPONSES 1) Learn-feel-do (Cognitive affective responsive). When

high involvement & high differentiation

2) Do-feel-learn high involvement & low perceived difference

3) Learn-do-feel When low involvement& low perceived difference

285

Consumer Response Models

Models

Stages AIDA

Modela

Hierarchy-of-Effects

Modelb

Innovation-Adoption

Modelc

Communications

Modeld

Cognitive

Stage

Attention

Awareness

Knowledge

Awareness

Exposure

Reception

Cognitive response

Affective

Stage

Interest

Desire

Action

Behavior

Stage

Liking

Preference

Conviction

Purchase

Interest

Evaluation

Trial

Adoption

Attitude

Intention

Behavior

Message Issues• What to say ? ( Message Content ) –Message appeals-

Informational(rational),Transfomational appeals(sensory,social,ego satisfaction); message strategy will look at one of 3appeals in context of product-in-use ,results of use or incidental to use experience. negative positive appeals.Borrowed interest technique like babies,puppies,celebrity,popular music,provocative sex appeals.

• How to say it logically? ( Message Structure )-order of presentation(strongest first or last);,one sidedor two sided, Conclusion Drawing

• How to say it symbolically? ( Message Format )

• Who should say it? ( Message Source ) –Celebrity, expert, Common man. Expertise,trustworthiness,likeability.

Success Factors

• Nature of Message: striking, eye catching, • Audience’s interpretation of it• Environment in which it is received: eg. 20%

off in recession would be more effective.Words, pictures, sounds, colours may have different meanings to different people

Eg: Black; in urban areas- sophisticated, in rural areas- death

SELECTING COMMUNICATION CHANNELS

1. PERSONAL CHANNELS – Advocate channel (salespersons) expert channel (independent) social channel (neighbors, friends etc.)

2. NON-PERSONAL CHANNELS – Media, atmospheres and events,.

ESTABLISH TOTAL PROMOTION BUDGET

1. AFFORDABLE METHOD

2. UNIT OF SALES OR CASE RATE METHOD

3. PERCENTAGE OF SALES METHOD

4. COMPETITIVE PARITY METHOD – spend as much as competition

5. SHARE OF VOICE METHOD

6. OBJECTIVE & TASK METHOD

7. EMPIRICAL METHOD

8. QUANTITATIVE MATHEMATICAL MODEL

9. INVESTMENT SPENDING

10. PECKHAM’S METHOD - For new products spend twice, For established products same share or less

PROMOTIONAL TOOLS

UNDERSTANDING UNIQUE CHARACTERISTICS AND COSTS OF EACH

1. ADVERTISING – Strategic and long term, most economical form of consumer contact, transforms products into brands. Persuasive, expressive public presentation hence perceived as legitimate but impersonal .

2. SALES PROMOTION – Short term, tactical Creates quick response but not effective in building long-run brand preference.

3. PUBLIC RELATIONS & PUBLICITY – High credibility, dramatization, catch buyers off guard.

4. PERSONAL SELLING – Useful in later stages but long-term cost commitment.

5. DIRECT MARKETING – Customized, interactive, secrecy.

6. MERCHANDISING or Point of Purchase activity for traffic building in outlets especially self-service outlets

PROMOTIONAL TOOLS

7. EVENT SPONSORSHIP – should be relevant target audience,involving.

8. PRODUCT DESIGN – and packaging and brand name acts as silent salesmen.

9. ONLINE ADVERTISING – internet users few, but interactive.

10. WORD OF MOUTH recommendations – need to be stimulated through proper identification of opinion leaders

DECIDING ON PROMOTION MIX

FACTORS

a) TYPE OF PRODUCT MARKET – business v/s consumer markets

b) Push v/s Pull strategy

c) Buyer – readiness stage

d) Product lifecycle stage

Methods of obtaining Feedback

Purchase behaviourInventory, pop consumer panel

RetentionRecall over time

Message acceptance/ yielding

Brand attitudes, purchase intent

ComprehensionRecall. Checklists

AttentionListener, reader, viewer recognition

Exposure/presentationCirculation reach

Steps in persuasion process

Effectiveness tests

FCB Planning Model

4. Self satisfaction

(reactor)

Cigarettes, liquor, candy

3. Habit Formation (doer)

Food, household items

Low

Involvement

2. Affective (feeler)

Jewelry, cosmetics,

motorcycles

1. Informative (thinker)

Car, house, furnishings,

new products

High

Involvement

FeelingThinking

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How integrated is your IMC Program

1) Coverage & overlap

2) Contribution to awareness, image, attitude, induce sales

3) Commonality – consistency & cohesiveness of common associations

4) Complementarity – different associations

5) Versatility

6) Cost.

ADVERTISING, MEDIA & SALES PROMOTION

DEVELOPING & MANAGING AN ADVERTISING PROGRAM

• MISSION-Sales goals,advertising objectives

• MONEY

• MESSAGE

• MEDIA

• MEASUREMENT

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Ideal ad campaign The ideal ad campaign would ensure that:

1) The right consumer is exposed to the right message at the right place and at the right time.

2) The ad causes the consumer to pay attention to the ad but does not distract from the intended message.

3) The ad properly reflects the consumer’s level of understanding about the product and the brand.

4) The ad correctly positions the brand in terms of desirable and deliverable points-of-difference and points-of-parity.

5) The ad motivates consumers to consider purchase of the brand.

6) The ad creates strong brand associations with all of these stored communication effects so that they can have an impact when consumers are considering making a purchase.

Creative Strategy

POSSIBLE ADVERTISING OBJECTIVES

1. INFORMATIVE ADVERTISING – used in pioneering stage to build primary demand.

2. PERSUASIVE ADVERTISING – important in competitive stage, to build selective demand. Comparative advertising.

3. REMINDER ADVERTISING – for mature products

4. REINFORCEMENT ADVERTISING for assurance.

POSSIBLE ADVERTISING OBJECTIVES

Keeping it in buyers’ minds during off-seasons

Maintaining its top-of-mind awareness

TO REMIND

Reminding buyers that the product may be needed in the near future

Reminding buyers where to buy it

Persuading buyers to purchase now

Persuading buyers to receive a sales call

TO PERSUADE

Building brand preference

Encouraging switching to the brand

Changing buyers’ perception of product attributes

Describing available services

Correcting false impressions

Reducing buyers’ fears

Building a company image

TO INFORM

Telling the market about a new product Suggesting new uses for a product

Informing the market of a price change

Explaining how the product works

DECIDING ON ADVERTISING BUDGET

FACTORS

1. STAGE IN PRODUCT LIFECYCLE

2. MARKET SHARE AND CONSUMER BASE

3. COMPETITION AND CLUTTER

4. ADVERTISING FREQUENCY REQUIRED

5. PRODUCT SUBSTITUTABILITY-less differentiated or commodity like products

CHOOSING ADVERTISING MESSAGE

A. MESSAGE CONSTRUCTION - (CONTENT)-CREATIVE BRIEF

- Benefit Promise Or Unique Selling Proposition Should Be Believable, Desirable And Exclusive And Supported By A Reason – Why

- Benefit Promise Is Strategic In Nature And Should Not Change Unless Change In Product Formulation, Marketing Strategy, Or Changing Consumer Needs / Wants.

