Marketing Management

System Analysis
Marketing Management
- General Overview
You are what your deep, driving desire is

As your desire is, so is your will
As your will is, so is your deed
As your deed is, so is your destiny
- Brihadaranyaka Upanishad
By the end of this semester you will have a thorough understanding of what marketing is.
Introduction To Marketing
What according to you is marketing?
And why do you think it should be studied?
Let us understand the importance of study of marketing
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System Analysis
Unit 1
Examining Concepts of Marketing Management
Chapter 1 - Introduction to marketing
Lesson 1 - Introduction to Marketing, definitions of marketing
Learning Outcomes –
After reading this lesson you should -
Know the evolution & development of marketing science
Understand the core concepts of marketing
Be able to appreciate the definitions of marketing
Visualize the scope of marketing
Understand the different types of marketing orientations
Know the components of marketing concept
Be familiar with new developments in marketing
Why do you think it is important for cipline. Surely, there must be something in this
you to study marketing in word marketing, that everyone feels attracted to
MBA???????? it. Let us move little deeper inside marketing.
In today’s competitive environment a lot of em- Marketing is ancient art. The first marketing trans-
phasis is laid on the marketing, we find every action can be perhaps attributed to Adam and Eve.
organization carrying out a lot of marketing ac- Its emergence as a management discipline is of
tivities. Hence, it is important for you to under- relatively recent origin. And within this relatively
stand what market is, what marketing is, and how short period, it has gained a great deal of impor-
is it different from selling. So in this lesson we tance. In fact today marketing is regarded as most
shall discuss all the important concepts of mar- important of all management functions of busi-
keting and lay down the foundation for explain- ness.
ing the marketing process. We will also discuss
the development of marketing over a period of All of us involved in marketing in one-way or the
time. other. Can you describe how the marketing
evolved since its inception ? It has taken a long
SMILE – It is marketing time before marketing reached the stage what it
is today!
Do you agree with me ?
Today’s e- age, where individual’s have forgot- Now, let us see some definitions of Marketing –
ten to smile and just think about their work even Much of marketing is concerned with the
while dreaming !!!!. Smile is an essential ingre- problem of profitably disposing of what is pro-
dient for these stressed out customers, don’t you duced.
think there is a need to exploit this basic need? Marketing is the economic process by which
goods and services are exchanged between
Introduction – the producer and the consumer and their val-
Welcome to the wonderful world of marketing! ues determined in terms of money prices.
Marketing is not a new word but evokes feelings Marketing originates with the recognition of
of freshness each time it is used. For there is so a need on the part of a consumer and termi-
much happening in this field that even the oldies nates with the satisfaction of that need by
have something new to learn every day. In your the delivery of a usable product at the right
class itself, I am sure that there are quite a few time, at the right place and at an acceptable
students opting for marketing than any other dis- price.
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System Analysis
Marketing is so basic that it cannot be con- ferent countries to small firms operating in small
sidered a separate function. It is really the markets, from giant enterprises like Sony, Lever,
whole business seen from the point of view General Motors to the next-door kirana shop.
of the final result, i.e., from the point of view Quality production and efficient marketing are the
of the customer. key success factors in building sustainable com-
Marketing is a viewpoint, which looks at the petitive edge for ever business corporation.
entire business process as a highly integrated
effort to discover, create, arouse and satisfy “Marketing is a societal process by which indi-
consumer needs. viduals and groups obtain what they need and
Marketing is the delivery of a standard of want through creating, offering and freely ex-
living to society. changing products and services of value with oth-
ers” - Philip Kotler
American Marketing Association – “It is the
process of planning & executing the conception, The Chartered Institute of Marketing de-
pricing, promotion & distribution of ideas, goods fines Marketing as - “Marketing is the man-
& services to create exchange that satisfy indi- agement process for identifying, anticipating &
vidual & organisational goals” satisfying customer requirements profitably.”
Many people think that marketing and selling Peter Drucker - There will always, one can as-
mean the same thing. Others think that market- sume, be need for some selling. But the aim of
ing is the same as selling and advertising, still others marketing is to make selling superfluous. The aim
have a notion that marketing has got something is to know and understand the customers well
to do with making products available in the stores, that the product or service fits him and sells it-
arranging displays and maintaining inventories of self. Ideally, marketing should result in a customer
products for future sales. Actually marketing in- who is ready to buy. All that should be needed
cludes all these activities and many more. then is to make the product or service available
Marketing is a key function of management. It Activity 1:

brings success to business organisation. A busi- Knowledge of marketing makes you a more
ness organisation performs two key functions sophisticated customer. Discuss in the light
producing goods and services and making them of your experience.
available to potential customers for use
Marketing In the New Economy -
An organisation business success largely depends
on how efficiently the products and services are What is new economy? Is it something different
delivered to customers and how differently do from the old economy ?
the customers perceive the difference in deliv-
With the emergence of marketing, we also wit-
ery in comparison to the competitors. This is true
ness the emergence of new economy character-
of all firms – from large business enterprises to
ized by the following:-
small firms, from multinationals operating in dif-
A substantial increase in purchasing power.
A greater variety of available goods and ser-
vices.
A great amount of information about every-
thing.
A great ease in interacting and placing or-
ders.
An ability to compare notes on products and
services.
Today’s companies also have new capabilities as

given below:-

System Analysis
Ability to operate powerful information and the form of non-profit and societal marketing
sales channels. emerged in early seventies. The business real-
Ability to collect fuller and richer informa- ized that they have a larger role to perform than
tion about markets, customers, prospects, and mere profit making.
competitors.
Faster internal communication amongst em- With the changes in life style and enhanced stan-
ployees. dards of living, newer and newer services hit the
Two way communication with customers and market place. From education, communication,
prospects. consultancy to medicare and health — all kinds
of services were being offered in the market. The
Send ads, coupons, samples, and information
marketing of services had arrived.
to customers.
Customize offerings and services to individual Marketing today knows no borders. From mere
customers. exporting, the firms had now acquired global ori-
Improved, purchasing, recruiting, training. entation to herald the era of global marketing.
Improved external communication. For MNC’s the entire world is a single huge mar-
Improved logistics and service quality ket. It was time now that some of these MNC’s
like Toyota, Honda, Sony, Mercedes, and Phillips
Activity 2: etc became household names.
A person is hungry, he need not be told that he
Customer with a wide choice and variety of prod-
needs food ? Explain this in the light, marketing
ucts is virtually the king in the market today. It is
does not create need.
for his satisfaction that the firms compete with
each other. No wonder new dimensions to mar-
keting like Customer Relationship Management
have been added. Not only the firms want the
customer to come to them but also retain him for
future. Some of the firms want to reach the cus-
tomer directly eliminating the middlemen—the
concept of direct marketing.
Yet another facet of marketing has emerged with

the advent of internet and revolutionary changes
in communication technology———the online
Have a close look at Fig 1.1 wherein major de- one to one marketing. E-commerce and e-mar-
velopments that have taken place in each decade keting are the future of the marketing. In fact the
have been depicted for nearly last fifty years. marketing of twenty first century will be greatly
influenced by the new technologies in the field of
What do you observe? Now, who is going to ex- communication.
plain the diagram for us ?
There are various ways in which study of mar-
The entire growth has been fuelled by the eco- keting subject can be approached. We will fol-
nomic growth of the last half a century. The fo- low the sequence in which we will start with the
cus in the early fifties was on marketing of con- core concepts of marketing. Here it goes.
sumer goods, which shifted to industrial market-
ing. The latter development was largely due to Activity 3:
increase in size and number of firms. Take an example of a company, which has used
the concept of marketing and another, which is
With the growth in maturity of both the consumer not. Give reasons for your choices.
and the supplier, a new school of marketing in

System Analysis
Points to ponder-

System Analysis
Activity: The three major challenges faced by businesses

today are globalization, advances in technology,
It is suggested that the class be divided in two
and deregulation. Which of these affords the
groups. one group each should speak on the op-
greatest opportunity for established businesses?
portunities and threats, respectively. Which affords the greatest opportunities for new
businesses? Why?

System Analysis
Unit 1
Lesson 2 - Scope of marketing, core marketing concepts
Scope of marketing, Core marketing Human need is a state of felt deprivation of some
concepts basic satisfaction. Wants are desires for specific
satisfiers of these deeper needs. Demands are
In this lesson we shall discuss the areas that the wants for specific products that are bagged by
marketing covers. Whatever concepts we have an ability and willingness to buy them.
learnt in the first lesson in the definition of mar-
keting, which form the core concepts of market- Marketers do not create the needs. They can in-
ing. The concept of marketing revolves around fluence the demand by making the product ap-
demand for the product/services. In this lesson propriate, attractive, affordable and easily avail-
we are going to study 8 different types of de- able to target customers.
mands, which plays a major role in the marketing
activities. Products:
At the end of this lesson you will be in the posi- Anything that can be offered to satisfy a need or
tion to understand briefly all the major concepts a want,
of marketing which will be dealt in detail in the Persons : Singer
coming lessons. Places : Goa
Activities : Sing in karaoke lounge.
Core Marketing Concepts – Organizations : Health club
Needs Wants And Demands: Ideas : Osho ashram
Marketing thinking starts with the fact of human Other terms
needs and wants. We all have some needs resid- can be : Offerings, satisfiers or
ing in ourselves. These needs exist. Remember resources.
that needs can never be created.
Eg: A woman is not buying ‘lipstick’, she is buy-
Needs: ing ‘.hope’.
Needs are the basic human requirements. People
She is confident that she will definitely look good
need food, air, water, clothing & shelter to sur-
after using that lipstick. And this hope brings her
vive. People also have needs for recreation, edu-
cation and entertainment. to the shop.
Eg: Hunger food. A physical object is a means of packaging a ser-

vice. The marketers’ job is to sell the benefit or
According to Abraham Maslow’s need hierar- services built in to physical products rather than
chy, all the human needs can be categorized as just describe their physical features.
shown in the diagram
There is a very common problem that marketers
may come across. We need to understand it com-
pletely so as to stay away from falling prey to it!
Let us understand it now.
Marketing myopia -
Sellers who concentrate their thinking on the
physical product instead of the customers need
Maslow’s Hierarchy Of Needs are said to suffer from ‘marketing myopia’.

System Analysis
Wants: Demands:
Demands are wants for specific products that
The needs become wants they are directed to
are bagged by an ability and willingness to buy
specific objects that might satisfy the needs.
them.
Eg: Mercedes
I hope all of you have understood the Core Con-
“Needs Pre-exists” (can’t be created) cepts of Marketing. Now let us discuss the same
in detail -
Examining Concepts of Marketing Each party is capable of communication &

Management - delivery
Each party is free to accept or reject the ex-
Exchange – It is one of the core concepts of change offer
marketing. It is the process of obtaining a de- Each party believes it is appropriate or desir-
sired product from someone by offering some- able to deal with the other party
thing in return. There are five conditions that
needs to be satisfied: A transaction is a trade of values between two
There are at least two parties or more parties. It involves two things:
Each party has something that might be of A time of agreement
value to the other party A place of agreement

System Analysis
As you have seen in the above diagram, Sun can icon with a rich tradition and meaning.
Microsystems which develops & markets Sun
one, Solaris, Java, etc, is a marketer where they Value & Satisfaction: Customer value – Differ-
are selling top end equipments to a call centre / ence between the values the customer gains from
ITES company. The ITES Company wants to buy owning & using a product & the costs of obtain-
ing the product.
top end equipments with a good price, friendly
customer service with a faster implementation. Customer satisfaction – With a purchase, how
Sun wants a good price for the same and also the well the product’s performance lives up to the
future business requirements. customer’s expectations.
Smart marketers look beyond the attributes of Customers expectations must be set at the right
the products & services they sell. level of expectations, neither too low or too high.
Eg: Coke – Means much more to consumers than Customer Value & Satisfaction are key building
just something to drink, it has become an Ameri- blocks for developing & managing customer re-
lationships.
Needs of Internal Customer
Markets - “Set of all actual & potential buyers profitable exchange relationships by creating value
of a product or service”. They share a particular & satisfying needs & wants”
need or want that can be satisfied through ex-
change relationships. Core Marketing Activities: Product development,
research, communication, distribution, pricing &
Marketing – “Managing markets to bring about service.
3 C’s Of Internal Customer Care

System Analysis
Communication
Marketing Management – “Art & science of 2] No Demands:

choosing target markets & building profitable re-
Target consumers may be uninterested in the prod-
lationships with them”. Involves getting, keeping
uct.
& growing customers through creating, deliver-
ing and communicating superior customer value. Eg: *Farmers may not be interested in new farm-
ing methods
Demand states and marketing tasks:
Marketing management has the task of influenc- *College students may not be interested in a for-
ing the level, timings and composition of demand eign language course.
in a way that will help the organization to achieve
its objectives. The marketing task is to find ways to connect
the benefits of the products to the person’s natu-
ral needs and interests.
Marketing management
3] Latent Demand:
Demand management
Many consumers may share a strong need that
cannot be satisfied by any existing products.
Organization essentially has a
Eg: *Latent demand for harmless cigarettes.
desired level of transaction in
a target market. *Safer neighborhood.
*More fuel efficient cars.

1 ] Negative Demand: The marketing task is to measure the size of the
The market is in a state of negative demand if; a potential market and develop effective goods and
major part of the market dislikes the product and services that would satisfy the demand.
may even pay a price to avoid it.
3] Declining Demand:
Eg: People have a negative demand for A substantial drop in the demand for products.
Vaccination
Dental work Eg: *Boy scout enrolment among Singapore stu-
Vasectomies dents.
Gall bladder operation
The marketing task is to:
Employers feel a negative demand for
Ex-convicts i. Analyse the cause of market decline.
Alcoholics
ii.Determine whether the demand can be re-
The marketing task is to analyse, why the stimulated by changing target markets, changing
market dislikes the products? product features and developing more effective
goods.
Whether

System Analysis
iii. To reverse the declining demand through cre- fixed percentage annually.
ative remarketing of the product.
8] Unwholesome Demand:
5] Irregular Demand: Unwholesome products will attract organized
Organizations face demand that varies on a sea- effort to discourage their consumption.
sonal, daily or even hourly basis, causing prob-
lems of idle capacity or overcrowded capacity. Un-selling campaigns have been conducted
against cigarettes, alcohols, hard drugs, handguns
Eg: *Markets :- visited on weekends, not on and pirated movies.
weekdays.
The marketing task is to:
* Hospitals :- OT’s booked for early weak i. Use fear communication.
ii. Price hike.
The marketing task is called Synchro Marketing
iii. Reduced availability.
(alter pricing, promotion & other incentives)
6] Full Demand: Rule Of Marketing In The Non-Profit

Centres
Organizations face full demand when they are
pleased with there volume of business. Marketing is increasingly attracting the interested
the interest of non-profit organizations,
The marketing is to: Eg: Colleges
i. Maintain the current level of demand in the face Hospitals
of changing consumer preferences and in- Churches
creasing competition.
ii. Quality should be improved. Even government and statutory boards rely
iii. Continuously measure consumer satisfaction. increasingly on marketing on several fronts.
Eg: Maruti at the time of bookings made open.
Marketing techniques have been employed to
7] Overfull Demands: promote national and social issues.
Some organizations face a demand level that is Eg: Social marketing campaigns, aids prevention
higher then they can or want to handle. ads, discourage cigarette smoking.
Marketing task is De-marketing which requires Marketing has also been used to promote tour-
finding ways to reduce the demand temporarily ism in various countries.
or permanently.
Eg: India, Indonesia, Hongkong etc.
Steps involved in de-marketing:
i. Raising prices. Activity:
ii. Reducing promotion and service. 1. Now at this point, with your understanding
iii. Selective de-marketing(less profitable markets) or logic try to distinguish between marketing
Eg: Quota system for new car registration by a and selling.
2. “Marketing is hunting or harvesting”, discuss

System Analysis
Points to ponder -

System Analysis
Unit 1
Lesson 3 - Company Orientations from Production to Product
Introduction: There are various concepts of marketing that we
as marketers have been following. There were
The philosophy of marketing which has evolved
times when the focus was on the production of
as marketing management has passed through
the commodities, then the focus shifted on to the
distinct stages. The orientation of the companies
sales and distribution of the products and finally
have been changing from production to societal
the focus moved to the real NEEDS of the con-
through product, sales,marketing. In this lesson
sumers!
we are going to discuss production and product
orientations. We shall further analyse the nature Let’s have a few examples that clearly show
of the companies that are either product or pro- the two concepts in contrast. Please remem-
duction oriented, which type of company can go ber, here we are not trying to say that any one
in for this type of philosophy in todays competi- concept is better or worse. What is important
tive environment. to know is that various concepts are applicable
in different circumstances.
At the end of this lesson, you should be able to
understand various company orientations.
Product-oriented Market-oriented
Company definition definition
SCOTT “We sell grass seed & fertilizer” “We deliver
green, healthy Yards”
DISNEY “We run theme parks” “We provide fantasies”
HOME DEPOT “We sell tools & “We provide advice & solutions
home repair items homeowners into Mr. & Ms.fixits”
that transform ham-handed

System Analysis
Changing Role Of Marketing
Simple Trade Era Prior to 1920’s Sell Surplus
Production Era 1920 – 1930 Increase Supply
Sales Era 1930 – 1950 Beat Competition
Marketing Dept. Era 1950 – 1960 Coordinate & Control
Marketing Company Era began 1960’s Long – run customer satisfaction
Consumer Focused Era 1990’s…………….??????????
Production Concept suffer from problems arising out of impersonal

behavior with the customers
A production orientation dominated business
thought from the beginning of Capitalism the mid Product Concept
1950’s. Business concerned itself primarily with
production, manufacturing, and efficiency issues. The Product Concept has the proposition that con-
This view point was encapsulated in Says Law sumers will favor those products that offer the
which states Supply creates its own demand most attributes like quality, performance and other
(from the French economist Jean – Baptiste Say.) innovative features. The managers focus on de-
To put it another way, If a product is made, veloping superior products and improving the ex-
somebody will want to buy it. The reason for isting product lines over a period of time. This
the predominance of this orientation is there was concept can lead to Marketing Myopia , a term
a shortage of manufactured goods (relative to coined in 1960 by Theodore Levitt
demand) during this period so goods sold easily.
Myopia means shortsightedness or lack of dis-
The basic proposition is that customers will choose cernment in thinking or planning.
products and services that are widely available
The innovations in the scientific laboratory are
and are of low cost. So business is mainly con-
commercialized and the consumers get an op-
cerned with making as many units as possible.
portunity to know and use these products. This is
By concentrating on producing maximum vol-
called “Technology Push Model”. The problem
umes, such a business aims to maximise profit-
with this orientation is that the managers forget
ability by exploiting economies of scale. Manag-
to read the customers mind and launch products.
ers try to achieve higher volume with low cost
and intensive distribution strategy. This seems a Many times it is observed that the innovations
viable strategy in a developing market where enter in to the market before the market is ready
market expansion is the survival strategy for the for the product. Innovative products are launched
business. Companies interested to take the ben- without educating the customers about the inno-
efit of scale economies purse this kind of orien- vation and the probable advantage that the cus-
tation. tomer is going to get. The Golden Eye Technol-
ogy was brought to the Indian Market by the tele-
In a production-orientated business, the needs of
vision
customers are secondary compared with the need
to increase output. Such an approach is probably Major Videocon but the market could not per-
most effective when a business operates in very ceive the benefit of this advantage. On subse-
high growth markets or where the potential for quent period at an advance stage of the market
economies of scale is significant. It is natural that LG brought the technology and made its Unique
the companies cannot deliver quality products and Selling Proposition for marketing success.

System Analysis
Company Orientations Towards the fed with a high decibel of advertising. So often
Market place there is a misconception that marketing is all about
selling. The problem with this approach is that
Production Concept Consumers prefer products that are
widely available and inexpensive the customer will certainly buy the product after
the persuasion and if dissatisfied will not speak
Product Concept Consumers favor products that of to others. In reality this does not happen and com-
fer the most quality, performance, panies pursuing this concept often fail in the busi-
or innovative features
ness.
Selling Concept Consumers will buy products only
if the company aggressively pro Highlights of Production and Sales
motes or sells these products Orientations
Marketing Concept Focuses on needs/wants of target 1. Planning is short-term.
markets & delivering value better 2. Long-term decisions are made only when
than competitors serious problems are encountered.
Societal Marketing Focuses on needs/ wants of target 3. There is a definite reluctance to change.
Concept markets & delivering value better 4. Business growth is seen as being assured and
than competitors that preserves the current business volumes are viewed as
consumer’s and society’s well-being guaranteed.
During WWII world industry geared up for ac- 5. Providing the best or highest quality service
celerated wartime production. When the war was is assumed to be an automatic guarantee of
success (The better mousetrap fallacy)
over this stimulated industrial machine turned to
producing consumer products. By the mid 50’s 6. Little is known about customers; research is
supply was starting to out-pace demand in many not given a high priority.
industries. Businesses had to concentrate on ways 7. Promotions stress service or product features,
of selling their products. Numerous sales tech- not customer’s needs.
niques such as closing, probing, and qualifing were 8. Decisions are made from a production or sales
all developed during this period and the sales de- perspective, not with the customers’ needs
partment had an exalted position in a company’s in mind.
organizational structure. 9. Organization or department is seen as an is-
land unto itself.
The Selling Concept proposes that customers, be 10. Department managers tend to be very de-
individual or organizations will not buy enough of fensive and protective of their domains.
the organization’s products unless they are per-
suaded to do so through selling effort. So organi- Marketing Concept
zations should undertake selling and promotion The Marketing Concept proposes that the rea-
of their products for marketing success. The con- son for success lies in the company’s ability to
sumers typically are inert and they need to be create, deliver and communicate a better value
goaded for buying by converting their inert need proposition through its marketing offer in com-
in to a buying motive through persuasion and sell- parison to the competitors for its chosen target
ing action. market.
This approach is applicable in the cases of A marketing oriented firm is one that allows
unsought goods like life insurance, vacuum the wants and needs of customers and potential
cleaner, fire fighting equipments including fire customers to drive all the firm’s strategic deci-
extinguishers. These industries are seen having sions. The firm’s corporate culture is systemati-
a strong network of sales force. This concept is cally committed to creating customer value. In
applicable for the firms having over capacity in order to determine customer wants, the company
which their goal is to sell what they produce than usually needs to conduct marketing research The
what the customer really wants. marketer expects that this process, if done cor-
rectly, will provide the company with a sustain-
In a modern marketing situation the buyer has a
able competitive advantage.
basket to choose from and the customer is also

System Analysis
Marketers use various sophisticated techniques 6. Interdepartmental cooperation is valued and

of consumer research to understand the customer encouraged.
need. It is important to understand and act upon 7. Cooperation with complementary organiza-
the need of the customer because the effort to tions is seen as being worthwhile.
keep a satisfied customer is almost one fifth of 8. Measurement and evaluation of marketing
the effort expended to get a new customer. The activities are done frequently.
whole organization has to be integrated to this
mantra of customer satisfaction. So business Marketing on trial - R.
needs an integrated approach. The integration has Gopalakrishnan*
to start at marketing department level where vari-
The marketing function periodically comes un-
ous key marketing functions like product design,
der intense scrutiny from the top management
distribution channel selection, advertising and pro-
and such is the situation currently too. It has been
motion, customer service and marketing research
on trial in a cyclical phase and we are at that
need to be integrated with common marketing
phase now. Marketing gets on trial when it fails
goal understanding.
to deliver what is expected. This could be the
Marketing culture should be adopted by other result of a slowdown in the economic environ-
departments of the enterprise also. While exter- ment, which puts pressure on margins, thereby
nal marketing targets customers outside, internal raising eyebrows. It is only natural that cash-
marketing targets customers inside the organiza- strapped CFOs expect marketing to do more with
tion who can be trained to serve the customer less. This raises questions about whether such
better. The ultimate goal of any business house is demands are justifiable. Does marketing add value
to earn profit. Today’s world not only looks at to the shareholder’s wealth?
profit but also tries to bench mark the effort and
Part of the failure can be attributed to the
cost required to achieve this level of profit. In
marketer’s focus on the market rather than the
this situation profitability of the enterprise through
customer. Over the years, some duties of mar-
sole goal of efficient marketing is the key suc-
keting have evolved into specialist departments.
cess criteria. This profitability is now treated as
For example, the logistics or supply chain man-
a byproduct of creation of superior customer value
agement team handles distribution and channel
and better understanding of the customer need.
responsibilities, while customer satisfaction, which
The marketing concept is an elaborative attempt is crucial for retention, is the responsibility of the
to explain the phenomenon that rests on four key customer service departments or, in most cases,
issues – is managed through technology-driven databases.
Target market,
Back to the customer
Customer need,
So what was the problem? Indian businesses
Integrated marketing and
became inwardly focused, forgetting the truism
Profitability. that marketing is the business of business. Mar-
keters failed to realise that the context of con-
Characteristics of Marketing
sumer decision-making had undergone a change
Orientation in recent times, mainly due to the availability of
1. Customer needs are first priority and under- information from multiple sources. They had been
standing these needs is a constant concern. relying on old marketing tools to connect with the
2. Marketing research is an on-going activity consumer. This led to a number of lapses. Mar-
assigned a very high priority. ket research failed to obtain consumer insight.
3. Frequent reviews are made of strengths and Mass advertising failed to attract and retain cus-
weaknesses relative to competitors. tomers. As a consequence, marketing efforts
4. The value of long-term planning is fully ap- failed. If marketing is the business of business, it
preciated. amounted to saying that, in effect, the business
5. The scope of business activities is broadly had failed.
set and change is seen as inevitable.

System Analysis
It was David Ogilvy, the advertising guru, who more analytical may have ended up costing us
said, “Half the money I spend on advertising is our ability to be intuitive.
wasted. The trouble is, I don’t know which half.”
This is proving to be true. That marketers are not Quantitative tools that used statistics were suc-
accountable for their actions is causing CFOs to cessful up to a point. They produced results as
rethink key roles in deciding marketing budgets. long as markets were expanding and every player
There are many management thinkers like Adrian was assured an opportunity. But the power of
Slywotzky who argue in favour of treating mar- analyses soon ran its course, and its utility waned
keting spend as capital expenditure rather than as competition set in and the market got satu-
revenue expenditure. The rationale is that strong rated and complex.
customer relationships are forged over a long
period of time. However, questions still arise. Can As product differentiation became difficult, mar-
the return on investment on marketing be quanti- ket initiatives through market research failed to
fied? The answer is both yes and no. Every capi- obtain the relevant consumer insight. These ana-
tal-budgeting activity in the organisation is sub- lytical tools assumed direct correlation, whereas
ject to strong evaluation in terms of ROI or pay in reality there were tangible and intangible fac-
back, so why not marketing spends? tors that either worked for or against the success
of marketing initiatives. The drawback of these
On the other hand, for years corporations have tools was their failure to recognise the creative
attempted to devise techniques and metrics to or intuitive aspect of the marketing function. That
measure the impact of marketing initiatives on is why marketing initiatives have moved away
the company’s bottom line, but without success. from the science of analysis model to the art of
Marketing was perceived to be the only depart- synthesis model.
ment to remain out of the purview of any kind of
metrics. In short, marketing spends were per- Three pillars of marketing
ceived as not being subject to any questioning or Marketing is all about winning the first or the sec-
accountability, much to the chagrin of functional ond position. It is seen as wasteful by a mindset
groups like sales, manufacturing, production and that yearns for order, stability and cost
finance. minimisation. However, the end game is efficiency
from the customer’s viewpoint, waste being an
Quantifying the art of synthesis inevitable by-product. Marketing is about satis-
Despite the limitations of using an analytical ap- fying the customer.
proach to measure the impact of marketing, many
corporations now use advanced analyses, con- Marketing is not the job of one department alone,
sisting of statistical tools, to measure incremental but the business of everybody in the organisation,
sales volume from all types of marketing activity whether in manufacturing or services. It is this
carried out in the organisation. The US-based confinement or departmental mentality that has
consulting firm, Hudson River group, has devel- distanced the customer from marketing. Every
oped a technique called ‘Marketing Mix Model- business is about getting and retaining custom-
ing’ to measure the driving factors of marketing ers. For instance, Tata Engineering has, as part
on a concurrent basis. This technique measures of its ‘new-products process’, set up multi-func-
every activity that impacts business, provided data tional teams to assist in augmenting its dealer
is available. The resultant ROI or the incremen- network. Additionally, over 250 plant engineers
tal net revenue derived from each marketing ini- spend over six months in customer contact.
tiative, using the above technique, has helped firms
This brings us back to the issue of how to mea-
abroad channel spending for optimum results.
sure and improve the effectiveness of market-
When marketing comes under pressure, it re- ing. Marketing is like golf; you learn the rules
sponds by being more scientific and analytical. and implement them. You have to learn to do the
While the drive to be more analytical and quanti- right things at the right time and in the correct
tative is welcome, the moot point is whether mar- manner to increase the probability of reaching
keting is a science or an art. The drive to get your marketing goals.

System Analysis
There are three pillars on which successful mar- perceptions of the brand in terms of familiarity,
keting depends. The first pillar rests on develop- image and personality. The ratings by the respon-
ing customer intimacy. A company can gain a lot dents are compared with the ranking perceived
from investments made to acquire, satisfy and by peer corporate firms.
retain customers by improving their perceptions
about the brand. In order to achieve this objec- While formulating a strategy, it is important to
tive, the company should have answers to the take the external perspective into account and
following: align it accordingly. It is for this reason that the
How much do we spend on understanding Tata Group devised a holistic and institutionalised
the consumer? framework called ‘fact and information-based
Is it well spent in terms of the consumer in- reverse engineering’, or Fibres, to ensure that a
sight we get? company monitors its external environment. Un-
der the framework, information on a competitive
Does the management committee or the ex-
environment is collated and analysed, and the
ecutive committee have ‘consumer trends’
strategy is modified accordingly, based on the situ-
on its agenda?
ation.
Do management / executive committee mem-
bers devote time to meeting consumers and The third pillar of marketing rests on innovation.
developing a viewpoint, based on their cus- In order to build an innovative culture within the
tomer understanding? organisation, the company should define the in-
novations in product delivery. Are they widely
During one customer visit, the Tata Engineering
understood? Should the company be aware of
team found truck operators carrying a higher load
the global benchmark and where it is relatively
in order to manage their economics. This led to
placed. To be more effective, all the managers
frequent breakdowns in the rear axle. The team
across functions are infected with the virus of
studied the overloading patterns and designed an
innovation.
axle that carried higher loads and provided better
value to the customer. Innovation in product development can lead to
incremental or fundamental change in customer
Empirical studies prove that a marginal improve-
behaviour and response. For instance, Rallis has
ment in customer retention can lead to a spec-
set up processes that can track innovative prod-
tacular rise in profitability. Even in relative terms,
uct development efforts within the organisation.
the company focusing on retention would have
The company has also been able to measure the
much better margins than the company focusing
incremental revenues accruing from such efforts
on acquiring customers.
on a regular basis
The second pillar rests on tracking the health of
To sum it up, like any other function, marketing
the brand. Companies have to devise systems and
effectiveness and metrics also need to be revis-
processes to track and monitor the health of the
ited time and again. The key to marketing effec-
brand. To ensure that the brand remains healthy,
tiveness lies in defining goals rather than control-
the company should have the following issues in
ling the monetary aspect.
mind: Do we measure our brand health on pre-
determined parameters?
* Mr Gopalakrishnan, executive director,
Can we correlate our business actions with the
Tata Sons
deltas in the ‘brand health metrics’?
Is our competitive strategy significantly devel-
Analyse the following case:
oped from data derived from the brand track,
customer intimacy and competitive intelligence? GITS
The Tata Brand is measured through the ‘Tata During early 1960s” Bangalore-based Gits
brand track’, an ongoing market research study. launched instant soup mixes i.e., ‘ready to cook’,
The study, conducted every six months, captures requiring woman’s hands in preparation (differ-
the opinions of all stakeholder groups, monitoring

System Analysis
ent from snacks). At that time, there was no ready Bombino, Et Mi, etc. The national .player Nestle
market in India. Gits worked hard to convert con- had also established itself with. 12%-15% mar-
sumers to a new habit. It held a monopoly at that ket share of Rs. 100 crore ready-to-cook food
time. Gits’ sales picked up in the late 1970s and market that is growing at 15% per annum. Adopt-
early 1980s when social and cultural changes ing a rapid penetrating strategy, Nestle has con-
were taking place. There was_emergence of centrated on packaging and low pricing. Its noise
working couples and the need was for conve- level is very high. Nestle views its products as in
nience foods and mixes. Gits became aggressive competition to any other time-saving edible prod-
and added to its range-rawa idli, rawa dosa, uct.
dhokla, sambar, bhaJia, jalebi and vada.. Gits
advertisement carried different usages. The fo- Gits has again woken up. It wants to create its
cus was on customer conviction and purchase. earlier magic by riding on its brand equity. It is
Then Gits became complacement. .Gits’ Man- focusing on advertising; complete overhauling. of
agement consultant said, “ We mistook the package, point-of-purchase displays, and various
market’s rapid growth as ours and became com- trade-related incentives. The fight has begun..
placent. It was only this year that we realised the
market was no longer skewed in our favour.” Discuss:
Analyse the case and try to find a way in which
But, by this time the market for instant soupmixes GITS would supersede its competitors.
had seen regional competitors as Tarla Dalal,
Pointe to ponder -

System Analysis

System Analysis
Unit 1
Lesson 4 - Selling to Social Marketing Concept
Introduction With the growing awareness of the social rel-
In this lesson we shall be discussing the remain- evance of business, there is an attempt to make
ing three philosophies of businesses that is Sales marketing also relevant to the society. In a sense,
orientation, Marketing orientation and societal marketing is not a business activity alone but must
marketing orientation. We would also discus as take into account the social needs. Excessive ex-
to why the companies need to move from being ploitation of resources, environmental deteriora-
marketing oriented to societal marketing oriented tion and the customer movements in particular
and its importance. Here we will also learn has necessitated the recognition of the relevance
whether customer’s needs and wants should get of marketing to the society. Marketing must be a
priority over society’s concern for environment socially responsible or accountable activity. The
bottlenecks,poverty, social overheads etc.? Do societal concept holds that the business organi-
excellent companies care more for the society zation must take into account the needs and wants
or customer? The answer to these basic ques- of the consumers and deliver the goods and ser-
tions would take company’smission beyond its vices efficiently so as to enhance consumer’s
own imagination. satisfaction as well as the society’s well being.
The societal concept is an extension of the mar-
Societal Marketing Concept keting concept to cover the society in addition to
the consumers.
The Societal Concept proposes that the
enterprise’s task is to determine the needs, wants DIFFERENCE BETWEEN SELLING
and intentions of the target market and to deliver
ANDMARKETING
the expected satisfaction more effectively and
efficiently than the competitors in a way to pre- In general we use ‘marketing’ and ‘selling’ as
serve or enhance the consumer’s and society’s synonyms but there is a substantial difference
well being. between both the concepts. It is necessary to
understand the differences between them for a
successful marketing manager. Selling has a prod-
uct focus and mostly producer driven. It is the
Societal Consumers action part of marketing only and has short - term
Marketing (Want goal of achieving market share. The emphasis is
Concept Satisfaction) on price variation for closing the sale where the
objective can be stated, as “I must somehow sell
Society the product”. This short - term focus does not
(Human consider a prudential planning for building up the
Welfare) brand in the market place and winning competi-
Company (Profits) tive advantage through a high loyal set of cus-
tomers. The end means of any sales activity is
maximizing profits through sales maximization.
It combines the best elements of marketing to
bring social change in an integrated planning and When the focus is on selling, the businessman
action framework with the utilization of commu- thinks that after production has been completed
nication technology and marketing techniques. It the task of the sales force starts. It is also the
also looks for marketers to build social and ethi- task of the sales department to sell whatever the
cal considerations in to the marketing practices. production department has manufactured. Ag-
The goals of profit maximization should match gressive sales methods are justified to meet this
with the goals of customer satisfaction and re- goal and customer’s actual needs and satisfac-
sponsible corporate citizenship.

System Analysis
tion are taken for granted. Selling converts the become the guiding force behind all these activi-
product in to cash for the company in the short ties. Profits are not ignored but they are built up
run. on a long run basis. Mind share is more impor-
tant than market share in Marketing.
Marketing as a concept and approach is much
wider than selling and is also dynamic as the fo- According to Prof. Theodore Levitt ‘The differ-
cus is on the customer rather than the product. ence between selling and marketing is more than
While selling revolves around the needs and in- semantic. A truly marketing minded firm tries to
terest of the manufacturer or marketer, market- create value satisfying goods and services which
ing revolves around that of consumer. It is the the consumers will want to buy. What is offers
whole process of meeting and satisfying the needs for sale is determined not by the seller but by the
of the consumer. buyers. The seller takes his cues from the buyer
and the product becomes the consequence of the
Marketing consists of all those activities that are marketing effort, not vice versa .Selling merely
associated with product planning, pricing, promot- concerns itself with the tricks and techniques of
ing and distributing the product or service. The getting the customers to exchange their cash for
task commences with identifying consumer needs the company’s products, it does not bother about
and does not end till feedback on consumer sat- the value satisfaction that the exchange is all
isfaction from the consumption of the product is about. On the contrary, marketing views the en-
received. It is a long chain of activity, which com- tire business as consisting of a tightly integrated
prises production, packing, promotion, pricing, dis- effort to discover, create, arouse ad satisfy cus-
tribution and then the selling. Consumer needs tomer needs’.
Selling Marketing
1. Emphasis is on the product 1. Emphasis on consumer needs wants
2. Company Manufactures the product first 2. Company first determines customers needs and wants
and then decides out how to deliver a product to
satisfy these wants
3. Management is sales volume oriented 3. Management is profit oriented
4. Planning is short-run-oriented in terms of today’s 4. Planning is long-run-oriented in today’s products

products and markets and terms of new products, tomorrow’s markets
and future growth
5. Stresses needs of seller 5. Stresses needs and wants of buyers
6. Views business as a good producing process 6. Views business as consumer producing process sat-
isfying process
7. Emphasis on staying with existing technology and 7. Emphasis on innovation on every existing technol-
reducing costs ogy and reducing every sphere, on providing better
costs value to the customer by adopting a superior
technology
8. Different departments work as in a highly separate 8. All departments of the business integrated manner,
water tight compartments the sole purpose being generation of consumer satis-
faction
9. Cost determines Price 9. Consumer determine price, price determines cost
10. Selling views customer as a last link in business 10. Marketing views the customer last link in business
as the very purpose of the business

System Analysis
Different Types of Market

Fast-moving consumer goods (“FMCG’s”)
Before delving too deep into the study of mar- Fast-moving consumer goods are those that sell
keting, it is worth pausing to consider the differ- in high volumes, with low unit value, and have
ent types of market that exist. Markets can be fast consumer repurchase. Good examples in-
analysed via the product itself, or end-conclude ready meals, baked beans, newspapers etc
sumer, or both. The most common distinction is
between consumer and industrial markets. Consumer durables: These have low volume
but high unit value. Consumer durables are often
TYPES OF MARKET further divided into:
White goods (e.g. fridge-freezers; cookers; dish-

CONSUMER MARKET INDUSTRIAL MARKET washers; microwaves)
Brown goods (e.g. DVD players; games con-

soles; personal computers)
FMCG CONSUMER SOFT GOODS SERVICES
DURABLES Soft goods: Soft goods are similar to consumer
durables, except that they wear out more quickly
and therefore have a shorter replacement cycle
WHITE GOODS BROWN
GOODS
Examples include clothes, shoes
Services (e.g. hairdressing, dentists, childcare)
Consumer Markets Industrial Markets

Consumer markets are the markets for products Industrial markets involve the sale of goods be-
and services bought by Individuals for their own tween businesses. These are goods that are not
or family use. Goods bought in consumer mar- aimed directly at consumers. Industrial markets
kets can be categorised in several ways include

System Analysis
Selling finished goods Selling services to businesses

Examples include waste disposal, security, ac-
Examples include office furniture, computer sys- counting & legal services
tems
Activity:
Selling raw materials or components
Examples include steel, coal, gas, timber Analyse a company, which is not only marketing
oriented but also societal marketing oriented.
Explain how it is aiming to fulfilling the social
needs of the society.

System Analysis
Points to remember

System Analysis
Unit 1
Chapter 2 - E - marketing
Lesson 5 - E-Marketing as adapted to the new economy

System Analysis
After reading this chapter, you interact with the customers while he is taking
orders from others on cell-phone. The cell phone
should: gives him a handsfree approach and he can at-
Understand the factors driving the new tend to more customer by taking orders on it, for
economy home delivery. His business has almost doubled
Distinguish between the features of old and due to cell phone. And think of the customer, who
the new economy can get most of his requirements sitting at home.
Appreciate how business practices are In Bangalore, one of the “panwallahs” (Beatle
changing leaf vendors) has started selling his wares through
Realize how marketing practices are chang- internet.
ing
Understand how internet is used for e – busi- Truly the age of E-business has arrived. For if
ness small vendors can do it, surely the big business
Know how websites are set up can exploit it much more. We are all aware of
the terms B2B, B2C, C2C, & C2B etc In fact
Be initiated to Customer Relationship Mar-
internet has opened an absolutely new horizon of
keting
marketing. No more the need to personally visit
Introduction: the departmental store. One can do it in the cozy
environs of his home, and make a complete pur-
How many of you would like to stand in long ques chase.
to pay your bills or even to withdraw money from
banks? Obviously none of us. Today we are in a Now let us see some of the CEO’s of Fortune
position to choose to make and carry out trans- 500 companies like GE, Microsoft, Intel what do
actions sitting in our homes. How do you think it they tell us about the E – Biz.
is possible? Right! It is only because of e mar-
keting. Right from the banking, entertainment, Every now & then, a technology comes along
information service, airways, hotels, stock broking, that is so profound, so universal, that its impact
independent web marketers all of these are into will change everything. It will transform every
e marketing. institution in the world. It will create winners &
In this lesson we are basically losers. It will change the way we do business,
trying to understand the use of the way we teach our children, communicate &
electronic means and platforms interact as individuals. – Lou Gerstner, Ex Chair-
to conduct a company’s business. man, IBM.
The advent of the internet has Will e-commerce change everything – or just add
greatly increased the ability of another small sales channel? The internet is not
companies to conduct their just another sales channel. It will transform your
business faster and more business. The future company will operate with
accurately. a digital nervous system. – Bill Gates, Chairman,
Microsoft. (He also claims Microsoft is almost
E – Marketing – entirely run electronically; there is hardly any
In our previous chapter, you have been introduced paper flowing through the company because ev-
to marketing, its various definitions and concepts. erything is on the computer screen)
You have also been introduced briefly to the
The internet ranks as priority No 1, 2, 3 & 4
changes sweeping across business and market-
!………. Embrace the Internet. Bring me a plan
ing. Basically these changes are an outcome of
for how you are going to transform your busi-
the changes taking place in the world economies.
ness beyond adding an internet site. – Jack Welch,
Obviously business and marketing can not remain
former CEO, GE.
isolated from these economic developments.
It is the foundation of a new industrial order. It
Have you observed the vegetable vendor doing
will change the relationship between consumers
brisk business in the evening? He continues to

System Analysis
& producers in ways more profound than one deal with ‘customization’ I am sure you are fa-
can yet imagine. – Fortune magazine. miliar with it. When a business is able to supply
product/service, after modifying it to meet the
Digitalization and connectivity requirements of individual customer , this process
In the past, most appliances and systems— such is called customization. For example the customer
as the telephone, the watch, recorded music, and in Japan is able to design his own bi-cycle on line
panel gauges— operated with analog informa- and communicate with the supplier. While the
tion. Analog information is continuously variable ability of the company to customize the product
in response to physical stimuli: thus a phonograph to the requirement of the customer is termed
plays music by responding to the physical grooves customization, its ability to communicate on-line
in the record. Today most appliances and sys- with the individual customer is called
tems operate with digital information, which con- “customerization”.
verts text, data, sound, and images into a stream
The old economy revolved around manufactur-
of zeros and one that can be combined into bits
ing companies whose main drive was to stan-
and transmitted from appliance to storage, and
dardize production, products and business pro-
other applications.
cesses/ They invested large sums in brand build-
But bits will not reside in separate appliances ing to tout the advantages of their standard mar-
unless connectivity is established. For bits to flow ket offerings. Through standardization and brand-
from one appliance and location to another, a wired ing, manufacturers hoped to grow and take ad-
or wireless communications network is neces- vantage of economies of scale. And the key to
sary. The internet, the ‘information’s highway,’ managing their assets was to establish a com-
can dispatch bits at incredible speeds from one mand-and-control system that would run the busi-
location to another. Much of today’s business is ness like a machine.
carried over network connecting people and com-
In contrast, the new economy is supported by
panies. These networks are called intranets
information businesses. Information has the ad-
whether connect people within a company to one
vantages of being easy to differentiate, custom-
another and to the company mainframe; extranets
ize, personalize, and dispatch over networks at
when they connect a company with its suppliers
incredible speed. As companies grew proficient
and distributors; and the internet when they con-
at gathering information about individual custom-
nect users to a large worldwide ‘information re-
ers and business partners ( suppliers, distributors,
pository.’ Connectivity is further enhanced by
retailers), and as their factories were designed
wireless communication.( see ‘marketing for the
more flexibly, they increased their ability to indi-
new economy : M-Commerce opens up opportu-
vidualize as their factories were designed more
nities for marketers.’)
flexibly, they increased their ability to individual-
A survey by Jupiter communications found that ize their market offering’s, messages, and me-
most Americans wouldn’t use or pay for m-com- dia. For example, Dell Computer invites custom-
merce because they didn’t see a ‘killer applica- ers to specify exactly what they want in a com-
tion,’ because the mobile internet is slow, and puter and delivers a custom-built one in a few
because the appliance screens are too small. In days. P&G, on its Reflect.com site, allows a per-
contrast, Europe and Japan have and are using son to specify needs for a shampoo by answer-
better wireless service. M-commerce entrepre- ing a set of questions, and then p&G formulates
neurs need to focus on converting specific groups a unique shampoo for the person. Levi’s is now
to m-commerce; they will make faster inroads able to produce customized jeans based on a
by promoting separate service packages for, teen- person’s measurements.
agers, mothers, investors, and executives than by
In this process, we can distinguish between
trying to attract the mass market.
customization and customerization. Customization
Customisation and Customerisation means that the company is able to produce indi-
vidually differentiated goods whether ordered in
Again we have two tongue twisters at hand? Can
person, on the phone, or online. By going online,
you distinguish between the two? Well let us firstly
companies essentially enable consumers to de-

System Analysis
sign their own goods; in effect, it enables them to of AOL and Time-Warner has created an online
be presumes, namely self-producing consumers. and traditional media hybrid that opens up a host
The company is essentially providing a workshop of new marketing communication options. In all
where each individual can design what he or she these cases, companies are recognizing that new
wants. opportunities lie at the intersection of two or more
industries, Capitalizing on these opportunities can
The company also acquired the capacity to inter- be challenging. However, as firms are having to
act with each customer personally, namely to learn about new markets and competitors as well
personalize messages, services, and the relation- as how to achieve maximum synergy across the
ship. The customer can request customization of different parts of this business.
products, services, prices, and delivery channels.
The combination of operational customization and Activtiy-1
marketing customization has been called
customerization. A company is customerized For the Instructor
when it is able to dialogue with individual cus-
tomers and respond by customizing its products,
Divide the class in two groups and
services, and messages on a one-to-one basis.2
hold a debate on the following:
Customization is not for every company: There “The new drivers of economy are definitely ac-
are several downsides. Customization may be celerating the growth of the business and mar-
very difficult to implement for complex products keting. At the same time they are encouraging a
such as automobiles. Customization is not for consumerist society, which is not in the best in-
every company: There are several downsides. terest of the consumer.”
Customization may be very difficult to implement
for complex products such as automobiles. Performance in the debate shall be part of the
Customization can raise the cost of goods by more continuous evaluation.
than the customer is willing to pay. Some cus-
tomers do not know what they want until they How business practices are changing
see actual products. Customers cannot cancel the So far we have been talking about new economy.
order after the company has started to work on Surely then there is an old economy to talk about.
the product. The product may be hard to repair Let us compare the two.
and have little sales value. In spite of this,
customization has worked well of some products
– laptop computers, apparel, skincare products,
and vitamins – and is an opportunity worth inves- Old Economy New Economy
tigating.
Organize by product Organize by customer
Industry convergence unitsFocus on profit- segmentsFocus on cus-
Industry boundaries are blurring at an incredible able transactionsLook tomer lifetime value
rate. Pharmaceutical companies, at one time es- primarily at financial Look also at marketing
sentially chemical companies, are now adding scorecardFocus on scorecard focus on
biogenetic research capacities in order to formu- shareholdersMarketing stakeholders Everyone
late new drugs, new costometics ( cosmonautical) does the marketing does the marketing
and new foods ( nutriceuticals ). Film companies Build brands through Build brands through
such as Kodak are also chemical companies, but advertising Focus on performance Focus on
they are moving into electronics to digitize their customer acquisition customer retention
Image-making capabilities. Shiseido, the Japanese No customer satisfac- Measure customer sat-
cosmetics firm, new markets a portfolio of der- tion measurement isfaction and retention
matology drugs. Disney is not only into cartoons Over promise, under rate Under promise,
and theme parks, but it makes major films, license liver over deliver
characters, and managers retail stores, hotels,
cruise ships, and educational facilities. The merger

System Analysis
The changes in technology and economy are elic- petitors, and other measures. The recognize that
iting a new set of beliefs and practices on the changes in marketing indicators predict changes
part of business firms. Let’s look at the major in financial results.
business beliefs in the old economy and how these
beliefs are shifting As discussed earlier,the new FROM FOCUSING ON
economy is affecting both , the way business and SHAREHOLDERS TO FOCUSING
marketing are conducted. Let us start by analyz- ON STAKEHOLDERS
ing how business practices are changing.
Top management sees its primary mission as
FROM ORGANIZING BY PRODUCT making profits for shareholders. The costs of
working with other stakeholders, such as employ-
UNITS TO ORGANIZING BY
ees, suppliers, and distributors, are kept under tight
CUSTOMERSEGMENTS rein. They treat business as a zero-sum game,
A company making two or more products nor- where by paying the least to employees, suppli-
mally assigns product managers or product divi- ers, and distributors, the company will be left with
sions to manage them GE’s appliance Division the most profit Top management in new economy
would assign different people or business units to companies respects the importance of creating
manage their washing machines, dryers, refrig- co prosperity among all the business partners and
erators, and stoves. This makes sense, but it also customers. These managers carefully define their
makes sense to add marketing groups that ad- stakeholders and develop policies and strategies
dress the needs of different customer groups, such to balance the returns to all the key stakeholders.
as households and building contractors, who buy They believe business success depends on high-
differently. This would mean a switch from be- level performance by employees and business
ing product-centered to being customer-segment partners.
centered.
FROM MARKETING DOES THE
FROM FOCUSING ON MARKETING TO EVERYONE DOES
PROFITABLE TRANSACTIONS TO THEMARKETING
FOCUSING ON CUSTOMER Companies generally establish a marketing de-
LIFETIME VALUE partment to be responsible for creating and de-
Companies normally focus on individual transac- livering customer value. Unfortunately, this leads
tions with the aim mating individual customer life- other departments in the company to feel less
time value and designing their market offerings responsible for company performance vis-à-vis
and prices to make a profit over the customer’s customers. But as the late David Packard of
lifetime. The company will sometimes underprice Hewlett-Packard observed, “Marketing is far too
to gain new customers and will be generous in its important to leave to the marketing department.”
pricing and services to existing customers with Every employee has an impact on the customer
an eye toward retaining them for the long run. and must see the customer as the source of the
company’s prosperity.
FROM FOCUSING ON JUST THE
FINANCIAL SECORECARD TO FROM BUILDING BRANDS
FOCUSING ALSO ON THE THROUGH ADVERTISING TO
MARKETINGSCORECARD BUILDING BRANDS THROUGH
Most senior managers will judge the company’s
PERFORMANCE
performance by financial results as reflected on Relying on heavy advertising to build brand knowl-
the profit and loss statement and the balance edge and preference in the target public’s mind
sheet. Top management in new economy com- certainly worked well in the old economy. Built
panies will also examine the marketing scorecard brands, ultimately, are built by the customer’s
to interpret what is happening to market share ( experience with the brand and by word-of-mouth.
not just sales revenue), customer loss rate, cus- Companies are recognizing that a whole set of
tomer satisfaction, product quality relative to com- tools can help build brands, including sponsorships,

System Analysis
event management, public relations, and chari- As a consequence, salespeople spend less time
table gifts. ensuring the satisfaction of existing customers,
with the result that some current customers de-
FROM FOCUSING ON CUSTOMER fect. New economy companies place much more
ACQUISITION TO FOCUSING ON emphasis on customer retention. Attracting a new
CUSTOMER RETENTION customer may cost five times as much as doing a
good job to retain existing customers.
Most companies seek growth and reward sales-
people handsomely for finding new customers.

System Analysis
FROM NO CUSTOMER new economy. Companies need to retain skills

SATISFACTION MEASUREMENT and competencies that have worked in the past,
but they will also need to add new understand-
TO IN-DEPTH CUSTOMER
ings and competencies if they hope to grow and
SATISFACTION MEASUREMENT prosper. Today’s marketplace is made up of tra-
Many companies fail to systematically measure ditional consumers (who do not buy online, cyber
and track customer satisfaction and the factors consumers (who mostly buy online), and hybrid
shaping it. Instead they rely on anecdotal infor- consumers (who do both)3
mation that is not reliable. An increasing number
of companies are making customer satisfaction Most consumers are hybrid: They shop in gro-
a major probity. For example, IBM systematically cery stores but occasionally order from Peapod;
measures how satisfied customers are with each they buy books in Barnes & Noble bookstores
IBM salesperson they encounter, and makes this and sometimes order books from bn.com People
a factor in each salesperson’s compensation. still like to squeeze the tomatoes, touch the fab-
ric, smell the perfume, and interact with sales-
FROM OVER – PROMISE, UNDER – people. Consumers are motivated by other needs
DELIVER TO UNDER-PROMISE, than only shopping efficiency. Most companies
OVER-DELIVER will need a presence both offline and online to
cater to these hybrid consumers. The task today
To get the order, salespeople frequently over- is for companies to rethink and revise their over-
promise on quality or delivery, and worry later all company strategy and within that, their mar-
about the repercussions. This is true of ads that keting strategy. We will even argue that market-
exaggerate the performance of company prod- ing should play the lead role in shaping company
ucts. New economy companies recognize that strategy.
customer satisfaction is a function of the match
between customer expectations and company Activity-2
performance. These companies what their mes-
sages and promises to be accurate. Some would For the Instructor.
even prefer that their salespeople under-promise
and over-deliver, as a way to create customer Hold a 10-minute discussion on the statement of
delight. David Packard of Hewlett-Packard
THE NEW HYBRID “ Marketing is far too important to beleft to the

The fact is that today’s economy and most com- marketing department”.
panies are a hybrid of the old economy and the

System Analysis
Unit - 1
Lesson 6 - Components of E-commerce (B2B, B2C)
Introduction: Pure-click versus brick-and-click
Do you know the meaning of e-business?
companies
We can distinguish between pure-click compa-
Simple. It describes the use of electronics means
nies, those that launched a Web site with out any
and platforms to conduct a company’s business
previous existence as a firm, and brick-and-click
In the preceding chapters we had stated that companies, existing companies that added an
though marketing on the web is one form of di- online site for information and/or e-commerce.
rect marketing, we would handle it in an exclu-
PURE-CLICK COMPANIES There are several
sive lesson in view of its unique characteristics
kinds of pure-click companies: Search engines,
and in the interest of comprehensiveness of cov-
Internet Service Providers (ISPs), commerce
erage.
sites, transaction sites, content sites, and enabler
This lesson deals with the various components of sites.
e-commerce i.e.B2C, B2B, G2C, G2B, B2G and
Search engines and portals such as Yahoo! And
C2G. We already know the components of B2B
Alta Vista started as search engines and later
and B2C, which involve marketing on the web.
added services such as news, weather, stock re-
They correspond to business buyers and the ulti-
ports, entertainments, and store fronts hoping to
mate customers.
become the user’s point of entry on the Internet.
The recent additions to these components are ISPs such as AOL and CompuServe provide
government to consumers, government to busi- Internet and e-mail connections for a fee. Com-
ness, business to government, and consumers to merce sites sell books, music, toys, insurance,
government. stocks, clothes, financial services, and so on.
You all might be aware of the “David Vs. Goliath Among the most prominent ones are Amazon,
“ story, where the giant Goliath is feared across rediff.com and bazee.com. Transaction sites such
as he is mighty and anyone dare challenging him, as auctions and brokerages like fabmart.com and
gets killed in the process and the Goliath started others take a commission for transactions con-
misusing his strengths. ducted on their sites. Content sites such as The
Street, New York Times, and Encyclopedia
People started fearing Goliath, there was a small Britannica provides financial, research, and other
kid David, who was quite small, less strong at information. Enabler sites provide the hardware
physique, but strong mentally, wanted to fight with and software that enable Internet communica-
Goliath, inspite of warnings from his friends and tion and commerce.
well wishers, he had a fight with Goliath, and at
the end he was successful in killing the Goliath. These sites compete using various strategies:
This task he could achieve using his mind and not automartindia, a leading website for car buying
his physique, as he knew that if he uses his phy- and related services; travelmartindia, the infor-
sique, he can never fight Goliath, so to defeat mation leader in travel needs.
Goliath, he need to use another strategy or strength
Pure-click Web businesses reached astronomi-
which will help him achieve his Goal, which was
cal capitalization levels in the late 1990, in some
the secret of his success.
cases for exceeding the capitalization of major

System Analysis
companies such as United Airlines or Pepsi-Cola. tailers would droop its line of computers If
They were considered a major threat to tradi- Compaq off red to sell the same computer di-
tional businesses until the investing frenzy col- rectly online. Merrill lynch hesitated to introduce
lapsed in 2000. online stock trading to compete with ETTrade,
Schwab, and other online brokerages fearing that
Dot-coms failed for a variety of reasons: Many its own brokers would rebel. Even the store –
rushed into the market without proper research based bookseller Barnes & Noble delayed open-
or planning. They had poorly designed Web sites ing an online site to challenge Amazon.
with problems of complexity, poor navigation, and
downtime. They lacked adequate infrastructures These companies struggled with the question of
for shipping on time and for answering customer how to conduct online sales with out cannibaliz-
inquiries. They believed that the first company ing their own stores, resellers, or agents. Here
entering a category would win category leader- are examples of how some companies resolved
ship. These companies wanted to exploit network this conflict.’
economies, namely the fact that the value of a
network to each of its members is proportional to Although brick and- slick firms face channel con-
the number of other users (Metacalfe’s Law). flict issues, they probably will have more online
Some just rushed into the market in the hope of success than their pure – click competitors. First,
launching an initial public offering (IPO) while companies such as Compaq, Merrill Lynch, and
the market was hot. Barnes & noble have better known brand names;
their cost of acquiring a new customer ‘ is $12
To acquire customers, dot-coms spent large compared to the $82 that pure click e-tailers spend
amounts on mass marketing and offline advertis- to acquire a new customer.8 second, they have
ing. They relied on spin and buzz instead of using greater financial resources and access to funds.
target marketing and word-of-mouth marketing, Third, they have deeper industrial knowledge and
and they devoted too much effort to acquiring experience, good relationships with key suppli-
customers instead of building loyal and more fre- ers, and a large customer base. Fourth, they can
quent users among their current customers. They now be reached 24 hours a day, 7 days a week
did not understand customer behavior when it and merchandise can be returned to their 9 to 5
came to online surfing and purchasing. stores. And fifth, the Internet allows them to reach
and serve additional customers who may be for
Many dot-coms did not build a sound business away from their store locations. Gap illustrates
model that would deliver eventual profits. The the advantages of a brick-and-click operation over
ease of entry of competitors and the ease of cus- a pure-click operation.
tomers switching Web sites in search of batter
prices forced dot-coms to accept margin-killing E-business
low prices. Webvan, the online grocer, illustrates
how dot-coms failed to understand their market- Do you know the meaning of e-business?
place. Simple. It describes the use of electronics means
and platforms to conduct a company’s business.
At the same time, many pure-click dot-coms are
surviving and even prospering. Others are show- The advent of the Internet has greatly increased
ing losses today, but their business plans are fun- the ability of companies to conduct their business
damentally good. faster, more accurately, over a wider range of
time and space, at reduced cost, and with the
BRICK – AND – CLICK COMPANIES ability to customize and personalize customer of-
many incumbent companies moved quickly to ferings. Countless companies have set up Web
open web sites describing their business but re- sites to inform and promote their products and
sisted adding e-commerce to their sites. They services. They have created Intranets to facili-
felt that selling their product or services online tate employees communicating with one another
would produces channel conflict— they would and to facilitate downloading and uploading in-
be competing with their offline retailers and formation to and from the company’s comput-
agents, for example, Compaq feared that its re- ers. Companies have also set up Extranets with

System Analysis
major suppliers and distributors to facilitate in- Which is more important for developing an e-pres-
formation exchange, orders, transactions, and ence: the agility of a pure click company, or the
payments. Bill Gates of Microsoft climes that well defined and readily identifiable resources of
Microsoft is almost entirely run electronically; atraditional brick and mortar company?
there is hardly any paper flowing through the
company because everything is one the computer B2C (business to consumer)
screen. The popular press has paid the most attention to
consumer Web sites. In 2000, more than 106 mil-
E-commerce lion Americans went online, with 80 percent look-
ing for information, 73 percent researching a prod-
What is e Commerce then? uct or service before buying it, 68 percent look-
It is more specific than e-business; it means that ing for travel information, and 65 percent looking
in addition to providing information to visitors about for information on movies, books and leisure ac-
the company, its history, policies, products, and tivities.
job opportunities, the company or site offers to
transact or facilitate the selling of products and The most frequent online consumer purchases
services online. (in terms of the percentage of online buyers say-
ing they have purchased in the category) have
E-commerce has given rise in turn of e purchas- been books (58%), music (50%), software (44$),
ing and e-marketing. air tickets (29%), PC peripherals (28%), clothing
(26%), views (24%), hotel reservations (20%),
E-Purchasing means companies decide to pur- toys (20%), flowers (17%), and consumer elec-
chase goods, services, and information from tronics (12%). The Internet is most useful for
various online suppliers. products and services when the shopper seeks
Smart e purchasing has already saved compa- greater ordering convenience (e.g., automobiles
nies millions of dollars or computers). Individuals are also using the
Internet to search for others to meet or date on
E marketing describes company efforts to in- such sites as bharatmatrimony.com, shaadi.com,
form, communicate, promote, and sell its prod- Companies must set up and operate their e-com-
ucts and services over the Internet. merce Web sites carefully, as the “Marketing
Memo: Succeeding with Electronic Commerce”
The e term is also used in terms such as e-fi- shows.
nance, e-learning , and e-service. But as some-
one observed, the e will eventually be dropped Internet domains: B2B (Business to
when most business practice is online. business)
E-business and e-commerce take place over four Although the popular press has given the most
major Internet domains: B2C (business to con- attention to business-to-consumer (B2C) web
sumer), B2B (business to business), C2C (con- sites, even more activity is being conducted on
sumers to Consumers), and C2B (consumers to business-to-business (B2B) sites. The B2B sites
business. (We will omit government relations like are changing the supplier-customer relationship
G2C, G2B, B2G and C2G). in profound ways. Forrester and Gartner, major
research firms on online commerce, estimate that
Internet domains: B2B commerce is 10 to 15 times greater than
As discussed in the beginning of the lesson, B2C commerce. Gartner estimates that by 2005,
internet has unleashed a number of domains of more than 500,000 enterprises will participate in
e- business/commerce. We begin by discussing e-markets as buyers, sellers, or both. These firms
the business to consumer domain. are using B2B auction sites, spot exchanges, online
product catalogues, barter sites, and other online
Activity resources to obtain better prices. Many major
For instructor: Please hold a 10-minute discus- enterprises, including Chevron, Ford Motor Com-
sion on the following question. pany, GE, and Merck, have invested millions in

System Analysis
Web procurement systems. The result: Invoices fice allows taxpayers to download forms, submit
that used to cost $ 100 to process now cost as electronic tax returns, submit Business Activity
little as $ 20. Statements (BAS), ask questions and receive in-
formation on a variety of tax matters. As another
Activity: example, the WA Government Electronic Mar-
Has e marketing changed the attitude of the cus- ketplace (GEM) uses the internet to provide a
tomer-discuss this with appropriate examples comprehensive government buying service. These
GEM services cover the full range of govern-
B2G - Business to Government ment buying including purchasing of low value
Internet commerce commodities and public tendering for high value
goods and services.
This term refers to the use of the Internet by
Government to reach its citizens for a variety of Activity:
information dissemination purposes and transac-
tions. For example, the Australian Taxation Of- 1. Discuss in brief the Boom and the fall of the
“Dot Com” era.
Points to ponder –

System Analysis
Unit 1
Lesson 7 - Web Marketing
Introduction: Community: How the site enables user-to-

user communication.
In the preceding chapters we had stated that
Customization: Site/s ability to tailor itself to
though marketing on the web is one form of di-
different users or to allow users to personal-
rect marketing, we would handle it in an exclu-
ize the site.
sive lesson in view of its unique characteristics
Communication: How the site enable site-to-
and in the interest of comprehensiveness of cov-
user-to-site, or two-way communication.
erage.
Connection: Degree that the site is linked to
What is the basic requirement for a company other sites.
which wants to indulge in e-business? You have Commerce: Site’s capabilities to enable com-
guessed it right ! It is the Website! Without a mercial transactions.
website it will be impossible to carry out e-busi-
ness. To encourage repeat visits, companies need to
pay attention to context and content factors.
How to design a website? A website that will
showcase the company in its entirety. It should CONTEXT FACTORS Visitors will judge a
be attractive enough to compel the customer to site’s performance on its ease-of-use and its
make a visit to it. In deciding to set up and oper- physical attractiveness. Ease-of-use breaks down
ate their own Web sites, companies face many into three attributes: (1) the Web site downloads
questions such as those listed in Table 2.2. quickly, (2) the first page is easy to understand,
and (3) the visitor finds it easy to navigate to other
Many of these questions will be answered pages that open quickly. The site’s physical at-
throughout the course pack. Here we address tractiveness is determined by the following fac-
only three: tors: (1) the individual pages are clean looking
Designing an attractive Web site and not Overly crammed with content, (2) the
Placing ads and promotion online type faces and font sizes are very readable, and
(3) the site makes good use of color (and sound).
Building a revenue and profit model.
CONTENT FACTORS context factors facili-
Setting up web sites
tate repeat visits, but they do not ensure that this
A key challenge is designing a site that is attrac- happens. Returning to a site depends on content.
tive on first viewing and interesting enough to The content must be interesting, useful, and con-
encourage repeat visits. Early text-based Web tinuously changing. Certain types of content func-
sites have increasingly been replaced by sophis- tion well to attract first-time visitors and to bring
ticated sites that provide text, sound, and anima- them back again: (1) deep information with links
tion. to related sites, (2) changing news of interest, (3)
changing free offers to visitors, (4) contests and
Rayport and Jaworski have proposed that effec- sweepstakes, (5) humor and jokes, and (6) games.
tive Web sites feature seven design elements that
they call the 7Cs. GETTING FEEDBACK From time to time, a
company needs to reassess its site’s attractive-
Seven Elements of Effective Sites: The 7 Cs ness and usefulness. One way to do this is to ask
Context: Layout and design. site design experts. But the most the site and for
Content: Text, pictures, sound, and video the suggestions for improvement.
site contains.

System Analysis
Table 2.2 Setting up the Website usually measured in bits-per-second. Bandwidth

governs how much data the link can carry, and at
Attracting and Keeping Visitors How can what speed it can be sent.
we get more prospects to know and visit
our site?How can we use marketing to Banner Advertisement
spread word-of-mouth?How can we con- A banner advertisement (banner ad) is usually a
vert visitors into repeaters?How do we rectangular advertisement placed on a Web site
make our site more experiential and and is linked to the advertiser’s own Web site.
real?How can we build a strong relation-
ship with our customer? How can we build Business Enterprise Centres
a customer community? How can we cap- The Business Enterprise Centres (BEC) offer
ture and exploit customer data for up-sell- free assistance and support to new and existing
ing and cross-selling? How much should businesses through the following services:
we spend on building and marketing our
site?Advertising on the InternetWhat are Free practical business assistance
the various ways that we can advertise on
the Internet? How do we choose the right Referral to specialist advisers (accountants, law-
sites for placing our ads or sponsorship? yers, etc.)
Dealing with RetailersHow can we sell di-
rect and yet keep our retailers happy? How Assistance through the maze of government de-
can we coordinate our online commerce partments and regulations
and own-store sales and service? How
much will our retail operations be hurt by Business workshops
our online sales and by other e-tailers?
Business information
Putting the Site Together and Making It
ProfitableHow do we pick and manage sup- Problem solving
pliers and partners? How do we get man-
agement buy-in and funding? How can we Business Enterprise Centres (BEC) are located
fight price pressure and price transparency in city and country areas to assist you to expand
on the Internet? Which revenue and profit your existing business or explore new business
model makes the most sense? ideas. For more information on programs and
services offered by BEC visit the SBDC website
Bandwidth: and select Business Enterprise Centres from the
Bandwidth refers to the amount of data that can main screen.
be transmitted over a telecommunications link in
a fixed amount of time. In computing terms it is

System Analysis
Point to remember

System Analysis
Tutorial - A
The market share of alkaline battery in India is around two per cent. High-drain gadgets (cameras,
toys, walkman) in urban cit-ies have been a major factor in launching these kinds of batteries. Duracell
has the ‘Duracell Power check’ indicator by which a consumer can know the life of the battery. The
battery is priced at Rs. 35 per pair. Some figures indicate that the market is growing at 40% per
annum. The brand is retailed in about 75,000 outlets in around 1000 towns.
Given the structure of the battery industry in India, how would you apply marketing orienta-
tion to this situ-ation? Analyze if the concept is applicable to the situa-tion from the viewpoint
of the company (collect infor-mation if required).
Source: Kumar Ramesh S- Application exercises in Marketing (Vikas Publishing House Pvt Ltd,
2000)

System Analysis
Unit 1
Chapter 3 - CRM
Lesson 8 - Customer Satisfaction Value and Retention,
Customer Perceived Value
Hello students! In fact in this concept, every one is doing mar-
keting. Marketing is not left to marketers only.
In the first unit by analyzing the meaning of mar-
keting and its core concepts we understood that Today’s companies are facing their toughest com-
marketing starts and ends with the customer. So petition ever. We argued in Chapter 1 that com-
in this unit you would be introduced to the con- panies can outperform the competition if they can
cepts of customer value and satisfaction. And move from a product and sales philosophy to a
we shall analyze the relation between customer marketing philosophy. John Chambers, CEO of
satisfaction and customer loyalty. Cisco Systems, put it well: “Make your customer
the center of your culture.” In Chapter 2, we
Nowadays we find companies coming up with showed that companies need to move rapidly into
lot of activities or programs to maintain their cus- the new economy and employ Internet, wireless,
tomers, so our unit proceeds with a discussion on and other technologies to achieve a competitive
the importance of customer retention for the busi- advantage.
ness. In customer retention, we discuss a very
important concept that is spoken about in every In this chapter, we spell out in detail how compa-
organization i.e. customer lifetime value. nies can go about winning customers and outper-
forming competitors. The answer lies in doing a
In this chapter, we will try and lean the following better job of meeting or exceeding customer ex-
concepts: pectations. Customer-centered companies are
Understand customer value and satisfaction adept at building customers, not just products;
Know how can companies deliver them they are skilled in market engineering , not just
Be aware of the tools for measuring customer product engineering.
satisfaction
Appreciate the techniques of attracting and Too many companies think that it is the market-
retaining customers ing or sales department’s job to acquire and man-
age customers, but, in fact, marketing is only one
Understand Customer Relationship Manage-
factor in attracting and keeping customers. The
ment ( CRM )
best marketing department in the world cannot
Assess customer/company profitability
sell products that are poorly made or fail to meet
‘Customer is the king’,and shall continue to be a need. The marketing department can be effec-
so. Beginning with the production concept mar- tive only in companies whose employees have
keting today has moved truly in the era of cus- implemented a competitively superior customer
tomer concept. And there are no two views about value-delivery system.
it. The only variations may be about how to woo
For example, take McDonald’s . Every day
him? The CRM approach is in keeping with this
on average of 45 million people visit its 29,000
marketing philosophy of customer is supreme.as
restaurants in 121 countries. People do not
future marketers it is important for you to have a
swarm to McDonald’s outlets solely because
thorough knowledge of CRM.
they love the hamburgers; other restaurants
What do you undrstand by CRM? Yet another make better-tasting hamburgers. People are
management function or some thing more than flocking to a system, not a hamburger.
that? Definitely CRM goes well beyond the rou- Throughout the world, this fine-turned system
tine management functions, and draws its strength of suppliers, franchise owners, and employ-
from each and every person involved in business. ees delivers a high standard of what

System Analysis
McDonald’s calls QSCV-quality, service, chological benefits customers expect from a

cleanliness, and value.1 This chapter describes
and illustrates the philosophy of the customer- given market offering. Total customer cost is the
focused firm and value marketing.2 bundle of costs customers expect to incur in
evaluating, obtaining , using, and disposing of the
Defining customer value and given marketing officering.
satisfaction:
Can you define customer value and satisfaction?
Let us see what these terms mean to a marketer,
today.
Over 38 years ago, Peter Drucker observed that

a company’s first task is “To create customers.”
However, customers face a vast array of prod-
uct and brand choices, prices, and suppliers.
How do they make their choices?

