Understanding mrktsand

managing markts effectively,efficiently to be

successfulhow to do this?

What are markets?

• Mrkts are prospects,customers and consumers with unfulfilled needs,with a desire to fulfill the same and

• An ability to buy and willingness to buy,• An ability to pay& willingness to pay and a

willingness to be loyal as long as the marketer’s offer is perceived to be of far higher value than those of all substitute and competitive offers

What is mrktng?

• Marktg is a continuous and proactive process of creating,nurturing and retaining a loyal customer base and helping them perceive that the co’s offer is far superior to those of all current and future substitute and competitive offers

STANFORD UNIVERSITY

• Ninety-five percent of the people who hear, understand and agree with a principle do not have the ability to apply it to their lives because they do not have the necessary resources.

Mystery solved!-Zig Ziglar

• Why do so many people start on a project ,get marvelous results for a brief period of time , and then revert to their old, humdrum way of thinking and living?

• Why does motivation change some people permanently & others only temporarily?

• Why do we get roughly 200 times as many letters , phone calls, and personal statements from people who say my books and tapes changed their lives as we do from people who say my presentation changed their lives?

The answer is now clear!They hear me speak & get excited . • Then they encounter negative situations,

problems and people.Little by little, over a period of time,they lose their enthusiasm, ant they are back on squre one!

• The resource to implement & apply the principles that change & enrich ur life is here.

• Make a plan to fulfill the promise!• Discover why u should use the plan ,and even

more important, how u can.• Keep hope alive & give u the inspiration,

conviction & know how to follow through.

Mystery solved---

• Motivation is not permanent. But neither is bathing. However if we bathe every day, we are ahead of the game.

• From a motivational point of view, if we deliberately seek encouragement, (motivation) on a daily basis, it will become a habit & enable us get ahead& stay ahead in life!

Mystery solved--

• CHALLENGE;• Keep ur goals & plans highly visible• Be inspired and be enthusiastic.• See the connection & that will reignite the

sparks and get u excited again about what is really important in life.

• Be reminded of ur goals/ plans so u will receive the encouragement u need to continue ur winning ways!

Purpose of any business-what is it?

• Because it’s purpose is to create a customer,a business has two and only two basic functions; marktg and innovation. Mrktg and innovation produce results; all the rest are costs.

• Mrktng is too important to leave to a mrktng department. Mrktng is so basic that it cannot be considered to be a separate function.it is the whole business seen from the point of view of its final result, that is ,from the customer’s point of view,

• Peter F Drucker’

• Concept of internal and external customers

Types of business orientations-what philosophy guides your

business?• The producttion concept or orientation• The product concept or orientation• The selling concept or orientation• The marketing concept or orientation

• What are the differences?what are the implications?

• The elephantine electronics co case

Elephantine case

• The engineering manager of this co one day concieved of a new computer terminal that would do every thing but peel potatoes- a slight exaggeration perhaps ,but the concept was a widely applicable, broadly compatible device.

• Since the manager enjoyed excellent rapport with the firm’s general manager,who was also an engineer,it was easy to convince the GM of the merit of the idea, and a product development program was vigorously undertaken.

Elephantine-----

• When the prototype was complete and functionally proven,a production line was set up and manufacturing was begun. About this time,the sales manager and his sales force were called in for a product presentation. After the new device was explained and demonstrated, they were told to ”go,sell it”.

• SInce the new production line was capable of producing 500 units a month, this was established as average sales goal .The sales manager and the sales force went optimistically forth into the market, but 6 months later reported back to the general management that they were unable to move this wonderful new product in any thing approaching the target volume.

Ele---contd

• After firing the sales manager, the gm and the engg mgr commisserated with one another about the incompetence of sales people who couldn’t sell a product that is obviously superior to anything else available and right for the markt.

• Neither of them knew quite where the mrkt was or who it was,and unforttunately even the ex sales mngr hadn’t known either.Since the mountain wouldn’t come to Mohemmad and Mohemmad didn’t know where the mountain was, so he could go to it, a lot of time and money were wasted for practically nothing.

• It was certainly too bad Elephantine was so unlucky, because,when the product design was eventually sold to Whiz-Bang computer co, it was a roaring success.

Elephantine----Discussion questions

• 1.Does ur group think Elephantine was really unlucky? Why? Why not?

• 2.What do u think whiz-bang did to make it a roaring success? Step by step process or activities?

• 3.What is wrong with Elephantine?What is right, If any?• 4.What concept or philosophy drove Elephantine

mngmnt? Whiz-bang mngmnt?• 5.Do u think Ele– learnt any mrktng lessons? What

mrktng lessons did u learn? What is the moral of the story?

Mrktng fundamentals

• Mrktng is ---• A rouge function---• Salesmen are cheats---they push you into buying things

that you don’t want• Advertising is a bunch of lies• Mrktng is a sheer waste. Goods cost us much less if we

don’t promote them and advertise.• Inshort, life wd be better off without this function.

• Do we agree with this? If so why? If not why not?

Finally what is mrktg?

• It is a function• It is a process• It is a concept• It deals with understanding mrkts,effectively and

efficiently managing the same and continuously measuring the success through monitoring continuous profitable growth in sales volume,markt share,profit,customer nos and brand loyltycompared to all competitors.

• What attitudes,knowledge,skills and behaviour does mrktg need to be effective?

Characteristics of market-oriented companies

• 1.have clear market objectives • strategic intent• Ambitious mrkt share,positioning goals

• 2.segment their mrkts• Identify growth opportunities• Tailor strategies to segments

• 3.understand customers’existing and potential needs• Get close to customers• Focus on solutions, not products

• 4create competencies to match opportunities• Develop capabilities• Integrate functions and resoutces around this task.

• 5.build competitive advantage• Beating competition• Sustainable advantages via branding and continuous improvement

• Beating competition• Sustainable advantages via branding and continuous improvement

• 6.recognise environment changes• Existing strategies erode• Priorities to change and innovation

• 7.customer-focussed organisation• Inverting and flattening the pyramid• Prioritising service providers• Lower costs-faster response—greater motivation

• 8.monitor and bench mark customer satisfaction• Quantitative research systems• Indepth research.

Formulating a mrktng plan• 1.situational assessment• Current performance• Background analysis• Trends and projections• Opportunity and issue analysis

• 2.objectives• Marketing• Financial• Human

• 3.positioning strategy• A.tarjet market segment(s)• B.differential advantage

Mrktng plan

• 4.marketing mix• A.product• B.price• C.promotion• D.place

• 5 action programs

• 6.organisation and control & Recruitment of talent

• 7,budjet & Control systems in implementation.

Key tasks of mrktg mgmt• 1.Understand broad mrkts&segment• 2.Carry out environment analysis• 3.Set goals and objectives• 4.Develop positioning strategies• A)select target mrkt segments—a.broad market b.identify bases for

segmentation c.develop profiles of segments d.measure segments’attractiveness

• B).create a differential advantage a.identify benefits sought b.measure competitor positioning c.create reason for preference

• 5.Develop appropriate mrktg mix a.product b.price c.place d.promotion

• 6.Action programs• 7.Create organisation structure &Recruit Appropriate talent• 8.Budjets and controls and implementation• 9.Learnings

TMS DA

The essence Of marketing

Functional

Value

Self image

Availability

Service

Risk Avers ness

Product

Price

Advertising

Distribution

Servicing

Guarantees

Customer Wants Marketing MIX Variables

• 1product• Quality-features—options—style—brand name—packaging—sizes

—services—warranties—returns• 2price• List price—discounts—allowances—payment period—credit terms• 3place• Channels—coverage—locations—inventory—transport• 4.promotion• Advertising—personal selling—sales promotion—public relations

• All addressed at target market segment

Marketing Mix

Product

Characteristics of mrkt –oriented co’s

1have clear mrkt objectives-----have strategic intent------

have ambitious markt share and positioning goals

2segment their markets---------------identify growth opportunities-------

tailor strategiesto segments3understand customers’existing and

potentialneedsGet close to customres

Focus on solutions,not products

Characteristics of mrkt oriented co’s

• 4.Create competencies to match opportunities

• Develop capabilities• Integrate functions and resources around

this task• 5.Build competitive advantage• Beating competition• Sustainable advantages via branding and

continuous improvement

Charactiristics of---

• 6.Recognise environment changes• Existing strategies erode• Priorities to change and innovation

• 7. Customer-focussed organisation• Inverting and flattening the pyramid• Prioritising service providers

• 8.Monitor and bench mark customer satisfaction• Quantitative research systems• In-depth research

The strategy of a modern airlines

• In the olden days, airlines didn’t segment their markets.It soon became clear that passengers differ in their expectations. Business travellers value convenience, comfort and service,while,leisure travellers were more interested in lower price,

• A carrier flying from London to New York, using a 300 seater plane and anticipating an average load factor of 80%, if it pursues an un-differentiated strategy-one class plane-the management can charge a highest price of $250 TO AChIEVE A 80% OCCUPANCY RATE.The variable cost for the airlines was $20 per passenger and the fixed cost is $50,000per flight.

Airlines----contd• However to the mrktng mgmnt,it is obvious that while a price of

$250 already begins to lose the business of low budget travellers,business people and the more affluent people would be willing to pay much more for superior service and comfort.

• The result was that the airlines moved to the differentiated strategy whereby they offered 3 levels of service on the plane;economy,business and first class at very different price levels.

• To get the same 80%occupancy level,the prices are respectively $250,500,and 1000 per passenger while the variable costs are$20,40 and 100 per passenger. It is estimated that the fixed cost would go up by 10% to accommodate the changes in the aircraft to provide the desired comfort to the upper 2 classes, each of them taking 50% of the additional amount.It is also estimated that the business class pssengers wd be 3 times the number of first class and economy passengers wd be double the business class occupants at 80% plane loading factor.

Airline---contd.• The consequences are to massively enhance the revenue and the profitability for the

airlines.In addition,the strategy better meets the needs of all customers by offering the values that the particular type of passenger prioritises

• And this example of airline segmentationis exactly analogous to the strategies pursued by most of the sophisticated cos of today!

• You are requested to calculate the profits,the profitability, the revenues and the costs incurred in both the strategies,for the full plane,for each class and per passenger in each class, assuming in both cases the plane is 80%loaded.Pl find the break even point in both.

• Discussion q’s• 1List all benefits of segmentation to all stakeholders of the airlines• 2Who all could be the beneficiaries• 3Do u think any segment is subsidising for any other segment? If so who to whom? If

not,why not?What do u understand by absolute satisfaction and relative satisfaction?Do u think that there is a possibility that any cass may feel relatively dissatisfied although absolutely satisfied, When wd that happen? How wd mgmnt prevent it?

• 4When can segmentation go wrong?How to avoid segmentation from going wrong?What precautions to take?

What is your position?are we positioned correctly?

• A manufacturer of industrial cutting equipment was concerned about its poor market share and wondered whether its prices were the problem.

• It undertook a markt research study which identified the product and service attributes most desired by customers and evaluated how its product “ X “ & its key competitors were rated in tablebelow on a 1to 6 scale where 1 is lowest and 6 is highest.

Table assessing price & value competitiveness

Importance wt

Quality dimensions

Competitors

a b c x

35% Precision 6 5 4 6

25% reliability 6 6 3 4

15% durability 5 3 2 5

20% service 5 3 5 1

5% Delivery 2 5 5 5

weightedscore

A

5.5

B

4.6

C

3.7

X

4,3

Actual prices

29 K 21 K 15 K 22 K

Mrkt share%

27 45 20 8

1.What is the problem of x In marktng jargon?

• 2.how do you solve? What srategy do u recommend? Why?

• 3. What alternates can be considered by X? Why should they be dropped?

How to take positions? - 2 waysbased on Quality&price conscious

markets• QUALITY-CONSCIOUS MARKTS-steps• 1.find out quality dimensions,relative importance

between them and assess performance of all current players on each dimension

• 2.If there is a gap between expectations and performance tae a position

• 3. fill the position by offering the highest value than the average value provider as well as the best value provider so that no one will find a gap in value to replace u in future.

• 4 constantly monitor and defend this position thro innovation.

Price conscious customers/markts---how to take

positions• 1.find out what price are the markets willing to

pay?• 2.find out what quality are they willing to accept

for the price they are willing to pay• 3.find put a gap if any where u can offer a higher

value for the price they are willing to pay –better than the average value privider as well as the highest value provider in the markt.

• 4defend and protect .

Concepts of cost,price,revenue,value &

quality.how are they connected?• Adi godrej said,when asked what is important,top line or

bottom line?• REVENUE IS (read sales) vanity,PROFIT IS SANITY

and cash is reality.Cost is a fact & Value is a perception.• Value is benefit divided by price • Customer delivered value=total customer benefits(TCB)-

total customer costs(TCC).• TCB=Product benefits+Service benefits+personnel

benefits +image benefits• TCC=monetory cost+Time cost+energy cost+psychic

cost

Quality is 2 types –Quality of conformance & quality of

performance• QUALITY OF CONFORMANCE-consistently meeting specifications

laid down batch after batch/supply after supply.—at any agreed level of quality

• Performance as per promise.supplier commits to buyer a certain level of quality features,prices and performance and delivers in practice what was promised.

• QUALITY OF PERFORMANCE-this has got to do with the level of quality Certain products promise and perform at higher level of quality and certain other products promise and perform at a lower level of quality.

• EXAMPLE.Which product has a higher quality of performance,Mercedes Benz? Or Maruti 800? Answer is the former.

• Which of the above 2 products has a higher quality of conformance/ Answer is both can have the same level or one can have a higher or loer level than the other depending on the actual percetved performance over a period of time.

Cdv=tcb-tcc

• Compare the customer deliverd value of any 2 brands fighting with each other in the same TMS/

• Compare cdv of kinetic Honda to ladies with cdv of Hero Honda to male Youth. Which one is greater?

Caterpiller VS komatsu how to price caterpiller’s buldozer?

• Cost to make =$30k

• Perceived worth of customers=$100k

• Added value=$70k

• Pricing options—A.Share equally,P=$65k.—B.take a higher share,P=$80k—C.Take a smaller share,

• P=$50k.

• How to decide what strategy to follow.?

Caterpiller ‘s price strategy depends on

• 1.the Co’s goals/ambitions• 2.the competitive factors and• 3. the customers value perceptions• If the co wanta a short run high return,and

doesn’t mind losing competitive entry, price it high.

• If the co’s interest is to gain a high markt share quickly and protect it over a long term,go for a low price but a longer pay-back.

Cdv concept of buyer decision making and its use for seller

• 3ways• 1.Caterpiller can increase total customer

value.By improving P,S,P,or I benefits• 2,Caterpiller can reduce the buyers non-

mo0netary costs By lessening the buyer’s time,energy and psychic costs.

• 3.Caterpiller can reduce buyer’s monetory cost,by lowering its price,providing easier terms,of sale,or in the longer term lowering its bulldozer’s operating or maintenance costs.

Customer value assessment of bulldozer

• Cost of prdn to Caterpiller-$140k• Customer perception of its worth-$200k• Total added value-$60k• PRICING OPTIS• <140k—costs not covered for Caterpiller.• >200k—Customer value exceeded• $160k-20k to • $190k-50k to Caterpiller and 10k to customer.• The lower the caqterpiller price,the highjer the delivered

value to customer.caterpiller and 40k to customer.