- Should Appear In Headline

CHOOSING ADVERTISING MESSAGE

B. MESSAGE EXECUTION

a. APPEALS – rational( comparative vs Competitive) emotional(positive,negative) moral

b. TONE – positive, humour ?

c. WORDS

d. FORMAT – placement of elements, typography (press) background, colour, arresting key frame (TV).

e. STRUCTURE conclusion drawing, one sided v/s two sided argument, order of presentation

Verbal Vs. Visual Messages

• When verbal information is low in imagery value, use of pictures increases both immediate and delayed recall.

• When verbal information is high in imagery value addition of pictures does not increase recall.

Promotional Executions

• Straight sell • Technical expertise

• Scientific Evidence• Demonstration • Comparison

– Direct or indirect

• Testimonial – Authority, celebrity, peer

• Slice of life

• Life style

• Animation

• Personality symbol

• Fantasy

• Dramatization

• Mood or Image

• Musical

• The way the promotional appeal is presented– Can be executed in multiple ways through multiple

media & promotional elements

Source Factors

• Credibility: Extent to which the recipient sees the source as having relevant knowledge, skill or experience

• Trustworthy- the source to give unbiased, objective information.

• Likeability Disadvantages• Overshadowing the product• Overexposure of the celebrity

ADVERTISING COPY STRATEGY

(CREATIVE BRIEF)

• SHOULD BE TRUE TO OVERALLPOSITIONING OF PRODUCT

• SHOULD BE WRITTEN

• POSITIONING SHOULD BE CLEAR, COMPETITIVE, CORRECT FOR PRODUCT & TARGET MARKET, NON-GENERIC, BELIEVABLE

GOOD COPY STRATEGY

HAS FOUR PARTS

1. WHAT ADVERTISING AIMS TO CONVEY - CENTRAL PROMISE

2. FACTS TO SUPPORT

3. CUSTOMER ADDRESSED

4. TONE & ATMOSPHERE

SUPPORT

1. PRODUCT ITSELF - INGREDIANTS - REAL OR PERCEIVED

2. PEOPLE WHO MAKE IT

3. PACKAGING

4. WAY IT IS SOLD

5. ACTUAL CONSUMER REPORTS

6. PEOPLE WHO BUY IT

7. REGION

8. OPINION OF INDEPENDENT JUDGES

RECOGNISING GOOD ADVERTISING

1. STRATEGIC FIT WITH POSITIONING

2. DISTINCTIVE / EXCLUSIVE

3. COMPETITIVE

4. NON-GENERIC

5. PROVOCATIVE

6. CONTENT MORE IMPORTANT THAN STYLE

7. BOING FACTOR

8. BELIEVABLE LOGIC

9. VISUAL / VERBAL COHERENCE

10. CONSUMER EMPATHY

MEDIA BRIEF

• TARGET AUDIENCE

• ADVERTISING

• REACH V/S FREQUENCY

• MEDIA HABITS OF TARGET AUDIENCE

• TIMING OF CAMPAIGN

• REGIONAL WEIGHTS

• SHARE OF VOICE DESIRED IN EACH MARKET

• CREATIVE REQUIREMENTS - MINIMUM SIZE OR LENGTH OF TIME

JUDGING MEDIA PLANS

1. AGREED TARGET AUDIENCE

2. AGREED ADVERTISING MESSAGE

3. MEDIA DECISIONS

AGREED TARGET AUDIENCE

QUESTIONS TO ASK

1. CAPTIVE SALES OR CONQUEST SALES

2. DEMOGRAPHIC CHARACTERISTICS

3. REGIONAL CHARACTERISTICS

4. PSYCHOLOGICAL CHARACTERISTICS

Media Media PlanningPlanning

Brand and Category Analysis

Percentage of product category total sales in marketPercentage of total Indian population in market

CDI =X 100

Category Development Index

Brand and Category Analysis

Brand Development Index

Percentage of brand sales in market to total Indian salesPercentage of total India population in market

BDI = X 100

BDI and CDI

• Help the product manager achieve focus in locating geographical regions that require focus

• These figures help in test marketing of new products and in testing advertisements

MEDIA PLANNING & STRATEGY

1. Deciding On Reach, Frequency & Impact

2. Choosing Among Major Media Types

3. Selecting Specific Media Vehicles

4. Deciding On Media Timing

5. Deciding On Geographical Media Allocation

DECIDING ON REACH, FREQUENCY & IMPACT

• REACH ( R ): The number of different persons or households exposed to a particular media schedule at least once during a specified time period.

• FREQUENCY (F): The number of times within the specified time period that an average person or household is exposed to the message.

• IMPACT (I): The qualitative value of an exposure through a given medium (thus a food ad in Good Housekeeping would have a higher impact than in the Police Gazette).

Reach x Frequency = Gross Rating Points

Reach and Frequency

Reach of Two ProgramReach of One Program

Unduplicated Reach of BothDuplicated Reach of Both

Total market audience reached Total market audience reached

Total reached with both shows Total reach less duplicate

Graph of Effective Reach

Exposures

Per

cen

tag

e R

each

0 5 10 15

25%

20%

15%

10%

5%

0%

IneffectiveReach

EffectiveReach

IneffectiveReach

REACH V/S FREQUENCY

FREQUENCY

• Strong competitors

• Complex story

• High consumer resistance

• Frequent purchase cycle

• High forgetting rate

REACH

• Launching new products

• Launching new extensions

• Infrequently purchase brands

• Undefined target market

Marketing Factors Important toDetermining Frequency

• Brand history

• Brand share

• Brand loyalty

• Purchase cycles

• Usage cycle

• Competitive share of voice

• Target group

Creative Factors In Determining Frequency

• Message complexity

• Message uniqueness

• New vs. continuing campaigns

• Image versus product sell

• Message variation

• Wearout

• Advertising units

Media Factors Important toDetermining Frequency

• Clutter

• Editorial environment

• Attentiveness

• Scheduling

• Number of media used

• Repeat Exposures

CHOOSING AMONG MAJOR MEDIA TYPES

FACTORS

1. TARGET AUDIENCE MEDIA HABITS

2. PRODUCT

3. MESSAGE

4. COST

CHOOSING AMONG MAJOR MEDIA TYPES

1. TV – Best for Demonstration Purpose

2. NEWSPAPER – best for launch announcements, authoritative medium.

3. MAGAZINES – can segment audiences, long life span, pass on readership but periodic hence advertising impactless.

4. RADIO – good reminder medium

5. CINEMA – South and smaller towns

6. OUTDOOR – geographically selective medium

7. OTHERS – neon signs, matchbox covers, wall paintings, tamashas

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Profiles of Major Media Types

Medium Advantages Limitations

Newspapers Flexibility; timeliness; good local market coverage; Short life; poor reproduction quality; small broad acceptance; high believability “pass-along” audience.

Television Combines sight, sound, and motion; appealing to High absolute cost; high clutter; fleeting expo-

the senses; high attention; high reach sure; less audience selectivity

Direct Mail Audience selectivity; flexibility; no ad competition Relatively high cost; “junk mail” image

within the same medium; personalization

Radio Mass use; high geographic and demographic sele- Audio presentation only; lower attention than

ctivity; low cost television; nonstandardized rate structures;

fleeting exposure

Magazines High geographic and demographic selectivity; cre- Long ad purchase lead time; some waste cir-

dibility and prestige; high-quality reproduction; long culation; no guarantee of position

life; good pass-along readership

Outdoor Flexibility; high repeat exposure; low cost; low com- Limited audience selectivity; creative limitat-

petition ions

Yellow pages Excellent local coverage; high believability; wide re- High competition; long and purchase lead ti-

ach; low cost me; create limitations

Newsletters Very high selectivity; full control; interactive opport- Costs could run away

unities; relative low costs

Brochures Flexibility; full control; can dramatize messages Overproduction could lead to runaway costs

Telephone Many users; opportunity to give a personal touch Relative high cost unless volunteers are used

Internet High selectivity; interactive possibilities; relatively Relatively new media with a low number of

low cost users in some countries

330

Other media Types 1) Place advertising (also called out of home advertising)

Billboards, public spaces (movies, airlines, lounges, classrooms, sports arenas, transit ads, street furniture-bus shelters, kiosks)

2) Product placement – e.g. infilm advertisements, advertorials, infomercials, branded entertainment

3) Points of purchase.