We believe that customers estimate which offer
will deliver the most value. Customers are value-
maximizers, within the bounds of search costs An example will help here. Suppose the buyer
and limited knowledge, mobility, and income. They for a large construction company wants to buy a
form an expectation of value and act on it. tractor from Caterpillar or Komatsu. The com-
Whether or not the offer lives up to the value peting salespeople carefully describe their respec-
expectation affects both satisfaction and repur- tive offers. The buyer wants to use the tractor in
chase probability. residential construction work. He would like the
tractor to deliver certain levels of reliability, du-
Customer perceived value:
rability, performance, and resolve value. He
Our premise is that customers will buy from the evaluates the tractors and decides that Caterpil-
firm that they lar has a higher product value based on perceived
see as offering reliability, durability, performance, and resale
the highest per- value. He also perceives differences in the ac-
ceived value ( companying services – delivery, training, and
Figure 3.1): maintenance – and decides that Caterpillar pro-
Customer per- vides better service and more knowledgeable and
ceived value responsive personnel. Finally, he places higher
(CPV) is the dif- value on Caterpillar’s corporate image. He adds
ference be- up all the values from these four sources – prod-
tween the pro- uct, services, personnel, and image – and per-
s p e c t i v e ceives Caterpillar as delivering greater customer
c u s t o m e r ’s value.
evaluation of all
the benefits and Does he buy the Caterpillar tractor? Not neces-
all the costs of sarily. He also examines his total cost of trans-
an offering and acting with Caterpillar versus Komalsu, which
the perceived al- consists of more than the money. As Adam Smith
ternatives. Total observed over two centuries ago, “The real price
customer value of anything is the toil and trouble of acquiring it.
is the perceived “Total customer cost includes the buyer’s time,
monetary value energy, and psychic costs. The buyer evaluates
of the bundle or these elements together with the monetary cost
economic, func- to form a total customer cost. Then the buyer
tional, and psy- considers whether Caterpillar’s total customer

System Analysis
cost is too high in relation to the total customer tomer company that Caterpillar delivers
value Caterpillar delivers. If it is, the buyer might greater customer value.
choose the Komatsu tractor. The buyer will buy 3. The buyer enjoys a long-term friendship with
from whichever source he thinks delivers the high- the Komatsu salesperson. In this case,
est perceived customer value. Caterpillar’s salesperson needs to show the
buyer that the Komatsu tractor will draw
Now let us use this decision-making theory to complaints from the tractor operators when
help Caterpillar succeed in selling to this buyer. they discover its high fuel cost and need for
Caterpillar can improve its offer in three ways. frequent repairs.
First, it can increase total customer value by im-
proving product, services, personnel, and / or im- The point of these examples is clear: Buyers op-
age benefits. Second, it can reduce the buyer’s erate under various constraints and occasionally
no monetary costs by reducing the time, energy, make choices that give more weight to their per-
and psychic costs. Third, it can reduce its product’s sonal benefit than to the company’s benefit. How-
monetary cost to the buyer ever, customer perceived value is a useful frame-
Suppose Caterpillar concludes that the buyer sees work that applies to many situations and yields
its offer as worth $20,000. Further, suppose rich insights. Here are its implications: First, the
Caterpillar’s cost of producing the tractor is seller must assess the total customer value and
$14,000. This means that Caterpillar’s offer po- total customer cost associated with each
tentially generates $6,000 over the company’s cost competitor’s offer in order to know how his or
so Caterpillar needs to charge a price between her offer rates in the buyer’s mind. Second, the
$14,000 and $20,000. If it charges less than seller who is at a customer perceived value dis-
$14,000, it won’t cover its costs; if it charges more advantage has two alternatives: to increase total
tan $20,000, it will price itself out of the market. customer value or to decrease total customer cost.
The former calls for strengthening or augment-
The price Carterpillar charges will determine how ing the offer’s product, services, personnel, and
much value will be delivered to the buyer and image benefits. The latter calls for reducing the
how much will flow to Caterpillar. For example, buyer’s product, services, personnel, and image
if Caterpillar charges $19,000, it is creating $1,000 benefits. The latter calls for reducing the buyer’s
of customer perceived value and keeping $5,000 costs by reducing the price, simplifying the or-
for itself. The lower Caterpillar sets its price, the dering and delivery process, or absorbing some
higher the customer perceived value and, there- buyer risk by offering a warranty.4
fore, the higher the customer’s incentive to pur-
chase. To win the sale, Caterpillar must offer more
Total customer satisfaction
customer perceived value than Komatsu does.3 Having visualized the customer value let us now
proceed to define satisfaction.
Some marketers might argue that the process we
have described is too rational. Suppose the cus- Whether the buyer is satisfied after purchase
tomer chose the Komatsu tractor. How can we depends on the offer’s performance in relation
explain this choice? Here are three possibilities: to the buyer’s expectations.
1. The buyer might be under orders to buy at In general, satisfaction is a person’s feelings
the lowest price. The Caterpillar salesperson’s
of pleasure or dis-appointment resulting from
task is to convince the buyer’s manager that
comparing a product’s perceived performance
buying on price alone will result in lower long-
( or outcome) in relation to his or her expec-
term profits.
tations.
2. The buyer will retire before the company
realizes that the Komatsu tractor is more If the performance falls short of expectations,
expensive to operate. The buyer will look the customer is dissatisfied. If the performance
good in the short run; he is maximizing per- matches the expectations, the customer is satis-
sonal benefit. The Caterpillar salesperson’s fied. If the performance exceeds expectations,
task is to convince other people in the cus- the customer is highly satisfied or delighted.5

System Analysis
The link between customer satisfaction and cus- Infiniti buyers to drop in for a “guest drive” (not
tomer loyalty is not proportional. Suppose cus- a “test drive”), because the Japanese word for
tomer satisfaction is rated on a scale from one to customer is “Honored guest. “Look at what high
five. At a very low level of customers satisfac- satisfaction can do.
tion (level one), customers are likely abandon the
company and even bad-mouth it. At levels two DELIVERING HIGH CUSTOMER
to four, customers are fairly satisfied but still find VALUE
it easy to switch when a better offer comes along. The key to generating high customer loyalty is to
At level five, the customer is very likely to repur- deliver high customer value. According to
chase and even spread good word of mouth about Michael Lanning, in his Delivering profitable
the company. High satisfaction or delight creates value, a company must design a competitively
an emotional bond with the brand or company, superior value proposition aimed at a specific
not just a rational preference. Xerox’s senior market segment, backed by a superior value-de-
management found out that its “completely satis- livery system.11
fied” customers are six times likely to repurchase
Xerox products over the following 18 months than The value proposition consists of the whole clus-
its “very satisfied” customers.8 ter of benefits the company promises to deliver;
it is more than the core positioning of the offer-
ing. For example, Volvo’s core positioning is
“safety,” but the buyer is promised more than
just a safe car; other benefits include a long-last-
ing car, good service, and long warranty period.
Basically, the value proposition is a statement
about the resulting experience customers can
expect. Whether the promise is kept depends on
the company’s ability to manage its value deliv-
ery system. The value-delivery system includes
all the experiences the customer will have on the
Customer Expectations way to obtaining and using the offering.
How do buyers form their expectations? Suppose A similar theme is emphasized by Simon Knox
you have to purchase a motor-bike or a car. How and Stan Maklan in their Competing on value.
will you go about formulating your expectations? 12
Too many companies create a value gap by
failing to align brand value with customer value.
Obviously from past buying experience, friends’ Brand marketers try to distinguish their brand
and associates’ advice, and marketers’ and com- from others by a slogan (“washes whiter”) or a
petitors’ information and promises. If marketers unique selling proposition (“A Mars a day helps
raise expectations too high, the buyer is likely to you work, rest, and play”), or by augmenting the
be disappointed. However, if the company sets basic offering with added services (“Our hotel
expectations too low, it won’t attract enough will provide a computer upon request”). Yet, they
buyers ( although it will satisfy those who do buy).7 are less successful in delivering distinctive cus-
Some of today’s most successful companies are tomer value, primarily because their marketing
raising expectations and delivering performances people focus on brand development. Whether
to match. These companies are aiming for TCS- customers will actually receive the promised value
total customer satisfaction. Xerox, for example, proposition will depend on the marketer’s ability
guarantees “total satisfaction” and will replace to influence various core business processes.
at its expense any dissatisfied customer’s equip- Knox and Maklan want company marketers to
ment within a period of three years after pur- spend as much time influencing the company’s
chase. Cigna advertises, “We’ll never be 100% core processes as they do designing the brand
satisfied until you are, to,” and one of Honda’s profile. Here is a company that is a master at
ads says, “One reason our customers are so sat- delivering customer value.
isfied is that we aren’t” Nissan invites potential

System Analysis
Superquinn is Ireland’s largest supermarket chain How to measure satisfaction? Perhaps the tough-
and its founder, Feargal Quinn, is Ireland’s mas- est of the jobs of a marketer. There are no meters
ter marketer. A greeter is posted at the store en- to measure it; like thermometer for temperature.
trance to welcome and help customers and even It is a subjective exercise but very important for
offer coffee, to provide umbrellas in case of rain marketer’s point of view. Let us see how we can
and carryout service to customers’ cars. Depart- do it.
ment managers post themselves in the aisles to
interact with customers and answer questions. Although the customer-centered firm seeks to
There is a high-quality salad bar, fresh bread baked create high customer satisfaction, that is not its
every four hours, and indications of when pro- main goal. If the company increases customer
duce arrived, including the farmers’ pictures. satisfaction by lowering its price or increasing its
Superquinn operates a child-care center. It of- services , the results may be lower profits.
fers a loyalty program that gives points for the
amount purchased and also for discovering any- Tools for Tracking and Measuring
thing wrong with the store, such as dented cans Satisfaction
or bad tomatoes. The loyalty card is recognized Complaint and suggestion systems:
by a dozen other firms ( a bank, gas station, etc.)
A customer-centered organization makes it easy
who give points for purchasing at their establish-
for customers to register suggestions and com-
ments . Because everything is done to exceed
plaints. Some customer-centered companies-
normal customer expectations, Superquinn stores
P&G, General Electric, Whirlpool – establish hot
enjoy and almost cult following.13
lines with toll-free numbers. Companies are also
In addition to tracking customer value expecta- using Web sites and e-mail for quick, two-way
tions and satisfaction, companies need to moni- communication.
tor their competitors’ performance in these ar-
Customer satisfaction surveys:
eas. One company was pleased to find that 80
percent of its customers said they were satis- Studies show that although customer are dissat-
fied. Then the CEO found out that its leading com- isfied with on out of every four purchases, less
petitor attained a 90 percent customer satisfac- than 5 percent will complain. Most customers will
tion score. He was further dismayed when he buy less or switch suppliers,. Responsive com-
learned that this competitor was aiming for a 95 panies measure customer satisfaction directly by
percent satisfaction score. conducting periodic surveys. While collecting
customer satisfaction data, it is also useful to ask
Table 3.1 describes four methods companies use additional questions to measure repurchase in-
to track customer satisfaction. For customer-cen- tention and to measure the likelihood or willing-
tered companies, customer satisfaction is both a ness to recommended the company and brand to
goal and a marketing tool. Companies that achieve others.
high customer satisfaction ratings make sure that
their target market knows it. The Honda Accord Ghost shopping:
received the number-one rating in customer sat- Companies can hire people to pose as poten-
isfaction from J.D. Powers for several years, and tial buyers to report on strong and weak points
Honda’s advertising of this fact helped it sell experienced in buying the company’s and com-
moreAccords. Dell Computer’s meteoric growth petitors’ products. These mystery shoppers can
in the computer systems industry can be partly even test how the company’s sales personnel
attributed to achieving and advertising its num- handle various situations. Managers them-
ber-one rank in customer satisfaction. For more selves should leave their offices from time to
information on how Dell Computer Corporation time, enter company and competitor sales situ-
gets closer to customers, see “Marketing Insight: ations where they are unknown, and experi-
Customer Configuared: How Dell Computer Cor- ence firsthand the treatment they receive. A
poration Clicks with Customers.” variant of this is for managers to phone their
own company with questions and complaints
MEASURING SATISFACTION

System Analysis
to see how the calls are handled. can report being “highly satisfied” for different
reasons. One may be easily satisfied most of the
Last customer analysis: time and the other might be hard to please but
Companies should contact customers who have was pleased on this occasion.14
stopped buying or who have switched to another
supplier to learn why this happened. Not only is it Claes Fornell has developed the American Cus-
important to conduct exit interviews when customer Satisfaction Index (ACSI) to measure the
tomers first stop buying; it is also necessary to perceived satisfaction consumers feel with dif-
monitor the customer loss rate. ferent firms, industries, economic sectors , and
national economies. Some companies and brands
The company might be able to increase its prof- with high ACSI scores in 2001include H J Heinz
itability by means other than increased satisfac- Company, Colgate-Palmolive, Cadillacand Dell.15
tion ( for example, by improving manufacturing
processes or investing more in (R&D). Also, the Companies need to be specially concerned today
company has many stakeholders, including em- with their customer level because the Internet
ployees, dealers suppliers, and stockholders. provides a tool for consumers to spread bad word
Spending more to increase customer satisfaction of mouth – as well as good word of mouth – to
might divert funds from increasing the satisfac- the rest of the world.
tion of other “partners.” Ultimately, the company
must operate on the philosophy that it is trying to Activity-1
deliver a high level of customer satisfaction sub-
For the Instructor:
ject to delivering acceptable levels of satisfac-
tion to the other stakeholders, given its total re- Hold a discussion for 10 minutes on the following
sources. topic. Performance in the discussion shall form
part of the continuous evaluation.
When customers rate their satisfaction with an
element of the company’s performance-say, de-
livery – the company needs to recognize that
customers vary in how they define good deliv-
ery. – the company needs to recognize that cus-
tomers vary in how they define good delivery. It
could mean early delivery, on-time delivery, or-
der completeness, and so on. Yet if the company
had to spell out every element in detail, custom-
ers would face a huge survey questionnaire. The
company must also realize that two customers

System Analysis
Points to ponder

System Analysis
Unit 1
Chapter 3 - CRM
Lesson 9 - Customer Satisfaction & Delight, Value Chain
Hello students! To succeed, a company needs to use the con-

cepts of a value chain and a value-delivery net-
In the first unit by analyzing the meaning of mar- work.
keting and its core concepts we understood that
marketing starts and ends with the customer. So Value chain
in this unit you would be introduced to the con- Michael Porter of Harvard proposed the value
cepts of customer value and satisfaction. And chain as a tool for identifying ways to create more
we shall analyze the relation between customer customer value (see Figure 3.3). 31
satisfaction and customer loyalty.
Every firm is a synthesis of activities the are per-
Nowadays we find companies coming up with formed to design, produce, market, deliver, and
lot of activities or programs to maintain their cus- support its product. The value chain identifies nine
tomers, so our unit proceeds with a discussion on strategically relevant activities that create value
the importance of customer retention for the busi- and cost in a specific business. These nine value
ness. In customer retention, we discuss a very – creating activities consist of five primary ac-
important concept that is spoken about in every tivities and four support activities.
organization i.e. customer lifetime value.
The primary activities represent the sequence of
In the first lesson we have tried to define value bringing materials into the business ( inbound lo-
and satisfaction. Having done so our aim now is gistics), converting them into final products ( op-
to deliver these . However again like defining erations), shipping out final products ( outbound
them it is not so easy to deliver them. Upon the logistics), marketing them ( marketing and sales),
successful delivery of these hinges the success and servicing them (service). The support activi-
of the marketer ties – procurement, technology development, hu-
man resource management, and firm infrastruc-
Delivering customer value and ture – are handled in certain specialized depart-
satisfaction ments, but not only there. For example, several
In a hyper competitive economy with increas- departments may do some procurement and hir-
ingly rational buyers, a company can only win by ing of people. The firm’s infrastructure covers
creating and delivering superior value. This in- the costs of general management, planning, fi-
volves the following five capabilities: understand- nance, accounting, legal, and government affairs
ing customer value; and sustaining customer value. that are borne by all the primary and support ac-
tivities.

System Analysis
The firm’s task is to examine its costs and per- The fulfillment management process: All
formance in each value-creating activity and to the activities involved in receiving and ap-
look for ways to improve it. Firm should estimate proving orders, shipping the goods on time,
its competitors’ costs and performances as and collecting payment.
benchmarks against which to compare its own
costs and performances It should go further and Strong companies develop superior capabilities
study the “best of class” practices of the world’s in managing their core processes. For example,
best companies.32 Wal-Mart has superior strength in its stock re-
plenishment process. As Wal-Mart stores sell
The firm’s success depends not only on how well their goods, sales information flows via computer
each department performs its work, but also on not only to Wal-Mart’s headquarters, but also to
how well the various departmental activities are Wal-Mart’s suppliers, who ship replacement mer-
coordinated. Too often, company departments act chandise to the stores almost at the rate it moves
to maximize their interests. A credit department off the shelf.34 The idea is not to manage stocks
may Meanwhile, the customer waits and the of goods, but flows of goods, and Wal-Mart has
salesperson is frustrated. A traffic department turned over this responsibility to its leading ven-
chooses to ship the goods by rail to save money dors in a system known as vendor-managed in-
and again the customer waits. Each department ventories (VMI).
has erected walls that slow down the delivery of
quality customer service. The solution to this prob- The value-delivery network
lem is to place more emphasis on the smooth To be success-
management of core business processes.33 ful a firm also
needs to look for
The core business processes include competitive ad-
The market sensing process: All the activi- vantages be-
ties involved in gathering marketing intelli- yond its own op-
gence, disseminating it within the organiza- erations, into the
tion, and acting on the information. value chains of
The new offering realization process: All its suppliers, dis-
the activities involved in researching, devel- tributors, and
oping, and launching new high-quality offer- customers.
ings quickly and within budget. Many compa-
The customer acquisition process: All the nies today have
activities involved in building deeper under- partnered with
standing, relationships, and offerings to indi- specific suppli-
vidual customers. ers and distribu-
The fulfillment management process: All tors to create a
the activities involved in building deeper un- superior value-
derstanding, relationships, and offerings to in- delivery net-
dividual customers. work (also
called a supply
chain).38
Fig 3.4 Levi

Strauss’s Value
Delivery Chain

System Analysis
Attracting and retaining customers Then it is time to send out the salespeople.
Having defined value, satisfaction, as also dis- Computing the cost of lost customers
cussed the ways and means to deliver them, the It is not enough to be skillful in attracting new
next task the marketer faces is how to attract customers; the company must keep them and in-
and then retain the customer? crease their business. Too many companies suf-
fer from high customer churn- namely, high cus-
In addition to working with partners-called part-
tomer defection. It is like adding water to a leak-
ner relationship management (PRM) – many
ing bucket. Cellular carriers for example, are
companies are intent on developing stronger bonds
plagued with “spinners’” customers who switch
with their customers – called customer relation-
carriers at least three times a year looking for
ship management (CRM) . This is the process of
the best deal. Many lose 25 percent of their sub-
managing detailed information about individual
scribers each year at an estimated cost of $2 bil-
customers and carefully managing all the cus-
lion to $4 billion.
tomer “touchpoints” with the aim of maximizing
customer loyalty. There are steps a company can take to reduce
the defection rate.
Attracting customers
Today’s customers are becoming harder to First, the company must define and measure its
please. They are smarter, more price conscious, retention rate. For a magazine, the renewal rate
more demanding, less forgiving, and they are ap- is a good measure of retention. For a college , it
proached by many more competitors with equal could be the first-to second-year retention rate,
or better offers. The challenge, according to Jef- or the class graduation rate.
frey Gitomer, is not to produce satisfied custom-
ers; several competitors can do this. The chal- Second, the company must distinguish the causes
lenge is to produce delighted and loyal custom- of customers attrition and identify those that can
ers. 36 be managed better. ( See “Marketing Memo: M
Asking Questions When Customers Leave.” )
Companies seeking to expand their profits and The Forum Corporation analyzed the customers
sales have to spend considerable time and re- lost by 14 major companies for reasons other than
sources searching for new customers. To gener- leaving the region or going out of business: 15
ate leads, the company develops ads and places percent switched because they found a better
them in media that will reach new prospects; it product; another 15 percent found a cheaper prod-
sends direct mail and makes phone calls to pos- uct; and 70 percent left because of poor or little
sible new prospects; its salespeople participate attention from the supplier. Not much can be done
in trade shows where they might find new leads; about customers who leave the region or go out
and so on. All this activity produces a list of sus- of business, but much ca be done about those
pects. The next task is to identify which suspects who leave because of poor service, shoddy prod-
are really good prospects, by interviewing them, ucts, or high prices. 37
checking on their financial standing, and so on.

System Analysis
Third, the company needs to estimate how much alty – nearly 98 percent annual retention in some
profit it loses when it loses customer. In the case product areas – uses retired employees to inter-
of an individual customer, the lost profit is equal view defectors and customers.38 ( See “Market-
to the customer’s lifetime value – that is, the ing for the New Economy: Customer Service Live
present value of the profit stream that the com- and Online,” for another example.)
pany would have realized if the customer had not
defected prematurely ( see the discussion of life- The need for customer retention
time value, under “Measuring Customer Lifetime If it is difficult to attract the customer you will
Value”). realize that it is still more difficult to retain him.
For a group of lost customers, one major trans- Unfortunately, most marketing theory and prac-
portation carrier estimated its lost profit as fol- tice centers on the art of attracting new custom-
lows: ers rather than on retaining and cultivating exist-
1. The company had 64,000 accounts. ing ones. The emphasis traditionally has been on
2. The company lost 5 percent of its accounts making sales rather than building relationships;
this year due to poor service: This was a loss on preselling and selling rather than caring for
of 3,200 accounts( .05x64,000). the customer afterward. A company would be
3. The average lost account represented a wise to measure customer satisfaction regularly,
$40,000 loss in revenue. Therefore, the com- because the key to customer retention is customer
pany lost $128,000,000 in revenue ( satisfaction.
3,200x$40,000).
A highly satisfied customer stays loyal longer, buys
4. The company’s profit margin is 10 percent.
more as the company introduces new products
Therefore, the company lost $12,800,000
and upgrades existing products, talks favorably
(.10x$128,000,000) this year. Because the
customers left prematurely, the actual loss about the company and its products, pays less
over time is much greater. attention to the competing brands an is less sen-
sitive to price, offers product or service ideas to
Fourth, the company needs to figure out how the company, and costs less to serve than new
much it would cost to reduce the defection rate. customers because transactions are routine.
As long as the cost is less than the lost profit, the
company should spend the money. Some companies think they are getting a sense
of customer satisfaction by tallying customer
Finally, nothing beats listening to customers. complaints, but 96 percent of dissatisfied custom-
Some companies have created an ongoing mecha- ers don’t complain; many just stop buying.39 The
nism that keeps senior managers permanently best thing a company can do is to make it easy
plugged in to front-line customer feedback. for the customer to complain. Suggestion forms
MBNA, the credit-card giant, asks every execu- and toll-free numbers and e-mail addresses serve
tive to listen in on telephone conversations in the this purpose. The 3M Company claims that over
customer service area or customer recovery units. two-thirds of its product-improvement ideas come
Deere & Company, which makes John Deere from listening to customer complaints.
tractors and has a superb record of customer loy-
Listening Is not enough, however. The company
must respond quickly and constructively to the
complaints:
Of the customers who register a complaint, be-

tween 54 and 70% will do business again with
the organization if their complaint is resolved. The
figure goes up to a staggering 95% if the cus-
tomer feels that the complaint was resolved
quickly. Customers who have complained to an
organization and had their complaints satisfacto-
rily resolved tell an average of five people about

System Analysis
the good treatment they received. this office… in person or by mail.
Marketing MEMO A Customer is not dependent on us… we are

To create effective retention programs, market- dependent on him.
ing managers need to identify patterns among
A Customer is not an interruption of our work …
customer defections. This analysis should start
he is the purpose of it. We are not doing a favor
with internal records, such as sales logs, pricing
by serving him … he is doing us a favor by giving
records, and customer survey results. The next
us the opportunity to do so.
step is extending defection research to outside
sources, such as bench marketing studies and A customer is not someone to argue or match
statistics from trade associations. Some key ques- wits with. Nobody ever won an argument with a
tions to ask: Customer.
1. DO customers defect at different rates dur-
ing the year? A Customer is a person who brings us his
2. Does retention vary by office, region, sales wants. It is our job to handle them profitably
representative, or distributor? to him and to ourselves.
3. What is the relationship between retention
rates and changes in prices? Today, more companies are recognizing the im-
4. What happens to lost customers’ and where portance of satisfying and detaining customers.
do they usually go? Satisfied customers constitute the company’s re-
lationship capital. If the company were to be sold,
5. What are the retention norms for your indus-
the acquiring company would have to pay not only
try?
for the plant and equipment and the brand name,
6. Which company in your industry retains cus-
but also for the delivered customer base, namely,
tomers the longest?
the number and value of the customers who would
One company long recognized for its emphasis do business with the new firm.
on customer satisfaction is Maine’s L.L. Bean,
Inc., which runs a mail-order catalog business in Here are some interesting fact bearing on cus-
clothing and equipment for rugged living. Bean tomer retention.: 43
once refunded the money on a pair of two-year- 1. Acquiring new customers can cost five times
old shoes because the customer said the pair did more than the costs involved in satisfying and
not wear as well as expected. L.L. Bean has retaining current customers. It requires a
carefully blended its external and internal mar- great deal of effort to induce satisfied cus-
keting programs. To its customers, it offers the tomers to switch away from their current
following:41 suppliers.
2. The average company loses 10 percent of
100 % Guarantee its customers each year.
All of our products are guaranteed to give 100% 3. A 5 percent reduction in the customer de-
satisfaction in every way. Return anything pur- fection rate can increase profits by 25 per-
chased from us at any time if it proves other- cent , depending on the industry.
wise. We will replace it, refund your purchase 4. The customer profit rate tends to increase
price or credit your credit card, as you wish. We over the life of the retained customer.
do not want you to have anything from L.L. Bean
that is not completely satisfactory Measuring customer lifetime value
To motivate its employees to serve What is customer lifetime value (CLV) and how
the customers well, it displays to measure it? Even if one is able to estimate
the following poster prominently around its CLV, he has to be careful enough to deduct the
offices.42 cost of retaining the customer to arrive at a real-
istic CLV.
What Is a Customer?
A Customer is the most important person ever in The case for increasing the customer retention
rate is captured in the concept of customer life-

System Analysis
time value (CLV). Customer lifetime value (CLV) Now suppose the company estimates average
describes the present value of the stream of fu- customer lifetime value as follows:
ture profits expected over the customer’s life-
time purchases. The company must subtract from Annual customer revenue $5,000
the expected revenues the expected costs of at-
tracting, selling, and servicing that customer. Vari- Average number of loyal years x2
ous estimates have been made for different prod-
Company profit margin 10
ucts and services.
Carl Sewell, in Customers for Life ( with Customer lifetime value $1,000
Paul Brown), estimated that a customer en-
tering his dealership for the first time repre- This company is spending more to the attract
sents a potential lifetime value of over new customers than they are worth. Unless the
$300,000.44 If the customer is satisfied and company can sign up customers with fewer sales
buys several automobiles from the dealership calls, spend less per sales call, stimulate higher
over this or her buying lifetime, and subtract- new-customer annual spending, retain custom-
ing the cost of selling and serving the cus- ers longer, or sell them higher-profit products, it
tomer, this may be the figure. If the satisfied is headed for bankruptcy.
customer brings in other customers, the fig-
ure would be higher. There are two ways to strengthen customer re-
tention.
Mark Grainer, former chairman of the Tech-
One is to erect high switching barriers. Custom-
nical Assistance Research Programs Insti-
ers are less inclined to switch to another supplier
tute (TARP), estimated that a loyal super-
when this would involve high capital costs, high
market customer
search costs, or the loss of loyal-customer dis-
Of course , a company needs, in addition to an counts.
average customer estimate, a way of estimating
The better approach is to deliver high customer
CLV for each individual customer . This is be-
satisfaction. This makes it harder for competi-
cause the company must decide on how much to
tors to offer just lower to offer just lower prices
invest in each customer.
or switching inducements. The task of creating
We can work out an example of estimating CLV, strong customer loyalty is called customer rela-
Suppose a company analyzes its new-customer tionship management.
acquisition cost:
Cost of an average sales call ( including salary, Activity-2

commission, benefits, and expenses) $300
Average number of sales calls to convert an av- For Instructor: Hold a discussion for 10 minutes
erage prospect into a customer X4 on the following topic. Performance in the dis-
cussion shall form part of thecontinuous evalua-
Cost of attracting a new customer $1,200 tion.
This is an underestimate because we are omit- “ Can you name a company that has changed
ting the cost of advertising and promotion, plus the public’s perception of their corporate cul-
the fact that only a fraction of all pursued pros- ture? Has this effectively rehabilitated that
pects end up being converted customers. company’s image?

System Analysis
Points to remember

Unit 1
Chapter 3 - CRM
Lesson 10 - Customer relationship managememt (CRM)
Hello students! (CRM) is to produce high customer equity. Cus-

tomer equity is the total of the discounted life-
In the first unit by analyzing the meaning of mar- time values of all of the firm’s customers. Clearly,
keting and its core concepts we understood that the more loyal the customers, the higher the cus-
marketing starts and ends with the customer. So tomer equity. Rust, Zeithaml, and Lemon distin-
in this unit you would be introduced to the con- guish three drivers of customer equity: value eq-
cepts of customer value and satisfaction. And uity, brand equity, and relationship equity.46
we shall analyze the relation between customer Value equity is the customer’s objective as-
satisfaction and customer loyalty. sessment of the utility of an offering based
on price, and convenience. Each industry has
Nowadays we find companies coming up with
to define the specific factors underlying each
lot of activities or programs to maintain their cus-
subdirver in order to find programs to improve
tomers, so our unit proceeds with a discussion on
value equity. An airline passenger might de-
the importance of customer retention for the busi- fine quality as seat width: a hotel guest might
ness. In customer retention, we discuss a very define quality as room size. Value equity An
important concept that is spoken about in every airline passenger might define quality as seat
organization i.e. customer lifetime value. width; a hotel guest might define quality as
room size. Value equity makes the biggest
Customer relationship management ( CRM): the
contribution to customer equity when prod-
key
ucts are differentiated and when they are
more complex and need to be evaluated.
Value equity especially drives customer eq-
uity in business markets.
Brand equity is the customer’s subjective
and intangible assessment of the brand, above
and beyond its objectively perceive and in-
tangible assessment of the brand, above and
beyond its objectively perceived value. The
subdrivers of brand equity are customer brand
awareness, customer attitude toward the
brand, and customer perception of brand eth-
ics. Companies use advertising, public rela-
tions, and other communication tools to af-
fect these subdrivers. Brand equity is more
important than the other drivers of customer
As the heading suggests the CRM is the key. All equity where products are less differentiated
the activities of value, satisfaction etc , their mea- and have more emotional impact.
surement and delivery will be judged finally from Relationship equity is the customer’s ten-
the fact that how much customer equity we have dency to stick with the brand, above and be-
been able to create. Then what is customer eq- yond include loyalty programs, special rec-
uity? We shall find answers to these questions in ognition and treatment programs, community
this lesson. building programs, and knowledge-building
programs. Relationship equity is especially
The aim of customer relationship management important where personal relationships count
16.101G © Copy Right : Rai University 55

for a lot and where customers tend to con- challenge is to turn clients into members by start-
tinue with suppliers out of habit or inertia. ing a membership program that offers benefits to
customers who join, and then into advocates, cus-
This formulation integrates value management , tomers who enthusiastically recommend the com-
brand management , and relationship manage- pany and its products and services to others. The
ment within a customer-centered focus. Compa- ultimate challenge is to turn advocates into part-
nies can decide which driver (s) to strengthen ners.
for the best payoff. The researchers believe they
can measure and compare the financial return of Some customer inevitably become inactive or drop
alternative investments. Companies now have a out. The challenge is to reactivate dissatisfied
better frame-work for choosing strategies and customers through win-back strategies. It is of-
actions based on which would provide the best ten easier to re-attract ex-customers ( because
return on marketing investments. the company knows their names and histories )
than to find new ones. The key is to analyze the
Figure 3.5 shows the main steps in the process causes of customer defection through exit inter-
of attracting and keeping customers. The start- views and lost customer surveys. The aim is to
ing point is everyone who might conceivably buy win back only those customers who have strong
the product or service ( suspects). From these profit potential.
the company determines the most likely prospects,
which it hopes to convert into first-time custom- How much should a company invest in build-
ers, and then into repeat customers, and ing loyalty so that the costs do not exceed the
gains? We need to distinguish five different
Fig 3.5 The Customer –Development Process levels of customers who have strong profit
potential.
1. Basic marketing: The salesperson simply
sells the product.
2. Reactive marketing: The salesperson sells
the product and encourages the customer to
call if the or the has questions, comments, or
complains.
3. Accountable marketing: The salesperson
phones the customer to check whether the
product is meeting expectations. The sales-
person also asks the customer for any prod-
uct – or service – improvement suggestions
and any specific disappointments.
4. Proactive marketing: The company works
continuously with its large customers to help
improve their performance. ( General Elec-
tric, for example, has stationed engineers at
large utilities to help them produce more
power.
then into clients – people whom the company

treats very specially and knowledgeably. The next
56 © Copy Right : Rai University 16.101G

5. Partnership marketing: The company works It provides customized alerts to the device of the
continuously with its large customers to helo customer’s choice, detailing stock movements and
improve their performance. analysts’ recommendations. The company’s Web
site permits online trading and provides access to
( General Electric,for example, has stationed en- a variety of research tools. Ameritrade devel-
gineers at large utilities to help them produce more oped an investing tutorial called Darwin that it
power.) offered free on CD-ROM to its customers. Cus-
tomers responded to this new focus on their needs:
Most companies practice only basic marketing
Ameritrade grew from fewer than 100,000 ac-
when their markets contain many customers and
counts in 1997 to 1.3 million in 2000.47
their unit profit margins are small. Whirlpool is
not going to phone each washing machine buyer Forming Strong Customer Bonds: The Basics
to express appreciation. At best, it may set up a
customer hot line. At the other extreme, in mar- Companies that want to form strong customer
kets with few customers and high profit margins, bonds need to attend to the following basics:
most sellers will move toward partnership mar- Get cross-departmental participation in plan-
keting. Boeing, for example, works closely with ning and managing the customer satisfaction
American Airlines in designing airplanes that fully and retention process.
satisfy American’s requirements. As Figure 3.6 Integrate the Voice of the Customer in all
shows, the likely level of relationship marketing business decisions.
depends on the number of customers and the Create superior products, services, and ex-
profit margin level. periences for the target market.
Organize and make accessible a database of
The best relationship marketing going on today is
information on individual customer needs,
driven by technology. GE Plastics could not tar-
preferences, contacts, purchase frequency,
get its e-mail effectively to different customers if
and satisfaction.
it were not for advances in database software.
Dell Computer could not customize computer Make it easy for customers to reach appro-
priate company personnel and express their
ordering for its global corporate software. Dell
needs, perceptions, and complaints.
Computer could not customize computer order-
ing for its global corporate customers without Run award programs recognizing outstand-
advances in Web technology. Companies are using employees.
ing e-mail, Web sties, call centers, databases, and
database software to foster continuous contact
between company and customer. Here is how
one company used technology to build customer
value:
Berry and Paraguayan have gone beyond these

basics and identified three retention-building
approaches.48 adding financial benefits, adding
social benefits, and adding structural ties.
Ameritrade The discount brokerage service
Ameritrade provides detailed information to its
customers, which helps to create strong bonds.

ADDING FINANCIAL BENEFITS limited to an affinity group of to those willing to

pay a small fee. Although open clubs are good
for building a database or snagging customers
from competitors, limited membership clubs are
more powerful long-term loyalty builders. Frees
and membership conditions prevent those with
only a fleeting interest in a company’s products
from joining. These clubs attract and keep those
customers who are responsible for the largest
portion of business. Some highly successful clubs
include the following:
Apple Apple encourages owners of its computer

to form local Apple-user groups. By 2001, there
were over 600 groups rangining in size from fewer
than 25 members to over 1,000 members. The
Two financial benefits that companies can offer user groups provide Apple owners with opportu-
are frequency programs and club marketing pro- nities to learn more about their computers, share
grams. Frequency programs (FPs) are designed ideas, get product discounts, and they sponsor
to provide rewards to customers who buy fre- special activities and events and perform com-
quently and in substantial amounts. Frequency munity service. A visit to Apple’s Web site will
marketing is an acknowledgement of the fact that help a customer find a nearby user group.49
20 percent of a company’s customers might ac-
Harley-Devidson The world-famous motorcycle
count for 80 percent of its business.
company sponsors the Harley Owners Group
American Airlines was one of the first compa- ( H.O.G.) , which now numbers 600,000 mem-
nies to pioneer a frequency program in the early bers in over 1,200 chapters. The first-time buyer
1980s, when it decided to offer free mileage credit of a Harley-Davidson motorcycle gets a free one
to its customers. Hotels next adopted FPs, with – year membership H.O.G. benefits include a
Marriott taking the lead with its Honored Guest magazine called Hog Tales, a touring hand-book,
Program. Shortly thereafter, car rental firms spon- emergency road service, a specially designed in-
sored FPs. Then credit-card companies began to surance program, theft reward service, discount
offer points based on card usage level. Sears of- hotel rates, and a Fly & Ride program enabling
fers rebates to its Discover member customers members to rent aHarleys while on vacation. The
with discounts on particular items. company also maintains an extensive Web site
devoted to H.O.G., which includes information
Typically, the first company to introduce an FP on club chapters, events, and a special members
gains the most benefits, especially if competitors – only section.50
are slow to respond. After competitors respond,
FPs can become a financial burden to all the of- ADDING SOCIAL BENEFITS
fering companies, but some companies are more Company personnel work on increasing social
efficient and creative in managing an FP. For bonds with customers by individualizing and per-
example, airlines are running tiered loyalty pro- sonalizing customer relationships; Table 3.2 con-
grams in which they offer different levels of re- trasts a socially sensitive approach with a socially
wards to different travelers. They may offer one insensitive approach to customers. In essence,
frequent-flier mile for every mile flown to occa- thoughtful companies turn their customers into
sional travelers and two frequent – flier miles for clients. Donnelly, Berry, and Thompson draw this
every mile flown to top customers. distinction:
Many companies have created club membership Customers may be nameless to the institution;
programs to bond customers closer to the com- clients cannot be nameless. Customers are
pany. Club membership can be open to everyone served as part of the mass or as part of larger
who purchases a product or service, or it can be segments; clients are served on an individual ba-

sis. Customers are served by anyone who hap- People can be loyal to their country, family, and
pens to be available; clients are serviced by the beliefs, but less so o their toothpaste, soap, or
professional assigned to them.51 even beer. The marketer’s aim should be o in-
crease the consumer’s proclivity to
repurchase the company’s keter’s
Good Things Bad Things aim should be to increase the
consumer’s proclivity to repurchase
Initiate positive phone Make only callbacksMake
the company’s brand.
callsMake recommendations justifications Accommoda-
Candor in language Use tive languageUse correspon- Here are his suggestions for cre-
phoneShow appreciation dence Wait for misunder- ating structural ties with the cus-
Make service suggestions standings Wait for service tomer:
Use “We” problem - solv- requests Use “owe-us” legal Create long-term contracts. A
ing language Get to problems language Only respond to newspaper subscription replace the
Use jargon or shorthand Per- problems Use long-winded need to buy a newspaper each day.
sonality problems aired Talk communications Personality A 20-year mortgage replaces the
of “our future together” problems hidden Talk about need to re-borrow the money each
Routinize responses Accept making good on the past Fire year. A home heating oil agreement
responsibility Plan the future drill and emergency respon- assures continual delivery without
siveness Sift blame Rehash renewing the order.
the past Charge a lower price to con-
sumer who buy larger suppliers.
Offer lower prices to people who agree to
ADDING STRUCTURAL TIES be supplied regularly with a certain brand of
The company may supply customers with spe- toothpaste, detergent, or beer.
cial equipment or computer linkages that help Turn the product into a long-term service.
customers manage orders, payroll, and inventory. Daimler-Chrysler is considering selling miles
A good example I s McKesson Corporation, a of reliable transportation instead of cars, with
leading pharmaceutical wholesaler, which in- the consumer able to order different cars at
vested millions of dollars in EDI capabilities to different times, such as a station wagon for
help independent pharmacies manage inventory, shopping and a convertible for the weekend.
order-entry processes, and shelf space. Another Gaines, the dog food company , could offer a
example is Milliken & Company, which provides Pet Care service that includes kennels, in-
proprietary software programs, marketing re- surance, and veterinary care along with food.
search, sales training , and sales leads to loyal
customer profitability, company profitability and
customers
total quality management
Measuring Profitability
We have so far discussed value satisfaction their
measurement,and also how to estimate the cus-
tomer lifetime value,The aim is finally to attract
and retain those customers who are profitable.
How will you arrive at the profitability of a cus-
tomer or a company ?
Ultimately, marketing is the art of attracting and

keeping profitable customers. According to James
V. Putten of American Express, the best cus-
tomers outspend others by ratios of 16 to 1 in
Lester Wunderman, one of the most astute ob- retailing, 13 to 1 in the restaurant business, 12 to
servers of contemporary marketing, thinks talk 1 in the airline business, and 5 to 1 in the hotel
about “loyalizing” customers misses the point.52 and motel industry.53 Yet every company loses

money on some of its customers. The well-known Note that the emphasis is on the lifetime stream
20-80 rule says that the top 20 percent of the of revenue and cost, not on the profit from a par-
customers may generate as much as 80 percent ticular transaction. Here are two illustrations of
of the company’s profits. Sherden sug-gested customer lifetime value.
amending the rule to read 20-80-30, to reflect the
idea that the top 20 percent of customers gener- GM When car buyers look at cars on the lot,
ate 80 percent of the company’s profits, half of they often experience sticker shock. $15,000
which are lost serving the bottom 30 percent of may seem like a lot of money to pay for a Cava-
unprofitable customers.54 The implication is that lier, but that sum is nothing compared to the
a company could improve its profits by “firing” $276,000 that General Motors estimates its life-
its worst customers. time customers to be worth on average. The
six-figure value is a graphic illustration of the
importance of keeping the customer satisfied
for the life of the automobile to better the
chances of a repeat purchase.56
Taco Bell When tacos cost less than a dollar each,

you would not think Taco Bell would fret over
lost customers. However, executives at Taco Bell
have determined that a repeat customer is worth
as much as $11,000. By sharing such estimates
of cus-tomer lifetime value with its employees,
Taco Bell’s managers help employees un-
derstand the value of keeping customers satis-
fied.57
Furthermore, it is not necessarily the company’s Although many companies measure customer
largest customers who yield the most profit. The satisfaction, most companies fail to measure in-
largest customers demand considerable service dividual customer profitability. Banks claim that
and receive the deepest discounts. The smallest this is a difficult task because a customer uses
customers pay full price and receive minimal different banking services and the transactions
service, but the costs of transacting with small are logged in different departments. However,
customers reduce their profitability. The midsize banks that have succeeded in linking customer
cus-tomers receive good service and pay nearly trans-actions have been appalled by the number
full price and are often the most profitable. This of unprofitable customers in their customer base.
fact helps explain why many large firms are now Some banks report losing money on over 45 per-
invading the middle market. Major air express cent of their retail customers. There are only two
carriers, for instance, are finding that it does not solutions to handling unprofitable customers: raise
pay to ignore small and midsize international ship- fees or reduce service support.
pers. Programs geared toward smaller custom-
ers pro-vide a network of drop boxes, which A useful type of profitability analysis is shown in
allow for substantial discounts over letters and Figure 3.7.
packages picked up at the shipper’s place of busi-
ness. In addition, United Parcel Service (UPS)
conducts seminars to instruct exporters in the
finer points of shipping overseas.55
What makes a customer profitable? A profitable

customer is a person, household, or company that
over time yields a revenue stream that exceeds
by an acceptable amount the company’s cost
stream of attracting, selling, and servicing that
customer.

Customers are arrayed along the columns and tors at a sufficiently low cost. Competitive ad-
products along the rows. Each cell contains a vantage is a com ability to perform in one or more
symbol for the profitability of selling that product ways that competitors cannot or will not Michael
to that customer. Customer 1 is very profitable; Porter urged companies to build a sustainable
he buys three profit making products ( P1,P2, competitive advantage.60But few competitive
and P4). Customer 2 yields a picture of mixes advantages are sustainable. At best, they may
profitability; he buys one profitable product and be leverageable.A leverage able advantage is one
one unprofitable product. Consumer 3 is a losing that a company can use as a spring board to new
customer because he buys one profitable prod- advantages, much as Microsoft has leveraged its
uct and two unprofitable products. operating system to Microsoft Office and then to
networking applications. In general, a company
What can the company do about that hopes to endure must be in the business of
customers 2 and 3? continuously inventing new advantages.
(1) It can raise the price of its less profitable
products or eliminate them, or
(2) It can try to sell them its profit-making
products.
Unprofitable customers who defect should not

concern the company. In the company should
encourage these customers to switch to competi-
tors
Customer profitability analysis (CPA) Any competitive advantage must be seen by cus-
It is best conducted with the tools accounting tomers as a customer advantage. For example,
technique called Activity-Based Costing (ABC). if a company delivers faster than its competitors,
The company estimate revenue coming from the this will not be a customer advantage if custom-
customer, less all costs. The costs should mc1ude ers do not value speed. Companies must focus
not only cost of making and distributing the prod- on building cus-tomer advantages. Then they will
ucts and services, but also such costs as taking deliver high customer value and satisfaction,
phone calls from the customer, traveling to visit which leads to high repeat purchases and ulti-
the customer, entertainment and giving all the mately to high company profitability. (For a co-
company’s resources that went into serving that gent view of how to measure profitability, see
customer. When this is done each customer, it is “Marketing Insight: Marketing’s Goal: To In-
possible to classify customers into different profit crease Shareholder Value.”)
tiers: plat customers (most profitable), gold cus-
tomers (profitable), iron customers (low profit but Activity-3
desirable), and lead customers (unprofitable and With the advent of e-commerce, question have
undesirable). arisen about invasion of privacy —both o-line and
off-line ——by the firms. Concerns are also be-
The company’s job is to move iron customers into ing felt about potential on line credit card infor-
the gold tier and gold customers into the plati- mation or other potentially sensitive or confiden-
num tier, while dropping the lead customers or tial financial information. Other view is that these
making them profit a raising their prices or low- fears are unfounded and that security issues ex-
ering the cost of serving them. The company’s ist virtually everywhere in the world, and it is upto
marketing investment ought to be higher in the the consumer to protect his interests.
higher profit tiers (see Figure 3.8)
For Instructor: Please conduct a 10 minute dis-
Increasing company profitability: cussion on the abovementioned topic. Perfor-
Companies must not only be able to create high mance during the discussion shall form part of
‘absolute value, but also high active to competi- the continuous evaluation.

Activity-4 the function of product’s perceived performance

Discuss the measures that the following busi- and his expectations. and since satisfaction is di-
nesses are taking to retain the existing custom- rectly related to loyalty ,many firms are today
ers striving for what we can call as Total Customer
a) A hospital Satisfaction.(TCS)..
b) A retail outlet We have evaluated that losing customers can be
c) Clubs a very costly proposition for the cost of attract-
ing a new customer is five times more than the
For completing this activity you need to select
cost of keeping a current customer happy. ALSO
the organization of your choice in all the busi-
THE KEY TO RTAINING CUSTOMERS IS
nesses mentioned above. Analyse the individual
RELATIONSHIP MARKETING. In order to
programs used in those organizations and finally
keep customers happy , marketers may add other
comment on how the programs differ in each of
benefits or create structural ties between the
these industries and why?
company and the customers. Another key is the
Chapter Summary total quality which creates value and leads to to-
tal customer satisfaction. In such quality con-
In this chapter we have dealt with issues that are sciousness companies , marketing managers
closely related to customer. How does he per- should not only participate in formulating strate-
ceive value? How is he satisfied? How to mea- gies but also deliver marketing quality alongside
sure value and satisfaction. Ultimately he will buy production quality.
from the firm which provides maximum customer
derived value——the difference between total In the end we shall conclude by saying that each
customer value and total customer cost. marketing activity –beit marketing research, sales
training ,advertising, customer service must be
You have seen that a customer’s satisfaction is performed to high standards.
Point to remember



Tutorial - B and the opportunity for marketers to know their

customers on a more personal level. Ever-in-
Activity: creasing competition has forced marketers to seek
Discuss the measures that the following busi- out the information necessary to provide custom-
nesses are taking to retain the existing customers with the products and services they truly de-
ers sire. Technology, when used to create a customer
a) A hospital database, is one way marketers are answering
to this new trend. Product development will be
b) A retail outlet
discussed in a later chapter; for now, we will fo-
c) Clubs
cus on building satisfaction through customer re-
For completing this activity you need to select lationship development activities.
the organization of your choice in all the busi-
The concept of perceived value is based on
nesses mentioned above. Analyse the individual
Kotler’s explanation of customer delivered value.
programs used in those organizations and finally
Customers, like marketers, seek to profit from
comment on how the programs differ in each of
an exchange. Perceived value is aptly named
these industries and why?
because it supports the notion that the customer
Creating Customer Relationships that Last and not the marketer determine value. The
marketer’s responsibility is to create value, in both
This lecture is intended for use with Chapter 3,
product and service quality, that lead to increased
“Building Customer Satisfaction, Value, and Re-
satisfaction and encourage a high perceived value.
tention.” The focus is on the increasingly power-
ful role of customers in the marketing process For example, service excellence is determined
and the need for marketers to provide value that by customer perceptions and motivated by cus-
exceeds customer expectations. The concept of tomer needs. Ken Blanchard, author of The One
relationship marketing is also presented for fur- Minute Manager, says that the secret to com-
ther discussion, providing a link with other areas peting successfully in today’s environment is to
of the text. provide customers with service that is so far
above their expectations that it is perceived to be
Learning Outcome legendary.
To understand the changing role of the cus-
tomer in today’s marketplace Marketers, with both large and small organiza-
To explain the concepts of product and ser- tions, can engage in activities that exceed expec-
vice quality as they contribute to perceived tations and lead to customer delivered value.
value for the customer Marketers with large organizations have the ability
To present specific methods whereby mar- to tap into a sophisticated database, utilizing past
keters can engage in value-creating activi- purchase data to customize marketing programs.
ties These marketers also can become experts at
“guerrilla marketing,” or the implementation of
Discussion local promotions for the purpose of getting closer
to customers. Furthermore, large organization
Introduction marketers also have the ability to create Web site
In the contemporary marketplace, it is hard to and store-specific marketing programs that cre-
believe there was ever a time when customers ate retailer loyalty, build differentiation, and in-
were not treated as an integral part of the ex- crease sales in desired market areas.
change process. Prior chapters consider some
of the many shifts taking place in today’s mar- Small business marketers, however, also have
keting environment. Competition in the market- many opportunities to create strong customer
place, along with advancing technology, affords relationships. By placing extra focus on what
customers the ability to learn significantly more might generally be considered a commodity prod-
about the products they will consider purchasing. uct, these marketers can stimulate demand and
compete with large rivals in the same industry. If
The same factors also have created both the need a company is small enough, its top executives can

serve as the communication link for the company deliveries? The companies become, in essence,
and various external publics, such as customers share-of-customer marketers.
and retailers. Even internal publics, such as the
sales staff, should be encouraged to make sug- A marketer’s primary task in the one-to-one fu-
gestions to top management. Finally, database ture is not to find customers for the marketer’s
programs are becoming more and more afford- products but rather to find more products and
able, making direct-mail programs a viable op- services for its customers. Consider that most
tion even for smaller firms. This leads to a dis- retail chains have not really tried to figure out
cussion of an evolving direction for relationship how to offer such conveniences as home
marketing. delivery, because they don’t want to consider this
for various internal reasons. They want custom-
Relationship Marketing Expanded ers to need to come in to the store (or into the
Even though it is becoming increasingly possible, virtual store) because they like to have custom-
why would any rational customer actually want ers walking up and down the aisles (or virtual
a “relationship” with the company that makes his aisles), making last-minute impulse purchases. For
or her razor blades, or dishwasher soap, or toilet a large part of their business, today’s retailers
paper? The answer is that the consumer depend on inconveniencing customers by requir-
probably would not necessarily desire a “relation- ing them to drive to their store (or virtual store)
ship” with these companies, but the customer will location to do their shopping.
want more spare time. Accordingly, he or she
However, consider that marketers today jam
might like to have routine or repeat purchases
twice as many products in the average super-
for soap, paper towels, grocery staples, and so
market as there were just over a decade ago
forth automated.
(30,000 products now, compared with 15,000 in
What if you could turn on your personal com- 1985). Furthermore, commercial messages
puter or your interactive television set, call up a abound for these products, the overwhelming
list of last week’s grocery purchases, make a few majority of which do not now appeal to any par-
changes, and then simply order them delivered to ticular consumer. Instead, we must all fight our
your door? And what if, when you did this, the way through the increasing number of advertis-
computer reminded you to order certain items ing messages to pick out the information we need,
such as toothpaste and paper towels because you just as we must struggle through the proliferating
might be running low on those items? What if, to barrage of products in or out of stores just to se-
help choose the groceries you wanted for your lect the ones we want to buy. Every shopping
family, you asked the computer for a week’s trip becomes an increasingly difficult attempt to
worth of dinner menus, specifying recipes and accomplish the same basic task, thus adding to
ingredients? the increasing use of the Internet.
In many product categories, you don’t really care Having an ability to buy these products more con-
what brand the computer selects, but in some veniently doesn’t mean people will completely
product categories you have a list of “approved” stop going into stores, nor does it mean
brands, as well as brands you never want to see advertising will cease to exist. But if getting your
again. The computer automatically seeks out the regularly consumed products could be made
least expensive basket of products that meet these nearly as convenient as “pushing a button,”
criteria. Once you confirm it, your order is paid wouldn’t you go into the store less frequently?
for via credit card or direct debit. The elapsed Wouldn’t you, for the most part, prefer not hav-
time for all this shopping was just seven minutes. ing to shop for routine things? You could always
choose to go out if you wanted to—after all, shop-
Now, from the marketer’s side of the equation, ping is often a social experience, as well as a
consider the immense business opportunity in necessity.
serving your customers more thoroughly. Deliv-
ering grocery staples is one thing. But what about As with stores and other enterprises that cater to
pharmaceuticals? Dry cleaning and laundry? the interests of the interactive consumer (includ-
Ready-made meals? FedEx and other pickups and ing information and entertainment providers), the

manufacturer will be able to succeed competi- mance, as what we actually do is sometimes un-
tively only by relying on individual feedback. For der-appreciated or unseen by a critical customer.
the manufacturer, success in the one-to-one mar-
keting environment will mean soliciting informa- Usually we help set up these expectations,
tion from consumers, individually, and then using through advertising or through the sales process.
that feedback to customize an offering to each When this happens, and we don’t deliver, we have
individual customer, one at a time. This is the es- no one but ourselves to blame. Over-promising,
sence of one-to-one marketing. then delivering less than promised, is a surefire
way to create customer dissatisfaction. This can
Additional Reading be true even if our performance is still better than
The Quest for Customer Satisfaction that of our competitors. The fact that the cus-
tomer believed something different colors the pic-
First...do we know what we’re even looking ture against us.
for?
On the other hand, when the customer gets more
by Dick Barnes, Principal, The Freeland Group than they bargained for they think we’re the
greatest. They are completely satisfied, even
Nowadays it seems everyone is talking about how thrilled. The down side, of course, is that when
important their customers are, how well they treat they reorder they do so with newly heightened
their customers, and how their customers are loyal expectations. If we perform as before, they are
because they are satisfied. But how do we know simply satisfied, but if we don’t over-perform
if our customers are satisfied, super satisfied, truly once again, they become dissatisfied. It’s like
loyal, or just hanging with us until someone better walking a tightrope.
walks in the door? In truth we really don’t know,
nor do we even consider dividing customers into And it’s a very shaky tightrope. We want to sell
these different camps. ourselves and our firms, but we don’t dare
oversell, but if we sell too little a competitor may
If we want to improve our bottom line, we need beat us out, and if we promise just enough to beat
to know what our customers really think, and we the competition then we don’t dare fail to deliver.
need to pinpoint what we do that does satisfy
them and what does not. Better yet, we should Recall the “snake oil” salesmen of old. They
want to discover what they consider just satis- would sell cough syrup out of their horse drawn
factory, what they are happy about, what they’re wagons, claiming the elixir would cure every
delighted or thrilled about, and what they simply disease of mankind. When the product did not
tolerate until something better comes along. deliver, the salesman was often tarred, feathered,
and run out of town on a rail. They created very
Until recently, most firms simply lumped all cus- unsatisfied customers. This wouldn’t have hap-
tomer attitudes into satisfied or unsatisfied. This pened if the salesman had simply promised to
black and white approach did little to help us find sooth a cough. He wouldn’t have sold as much
ways to improve service and customer product, but he would have enjoyed his leave-
retention…and customer retention is vitally im- taking a great deal more.
portant to our profit line. Measuring and qualify-
ing customer satisfaction issues can be extremely All of this doesn’t mean the modern day
instructive if we know what to look for and what customer relationship is so complicated as to be
to do with that information. hopeless. After all, your competition is in the same
boat and your customers are probably in there as
To begin the process of measuring customer sat- well; being that they also have customers to worry
isfaction we should first define what we are look- about. So even your most finicky consumers have
ing for. Customer satisfaction is normally thought some degree of tolerance and understanding
of as the relationship between what the customer when things don’t go exactly as planned.
expects and what the customer receives; in other
words, expectations versus performance. More In the modern business transaction, there are a
accurately, we should label it perceived perfor- number of areas we can look at to help us mea-

sure overall customer satisfaction. Generally we immediately for a competitor.

look at the product or service itself, its price, the
delivery, the billing and collecting process, the In other words, ninety percent of your customers
ordering or re-ordering process, the personal re- might be unsatisfied and just waiting for the right
lationships involved, and the customer service salesperson to walk in the door and steal them
after the transaction. Your firm might have a dif- away. There is an obvious value in finding the
ferent selection of functions or processes that hole in the fence and fixing it before the critters
could be measured as well. escape. A survey may allow you to do this, and
stop those customers from becoming ex-custom-
Next we look at ways to measure the level of ers.
satisfaction with those functions. There are four
proven methods to go about this; the lost cus- Customer satisfaction surveys should normally be
tomer analysis method, the test shopping analy- designed and carried out by a third party, and
sis, a complaint analysis, or a customer satisfac- might be done blindly so as not to unduly influ-
tion survey. Different functions are sometimes ence results either pro or con.
better analyzed by different methods, or combi-
nations of these methods. An important aspect of any of these measuring
systems is to keep track of results and compare
The lost customer analysis can be a very simple them over time. Without doing so we can never
thing. A manager might make a telephone call or discover whether we have made improvements
personal visit, or a third party might do the calling or not. In the same vein, the method of gathering
to help prevent bias. Sometimes the information information must be the same each time, or the
gained can actually get your salesperson back in results could be misleading.
the door at a later date, but the real intent of this
practice is to be able to build a list of events that Next month we’ll get into some different meth-
created dissatisfaction. ods of tracking the information we gather, orga-
nizing that information, then using it to enhance
Test shopping is the practice of using a third party our customer satisfaction measures along with
to pose as a prospect. They can then report in our bottom line.
great detail what happens throughout the process.
They can even go as far as making a purchase, Case Study
then returning the purchase for a refund or re-
questing customer support after delivery. Every
Marketing Spotlight-Charles Schwab
firm should run this type of trial at least once, if Charles Schwab founded the discount brokerage
not on a regular basis. named for him in 1974. The company’s no-frills
investment offerings were predicated on Charles
Complaint analysis is similar to the lost customer Schwab’s distaste for traditional brokers, who he
analysis, but you don’t have to hunt down the labeled “hucksters of inside information, always
problems encountered by customers. They are trying to get me to buy this product or invest-
kind enough to make sure you know what the ment.” Until 1993, Schwab’s brokers were in-
problems are. I state it that way because a com- structed not to offer investment advice, but rather
plaining customer should be considered a gift. It’s to refer curious customers to publicly available
an opportunity to see your weaknesses from research from Standard & Poor’s or Morningstar.
another’s viewpoint and to come up with solu-
tions. If you are not tracking and graphing com- Schwab benefited from the online trading boom.
plaints you are missing vital information that could Long before any of the traditional brokerage
generate some healthy returns. houses considered an e-commerce move, in 1997
Schwab was one of the first discount brokerages
A customer satisfaction survey might be the most to offer online trading. It offered online trades at
expensive and time-consuming method of the four. $29.95 for the first 1000 shares, compared with
It might also be the most accurate. Studies indi- the per-trade fees that exceeded $100. Starting
cate that only five to ten percent of dissatisfied at zero in 1995, online trades accounted for 85
customers will make a complaint, or leave you percent of all trades executed by Schwab by 2001.