Total customer satisfaction concept

• Customer satisfaction depends on the product’s performance relative to a buyers’ expectations-

• Short of expectations-dissatisfied• Matches expectations-satisfied• Exceeds expectations-highly satisfied or delighted.• How are expectations formed?• 1,past buying experiences• 2.opinions of friends and associates• 3.marketer and competitors’info and promises• Marketers should set the right level of expectations. Holiday Inn

campaign of ‘NO SURPRISES”ran into hot weather and was withdrawn.Consistent and trouble-free services.”if u aren’t satisfied ur night’s stauy wd be free.Can u defend this ?How do u measure? Can u argue with ur customer? And still maintain a good relation?

Implementing total quality marketing

• PIMS-Correlation between Relative product quality and profitability

• QUALITY-Fitness for use• Conformance to requirements• Freedom from variation• The tottality of characteristics and features of a

product/service that bear on its ability to satisfy stated or implied needs.Customer-centered def of Q as per American soc for QC.

Performance q vs conformance Q

• Performance q-Refers to level at which a product peforms its function.Ex Mercedes provides higher performance Q than Volkswagen.Gives a smoother ride,handles better and lasts longer.It is more expensive and sells to upper segment.

• Conformance Q-Refers to freedom from defects and the consistency with which a product delivers a specified level of performance.

• A Mercedes and a Volkswagen offer equivalent conformance Q (each delivers consistently what it promises).

• A $ 50k car that meets all its requirements is a Q car. So is a $15k car that meets all of its requirements.

Marketing’s role in total Q• 2 roles-• 1.Formulate strategies/policiesto win total Q excellence• 2.Must deliver marketing Q as well as Production Q .Must perform

each mrktng activity –MR,sales training, advertising, customer service and others to high standards.

• ROLES• 1.Correctly identify customer needs & communicate correctly

product design dept.• 2.Fill customer orders correctly on time and ensure customers

receive training in product application• 3.stay in touch with customers after sales to ensure they remain

satisfied.• 4,Gather and convey customer ideas for product and service

improvement to Co departments.

Ironic research study.• Marketing people responsible for more customer complaints than

any other dept.(35%)• Marketing mistakes;• 1.Sales force orderd spl product features for customers but failed to

notify manufacturing of the same changes• 2.Incorrect order processing resulted in wrong product being made

& shipped • 3,.Customer complaints aren’t properly handled.• Marketers must be• 1. customers’ watch dogs complaining for the customer when

service is not right.• 2.spend time and effort for both external and internal marketing• 3,uphold the std of “giving the customer the best solution”

The malcolm balridge national quality qward-Q principles applied

by MR firmCRI-custom researchinc• 1.focus on building major customer relationships• 2 organise into cross-functional client-centered

teams to get every one working toward customer satisfaction.

• 3,Develop high Q processes& procedures to get the work done ,then measure the results

• 4.Explicitly ask customers what they expect from a partnering relationship.

• 5.seek customer feed back on individual projects and overall relationship.

Malcolm---

• 6.Hire the best people and invest ti their development

• 7.Stay flexible,agile fast moving-empower every one in the Co to ‘just do it’

• 8.Have fun with hoopla and recognition

• 9.Build Q continuously

• 10.Never be satisfied.

Essentials for total Q marketing strategy-W.Edward Deming

• 1.Q is the eyes of the customer.• 2.Q must be reflected not just in the Co’s products but in every Co

activity.• 3.Q requires total employee commitment.• 4.Q requires high Q partners (suppliers)• 5.A Q program can not save a poor product.• 6.Q can always be improved.• 7.Q improvement sometimes in quantum leaps.• 8.Q does not cost more-’do things right the first time’-’Q is not

inspected in; it must be designed in’.These reduce the cost of salvage ,repare and redesign,not to mention losses in customer good will’

• 9.Q may be necessary but may not be sufficient.eg Singapore Air lines-Competitors reduced the percieved Q gap ,so MS reduced for SA.

Customer loyalty,retention,relationship

marketing• The case of lost customers• Pay attention to ‘customer defection rate’-rate at which they lose

customers—and the steps to reduce it.• 4 ways of doing this• 1.Define and measure its retention rate. For a magazine renewal

rate is a good measure of retention .For a college it could be the 1st to 2nd year retention rate.

• 2.Distinguish causes of customer attrition & identify those that can be managed better .Do something about customers who leave due to poor service ,shoddy products, high prices etc., while nothing could be done about who leave the region or go out of business.

• 3.Estimate how much profit the Co loses when it loses customers. In case of an individual customer, the lost profit is equal to the customer’s life time value (CLTV)-that is the present value of the profit stream if the customer hadn’t defected prematurely.

Cost of a lost customer• For a group of lost customers ,one transportation carrier estimated

its profit loss as follows.• 1.Co’s accounts-64k• 2.Lost 5% due to poor service this year.• 3.The average lost A/c represented a $40k in revenue per annum.• 4. The Co’s profit margin is 10%.how much is the loss for the Co

this year? How much would it be if the average no. of loyal years is 5 and the inflation in prices is just same as discounting rate for NPV calculation?

• 5.Fgure out how much would it cost to reduce the defectrion rate ? As long as the cost is less than the lost profit the Co should spend the amount to reduce the defection tate.

Lost custom---

• The cost of attracting a new customer is estimated to be 5 times the cost of keeping a current customer happy.Traditionally we all make sales rather than build relationships, selling and pre selling becoming more important than after sales.

• Today, more Co’s recognise importance of satisfying and retaining current customers . One study indicates co’s can increase profits between 25-85% by reducing customer attrition by 5%.

Should this Co add new customers?

• 1.cost of an average sales call-incuding salary,commission,benefits,expenses,incentives etc.--$300

• 2.Av no. of sales calls to convert an average prospect into a customer-4. In fact this doesn’t include advert,promoting,operations,planning etc.

• 3.Co’s estimate of Av customer life time value • Annual customer revenue--$5k• Av no. of loyal years—2• Co profit margin-10%.• Q.Is customer’s LTV higher or lower than the cost of attracting a new

customer?• Q.How will u recommend this Co should do to add new customers?• The Co is clearly spending more than they are worth to attract new

customers.Unless the Co is signing up costomers with (a) fewer calls,(b)spend less per sales call,©stimulate higher new customer annual spending,(d) retain customers longer,(e)sell them higher profit products,the Co is headed for bankruptsy.

2 ways to strengthen customer retention

• 1.To erect high switching barriers. Switching involves high capital cost, high search cost, the loss of loyal customer discounts and so on.

• 2.Better approach is to deliver high customer satisfaction .Due to this, Lower prices/switching inducements of competitors won’t be attractive enough.

• The task of creating “strong customer loyalty”is called “relationship marketing’—”To know and to serve better” all valued customers.

The key of relationship marketing

• The customer development process• SUSPECTS----PROSPECTS----DISQUALIFIED PROSPECTS• PROSPECTS• First time customers-may buy from competitors• Repeat costomers-may buy from competitors• Clients-buy only from Co.• Advocates-word of mouth• Partners-work actively together• Every stage of customer can become inactive or EX customer due

to bakruptcy,moving out to other locations,dissatisfaction etc.• Reactivation is a challenge thro customer win back strategies.• It is easier to re attract ex customers than to win new ones.

Social actions affecting buyer-seller relations-good things

• 1.Initiate +ve phone calls• 2.Make recommendations• 3.Candor in language• 4.Use phone• 5.Show appreciation• 6.Make service suggessions• 7.Use ‘we’ problem-solving language• 8.Get to problems• 9.Use jargon/shorthand• 10.personality problems aired• 11.Talk of our-future together• 12.Routinise responses• 13.Accept responsibility• 14.Plan the future

Bad things-affecting buyer-seller relation

• 1.Make only call-backs• 2.Make justifications• 3.Accommodative langusge• 4.Use correspondence• 5.Wait for misunderstandings• 6.Wait for service requests• 7.Use ‘owe-us’ legal language• 8.Only respond to problems• 9.Use long-winded comments• 10.Personality problems hidden• 11.Talk about making good on the past• 12.Fire-drill/emergency responsiveness• 13.Shift blame• 14.rehash the past.

Retaining customers-CRM

• Only attract new customers? Don’t want to retain existing ones? Look at the statistics.

• !.Competition increasing vand so cost of attracting new customer is increasing.

• 2.5 times costlier to attract new customers• 3.Offensive marketing costs more than

defensive marketing. Coaxing satisfied customers away from competition is expensive.

• 4.By reducing customer defections by 5%,Co’s can improve profits from 25-85%.

Relationship marketing

• The process of creating ,maintaining and enhancing strong, value-laden relationships with customers and other stake holders.

• All of Co’s departments work together with marketing as a team to serve the customer.

• Involves building relationships at many levels-economic,social,technical and legal-resulting in high customer loyalty.

5 different levels of relationship as a function of profit margin and no.

of customers• 1.Basic. Sell but don’t follow up.H.J.Heinzdon’t call every ketch-up

buyer to thank.(large no. of customers and low margins)• 2.Reactive; Sell and encourage to call if any question or problem.• 3.Accountable;Check after sale if product meets expectations.Solicit

improvements, suggessions,and any specific disappointments• 4.Proactive;Sales persons and others in the Co phone customer

often with info on improved product use or new products.• 5.Partnership;Continuously work with customers to discover ways to

deliver better value.Boeing does partnership matng with United airlines to work closely in design of aeroplanes and satisfying customer requirements.

Profit margin vs no of customers-relationship levels as a function of profit margin & no of customers

• Proft- HIGH MEDIUM lOW

• No.of Customers

• Many Accountable Reactive Basic

• Medium Proactive Accountable Basic

• FEW Partnership Accountable Reactive

Develop strong customer bonding & satisfaction-3 value building

approaches• Financial, social and structural• 1.Financial; Adding financial benefits to

relationship .Ex.Frequent flier programs of airlines ; *room upgradesto frequent guests in hotels *P&G’s money-back guaranteeon Crest tooth paste(cavities and tartar build up ion 6 months).P&G builds up data base .Dentist certificates.

• 2,Social;Individualise and personalise the products and services ,Ritz hotels offers financial and social benefits.Refer to guests by name& give each guest a warm welcome!.Record specific guest preferences & maintain data base accessible to all hotels in chain.

• A guest wanting a foam pillow –Ritz in Montreal first and Atlanta later.

3 value building approaches

• 3.structural ties; A business marketer helps costomers with spl equipment or computer linkages to help them manage orders ,pay roll or inventory. Ex.Mc Kesson Corp.a leading pharma wholesaler built financial,social and structural ties with customers by spending $millions in EDI to help small pharmacies manage their inventory,order entry and shelf space.Fedex has computer linkages with its customers.

Customer profitability –the ultimate test-how to attract and keep

profitable customers?• 1.Usually 20-40% of customers are unprofitable.• 2.Most profitable A/cs aren’t the largest a/cs; but

mid-size a/cs.• 3.Largest a/cs demand high services and high

discounts,so low profits.• 4.Smallest a/cs pay full price and receive less

service ;but cost of handling high and so low profit.

• 5.Mid size a/cs paying good price and receiving good service are the most profitable. Therfore invade the middle not only the largest a/cs!

Choose ur customer-CRM-What not to do

• 1.don’t pursue and satisfy every a/c.• 2.Don’t try to satisfy every whim.• 3,don’t provide any thing and every thing an a/c

suggests.• 4.Market focus doesn’t mean “blindly following all

suggessions that can’t be profitably undertaken”• 5.Market focus means “making disciplined choices of

which customers to serve and which specific benefits to deliver or deny”

• If PRESIDENT customers want Taj service President should say ’no’.Because providing confuses positioning of TAj and President systems.

What makes a customer profitable?-concept of CLV

• CLV is the amount by which revenues from a given customer overtime will exceed the Co’s cost of attracting,selling and serving that customer.

• Emphasis is on life time revenues and costs –not profits from a single transaction!

• Life time profit of Tom Peters to Fedex.Tom spends $1500/month in fedex service.=12 *1500*10 years =$180k for 10 yrs @10%profit=$18k on Tom’s life time business.So can Fedex risk poor service from a driver to Tom?

CLV—RETURN ON CUSTOMER & correlation with MARKET

CAPITALISATION• How happy ur customers are has a bearing on how well

ur stock does!• The CFO of a Fortune 500 Co has his marketing dept

ask him for $50 mn budget to improve customer satisfaction from 4.1 on a scale of 5 to 4.5

• High level of customer satisfaction is beneficial but was it worth $50mn? Is the question.

• Can the marketing explain expenditure in pure financial terms? If they can’t then difficult to get the budget sanctioned. Marktng should speak a laguage that the rest of the colleagues and shareholders understand!

• HOW TO DO THAT?

How do marketers speak shareholders’ language?

• Customers are seen as assets but marketing programs are seen as expenditure and not investments.

• As competition intensifies and cost cutting takes center stage, marketers should learn to account for their costs.

• A financial approach to understand if Cos are spending more than they are worth.

• CLV concept tells u 2 things –1, how much to spend on customers?—2, calculate market capitalisation of Cos using customer metrics and therefore indicate how marketing spends impact the bottom line.

• Providing value to customer requires marketing investment and the firm must recover the investment.

• MARKETING VIEW—CUSTOMER IS KING. FINANCIAL VIEW ---CASH IS KING—BOTH NEEDS to be combined!

Clv=value of all current & future generated from customer over her

life of business with firm• To calculate CLV, we need CUSTOMER PROFIT PATTERN &

DEFECTION RATE OVER TIME.• CLV is a function of profit margin from customer, defection rate and

discount rate of the Co that depends on cost of capital & riskiness of business

• CLV can be tepresented as a multiple of annual profits earned from costomers and the multiplier is a function of customer retention and usually it is in the range of 1 to 4.5.

• If u know annual profit u know CLV and u know how much u can pamper her!

• In case of credit cards & banks where customers have less incentives to switch brands, the multiple & CLV are on higher side. If u have a low retentio rate of ur cusrtomer, ur multiple is low,and u need to cut back on how much u spend!

Clv is discounted cash flow of a firm at an individual level , Extend it and multiply with no of customers• to get M cap.

• So customer base c an be another method of estimating M cap.

Return on customer—ROC ---concept of Don Peppers

• If ur business has customers , Capital will flow! Therefore business performance metrics that measure ROI tell only half the story!

• Customers are these days scarcer than capital . In their book, “the one to one future “he preaches the virtue of collaboration and dialogue with costomers, customised products and greater sophistication in segmentation!

• ROC=A firm’s current period cash flow from its customers plus any changes in the underlying customer equity ,divided by the total customer equity at the beginning of the period.

Clv or cltv (CUST LIFE TIME VALUE)

• ASK Cos to do a better job of predicting long term Co performance –by askking themselves as much about ROC as about ROI.

• Any fool can boost earnings and cash flow in the short term, by say, reducing the Ad expenditure, refusing warranty claims and firing half the customer service dept!

• BUT THE DAMAGE TO THE LONG TERM VALUE OF THE BUSINESS WOULD BE SERIOUS!

• Therefore measure the damage here and now rather than waiting for the consequences to emerge!

• ANY DECLINE IN THE CLTV OF CUSTOMERS COSTS ME MONEY TODAY.

Customer equity vs CLTV

• Customer equity is a slippery con cept as a basis for ROC calculation.

• Therefore to be sure u can estimate LTV of ur customers by analysing the likelihood that each will make repeat purchases, buy across multiple lines of business, use low-cost sales and service channels and so on.