SELECTING SPECIFIC MEDIA VEHICLES

DEPENDS ON

• In PRINT – circulation, effective audience, effective ad-exposed audience which affects cost per thousand criterion.

• In TV – effective audience, TRP, QRP

332

Selecting Specific Vehicles 1) Circulation

2) Audience, because of pass-on readership

3) Effective audience

4) Effective ad – exposed audience

Cost per thousand should be adjusted for audience quality & audience – attention probability & editorial quality & ad placement policies

Determining RelativeCost of Media

• CPM (cost per thousand) Cost of ad space/time

= x1000 Circulation/Audience

• CPRP (cost per rating point) Cost of commercial time

= Program rating

DECIDING ON MEDIA TIMING

• Depends on buyer turnover, purchasing frequency forgetting rate

• Macroscheduling problem

• Microscheduling problem

• CONTINUITY

• CONCENTRATION – spending all in one period

• FLIGHTING – advertising followed by hiatus then second flight

• PULSING – continuous advertising at low weight level reinforced periodically by waves of heavier activity.

CONTINUITY V/S BURSTS

CONTINUITY

• FREQUENT PURCHASE PATTERN

• HIGH LEVEL OF IMPULSE BUYING

• EXPANDING MARKET

• NO BUDGET CONSTRAINTS

BURSTS

• INFREQUENT PURCHASE PATTERN

• STRONG LOYALTY TO BRAND

• HEAVY LAUNCH WEIGHT

• BUDGET LIMITATIONS

TIMING DEPENDS ON

• BUYER TURNOVER

• PURCHASE FREQUENCY

• FORGETTING RATE

337

Classification of Advertising Timing Patterns

Factors to be considered are buyer turnover, purchase frequency & forgetting rate.

Level Rising

Falling Alternating

Concentrated

Continuous

Intermittent

(1) (2) (3) (4)

(4)

Number of

Messages

per Month

Month

338

EVALUATING ADVERTISING EFFECTIVENESS

1) COMMUNICATION EFFECT RESEARCH –called Copy testing

is done before it is put in media & after it is printed or broadcast.

3 major methods of pretesting a) Consumer feedback method asks consumers for their reactions

to a proposed ad. They respond to questions such as these: 1. What is the main message you get from this ad? 2. What do you think they want you to know, believe, or do?3. How likely is it that this ad will influence you to undertake the action? 4. What works well in the ad and what works poorly? 5. How does the ad make you feel? 6. Where the best place to reach you with this message? Where would

you be most likely to notice it and pay attention to it? Where are you when you make decisions about this action?

339

Evaluating advertising effectiveness Contd of Slide ….

b) Portfolio tests ask consumers to view or listen to a portfolio of advertisements. Consumers are then asked to recall all the ads and their content, aided or unaided by the interviewer. Recall level indicates an ad’s ability to stand out and to have its message understood and remembered.

c) Laboratory tests use equipment to measure physiological reactions – heartbeat, blood pressure, pupil dilation, galvanic skin response, perspiration – to an ad; or consumers may be asked to turn a knob to indicate their moment-to-moment liking or interest while viewing sequenced material. These tests measure attention-getting power but reveal nothing about impact on beliefs, attitudes or intentions.

340

Evaluating advertising effectiveness Contd of Slide ….

2) Sales effect Research – share of expenditure v/s share of voice v/s share of mind v/s share of heart v/s share of market Measurement through historical approach or experimental data.

341

Advertising Research Techniques

For Print Ads. Starch and Gallup & Robinson, Inc., are two widely used print pretesting services. Test ads are placed in magazines, which are then circulated to consumers. These consumers are contacted later and interviewed. Recall and recognition tests are used to determine advertising effectiveness.

For Broadcast Ads. In-home tests: A video tape is taken or downloaded into the homes of target consumers, who then view the commercials.

Trailer tests: In a trailer in a shopping center, shoppers are shown the products and given an opportunity to select a series of brands. They then view commercials and are given coupons to be used in the shopping center. Redemption rates indicate commercials’ influence on purchase behavior.

Theater tests: Consumers are invited to a theater to view a potential new television series along with some commercials. Before the show begins, consumers indicate preferred categories; after the viewing, consumers again choose preferred brands. Preference changes measure the commercials’ persuasive power.

On-air tests: Respondents are recruited to watch a program on a regular TV channel during the test commercial or are selected based on their having viewed the program. They are asked questions about commercial recall.

SALES PROMOTION

SALES PROMOTION

SALES PROMOTION CONSISTS OF A DIVERSE COLLECTION OF INCENTIVE TOOLS, MOSTLY SHORT-TERM, DESIGNED TO STIMULATE QUICKER AND / OR GREATER PURCHASE OF A PARTICULAR PRODUCT BY CONSUMERS OR TRADE.

WHILE ADVERTISING OFFERS A REASON TO BUY, SALES PROMOTION OFFERS AN INCENTIVE TO BUY.

REASON FOR SALES PROMOTION INCREASE

1. MANY BRANDS & SEEN AS SIMILAR

2. COMPETITION USES IT

3. CONSUMERS MORE PRICE ORIENTED

4. TRADE DEMANDS MORE DEALS

5. ADVERTISING EFFICIENCY HAS DECLINED

6. MEDIA CLUTTER

WHY SALES PROMOTION POPULAR

1. SALES PROMOTION PRODUCE RESULTS

2. SALES PROMOTION PRODUCE RESULTS QUICKLY

3. SALES PROMOTION IS ALWAYS WELCOMED BY ALL - CONSUMERS, TRADE, SALESFORCE

4. SALES PROMOTION IS RELATIVELY EASY & INEXPENSIVE TO IMPLEMENT

5. MOST PRODUCT MANAGERS ARE UNDER GREAT PRESSURE TO INCREASE THEIR CURRENT SALES

6. SMALL SHARE FIRMS FIND IT ADVANTAGEOUS TO USE SALES PROMOTION AS CANNOT AFFORD TO MATCH MARKET LEADER’S LARGE ADVERTISING BUDGETS & CANNOT OBTAIN SHELF SPACE

PROBLEMS OF SALES PROMOTION

1. SALES PROMOTION TEND TO ORIENT MARKETING MANAGERS TOWARDS THE SHORT-TERM

2. OVERUSE RESULTS IN ERODING ATTITUDES TOWARDS BRAND

3. SALES PROMOTION OFTEN ATTRACT BRAND SWITCHERS AND NOT LOYALISTS OF OTHER BRANDS.

4. SALES PROMOTION USED IN MARKETS OF HIGH BRAND SIMILARITY, PRODUCE A HIGH SALES RESPONSE IN SHORT RUN BUT LITTLE PERMANENT GAIN IN MARKET SHARE

5. IN MARKETS OF HIGH BRAND DISSIMILARITY, SALES PROMOTION CAN ALTER MARKET SHARES PERMANENTLY.

SALES PROMOTION TOOLS

UNDERSTAND WHAT EACH TYPE OF SALES PROMOTION TOOL CAN OR CANNOT DO.