The company’s retail assets grew threefold to does the Schwab marketing effort reflect?
almost $1 trillion during the same time period, How has Schwab effectively anticipated the
putting it in league with the biggest brokerages in needs of the market?
America. Between 1997 and 2000, daily trades 2. Draw on recent economic developments to
rose 183 percent, while profits increased 112 per- anticipate where the next changes likely will
cent during that time frame. be for Schwab. Consider what past and fu-
ture events might have a substantial impact
Schwab’s marketing activities helped the com- on the way it operates in the future.
pany become a household name synonymous with
online trading. Early ads used real Schwab cus-
tomers and employees in testimonial advertise- Essay Questions
ments. In 1999, the company enlisted celebrity
spokespersons to advertise its full-service online 1. From your own personal standpoint, state
investing offerings. The humorous ads featured three ways in which you create your expec-
sports stars such as football player Shannon tations about your purchases as a consumer.
Sharpe and tennis star Anna Kournikova in 2. Core competencies are important for a busi-
cameo roles as Schwab customers who surprised ness to recognize in themselves in order to
competitors with their knowledge of investing be competitive. Core competencies have
principles. The tagline served to reinforce three characteristics. State them.
Schwab’s difference from online-only brokerages: 3. What is the difference between a visionary
“We’ve created a smarter kind of investing. company and a comparison company?
We’ve created a smarter kind of investor.” These
ads were part of Schwab’s $200 million market- Multiple-Choice
ing budget for 1999.
1. ______________ is the difference between
In 2001, as online trading slowed in the wake of
the prospective customer’s evaluation of all
the dot-com crash, Schwab sought to expand its
the benefits and all the costs of an offering
business by providing its customers with a greater
as compared to the perceived alternatives.
number of services. Rather than rely on a high
volume of low-cost trades to drive revenues, a) Total customer value
Schwab began focusing on providing investment b) Customer perceived value
advice to its clients. In new brokerage offices, c) Total customer cost
Schwab placed financial advisers from whom d) Customer gains
clients could seek investment tips and other ser-
vices for a fee. Schwab also considered offering 2. Customers develop their expectations about
proprietary stock research for its customers. In- a product they will purchase from all of the
dustry experts expected these new services would following sources except:
recast Schwab in a role more similar to tradi- a) unread e-mail
tional brokerage houses. A former Schwab ex- b) friends
ecutive predicted, “Schwab will be a lot closer to
c) past experience
Merrill Lynch than it is to the Schwab of yester-
d) peers
day.”
(Sources: John Gorman. “Charles Schwab, Ver- 3. Which of the following is not a tool for track-
sion 4.0.” Forbes, January 8, 2001, pp. 89-95; ing and measuring customer satisfaction?
Charles Gasparino and Ken Brown. “Schwab’s a) Complaint and suggestion systems
Own Stock Suffers From Move into Online Trad- b) Customer satisfaction surveys
ing.” Wall Street Journal, June 19, 2001, p. A1; c) Ghost shopping
Rebecca Buckman and Kathryn Kranhold. d) All of the above
“Schwab Serves Up Sports-Themed Ads.” Wall
Street Journal, August 30, 1999, p. B9.)
4. ___________ companies are increasingly
1. What changes in the marketing environment focusing on the need to manage core busi-

ness processes such as new-product devel- c) direct mail

opment, customer attraction and retention, d) phone calls
and order fulfillment.
a) Big 10. Which of the following descriptions would
b) High-profile best characterize a highly satisfied customer?
c) High-performance a) Buys more products and services
d) Highly competitive b) Visits competitors on a regular basis
c) Try other brands to make sure they are loyal
5. Which of the following are not resources that to a company
are needed by companies to carry out its d) Would not complain so they can appear to
business processes? remain loyal
a) labor
b) commercials 11. Which of the following would best describe
c) materials the calculation of a customer’s lifetime value?
d) information a) The present value of the stream of future
costs expected over the lifetime
6. A company’s _________ consists of its b) The present value of the stream of future
structures, policies, and corporate culture, all income increases expected over the lifetime
of which can be dysfunctional in a rapidly c) The future value of the stream of future costs
changing business environment. expected over the lifetime
a) organization d) The present value of the stream of future
b) rules profits expected over the lifetime
c) policies
d) culture 12. ____________ is the customer’s objective
assessment of the utility of an offering based
7. _______________ companies are ac- on perceptions of its benefits relative to its
knowledged as the industry leaders and cost.
widely admired; they set ambitious goals, a) Relations equity
communicate to their employees, and em- b) Brand equity
brace a high purpose beyond making money. c) Value equity
a) Utopian d) Net equity
b) Encouraging
c) Comparison 13. There are five different levels of investment
d) Visionary in customer-relationship building. They are
basic, reactive, proactive, partnership, and
8. The primary activities that represent creat- what?
ing value for customers as part of the value a) Subjective
chain tool include all of the following except: b) Accountable
a) inbound logistics c) Objective
b) operations d) Accounting
c) technology
d) marketing and sales 14. Creating structural ties with customers is a
long-term process for a company. Which of
9. Some of the ways that a company can seek the following would not be a good suggestion
to increase their profits and sales by search- for creating those ties?
ing for new customers include all of the fol- a) Concentrate on current sales
lowing except: b) Create long-term contracts
a) ads c) Charge a lower price to consumers who buy
b) reading the obituaries larger supplies
d) Turn the product into a long-term service

15. A _________________ advantage is one 7. Examples of resources that a company can

that a company can use as a springboard to use to carry on its business processes are
new advantages. labor, materials, and information.
a) customer a) True
b) relationship b) False
c) contractual
d) leverageable 8. The shared stories, experiences, beliefs, and
norms that every employee has and shares
True or False within a company are called policies.
1. Total customer value is the bundle of costs a) True
customers expect to incur in evaluating, ob- b) False
taining, using, and disposing of the given mar-
ket offering.
9. Visionary companies are acknowledged in-
a) True
dustry leaders and are widely admired, set
b) False ambitious goals, communicate to their em-
ployees, and embrace a high purpose beyond
2. A person’s feelings of pleasure or disappoint- making money.
ment resulting from comparing a product’s a) True
performance (or outcome) in relation to his b) False
or her own performance (or outcome) is
called satisfaction.
10. A value chain is a tool used by a company to
a) True
identify ways to create more customer value
b) False through its activities.
a) True
3. Customer expectations are created by buy- b) False
ing experience, friends’ and associates’ ad-
vice, and marketers’ and competitors’ infor-
mation and promises. 11. The process of calculating a company’s cus-
tomer defection rate is called customer
a) True
scrambling.
b) False
a) True
b) False
4. A value inquest consists of the whole cluster
of benefits the company promises to deliver;
it is more than the core positioning of the of- 12. A highly satisfied consumer stays loyal longer,
fering. buys more products talks favorably about the
company, and shops at competitors regularly
a) True
to keep up with price comparisons.
b) False
a) True
b) False
5. One of the tools used to track and measure
customer satisfaction is a complaint and sug-
gestion system. 13. Customer lifetime value describes the present
value of the stream of future profits expected
a) True
over the customer’s lifetime purchases. [Hint]
b) False
a) True
b) False
6. Companies that navigate all the pitfalls to
reach their customer value and satisfaction
goals are called high-performance companies. 14. Value equity is the customer’s subjective and
[Hint] intangible assessment of the brand, above and
beyond its objectively perceived value.
a) True
a) True
b) False
b) False

15. A customer advantage is something that a

company can use as a springboard to new
advantages.
a) True
b) False

Unit 2
Scanning Marketing Opportunities
Chapter 4 - Strategic Planning
Lesson 11 - Strategic planning: business mission, concept of
strategic business units (SBUs)
Hello students! the context of a firm’s broader strategic business
plan.
We Indians believe a lot in planning than
implementing-right? Now a day’s organizations In most large corporations, strategic planning
are no longer talking about just planning but they takes place at four levels.
are talking about strategic planning so it’s very The Corporate Level- corporate headquar-
important for you all to understand these ters is responsible for designing a corporate
concepts which will be introduced to you in this strategic plan to guide the whole enterprise;
lesson. The concepts that would be discussed are it makes decisions on the amount of resources
strategic planning its process where we shall be to be allocated to each division, as well as on
discussing the mission, how it is to be formulated which businesses to start or eliminate.
and what role it plays in further planning in the The Division Level- each division establishes
organization and the meaning of Strategic a division plan covering the allocation of funds
business units (SBUs) to each business unit within the division. For
example the marketing division would formu-
In this chapter, we will try and lean the following
late strategies as to how the various units
concepts: within it would work.
1. To define strategic planning and consider The Business Level- each business unit de-
its importance for marketing velops a strategic plan to carry that business
2. To look at the different kinds of strategic unit into a profitable future. Eg. The units in
plans and the relationships between the marketing division would be Sales, Ad-
marketing and the other functional areas vertising, Promotions, Public Relations, Mar-
in an organization ket Intelligence, etc.
3. To describe thoroughly each of the steps The Product Level- each product line, brand
in the strategic planning process within the business unit develops a market-
4. To show how a strategic marketing plan ing plan for achieving its objectives in its prod-
may be devised and applied. uct market.
1.1 Strategic Planning Now, can any of you try to guess what would be
How would you define a strategic business plan the steps in the strategic planning process?
and a strategic marketing plan?
The strategic planning process consists of the
A strategic business plan describes the overall seven interrelated steps shown in Figure — and
direction an organization will pursue within its described below.
environment and also guides the allocation of re-
sources. It provides the logic that integrates the This process is applicable for small and large
perspectives of functional departments and op- firms, consumer and industrial firms, goods and
erating units, and points them all in the same di- services-based firms, domestic and international
rection. firms, and profit-oriented and nonprofit-oriented
organizations.
A strategic marketing plan outlines the actions
necessary, which is responsible, when and where The Strategic Planning Process
they will be completed, and how they will be co- The Strategic Planning, Implementation and Con-
ordinated. A marketing plan is carried out within trol Process

Step1 Defining organizational mission Can any of you give me the full form of SWOT?
I hope you would understand the vision and mis- SWOT analysis is the analysis of internal and
external environment of an organization.
Internal factors include:
Strengths S
Weaknesses W
External factors include:

Opportunities O
Threats T
sion concepts for organizations. Defining the or- The SWOT analysis is a continuous review of a
ganizational mission refers to a long-term com- firm’s market position.
mitment to a type of business and a place in the
market. It “describes the scope of the firm and More details of the SWOT analysis are covered
its dominant emphasis and values,” based on a in the next lesson.
firm’s history, current management preferences,
resources, and distinctive competence, and on When you are planning strategically with any
environmental factors. company—online or offline—it is useful to com-
plete an analysis that takes into account not only
Step 2 Establishing SBUs your own business, but your competitor’s busi-
Have you ever heard of the term SBU? How nesses and the current business environment as
would you try and define an SBU? What is the well. A SWOT is one such analysis.
full form of SBU?
Completing a SWOT analysis helps you identify
A strategic business unit (SBU) is a self-con- ways to minimize the effect of weaknesses in
tained division, product line, or product depart- your business while maximizing your strengths.
ment in an organization with a specific market
focus and a manager with complete responsibil- Ideally, you will match your strengths against
ity for integrating all functions into a strategy. market opportunities that result from your com-
petitors’ weaknesses or voids.
Step 3 Setting marketing objectives
Basic SWOT
What do you think are the marketing objectives?
You can develop a basic SWOT analysis in a
Marketing objectives establish the firm’s goals brainstorming session with members of your com-
for each SBU. Objectives are described in both pany, or by yourself if you are a one-person shop.
quantitative terms (dollar sales, percentage profit To begin a basic SWOT analysis create a four-
growth, and market share), and qualitative terms cell grid or four lists, one for each SWOT com-
(image, level of innovativeness, and industry lead- ponent:
ership role).
Then, begin filling in the lists.
Without clearly identified objectives, firms often Strengths - Think about what your company
fail. does well. What makes you stand out from
your competitors? What advantages do you
Step 4 Performing situation analyses have over other businesses?
The situation analysis is also known as SWOT · Weaknesses - List the areas that are a
Analysis struggle. What do your customers complain
about? What are the unmet needs of your

sales force? of business, opportunities arise to gain the

Opportunities - Try to uncover areas where defunct business—customers. Customers of
your strengths are not being fully utilized. Are bpl.net were ready customers for a company
there emerging trends that fit with your called Data Access which was operating
company’s strengths? Is there a product/ser- under the NOW brand.
vice area that you could do well in but are
not yet competing? You can also enhance a SWOT analysis through
Threats. Look both inside and outside of your surveys. You can learn more about your own as
company for things that could damage your well as competitor sites and businesses.
business. Internally, do you have financial,
Areas you can research include
development, or other problems? Externally,
1) Customer awareness, interest, trial, and us-
are your competitors becoming stronger, are
age levels
there emerging trends that amplify one of your
weaknesses, or do you see other threats to 2) Brand, site, and/or company image
your company’s success? 3) Importance of different site or product at-
tributes to your customers
Advanced SWOT 4) Product and/or site performance.
A more in-depth SWOT analysis can help you
better understand your company’s competitive Whether using a basic or more advanced ap-
situation. One way to improve upon the basic proach to SWOT analysis, you are sure to come
SWOT is to include more detailed competitor in- away with newfound insights. Use these to in-
formation in the analysis. crease your company’s effectiveness and as in-
put into your business or marketing plan.
You can note the internet-related activities such
as trade organization participation, search engine Step 5 Developing a marketing
inclusion, and outside links to the sites. This will strategy
better help you spot opportunities for and threats A marketing strategy outlines the way in which
to your company. the marketing mix is used to attract and satisfy
the target market. Thus a marketing strategy
You can also take a closer look at the business would develop from two components i.e. the
environment. Often, opportunities arise as a remarketing mix, and the target market.
sult of a changing business environment.
Marketing mix, as you would study in detail in
Some examples are: this course, consists of mainly the 4 Ps of mar-
A new trend develops for which demand keting. The 4 Ps are Product, Price, Promotion
outstrips the supply of quality options. For and Place. For services business, three additional
example, early on, the trend toward healthy 3 Ps become important. They are People, Pro-
eating coupled with an insistence on good- cess and Physical evidence. Some texts also re-
tasting food produced a shortage of accept- fer to other Ps like Packaging, and Public Rela-
able natural food alternatives. Tetra pack tions because of their importance.
fruit juices like Real and Onus captured on a A marketing strategy outlines the way in
nutritional drink opportunity. which the marketing mix is used to attract
A customer segment is becoming more pre- and satisfy the target market(s) and achieve
dominant, but their specific needs are not an organization’s goals.
being fully met by your competitors. The In- A strategy should be as explicit as possible.
dian rural markets have been experiencing
this phenomenon in the recent years for many
In planning its marketing strategy, a firm
product categories.
should consider these key factors for each
A customer, competitor, or supplier goes out
SBU:
of business or merges with another company.
The firm’s mission, resources, abilities, and
With the demise of many pure-play dot-coms,
standing in the marketplace.
examples of this abound. As each went out

The status of the firm’s industry and the Organizational mission refers to a long-term com-
product groups in it. mitment to a type of business and a place in the
The domestic and global competitive market.
situation. 1. It can be expressed in terms of the customer
The environmental situation. group(s) served, the goods and services of-
The best opportunities for growth. fered, the functions performed, and/or the
technologies utilized.
A separate strategy is necessary for each SBU. 2. It is considered implicitly when a company
There are four strategic planning approaches seeks a new customer group or abandons an
which are described later in the chapter: existing one, introduces a new product cat-
Product/Market Opportunity Matrix egory or deletes an old one, acquires another
Boston Consulting Group Matrix company or sells one of its own businesses,
General Electric Business Screen performs more (or fewer) marketing func-
Porter Generic Strategy Model tions, or shifts its technological focus.
Step 6 Implementing tactical plans Definition of the organizational mission refers to

a long-term commitment to a type of business
How do you think that strategy is different from and a place in the market. It “describes the scope
tactics?
of the firm and its dominant emphasis and val-
Strategy is for the long-term whereas tactics is ues,” based on a firm’s history, current manage-
for the short-term. ment preferences, resources, and distinctive com-
petence, and on environmental factors.
A tactical plan refers to the short-run actions (tac-
tics) that a firm undertakes in implementing a Core Core Values Purpose
given marketing strategy. It has three basic ele-
ments:
Specific Tasks
Time Frame
Resource Allocation
Step 7 Monitoring results

As you all will have understood by now, the final
step is monitoring of results. It compares the ac-
Visionary Goals
tual performance of a firm, SBU, or product
against the planned performance for a specified
period. In practice, a strong mission statement can help
in three main ways: It provides:
Successful companies often employ the follow- An outline of how the marketing plan should
ing strategies to assure success: seek to fulfill the mission
Continuous monitoring of performance A means of evaluating and screening the
Regular use of proper strategy adjustments marketing plan
Maintenance of a customer-oriented focus An incentive to implement the marketing plan
Stressing positive written and oral communi-
cation among employees and channel mem- The mission statement might be published in sev-
bers. eral places (e.g. at the front of an annual report
and accounts, on promotional material, in the board
1.1 Business Mission room and on the factory floor).
Can anyone describe the business mission?
There is no standard format for a mission state-
A mission statement is a formal description of ment. However, an effective mission statement
the mission of a business. should contain the following characteristics:

Brief – it should be easy to understand and For example, these boundaries may be set in terms
remember of geography, market, business method, product
Flexible – it should be able to accommodate etc. The decisions management make about stra-
change tegic scope define the nature of the business.
Distinctive – it should make the business stand
out (3) Policies and Standards of Behavior
A mission needs to be translated into everyday
Importance of mission actions. For example, if the business mission in-
cludes delivering “outstanding customer service”,
A strategic marketing plan starts with a clearly then policies and standards should be created and
defined business mission. monitored that test delivery.
Mintzberg defines a mission as follows: These might include monitoring the speed with
which telephone calls are answered in the sales
“A mission describes the organization’s basic
call center, the number of complaints received
function in society, in terms of the products
from customers, or the extent of positive cus-
and services it produces for its customers”.
tomer feedback via questionnaires.
A clear business mission should have each of the
(4) Values and Culture
following elements:
The values of a business are the basic, often un-
stated, beliefs of the people who work in the busi-
ness. These would include:
Business principles (e.g. social policy, com-
mitments to customers)
Loyalty and commitment (e.g. are employ-
ees inspired to sacrifice their personal goals
for the good of the business as a whole? And
does the business demonstrate a high level
of commitment and loyalty to its staff?)
Guidance on expected behavior – a strong
sense of mission helps create a work envi-
ronment where there is a common purpose
Taking each element of the above diagram in turn, Some examples of mission statements
what should a good mission contain?
Mission and Vision of Samsung
(1) A Purpose Electronics
Why does the business exist? Is it to create wealth Vision of SAMSUNG Electronics is “Leading the
for shareholders? Does it exist to satisfy the Digital Convergence Revolution” and their mis-
needs of all stakeholders (including employees, sion to carry out this vision is “Digital-e
and society at large)? Company.There are two parts of being a “Digi-
tal-e Company”, and the first is clearly about being
(2) A Strategy and Strategic Scope “Digital” producing not just digital products, but
A mission statement provides the commercial products that inspire digital integration across our
logic for the business and so defines two things: entire company. The second part of being a “e”
The products or services it offers (and there- is to use e-Processes connecting R&D, produc-
fore its competitive position) tion, and marketing to customers, partners, and
The competences through which it tries to the market-disciplined approach is the way we
succeed and its method of competing bring value to every part of our supply chain, in-
cluding products data to and customer relation-
A business’ strategic scope defines the bound- ship through Enterprise Resource Planning
aries of its operations. Management sets these. (ERP).

Mission of Lands’ End 3. Control over its resources

Lands’ End, a leading international direct 4. Its own marketing strategy
merchant of traditionally styled, casual clothing 5. Clear-cut competition
for men, women, and children, as well as soft 6. Distinct differential advantages
luggage and products for the home, offers
products through regular mailings of its primary Examples of SBUs
and specialty catalogs and via the Internet. It is At General Electric (GE), every SBU must
known for providing products of exceptional qual- have a unique purpose, identifiable competi-
ity at prices representing honest value, enhanced tors, and all of its major functions within the
by a commitment to excellence in customer ser- control of that SBU’s manager.
vice. GE units that are not performing up to ex-
pectations are constantly reviewed and, if
Mission of Coca-Cola necessary, consolidated with other units, sold,
Coca-Cola’s mission is to maximize shareholder or closed down.
value over time. It creates value by a strategy At Hindustan Lever (HLL) also the same
guided by six beliefs: guiding principle for the SBUs would apply.
Consumer demand drives everything it does. Some SBUs of HLL would be its foods busi-
Brand Coca-Cola is the core of its business ness, detergents business and ice creams
It will serve consumers a broad selection of business. Its portfolio of SBUs is constantly
nonalcoholic ready-to-drink beverages reviewed according to present viability and
It will do excellent job marketing expected future returns.
It will think and act locally Example of SBUs by Goodyear
It will lead as a model corporate citizen.
Goodyear: Strategic Business Units
Holiday break plc Goodyear strategic business units are organized
Holiday break is the UK’s leading operator of to meet customer requirements around the world.
specialist holiday businesses. Group com-
panies retain a distinctive identity whilst
sharing expertise and exploiting op-
portunities in areas of common interest.
Our aim is to achieve continuing
profitable growth by developing our ex-
isting businesses and market leading
brands in the UK and European holiday
markets and through acquisitions within
the travel sector.
Easy Internet cafe

To be the world’s leading Internet café
chain that is the cheapest way to get
online
1.1 Concept of an SBU

A Strategic Business Unit (SBU) has
been defined above in the strategic plan-
ning process.
Each of a firm’s Strategic Business Units

(SBU) has six attributes:
1. A specific target market
2. Its own senior marketing executive

Optimum Number of SBUs salespeople, product managers, advertising

The proper number of SBUs depends on or- people, and other marketing areas.
ganizational mission, resources, and the will- In the top-down approach, senior managers
ingness of top management to delegate au- centrally direct planning.
thority. A combination approach could be used if
A small or specialized firm can have as few senior executives set overall goals and policy
as one SBU; a diversified one, up to 100 or and marketing personnel form plans for car-
more. rying out marketing activities.
For example, A TOTAL QUALITY APPROACH TO

WD-40 Company has 3 SBUs, STRATEGIC PLANNING
GE has 23 SBUs
1. When devising strategic plans, any firm should
Johnson & Johnson has 190+ SBUs. adopt a total quality perspective. Total qual-
PepsiCo has spun off its restaurant SBUs to ity is a process- and output-related philoso-
concentrate on carbonated beverages, snack phy, whereby a firm strives to fully satisfy
foods, and non-carbonated beverages. customers in an effective and efficient man-
ner.
GOALS of SBUs 2. To flourish, a total quality program needs a
1. A firm needs overall marketing objectives, customer focus; top management commit-
as well as goals for each SBU. ment; an emphasis on continuous improve-
2. Objectives should be stated in both quantita- ment; and support from employees, suppli-
tive and qualitative terms. ers, and distribution intermediaries:
3. As an example, these are the key goals for Process-related philosophy: Total quality is
Paradigm Group (a Florida-based residential based on all the activities that create, develop,
real-estate firm that owns, develops, and market, and deliver a good or service to the
manages multiunit housing): customer.
To expand outside Florida, become a force Output-related philosophy: Although process-
in the Southeast, and then establish a national related activities give a good or service its
presence. value, the consumer usually can only judge
To take customer service to a new level. the total quality of the finished product that
he or she purchases.
4. Small firms’ goals are often less ambitious, 3. Customer satisfaction: To the consumer, to-
but no less important. tal quality refers to how well a good or ser-
vice performs.
KINDS OF STRATEGIC PLANS 4. Effectiveness: To a marketer, this involves
1. Strategic plans can be categorized by their how well various marketing activities are re-
duration, scope, and method of development. ceived by consumers.
They range from short run, specific, and de- 5. Efficiency: To a marketer, this involves the
partment generated to long run, broad, and costs of various marketing activities. A firm
management generated. Many firms, such as is efficient when it holds down costs, while
Canon, rely on a combination. offering consumers the appropriate level of
2. The scope of strategic plans also varies. quality.
There may be separate marketing plans for 6. Customer focus: With a total quality view-
each of a firm’s major products; a single, in- point, a firm views the consumer as a part-
tegrated marketing plan encompassing all ner and seeks input from that partner.
products; or a broad business plan with a
7. Top management commitment: Senior execu-
section devoted to marketing.
tives must be dedicated to making the pro-
3. Strategic plans may be developed via a gram work.
bottom-up, top-down, or combination
8. Continuous improvement: Today’s total qual-
approach.
ity will become tomorrow’s sub optimal quality.
In bottom-up planning, there is input from
9. Employee support and involvement: Employ-

ees must “buy into” a total quality program

in order for it to work.
10. Supplier and distributor support and involve-
ment: Due to their involvement in creating
total quality, suppliers and resellers can greatly
affect it.
Points to remember


Unit 2
Lesson 12 - Business Portfolios, Boston Consulting Group (BCG) Modal
Hello students!
After having an understanding of what an SBU is you also need to now how do the companies select
a particular strategy for which they need to analyze their SBUs? There is a matrix given by the
Boston Consultancy Group, which can be used by the companies for the purpose of analysis, which
will be discussed in this lesson, and also how useful it is.
BCG Model
The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps the most famous 2x2
matrix. The matrix measures a company’s relative market share on the horizontal axis and its growth
rate on the vertical axis.
20%
MarketGrowth rate
10%
10x 4x 2x 1.5x 1x 0.5x 0.4x 0.3x 0.2x 0.1x
Relative Market Share
THE GROWTH SHARE MATRIX- the market growth rate on the vertical axis indicates the annual
growth rate of the market in which the business operates. It ranges from 0 to 20 percent. A market
growth rate above 10 percent is considered high. Relative market share, which is measured on the
horizontal axis, refers to the SBU’s market share relative to that of its largest competitor in the
segment. A relative market share of 0.1 means that the company’s sales volume is only 10 percent of
the leader’s; a relative share of 10 means that the company’s SBU is the leader and has 10 times the
sales of the next-strongest competitor in the market.
The growth share matrix is divided into four cells, each indicating a different type of business:
1. Question Mark(Problem Child) – Businesses that operate in high-growth markets but have low
relative market shares. A question mark requires a lot of cash because the company has to
spend money on plant, equipment and personnel to keep up with the fast-growing market, and
because it wants to overtake the market leader. The company has to decide whether to keep
pouring money into the business or not.
2. Stars – The market leaders in the high growth market. A star does not necessarily produce a
positive cash flow for the company. The company must spend substantial funds to keep up with
the high market growth and to fight off compatitors’ attacks.
3. Cash Cows – Stars with a falling growth rate that still have the largest relative market share and
produce a lot of cash for the company. The company does not have to finance expension be-
cause the market’s growth rate has slowed. Because the business is the market leader, it enjoys
economies of scale and higher profit margins. The company uses its cash cows to pay bills and
support other businesses. If the cash cow starts losing relative market share, the company will

have to pump money back into it to maintain market leadership.

4. Dogs – Businesses that have weak market share in low growth markets. A dog may not require
substantial cash, but it ties up capital that couls better be deployed elsewhere.The company
should consider whether it is holding on to these businesses for good reasons or not.
After plotting its various businesses in the growth-share matrix, a company must determine
whether its portfolio is healthy. An unbalanced portfolio would have too many dogs or quaestion
marks and too few stars and cash cows.
STRATEGIC BUSINESS UNITS STRATEGIES
The Boston Matrix - Product Portfolio Decisions
Like Ansoff’s matrix, the Boston Matrix is a well-known tool for the marketing manager. It was
developed by the large US consulting group and is an approach to product portfolio planning. It has
two controlling aspect namely relative market share (meaning relative to your competition) and mar-
ket growth.
You would look at each individual product in your range (or portfolio) and place it onto the matrix.
You would do this for every product in the range. You can then plot the products of your rivals to give
relative market share.
This is simplistic in many ways and the matrix has some understandable limitations that will be
considered later. Each cell has its own name as follows.
FOR YOU, SIMPLE WAYS TO REMEMBER ABOUT EACH CELL IN THE MATRIX IS
GIVEN BELOW.
Dogs
These are products with a low share of a low growth market. These are the canine version of ‘real
turkeys!’ They do not generate cash for the company rather they tend to absorb it. Get rid of these
products.
Cash Cows
These are products with a high share of a slow growth market. Cash Cows generate more than is
invested in them. So keep them in your portfolio of products for the time being.
Problem Children

These are products with a low share of a high growth market. They consume resources and gener-
ate little in return. They absorb most money as you attempt to increase market share.
Stars
These are products that are in high growth markets with a relatively high share of that market. Stars
tend to generate high amounts of income. Keep and build your stars.
What do you think are the features of BCG matrix?
The Boston Consulting Group matrix lets a firm classify each SBU in terms of market share
relative to key competitors and annual industry growth.
With the matrix, it can be determined which SBUs are dominant and whether their industries are
growing, stable, or declining.
The matrix’s major assumption is that the higher an SBU’s market share, the lower its per-unit
costs and the higher its profitability.
The Boston Consulting Group matrix identifies four types of SBUs shown in the figure.
A star is a leading SBU in an expanding industry. The major goal is to sustain differential advan-
tages in the face of rising competition. It generates substantial profits but requires large amounts of
resources to finance growth.
A cash cow is a leading SBU in a mature or declining industry. It generates funds that can be used
for other SBUs.
A question mark is an SBU that has had little impact (low market share) in an expanding industry
(high growth). It needs substantial cash to improve its position.
A dog is an SBU with limited sales (low market share) in a mature or declining industry (low
growth). It has cost disadvantages and few growth opportunities.
Can you suggest some ways to manage your businesses based on the BCG matrix?
Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash Cows, Problem
Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows
are used to turn problem children into Stars, which may eventually become Cash Cows. Some of the
Problem Children will become Dogs, and this means that you will need a larger contribution from the
successful products to compensate for the failures.
What according to you may be the problems with the Boston Matrix?
There is an assumption that higher rates of profit are directly related to high rates of market share.
This may not always be the case. When Boeing launch a new jet, it may gain a high market share
quickly but it still has to cover very high development costs.
It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather
than products. For example, for LG in India, IT products have a separate focus and hence are an
SBU and not just a basket of products.
There is another assumption that SBUs will cooperate. This is not always the case.
The main problem is that it oversimplifies a complex set of decision. Be careful. Use the Matrix as
a planning tool and always rely on your gut feeling.

What do you think are the strategies, which companies can make, based on BCG matrix?
STRATEGIC BUSINESS UNITS STRATEGIES
1) Build – this strategy is appropriate for question marks whose market shares must grow if they are
to become stars. As they are in a growing market, an inflow of resources would work wonders for
them. But if the company is doubtful about its growth even in a growing market then it divesting it
would be a better decision. An earlydecision to divest is likely to produce fairly good bids if the
business is in relatively good shape now.
2) Hold – this strategy is appropriate for stars. As they are the market leaders with highest relative
market share and in a rapidly growing market, it is important for the firm to hold on to its current
position for long. In this stage the firm would be required to pump in resources in order to maintain its
position as a star. In order to reap the benfits from this star the firm would be required to continuosly
support it with resources.
3) Harvest – this strategy is appropriate for cash cows. The objective of harvest strategy is to
increase short term cash flow regardless of long term effect. In other words it involves ‘milking the
business’. In this position the firm does not spend money on R&D activities, reduces advertising
expenditure and undertakes other cost cutting measures for the concerned SBU. Harvesting can be
also used for weak cows, question marks and dogs which show some promise for futre potential.
4) Divest – the objective is to sell or liquidate the business because resources can be better used
elsewhere. This strategy is appropriate for dogs and question marks that are acting as a drag on the
company’s profits. In this atrategy the firm does not plough resources into the business but just try to
sell it off at a good price.
SBU LIFECYCLE
As shown in the figure every successful SBU follows a lifecycle. As time passes, SBU’s change
their position in the growth-share matrix. They start as question marks, become stars, then cash
cows and if not taken care of , they finally become dogs. For this reason, companies should examine
not only their businesses’ current positions in the matrix but also their moving positions. Strategies
must be changed if the SBU is not on its expected trajectory.
The worst mistake a company could make would be to require all its SBUs to aim for the same
growth rate or return level. The very point of SBU analysis is that each business has a different
potential and requires its own objective. Other mistakes include:

i. Leaving cash cows with too little in retained funds in which case they grow weak.
ii. Leaving the cash cows with too much in retained funds in which the company fails to invest
enough in new businesses with growth potential.
iii. Making major investments in dogs in hopes of turning them around but failing each time.
iv. Maintaining too amny questions marks and underinvesting in each. Question marks should either
receive enough support to achieve segment dominance or be dropped.
The BCG matrix provides a framework for allocating resources among different business units and
allows one to compare many business units at a glance. However, the approach has received some
negative criticism for the follwing reasons:
i. The link between market share and profitability is questionable since increasing market share
can be very expensive.
ii. The approach may overemphasize high growth, since it ignores the potential of declining mar-
kets.
iii. The model considers market growth rate to be given. In practice the firm may be able to grow
the market.
The Porter Generic Strategy Model

The Porter generic strategy model identifies two key planning concepts and the alternatives available
for each:
i) Competitive scope (broad or narrow target).
ii) Competitive advantage (lower cost or differentiation).
B. The following three basic strategies are identified (see Figure):
1. Cost leadership—broad market and low cost position.
2. Differentiation—large market and unique strategy.
3. Focus—narrow target segment and either low cost position or a unique strategy.
Cost leadership and differentiation strategies are alternatives for large firms; a focus strategy is
available to smaller firms.

i. Cost Leadership strategy: this generic strategy calls for being the low cost producer in an
industry for a given level of quality. The firm sells its products either at average industry prices to
earn a profit higher than that of rivals or below the average industry prices to gain market share. The
cost leadership strategy usually targets a broad market.
Some of the ways by which firms acquire cost advantages are by improving process efficiencies,
gaining unique access to large source of lower cost materials, making optimal outsourcing and verti-
cal integration decisions or avoiding some costs altogether. If competing firms are unable to lower
their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost
leadership.
Firms that succeed in cost leadership often have the following internal strengths:
Access to the capital required to make a significant investment in production assets; this invest-
ment represents a barrier to entry that many firms may not overcome.
Skill in designing products for efficient manufacturing.
High level of expertise in manufacturing process engineering.
Efficient distribution channel.
Each generic strategy has its risks, even the low cost strategy. For example, other firms may be able
to lower their costs as well. As technology improves, the competition may be able to leapfrog the
production capabilities, thus eliminating the competitive advantage. Additionally, several firms follow-
ing a focus strategy and targeting various narrow markets may be able to achieve an even lower cost
withintheir segments and as a group gain significant market share.
ii. Differentiation Strategy : This strategy calls for the development of a product or service that
offers a unique attributes that are valued by the customers and customers perceive to be better than
or different from the products of the competition. The value added by the uniqueness of the product
may allow the firm to charge a premium price for it. The firm hopes that the higher price will more
than cover the extra costs incurred in offering the unique product.
Firms that succeed in differntiation strategy often have the following internal strengths:
Access to leading scientific research.
Highly skilled and creative product development team.
Strong sales team with the ability to successfully communicate the perceives strengths of the
product.
Corporate reputation for quality and innovation.
The risks associated with differentiation strategy include imitation by competitors and changes in
customer tastes. Additionally various firms pursuing focus strategies may be able to achieve even
greater differntiation in their market segments.
iii. Focus Strategy : this strategy focus on narrow segment and within that segment attempts to
achieve either a cost advantage or differentiation. The premise is that the needs of the group can be
better serviced by focussing entirely on it. A firm using a focus strategy often enjoys a high degree of
customer loyalty and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower volums and thus

less bargaining power with their suppliers. However, firms pursuing a differentiation-focussed strat-
egy may be able to pass higher costs on to customers since close substitutes do not exist.
Firms that succeed in a focus strategy are able to tailor a broad range of product development
strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategy include imitation and changes in the target segment. Furthermore, it
may be fairly easy for a broad-market cost leader to adapte its product in order to compete directly.
Finally, other focusers may be able to carve out sub-segments that they can serve even better.
The Product/Market Opportunity Matrix

The product/market opportunity matrix identifies four alternative marketing strategies to maintain
and/or increase sales of business units and products: market penetration, market development, prod-
uct development, and diversification. See accompanying figure.
Current Products New Products
Current Markets
New Markets
1. In market penetration, a firm seeks to expand the sales of its present products in its present
markets through more intensive distribution, aggressive promotion, and competitive pricing.
2. In market development, a firm seeks greater sales of present products from new markets or new
product uses. It can enter new markets, appeal to segments it is not yet satisfying, reposition prod-
ucts, and use new distribution methods.
3. In product development, a firm develops new or modified products to appeal to present markets. It
emphasizes new models, better quality, and other minor innovations and markets them to loyal con-
sumers.
4. In diversification, a firm becomes involved with new products aimed at new markets. The prod-
ucts may be new to the industry or to the company. Distribution and promotion orientations are
different from those traditionally used by the firm.
While the corporations are faced with ever increasing strategic planning gap, three strategies have
been formulated to overcome this gap.
1. INTENSIVE GROWTH- corporate management’s first course of action should be a review of

whether any opportunities exist for improving its existing businesses’ performance. Ansoff model
propounded by Igor Ansoff is a useful framework for detecting new intensive growth opportunities
called a “Product-Market Expansion Grid”.
The company first considers whether it could gain more market with its current products in their
current markets(market penetration strategy). This can be done by either increasing the usage among

the existing customers or switching of competitor’s customers or by adding non consumers in the
consumer list. Next it considers whether it can find or develop new markets for its current products
(market-development strategy). This can be either based on demographic or geographic or psycho-
graphic factors. Then it considers whether it can develop new products of potential interest to its
current markets(product-development strategy). They can be either completely new products or
existing product extensions. Later it will also review opportunities to develop new products for new
markets(diversification strategy). But here the company should take care as this involves high risk
and the firm might loose focus.
By examining these three intensive growth strategies, management may discover several ways to
grow. Still, that growth may not be enough. In that case, management must also examine integrative
growth opportunities.
2. INTEGRATIVE GROWTH – Often a business’s sales and profits can be increased through
backward, forward or horizontal integration within the industry. A company may acquire one or more
of its suppliers to gain more control or generate more profits which would be called as backward
integration. It might acquire some wholesalers or retailers, especially if they are highly
profitable(forward integration). Finally if the company decides to acquire one or more competitors,
provided that the government does not bar this move(horizontal integration). However, these new
sources may still not deliver the desired sales volume. In that case company must consider diversifi-
cation.
3. DIVERSIFICATION GROWTH – When good opportunities which are highly attractive are found
to be outside the present business and the company has a mix of business strengths to be successful
in them, the company goes for diversification. This is possible in three kinds:
a. Concentric Diversification Strategy-The company could seek new products that have technologi-
cal or marketing synergies with existing product lines, even though the new product themselves may
appeal to a different group of customers.
b. Horizontal Diversification Strategy- the company might search for new products that could appeal
to current customers even though the new products are technologically unrelated to its current prod-
uct line.
c. Conglomerate Diversification Strategy – the company might seek new businesses that have no
relationship to its current technology, products or markets.
4. DOWNSIZING OLDER BUSINESSES- companies must not only develop new businesses, but
must also carefully prune, harvest or divest tired old businesses in order to release needed resources
and reduce costs. Managers should focus on growth opportunities, not fritter away energy and re-
sources trying to salvage hemorrhaging businesses.
THE GENERAL ELECTRIC MODEL

An SBU’s appropriate objective cannot be determined solely by its position in the growth-share
matrix. If additional factors are considered, the growth-share matrix can be seen as a special case of
a multifactor portfolio matrix such as that pioneered by General Electric. The model is based on the
company’s seven businesses. It holds that a company can appropriately rate its different businesses
for the purpose of strategic planning on the basis of two main parameters – Market Attractiveness
and Business Strength.
The above two factors make excellent marketing sense for rating a business. Companies are suc-
cessful to the extent that they enter attractive markets and possess the required business strengths to
succeed in those markets. If one of these factors is missing, the business will not produce outstanding
results. Neither a strong company operating in an unattractive market nor a weak company operating

in an attractive market will do very well.
The General Electric Approach
The second model to analyze the SBUs has been give by General Electric and it is even known as
Market attractiveness and Company strength matrix. Both axes are divided into three segments,
yielding nine cells. The nine cells are grouped into three zones:
The block with the Lateral Zone consists of the three cells in the upper left corner. If the enter-
prise falls in this zone the business is in a favorable position with relatively attractive growth opportu-
nities. This indicates a “green light” to invest in this product/service.
The blocks with plain Zone consists of the three diagonal cells from the lower left to the upper
right. A position in the yellow zone is viewed as having medium attractiveness. Organisation must
therefore exercise caution when making additional investments in this product/service. The sug-
gested strategy is to seek to maintain share rather than growing or reducing share.
The blocks with a Diagonal Zone consists of the three cells in the lower right corner. A position in
the red zone is not attractive. The suggested strategy is that management should begin to make plans
to exit the industry.FACTORS UNDERLYING MARKET ATTRACTIVENESS AND BUSINESS
STRENGTH IN GE MULTIFACTOR PORTFOLIO MODEL
1. MARKET ATTRACTIVENESS
Overall market size
Annual market growth rate
Historical profit margin
Competitive intensity
Technological requirements
Inflationary vulnerability
Energy requirements
Environmental impact
Socioal-political legal
2. BUSINESS STRENGTH
Market share
Share growth
Product quality
Brand reputation
Distribution network
Promotional effectiveness
Productive capacity
Productive efficiency
Unit costs
Material supplies
R & D performance
Mangerial personnel

STRATEGIES
The GE matrix is divided into nine cells. The three cells in the upper-lrft corner indicate strong SBUs
in which the company should invest or grow. The diagonal cells stretching from the lower left to the
upper right indicate SBUs that are medium in overall attractiveness. The three cells in the lower-right
corner indicate SBUs that are low in overall attractiveness.
Management should also forecast each SBU’s expected position in the next three to five years given
the current strategy. Making this determination involves analyzing where each product is in its prod-
uct life cycle as well as expected competitor strategies, new technologies, economic events, etc. the
company’s objective is not always to build sales in each SBU. Rather, the objective moght be to
maintain the existing demand with fewer marketing dollarsor to take cash out of the business and
allow demand to fall. Thus, the task of marketing management is to manage demand or revenue to
the target level negotiated with corporate management. Marketing contributes to assessing each
SBU’s sales and profit potential, but once the SBU’s objective and budget are set, marketing’jo is to
carry out the plan efficiently and profitably.
Evaluation of Strategic Planning Approaches

Many firms assess alternative market opportunities; know which products are stars, cash cows,
question marks, and dogs; recognize what factors affect performance; understand their indus-
tries; and realize they can target broad or narrow customer bases.
The major strengths of the approaches are that they allow a firm to do the following:

Analyze each of its SBUs and products.

Study various strategy effects.
Learn the opportunities to pursue and which threats to avoid.
Compute marketing and other resources needs.
Focus on meaningful differential advantages.
Compare performance with designated goals.
Discover principles for improving performance.
Study competitors’ actions and trends.
The approaches have these weaknesses:
They may be difficult to implement.
They may be too simplistic and omit key factors.
They are arbitrary in defining SBUs and evaluative criteria.
They may not be applicable to all firms and situations.
They may not adequately consider environmental factors.
They may overvalue market share.
They are often used by staff planners rather than line managers.
These techniques only aid planning. They do not replace the need for managers to engage in
hands-on decisions by studying each situation and basing marketing strategies on the unique
aspects of their industry, firm, and SBUs.
Points to Ponder
Analysis of The Enterprise Position-BCG Matrix

Analysis of enterprise position-GE Matrix

Unit 2
Lesson 13 - Strength-weakness-opportunities-threat (SWOT) analysis,
marketing process, marketing plan
Hello students!
In this section of this unit we shall be discussing the analysis of the environment the company is
working in plays a very major role in the strategic planning of the business. Then we move on to the
discussion of the Marketing planning process which lays a foundation for all the topics in the coming
units. We would also discuss the components of the marketing plan which is knowledge of which is
very essential and useful for any marketing person.
1.1 SWOT analysis

When you are planning strategically with any company—online or offline—it is useful to complete an
analysis that takes into account not only your own business, but your competitor’s businesses and the
current business environment as well. A SWOT is one such analysis.
Completing a SWOT analysis helps you identify ways to minimize the effect of weaknesses in your
business while maximizing your strengths.
Ideally, you will match your strengths against market opportunities that result from your competitors’
weaknesses or voids.
Internal Environment External Environ-

ment Analysis Analysis
Strengths Weaknesses Opportunities Threats
SWOT ANALYSIS

PERFORMING SWOT OR SITUATION ANALYSIS

In situation analysis, also known as SWOT analysis, an organization identifies internal strengths
and weaknesses, as well as external opportunities and threats. It seeks to answer two general
questions:
Where is the firm now?
In what direction is it headed?
Situation analysis accomplishes the following:

It recognizes strengths and weaknesses relative to competitors.
It searches the environment for opportunities and threats.
It assesses an organization’s ability to capitalize on opportunities and to minimize threats.
It anticipates competitors’ responses to company strategies.
Situation analysis can, and should be, conducted at any point in an organization’s life. Several
examples of situation analyses are provided.
Strengths & Weaknesses

The analysis of the internal environment of the firm reveals its strengths and its weaknesses which
helps the firm to analyse how to turn its weaknesses in to strengths .
Firms strengths consists of its resources and capabilities that can be useful in developing its competi-
tive advantage over its competitors. Some of the examples of firms strengths are –Its access to high
grade natural resources, strong brand name, strong distribution network, brand name, patents, strong
information network, etc.
Firms weaknesses is absence of certain strengths which is the necessity for its business to fight
competition. Some of the examples of it are – poor reputation among customers, lack of access to
natural resources, lack of coordination with the suppliers and distributors, dissatisfied employees,
demotivated marketing staff, etc
Opportunities & Threats

The analysis of the external environment reveals to the firm the opportunities available for it in the
market and what are the threats it is facing, which helps it analyse the various strategies what to
select. Some of the examples of opportunities are – arrival of new technology, removal of some trade
barriers or government regulations, an unfulfilled customer need, etc.
The changes that take place regularly in the external environment gives rise to certain threats to the
business like shift in consumer tastes, new regulations, increased trade barriers…….
Now the firm has to identify the best fit between its strengths and the opportunities available and try
to overcome its weaknesses and ready to face the challenges / threats.

Strength – Opportunities strategies : pursue those opportunities which best fit Companies strengths
Weaknesses – opportunities strategies: pursue opportunities to overcome weaknesses
Strengths – Threats strategies: identify ways through which firm can use its strength to reduce
the degree of external threats
Weaknesses – Threats: Establish a defensive plan to prevent the firm’s weaknesses from making
it highly susceptible to external threats
Basic SWOT
You can develop a basic SWOT analysis in a brainstorming session with members of your company,
or by yourself if you are a one-person shop. To begin a basic SWOT analysis create a four-cell grid
or four lists, one for each SWOT component:
Then, begin filling in the lists.
Strengths - Think about what your company does well. What makes you stand out from your com-
petitors? What advantages do you have over other businesses?
Weaknesses - List the areas that are a struggle. What do your customers complain about? What are
the unmet needs of your sales force?
Opportunities - Try to uncover areas where your strengths are not being fully utilized. Are there
emerging trends that fit with your company’s strengths? Is there a product/service area that you
could do well in but are not yet competing?
Threats. Look both inside and outside of your company for things that could damage your business.
Internally, do you have financial, development, or other problems? Externally, are your competitors
becoming stronger, are there emerging trends that amplify one of your weaknesses, or do you see
other threats to your company’s success?
Advanced SWOT
A more in-depth SWOT analysis can help you better understand your company’s competitive situa-
tion. One way to improve upon the basic SWOT is to include more detailed competitor information in
the analysis.
You can note the internet-related activities such as trade organization participation, search engine
inclusion, and outside links to the sites. This will better help you spot opportunities for and threats to
your company.
You can also take a closer look at the business environment. Often, opportunities arise as a result of
a changing business environment.
Some examples are:

A new trend develops for which demand outstrips the supply of quality options. For example, early
on, the trend toward healthy eating coupled with an insistence on good-tasting food produced a
shortage of acceptable natural food alternatives. Tetra pack fruit juices like Real and Onus captured
on a nutritional drink opportunity.
A customer segment is becoming more predominant, but their specific needs are not being fully met
by your competitors. The Indian rural markets have been experiencing this phenomenon in the recent
years for many product categories.

A customer, competitor, or supplier goes out of business or merges with another company. With the
demise of many pure-play dot-coms, examples of this abound. As each went out of business, oppor-
tunities arise to gain the defunct business—customers. Customers of bpl.net were ready customers
for a company called Data Access which was operating under the NOW brand.
You can also enhance a SWOT analysis through surveys. You can learn more about your own as
well as competitor sites and businesses. Areas you can research include 1) customer awareness,
interest, trial, and usage levels; 2) brand, site, and/or company image; 3) importance of different site
or product attributes to your customers; and 4) product and/or site performance.
Whether using a basic or more advanced approach to SWOT analysis, you are sure to come away
with newfound insights. Use these to increase your company’s effectiveness and as input into your
business or marketing plan.
The extent to which each part of the above process needs to be carried out depends on the size and
complexity of the business.
In an un diversified business, where senior management have a strong knowledge and detailed un-
derstanding of the overall business, it may not be necessary to formalize the marketing planning
process.
By contrast, in a highly diversified business, top-level management will not have knowledge and
expertise that matches subordinate management. In this situation, it makes sense to put formal mar-
keting planning procedures in place throughout the organization.


Marketing planning flows from the strategic plan of the organiza-

tion.
Businesses that succeed do so by creating and keeping customers. They

do this by providing better value for the customer than the competition.
Marketing management constantly has to assess which customers they

are trying to reach and how they can design products and services that
provide better value (“competitive advantage”).
The main problem with this process is that the “environment” in which
businesses operate is constantly changing. So a business must adapt to
reflect changes in the environment and make decisions about how to change
the marketing mix in order to succeed. This process of adapting and deci-
sion-making is known as marketing planning.
Where do you think marketing plan fits in with the overall strategic plan-
ning of a business?
Strategic planning is concerned about the overall direction of the busi-

ness. It is concerned with marketing, of course. But it also involves deci-
sion-making about production and operations, finance, human resource man-
agement and other business issues.
The objective of a strategic plan is to set the direction of a business

and create its shape so that the products and services it provides meet
the overall business objectives.
Marketing has a key role to play in strategic planning, because it is the job
of marketing management to understand and manage the links between
the business and the “environment”.
Sometimes this is quite a straightforward task. For example, in many small

businesses there is only one geographical market and a limited number of
products (perhaps only one product!).
However, consider the challenge faced by marketing management in a

multinational business, with hundreds of business units located around the
globe, producing a wide range of products. How can such management
keep control of marketing decision-making in such a complex situation? This calls for well-organized
marketing planning.
What do you think are the key issues that should be addressed in marketing planning?
The following questions lie at the heart of any marketing (or indeed strategic) planning process:
Where are we now?
How did we get there?
Where are we heading?
Where would we like to be?
How do we get there?
Are we on course?
Why do you think is marketing planning essential?

Businesses operate in hostile and increasingly complex environment. The ability of a business to
achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-
connected. It makes sense to try to bring some order to this chaos by understanding the commercial
environment and bringing some strategic sense to the process of marketing products and services.
How do you think a marketing plan is useful to people in a business?
It can help to:

Identify sources of competitive advantage
Gain commitment to a strategy
Get resources needed to invest in and build the business
Inform stakeholders in the business
Set objectives and strategies
Measure performance
STEPS IN THE MARKETING PLANNING PROCESS
To carry out their responsibilities, marketing managers-whether at the corporate, division, business or
product level-follow a marketing process.
The marketing process consists of the following steps.
STEP 1: ANALYZE PRESENT MARKETING SITUATION
1) EXTERNAL ANALYSIS
Market size and growth
Competitors
Market Share
Legal
Political
Technology
Industry Past Performance
Social factors
Opportunities

2) INTERNAL ANALYSIS
Financial Resources
Production Capabilities
Production Capacity
R&D Capabilities
Sales capabilities
Corporate Mission and Objectives
Distribution Capabilities
Costs
VITO management style
STEP 2: IDENTIFYING TARGET MARKETS

Position analysis
Specifically defined market segments
Geographically located
Current Size
Potential growth
Estimated resistance to be encountered
Assess ability to overcome expected resistance
STEP 3: DETERMINE MARKETING OBJECTIVES

Traditional marketing objectives
Increase sales volume
Increase growth rate
Increase market share
Increase market penetration
Maximize return on investment
Promote positive company image
Promote social responsibility
Criteria for effective marketing objectives

Consistent with corporate objective
Realistic
Attainable
Measurable
Specific
Not mutually exclusive
STEP 4: SELECT APPROPRIATE MARKETING MIX
Factors to consider
Product / Service Strategies including Specifications, Product Line
and product support activities
Distribution strategies including delivery channels, types of middlemen, warehousing, inventory,
transportation costs and shipping costs.
Promotion strategies including types of salespeople, advertisisng venues, trade shows, catalogs,
direct mail, web site offerings, search engine optimization and email campgains.
Pricing Strategies including Retail (List) &Wholesale (Net) Pricing, Discounts, coupons, no sales
tax and free shipping.

STEP 5 & 6: DEVELOP AND IMPLEMENT PLAN OF ACTION TO CARRY OUT MAR-
KETING MIX
Determine Required Mix Activities
Estimate Time Required for each Activity
Arrange Activities in Logical Sequence
Combine Activities into Plan of Action
Establish Dates for Start /Completion of each Activity
Assign Responsibility for the Performance of each Activity
Determine Costs and Set Budget for each Activity
Begin Implementing Plan of Action for each Activity based on Established start days.
STEP 7& 8: ESTABLISH CONTROL AND EVALUATION CRITERIA AND IMPLE-

MENT PROCEDURE
Identify Key Performance Areas
Establish Performance Standards /Criteria
Measure Performance Results
Compare Performance Results with Established Performance Standards /Criteria
Identify Discrepancies Between Results and Established Performance Standards / Criteria
Diagnose the Causes of Discrepancies
Establish Corrective Action to Bring Results into Line with Established Performance Standards
/Criteria
Implement Corrective Procedures and Measure Performance results
Marketing planning - setting marketing objectives

Objectives set out what the business is trying to achieve. Objectives can be set at two levels:
(1) Corporate level
These are objectives that concern the business or organization as a whole.
Examples of corporate objectives might include:

We aim for a return on investment of at least 15%
We aim to achieve an operating profit of over Rs 5 crores on sales of at least Rs 100 crores
We aim to increase earnings per share by at least 10% every year for the next 3 years
(2) Functional level

They are specific objectives for marketing activities
Examples of functional marketing objectives might include:
We aim to build customer database of at least 250,000 households within the next 12 months
We aim to achieve a market share of 10%
We aim to achieve 75% customer awareness of our brand in our target markets
Both corporate and functional objectives need to conform to the commonly used SMART criteria.
The SMART criterion is an important concept that you should try to remember and apply not only in
exams but also in your working life. SMART is summarized below:
Specific - The objective should state exactly what is to be achieved.
Measurable - An objective should be capable of measurement – so that it is possible to deter-
mine whether (or how far) it has been achieved
Achievable - The objective should be realistic given the circumstances in which it is set and the
resources available to the business.
Relevant - Objectives should be relevant to the people responsible for achieving them

Time Bound – Objectives should be set with a time frame in mind. These deadlines also need
to be realistic.
You must have realized by now that the marketing department is in the driver’s seat looking at the
outside world through the glass. However for any business plan to succeed, the marketing department’s
plan has got to be supported by all other departments.
How do you think is the relationship between marketing and other departments
strengthened?
1. Marketing and the other functional areas in an organization have distinct needs that must be
accommodated.
2. Marketers seek tailor-made products, flexible budgets, non-routine transactions, many product
versions, frequent purchases, customer-driven new products, employee compensation incen-
tives, and aggressive actions against competitors.
3. The other functional areas seek mass production (production), set budgets (finance), routinized
transactions (accounting), limited models (engineering), infrequent orders (purchasing), technol-
ogy-driven new products (research and development), fixed employee compensation (person-
nel), and passive actions against competitors (legal).
4. When you reach the top management level, you must balance these varying needs and weigh
trade-offs.
5. You can reduce the conflict by:

Establishing multifunctional task forces.
Coordinating objectives.
Open communication and inter functional contact.
Employing personnel with technical and marketing knowledge.
How do you devise a strategic marketing plan?
You can create, implement, and monitor a strategic marketing plan when your company makes a
written plan.
You can encourage executives to:
Carefully think out and coordinate each step in the planning process
Pinpoint problem areas
Be consistent
Tie the plan to goals and resources
Measure performance
Send a clear message to employees and others
How do you make a sample outline for a written strategic plan?

This is a brief list of the ingredients of a good strategic plan:
1. It should be integrated into an organization’s overall business plan.
2. It should effect the consideration of strategic choices.
3. It should force a long-range view.
4. It should make the resource allocation system visible.
5. It should provide methods to help strategic analysis and decision making.
6. It should provide a basis for managing a firm or SBU strategically.

7. It should provide a communication and coordination system both horizontally (between SBUs
and departments) and vertically (from senior executives to front-line employees).
8. It should help a firm and its SBUs cope with change.
MOONSTRUCK CHOCOLATIER: A STRATEGIC MARKETING PLAN BY A SMALL

SPECIALTY FIRM (Source: Evans J.R., and Berman B-Marketing, 8e (Biztantra, 2003)
A. Moonstruck Chocolatier was opened by Bill and Deb Simmons in Portland, Oregon, in 1992 as a
maker of truffles for the wholesale market. It sold to other retailers and opened its first retail
store in 1996.
B. The company currently has annual sales of $2 million and is successful due to its solid strategic
marketing plan which is described.
Organizational Mission
A. Moonstruck’s mission is to bring the higher European standard for chocolate to the American
marketplace and to create shops that serve as a meeting place in a busy, impersonal world.
1. It is “romancing” the cocoa bean and educating the customer.
2. The company is about “a chocolate experience.”
Organizational Structure
A. Bill and Deb Simmons manage the business.
B. Tony Roth purchased the exclusive rights to open Moonstruck stores in the Midwest and his
company acquired a 25 percent stake in Moonstruck Chocolatier. Roth felt the need to take the
superior product and menu direct to the market.
Marketing Objectives
A. These are the goals of Moonstruck:
1. To grow from six stores in 2001 to 45 stores in Chicago, New York City, and Portland at year-end
2003.
2. To have annual sales of $26 million.
3. To become a brand as well known as Starbucks, substituting chocolate for coffee.
Situation Analysis
A. The Simmons’s strategic plan, as they freely admit, is based on that of Starbucks; they did a
comprehensive analysis on Starbucks’ business model.
Developing Marketing Strategy

A. The two strategic planning approaches with the most relevance for Moonstruck are the product/
market opportunity matrix and the Porter generic strategy model.
1. The firm is engaged in both a product development strategy (producing distinctive new chocolate
products for current customers) and a market development strategy (seeking out those who
have not thought of chocolate beverages as “must have” drinks).
2. Moonstruck believes in a differentiation strategy (superior products at a premium price). Soci-
etal, Ethical, and Consumer Issues
A. Moonstruck uses the highest-quality ingredients.
B. It treats employees and customers courteously, honesty, and respectfully.
C. The firm stands behind all of its products.
D. Moonstruck is socially responsible.

Global Marketing
A. Moonstruck searches the globe for the best cocoa beans, consistent with its organizational mis-
sion.
Marketing and Internet

A. Moonstruck uses its web site to get its message across to a larger audience by allowing online
ordering.
Consumer Analysis and Target Market Strategy

A. Moonstruck appeals to customers interested in quality, uniqueness, assortment, and service—
and are willing to pay for it.
B. These are the firm’s two market segments:
1. Final consumers (who buy for personal use).
2. Corporate customers (who buy as gifts and in larger quantities).
Product Planning
A. Moonstruck has expanded, adding products that complement each other well. Customers can
buy truffles, coffee drinks, and chocolate drinks. The company mixes fresh, high-quality choco-
late into exotic confections.
B. Chocolate in varying forms yields two-thirds of sales.
Distribution Planning
A. Moonstruck’s retail stores are changing, due largely to Tony Roth’s influence. They are larger,
generate much greater sales, and have much higher profit margins.
Promotion Planning
A. Moonstruck uses in-store tastings and demonstrations to draw customers into impulse purchases.
B. It does some print advertising.
C. The biggest promotion effort revolves around publicity from newspaper and magazine stories
about Moonstruck products.
Price Planning
A. Moonstruck has above-average prices.
1. About 60 percent of revenues are from high-margin chocolate truffles and drinks Integrating and
Analyzing the Plan
A. Tony Roth is Moonstruck’s “management catalyst,” with a conviction to go forward. Roth visu-
alizes the concept of Moonstruck in play.
Revising the Marketing Plan

Until late 1999, Moonstruck owned a bakery in Portland. It was sold to focus better on its chocolate
business and the marketing strategy for it. The bakery had little synergy with the firm’s core busi-
ness.

Points to remember




Tutorial - C
SUMMARY OF THE CHAPTER
A. A formal strategic planning process is needed to coordinate the factors controlled by top man-
agement and marketers, as well as provide guidance for decision-making.
B. A strategic business plan “describes the overall direction an organization will pursue within its
chosen environment and guides the allocation of resources and effort. It also provides the logic
that integrates the perspectives of functional departments and operating units, and points them all
in the same direction.” It has these elements:
1. An external orientation.
2. A process for formulating strategies.
3. Methods for analyzing strategic situations and alternatives.
4. A commitment to action.
C. This chapter considers the importance of strategic planning for marketing Strategic planning
encompasses both strategic business plans and strategic marketing plans. Strategic business
plans describe the overall direction firms will pursue within their chosen environment and guide
the allocation of resources and effort. Strategic marketing plans outline what marketing actions
to undertake, why those actions are needed, who is responsible for carrying them out, when and
where they will be completed, and how they will be coordinated.
Strategic planning provides guidance via a hierarchal process, clarifies goals, encourages depart-
mental cooperation, focuses on strengths and weaknesses (as well as opportunities and threats),
examines alternatives, helps allocate resources, and points up the value of monitoring results.
D. A strategic marketing plan outlines the marketing actions to undertake, why they are needed,
who is responsible for carrying them out, when and where they will be completed, and how they
will be coordinated.
E. An early understanding of strategic planning in marketing is important for several reasons.

1. It gives direction to efforts.
2. A strategic plan makes sure each division’s goals are integrated with firm wide goals.
3. It coordinates functional efforts.
4. It assesses strengths and weaknesses, as well as opportunities and threats.
5. It outlines options.
6. It establishes a basis for resource allocation.
7. The value of having a procedure for assessing performance can be shown. See Figure 3-1.
F. This chapter looks at the different kinds of strategic plans and the relationships between market-
ing and the other functional areas in an organization. A firm’s strategic plans may be short run,
moderate in length, or long run. Strategic marketing plans may be for each major product, pre-
sented as one company wide marketing plan, or considered part of an overall business plan. A
bottom-up, top-down, or combined management approach may be used.
The interests of marketing and the other key functional areas in a firm need to be accommodated in
a strategic plan. Improving communications, employing personnel with broad backgrounds, establish-
ing interdepartmental development programs, and blending departmental goals can reduce depart-
mental conflict.

G. This chapter also describes thoroughly each of the steps in the strategic planning process. First,
a firm defines its organizational mission—the long-term commitment to a type of business and a
place in the market. Second, it establishes strategic business units (SBUs), the self-contained
divisions, product lines, or product departments with specific market focuses and separate man-
agers. Third, quantitative and qualitative marketing objectives are set. Fourth, through situation
analysis, a firm identifies its internal strengths and weaknesses, as well as external opportunities
and threats.
Fifth, a firm develops a marketing strategy—to outline the way in which the marketing mix is used to
attract and satisfy the target market(s) and accomplish organizational goals. Every SBU has its own
marketing mix. The approaches to strategy planning include the product/ market opportunity matrix,
the Boston Consulting Group matrix, the General Electric business screen, and the Porter generic
strategy model. They should be viewed as planning tools that aid decision-making; they do not re-
place the need for executives to engage in hands-on planning for each situation.
Sixth, a firm uses tactical plans to specify the short-run actions necessary to implement a given
marketing strategy. At this stage, specific tasks, a time horizon, and resource allocation are made
operational. Seventh, a firm monitors results by comparing actual performance against planned per-
formance; and this information is fed back into the strategic planning process. Adjustments in strat-
egy are made as needed.
G. Strategic planning should stress market information, market-segment definition, and market tar-
geting. All company activities should be built around the goal of creating the desired position with
a well-defined set of customers.
H. In a market-oriented view of the strategic planning process, financial goals are seen as results
and rewards, not the fundamental purpose of business. Distinction between commonly used
terms like plan, strategy, tactics, goals, objectives and aims
A plan is a way of achieving something. Your revision plan is a way of helping to achieve success in
business studies exams. The Christmas present shopping list is a simpler example of a plan – a way
of ensuring that no one gets missed on 25 December.
In business, it is no different. If a business wants to achieve something, it is more likely to do so with

a well-constructed and realistic plan.
What does planning involve? Planning involves:

ü Setting objectives, quantifying targets for achievement, and communicating these targets to people
responsible for achieving them
ü Selecting strategies, tactics, programmes etc for achieving the objectives.
The whole topic of planning brings with it some important terminology that it is worth spending time
getting to know well. You will come across these terms many times in your study of marketing (and
business studies in general):
Strategy
Strategy is the method chosen to achieve goals and objectives
Example: Our strategy is to grow sales and profits of our existing products and to broaden our
business by introducing new products to our existing markets
Tactics
Tactics are the resources that are used in the agreed strategy

Example: We will use our widespread distribution via UK supermarkets to increase sales and existing
products and introduce new products
Goals
Goals concern what you are trying to achieve. Goals provide the “intention” that influence the chosen
actions Example: Our goal is to achieve market leadership in our existing markets
Objectives
Objectives are goals that can be quantified Examples:
- We aim to achieve a market share of 20% in our existing markets
- We aim to penetrate new markets by achieving a market share of at least 5% within 3 years
- We aim to achieve sales of growth of 15% per annum with our existing products
Aims
Aims are goals that cannot be measured in a reliable way. However, they remain important as a
means of providing direction and focus.
Questions
Multiple Choice
1. When your firm practices developing and maintaining a strategic fit between your organization’s
goals and capabilities, it is forming a (an) _____.
a. mission statement
b. values statement
c. strategic plan
d. operating plan
2. At the corporate level, a company starts the strategic planning process by defining its overall
purpose and _____.
a. mission
b. values
c. vision
d. strengths
2. A clear mission statement acts as an invisible hand that guides people in the firm. It is a state-
ment of _____.
a. fact
b. values
c. purpose
d. financial goals
3. What does a market-oriented mission statement define about the business?

a. satisfying basic customer needs
b. satisfying basic supplier needs
c. satisfying basic stockholder needs
d. satisfying basic owner needs
4. Your text pointed out that mission statements should be both _____ and specific.
a. long-term
b. realistic

c. short-term
d. value-laden
5. _____ mission statements provide little real guidance or inspiration.

a. Trite
b. Copy-cat
c. Generic
d. none of the above
6. The company’s mission needs to be turned into detailed supporting objectives for _____.
a. success
b. each level of management
c. corporate needs
d. stockholder wealth
7. What do we call the collection of businesses and products that make up the company?
a. investment diversity
b. needs inventory
c. business portfolio
8. Kimball Gardens is a company that operates as two distinctive businesses – one that sells lawn
and garden products and one that markets booklets. Each business is called a _____.
a. separate entity
b. strategic business unit (SBU)
c. profit center
d. division
9. The firm you work for has decided to use the Boston Consulting Group’s approach to classify its
business units. Upon what is the approach based?
a. most profitable units
b. growth-share matrix
c. customer retention
d. cost-benefits
10. The BCG market growth rate provides a measure of _____.

a. company strength in the market
b. decline of competitors
c. market attractiveness
d. the unit stock value
11. Which of these is not one of the common options in using the BCG approach?
a. build
b. hold
c. harvest
d. diversify

12. Mountain Home Farms is now using the product/market expansion grid. The owners have found
it to be quite useful for identifying _____.
a. target markets
b. growth opportunities
c. key customers
d. new products
13. A common practice among marketers is to increase sales to current customers without changing
their products. What is this practice called?
a. market skimming
b. market penetration
c. market development
d. product extension
14. A common practice among marketers is to identify and develop new markets for their existing
products. This practice is called _____.
a. market development
b. product development
c. market penetration
d. market skimming
15. There are many reasons why a firm might want to abandon products or markets. In these
instances, companies would consider _____ rather than growing.
a. downsizing
b. demarketing
c. retrenching
16. You are excited about studying marketing. You tell your younger brother that product, price,
place, and promotion make up the _____.
a. marketing package
b. marketing strategy
c. marketing combination
d. marketing mix
17. Which of the four Ps describes the goods-and-services combination the company offers to the
target market?
a. price
b. promotion
c. product
d. place
18. Banking, airline, and retailing services are properly termed _____.
a. service products
b. products
c. adjunct products
d. accessories

19. A concern with the four Ps is that it takes the _____ view and not the _____ view.
a. buyer’s; seller’s
b. broad; narrow
c. seller’s; buyer’s
d. traditional; modern
20. We can safely say that the marketing mix constitutes the company’s tactical tool kit for establish-
ing _____ in target markets.
a. strong sales
b. strong positioning
c. strong competitiveness
d. strong strategies
21. Today the four Ps are compared to the four Cs. Product and price are called _____ and _____
respectively.
a. convenience; customer solution
b. customer cost; convenience
c. communication; customer solution
d. customer solution; customer cost
22. Marketers see themselves as selling products, while customers see themselves as buying _____.
a. value
b. solutions
c. bargains
d. value or solutions to their problems
23. One of these is not a basic marketing management function. Please choose it.
a. analysis
b. planning
c. directing
d. implementation
24. A thorough market analysis includes all of the following except one. Which one?
a. company situation
b. markets
c. company strengths
d. past sales records
25. Identify the marketing logic whereby the company hopes to achieve its marketing objectives.
a. marketing plan
b. marketing goals
c. marketing strategy
d. marketing promotion plan
26. A marketing plan begins with an executive summary, which quickly overviews major assess-
ments, goals, and _____.
a. budgets
b. markets

c. promotions
d. recommendations
27. Marketing planning address the what and why of marketing activities. Implementation addresses
the _____.
a. who, when, where
b. when, where, how
c. who, where, when, how
d. who, where, when, how much
28. When your boss says that implementation means doing things right, what does she mean when
she says doing the right things?
a. strategy
b. planning
c. objectives
d. proper execution
29. A brilliant marketing strategy counts for little if the company fails to _____ it properly.
a. strategically plan
b. budget
c. implement
d. construct
30. Emerson Studios, a chain of 25 portrait stores in five states, has organized its marketing organi-
zation in which different marketing activities are headed by a specialist. What is this organization
called?
a. geographic
b. product
c. organic
d. functional
Essay Questions
31. What has created Disney’s success as a world leader of entertainment?
32. Briefly mention the components of a strategic plan.
33. Describe what goes into a market-oriented mission statement.
34. Explain the purpose of the Boston Consulting Group approach to business planning, and briefly
describe each of the four types of SBUs.
35. Compare and contrast the following strategies for growth: market penetration, market develop-
ment, product development, and diversification.
36. How do marketers use partner relationship management to their advantage?

Further reading and references
Text
Evans J.R., and Berman B - Marketing, 8e (Biztantra, 2003)

Kotler P- Marketing Management: The Millennium Edition (Prentice-Hall, 2000)
Ramaswamy V.S., and Namakumari S. - Marketing Management (Macmillan, 2002)
Saxena R - Marketing Management (Tata-McGraw Hill, 2002)
Others
Business India
Business Today
Business World
The Economic Times supplements– Brand Equity, Corporate Dossier

Unit 2
Chapter 5 - Marketing Information
Lesson 14 - Marketing Intelligence System And Marketing
Decision Support System
Introduction:
Tell me few names of international branded products available in your city? Fine-how did you come
to know about these names? Students, with the globalization, it has also given rise to global marketing
phenomenon. Our needs and wants are ever-changing and all of us want to have the latest and
unique product.
Accurate and timely information is very much important for marketing decision making. There are
many companies which have maximized their sales and efficiency by having timely information.
Marketing intelligence is day-to-day information about the development in the marketing environ-
ment that managers used to prepare and adjust the marketing plan. The two systems for gathering
marketing intelligence are marketing information system and interactive decision support system,
which will be discussed in this lesson.
Learning out comes:

Meaning of Decision Support System (DSS) and its role in marketing
Role and importance of marketing information systems
Examine the basic marketing information system, commercial databases, database marketing,
and examples of MIS in action
What role marketing research plays in marketing decision-making
Steps in marketing research process
Marketing Information System: We all know that no marketing activity can be carried out in
isolation, know when we say it doesn’t work in isolation that means there are various forces could be
external or internal, controllable or uncontrollable which are working on it. Thus to know which
forces are acting on it and its impact the marketer needs to gathering the data through its own
resources which in terms of marketing we can say he is trying to gather the market information. This
collection of information is a continuous process that gathers data from a variety of sources synthe-
sizes it and sends it to those responsible for meeting the market places needs. The effectiveness of
marketing decision is proved if it has a strong information system offering the firm a competitive
advantage.
A marketing information system (MIS) is a set of procedures and methods designed to generate,
analyze, disseminate, and store anticipated marketing decision information on a regular, continuous
basis.
Information should not be approached in an infrequent manner. If research is done this way, a firm
could face these risks:
1. Opportunities may be missed.
2. There may be a lack of awareness of environmental changes and competitors’ actions.
3. Data collection may be difficult to analyze over several time periods.
4. Marketing plans and decisions may not be properly reviewed.
5. Data collection may be disjointed.

6. Previous studies may not be stored in an easy to use format.

7. Time lags may result if a new study is required.
8. Actions may be reactionary rather than anticipatory.
A marketing information system (MIS) is a set of procedures and methods designed to generate,
analyze, disseminate, and store anticipated marketing decision information on a regular, continuous
basis.An information system can be used operationally, managerially, and strategically for several
aspects of marketing.
An information system can be used operationally, managerially, and strategically for several aspects
of marketing.
Marketing Information System Outlay
The total information needs of the marketing department can be specified and satisfied via a market-
ing intelligence network, which contains three components.
1. Continuous monitoring is the procedure by which the changing environment is regularly viewed.
2. Marketing research is used to obtain information on particular marketing issues.
3. Data warehousing involves the retention of all types of relevant company records, as well as the
information collected through continuous monitoring and marketing research that is kept by the
organization.

Depending on a firm’s resources and the complexity of its needs, a marketing intelligence network
may or may not be fully computerized. The ingredients for a good MIS are consistency, complete-
ness, and orderliness. Marketing plans should be implemented on the basis of information obtained
from the intelligence network.
An MIS offers many advantages:

1. Organized data collection.
2. A broad perspective.
3. The storage of important data.
4. An avoidance of crises.
5. Coordinated marketing plans.
6. Speed in obtaining sufficient information to make decisions.
7. Data amassed and kept over several time periods.
8. The ability to do a cost-benefit analysis.
The disadvantages of an MIS are high initial time and labor costs and the complexity of setting up a
system. Marketers often complain that they lack enough marketing information or the right kind, or
have too much of the wrong kind. The solution is an effective marketing information system.
The information needed by marketing managers comes from three main sources:
(1) Internal company information - E.g. sales, orders, customer profiles, stocks, customer service
reports etc)
(2) Marketing intelligence - This can be information gathered from many sources, including suppli-
ers, customers, and distributors. Marketing intelligence is a catchall term to include all the everyday
information about developments in the market that helps a business prepare and adjust its marketing
plans. It is possible to buy intelligence information from outside suppliers (e.g. IDC, ORG, MARG)
who set up data gathering systems to support commercial intelligence products that can be profitably
sold to all players in a market.
(3) Market research - Management cannot always wait for information to arrive in bits and pieces
from internal sources. Also, sources of market intelligence cannot always be relied upon to provide
relevant or up-to-date information (particularly for smaller or niche market segments). In such cir-
cumstances, businesses often need to undertake specific studies to support their marketing strategy
- this is market research.
COMMERCIAL DATA BASES:

Specialized research firms develop ongoing commercial databases, which contain information on
population traits, the business environment, economic forecasts, industry and companies’ perfor-
mance, and other items. The research firms sell access to their databases to clients. Generally,
databases are available in printed form, on computer disks, CD-ROMs, or tapes; and as online
downloads from the Internet.Among the best-known database services are ABI/Inform, ProQuest,
InfoTrac Web, Dow Jones Interactive, and Lexis-Nexis.
DATABASE MARKETING - Data-base marketing may be defined as a computerized technique

that compiles, sorts, and stores relevant information about customers and potential customers; uses
that information to highlight opportunities and prioritize market segments; and enables the firm to
profitably tailor marketing efforts for specific customers or customer groups.

Data-base marketing works like this:

1. It creates a bank of information about individual customers.
2. It uses that information to analyze buying and inquiry patterns, thereby creating the ability to
target goods and services more accurately.
3. It can be used to promote the benefits of brand loyalty to customers at risk from competition.
4. It can fuel sales growth by identifying customers most apt to buy new goods and services.
5. It can increase sales effectiveness.
6. It can support low-cost alternatives to traditional sales methods, which can be of strategic impor-
tance in markets where margins are being eroded.
Relationship marketing benefits from database marketing.
When setting up a database, each actual or potential customer is given a separate identifying code.
Then, both contact information and marketing information are entered and updated for each cus-
tomer. Many consulting companies, such as ePresence, help clients with database marketing. The
text explains how.
MIS IN ACTION
Worldwide, millions of organizations now use some form of MIS.
Progressive firms (and divisions within the same firm) are transmitting and sharing marketing infor-
mation with each other—quickly and inexpensively.
One-half of Fortune 1000 companies and one-half of large retailers are actively engaged in data-
base marketing.
These are among the firms with well-structured marketing information systems:
1. 3M, whose best-known products are Post-it Notes and Scotch tape, operate in more than 60
countries. It recently introduced a $30 million online information system and all its senior execu-
tives get their information from the online database.
2. British-based retailer Marks & Spencer uses information generated from customer credit cards
to better tailor its marketing efforts. It recently revamped its process for supplying products to

stores after studying its customer database.

3. Louise’s Trattoria, a 13-unit chain of Italian restaurants in Los Angeles,
reviewed the information from computer-scanned customer receipts that were
electronically stored in the firm’s data warehouse. It learned that its customers
were more interested in “California Italian” (as opposed to traditional Italian)
foods, healthful menu items, and that its patronage was skewed more female. It
then revised its strategy accordingly.
Points to remember

Unit 2
Lesson 15 - Marketing Research
Introduction
To start with let me ask you what can you understand from the term “Research”?
In simple terms I would say that it is a study of the available data and doing the value additions to it.
Now, market research always involves some form of data collection ,analysis of the data, interpreta-
tion of the data and the formulation of the data for betterment of the marketing activity.
Marketing research is the systematic gathering, recording, and analyzing of information about spe-
cific issues related to the marketing of goods, services, organizations, people, places, and ideas. An
outside party or the firm itself may undertake such research.
Several points about marketing research need to be emphasized.