• LOYALTY threfore is just one component of LTV.• Disclose more of non financial info—what happened to

the value of the Co’s brands during the year? Did revenue groth come from new customers or repeat purchases?

Customer/product profitability analysis

• Customers with varying profitability• C1(high) C2(mixed) C3(losing)• Products at varying profitability• P1(high) ++ +crosssell +• P2(ok) + +• P3(mixed) + -crosssell -• P4(losing) +crosssell - -• high p custom Mixed bag Losing a/c

Customer-product profitability analysis

• Co’s should actively measure individual customer value & profitability.

• 1.customer c1 buys 3 profit making products P1,p2,P3.• 2.Customer C2 gives mixed profitability buying one profitable

product P2 and one un profitable product P4• 3.Customer C3 generates losses by buying one profitable product

P1 and 2 unprofitable products P3 and P4..loss leaders.• What should the Co do about C3? 1.Rise the prices of less

profitable products or consider elimination.• 2.try to cross-sell profit making products to its unprofitable

customers• 3.If customers like C3 defect ,it may be for the good!• 4.in fact Co may benefit from encouraging its unprofotable a/cs to

switch to competitors.

Satisfaction,value and quality (tools for building customer relationship)

• Simple and effective competitive marketing strategies of successful companies.

• Steps To consistently offer the best value to customers• STEP 1.Study and listen to customer• STEP2.Learn about consumer problems and needs;

likes and dislikes; trends, through demographic and lifestyle analysis,focus group interviews,indepth interviews and product tests.

• STEP 3.Give consumers what they want-a continuous flow of useful and high quality products.

How to gain reputation of value and quality

• 1.Well designed and well made products• 2.Obsession for quality• 3.Innovative or new ways of serving customers• 4.New product development a religion-PERPETUITY

FACTOR 33% from products developed and launched in the last 5 years.

• 5.Base executive compensation on new product share of sales.

• 6.New product teams or venture teams-Experts from marketing,manufacturing,finance and design-live, breathe and sleep new products from idea to commercial launch.

7.Ordinary products offer simple but elegant improvements.

• 8.strong relationship with ‘other customers’-retailers and suppliers who appreciate the Co’s high quality,larger margins,outstanding service,and strong consumer appeal.

• 9.Grab ‘vendors of the year’awards, or ‘the most reputed marketing Co’award or ‘oustanding co’ award.

• 10.Open ‘supershoppees’ or ‘rubber maid botiques’-whole sections stocking Co’s products and offering ‘complete solutions approach’to customer problems.

• 11.Competence to execute the strategy flawlessly-uncopiable by competitors.

• 12.They never run out of ideaswhen it comes to fresh and saleable new ways to serve customers.

Being a customer-centered company

• 1.Be adept in building customers-not just building products.

• 2.The key is ‘CUSTOMER-VALUE DELIVERY SYSTEM’-EX.

• Mc Donald’s—Consumers flock to the McDonald’s system which supplies a high standard of QSCV-QUALITY,SERVICE,CLEANLINESS AND VALUE.

• Not just for the taste of hamburgers ,several others make better-tasting ones!

Value-delivery system

• System made of value chains of the Co and its suppliers ,distributors and ultimately customers who work together to deliver value to customers.EX.

• HONDA chose DONNELLEY Corporation for supply of car mirrors for US made cars.

• Honda engineers work together with Donnelly in improving products/operations.Donnelly could reduce costs by 2% in first year.And its sales to Honda improved from 5mn $ a year to $ 60 mn in less than 10yrs.

• Honda benefited from nan efficient low cost supplier in Donnelly for quality materials

• Honda’s customers benefited from lower cost and high quality cars resulting from Honda’s partnerships with donnelly and others.

Levi Strauss’s value-delivery system.

• ORDER FLOW-• CUSTOMER(buyer)—SEARS(Retailer)—LEVI(jeans supplier)—

MILLIKEN(fabric supplier)---DUPONT(fiber supplier)• DELIVERY FLOW---• In the opposite direction• LEVI’s Quick Response System(QRS)• 1.Every night Levi’s knows thro EDI –Electronic Data Interchange-

the sizes and styles of its blue jeans that sold thro SEARS• 2.Levi’s orders electronically more fabric from Milliken • 3.Milliken relaysan order for more fiber from Dupont.• Most current sales info is used to make what is selling.In

QRS,goods are pulled by demand –not pushed by sales/supplier!

Traditional vs modern value-delivery processes

• Traditional process• Make product---Sell the product• Design product-Procure—make-----Price-sell-Advertise

and promote—Distribute-service

• Modern value creation and delivery sequence—CHOOSE THE VALUE-PRIVIDE THE VALUE-COMMUNICATETNHE VALUE.

• Customer segmentation-market selection focus-value position----Product development-service development-pricing-sourcingand making-distributing and servicing----personal selling-sales promos-advertising-PR-Publicity

positionings

• Usp development—an attribute to tout as number 1—common no1 positions—best quality ----lowest price—safest---best service—best value---fastest—most customised—most convenient—most advanced technology etc.

• Examples of value propositions

Co/product

Target customers’ profile

1 unique benefit

Percvd benefit to price ratio

Value proposition statement

Remarks—compact,artistic,punchy---

Hll/lux Geo-

Demo-

Psycho

Tcchno

The best and the firstbeauty soap

Just right price for the benefit

4 positioning errors to avoid

• 1.Under positioning; buyers have only a vague idea of the brand.Nothing special is seen. Pepsi-Cola’s clear ‘Crystal Pepsi”, was introduced in 1993. Costomers didn’t see ‘clarity’ as important benefit in a soft drink.

• 2.Over positioning. Buyers have too narrow an ‘image’ of the brand. Consumers think ‘diamond rings’ at Tiffany’s start at $5000 while Tiffany’s now offers affordable diamond rings $900 upwards Unsuccessfully.

Positioning errors--contd

• 3.Confused positioning; Too many changes in brand’s positioning too frequently.eg.stephen job’s sleek and powerful NeXT computer positioned first for students, then for engineers and then for business people all unsuccessfully.

• 4.Doubtful positioning; Buyers find it hard to believe the brand features.GM’s Cadillac division launched Cimarron as a luxury competitor with BMW, Mercedes and Audi. While the car featured leather seats, a large luggage rack,lots of chrome and Cadillac logo stamped on the chassis, customers saw the car as a dolled-up version of Chevy’s Cavalier and Oldsmobile’s Firenza. While the car was positioned as “more for more” customers saw “less for more”.

Factors affecting positioning strategies

• A.Attractiveness of market• 1.Market size• 2.Mrkt growth• 3.Competitive structure• 4.Profitability• 5.Socio-political constraints

• B.Ability of Co to create a relative strength.• 1.Mrkt share & position• 2.Cost competitiveness• 3.Technical capability• 4.Mrktng and distrbn capability• 5.Future cash requirements• 6.Commncn & Branding capabilitry.

6 key analyses for developing positioning strategies

• 1.Mrkt analysis

• 2.Customer analysis

• 3.Competitor analysis

• 4.Trade analysis

• 5.Economic analysis

• 6.Environmental analysis

1.Market analysis

• A.How attractive are alternate mrkts?• 1.Size• 2.Growth• 3.Competition• 4.Profitability.• 5.Socio-political issues• B.Do we have the capability to compete effectively?• 1.Mrkt share &position• 2.Cost competitiveness• 3.Technical capability• 4. Mrktg & distribution• 5.Future cash requirements.

2.Customer analysis

• 1.How is the mrkt segmented?

• 2 What are the needs of each segment?

• 3.How are purchasing decisions made?

• 4.Who makes the key decisions?

• 5.Are there any new segments to appear or be created?

3.competitor analysis

• 1.Who are the key competitors?intra-type?---Inter-type?---Innovative?

• 2.What are the strategies of competitors?---Aggressive?---Me-too?---Segmentation?

• 3.How are we positioned as competitors?----Where are they vulnerable?---Where are we vulnerable?

• 4.Are there any srategic windows?---New markt segmentation?----New technologies?---Market redefinition?----Channel changes?

4.Trade analysis

• 1.What are the key channels?• 2.Are new channel opportunities likely to

develop?• 3.What are the needs of our dealers?• 4.Do we have an effective partnership to

develop our mrkt opportunities?• 5.How are we perceived relative to our

competitors?• 6.What can we add to enhanceour dealer

business?

5.Economic analysis

• 1.Can “ROI” and “share holder value”be enhanced ?

• 2.Can costs be reduced?• 3.Can prices be revised ?up and down wards?• 4. Can the product mix be improved?• 5. Can volume be improved by investing in new

mrkts or brand enhancements?• 6. Can investment in fixed and current assets be

rationalised?• 7. Can time be taken out of the production and

marktng processes?

6.Environmental analysis

• 1 How are we likely to be affected by trends in the environment?----------------------

Demographic?--------------------------------------Economic?------------------------------------

• Pollution and environmental protection controls

• Technology? Political? Cultural?• 2.what contingency and crisis mngmnt

plans exist? For key vulnerabilities?

Developing the “value proposition”USP,UBP,VP CONCEPTS

• USP—unique selling proposition• UBP—unique buying proposition• VP—value proposition• USP is an attribute to tout as No.1.

Common No.1 positions—Best Quality—Lowest Price—Safest—Best Service—Best Value—fastest—Most Customised—most Convenient—Most Advanced Technology.

Examples of value propositions-Step by step process

• 1. Co name? and Product name?• 2.What is target customer profile In

Geographic,Demographic,Psychographic including life style and Technosavviness parameters?

• 3.What is one unique benefit that is distinctly different from others? And a couple of other normal benefits?

• 4. What is customers perception of Benefit to price ratio? Expressed as—Too high a price for the benefit?---Moderately high price for the benefit?—Just right price for the benefit?—Moderately low price for the brenefit

• 5.Make a value proposition statement—An artistic statemennt, compact, unambiguous’ and easily understood—Neither too long nor too short- but covering the salient aspects of all the above 4 points.

3definitions of positioning strategy

• 1 Positioning strategy is choice of target mrkt segment(TMS), which determines where the business competes and the choice of “DA” which dictates how it competes.

• 2.Positioning strategy is deciding which game to play and how better to play so that the co continues to win the game for ever

• 3.Positioning is not so much what the product actually is, but rather how the Co wants it’s target customers to perceive it. A Co can choose from a No. of different strategies.

• Match the strategy with the example.

Match strategy with example

• Positioning strategy• 1.Positioning by

attribute;Associating a product with a particular feature

• 2.Positioning by benefit;Associating a product with a spl customer benefit

• 3.positioning by use or application

• Example• A.”Master card is

accepted at more restaurants than any other card”

• B.”Head & Shoulders” is the best shampoo for people with dandruff.

• C.”Chevy trucks out-perform Ford trucks”

Matching------

• 4.Positioning by user;Associating a product with a user or class of users.

• 5.Positioning by competitorIdentifying a product by using a competitor as reference

• 6.Positioning by product category;

• 7.Positioning by quality& price

• D.“Timex watches take a licking but keep on ticking”

• E“Preference by L’Oreal.It costs a little more, but I am worth it”

• F.”7-UP is the Un-Cola.It’s lighter& more refreshing.”

• G.”A box of Arm&Hammer baking soda in your refrigerator will keep it clean-smelling”

How do Co’s add superior value?In 3 ways

• 1By strategies adding value

• 2,by strategies reducing cost &

• 3.by developing more effective positionings.

• Let us get into details of each.

Drivers of utilitydrivers of cost &repositionings

• 1.Drivers of utility. Utility,usefulness,perceived value orcustomer satisfaction is a combination of rational, economic factors and subjective image dimensions—4 drivers -----.Product,Service,Personal &Image drivers

• A,Product drivers

Product drivers & service drivers

• Product drivers;• 1,Performance• 2.Features• 3.Reliability• 4.Conformance to specs

expected• 5.Durability• 6.Seviceability• 7.Operating costs• 8.Aesthetics.

• Service drivers;Become important as competition narrows down product differences.

• 1Credit&Finance• 2.Ordering facility• 3delivery• 4Installation• 5Training&consultancy• 6 Aftersales-service• 7 Gaurantee• 8Operating support

Personal & image drivers

• Personal drivers. In service- oriented Co’s, personnel become a valuable source of “DA”-since difficult to copy high quality person or service. Important traits;

• 1.Professional skill, knowledge,talent• 2.Courtesy• 3.Trustworthiness,reliability,Positive attitude• 4.Initiative• 5.Communicability etc.

Image drivers

• Image drivers give customers the confidence in the product.This confidence value is in socio-psychological utility of the brand or it’s economic performance or both.

• Ex.Youngsters see Coke, Levi’s jeans,Sony Walkman,Nike shoes as consistent with their life styles.

2 drivers of costMichael Porter’s 5 force theory&

value chain• Typical P&L of a Co• Revenue---100• Materials-----25• Manfacture---15• R&D-----------o5• Sales&Distrbn15• Corp.OHS-----20• Mrktng OHS---15• TOTAL COST—95• --------------------------• Margin-----------05

Cost drivers

• It is cost drivers that decide if a Co’s costs are lower or higher than it’s competitors.Eg.

• 1.Economies of scale• 2.Learning curve or Experience curve• 3.Capacity utilisation• 4.Sharing of costs with group Co’s• 5.Vertical/horizontal integration• 6,First/leader in mrkt• 7.Location,Marktng strategy advantage.

Value chain

5 forces of porter

3.Repositioning strategies are you positioned adequately?

• Product X is positioned wrongly in between mass & premium mrkts-where the economy and luxury segments are at the 2 extremes of the markt.

• On the Quality VS Cost or price map, there could be 3 reasons of inadequate positioning of X.

• 1.Un-attractive segment-too small in size,declining,too competitive,or unprofitable.

• 2.Quality & features don’t match the target segment.• 3.The product costs too high to allow it to be priced competitively.• IN OTHER WORDS.PRODUCT X IS TOO COSTLY FOR THE

MASS MRKT AND HAS INSUFFICIENT QUALITY TO APPEAL TO THE PREMIUM SEGMENT.

• Therefore it has TO REPOSITIOn itself

7 repositioning optionsreal & psychological options

• 1.Introduce a new brand. In 1990,IBM , in the PC mrkt, introduced it’s own cheap clone under AMBRA brand name to have a foot - hold in the emerging mass or economy mrkt.

• 2. Change existing brand. In contrast to IBM,Compaq solved the problem by cutting price & simplifying features offered to hold on to position in mass mrkt.

• 3.Alter beliefs about brand.; Chivas Regal scotch repositioned itself from the mass mrkt to the premium segment thus rationalising it’s higher price and quality.

• 4. Alter beliefs about competing brands; The BODY SHOP retail group has communicated that the beauty& personal care products of competitors are not environmentally friendly.

Repositions--contd

• 5. Alter attribute importance rates; VOLVO raised importance of safety as an attribute in choosing a car thus enhancing the value of it’s differentiation.

• 6. Introduce new or neglected attributes;Unilever successfully introduced “RADION”, a new detergent that eliminated odour-a benefit previously considered not important.

Repositions—contd.

• 7. Find a new mrkt segment; DUNHIL diversified from smoking accessories into mens’ clothing. Instead of getting into the crowded segments,created a new luxury segment of expensive high quality ready-to-wear suits. As the only typically British competitor in the segment,it brought a unique brand with a strong appeal to affluent executives—especially the Japanese.

Creating brands & nurturing them

• Why brand technology products?

• Purpose of any business?

• How do we measure success?