CONSUMER FRANCHISE BUILDING TOOLS WHICH REINFORCE THE CONSUMER’S BRAND UNDERSTANDING THROUGH IMPARTING SELLING MESSAGE ALONG WITH DEALS ARE BETTER E.g. PREMIUMS RELATED TO PRODUCT, FREE SAMPLES ETC.

TRADE PROMOTIONS - LOOK FOR PROOF OF PERFORMANCE & PREVENT FORWARD BUYING OR DIVERTING.

LOOK FOR CREATIVE EDGE.

Segmentation, targeting and positioning

• Must know STP before sales promotion ‘coz– No promotion is directed towards every

customer– Buyers have different reasons to buy different

products– No sense in directing sales promotion for loyal

customers and regular users

Whom to target the Sales Promotion to ?

• Segment on basis of Loyalty– Loyal Customers– Competitive Loyals– Switchers– Price buyers– Non Users

Target Market for All Promotion Based

Activities

350

MAJOR DECISIONS IN SALES PROMOTION

1. ESTABLISH SALES PROMOTION OBJECTIVES

2. SELECT SALES PROMOTION TOOLS - CONSUMER, TRADE, SALESFORCE, BUSINESS

3. DEVELOPING SALES PROMOTION

A. SIZE OF INCENTIVE

B. CONDITIONS FOR PARTICIPATION

C. DURATION

D. DISTRIBUTION VEHICLE

E. TIMING

F. BUDGET

4. PRETEST PROGRAM

5. IMPLEMENT

6. EVALUATE SALES PROMOTION RESULTS THROUGH SALES DATA, CONSUMER SURVEYS & EXPERIMENTS.

OBJECTIVES OF SALES PROMOTIONCONSUMERS

1. TO INTRODUCE NEW PRODUCT & GENERATE TRIAL.

• GATHER INFORMATION.

• MAKE IT EASY TO REDUCE PROCESS.

2. TO ATTRACT NEW CUSTOMERS

3. TO INDUCE PRESENT CUSTOMERS TO BUY MORE

4. TO HELP FIRM REMAIN COMPETITIVE

5. TO INCREASE OFF SEASON SALES

6. TO REWARD LOYAL CUSTOMERS

7. BUILD LONG - TERM RELATIONSHIP.

RETAILERS

1. PERSUADE RETAILERS TO CARRY NEW ITEMS

2. PERSUADE RETAILERS TO CARRY HIGHER LEVEL OF INVENTORY

3. OFF SETTING COMPETITIVE PROMOTIONS

4. INDUCE RETAILERS TO PROMOTE BRAND BY FEATURING DISPLAY

5. STIMULATE RETAILERS TO PUSH THE PRODUCT

OBJECTIVES OF SALES PROMOTION

SALESFORCE

1. ENCOURAGING SUPPORT FOR NEW PRODUCT

2. ENCOURAGING MORE PROSPECTING

3. STIMULATING OFF SEASON SALES

TYPES OF SALES PROMOTION

CONSUMER PROMOTION - SAMPLES, COUPONS, PRICE OFFS, PREMIUMS PATRONAGE REWARDS, FREE TRIALS, PRIZES, TIE-IN PROMOTIONS, CROSS PROMOTIONS, POINT OF PURCHASE DISPLAYS, DEMONSTRATIONS.

TRADE PROMOTION - PRICE OFFS, ADVERTISING & DISPLAY ALLOWANCES, FREE GOODS

BUSINESS PROMOTION - TRADE SHOWS, FAIRS, CONVENTIONS, SPECIALITY ADVERTISING

SALES FORCE PROMOTION - CONTESTS

354

Sales Promotion Tools

• Samples

• Coupons

• Cash refund offers or rebates

• Price packs

• Premium Gifts

• Prizes – contests – sweepstakes

• Patronage awards

355

Samples

• Offer free amount of product or service

• Might be delivered– Door to door– Mail– Pick up in a store– Attached to product

• A very expensive way

356

Coupons

• Help in stimulating sales of mature brand

• Should provide at least 15-20 % saving to the customer

357

Cash Refund / Rebates

• Provide a price reduction after purchase rather than at the shop

• Proof of purchase necessary

358

Price Packs

• Savings off the regular price of a product

• Maybe through– Reduced price pack– Banded pack

• Are often more effective than coupons

359

Premiums - Gifts

• Merchandise is offered free or at low cost as incentive to purchase a product

• Self – liquidating premium is an item sold below its normal price to consumers who request it

• Maybe a – Near Pack– On-Pack– In-Pack– With-pack

360

Prizes – Contests - Sweepstakes

• Prize – offers to win an expensive gift when you purchase the product

• Contests require the submission of an entry like a jingle or a slogan

• Sweepstakes require you to put in your name in the lucky draw

• Gain a lot more attention than coupons or small premiums

361

Tie-in Promotions

• Involve two or more brands or companies that team up on coupons, refunds and contests to increase their pulling power

• Sales force of two companies push promotions to retailers thus giving strong thrust

362

Trade Promotion Tools

• Price-Off – Straight discount off the list price on each case

purchased during a stated time period

• Allowance– An amount offered to display prominently the

wares

• Free goods– Extra cases of merchandise to intermediaries

who buy a certain size

363

Business Promotions

• Trade Shows and Conventions

• Sales Contests

• Specialty Advertising

SALES PROMOTION - DEVELOPING THE SALES PROMOTION PROGRAMME

1. CERTAIN MINIMUM INCENTIVE NECESSARY FOR PROMOTION TO SUCCEED. A HIGHER INCENTIVE LEVEL WILL PRODUCE MORE SALES RESPONSE BUT AT DIMINISHING RATE.

2. DURATION OF PROMOTION - NOT TOO SHORT (NO ONE KNOWS) OR TOO LONG (LOSES ITS ACT NOW FORCE).

3. OPTIMAL FREQUENCY 3 WEEKS PER QUARTER AND OPTIMAL DURATION - LENGTH OF AVERAGE PURCHASE CYCLE.

4. EACH DISTRIBUTION VEHICLE INVOLVES DIFFERENT REACH, COST, IMPACT.

5. TOTAL SALES PROMOTION BUDGET INCLUDES ADMINISTRATIVE COST (PRINTING, MAILING & PROMOTING THE DEAL) & INCENTIVE COST ( COST OF PREMIUM OR PRICE OFF) MULTIPLIED BY EXPECTED NUMBER OF UNITS THAT WILL BE SOLD ON THE DEAL.