1. It must not be haphazard.
2. It involves a sequence of tasks: data gathering, recording, and analysis.
3. Data may be available from different sources: the firm itself, an impartial agency, or a research
specialist working for the firm.
4. It may be applied to any aspect of marketing that requires information to aid decision-making.
5. Research findings and their implications must be communicated to the appropriate decision
maker(s) in the firm.
A firm’s decision to use marketing research does not mean it must engage in expensive projects (test
marketing, consumer attitude surveys). It may get enough data by analyzing internal reports or from
informal meetings with customer service personnel.
Market research and marketing research are often confused. ‘Market’ research is simply re-
search into a specific market. It is a very narrow concept. ‘Marketing’ research is much broader. It
not only includes ‘market’ research, but also areas such as research into new products, or modes of
distribution such as via the Internet. Here are a couple of definitions:
Marketing research is the function that links the consumer, customer, and public to the marketer
through information - information used to identify and define marketing opportunities and problems;
generate, refine, and evaluate marketing actions; monitor marketing performance; and improve un-
derstanding of marketing as a process. Marketing research specifies the information required to
address these issues, designs the methods for collecting information, manages and implements the
data collection process, analyzes, and communicates the findings and their implications.
Obviously, this is a very long and involved definition of marketing research.
Marketing research is about researching the whole of a company’s marketing process
This explanation is far more straightforward i.e. marketing research into the elements of the market-
ing mix, competitors, markets, and everything to do with the customers.
Sources of Data - Primary and Secondary

There are two main sources of data - primary and secondary. Primary research is conducted from

scratch. It is original and collected to solve the problem in hand.. Secondary research, also known as
desk research, already exists since it has been collected for other purposes.
Primary Research
There are many was to conduct primary research. We consider some of them:
1. Interviews
2. Mystery shopping
3. Focus groups
4. Projective techniques
5. Product tests
6. Diaries
7. Omnibus Studies
1.Interviews
This is the technique most associated with marketing research. Interviews can be telephone, face-to-
face, or over the Internet.
1.1 Telephone Interviews

Telephone ownership is very common in developed countries. It is ideal for collecting data from a
geographically dispersed sample. The interviews tend to be very structured and tend to lack depth.
Telephone interviews are cheaper to conduct than face-to-face interviews (on a per person basis).
Advantages of telephone interviews

Can be geographically spread
Can be set up and conducted relatively cheaply
Random samples can be selected
Cheaper than face-to-face interviews
Disadvantages of telephone interviews

Respondents can simply hang up
Interviews tend to be a lot shorter
Visual aids cannot be used
Researchers cannot behavior or body language
1.2 Face-to-face Interviews

Face-to face interviews are conducted between a market researcher and a respondent. Data
is collected on a survey. Some surveys are very rigid or ‘structured’ and use closed questions. Data
is easily compared. Other face-to-face interviews are more ‘in depth,’ and depend upon more open
forms of questioning. The research will probe and develop points of interest.
Advantages of face-to-face interviews

They allow more ‘depth’
Physical prompts such as products and pictures can be used
Body language can emphasize responses
Respondents can be ‘observed’ at the same time
Disadvantages of face-to-face interviews

Marketing Research

Introduction
To start with let me ask you what can you understand from the term “Research”? In simple terms I
would say that it is a study of the available data and doing the value additions to it. Now, market
research always involves some form of data collection ,analysis of the data, interpretation of the data
and the formulation of the data for betterment of the marketing activity.
Marketing research is the systematic gathering, recording, and analyzing of information about spe-
cific issues related to the marketing of goods, services, organizations, people, places, and ideas. An
outside party or the firm itself may undertake such research.
Several points about marketing research need to be emphasized.

1. It must not be haphazard.
2. It involves a sequence of tasks: data gathering, recording, and analysis.
3. Data may be available from different sources: the firm itself, an impartial agency, or a research
specialist working for the firm.
4. It may be applied to any aspect of marketing that requires information to aid decision-making.
5. Research findings and their implications must be communicated to the appropriate decision maker(s)
in the firm.
A firm’s decision to use marketing research does not mean it must engage in expensive projects (test
marketing, consumer attitude surveys). It may get enough data by analyzing internal reports or from
informal meetings with customer service personnel.
Market research and marketing research are often confused. ‘Market’ research is simply re-
search into a specific market. It is a very narrow concept. ‘Marketing’ research is much broader. It
not only includes ‘market’ research, but also areas such as research into new products, or modes of
distribution such as via the Internet. Here are a couple of definitions:
Marketing research is the function that links the consumer, customer, and public to the marketer
through information - information used to identify and define marketing opportunities and problems;
generate, refine, and evaluate marketing actions; monitor marketing performance; and improve un-
derstanding of marketing as a process. Marketing research specifies the information required to
address these issues, designs the methods for collecting information, manages and implements the
data collection process, analyzes, and communicates the findings and their implications.
Obviously, this is a very long and involved definition of marketing research.
Marketing research is about researching the whole of a company’s marketing process
This explanation is far more straightforward i.e. marketing research into the elements of the market-
ing mix, competitors, markets, and everything to do with the customers.
Sources of Data - Primary and Secondary

There are two main sources of data - primary and secondary. Primary research is conducted from
scratch. It is original and collected to solve the problem in hand.. Secondary research, also known as
desk research, already exists since it has been collected for other purposes.
Primary Research
There are many was to conduct primary research. We consider some of them:
1. Interviews
2. Mystery shopping

3. Focus groups
4. Projective techniques
5. Product tests
6. Diaries
7. Omnibus Studies
1. Interviews
This is the technique most associated with marketing research. Interviews can be telephone, face-to-
face, or over the Internet.
1.1 Telephone Interviews

Telephone ownership is very common in developed countries. It is ideal for collecting data from a
geographically dispersed sample. The interviews tend to be very structured and tend to lack depth.
Telephone interviews are cheaper to conduct than face-to-face interviews (on a per person basis).
Advantages of telephone interviews
Can be geographically spread
Can be set up and conducted relatively cheaply
Cheaper than face-to-face interviews
Disadvantages of telephone interviews

Respondents can simply hang up
Interviews tend to be a lot shorter
Visual aids cannot be used
Researchers cannot behavior or body language
1.2 Face-to-face Interviews

Face-to face interviews are conducted between a market researcher and a respondent. Data is
collected on a survey. Some surveys are very rigid or ‘structured’ and use closed questions. Data is
easily compared. Other face-to-face interviews are more ‘in depth,’ and depend upon more open
forms of questioning. The research will probe and develop points of interest.
Advantages of face-to-face interviews

They allow more ‘depth’
Physical prompts such as products and pictures can be used
Body language can emphasize responses
Respondents can be ‘observed’ at the same time
Disadvantages of face-to-face interviews

Interviews can be expensive
It can take a long period of time to arrange and conduct.
Some respondents will give biased responses when face-to-face with a researcher.
1.3 The Internet

The Internet can be used in a number of ways to collect primary data. Visitors to sites can be asked
to complete electronic questionnaires. However responses will increase if an incentive is offered
such as a free newsletter, or free membership. Other important data is collected when visitors sign
up for membership.

Advantages of the Internet

Relatively inexpensive
Uses graphics and visual aids
Visitors tend to be loyal to particular sites and are willing to give up time to complete the forms
Disadvantages of the Internet

Only surveys current, not potential customers.
Needs knowledge of software to set up questionnaires and methods of processing data
May deter visitors from your website.
1.4 Mail Survey

In many countries, the mail survey is the most appropriate way to gather primary data. Lists are
collated, or purchased, and a pre-designed questionnaire is mailed to a sample of respondents. Mail
surveys do not tend to generate more than a 5-10% response rate. However, a second mailing to
prompt or remind respondents tends to improve response rates. Mail surveys are less popular with
the advent of technologies, such as the Internet and telephones, especially call centers.
2.0 Mystery Shopping

Companies will set up mystery shopping campaigns on an organizations behalf. Often used in bank-
ing, retailing, travel, cafes and restaurants, and many other customer focused organizations, mystery
shoppers will enter, posing as real customers. They collect data on customer service and the cus-
tomer experience. Findings are reported back to the commissioning organization. There are many
issues surrounding the ethics of such an approach to research.
3.0 Focus Groups

Focus groups are made up from a number of selected respondents based together in the same room.
Highly experienced researchers work with the focus group to gather in depth qualitative feedback.
Groups tend to be made up from 10 to 18 participants. Discussion, opinion, and beliefs are encour-
aged, and the research will probe into specific areas that are of interest to the company commission-
ing the research.
Advantages of focus groups

Commissioning marketers often observe the group from behind a one-way screen
Visual aids and tangible products can be circulated and opinions taken
All participants and the research interact
Areas of specific interest can be covered in greater depth
Disadvantages of focus groups

Highly experienced researchers are needed. They are rare.
Complex to organize.
Can be very expensive in comparison to other methods
4.0 Projective techniques

Projective techniques are borrowed from the field of psychology. They will generate highly subjec-
tive qualitative data. There are many examples of such approaches including: Inkblot tests - look for
images in a series of inkblots Cartoons - complete the ‘bubbles’ on a cartoon series Sentence or story
completion Word association - depends on very quick (subconscious) responses to words Psycho-
drama - Imagine that you are a product and describe what it is like to be operated, warn, or used.

5.0 Product tests

Product tests are often completed as part of the ‘test’ marketing process. Products are displayed in
a mall of shopping center. Potential customers are asked to visit the store and their purchase behavior
is observed. Observers will contemplate how the product is handled, how the packing is read, how
much time the consumer spends with the product, and so on.
6.0 Diaries
Diaries are used by a number of specially recruited consumers. They are asked to complete a diary
that lists and records their purchasing behavior of a period of time (weeks, months, or years). It
demands a substantial commitment on the part of the respondent. However, by collecting a series of
diaries with a number of entries, the researcher has a reasonable picture of purchasing behavior.
7.0 Omnibus Studies

An omnibus study is where an organization purchases a single or a few questions on a ‘hybrid’
interview (either face-to-face or by telephone). The organization will be one of many that simply
want to a straightforward answer to a simple question. An omnibus survey could include questions
from companies in sectors as diverse as heath care and tobacco. The research is far cheaper, and
commits less time and effort than conducting your own research.
Secondary Research
Secondary (or desk) research uses data that has been collected for other objectives than your own
i.e. it already exists. There are a number of such sources available to the marketer, and the following
list is by no means conclusive:
Trade associations
National and local press Industry magazines
National/ international governments
Web sites
Informal contacts
Trade directories
Published company accounts
Business libraries
Professional institutes and organizations
Omnibus surveys
Previously gathered marketing research
Census data
Public records
Managers need information in order to introduce products and services that create value in the mind
of the customer. But the perception of value is a subjective one, and what customers value this year
may be quite different from what they value next year. As such, the attributes that create value
cannot simply be deduced from common knowledge. Rather, data must be collected and analyzed.
The goal of marketing research is to provide the facts and direction that managers need to make their
more important marketing decisions
To maximize the benefit of marketing research, those who use it need to understand the research
process and its limitations.
Marketing Research vs. Market Research
These terms often are used interchangeably, but technically there is a difference. Market research

deals specifically with the gathering of information about a market’s size and trends. Marketing
research covers a wider range of activities. While it may involve market research, marketing re-
search is a more general systematic process that can be applied to a variety of marketing problems.
The Value of Information

Information can be useful, but what determines its real value to the organization? In general, the
value of information is determined by
The ability and willingness to act on the information
The accuracy of the information
The level of indecisiveness that would exist without the information
The amount of variation in the possible results
The level of risk aversion
The reaction of competitors to any decision improved by the information.
The cost of the information in terms of time and money
Uses of market research

A wide variety of information used to support marketing decisions can be obtained from market
research. A selection of such uses are summarized below:
Information about the market

Analysis of the market potential for existing products (e.g. market size, growth, changing sales
trends)
Forecasting future demand for existing products
Assessing the potential for new products
Study of market trends
Analysis of competitor behavior and performance
Analysis of market shares
Information about Products

Likely customer acceptance (or rejection) of new products
Comparison of existing products in the market (e.g. price, features, costs, distribution)
Forecasting new uses for existing products
Technologies that may threaten existing products
New product development
Information about Pricing in the Market

Estimates and testing of price elasticity
Analysis of revenues, margins and profits
Customer perceptions of “just or fair” pricing
Competitor pricing strategies
Information about Promotion in the Market

Effectiveness of advertising
Effectiveness of sales force (personal selling)
Extent and effectiveness of sales promotional activities
Competitor promotional strategies

Information about Distribution in the Market

Use and effectiveness of distribution channels
Opportunities to sell direct
Cost of transporting and warehousing products
Level and quality of after-sales service
Types of market research

The main distinction between the different types of market research is between “ad-hoc” and
“continuous” research:
Ad-hoc Market Research

Ad-hoc research studies focus on specific marketing problems. They collect data at one point in time
from one sample of respondents. Good examples of ad-hoc studies include:
Product usage survey
New product concept tests (where consumers are asked to trial new brands, product prototypes
etc)
Advertising development (how does the sample of consumers respond to a specific advertising
campaign? Most TV adverts are researched in this way)
Corporate image surveys (often quite enlightening)
Customer satisfaction surveys (these can often turn into continuous research)
Continuous Research
Continuous studies interview the same sample of people, repeatedly. The major types of continuous
research are:
Consumer panel - Consumer panels are formed by recruiting large numbers of households who
provide information on their buying over time. Research agency AC Nielsen has one of the largest
consumer panels in the world, continuously interviewing 125,000 households in 18 countries. The
main competitor for AC Nielsen is TNS which runs panels in 20 countries.
Retail Audits: - By gaining the cooperation of retail outlets, sales of brands can be measured (using
bar coded sales data) to track changes in brand loyalty, market share and effectiveness of different
retail formats.
Television Viewer ship / Radio Listening Panels - These panels aim to measure Viewer ship
or listening minute by minute. This data is critical information for broadcasters to determine their
programme strategy (what kinds of programmes to produce and when to broadcast them) as well as
for advertisers (who is watching, listening, and when?).
Research Design
Marketing research can classified in one of three categories:
1. Exploratory research
2. Descriptive research
3. Causal research
These classifications are made according to the objective of the research. In some cases the re-
search will fall into one of these categories, but in other cases different phases of the same research
project will fall into different categories
Exploratory research - Exploratory research has the goal of formulating problems more precisely,
clarifying concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming

hypotheses. Exploratory research can be performed using a literature search, surveying certain people
about their experiences, focus groups, and case studies. When surveying people, exploratory re-
search studies would not try to acquire a representative sample, but rather, seek to interview those
who are knowledgeable and who might be able to provide insight concerning the relationship among
variables. Case studies can include contrasting situations or benchmarking against an organization
known for its excellence. Exploratory research may develop hypotheses, but it does not seek to test
them. Exploratory research is characterized by its flexibility.
Descriptive research - Descriptive research is more rigid than exploratory research and seeks to
describe users of a product, determine the proportion of the population that uses a product, or predict
future demand for a product. As opposed to exploratory research, descriptive research should define
questions, people surveyed, and the method of analysis prior to beginning data collection. In other
words, the who, what, where, when, why, and how aspects of the research should be defined. Such
preparation allows one the opportunity to make any required changes before the costly process of
data collection has begun.
Interviews can be expensive

It can take a long period of time to arrange and conduct.
Some respondents will give biased responses when face-to-face with a researcher.
1.3 The Internet

The Internet can be used in a number of ways to collect primary data. Visitors to sites can be asked
to complete electronic questionnaires. However responses will increase if an incentive is offered
such as a free newsletter, or free membership. Other important data is collected when visitors sign
up for membership.
Advantages of the Internet

Relatively inexpensive
Uses graphics and visual aids
Visitors tend to be loyal to particular sites and are willing to give up time to complete the forms
Disadvantages of the Internet

Only surveys current, not potential customers.
Needs knowledge of software to set up questionnaires and methods of processing data
May deter visitors from your website.
1.4 Mail Survey

In many countries, the mail survey is the most appropriate way to gather primary data. Lists are
collated, or purchased, and a pre-designed questionnaire is mailed to a sample of respondents. Mail
surveys do not tend to generate more than a 5-10% response rate. However, a second mailing to
prompt or remind respondents tends to improve response rates. Mail surveys are less popular with
the advent of technologies, such as the Internet and telephones, especially call centers.
2.0 Mystery Shopping

Companies will set up mystery shopping campaigns on an organizations behalf. Often used in bank-
ing, retailing, travel, cafes and restaurants, and many other customer focused organizations, mystery
shoppers will enter, posing as real customers. They collect data on customer service and the cus-
tomer experience. Findings are reported back to the commissioning organization. There are many
issues surrounding the ethics of such an approach to research.

3.0 Focus Groups

Focus groups are made up from a number of selected respondents based together in the same room.
Highly experienced researchers work with the focus group to gather in depth qualitative feedback.
Groups tend to be made up from 10 to 18 participants. Discussion, opinion, and beliefs are encour-
aged, and the research will probe into specific areas that are of interest to the company commission-
ing the research.
Advantages of focus groups

Commissioning marketers often observe the group from behind a one-way screen
Visual aids and tangible products can be circulated and opinions taken
All participants and the research interact
Areas of specific interest can be covered in greater depth
Disadvantages of focus groups

Highly experienced researchers are needed. They are rare.
Complex to organize.
Can be very expensive in comparison to other methods
4.0 Projective techniques

Projective techniques are borrowed from the field of psychology. They will generate highly subjec-
tive qualitative data. There are many examples of such approaches including: Inkblot tests - look for
images in a series of inkblots Cartoons - complete the ‘bubbles’ on a cartoon series Sentence or story
completion Word association - depends on very quick (subconscious) responses to words Psycho-
drama - Imagine that you are a product and describe what it is like to be operated, warn, or used.
5.0 Product tests

Product tests are often completed as part of the ‘test’ marketing process. Products are displayed in
a mall of shopping center. Potential customers are asked to visit the store and their purchase behavior
is observed. Observers will contemplate how the product is handled, how the packing is read, how
much time the consumer spends with the product, and so on.
6.0 Diaries
Diaries are used by a number of specially recruited consumers. They are asked to complete a diary
that lists and records their purchasing behavior of a period of time (weeks, months, or years). It
demands a substantial commitment on the part of the respondent. However, by collecting a series of
diaries with a number of entries, the researcher has a reasonable picture of purchasing behavior.
7.0 Omnibus Studies

An omnibus study is where an organization purchases a single or a few questions on a ‘hybrid’
interview (either face-to-face or by telephone). The organization will be one of many that simply
want to a straightforward answer to a simple question. An omnibus survey could include questions
from companies in sectors as diverse as heath care and tobacco. The research is far cheaper, and
commits less time and effort than conducting your own research.
Secondary Research
Secondary (or desk) research uses data that has been collected for other objectives than your own
i.e. it already exists. There are a number of such sources available to the marketer, and the following
list is by no means conclusive:
Trade associations
National and local press Industry magazines

National/ international governments

Web sites
Informal contacts
Trade directories
Published company accounts
Business libraries
Professional institutes and organizations
Omnibus surveys
Previously gathered marketing research
Census data
Public records
Managers need information in order to introduce products and services that create value in the mind
of the customer. But the perception of value is a subjective one, and what customers value this year
may be quite different from what they value next year. As such, the attributes that create value
cannot simply be deduced from common knowledge. Rather, data must be collected and analyzed.
The goal of marketing research is to provide the facts and direction that managers need to make their
more important marketing decisions
To maximize the benefit of marketing research, those who use it need to understand the research
process and its limitations.
Marketing Research vs. Market Research - These terms often are used interchangeably, but
technically there is a difference. Market research deals specifically with the gathering of information
about a market’s size and trends. Marketing research covers a wider range of activities. While it may
involve market research, marketing research is a more general systematic process that can be ap-
plied to a variety of marketing problems.
The Value of Information - Information can be useful, but what determines its real value to the
organization? In general, the value of information is determined by
The ability and willingness to act on the information
The accuracy of the information
The level of indecisiveness that would exist without the information
The amount of variation in the possible results
The level of risk aversion
The reaction of competitors to any decision improved by the information.
The cost of the information in terms of time and money
Uses of market research - A wide variety of information used to support marketing decisions can
be obtained from market research. A selection of such uses are summarized below:Information
about the market
Analysis of the market potential for existing products (e.g. market size, growth, changing sales
trends)
Forecasting future demand for existing products
Assessing the potential for new products
Study of market trends
Analysis of competitor behavior and performance
Analysis of market shares
Information about Products

Likely customer acceptance (or rejection) of new products

Comparison of existing products in the market (e.g. price, features, costs, distribution)
Forecasting new uses for existing products
Technologies that may threaten existing products
New product development
Information about Pricing in the Market

Estimates and testing of price elasticity
Analysis of revenues, margins and profits
Customer perceptions of “just or fair” pricing
Competitor pricing strategies
Information about Promotion in the Market

Effectiveness of advertising
Effectiveness of sales force (personal selling)
Extent and effectiveness of sales promotional activities
Competitor promotional strategies
Information about Distribution in the Market

Use and effectiveness of distribution channels
Opportunities to sell direct
Cost of transporting and warehousing products
Level and quality of after-sales service
Types of market research - The main distinction between the different types of market research
is between “ad-hoc” and “continuous” research: Ad-hoc Market Researc Ad-hoc research stud-
ies focus on specific marketing problems. They collect data at one point in time from one sample of
respondents. Good examples of ad-hoc studies include:
Product usage survey
New product concept tests (where consumers are asked to trial new brands, product prototypes
etc)
Advertising development (how does the sample of consumers respond to a specific advertising
campaign? Most TV adverts are researched in this way)
Corporate image surveys (often quite enlightening)
Customer satisfaction surveys (these can often turn into continuous research)
Continuous Research
Continuous studies interview the same sample of people, repeatedly. The major types of continuous
research are:
Consumer panel - Consumer panels are formed by recruiting large numbers of households who
provide information on their buying over time. Research agency AC Nielsen has one of the largest
consumer panels in the world, continuously interviewing 125,000 households in 18 countries. The
main competitor for AC Nielsen is TNS which runs panels in 20 countries.
Retail Audits - By gaining the cooperation of retail outlets, sales of brands can be measured (using
bar coded sales data) to track changes in brand loyalty, market share and effectiveness of different
retail formats.
Television Viewer ship / Radio Listening Panels - These panels aim to measure Viewer ship or

listening minute by minute. This data is critical information for broadcasters to determine their
programme strategy (what kinds of programmes to produce and when to broadcast them) as well as
for advertisers (who is watching, listening, and when?).
Research Design- Marketing research can classified in one of three categories:
1. Exploratory research
2. Descriptive research
3. Causal research
These classifications are made according to the objective of the research. In some cases the re-
search will fall into one of these categories, but in other cases different phases of the same research
project will fall into different categories
Exploratory research - Exploratory research has the goal of formulating problems more precisely,
clarifying concepts, gathering explanations, gaining insight, eliminating impractical ideas, and forming
hypotheses. Exploratory research can be performed using a literature search, surveying certain people
about their experiences, focus groups, and case studies. When surveying people, exploratory re-
search studies would not try to acquire a representative sample, but rather, seek to interview those
who are knowledgeable and who might be able to provide insight concerning the relationship among
variables. Case studies can include contrasting situations or benchmarking against an organization
known for its excellence. Exploratory research may develop hypotheses, but it does not seek to test
them. Exploratory research is characterized by its flexibility.
Descriptive research - Descriptive research is more rigid than exploratory research and seeks to
describe users of a product, determine the proportion of the population that uses a product, or predict
future demand for a product. As opposed to exploratory research, descriptive research should define
questions, people surveyed, and the method of analysis prior to beginning data collection. In other
words, the who, what, where, when, why, and how aspects of the research should be defined. Such
preparation allows one the opportunity to make any required changes before the costly process of
data collection has begun.
Notice the wording of the statement. Were we to say “I found this web site to be easy”, rather than
“very easy”, we would not give people a strong enough statement to either agree or disagree with,
thus forcing people more toward the middle (4) of the scale. You want to word the statement to get
maximum variation on the scale, and by making the question strongly worded we achieve that.
Another way of doing this is by using a scale such as follows:
“How easy was it to navigate the web site?”
This provides a clear neutral point (0) and makes it a bit more clear that when someone ticks of the,

say, -3 that they are really saying the web site is very difficult. The point is to think through how you
respondents will not only react to a scale, but what do you want to measure.
Checkbox scales - This is a scale that measures an identity (e.g., are you a man or woman?).
Marketing research uses these types of scales to gather demographic and other similar information.
For example, you might have a series of check boxes and ask a respondent to check the box that
closest indicates their income.
A key thing to think about when using checkbox scales is whether the respondent can be identified in
multiple ways. For example, you might ask them which magazines they read. Since they may read
several, you need to let them check off all that apply.
True zero scales - Any time you want to measure something that has a true zero point (like income
or age) you are using this type of scale (known as a “ratio scale”). For example, you would be using
these types of scales if you ask someone how many years they have been using web browsers.
Note that often researchers will translate true zero scales into identify scales. This is what happens
when, say income is broken up into several categories and respondents are asked to identify which
category best describes them. The key issue here is to make sure the categories are meaningful. For
example, does it really make sense to have an age category of, say, 25-38? By doing do, you are
implicitly assuming that someone who is 39 is in a completely different category. Think hard before
blindly translating things like age into checkbox scales.
Example - reactions to my new web site
Now, let’s put this all together with a simple example. Assume you had some people beta testing a
new web site, and now you want to know people’s reactions to it. You might send them an email
asking for their responses to several questions.
But what do you want to know? That’s the first question you need to answer.
Let’s say, you decide that you want to know a) how easy the site is to navigate, b) how easy it is to
search for things on the web site, c) how interesting is the content, d) how relevant is the content, e)
how appealing is the layout, etc., etc.
Now that you have the questions you’re most interested in, you might also think about demographic
information that might help you understand why people might have different types of reactions to
your web site. For example, maybe people with more prior experience with web browsing might find
it easier to search your web site than people with less prior experience. If that is possible, you
certainly want to ask respondents their level of prior experience.
Other demographic information, even if not related to your central question, might be useful in under-
standing your target market, so you might ask these questions as well.
Start off easy - Start off the questionnaire with questions that are interesting and very easy to
answer. If respondents find they cannot answer the first questions easily or fund them threatening in
any way, they may refuse to continue filling out the questionnaire.
For example, you might start off asking them “How long have you been using the web site?” which
you might have them answer either with a specific number or as part of an checkbox scale (as
described above), or “Approximately how many times have they visited your web site?” etc.
The middle- After asking the opening questions, you need to start focusing the respondent on the
important questions. Two rules of thumb can be followed. First, make sure the order to the questions

is logical. This means avoiding sudden changes in topics when possible. Second, always move from
broader questions to narrower questions. This is called funneling.
Continuing our example, you might first ask a general question about how they liked your site (using
a multiple point scale, as above). Then, you could move on to specific issues, such as their level of
interest in your web site, the degree to which your web site is appealing, etc.
The end - You could end your questionnaire with some further general questions. These are typi-
cally classification questions, such as demographic information using checkbox scales.
Order - One thing you want to keep in mind when designing a questionnaire is the order of questions
near each other. There are situations where the order might bias a respondent. That is, by answering
one question, they are more likely to answer a subsequent question a certain way.
For example, consider the following two questions:
How much money do you make?
How much are you willing to pay for my product?
Here, by asking the first question, you are biasing the respondent to answer the second question. If
they don’t make much money, the first question will remind them of that and bias their answer to the
second question (lower).
The point is that you need to also make sure that the questions don’t force respondents to answer in
certain ways. With care, some clear thinking, and pre-testing you can avoid some of the pitfalls in
questionnaire development.
THE MARKETING RESEARCH PROCESS

A. The marketing research process consists of a series of activities: defining the issue or problem to
be studied, examining secondary data, generating primary data (if necessary), analyzing informa-
tion, making recommendations, and implementing findings.
You can have a look at the Figure below that presents the complete process. Each step is completed
in order. For example, secondary data are not examined until a firm states the issue or problem to be
studied, and primary data are not generated until secondary data are thoroughly reviewed.
Source: Evans J.R., and Berman B-Marketing, 8e (biztantra, 2003)

1. ISSUE (PROBLEM) DEFINITION

A. Issue (problem) definition is a statement of the topic to be looked into.
B. Exploratory research is undertaken when the researcher is uncertain about the precise topic to
investigate or wants to informally study an issue. It is also called qualitative research and may
involve in-depth probing, small group discussions, and understanding underlying trends.
C. Conclusive research, also called quantitative research, is used after the problem definition is
clarified. It is the structured collection and analysis of data pertaining to a specific issue or
problem.
The decision problem faced by management must be translated into a market research problem in
the form of questions that define the information that is required to make the decision and how this
information can be obtained. Thus, the decision problem is translated into a research problem. For
example, a decision problem may be whether to launch a new product. The corresponding research
problem might be to assess whether the market would accept the new product .The objective of the
research should be defined clearly. To ensure that the true decision problem is addressed, it is useful
for the researcher to outline possible scenarios of the research results and then for the decision
maker to formulate plans of action under each scenario. The use of such scenarios can ensure that
the purpose of the research is agreed upon before it commences.
2. EXAMINATION OF SECONDARY DATA

A. Secondary data are those that have been gathered for purposes other than solving the current
problem under investigation.
B. These data should always be reviewed before primary data collection.
Advantages and Disadvantages

A. Secondary data have these general advantages:
1. Low costs.
2. Speed.
3. Diverse sources.
4. Access to hard-to-obtain data.
5. Source credibility.
6. Helpful for exploratory research.
B. Secondary data have these general disadvantages:

1. Lack of suitability.
2. Obsolescence.
3. Unknown methodology.
4. Undisclosed findings.
5. Conflicting results.
6. Unknown reliability.
Sources
A. Internal secondary data are available within the company. They include budgets, sales figures,
profit-and-loss statements, customer billings, inventory records, prior research reports, and writ-
ten reports.
B. External secondary data are available from sources outside the company. They may be obtained

from government and non-government sources.

1. There are three sources of non-government secondary data:
a. Regular publications can be broad in scope (such as Business Week) or more specialized (such
as the Journal of Advertising).
b. Books, monographs, and other non-regular publications deal with special topics in depth and are
compiled on the basis of interest by a target audience.
c. Commercial research houses (such as A.C. Nielsen, IMS Health, and Burke Marketing Re-
search) conduct periodic and ongoing studies and make results available to many clients for a
fee.
3. GENERATION OF PRIMARY DATA

A. Primary data consist of information gathered to address a specific issue or problem at hand.
B. They are necessary if secondary data are insufficient for a proper marketing decision to be
made.
Advantages and Disadvantages

A. Primary data have these general advantages:
1. Precision.
2. Currency.
3. Controlled and known methodology.
4. Secrecy.
5. No conflicting data.
6. Reliability determined.
7. Only way to acquire information in some cases.
B. Primary data have these general disadvantages:

1. Time consuming.
2. High costs.
3. Inability to gather certain types of information.
4. Limited perspective.
5. Company limitations.
Research Design
A. A research design outlines the procedures for collecting and analyzing data.
B. It consists of these eight steps:
1. Who collects the data? Data can be collected by the firm itself or by an outside company.
2. What information should be collected? It can be exploratory or conclusive in nature.
3. Who or what should be studied? This is defined as the population. The way in which people or
objects are selected must be decided.
a. For large and/or dispersed populations, sampling is usually employed. Sampling enables the firm
to analyze selected people or objects. With a probability sample, every member of the designated
population has an equal or known chance of being selected. With a non-probability sample,
members of the population are chosen on the basis of convenience or judgment.
4. What technique of data collection should be used?
a. A survey gathers information from respondents by communicating with them. It can be con-
ducted in person, or by phone or mail. It can be disguised or nondisguised (see Figure 4-9). The
semantic differential is a list of bipolar (opposite) adjective scales that provides an overall profile
b. Observation is a research method whereby present behavior or the results of past behavior are

observed and noted. It may be human or mechanical.

c. An experiment is a type of research in which one or more factors are manipulated under con-
trolled conditions. Just the factor under study is varied; all others remain constant.
d. Simulation is a computer-based method to test the potential effects of various marketing factors
via a software program rather than real-world applications.
e. Table 4-2 shows the best uses for each kind of primary data collection.
5. How much will the study cost? Costs may include executive time, researcher time, support staff
time, pre-testing, computer usage, respondents’ incentives (if any), interviewers, supplies, print-
ing, postage or phone expenses, special equipment, and marketing expenses (such as ads). Ben-
efits and costs must be compared.
6. How will the data be collected? Data collection can be administered by research personnel or be
self-administered. With administered questionnaires, interviewers record answers. With self-
administered questionnaires, respondents write their answers.
7. How long will the data-collection period be? The total time frame is specified.
8. When and where should information be collected? The day and time must be set. In addition, the
location of data collection must be outlined.
Data Collection
A. Data are collected.
B. Those engaged in data collection must be properly supervised and follow directions exactly.
C. Responses or observations must be entered correctly.
4. ANALYSIS OF DATA
A. Data analysis consists of the following:
1. Coding—the process by which each completed data form is numbered and response categories
are labeled.
2. Tabulation—the calculation of summary data for each response category.
2. Analysis—the evaluation of responses as they pertain to the specific issue or problem under
investigation.
B. The relationship of coding, tabulation, and analysis is shown in Figure 4-11.
5. RECOMMENDATIONS
A. Recommendations are suggestions for a firm’s future actions, based on marketing research
findings.
B. The report must be written for the audience that reads it.
C. Figure 4-11 shows recommendations flowing from completed research.
D. Once the recommendations are passed on to the proper decision makers, the research report
should be warehoused in the marketing intelligence network.
6. IMPLEMENTATION OF FINDINGS
A. The research report represents feedback to marketing managers, who are responsible for using
findings.
B. Marketing managers are most likely to implement research findings under these conditions:
1. They have input into the research design.
2. They have broad control over marketing decisions.
3. They have confidence that results are accurate.
Summary of the Marketing research Process - Marketing research is gathered using a systematic
approach. An example of one follows:

1. Define the problem. Never conduct research for things that you would ‘like’ to know. Make sure
that you really ‘need’ to know something. The problem then becomes the focus of the research.
For example, why are sales falling in New Zealand?
2. How will you collect the data that you will analyze to solve your problem? Do we conduct a
telephone survey, or do we arrange a focus group? The methods of data collection will be dis-
cussed in more detail later.
3. Select a sampling method. Do we us a random sample, stratified sample, or cluster sample?
4. How will we analyze any data collected? What software will we use? What degree of accuracy
is required?
5. Decide upon a budget and a timeframe.
6. Go back and speak to the managers or clients requesting the research. Make sure that you agree
on the problem! If you gain approval, then move on to step seven. 7. Go ahead and collect the
data.
8. Conduct the analysis of the data.
9. Check for errors. It is not uncommon to find errors in sampling, data collection method, or analytic
mistakes.
10. Write your final report. This will contain charts, tables, and diagrams that will communicate the
results of the research, and hopefully lead to a solution to your problem. Watch out for errors in
interpretation.
Scope of marketing research

A. Companies spend about $12 billion worldwide (40 percent in the United States) for data gathered
by marketing research firms. The top 25-research firms (nearly half of which are U.S.-based)
account for $8 billion in yearly revenues, with more than 1,000 firms accounting for the rest. This
is in addition to government- and institution-sponsored research, as well as efforts of the compa-
nies themselves.
B. According to the American Marketing Association, the topical areas in which companies are
most likely to engage in or sponsor research efforts are industry/market characteristics and
trends, product satisfaction, market-share analyses, segmentation studies, brand awareness and
preference, purchase intentions, and concept development and testing. On average, companies
tend to spend about 1 percent of revenue on marketing research.
C. Five marketing research trends are the rapid increase in customer satisfaction studies, the use of
the Internet, and the application of single-source data collection, ethical considerations, and the
complexities of international marketing research.
1. Customer satisfaction research is being sponsored much more than ever before. The extent of
such research has more than doubled in recent years, with many firms doing their own studies
and others hiring outside specialists.
2. Over the last few years, spending for online marketing research has grown from $3.5 million in
1996 to $255 million in 2000. Here are examples of how the research is being used.
a. Many businesspeople start their research by checking out competitors’ Web sites, using search
engines, and accessing online annual reports and trade publications.
b. Marketing Info offers The Marketplace, an easy-to-use exchange for purchasers and providers
of market research and related marketing services.
c. Planet Feedback enables consumers to send their feedback to companies quickly and effort-
lessly.
B. Due to technological advances, single-source data collection—whereby research firms track the
activities of individual consumer households from the programs they watch on TV to the prod-
ucts they purchase at stores—is now possible.
C. Due to unethical practices of some firms, many potential respondents are “turned off” to partici-
pating in marketing research projects. In fact, a lot of Americans will not answer a survey. To

turn the situation around, these practices need to be avoided:

1. Unrealized promises of anonymity.
2. False sponsor identification.
3. Selling or fund raising under the guise of research.
4. Misrepresenting research projects.
5. Observational studies without informed consent.
6. Asking overly personal questions.
7. Selling consumer demographic information for database use without consent.
8. Misportraying research findings in ads and other communications.
F. With more and more firms striving to expand their foreign endeavors, international marketing
research is taking on greater importance.
G. Firms deciding how to market to the hundreds of millions of consumers in Eastern Europe and
Central Asia increasingly do market research there. Yet, designing and conducting research is
hard.
1. Many times, people have never been surveyed before.

2. Communications systems, especially phone services, may be below Western standards.
3. Secondary data from government agencies and trade associations may be lacking.
4 Kodak is provided as an example of a company that had difficulty conducting market research in
nine former Soviet republics.
Points to remember


Activity:
How can market research help the manager of a service organization? Give
example for a car rental agency, airline, hotel and the hospital.

Unit 2
Lesson 16 - Measurement of Market Demand
Introduction:
As we have already discussed in the first lesson that market revolves around demand and Demand
for any product or service depends upon the various forces acting in the market, i.e. the price, the
satisfaction, quality, durability and the value for it. There was a time when the demand was highly
determined by the price factor. But now is the era where price plays a very minor role in determining
the demand for the product.
In this lesson we would be discussing the various ways to measure the market demand.
Sales forecasting - Sales forecasting is a difficult area of management. Most managers believe
they are good at forecasting. However, forecasts made usually turn out to be wrong! Marketers
argue about whether sales forecasting is a science or an art. The short answer is that it is a bit of
both.
Reasons for undertaking sales forecasts
Businesses are forced to look well ahead in order to plan their investments, launch new products,
decide when to close or withdraw products and so on. The sales forecasting process is a critical one
for most businesses. Key decisions that are derived from a sales forecast include:
Employment levels required
Promotional mix
Investment in production capacity
Types of forecasting
There are two major types of forecasting, which can be broadly described as macro and micro:
Macro forecasting is concerned with forecasting markets in total. This is about determining the
existing level of Market Demand and considering what will happen to market demand in the future.
Micro forecasting is concerned with detailed unit sales forecasts. This is about determining a product’s
market share in a particular industry and considering what will happen to that market share in the
future.
The selection of which type of forecasting to use depends on several factors:
(1) The degree of accuracy required – if the decisions that are to be made on the basis of the sales
forecast have high risks attached to them, then it stands to reason that the forecast should be pre-
pared as accurately as possible. However, this involves more cost
(2) The availability of data and information - in some markets there is a wealth of available sales
information (e.g. clothing retail, food retailing, and holidays); in others it is hard to find reliable, up-to-
date information

(3) The time horizon that the sales forecast is intended to cover. For example, are we forecasting
next weeks’ sales, or are we trying to forecast what will happen to the overall size of the market in
the next five years?
(4) The position of the products in its life cycle. For example, for products at the “introductory”
stage of the product life cycle, less sales data and information may be available than for products at
the “maturity” stage when time series can be a useful forecasting method.
Creating the Sales Forecast for a Product
1) The first stage in creating the sales forecast is to estimate Market Demand.
Definition: -Market Demand for a product is the total volume that would be bought by a
defined customer group, in a defined geographical area, in a defined time period, in a given
marketing environment. This is sometimes referred to as the Market Demand Curve.
Students, what do you think is Market Demand? How would you define demand?
Using the definition above, market demand can be defined as:
Defined Customer Group: Customers Who Buy an Air-Inclusive Package Holiday
Defined Geographical Area: Customers in India
Defined Time Period: A financial year
Defined Marketing Environment: Strong consumer spending in India but overseas holidays af-
fected by concerns over international terrorism
For example, you might calculate market demand of a holiday package as follows:
- Number of Customers in India: 1000 per financial year
- Average Selling Price per Holiday: Rs 25000
- Estimate of market demand: Rs 2.5 crores (customers x average price)
2) Stage two in the forecast is to estimate Company Demand
Company demand is the company’s share of market demand.
This can be expressed as a formula:
Company Demand = Market Demand * Company’s Market Share
For example, taking our package holiday market example; the company demand for First Choice
Holidays in this market can be calculated as follows:
First Choice Holidays Demand = Rs 5 crore x 10% Market Share = Rs 50 lacs
A company’s share of market demand depends on how its products, services, prices, brands and so
on are perceived relative to the competitors. All other things being equal, the company’s market
share will depend on the size and effectiveness of its marketing spending relative to competitors.
3) Step Three is then to develop the Sales Forecast

The Sales Forecast is the expected level of company sales based on a chosen marketing plan and an
assumed marketing environment.
Note that the Sales Forecast is not necessarily the same as a “sales target” or a “sales budget”.
A sales target (or goal) is set for the sales force as a way of defining and encouraging sales effort.
Sales targets are often set some way higher than estimated sales to “stretch” the efforts of the sales
force.
A sales budget is a more conservative estimate of the expected volume of sales. It is primarily used
for making current purchasing, production and cash-flow decisions. Sales budgets need to take into
account the risks involved in sales forecasting. They are, therefore, generally set lower than the sales
forecast.
Obtaining information on existing market demand
How do you obtain information for marketing demand?
As a starting point for estimating market demand, a company needs to know the actual industry sales
taking place in the market. This involves identifying its competitors and estimating their sales.
An industry trade association will often collect and publish (sometime only to members) total industry
sales, although rarely listing individual company sales separately. By using this information, each
company can evaluate its performance against the whole market.
This is an important piece of analysis. Say, for example, that Company A has sales that are rising at
10% per year. However, it finds out that overall industry sales are rising by 15% per year. This must
mean that Company A is losing market share – its relative standing in the industry.
Another way you can estimate sales is to buy reports from a marketing research firm such as IDC,
or ORG-MARG. These are usually good sources of information for consumer markets – where
retail sales can be tracked in great detail at the point of sale. Such sources are less useful in industrial
markets that usually rely on distributors.
Estimating Future Demand
So far we have identified how a company can determine the current position:
Current Company Demand = Current Market Demand x Current Market Share
How can future market demand and company demand be forecast?
Very few products or services lend themselves to easy forecasting. These tend to involve a product
whose absolute level or trend of sales is fairly constant and where competition is either non-existent
(e.g. monopolies such as public utilities) or stable (pure oligopolies). In most markets, total demand
and company demand are not stable – which makes good sales forecasting a critical success factor.
A common method of preparing a sales forecast has three stages:
Prepare a macroeconomic forecast – what will happen to overall economic activity in the relevant
economies in which a product is to be sold.
Prepare an industry sales forecast – what will happen to overall sales in an industry based on the
issues that influence the macroeconomic forecast.
Prepare a company sales forecast – based on what management expect to happen to the company’s

market share.
Sales forecasts can be based on three types of information:
What customers say about their intentions to continue buying products in the industry
What customers are actually doing in the market
What customers have done in the past in the market
There are many market research businesses that undertake surveys of customer intentions – and sell
this information to businesses that need the data for sales forecasting purposes. The value of a
customer intention survey increases when there are a relatively small number of customers, the cost
of reaching them is small, and they have clear intentions. An alternative way of measuring customer
intentions is to sample the opinions of the sales force or to consult industry experts
Time Series Analysis
Many businesses prepare their sales forecast on the basis of past sales.
Time series analysis involves breaking past sales down into four components:
(1) The trend: are sales growing, “flat-lining” or in decline?
(2) Seasonal or cyclical factors. Sales are affected by swings in general economic activity (e.g.
increases in the disposable income of consumers may lead to increase in sales for products in a
particular industry). Seasonal and cyclical factors occur in a regular pattern;
(3) Erratic events; these include strikes, fashion fads, war scares and other disturbances to the
market which need to be isolated from past sales data in order to be able to identify the more normal
pattern of sales
(4) Responses: the results of particular measures that have been taken to increase sales (e.g. a major
new advertising campaign)
Using time series analysis to prepare an effective sales forecast requires management to:
- Smooth out the erratic factors (e.g. by using a moving average)
- Adjust for seasonal variation
- Identify and estimate the effect of specific marketing response
Creativity - Calculate the demand for Pepe Jeans among the young girls explain with the relevant
factors incorporating the demand.

Points to Ponder:

Tutorial - D
Article on marketing research—Appeal for new cars increases, Hyundai leads
Source: J.D. POWER ASIA PACIFIC, ECONOMICTIMES.COM[MONDAY, DECEMBER 23,
2002]
Two Hyundai models and a Toyota Multi Utility Vehicle repeat their segment-topping customer ap-
peal achievements of the previous year, according to the J.D. Power Asia Pacific 2002 India Auto-
motive Performance, Execution and Layout (APEAL) Study. The Hyundai Santro ranks highest in
the premium compact segment, the Hyundai Accent tops the entry midsize segment and the Toyota
Qualis ranks highest in the MUV segment. The study, now in its fifth year, measures an important
dimension of vehicle satisfaction — what excites and delights new-vehicle owners with their model’s
features and designs. Overall performance is assessed for more than 100 specific areas of vehicle
performance and design that identify what owners like and dislike about their vehicles during the first
three to five months of ownership. These areas are grouped into eight categories: engine / transmis-
sion; cockpit / instrument panel; ride/handling / braking; heating, ventilation and cooling (HVAC);
comfort and convenience; sound system; seats; and vehicle styling exterior. The industry as a whole
has been more successful at delighting new-vehicle buyers in 2002, achieving an overall APEAL
score of 762 out of a possible 1,000 — 12 points higher than in 2001. The study finds that vehicle
styling and technology are becoming increasingly important drivers of vehicle choice. “Since the
automotive market in India is maturing and overall vehicle quality is progressively improving, con-
sumers are able to shift their primary focus from quality and durability to styling and technology when
purchasing a new vehicle,” said Gerrit Kuyntjes, general manager of the J.D. Power Asia Pacific
office in Singapore.
“While manufacturers must continue to focus on quality, understanding what consumers want in
terms of vehicle design and technology innovations are key to increasing sales. The greatest positive
impact on overall APEAL scores currently comes from owners who identify vehicle styling or tech-
nology as the most important factor in purchasing a new vehicle.” In the premium compact car
segment, the Hyundai Santro again ranks highest with a score of 789 — 22 points above its 2001
score. The Santro receives the highest ratings in five of the eight categories: engine / transmission,
cockpit / instrument panel, ride / handling / braking, HVAC and seats. The Fiat Palio with a score of
776, and the Maruti Alto with a score of 771 follow the Santro in the segment rankings. The average
score in the premium compact category is 767. The Hyundai Accent ranks highest in the competitive
entry midsize segment with a score of 779, improving 12 points over 2001. The Accent receives
highest ratings from respondents in all eight categories. The Ford Ikon has improved by 29 points
over 2001 to 772 this year, and the Maruti Esteem follows with a score of 762. Esteem’s score is less
than the entry midsize average of 768. Overall, the MUV segment average has declined by 11 points
in 2002 to a score of 742. Three models, however, perform above the MUV segment average. The
Toyota Qualis ranks highest, improving 6 points over 2001 with a score of 778. The performance of
the Qualis can be attributed to its particularly high ratings in the engine / transmission, cockpit /
instrument panel, ride / handling / braking, and sound system factors. Following the Qualis in the
rankings are the Mahindra Bolero, which improves 23 points over 2001 to a total score of 769, and
Tata Safari with a score of 759. The 2002 India APEAL Study is based on responses from more than
3,100 new-vehicle owners.
QUESTIONS
Multiple Choice Questions
1. Despite the data glut that marketing managers receive, they frequently complain that they lack
_____.
a. enough information of the right kind
b. quality information

c. timely information
d. accurate and reliable information
2. The marketing information system is not limited to use by the company it serves. It may also
provide information to _____.
a. the government
b. external partners
c. various publics
3. A good MIS balances the information users would _____ against what they really _____ and
what is _____.
a. need; like; feasible
b. like; can afford; needed
c. like to have; need; feasible to offer
d. need; can afford; useful
4. Marketers must weigh carefully the costs of additional information against the _____ resulting
from it.
a. uses
b. benefits
c. knowledge
d. rewards
5. Diana Dion is currently researching data sources from within her company to make marketing
decisions. Diana is making use of _____ databases.
a. external
b. current
c. historical
d. internal
6. Four common sources of internal data include the accounting department, operations, the sales
force, and _____.
a. owners
b. stockholders
c. the marketing department
d. custodians
7. Your marketing department is attempting to improve strategic decision making, assess and track
competitors’ actions, and provide early warning of opportunities and threats. Your department
would do well to use _____.
a. internal databases
b. external databases
c. marketing intelligence
d. the Internet

8. Your competitor may reveal intelligence information through which of these sources of informa-
tion?
a. annual reports
b. trade show exhibits
c. Web pages
d. all of the above
9. Harvard University is using a systematic design, collection, analysis, and reporting of data rel-
evant to marketing its programs to minority students. What do we call this?
a. promotion
b. self-study
c. marketing research
d. cost-benefit analysis
10. Which of the steps in the marketing research process has been left out: defining the problem and
research objectives, implementing the research plan, and interpreting and reporting the findings.
a. developing the research budget
b. choosing the research agency
c. choosing the research method
d. developing the research plan
11. Mr X is making a presentation to the owners of her company. He is trying to convince them to
conduct some current marketing research. Which of the following would he not emphasize as a
benefit or selling point?
a. assess market potential and market share
b. understand customer satisfaction and purchase behavior
c. measure the effectiveness of pricing and accounting
d. measure the effectiveness of distribution and promotion activities
12. Your colleague is confused about using the marketing research process. He seems to be having
problems with _____, which is often the hardest step to take.
a. defining the problem
b. defining the research objectives
c. defining the problem and research objectives
d. choosing a research agency to help
13. The objective of _____ research is to gather preliminary information that will help define the
problem and suggest hypotheses.
a. descriptive
b. exploratory
c. causal
d. current
14. You are to the point of testing hypotheses about decreasing sales in certain markets and their
causes. You are involved in what type of research?
a. exploratory
b. descriptive
c. causal
d. market

15. It is important to note that research objectives must be translated into specific _____.
a. marketing goals
b. information needs
c. rupee amounts
d. results that justify the means
Essay Questions
1. Discuss the functions of a marketing information system (MIS).
2. Marketers can obtain needed information from internal data, marketing intelligence, and market-
ing research. Explain some common sources for each of these.
3. Describe the basic marketing research process.
4. Provide the advantages/benefits of each of the contact methods.
5. What would a researcher need to know about drawing conclusions about large groups of con-
sumers by studying a small sample of the total population?
6. Compare and contrast closed-end questions and open-end questions for gathering data.
7. How can a company overcome the problem of gathering internal data for research purposes
when it is usually scattered widely across the organization?
8. Explain the common problems that international marketing researchers encounter.

Text

Kumar Ramesh S- Application exercises in Marketing (Vikas Publishing House Pvt Ltd, 2000)
Magazines
Business India
Business Today
Business World
Websites
www.beckmanmarketing8e.nelson.com
www.learnmarketing.net
www.marketingprofessors.net
www.marketingteacher.com
www.prenhall.com
www.tutor2u.net

Unit 2
Lesson 17 - Marketing Environment Forces
Introduction:
“It is useless to tell a river to stop humming the best thing is to learn how to survive in the direction
of flow.”
No organization operates in vacuum, its working is affected by number of factors surrounding it

which are both internal and external to the organization. In this particular unit we will be discussing
about the marketing environment i.e. how the marketing activities in the organisation are affected by
the factors around it
We all speak of environment - Marketing, economic, cultural, technological environment etc. How
many of you can really tell me the meaning of the environment. In simple words we can say environ-
ment is our surrounding. Environment is divided in to two parts i.e. macro and microenvironment.
In this lesson we are going to learn the macro and the micro marketing environment. The micro part
includes the factors having impact directly on the firm and its activities in relation to a particular
market in which it operates, whereas the macro environment is concerned with broad trends and
patterns in the society as a whole, which affects the markets at large
Learning Out comes:

- Features of the business environment that influences marketing strategy
- The impact of external environment on the firm
- Social factors affecting the market
- The gender trends and its importance to marketers
- Technological trends and its impact on the firm
- Impact of political and legal environment on marketing
Marketing environment analysis is the process of gathering, filtering and analyzes information relat-
ing to the marketing environment. Involved in the process are the task of monitoring the changes
taking place in the environment and forecasting the future position in respect of each of the factors.
The analysis spots the opportunities and threats in the environment, and pinpoints the ones that are
specifically relevant to the firm No business is so great that they can bring change in the environ-
ment, they are just the adapters. The variables that operate within the organization have a direct or
indirect influence on their working. A successful organisation is one, which understands, can antici-
pate and take advantage of changes within and outside their environment.
Now the point that should come to your minds is, what should be covered in this environment analy-
sis. As already told to you all earlier in strategic planning process, that a firm gathers relevant infor-
mation relating to the environment, and forecasts the future position in each of them. It reviews this
information through the marketing information system and marketing research.
Marketing environment is divided in to two broad categories- microenvironment, that is specific to

the given business, and macro environment, specific to the overall industry. The firm covers both
these parts in its environmental analysis. Thus now you can say, marketing environment analysis
involves the diagnosis of the mega environment as well as the environment that is specific to the

given business. Under the mega or the macro environment the firm studies the political, demo-
graphic, and the other environmental factors. As regards the environment that is specific to the given
business, the firm studies the position of the industry concerned, especially aspects such as the
structure of the industry, the nature of competition, the scope for invasion by substitute products, etc.
It also studies factors relating to the customer and factors relating to demand.
Micro Environment – Factors that an organization has direct control over
Macro Environment – Factors on which organization has no control at all.
Micro Environment
These are the internal forces close to the company and have a direct impact on the organization
strategy. It influences the organization directly. It describes the relationship between the firms and
the driving forces that control their relationship. It is more local relationship and the firm may
exercise a degree of influence.
The Company: constitutes the internal environment of the organisation, which consists of men,
money, materials and machinery. If marketing has to function well it has to coordinate the activities
with all the other members / departments involved in the organization as they have a great impact on
its functioning.

The major departments which make up the company consists of, marketing, finance, research &
development, purchasing, manufacturing, accounting and others.
Top management formulates the organisations missions, vision and values. The marketing plans have
to be in co-ordination with those plans and need to be approved by the top management in order to be
implemented.
The function of the finance department is to find out the sources and uses of funds and in order to
carry out the plans marketing requires funds so it has to co-ordinate the activities with the finance
department.
Research & development is involved in developing the new products giving life to new ideas so the
marketing department, if, finds any changes in the tastes of the consumers and identifies new needs
coming up , have to communicate it to the R&D dept. and co-ordinate the process to get what is
required by its customers.
To manage the supply and demand of the product there is a need to co-ordinate the activities be-
tween the production and the marketing department. Hence we can say that the Internal Marketing
is very essential for the smooth functioning of the marketing activities in the company and they all
have the impact on the working of marketing.
Suppliers: When we discussed the concept of value – delivery network in the previous units we
have seen that the suppliers form a very important link between the company and customers and
their value delivery network. They constitute one of the five forces shaping competition in any indus-
try. They have their own bargaining power in the industry; they influence the costs of raw materials
and other inputs to a firm, and hence the profits a firm can take home. It is in this context that the
trade –off between integrating vs outsourcing of supplies assumes importance for a firm because
this has implications on the cost as well as quality fronts. Suppliers also keep introducing frequent
changes in their products, processes and business practices. Sometimes, suppliers suddenly become
direct competitors to a firm, by themselves becoming end products manufacturers. Obviously, the
firm have to closely monitor the supplier environment
For Example – Let us take air conditioners. Compressors are the major component and they ac-
count for 65 percent of the end price, so the suppliers of the compressors have a major influence in
this industry. In India major domestic suppliers for compressors are Kirloskar, Carrier Aircon, SIEL
and Tecunisch India. Carrier Aircon as a larger producer of compressors has been enjoying the
major influence in the industry.
Marketing Intermediaries: Also constitute an important component of the value delivery network
of the company. It consists of the sources that are involved in promoting, selling and distributing its
goods to the final buyers. Marketing intermediaries include – resellers, physical distributors, market-
ing service agencies and financial intermediaries.

Resellers include wholesalers and retailers who buy and resell the products. They deal in various
brand of the same product, hence it is very important for the for the company to maintain the good
relations with the resellers in order to motivate them to promote their brand.
Physical distribution firms are the one who are involved in storing the companies’ products and
moving them to the place of sale. Marketing service agencies consists of marketing research firms,
media firms, advertising agencies that promote the companies’ product to the target market and give
information to them. Financial intermediaries constitutes, insurance companies, banks, credit compa-
nies who insure and take the risk associated with the products / services.
Customers : We have already seen that a successful business strategy involves designing products
and marketing programmes that incorporate attributes which provide value to consumers. Only by
studying, demand and customer-related factors can firm carry out their business/ marketing planning
effectively. Next, the marketer needs to study various types of customer markets. They are Con-
sumer markets, which comprises of individuals who purchase goods/ services for personal con-
sumption. Business markets, buy for further processing. Reseller market buys to resell at a profit.
Government markets buy the goods and services to provide it to the people who need it.
Each market is different and the marketing approach towards every market will be different, so the
marketer needs to understand the market that it is catering to, which has an impact on its strategies.
Only by keeping a track of what the customers want one can grab the opportunities emerging in the
environment. That is why we give a great importance to consumer analysis as a part of survey.
Competitors: To be successful, apart from meeting the needs and wants of the target markets the
marketer needs to provide the products better than its competitors. They have to answer the question
what benefit can the organisation offer which is better that their competitors?
So they need to constantly keep track of competitor’s strategies and change as and when required.
Publics: These are various groups of individuals who have actual or potential interest in the
working of the organisation and some how effect its working. The various publics include Financial
public, which influences the companies ability to obtain funds that is if the company does not maintain
good relations with the banks or other financial institutions it may face the problems in the long run .
Media Public, the positive or adverse media attention on an organisations product or services can in
some cases make or break an organisation. Then there is a General public, it consists of people who
may or may not be consuming the organisations product or services but form some attitude towards
the company or its products, so the company needs to be concerned about those who may talk about
their company also.
Assignment:
Select a company of your choice and study the internal and micro environment of the company,
taking into consideration all the factors discussed in this lesson.

Points to ponder -

Unit 2
Chapter 6 - Marketing Environment
Lesson 18 - Macro Environment
Introduction
By now you must have been able to understand the concepts of environment, and the concept of
demand. In this lesson we will try to relate environment and demand. We all have unlimited wants.
These wants vary at different ages, at different times and at different places.
We are exactly going to learn the same philosophy here. The demand in the market for the product
depends on the age and gender of the customer. The financial factor also forces us to create a
demand. Thirdly the place where the customer is living also creates a demand for him.
Macro Environment: Includes all factors that can influence an organisation but that are out of their
direct control. It consists of larger societal forces that affect the companies’ micro environment. It is
continuously changing and the company needs to be flexible to adapt.
Demographic environment: Demography means the study of human population in terms of size,
growth rate, gender, age distribution, race, occupation, literacy levels and other statistics. This study
is very important to be done by a marketer as his whole business depends on the people.
As a Matter of fact, several factors relating to population, like size, growth, age, religious composition
and literacy levels need to be studied. Aspects such as composition of workforce, households pat-
terns, regional or geographical characteristics, migration of the population needs to be studied, as
they all are part of the demographic environment.
The population of India was estimated to be just under 967 million in July 1997.The population is
increasing by around 18 million each year. While most people will be aware that India has a huge
population, what is less commonly known is that it has a comparatively young population.
Percentages of Indian Population by Age Groups

Over 58% of the population is aged 25 or younger The largest city in India is Mumbai (formally
Bombay) with a population of about 15 million, or about 1.5% of the total population. The next largest
cities are Calcutta (over 12 million), Delhi (approx 11.3 million) and Chennai (formerly Madras) with
a population of 5.9 million.Other large urban centres of particular interest from the food retail per-
spective are Bangalore, with 5.2 million inhabitants and Hyderabad with over 4.9 million.

Indian income groups. (Households in millions).
This information is very helpful for the business to analyse the most attractive segments, find out the
potential growth in each segment and frame out their product mix strategies.
Economic Environment: The marketing managers need to keep track of the economic environ-
ment, as it affects the buying power and spending patterns of consumers. While studying the eco-
nomic environment three economic areas that are of greatest concern to most marketers are the
distribution of income, inflation and recession.
All businesses are affected by economical factors nationally and globally. Whether an economy is in
boom, recession or recovery will effect consumer behavior. An economy, which is booming, is char-
acterized by certain variables. Unemployment is low, job confidence is high, because of this confi-
dence spending by consumers is also high. At this time the organisations have to be able to keep up
with increased demand if they are to increase turnover.
An economy which is in recession is characterized by high unemployment and low confidence. The
spending is low because of high unemployment. Businesses face a tough time, as consumers will not
spend because of low disposable income. Organisations start cutting back on costs that is labour,
advertising etc. They try to improve existing products and introduce new ones that would help the
manufacturers reduce production hours, waste and material costs. In this period there would be the
demand for the products that offer economy and efficiency and offer value .
Facts of Indian economic environment – it has been witnessing good growth in recent years i.e. 6%
plus on an average. The year 1998-99 saw the growth rate moving up to 6.8% from 5% in1997-98.
it grew by approximately 6% in 1999-2000.Indian’s percapita income however continues to be at a
decreasing end. In 1999-2000 the industrial growth rate was approximately 6-6.5%.
The indicator of the growth of an economy is from the capital market. The capital markets in India
grew during the 1980’s onwards which further went up in the first half of the 1990’s during which the
liberalization was in the boom. Then there was some sluggishness in the later half of the 1990’s. the
main point is that India’s corporate sector which for a long time depended on external borrowings and
the depreciation provision’s for its capital formation have started mobilizing large funds for invest-
ments through the capital markets. Thus the FDI started flowing in to the country.

Natural Environment : The inputs needed by the businesses to carry out their production and
various activities are available in nature. The natural resources, ecology, climate etc. in the country,
constitutes the natural environment. Business depends on the natural resources for raw materials, so
the firms need to keep track of the availability of raw materials and if there is going to be any
shortage in the future. As the technology develops it causes lot of environmental threats like in-
creased pollution and is damaging the environment.
Ecology: Firms are also concerned with ecology. In modern times, all societies are very much
concerned about ecology, especially about issues like environmental pollution, protection of wild life
and ocean wealth. And, governments are becoming active bargainers in environmental regulations
and to what extent these factors will affect their business prospects. They also need to know the
role of environmental activists in the region.
Climate: This is another aspect of the natural environment that is of interest to a business firm.
Firms with products whose demand depends on climate, and firms depending on climate –dependent
raw materials will be particularly concerned with this factor. These firms have to study the climate
in depth and decide their production locations and marketing territories appropriately.
In the case of India, the country is rich in natural resources like iron, coal, rare minerals, ocean
wealth, etc. The country also receives good rainfall and has a strong network of rivers. As regards
climate, the tropical climate in the country generally favours agriculture and industry. In the matter
of energy in recent years costs are constantly on rise.
India is currently faced with a number of environmental issues including: deforestation, overgrazing,
desertification, air pollution, water pollution, and overstraining of natural resources due to its huge and
rapidly growing population.To safeguard, the government started intervening in these issues, so now
the firm needs to be aware of dimensions of environmental regulations and to what extent these
factors will affect their business prospects.
Assignment:
1. Identify products / services which are marketed to the following groups –
Young Children
Teenagers
Middle age people
50 – 75 yrs
Exploiting the Economic Slowdown Winners’ Business Model

Source: Economic Times, Dr. Ranjan Das, and Professor of Strategic and International Manage-
ment, Indian Institute of Management, Calcutta
Economic slowdown, circa 2001-02 Are we really surprised to see the economic slowdown that is
being experienced since late 2000? Economists have told us time and again that after every long
economic expansion, there will always be short recessions—11 to 12 months on an average. This is
based on the experience that we have had since the Great Depression of the 1930s and specifically
since World War II. For example, according to the National Bureau of Economic Research’s (NBER)
Business Cycle Dating Committee, the US economy began contracting from March 2001 after 119
months of expansion, its longest period of expansion since 1854. According to NBER, the average
boom period, post-WWII, lasted for about 50 months while recession lasted for 10 months and hence
the conclusion about an ensuing boom effective February 2002.

It remains to be seen how correct is NBER’s assessment since the downturn experienced in USA
during 1973-75 and 1981-82 lasted for a record of 16 months. The economic slowdown that various
economies are passing through presently has already resulted in adverse movements in output, un-
employment and prices. The first sign of decline was felt when the off-take of consumer durables
slowed down and inventory started building up. Thereafter, a number of negative factors such as
reduced investment in plant and machinery, declining demand for labour, increasing layoffs and un-
employment emerged. All these led to a decline in firm-level profits and depressed stock prices.
Traditional corrective actions such as lowering of interest rates have already been initiated by many
countries to boost credit off-take and consumer sentiments; along with this, various fiscal and mon-
etary steps have been taken to prevent the recession snowballing into a persistent and profound
slump. With all these actions in place, it now remains to be seen when and to what extent the
countries at large can come out of the current slowdown. At the latest reckoning, the most liberal
estimates show that the US economy will start looking up from March 2002, and countries such as
India will have to wait till the last quarter of the same year.
This paper argues that during a period of economic slowdown, an aggressive stance is likely to be
more beneficial for a firm desiring to strengthen its long-term competitive position in the industry.
There will, however, be a need to adopt a correct business model to realize such a winning strategy.
In the following paragraphs, we will first describe some select features of the suggested business
model and then briefly examine what kind of firms will be able to pursue such an aggressive stance
during an economic slowdown.
Business model for growth during an economic slowdown

Whenever there are significant changes in the macro-economic environment and underlying industry
structure, a firm faces a number of new opportunities and threats to respond to which it will need to
initiate a set of new initiatives. The choice of such initiatives is influenced by the underlying basic
motive that the concerned firm has. If the basic motive is one of pursuing an aggressive stance and
one that this author recommends, the firm will require a new business model to successfully execute
the new initiatives. An aggressive stance here will include two broad categories of initiatives, namely
a) a quick build-up of market power in existing areas of business, and
b) make a low-cost, rapid entry into new but related business areas.
The new business model must spell out, among other things, the following with specific reference to
the aggressive stance proposed to be pursued: Product market selection Capabilities required Value
chain configuration Value appropriation Designing a business model for pursuing an aggressive
stance involves taking correct decisions along the four dimensions referred to above. Such decisions
need to be tailored to the macro-economic and specific industry situation the firm is facing during the
economic slowdown and also the micro- or firm-level issues that need to be addressed to execute the
specific strategic initiative proposed to be pursued.
Product market selection

Product-market segments should be chosen keeping in view the aggressive stance being aimed at.
The segments to be targeted are those where the firm already has a toehold but the current share is
relatively low, competitors are weak and not likely to retaliate fast, the size of the segment’s profit
pool is still large and where incremental efforts and investments will lead to disproportionate payoffs.
Similarly, for making a low-cost, rapid entry into a new business area, product-market segments
should be so chosen where opportunities exist to use currently under-exploited capabilities and re-
sources and where options are available to make a low-cost, rapid entry through, say, M&A. During
an economic slowdown, it is not unusual to find many opportunities of such a kind, and organizations
aiming for rapid growth should perceive an economic slowdown as an opportunity to acquire high-
quality assets or businesses, which are badly managed by existing management groups.

Unit 2
Chapter 7 - Buyer Behavior
Lesson 20 - Factors influencing consumer buyer behavior,
buying decision process
Introduction:
In the first chapter we have seen that marketing is consumer centric .In this lesson taking an
extension of the same we will see in details why the consumer makes a particular decision of buying.
Just imagine that you are a consumer and you have decided to buy say Pepsi. Now what are the
various factors responsible for this decision. Along with the external factors there is also an internal
factor called as behavior of an individual.
In this class we will see in details how the behavior of a consumer influences the decision making
process. The study of this is very important for the marketers.
Learning Outcomes:
Meaning of the consumer market and the components of a consumer behavior model
Factors affecting consumer buying decisions
Types of consumer buying decisions and steps in consumer decision making process
Adoption and diffusion process for new products.
Relation of consumer behavior and marketing strategy
Meaning of organizational / industrial markets and Difference between consumer and organiza-
tional markets
The different types of organizational consumers and their buying objectives, buying structure,
and purchase constraints.
The central focus of marketing is the consumer. To devise good marketing plans, it is necessary to
examine consumer attributes and needs, lifestyles, and purchase processes and then make proper
marketing-mix decisions. The study of Consumer behavior includes the study of what they buy, why
they buy, how they buy, when they buy, from where they buy, and how often they buy. An open-
minded consumer-oriented approach is imperative in today’s diverse global marketplace so a firm
can identify and serve its target market, minimize dissatisfaction, and stay ahead of competitors.
Final consumers purchase for personal, family, or household use. Organizational consumers pur-
chase for further production, usage in operating the organization, or resale to other consumers.
In the above model, marketing and other stimuli enter the customers “black box” and produce certain
responses. The consumer receives information from the Marketing and other stimuli. This informa-
tion enters in to the buyer’s black box. This is termed as black box of buyers as what ever goes on
here results in a particular response i.e. product choice, brand choice etc. The main task of the
marketer is to find out what goes on in the black box. in the mind of the consumer, so in that we are
dealing with the consumer decision making process which is affected by certain factors that affects

its decision.
Factors affecting consumer behavior

Each of these factors is discussed in more detail in the following sections on buyer behavior.
Cultural factors: Cultural factors have a significant impact on customer behavior.

Culture is the most basic cause of a person’s wants and behavior. Growing up, children learn basic
values, perception and wants from the family and other important groups. Marketers are always
trying to spot “cultural shifts” which might point to new products that might be wanted by customers
or to increased demand. For example, the cultural shift towards greater concern about health and
fitness has created opportunities (and now industries) servicing customers who wish to buy:
Low calorie foods
Health club memberships
Exercise equipment
Activity or health-related holidays etc.
Similarly the increased desire for “leisure time” has resulted in increased demand for convenience
products and services such as microwave ovens, ready meals and direct marketing service busi-
nesses such as telephone banking and insurance.
Each culture contains “sub-cultures” – groups of people with share values. Sub-cultures can include
nationalities, religions, racial groups, or groups of people sharing the same geographical location.
Sometimes a sub-culture will create a substantial and distinctive market segment of its own. For
example, the “youth culture” or “club culture” has quite distinct values and buying characteristics
from the much older “gray generation”
Similarly, differences in social class can create customer groups. In fact, the official six social
classes in the UK are widely used to profile and predict different customer behavior. In the UK’s
socioeconomic classification scheme, social class is not just determined by income. It is measured as
a combination of occupation, income, education, wealth and other variables
Activity:
Take a product of your choice and prepare a marketing strategy taking in to consideration the cultural
products.
Social factors: A customer’s buying behavior is also influenced by social factors, such as
the groups to which the customer belongs and social status.
In a group, several individuals may interact to influence the purchase decision. The typical roles in
such a group decision can be summarized as follows:

Reference groups
As a consumer, your decision to purchase and use certain products and services, is influenced not
only by psychological factors, your personality and lifestyle, but also by the people around you with
whom you interact and the various social groups to which you belong. The groups with whom you
interact directly or indirectly influence your purchase decisions and thus their study is of great impor-
tance to marketer to understand are:
I) Primary and secondary groups: a primary group is one with which an individual interacts on a
regular basis and whose opinion is of importance to him, family, neighbors, close friends, col-
leagues and co- workers are examples of primary groups. Secondary groups are those with
which an individual interacts only occasionally and does not consider their opinion very impor-
tant.
II) Formal and informal groups: Rotary, lions, Jaycees are some of the well – known social
groups in our society. Labor unions, social clubs and societies are other types of formal groups to
which individuals may belong. A formal group has a highly defined structure, specific roles and
authority positions and specific goals.
In contrast, an informal group is loosely defined and may have no specified roles and goals.
Meeting your neighbors over lunch once a month for friendly exchange of news is an instance of
an informal group.
III)Membership and symbolic groups: A membership group is one to which a person belongs or
qualifies for membership. All workers in a factory qualify for membership to the labor union. A
symbolic group is one which an individual aspires to belong to, but is not likely to be received as
a member. A head clerk in an office may act as if he belongs to the top membership and symbolic
groups influence consumer behaviors but membership groups have a more direct influence.
Primary, informal and small groups exert the maximum influence on consumers and are of great
interest for marketers.
Any of these groups can sever as a reference group for a consumer if it serves as a point of
reference or comparison ion the formation of the values, attitudes and behavior. Different kinds
of groups, whether small or large, formal or reference group is a very wide one and includes both
direct and indirect or group influences.
Indirect reference groups comprise those individuals or groups with whom an individual dews not
have any direct face to face contact, such as film stars, TV stars, sportsman, politicians. Reference
groups are used in advertising to appeal to different market segments, group situation with which
potential customers can identify are used to promote products and services. Hidden in this appeal is
the subtle inducement to the customer to identify himself with the user the product in question. The
three types of reference groups appeals most commonly used are:
a) Celebrities,
b) Experts, and
c) The ‘common man’
Celebrities are well known people (in their specific field of activity) who are admired and their fans
aspire to emulate their behavior. Film stars and sports heroes are the most popular celebrities. Soft
drink (Thums up), shaving cream (Palmolive), toilet soaps (Lux) , textiles ( Dinesh , Graviera) are
advertised using celebrities from the sports and film fields. Experts such as doctors, lawyer, accoun-
tants and authors are used for establishing the benefits of the product. Colgate and Forhans tooth-
pastes are examples of products, which use the expert reference groups appeal for promotion.
Another reference group appeal is that which uses the testimonials of a satisfied customer. It demon-
strates to the prospective customer that demonstrates just like him uses and is satisfied with the
product.