The 3 secrets of business success & survival?

Secrets of----

• Product image

• Service image

• Corporate image

• Channel image

Right Business orientation needed for success?

• Production orientation

• Product orientation

• Selling orientation

• Marketing orientation

• Customer focus/orientation

• The role of engineering/R&D in success

The elephantine electronics case

• What moral can we engineers draw from this story?

Differences between products &brands?

• Benefits of brands-

• to customers ?

• to company ?

• to society?

Purpose driven R&D-in commercial firms

• What goals should we have?

• Market goals

• Financial goals

• People goals

Segmenting markts-how will we be different & better?

• “all skills are subsidiary to the master skill of concentrated focus”• FOCUS ON THE MARKT FOR SUCCESS• 2 stages to undertake segmentation—Definition of potential

segments & selection of target segments• DEFINITION-in a lot of different ways;• FOR INDUSTRIAL MARKETS,• Geographic; ,Industry,Type of application,Customer size,Markt

served,Channels of distribution,• Demographic,Psychographic,Technographic, Behavioural etc.• FOR CONSUMER

MARKTS;_GEO,DEMO.ECONOMIC,Psyco,Techno,Behavioural—all can be used.

• When >2or3 variables are used, the process becomes complex.• SELECTION—Is easier based on MA & DA.

A practical approach to segmenting markts-cascade method

• Step1;what is our definable markt?Questions to ASK;POTENTIAL BENEFITS?—MAIN OVERALL NEED?—KEY CUSTOMER PROBLEMS?—KEY BUSINESS PROCESS?

• STEP2;BREAKING THE CASCADE OUT THROUGH SUPPLEMENTARY QUESTIONS

• EG:HARD COPY PRINTING

Cascade---

• 1.HOW MUCH?—v low—low—med—high• 2.WHAT QUALITY?—• LOW Q—LETTER QUALITY—DRAFT GRAPHICS—

BUSiness GRAPHICS• 3.HOW OFTEN?—SPORADIC NON_URGENT—

SPORADIC URGENT—UNIFORM NON-URGENT—UNIFORM URGENT

• 4.WHERE?—PERSONAL—WORK GROUP—DEPARTMENT—SITE

• 5.WHAT PRICE?--<5k--5K-25K—25K-100K-->100k

Step3.Defining segments by sentence

• EG.;DEPARTMENTS PRINTING LETTER QUALITYOUTPUTS SPORADICALLY &URGENTLYIN VOLUMES UPTO100K PAGES PER MONTH

• STEP4;make as many segment statements as possible.• STEP5;FIND WHICH SEGMENTS ARE CURRENTLY

OCCUPIED BY WHOM?• STEP6;FIND NICHE.• STEP7;MEASURE ATTRACTIVENESS OF THE NICHE

& OUR CO’S CAPABILITY TO CREATE “DA”

Guidelines for cascading

• 1.AVOID TOO NARROW/BROAD DEFINITION AT STEP1

• 2.DON’T LET PRODUCTS APPEAR ON THE CASCADE.IT IS NEED /SITUATION ANALYSIS

• 3.DEFINE “Q” TERMS WHEREVER POSSIBLE.• 4.KEEP A MAX OF 5-6 LAYERS.• 5.QUANTIFY ACROSS EACH

LEVEL.RESEARCH IF REQIUIRED DATA NOT AVAILABLE.

Cascade--

• 6.ANALYSE OBJECTIVELY.DON’T BE BIASED.• 7.SEPARATE SEGMENTS FROM

SELECTION.SELECTION IS NEXT STEP.• 8.ALTERNATE THE “Q”s.ELIMINATE NON_USEFUL

LREVELS.

• MYTHS OF SEGMENTATION• “we segment our mrkts”• ‘THERE IS ONE IDEAL SEGMENTATION VARIABLE”• “segments are technologies or products”• “Segments are forever”• “WE want to be in all segments” ETC.

Assignment on cascade method of segmenting markts

• Tke any markt u like and do follow the above swtep by step process of cascade method,

• Divide into segments,• Mention at least 3-4 segment statements,find out

if thjose sedgments were already occupied by current players,if so who and if not check attractiveness of the niche u have just discovered.

• HOW DID U DISCOVER THENICHE?

Plc strategies. ch- fig--

Product strategies-Ansoff diagram or directional policy matrix.

• 4 types of product strategies

• BCG matrix –ch fig

• GE or McKinsey matrix

Bcg-INDO GULF,BIRLA GLOBAL to merge into IND RAYON-What

rationale?• New entity called Aditya Birla Nuo(ABN)-sep 05• Ind Ray IndGulf Bir Glo Comb• Sales* 3209 678 43 3930• Net Prof*58 57 12 127• Promo hold%28.6 58.2% 74.8% 38%• Net worth 1825 cr• *FY05 RS CR financials of ind ray are

consolidated figs

Share holding pattern of indian rayon

• Pre merger post merger• Promoter 28.64 38• FI’s/Banks/FII’s/GDR’s39.52 37• Others 31.85 25• All in %• KM Birla’s past time-Mergers / acquisitions• 04-Acquisition of L&T’s cement operation• Now-major consolidation to create a

conglomerate with a projected turn over of rs 6000 cr for 05-06.-3 shares of indogulf & birla global get 1 share of ind ray.

Recast history

• Sep 21, 1998-Ind Ray transfers cement business to Grasim

• Jul, 22,02-Hindalco takes over Indo Gulf’s Cu business-leavinf Indo gulf with fertilisers

• Aug,20,03-Grasim,Hindalco,Ind Ray sell IndoGulf stake to TGS Investment & Trade

• July,24,04-Promoters consolidate holdings in Birla global via TGS

• July,1, 05-Grasim sells Century Enka pie to TGS• Sep 11, 05-Ind Ray to take over Birla global &

indogulfthro a share swap.

Post merger Ind Rayon—effective 31 May 05

• Will morph into a complex combination of brick and mortar and New-Age businesses

• AB group will now have 4 major cos in India-1,AB Nuo, 2, Grasim(the country’s largest viscose rayon fiber,VSF, 3,its subsidiary Ultra Tech,India’s largest cement producer, and 4, Hindalco, India’s largest producer of non-ferrous metals.mainly Cu & Al.

• Total group turnover is Rs 34,000crof which 70% is from India.

The driver behind the restructuring--

• Desire to deploy the steady stream of cash thrown up by traditional business for ramping up growth of New-Age businesses.

• The group clearly sees limited scope for investment in old businesses-even though some of them generating cash –and therefore marshall these funds in some of faster growing new businesses.

Product strategies.HLL

• 1.product mix width strategy• 2.product mix consistency satrategy• 3.product line length strategy• 4.product depth strategy• PRODUCT MIX WIDTH measures the no of

individual(INDEPENDENT) lines of products the co carries in its product portfolio.

• For ex,HLL has roughly 3 dozens of lines of products—say,soaps,detergents,tooth pstes,toiletries,cosmetics,personal care products,ice creams,bread,shampoos,atta,salt,jams,jellies,tea,coffee etc,

Product stra----

• Advantages;wide mix helps• 1,growyth in bad times for some lines• 2.good customer coverage• 3.prevent competitor entry• 4develop trade interest• 5reduce overall cost• 6synergy etc.• DISADVANTAGES• 1.resources scarcely distributed• 2.lack of focus• 3.Confusion if overlap• 4.too much inventories.

What is optimum width?

• If mix is too narrow,vulnerability, competitors get strong if they discover & enter into new niches, and stake holders growth expectations not met,

• Optimum width depends on• 1,co’s resource capability• 2.co’s ambitions for growth with matching

capability• 3.ability to start a new line when the existing

lines can survive & grow on their own merits,

2.Product mix consistency strategy

• This measures how well each line is related to every other line in terms of

• 1,technical capability• 2.manufacturing skill& capability,• 3.distribution capability,4,employee talent and skills,5branding&

commncn skills• 6,customer mix etc.• Advantages of high mix consistency• 1.lower costs• 2.quicker growth• 3higher profit• Disadvantages;1inability to venture into unrelated but high

opportunity areas.ex reliance.

Product line length strategy

• Line length measures the no of independent products in a line.

• For example,HLL’s soaps line has a dozen different soaps

• Jay Lux Hamam

• Breeze Liril Dove

• Lifebuoy Fair&lovely

• Rexona Pears

Long lines-advantages

• 1different segments• 2high sale,MS & profit• 3.prevent competition• 4.be first to open a swegment• 5overal markt leadership• 6.More satisfied customer

groups7.synergies in marktng costs• 7.satisfied trade

Long line-disadvantages

• Too long –unnecessary-wasted inventory

• Slow non-moving stocks

• Low ROI

• Confuse customer choice if overlap.

• Lack of focus

• Resources too thinly distributed.

product depth-no. of variants of same product-by

sige,packing,colors,styles etc.• Lux is available in 2 formulations,3 siges,3

colors and 2 skin types • Therefore lux’s product depth is

2.3.3.2=36• Why product depth?• To cater to subsegmental needs• To retain customers • To meet needc fragmentation in evolving

markts

Plc strategies. ch- fig--

Branding strategies

Pricing decisions-why is price p is the most imp of all p’s of M.MIX?

Premium strategy Good value strategy

Over charging strategy

Economy strategy

higher

lower

quality

higher lower

Price

Price is the only p that gets revenue all others add to cost!

• Prem strategy—High Q,High P—ROLEX• Economy Strategy—Low Q, LowP-Timex• Usually coexist,since markt consists of atleast 2

groups of buyers—Those seeking Q and those seeking P.

• Good Value strategy---A way to attack premium pricer.”we have high Q but at a low P.If really true,and Q sensitive buyers believe this,they buy and save money.---Un less the premium product offers more status or snob appeal.

Over charging strategy

• Over price the product in relation to Q.In long run, customers may feel “taken”,will stop buying & may complain to others.So avoid this strategy.

• PRICING AN INNOVATIVE PATENT PROTECTED PRODUCT.How to price first time? Choose between 1,Market-skimming pricing and 2,Market-penetration pricing.

• MARKET SKIMMING PRICING• 1.Set a high price to skim maximum profit from

the segment willing to pay the high price.Fewer but,more potential sales

Pricing an innovative patent protected product first time

• Choose between• A.market skimming pricing• B.market penetration pricing• 1.market skimming pricing.---set a high price to get a

high profit per unit from the segment willing to pay a high price---fewer but more profitable sale.

• Conditions for success• 1.quality & image must match the high price.• 2.cost of production of small volume can not be so high

as to cancel out the high price.• 3.competitive entry barriers should be high—not to enter

& under-cut.

2market penetration pricing

• Set a small price in order to attract a large number of buyers and a large market share deeply & quickly.Ex

• 1.Dell & Gatreway used penetration pricing for high quality computers through lower cost mail-order channel.Their sales increased substantially when IBM,COMPAQ & APPLE sold thro retail stores & could not match their prices.

• HOME-DEPOT & WALLMART & other discount retailers charge low prices for high volumes leading to low costs to allow keep prices low!

Conditions for setting low price

• 1.markt to be highly price-sensitive.so,low price leads to more sales and growth.

• 2. production & distribution costs fall as sales volume increases.

• 3.low price must help keep out competition-otherwise price advantage may be purely temporary.Dell & Gateway faced problems when IBM & Compaq established their own direct distribution channels.

3.skimming layer by layer

• Some firms that are highly innovative use a hybrid strategy whereby they set a high price to begin with to skim maximum profit from the top most segment and then reduce price continuously to skim profit layer by layer from the segments willing to pay the high price.Ex.

• Intel charges the highest price for the computer chip “pentium”.When it first brought it out,they charged $1000 each so that computer producers priced first pentium computer at $3500,attracting innovative & serious first buyers

• Later, Intel cut pentium prices by 30% per year to eventually allow the pentium PC prices to drop into the price range of home buyers. ..

Choice between penetration and skimming strategies.

• Penetration• 1.Objective-long run markt

share;risk taking• 2.demand-price elastic;few

markt segments• 3.competition-deter new

competitors;few barriers to entry

• 4.product.-image seen as unimportant,long product life cycle

• 5.price-pressure for prices to fall,need to move fast

• Skimming-• Short run profit• Risk-avert

• Price elastic,multiple markt segments

• Accept new competitors,high barriers to entry

• Seeks prestige and image,short PLC

• Prices can be sustained,fewer pressures in markt.

Skim-penetrate-------

• Penetration• Promotion-customers

understand product• Distribution-existing

system• Production-high scale

economies,experience curve effects

• Skim strategy• Unfamiliar product

• Unfamiliar channel

• Few scale economies and experience curve effects.

Price problem • Case 1. A toaster marketer has the cost and pricing structure as

below.• Fixed cost;$300,000• Price/unit;$20• Variable cost/unit;$10• Q1.What is the break-even volume in units and value in $• Q2.The Co invested $10,00,000 and wants a 20% return on

investment (ROI).How much should the Co sell in units and value?• Q3.At an expected unit sale of 50’000 what is the total

manufacturing cost per unit?• Q4.At the above manufacturing cost per unit,what should be the

selling price • A,to earn a mark-up of 20% on cost?• B,to earn a margin of 20% on selling price?

Price problem case-2

• Setting a price to Government A’c is quite tough.In a sealed-bid pricing,the firm needs to set a price based on how it thinks competitors will price rather than on its costs or demand.Both “high price “ & “low price”setting strategies are undesirable.One needs to strike a balance.Suggest your pricing strategy with following data.

What is the best price?

• Co’s bid & profit in $

• 9,500 &100

• 10,000 &600

• 10,500 &1100

• 11,000 &1600

• Assumed probability of winning

• 0.81

• 0.36

• 0.09

• 0.01

EVC-Economic value To Customercentral concept in pricing in

industrial products• The markt leader is selling a machine tool

(product X) at a price of Rs.30,000.The customer will also have to cover start-up costs of rs.20,000-(installation,initial training etc.)and post-purchase costs over the life of the machine with a present value of rs.50,000-(labor,maintainance,power and other operating costs).Thus the total LIFE CYCLE COST of the m/c is Rs100,000.In other words,the price is under 1/3rd of the total cost of employing the m/c.

By developing an offer with high EVC ,a Co can charge significantly

higher prices and stll offer its• Customers a superior value.The higher vpriced

product may offer value because (a),it generates more output thanits competitor or

• (b),because the operating costs associated with it (mint,labor,depreciation etc)are lower over its economic life.

• If a competitor wants to dislodge the markt leader ,it must offer superior EVC.One way is simply to price-cut.But this is not likely to be a decisive strategy here,because,even if the m/c price is cut by 20%,the savings to customer of Rs.6000 is only 6% of total cost.

There are 2 other better ways.For ex,a new product Yis shown as

reducing the start-up cost• By Rs.10,000 and post-purchase cost by

Rs 20,000.What do u think is the highest price the customer will be willing to pay for product Y,assuming both X & Y would have the same life cycle cost and productivity?This represents the EVC that Y offers to the customer and below the EVC it would be rational for the buyer to switch to Y ,provided that all other things were equal between the 2 suppliers.

Assume a new product Z is available which ,besides lowering

• The customer’s cost ,may enhance its revenues also.Z actually turns out more finished product for the customer or products with superior quality Product Z has the same start-up cost as X ,but post-purchase costs are Rs 10,000 lower and offers a NPV of Rs 30,000 extra contribution margin,arising from enhanced output of higher quality for which demand exists.Find out the EVC or the maximum price customers are willing to pay for Z?