FOR CONSUMER PROMOTION TO SUCCEED

1. VALUE OF INCENTIVE SHOULD BE PROPORTIONATE TO MAIN PRODUCT.

2. GIFT SHOULD PREFERABLY NOT BE EASILY AVAILABLE IN THE MARKET.

3. INCENTIVE SHOULD BE A QUALITY PRODUCT.

4. THE INCENTIVE SHOULD BE OF INTEREST TO THE CONSUMER OF THE MAIN PRODUCT.

5. INCENTIVE SHOULD HAVE INDEPENDENT VALUE.

6. ADDITION OF FREE GIFT MUST NOT FORCE THE CUSTOMER TO SPEND MORE ON THE MAIN PRODUCT.

366

Pretesting Sales Promotion

• Design on experience but conduct pretests

• Testing is inexpensive and fast

• Rank or rate promotion offers

• Restrict the promotion to a geographical test area only

367

Implementing and Controlling the Sales Promotion Program

• Must decide the lead time and sales time• Lead time

– Prepare design, approval of package modifications material to be mailed or distributed, advtg, POP material and the like

– Notoifcation of field sales personnel, establishing allocations for distributors, purchase and printing of premiums, inventory mgmt, and eventual distribution to retailer

• Sell-in Time– Begins with promotional launch

– Ends when 95% of deal merchandise is in hands of consumers

368

Measuring Effectiveness

• Sales Data

• Consumer Surveys

• Experiments

369

Challenges in Sales Promotions

• Consumer franchise building V/S non-franchise building

• Forward buying

• Diverting in non deal regions

• Inability to police effectively

• Wrong billing

• Irritation of retailers

370

Direct Marketing or Direct Response Marketing

Direct Mail, Catalogs, telemarketing, interactive TV, Kiosks, Web sites & mobile devices.

371

Direct - Mail Marketing

Has passed through a number of stages:

1) Carpet Bombing

2) Database marketing

3) Interactive marketing

4) Real-time personalized marketing

5) Lifetime Value marketing.

372

Direct Mail Marketing 1) Objectives – order response rate of 20% is

considered good2) Target Market & Prospects – identified by R-F-

M formula (recency, frequency & monetary amount). Better lists include both demographic & psychographic information

3) Offer elements – the product, the offer, the medium, the distribution method & the creative strategy

4) Testing elements – for impact on awareness, intention to buy, purchase, word of mouth

5) Measuring campaign success: Lifetime value.

373

Telemarketing - Inbound and outbound - 4 types of telemarketing

a) Telesales

b) Telecoverage nurture key account relationships

c) Teleprospecting

d) Customer service & technical support

374

Sales force 6 types:6 types:

1) Deliverer

2) Order taker

3) Missionary e.g. medical representative

4) Technician

5) Demand creator – e.g. Water purifier

6) Solution vendor.

375

Designing the Sales force 1) Sales force Objectives & Strategy –

Prospecting, targeting, communicating, selling, servicing, info gathering, allocating during shortages.

2) Sales force structure – product based or market based or territorial structure

3) Sales force size – Workload approach e.g. if 1000 A a/cs & 2000 B a/cs & A a/cs B a/c requires 36 calls/yr &12 calls/yr respectively, then total sales calls needed to be made are 60000. Suppose average representative can make 1000 calls/yr then 60 full-time sales representatives are needed.

4) Sales force compensation – fixed, variable, expense & benefits. Hence compensation plans are straight salary, straight commission & combination of salary & commission – fixed more when high ratio of non – selling to selling duties & when selling task is technically complex & involves teamwork. Variable more when sales are cyclical & depend on individual initiative.

5) Combination plans are used by 3/4th of companies & other strategic goals like gross profitability, customer satisfaction, customer retention.

376

Managing the sales force

1) Recruiting & selecting representatives – selection criteria, sources, procedure

2) Training & supervising sales representatives – technical & non-technical

3) Sales Representative productivity-

a) Norms for prospect calls vs. current customers

b) Using sales time efficiently – time & duty analysis. Inside sales people back up (technical support, sales assistants, telemarketers)

377

Managing the sales force Contd of slide ….

4) Motivating Sales force – Research found that reward with highest value was pay followed by promotion, personal growth & sense of accomplishment. Least valued rewards were liking & respect, security & recognition.

- Motivating through quotos

5) Evaluating sales representatives -

- Sales reports, customer letter & complaints, call reports

- Key indicators of sales performance e.g. average. no. of sales calls per day.

378

Principles of personal selling The six steps:

1) Prospecting & qualifying

2) Preapproach

3) Presentation & demonstration – AIDA; Features – Advantages – Benefits – Value (FABV) approach

4) Objection Handling – logical resistance & psychological resistance

5) Closing – recognising the signs

6) Follow-up & maintenance

379

PRODUCT LIFE CYCLE

380

1. INTRODUCTION

2. GROWTH

3. MATURITY

4. DECLINE

PLC PHASES

381

PRODUCT LIFE CYCLE

THE LAUNCH PHASE

• DEFINING THE POSITIONING;

• ACHIEVING WHOLESALE DISTRIBUTION;

• ACHIEVING RETAIL DISTRIBUTION;

• AROUSING CONSUMER AWARENESS;

• ATTRACTING CONSUMER TRIAL;

• CONVERTING CONSUMERS TO THE PRODUCT; AND

• ACHIEVING BUYING CONTINUITY

382

FOUR INTRODUCTORY MARKETING STRATEGIES

Promotion

High Low

High

Low

Pri

ce

Rapid- skimming strategy

Slow- skimming strategy

Rapid- penetration strategy

Slow- penetration strategy

383

PRODUCT LIFE CYCLE

THE GROWTH PHASE

• INCREASING THE USER BASE;

• EXPANDING DISTRIBUTION;

• EXPANDING SHELF FACINGS;

• INCREASING PURCHASE FREQUENCY;

• SHIFT FROM PRODUCT AWARENESS ADVERTISING TO BRAND PREFERENCE ADVERTISING;

• LOWER PRICES TO ATTRACT NEW LAYER OF PRICE SENSITIVE BUYERS

• ENSURING ADEQUATE INVENTORIES AT WHOLESALE AND RETAIL LEVELS; AND

• EXPLORING LINE EXTENSIONS

384

MATURITY PHASE

1. GROWTH MATURITY - SALES GROWTH RATE DECLINE, LAGGARDS

2. STABLE MATURITY - SALES FLATTEN; SALES GOVERNED BY POPULATION GROWTH & REPLACEMENT DEMAND

3. DECAYING MATURITY - ABSOLUTE LEVEL OF SALES STARTS TO DECLINE, CUSTOMERS SWITCHING TO OTHER PRODUCTS

385

PRODUCT LIFE CYCLE

THE MATURITY PHASE

• RETAINING CURRENT USERS;

• ATTRACTING NEW USERS;

• RETAINING DISTRIBUTION;

• OPTIMISING PRODUCT LINE AND PACKAGING; AND

• OPTIMISING PRODUCT COSTS

386

MATURITY PHASE

1. MARKET MODIFICATION

VOLUME = NO. OF BRAND USERS X USAGE PER USER

a) INCREASING USERS

• CONVERT NON-USERS

• ENTER NEW MARKET SEGMENTS

• SNATCH COMPETITOR’S CUSTOMERS

b) INCREASING USAGE

• MORE FREQUENT USE

• MORE USAGE PER OCCASION

• NEW AND MORE VARIED USES

2. PRODUCT MODIFICATION

3. MARKETING MIX MODIFICATION

387

PRODUCT LIFE CYCLE

REJUVENATION

• DEVELOP AND QUALIFY MAJOR PRODUCT IMPROVEMENT;

• REPOSITION PRODUCT VIA ADVERTISING;

• ACHIEVE NEW DISTRIBUTION OUTLETS;

• ACHIEVE CONSUMER TRIAL AND CONVICTION; AND

• ATTRACT NEW USERS AND NEW USES.