Direct reference groups, which exert a significant influence on consumer’s, purchase decisions and
behavior can be classified into six categories. There are
i) The family
ii) Friendship groups,
iii) Formal social groups,
iv) Formal shopping groups,
v) Consumer action groups, and
vi) Work groups.
Family: The family is the most important of all these groups and we shall discuss it in detail. The
family, as a unit, is an important of all these groups and we shall discuss it in detail. The family, as I
unit, is an important consumer for many products which are purchased for consumption by all family
members. It is a source of major influence on the individual members’ buying behavior. We can
identify two families which shape an individual’s consumption behavior .one is the family of orienta-
tion that is the family in which you are born and consists of your parents, brothers and sisters. It is
from parents that we imbibe most of our values, attitudes, beliefs and purchase behavior patterns.
Long after an individual has ceased to live with his parents, their influence of the sub –conscious
mind still continues to be great. In our country, where children continue to live with parents even after
attain adulthood, the latter’s influence is extremely important.
The second type of family is the family of procreation consisting of the consumer’s spouse and
children. Within the family, different member play different roles. Marketers are interested in finding
out exactly the role played by individual members so that they can appropriately design their promo-
tion strategy to suit these differing roles. Traditionally, it has been the wife’s role to purchase food,
clothing and other household sundries, while the husband played a dominant role in the purchased of
automobiles and life insurance. But with the emergence of the working-women, these lines of tradi-
tional role demarcation have been getting increasingly blurred. Husbands now have to shoulder a
greater part of the household duties while women are asserting themselves in areas so far treated as
the husband’s domain. Thus, the same decision, in different families may be made either by the
husband or wife, or both may have an equal voice. Children are also beginning to exert their influence
on the family’s purchase decisions. This is especially true in case of products such as television,
stereo music systems, records, personal computers, etc. where the children are likely to have more
updated information about various brands and product attributes.
The family also plays a role in consumer decision-making, as shown in the following table.

Stage in family life cycle Buying or behavior pattern
Single stage Young, unmarried people - Few financial burdens. Spend on rent, food ,
living away from home very basic kitchen equipment and furniture,
recreation and leisure time accessories such as
stereo systems.
Young newly married:No children
- Better off financially than they will be in near
future, wife is usually working highest purchase
Full nest I: Youngest child under 6
rate. Spend on furniture, durables such as re-
frigerators, gas stoves, vacations etc.
Full neat II: Youngest couples with
dependant children - Spend maximum on home purchases. Inter-
ested in new products and influenced by adver-
tising, buy TV, baby foods, cough medications,
Full neat III: Old married couples with toys such as tricycle.
dependant children
- Some wives return to work. Better financial
position, less influenced by advertising, buy large
Empty nest I: olderMarried couples, sized packages, various kinds of foods, bicycles,
no children living at home, household education, house appliances care.
head still working.
- Financial position still better. Spend on educa-
Empty nest II: olderMarried, no chil- tion, more tasteful furniture, cars, non – neces-
dren at home, head retiredSolitary sur- sary appliances etc.
vivor: in Labor force
- Spend on travel, recreation , self – improve-
Solitary survivor: Retired ment, home – improvement ,health care.
Roles: An individual may participate in many groups. His position within each group can be defined
in terms of the activities he is expected to perform. You are probably a manager, and when in your
work situation you play that role. However, at home you play the role of spouse and parent. Thus in
different social positions you play different roles. Each of these roles influences your purchase deci-
sions.
Status: Each role that a person plays has status, which is the relative prestige accorded by society.
Status is often measured by the degree of influence an individual exerts in the behavior and attitude
of others.People buy and use products that reflect their status. The managing director of a company
may drive a Mercedes to communicate his status in society. He may go to Europe or U.S.A. for a
holiday, rather than going to Mussoorie or Ooty.
Group norms: Are the norms of a group are the implicit rules of conduct and behavior that are
expected of its member. For instance, in certain multinational companies in India, the norm for office
wear includes a full – sleeved shirt and tie, not with standing the terrible heat condition. If marketers
can identify the various groups to which potential consumers belong, they can successfully market
those products and services whose consumption is dictated by the group norms.

Personal Factors:
Age and Life cycle Stage:Like the social class the human life cycle can have a significant impact on
consumer behaviour. The life cycle is an orderly series of stages in which consumer attitude and
behavioural tendencies evolve and occur because of developing maturity, experience, income, and
status. Marketers often define their target market in terms of the consumers present lifecycle stage.
The concept of lifecycle as applied to marketing will be discussed in more details.
Occupation And Income: Today people are very concerned about their image and the status in the
society which is a direct outcome of their material prosperity. The profession or the occupation a
person is in again has an impact on the products they consume. The status of a person is projected
through various symbols like the dress, accessories and possessions.
Life Style: Our life styles are reflected in our personalities and self-concepts, same is the case with
any consumer. We need to know what a life-style is made of. It is a person’s mode of living as
identified by his or her activities, interest and opinions. There is a method of measuring a consumer’s
lifestyle. This method is called as the psychographics-which is the analysis technique used to mea-
sure consumer lifestyles- peoples activities, interests and opinions. Then based upon the combina-
tions of these dimensions, consumers are classified. Unlike personality typologies, which are difficult
to describe measure lifestyle analysis has proven valuable in segmenting and targeting consumers
according to their lifestyle classification. I would like to cite one example which I have come across
was the a company had organized this study to identify the market segments of their place for the
television sets.
Personality: personality is the sum total of an individual’s enduring internal psychological traits that
make him or her unique. Self-confidence, dominance, autonomy, sociability, defensiveness, adaptabil-
ity, and emotional stability are selected personality traits.
Motivation: Motivation involves the positive or negative needs, goals, and desires that impel a person
to or away from certain actions. By appealing to motives (reasons for behavior), a marketer can
generate motivation. Economic and emotional motives are possible. Each person has distinct motives
for purchases; these change by situation and over time.
Consumer needs and motivations: We all have needs we consume different goods and services
with the expectation that they will help fulfill these needs. When a need is sufficiently pressing, it
directs the person to seek its satisfaction. It is known as motive. all our needs can be classified into
two categories—primary and secondary. Primary needs or motives are the physiological needs,

which we are born with, such as the need for air, water, food, Clothing, shelter and sex. The second-
ary needs are our acquired needs, which we have developed in response to the individuals’ psycho-
logical mike- up and his relationship with other members of the society. The secondary needs may
include the need for power, prestige, esteem, affection, learning, status etc. clothing is a primary need
for all of us. But the need for three piece tweed suit, or bananas brocade sari or silk kimonos are
expressions of our acquired needs. The man wearing a three-piece tweed suit may be seeking to
fulfill his status need or his ego need by impressing his friends and family.
All human needs can be classified in to five hierarchical categories and his this hierarchy is univer-
sally applicable the theory of hierarchy of needs can be ranked in order of importance from the low
biological needs to the higher level psychological needs. Each leveled of need is fulfilled people keep
moving on the next higher level of need. In figure below, the different levels of needs have been
depicted as being watertight compartments, but in reality there is always overlap amongst the differ-
ent levels of needs, since no need is ever totally satisfied. There is always scope for further fulfill-
ment.
MASLOW’S HIERACHY OF NEEDS
How does the Hierarchy Work?

A person starts at the bottom of the hierarchy (pyramid) and will initially seek to satisfy basic
needs (e.g. food, shelter)
Once these physiological needs have been satisfied, they are no longer a motivator. The indi-
vidual moves up to the next level
Safety needs at work could include physical safety (e.g. protective clothing) as well as protection
against unemployment, loss of income through sickness etc)
Social needs recognize that most people want to belong to a group. These would include the need
for love and belonging (e.g. working with colleague who support you at work, teamwork, com-
munication)
Esteem needs are about being given recognition for a job well done. They reflect the fact that
many people seek the esteem and respect of others. A promotion at work might achieve this
Self-actualization is about how people think about themselves - this is often measured by the
extent of success and/or challenge at work

Maslow’s model has great potential appeal in the business world. The message is clear - if manage-
ment can find out which level each employee has reached, then they can decide on suitable rewards.
Maslow’s hierarchy of human needs helps us understand consumer motivations. It is useful for the
marketer who can identify what generic level need his product is capable of fulfilling and accordingly
position his product and back it up with relevant marketing inputs. Products such as food and clothes
are bought to fulfill physiological needs. Insurance, burglar alarms, security services are purchased
because the fulfill safety needs; most personal care products such as soap, toothpaste, shaving cream,
perfume are bought primarily because they serve social needs. And luxury products such as jeweler,
expensive clothing, fancy house and cars are bought mainly to serve ego and self- actualization
needs. The same products can be sold to entirely distinct customers segments provided the marketer
can correctly identify the need which the products is fulfilling. For instance, a bicycle serves a
recreational/ leisure need while for a third segment; it fulfils the need of a health aid. Still another
customer segment buys a bicycle for converting into a rickshaw or bicycle cart for selling fruits,
vegetables etc. a bicycle is also purchased for use in competitive sport.
Activity:
Considering Maslow’s Hierarchy of Needs theory, give some examples of how marketers appeal to
basic human motivations.
Perception: The second major psychological factor that influences consumer behavior is perception.
Perception can be described as “how we see the world around us”. All the time we are receding
messages through our five organs viz.., eyes, ears, nose, mouth and skin. The different sights, sounds,
smells, tastes and sensations that we feel are known as stimuli. Each person recognizes, selects,
organizes and interprets thes3e stimuli in his own individual manner based in his needs, values and
expectations and this is known as perception. Since each individual’s needs, motive and expectations
are unique therefore each individual’s perception is unique.
Perception helps to explain the phenomenon of why different individuals respond differently to the
same stimulus under the same condition. As a marketing manager, you are providing stimulus to your
consumers through the physical shape, color, size, fragrance, feel, taste of your product, its package,
advertisement and commercials. Your interest is to the stimuli so that you can highlight that particular
stimulus of combination of stimuli, which evokes the most favorable perception in the maximum
number of consumers. For example, generally consumers tend to perceive the quality of performs on
the basis of package, brand name, price and manufacture’s image.
Everyday, every hour of our life we are being bombarded with a variety of stimuli. If we were to
analyze and interpret each one of these stimuli, it may drive us crazy. But we al have an in- built
screening system which helps us to ‘select’ and recognize’ only the relevant stimuli and ignore all the
others. As a person involved in marketing, you would like to ensure that the consumers do not ignore
the stimuli, which you are providing, but rather they are recognized, interpreted and retained in the
consumer memory. In this context, there are three aspects of perception, which are of immediate
interest to the marketer. These are selective exposure, selective distortion and selective retention.
Selective exposure: you must have noticed that when you are on the look out for purchasing a
specific product, be it camera, refrigerator, television or any other high value product or services, you
suddenly seem to notice more than the usual number of advertisements pertaining to that specific
product. This is because of your selective exposures. People are more likely to notice stimuli, which
relate to their immediate needs. For the marketer, the implication is that he has to carefully and
accurately identifies his potential customers since other customers are not at all likely to notice the
stimuli. Having identified the potential customers, the marketer has to ensure that the stimuli are
interesting enough to attract and hold their attention..

Selective Distortion: let us suppose you have decided to purchase a specific brand “A” of pressure
cooker. Since you have already made your decision you would seek only that information which
reinforces the correctness of your decision.
If you hear some positive remarks made about brands ‘B’ you would tend to find some shortcoming
or flaw in that brand so that you so not feel that you have made a wrong decision by buying brand ‘A’
when you attempt to fit information to suit your join ideas or personal meaning, the process is known
as selective distortion. Thus, a marketer may find that his message is often not received in the
intended manner but different consumers twist it in different ways.
Selective retention: people forget much of the stimuli which they receive3 and only retain that
information which reinforces their clause and decision. You are more likely to remember the positive
feature of brand ‘A’ pressure cooker since they help reassure you that the decision, which you have
made, was correct.
Learning: A newborn infant’s sucking at the feeding bottle is instinctive behavior, but a five year old
clamoring for chocolate or chewing gum is the result of learned behavior. Much of an adult’s human
behavior sis leaned behaviors.
This is a very significant factor marketer, because it implies that consumers can be made to learn the
desired behaviors through in interplay of motives, stimuli, cues, responses and reinforcements. A
housewife has the need is strong enough to propel her to take action it becomes a motive. The motive
is directed towards the stimulus object – a pressure cooker. The stimuli are the various advertise-
ments about the product, which she sees and hears. Cues are minor stimuli that determine when,
where and how the housewife responds. Positive feedback about pressure cooker from a friend,
seeing it on display in a show- window, a special introductory price offer are all examples of cues
which influence a housewife’s response to the motive for buying a pressure cooker. Suppose the
housewife buys the pressure cooker and is satisfied with its performance, and then the changes are
that she would like to use it as often as possible, and in the future may buy another one. The
housewife’s response to pressure cookers has been reinforced.
At some later stage, the same housewife wants to buy an electric oven. Since she has had a positive
experience with brand ‘A’ pressure cooker, she may infer that the company-manufacturing brand
‘A’ also makes good electric ovens and choose it over other brands. This is known as ‘generaliza-
tion’ of response.
Learning refers to the skill and knowledge gained from past experience that we apply to evaluate
future decisions and situations. A marketer can build up demand for his brand by associating it with
strong motives, using the appropriate stimuli and cues and providing positive reinforcement. Thus
making the consumer ‘learn ‘ that the brand is good and worth patronizing.
Class-consciousness: Is the extent to which a person seeks social status. An inner-directed person
is interested in pleasing him- or her. An outer-directed person is interested in pleasing the people
around him or her; products attract this person with social visibility, well-known brands, and unique-
ness.
Beliefs & Attitudes: Attitudes or opinions are positive, neutral, or negative feelings about goods,
services, firms, people, issues, and/or institutions. Success cannot normally be attained without posi-
tive consumer attitudes. A belief is a descriptive thought that a person has about something. A
person may believe that a certain coking oil ‘X’ has the lowest fat content and is best for health. This
belief may be based on some real facts or it may merely be a notion or opinion that the person has.
The beliefs constitute the brand image about the brand. The marketer must ensure that consumers
have relevant and correct information about the brand to facilitate formation of a positive brand
image.

Attitude is a person’s enduring feeling, evaluation and tendency towards a particular idea or object.
Starting from childhood, attitude develops over the time with each fresh knowledge input, experience
and influence. Attitudes get settled into specific patterns and are difficult to change. It is easier to
market product that fits in well with the existing patterns of attitudes rather than change the attitudes
to fit a new product concept.
STEPS IN CONSUMER DECISION MAKING PROCESS

The final consumer’s decision process is the way in which people gather and assess information and
make choices among alternative goods, services, organizations, people, places, and ideas. It consists
of the process itself and factors affecting the process.
The decision process consists of six basic stages (the next six sections). Factors affecting the pro-
cess are a consumer’s demographic, social, and psychological characteristics.
Sometimes, all six stages in the process are used; other times, only a few steps are utilized .At any
point in the process, it may be ended.
STIMULUS: A stimulus is a cue or drive meant to motivate a person to act.
A stimulus can be any of the following:

Social.
Commercial.
Noncommercial.
Physical.
A prospective consumer may be exposed to any or all of these types of stimuli. If a person is
sufficiently stimulated, he or she will go on to the next step in the decision process.
PROBLEM AWARENESS: During problem awareness, the consumer recognizes that the good,
service, organization, person, place, or idea may solve a problem of shortage or unfulfilled desire.
Many consumers are hesitant to react to unfulfilled desires because there are risks and the benefits
may be hard to judge.
INFORMATION SEARCH: Information search involves listing alternatives that will solve the problem
at hand and a determination of the characteristics of each. Search can be internal and/or external .As
risk increases; the amount of information sought also increases. Once the information search is
completed, it must be determined whether the shortage or unfulfilled desire can be satisfied by any
alternative.

The Internet has become a major source for consumer shopping information. Seven useful sources
are provided.
EVALUATION OF ALTERNATIVES: The alternatives are evaluated on the basis of the consumer’s
criteria and the relative importance of these criteria. They are then ranked and a choice made.
PURCHASE - The purchase act involves the exchange of money or a promise to pay for a product,
or support in return of ownership of a specific good, the performance of a specific service, and so on.
Purchase decisions remaining at this stage center on
The place of purchase.
Terms.
Availability.
If the above elements are acceptable, a consumer will make a purchase.
POST-PURCHASE BEHAVIOR: Frequently, the consumer engages in post-purchase behavior.

Buying one item may lead to the purchase of another. Re-evaluation of the purchase occurs when
the consumer rates the alternative selected against performance standards. Cognitive dissonance,
doubt that a correct purchase decision has been made, can be reduced by follow-up calls, extended
warranties, and post-purchase advertisements.
FACTORS AFFECTING THE FINAL CONSUMER’S DECISION PROCESS
A. Demographic, social, and psychological factors affect consumer decision making.
B. By understanding how these factors affect decision making, a firm can fine-tune its strategies to
cater to the target market.
TYPES OF DECISION PROCESSES

The decision process is used each time a good or service is bought, often subconsciously.
There are three ways in which the decision process may be used.
Extensive decision-making: Occurs when a consumer makes full use of the process. It is used for
expensive, complex items with which the consumer has little or no experience. Perceived risk is high
and time pressure is low.
Limited decision making: takes place when each step of the process is used, but the consumer
does not need to spend a great deal of time on any of them. The consumer has some experience. The
thoroughness with which the process is used depends on the amount of experience, the importance
of the purchase, and time pressure.
Routine decision-making: involves habitual behavior and skips steps in the process. Regularly pur-
chased items are bought in this manner. Information search, evaluation, and post-purchase behavior
are normally omitted.
Several differences between consumers in industrialized nations and those in less-developed and
developing ones are cited by the text.With low-involvement purchasing, the consumer minimizes
decision making for those goods and services perceived to be socially and/or psychologically unim-
portant. Brand loyalty is the consistent repurchase of and preference toward a brand. It enables a
consumer to minimize risk, time, and thought.

The text explains how Gateway generates and sustains customer loyalty.
MARKETING APPLICATIONS OF THE FINAL CONSUMER’S DECISION

PROCESS
There have been many studies on the marketing implications of the final consumer’s decision pro-
cess.
1. When acquiring information for a leisure trip, travelers consult friends and relatives, a travel
agent, the Internet, and travel magazines.
2. Nearly a third of Chinese consumers are “enthusiastic shoppers,” who enjoy
shopping and like to price bargain.
3. For several reasons, “substantial time often elapses between the time people
recognize the need for a product and the time they actually purchase it.”
These may be the reasons for this:
They don’t think they have time to devote to the decision.
They may feel shopping is an unpleasant experience.
They may feel perceived risk.
They may need advice from others.
They may not know how to gather adequate information.
They may expect prices to fall.
They may expect improved products to be introduced later.
4. Satisfied consumers discuss their experiences with far fewer people than dissatisfied ones. Some
studies the ratio is 3:11.
LIMITATIONS OF THE FINAL CONSUMER’S DECISION PROCESS

1. The hidden nature of many elements.
2. The subconscious performance of the process.
3. The impact of demographic, social, and psychological factors.
4. Differences in decision making among consumers in different countries.
CUSTOMER BUYING PROCESS FOR NEW PRODUCTS

How do customers approach the process of buying a new product? How does this differ from the
process for buying a product, which the customer has bought before? What does a “new product”
mean?
A new product can be defined as: “A good, service or idea that is “perceived” by some potential
customers as new. It may have been available for some time, but many potential customers
have not yet adopted the product nor decided to become a regular user of the product”
Research suggests that customers go through five stages in the process of adopting a new product or
service: these are summarized below:
(1) Awareness - the customer becomes aware of the new product, but lacks information about it
(2) Interest - the customer seeks information about the new product
(3) Evaluation - the customer considers whether trying the new product makes sense
(4) Trial - the customer tries the new product on a limited or small scale to assess the value of the
product
(5) Adoption - the customer decides to make full and/or regular use of the new product
What is the role of marketing in the process of new-product adoption?

A marketing team looking to successfully introduce a new product or service should think about how
to help customers move through the five stages.

For example, what kind of advertising or other promotional campaign can be employed to build
customer awareness? If customers show a desire to trial or sample a product, how can this be
arranged effectively?
Research also suggests that customers can be divided into groups according to the speed with which
they adopt new products.
Rogers, in his influential work on the diffusion of innovations, suggested the following classification:
The “innovators” (those who adopt new products first) are usually relatively young, lively, intelli-
gent, and socially and geographically mobile. They are often of a high socioeconomic group (“AB’s”).
Conversely, the “laggards” (those who adopt last, if at all) tend to be older, less intelligent, less well
off and lower on the socioeconomic scale.
It follows from the above model that when a business launches a new product or service, the custom-
ers who buy first are likely to be significantly different from those who buy the product much later.
This needs to be borne in mind when developing the marketing mix.
Points to remember:



Unit 2
Lesson 21 - Factors Influencing Organizational Buyer Behavior
Introduction:
In the previous lesson we have studied the behaviour of the buyer who buys for the final consump-
tion. In this lesson now, we shall discuss the buying behaviour of a buyer who purchases for any
purpose other than personal consumption i.e. resellers, retailers etc. As they are buying with the aim
of profit and not for personal use the marketer needs to have different strategies for these types of
consumers. So let us look at what are the factors and environmental influences which play a major
role and how they effect their buying behavior.
Organizational consumers purchase goods and services for further production, use in operations, or
resale to others. Organizational consumers are manufacturers, wholesalers, retailers, and govern-
ment and other nonprofit institutions. When firms deal with organizational consumers, they engage in
industrial marketing.
Two trends in industrial marketing merit special attention.

1. The use of the Internet in business-to-business marketing impacts significantly on the way con-
sumers deal with their suppliers. It fosters closer relationships, better communications, quicker
transaction times, cost efficiencies, barter exchanges, and greater flexibility.
2. Outsourcing occurs when one company provides services for another that could also be or
usually have been done in-house by the client firm.
a. Global outsourcing accounts for $200 billion in annual revenues.
b. The functions most commonly contracted out are information
technology, transportation management, media management, human
resources, and finance.
For example, think about the large number of business transactions involved in the production and
sale of a single set of Goodyear tires. Various suppliers sell Goodyear the rubber, steel, equipment,
and other goods that it needs to produce the tires. Goodyear then sells the finished tires to retailers,
who in turn sell them to consumers. Thus, many sets of business purchases were made for only one
set of consumer purchases. In addition, Goodyear sells tires as original equipment to manufacturers
who install them on new vehicles, and as replacement tires to companies that maintain their own
fleets of company cars, trucks, buses, or other vehicles.
Characteristics of Business markets

In some ways, business markets are similar to consumer markets. Both involve people who assume
buying roles and make purchase decisions to satisfy needs. However, business markets differ in
many ways from consumer markets. The main differences are discussed below, are in market
structure and demand, the nature of the buying unit, and the types of decisions and the deci-
sion process involved.

The business marketer normally deals with far fewer but far larger buyers than the consumer
marketer does. For example, when Goodyear sells replacement tires to final consumers, its potential
market includes the owners of the millions of cars currently in use in the United States. But Goodyear’s
fate in the business market depends on getting orders from one of only a handful of large automakers.
Even in large business markets, a few buyers often account for most of the purchasing.
Business markets are also more geographically concentrated. More than half the nation’s busi-
ness buyers are concentrated in eight states: California, New York, Ohio, Illinois, Michigan, Texas,
Pennsylvania, and New Jersey. Further, business demand is derived demand—it ultimately derives
from the demand for consumer goods. General Motors buys steel because consumers buy cars. If
consumer demand for cars drops, so will the demand for steel and all the other products used to make
cars. Therefore, business marketers sometimes promote their products directly to final consumers to
increase business demand.
Differences of business markets and consumer markets

Differences From Final Consumers Due To The Nature Of Purchases
A. Organizational consumers purchase capital equipment, raw materials, semifinished goods, and
other products for use in further production or operations or for resale to others, whereas final
consumers usually acquire the finished items for personal, family, or household use.
B. Organizational consumers are likely to require exact product specifications. Final consumers
more often buy on the basis of description, style, and color.
C. Organizational consumers often use multiple-buying responsibility, in which two or more employ-
ees formally participate in complex or expensive purchase decisions. Final consumers employ it
less frequently and less formally.
D. Organizational consumers apply value analysis, by which they compare costs versus benefits of
alternative materials, components, designs, or processes in order to reduce the cost/benefit ratio
of purchases. In vendor analysis, organizational consumers assess the strengths and weaknesses
of suppliers for such factors as merchandise quality, customer service, reliability, and price.
Figures 9-3 and 9-4 illustrate value analysis and vendor analysis.
E. Organizational consumers often lease equipment. U.S. firms spend $250 billion annually. The
worldwide use of commercial leasing is rising rapidly.
F. Organizational consumers more frequently employ competitive bidding and negotiation.
Differences From Final Consumers Due To The Nature
Of The Market
A. Derived demand occurs for organizational consumers because the quantity of items they pur-
chase is often based on the anticipated demand of their final consumers for specific finished
goods and services; therefore, organizational consumers are less sensitive to price changes. As
long as final consumers are willing to pay higher prices, organizational consumers will not object
to price increases. Figure 9-5 illustrates derived demand.
B. Demand is volatile due to the accelerator principle, whereby final consumer demand affects
many levels of organizational consumers.
C. There are fewer organizational consumers than final consumers.
D. Organizational consumers tend to be geographically concentrated.
E. Buying specialists are often used.
F. Distribution channels are shorter.
G. Organizational consumers may require special relationships consisting of
consultations as new products are devised, extra customer services (such as extended warran-
ties, a liberal return policy, and free credit), and close communications with vendors.
H. Systems selling and reciprocity are tactics used in industrial marketing.

1. In systems selling, a combination of goods and services is provided to a buyer by one vendor.
2. Reciprocity is a procedure by which organizational consumers select suppliers that agree to
purchase goods and services, as well as sell them.
G. Organizational consumers can make items themselves if suppliers are unavailable or unaccept-
able.
Differences Based On A Global Perspective
A. As with final consumers, there are many distinctions among organizational consumers around
the world; and sellers must understand and respond to them.
B. Companies doing business in foreign markets must know how to deal with organizational con-
sumers in those markets.
C. Nations’ cultures have a large impact on the way their organizational consumers negotiate and
reach decisions. An illustration is provided.
D. Foreign nations’ stage of economic development has a major affect on the types of goods and
services bought by organizational consumers there.
E. Companies need to adapt their strategies to address the characteristics and needs of customers
in foreign countries.
F. With the new technology available, there are more opportunities to market to foreign organiza-
tional consumers than ever before. The Internet, E-mail, fax machines, satellite TV, and video
conferencing all facilitate buyer-seller communications.
Activity:
Think of some examples for joint demand products and discuss.
Factors In Organizational Buyer Behavior
Organizational consumer behavior depends on
Buying objectives
Buying structure, and
Purchase constraints.
Buying Objectives
A. Organizational buyers have these several distinct objectives in purchasing goods and services
1. Availability of items—buyer is able to obtain items throughout the year or whenever necessary.
2. Seller reliability—based on fairness to organizational consumers in allocating items in high de-
mand.
3. Consistency of quality—being able to purchase items of proper quality on a regular basis.
4. Delivery goals—minimized and stabilized length of time from order placement to delivery.
5. Price considerations—involve purchase prices and the flexibility of payment terms.
6. Customer service—seller’s ability to meet special requests, answer questions, address problems,
and so on. See Figure 9-9.
B. Price is only one of several considerations for organizational consumers. Usually, availability,
quality, service, and so on is more important. Manufacturers stress quality standards and may
want a variety of suppliers. Wholesalers and retailers are interested in salability and exclusive
buying arrangements (to limit competition). Government consumers frequently set exact specifi-
cations. Nonprofit consumers focus on price availability and reliability.
Buying Structure
A. Buying structure refers to the level of formality and specialization used in the purchase process.
B. A firm’s buying structure depends on an organization’s size, resources, diversity, and format.
C. Manufacturers and wholesalers often have purchasing agents.

Constraints On Purchases
A. The major constraint on purchase behavior is derived demand.
B. Availability, ability to pay, financing availability, and risk are other constraints.
C. Government consumers are constrained by the budgeting process.
Activity:
Describe the role of a sales person in the business-to-business purchase process.
Points to remember:

Unit 2
Lesson 22 - Buying Decision Process, Participants Industrial
Introduction:
Today in this class let us try and recollect the entire buying decision making process involving the
consumer and the business. Now we will do the in-depth analysis of factors that affect industrial
buyers decisions in the marketplace, as it is very much different from the buyers who buy for final
consumption. This lesson focuses on the use of knowledge of buyer behavior in marketing decisions.
Emphasizes theory, application, and ultimate consumer and organizational buyer behavior. Special
attention has been given to exploring and evaluating industrial buyer behavior, the various influences
on buying behavior as it has an impact on development of marketing programs, and affect marketing
strategy.
Organizational buying process:

Organizational consumers use a decision process similar to that of final consumers. The organiza-
tional consumer’s decision process is shown in Figure below
Expectations
A. Organizational consumer expectations refer to the perceived potential of alternative suppliers
and brands to satisfy buying objectives.
B. Expectations are based on the backgrounds of those participating in the buying process, the
information received, perceptions, and satisfaction with past purchases.
Buying Process
A. The buying process is similar to the final consumer buying process.
B. The buying process may involve autonomous or joint decision making.

1. Product-specific factors influence decision making. These include perceived risk, purchase fre-
quency, and time pressure. Autonomous decisions occur with low perceived risk, routine prod-
ucts, and high time pressure. Joint decision making is likely to be used with high-perceived risk,
seldom-bought products, and low time pressure.
2. Company-specific factors influence decision making. These are a firm’s orientation, size, and
level of decision-making centralization. Autonomous decisions occur with a high technology level,
small firm size, and high centralization. A low technology or production orientation, large com-
pany size, and decentralization usually lead to joint decision making.
C. Under competitive bidding, the potential seller specifies all terms and specifications in writing.
With open bidding, competitors see bids. With closed bidding, contract terms are kept secret and
sellers are asked to present their best bids first.
CONFLICT RESOLUTION
A. Conflict resolution is sometimes necessary in joint decision making due to the diverse back-
grounds and perspectives of purchasing agents, engineers, and users.
B. Conflicts can be settled in these four ways:
1. Problem solving occurs when it is decided to acquire more information before making a decision.
This is the most effective method.
2. With persuasion, members of the purchasing team present reasons why a particular choice should
be made. Often, the most persuasive speaker wins.
3. Under bargaining, team members agree to support each other in different situations, regardless
of merit.
4. In politicking, team members seek to persuade outside parties and superiors to back their posi-
tions and then seek to win at power plays.
SITUATIONAL FACTORS
A. Situational factors (such as price controls, recession, or foreign trade; internal strikes, walkouts,
machine breakdowns, and other production-related events; organizational changes such as merger
or acquisition; and ad hoc changes in the marketplace, such as promotional efforts, new-product
introduction, price changes, and so on) can intervene between the decision-making process and
the actual selection of a supplier or brand.
PURCHASE AND FEEDBACK

A. After the decision process is completed and situational factors are taken into consideration, the
purchase is made (or the process terminated).
B. Feedback is stored for future use.
C. Regular service and follow-up calls are essential.
Types of purchases
A. A new-task purchase process is used for an expensive item that has not been bought before.
Decision-making is extensive and perceived risk is high.
B. A modified-rebuy purchase process involves medium-priced products the firm has bought in-
frequently before.
C. A straight-rebuy purchase process involves routine behavior for inexpensive items bought on a
regular basis. Reordering, not decision making, is applied because perceived risk is very low.
Marketing implications for industrial marketers

A. Organizational and final consumers have similarities, as well as differences. These are the simi-
larities:
1. They can both be described demographically.
2. They have different categories of buyers.

3. They can be defined by using social and psychological factors.

4. They use a decision process, employ joint decision making, and face different kinds of purchase
situations.
B. Separate marketing plans are needed for organizational and final consumers.
C. Organizational consumers have personal as well as company goals.
D. For your information, listed below are some of the suggestions are offered by the president of a
leading consulting firm to industrial marketers:
1. Understand how your customers run their business.
2. Show how your good or service fits into your customer’s business.
3. Make sure the benefits you sell stay current.
4. Know how customers buy and fit your selling to their buying process.
5. When selling, reach everyone on the customer’s side involved in the buying decision.
6. Communicate to each decider the message that will address his or her chief concerns.
7. Be the person or firm with whom your customers prefer to have a relationship.
8. Be sure everything is consistent with your chosen level of quality, service, price, and perfor-
mance.
9. Understand your competitors’ strengths and weaknesses.
10. Strive to dominate your niche.
11. Train your people in each aspect of your business and that of your customers.
12. Have a distribution system to meet customers’ needs.
13. Seek new markets and new applications for your existing products.
14. Enhance your products with customer service.
15. Have your goals clearly in mind.

Points to remember:


Tutorial - F
CONSUMER TRENDS IN THE 2000s
1. SELF SECURITY:
Corporate downsizing ‡ self-employment ‡ entrepreneurial explosion
Watch: How-to educational programs on starting and running a small business will have wide appeal
2. THE “MINE” GENERATION:

As resources are becoming sparse and stretched: “Me” generation is putting more emphasis on
preserving what they do have: jobs, family, community, possessions
– a change reflected in economics and politics
3. LOCALIZATION:
Disinterest in national politics translated into local politics: school budgets and neighborhood crime.
Advertisers can tap into this by localizing their message as well as running national campaigns
4. MORE TOGETHER:
Coffee bars and Internet are popular – satisfy 2 conflicting desires
- connection with others
- avoiding intrusive interactions
Advice to stores, rstaurants, and clubs: create zones of “alone-togetherness” into their layout
5. TOPSY-TURVY RETAIL:
Focus groups have given higher marks for customer service to some discounters and off-price stores
than the more up-scale establishments. Higher-priced outlets: need to improve perception of better
service Lower-priced stores: could promote service along with lower price
6. BATTLE OF SUPERSTORES:
Consumers like the more personal atmosphere of small, independent sores and tend to sympathize
with the owners. But they spend more money at the mega-stores! Though signs indicate that the
public is beginning to tire of superstores, business is still brisk. Smaller stores will have to maintain
excellent personal service, find niches to fill, and do more direct marketing to stay competitive.
7. WOO-ME MARKETING
Customers today won’t seek out products or services. They assume the offers will come to them
Businesses need to be more proactive, approaching consumers with free trials and special offers
8. YUPPIES, GEN-X STYLE:

Twenty-somethings who are settling into careers are spending more, esp the singles Different from
yuppies of 1980ws: don’t expect to make big money, and are less interested in designer labels Mar-
keting strategy: ads that stress value and de-emphasize status as a reason for buying are likely to
appeal to this crowd
9. CLOTHINGS CUTBACK:
Until a new style of dressing renders their current wardrobes obsolute, most consumers feel they
already have all the clothing they need. Trend towards more casual dress for work and socializing
has added to the
resistance

The money that would havaae gone into the closet is being spent on homes, travel, and investments
10. HIGH-TECH POLARIZATION:

Attitudes towards technology are polarized, with many people wtill concerned about the impactg of
computers on employment, the de=personalization of business and personal relationships, and other
issues. Possible remedies: find ways to offer re-assurance, and to maintain the human touch
11. DATA GLUT:

Complaints about being overwhelmed by information are up sharply, indicating a potential market for
those who can help simplify it and screen out extraneous communications
12. CHANGED OFFICE STRUCTURES:

Downsizing means more executives doing clerical work themselves, creating a market for foolproof
photocopying and computer products. Other growth areas: Outsourcing, and products that aid in
telecommuting from the home or the road
13. SOLITUDE TIME:

On-the-job stress is crating the need for quiet time. Products that can be positioned as aids to relax-
ation include aromas, yoga, and reading materials
14. WORKING AT RELAXING:

Nothing is easy; professional/managerial types put a lot of effort into their down time, scheduling
massages, gardening, and re-decorating their city apartments. Ads can talk about people deserving
time to relax, and depict the humor inherent in striving for serenity Article 1 on consumer markets
Cross-selling: Myth and reality

Most of us could probably fill a dustbin with the quantity of junk mail we receive every week. An
analysis of the bin will reveal that this unsolicited mail is an attempt by one supplier or another to
cross sell products and services. Cross selling is an attempt to ‘milk’ existing customers though
database marketing techniques. It is selling a range of related products to a single customer profitably
based on suppositions that are at odds with marketing principles. Electricity companies are trying to
sell gas or water, just as water companies are trying to sell electricity and gas. Banks are trying to
cross sell credit cards, pensions and life insurance policies. From a supplier point of view, the logic of
cross selling is impeccable. The reality is somewhat different — and utility and financial companies
industries are paying a heavy price for their flawed assumptions. Companies sell products with
features while consumers buy emotional benefits and also tend to buy ‘best in class’, even when
offered huge incentives to switch. Recent research, particularly from the US, indicates that discounts
needed to encourage trial are destroying shareholder value and long term brand equity. American
Express was one of the first to discover this when it tried to cross sell mortgages, credit cards, loans
and insurance. First Manhattan Consulting reported that 75 per cent of cross sold accounts are
uneconomic. Abbey National Bank lost at least $400 million through its estate agency venture. Leads
generated through its national chain of estate agents amounted to just five per cent of its total lending
business. Virgin is often quoted as a brand that has succeeded in cross selling. Since it is a private
company it is difficult to confirm this. However, in a recent book, it was claimed that apart from the
airlines and trains, few of the hundreds of the other Virgin businesses made any money. It is a better
strategy to aim for being the ‘best in class’ since research suggests that market leaders generate
three times greater than the third place entry in any category. The danger of customer-centric strat-
egies is that they focus on share of customer which has few economic benefits at the expense of
share of market which has plenty. According to a survey, due to the need for band managers to cross
sell the bank’s own products their integrity is now in doubt. Consumer research in this area is fraught
with problems. Consumers are saying one thing but doing another. What they do is more consistent

with our current understanding of markestructure and buyer behaviour. So it is important to use the
right research tools before using the data for formulating business strategies. The argument over
cross selling and its impact within organisations is a battle between emerging database marketing
techniques and sound strategic marketing. Article 2 on buyer behaviorSales ForcedSource:
nita.kulkarni@timesgroup.com BRAND EQUITY [WEDNESDAY, NOVEMBER 08, 2000 ]The
upshot: if you’re trying to make ends meet, after-sales service is naturally low on the priority
list. “Allocating resources beyond the sales period is not what companies can afford to do now,
as they have to give extra features and improve quality,” says Thomas Puliyel, president, Indian
Market Research Bureau (IMRB). Going forward, the market is only expected to become more
price-sensitive. Rising disposable incomes are creating new aspiration levels amongst the middle and
lower-middle classes. A large part of market growth in future is expected to come from small
towns - and from SEC B&C in large towns. Not only are companies devising aggressive
marketing schemes to attract customers, scores of financing schemes are trying to attract the low
and the middle income groups.
After-sales can go take a jump. Customer Apathy Buyer behaviour compounds the problem.
Customer care is often taken for granted. During a sale, what’s top of mind for consumers is
price. And, of course, the brand name. Says Jyoti Mitra, manager, Vijay Sales, one of the biggest
dealers of consumer durables in Mumbai: “The quality of after-sales service is not a factor in sales.
Today, consumers only care about the brand and the price.” This applies particularly to first-time
customers of consumer durables. Small wonder then that companies fighting it out prefer to reduce
price and improve brand image rather than focus attention on after-sales.Unreasonable demands
Privately, companies admit that customers, like Oliver Twist, are always asking for more. But can
you really blame the Indian consumer for wanting to use products beyond their life-span, usually
about 12-15 years for a refrigerator, six for a washing machine? For a typical Indian buyer of a
consumer durable, it takes four to six months’ salary to purchase a durable. “Consumers look
upon a durable as a life-long investment,” says Venugopal Dhoot, managing director, Videocon
International, “and it gets increasingly difficult to please them.”At the same time, Dhoot is keenly
aware of the importance of customer service. “Service is the soul of the consumer durables
business and unless there is after-sales service, there can be no sales,” he says. Garrick D’Silva,
chairman and managing director, Whirlpool Home Appliances, believes that “the cost of ensuring a
high level of service is commensurate with high perceived quality of the brand. The lack of it results
in loss of brand preference, brand loyalty and thereby declining sales.” However, top management
in most cases does little else but pay lip service to after sales. D’Silva admits that there are
problems: “There is poor general infrastructure, lack of skill and general service orientation in
non-dedicated service franchisees.” Industry observers couldn’t agree more. “After-sales ser-
vice in industry is far below expectations,” says Puliyel, “It’s usually second or third-hand
service without adequate supervision.” When service is carried out by franchisees who are often ill-
trained, ill-equipped and have little contact with the company, there’s not much that you can really
expect.
Where it works Generally, after-sales-service is more organised and efficient in the automotive
sector, where the consumer is willing to pay for it. Read: service in itself is a profitable wing of the
company. Cars require continuous care and being high value products, they are bought by well-to-do
customers. Dealers also make fat margins selling accessories which can cost a customer anything
from Rs 5,000 up. Besides, car owners often opt for a second or third car and/or replace it. “Cars
are status symbols and it’s far more likely that a person will change his car rather than his air-
conditioner,” says Sanjay Kadekar, senior manager, Used Cars, Sai Service, one of the biggest car
dealers.New Dawn It’s not as if consumer durable companies aren’t doing anything. Whirlpool, in
order to control this major function, now operates centralised call centres - one such centre has
already opened in both Delhi and Mumbai. Chennai and Bangalore will be operational very
soon. Companies like Onida, Samsung and Bajaj Electricals plan to move towards operating

exclusive service centres. Or take companies like Kodak and Godrej GE. They are building up a
database of customers going back as far as several years - tracking advertising, sales and cus-
tomer feedback, a practice common in the automobile industry. Culture club Finally, culture counts.
How many organisations actually quantify the implications of just one consumer moving away? For
example in the US, even a small pizza outlet would calculate the loss due to a customer moving away
- which actually could amount to as much as $12,000 per annum. Losing an automobile customer on
the other hand could cost as much as $220,000. Says H Pradeep, associate vice president,
Research International, “There is a service orientation in the automotive industry which has been
built up over the years, unlike in the consumer durables industry.”This culture is set by the top
management. If customer service is a priority, the bad news will filter up to them. So for companies
who are interested in hearing bad news first, customer service will be key. It’s begun happening
even if in a small way. Article 3 on buyer behaviorAt Your Beck and ClickSource: AJIT
KAMBIL, (Ajit Kambil is associate partner and senior research fellow at the Andersen Con-
sulting Institute for Strategic Change.)[FRIDAY, JUNE 09, 2000 ]Every time your customers
make a purchase, they’re running all kinds of risks. Here’s how to make them feel more protected.
How can you create greater customer value and differentiate your products in the eEconomy? One
way is to employ the unique capabilities of electronic commerce to reduce your customers’ risks.
Market researchers focused on buyer behaviour have identified a variety of risks that customers
encounter in making purchases; they include psychological, relationship, functional, quality, obsoles-
cence, selection, delay, physical, and financial risks. Research also has established that customer
perceptions of service are costly tied to the mitigation of these risks. As organisations embark on
electronic commerce initiatives, many are concerned about buyers’ perceptions of the financial risks
of online transactions. It is important to recognise that electronic commerce also has great power to
mitigate customer risk in all its forms.
Let us consider some examples. A purchase can present a psychological risk to a buyer when he or
she stands to be embarrassed in some way, angered, or somehow otherwise made to experience
negative emotions. Many banks have used the Internet to address this risk in one of their most
potentially humiliating settings: the loan approval process. By providing online calculators for custom-
ers to use in privacy, they avert some of the discomfort that can occur in a meeting with a loan
officer; customers discover before they walk in what the bank considers an affordable loan given
their means. Relationship risks present the possibility that the purchase will adversely affect a rela-
tionship the customer has - and values - with another party. Freight forwarders and couriers by
providing package tracking, help customers reduce relationship risks by allowing their clients or other
valued partners to check the status of deliveries. Even though the customer can do little to expedite
the delivery of a package, online tracking has provided greater customer satisfaction - at much lower
cost to the courier than call centre service. Functional, quality, and obsolescence risks are all miti-
gated when electronic commerce helps a product serve a customer’s needs. Functional risks are the
risks that a product will not have the features desired by the customer. Quality risks are that the
product will fail during use. Obsolescence risks are that the product will lose value as new and better
versions are brought to the market. Electronic commerce offers a number of ways to reduce these
customer risks. Companies can inexpensively publish the exact functional specifications of products
online and customer reviews (as at Amazon.com and other sites) can provide information to mitigate
functional risk. Similarly, other customers’ reviews and publication on the Internet of their product
experiences can be used by potential buyers to limit quality risks. Some firms are even able to offset
obsolescence and functional risks by providing online upgrades.
This is true where what is being sold has a substantial software component; customers can simply
download a new software driver for a printer, for example, or a patch to adapt their version of a
software product to changes in related products. Selection and delay risks threaten to waste custom-
ers’ time and incur opportunity costs. Customers usually confront selection risk when they go to a
store seeking to purchase a specific product. Limited shelf space or delayed restocking may mean

they will not have a satisfying range of options from which to choose. Amazon.com, of course,
addressed this risk head-on by creating “the world’s biggest bookstore,” offering a much larger
assortment than even a book superstore could offer. But electronic commerce can also reduce
customers’ selection risk for physical stores, by allowing them to review the selection they will
encounter on the shelves prior to making the trip to the store. Revealing information about the inven-
tory status also helps customers manage their delay risk - the risk that a product or service will not
arrive or be available in a timely manner. Many electronic storefronts reveal whether the product is
instantly available or back-ordered. This electronic inventory access, and the tracking information
provided by today’s delivery services, helps customers manage delay risks. The multimedia capabili-
ties of the Internet and other eCommerce technologies also provide a rich medium for providing
information and instructions on the safe use or assembly of a product. This serves to reduce the risks
of physical injury. For example, pharmaceutical firms are now using the Internet to provide detailed
information on potentially dangerous drug interactions, appropriate dosages, side effects to watch for,
and other guidelines for the safe use of their products. Finally, companies can reduce their custom-
ers’ financial risks in the electronic environment. Naturally, one aspect of doing so is to ensure that
financial transactions are secure. Today, credit agencies, the Better Business Bureau, and systems
like e-TRUST distribute ratings that enhance consumer confidence in electronic transactions. Be-
yond fighting fraud, firms can publish information to help customers make appropriate financial choices
related to their offering. Indeed, one of the first Internet initiatives of a global investment bank was to
publish its risk metrics information on the risk profiles of various financial instruments. These ex-
amples only begin to explore how the Internet and other eCommerce technologies can be used by
companies to help their customers understand and manage risks. Clearly, companies stand to en-
hance their information power vis-`-vis competitors, add new dimensions to product value, and re-
duce costs by providing risk-reducing information to customers. So what should you, as a business
person competing in the eEconomy, do? Ask yourself which of the categories of risk described above
are most important to your customers. Next, ask: what information do customers need to manage
those risks? Now, think about how the unique strengths of the Internet or, more broadly, eCommerce
can be employed to deliver that information. Once you have created your risk-reducing information
strategy, make sure the world knows about it. Making electronic commerce safer for customers may
require some creative thinking, and it will probably require some difficult implementation work. the
payoff will justify the investment. Lower risks for your customers will spell greater satisfaction, more
sales, and greater profitability in the eEconomy.
Questions
Multiple Choice
1. _____ is never simple, yet understanding it is the essential task of marketing management.
a. Brand personality
b. Consumption pioneer
c. Early adopter
d. Consumer buyer behavior
2. Most large companies research _____ buying decisions to find out what they buy, where they buy,
how and how much they buy, when they buy, and why they buy.
a. market
b. permanent
c. consumer
d. social

3. Which is not a part of the buyer’s black box?

a. observable buyer responses
b. product choice
c. need recognition
d. dealer choice
4. The marketer wants to understand how the stimuli are changed into responses inside the consumer’s
_____, which has two parts. First, the buyer’s characteristics influence how he or she perceives
and reacts to the stimuli. Second, the buyer’s decision process itself affects the buyer’s behavior.
a. culture
b. black box
c. belief
d. lifestyle
5. Each culture contains smaller _____, or groups of people with shared value systems based on
common life experiences and situations.
a. alternative evaluations
b. cognitive dissonances
c. subcultures
d. motives
6. Which is not true of mature customers?

a. The best strategy is to appeal to their active, multidimensional lives.
b. They are an ideal market for exotic travel.
c. High-tech home entertainment products appeal to them.
d. They place more importance on brand names and are more brand loyal.
7. _____ are society’s relatively permanent and ordered divisions whose members share simi-
lar values, interests, and behaviors.
a. Social classes
b. Purchase decisions
c. Perceptions
d. Attitudes
8. What is one way that a social class is not measured?

a. occupation
b. education
c. income
d. number of children in the family
9. _____ are people within a reference group who, because of special skills, knowledge, personality,
or other characteristics, exert influence on others.
a. Opinion leaders
b. Habitual buyers
c. Charismatic personalities
d. Perceptionists
10. Business buyers tend to be more rational and _____ than consumer buyers.
a. orderly
b. objective

c. subjective
d. team-oriented
11. All of the following are differences between business and consumer markets except one. Which
is it?
a. market structure and demand
b. nature of the buying unit
c. type of credit extended
d. types of decisions and the decision process involved
12. What can we say about business purchasers compared to the consumer purchasers?
a. They deal with far fewer but far larger buyers.
b. They are paid and the consumer is not paid for buying.
c. Business buyers almost always work in committees.
d. None of the above
13. You now understand that business demand is ultimately derived from the demand for consumer
goods and is therefore called _____.
a. elastic demand
b. fluctuating demand
c. derived demand
d. joint demand
14. It is because of _____ demand that many business goods and services tend to change more –
and more quickly – than the demand for consumer goods and services.
a. fluctuating
b. derived
c. inelastic
d. elastic
15. Compared with consumer purchases, a business purchase usually involves _____ decision par-
ticipants.
a. better-trained
b. more professional
c. more
d. all of the above
Essay Questions
1. A consumer’s behavior also is influenced by social factors, such as the consumer’s small groups,
family, and social roles and status. Explain the differences between these social factors.
2. Each person’s distinct personality influences his or her buying behavior. Personality is usually
described in terms of traits. What are these traits, and how do they affect the way people purchase
items?
3. Briefly describe the characteristics of business markets.
4. Distinguish between the three major types of buying situation
5. Explain the advantages of systems selling.


Text
Kumar Ramesh S- Application exercises in Marketing (Vikas Publishing House Pvt Ltd, 2000)
Magazines
Business India
Business Today
Business World

Unit 2
Chapter 8 - Market Segmentation
Lesson 23 - Market Segmentation Process
Learning Outcomes:
Define the three steps of target marketing: market segmentation, target marketing, and
market positioning
List and discuss the major bases for segmenting consumer and business markets
Explain how companies identify attractive market segments and choose a target marketing
strategy
Discuss how companies position their products for maximum competitive advantage in the
marketplace
Determine how a firm chooses and communicates an effective position in the market
Determine the major differentiating attributes available to firms
Describe the marketing strategies that are applied at each stage of the product life cycle
Describe the marketing strategies that are applied at each stage of the market’s evolution
Introduction:
Each parent of yours would like the teachers to give personal attention to their wards. This is prac-
tically not possible. If all the children are asked to sit in the same class with various subjects. To
facilitate this the class is further divided in according to the subjects. On the same philosophy , as the
business or the organization cannot meet the needs of each and every individual in the market the
market is divided in to meaningful, relatively similar and identifiable groups, the purpose of which is to
enable the marketer to tailor marketing mixes to meet the needs of one or more specific groups.
In this lesson you would be introduced to the concept of segmentation and its process in detail.
The total market for a good or service consists of all the people and/or organizations that desire it,
have resources to make purchases, and are willing and able to buy.Firms often use market segmen-
tation—dividing the market into subsets of customers that behave similarly. The development of a
target market strategy consists of three general phases: analyzing consumer demand, targeting the
market, and developing the marketing strategy.
1. The firm determines demand patterns, establishes bases of segmentation, and identifies potential
market segments.
2. The firm targets the market through undifferentiated marketing (mass marketing), concentrated
marketing, or differentiated marketing (multiple segmentation).
3. The firm then positions it’s offering relative to competitors and outlines the appropriate marketing
mix. Meaningful product differentiation is essential.
Market segmentation process

There are several important reasons why businesses should attempt to segment their markets care-
fully. These are summarized below.
Better matching of customer needs - Customer needs differ. Creating separate offers for each

segment makes sense and provides customers with a better solution
Enhanced profits for business - Customers have different disposable income. They are, there-
fore, different in how sensitive they are to price. By segmenting markets, businesses can raise
average prices and subsequently enhance profits
Better opportunities for growth - Market segmentation can build sales. For example, customers
can be encouraged to “trade-up” after being introduced to a particular product with an introductory,
lower-priced product
Retain more customers - Customer circumstances change, for example they grow older, form
families, change jobs or get promoted, change their buying patterns. By marketing products that
appeal to customers at different stages of their life (“life-cycle”), a business can retain customers
who might otherwise switch to competing products and brands
Target marketing communications - Businesses need to deliver their marketing message to a

relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key
customers are missed and (2) the cost of communicating to customers becomes too high / unprofit-
able. By segmenting markets, the target customer can be reached more often and at lower cost
Gain share of the market segment - Unless a business has a strong or leading share of a market,
it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale economies in
production and marketing, pressures from distributors and limited space on the shelves. Through
careful segmentation and targeting, businesses can often achieve competitive production and mar-
keting costs and become the preferred choice of customers and distributors. In other words, segmen-
tation offers the opportunity for smaller firms to compete with bigger ones.

Points to remember:


Unit 2
Chapter 8 - Market Segmentation
Lesson 24 - Bases for Segmenting And Market Targeting
Bases for segmenting and market targeting

Introduction:
When we divide any class or any subject, it is done on certain grounds. The base is created after
considering the various fields and the characteristics of the students, merit, and so on. Similarly
market segmentation is done on certain consistency that exists within the group. So in this lesson we
are going to study the basis, a marketer uses to segment the consumer market.
ANALYZING CONSUMER DEMAND
DETERMINING DEMAND PATTERNS
A. Demand patterns indicate the uniformity or diversity of consumer needs and desires for particular
categories of goods and services. A firm would face one of three demand patterns, as mentioned
below, and shown in the figure.
1. Homogeneous demand is when consumers have relatively uniform needs and desires for a good or
service category.
2. With clustered demand, consumer needs and desires for a good or service category can be classi-
fied into two or more clusters, each with different purchase criteria.
3. With diffused demand, consumer needs and desires are so diverse that clear clusters cannot be
identified. A firm’s marketing tasks are more difficult because product differentiation is more costly
and harder to communicate.

ESTABLISHING POSSIBLE BASES FOR SEGMENTING
It is widely thought in marketing that than segmentation is an art, not a science. The key task is to find
the variable, or variables that split the market into actionable segments
There are two types of segmentation variables:
(1) Needs (2) Profilers
The basic criteria for segmenting a market are customer needs. To find the needs of customers in
a market, it is necessary to undertake market research. Profilers are the descriptive, measurable
customer characteristics (such as location, age, nationality, gender, income) that can be used to
inform a segmentation exercise.
The most common profilers used in customer segmentation include the following:
Profiler Examples
A Demographic
Age, sex, family size
Income, occupation, education
Religion, race, nationality
B Geographic
Region of the country
Urban or rural
C Behavioral
Product usage - e.g. light, medium, heavy users
Brand loyalty: none, medium, high
Type of user (e.g. with meals, special occasions)
D Psycho graphic
Social class
Lifestyle type
Personality type
Now, I will explain these bases for segmentation to you, one by one.
A Market segmentation - demographic segmentation
Demographic segmentation consists of dividing the market into groups based on variables such as
age; gender family size, income, occupation, education, religion, race and nationality.
As you might expect, demographic segmentation variables are amongst the most popular bases for
segmenting customer groups.
This is partly because customer wants are closely linked to variables such as income and age. Also,
for practical reasons, there is often much more data available to help with the demographic segmen-
tation process. The main demographic segmentation variables are summarized below:
Age: Consumer needs and wants change with age although they may still wish to consumer the
same types of product. So Marketers design, package and promote products differently to meet the
wants of different age groups. Good examples include the marketing of toothpaste (contrast the
branding of toothpaste for children and adults) and toys (with many age-based segments).
Life-cycle stage A consumer stage in the life cycle is also an important variable. We can talk of the
following products to talk of the life-cycle concept: Infants: Baby foods like Cerelac and Farex

Young child: Leo toys, Barbie dolls (Again these can be segmented by gender basis for small girls
and boys)
Adolescent: Trendy products and services like Jeans, T-shirts, and Coffee shops
Young Adults: Mobikes, music systems, mobile phones
Old people: Investment instruments, health packages for old
When you talk of segmentation based on life cycle, you need to specify exact age groups like for a
young child, you might specify the segment as 3-12 years, old people as 55 years and above and so
on.
Gender: Gender segmentation is widely used in consumer marketing. The best examples include
clothing, hairdressing, magazines and toiletries and cosmetics. You have footwear exclusively for
males, females and kids. For example, you have ‘Action’ School shoes exclusively for school-going
children. You can talk of soft perfumes for women and deodorants for men. Kinetic scooters are
targeted more at women. You have magazines dedicated to women like Femina.
Income: You might have noticed that income is another popular basis for segmentation. Many com-
panies target affluent consumers with luxury goods and convenience services. Good examples in-
clude Mercedes, Pizza Hut Pizzas, Ebony and Parker pen. By contrast, many companies focus on
marketing products that appeal directly to consumers with relatively low incomes. You can have
examples including Nirma, and Reliance phones besides others.
Can you think of more examples for the income criterion?
Social class: Many Marketers believe that a consumer “perceived” social class influences their
preferences for cars, clothes, home furnishings, leisure activities and other products & services.
There is a clear link here with income-based segmentation.
B Market segmentation - geographic segmentation

Geographic segmentation tries to divide markets into different geographical units. These units in-
clude, Regions: e.g. in India, you can talk of North India, West India, as regions or zones and Delhi,
Mumbai, Chennai as metropolitan cities and Jaipur, Lucknow and Baroda as smaller cities. Coun-
tries: perhaps categorized by size, development or membership of geographic regionCity / Town size:
e.g. population within ranges or above a certain level Population density: e.g. urban, suburban, rural,
and semi-rural Climate: e.g. Northern, Southern
Geographic segmentation is an important process - particularly for multi-national and global busi-
nesses and brands. Many such companies have regional and national marketing programmes that
alter their products, advertising and promotion to meet the individual needs of geographic units.
C Market segmentation - behavioral segmentation
Behavioral segmentation divides customers into groups based on the way they respond to, use or
know of a product. Behavioral segments can group consumers in terms of:
Occasions: When a product is consumed or purchased. For example, cereals have traditionally been
marketed as a breakfast-related product. Kelloggs have always encouraged consumers to eat break-
fast cereals on the “occasion” of getting up. More recently, they have tried to extend the consump-
tion of cereals by promoting the product as an ideal, anytime snack food.
In India, lots of home shopping takes place on the occasion of ‘Divali’. TV sets sales goes up during
world cup cricket.

You might have seen that Archies, Hallmark and other greeting card companies makes occasions out
of relatively unknown days.
What such examples can you think of?
Usage: Some markets can be segmented into light, medium and heavy user groups
Loyalty: Loyal consumers - those who buy one brand all or most of the time - are valuable custom-
ers. Many companies try to segment their markets into those where loyal customers can be found
and retained compared with segments where customers rarely display any product loyalty. The
holiday market is an excellent example of this. The “mass-market” overseas tour operators such as
SOTC, Thomson, JMC and First Choice have very low levels of customer loyalty - which means that
customers need to be recruited again every year. Compare this with specialist, niche operators such
as those specializing for Bangkok and Singapore only; you can have customers who have traveled
with the brand in each of the last 15-20 years.
Benefits Sought: You may note that this is a different and an important form of behavioral segmen-
tation. Benefit segmentation requires Marketers to understand and find the main benefits customers
look for in a product. An excellent example is the toothpaste market where research has found four
main “benefit segments” - economic; medicinal, cosmetic and taste.
D Market segmentation – Psycho graphic segmentation
Lifestyle: Marketers are increasingly interested in the effect of consumer “lifestyles” on demand.
Unfortunately, there are many different lifestyle categorization systems, many of them designed by
advertising and marketing agencies as a way of winning new marketing clients and campaigns!
A. Lifestyles are the ways in which people live and spend time and money.
B. You can target final consumers by segmenting by social class and stage in the family cycle.
C. A heavy-usage segment is a consumer group that accounts for a large proportion of an item’s
sales relative to the segment’s size.
D. Benefit segmentation groups consumers into markets on the basis of different benefits sought
from a product.
What examples can you think of when you talk of psycho graphic segmentation?
I will give some example here:

Citibank International Gold card is for the ‘affluent’ people who travel abroad frequently
Five Star Hotels are for the foreigners, top business and corporate class to whom comfort and
convenience are the parameters of ‘value’
Black and White TV still sells in upcountry areas, small hotels and small shops to lower middle
class
When you talk of lifestyle, you also talk of AIO.

A- Activities: Work, hobbies, shopping style
I- Interests: In food, fashion, recreation
O- Opinions: About themselves, others, social issues
BASES OF SEGMENTING ORGANIZATIONAL CONSUMERS OR INDUSTRIAL

MARKETS
As the consumer markets are segmented, organizational or industrial markets may also be seg-
mented on the bases of various criteria, some of which are as mentioned below:

Small, medium and large A, B and C type depending on the volume of business generated
(Typically, Pareto’s rule may apply and 80% of business may come from 20% of customers who may
be your ‘A’ category customers) Location of the industrial customers
BLENDING DEMOGRAPHIC AND LIFESTYLE FACTORS

A. Market segments should be described in demographic and lifestyle terms. A more valuable
analysis takes place when a variety of factors are reviewed.There are two broad classification
systems:
1. VALS (Values and Lifestyles). See Figure below for the VALS network, which segments con-
sumers based on self-orientation and resources into these categories:
a. Actualizers.
b. Fulfilleds.
c. Believers.
d. Achievers.
e. Strivers.
f. Experiencers.
g. Makers.
h. Strugglers.
2. Social Style model. See Figure below for this approach, which divides organizational personnel
into these categories:
a. Analytics.
b. Expressive.
c. Drivers.
d. Amiable.

Article: How to Segment Markets

Perhaps the most important analytical process of marketing is segmentation. By segmenting the
market, one obtains a very clear understanding of customers and ultimately provides a basis for clear
and precise targeting and positioning. But segmentation is also very difficult and, especially without
customer data, is what I would admit as an art form in marketing.
You can become quite confused about segmentation by reading the popular press, most marketing
textbooks, and tons of Internet companies because the term has been used to signify many things.
Typically, you’ll find the term segmentation applied to demographics and lifestyles in consumer mar-
kets and size, industry, and geography in business markets. On the internet, people use age, gender,
etc. for segmentation (or worse yet, confuse segmentation with terms like one-to-one marketing as
though people are so unique and share little commonality).
It’s all very confusing, but there is a way to make this clearer and the answer lies in the work of
Russell Haley (Journal of Marketing, July 1968) who first used the term “benefit segmenta-
tion.” Also known as Needs-Based segmentation, benefit segmentation is essentially the idea that
customers should be segmented on the basis of their needs. Simply put, customers in different benefit
segments have different needs.
In previous tutorials, we explained the idea of benefits and tradeoffs so you can use these terms to
crystallize the idea of segments having different needs. The different segments allocate their
100 points differently across the various benefits. This allocation results in the needs of differ-
ent segments clustering around different benefits.
Here is Haley’s original segmentation of the toothpaste market. Notice how the segments seek a
different cluster of benefits. Again, the segments tradeoff the possible benefits differently.
You could easily imagine that the market for consumers buying on the internet is similarly broken up
into four or 5 segments with names like “Music Aficionados”, “One-Stop Shoppers”, “Techno-Media
Types” etc. In fact, recent studies have shown that Internet users break into 6 categories, including
“E-bivalent Newbies”, “Clicks and Mortar”, etc.
Two key ideas to note from this chart. First, the labels given to each segment are arbitrary. They
are called the segmentation bases and are simply used to label a group of customers who care about
a different cluster of benefits.

Second, along the left column you will also see segment descriptors, or things that describe the
customers in each segment. These descriptors may correlate with the basis of the segmentation (and
if a descriptor is very highly correlated it could be used as a basis for segmentation). In the above
example, we can see that maybe life style is highly correlated with the segmentation basis so this
could also serve as a good label for the segments.
Segmentation
Before getting into how one can think about the various ways to practically segment a market, let’s
first consider some key issues and questions:
First: Why should you segment by benefits, rather than the descriptors? There are three
ways to answer this:
1. It’s the only way to have a clear message in the market.
2. It’s the only way to deliver what the customer wants.
3. Marketing academics have not been successful at segmenting the markets differently and still
finding meaningfully different segments.
Does this mean that descriptors are not used in marketing? No, they absolutely are used, but
for a different purpose.
To see this, consider the following very simple example and how benefits are powerful and descrip-
tors are useful. Here we have two fictitious segments in the cereal market and two demographics
(young and old) and a product line (in colored bold) for each segment. Notice how clean this is in
terms of a message (i.e., the benefits) for each segment. Note also how the descriptors are useful for
the specific products names.
Now, instead think about segmenting this market based on age (a typical way people might segment
this market). What you would have is:
But what message will you have here; that is, what are the benefits the old and young want? You
wouldn’t know!
Think this is not relevant to your business market? Here’s another real world example.

Typically firms that sell chips for cell phones (this are called DSPs) segment the market like this:
But what benefits are big and small firms looking for. It turns out that this market can be segmented
(at the level of the application) as follows:
The point of these two examples is that by segmenting on the basis of age or size of firm you would
miss the fact (in the cereal example) that there are segments of both young and old people who want
sweet and sugary cereals. We should note that age segmentation is rampant on the web and, as a
result, the messages that Internet companies have are muddled.
In the case of the DSP chips, segmenting by size of firm would miss the idea that within a given firm
there might be both applications that are innovative (needing performance, support and upgradability)
AND “quick and easy” (needing low price and turnkey solutions). Plus, by segmenting on size of firm
you don’t know what benefits to position your product on! That’s the reason so many B-to-B compa-
nies have bland and amiguous positions in the market.
Segmentation
So what are the bases for segmentation? While it is difficult to determine what will segment a
market into different segments based on different benefit tradeoffs, there are some useful ways of
thinking about how this might be done. In any event, however, this is typically a reiterative process
(i.e., trying one way, then another).
One way to start the process is to look at the various benefits and think about whether
there are groups of customers who would care about different clusters of these benefits.
In my experience, this may lead you to following bases for beginning to think about segment-
ing a market.
Usage - often how customers use a product can result in their making tradeoffs across different
benefits. For example, light users and heavy users of a product often care about different benefits.
Application - customers who apply a product in a mission critical way often care about different
benefits (for business buyers this could be a way central to their business, but a cook may use a
product that is central to a recipe as well).
Prior experience with the product category - often denoted as experts and novices, these differ-
ent types of prior experience usually highly correlate with different needs.
Often in consumer markets, prior brand loyalty, buying situation (work vs. entertainment), or some-

times lifestyle (as in the case of may cars) can be the basis of segmentation.
Without good data to help you, the best you can do is to begin trying to segment the market using
some a priori idea (such as using usage, prior experience, etc.), and then checking it to see if the
segments really care about different benefits. If not, try again using different segmentation bases,
and reiterate. You might look for combinations of bases as well.
You will know that you have a good segmentation if it meets the criteria that the customers
in the different segments make tradeoffs differently. A good segmentation will also meet other
criteria, such as
The segments are measurable - that is, you can identify the size of the segment
The segments are reachable - that is, you can reach the segment by media (often this can be
ascertained by looking at the segment descriptors)
You might confuse that segmentation means segment “targeting”. This is not so. Segmenting
markets is simply the analytical process of breaking the market into distinct segments. Targeting is a
decision to go after a particular segment, and this decision can only be made after you consider a
number of other factors, including competitive response, and customer perceptions
Creativity
If you are the marketing manager of a luxury watch company, how would you segment the Indian
market keeping in mind the segmentation variables.
TARGETING THE MARKET

IDENTIFYING POTENTIAL MARKET SEGMENT : A firm develops consumer profiles after
establishing bases of segmentation.These profiles identify potential market segments by ag-
gregating consumers with similar characteristics and needs, and separating them from con-
sumers with different characteristics and needs.You can understand from the following sec-
tions how a variety of firms could identify potential market segments and develop consumer
profiles.
CHOOSING A TARGET MARKET APPROACH

You can see below a description and contrast of the three alternative approaches for choosing a
target market.

Undifferentiated Marketing (Mass Marketing)

A. An undifferentiated marketing approach aims at a large, broad consumer market through one
basic marketing plan.
B. Use of this approach has declined in recent years due to the following:
1. Growth of competition.
2. Stimulated demand by appealing to specific segments.
3. Improved marketing research that pinpoints desires of different segments.
4. A reduction in total production and marketing costs because of segmentation.
C. A major objective of undifferentiated marketing is to maximize sales.