Questions on evc case

• If you are the market leader with X and developed Y and Z for the first time what marketing strategy would u adopt for success?

• If u are the unsuccessful competitor for the leader X and fortunately developed both Y and Z,what marketing strategy wd u adopt to challenge the leader and displace him?

Evc case solution

• Using the EVC concept, the firm can target those mrkt segments where the evc is the highest.

• In such segments the product is more attractive and so here the firm can get the highest prices.

• In this eg, it may pay the firm to launch 2 new products.

• A high price brand Zto the quality-oriented customersand a low priced Y brand to the cost-oriented segment of the brand mrkt.

Firm’s pricing policy setting

• 1.selecting pricing objectives• Survival• Max current profit• Max current service• Max sales grwth• Max markt skimming• Product-quality leadership• Other pricing objectives

2.Determining demand-price elastic demand & price-inelastic demand

• 3.estimating costs;Demand sets the sealing & cost sets the floor for product pricing

• 4.analysing competitors’costs prices &offers• 5.selecting aq pricing method.select the price based on 3

C’s---Customers’ demand schedule,cost function & competitive prices.

• LOW PRICE costs• competitors prices/substitutes• Customers assessmnt of unique product features• HIGH PRICES• If price is lower than cost, no profit• If price higher than customers’assessment of value,no

possible demand exists.

Various pricing methods

• A.mark-up pricing

• B.target-return pricing

• C.perceived value pricing---value in use price

• D.value-pricing---fairly low price for a high quality product ex.Toyota LEXUS

• E.going rate pricing

• F.sealed-bid pricing

Perceived value pricing or value-in-use pricing

• Increasingly companies are basing prices on buyers’ perception of quality and value,not on the seller’s cost.

• They use other marketing mix elements,such as advertising,packing,sales force,and promotion to build-up perceived value in buyer’s mind.

• Eg.Dupont,when it developed its new synthetic fiber for carpets,it demonstrated to carpet makersthat they could afford to pay Dupont as much as $1.4 per pound for the new fiber and still make their target profit.

Dupont calls this $1.4 the value-in-use price.

• Dupont sets a price lower than $1.4 to induce carpet makersto adopt the new fiber,since at &1.4,the customers are indifferent.

• Dupont didn’t use its manfng cost to set the price,but only to judge whether there was enough profit to go ahead in the first place.The key to perceived value pricing is to determine the markt’s perception of the offer’s value accuraely.

• Sellers with an inflated view of their offer’s value will over-price their product.Sellers with an under estimated view will charge less than they could both are undesirable,

Perceived value pricing contd.

• When a customer asks Caterpiller’s dealer why he should pay$10000 more,the dealer answers;

• $90k is the tractor’s price if it is only equivalent to the competitor

• $7k is the price premium for Caterpiller’s superior durability.

• &6k is the price premium for Caterpiller’s superior reliability

• $5k is the premium for superior service• $2k is premium for larger variety on parts.• $110k is the normal price to cover Caterpiller’s superior

value.• Minus $10k discount is equal to final price.

Value pricing• Here sellers chargea fairly low price for a high quality offering,such

that the price should represent a high value offer to the consumers.• Value pricing is not a matter of simply setting lower prices on one’s

products compared to competitors.• It is a matterof reengineering the co’s operations to become a low

cost producer without sacrificing quality and lowering prices significantly to attract a large no of value-conscious customers.

• An imp type of value pricing is every day low pricing(EDLP) at the retail level.High-low pricing is resorted to by promotion oriented competitors. Here the retailer charges higher prices on every day basis but then runs frequent promos in which prices are temporarily lowered to below EDLP levels.

• As super mrkts face increasing compttn,from counterparts and alternate channels,the key to success is using a combination of high low and EDLP strategies with increased ad promos!

6.Selecting the final priceconsider addnl factors

• A.psychological pricing

• B.influence of other MM elements on price.

• C.company pricing policies

• D.impct of price on other parties.

Adapting the price.Co’s don’t set a single price,they follow a pricing

structure that reflects• A variations in geographical

demands/costs• B.markt segment requirements• C.purchase timing• D.order levels• E.delivery frequency• F.guarantees• G.service contracts

Price discounts & allowances

• Cash discounts-prepayment

• Quantity discounts

• Functional discounts

• Seasonal discounts

• Allownces-trade-in allowances

Promotional pricing stimulates early purchases

• Loss-leader pricing• Spl-event pricing• Cash rebates• Low-interest financing• Longer payment terms• Warranties & service contracts• Psychological discounting-was $359, now $299 only.• Promotional strategies are usually a zero-sum game!• if they work,competitors copy easily.• If they don’t work,waste of money!

Discriminatory pricingsame product at diff prices

• Customer segment pricing-eg.museums-low price for students&sr citizens

• Product form pricing-diff pack sizes

• Image pricing-diff names,diff prices,diff images

• Location pricing-Tagj charges differently at diff cities.

• Time pricing-season,day or hour.

Product mix pricing

• Product line pricing-price steps one sneaker to another

• Optional feature pricing• Captive product pricing-camera & films• 2-part pricing-fixed fee plus variable usage fee• Bye-product pricing• Product bundling pricing-season tickets. Total

cost less than sum of individual products

Initiating & responding to price changes

initiating price cuts• Ex; excess plant capacity

• Declining markt share

• Drive to dominate markt thro lower costs

• Risks of price cuts

• Low-quality trap

• Fragile-merkt share trap-high priced competitors may cut prices& can withstand due to deep pockets

Initiating price changes

• Normally pressure exists on co’s to reduce prices.Experience curve,competition and rising customer price sensitivity as markets evolve,all encourage falling real price levels.

• Inflation,stock markets expectations of growing profits and possibility of new and improved products/brands encourage enterprising managers to consider ways of increasing prices and margins.

• Cost reduction is another obvious way of rising margins.But price increase has a better impact.

•

Techniques to reduce customer sensitivity to price rise

• 1.TRADING-UP• 2.LINE EXTENSIONS• 3.UNBUNDLING• 4.MULTIPLE BRANDING• 5.OPPORTUNISTIC PRICING• 6.REPOSITIONING• 7.ESCALATOR CLAUSES• 8.REDUCTION IN DISCOUNT• 9.COST PLUS FORMULAS

1.trading-up.Quality improvement is the basis.alongwith commncn to customers.a better Q for high P

• Ex.Rin,rin shakti etc.• 2.LINE EXTENSIONS.New features is the basis to pass price increase on

to less price sensitive customers• 3.UNBUNDLING.Initial price plus charge extra for elements that were

previously supplied free.ex delivery,installation,warranties,training.• 4.MULTIPLE BRANDING.Introduce FIGHTER brands to match competitors

if they are forcing prices down,and simultaneously rise the price of current version.Price-sensitive customers can select fighter brand and less price-oriented buyers may take the premium version.

• 5OPPORTUNISTIC PRICING.Changes in environment and customer circumstances may reduce buyers sensitivity to a price.Ex.industrial buyers more interested in total cost of obtaining,operating and servicing the product over its life rather than just price.

• Eg rise in price of oil would increase economic value of a fuel-efficient engine.and thereby helping in a price incresase.

6.REPOSITIONINg.Reposition a product to get higher

prices.Eg.Chivas regal scotch.• In early 80’s, scotch whiskey was increasingly sold on price to boost

flagging volumesGuinness succeeded well in in repositioning many of the brands as premium products taking advantage of increasin g affluence and snob appeal of these established brand names.

• 7.Escalator clauses.with long term contracts and long gestation periods,escalation clauses will allow producers pass on cost increases to buyers.

• 8.Reduction in discount.Most Co’s erode their basic price with bcash discounts for pre payment,quantity trade discounts,seasonal and pomo allowances,or trade-in.Many of them can be dropped or reduced without significant customer dissatisfaction.

• 9.Cost plus price formuylas.Offer to meet new customer needs on basis of cost plus pricing.thus introduce enhanced products with the buyer guaranteeing the margin.

Product mix pricing

• 1.Product line pricing-a range of products at various prices for buyers to choose from.Castrol GTX at low price to more expensive GTX2,GTX3 so on uptoGTX7 to exploit different price elasticities amongst consumers and distributors and encourage customers to trade up to higher margin brands

• Select price points to signal clear quality differences between the brands.

• 2.FOLLOW ON PRODUCTS.Some products require subsequent purchases.eg.cmera and film. Computer and software.Initial product might be priced low to stimulate demand and make profit on subsequent products.

• Supplier needs to be dominant or specialist to prevent competitor to enter wirh lower priced substitutes.

3.BLOCKING PRODUCTS.Sell at an economic price to block

competitive entry.• Eg.cross-subsidise sales in one segment or geographical area to

dissuade competition.• 4.BUNDLED AND OPTION PRicing.Advertise the product at a low

stripped-down price and at POP,encourage to add high margin features.merc price Rs 20 lacs and Rs 5 lacs on options.

• In contrast Japanese competitors bundle a comprehensive range of features into the sticker price to offer superior value proposition.

• 5.PARALLEL IMPORTS.Increasingly pricing is becoming international problem with differences in living stds and distribution systems.countries differ in price responsiveness and therefore set prices differently in diff countries but legl restrictions and parallel imports are making such strategies difficult .

Product mix pricing strategies

• Product line pricing-diff products at diff prices in a range each offering more features than previous one.Kodak royal gold and kodak fun time –high and low price versions.

• 2optional product pricing-Basic price+accessories• 3.Captive product pricing—In products razors,cameras

and computers, in services,the strategy is 2 part pricing-a fixed fee plus charges for the calls made beyond a numberas a variable vusage rate.

• 4.By-product pricing.Set a price for byproduct to make the main product’s proice more competitive.

Customer types based on price and perceived value.VALUE OF

MONEY vs VALUE OF DIFFRNCN.• 1.PRICE BUYERS OR CREDIT BUYERS OR

COMMODITY BUYERS-diff low and vom high.Suppliers develop multiple vendors and encourage them into kamikaze price wars.Scream loudest and dictate price,credit and selling strategies.Profits so low attn unjustified but provide volume sale.

• 2.VALUE BUYERS OR VALUE LOVERS• Best position to be as customers.Want lower

prices,longer credit where possible,more efficient operations,superior features or services

• And wd pay faster for superior value where justified.• From marktg pt of view,firms that attract value customers

get the loyal buyers as part of the bargainand sell to the price buyer only when profitable and reasonable,

• LOYAL BUYERS_lovers of the care from suppliers.

• Less concerned about price or credit.Often have a single supplier and don’t intend to qualify others.

• COMFORT BUYERS –lovers of convenience• Don’t care who is supplying,what price,what

credit,as long as readily available.Most profitable segment,but unfortunately have little brand loyaltyand offer no SDA.

Cost based vs value based pricing

• COST BASED PRICING-setting price based on buyers’perception of value.

• Product---cost---price---value---customer

• VALUE BASED PRICING-Setting price based on seller’s cost

• Customers—value---price---cost---product

Place-the 3rd p of mmixphysical distribution & channel

mgmt• Physical distribution/marktg logistics-Physical distribution

is process of delivering product to marktng channels &consumers.Logistics has a higher scope –covers PD plus part of task of mrktg channels

• PD takes care of transportation,ware housing and inventory mgmt to facilitate flow of product while channels connect the firm with its customers and thus bring in greater value addition in delivery chain

• SCM has even higher scope encompassing the materials mgmt task as well. Has all 5 primary activities of value chain-both front end and back end of the process to spread value and develop competitive edge.

Physical distribution-importance

• Ensures physical flow of product

• Confers place & time utility on products

• Helps build clientele

• Where production locations and markets are distanced, PD becomes crucial

• A promising area of cost reduction. PD costs are high and second only to materials-a neglected area of cost control.

Component functions of PD/logistics

• Planning the overall PD system

• In-plant warehousing• Transportation• Field warehousing• Receiving• handling

• Secondary transportation, secondary handling & sub-distribution

• Inventory mgmt at each level in chain

• Order processing / execution

• Accounting / record keeping

• communication

Designing a physical distribution system-5 steps

• 1.articulate distribution objectives, specify the minimum desirable service level in product delivery

• 2.find out what customers want in product delivery

• 3.Find out what competitors do• 4.Keep the costs of the system as low as

possible, without sacrificing the guaranteed minimum service level

• 5.keep the system sufficiently flexible.

Main tasks in transportation mgmt

• 1.Assessment of transportation requirement

• 2.Choosing the mix of transportation modes

• 3.Decide the routing

• 4.Develop operational plans

• 5.Implement/Review

• 6.control transportation costs

Role &importance of warehousing

• 1.Like transportation, warehousing too vests the product with time and place utility

• 2.In some commodities, warehousing vests the product with form utility as well

• 3.A certain level of storage is inescapable in marketing of most products. Storage needed in large scale for seasonal products.

• 4.sub-distribution realities also necessitate extra storage.• 5.Storage reduces the need for instant transportation which is

difficult & costly.• 6.storage is a competitive adv ,since better storage leads to better

servicing of channel and consumer.• 7.Storage also helps in balancing demand and supply and in

stabilising prices• 8.In some products storage by itself acts as a stimulant of demand.

Elements of inventory costs

• 1.Interest on capital tied up in the inventory• 2.Warehouse rent,3.Staff salaries• 4.Insurance, Rates and taxes, 5.Stationery• 6.Postage & communication.

charges,7.Administrative OH’S• 7.costs of handling, unloading & stacking• 8.Loss of damages & deterioration on storage

9.Cost of order processing /record keeping / accounting

• Optimum inventory is a compromise between cost & service.

Outsourcing logistics

• Volvo-GM out-sources marktg logistics tying up with FedEx. Dealers when require spares in an emergency call FedEx on a toll free no and FedEx supplies parts by air the same night either at dealer’s shop or at roadside at the breakdown site. A central warehouse was set up and some of traditional regional warehouses are, closed and therefore reduced overall inventory costs by 15%.

• In India AFL, Elbee, Gati,,DHL,OVERNIGHT EXPRESS,SAFEEXPRESS & Blue Dart are some of the Air express Cos collaborating with manufacturers for outsourcing

Marketing channel magmt.Functions performed

• 1.Facilitate selling by being physically close to customers.

• 2.Provide distribution efficiency by bridging the manufacturer with the user, efficiently and economically

• 3.Break the bulk and cater to the tiny requirements of buyers

• 4.Assemble products into assortments to meet buyers needs; match ‘segments of supply ‘ with ‘segments of demand’

• 5.look after a part of physical distribution/ marktg logistics; subdistribution—a .Reselling, b,Retransport. C,Handling and d,Accounting---STOCK HOLDING-a,Providing warehouse space. B,Storing the stocks. C,bearing risks and d,Transforming static stocks intooperational stocks,thereby aiding the sales process

Channel functions----

• 6.Share the financial burden of the principal; Provide deposits; Finance the stocks till they are sold to the ultimate consumers; Extend credit to retailers/consumers

• 7.Provide salesmanship• 8.Provide pre and after sales service• 9.assist in sales promos• 10.Assist in merchandising

Channel functions---

• 11.Assist in introducing new products• 12.Assist in implementing the price mechanism;

assist in price negotiations• 13.Assist in developing sales forecasts/sales

plans for the territory.• 14.provide market intelligence & feedback.• 15.Maintain records,16,take care of liaison

needs17.Helpdiffuse innovations among consumers act as ‘change agents’ and generate demand

Alternative channel patterns

• 1Manf----M’s salesmen---User• 2.Manf—M’s showrooms/Depots—User• 3.Manf—Retailer—User• 4.Manf—Franchisees—User• 5.M—Wholesaler (stockist) / Distributor—R—

User• 6.M—W(s)/D—Semi-wholesaler—R—U• 7.Manf—Marketer—W(S)/D—SW—R---U• 8.M—Sole selling agent—W(S)/D---SW---R--U

Steps in designing channel system

• 1.Formulating channel objectives• 2.Identifying functions to be performed by the channel• 3.Analysing the product & linking the channel design to

the product characteristics• 4,evaluatingthe distribution environment, including legal

aspects• 5Evaluating competitor’s channel design• 6.Evaluating Co resources and matching channel design

to resources• 7.Generating alternate designs, evaluating and selecting

the one that suits the firm best.