388

PRODUCT LIFE CYCLE

DECLINE PHASE

• RETARDING ATTRITION IN USER BASE;

• ATTRACTING ‘BARGAIN’ BUYERS;

• RESTRICTING PRODUCT LINE;

• REDUCING PRODUCT COSTS;

• RETARDING DISTRIBUTION LOSSES;

• MAXIMISING IMMEDIATE PROFITS

389

PRODUCT LIFE CYCLE

THE NEW PRODUCT / ESTABLISHED PRODUCT DISTINCTION

FOR THE NEW PRODUCT:

• ASCERTAIN THAT YOU REALLY HAVE A VIABLE PRODUCT BEFORE YOU START MARKETING IT;

• CONCENTRATE EFFORTS ON DEVELOPING EFFECTIVE POSITIONING AND ADVERTISING THAT REFLECTS THAT POSITIONING OPTIMALLY;

• WITH THE TRADE, AIM AT DISTRIBUTION BEFORE ANYTHING ELSE;

• CLEARLY ESTABLISH THE PRICE LEVEL THAT YOU WANT.

390

PRODUCT LIFE CYCLE

THE NEW PRODUCT / ESTABLISHED PRODUCT DISTINCTION

FOR THE ESTABLISHED PRODUCT:

• DO NOT WANTONLY CHANGE POSITIONING OR ADVERTISING UNLESS YOU HAVE REAL EVIDENCE THAT THEY ARE FUNDAMENTALLY WRONG;

• ENSURE YOUR PRODUCT HAS SUFFICIENT SUPERIORITY TO THE COMPETITION TO MAKE IT VIABLE IN THE MARKET;

• CONCENTRATE AS A FIRST PRIORITY ON HOLDING THE VOLUME YOU HAVE INHERITED AND THE USER BASE THAT HAS BEEN BUILT UP;

• SEEK TO FIND EXPANSION POSSIBILITIES FOR NEW VOLUME - NEW USERS, NEW TRADE OUTLETS, VOLUME PACKS AND PROMOTIONS;

• UNDERSTAND AND RESPECT THE PRODUCT’S AND THE BRAND’S HERITAGE.

391

PRODUCT LIFE CYCLE STRATEGIES (SEE APPENDIX NO.6)

IntroductionGrowth Maturity Decline

Sales

Time

392

PRODUCT LIFE CYCLE STRATEGIES

Sales Low sales Rapidly rising Peak sales Declining sales sales

Costs

Profits

Customers

Competitors

High cost per customer

Negative

Innovators

Few

Average cost per customer

Rising profits

Early adopters

Growing number

Low cost percustomer

High profits

Middle majority

Stable numberbeginning to decline

Low cost percustomer

Declining profits

Laggards

Declining number

Marketing Objectives

Create product awareness and trial

Maximize market share

Maximize profit whiledefending market share

Reduce expenditure andmilk the brand

Characteristics

393

Strategies

Product

Price

Distribution

Advertising

Sales Promotion

Offer a basic product

Charge cost-plus

Build selective Distribution

Build product awareness among early adopters and

dealers

Use heavy salespromotion to entice

trial

Offer productextensions, service,

warranty

Price to penetrate market

Build intensive distribution

Build awareness andinterest in the mass

Market

Reduce to takeadvantage of heavy consumer demand

Diversify brands and models

Price to match or Best competitors

Build more intensiveDistribution

Stress brand differences and

Benefits

Increase to encourage Brand switching

Phase out weak items

Cut price

Go selective: Phase out

unprofitableOutlets

Reduce to levelNeeded to retainHard-core loyals

Reduce to minimal

level

394

NEW PRODUCTS DEVELOPMENT

395

WHY DO NEW PRODUCTS FAIL-CHALLENGES

1. PUSHING A FAVORITE IDEA THROUGH INSPITE OF NEGATIVE MARKET RESEARCH FINDINGS

2. IDEA IS GOOD BUT MARKET SIZE IS OVERESTIMATED

3. ACTUAL PRODUCT NOT WELL DESIGNED

4. INCORRECT POSITIONING

5. INEFFECTIVE ADVERTISING

6. OVERPRICED

7. DEVELOPMENT COSTS HIGHER THAN EXPECTED

8. COMPETITORS FIGHT BACK HARDER THAN EXPECTED

9. SHORTAGE OF NEW PRODUCT IDEAS

10. FRAGMENTED MARKETS

396

WHY DO NEW PRODUCTS FAIL

11. SOCIAL & GOVERNMENTAL CONSTRAINTS

12. COSTLINESS OF NEW PRODUCT DEVELOPMENT PROCESS

13. CAPITAL SHORTAGES

14. FASTER DEVELOPMENT TIME

15. SHORTER PLC

397

STAGES IN NEW PRODUCT DEVELOPMENT PROCESS

1. IDEA GENERATION

2. IDEA SCREENING

3. CONCEPT DEVELOPMENT & TESTING

4. MARKETING STRATEGY DEVELOPMENT

5. BUSINESS ANALYSIS

6. PRODUCT DEVELOPMENT

7. MARKET TESTING

8. COMMERCIALISATION

398

IDEA GENERATION TECHNIQUES

1. ATTRIBUTE LISTING

2. FORCED RELATIONSHIPS

3. MORPHOLOGICAL ANALYSIS

4. NEED / PROBLEM IDENTIFICATION

5. BRAINSTORMING

6. SYNECTICS

399

Creative techniques for new ideas

1) Attribute listing – List attributes of an object e.g. screw driver then modify each e.g. wooden

handle with plastic etc. 2) Forced relationships – List several ideas &

consider each one in relation to each other e.g. TV, Computer, DVD player

3) Morphological analysis – Start with a problem such as getting something from one place to

another via a powered vehicle. Now think of dimensions such as type of platform (cart, chair, sling, bed); the medium (air, water, rails, road) & power source (electric, magnetic wind, solar)

4) Reverse assumption analysis – List all normal assumptions about an entity & then reverse them. e.g. Instead of assuming that a restaurant has menus, charges for food, serves food, reverse each assumption

400

Creative techniques for new ideas Contd of slide …. 5) New contexts – Take familiar processes such as people –

helping services & put them into new context e.g. Instead of hotel guests going to the front desk to check in, greet them at curb-side & use wireless device to register them

6) Mind mapping – Start with a thought & all thoughts such as car, Mercedes, Germany. Perhaps a whole new idea will materialize.

7) Lateral marketing – Combines two product- concepts or ideas to create a new offering

e.g. Cyber café’s = café + internet Sony Walleman = audio + portable.

401

Idea screening Company must avoid two types of errors:

1) A drop error

2) A go error – absolute product failure, partial product – failure (fixed costs not fully covered); relative product failure (yields profit less than company’s target rate of return)

402

Idea screeningAs the idea moves through development, the company will constantly need to revise its estimate of the product’s overall probability of success, using the following formula:

Overall Probability Probability of Probability of

probability of = of technical X commercialization X economic

success completion given technical success given

completion commercialization

For example, if the three probabilities are estimated as .50, .65, and .74, respectively, the overall probability of success is .24. The company then has to judge whether this probability is high enough to warrant continued development.

403

IDEA SCREENING

EVALUATING A MARKET OPPORTUNITY IN TERMS OF COMPANY’S OBJECTIVES & RESOURCES

I. COMPATIBILITY WITH COMPANY OBJECTIVES

• PROFIT OBJECTIVE

• SALES VOLUME OBJECTIVE

• SALES GROWTH OBJECTIVE

• CUSTOMER GOODWILL OBJECTIVE

II. COMPATIBILITY WITH COMPANY RESOURCES

• NECESSARY CAPITAL

• PRODUCTION KNOW-HOW

• MARKETING KNOW-HOW

• DISTRIBUTION CAPABILITY

404

PRODUCT-IDEA RATING DEVICE

PRODUCT SUCCESS (1) (2) (3 = 1 X 2)

REQUIREMENTS RELATIVE PRODUCT PRODUCT

WEIGHT SCORE RATING

Unique or superior product .40 .8 .32

High performance-to-cost ratio .30 .6 .18

High marketing dollar support .20 .7 .14

Lack of strong competition .10 .5 .05

Total 1.00 .69*

*Rating scale : .00 - .30 poor; .31 - .60 fair; .61 - .80 good. Minimum acceptance rate: .61.