D. For successful pure mass marketing, a large group of consumers must have a desire for the
same product attributes or consumer demand must be so diffused that it would not be worthwhile
for a firm to aim marketing plans at specific segments.
1. A firm sells items through all possible outlets.
2. Both total and long run profits should be considered.
Concentrated Marketing
A. A concentrated marketing approach aims at a narrow, specific consumer group through one
specialized marketing plan catering to the needs of that segment.
B. Concentrated marketing is popular for small firms for these reasons:

1. Mass production, mass distribution, and mass advertising are not necessary.
2. It can succeed with limited resources and abilities by concentrating efforts.
C. If concentrated marketing is used, it is essential for a firm to do a better job than competitors in
several areas.
1. The company needs to tailor its marketing program for its segment better than competitors.
2. Competitors’ strengths should be avoided and weaknesses exploited.
D. The majority fallacy, appealing to a large segment that is laden with competition, should be
avoided.
E. A potentially profitable segment may be one ignored by other firms.
F. Per unit profits can be maximized through market segmentation. Total profits are not maximized,
because only one segment is sought.
G. A distinct niche can be carved out for a particular brand.
Differentiated Marketing (Multiple Segmentation)

A. Differentiated marketing combines the best attributes of undifferentiated marketing and concen-
trated marketing. It appeals to two or more distinct market segments, with a different marketing
plan for each.
1. Firms such as Maruti-Suzuki use differentiated marketing to attract all segments. Others, such
as Hyundai, and Microsoft appeal to two or more segments, but not all segments.
2. Some companies, such as Time Inc., use both undifferentiated marketing and concentrated mar-
keting approaches in their multiple-segmentation strategy. They have one or more major brands
for the mass market and secondary brands geared toward specific segments.
B. Company resources and abilities must be able to produce and market two or more different sizes,
brands, or products. Costs vary, depending on modifications needed.
C. Differentiated marketing should enable the firm to achieve several objectives:

1. Sales maximization.
2. Recognition as a specialist.
3. Diversification.
D. Differentiated marketing can be achieved without involvement in the majority fallacy.
E. Two or more sizable and distinct consumer groups are necessary. The more clusters facing the
firm, the greater the opportunity for differentiated marketing.
F. Wholesalers and retailers usually find differentiated marketing to be desirable, because it enables
them to reach different consumers, offers a degree of exclusivity, allows orders to be concen-
trated, and encourages private labels.
G. Total profits should rise as the number of segments serviced increases.
H. A firm must balance revenues obtained from selling to multiple segments against the costs.
I. A company must be careful to maintain product distinctiveness in each consumer segment and to
guard its image.
SELECTING THE TARGET MARKET (S)

A. A company needs to make two decisions:
1. Which segment(s) offer the greatest opportunities?
a. A company should consider its objectives and strengths, competition, segment size, segment
growth potential, distribution requirements, required expenditures, profit potential, company im-
age, and its ability to develop and sustain a differential advantage.
2. How many segments should the firm pursue?
a. The firm decides whether to pursue one or more segments (or the mass market). Most likely, a
firm new to an industry would start with concentrated marketing.
Requirements For Successful Segmentation

A. For concentrated marketing or differentiated marketing plans to succeed, the selected market
segments have to meet these five criteria:
1. Differences among consumers.
2. Similarities within segments.
3. Measurable consumer attributes and needs.
4. Large size (to generate sales and cover costs).
5. Reachable in an efficient manner.
Limitations of Segmentation
A. Segmentation can be misused if:
1. Segments are too small.
2. Consumers are misinterpreted.
3. There are cost inefficiencies.
4. There are too many brands.
5. Firms become short-run, rather than long run, oriented.
6. Media cannot be used.
7. Segments are too disparate.
8. Consumers are confused.
9. The firm is locked into a declining segment.

10. New product opportunities are sought out too slowly.
DEVELOPING THE MARKETING STRATEGY

POSITIONING THE COMPANY’S OFFERING IN RELATION TO COMPETITION
A. The attributes and images of competitors are identified.
B. In positioning its offering against competitors, the firm would need to present a combination of
customer benefits that are not being offered by others and that are desirable by a target market.
C. It may not be a good idea for a firm to go head on against a large, well-positioned competitor.
Points to remember:

Exercise : Multiple Choice

1. When a company identifies the parts of the market it can serve best and most profitably, it is
practicing _____.
a. concentrated marketing
b. mass marketing
c. targeted marketing
d. segmenting
2. Research has shown that practicing mass marketing today is limited because theworld’s mass
markets have slowly splintered into a profusion of _____.
a. unidentifiable markets
b. confused markets
c. small segments
d. international markets
3. Even though several options are available at any one time, there is _____ to segment a market.
a. one single best way
b. no single way
c. the most effective way
d. the least-cost way
4. Your firm has decided to localize its products and services to meet local market demands. A good
approach to use would be _____ segmentation.
a. geographic
b. benefit
c. end use
d. customer
5. Through talking to numerous competitors at a regional trade show, you learn that most of them use
the most popular base for segmenting markets. What is it?
a. demographic
b. gender
c. psychographic
d. behavioral
6. When Positive Image, Inc. caters to clothing, cosmetics, and toiletries markets, it is probably using
this type of segmentation.
a. age and life-cycle
b. gender
c. behavioral
d. psychographic
7. As a business consultant, what type of segmentation would you suggest to marketers of automo-
biles, boats, financial services, and travel?
a. age and life-cycle
b. gender
c. income
d. behavioral

8. Income segmentation is used to target the _____.

a. affluent
b. middle class
c. lower income class
d. all of the above
9. As a business consultant, what type of segmentation would you suggest to marketers who cater to
people of certain social classes, lifestyles, and personality characteristics?
a. behavioral
b. gender
c. psychographic
d. age and life-cycle
10. Shampoo marketers rate buyers as light, medium, or heavy products users. This is _____.
a. user status
b. usage rate
c. benefit
d. behavioral
11. Markets can be segmented into groups of nonusers, ex-users, potential users, first- time users,
and regular users of a product. This method of segmentation is called _____.
a. user status
b. usage rate
c. benefit
d. behavioral
12. Consumers can show their allegiance to brands, stores, or companies. Marketers can use this
information to segment consumers by _____.
a. user status
b. loyalty
c. store type
d. brand preference
13. Many firms are making an effort to identify smaller, better-defined target groups by using _____.
a. user rates
b. loyalty segmentation
c. multiple segmentation bases
d. positioning
14. By going after segments instead of the whole market, companies have a much better chance to
receive maximum rewards for close attention to consumer needs and to _____.
a. deliver value to consumers
b. increase market share
c. develop greater customer loyalty
d. offer lower prices
15. When a business market segment is large or profitable enough to serve, it is termed _____.
a. measurable
b. accessible
c. substantial
d. actionable

Tutorial - G
Application exercise:
Vicco tumeric cream has been in the market for over two decades. Pond’s, Charmis, Afghan Snow
and Hazeline were some of the brand in the market at the time when Vicco was introduced. In 1975,
the brand was introduced in collapsible aluminum tubes. Consumers were used to having cosmetics
in bottles and at that time only medicines were packed in tubes. In India, for several generations
turmeric was considered to be traditional ingredient for complexion care. The brand associated “wed-
ding occasions and good complexion” and projected the brand in the backdrop. This positioning of the
brand can even be seen today (after two decades). The advertisement launched in about thousand
cinema halls showed a paste of sandalwood oil and turmeric used by a young and prospective bride
surrounded by lively friends. The benefits of turmeric was strongly emphasizes by the brand. During
the mid-seventies, Fair and lovely was launched by HLL as a fairness cream. The advertising budget
for Vicco in the year 1996-97 was around Rs. 10 crores.
Taking into consideration the present day competition in the skin-care segement, what are your
conceptual comments on the –strategy of Vicco? (Make a critical analysis). How could the brand
use segmentation and positioning concepts to enhance its position in the market?
You are the judge (See your understanding of the concept)

Multiple-choice Questions:
1. In a general sense of positioning, according to Ries and Trout, a competitor has three strategic
alternatives. Which of the following is not one of the strategic alternatives?
The company can strengthen its own current position in the consumer’s mind.
The company can eliminate any nonproductive advertisements.
The company can grab an unoccupied position.
The company can deposition or reposition the competition in the customer’s mind.
2. In general, a company must avoid four major positioning errors if they are going to promote their
ideas. Which of the following is not one of the four major positioning errors?
Average positioning
Under-positioning
Over-positioning
Confused positioning
3. All products can be differentiated to some extent. A difference will be stronger to the extent that
it satisfies each of the following criteria except which one?
Must be important to buyers.
Must be distinctive to buyers.
Must be affordable to buyers.
Must be humorous to buyers.
4. A ___________ industry is one in which the companies in that industry can gain only a few, but
rather large, competitive advantages.
Stalemated
Fragmented
Volume
Specialized

5. Which of the following is not one of the ways, discussed in the text, for product differentiation?
Form
Ordering ease
Features
Performance quality
6. __________________ is a measure of the product’s expected operating life under natural or

stressful conditions. It is a valued attribute for certain products.
Durability
Conformance quality
Reliability
Repairability
7. Which of the following would be the services differentiation characteristic that refers to how well
the product or service is delivered to the customer?
Ordering ease
Installation
Customer training
Delivery
8. _________________ refers to data, information systems, and advice services that the seller
offers to buyers as a services differentiation.
Customer training
Customer questioning
Customer consulting
Customer advising
9. Better-trained personnel exhibit six characteristics. Each of the following is one of those charac-
teristics except which one?
Competence
Camaraderie
Credibility
Communication
10. Which of the following would not be an example of using the physical plant as a device for
differentiating a business’s image?
A restaurant uses only fresh grown vegetables.
A restaurant uses fine china at their tables.
A restaurant uses crystal chandeliers.
A gas station uses television monitors at their gas pumps.
11. Profits are negative or low in the introduction stage. Promotional expenditures are at their highest
ratio to sales because of each of the following except which one? [Hint]
The need to inform potential customers.
The need to induce product trial.
The need to secure distribution in retail outlets.
All of the above

12. In determining how to increase sales volume, the sales volume formula highlights the areas that
should be addressed. These areas show the opportunities where a sales increase could come from.
What is the sales volume formula?
Number of brand users divided by usage rate per user
Number of new markets times increase in advertising costs
Number of brand users times usage rate per user
Number of new products times advertising costs
13. Managers also try to simulate sales by modifying the product’s characteristics. Which of the
following would not be a way to modify the product’s characteristics?
Quality improvement
Ordering ease
Feature enhancement
Style improvement
14. There are five options available to a company experiencing a product decline. Which of the
following is not one of the declining strategies available?
Farming the product
Harvesting
Selling off the business
Increase investments to try and strengthen the market or position
15. Which of the following is not one of the stages in market evolution? Emergence
Growth
Maturity
All of the above are stages
Essay Questions:
Q1). When differentiating, a difference will be stronger to the extent that the product satisfies a
number of criteria. Describe the criteria and give an example of how a product could follow
the criteria.
Q 2). Describe ways to modify a market using the volume formula of volume equals the number of
brand users times the usage rate per user.

Unit 3
Developing Market Strategies & the Offerings
Chapter 9 - Market Positioning
Lesson 25 - Positioning & Differentiation
Introduction:
In the last class we looked at Segmentation ... one of the 3 most important considerations we need
to explore and define in the development of a successful brand. Now, we look at the other two key
factors i.e. Differentiation and positioning.
Determine how a firm chooses and communicates an effective position in the market
Determine the major differentiating attributes available to firms
Describe the marketing strategies that are applied at each stage of the product life cycle
Describe the marketing strategies that are applied at each stage of the market’s evolution
Before getting on to the theoretical aspect of differentiation how would you differentiate yourself
from your friend? First obvious answer would be on the basis of name but what about other factors,
they can be your intelligence level, hard work, your physical appearance and so on and so forth.
Similarly a company or an organization needs to differentiate itself from its competitors.
Now let us see how most of the Authors have defined differentiation as:
An act of designing a set of meaningful differences to distinguish the company’s offering from its
competitor’s offerings.
Now the next question that I will ask you is related to your awareness level can you recall any
organization that has invested its resources through out its product life cycle? Ok now let me tell you
that Companies like Hewlett- Packard and priceline.com invested precious resources to develop and
then shepherd their new products through lifecycle. Yet in today’s highly competitive global market-
place, we should understand that a product will not survive-let alone thrive- without some distinct
competitive difference that sets it apart from every rivals products. This is why smart companies rely
on differentiation, the act of designing a set of meaningful difference to distinguish the company’s
offering from competitors offering. Companies can differentiate its market offering along five di-
mensions: product, service, personnel, channel and image.
Before getting on to next topic you should just go through this article on differentiation to have a fair
idea on what is differentiation.
Standing Out
It’s your people who really differentiate you from the competition! By Dick Barnes, Principal, The
Freeland Group
The concept of “differentiation” is an important piece of the marketing puzzle. It is defined, simply,
as the act of using meaningful differences in product, price, distribution, and promotion in order to

distinguish the company from its competitors.
In our last column we discussed ways of differentiating services. The services you offer can be a
component of product and/or of distribution. When the physical products being offered by competing
firms are not clearly different enough to sway consumers one way or another, they will often look
first at price and then more closely at the service each firm provides along with the product. Those
services might include transaction ease, delivery, installation, training, and consulting.
We all know that supplying services costs us money. Some of that cost is passed along to the con-
sumer. Normally a consumer who expects a higher degree of service also expects the final price tag
to be a bit higher as well. The ratio of price increase to service offered, called the “price-service
differential,” is changing as consumers are expecting more today than ever before. Competitive
pressure requires us to supply more service and product at more competitive prices than we did in the
past. When we make improvements in our service, and do so without raising prices, we improve our
“price-service differential.” That improves our competitive position.
One way to improve services is by looking at the people who deliver those services. The degree to
which our people help us stand out is called “personnel differentiation” and is often overlooked when
reviewing the marketing mix. This doesn’t mean we haven’t tried to hire and retain people who have
good relationship building skills or service expertise. It simply means we don’t always take into
account how people affect the quality of our service mix.
Marketing professionals normally look at six measurable characteristics of personnel that contribute
to the service a company gives consumers: they are competence, courtesy, credibility, reliability,
responsiveness, and communication. So what are these characteristics and how do they correspond
to your company?
Competence, first on the list, is the degree to which each person has the technical knowledge and
ability to carry out their portion of the service mix with confidence. This is just as important for those
who take the initial order over the phone as it is for those who install or maintain the equipment. A
high degree of competence at every level of the firm means that there are few technical problems or
errors from start to finish of the transaction.
Courtesy encompasses the attitudes people show when they deal with others. In our modern busi-
ness climate it simply does not pay to have people that are technically competent, but unable to
demonstrate respect and consideration for the customer. This does not mean managers need to train
their people to gush all over customers. Few of our customers appreciate false sincerity…but they
always appreciate the basic courtesies and a friendly attitude.
Credibility is a bit harder to measure as it is found mainly in the eye of the beholder. Does the
customer feel the person they are dealing with is technically competent? If so, that person is building
credibility with the customer. When they tell the customer the truth, and keep the customer informed,
they build even more credibility. The customer actually trusts that they care and that they know what
they are doing.
That leads us to reliability. If the employee performs the service correctly, accurately, and does what
they have said they will do, they are building a reputation for reliability. All of this leads back to
building greater credibility as well. You may have the most competent installer in the world, but if he
is always an hour late for appointments he doesn’t appear reliable, and he loses you points in the
areas of credibility and courtesy.
Responsiveness is tied closely to reliability. Do your salespeople return phone calls promptly? Do
they find answers to a customer’s questions in a timely fashion? If they say they will do so, and don’t,
they are demonstrating not only a non-responsive attitude, they appear unreliable as well. Credibility

will suffer as a result. Ignoring a problem will not make it go away; particularly when it’s a customer’s
problem.
Communication skills can be said to underlie all of the above characteristics to some degree. A
person who is courteous, credible, and responsive is also normally a good listener and tries to under-
stand what it is the customer is really saying. If they don’t communicate well with the customer there
may be no real message that they are competent or have been reliable.
If we measure everyone in our own companies against these standards we will find we have no
perfect people on our personnel rosters. Does this mean we have been hiring incorrectly or we
should sit down and re-staff the entire organization? Not hardly; and it’s unlikely we would do much
better the next time around.
The trick to using the knowledge we gain through personnel differentiation is in finding better ways of
taking advantage of people’s talents and de-emphasizing their weaknesses. It also helps us compare
ourselves with our competitors.
Take, for example, the installer we spoke of who was always an hour late to appointments…technically
competent but unreliable. The salesperson who sets up the appointments might compensate for this
personality quirk by warning the customer ahead of time that the installer’s time table may be af-
fected by unforeseen events.
Suppose that installer also has a hard time communicating with the client while on the work site.
There are interim solutions that will help. You might send an assistant installer who is outgoing,
communicative, and responsive, to handle that aspect of the service call. In such a scenario there
would be great wisdom in keeping the two together as a team.
But in the long term, what we learn through this process will help us to come up with better methods
of overseeing, placing, or training our personnel. We might decide to expend some effort helping our
people become more competent, courteous, credible, reliable, responsive, and communicative. After
all, their abilities directly contribute to the quality of the service areas of transaction ease, delivery,
installation, training, and consulting. Such improvements will pay off when our customers see our
firm as a better place to do business.
Now let move on to positioning.
If I say TV, what comes first to your mind probably you will say LG Plasma or Sony Wega or any
other. But why is it that you have called out respective names only because that is how they have
positioned themselves in your mind in terms of awareness.
Positioning is defined as the act of designing the company’s offering and image to occupy distinctive
place in the target market’s mind
The main points that you should remember are:

Positioning is the final part of the SEGMENT - TARGET - POSTION process
Positioning is undoubtedly one of the simplest and most useful tools to marketers.
Positioning is all about ‘perception’. As perception differs from person to person, so do the
results of the positioning map e.g. what you perceive as quality, value for money in terms of
worth, etc, is different to my perception. However, there will be similarities in certain cases.
After segmenting a market and then targeting a consumer, next step will be to position a product
within that market. It refers to a place that the product offering occupies in consumers’ minds on
important attributes, relative to competing offerings. How new and current items in the product
mix are perceived, in the minds of the consumer, therefore re-emphasizing the importance of
perception!! New Product—need to communicate benefits

Before getting into the details of positioning lets us have a recap of what STP is all about
Segmentation - Targeting - Positioning Overview

When we are discussing about STP it is a process of segmenting markets in terms of dividing the
market and then targeting an attractive segment and finally you are positioning the product with
potential customers in the target group.
In general, we can say that a segment is a relatively a homogenous group that has got high potential
customers who make their purchases based on similar criteria and motivations, act in a substantially
similar way (e.g. decision processes, shopping patterns), and can be communicated to using the same
focused media (e.g. watch the same TV shows or read the same magazines).
More specifically, segmentation is the definitional process of disaggregating a mass market into
compartmentalized subsets based on criteria such as demographics (e.g. age, sex, location, income),
psychographics (e.g. attitudes, interests, lifestyles), usage (e.g. heavy or light users), and benefits
sought (e.g. convenience, safety, power).
Strategically, the most effective segmentation is typically based on a creative slicing of the market
(like benefit segmentation), rather than the application of traditional demographic variables (like age
or income). The next step, after defining alternative segmentation schemes, is the analytically based
decision process of targeting, i.e. selecting segments that are inherently attractive and that closely
match the company’s strengths.
Without looking at the further discussion can you guess the most attractive segment that can be
targeted? In general, we can say the most attractive segments to target are those that are:
(a) Prospectively profitable: the segment’s characteristics (e.g. price levels, growth rate) and
competitive environment (e.g. number of competitors, basis of competition) are conducive to a grow-
ing pool of profits.
(b) Homogeneous within the segment, i.e. members are relatively similar with respect to atti-
tudes, buying criteria, media habits, etc.
(c) Heterogeneous across segments, i.e. members in different segments have fundamental dif-
ferences and act accordingly.
(d) Accessible: members can be reached effectively with communications, and shop in outlets
through which products can be efficiently distributed.
(e) Winnable: the company’s distinctive strengths match the segment’s requirements and provide an
advantage versus competition, so the company can reasonably expect an acceptable share of the
industry profits.
You should know that whenever we are planning there are lots of strategic decisions that are taken
which are applicable in case of positioning also. Now let us discuss about the strategies that are
involved in positioning. You should try and focus on positioning strategy aspect more because you can
apply it successful only if you clear with conceptual part of it.
Positioning Strategies
Basically this positioning strategy can provide a focus in the development of an advertising campaign.
The strategy can be conceived and developed in a variety of ways. It can be derive from the object
attributes, competition, specific, application, the types of consumers involved, or the characteristics
of the product class. All these attributes represent a different approach in developing a positioning

strategy, even though all of them have the common objective of projecting a favorable image in the
minds of the consumers or audience. There are seven approaches to postponing strategy:
(I) Using Product characteristics or Customer Benefits

This strategy basically focuses upon the characteristics of the product or customer benefits. For
example if I say Imported items it basically tell or illustrate a variety of product characteristics such
as durability, economy or reliability etc. lets take an example of motorbikes some are emphasizing on
fuel economy, some on power, looks and others stress on their durability. Hero Cycles Ltd. positions
first, emphasizing durability and style for its cycle.
In fact we can position a product with respect to its characteristics that competitor has ignored.
Brands of paper towels have emphasized absorbency until Viva was successfully introduced stress-
ing durability. Viva demonstrations showed their products durability and supported the claim that
‘Viva keeps on working’.
At time even you would have noticed that a product is positioned along two or more product charac-
teristics at the same time. You would have seen this in the case of toothpaste market, most toothpaste
insists on ‘freshness’ and ‘cavity fighter’ as the product characteristics. It is always tempting to try
to position along several product characteristics, as it is frustrating to have some good characteristics
that are not communicated.

Myers and Shocker have classified product characteristics:

Pseudo physical characteristics: reflect physical properties that cannot be measured on physical
scale as taste, freshness, fragrance, spiciness etc.
Physical characteristics: which can be measured on some physical scale like temperature, colour
intensity sweetness, thickness etc.
Benefits: it refers to advantages that promote well-being of the consumer of user For example
‘juice quenches thirst. ‘Thirst-quenching is a benefit and can provide a basis for positioning strategy.
(2) Price – Quality Approach or Positioning by Price-Quality - Lets take an example and
understand this approach just suppose you have to go and buy a pair of jeans, as soon as you enter in
the shop you will find different price rage jeans in the showroom say price ranging from 350 rupees
to 2000 rupees. As soon as look at the jeans of 350 Rupees you say that it is not good in quality. Why?
Basically because of perception, as most of us perceive that if a product is expensive will be a quality
product where as product that is cheap is lower in quality. If we look at this Price – quality approach
it is important and is largely used in product positioning. In many product categories, there are brands
that deliberately attempt to offer more in terms of service, features or performance. They charge
more, partly to cover higher costs and partly to let the consumers believe that the product is, certainly
of higher quality.
But you should understand that in the same product category, there are many other brands that
appeal on the basis of price, although they might also try to perceive as having comparable or at least
adequate quality. In many product categories, the price quality approach is so important that it needs
to be considered in any positioning decisions mainly in durable consumer goods. For example, in
general merchandise stores, Sabka Bazar is at the top end and all other departmental stores are
positioned under it in terms of price. The advertiser must maintain his image of low price while
communicating a quality message but there is always a risk that the quality message will blunt the
basic low price position. So if you want to position your product in terms of price and quality you have
to be very careful.
(3) Positioning by Use or Application - Lets understand this with the help of an example like
Nescafe Coffee for many years positioned it self as a winter product and advertised mainly in winter
but the introduction of cold coffee has developed a positioning strategy for the summer months also.
Basically this type of positioning-by-use represents a second or third position for the brand, such type
of positioning is done deliberately to expand the brand’s market. If you are introducing new uses of
the product that will automatically expand the brand’s market
(4) Positioning by Product Process - Another positioning approach is to associate the product
with its users or a class of users. Makes of casual clothing like jeans have introduced ‘designer
labels’ to develop a fashion image. In this case the expectation is that the model or personality will
influence the product’s image by reflecting the characteristics and image of the model or personality
communicated as a product user. Lets not forget that Johnson and Johnson repositioned its shampoo
from one used for babies to one used by people who wash their hair frequently and therefore need a
mild people who wash their hair frequently and therefore need a mild shampoo. This repositioning
resulted in a market share.
(5) Positioning by Product Class - In some product class we have to make sure critical positioning
decisions For example, freeze dried coffee needed to positions itself with respect to regular and
instant coffee and similarly in case of dried milk makers came out with instant breakfast positioned as
a breakfast substitute and virtually identical product positioned as a dietary meal substitute.
(6) Positioning by Cultural Symbols - In today’s world many advertisers are using deeply en-

trenched cultural symbols to differentiate their brands from that of competitors. The essential task is
to identify something that is very meaningful to people that other competitors are not using and
associate this brand with that symbol. Air India uses maharaja as its logo, by this they are trying to
show that we welcome guest and give them royal treatment with lot of respect and it also highlights
Indian tradition. Using and popularizing trademarks generally follow this type of positioning.
(7) Positioning by Competitors - In this type of positioning strategies, an implicit or explicit frame
of reference is one or more competitors. In some cases, reference competitor (s) can be the domi-
nant aspect of the positioning strategy, the firm either uses the same of similar positioning strategies
as used by the competitors or the advertiser uses a new strategy taking the competitors’ strategy as
the base. A good example of this would be Colgate and Pepsodent. Colgate when entered into the
market focused on to family protection but when Pepsodent entered into the market with focus on 24
hour protection and basically for kids, Colgate changed its focus from family protection to kids teeth
protection that is basically done because of competition. This strategy may be preferred for two
simple reasons: -
(i) Competitors may have a well-crystallized image developed over a number of years. The adver-
tiser may use that image as a bridge to help communicate another image referenced to it.
Sometimes, you know what happens, it is not important to know where you are or what your position
is in the market or how good consumers think you are. It is just important that they believe that you
are better or as good as a given competitor.
When we are discussing positioning with respect to a competitor it can be an excellent way to create
a position with respect to product characteristics, especially price quality. But lets not forget that this
cannot be done in certain cases where it is difficult to evaluate, like liquor products will often use an
established competitor to help the positioning task. Positioning with respect to a competitor can be
accomplished by comparative advertising i.e., advertising in which the name of competitor is explic-
itly named and compared on one or more product characteristics, on factual information. It makes
that communication task easier.
Procedure for Determining

Positioning Strategy.
In the previous topic, we have discussed dif-
ferent positioning strategies, then what should
be our positioning strategy. All of us know
that it is a complex and difficult task to iden-
tify and select a positioning strategy. Lets us
discuss the steps involved in positioning strat-
egy, there are basically six-step that are
adopted

In each of the steps, marketing research techniques can be employed to get the necessary
information. These steps now will be discussed:
(I) Identifying the Competitors – A first step is to identify the competition. This step is not as
simple as it seems to be. For example, ‘Pepsi ’ might define its competitors as follows:
(1) Other cola drinks
(2) Non-diet soft drinks
(3) All soft drinks
(4) Non-alcoholic beverages,
(5) All beverages except water
One thing, which should be clear to you, is regarding competition that is there basically two types of
competitors
Primary competitors i.e., competitors belonging to the same product class
Secondary competitors, those belonging to other product category.
In the above example other cola drinks are primary competitors and other drinks and
beverages are secondary competitors.
This can be done in number of ways the first approach can be to determine from buyers of a product,
which other brands or products they consider appropriate if suppose they do not get a brand of their
choice.
A buyer of ‘Pepsi’ cola may be asked to recall his or her last purchase of Pepsi and shelter any
alternative went through his or her mind or he may asked to name the alternative cola if Pepsi was
out of stock. The resulting analysed will identify the primary and secondary groups competitive
product.
Another approach that can be developed is related to your associations with the products. In this a
respondent may be asked to maintain a diary or to recall the use context for Pepsi. One might be with
an afternoon snack. The respondent may then be asked to name all the beverages, which might be
appropriate to drink with an afternoon snack. For each drink or beverage, a list of use context can be
prepared. This process would continue for 20 or 30 respondents. Then another group of respondent
will be asked to make a judgment on a seven point scale as to how appropriate each beverage would
be for each use situations. Thus if ‘Pepsi ’ was regarded as appropriate with snacks, it would prima-
rily compete with other beverages used with snacks. The same approach would work with an indus-
trial product such as computers.
Basically these two approaches suggest a conceptual basis for identifying competitors even when
marketing research is not employed. A management team or a group of experts, such as retailers or
buyers management team or a group of experts, such as retailers or buyers who have an understand-
ing of customers, could employee one or both of these bases to identify competitive groupings.
(2) Determining how the Competitors are Perceived and Evaluated – The second step in is
related to determining the product positioning, it is basically done to see, when the competitors prod-
ucts are purchased by the customers. It is to see comparative view, an, appropriate set of product
attributes should be chosen. The term ‘attributes’ includes not only product characteristics and con-
sumer benefits but also product associations such as product use or product users. In any product
category, there are usually a host of attribute possibilities. Some can be difficult to specify. For
example beer has taste, smell, strength, fullness (including alcoholic content) attributes. The task is to
identify the potential attributes out of a variety of attributes to remove redundancies from the test of
attributes and then to select those that are most useful and relevant in identifying the product or brand
images.

(3) Determining the competitor’s positions – our next focus should be to determine how differ-
ent brands (including our own brand) are positioned with respect to the relevant attributes selected
under the previous step. At this point we should be clear about what is the image that the customer
has about the various product brands? You have to see how are they positioned in respect to each
other? Which competitors are perceived as similar and which as different? This judgment can be
made subjectively. However a research can be taken up for getting the answer of these questions.
Such research is termed as multidimensional scaling because its goals it to scale objects on several
dimensions or attributes. Multidimensional scaling can be based upon either attribute data or non-
attribute data this topic will be covered in detail in Research Methodology Paper.
4. Analysing the Customer – now you need to analysis the customers habits and behaviour in a
particular market segment. The following questions need attention while understanding the customer
and the market – (i) how is market segmented? (ii) What role does the product class pay in the
customers life style? What really motivates the customers? And what habits and behavior patterns
are relevant?
The segmentation question is, of course, critical. There are various approaches to segmentation but
out of all benefit segmentation is relevant here, which focuses upon the benefits or attributes that a
segment believes to be important. In order to specify that benefit segments, it is useful to highlight the
role of ‘ideal object’ as a tool.
Now you should understand what is an ideal object, ‘An ideal object’ is an object, the customer
prefer over all other objects including the object, which really does not exist. It is a combination of all
the customers preferred attribute level. Although, the assumption that people have similar perception
may be reasonable, their preferences are nearly always different and there ideal object location will
differ. One reason to locate ideal object is to identify segments of customers having similar ideal
object. The attributes of ideal object then should be compared and the advertiser should improve the
product by renovating the product in view of the ideal object
(5) Making the positioning Decision – The above four steps provide you a useful backgrounds
and are necessary to be conducted before taking any decision about positioning. The managers can
carry these steps or exercises. After these four exercises, the following guidelines can be offered to
reach a positioning decision: -
(i) An economic analysis should guide the decision. This analysis depends upon two basic
factors (a) the potential market size, and (b) the penetration probability unless both these factors are
favourable, the success in unlikely.
(ii) Positioning usually implies a segmentation commitment. It implies concentration only on

certain segments and ignores the parts of the market. Such an approach requires commitment and
discipline to the potential buyers. Yet the effect of generating distinct, meaningful positions is to focus
on the target segments and not be constrained by the reaction of other segments.
(iii) If the advertising is working, the advertiser should stick to it. He should not get tired of
a positioning strategy and should not think of change in advertising used to implement it.
(iv) Do not try to be something, your are not. It is usually fatal to decide on positioning strategy
that exploits a market need or opportunity but assumes that the product is something, it is not.
(v) In making a decision on position strategy, symbols or set of symbols must be considered. If any
brand or symbol is already in use. That must be use in positioning strategy.
(6) Monitoring the position – An image objective, like an advertising objective should be measur-
able. It is necessary to monitor the position overtime, for that you have variety of techniques that can

be employed it can be on the basis of some test and interviews which will help to monitor any kind of
change in the image.
Thus, the first four steps in the process provide a useful background. The fifth one only is taken to
make the position decision. The final step is to evaluate and measure and follow up.
Now let’s discuss about Product positioning in Advertising. Product positioning in Advertising:
Product positioning is a new term developed in the advertising circles during 1970s. No generally
accepted definition of the term has been developed, although the concept can be described by
William J. Station in these words – “A product’s position is the image that the product projects in
the minds of consumers in relation to, first, other products sold by the company, and, second, to
competitive product.”
Thus product positioning may be referred to as the image or overall impression of the product in the
minds of the consumers as compared to other brands available in the market. In other words, it is a
reputation of the product, just as an individual develops a reputation for consistency, trust worthiness
and so on, so too do brands, products, companies and organizations.
A brand name may have many associations some may be based on physical attributes other will
reflect the fact that products are used to express life styles, social positions, and professional roles,
Still others will reflect associations involving product applications, types of people who might use the
product, stores that carry the product, or sales people who handle it. Basically, the advertising can be
used to mould and reinforce an image and the decisions as to what kind of an image should be
developed is a very crucial to many advertising campaigns. This decision means, selecting those
which are to be removed or de emphasized .
So we can say that ‘positioning’ or ‘product positioning’ means ranking the brands of a product in the
order of the image or overall impression in the minds of consumers. When we say that Sony Music
system is the best or number one among the brands available in the market, it means the position of
brand Sony is at the top or it hold first position. The position must have a frame of reference for the
image, the reference point usually being competition. It is important to understand that several levels
of organization – the company it self its brands or its products –can be thought of as objects. An
image is associated with each, and that each can be positioned with respect to competitive alterna-
tives. Thus an attribute and a competitor must be there in positioning the product.

Points to remember:


Unit 3
Lesson 26 - Positioning according to Ries & Trout
Introduction
In the year 1981 in the book called “ The Battle of your mind” Al Ries and Jack Trout described how
positioning is used as a communication tool to reach target customers in a crowded market place. So
in this unit we are going to discuss the concept of positioning as described by him.
POSITIONING ACCORDING TO RIES AND TROUT

In our earlier session we have discussed on what is Positioning and the
types of strategies that can be used in positioning. I hope now you are quite
clear with the positioning aspect now let us discuss positioning by popular
people in marketing, Al Ries and Jack Trout in 1972. They started their
work in late 60s. Their book “Positioning the Battle for Your Mind” was
published in 1980.
According to Al Ries and Jack Trout, positioning is a creative and maintain-

ing an image for the product or brand in the mind of the target audience
relative to other brands. According to them this process should be designed
in such a way that it occupies a different and valuable place in the mind of
the target customers. Thus positioning is not what we do to a product but is what we do to the mind
of the prospect.
You should know that positioning can be done for the products as well as for the corporate organiza-
tions as a whole. Like Modi Xerox, they have positioned themselves as the document company
offering total solutions for efficiency documentation management. If we are discussing about high
tech products the apt way of positioning would be on the basis of intangible attributes, rather than on
performance specifications.
They have also discussed market positioning. In this case you have to first identify the opportunity,
then it should be followed by Segmentation, targeting and finally by competitive strategy. When we
are talking about positioning in the mind, it is basically known as rational positioning. But lets not
forget that most of us (consumer) are driven by emotions. Like if we say Coffee, for instance, it is
about intimacy, romanced and togetherness. Titan is a gift of appreciation. Lakme and Vareli touch a
streak of narcissism in a woman. One thing, which should be clear to you, is brand positioning is not
just occupying a slot in the mind of the consumers. It is also about ruling the heart. Psychological
positioning is thus a communication exercise threat follow AIDA: Attention, Interest, Desire and
Action model. Psychological positioning grows out of t market positioning.
If the marketer wants to succeed in our over competitive and over communication society a com-
pany must create a position in the prospect’s mind, a position that takes into consideration not only a
company’s own strength and weaknesses, but those of its clients are well, that is what Ries and Trout
have discussed in their concept of poisoning

Trout and Ries suggest a six-step question framework for successful positioning:
Ries and Trout have distilled the essence of positioning into the following four principles:
1. A company must establish a positioning in the minds of its targeted customers.
2. The position should be singular, providing one simple and consistent message.
3. The position must set a company apart form its competitors
4. A company cannot be all things to all people –it must focus its efforts.
The principles, which are discussed above, are applicable to any type of organization that competes
for customers like National postal services compete with private courier companies; public and non-
profit hospitals compete with each other and with private health care providers etc. for all the orga-
nizations, understanding the concept of positioning is the key to developing an effective competitive
posture. I hope this is clear to you that the concept is certainly not limited to services, but its origins
was in packaged goods marketing-but it offers valuable insights by forcing service managers to
analyse their firm’s existing offerings.
Just suppose any XYZ Soap Company says that their soap has fragrance, is antiseptic, has moistur-
izer will make you fair and is not expensive, you as a customer come across with such a company,
them what will be your reaction. How will you position such soap in your mind, with so many other
brands already there in the market? Don’t you think, it is a difficult task for you to position such a
company in your mind as they are trying to position themselves on to different attributes, which are
mostly found in different soaps? The problem is with the company as they are trying to increase the

number of claims for their brand; which will lead to risk of disbelief and a loss of clear positioning.
In general, a company must avoid four major positioning errors:
If you are able to solve positioning problems enables the company to solve the marketing mix prob-
lem.
How do companies select their positioning?

Perceptual Mapping: when we define Perceptual mapping we say that it is basically a technique
to represent what people think about products or services, people or ideas. Technically they are all
objects. It is a spatial representation of the perceptions about the brands on the parts of different
individuals. If you perceive the brands to be similar then you are getting them closer in the perceptual
space, and if you perceive them to be dissimilar then you are putting them apart. Joint space analysis
combines perceptions about the brands and consumer preferences in a single space. In short, I can
say that it represents both brands and people.
I hope you have understood that positioning is not changed every now and then, but in case if there is
a market evolution then it may be necessary to change the positioning. As you know that the environ-
ment is turbulent so it changes fast and calls for frequent changes in positioning. At times a company
can lose its position due to change in technology, consumer attitudes, competitive activity both in the
economy and amongst creative executives. That is the reason why a company should be in touch
with the market place, and reposition itself before it suffers in terms of products, image and revenue.
Though sometimes positioning is based on the same product benefit service, performance or quality,
the product must be changed while delivering these bundles of benefits.
Positioning itself depends upon the study of the market and competition. In this case first you seg-
ment the market and then you target it and you are also taking into consideration competitive efforts.
Positioning a product to specific segments is the next logical step. Thus positioning involves sacrifice
– we have to sacrifice a few segments of the market. We cannot afford to give ‘all things to all
people.’
When we are discussing about positioning, we have to decide as to who all are our competitors. Then
there is a need to develop a core strategy that runs as a common thread through all pieces of
planning. Core strategy basically tells us why customers buy our product and how we shall compete
with others. Viewed in this fashion, core strategy borders on Unique Selling Proposition (USP) de-
vised by Ted Bates. Different segments need different core strategies. Core strategy is broader than
USP because it considers both external and internal factors.

The above shows the most common core strategies used if we talk about mature industries, both the
core strategies are in vogue, and they add to their performance. Both these positions may not be
practicable but when a firm starts on one, it ends up on the other. Product quality contributes a great
deal to profitability of the firm. But it’s the most profitable combination we can say is the one with a
premium position.
Conventionally, when marketing was discussed it was in terms of marketing mix – the four ‘P’s of
product, price, place and promotion. Though it was quiet satisfactory, but it fails to recognize the
planning and decision – making activities of marketing separately. When we are discussing about
planning activity, we consider the offer, which consists of product, services, price and the way it is
represented to the customer through a communication message. Most of the organization creates
value through this offer.
When we are discussing about the total marketing budget it is spent on advertising, sales promotion,
sales management and distribution acts basically to enhance the value created by the offer, and
accordingly they delivers the same value to the customer. These are infact marketing support activi-
ties. By this they are trying to market the offer in an attractive manner to their marketing intermedi-
aries and customer.
One things which all of you should understand, that the offer should be made appealing by the
product manager where he /she should take into consideration the product opportunities, product
design, product price and product positioning.
All of us know that a product has attributes and features. But these must be related to perceived
benefits preferences and selection. If I say a camera the Important attributes would be day-to-day
use are ease of operation, picture clarity, automatic forwarding and rewinding, and date time insert.
For a moped for teenagers the important attributes are reasonable price, a sleek style, easy start,
easy pick up, fuel economy, and maintenance services.
Apart from these attributes, customers’ aspirations and perceptions and the availability of competing
offers present infinite alternatives of value creation. The challenge is to identify what value would
appeal to the customer convincingly.
In positioning it is necessary to tune according to the target audience. I hope all of you know AmEx
credit card they have positioned themselves on the basis of exclusivity as their positioning strategy
for their customers. But it positions itself as a business expander that will add volumes to a retailer’s
business. One thing, which should be clear to you as a marketer, is related to whom you want to
serve. Customer segments can be based on core competence, strategies and revenue potential. We
must be fairly intimate with the behavioural dynamics of the target audience and their need pattern.
When we say pricing it is based not only upon costs but is related to the product quality, service and
message. Price is used as a tool to change perceptions about the product. A premium – priced
Mercedes Benz manufactured in India costs Rs. 32,00,000 and conveys a sense of superior value to
the customers.

Communication helps the marketer to builds up image of the product. Image build up is influenced
more by the effectiveness of the communication than by the communication budget.
Now lets come to the final discussion on Products or services, which are ‘mapped’ together on a
‘positioning map’. This allows them to be compared and contrasted in relation to each other. This
is the main strength of this tool. Marketers decide upon a competitive position, which enables them to
distinguish their own products from the offerings of their competition (hence the term ‘positioning
strategy’). Take a look at the basic positioning map template below.
The marketer would draw out the map and decide upon a label for each axis. They could be price
(variable one) and quality (variable two), or Comfort (variable one) and price (variable two). The
individual products are then mapped out next to each other Any gaps could be regarded as possible
areas for new products.
The term ‘positioning’ refers to the consumer’s perception of a product or service in relation to its
competitors. You need to ask yourself, what is the position of the product in the mind of the
consumer?
Product: Ferrari, BMW, Proton, Mercury Cougar, Hyundai, and Daewoo.
Positioning Map for Cars
The seven products are plotted upon the positioning map. It can be concluded that products tend to
bunch in the high price/low economy (fast) sector and also in the low price/high economy sector.
There is an opportunity in the low price/ low economy (fast) sector. Maybe Hyundai or Daewoo
could consider introducing a low cost sport saloon. However, remember that it is all down to the
perception of the individual.
Once a positioning strategy is determined, it must be communicated effectively to the audiences.
Article
Positioning a Tourism Destination To Gain a Competitive Edge
BY: Harsha E. Chacko Ph.D., (Professor in the School of Hotel, Restaurant and Tourism Adminis-
tration, University of New Orleans, New Orleans (USA); Email: echr@uno.edu)
Position is a form of market communication that plays a vital role in enhancing the attractiveness of
a tourism destination. This article describes the different parts of the positioning process and applies
it to the case of positioning a U.S. destination to Japanese visitors.
The World Travel and Tourism Council claimed that tourism was the world’s largest industry in l991
(World Travel and Tourism Council, 1991). The past few years have shown a steady increase in the
volume of international travel, and along with this growth in travel, the number of tourism destination
choices has also increased as many policy-makers have recognized the value of tourism to the
economies of their regions. To some extent, this increased travel can also be attributed to an increase
in advertising, as tourism marketers try to enlarge their share of the global tourism pie by promoting
their destinations to specific target markets. For example in 1987, Canada and Australia decided to
increase advertising in Japan and this resulted in an increase in Japanese visitors of 55% and 33%
respectively (Bailey, 1992).
One of the most effective tools in tourism marketing is positioning. The objective of positioning is to
create a distinctive place in the minds of potential customers. A position that evokes images of a
destination in the customers mind; images that differentiate the destination from the competition and
also as a place that can satisfy their needs and wants. Positioning is a communications strategy that

is the natural follow-through of market segmentation and target marketing. Since market segmen-
tation is based on the notion that different tourism destinations appeal to different types of tourists,
target market segments must be selected before tourism marketers can begin to entice these poten-
tial customers. An effective positioning strategy provides a competitive edge to a destination that is
trying to convey its attractiveness to the target market.
The purpose of this paper is to discuss the vital role played by positioning in tourism marketing and to
present various approaches to positioning a tourism destination. Positioning is more than just image
creation. This important form of market communication helps to distinguish tourism destinations
from similar destinations so that customers can choose the one that is the most attractive. Thus, true
positioning differentiates a destination from its competitors on attributes that are meaningful to cus-
tomers and gives it a competitive edge. However, this is a complex process that requires careful
analysis of the attributes of destinations and the needs of the target markets. Selection of a position-
ing strategy that creates a distinctive place in customers’ minds is essential in preventing the follow-
ing pitfalls (Lovelock, 1991).
1. The destination is forced into a position of competing directly with a stronger competitor. For
example, a destination that is further from the source of its visitors may be relegated to a second-
ary or tertiary level of competition with destinations that are closer to the market.
2. The destination’s position is so unclear that its target market does not recognize the message that
is being sent to them. This often happens when a destination tries to be all things to all people.
3. The destination has no identity or has a negative image in customers’ minds and does not create
customer demand.
Effective Positioning
According to the basic principles of marketing, products and services are created to solve customer
“problems” (i.e., to satisfy needs and wants) and provide benefits. Thus, to be effective, positioning
must promise the benefit the customer will receive, create the expectation, and it offer a solution to
the customer’s problem. If at all possible, the solution should be different from and better than the
competition’s solution set, especially if the competitors are already offering a similar solution.
Positioning should be a single-minded concept, an umbrella from which everything eke in the organi-
zation flows. Properly targeted, single-minded positioning affects everything a destination does or
stands for, not only advertising, but also all of its promotions. Positioning also affects policies and
procedures, employee attitudes, customer relations, complaint handling, and the myriad of other
details that combine to make the tourism experience. Tourism services compete on more than just
image, differentiation, and benefits offered. There must be a consistency among the various offer-
ings and it is the positioning statement that guides this consistency. Likewise, although positioning
can be applied for an entire country, a given area, or a specific city, tourism officials should develop
a consistent message if the country plans to use one market to generate business for another. There
are two tests of effective positioning. First, the position must be believable in the tourist’s mind.
Second, the destination must deliver that promise on a consistent basis.
Positioning Intangibles
One of the biggest challenges faced by tourism marketers is that the product is largely intangible.
Some would argue otherwise, because what is more important than the hotel room, the meal, the
beach, the ocean, and the mountains? These are all tangible aspects of the tourism destination.
However, these tangibles are what is being “sold”, but not what is being “marketed”. If we were
selling beaches or mountains, what difference would it make where the tourist went, assuming a
comparable level of quality?
‘What we are marketing, of course, are intangibles. The tangibles are essential and necessary but as

soon as they reach a certain level of acceptance, they become secondary. Because they are so
difficult to differentiate, to be competitive, the intangibles have to be marketed. Even as tangibles,
mountains and beaches have a measure of intangibility because they are experienced rather than
possessed.
If tourism products are mostly intangible, they have to be marketed with tangible evidence. This is
what is referred to as “tangibilizing the intangible.” However, this is a complicated process. By
emphasizing the concrete elements one may fail to differentiate oneself from the competition, and
since the intangible elements are abstract, by emphasizing the abstract one compounds the intangibil-
ity. Thus, tourism destination positioning should focus on enhancing and differentiating abstract reali-
ties by manipulating the tangible clues.
Unfortunately, being aware of this need does not ease the problem. It is still difficult to find meaning-
ful tangible evidence that supports intangible constructs. What must be done, is to create a “position”
in the tourist’s mind. That is why positioning relies heavily on target marketing. The mental
constructs held by the target market must be known, as well as the tangible evidence that sustains
them. Positioning, then, is a relative term. It is not simply how the destination is perceived, but how
the perceived image performs in relation to competing images. It is the customer’s mental perception
which may, or may not, differ from the actual physical characteristics. It is most important when, the
product is an intangible and there is little difference among the competition regarding the
physical characteristics.
POSITIONING PROCESS
The positioning process consists of the various steps needed to develop an effective positioning
strategy (Figure 1). This process must be continuous to keep up with changes in the environment
including the changing needs of the customer and the competitors tactics. Developing a positioning
strategy for a destination in the United States to attract visitors from Japan will be used as a test case
to illustrate the steps in the positioning process.
Market Positioning
Market positioning is the first step and is defined as the process of identifying and selecting markets
or segments that represent business potential, to determine the criteria for competitive success
(DiMingo, 1988). This must be based on a thorough knowledge of the needs, wants, and perceptions
of the target market, along with the benefits offered by the destination. To do this, a few crucial
questions must be answered. These are:
1. What is important to the target market?
2. How does the target market perceive the destination?
3. How does the target market perceive the competition?
4. What attributes should a destination use to differentiate itself to make the best use of its limited
resources?
The reality of the matter is that if the target market doesn’t perceive the image, the image does not
exist. If the target market does not believe that what the destination has to offer is a benefit, it isn’t
a benefit. If the target market doesn’t believe that the benefit can be delivered, promises are mean-
ingless. If the benefit isn’t important to the target market, it isn’t important. If the benefit is not
perceived as being different from that of the competition, then differentiation has not succeeded. In
short, images, benefits, and differentiation are solely the perception of the tourist, not the perceptions
of tourism officials or the tourism marketer.
According to the former United States Travel and Tourism Administration, 3.2 million Japanese
inbound travelers, who present a solid market for tourism destinations in the United States, generated

$ 10.1 billion in tourism revenue for the U.S. in 1990. (United States Travel and Tourism Administra-
tion, 1991). The following shows the top ten ranked activities identified by Japanese visitors (Bailey,
1992):
1. Sightseeing in cities
2. Shopping
3. Dining out
4. Guided tours
5. Visiting landmarks
6. Taking pictures
7. Beach activities
8. Visiting theme parks
9. Swimming
10. Visiting galleries.
The three highest ranked activities (Sightseeing in Cities, Shopping, and Dining out in Restaurants)
seem to provide an advantage to reasonably large cities where these are readily available. In addi-
tion, according to Bailey (1992), Japanese persons who are planning to travel to the U.S., initially, do
not have a specific destination to visit. Instead, they search for a trip that has several attributes
similar to those listed below (Bailey, 1992):
1. Some place where other people went
2. Reasonable price.
3. As many places as possible to cover.
4. Minimum contact with local community.
5. Perfect Japanese-like service.
6. Good food.
7. Absolutely free.
Combining these attributes with the top 10 activities listed above, one can an indication of the needs
of Japanese visitors. During the trip they like to go to places that have been previously visited by
Japanese visitors and where they have opportunities for sightseeing, shopping, and dining. They are
very concerned about personal safety, not interested in associating with the local community, and like
to receive Japanese-style services.
Market positioning research also requires an evaluation of the image that customers have of a tour-
ism destination. This can be used to identify the vital elements, which comprise the benefits. The
beauty of a destination, the architecture of a palace, and the historic artifacts in a museum are
examples of attributes that may produce a benefit, or may be a tangible representation of an intan-
gible benefit, but are not themselves the benefit. The benefit itself is what the attributes do for the
visitor, for instance, a sensation of grandeur, an aura of prestige, or the gaining of knowledge. The
credibility of these benefits may diminish rapidly if expectations are not fulfilled. Architecture is soon
forgotten if the tour bus breaks down on the return trip. The impression of grandeur loses credibility
if visitors feel that their personal safety is threatened. It is the fulfillment of expectations or the
inability to, that creates the perception of deliverability for the tourist. Benefits, like positioning, exist
in the mind of the customer and are determined only by asking the customer. Only after this
information is obtained, can a destination match its strengths to the visitors’ needs and the benefits
sought. This knowledge will also provide a basis for the development of a credible differentiation
strategy.
Research regarding Japanese travelers depicted in Figure 2 show how they perceive the United
States as compared to other destinations. Images of the U.S. on seven factors important to Japanese
tourists are rated relative to other destinations. The U.S. fares very poorly on Personal Safety and

this weakness that can be exploited by competing destinations such as Canada and Australia. On the
other hand, the U.S. does best in the areas of: Opportunities to Increase Knowledge, Outstanding
Scenery, and Shopping. Based on this information, various differentiation strategies for the U.S. can
be explored. Destination marketers can then proceed to the next step in the positioning process,
namely psychological positioning.
Psychological Positioning
This step utilizes communications to convey a destination’s identity and image to the target market. It
converts customer needs into images and positions a destination in the visitors minds.
Psychological positioning is a strategy employed to create a unique product image with the objec-
tive of creating interest and attracting visitors. Since it exists solely in the mind of the visitor, it can
occur automatically without any effort on the part of the marketer and any kind of positioning may
result. Two very dissimilar destinations may be perceived as the same; two similar destinations may
be perceived as different. What the marketer hopes to do is to control the positioning, not just let it
happen. Moreover, failure to select a position in the marketplace, to achieve, and to hold that position
may lead to various consequences, all undesirable, as pointed out earlier. There are two kinds of
psychological positioning in marketing: objective positioning and subjective positioning. Each has its
appropriate place and usage.
Objective Positioning
Objective positioning is concerned, almost entirely, with the objective attributes of the physical prod-
uct. It means creating an image about the destination that reflects its physical characteristics and
functional features. It is usually concerned with what actually is, what exists. For example, Colorado
is mountainous and the French Quarter is in New Orleans. However, objective positioning need not
always be concrete. It may be more abstract than these examples. The French Quarter is in New
Orleans which is also “the birthplace of jazz.”
Objective positioning can be very important and is often used in the tourism industry. If a destina-
tion has some unique feature, that feature may be used to objectively position the destination, to
create an image, and to differentiate it from the competition. If objective positioning is to be used to
position the U.S. among Japanese visitors or tour operators any of the unique scenic landmarks, such
as the Grand Canyon or Niagara Falls, could be used to show the size and magnitude of these
attractions. However, this needs to be linked with other attributes and expectations of the Japanese
visitor including “seeing as many places as possible,”; and especially, “where others have been be-
fore.”
Less successful objective positioning occurs when the feature is not unique. This is why many des-
tination promotions with pictures of beaches fail to create a distinct image or successfully differenti-
ate the product. Other unsuccessful approaches may include a picture of two people looking at a
mountain that looks like any other mountain or lying on a beach that looks like any other beach. One
of the first rules of effective positioning is uniqueness.
Subjective Positioning
Subjective positioning is concerned with subjective attributes of the destination. Subjective position-
ing is the image, not of the physical aspects of the destination, but other attributes perceived by the
tourist, (i.e., they do not necessarily belong to the destination but to the tourist’s mental perception).
These perceptions and the resulting images may not necessarily reflect the true state of the
destination’s physical characteristics. They may simply exist in the tourist’s mind and not all tourists’
imaging agree with a particular perception or image. Using the previous example of the Grand
Canyon or Niagara Falls, subjective positioning would emphasize the awe-inspiring feelings experi-
enced at these natural attractions rather than their physical attributes. Thus, a visit to the Grand

Canyon becomes a far greater experience than viewing the physical land formation. What the mar-
keter hopes is that the people in the target market will agree on a favorable image whether or not the
image is true. This is the test of effective subjective positioning.
Positioning Approaches
This is the final step in the positioning process, and there are several different approaches to position-
ing any tourism destination (Aaker and Shamsby, 1982). ‘While psychological positioning creates
an image, this positioning approach completes the picture, using visual and words, to reinforce what
the destination does best and what benefits are offered. Tourism marketers may decide to select the
most appropriate of the following approaches, depending on the information gathered during market
and psychological positioning.
Positioning by attribute, feature, or customer benefit. For this strategy, emphasis is placed on the
benefits of the particular features or attributes of the destination. For example, Thailand promotes
the friendliness of its people with the statement “The world meets in the land of smiles.”
Positioning by Price Value

International destinations are not usually positioned on the basis of price because lower prices may
be perceived as connoting lower quality. However, value offered to visitors can
be effectively utilized as exemplified by Malaysia which claims “Malaysia gives more natural value.”
With this positioning statement Malaysia is appealing not only to the sense of value (more for the
money) but also to its natural attractions.
Positioning with respect to use or application

Here a destination is positioned based on the reasons for visiting it. Bermuda positions itself to the
American meetings market with “Sometimes you have to leave the country to get any work done”
which promises productive meetings in a relaxed environment. Cancun, Mexico is positioned as
“The meeting place for sun worshipers.”
Positioning according to the users or class of users

In this case, positioning features the people who should visit the destination. Hong Kong appeals to
the incentive travel market with the statement ‘When they’ve reached the top, send them to the
peak,” referring to Victoria Peak, a major tourist site in Hong Kong: Fisher Island, a luxury residen-
tial development in Florida, positions itself as the place “where people who run things can stop
running.”
Positioning with respect to a product class

This technique is often used to associate a destination with experiences that are extraordinary and/
or unique. For example, the Principality of Monaco is positioned as “The fairy tale that does not end
at midnight,” or holding a convention in Thailand is “Smooth as silk where the sky’s the limit, or “If
your looking for an ideal meeting place, here’s one that’s close to heaven” for Israel.
Positioning vis-à-vis the competition

This approach is used when it is necessary to meet the competition head-on; to bring out differences
between destinations. This approach is not used frequently in international tourism destination mar-
keting since it may involve negative statements about another country or region. However, it is
regularly employed in product and services marketing. For example, Visa credit cards compete with
American Express by showing examples of places from around the world that do not accept Ameri-
can Express and only Visa cards are accepted. Ritz-Carlton Hotels is a little more subtle when they
say, ‘After a day of competition, you deserve a hotel that has none.”
Any of these approaches could be used to position the U.S. the minds of Japanese visitors. For

example, since Japanese visitors want to go where other Japanese tourists have already been, posi-
tioning according to users or a class of users may be appropriate. By developing a creative cam-
paign, an operator can market the fact that many Japanese visitors have been to the Grand Canyon,
and were impressed by its awe-inspiring presence. This may include testimonials from previous
visitors or tour operators who can make a direct appeal to the target market. However, since the
feeling of awe is an intangible construct, positioning statements must show a tangible example to
illustrate this feeling.
Positioning is the ultimate weapon in niche marketing. Stripped of all its trappings, positioning analysis
answers the following questions:
1. What position does a destination own now? (In the mind of the target market.)
2. ‘What position does the destination want to own? (Look for positions or holes in the market
place.)
3. ‘Who must the destination out position? (Manipulate what’s already in the mind.)
4. How can it be done? (Select the best approach that will work for the target market.)
Positioning is a valuable weapon for tourism marketers. To position successfully requires recogniz-
ing the marketplace, the competition, and tourists’ perceptions. Positioning analysis on a target
market basis provides the tools to identify opportunities for creating the desired image that differen-
tiates a destination from its competitors and for serving the target market better than anyone else.

Unit 3
Lesson 27 - Various tools of Differentiation
Introduction
Now that you have seen the positioning and differentiation concept and also discussed positioning
given by Ries & Trout, let us see the different tools of differentiation used in positioning by the
marketers.
Undifferentiated marketing:
In this strategy the marketer is basically using Single Marketing Mix for the entire market. This is
basically done as all of us have similar needs for a specific kind of product. When we are discussing
about undifferentiated market it is a homogeneous market where the demand is so diffused that it is
not at all worthwhile for the marketer to differentiate and this he/she is trying to make the demand
more homogeneous.
Single Marketing Mix consists of:

One Pricing strategy
One Promotional program aimed at everybody
One Type of product with little/no variation
One Distribution system aimed at entire market
The elements of the marketing mix do not change for different consumers, all elements are devel-
oped for all consumers. A very good example of it would be in Staple foods category like sugar and
salt and farm produce.
This strategy is basically popular when large-scale production takes place but this strategy is not so
popular now a day because of competition, improvement in marketing research capabilities, and as
the total production and marketing costs can be controlled basically by segmentation.
Organization must be able to develop and maintain a single marketing mix.
Undifferentiated Marketing
Differentiated marketing:
In this we are focusing on two or more segments and we are formulating different marketing mix for
each segment and accordingly different marketing plan for each segment are also made. This ap-
proach is a combination of the best attributes of undifferentiated marketing and concentrated mar-
keting.

Market
MM——————————>|A Market Segment
|_______________________
|_______________________
|_______________________
Example: Marriott International has differentiated its offering according to the needs of the people/
customer.
1. Marriott Suites...Permanent vacationers
2. Fairfield Inn...Economy Lodging
3. Residence Inn...Extended Stay
4. Courtyard By Marriott...Business Travellers
The positive side of this type of marketing is that:

It helps in shifting of excess production capacity.
It can also achieve same market coverage as with mass marketing.
By this the marketer can create differentials price among different brands.
Another best part of this strategy is that it can make the consumers in each segment to pay a
premium for the tailor-made product on willingness basis.
The amount of risk is comparatively less, as the marketer is not relying on one market.
The negative aspects of differentiation marketing are:

It demands for a greater number of production processes as you are targeting at different seg-
ment with different marketing mix.
This marketing actually leads to increase in marketing costs as you are selling through different
channels and you are also promoting more brands and using different packaging etc.
One of the biggest challenges that the marketer has to face is basically to maintain the product
distinctiveness in each consumer group and guard its overall image.

Concentrated marketing
In this case you have a single market segment with one marketing mix.
Market
|
|A Market Segment
|—————————
One MM—————————>A Market Segment
|—————————
|A Market Segment
|
Concentrated type of strategy helps the organization to

Specialize into particular area,
The marketer can very well focus all his energy on one group’s needs
Finally help the small organization to compete with larger organizations.
But the challenges or the problems with this strategy are:

That you are actually putting all your eggs in one basket.
Then any kind of shift in the population or consumer tastes can greatly affect the firm.
As the organization has created some image in that segment so if they want to enter or expand
into new markets (especially up-market) it will be a problem.
The basis objective of concentrated marketing is not to maximize sales but it is to work with
efficiency and to attract a large portion of one section while controlling costs.
Differentiation:
As we already discussed this topic quiet a number of times lets now briefly summaries it with ex-
ample and move on to the types of differentiation. Companies like Hewlett- Packard and priceline.com
has invested their precious resources to develop and then shepherd their new products through
lifecycle. Yet in today’s highly competitive global marketplace, a product will not survive-let alone
thrive- without some distinct competitive difference that sets it apart from every rivals products. This
is why smart companies rely on differentiation, by this you are designing a set of meaningful differ-
ence to basically to distinguish the company’s offering from competitors offering. Companies can
differentiate its market offering along five dimensions: product, service, personnel, channel and
image.

Product differentiation
In this we are using the marketing mix variable to make unique product offer that stands out from the
competitors. This strategy is aggressive; in this the company is focusing on besting the competition
and at the same time they are satisfying the consumers and gaining higher profits. The tools that are
used to differentiate products include branding, quality, image, product features, packaging, location,
promotion, innovation and different service levels. Consumers who perceive that a product is unique
in servicing their needs often become brand loyal and are more willing to pay a premium price in
order to gain the product benefits. Marketers have identified that the products are capable of higher
differentiation than services such as automobile and furniture.
Form: we can differentiate products on the basis of form- that is the physical structure, the size, and
the shape of the product. Lets take an example of any product, which can be in many forms like
Disprin. As Disprin is essentially a commodity, it can be differentiated by the dosage size, shape,
coating and action time.
Features: they are the characteristics, which are very important they are basically there to support
the basic functions of the product. Marketers starts by asking recent buyers about additional features
that would improve satisfaction, then determining which would be profitable to add, given the poten-
tial market, cost and price.
Performance quality: is the level, which the product’s primary characteristics operate. The strate-
gic planning institute found a significantly positive correlation between relative product quality and
return on investment. Yet there are diminishing return to higher performance quality so marketers
must choose a level suited to the target market and rival performance levels.
Conformance quality: if you are a buyer you will expect the product to have conformance for
quality, which is in terms of degree to which all of the produced units are identical and are able to
meet the promised specification. The problem with low conformance quality is that the product will
disappoint some buyers.
Durability: If I say that I want durability in the product then I am expecting the product to be
operating under natural or stressful conditions. It is important for products such as vehicles and
kitchen appliances to be durable. However the extra price must not be excessive and the product
must not be subjected to rapid technological obsolescence.
Reliability: on reliability basis you are normally ready to pay a premium, it is basically a measure of
the probability that a product will not malfunction or fail within a specified time period. May tag,
which manufacturers major home appliances, have an outstanding reputation for creating reliable
appliances?
Reparability: buyers prefer products that are easy to repair. Reparability is a measure of the ease of
fixing a product when it malfunctions or fails. An automobile made with standard parts that are easily
replaced has highly reparability. Ideal reparability would exist if users could fix the product them-
selves with little cost or time.
Style: if I say style it is look and feel of the product to you. Most of us are normally willing to pay a
premium for products that are attractively styled. Aesthetics have played a key role in such brands as
Absolute vodka, Apple computers, Godiva chocolate and Harley- Davidson motorcycle. Style has
the advantage of creating distinctiveness that is difficult to copy. However, strong style does not
always means high performance.
Design: as competition intensifies, design offers a potent way to differentiate and position a company’s
products and services. Design is the integrating force that incorporates all of the qualities; this means
the designer has to figure out how much to invest in form, feature development, performance, con-

formance, durability, reliability, reparability and style. For a company a well-designed product is one
that is easy to manufacture and distribute. To the company, a well-designed product is one that is
pleasant to look at and easy to open, install, use, repair and dispose of. The designer has to take all of
these factors into account.
Activity –
In today’s competitive era, do you think a company can differentiate itself on the basis of its product?
Critically evaluate this statement.
Service differentiation:
When the physical product cannot be differentiated easily, the key to competitive success may lie in
adding valued services and improving their quality.
The main service differentiators are:

Ordering ease: refers to how easy it is for you to place an order with the company. Baxter
Healthcare has eased the ordering process by supplying hospitals with computer through which
they send orders directly to Baxter; consumers can now order and receive groceries without
going to the supermarket business web-based service such as peapod and net grocer.
Delivery: it is related to how well the product or service is delivered to the customer, covering
speed, accuracy and customer care. Deluxe check printer, inc., has built an impressive reputa-
tion for shipping out its checks one day after receiving an order- without being late once in 18
years.
Installation: refers to the work done to make a product operational in its planned location.
Buyers of heavy equipment expect good installation service. Differentiation by installation is
particularly important for companies that offer complex products such as computers.
Customer training refers to how the customer’s employees are trained to use the vendor’s
equipment properly and efficiently. General Electric not only sells installs expensive X-rays equip-
ment in hospitals, but also gives extensive training to users of this equipment.
Customer consulting refers to data, information system and advising services that the seller
offers to buyers. For example, the Rite aid drugstore chain’s communications program, called the
Vitamin Institute, provide customers with research so they can make more educated judgments
and fell comfortable asking for help. On the Web, Rite Aid has teamed with drugstore.com to
offer even more health-related information.
Maintenance and repair: describes the service program for helping customers keep purchas-
ing products in good working order, an important consideration for many products.
Personnel differentiation
Companies can gain a strong competitive advantage through having better-trained people. Singapore
Airlines enjoys an excellent reputation in large part because of its fight attendants. The McDonald’s
people are courteous, the IBM people are professional and the Disney people are upbeat. The sales
forces of such companies as General Electric, Cisco, Frito-Lay, and Northwestern Mutual life enjoy
an excellent reputation. Well- trained personnel exhibit six characteristics: competence, courtesy,
credibility, reliability, responsiveness and communication.
Channel differentiation
Companies can achieve competitive advantage through the way they design their distribution chan-
nels’ coverage, expertise and performance. Caterpillar’s success in the construction –equipment
industry is based partly on superior channel development. Its dealers are found in more locations, are
better trained and performance more reliability than competitors dealers. Dell computers has also
distinguished itself by developing and managing superior direct-marketing channels using telephone
and internet sales.

Image differentiation
You will response differently to company and brand image. Identity comprises the ways that a com-
pany aims to identify or position itself or its product, whereas image is the way the public perceives
the company or its products. Image is affected by many factors beyond the company’s control. For
example, Nike mainstream popularity turns off 12-to-24-years-olds, who prefers Airwalk and other
alternative brands that convey amore extreme sports image. An effective image establishes the
product’s character and value proposition, it conveys this character in a distinctive way and it delivers
emotional power beyond a mental image. For the image to work, it must be conveyed through every
available communication vehicle and brand contact, including logos, media and special events.
Important Points which you should know.