Objectives firms seek from channels

• 1.Effective coverage of the target market• 2.Efficient & cost effective distribution• 3.ensuring that consumers incur minimum

exertion in procuring the product.• 4.Helping the firm to carry on

manufacturing uninterrupted ,confident that channels will take care of sales

• 5.Partnering the firm in financing and sub distribution tasks.

Types of marketing intermediates

• 1.Sole selling agent• 2.Marketer• 3.C&F Agent(CFA’s)• 4.Redistribution stockists• 5.Stockist/Whole saler/Distributor• 6.Semi wholesaler• 7.retailer/dealer 8.Broker 9.Franchisees• 10Authorised reps 11Commission agents• 12.jobbers

Linkage bet channel objectives & channel design

• Channel objectives• 1.Castrol India-

Locational convenience, Choice of product &Strong reach; Speedy dely; Fill orders from outlets in 24 hrs.

• 2.Reliance textiles (VIMAL)-Create exclusive image for VIMAL. Cater to urban markts, as per position. Build barriers to comptn.

• Channel design• Vast net work of outlets—

backed by CFA’s/ Stockists /warehouses/delivery facility,1800 SKU’s, variety,packsizes.---Multi-tier design .

• 2.Exclusive showrooms-200nos-in all cities and jumbo showrooms in metros. Outlet communicates.—

Channel design---

• 3.Archies gifts &greetings—Proximity to customers, convert low involvement purchase into High IP, Make purchase an enjoyable experience.

• 4.Outlets close to upper echelons of society, the TMS. Go for exclusive shops/shop-in-shops; Trendy interior design and peppy ambience.—Wide range of appealing merchandise

Channel design----

• 4,BBLIL(premerger with HLL)—Strong reach,Provide choice of brand,place&time utility—Fresh stocks to consumers always.

• 5.embrace all types ofshops,super mrkts,grocery stores&kirana shops.A 3-tier channel with CFA’s,RS’s and R’s.Provide for proper inventory/dely backup.At each level minimise distance bet issuing & receiving points.

Channel obj’s & design----

• 3.Philips(appliances ,Pers care )—Cover mrkts intensively & extensively; After sales service integral part of channels--Build barriers to competitors.

• 3.Have a 3-tier channel of CFA’s, distributors & retailers (22ooR’s).Authrised Philips Service Centers(100 APSC’s) and 4 CRC’s (consumer response centers).60 engineers liaise with APSC’s.—Motivate channel with guaranteed 30%ROI to APSC’s.—Make all strong dealers Philips dealers.

Channel design-----

• 6.Louis Philippe—Promote as a complete & premium wardrobe line, with shirts, trousers, ties,socks,blazers,belts etc.

• Cover the TMS (well-to-do gents) adequately.

• Maintain an edge over comptn by competing on quality, service, image & value.

• 6.Go for exclusive show rooms, ensure full line at all out-lets.Go for multi brand outlets and for shop-in-shop in super stores like Akbar Alis where spl areas are provided as shop in shops.

Channel design--

• 7.ITC tobacco division,-ensure easy availability of cigarettes.

• Build brands through advertising.

• Go for CFA’s and wholesalers who distribute, resell to retailers(8000)

• Go for different types of retailers, branded, traditional and non traditional.

• Have branded retailers and franchisee retailers who sell only ITC cigarettes and not other brands

The promotion P—marketing communication

• The mrktng commncn mix• Product communicates• Price communicates• Place,point of sale communicates• Promotion communicates• -----advertising communicates• -----personal selling communicates• -----sales promotion communicates• ------publicity communicates

Product communicates

• Product personality as a whole communicates.produc t personality constitutes various elements such as

• The physical features,the material,the size,shape,design,the finish etc

• The package,its color,size,design &labeling• The brand name,the co name.• IN SHORT,THE PRODUCT SENDS OUT

MULTI-PRONGED MESSAGES

Mrktng commncn through price cues

• Price conveys something more than price

• Price-quality equation

• Price-status equation

• Price,an indicator of technological superiority

• Consumers’ concept of a ‘reasonable price”

Place as a component in marktng commncn.

• “I buy only from X store” Why?---”they have a big choice”: “It is a lovely place to shop in”;”the service is good”;”it is cheap”;It has a good location”;”they sell quality products”.

• THE STORE IMAGE• STORE LEVEL MERCHANDISING-display &

service;store is a display unit attracting high consumer traffic.

• STORE,A POWERFUL COMMNCN INSTRUMENT;particularly for image-led products and brands—aesthetic display of Baccarose Cosmetics in an aristocratic store environment –the color of the wood,the glass fittings.etc imp.

• STORE CHOICE IS LINKED TO STORE IMAGE.

Promotion as a component in mrktng commncn.

• PS,ADV,SP AND PUBLICITY and DM• PERSONAL SELLING & its communicative role• Sales man and his qualities in his role as a

communicator---• Product knowledge &technical expertise• Customer-salesman relatability in

age,culture,language,dress style etc.• One who listens,communicates better• Right sa;les message leads to effective

commncn.

Publicity-a potential tool of mrktng commncn.

• Oversee & influence the stories/news that appear in media and conduct publicity campaignsaround some innovations within co or some topics of public interest like environment,health,social welfare etc.

• SPONSORSHIP & EVENT MANGMNT are 2 most sought after tools for creating wide publicity.

• Sponsorship-when news worthy events take place,firms associate with such events as sponsors

• DIVERSE WAYS OF SPONSORING EVENTS • Title sponsorship,cosponsorship,official supplier status for getting a

host of benefits & rights. Such as signage,tickets,hospitality,product category exclusivity and the right to advertising,promotion & publicity.Intention is to remain part of the news –creating eventand reap the best of exposure to the firm.

Event management-a new addition to publicity tools

• Making an event spectacular through a variety of commncn and display techniquesis crux of event mangmnt.

• The event can be product launch,an exhibition,a contest, a stage show,or a sport event.idea is to capitalise on the opportunity by converting the event itself into a grand display.

• Event mngmnt firms do conceptualisation,program design,logistics planning,technical planning 7 venue mngmnt.

• To make the event spectacular,lighting,sound and spl effects arte creatively used.to nleave a lasting impression on the audience.

Pr-management of reputation

• Pr accomplishes the task of explaining to the outside world about the issues that are going on within the co.

• Good corporate reputation makes selling easier & cheaper.It saves on advertising,and renders every activity easier.

• Pr is more vigorous in in bad times ;for ex,in recession,large cos often cut the ad budjet and spend part of it on PR.

Advertising mangmnt

• “advertising” originates from the latin “adverto”which means to turn round.

• Therefore advertising denotes the means used to draw attention to to any object or purpose.

• In marktng, advertising is defined as “any paid form of non-personal presentation and promotion of ideas,goods,or services by an identified sponsor”

• Popularisation of products is basic aim of advertising and hence rests on a thorough understanding of the buying process-and influencing the purchase behaviour of consumers in a way favorable to the advertiser.---

• ATTENTION<AWARENESS<INTEREST<DESIRE<ACTION<SATISFACTION <LOYALTY.

How does advertising influence /persuade the buyer?

• 1.Should be of interest to the buyer• 2.The audience should interpret the

message in the intended manner• 3.the advertisement should influence the

audience/ buyer.eg.attitude change is a central theme in advertising.

• Traditional theories of attitude suggest that it is made up of 3 interrelated components-cognitive,affective and conative.

Attitudes created by advertising---

• 1cognitive component of attitude deals with cognition or knowledge.It is the faculty of knowing,or percieving or concieving ideas.It is the sphere dealing with knowledge.

• 2.The affective component deals with affections /emotions.For ex feelings of likes and dislikes towards objects are dealt on the affective plane.

• 3.The conative component deals with behavior or action.these 3 components together shape what is known as attitude.

Theories of attitude

• Consistency theory.Man seeks consistency ,balance or harmony in his belief system.He tries to resolve inconsistencies or imbalances because he cannot tolerate them for long.

• When inconsistencies occur between existing belief system and new information,to which he gets exposed,the given attitude will tend to change, so that the inconsistency will get resolved.

Factors in advtng that accomplish audience persuasion

• 1.Source/endorser of message

• 2The message structure and the message appeal

• 1.THE SOURCE or THE ENDORSER

• A)the credibility of source

• B)Likability or attractiveness of source

• C)The source’s approach to the views and disposition of audience.

2.The message in the ad.the message structure and the appeal

• 1.Message structure• A)the message sidedness• B).order of presentation• C)climax order,anti-climax order,pyramidal order• D)message conclusion.• 2.Message appeal-rational and emotional• RATIONAL APPEALS.• Physical feature-oriented,Function oriented,Brand to brand

comparisons• EMOTIONAL APPEALS• LOVE,AFFECTION,ENJOYMENT<FUN &HUMOR<SENSE OF

PRESTIGE<YEARNING FOR DISTINCTIVENESS &LUXURY<FEELING OF ENVY,FEAR OF UNCERTAINITIES etc.

Advertisements using celebrities as source/endorsers

• Amitab bachhan-icici bank campaign,for its retail banking.”makes life easier”

• Mansoor AliKhan Pataudi for Gwalior suitings-well known cricketer• Sachin Tendulkar for visa,Pepsi,and Philips• Sunil Shetty endorses Colgate dental powder• Sharukh Khan for Mayur suitings• LUX uses film stars • THE intention is to win over audience thro prestige and

attractiveness of endorser.• MRF uses names of famous cars that are users of its tyres.The

copy showed Opel Astra,Ford Escort,and Fiat Uno.The message”These cars ride only on MRF radials,” MRF radials-India’s answer to world class cars.”

Rational appeal –ITC sundrop and Zodiac shirts

• SUN DROP;”New Sundrop super refined oil offers not just one but 4 imp health benefits-easy food absorption,energy,heart care and vitamins.Food cooked in Sundrop retains its natural flavour’.Copy highlighted each of the 4 benefits

• Energy-9 k cals per gram• Food absorption-helps the body absorb food faster as

the free fatty acid content is below 0.2%.• Heart care-Keeps the heart strong as it contains over

60%poly unsaturated fats.• Vitamins-Contains A, D and E.

Rational appeal-zodiac shirts.• Why Zodiac makes the best shirts in india?• 1.Fabrics-best,including,soft,light,long staple european 7 Egyptian

cottons,in Chambrays,Oxfords and Twills• 2.Stitching-computerised M/cs create an almost invisible 21 stitches

per inch for max strength,others stop ay 16• 3.Buttons-Genuine mother-of pearl,hand picked & matched.Others

use plastic buttons.• 4.Collars use imported lining for durability.State-of –the-art fusing

eliminates warping & creasing• 5.Style & comfort,6.collar/cuffs,7Button holes• 8.Customer satisfactionEach Zodiac shirt reflects our chairman’s

obsession with quality and carries his personal guarantee.AMONG THE BEST IN THE WORLD_ZODIAC.

Examples of rational appeal

• Sun drop,Zodiac• 2.Brand to brand comparisons to convince

audience.highlight specialities,claiming superiority,name of competing brand may be specified or implied.Eg.New Pepsodent compared with Colgate.The claim is it is 102% SUPERIOR TO CDC.HLL compares its product with the “leading tooth paste”Colgate Ad jingle in the background sufficient to relate it to Colgate.

• ASCI specifies that comparative advertising –direct and indirect, is permissible if 1.the aspects compared are clear,2.comparisons do not confer artificial advantages on the advertiser,3.it is factual,can be substantiated,4.consumer is unlikely to be mislead and5. there is no unfair denigration of the competing products.

Examples of emotional appeal

• Jenson & Nicholson ad creates a romantic setting to drive home the elegance of J&N paints----Love at first sight,Love ever after,Colors are like love,----J&N colors---excitingly---beautifully---Give your home this wonderful romance through J&N colors—

• Humour appeals-very common today,certainly attract attention.an imp clutter breaker.Pause,read,capture the current of fun and enjoythe message.Whether it brings about an attitude change is debatable.It may sometimes even distract from the central theme of message.In addn, people tend to take such messages too lightly.But many copywriters do use humour in their messages

Emotional appeal in ads

• Newsweek;Headline of a TIME magazine Ad reads .”If ur ad in TIME magazine,change your ad agency”.Headline of a subsequent Ad for NEWSWEEK;”if ur advertising doesn’t work in TIME magazine,don”t change ur agency,place it in NEWSWEEK”

• FORD;Subtly takes a dig at Japanese car makers,highlighting the superiority of its cars.s.es,ofcourse,Japanese cars are excellent—AfterallFord motor Co taught them to make cars.In 1927,Ford started operations in Japan and installed the first conveyors assembly line in all Asia.In fact for many years,the Japanese word for automobiles is FORDO---”

Fear appeal in advertising• Failure to use the advertised product might result in great

loss/damages in terms of money,health ,prestige etc.• This fear appeal serves as stimulus for the receiver,creating a

favorable attitude towards the product.• It may also induce the receiver to learn more about the product and

encourage him to get more info about the issue.May also create a feeling of hostility in receiver .

• Be careful of 3 things;!Understand nature of product advertised 2,Understand attitudinal frame of target audience and 3,extent of fear in hidden in the copy,

• Banks and insurance cos use fear appeal to evoke concern.UNITED INDIA INSURANCE;”Today—a picture of safety---tomorrow---an invitation to disaster.UR protection is our concern,take cover under United India; Tonight—sleep better thsan ur neighbor.It costs so little to insure ur household belongings”

Ad objectives—models that link buyers attitude change and purchase with advertising

• Some useful models;• 1.AIDA-the 4 stage model proposed in 1920’s for any impersonal sales

presentation• 2.5-stage & 6-stage models;proposed in 1930’s by rural socialogists

studying the process of innovation-adoption.There are 5 stages in any adoption process-Awareness,Interest,Evaluation,trial and Adoption.Then came 6-stage model;Awareness,Knowledge,Liking,Preference,Conviction and Purchase.—divided into 3 main components;cognitive component(Knowledge component-First two),Affec tive component(emotions component-next two), and lastly conative component(Action component-last two)

• All these mod.els belong to a class called “hierarchy of effect”models• 3.DAGMAR..Looks at advertising as performing a commncn task and not a

sales task.• What is required is a balancing act-advtng can not be loaded with the sales

task making it totally responsible for bringing in sales; nor can it be totally exempted from a sales-related responsibility.

4 broad themes ad objectives revolve around

• 1.The behavioural constructs-generating trial purchase and store visits

• 2.Attitude-ATTITUDE CHANGE AND ATTITUDE MEASUREMENT

• 3.Awareness-Creating awareness of new products/brands/new ideas

• 4.Product positioning and brand building

Main decision areas in advertising

1 deciding the advertising objectives2.deciding the budget3.deciding the copy

4.deciding the media.Deciding objectives—Should they include sales growth? Or should it

have only commncn goals because ad is essentially a commncn task?