405

CONCEPT DEVELOPMENT AND TESTING

A product idea is a possible product that a company might offer to the market

A product concept is an elaborated version of the idea expressed in meaningful consumer terms-target market,,key benefit,occasion,etc

406

CONCEPT DEVELOPMENTAny product idea can be turned into several products concepts . A company can form several concepts:Concept 1: An instant breakfast drink for adults for nutritionConcept 2: tasty snack drink for children for midday refreshmentConcept 3: Health supplement for elderly for late eveningEach of these concepts represents a category concept - that is ,each positions the idea within a category.It is the category concept, that defines the product’s competition.• Product- positioning map - can be utilized in communicating and promoting the concept to the market.• Brand-positioning map - the product concept has to be turned into a brand concept.

407

PRODUCT DIMENSIONS TO TEST AT CONCEPT STAGE

1. CLARITY

2. BELIEVABILITY

3. NEED LEVEL NEED GAP SCORE

4. GAP LEVEL - BETWEEN NEW PRODUCT AND EXISTING PRODUCTS

5. PERCEIVED VALUE

6. PURCHASE INTENTION

7. PERCEIVED USAGE-WHO,WHEN AND HOW OFTEN

408

MARKETING STRATEGY DEVELOPMENT

•Target market’s size, structure,and behavior; the planned product positioning; and the sales, market share, and profit goals sought in the first few years. • The product’s planned price, distribution strategy, and marketing budget for the first year.• The long-run sales and profit goals and marketing-mix strategy over time.

409

BUSINESS ANALYSISA. Estimating Total Sales - First time sales, replacement sales,

repeat sales.B. Estimating Costs and Profits -

Projected five-year cash-Flow Statement (In Thousand Of Dollars)

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

1. Sales revenue2. Cost of goods sold3. Gross margin

4. Development costs5. Marketing costs6. Allocated overhead

7. Gross contribution8. Supplementary contribution9. Net contribution10. Discounted contribution (15%)11. Cumulative discounted cash flow

410

Financial measures to evaluate the merit of a new-product proposal.

Break Even Analysis: How many units need to be sold or how many years to break even

Risk Analysis: Here three estimates (optimistic, pessimistic, and most likely) are obtained for each uncertain variable affecting profitability under an assumed marketing environment and marketing strategy for the planning period.

411

PRODUCT DEVELOPMENT

• Large jump in investment.

• The R & D department will develop one or more physical versions of the product concept.

• Design required functional characteristics & to communicate its psychological aspects through physical cues.

• The functional tests are conducted under laboratory and field conditions to make sure that the product performs for safety & effectiveness.(ALPHA TESTING)

• Consumer Testing(BETA TESTING) includes bringing consumers into a laboratory to giving them samples In-home product placement tests.

412

Techniques for measuring consumer preferences:

The most three most common are simple ranking, paired

comparisons, and ranking scales.

• The simple- rank- order method ask the consumer to rank the three items in order of preference. It is difficult to use this method when there are are many objects to be evaluated.

• The paired-comparison method calls for presenting pairs of items to the consumer, then asking which one is preferred in each pair.

• The monadic -rating method asks the consumer to rate his or her liking of each product on a scale. This rating yields more information than the order methods.even know the qualitative levels of her preference for each.

413

MARKET TESTING

. CONSUMER GOODS MARKET TESTING-

a. SALES WAVE RESEARCH –Pre-selected consumers are offered company’s & competitor’s products three to five times. Secrecy maintained but distribution issues can not be checked.

b. SIMULATED TEST MARKETING – Pre-selected consumers are given money, exposed to ads. Invited to stores,& purchase behavior observed. Ads effectiveness checked.

c. CONTROLLED TEST MARKETING – Panel of stores carry new products. Checks advertising, promotion. But, does not provide information how to sell to trade and also secrecy loss.

d. TEST MARKETS – Ultimate way to test a new consumer product.

414

TEST MARKETS

1. HOW MANY TEST CITIES – 2 to 6 cities.larger number if regional differences, different marketing strategies, possible loss, possible interference by competitors.

2. WHICH CITIES – Not over tested, good media coverage, representative sample, average competitor activity.

3. LENGTH OF TEST – Depends on repeat purchase rate. Period should be cut down if competitors are rushing to the market.

4. WHAT INFORMATION – Store audit, consumer panels ( switching rates), buyer survey (Consumer attitude, usage , satisfaction).

5. WHAT ACTION TO TAKE – Depends on trial & repurchase rates.

415

BUSINESS GOODS MARKET TESTING

. BUSINESS GOODS MARKET TESTING

a. ALPHA TESTING – In company testing to measure & improve product performance, reliability & operating cost.

b. BETA TESTING – Inviting potential adaptors to conduct confidential testing at site.Gives clues on problems of safety, servicing, usage & need for training. Also can observe value equipment adds to customer operations as a clue to pricing.

c. TRADE SHOWS – Secrecy loss.

d. DISTRIBUTOR & DEALER DISPLAY

e. TEST MARKETING

416

COMMERCIALISATION

1. TIMING – First entry : ( first mover advantages but must be debugged) , parallel entry, late entry.

2. GEOGRAPHICAL STRATEGY – Planned market roll out necessary.

3. TARGET MARKET PROSPECTS – Prime prospects. (early adopters, heavy users, opinion leaders, reached at a low cost)

4. INTRODUCTORY MARKET STRATEGY

417

DIFFUSION OF INNOVATION

Innovation CharacteristicsConsumer- DependentRelative AdvantageCompatibilityPerceived RiskComplexityEffect on Adoption of Other InnovationsConsumer -IndependentTrialabilityDivisibilityReversibilityRealizationCommunicabilityForm of Innovation

Consumer Characteristicspsychological VariablesPerceptionMotivationPersonalityValue OrientationBeliefsAttitudesPrevious InnovativeExperienceDemographicsAgeEducationIncome

Propagation MechanismsTypesMarketer- Controlled vs.Nonmarketer controlledPersonal Vs. ImpersonalCharacteristicsCredibilityClaritySource SimilarityInformativeness

InnovationResistance

Is Innovation Amenableto Modification ? Modification

Adoption Rejection

No

No YesYes

Exposure to Innovation Exposure to Innovation

418

Innovators

2.5%EarlyAdopters13.5%

EarlyMajority34%

LateMajority34%

Laggards16%

Percentage of Adopters by Category Sequence

419

Adopter CategoriesADOPTER DESCRIPTION RELATIVE PERCENTAGE

CATEGORY POPULATION WITHIN THE

THAT EVENTUALLY ADOPTS

Innovators Venturesome - very eager to try new Ideas

acceptable if risk is daring; more 2.5%

cosmopolite social relationships;

communicates with other innovators.

Early Adopters Respect - more integrated into the local

social system; the persons to check with 13.5%

before adopting a new idea; category contains

greatest number of opinion leaders; are role

models.