Great companies are significantly better, not just a little better
“Differentiate products, not devices”
The most dangerous and quickest evaporating differentiation is lower price unsupported by lower
costs
High tech buying decisions are based on cold hard logic and rational analysis – except where
information overloaded buyers are concerned
Real product differentials plus good promotion is a powerful influence
Complexities make it easier for products to be different, but harder for customers to know the
differences
Complexity plus standardization tends to make high tech products seem similar to most buyers
It takes time to learn the subtle distinctions between complex products, sometime on minor
technical details And, if the differences don’t exist in the customer’s mind, they do not exist
The “differences must make a difference”
Activity
What is the differention strategy adopted by Maruti India Ltd ? Especially with regard to Alto, Zen &
Wagon R ? .
How salespeople makes a difference

Good salespeople, properly trained, tailor the product to the customer requirement.
Most marketing departments don’t do enough to educate their salespeople so they should be
trained well, so that, they are at least aware about the functional aspect of the product.
Distribution differentiates:
Customers are frequently more wedded to their distributors than their suppliers … distributors
sometimes “own” the customer.
A positively inclined distributor can
Steer an order
Quote better delivery
Offer better prices
Provide better feedback
Do you know being Different Involves Sacrifice

The very barriers that keep competitors out of a market, confine the victorious firm to that
market
The differences that one company promotes are precisely the ones a competitor will frequently
highlight to preclude from other markets
Example: Apples “rest of us” positioning reduced its legitimacy in the corporate market

Points to ponder


Case Study
ACER – The story of a successful brand
Stan Shih is a national hero in Taiwan; Acer is a successful international brand.
The computer industry is one of the most competitive in the world, having always been dominated
by the giants such as IBM. So, how has a Taiwanese company become the third largest manufacturer
of personal computers (PCs) in the world, creating a respected, and sometimes feared, brand?
How has the company managed to break away from the “Made in Taiwan” image, which like
many countries in Asia has been associated with sub-standard products?
The answer is, of course, the careful construction of a strong brand image. From the very beginning,
Shih realized that this was the great challenge, and he positioned his products more at the higher end
of the market than any other Taiwanese products had been previously. For example, when entering
the Japanese market, he priced his products the same as theirs to avoid the poor-quality image
associated with lower-priced products. This was an important signal emitted by the brand-that Acer-
branded products were not to be classified as commodities.
Acer Computer has always spent huge sums of money on research and development, and in this
respect, tends to follow the Japanese technology companies. Shih believes in “innovalue”-using inno-
vation to create value in the design and production of cutting-edge products-and leading the industry.
It is Shih’s company that has actually positioned the PC as an aesthetically pleasing home appliance,
and this philosophy is summed up in the new corporate mission statement: “Fresh Technology
Enjoyed by Everyone, Everywhere.” Fresh does not imply new but the best, namely, proven high-
value, low-risk technology that is affordable to everyone, and has a long lifespan. Fresh also refers to
innovation based on mature technology that is user-friendly, reasonably priced, and enjoyed by every-
one, everywhere. Acer Computer has a long history of innovation, and continues to add to this brand
strength at every opportunity.
Acer Computer’s aim is to become more consumer-oriented, as it believes that PCs will become
consumer-electronic products with a wider range of uses and applications in the areas of communi-
cations, entertainment, and education. Acer Computer, therefore, has to become an expert in con-
sumer electronics as well as personal computing. Shih refers to this as a shift from being ‘technol-
ogy-centric” to “consumer-centric.” The computer industry has always been the former-emphasiz-
ing products more than people. Acer Computer is, thus, repositioning itself to become a customer-
centric intellectual-property and service company, as signified by its new slogan: “Acer, Bringing
People and Technology Together.” To Shih, intellectual property is the value added to the product.
Acer adds value by enhancing consumer perceptions of the benefit or value of a product, based on
know-how, packaging, design, accessibility, comfort, user-friendliness, niche solutions-the tangible
qualities of its products. This is how Acer Computer is building on its already strong international
brand, into a global brand. It wants to help people to enjoy their work and their lives.
One way in which Acer Computer is trying to manage the perceptions of its audience and getting
them to think of the company as a major player is through more international exposure, such as its
US$10-million sponsorship of the 1998 Asian Games. It succeeded in bringing the company greater
international exposure. Another way Acer Computer is managing customers’ perception of the
company is by partnering overseas companies. By doing this, Acer Computer achieves its overall
philosophy of “global brand, local touch,” and also hopes to further the perception of being a global
brand.
However, Acer still has to make the leap from being a regional brand to a global one. Although the
company manufactures computers for IBM and other major companies, it does not get due credit. In
1998, it was ranked third in the world as a PC manufacturer, but occupied only eighth spot in brand

sales. Since then it has moved to seventh place, according to the company. In the largest single
market in the world-the United States-Acer’s market share in 1998 was less than 5%.
Acer has to cross the bridge, from world-class manufacturer and regional-market leader to global
player. If the result depends solely on Stan Shih’s enthusiasm, energy, and ambition, then there will
be no doubt about the outcome. But consumers, both corporate and individual, make global brands
happen, and therein lies the challenge of changing and managing their perceptions.
The Product Portfolio

To be successful, a company should have a portfolio of products with different growth rates and
different market shares. The portfolio composition is a function of the balance between cash flows.
High growth products require cash inputs to grow. Low growth products should generate excess
cash. Both kinds are needed simultaneously. Four rules determine the cash flow of a product. Mar-
gins and cash generated are a function of market share. High margins and high market share go
together. This is a matter of common observation, explained by the experience curve effect. Growth
requires cash input to finance added assets. The added cash required to hold share is a function of
growth rates. High market share must be earned or bought. Buying market share requires an addi-
tional increment of investment.
No product market can grow indefinitely. The payoff from growth must come when the growth
slows, or it never will. The payoff is cash that cannot be reinvested in that product. Products with
high market share and slow growth are “cash cows.” Characteristically, they generate large amounts
of cash, in excess of the reinvestment required to maintain share. This excess need not, and should
not, be reinvested in those products. In fact, if the rate of return exceeds the growth rate, the cash
cannot be reinvested indefinitely, except by depressing returns.
Products with low market share and slow growth are “pets.” They may show an accounting profit,
but the profit must be reinvested to maintain share, leaving no cash throw off. The product is essen-
tially worthless, except in liquidation. All products eventually become either cash cows or pets. The
value of a product is completely dependent upon obtaining a leading share of its market before the
growth slows. Low market share, high growth products are the “question marks.” They almost
always require far more cash than they can generate. If cash is not supplied, they fall behind and die.
Even when the cash is supplied, if they only hold their share, they are still pets when the growth stops.
The question marks require large added cash investment for market share to be purchased. The low
market share, high growth product is a liability unless it becomes a leader. It requires very large cash
inputs that it cannot generate itself. The high share, high growth product is the “star.” It nearly
always shows reported profits, but it may or may not generate all of its own cash. If it stays a leader,
however, it will become a large cash generator when growth slows and its reinvestment require-
ments diminish. The star eventually becomes the cash cow, providing high volume, high margin, high
stability, security and cash throw off for reinvestment elsewhere.
The payoff for leadership is very high indeed, if it is achieved early and maintained until growth
slows. Investment in market share during the growth phase can be very attractive, if you have the
cash. Growth in market is compounded by growth in share. Increases in share increase the margin.
High margin permits higher leverage with equal safety. The resulting profitability permits higher
payment of earnings after financing normal growth. The return on investment is enormous.
The need for a portfolio of businesses becomes obvious. Every company needs products in which to
invest cash. Every company needs products that generate cash. And every product should eventu-
ally be a cash generator; otherwise it is worthless. Only a diversified company with a balanced
portfolio can use its strengths to truly capitalize on its growth opportunities. The balanced portfolio
has:

Stars whose high share and high growth assure the future; Cash cows that supply funds for that
future growth; and Question marks to be converted into stars with the added funds. Pets are not
necessary. They are evidence of failure either to obtain a leadership position during the growth
phase, or to get out and cut the losses.
Branding Energy
Deregulation of the energy industry in some states during the mid-1990s enabled energy companies
to compete for retail customers. The competition led many companies to step up their marketing
programs in efforts to reach consumers recently empowered with the right to choose their energy
provider. Spending on advertising in the energy industry rose from $80 million in 1996 to $180 million
in 1997. Several companies also changed their names to make them more consumer-friendly, as
when Panhandle Eastern became PanEnergy and Natural Gas Clearinghouse changed its name to
NGC and later became Dynegy (for “Dynamic Energy”). Some power companies began offering
loyalty programs while others appealed to consumers with cross-promotions with other utilities such
as telephone and plumbing.
One of the first companies to make a significant investment in raising its public profile was Cinergy
Corporation. In 1995, the company signed a $6 million, five-year deal to rename Cincinnati’s Riverfront
Stadium as Cinergy Field. Right before the deal was made, name recognition of the company stood
at 50 percent in the greater Cincinnati area. Nine months after the renaming, name recognition in
Cincinnati rose to 94 percent. Because of national television coverage for football and baseball, the
Cinergy name became known all over the nation. Another energy company, Edison International,
signed a $30 million, 20-year deal with the Walt Disney to rename the Anaheim Angels “Big A”
stadium Edison International Field.
Energy companies also used traditional advertising methods to build brand awareness. Following its
1998 name change, Dynegy was still relatively unknown amongst financial analysts and wholesale
energy buyers according to a 2000 brand awareness study conducted by the company. The company
suffered from a low-profile image despite the fact that it was one of the top three transporters in
each interstate gas pipeline in North America and had annual revenues of $29.4 billion in 2000. To
raise awareness, Dynegy debuted its first national television advertising campaign in 2001, comprised
of several 30-second spots that used humor to illustrate the company’s services. In one ad, an actress
playing a Dynegy employee arranges food on the dinner table so it resembles a power grid. Subse-
quent surveys revealed that recognition of the Dynegy brand increased significantly.
Power companies’ emphasis on marketing did not necessarily lead to a change in consumer behav-
ior. In the two largest deregulated states, California and New York, only two percent of consumers
switched utility companies. Allan Adamson, the managing director of brand expert Landor Associ-
ates, said of the energy industry, “This is a very difficult category to brand. Coming up with anything
that’s differentiating to customers beyond consistent power delivery is hard.” This may help explain
why spending on advertising in the category peaked at $180 million in 1997. In 2000, only three power
companies (Enron, Southern, Pacific Gas & Electric) had ad budgets that exceeded $10 million.
Further troubles for the energy industry occurred when energy giant Enron, the leading energy mar-
keter in the world and the seventh largest company in the U.S., declared bankruptcy in December
2001. Enron had been a major advertiser, boasting the largest ad budget of all the national utility
companies at $18 million in 2000. Enron also sponsored a stadium called Enron Field in Houston,
where baseball’s Astros play. After investors and analysts raised questions about Enron’s business
model, however, it was revealed that Enron had employed unorthodox accounting principles to mis-
state earnings. The company could not recover when credit rating companies downgraded Enron’s
debt to junk status in November 2001.
Enron’s woes caused concern for the fate of the energy trading industry. Dynegy’s stock fell 37

percent in the three weeks after it abandoned a rescue acquisition of Enron. Share prices for energy
firms slumped in the wake of Enron’s collapse. One energy consultant asserted, “Without a doubt,
Enron’s collapse has given the energy trading industry a black eye.” Other energy companies tried to
shake the stigma. Dynegy CEO Chuck Watson predicted that the intense focus on the energy indus-
try would help the major players by forcing weaker competitors to exit the business, and insisted that
the “Enron failure [wasn’t] the failure of the energy merchant business.” Other energy trading
companies lined up to assure consumers that Enron’s troubles were not indicative of an industry-
wide problem. A spokesperson for California-based Calpine said, “Calpine is not another Enron.”
(Sources: Neil Weinberg and Daniel Fisher. “Power Player.” Forbes, December 24, 2001, p. 53-58;
Bethany McLean. “Why Enron Went Bust.” Fortune, December 24, 2001, p. 58-72; Charlene Oldham.
“Energy Traders Tidy Up.” Dallas Morning News, December 18, 2001, p. 1D; Todd Wasserman. J.
Dee Hill. “Feller Creates Dynegy’s Premiere TV Campaign.” Adweek, September 24, 2001, p. 4;
Greg Hassell. “‘Screaming People’ Create Awareness.” Houston Chronicle, September 19, 2001, p.
1; “Where’s the Power Surge?” Brandweek, August 13, 2001, p. 31; Leonard S. Greenburger. “The
Name in the Game.” Electric Perspectives, July 1, 1999, p. 52; Peter Fritsch and Lisa Brownlee.
“Energy Firms Try To Create Image for the Invisible.” Wall Street Journal, August 28, 1996, p. B6.)
Can branding overcome the consumer tendency not to identify with innocuous or nondifferentiated
products / services? Using Enron as an example, what evidence is there of long-term value in the
branding process, especially for commodity-type products? There is considerable research that indi-
cates that for products / services that are less “visible” to the average consumer, the less likely it is
that a firm or organization in that product / service category will be able to achieve a lasting brand
recall impact. In the case of energy products and services the general rule should apply. However,
there is some contradiction of the point with the major oil retail firms (Exxon, Shell, etc.), but since
these firms have many retail locations that are often closely involved with the community, and have
been there for decades, the recall can be high. It is likely that Enron attempted to achieve a similar
position in the marketplace.
However, Enron’s primary target market in their branding effort was not the general public. Enron’s
emphasis was on creation of a positive image with key organizations and decision-makers,including:
potential investors who could add to Enron’s equity capital base, major wholesale distribution firms
that use Enron’s energy trading services, banks and investment banking houses that would provide
ongoing loan facilities, various officials in government who would provide input to achieve favorable
legislation. As a number of analysts and articles have noted, Enron wanted these key individuals and
organizations to know that they were dealing with a major player in the energy and energy trading
business. Enron management intended to provide the company and its officers with a basis for
political and economic influence on a rather broad scale. Retail energy consumers and the general
public were secondary recipients of the branding effort and heard about Enron only through various
contributions, sponsorships and secondary reminder efforts such as the former Enron Stadium (home
of the Astros) in Houston.
Discussions:
1. Evaluate the positive side of energy branding and the inherent advantages? Do likewise with the
disadvantages. Can branding recognition create negative as well as positive images? Discuss
2. For Dynegy, Calpine and others in the energy marketing business, what marketing
strategies and / or tactics would you suggest that they do to reacquire the
confidence that might have been lost in the Enron matter?

Changing Brand Image: Merryl Lynch goes Hi Tech

In an effort to address its rather unexciting corporate brand image and show people that it is really a
part of the modern hi-tech world, Merryl Lynch has re-engineered its icon - the bull - and embarked
on a major advertising campaign that coincides with its entry into online trading.
The company has introduced low-cost online investing for customers, and has had to break away
from its traditional brokerage image, especially as it has lost out to the successful online brokerages
such as Charles Schwab Corp. and E*Trade Group Inc. Some of the new commercials show
real life customers telling how profitable their relationship with the company has been, and other
advertisements show the Merryl Lynch bull icon in a digitalized wired-up format. Whilst the bull
remains as a symbol of the power and durability of the Merryl Lynch brand, the new hi-tech bull
signifies readiness to fight in the e-commerce market place. One two-page newspaper advertise-
ment in the early stages of the campaign showed the new bull with copy beside it that read...
Be quick Be smart
Be ready Be prudent
Be daring Be conventional
Be contrarian Be global
Be local Be backward-looking
Be forward-looking Be strategic
Be wired Be unwired
Be thoughtful Be spontaneous
Be wise Be bullish
The contradictions give the impression of a very schizophrenic brand personality, and the ‘everything
to everyone’ nature of this copy may well suggest that the company does not know what it really
wants to be seen as. Reported reaction to the campaigns has tended to polarize like the copy, with
dissenters and enthusiasts. The commercials have also been subject to criticism, some saying that the
customers profiled do not look confident about the firm’s new offerings, with some clearly not under-
standing and others confused. As usual time will tell whether perceptions have changed regarding
the brand image, but it does appear that Merryl Lynch may not have done enough to convince the
public that it has what it takes to be a major player in the digital world.
By contrast, advertisements run a few months earlier were much stronger and more focused, and
carried much clearer emotional messages, for example:
IF YOU WANT TO SEE SOMETHING Done, just tell some human beings It can’t be done.
Make it known that It’s impossible to fly to the moon, Or run a hundred metres in nine- Point
nine seconds, or solve Fermat’s Last Theorem. Remind the world that No one has ever hit sixty-
two home Runs in a season. Stuffed eighteen People into a Volkswagen Bug. Set half the world
free. Or cloned a sheep. Dangle the undoable in front of the world. Then, consider it done
The tag line was “HUMAN ACHIEVEMENT” with the Merryl Lynch name and the original bull
icon. Whether agencies are changed or not, companies should really think very hard before making
radical changes to their presentation of the brand. As a case study, ask yourself what you would have
done to give the brand a new look without losing the equity from the past.

Identifying Market Segments and Selecting Target Markets
Marriott International
Marriott International grew to an international hospitality giant from humble beginnings, as a single
root beer stand started by John and Alice Marriott in Washington, D.C. during the 1920s. The Marriott’s
added hot food to their root beer stand, renamed their business the Hot Shoppe, which they incorpo-
rated in 1929. They began building a regional chain of restaurants. As the number of Hot Shoppes in
the Southeast grew, Marriott expanded into in-flight catering by serving food on Eastern, American,
and Capital Airlines beginning in 1937. In 1939, Hot Shoppes began its food service management
business when it opened a cafeteria in the U.S. Treasury building. The company expanded into
another hospitality sector in 1957, when Hot Shoppes opened its first hotel in Arlington, Virginia. Hot
Shoppes, which was renamed Marriott Corporation in 1967, grew nationally and internationally by
way of strategic acquisitions and entering new service categories, and by 1977 sales topped $1
billion.
In the pursuit of continued growth, Marriott continued to diversify its business. The 1982 acquisition
of Host International made it America’s top operator of airport food and beverage facilities. Over the
course of the following three years, Marriott added 1,000 food service accounts by purchasing three
food service companies, Gladieux, Service Systems, and Saga Corp. Determining that its high pen-
etration in the traditional hotel market did not offer many opportunities for growth, the company
initiated a segmented marketing strategy by introducing the moderately priced Courtyard by Marriott
hotels in 1983. Moderately priced hotels comprised the largest segment of the U.S. lodging industry,
a segment filled with established competitors such as Holiday Inn, Ramada, and Quality Inn. Re-
search conducted by Marriott registered the greatest consumer dissatisfaction in the moderately
priced hotels, and Courtyard hotels were designed to offer travelers greater convenience and ameni-
ties, such as balconies and patios, large desks and sofas, and pools and spas.
Early success with Courtyard prompted Marriott to expand further. In 1994, Marriott entered the
vacation timesharing business by acquiring American Resorts Group. The following year, the com-
pany purchased Howard Johnson Company, selling the hotels and retaining the restaurants and rest
stops. In 1987, Marriott added three new market segments: Marriott Suites, full service suite accom-
modations; Residence Inn, extended-stay rooms for business travelers; and Fairfield Inn, an economy
hotel brand. A company spokesman explained this rapid expansion: “There is a lot of segmentation
that’s going on in the hotel business. Travelers are sophisticated and have many wants and needs. In
addition to that, we saw there would be a finite . . . ability to grow the traditional business.”
Marriott Corp. split into two in 1993, forming Host Marriott to own the hotel properties and Marriott
International primarily to engage in the more lucrative practice of governing them. In 1995, Marriott
International bought a minority stake in the Ritz-Carlton luxury hotel group (Marriott purchased the
remaining share in 1998). In 1996, the company acquired the Forum Group, an assisted living and
health care services franchise, and merged it with Marriott Senior Living services. Marriott added a
new hotel brand in 1998 with the introduction of SpringHill Suites, which provide moderate priced
suites that are 25 percent larger than standard hotel rooms. The following year, the company ac-
quired corporate housing specialist ExecuStay Corp. and formed ExecuStay by Marriott. To capital-
ize on the on-line travel and accommodations boom, the company developed Marriott.com, which
offers customized content to registered visitors such as a vacation planner, golf course information,
express reservations, and business content. In 2000, the company announced plans to join with rival
Hyatt Corporation to launch a joint B2B e-commerce venture that will provide procurement services
for the hospitality industry.
The last Hot Shoppe restaurant, located in a shopping mall in Washington D.C., closed on December
2, 1999. This closing was fitting, since the tiny restaurant in no way resembled the multinational

hospitality leader it spawned. Today, Marriott International is the largest hotel and resort company in
America and one of the leading hospitality companies in the world, maintaining over 2,200 operating
units in 59 countries that brought $20 billion in global revenues in 2000.
What target marketing and marketing segmentation concepts discussed in the text did Marriott apply
to get to where it is today?
Marriott appears to be successful in developing a clear understanding of where and how it can create
business value and opportunity, with a profit, based on existing corporate capabilities. As a leader in
the hospitality business, the firm has made a conscious and consistent effort to avoid mass marketing,
attempting to serve only distinct groups of customers with different needs. In addition, Marriott has
conducted effective marketing research over the years to determine which segments are measur-
able, substantial, accessible and actionable. It has gradually widened the list of target markets, con-
stantly evaluating the ongoing potential of each target in terms of attractiveness and fit with the
company objectives and resources. Lastly, it has developed different market offers for each seg-
ment, capitalizing on segment interrelationships that could lead in the future toward possible super
segments.
Questions for discussions:

1. Has it picked its market segments and target markets effectively? Discuss the bases of
Marriott’s segment interrelationships.
2. Does the evolution of Marriott’s “businesses” indicate that the firm is well positioned
for the coming decades of the 21st century? What opportunities and problems will
Marriott encounter as it pursues their marketing strategy in planning toward the year
2010?
Intel: A case study in Corporate Branding

Perhaps the most successful technology company to balance the dual requirements of innovation and
reliability in its branding is Intel.
Because of the fears consumers have, when things go wrong with technology products they react
disproportionately. Take the well documented example of Intel, when initial faults discovered by
customers after the launch of the Pentium chip by Intel were potentially devastating and the com-
pany was receiving up to 10,000 calls a day from dissatisfied or unhappy customers. Good crisis
management saved the day, and Intel regained their position of trust and high quality performance in
the minds of consumers.
Intel is a model of good technology branding and positioning, and had it not already had a strong
position crisis management may not have been enough to save the day. The company really survived
and prospered because of this, and has shown how a power positioning approach can solve the
problems of consumer technophobia, with its now famous Intel Inside campaign. As a component
that is not visible to consumers who buy personal computers, and OEM producers offering price
advantages to manufacturers, this was no easy task.
The Intel position has always been based on authenticity, quality and performance, supported strongly
by consistent global campaigns. The Intel Inside logo is placed on all print advertising, print and point-
of-sale merchandising, shipping cartons, packaging, and is used by world brand and OEM computer
manufacturers. Supported by explanatory communication material, it has to a large extent succeeded
in calming the fears of consumers who are doubtful of the performance of critical and complicated
product elements they do not understand. The introduction of the Intel ‘Bunny people’ in astronaut-
type attire in an attempt to humanise and add personality to product has not been so successful, being

perceived by many as cold and impersonal.
Interestingly, Intel has now developed individual product brands, as is the case with the Pentium and
Pentium II range. The rationale for this is that a name like Pentium ( derived from the Greek word
pent meaning five and alluding to the fifth generation of X86 computer chips ) provides a kind of
shorthand which is more meaningful to the consumer, summarising the benefits more easily. Pentium
II is positioned as a high performance product aimed at business and consumer users. More recently
the Intel equivalent of a ‘no frills’ product range called Celeron has been introduced, still endorsed
by the parental name, but meant for a different target audience. This is positioned around value,
compatibility and quality, but the Celeron initial offering has not had a brilliant start.
It remains to be seen whether Intel has really understood the needs of different market segments,
and whether or not the cheaper product can hold true to the position and associations that Intel has
so single-mindedly projected over the last several years. Also, if consumers will perceive the move
as a more risky alternative, and even if it will devalue the position of the higher price existing prod-
ucts. In the worst scenario, the different products might cannibalise each other’s sales, and generate
customer confusion. Intel intends to introduce more branded chips, and careful education of the
consumer in this highly complex market will be essential to negate customer confusion and achieve
successful brand positioning.
its4me PLC - Hi-tech Hi-touch branding on the Internet

Introduction
In late 1999, two senior figures from the U.K. insurance industry - Patrick Smith and Paul Cheall -
got together to launch a new company and a new brand into the marketplace. Their ambition was to
launch an online insurance intermediary to sell motor, home, and other general insurance products
over the Internet.
Smith has a strong track record in building financial services companies, having launched private
health insurance companies and direct motor and home insurers in the UK as well as developed high
street insurance brokerages. He has a habit of challenging the conventional thinking of the market-
place while never losing sight of the bottom line. Smith saw the opportunity the Internet provided to
revolutionize the insurance sector by stripping out the cost from the traditional distribution process,
while at the same time seizing the opportunity to tailor the product and the service as closely as
possible to the needs of individual customers. The opportunity was to offer better value in terms of
products and service directly to the customer, while reducing costs for the company and the cus-
tomer.
The Brand Name

The brandname created was “its4me”. “The thinking behind this was to take a basic product
and give consumers the maximum opportunity to personalize it,” Smith explained. “its4me con-
veys one of the most important aspects of our business philosophy-personal attention and personal-
ized products. We agree it’s not the normal type of insurance company, and it reflects our innovative
approach to business. We are new and we are different, and we aim to break the mould”.
So, how was the company created, and how did it aim to gain credibility in the eyes of consumers?
The launch project began in February 2000, having secured venture capital backing from a major
international financial services company. its4me is fully funded for at least the first five years of
operation, which puts it in a strong position to be able to build the business without concerns about
finding more funding. Many major Internet brands struggled to secure second-round funding, espe-
cially in 2000.

The Business Model

The starting point for the its4me plc business model was the creation of a panel of insurance compa-
nies who could supply motor and home insurance products electronically to its4me. Their products
are offered for sale on the its4me.co.uk. website. Consumers enter their details and obtain a quota-
tion instantly online, pay for it online, and view and print their policy doumentation online. The system
will then send an electronic data interchange (EDI) message to the relevant insurer, giving details of
the policy sold. In the event that the customer wants to change their policy, they simply log on to the
system and make the changes themselves.
There is no need for any human intervention from the first point of contact to conclusion - there is just
the system and the customer. This results in minimal cost and maximum efficiency. Where insurance
is sold through a traditional insurance intermediary, there is a lot of delay and duplication. This all
means cost, the potential for errors, and a slow service for the customer. And the best part is that,
being Internet-based, the system is available 24/7, 365 days a year. Try finding a regular broker in the
physical world who will sell you a policy at 2 a.m.!
So, that is its4me’s recipe for happy insurance customers. Or is it? Well, not really. You see, a big part
of the model is missing, and that is the reality check. There are people, who want the clinical effi-
ciency of a system, but there are just as many, if not more, who want the warmth of a relationship.
its4me recognized this from the outset and believes that what it has put together will set it apart from
other emerging e-insurance companies.
Let’s go back a bit. In 2000, only about one-third of the U.K’s 60 million population were regularly
accessing the Internet, either at home, work, or college, and probably no more than 10% were
regularly buying goods and services over the Web. This meant that the vast majority of people still
weren’t using the Web; in particular, they still weren’t buying over the Net. In insurance terms,
according to Fletcher Research, only around 400,000 of the U.K.’s 25 million or so vehicles would
be insured over the Web in 2000.
It seemed that people were using the Web as a source of information, but when it came to the point
of purchase, they used more traditional methods. Why? Trust. People trust brands. But its4me was
a new brand. Back to the same question: how could it gain the consumer’s trust? It is one thing
getting brand awareness, but it is another matter entirely to get consumer trust. Lastminute.com in
the U.K., actually reached an 84% brand awareness level but only a 17% trust figure.
In finalizing its business model, its4me realized that: For the foreseeable future, the majority of the
insurance business was offline, moving online. It needed to establish itself as providing not only great
products,but also great service. The key to gaining the trust of the customer was by making itself
available to the customer in as many different ways as possible. It needed to create a human face to
the company, which allowed customers to build a relationship with the brand. So, when the final
model was put together, it looked something like this: The customer, if he or she so wishes, has the
ability to buy customized insurance on a fully self-service basis. They enter their personal details, the
system calculates the relevant premium, they pay online by credit or debit card, or they set up a direct
debit online. Once the payment is accepted, they can browse their policy documentation online and
print it on their own printer in the comfort of their home. There is no need to talk to anyone, so there
is no pressure selling.
They simply get what they need delivered efficiently. However, at any point in the process, if assis-
tance is required, its4me has, waiting in the wings, a team of insurance professionals ready to help.
The means of contacting them is up to the personal preference of the individual customer: The
system includes a searchable help facility and glossary of insurance terms, which works in a similar
way to what you might find within the Microsoft Office products. The customer can click on an icon
to send an email to the team with a query.

its4me publishes a service level on its site saying that all emails will be responded to within one
hour, and it consistently beats that target a significant margin.
Customers can open up an interactive text chat session. This is a very direct means of having real
time dialogue with the team across the Internet. This facility allows questions to be answered
immediately. its4me’s staff can help the customer complete the on-screen forms remotely via a
collaborative viewing facility, and they can even “push” help pages through to the customer’s
screen using the software. They can also “push” through an image of the team member the customer
is having an online dialogue with. This helps to personalize the service even more.
The customer can elect to ring the team, or request the team to call them back at an allotted time.
its4me is also able to complete the entire process for the customer over the phone if they so wish.
Customer Intimacy and Empowerment
Empowering the customer to customize the product, and the way the service is delivered to them,
has given its4me a real means of differentiating itself, as well as the ability to gain customer confidence
in a marketplace where customers are still more than a little nervous of e-commerce companies
and still believe that the Internet means low cost but zero service. It recognizes that other companies
will be able to obtain similar products from their insures, that other companies can probably build
a similar processing system, but that what will make a difference over the long term is service
quality-and that means people.
The Internet doesn’t have to mean remoteness of contact. There are many ways to build a bond
with customers if you just think differently. As we write this case study, its4me is in the process of
installing a webcam in its offices so that customers can see the team at work-ready to leap to their
assistance. Its4me is a great example of hi-tech hi-touch branding using CRM techniques. You can
visit the site at http://its4me.co.uk/
Mercedes Benz USA - Design and Launch of the new ‘M’ Class Off-roader
When Mercedes Benz decided to build its new M Class off-road vehicle, it decided to build it and
launch it in the USA. The head of Mercedes USA knew that at its launch, it would be entering a
crowded market, and that the mere fact that it was a Mercedes would not guarantee sales. They
had to try something different.
In the USA it is still possible to obtain free access to data and they obtained details of all current
owners of off-road vehicles and Mercedes cars. Mercedes then undertook a series of mail-outs to
the names on the database.
It began with a personally addressed letter from the head of Mercedes USA. It said something
along the lines of - “...we at Mercedes are in the process of designing a brand new off-road car and
I would like to know if you would be prepared to help us...”
Now America is the land in which you receive probably more direct mail than any other country in

the world, but it is not every day that the head of Mercedes writes and asks for your help. There was
a significant, positive response. Those people who responded received a series of questionnaires that
asked for guidance on design issues such as whether the spare wheel should be outside or inside the
vehicle, desired engine sizes, exterior colours and interior designs.
What is interesting is that, along with the questionnaires, Mercedes began to also receive advance
orders. What these customers were feeling was that Mercedes was custom building a car just for
them. No other manufacturer had ever involved them in the design and build process in quite the
same way.
As a result, Mercedes pre-sold its first year sales target of 35,000 vehicles. It was expecting to spend
some $70 million US marketing the car, but by using this CRM one to one approach, it only needed to
spend $48 million saving $22 million. We have heard that this program was so successful that Mercedes
is looking to use the same approach in the future with other model launches.
This case is taken from Romancing the Customer: maximizing brand value through powerful relation-
ship management by Paul Temporal and Martin Trott (Wiley, 2001). The book contains many more
cases of how CRM programs can help build brands fast
Analysing Consumer Markets and Buyer:

The Nike Way
The Nike story begins with its founder, running enthusiast Phil Knight. In 1962, Knight started Blue
Ribbon Sports, the precursor to Nike. At the time, the athletic shoe industry was dominated by two
German companies, Adidas and Puma. Knight recognized a neglected segment of serious athletes
whose specialized needs were not being addressed. The concept was simple: Provide high-quality
running shoes designed especially for athletes by athletes. Knight believed that “high-tech” shoes for
runners could be manufactured at competitive prices if imported from abroad. Without much cash to
do any advertising for his products, Knight crafted his “grass roots” philosophy of selling athletic
shoes: Speaking to athletes in their language and on their level; sharing their true passion for running;
and listening to their feedback about his products and the sport. Each weekend Knight would travel
from track meet to track meet – both high school and collegiate competitions—talking with athletes
and selling Tiger shoes from the trunk of his green Plymouth Valiant
The company’s commitment to designing innovative footwear for serious athletes helped it build a
cult following that rapidly reached the American consumer. By 1980, after just under two decades in
the business, Nike had become the number one athletic shoe company in the United States. Unfortu-
nately for the company, this wave of success was soon to crest as rival companies positioned them-
selves to take advantage of the aerobics craze, which Nike largely ignored. Companies like Reebok
and L.A. Gear developed fashionable and comfortable products aimed at women fitness enthusiasts
that sold remarkably well.
Nike refused to join a market it saw as low in quality and heavy on cosmetic properties and continued
making durable, performance-oriented products. The company lost millions in sales and allowed
Reebok to gain basically uncontested market share points. By 1987, Reebok had nearly doubled
Nike’s market share, with 30 percentage points compared to Nike’s 18. Fortunately for Nike, the
company chose to fight back with product innovations and persuasive marketing. The company’s
“Air” technology revitalized the company with the additional aid of successful advertising campaigns
such as the 1987 “Revolution in Motion” spot for the new Air Max shoes and the “Air Jordan”
commercials. When Nike unveiled its now-famous “Just Do It” campaign in 1988, just as Reebok
developed the “Reeboks Let U.B.U” slogan, the company was on its way to a full recovery. By

1989, Nike had regained the market leader position in America as market share rose three points
above Reebok to 25 percent that year.
In the 1990s, Nike continued its consumer focus. Nike kept its “finger on the pulse” of the shoe-
buying public in part through the use of “EKINs” (Nike spelled backwards) – sports-loving employ-
ees whose job was to hit the streets to disseminate information about Nike and find out what was on
the minds of retailers and consumers. Nike’s “Brand Strength Monitor” formally tracked consumer
perceptions three times a year to identify marketplace trends. In areas where it felt less knowledge-
able, e.g., outside of track and basketball, Nike was more likely to commission customized research
studies. Nike’s inventory control system, called “Futures,” also helped it better gauge consumer
response and plan production accordingly.
Innovative product development had always been a cornerstone of the company. By 1998, Nike was
unveiling a new shoe style, on average, every day. In 1999, the company put the power to design
shoes in the hands of its customers with the NIKEiD project. NIKEiD enabled customers to person-
alize a pair of selected shoe models using online customization software. The software led consum-
ers through a step-by-step process: customers could choose the size and width of the shoes, pick the
color scheme, and affix their own 8-character personal ID to the product. Early reviews of the
NIKEiD project were full of criticism of the limited selection and availability, so less than a year after
its debut, Nike added additional shoe models and more customization options while increasing site
capacity.
Though the company had become a household name throughout the world and, more important,
achieved the position of global sportswear leader, Nike was still $3 billion shy of reaching the goal of
$12 billion that Phil Knight initially intended the company to reach by 2000. In a letter in Nike’s 2000
annual report, Knight addressed the issue of how to jumpstart his company’s slowed growth and
offered the following formula: “We need to expand our connection to new categories and toward
new consumers.” This quotation is indicative of Nike’s relentless drive to build its brand with a strong
consumer focus
Questions:
1. While Nike made significant changes to maintain its global leadership position, there appear to be
some problems in maintaining and growing that position. Is Knight correct in his formula for jumpstarting
Nike’s growth (last paragraph), or is the matter more complicated?
2. Develop and evaluate the types of pro and con marketing environmental changes that you see for
Nike. Given the options and challenges that Nike faces, how would you proceed with a strategic
marketing plan for the firm?
Nokia - Building A Powerful Technology Brand

The world of parity has hit the mobile phone market just as it has many other technology product
categories. The products range from the simple to the complex, but every manufacturer offers, of
course, the latest features. Leapfrogging in sales between brands frequently occurs based on design.
But overall the market is predictable, with Nokia, Motorola, and Ericsson fighting it out at the top
and several less successful brands like Samsung, Philips, Siemens and Panasonic trying hard to
make inroads into their top competitors’ market share. So what makes the difference between the
most successful and less successful brands? It certainly is not what product features are offered.
How, then, do consumers choose? The answer seems to be what the brand names mean to them.

Nokia Group the Finland-based manufacturer of mobile phones has been steadily working on its
corporate brand name and the management of consumer perceptions over the last few years. Its
efforts have paid off, because it is now the number one brand in many markets around the world,
effectively dislodging Motorola from that position. The brand has been built using the principles
described above, and has been consistently well managed across all markets. Nokia has succeeded
in lending personality to its products, without even giving them names. In other words, it has not
created any sub-brands but has concentrated on the corporate brand, giving individual products a
generic brand personality. Only numeric descriptors are used for the products, which do not even
appear on the product themselves. Such is the strength of the corporate brand.
Nokia has succeeded where other big brand names have so far failed, chiefly by putting across the
human face technology-taking and dominating the emotional high ground. It has done so in the fol-
lowing way.
Nokia Brand Personality

Nokia has detailed many personality characteristics for its brand, but employees do not have to
remember every characteristic. They do, however, have to remember the overall impression of the
list of attributes, as you would when thinking about someone you have met. As the focus is on
customer relationships, the Nokia personality is like a trusted friend. Building friendship and trust is
at the heart of the Nokia brand. And the human dimension created by the brand personality carries
over into the positioning strategy for the brand.
Nokia Positioning
When Nokia positions its brand in the crowded mobile phone marketplace, its message must clearly
bring together the technology and human side of its offer in a powerful way. The specific message
that is conveyed to consumers in every advertisement and market communication (though not neces-
sarily in these words) is “Only Nokia Human Technology enables you to get more out of life”
In many cases, this is represented by the tag line, “We call this human technology”. This gives
consumers a sense of trust and consideration by the company, as though to say that Nokia under-
stand what they want in life, and how it can help. And it knows that technology is really only an
enabler so that you-the customer-can enjoy a better life. Nokia thus uses a combination of aspirational,
benefit-based, emotional features, and competition-driven positioning strategies. It owns the “hu-
man” dimension of mobile communications, leaving its competitors wondering what to own (or how
to position themselves), having taken the best position for itself.
Nokia Product Design

Nokia is a great brand because it knows that the essence of the brand needs to be reflected in
everything the company does, especially those that impact the consumer. Product design is clearly
critical to the success of the brand, but how does Nokia manage to inject personality into product
design? The answer is that it gives a great deal of thought to how the user of its phones will experi-
ence the brand, and how it can make that experience reflect its brand character. The large display
screen, for example, is the “face” of the phone. Nokia designers describe it as the “eye into the
soul of the product”. The shape of phones is curvy and easy to hold. The faceplates and their
different colors can be changed to fit the personality, lifestyle, and mood of the user. The soft key
touch pads also add to the feeling of friendliness, expressing the brand personality. Product design
focuses on the consumer and his needs, and is summed up in the slogan, “human technology.”
Nokia now accounts for over half of the value of the Finland stock market, and has taken huge
market share from its competitiors. According to one brand valuation study carried out in mid-1999,
it ranked 11th on the world’s most valuable brand list, making it the highest-ranking non-U.S. brand.
As has been pointed out, it has unseated Motorola. Nokia achieved its brilliant feat through consis-

tent branding, backed by first-class logistics and manufacturing, all of which revolve around what
consumers what.
Philips - Strengthening a Global Brand

Philips is a hi-tech global company with a traditionally low profile. Until recently, if you asked anyone
if he knew the Philips brand name, the likehood was that he would say yes. However, he might not
have know what Philips provides in the way of its total product range, and might have associated the
brand name and company with traditional technology. The “Let’s Make Things Better” global brand
campaign has raised the Philips profile, and provided it with a more focused and distinctive person-
ality.
Royal Philips Electronics - its proper name - is a giant company. Established in 1891 is a lamp
factory, it now has over 100 different business, over 200 production sites, and carries out research
and development in more than 40 countries. Its sales and service outlets cover 150 countries, and it
has a total workforce upwards of 230,000 employees. It has a strong technology base, spending over
5% of sales on research and development, and owning some 10,000 patents. Its portfolio covers a
wide variety of product categories, including:
Semiconductors
TV
Video
Audio
PC peripherals
Digital networks
Lighting
Medical systems
Domestic appliances
Personal care products
The “Lets Make Things Better” campaign is still part of a global corporate branding initiative aimed
at motivating both consumers and employees. It was, to use Intel’s own words, a brand “renais-
sance.”
The company’s slogan is all about emphasizing what technology, Philips products in particular, can
do for people - it is essentially about the benefits they can bring to people and the world in general. A
keystone of the campaign was the premise that, if you can convince people that you can help improve
their lives, they will more likely believe that you can help improve the world. The campaign thus had
to appear credible, real, and experiential. It had to be human as opposed to philosophical and philan-
thropic, and not just another typical corporate overclaim.
Positioning and Differentiating

Monsanto -
In the 1980s, St. Louis-based Monsanto Company repositioned itself as a cutting-edge biotech firm
with a concentration on food and nutrition. During the next two decades, the company dedicated
millions of dollars to scientific research in biology and life sciences for the purpose of developing
genetically modified (GM) agricultural and food products. In 1996, then-CEO Robert Shapiro spun
off Monsanto’s $3 billion chemicals business, the old core of the company. Three divisions remained:
a pharmaceuticals division, a food ingredients division, and an agricultural products division that pro-
duced GM foods. Such foods included a potato designed to fight potato beetles without pesticides and
corn that is resistant to herbicides.

The new Monsanto, bearing little resemblance to the small pharmaceuticals company founded in
1901, became a leader in the biotech revolution. The company felt that biotechnology would be the
key to feeding the world’s rising population – currently growing at a rate of 800 million per decade –
and improving global nutrition standards. Monsanto claimed that genetically superior crops of corn,
wheat, tomatoes, and soybeans will yield larger harvests, while biotech improvements in the food
supply will help prevent illness and boost human productivity. In the company’s view, the next two
decades would bring a biotechnology revolution that would blend the pharmaceutical, agricultural,
and food and nutrition businesses into a single “life science” industry. To improve the company’s
reach in this industry, Monsanto spent millions amassing biotech patents by acquiring smaller compa-
nies and making deals with agribusiness firms. Such moves included the 1995 acquisition of Merck’s
specialty chemicals unit and the purchase of Unilever’s wheat-breeding business in 1998.
Monsanto’s aggressive move into the biotech industry met with approval on Wall Street. In 1997,
Monsanto stock sold for close to 23 times earnings, compared with pure chemical company Dow’s
stock, which sold for 10.5 times earnings. In addition to being a favorite of investors, however,
Monsanto became a target for environmentalists and consumers opposed to GM products. Backlash
was particularly harsh in Europe, where the mad-cow scare made food products an especially sen-
sitive consumer issue. British newspapers repeatedly referred to the company as a “Frankenstein
food giant” and “biotech bully boy,” while Prince Charles vowed never to eat food containing Monsanto
products. Monsanto’s attempt to win over U.K. citizens with an expensive public relations campaign
failed: following the campaign, 51 percent of British consumers expressed negative feelings about
GM foods, compared with only 44 percent beforehand. This sentiment was shared throughout much
of Europe. In 1998, the European Union declared a moratorium on the approval of new GM seeds for
planting. Several European countries, such as Austria and Luxembourg, banned GM foods alto-
gether. Other hotspots for public criticism of the company included Japan, Australia, and India.
Monsanto’s financial fortunes turned as hostile public receptions throughout the world left it unable to
either sell expected volumes existing products or introduce new products. Following a merger with
drug company Pharmacia & Upjohn, the pharmaceuticals division of Monsanto became part of the
new Pharmacia Corporation in 2000. The remainder of the Monsanto Company is now a subsidiary
of Pharmacia and strictly a biotechnology corporation. Pharmacia spun off part of Monsanto into a
public company while retaining majority ownership. In 2000, Monsanto issued a statement apologiz-
ing for its insensitivity and arrogance and formally pledged to be “honorable, ethical, and open” in all
its future actions. New CEO Hendrik Verfaille admitted that the company “missed the fact that this
technology raises major issues for people of ethics, of choice, of trust, even of democracy and
globalization. When we tried to explain the benefits, the science and the safety, we did not understand
that our tone, our very approach, was arrogant.”
Amid mounting consumer concerns about GM crops, in November 2000 Monsanto adopted a re-
stricted planting schedule for a GM corn product and delayed introduction of another variety until
2002. The growth potential for the company is huge: Monsanto estimates that more than 70 percent
of the world’s insect- and herbicide- resistant crops come from the company. Anywhere public
contempt for GM products lessens, Monsanto’s opportunities improve dramatically. The company
has undertaken various advertising, public relations, and education campaigns to improve public per-
ception of its products. The prevailing attitude at the company is now much humbler than it was
during the mid-1990s, when then CEO Robert Shapiro declared that “worrying about starving future
generations won’t feed them. Biotechnology will.”

1. What marketing mistakes did Monsanto make to cause the firm to receive such bad press in
Europe and elsewhere?
2. What lessons concerning public relations marketing does the Monsanto spotlight case
indicate? Are there additional issues that Monsanto should consider for the future?

Setting the Product and Branding Strategy

Anheuser-Busch
Budweiser Lager was first brewed in 1876 by E. Anheuser & Co., St. Louis. Today, Anheuser-
Busch is the largest brewer in the world in terms of volume, and it competes across a diverse range
of markets. The company oversees more than 30 different beer brands, including the domestic mar-
ket leader Budweiser, a number of other beverages, a group of theme parks, and a real estate
enterprise. A broad brand portfolio has been a boon to Anheuser-Busch in the past. During the
Prohibition era (1920-1933), the company maintained revenue flow by selling products as diverse as
yeast, refrigeration units, truck bodies, soft drinks, and chocolate syrup. After Prohibition, Anheuser-
Busch continued to grow with its core malt beverages. In 1957, Budweiser surpassed Schlitz to
become the leading beer in the U.S. In 1980, the company had a 28 percent share of the domestic
beer market, a figure that would rise steadily over the next two decades to 47 percent in 1995.
Anheuser’s market share climbed to 50 percent by 2000, leaving competitors Coors and Miller far
behind with 21 percent and 12 percent, respectively.
The table displays Anheuser-Busch’s brand portfolio:
Beers
Budweiser – the company’s original beer
Bud – Dry, Ice, Ice Light, Light
Busch – introduced 1955: Ice, Light, and regular
Michelob – first introduced in 1896: Light, Amber Bock, Honey Lager, Black & Tan,
Hefe-Weizen
Natural – a discount beer, available in Ice and Light
The company also brews several specialty and microbrews, including Pacific Ridge Ale,
Red Wolf Lager, and Safari Amber Lager. Anheuser-Busch also brews two
non-alcoholic beers, Busch NA and O’Doul’s.
Other Alcoholic Beverages:

Doc Otis Hard Lemon – a lemon-flavored malt beverage
Devon’s Shandy – a beer-lemonade mix
King Cobra – malt liquor
Hurricane – malt liquor
Tequiza – beer with the flavor of tequila
Non-Alcoholic Non-Beer Drinks
180 – a caffeinated, carbonated energy drink
Theme Parks
Busch Gardens –amusement park opened in Tampa, Florida, in 1959.
Adventure Island – a water park in Tampa
Discovery Cove – animal park in Orlando
Sea World – “marine adventure parks” located in Orlando, San Antonio and San Diego
Sesame Place – a Sesame Street theme park in Langhorne, Pennsylvania
Marketing the Flagship Beer

Anheuser-Busch has earned a reputation as an expert marketer, due in large part to its success with
the flagship Budweiser brand. Budweiser receives much of the marketing support and attention of
the company. Of the $396 million Anheuser-Busch spent on measured media in 2000, $146 million

was spent on Budweiser, compared with $107 million for Bud Light. Advertising for Budweiser takes
a three-pronged approach: ads emphasizing product quality, ads focusing on values and social re-
sponsibility, and ads with contemporary appeal designed to humor and entertain the audience. With
this multi-pronged approach, Budweiser is able to create a rich brand image that resonates with a
broad audience base. One marketing analyst recently proclaimed Budweiser, originally the beer of
choice for blue-collar workers, is now beer for all demographics.” Anheuser-Busch conducts exten-
sive and sophisticated market research in order to develop engaging ad campaigns. It is no surprise,
then, that advertising for Budweiser routinely garners both critical and audience acclaim, and is
credited for much of the brand’s success. One of Budweiser’s most popular campaigns in recent
years – the “Whassup?!” series – earned the company top honors during the Super Bowl ad frenzy,
and spawned a host of Internet parodies and television spoofs.
Anheuser-Busch moved to the Internet and launched Budweiser.com in 1996. The site offers infor-
mation about the brand, company history, information about sporting events sponsored by Budweiser,
downloads such as screensavers and television ads, and free e-mail addresses ending in
Budweiser.com. During the first two months of 2001, Budweiser.com received almost 2 million more
average monthly page visits than similar sites from Miller, Heineken, and Coors. In addition to these
effective pull strategies, Anheuser-Busch uses various push strategies in retail outlets to help sell
beer, from price cuts to instant-win packaging to in-store promotions. Since summer is the peak
season for Budweiser, Anheuser Busch steps up its in store push strategies with its annual Bud
Summer promotions.
Anheuser-Busch Looks Ahead

As Anheuser-Busch continues to expand, it will need new products to attract new drinkers. The
company is planning to introduce a new super-premium beer using its flagship Budweiser brand as a
launch pad. The company will test the new product, called Budweiser Red Label, in certain markets
before launching it nationally. The company hopes the extension will attract import drinkers without
alienating Budweiser purists. Other recent new products, including 180 energy drink and Tequiza
beer, have not been successful. Still, Anheuser-Busch continued to set earnings records in fiscal
2001, and the strength of its brand portfolio continued to prove itself as the company gained market
share at the expense of its competitors

1. Provide a concise analysis of the basis for the Anheuser-Busch marketing strategy that has
worked so well for so long.
2. If we can assume that great brand and product management is one of Anheuser-
Busch’s primary strengths, what are some of the contributing factors in that
process, and who is affected, primarily?
Volkswagen: Changing perceptions and positioning - Stretching a

brand
Volkswagen (VW) is a famous international brand name that has traditionally been associated with
the mass market, its most famous model being the Beetle. Indeed, it is currently exploiting nostalgia
with the new Beetle retro-model.
However, not content with sticking to the categories where it enjoys success, the company is also
attempting to move into the prestige- and luxury-car segments dominated by established brands like
Mercedes and BMW.
Its first venture into this market segment is with the new Passat V6 Syncro, which is out of the price
range of the typical VW buyer. Evidently, other models are planned at higher-level segments and

prices. Even though VW owns Audi, Bentley, and Lamborghini, amongst other brands, many people
are skeptical that it can stretch its own brand upwards, when consumer perceptions still associate the
VW-branded cars with smaller and less prestigious vehicles. Its “badge value” (brand associations)
would not appeal to customers of BMW, Mercedes, or even Audi. Additional problems arise when
consideration is given to the fact that other brands such as Volvo and Toyota’s Lexus are also shifting
their position to target the prestige market that demands performance, luxury, and marque. VW
acknowledges the issues but says it will give customers more product. But is product what the luxury
car owners are really buying? More likely, according to research, it is status, prestige and self-
expression that determines their decision, and VW will need to do a considerable amount of con-
sumer perception management and distributor education to successfully bring any of its VW branded
models into that league.
What is a brand?
Brand is the proprietary visual, emotional, rational, and cultural image that you associate with a
company or a product. When you think Volvo, you might think safety. When you think Nike, you
might think of Michael Jordan or “Just Do It.” When you think IBM, you might think “Big Blue.” The
fact that you remember the brand name and have positive associations with that brand makes your
product selection easier and enhances the value and satisfaction you get from the product.
While Brand X cola or even Pepsi-Cola may win blind taste tests over Coca Cola, the fact is that
more people buy Coke than any other cola and, most importantly, they enjoy the experience of buying
and drinking Coca Cola. The fond memories of childhood and refreshment that people have when
they drink Coke is often more important than a little bit better cola taste. It is this emotional relation-
ship with brands that make them so powerful.
What makes up a brand identity?

Brand identity includes brand names, logos, positioning, brand associations, and brand personality. A
good brand name gives a good first impression and evokes positive associations with the brand. A
positioning statement tells, in one sentence, what business the company is in, what benefits it provides
and why it is better than the competition. Imagine you’re in an elevator and you have 30 seconds to
answer the question, “What business are you in?” Brand personality adds emotion, culture and myth
to the brand identity by the use of a famous spokesperson (Bill Cosby - Jello), a character (the Pink
Panther), an animal (the Merrill Lynch bull) or an image (You’re in good hands with Allstate).
Brand associations are the attributes that customers think of when they hear or see the brand name.
McDonalds television commercials are a series of one brand association after another, starting with
the yellow arches in the lower right corner of the screen and following with associations of Big Mac,
Ronald McDonald, kids, Happy Meal, consistent food quality, etc.
The first step in creating a brand for your company or organization is a branding workshop.
Is Branding just for large companies?

No, our process can be applied to any business, organization or product. The techniques of branding
have been kept secret for many years because they provided a competitive advantage to those
companies that used them. Our process takes the proven principles of branding used by companies
like P&G, Disney, and Coca Cola and puts them into a simple, understandable and easy to use
process. This process can be used by retailers, service businesses, manufacturers and businesses of
all types and sizes.

How do we determine our brand identity?

Brand has been called the most powerful idea in the commercial world, yet few companies con-
sciously create a brand identity. Do you want your company’s brand identity created for you by
competitors and unhappy customers? Of course not. Our advice to executives is to research their
customers and find the top ranked reasons that customers buy their products rather than their com-
petitors. Then, pound that message home in every ad, in every news release, in communications with
employees and in every sales call and media interview. By consistent repetition of the most persua-
sive selling messages, customers will think of you and buy from you when they are deciding on
whether to buy from you or your competitor.

Unit 3
Chapter 10 - Product Decisions and Strategies
Lesson 28 - Product Decisions and Strategies
In our last discussion we have taken up topics from positioning and differentiation and understood the
importance of it
In this lesson we will be concentrating on marketing mix. The main focus of discussion will be
product. Initially we will start with the meaning of product and then moving on to different levels of
product and finally it will be followed by classification of consumer and industrial products.
After reading this chapter, you should be able to:

1. Explain what consumer and industrial products are and how they are classified.
2. Illustrate and explain the stages in the product like cycle.
3. Understand the significance of the product adoption and diffusion processes to marketers.
4. Distinguish between a product mix and a product line.
5. Understand what is brand and different aspects of it and explain the importance of packaging.
In this unit we will be further discussing on product planning, it basically refers to the systematic
decision making related to all aspects of the development and management of a firms products
including branding and packaging. Each product includes a bundle of attributes capable of exchange
and use.
How will you define a product?

You can say a product is a good, service, or idea consisting of a bundle of tangible and intangible
attributes that satisfies consumers and is received in exchange for money or some other unit of value.
“It is not always clear what consumer problem a product is designed to

solve” test the statement yourself as a group. Consider the following list
of personal use consumer products. What problem is each trying to solve?
Try to identify primary problem-solving features in each product, and then

evaluate how successfully the problem is solved by the product, using a
scale of 1 (very unsuccessful) to 10(extraordinarily successful):
· Automobile
· Microwave oven
How an organization views a product depends upon its perspective:
The organizations that are production-oriented look at a product basically as a manifestation of re-
sources used to produce it and the organizations that are marketing oriented view a product from the
target consumer’s perspective as a bundle of benefits by benefits I mean to say functional as well as

emotional benefits. Accordingly they will have to see how their consumers view their products. Most
of the organizations have realized that there is no need to prepare a marketing mix for a product that
offers few consumers benefits, because that product will not sell.
You have to consider the product from the target customer’s perspective. Like the cosmetic compa-
nies are combining chemicals to make lipsticks, vitamin manufacturers produce little pills, watch
makers produce mechanical devices that keep time. -What are marketers doing they are basically
enhancing their products for their target markets-as lipstick has becomes beauty and hope, vitamins
become hope for a healthier life and watches become status symbols?
So we can say that a product therefore is a bundle of physical, chemical and / or intangible attributes
that have the potential to satisfy present and potential customer wants. In addition to the physical
Good itself, other elements include the warranty, installation, after sales service accessories
and package. A customer buying an air-conditioner and a maintenance contract from Carrier Aircon
is buying a different product than another who buys the same model without the maintenance agree-
ment. Now lets discuss the levels, that are present in a product
Level 1: Core Product. This level is basically related to what is the core benefit your product offers?
Just suppose you are purchasing a camera you should be clear that you are not just buying a camera
but you are buying something more then just a camera, by this you are purchasing memories.
Level 2 Actual Product: but one thing which all of us know is that all cameras capture memories. In
this case the marketer should make sure that your potential customers purchase your product. The
strategy at this level involves organisations branding, adding features and benefits to ensure that
their product offers a differential advantage from their competitors.
Level 3: Augmented product: now the question is what additional non-tangible benefits can you
offer? At this stage the competition is based around after sales service, warranties, delivery and so
on. John Lewis a retail departmental store offers free five year guarantee on purchases of their
Television sets, this gives their ‘customers the additional benefit of ‘piece of mind’ over the five
years should their purchase develop a fault.
Check your understanding:

Give example in all the questions given below:
What is the core product?
What is the augmented product?
What is the potential product?
Article:
The Augmented Service Offering: A Conceptualisation and Study of Its Impact on New Service
Success Chris Storey, and Christopher J. Easingwood Unlike companies that produce tangible goods,
service firms typically cannot rely on product advantage as a means for ensuring the success of a

new service. Developing a competitive response to a tangible product may require significant invest-
ments of time and effort. In many cases, however, competitors can easily duplicate the core ele-
ments of a firm’s new service. This fundamental difference between new products and new services
means that managers who hope to find the keys to new-service success must look to factors other
than sustainable product advantage.
Chris Storey and Christopher Easingwood suggest that managers must understand the totality of the
service offering from the customer’s perspective. They explain that the purchase of a service is
influenced not only by the service itself, but also by such factors as the service firm’s reputation and
the quality of the customer’s interaction with the firm’s systems and staff in other words, by the
augmented service offering (ASO). Using the results of a study they conducted in the consumer
financial services industry in the U.K., they identify the components of the ASO, and they examine
the relative contributions of these components to the success of new services.
In their model, the ASO comprises three elements: the service product, service augmentation, and
marketing support. The core of the ASOthe service productincludes such dimensions as product
quality, product distinctiveness, and perceived risk. The study’s results suggest that improvements in
the service product open up new opportunities for the firm, but have only modest effects on sales and
profitability.
Rounding out the ASO model are service augmentation and marketing support. Service augmenta-
tion encompasses such dimensions as distribution strength, staff-customer interactions, and reputa-
tion. The customer recognizes and responds to these elements of the ASO, but they are not part of
the product core. Marketing support involves those marketing and management actions that affect
the quality of the product and its augmentation, even though customers typically are not aware of
them. These elements include knowledge of the marketplace, training of contact staff, and internal
marketing. Enhanced service augmentation has significant effects on profitability and sales for the
firms in this study, but it does not offer enhanced opportunities. The marketing support elements
contribute significantly to all aspects of performance for the firms in this study.
Now lets move on to the classification of product Systems Products can be classified as consumer or
industrial product.
Consumer products are “used by ultimate consumers or households and can be used without com-
mercial processing.” Industrial products are “sold primarily for use in producing other goods or ren-
dering services.” For example products like talcum powder and toothpaste are exclusively used by
ultimate consumers, where as jet engines and truck axles are designed exclusively for use by indus-
trial users, but there are many products that can be used by both the ultimate consumers and indus-
trial buyers. Like motorcycle, you will buy it for your own use then it is a consumer product and when
the same motorbike is bought by the firm for its sales person then it is a industrial product.
Next topic for discussion will be Classifying of Consumer Products

The most common basis for classifying consumer products is based on buyer behavior. The
classification is based on differences in the buying behavior of the people who buy the prod-
ucts (it is basically how you perceive and buy the products) not on the differences in the
products themselves. The system works because many consumers behave alike in buying a
given type of product. This helps marketers in making generalizations to guide development of
their marketing mixes. Four classes of consumer products are (1) Convenience products (2) Shop-
ping products (3) Specialty products, and (4) Unsought products. See Figure 10.1. It gives you a brief
description of consumer goods.
They are basically low-priced, nationally advertised items like cigarettes, toffee, or blades and
matchboxes. These are bought frequently but consumers rarely shop actively for them because

they are low value items whose price and quality do not justify active involvement. They are
widely available at many outlets. Three subclasses are:
1. Staple Products: this includes milk, bread, eggs, butter which are bought routinely because the
family regularly consumes them. The decision to buy these products is programmed after the first
time when the consumer puts them on his list of regular items.
2.Impulse Products: Purchases of Impulse products are absolutely unplanned exposure to the
product triggers the want. The desire to buy staple products may cause the consumer to go shopping.
The desire to buy impulse is a result of the shopping trip. This is why impulse products are located
where they can be easily noticed. Stardust and Savvy magazines, toffees and chocolates (placed at
a child’s eye-level) are examples of impulse products.
3.Emergency Products: Purchases of emergency products result from urgent and compelling needs.
Often a consumer pays more than if this need had been anticipated. Example of this would be hotels
permit shops vending toothbrushes and shaving blades set up in their lobbies to cater to travelers who
have forgotten theirs at home.
Shopping
Shopping Products
These products involve price and quality comparisons. Shoppers spend more time, cost and effort to
compare because they perceive a higher risk in buying these products. Shopping products can be
homogeneous or heterogeneous.
1.Homogeneous Shopping Products: they are products, which are considered to be alike. Just
suppose you want to buy a colour television, you are aware that most of the brands are very similar
then you will limit your shopping effort to price comparisons. Thus sellers tend to engage in price
competition. But most of the time you will find that the manufacturers may also stress upon on the
differences on the basis of design and try to distinguish between the physical product and its product
related services. One might set up service centers to differentiate its product from rivals. A retailer
might advertise that the Color TV’s price includes 6 months or free interest financing. Consumers
who want to stretch their disposable incomes are more likely to consider a product as a homogeneous
shopping product than as a convenience product.
2.Heterogeneous Shopping Products they are product that are considered to be unlike or non-
standardized. Consumers shop for the best price quality combination. Price often is secondary to
style and quality when price comparisons are difficult to make. Using price to compare clothing,
jewellery, cars, furniture and apartments is tough because quality and style vary within each product
class. Just suppose a couple is searching for a flat may spend a lot of time comparing decor, floor
plans, distance from stations and so on. Once they find the right one, price becomes important. If the

rent is reasonable compared to the alternatives, they probably will lease it.
Specialty
Special Products
In this case you as a consumers will make a special effort to buy specialty products. For these
products consumers have strong convictions as to brand, style, or type. Mitsubishi Lancers, Ray-
Ban glasses, Leica Cameras and Johnny Walker Scotch Whisky are examples. Consumers will go
out of their way to locate and buy these products because they perceive quality and other
benefits in owning them. There is no Comparison Shopping. Doctors, Lawyers and Accountants
who enjoy a large following are selling specialty products. Marketers try to create specialty status for
their products with advertising phrases like “accept no substitutes”, “‘insist on the real thing”, and so
on. They build customer loyalty when consumers consider their brands to be specialty products. But
specialty product can be less intensively distributed than a convenience or shopping product
because buyers will search to find it.
Unsought
Unsought Products
They are products which are present in the market but the potential buyers do not know that such
product exist or there can be a possibility that the buyer don’t want it. There are two types: regularly
unsought products and new unsought products.
Like Life Insurance, a lawyer’s services in contesting a will, a wreath and a doctor’s services in an
emergency are regularly unsought products. These are basically existing products but the consumers
do not want to buy this product now, although they may eventually purchase them. Marketers face a
tough challenge in persuading consumers to buy their new unsought products. The marketer’s task
here is to inform target consumers of the products existence and stimulate demand for it. Oral polio
vaccine was once a new unsought product. But heavy promotion and acceptance of the product
practically eradicated polio.
Using the Classification System

Because the classification system is based on buyer’s behavior, it is actually you as consumers who
determine which category a given product belongs to in a given situation. Thus any given product
may be classified differently by different consumers or by the same consumer in different
situations. For example, many consumers consider the services of dentists to be a specialty
product. These consumers are therefore, loyal patients. Patients who shop for the best price and
buy dental services from dental clinics that advertise low prices, probably consider dental services to
be a homogeneous shopping good. There are also plenty of people who consider dental services
a regularly unsought product.
Even in buying the same product, a given consumer may behave differently in different situations.
Continuing with the same example that we have discussed (dental services), a consumer who has
just moved into town might “shop around” to gather information about price and quality before select-
ing a dentist. To that person, dental services are a heterogeneous shopping product. If that same
person were to develop a toothache while vacationing in a strange town, he or she would likely
consider dental services to be an emergency product.
The examples we have discussed basically suggest that marketers should not be product oriented in
thinking about their market offerings. They should view their products from their consumers’ shop-
ping behavior. Doing this they often can come up with new approaches to segmenting the mass
market for a product category.

Services
A service business is one that provides an intangible product for its consumers. Like Non-profit
organizations, including government, also provide many services to consumers and industrial buyers.
We can say that services differ from physical products in that they are intangible and production
and consumption occur together. For example Hotels, beauty shops, laundries, movie theatres,
airlines, banks and real estate are some examples of service firms. They are mostly small compared
to manufacturers of physical products and have greater difficulty reducing costs and increasing
productivity through mechanization and automation. There is lot of progress being made, in
bringing the benefits of the electronic age to marketers of services.
You would have noticed that most of the hotels now have computerized link ups with airlines and
other hotels in the chain for reservations and transfers to improve their management of occupancy
rates. Banks are offering Automatic Teller Machines (ATMs) to enable customers to withdraw cash
24 hours a day. Services like tangible consumer products, can be classified on the basis of buyer
behavior. Many of us consider computerized tyre balancing outlets to be a convenience service.
Many also probably consider childcare to be a shopping service. Most consumer services that
involve a lot of skill probably are considered specialty services. Table 10.1 discusses several im-
portant characteristics of services-
Table 10. 1 Characteristic of Services

1.Sold exclusively on the basis of benefits since there is no physical product to sell. Thus a good
reputation and word-of-mouth publicity are crucial in marketing services.
2.Cannot be produced in anticipation of demand because they are consumed as they are pro-
duced. They cannot be stored in inventory.
3.Time utility is crucial because services cannot be stored. Time spent idle is time lost forever.
That is why appointments are usually required.
4.Cannot be produced in one location for consumption in another. This is one reason why
service firms tend to be small.
5.Perish upon offering: A person who misses a music concert can never recapture it as it perishes
as it is produced.
6.Once consumed it cannot be returned to seller. Consumers will be extra careful in selecting
service vendors as a risk reducing method.
7.Quality control is tougher than for tangible products and may vary by time of day or server’s
attitude.
Consumer and industrial products both have life cycles that we will discuss next.
Article:
Matching Market needs and Marketing the “complete product”
As discussed in the first article in this series, Marketing is no longer just the mouthpiece of the
company: it is the eyes and ears which gather information and the intelligence (through planning,
analysis and strategy) that drives forward the company. Through this information and intelligence
successful companies attempt to “match” their offering to the wants of the market place. This
“matching” process is often carried out implicitly by many companies “who don’t do marketing”. In
reality they carry out the same functions and actions under other titles. However the lack of explicit

consideration of the process may lead to the loss of valuable information which could lead to better
offerings in the future. The matching process involves defining the offering a company makes to the
market on the basis of an understanding of what the market needs which in turn is based on the
capturing and analysis of information and feedback from the market.
The process of information collection and analysis will be covered in more detail in the next article. I
have hesitated to use the word product to describe the offering, as many readers will consider that as
they offer services or technology this aspect of marketing does not apply to them. However if we
examine the nature of contemporary market offerings we will see that few now comprise only of a
tangible product. The key to this is to look at the concept of the Complet Product Offering.
What is the Core Benefit?

This is the central benefit that the user derives from usage of the product/service.. This can be
identified by asking “what needs and desires does this product fulfill?” The core benefit can be very
simple (one major benefit) or very complex (numerous benefits of varying importance). The classic
example of cosmetics actually selling hope or beauty is well known. A more relevant example may
be that of test equipment delivering reliability; insurance which delivers security/peace of mind; or
word processing software which delivers the ability to communicate effectively. (It is not the com-
puter code most people consider they are buying). It is important to consider the benefit that is being
purchased from the customers’ perspective. This is termed the Core Benefit Proposition and as such
can be the most powerful aspect of promotion and new product development. The Physical Aspect
of the Complete Product is the actual tangible element. Even in the case of services where there is
no physical product, there is a physical deliverable aspect in terms of literature designs and styling,
branding, packaging, and levels of quality offered. The Augmented Product is often the aspect that
determines the purchase of one service or product over another in a commodity market. These are
the factors that support the physical product in delivering customer satisfaction:- delivery and instal-
lation, documentation, training, service and maintenance, accessories , even payment terms. In tech-
nology markets often the compatibility of the product with international standards will improve sales.
Indeed in technology markets the augmented intangible aspects of the offering are now driving the
purchase of tangible products. All companies therefore offer a Complete Product, however it is only
those that explicitly understand the matching concept, which will offer the most successful complete
products.
Points to Remember:

Unit 3
Lesson 29 - Product Mix
Last time we were discussing about what is a product then the basic characteristics of it were also
discussed along with different types of products with its categories. In this lesson we will be discuss-
ing about product policy and would further proceed with Product mix.
First Check your understanding and then move ahead: Would you classify the product offered by
restaurants as a consumable or a service? If yes/no then why.
Lets start with product policy now: In Product Policy there are certain question that should be asked
by you? But don’t worry about the question you cannot answer, as those topic will be covered in
consecutive lectures.
Like:
What product should the company make?
Where exactly are these products to be offered?
What should be the width of the product mix?
How many different product lines can the company accommodate?
How should the products be positioned in the market?
What should be the brand policy?
Basically the answers to these will constitute the product policy of a firm .It constitutes the following:
Appraisal of the product line and the individual products- No product line is perfect and also
does not run for all times to come. Changes happen in the business environment, customer tastes and
preferences, extent of competition that pressurise the product policy of the firm. New, changed,
advanced products are introduced or even old products are withdrawn from the market by the com-
panies to revive the lost market image, to overcome the treat of functional obsolescence due to new
improved /substitute products introduced by competitors, to regain profitability or when the product
has entered a stage of decline. Firm needs to constantly monitor the company’s product policy.
This topic of Product Mix & Product Line is very important so concentrate on it.
When we say a firm’s product mix we are actually discussing about all product items it offers.
Hindustan Lever’s product mix includes agro-chemical products, soaps, detergents, toothpaste, sham-
poos, Talcum powders, cosmetics and now, frozen foods.
Just suppose any organization is marketing more than one product then it has a product mix.
Product item—a single product
Product line—all items of the same type
Product mix—total group of products that an organization markets
Now if I say a product line what do you understand from this?

It is basically a group of products that are related because of customer, marketing and or
production considerations. I hope all of you know that Rin, Wheel, Rin Solarox, Rin detergent
powder, Surf, and Surf Ultra are part of Lever’s detergents line and Le Sancy, Lux, Rexona, Lifebuoy,
are part of its soaps line. When we are discussing about a typical large multi-product firm’s product
mix includes new, growing, maturing and declining products. Table 10.2 actually presents the lists of
several reasons many firms choose not to limit themselves to one product.
Table 10.2: Reasons many firms do not want to limit themselves to one product.
1.To counteract the effects of the PLC on a one product firm.
2.To even out seasonal sales patterns.
3.To use company resources and capabilities more effectively.
4.To capitalize on middlemen and consumer acceptance of established products.
5.To spread production and marketing costs over a wider product mix.
6.To become better known and respected by middlemen and consumers.
Breadth & Depth

Now you have a fair idea on what is a product mix. In product you have to define the structural
dimensions of breadth (or width) and depth. Breadth refers to the number of different product lines.
Depth refers to the number of product items within each line.
A firm can expand its product mix by increasing the number of product lines or the depth within one
or more product lines. HLL expanded in breadth when it entered the agro-chemical business. It
expanded in depth when it bought TOMCO a soaps and detergents company.
Width of product mix
Fig. 10.6: Lever’s Product Mix and Product Lines (partial listing)
You would have noticed that so many companies market just one or two product lines, and hence
their product mix is narrow. Do you know in which all areas General Electric operates? It
basically operates in diverse fields, and has broad product mix. You can see in Fig that each product
mix has a depth, which is given by models, colours, sizes, available in each individual product lines.
As all of us know that pharmaceutical company has a product line of antibiotics. It has several
dosage forms like it can be in the form of capsules, dispersible tablets for children, vaginal supposito-
ries, injections, eardrops, eye drops and Syrups under the dosage form and then the size of the
package can be different. The company has several brands of antibiotics, and each brand has several
dosage forms and sizes. We can say, that its product mix has depth. On the contrary, a few products,
in one size only as one brand is an example of a shallow product depth.
All the decisions related to product lines offers are from company’s strategic plan and marketing
plan. It considers the segmentation of the market and targeting. Just suppose an organization wishes
to target young’ children, it can add a whole new product line for it. New product lines are either a

matter internal development or can be acquire. Each product line also can be expanded. The impor-
tant idea is that the product line of a company reflects the objectives of the organization, the targeting
decided upon and the buyer behaviour in a given market.
You can modify existing Product lines:

We have a number of reasons to alter either an existing product or a product line. The reasons could
be to support marketing strategy, to improve sales, to improve profits, to expand market share. We
can also consider what the product as such contributes to the product portfolio. We can modify a
product line by altering either one or more than one of the following attributes:
(1) Composition of the product line
(2) Expansion or contraction of product line
(3) Value addition process
(4) Brand
(5) Packaging
(6) Physical characteristics
(7) Positioning
The first two attributes are relevant to a set of products in the product line. The rest are relevant to
either individual products or product lines.
Expanding and Reducing the Product Line:

As you are aware that there are many models of TV available in the market. There is a large variety
of radio sets from Sony. Underlines bras are available in a number of styles. Syrups and crushes are
available in many flavours, e.g., Rasna concentrates and Mala’s crushes. There are technical prod-
ucts with higher and lesser sophistication. We find many product categories where consumers prefer
to have a great variety for their satisfaction. Marketers are adopting strategies of adding new ver-
sions with new specifications, while retaining the old versions for the less sophisticated consumers.
Sometimes this addition of new products to existing line is done to include complementary products,
e.g., a toothpaste marketer may add toothbrushes to the product line. Camel may introduce paint-
brushes, which go welt with its watercolours.
Sometimes, there are occasion to delete a product/products from the line. A product, which shows
decline in terms of sales, may be abandoned. Non-contributing products may be eliminated. While
doing so, it should be seen that other products in the product line are not affected.
Product line length:

Now you should ask a question what is the optimum size of a product line?
A line is too long if after eliminating a product is results into increased profits. A line is too short when
any addition to it results into increased profits.
One thing should be clear to you that the Company’s overall objectives do affect the length of its
product line. For instance, a company may have the objective of expanding its market share. It will
then have a longer product line. Contribution of individual products to profits may be ignored. How-
ever, a company whose objective is to have larger profits will have a shorter product line consisting
of those items, which contribute to profits substantially Product lines have a tendency, to lengthen
over a period of time. Many a time, a firm may, have extra capacity, which is used for developing
new items. . Sales people and trade put pressure on management to keep on adding items to a
product line so as, to satisfy their customers.
Lengthening of the line shoot up costs. At some point, this must come to halt. Loss making items are
then eliminated. The contribution of items to profits is studied. Thus in the life of an organization,
there is a cycle of longer product line followed by a pruned product line. This cycle is repeated again
arid again.