Areas where ad objectives can be set

• 1.introduction of new products• 2.expansion of mrkt for existing & new products• 3.building a long term consumer franchise for

the firm• 4.countering competition• 5.reminding customers• 6.reassring customers by removing post-

purchase dissonance.• 7.building up brand image and co image

Ad obj’s

• 8.aiding total selling function by taking customer thro steps in purchase process-from awareness to purchase

• 9.closing an immediate sale-’clincher ads’• 10.supporting other sales promotion activities• 11.stimulating ‘impulse buying’• 12.enthusing the channel to stock the product• 13.supporting &supplementing sale’s selling

effort and dealers’ selling effort.

Deciding ad budget• 1.Competitive parity• 2.Affordability• 3.A fixed % of turnover• 4.Budget based on functions to be performed• 5.Regression analysis;An advanced quantitative technique to arrive

at budget.Done based on Historical data-either time series data or cross-se4ctional data

• Time series data are records of past ad expenditures and sales over time.Cross-sectional data are records of ad expenditure and sales for a specific period over different markets.The aim is to predict the dependent variable –sale or market share.Advertising expenditure level would be one of the independent variables.The regression coefficient crresponding to the advertising variable serves as a measure of the short-term response to advertising.

Ad budget-the adaptive control modeladds sophistication to budget

decision• Ad budget decisions need updating because the relation

between advertising and sales changes over time with the changes in makt conditions.

• The adaptive control model starts with a sales response curve and locates an optimum level of ad expenditure.The firm will now experiment advertising at non –optimum levels in selected test mrktsto get more knowledge about the sales response curve originally set.The new info coming out of the experimental marktng is added to the sales response function for arriving at the current optimal advertising expenditure rate.

The compromise in ad budget setting.consider basic q’s like

• 1.Which is the audience intended to be reached by advertising?• 2.What is its size,location etc?• 3.What are the media available for delivering the ad message?• 4.Of the available media,which combination of media is likely to be

most cost effective?• 5.To meet the given objectives,What kind of campaign is required?

What are its features?What type of endorsers are required?What is the cost there of?

• 6.Does the campaigninvolve single release of an ad or repeat releases?What is the frequency of releases proposed?IN OTHER WORDS<BUDGET DECISION IS CLOSELY LINKED TO AD OBJS <MEDIA AND COPY DECISIONS.THESE 4 INTERACT AMONST THEM AND INFLUENCE EACH OTHER.One gets modified and reshaped by the other.

Deciding the copy-copy refers to all that appear in an ad –written

matter,pictures,labels,logo,and designs

• To decide ‘copy platform’or a precise statement of the ‘ad story’,

• 1,close interaction between advertiser and ad agency

• 2,clear-cut ad objectives by advertiser• 3,knowledge of market & consumer

characteristics,• 4,nature of competition• 5,profile of competing brands/products.

Major tasks in copy development-1.fact finding stage and 2,idea

finding stage –alex osborn• ‘the big idea’ in Advertising• 1.All effective commercials have a ‘big

idea’.Says Roser reeves;The big idea in itself is a USP.Get a big idea and say it in a simple style.

• 2.David Ogilvy says;Unless ur campaign contains a big idea,it will pass like a ship in the night.

• 3.Says Leo Burnett;Not only is great copy deceptively simple,so are great ideas.And if it takes a rationale to explain an ad,then it is too complicated---

Ad copy-keep message simple and short.Jack Trout

• POSITIONING-How does the mind work as it takes in,stores or rejects ur message? The 5 elements to positioning process are

• 1.Minds are limited—too much info indigestion• 2.Minds hate confusion.Best way to enter minds is to oversimplify ur

message,so it can slice thro all noise.Powerful mrktng commncns focus on a single word;Crest-Cavities;Volvo-Safety.

• 3.Minds are insecure; So,use testimonials.Polls and panels create a ‘bandwagon effect’eg.Honda Accord advertises’In the 8 yrs Car & Driver magazine has presented its 10 best list,only one car has been chosen every time.’

• 4.Think simple..Focus on onme idea and drive into the mind.Eliminate anything that others could claim as well as u can.Forget anything that requires a complex analysis to prove.

• 5.Never ignore the obvious;Obvious ideas tend to be powerful ideas,because they will be obvious to the markets as well.

Testing the ad copy-2 types –post tests;after product

launch and pre-tests before

• 3 copy testing methods-1,lab tests,2,tests that attempt to simulatethe natural reading or viewing environment and3,tests done in the real/natural environment,called market tests.

• 1.lab tests-use phisiological measuring techniques with aids like eye-camera,polygraphs etc.

• 2.simulated environment tests include intercept research,mobile trailers,fixed facility research,and in-home interviewing.

Ad copy testing-markt tests

• Markt tests also utilise several techniques.The folio test is normally used in print media.TV commercials are tested thro the in-home projector vtest ,or live telecasts/on-the-air-techniques

• The DAR test for TV commercials-The Day-after Recall technique.The day after a TVC goes on air,in a normal viewing situation,a sample of thre viewers of the program is made.Those who saw the test commercial are interviewed to find out their ability to recall the commercial..Based on certain steps,a ‘recall score‘is also made

Testing criteria in copy tests

• When a copy is put to test what is actually tested?It’s ability to ensure a recall? Or its ablity to ensure ‘recognition? Or its ability to ensure ‘persuasion’? Or someother factors?

• Same conflicts arise here as in ad objective setting.

• A majority of tests centre on ‘attention’,’recognition’and ‘recall’ factors.The tests are mostly concerned with commncn effectiveness of the copy.

Deciding media-major ad media

• 1.print media

• News papers,magazines,trade journals,direct mail

• 2.audio/visual/audio-visual/electronic media

• Radio,television,internet,cinema,cassettes-audio and video,outdoor.

Commonly used outdoor media vehicles

• Hoardings ,posters• Neon signs and other illuminations,• Transit advertising(railways ,Other transport• Fairs and exhibitions• Amusement parks• Dance,drama and puppet shows• Loud speaker announcements• Ballooons and sky writings

Internet advertising-unilever,revlon &pond’s

• Unilever-had a 3yr vdeal with america Online Incto advertise scores of its brands online.It also signed a separate deal with microsoft Corp to advertise on Microsoft’s online servicesand to develop new interactive soft ware for advertising,

• Revlon;Its website has an interactive page;’Virtual faces-Try A new Look’where a customer can try out different shades(from Revlon’s latest Laven Dare and Fleshtones collections)on virtual faces on the screen and choose suitable shades.The person is then given a personal color consultation,a print out of which can be taken to the retail store and pick up the products recommended.

• Another web page is ;Revlon Give Aways.Customers fill in a questionnaire and offers coupons for select products.Revlon also offers self-care tips (on manicure etc )and info on fragrances.

Pond’s website

• Pond’s interactive site is positioned as a one-stop site for skin-care tips and Pond’s products.While other sites concentrate on co-specific product oriented info,pond’s attempted to give general info and advice on common skin-care problems to make it universal.

• Pond’s took 1 yr and invested more than Rs 1 crore in the project to start with.

Advertising thro cassettes-electrolux’s venture with Venus

Tapes• The co tied up with music & film producing co Venus

Tapes & Records for promoting its brands• Alwyn,Voltas,Maxclean,& Kelvinator.• The Rs 2.5 crore deal enables the co to advertise its

brands thro audio,video cassettes & CD’s produced by VENUS

• The tie-up will ensure insertion of E’s audiojingles in each and every Venus cassette..Venus will also insert E’s TVC in its video cassette and VCD’s for a total duration of 5 minutes

• Scope wide since e’s Ads can be carried on a minimum of 40 mn cassettes & CD’s during the contract.

Measuring TV viewership(TRP)

• Television Rating Point (TRP) is ca measure of the viewership level of the program.It reveals % of audience tuned to a program.

• TRP system involves collection of viewership data on a weekly basis from a panel of TV viewers in select market territories,Viewership figs are presented as % of total tv audience with 1 TRp representing 1% of audience.

• EG.A serial on ZEE TV has a viewership of 11.5%among a sample of men of age 25 plus in Mumbai’s C&S homes While Zee News had just 0.2%viewership.That means the serial has a TRP of 11.5 and Zee News has a TRP of 0.2.

GRP=TRP*No of times the spot is aired

• $ spots on a program with a TRP of 20 yield a GRP of 80.Programs are compared on basis of cost per rating point=ad tariff divided by TRP.

• TRP measurement; Diary system,people meter and Laser meter.• Diary system is the most common,It is a system of program recall by panel

members who are supposed to keep a diary on what they watch.• The people meter is a mechanical device ,which records when the tV set is

on and which member of the family is watching at a particular point.The viewer has to clock in by pressing a button.

• The Laser meter is a more advanced device.It automatically records the no of people present in aroom thro heat sensors

• Laser meter overcomes the limitations of both the previous devices.which demand the active and timely participation of panel members.If the viewer forgets to clock in or make timely notingsin the diary,then projections become unreliable in case of people meter and diary system respectively.

Competitive strategies-building competitive advantage/edge or

differential advantage• CA or CE is an advantage over

competitors gained by offering consumers greater value,either through lower prices or by providing more benefits that justify higher prices.

• Marketing strategies must consider (1) not only the needs of target consumers (2) but also the strategies of competitors

2 steps for building CA

• 1.competitor analysis-identifying and assessing key competitors

• 2,developing competitive marketing strategies that strongly position the Co against competitors and give it the greatest possible competitive advantage.

• COMPETITOR ANALYSIS-the process of identifying key competitors,assessing their objectives,strategies,strengthe and weaknesses and reaction patterns and selecting which competitors to select or avoid.

Steps in analysing competitors

• 1,identifying the Co’s competitors

• 2,determining competitors’ objectives

• 3,identifying competitors’ strategies

• 4,assessing competitors strengths and weaknesses

• 5,estimating competitors’ reactions

• 6,selecting competitors to attack and avoid.

1.Identifying Co’s competitors

• A.Co’s offering similar products and services to same customers at same places and similar prices—Eg,Coca Cola vs Pepsi Cola; For Buick Ford is a major competitor not Mercedes

• B.competition at a wider level-All firms making the same product or class of products.Eg.Buick competes with all other auto makers

• C. competition at a more broader level—Even co’s that supply same service such as makers of trucks,motor cycles,even bicycles

• D.Even more broadly,Competitors might include all Co’s that compete for the same consumer dollars.Eg Buick’s competitors can include all Co’s that sell major consumer durables ,new homes et

Well-behaved or disruptive competitors

• Benefits of competition-1.Increase total demand ,2.Share costs of market and product development 3,Legitimise new technology 4,May serve less attractive segments 5,lead to more product differentiation 6,Improve bargaining power against labor.

• WELL –BEHAVED COMPETITORS—1,Play by rules 2,Favor a stable and healthy industry,3.Set reasonable prices in relation to costs 4,motivate others to lower costs & improve differentiation 5,Accept reasonable levels of MS & profits.

Disruptive competitors

• 1.break the rules• 2.buy shre rather than earn3.take large risks• 4,in general shake-up the industry• Eg.American Airlines finds Delta & United to be

well-behaved,but finds TWA,Continental & America westdisruptive since they de stabilise airline industry thro continued heavy price discounting and wild promotional schemes.

Competirive strategies-M Porter’s 3 winning competitive strategies

• Over-all cost leadership-Texas Instruments & Wall Mart• 2.Differentiation-Highly different product line-IBM and Caterpiller• 3.Focus.Serve a few markt segments well.Glass maker

AFGIndustries makes 70% of glass for microwave oven doors,and 75% of glass for shower doors(TEMPERED AND COLORED GLASS)

• Cos pursuing a clear strategy (one of the above) perform well.Middle-of –the-roaders like Sears,Chrysler,& International Harvester suffered the worst as they didn’t stand out as 1,the lowest in cost,or 2,highest in percieved value

• Or 3,best in serving some market segments.• Middle-of –the-roaders try to be good on all strategic counts but end

up not being very good at anything.

Disruptive competitors

• 1,Break the rules• 2,Buy share rather than earn• 3,take large risks• 4.In general shake-up the industry.• EG,American Airlines finds Delta & United to be

well-behaved,but finds TWA,Continental & america West disruptive since they destabilise airline industry through continued heavy price discounting & wild promotional schemes

Competitive strategies-michael Porter’s 3 winning comp strategies

• 1.Over all cost leader ship-Texas Instruments and Wall mart

• 2,Differentiation-highly differentiated product lines –IBM,Caterpiller,Lever etc.

• 3,Focus-Serve few market segments well.Glass maker AFG Industries makes 70% of glass for micro wave oven doors,and 75% of glass for shower doors(tempered and colored glass)

Comp strategies---

• Co’s persuing a clear strategy (one of the above) perform well.Middle-of-the-roaders like sears,Chrysler & International harvester suffered the worst because they didn’t stand out as the

• Lowest in cost• Or highest in perceived value • Or best in serving some market segments.• Middle-of-the-roaders try to be good on all

stategic counts but end up being not very good at anything.

Competitor myopia

• Kodak was worried of Fuji. But real competition was from film less cameras sold by Cannon & Sony that take video still pictures that can be shown on a TV set turned into hard copy

• IDENTIFY COMPETITORS • BY linking industry• And by market analysis by mapping out product/maket

segments• 1.From industry point of view-Coke’s competitors are

Pepsi,7-Up,Dr pepper• 2.From market point of view-Coke’s competitors are

“thirst quenchers” such as iced tea,friit juice,bottled water etc,

Customer segmentation

• children/teens• Plain tooth paste

CP,P&G• Tp with fluoride-

CP,PG• GEL-CP,PG,LEVER

• STRIPED-Beecham• Smoker’s TP----------

• Age19-35 36+• CP&P&G CP&P&G

• CP&PG CP,PG

• CP,PG,LEVER andcp,pg,lever

• Beecham beecham• Topol topol

Identifying competitors---

• P&G with several versions of Crest & Gleam and CP with Colgate occupy 9 of the segments

• Lever Bros with Aim occupy 3 segments,Beecham one(AquaFresh) and Topol two.

• If Topol wants to enter other seg bments it must estimate the market size of each segment,the shares of current competitors,and their current capabilities,objectives and strategies.

• Each product/Markt segment poses different competitive problems and opportunities.

2.Determine competitors’ objectives

• What drives each competitor’s behaviour? A,short term vs long term profits? B,satisfactory profits or maximise profits?

• C what goals beyond profits?• Know relative impotance of each competitor for

a,current profitability,b.MS growth c.cash flow,d.tech leadership.f.service leadership and other goals.

• Judge competitive actions-Likely to pursue Low-cost production strategy?or Ad promotion strategy?

3.Identify competitors’ sytrategies

• Strategic group-A group of firms in an industry following same or similar strategy.Ex.GE,Whirlpool,Maytag in home appliances industry form a strategic group offering a full line of medium price appliances plus good sevices.

• Sub-Zero and Kitchen Aid belong to a different group-offering a narrow line of higher quality at a higher price.but with a higher level service.

• If a Co enters one of the groups, it becomes a member of others key competitors,

• It can succeed conly if it develops some strategic advantage over these competitors.GE now offers a premium quality premium price line to compete with Kitche Aid and Sub-Zero.