Early Majority deliberate - adopt new ideas just prior to the

average time; seldom hold leadership positions; 34.0

deliberate for some time before adopting.

Late Majority Skeptical- adopt new ideas just after the average

time; adopting may be both an economic necessity 34.0

and a reaction to peer pressures;innovations

approached cautiously.

Laggards Traditional - the last people to adopt an innovation;

most “localite” in outlook; oriented to the past; 16.0

suspicious of the new.

100.0%

420

MULTIPLE FACTOR BUYING POWER INDEX

Step 1.Specific customer profile in terms of factors. E.g. Demographic > 30 yearsEconomic MHI > 20,000Step 2.For each market, calculate percentage of each factor V/s totale.g. Demographic % = Markets men > 30 years

All India men> 30 yearsStep 3.Determine importance weight of each factorDemographic = 40%Economic = 60%Step 4.BPI of a market = 0.4 X Demographic % + 0.6 X Economic %

421

CATEGORY DEVELOPMENT INDEX

NATIONAL

MUMBAI

BANGALORE

DELHI

CALCUTTA

BPI

100

14

7

5

1

ESTIMATED SALES (BASED ON BPI)

2,00,000

28,000

14,000

10,000

2,000

ACTUAL SALES

2,00,000

56,000

42,000

10,000

1,000

CDI

-

200

300

100

50

422

BRAND DEVELOPMENT INDEX

NATIONAL

MUMBAI

BANGALORE

DELHI

CALCUTTA

BPI

100

14

7

5

1

ESTIMATED SALES (BASED ON BPI)

30,000

4,200

2,100

1,500

300

ACTUAL SALES

60,000

8,400

4,200

2,250

300

BDI

-

200

200

150

100

SAY FIRM A HAS A MARKET SHARE OF 15% = 30,000

423

Forecasting & Demand Measurement

• Demand can be measured at 6 product levels (item, form, line, company

sales, industry sales, all sales), 5 space levels (customer, territory, region,

country, global) & 3 time levels (short-term, medium & long-term).

424

• Market can be defined as.

a) Potential market = interest in a market offer.

b) Available market = interest + income + access.

c) Qualified available market = interest + income + access + qualifications (beer 21 yrs.)

d) Target market = part of qualified available market that company decides to pursue.

e) Penetrated market

These definitions are a useful tool for market planning.

425

Market Demand

• Market demand for a product 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. (e.g. recession V/s prosperity) under a defined marketing program. Hence, market demand is a function.

• Market minimum (base sales) & market potential (upper limit).

426

• Market sensitivity of demand (expansible market V/s non-expansible market)

• Organizations selling in non-expansible market must accept the market size (level of primary demand for product class) & direct effort to winning larger market share (selective demand).

• Market penetration index (current level of market demand vis-à-vis potential demand level) & company’s share penetration index (current market share vis-à-vis potential market share).

• Market forecast is market demand corresponding to one level of industry marketing expenditure.

427

Company Demand

Company demand is company’s estimated share of market demand at

alternative levels of company marketing effort in a given time period. This

depends on size & effectiveness of marketing expenditure relative to

competitors.

Company sales forecast is expected level of company sales based on chosen

marketing plan and an assumed marketing environment.

428

• Sales quota is sales goal set for a product line, company division or sales representative. Sales quota higher than sales forecast.

• Sales budget is conservative estimate used for current purchasing, production & cash flow decisions.

• Company sales potential is maximum company demand as company marketing effort increases relative to competition.

This will always be less than market potential.

429

Estimating Current Demand

1) Total Market Potential

a) Total Market Potential = Potential No. of Buyers X Average Quality purchased by a buyer X Price

b) Chain Method – Potential for sweetened milk for urban adults = Urban population above 18 years X Personal discretionary income (urban) per capita X Average percentage of discretionary income spent on food X Average percentage of amount spent on food that is spent on beverages X Average percentage of amount spent on beverages that is spent on dairy beverages X Expected percentage of amount spent on dairy beverages that will be spent on sweetened milk.

430

2) Market –Buildup Method – Identify all potential buyers in each market & estimating their potential purchases (based on some norm e.g. lathes per hundred employees or per Rs. 1 million sales).

3) Multiple-factor Index Method – can use existing market indices or develop own market indices based on assumptions.

a) RK Swamy – BBDO Guide for urban markets uses 18 variables.

MICA Rural Market Ratings for rural markets uses 6 variables.

b) Developing own market indices.

431

MULTIPLE FACTOR BUYING POWER INDEX

Step 1.Specific customer profile in terms of factors. E.g. Demographic > 30 yearsEconomic MHI > 20,000Step 2.For each market, calculate percentage of each factor V/s totale.g. Demographic % = Markets men > 30 years

All India men> 30 yearsStep 3.Determine importance weight of each factorDemographic = 40%Economic = 60%Step 4.BPI of a market = 0.4 X Demographic % + 0.6 X Economic %

432

CATEGORY DEVELOPMENT INDEX

NATIONAL

MUMBAI

BANGALORE

DELHI

CALCUTTA

BPI

100

14

7

5

1

ESTIMATED SALES (BASED ON BPI)

2,00,000

28,000

14,000

10,000

2,000

ACTUAL SALES

2,00,000

56,000

42,000

10,000

1,000

CDI

-

200

300

100

50

433

BRAND DEVELOPMENT INDEX

NATIONAL

MUMBAI

BANGALORE

DELHI

CALCUTTA

BPI

100

14

7

5

1

ESTIMATED SALES (BASED ON BPI)

30,000

4,200

2,100

1,500

300

ACTUAL SALES

60,000

8,400

4,200

2,250

300

BDI

-

200

200

150

100

SAY FIRM A HAS A MARKET SHARE OF 15% = 30,000

434

Estimating Future Demand

1) Time series

2) Econometric Models of forecasting involving 3 stages – macroeconomic forecast, industry forecast, company sales forecast.

3) For business buyers-- buyer-intention surveys.

435

All forecasts are based on

a) What people say – survey of buyer’s opinions or those close to them.

b) What people do – test market.

c) What people have done – analysing records of past buying behaviour or using time-series analysis or statistical demand analysis.

436

Methods

1) Surveys of buyer’s intentions – eg. Consumer durables, industrial products. Buyers should have clear intentions, will be implementing them, willing to disclose.

2) Composite of sales force opinion – need to take with pinch of salt as pessimistic or optimistic. Also tend to be unaware of larger economic developments. May deliberately underestimate, or have no time.

To encourage better estimating ,share records of past forecasts with actual sales & also description of company assumptions on business outlook, competitor behaviour & market plans. Benefits are that sales force best single group, greater confidence & incentive to achieve (as self driven) & the grass roots forecast provides detailed estimates broken down by product, territory, customer & sales rep.

3) Expert Opinion – Dealers, Distributors, suppliers, marketing consultants, Trade associations.

Group discussion method or pooling of individual estimates or Delphi method.

437

4) Past-sales analysis –

a) Time Series – break down past sales into trend, cycle, seasonal & erratic & project into future.

b) Exponential smoothing consists of projecting the next period’s sales by combining an average of past sales and the most recent sales, giving more weight to the latter.

c) Statistical demand analysis consists of measuring the impact level of each of a set of causal factors (e.g., income, marketing expenditures, price) on the sales level.

d) Econometric analysis consists of building sets of equations that describe a system, and proceeding to fit the parameters statistically.

5) Market – test method- especially desirable in forecasting new product sales or established product sales in new distribution channel or territory.