Look at all dimensions of competitors’ strengths

• Know each competitors’• Product quality• Features & mix.• Customer services• Pricing policy,• Distrbution coverage• Sales force strategy,• Ad &sales promo programs.Also study each

competitor’s R&D,Manufacturing,Purchasing,Financial,Manpower & other strategies.

4 assessing competitors’strengths & weaknesses

• What can our competitors do? Find their goals,strategies,& performance over last few years

• Collect info from secondary data,personal experience & hearsay.

• Bench mark compare vyr Co’s products ,services and processes to those of competitors or leading firms in other industries to find ways to improve Q and performance.

• BENCH MARKING iS A POWERFULTOOL FOR INCREASING A CO’S COMPETITIVENESS.

5 estimating competitors’ reactions

• What will our competitors do? SWOT analysis can help us know their recations or actions.

• Each has a philosophy,a culture,guiding principles and beliefs

• Each competitor reacts differently• Some don’t react quickly/strongly.Some react only to

price-cuts,others only to Ad promos!• Some competitors don’t show any predictable reaction

pattern.• P&G is a fierce reactor.No new competitor wd like to

fight directly with P&G,who doesn’t let a new comer into the detergent mrkt.

6,selecting competitors to attack and avoid.(A).Strong or weak

(B)Close or distant competitors• 1.Strong or weak.Assess strength by “customer

value analysis”-what benefits target customers value and how they rate the relative valueof various competitors ‘offers.

• The key to gaining competitive adv is to take each customer segment and examine how the the Co’s offer compares with that of its major competitor.If Co’s offer exceeds that of major competitor,on all key attributes,Co can charge higher prices and earn higher profits or charge same prices and get higher share,

2.Close or distant competitors

• Most want to compete with competitors who resemble them most.Eg.Chevrolet competes more with Ford than Jaguar

• A Co may also want to avoid trying to destroy a close competitor.Eg. Bausch7 Lomb attacked othersoft lens manufacturers but these were forced to sell out to larger ones such as Revlon & Johnson& Johnson.B&L now faced larger competitors like J&J and faced the consequences.

Hypothetical market structure

• Mrkt leader-40%• Challenger-30%• Follower-20%• Nicher-10%• MARKET LEADER STRATEGIES• Competitors focus on the leader as a Co to

challenge,imitate or avoid.• Leaders keep • A constant watch

Leaders’ strategies

• A product innovation may come along and hurt the leader .Ex.Tylenol’s non-aspirin pain killer took the lead from baeyer”s aspirin .

• The leading firm might grow fat & slow ,losing against new & peppier rivals.Xerox’s share came down from 80% to 35%,when Japanese producers challenged with cheaper & more reliable copiers.

• SOME BEST KNOWN LEADERS ARE• GM in autos,Kodak in photography,IBM in

computers,COCA Cola in soft drinks,WaLL MART in retailing,Mc Donald’s in fast food,And Gillette in razors and blades.

3 actions for leader to remain no 1-

• 1.Expand total market• 2.Protect MS thro defensive and offensive actions• 3.Expand MS further even if mrkt size remains same or even

declines.• 1.EXPANDING THE TOTAL MARKET• A.Find new users.Some customers are still unaware and some

resist on price or features.Ex Revlon’s perfume.Opened virgin mrkt by convincing women who don’t use perfumes, and also looked at other demographics by producing cologne for men,and geographically by selling perfumes in other countries.

• Johnson’s baby shampoo Ad campaign aimed at adults and it soon became a leading brand total shampoo market.

Leader’s actions---

• B.Find new uses.Eg.Dupont’s Nylon• Fiber for parachutes• Womens’ stockings• Major matl in shirts/blouses• Automobile tyres• Upholstery and carpeting• ARM&HAMMER baking soda as refrigerator

deodorant-by heavily advertising to put an open box of baking soda in Fridge,

Leader’s 3 actions

• C.more usage;Convince people to use more often or more per occasion.Eg.Colgate tooth paste.Head & Shoulders shampoo;more effective with 2 applications instead of one per shampoo.

• Michelin began rating French restaurants on a 3 star system .Many of the best restaurants are in south of France leading many Parisians to take week end drives to South.It encouraged car qwners to drive more miles per year.

Leader’s 3 actions---2,protecting MS thro defensive & offensive

actions• Coke against Pepsi,Gillette against Bic,Mc

Donald’s against Wendy’s,GM VS Ford.HOW?• 1.Prevent weaknesses that provide opportunities

to competitors :keep costs down and price proportional to value customers see in the brand.

• 2.Plug holes so competitors don’t jump in.• 3.The best defense is a good offense & the best

response is a continuous innovation.• It takes the offensive and sets the pace and

exploits competitors’weaknesses

3 actions of leaders----6 defense strastegies that mrkt leaders use

• 1.position defense.the most basic defense-builds fortifications around its current poszition.But it rarely works.You must continuously improve and adapt to changing customer needs –and develop new brands.Coca-Cola,despite its dominant 40 % MS in US,aggressively extends its beverage lines and has diversified into desalination equipment and plastics.

Actions of leaders----2.flanking defense

• Smart competitors attack leaders’weaknesses-like the Japanese entered the US small car mrkt.Since US auto makers left a gaping hole in that sub markt.

• Using a flanking defense,the Co carefully checks its flanks and protects the weaker ones.

• 3.pre emptive defense-By contrast, the leader may employ a more aggressive preemptive defense striking competitors before they can move against the Co.

• Ex when threatened in mid 80’s,by the impending entry of the Japanese into US,Cummins slashed its prices by 1/3 rd to save its No 1 position in the 2 bn $ heavy duty truck engine mrkt.

• Ex cummins now has a 50% MS in North America .Not a single Us built Tractor-trailer Truck has a Japanese engine.

• 4.counter offensive defense.When a leader is attacked despite its flanking or preemptive efforts,it can launch a counter offensive defense.

• Ex.When Fuji attacked Kodak,in the Us film makt,Kodak counteracted by greatly increasing its promotion and introducing several innovative film products.

• Ex.When Clorox’s detergent with bleach attacked it,P&G responded with tide with bleach which enabled it capture a 17% share of all Us detergent sale!

Leader strategies---5.Mobile defense

• Involves more than aggressively defending a current mrkt position

• The leader stretches to new mrkts that can be serving as future bases for defense and offense.Ex Armstrong Cork redefined its focus from “floor covering” to “decorative room covering”(including walls and ceiling) and expanded into related businesses that were balanced for growty and defense.

• Ex Wall mart is mustling its way into grocery business with new “Wall Mart Super Centres-huge combo grocery &discount stores

Compttve ---6 contraction defense

• If a large Co finds that its resourses are spread too thin and competitors atre nibbling away on several fronts,it prunes its portfolios to concentrate its forces or resourses

• Ex.ITT,Georgia pacific,and General Mills,now serve fewer mrkts ,but serve them much better.

• 3.EXPANDING MARKET SHARE• Usually industry break-up is:One or a few highly

profitable large firms,several profitable and focussed firms,and a large no of medium –sized firms with poorer profit performance.

• On an average,MS increase leads to profit increase.(PIMS).But this is not automatic.

• MS increase leading to profit increase depends on the share increase strategy.There are many high share Cos with low profit and low share Cos with high profit.THE COST OF BUYING HIGH SHARE MAY EXCEED THE RETURNS.

• Highe shares tend to produce higher profits only when unit costs fall with increased share, or when the Co offers a superior quality product and charges a premium price that more than covers the cost of offering higher quality!

Leader strategies---

• Profitability increases as business gains shre relative to competitors in “its served markt”preferably at a highr price,

• Not surprising why Cos like GE want to be atleast NO1 or2 in each of its mrkts or get out!It shed its computer,AC,& TV businesses sinse it couldn’t achieve “the top dog position here.

• Mercedes has a small share of total car mrkt,but earns high profit because it is a high share Co in its luxury car segment.

• And it achieved a high share because it does many things right such as producing high Q,giving good service,and holding down its costs!

Markt challenger strategies

• Firms that are No 2 or 3 or lower such as Colgate,Ford,Avis,Westinghouse,and Pepsico which are quite large, can opt one out of 2 strategies-

• Challenge in an aggressive bid to increase MS, (MARKET CHALLENGER) or

• Play along with competitors and not rock the boat.(MRKT FOLLOWER)

• Competitive strategies of mrkt cghallenger• First define the the strategic objective—Profit increase

by increase in MS• Second decide which competitors the Co will challenge

before deciding first.

Challenger stra----

• 2 options• 1.Attack the mrkt leader-obj being not to topple

but just wrest a certain mrkt share increase as in BIC vs GILLETTE; OR take over on leader as IBM in PC’s

• Or2,to avoid the leader and challenge firms its own size or smaller local and regional firms

• 1.Attacking the market leader---High risk but potentially high gain strategy;Makes sense if leader not serving mrkt well and attacker has some SDA-a cost adv leading to lower prices or ability to prov

Attacking leader

• In construction equipment industry, komatsu challenged Caterpiller by offering same quality at much lower prices .Kimberly Clark’s Huggies grabbed from P&G a big share of disposable diaper mrkt by offering a better fitting diaper with reusable fasteners

• UJAAlA vs RobinBlue;MOOV vs IOdex• ATTACING THE SMALLER FIRMS• Either under-financed Cos or those that are not serving

their customers well.Several big Cos of today grew to their present size not by challenging large competitors but by gobbling up small local or regional competitors.The obj being to put the small player out of business!

Choosing an attack strategy for mrkt challenger-5 possible

strategies• Full frontal attack.Challenger matches all 4 P’s of competitor• Attacks competitors’ strengths rather than weaknesses.Outcome depends

on who has greater strength and endurance• If challenger has fewer resourses than the competitor,a frontal attack makes

little sense.• Lever Bros in US trail behind P&G in detergent mrkt.Great size and strength

may not be to challenge a resourseful competitor successfully.Unilever has twice the worldwide sales of P&G and 5 times sales of Colgate Polmolive!

• Lever launched a full frontal attack on P&Gin detergent mrkt.Lever’s WISK was already the leading liquid detergent.In quick succession, it added a barrage of new products-SunLight dish washing detergent,Snuggle fabric softener,Surf laundry powder and backed them with aggressive promotion& distribution efforts.

• P&G spent heavily to defend its brands and held on to most of its business. And it counter attacked with liquid Tide which came from nowhere in just 17 months to run neck and neck with Wisk.LEVER did gain MS but most of it came from smaller competitors.

Attacker strategy—2.flanking attack

• Rather than attacking head-on,concentrate yr strength on competritor’s weaker flanksor on gaps in in competitors’ markt coverage.

• Flank attacks make good sense when the co has fewer resourses than competitors.

• For Ex during 60’s and 70’s when German &Japanese auto makers didn’t directly compete with US auto makers in producing large,flashly gas-guzzling autos.

• They found an unserved consumer segment that wanted small fuel-efficient cars and moved to fill this hole.

• To their satisfaction and Detroit’s surprise,the segment grew to be a large part of the mrkt.

Attacker stra—4.encirclement attack.

• Involves attacking from the front ,sides and the rare at the same time

• Makes sense when the challenger has superior resourses and believes that it can break the competitor’s holdon the mrkt quickly.

• Ex,Seiko attacked 1,by gaining distribution in every major watch out let and 2,constantly changing variety.In US alone,it offers 400 models but makes and sells 2300 models worldwide.

Attacker –4bypass attack

• The challenger bypasses the competitor and targets easier mrkts.

• It might diversify into unrelated products ,move into new geographic mrkts or leap-frog into new technologiesto replace existing products.

• Ex MiNOLTA toppled Cannon from the lead in the 35 mm SLR camera mrkt with its technologically advanced auto-focussing Maxxum camera,Cannon’s MS came down 20% while Minolta’s went up 30%It took Cannon 3 yrs to introduce matching tech.of course in digital cameras story is different and Cannon took the lead.

Attacker str---5.Guerilla attacks

• 1.Smaller or poorly financed challengers mount these attacks

• 2.these are small periodic attacksto harass and demoralise the competitorwith the goal of eventually establishing permanent footholds.

• 3.The challenger uses(a) price cuts selectively,(b)goes on executive raids, and (c) engages in intense promotional outbursts,(d)takes assorted legal actions

Mrkt follower strategies• 1.challengers never taken lightly by leader• 2.leader has more staying power than others in an all-out battle for

customersA hard fight might leave both worse-off.• 3.If challenger’s lure is lower prices,improved service,or additional

product features,the leader can quickly match these to diffuse the attack.

• A FOLLOWER’S ADVANTAGES• 1.Leader bears huge expenses of developing new

products,mrkts,expanding distribution.and educating the mrkt.A follower can copy or improve on leader’s performance with much less investment Ex Dial corp. makers of Dial,Tone,Pure and Natural hand soaps ,Armour Star canned meats,Purex laundry products(1/3rd in price of Tide of P&G.)

Follower’s adv

• 4Following isn’t the same as being passive or a carbon copy of the leader .Each follower brings in distinctive adantages to its target mrkt –location,services,financing etc.

• 5.The follower is often the major target of attack by challengers.Therefore folloer must keep mfg cost lowand product and service Q high.It must also enter new mrkts as they emerge.

Mrkt nicher strategies

• Insread of pursuing the whole mrkt or even large segments,these firms target subsegments or niches

• 2.Nichers are often smaller firms with limited resourses• 3.Smaller divisions of larger firms also may pursue

niching strategies• 4.Firms with low shares of total mrkt can be highly

profitablethro smart niching• 5.All highly successful mid-sized Cos niched within a

larger mrkt rather than going after the whole mrkt.Ex AT CROSS which niches in the high priced pen and pencil mrkt makes famous gold writing instruments that many executives own or want to own.CROSS made high growth and profit thro this niche.

Why is niching profitable?

• 1.Knows TMS better & meets their needs better than other casual sellers

• 2.Chances are they charge a high price (mark up over cost high)for added value

• 3.Mass mrkter acheives high volumes,nicher high profit.• 4.Nichers try 7 find one or more mrkt niches that are safe

& profitable.• 5.An ideal niche is big enough to be profitable and has a

growth potential and is one the firm can serve effectively.• 6.the niche is of little interest to major competitors & firm

to be able to build skills and custiomer goodwill to defend itself against a major competitor as the niche grows and beccomes more attractive.

Nicher

• Ex.A law firm specialises in civil,criminal or business law mrkts-particularly those neglected by majors.

• ---selling their entire output to a single Co such as TATAMOTORS,WalMart Or GM.

• ---Sell in a certain locality ,region of the world.• --operate at the low or high end of the mrkt.eg,HP

specialises in high Q-high Price end of hand calculator mrkt

• --offers services not available from other firms.eg,a bank taking loan request over phone and hand deliver the money to customers.RTC reservations.

nichemanship

• The key idea in nichemanship is specialisation• A mrkt nicher can specialise along any of several

mrkt,customer,productor marketing mix lines.• For ex,• ONE TYPE OF END USER—law firm• Custm size groups—small,med • One or a few specific costomers—telco,walmart etc.• Geographical nichers---• Q-P nichers---low or high end• Service nichers—bank ex prev slide.

Risks of niching

• The mrkt niche may dry-up.• 2.may grow to the point that attracts larger

competition• 3.So,practise multiple niching by developing 2 or

more niches ,the co improves chances of survival.

• 4,Even some large firms prefera multiple niche strategy to serving the total mrkt.HLL.One large law firm developed national reputation in the 3areas of Mergers & acquisitions,Bankruptsies,& Prospectus development and little else!