Line stretching
Most of the companies have range of products in its existing product lines, like Videocon has a range
of TVs in its product line, right from budget TVs to premium TVs. Line stretching occurs when this
range is lengthened. This stretching could be upward, downward or both ways.
Upward stretching:
Here a company operates in the lower end of the market. By upward stretch, it proposes to enter the
higher end. Perhaps, it is motivated by higher margin of profits, higher growth rate or a position of a
full-range marketer. This decision has its own risks. A well-established high-end marketer might
assault the stretcher by stretching downwards. Besides, it is a question of credibility of a lower-end
marketer -whether he will be able to produce high quality products. There is one more risk. The
existing infrastructure of a low-end marketer may not be competent to deal with the high-end mar-
ket.
Downward stretch:
Lets start with an example: like all of you know parker, parker started with pens only at high price but
if we look at parker today we can see products available in the range of 50 Rupees which no one
could have though of in older times.
Many companies start with high-end products, but later stretch downwards by adding 1ow-priced
products. The down-end products are advertised heavily so as to pull customers to the whole line on
the basis of price. Videocon advertises its budget line 14" inches TV at Rs. 8,000. Once the customer
is pulled, he may decide to buy a higher priced model- he trades up. This strategy needs careful
handling. The budget brand being promoted should not dilute the overall brand image. Besides, the
budget brand must be available. Consumers should not get a feeling that they were hooked to a bait,
for switching later.
Downward stretch is practiced in the following situations:

A competitor stretches upward and challenges the marketer. He counter-attacks him stretching
downwards
Most companies start at the upper end, and then roll downwards.
The high-end market has a slow growth rate.
By filling the gap at the low-end, new competition is avoided.
Downward stretch has its own risks. The down-end item might cannibalize the high-end items.
Besides, our downward stretch might provoke a competitor to move upward. Down-end product
may not be managed properly as the company may not have that capacity. It may dilute the brand
image of the company’s products. It is, however, needs careful consideration - a product line should
not have a gap at the lower-end. It exposes the company to competition, e.g., American car compa-
nies faced the competition from small-sized, Japanese cars at the lower-end of the market.
Two way stretch

Beside upward and downward stretch you can even stretch in two ways like severall companies
serve the middle-end market. They can stretch their product line in both the directions. A hotel
company operating hotels in the comfort category where each room has a tariff 2000-3000 a day
might decide to have elite upper-end hotels with tariffs of Rs. 5000-7000 a lower-end budget hotels
with tariffs of Rs. 600-1500 a day. Ashoka group of ITC has thus elite 5-Star hotels, at the upper-end
comfort hotels at the middle-end and budget hotels like Ashoka Yatri Niwas at lower end.
Go to the area of your town that has a number of restaurants. Compare the product mix of one
with the other. Are there any differences in width or depth? How could they stretch their lines?

Another concept, which is very important and should be know to you, is cannibalization:
When the sales of the firms new products are due mainly because of decreasing sales of its existing
and established product then we say that cannibalization has occurs in brief we can say by this you
are actually eating away your own market.
A good example of it would be Hyundai Santro they have introduced Santro Xing as a new product
in the market in other way they have cannibalized their own market, like a person who wanted to buy
Santro old model will buy Xing as it latest so they are not capturing new customer but converting their
own customers only if they are able to make a person buy their product where he was planning to buy
some product of Maruti then it is not cannibalization.
If you want to avoid cannibalization, the new product should not be identified too closely with estab-
lished products. Instead it should be targeted with new appeals to different market segments. Canni-
balization is desirable when margins on new products are higher than those on established Products.
In highly competitive industries, it is often desirable to induce target customers to trade up to the
firm’s newer products. This strategy is adopted by Videocon International, Which entered the market
with a low priced color TV with basic features and then introduced more sophisticated models up the
price scale in order to ensure that customers in all segments would buy only Videocon products.
From Generic to Potential product - Most of you would be aware that a product has a personality
of several components-like the physical products, the brand name, the package, the label etc. all of us
know that most of the products are undergoing a constant change and the marketing man has been
constantly engaged in enriching his product offer. In his attempt to score over competition, he has
been bringing about refinement on his basic product offer, but managing the product was becoming
more and more difficult. Hence the product travelled various levels:
The Generic product
The branded Product
The Differentiated product
The customised product
The augmented product
The potential product
The Generic product Is the unbranded and undifferentiated commodity like rice, bread, flour or cloth.
The Branded Product The branded product gets an identity through a ’name’. Modern bread, Har
vest are branded products. We would study in detail about brand name in the brand section.
The differentiated product - The differentiated product enjoys a distinction from other similar
products/brands in the market. The differential claimed may be ‘real’, with a real distinction on
ingredient, quality, utility, or service, or it may be ‘psychological’ brought about through subtle sales
appeals.
The customised product - Customer specific requirements are taken into account while developing
the product. Commonly practised in the industrial product marketing, where the manufacturer and
the user are in direct contact and the product gets customised to the requirements of the customer.
The augmented product

The augmented product is the result of voluntary improvements brought about by the manufacturer in
order to enhance the value of the product, which are neither suggested by the customer nor expected
by them. The marketer on his own augments the product, by adding an extra facility or an extra
feature to the product.

The potential product

The potential product is tomorrow’s product carrying with it all the improvements and finesse pos-
sible under the given technological, economic and competitive condition. There are no limits to the
‘potential product’. Only the technological and economic resources of the firm set the limit.
Product differentiation - Is the act of designing a set of meaningful differences to distinguish the
companies offering from competitor’s offerings?
The number of differentiation opportunities varies with the type of industry. The Boston consulting
group has distinguished four types of industries based on the number of available competitive advan-
tages and their size.
1. Volume industry: One in which companies can gain only a few, but rather large, competitive
advantages.
2. Stalemated industry: One in which there are a few potential competitive advantages and each
is small.
3. Fragmented industry: One in which companies face many opportunities for differentiation, but
each opportunity for competitive advantage is small.
4. Specialised industry: One in which companies face many differentiation opportunities, and
each differentiation can have a high payoff.
Theodore Levitt in one of his books “Marketing Success, through differentiation of anything” ex-
plains that in a market place, there is no such thing as commodity .All goods and services are differ-
entiable. In a market place differentiation is everywhere .All the companies try to distinguish their
offer from that of their competitor. This is true of even those who produce and deal in primary metals,
grains, chemicals, plastics and money. Starting from technology to plant location to post sale service
firms to the personnel/procedures employed for various functions like sales, production etc., compa-
nies can differ their offers in many ways. Companies usually choose those functions, which give
them greatest relative advantage.
There are different strategy stances that firms can adopt

It is natural for different firms to take different strategy stances as the requirement; situational design
of each is different from the other. One firm might find it appropriate to have direct confrontation
with the market leader; another may find it appropriate to keep aloof for some time from the compe-
tition; and the third might may find it relevant to chalk out a strategy of sheer survival. No strategy
stance is universally valid. Broadly strategy stances can be classified under three heads-Offensive/
confrontation strategy, Defensive and Niche strategy.
Offensive Strategy -Is the strategy of aggression usually employed by the firm that is not presently
the leader, but aspires to leadership position in the industry. It acts as a challenger and the leader is
mostly its target. It tries to expand its market share and utilises all the elements of the marketing mix
in attacking the leader.
Defensive Strategy -Is usually employed by the leader who has the compulsion to defend his
position against the confrontation of powerful existing competitors or strong new entrants trying to
remove the leader from the topmost position. The leader has to maintain constant vigilance and
defend its position against the attack of the challengers.
Niche Strategy - Is usually employed by firms, which neither confront nor defend itself. It cultivates
a small market segment for itself with unique products/services; supported by a unique marketing
mix. Small firms with distinctive capabilities adopt this stance. A market niche to be worthwhile must
have characteristics such as reasonable size, profit potential and growth potential.
There can be different types of differentiation - It can be broadly categorised into

1. Product-A seller face abundance of design parameters including form, features, performance
quality, conformance quality, durability, reliability, style and design.
2. Services-When a physical product cannot be differentiated, the key to competitive success may
lie in adding valued services and improving their quality .The main service differentiators are
ordering ease, delivery, installation, customer training, customer consulting and maintenance and
repair
3. Personnel-Better trained people are an asset to the company as they can provide competitive
advantage to it. Better trained personnel exhibit six characteristics; Competence, Courtesy, cred-
ibility, reliability, responsiveness, communication
4. Channel-Companies can achieve competitive advantage through the way they design their distri-
bution channels coverage, expertise and performance.
5. Image-Is the way the public perceives the company or its products. It can be communicated to
the customer by means of symbols, media, atmosphere, events etc.
Finally in this lesson you should understand that in any product strategy, a crucial decision is about
branding. Basically branding a product means a long-term investment in building that brand by spend-
ing on promotion, advertising and packaging. There are manufacturers who manufacturer a product
but leave the branding decision to the marketers to whom they hand over the product. However, the
fact remains that brand name gives power to the firm. Brand name marketers with no manufacturing
base are still at an advantage. They can anytime change the manufacture. Whereas Taiwanese firms
remained only manufacturing firms, say, in textiles and consumer electronics, Japanese and Korean
firms did both manufacturing as well as branding to consolidate their position. Goldstar TV ( Now
available in India), Sony TV ( now made in India) and Toyota are very well built brand names.
Brands ultimately command customer loyalty.
But before starting a formal discussion on branding concepts you should just go through this article
on branding.
The Brand Called You- Big companies understand the importance of brands. Today, in the Age of
the Individual, you have to be your own brand. Here’s what it takes to be the CEO of Me Inc.
From: Issue 10 | August/September 1997, Page 83 By: Tom Peters Illustrations by: Alison Seiffer
It’s a new brand world - That cross-trainer you’re wearing — one look at the distinctive swoosh on
the side tells everyone who’s got you branded. That coffee travel mug you’re carrying — ah, you’re
a Starbucks woman! Your T-shirt with the distinctive Champion “C” on the sleeve, the blue jeans
with the prominent Levi’s rivets, the watch with the hey-this-certifies-I-made-it icon on the face,
your fountain pen with the maker’s symbol crafted into the end ...You’re branded, branded, branded,
branded. It’s time for me — and you — to take a lesson from the big brands, a lesson that’s true for
anyone who’s interested in what it takes to stand out and prosper in the new world of work.
Regardless of age, regardless of position, regardless of the business we happen to be in, all of us need
to understand the importance of branding. We are CEOs of our own companies: Me Inc. To be in
business today, our most important job is to be head marketer for the brand called You.
It’s that simple — and that hard. And that inescapable. Behemoth companies may take turns buying
each other or acquiring every hot startup that catches their eye — mergers in 1996 set records.
Hollywood may be interested in only blockbusters and book publishers may want to put out only
guaranteed best-sellers. But don’t be fooled by all the frenzy at the humongous end of the size
spectrum. The real action is at the other end: the main chance is becoming a free agent in an
economy of free agents, looking to have the best season you can imagine in your field, looking to do
your best work and chalk up a remarkable track record, and looking to establish your own micro
equivalent of the Nike swoosh. Because if you do, you’ll not only reach out toward every opportunity

within arm’s (or laptop’s) length, you’ll not only make a noteworthy contribution to your team’s
success — you’ll also put yourself in a great bargaining position for next season’s free-agency
market. The good news — and it is largely good news — is that everyone has a chance to stand out.
Everyone has a chance to learn, improve, and build up their skills. Everyone has a chance to be a
brand worthy of remark.
Who understands this fundamental principle? The big companies do. They’ve come a long way in a
short time: it was just over four years ago, April 2, 1993 to be precise, when Philip Morris cut the
price of Marlboro cigarettes by 40 cents a pack. That was on a Friday. On Monday, the stock market
value of packaged goods companies fell by $25 billion. Everybody agreed: brands were doomed.
Today brands are everything, and all kinds of products and services — from accounting firms to
sneaker makers to restaurants — are figuring out how to transcend the narrow boundaries of their
categories and become a brand surrounded by a Tommy Hilfiger-like buzz.
Who else understands it? Every single Web site sponsor. In fact, the Web makes the case for brand-
ing more directly than any packaged good or consumer product ever could. Here’s what the Web
says: Anyone can have a Web site. And today, because anyone can ... anyone does! So how do you
know which sites are worth visiting, which sites to bookmark, which sites are worth going to more
than once? The answer: branding. The sites you go back to are the sites you trust. They’re the sites
where the brand name tells you that the visit will be worth your time — again and again. The brand
is a promise of the value you’ll receive.
The same holds true for that other killer app of the Net — email. When everybody has email and
anybody can send you email, how do you decide whose messages you’re going to read and respond
to first — and whose you’re going to send to the trash unread? The answer: personal branding. The
name of the email sender is every bit as important a brand — is a brand — as the name of the Web
site you visit. It’s a promise of the value you’ll receive for the time you spend reading the message.
Nobody understands branding better than professional services firms. Look at McKinsey or Arthur
Andersen for a model of the new rules of branding at the company and personal level. Almost every
professional services firm works with the same business model. They have almost no hard assets —
my guess is that most probably go so far as to rent or lease every tangible item they possibly can to
keep from having to own anything. They have lots of soft assets — more conventionally known as
people, preferably smart, motivated, talented people. And they have huge revenues — and astound-
ing profits. They also have a very clear culture of work and life. You’re hired, you report to work, you
join a team — and you immediately start figuring out how to deliver value to the customer. Along the
way, you learn stuff, develop your skills, hone your abilities, move from project to project. And if
you’re really smart, you figure out how to distinguish yourself from all the other very smart people
walking around with $1,500 suits, high-powered laptops, and well-polished resumes. Along the way,
if you’re really smart, you figure out what it takes to create a distinctive role for yourself — you
create a message and a strategy to promote the brand called You.
What makes You different?
Start right now: as of this moment you’re going to think of yourself differently! You’re not an “em-
ployee” of General Motors, you’re not a “staffer” at General Mills, you’re not a “worker” at General
Electric or a “human resource” at General Dynamics (ooops, it’s gone!). Forget the Generals! You
don’t “belong to” any company for life, and your chief affiliation isn’t to any particular “function.”
You’re not defined by your job title and you’re not confined by your job description. Starting today
you are a brand.
You’re every bit as much a brand as Nike, Coke, Pepsi, or the Body Shop. To start thinking like your
own favorite brand manager, ask yourself the same question the brand managers at Nike, Coke,
Pepsi, or the Body Shop ask themselves: What is it that my product or service does that makes it

different? Give yourself the traditional 15-words-or-less contest challenge. Take the time to write
down your answer. And then take the time to read it. Several times.
If your answer wouldn’t light up the eyes of a prospective client or command a vote of confidence
from a satisfied past client, or — worst of all — if it doesn’t grab you, then you’ve got a big problem.
It’s time to give some serious thought and even more serious effort to imagining and developing
yourself as a brand.
Start by identifying the qualities or characteristics that make you distinctive from your competitors —
or your colleagues. What have you done lately — this week — to make yourself stand out? What
would your colleagues or your customers say is your greatest and clearest strength? Your most
noteworthy (as in, worthy of note) personal trait?
Go back to the comparison between brand You and brand X — the approach the corporate biggies
take to creating a brand. The standard model they use is feature-benefit: every feature they offer in
their product or service yields an identifiable and distinguishable benefit for their customer or client.
A dominant feature of Nordstrom department stores is the personalized service it lavishes on each
and every customer. The customer benefit: a feeling of being accorded individualized attention —
along with all of the choice of a large department store.
So what is the “feature-benefit model” that the brand called You offers? Do you deliver your work on
time, every time? Your internal or external customer gets dependable, reliable service that meets its
strategic needs. Do you anticipate and solve problems before they become crises? Your client saves
money and headaches just by having you on the team. Do you always complete your projects within
the allotted budget? I can’t name a single client of a professional services firm who doesn’t go
ballistic at cost overruns.
Your next step is to cast aside all the usual descriptors that employees and workers depend on to
locate themselves in the company structure. Forget your job title. Ask yourself: What do I do that
adds remarkable, measurable, distinguished, distinctive value? Forget your job description. Ask your-
self: What do I do that I am most proud of? Most of all, forget about the standard rungs of progres-
sion you’ve climbed in your career up to now. Burn that damnable “ladder” and ask yourself: What
have I accomplished that I can unabashedly brag about? If you’re going to be a brand, you’ve got to
become relentlessly focused on what you do that adds value, that you’re proud of, and most impor-
tant, that you can shamelessly take credit for.
When you’ve done that, sit down and ask yourself one more question to define your brand: What do
I want to be famous for? That’s right — famous for!
What’s the pitch for You?

So it’s a cliché: don’t sell the steak, sell the sizzle. it’s also a principle that every corporate brand
understands implicitly, from Omaha Steaks’s through-the-mail sales program to Wendy’s “we’re just
regular folks” ad campaign. No matter how beefy your set of skills, no matter how tasty you’ve
made that feature-benefit proposition, you still have to market the bejesus out of your brand — to
customers, colleagues, and your virtual network of associates.
For most branding campaigns, the first step is visibility. If you’re General Motors, Ford, or Chrysler,
that usually means a full flight of TV and print ads designed to get billions of “impressions” of your
brand in front of the consuming public. If you’re brand You, you’ve got the same need for visibility —
but no budget to buy it.
So how do you market brand You?

There’s literally no limit to the ways you can go about enhancing your profile. Try moonlighting! Sign

up for an extra project inside your organization, just to introduce yourself to new colleagues and
showcase your skills — or work on new ones. Or, if you can carve out the time, take on a freelance
project that gets you in touch with a totally novel group of people. If you can get them singing your
praises, they’ll help spread the word about what a remarkable contributor you are.
If those ideas don’t appeal, try teaching a class at a community college, in an adult education pro-
gram, or in your own company. You get credit for being an expert, you increase your standing as a
professional, and you increase the likelihood that people will come back to you with more requests
and more opportunities to stand out from the crowd.
If you’re a better writer than you are a teacher, try contributing a column or an opinion piece to your
local newspaper. And when I say local, I mean local. You don’t have to make the op-ed page of the
New York Times to make the grade. Community newspapers, professional newsletters, even inhouse
company publications have white space they need to fill. Once you get started, you’ve got a track
record — and clips that you can use to snatch more chances.
And if you’re a better talker than you are teacher or writer, try to get yourself on a panel discussion
at a conference or sign up to make a presentation at a workshop. Visibility has a funny way of
multiplying; the hardest part is getting started. But a couple of good panel presentations can earn you
a chance to give a “little” solo speech — and from there it’s just a few jumps to a major address at
your industry’s annual convention.
The second important thing to remember about your personal visibility campaign is: it all matters.
When you’re promoting brand You, everything you do — and everything you choose not to do —
communicates the value and character of the brand. Everything from the way you handle phone
conversations to the email messages you send to the way you conduct business in a meeting is part
of the larger message you’re sending about your brand.
Partly it’s a matter of substance: what you have to say and how well you get it said. But it’s also a
matter of style. On the Net, do your communications demonstrate a command of the technology? In
meetings, do you keep your contributions short and to the point? It even gets down to the level of your
brand You business card: Have you designed a cool-looking logo for your own card? Are you dem-
onstrating an appreciation for design that shows you understand that packaging counts — a lot — in
a crowded world?
The key to any personal branding campaign is “word-of-mouth marketing.” Your network of friends,
colleagues, clients, and customers is the most important marketing vehicle you’ve got; what they say
about you and your contributions is what the market will ultimately gauge as the value of your brand.
So the big trick to building your brand is to find ways to nurture your network of colleagues —
consciously.
What’s the real power of You?

If you want to grow your brand, you’ve got to come to terms with power — your own. The key
lesson: power is not a dirty word!
In fact, power for the most part is a badly misunderstood term and a badly misused capability. I’m
talking about a different kind of power than we usually refer to. It’s not ladder power, as in who’s
best at climbing over the adjacent bods. It’s not who’s-got-the-biggest-office-by-six-square-inches
power or who’s-got-the-fanciest-title power.
It’s influence power.

It’s being known for making the most significant contribution in your particular area. It’s reputational
power. If you were a scholar, you’d measure it by the number of times your publications get cited by

other people. If you were a consultant, you’d measure it by the number of CEOs who’ve got your
business card in their Rolodexes. (And better yet, the number who know your beeper number by
heart.)
Getting and using power — intelligently, responsibly, and yes, powerfully — are essential skills for
growing your brand. One of the things that attracts us to certain brands is the power they project. As
a consumer, you want to associate with brands whose powerful presence creates a halo effect that
rubs off on you.
It’s the same in the workplace. There are power trips that are worth taking — and that you can take
without appearing to be a self-absorbed, self-aggrandizing megalomaniacal jerk. You can do it in
small, slow, and subtle ways. Is your team having a hard time organizing productive meetings? Volun-
teer to write the agenda for the next meeting. You’re contributing to the team, and you get to decide
what’s on and off the agenda. When it’s time to write a post-project report, does everyone on your
team head for the door? Beg for the chance to write the report — because the hand that holds the
pen (or taps the keyboard) gets to write or at least shape the organization’s history.
Most important, remember that power is largely a matter of perception. If you want people to see
you as a powerful brand, act like a credible leader. When you’re thinking like brand You, you don’t
need org-chart authority to be a leader. The fact is you are a leader. You’re leading You!
One key to growing your power is to recognize the simple fact that we now live in a project world.
Almost all work today is organized into bite-sized packets called projects. A project-based world is
ideal for growing your brand: projects exist around deliverables, they create measurables, and they
leave you with braggables. If you’re not spending at least 70% of your time working on projects,
creating projects, or organizing your (apparently mundane) tasks into projects, you are sadly living in
the past. Today you have to think, breathe, act, and work in projects.
Project World makes it easier for you to assess — and advertise — the strength of brand You. Once
again, think like the giants do. Imagine yourself a brand manager at Procter & Gamble: When you
look at your brand’s assets, what can you add to boost your power and felt presence? Would you be
better off with a simple line extension — taking on a project that adds incrementally to your existing
base of skills and accomplishments? Or would you be better off with a whole new product line? Is it
time to move overseas for a couple of years, venturing outside your comfort zone (even taking a
lateral move — damn the ladders), tackling something new and completely different?
Whatever you decide, you should look at your brand’s power as an exercise in new-look résumé;
management — an exercise that you start by doing away once and for all with the word “résumé.”
You don’t have an old-fashioned résumé anymore! You’ve got a marketing brochure for brand You.
Instead of a static list of titles held and positions occupied, your marketing brochure brings to life the
skills you’ve mastered, the projects you’ve delivered, the braggables you can take credit for. And like
any good marketing brochure, yours needs constant updating to reflect the growth — breadth and
depth — of brand You.
What’s loyalty to You?

Everyone is saying that loyalty is gone; loyalty is dead; loyalty is over. I think that’s a bunch of crap.
I think loyalty is much more important than it ever was in the past. A 40-year career with the same
company once may have been called loyalty; from here it looks a lot like a work life with very few
options, very few opportunities, and very little individual power. That’s what we used to call inden-
tured servitude.
Today loyalty is the only thing that matters. But it isn’t blind loyalty to the company. It’s loyalty to your
colleagues, loyalty to your team, loyalty to your project, loyalty to your customers, and loyalty to

yourself. I see it as a much deeper sense of loyalty than mindless loyalty to the Company Z logo.
I know this may sound like selfishness. But being CEO of Me Inc. requires you to act selfishly — to
grow yourself, to promote yourself, to get the market to reward yourself. Of course, the other side of
the selfish coin is that any company you work for ought to applaud every single one of the efforts you
make to develop yourself. After all, everything you do to grow Me Inc. is gravy for them: the projects
you lead, the networks you develop, the customers you delight, the braggables you create generate
credit for the firm. As long as you’re learning, growing, building relationships, and delivering great
results, it’s good for you and it’s great for the company. That win-win logic holds for as long as you
happen to be at that particular company. Which is precisely where the age of free agency comes into
play. If you’re treating your résumé as if it’s a marketing brochure, you’ve learned the first lesson of
free agency. The second lesson is one that today’s professional athletes have all learned: you’ve got
to check with the market on a regular basis to have a reliable read on your brand’s value. You don’t
have to be looking for a job to go on a job interview. For that matter, you don’t even have to go on an
actual job interview to get useful, important feedback.
The real question is: How is brand You doing? Put together your own “user’s group” — the personal
brand You equivalent of a software review group. Ask for — insist on — honest, helpful feedback on
your performance, your growth, your value. It’s the only way to know what you would be worth on
the open market. It’s the only way to make sure that, when you declare your free agency, you’ll be
in a strong bargaining position. It’s not disloyalty to “them”; it’s responsible brand management for
brand You — which also generates credit for them.
What’s the future of You?

It’s over. No more vertical. No more ladder. That’s not the way careers work anymore. Linearity is
out. A career is now a checkerboard. Or even a maze. It’s full of moves that go sideways, forward,
slide on the diagonal, even go backward when that makes sense. (It often does.) A career is a
portfolio of projects that teach you new skills, gain you new expertise, develop new capabilities, grow
your colleague set, and constantly reinvent you as a brand. As you scope out the path your “career”
will take, remember: the last thing you want to do is become a manager. Like “résumé,” “manager”
is an obsolete term. It’s practically synonymous with “dead end job.” What you want is a steady diet
of more interesting, more challenging, more provocative projects. When you look at the progression
of a career constructed out of projects, directionality is not only hard to track — Which way is up? —
but it’s also totally irrelevant.
Instead of making yourself a slave to the concept of a career ladder, reinvent yourself on a semiregular
basis. Start by writing your own mission statement, to guide you as CEO of Me Inc. What turns you
on? Learning something new? Gaining recognition for your skills as a technical wizard? Shepherding
new ideas from concept to market? What’s your personal definition of success? Money? Power?
Fame? Or doing what you love? However you answer these questions, search relentlessly for job or
project opportunities that fit your mission statement. And review that mission statement every six
months to make sure you still believe what you wrote. No matter what you’re doing today, there are
four things you’ve got to measure yourself against. First, you’ve got to be a great teammate and a
supportive colleague. Second, you’ve got to be an exceptional expert at something that has real
value. Third, you’ve got to be a broad-gauged visionary — a leader, a teacher, a farsighted “imagineer.”
Fourth, you’ve got to be a businessperson — you’ve got to be obsessed with pragmatic outcomes.
It’s this simple: You are a brand. You are in charge of your brand. There is no single path to success.
And there is no one right way to create the brand called You. Except this: Start today. Or else.
Tom Peters (TJPET@aol.com) is the world’s leading brand when it comes to writing, speaking, or
thinking about the new economy. He has just released a CD-ROM, “Tom Peters’ Career Survival
Guide” (Houghton Mifflin interactive). Rob Walker contributed the brand profile sidebars.

Unit 3
Lesson 30 - PLC ( product life cycle)
Lets have a recap of what we did in our last session?
I hope now all of you are clear with this concept of Product mix, which include length width, and
depth of product. We have also discussed in brief about services and its characteristics. Now lets
start our discussion on product life cycle.
As all of us have a life cycle similarly product also has a life cycle in the similar manner where it is
born, then grows up and over a period of time becomes mature and finally die if unable to face the
challenge from external environment.
Before getting on to the topic there is a question for you.
What do you think where is campa today where has it gone. Do you think it will come back again in
the markets.
Now so as to answer the above question you will have to under go the discussion on product life
cycle.
Now lets start with it and understand what is the answer to the above question.
What is Product Life Cycle?
“The product life cycle (PLC) depicts a products sales history through 4 stages:
(1) Introduction
2) Growth
(3) Maturity and
(4) Decline
One thing should be clear to us that adjustment and changes must be made in the product’s
marketing mix as it moves through its life cycle because of changes in the competitive environ-
ment, buyer behavior, and the composition of the market.
‘The PLC concept can be applied to a product category (perfumes), to a particular product form
(roll-ons and sprays) or to a particular brand (Chanel NO.5 or Yardley). You should know that the
life cycle of the product category is the longest and that of the brand the shortest usually.
If we talk in terms of practicality, the PLC is applied most directly to product forms. Product
forms like spray perfumes, felt-tipped pens and mini-skirts go through a sales history of introduction,

growth maturity and decline. Product categories, on the other hand, often tend to stay in the
maturity stage for decades or longer, while the life cycles of individual brands can be extremely
erratic depending on the effectiveness of their marketing programs.
Lets start with the first stage:

Introduction Stage
In this stage you are basically launching a new product (from brand or category) that is the reason
that it is called the introductory stage. As all of us know introducing new product is always a risky
venture, even for a skillful marketer. Almost every company as had spectacular failures. A new
product category requires a longer introductory period because primary demand (demand
for the product category as opposed to the demand for a specific brand) must be stimulated. Even
a brand that has achieved acceptance in other markets will require introduction in new markets.
Now you should know what is selective demand it’s a demand for a specific brand within a products
category.
What do you think are the basic goals in the introductory stage?
The basic goals in the introductory stage are to induce acceptance and to gain initial distribution.
Promotion is needed to inform potential buyers of the product’s availability, nature and uses, and to
encourage wholesalers and retailers to stock it. At this stage funds are invested in promotion on the
expectation of future profits. As discussed with you earlier that it is similar to human life so if we talk
in terms of baby what did your parents do? At that particular stage they were investing in you and
were not bothered about any return part of it so, if we say the same thing in marketing terms then the
product in the introductory stage the situation is that the profits are negative because of the sales
volume is low, distribution is limited and promotional expenses are high. A company must choose its
launch strategy consistent with its intended product positioning. It should realize that the initial strat-
egy is just the first step in a grander marketing plan for the product’s entire life cycle. If the marketer
chooses the launch phase to make a quick buck, he will be sacrificing the long-term interests of the
product.
Growth Stage
Now we are at a growth stage where we have successfully launched our product, the sales have
begun to increase rapidly in this stage, as new customers enter the market and old customers make
repeat purchases. At this point of time you need to add new dealers and distributors; new pack sizes
may need to be introduced. This is the stage of peak profits. As new customers are attracted, the
market expands, attracting competitors who copy and improve on the features of the new product.
New product forms and brands enter. Competition intensifies and industry profits begin to decline at
the end of the growth stage, but total industry sales are still rising. In this phase, the company faces
a trade-off between high market share and high current profit. By spending a lot of money on product
development, promotion, and distribution, the company can capture a dominant position. In doing so

however, it gives up current profit and hopes to make it up in the next stage.
Maturity Stage
At this stage you will find greater number of competitors, competitive product forms, and brands
exist in the maturity stage. Rivals copy product features of successful brands and they become more
alike. Thus price competition develops along with heavy promotions of whatever unique brand fea-
tures still exist. Industry sales peak and decline as the size of potential markets begins to shrink and
wholesaler and retailer support dwindles because of declining profit margins. Middlemen often intro-
duce their own brands, which makes the competition even tougher. You will find decline in industry
profits accelerates further. Most of the times you will find that the sales are repeat sales to earlier
buyers. There is little growth potential for the product. It is during this stage that marketers are
focusing effort on extending the lives of their existing brands. In this stage you will find that many
products may appear unchanged, the most successful ones are actually evolving to meet changing
consumer needs. Product managers has to play a very important role at this stage infact he should do
more to extend the lives of their mature products rather than allowing it to coast into decline. They
should consider modifying the market, product and marketing mix.
Decline Stage
Now we have reached to the final stage of the life cycle. Product forms and brands typically enter
into decline; stages while product categories last longer. It is basically because of Competitions that
the product forms and brands enter into the decline stage. Sales and profits decline rapidly and
competitors become more cost conscious. Brands with strong acceptance by some customer seg-
ments may continue to produce profits. Thus Sanifresh is still a leading toilet cleaner though its
powdered form is less popular than liquids. At time even you would have read that carrying a weak
product can be very costly to the company and not only in profit terms. There are hidden costs in
terms of management time, sales force attention, frequent inventory re-adjustments, and advertising
changes. For these reasons, companies need to pay attention to their dying products. At times man-
agement may decide to maintain its brand without changes in the hope that some competitors will
leave the market. Or it may decide to ‘re-position the product in the hope of moving it back to the
growth phase in a new avatar. You will find that the management may even decide to harvest the
product that means reducing various costs and moping that sales hold up. But if successful, harvest-
ing is done then the company’s profits in the short run will increase. Or management may decide to
drop the product from the line. It can sell it to mother firm or simply liquidate it at salvage value. If the
company wants to sell the product to mother buyer, it will not rundown the product through harvest-
ing.
Summary of product life cycle:

Select any product from the market, which is in its maturity stage. Make a strategy keeping in mind
the concept of PLC as well as other models to get the same product into the growth stage.

Article:
The Product Life Cycle (PLC) model is introduced and its merits and
faults are addressed. Considerations, ways and reasons to extend PLC
stages are explained. Examples are provided to show how product
marketing and management strategies can be used at different PLC
stages to help establish market dominance and drive sales.
1. Introduction - Businesses are always seeking better ways to grow profits and maximize revenue
from the sale of products or services. Revenue allows a company to maintain viability, invest in new
product development and improve its workforce; all in an effort to acquire additional market share
and become a leader in its respective industry.
A consistent and sustainable revenue stream from product sales is key to any long-term investment,
and the best way to attain a stable revenue stream is a Cash Cow [i] product. Cash Cows are leading
products that command a large market share in mature markets. Cash Cows display a Return On
Investment (ROI) that is greater than the market growth rate, and thus produce more cash than they
consume. The question is therefore: How can a company develop a Cash Cow product? One
way of doing so is by applying relevant product marketing strategies, a.k.a. competitive moves, at the
various stages that make a
Product Life Cycle (PLC) - The Product Life Cycle (PLC) model is a relatively new theory, which
identifies the distinct stages affecting sales of a product, from the product’s inception until its retire-
ment. Companies that successfully recognized those stages and subsequently applied a custom mar-
keting mix at each stage were able to sustain sales and defend or win market share. By deliberately
extending the length of time spent at each of the PLC stages through different marketing tactics,
companies were also able to realize much of the revenue potential a product can offer.
2. Product Life Cycle Model Assumptions At the core of the PLC model are the following simple
assumptions: All products have limited life spans. Product sales pass through different and distinct
stages. Each stage presents a different marketing challenge, which calls for the application of a
customized marketing mix.
3. Product Life Cycle Model Stages - A PLC is traditionally viewed, from a marketing perspec-
tive, as being comprised of four distinct stages: Introduction, Growth, Maturity and Decline. In the
Introduction stage, the product is introduced to the market through a focused and intense marketing
effort designed to establish a clear identity and promote maximum awareness. Many trial or impulse
purchases will occur at this stage. Next, consumer interest will bring about the Growth stage, distin-
guished by increasing sales and the emergence of competitors. The Growth stage is also character-
ized by sustaining marketing activities on the vendor’s side, with customers engaged in repeat pur-
chase behavior patterns. Arrival of the product’s Maturity stage is evident when competitors begin to
leave the market, sales velocity is dramatically reduced, and sales volume reaches a steady state. At
this point in time, mostly loyal customers purchase the product. Continuous decline in sales signals
entry into the Decline stage. The lingering effects of competition, unfavorable economic conditions,
new fashion trends, etc, often explain the decline in sales
4. Reasons For Extending The PLC - Understanding and extending the PLC stages allows a
company to fully exploit long-term business development opportunities, and defend or establish a
competitive advantage through a lasting market presence. The main business reason for extending
the PLC is to gain more sales through longer presence in the marketplace. The main marketing
reason is since not all consumers are alike, certain consumer types will adopt a product at different
stages of the product life cycle. By extending each stage of the PLC there is a better chance of
exposure to the relevant consumer group. Extending the PLC should not be confused with extending

the life of the product, which goes to enhanced durability or quality.
5. Strategies For Extending The PLC - The nature and type of applicable marketing efforts will
vary with each stage, and the level of variation depends on the product type, market conditions,
consumer audience and projected PLC timeline. It is hard to predict a transition from one PLC stage
to another (because of measurement lags) and proactively react to the change with targeted action.
However, through proper marketing mix design and contingency planning it is possible to apply vari-
ous marketing and product strategies at the beginning of a particular stage, when it arrives. The
underlying approach with any of the strategies listed below is Targeted Improvement. [ii]
5.1. Product Management Strategies For Extending The PLC
5.1.1. Product Diversification - Creating different product variants. Microsoft’s family of Win-
dows 9.x operating systems allowed the software giant to continuously extend the life cycle of this
desktop computer operating system. Windows 95, Windows 98, Windows 98SE, Windows ME, Win-
dows XP are among the better known variants. Coca Cola’s vanilla flavored coke is a recent ex-
ample and a new variant to the venerable Classic Coca-Cola drink.
5.1.2. New Product Uses - Applying the core product to different uses. Apple Computer has
been very innovative and successful by finding additional uses for its Macintosh computer, such as
desktop publishing and strong graphics/animation capabilities.
Apple’s Digital Hub concept extends the Macintosh’s functionality even further to serve as a center
for managing multimedia files from cameras, DV recorders, scanners, and MP3 devices. [iii] On the
retail side, in the world of Consumer Packaged Goods (CPG), Arm & Hammer had devised over
several decades a multitude of deodorizing uses for their core product, baking soda.
5.1.3. Changing Product Layers - Altering the product features and creating different prod-
uct families. Hewlett-Packard’s InkJet and LaserJet printers are examples of product families that
share the same technological core. So are Jell-O’s product families of puddings, colored gelatins and
snacks; all based on raw gelatin.
5.2. Product Marketing Strategies For Extending The PLC
5.2.1. Re-Positioning - Changing the perceived values and intent, a product has in the mind of
the consumer. Microsoft’s Windows NT was designed as a multi-tasking, multi-threaded, multi-
functional desktop operating system. It was based on work done by Microsoft for IBM’s OS/2 and in
terms of its feature set resembled Unix more than it did Novell’s NetWare. NetWare, a Network
Operating System (NOS) and Novell’s flagship product, dominated the File&Print server market in
the early 90’s to the tune of 75% market share. Through massive and prolonged positioning efforts,
Microsoft was able to persuade corporate IT departments that Windows NT could be more than just
a powerful desktop OS, and could replace NetWare as the departmental File&Print server. Novell
tried unsuccessfully to shield NetWare from Windows NT, by attempting to position UnixWare (Novell’s
Unix based OS) against Windows NT. [iv]
5.2.2. Co-Branding - Enhancing (or diluting) the product’s brand equity by association with
another strong brand. In an attempt to boost sales, IBM announced in 2001 a joint effort with J.D.
Edwards & Company to market a specialized IBM eServer called the IBM eServer for J.D. Edwards,
optimized to run J.D. Edwards’ collaborative commerce software for small to medium size busi-
nesses. These types of co-branding initiatives are nearly always an attempt to capitalize on synergy
between brands and products.
5.2.3. Re-Packaging - Literally placing the product in a new package as to revive its appeal.

This is common practice in retail markets with the introduction of new labels, different container
sizes and different container types, such as Colgate’s toothpaste in a tube or pump dispenser. In the
computer software world, virtual repackaging is done through the introduction of a new visual GUI
(Graphical User Interface) while application functionality remains relatively unchanged.
5.2.4. Re-Branding - A drastic and costly measure used to disassociate the brand from the
previous values associated with it. The key concern with such a move is maintaining existing
market share. For example, in 2000, IBM re-branded its eCommerce software application,
Net.Commerce to WebSphere Commerce. It also re-branded its line of servers as eServer (formerly
Netfinity). This was an attempt by IBM to make a fresh entry and position itself as a competitor in
the world of Unix and Intel based servers dominated by Sun Microsystems and Dell Computers.
Sometimes companies re-brand themselves in an effort to build new reputation and brand equity -
Datsun/Nissan vehicles, Borland/Inprise software products, and GTE/Verizon telecomm services.
5.2.5. Increasing Frequency of Use - Encouraging consumers to break away from traditional
molds of product usage. Chivas Regal was always considered a fine Scotch whisky to be con-
sumed on special occasions such as weddings, or given as a gift. Through a worldwide advertising
campaign, Chivas was able to increase consumption by delivering a consistent message about the
brand’s broader appeal.
5.2.6. New Markets and Segments - This strategy is an attempt to penetrate nontraditional
markets or consumer segments. Companies are able through exploratory research to discover the
potential of geographically remote markets (Asia, Africa, former Soviet Bloc) or new consumer
segments (seniors, minorities, women). During 2001, Subaru specifically targeted women as a new
automotive consumer segment, realizing their strong potential as first owner buyers.
5.2.7. Pricing and Special Offers - Pricing is a positioning tool and a way to influence sales
through the use of various price, payment schemes and models. Price manipulation can take
place at all stages of the PLC, including the Introduction phase. For example, only six months after its
launch in November 2001, Microsoft reduced the price of the xBox game console in North America
by about 30%.
6. Strategy Application Within The PLC Model - Planning which product marketing and man-
agement strategies to apply, and when, should be part of any long-term approach. Since there are so
many diverse products, markets and companies, it is difficult to provide a definitive, single methodol-
ogy for strategy selection and application. However, some general guidelines can be followed to help
ensure marketing mix effectiveness in promoting a PLC stage extension. Once a decision to extend
a PLC stage has been made, the following elements must be factored into the planning:
_ The Company’s product line strategy - leader, follower, innovator, niche player, etc.
_ The Company’s marketing policies - soft or hard product launches, traditional choice of media
vehicles, pricing policies, sales channels selection, etc.
_ External constraints - government regulations, distribution networks, cultural barriers, politics,
tariffs and taxes, etc.
Sometimes a certain strategy may seem applicable to all PLC stages. Price manipulation is an ex-
ample of something that can be used at all stages of the PLC to help influence sales and serve as a
flexible way to rapidly react to competition. The drawback of repeatedly applying a certain strategy
or using several strategies at once, is that it may confuse the consumers. Exercising any such com-
bined approach should be well justified. Below is a table noting the strategies considered most appli-
cable to their respective PLC stage.
7. Limitations Of The PLC Model - It is difficult to foresee transitions in PLC stages since the
key indicator are sales, which are always calculated with some lag. Therefore, the realization a stage

transition has occurred is nearly always in retrospect. In addition, fluctuations in sales will produce
erroneous conclusions, so slowing sales do not necessary mean the product has reached the Decline
phase and the resulting conclusion to retire the product and divert resources is wrong. Products,
companies and markets are different, so not all products or services go through every stage of the
PLC. There have been many cases where products have gone straight from introduction to decline,
usually because of bad marketing, misconceived features, lack of value to the consumer or simply a
lack of need for such a product.
However, even if products would go through every stage of the PLC, not all products/services spend
the same length of time at each stage. This adds another level of complexity in determining which
PLC stage the product is in and consequently, which strategy to apply.
Finally, the PLC model is inefficient when dealing with Brands or Services. Brands are not products
but do have a life cycle of their own, and products belonging to a certain brand will experience a very
different life cycle than the brand itself. For example, Dell and Mercedes-Benz are very strong
brands whose life cycle is marginally affected by the failure of any of the products, which they hold.
Apple Computer’s Lisa, Newton (market failures) and iMac (market success) are proof that brands
and products have different PLC’s although they are closely related. [v]
8. Benefits Of The PLC Model - Managers are always in need of predictive tools to help them
navigate a seemingly chaotic market, and the PLC model gives managers the ability to forecast
product directions on a macro level, and plan for timely execution of relevant competitive moves.
Coupled with actual sales data, the PLC model can also be used as an explanatory tool in facilitating
an understanding of past and future sales progression. The PLC model aids in making sense of past
events as part of any extrapolatory and interpretive approach to building strategy. Once a product
strategy or product line strategy has been formulated, the PLC model can be used as part of an
ongoing strategy validation process since it reflects on market trends, customer issues and techno-
logical advancement. Companies always anticipate the emergence of new competitors and there-
fore, must prepare in advance to battle the competition and strengthen their product’s position. The
PLC model is advantages in planning long-term offensive marketing strategies, particularly when
markets and economies are stable. Nevertheless, most products die and once products are dead they
hold no substantial revenue potential and are a toll on a company’s resources. By combining the
elements of time, sales volume and notion of evolutionary stages, the PLC model helps determine
when reasonable to eliminate dead products.
9. Conclusion - Keeping a product alive for decades is a sign of successful PLC extensions; and
brand/product combinations such as Heinz Ketchup, Hershey Chocolate and Gillette’s Safety Razor
are clear indicators of such extensions. Through consistent PLC management, a company will be
able to improve products and become a marketplace leader. The role of the product-marketing de-
partment is to understand the Product Life Cycle theory and identify the critical PLC stages. This
will aid the planning and execution of an effective marketing mix, designed to support business
(revenue, profit) and marketing (market share, loyalty, growth) objectives. The PLC model can and
has been effectively used by business managers to support decision-making at every stage of a
product’s life cycle. Although the PLC model itself is subject to many interpretations with some
advocates theorizing five or even six stages, it will always remain fairly flexible and adaptive to many
product categories.
The PLC model is yet another tool managers have when dealing with dynamic and complex situa-
tions that abound in the world of proactive product marketing and management.
10. References -
i ) The BCG Growth Share Matrix Boston Consulting Group, http://www.bcg.com/

ii) The PDMA HandBook of New Product Development, Milton D. Rosenau

iii) Welcome to the digital lifestyle - Apple’s Digital hub, http://www.apple.com/imac/digitalhub.html
iv) Networking Wars: Is Novell Finally Finished?, By Robyn Weisman, http://www.newsfactor.com/
perl/story/17803.html
v) Product Life Cycle Management, AICPA, http://www.aicpa.org/cefm/plcm/index.htm
Now we are through with the concept of PLC and I hope that you are clear with the concept. Next
topic that we will be discussing will be topic of adoption and diffusion process.
The Adoption & Diffusion Process -The PLC concept is related to the adoption and diffusion pro-
cesses. The adoption process affects the length of a products life cycle.
To start with lets first discuss what is this adoption process all about. The Adoption Process
The adoption process is the series of stages a prospective buyer goes through in deciding to buy and
make regular use of the product. This should be clear to you that no product will survive the introduc-
tory stage unless some potential buyers actually buy it.
The prospect first learns of the new product but lacks information about its use, benefits and so on.
The prospect searches for information about the new product. The prospect mentally considers
whether the new product would be useful. The customer makes a trial purchase of the product to
determine its utility The customer decides to make regular use of the new product.
When we discussing about the marketing effort is basically related to directing on the move of the
potential customers quickly to final adoption. In this he/she hope that promotion in the introductory
stage of the PLC will create awareness of the product and arouse interest in it so that customers
may evaluate it. If the product is expensive, radical and complex, the perceived risk may be greater
than its perceived benefits. Less expensive products are often distributed as free samples. The goal
is to induce trial by reducing perceived risk. Customers who make a trial purchase make a monetary
commitment to the product and then evaluate the “rightness” of the decision. Rivals may attempt to
switch them to their brands. There is no assurance that customers will make a commitment ever
after adoption; as we have seen, they may experience dissonance, which may lead them to seek
further information or confirm the wisdom of their decision. Providing this information may enable
the marketer to reduce dissonance and raise brand loyalty. In different product cases you will find
that the adoption rate is different lets focus on the points, which create some level of difference in the
adoption process.
Basically there are five-product characteristics that affects the rate of speed with which a new
product is adopted. These are: (1) Relative advantage (2) Compatibility (3) Complexity (4) Divisibil-
ity and (5) Communicability.
Relative Advantage
It is related to perception the greater the product’s perceived superiority over previous products in
terms of lower price, greater utility etc., the faster the adoption rate. Examples are Teflon coated

cookware, disposable diapers and electronic typewriters.
Compatibility - This refers to the product’s consistency with the prospects cultural values and
lifestyles. This includes the perceived risk (personal and social consequences) of using the product.
Like Ready--to-eat chappatis failed in their first introduction because housewives felt using such a
product would cause them to be perceived as poor providers for their families. Now, as more women
enter the work force, Levers is attempting to re-introduce the product since they believe it lifestyle
changes will make the product more acceptable.
Complexity -Complexity means the relative difficulty in understanding or using the product. Highly
complex products like microwave ovens and home computers take a long time to diffuse.
Divisibility - Divisibility is the degree to which the product can be used on a trial basis. Free samples
and small-sized introductory packages are often used for products like cosmetics, household cleaners
and razor blades to induce adoption.
Communicability - This is the degree to which product results can be observed by others or de-
scribed to them. The greater the communicability, the faster the adoption rate because people will
give it word--of-mouth publicity. Examples include cosmetics, coaching classes, bank services and
restaurants.
Lets now move on to what is Diffusion Process:-“The diffusion process is the spread of a new
product throughout a society”. Fig.10.5 shows the traditional view of the diffusion process, the cat-
egories of adopters and the percentage of Adopters that fall in each category. Notice the five catego-
ries of adopters (1) Innovators (2) Early adopters, (3) Early majority (4) Late majority and (5) Lag-
gards. A new product that has been adopted by innovators and early adopters still has 84% of its
potential customers in the ton-adopter category. But if innovators and early adopters do not adopt, the
product is doomed D failure.
The basic difference that you will find between all the categories is because of behavior seem to be
more related to social class, income levels and status positions in reference groups than to
individual personality differences. These characteristics seem to be more related to the degree of
risk taking or lack of it, in buying decision. A person may be an innovator for one product and a
laggard for another.
There would be few amongst us who are habitual risk takers. They always try new ideas, expe-
riences and Products. Others are consistently’ cautious. Such people however would represent only
a small portion of those considered to be innovators or laggards for anyone new product. It is likely
that social class and cultural differences between innovators and laggards will exist because they
affect people’s contact with each other and how quickly they will be exposed to new products.

Now lets briefly discuss the five categories of adopters:
Innovators - well-informed risk-takers who are willing to try an unproven product. Innovators rep-
resent the first 2.5% to adopt the product.
Early adopters - based on the positive response of innovators, early adopters then begin to
purchase the product. Early adopters tend to be educated opinion leaders and represent about 13.5%
of consumers.
Early majority – they are people who are careful consumers who tend to avoid risk, the early
majority adopts the product once it has been proven by the early adopters. They rely on recommen-
dations from others who have experience with the product. The early majority represents 34% of
consumers.
Late majority - somewhat skeptical consumers who acquire a product only after it has become
commonplace. The late majority represents about 34% of consumers.
Laggards - those who avoid change and may not adopt a new product until traditional alternatives no
longer are available. Laggards represent about 16% of consumers.
In our discussion we will be using this term consumer for both individual and organization.
The rate of adoption depends on many factors, including:

Perceived benefits over alternative products
Communicability of the product benefits
Price and ongoing costs
Ease of use
Promotional effort
Distribution intensity
Perceived risk
Compatibility with existing standards and values
Divisibility (the extent to which a new product can be tested on a limited basis)
Even if a product offers high value to the customer, the firm nonetheless faces the challenge of
convincing potential customers to try the product and eventually to adopt it. The product diffusion
curve is partly responsible for the product life cycle, which calls for different management strategies
that depend on the product’s stage in the life cycle.
Finally lets discuss new product development process for this lesson. Lets not forget that there are lot
many strategies involved when you want to development a new product. It is basically because of the
rapid changes in the consumer preferences, technology and competition, companies need to develop
new products and services continuously. This can be done either through acquisition or new prod-
uct development. Acquisition means buying out the product developed by someone else. Do you
know many large companies have saved crores of rupees by doing this? Others have simply copied
competitor’s brands or revived new brands. When I am saying new products I mean to say original
products, product improvements, product modifications, and new brands that the firm develops through
its own research efforts.
But at times innovation can be very risky. A good example of it is Kinetic Engineering it lost crores on
its Kinetic Merlin TV, Lever’s lost crores on it’s failed brand of soap Lux Supreme, as did Ponds with
it’s Dream flower brand extension to soaps. Other costly product failures include New Coke (Coca
Cola Company). New products fail at very high rates. One recent study estimated that new con-
sumer packaged goods (consisting mostly of line extensions) fail at a rate of over 80%. According to

one marketing expert, if companies could improve their rate of success at launching new products,
they could double their bottom line.
Lets first see why do so many new products fail?

The reasons are many. Although an idea may be good. The market size may have been overestimated,
or the product may not have been well designed, or maybe it was incorrectly positioned, priced
too high or advertised poorly. A group of executives may push an idea that they believe in strongly
without doing sufficient research, or, sometimes, the competitor may give a tougher than usual fight.
The number one success factor for new products is a unique, superior product. Such products
succeed 98% of the time compared to products with a moderate advantage (58%) or minimal
advantage (18%).
Another key success factor is a well-defined product concept prior to development, in which
the company carefully assesses the target market, the product requirements, and the benefits to the
consumer and itself before proceeding. Successful new product development is going to become
increasingly tough as stiff competition leads to increasing market fragmentation. - Companies now
must aim for smaller segments and this means smaller sales and profits for each product. The costs
of finding, developing, and launching, new products will rise steadily due to rising manufacturing,
media and distribution costs. Even when the product is successful, rivals are quick are so quick to
copy it that the new product typically has a short life.
You can’t develop new product successful until and unless total company effort are their with you.
The most successful innovating companies make a constant commitment of resources to new-
product development, design a strategy that is linked to their strategic planning process, and set up
formal and sophisticated organizational structures for managing the process.
The steps involved in the New Product Development process consists of eight major steps
New Product Development Process - Figure will show the complete process of new product
development lets discuss them one by one.
New Product Development starts with idea generation – in this you are basically involved in
the systematic search for new product Ideas. A company has to generate many ideas in order to
find one that is worth pursuing. The Major sources of new product ideas include internal sources,
customers, competitors, distributors and suppliers. Almost 55% of all new product ideas come
from internal sources according to one study. Companies like 3M and Toyota have put in special
incentive programs or their employees to come up with workable ideas.
Almost 28% of new product ideas come from watching and listening to customers. Customers: even
create new products on their own, and companies can benefit by finding these products and putting
them on the market like Pillsbury gets promising new products from its annual Bake-off. One of
Pillsbury’s four cake mix lines and several variations of another came directly from Bake-Off win-
ners’ recipes.

About 30% of new product ideas come from analysis of competitors’ products. The company can
watch competitors’ ads, press releases and write-ups in the press about their activities. Companies
also buy competitors information and pay for industrial espionage.
Resellers and others who are close to the market, can often pass on information about new develop-
ments. Other sources are trade magazines, shows and seminars, market research firms, government
reports, advertising agencies and new product consultants.
Idea Screening: -The purpose of idea generation is to create a large pool of ideas. The purpose of
this stage is to pare these down to those that are genuinely worth pursuing. Companies have different
methods for doing this from product review committees to formal market research. It, is helpful at
this stage to have a checklist that can be used to rate each idea based on the factors required for
successfully launching the product in the marketplace and their relative importance. Against these,
management can assess how well the idea fits with the company’s marketing skills and experience
and other capabilities. Finally, the management can obtain an overall rating of the company’s ability to
launch the product successfully.
Concept Development and Testing - An attractive idea has to be developed into a Product
concept. As opposed to a product idea that is an idea for a product that the company can see itself
marketing to customers, a product concept is a detailed version of the idea stated in meaningful
consumer terms. This is different again from a product image, which is the consumers’ perception of
an actual or potential product. Once the concepts are developed, these need to be tested with con-
sumers either symbolically or physically. For some concept tests, a word or a picture may be suffi-
cient, however, a physical presentation will increase the reliability of the concept test. After being
exposed to the concept, consumers are asked to respond to it by answering a set of questions de-
signed to help the company decide which concept has the strongest appeal. The company can then
project these findings to the full market to estimate sales volume.
Marketing Strategy Development - This is the next step in new product development. The strat-
egy statement consists of three parts: the first part describes the target market, the planned product
positioning and the sales, market share and profit goals for the first few years. The second part
outlines the product’s planned price, distribution, and marketing budget for the first year. The third
part of the marketing strategy statement describes the planned long-run sales, profit goals, and the
marketing mix strategy.
Business Analysis - Once the management has decided on the marketing strategy, it can evaluate
the attractiveness of the business proposal. Business analysis involves the review of projected sales,
costs and profits to find out whether they satisfy a company’s objectives. If they do, the product can
move to the product development stage.

Product Development - Here, R&D or engineering develops the product concept into a physical
product. This step calls for a large investment. It will show whether the product idea can be devel-
oped into a full- fledged workable product. First, R&D will develop prototypes that will satisfy and
excite customers and that can be produced quickly and at budgeted costs. When the prototypes are
ready, they must be tested. Functional tests are then conducted under laboratory and field conditions
to ascertain whether the product performs safely and effectively.
Test Marketing - If the product passes the functional tests, the next step is test marketing: the
stage at which the product and the marketing program are introduced to a more realistic market
settings. Test marketing gives the marketer an opportunity to tweak the marketing mix before the
going into the expense of a product launch. The amount of test marketing varies with the type of
product. Costs of test marketing can be enormous and it can also allow competitors to launch a “me-
too” product or even sabotage the testing so that the marketer gets skewed results. Hence, at times,
management may decide to do away with this stage and proceed straight to the next one:
If the company goes ahead with commercialization - introducing the product to the market-it will face
high costs for manufacturing and advertising and promotion. The company will have to decide on the
timing of the launch (seasonality) and the location (whether regional, national or international). This
depends a lot on the ability of the company to bear risk and the reach of its distribution network.
Today, in order to increase speed to market, many companies are dropping this sequential approach
to development and are adopting the faster, more flexible, simultaneous development approach. Un-
der this approach, many company departments work closely together, overlapping the steps in the
product development process to save time and increase effectiveness.

Points to remember:









Tutorial - H
The market for dishwashers is yet to develop as far as the Indian context is concerned. Changing
lifestyle patterns (at least in urban markets) may help the market to expand but Indian house holds
which can afford the product may have been well used to the practice of having maids doing the
household work. Maharaja appliances has launched whiteline dish maid priced around Rs. 20, 000.
The target segment consists of households with a monthly income of around Rs. 15,000. The product
offers temperature options and takes about 30 minutes for a wash cycle.
Consider the perception of an average consumer (in terms of awareness) in the target segment and
explain if the concept would appeal to him? What specific segments should the company target? If a
brand of dishwashing machine plans an advertising campaign, what aspects should it consider for
positioning the new product? Formulate a product-positioning map to obtain inputs for the theme of
the campaign.
Test your self (See your understanding of the concept)
Multiple Choice Questions:

1. Which of the following is not one of the five levels of a product that a consumer might purchase?
Basic product
Experienced product
Expected product
Augmented product
2. A ________________ is the set of all products and items that a particular seller offers for sale
to buyers.
Product mix
Product system
Product alignment
Product line
3. Each of the following is considered a consumer goods classification except which one?
Convenience goods
Shopping goods
Unsought goods
All of the above are consumer goods
4. __________________ are long lasting goods that facilitate developing or managing the finished
product for an industrial consumer. Materials
Natural products
Capital items
Operating supplies
5. A product mix is the set of all products and items that a particular seller offers for sale. A product
mix’s ____________ is determined by the amount of the many different product lines the company
carries.
Length
Width
Stack
Altitude

6. ___________________ occurs when a company lengthens its product line beyond its current
range of products offered to consumers.
Line stretching
Line lengthening
Line increasing
Line filling
7. _____________ is used when companies wish to enter the high end of the market for more
growth, higher margins, or simply to position themselves as full-line manufacturers.
Sideways stretch
Down-market stretch
High level stretch
Up-market stretch
8. A brand is a complex symbol that can convey up to six levels of meaning. Which of the following
is not one of the levels of meaning?
Attributes
Culture
Costs
Culture
9. __________________ relates to the deeper, more abstract goals consumers are trying to satisfy
with the purchase of a certain brand.
Brand glamour
Brand essence
Brand laddering
Brand relevance
10. Few customers are extremely brand loyal. Which of the following is not one of the five levels
of customer attitude toward a brand?
Customers never care about brands.
Customer is satisfied. No reason to change the brand.
Customer will change brands, especially for price reasons.
Customer is devoted to the brand.
11. There are a number of advantages to having high brand equity. Which of the following is not
one of the advantages to high brand equity?
The company will have more trade leverage in bargaining with distributors and retailers.
The company can charge a higher price than its competitors.
The brand offers the company some defense against price competition.
All of the above are advantages
12. There are several advantages to branding. Which of the following is not one of the advantages to
branding for the seller of a product?
The brand name makes it easier for the seller to process orders and track down problems.
The seller’s brand name and trademark provide legal protection of unique product features.
Branding helps the competition distinguish who else is in the same market.
Branding helps the seller segment markets.

13. A manufacturer has several options with respect to brand sponsorship. The product may be
launched as each of the following except which one?
Distributor brand
Government brand
Licensed brand
Own brand name
14 . There are many reasons why new products fail after they are introduced to the market. Which
of the following is not a reason why new products fail?
The idea is good, but the market size is overestimated.
The product was designed too well.
Development costs are higher than expected.
Competitors fight back harder than expected.
15. There are several factors that hinder the development process for new products. They include
each of the following except which one?
Advertising mediums
Shortage of important ideas in certain areas
Cost of development
Capital shortages
16. In order to manage new products properly, the company must be organized to do so. Each of the
following is a way to manage new products except which?
Product managers
New-product managers
Venture teams
All of the above are examples
17. There are a number of ways to stimulate creativity in individuals and groups in order to get ideas
for new products. Which of the following is when you list several ideas and consider each one in
relation to each other idea?
Attribute listing
Listing analysis
Forced relationships
Considered listing analysis
18. A ________________ is an elaborated version of an idea for a product expressed in meaning-

ful consumer terms.
Product concept
Product idea
Product creation
Product contraction
19. Concept testing involves presenting the product concept to appropriate target consumers and
getting their reactions. Which of the following are ways to concept test?
Prototype
Virtual reality
Rapid prototyping
All of the above are ways to concept test.

Essay Question:
Q1)Using a name brand coffee as an example, describe how that product fits into each of the five
levels of a product.
Q2)Describe the desirable qualities a brand name should have and give an example of a product
currently on the market that fits that description.
Q3)Describe five reasons why a new product fails once it is released in a market.
Q 4)You have developed a new type of office furniture. Using the stages in the Adoption Process,
describe how your customers would move through the stages.

Unit 3
Lesson 31 - Brand positioning, brand identity and equity and packaging
Lets have a recap of what we did in our last session.
In our last class, we have discussed PLC, adoption process and new product development I hope
everything is clear to you in case if you are not clear then go back and revise it. But today our topic
of discussion is branding which is very much part of product. To start with lets first define what is a
brand.
Before that answer this question what is Mercedes Bens or Nirma are they brands or products?
You will say obviously brand, my next question will be what kind of brand is it regional, national or
international? But hold yourself and don’t be anxious to answer this question. Like this there are
chain of questions that can be questioned and you can answer them but lets first move and under-
stand the concepts better so that you can apply them in right manner.
So first we will start from what is a brand?

In fact this word brand is quite comprehensive, and covers several other narrower terms. A brand is
defined: “As a name, term, sign, symbol or special design or some combination of these elements that
is intended to identify the goods or services of one seller or a group of sellers. A brand differentiates
these products from those of competitors” (American Marketing Association, Chicago).
Brand name is that part that can be spoken, including letters, words and numbers, i.e. 7UP.
Brand names simplify shopping, guarantee a certain level of quality and allow for self-expres-
sion.
Brand mark-elements of the brand that cannot not be spoken, i.e.symbol
Trade Character i.e. Ronald McDonald, Pillsbury Doughboy
Trade mark-legal designation that the owner has exclusive rights to the brand or part of a
brand.1990, US Patent & Trademark Office had 680,000 trademarks registered, 56,515 new in
that year.
Trade name-The full legal name of the organization. I.e. Ford, not the name for a specific
product.
Finally you can say that a brand is a promise of the seller to deliver a specific set of benefits or
attributes or services to the buyer. I think for each and every individual in this class brand represents
some level of quality. Irrespective of the fact from whom the brand is purchased, this level of quality
can be expected of the brand.Lets not forget that a brand is much more complex. Apart from
attributes and benefits, it also reflects the following.
Naming a product (or company) doesn’t appear to be a difficult task, but it is! Try your hand at it
individually or with a class team. The product is completely new to the Indian market. It is micro-
wave that heats or cools at the flip of a switch. Place a cup of water inside and it will either heat to

boiling or cool to ice in a matter of seconds. What are you going to name this revolutionary new
product? Brainstorm with several others in your class and bring the best product name to class.
Before discussing other concepts lets first understand the basic concepts of it like
Values: The values, which govern a producer, are reflected by the brand, thus Tata stand for
quality, fair price and so on.
Culture: A brand also represents a certain culture, e.g., Coke is an icon of American culture,
while Shilpa Bindis are typically Indian.
Personality: A brand projects a personality. Had the brand been an animal or an object or a
person, what would come to our mind?
Like Videocon suggests a lion, MRF suggests a muscle man and Rin suggests a lighting flash.
Sometimes a brand may take on the personality of an actual person, e.g., Charlie Chaplin and
Cherry Blossom.
User: The brand suggests its own target audience. We know what a Garden Woman is. We know
that Sunny is for teenagers. We expect a Mercedes to be driven by an executive or a top-class
businessman. These users correspond to the values, culture and personality of the brand. Because
of the imagery associated with the brands they actually have the power to enhance or limit a
consumer’s perceived image or self-image.
Check your understanding:
Why are people willing to pay more for a branded product than an unbranded one?
Branding Decisions - Say how many times you have heard your grandfather saying that they
will only buy branded products. Or say how many times you have seen your grandfather conscious
of brand when he goes and buys a pair of foot ware.
If we talk about olden times most products were unbranded. Producers sold goods or commodities
to fulfill our core or basic needs like taste, hunger or energy. I hope all of you are aware that the
products did not have any identification mark on them in olden days.
The first step towards branding a commodity is to package it, like rice, papad, salt, Water, for
example, used to be sold as a commodity. Today most mineral waters are sold as brands. The
company enhances the value of the commodity functionally.
It was formally started by craftsmen when they presented trademarks on their products to
protect them against inferior quality. Similarly Painters started signing their art works. Phar-
maceutical companies were the first to put brand names on their products. Today hardly
anything is unbranded.
Products from unorganized markets like vegetables, slat, fruits etc. are unbranded. But now
we have branded salts and atta too. Venky’ s has branded chicken successfully. In spite of a
brand movement, products have been demanded in generic, unbranded form in pharmaceutical
and staple consumer goods sector.
When commodities are branded, they have to counter the retailer resistance, who get greater
pricing freedom when they are unbranded. Along with this, there is consumer resistance – a
housewife loves to select food grains, clean them, ground into flour. A readymade Captain
Cook or Trupti atta deprives her of all these sentimental actions.
If we are successful in lessening the consumer resistance there arises a demand. The pull
effect compels the retailer to stock the brand and his resistance also comes down. Consumers
want a good value for money from a branded commodity.

Functional products and commodities take less to branding than inspirational products.
Manufactured products are branded easily, whereas it is not so for agricultural ones. Of course,
a commodity can evolve into a brand in stages.
Branding evolves through stages – a commodity, a functional brand, a high value added brand
and a premium product. Pads were used as sanitary napkins. The next improvement was belted
napkins. It was followed by beltless napkins. We now have dry-weave napkins. The consumers
are expected to adopt each of these product versions one by one, as they come in the evolution
of brand.
However, it may so happen that the aspiring middle-class with high disposable income leap frogs
into the high end brands like “Whisper” and “Ariel.”
While branding the products, an attempt is made to go beyond mere functionality.
Brand equity is to be built up by advertising appropriately to reduce the initial consumer resis-
tance.
Do you know that you can make the low involvement product into high involvement product by
emphasizing on certain situations, like Cease Fire demonstrated how a family’s bliss can be
shattered by a sudden fire. Sometimes, non-functional elements like fun are emphasized, e.g.,
Captain Cook salt. Textiles are sold on imagery and not on functional appeals. The brand be-
comes aspirational. Benetton ads do just this. The brand then becomes an icon – it stands for
something.
The core need of clothing is satisfied by a set of product classes – jeans, shirts, dhotis. If we
consider two-legged garments only, we have a choice between trousers and jeans. Jeans are
denim blue material, with rugged cuts, metal zippers and buttons and is a tough piece of clothing.
This product is augmented by giving fancy pockets, double stitching, wider range and designs,
and is associated with youth and machoism. The augmented product takes the brand name of
FM jeans. Brands thus help to makes a personality statement.
Basically brands start off as products made out of certain ingredients. Over a period of time, brands
are built through marketing activities and communications. They keep on acquiring attributes, core
values and extended values.
Time
Extended value
Core value
Attributes
Category Association
Products
Ingredients

Despite the branding, consumers may treat a certain product as a commodity like cement, since the
price is the same for all the brands and all of them have established the same identity.
To begin with, just a little value addition like packaging makes a commodity a brand but when all
competitors do the same thing, there is the danger of the brand again switching back to its commodity
status. Many consumers prefer lower priced generics, which are sufficiently satisfying.
Generic products are a challenge to high – priced brands and weaker brands. Some companies cut
their prices to competitive with generics. It is desirable.
As we have already observed, branding makes things easier for consumers to identify products and
services. Brands ensure a comparable quality when products are repurchased. Brands simplify your
shopping.
Choosing a commodity is far more complex than choosing a brand. Commodity selection is based on
rational left-brain logic. Brands have emotive associations. They can be choosen on a more holistic
basis involving parallel left and right brain processing. The firms find that brands can be advertised.
The firms also get the advantage of recognition when brands are on the shelves of the retailers.
There is no confusion between branded products amongst consumers. Branding makes price com-
parisons difficult. Good brands help build a corporate image. Branding gives added prestige to the
marketer. Branding also gives legal protection to the seller. Brand loyalty protects a firm against
competition. Branding enables a seller to segment the market. The distributors prefer branding as an
identification tool for vendors, as a convenient tool to handle the products, and as a guarantee to
certain production standard. These are some of the factors which encourage sellers to brand their
products though branding is a costly proposition, involving the costs of packaging, labeling, advertising
and legal protections.
The firms have to carry out two onerous tasks once they decide to brand – promoting the brand and
maintaining a constant quality. If these two requirements cannot be met, products are better left
unbranded. Branding decision is related to the nature of the product and the trade channel is involved.
The sophistication of the distribution channels is conducive to branding. The opening up of a vast
national market also augurs well for branding. Brand development and personal disposable income
have a positive correlationship.
Who will be sponsoring the Brand?

We have already discussed why it is advantageous to brand the products. The next important brand-
ing decision is about the sponsorship of the brand – whether it is going to be manufacturer’s or
national brand or it is going to be a middleman’s brand. In countries like the US, this is a very
important decision, owing to the presence of large departmental stores and super-markets. In India,
mass retailing has still to register its presence. Middleman’s private brands in India are still restricted
to co-operative superbazars and NCCF (National Consumer Co-operative Federation). Some retail-
ers have brand names in the product category of sarees. In the US, manufacturers may produce
some output under their own name, and some under distributor’s level. Private label brands in the US
wage a constant war with the national brand.
Franchising
The focus today is on franchising. Franchising deals are therefore becoming the order of the day.
There are many American companies who have shown interest in launching their brands in India by
franchising like Walt Disney Consumer Products ( WDCP) has entered into licensing agreements
with many prominent marketers for the use of its Disney characters on a range of products. They
computer education Network, NIIT has opened 93 centres across the country in a span of 10 years
Out of these, 7 centres are run by NIIT itself, while 64 are franchisees.

Franchising has reduced the need of large investments. The franchisee gains by tying up with an
established brand. Financing becomes easier, since goodwill of the present company backs up the
franchisee. The marketing costs are borne by the franchiser. The franchisee has a finger on the local
pulse. He can adopt faster to market needs. Holiday Inn Worldwide earns 3 per cent royalty on gross
room revenue. It takes care of the marketing and advertising costs for all its franchisees.
Growth of franchising is related to growth of branding. For high-income consumers, brands are
reflectors for showing their affluence and status. After the discussion on franchising lets move on for
to Brand Names The company has to choose its brand name strategy. Each product can have a
separate brand name, or one family name can be extended to all the products. Philips follows the
family brand name strategy. Hindustan Lever brands the individual products. Let us consider the
pros:
Family Brand
(a) It is cost effective in as much as it reduces product launch costs and also the promotional ex-
penses incurred on a continuing basis. The success of one brand when well promoted gives a push to
the entire product line. Management of trade channel also is easier.
(b) For products of uneven quality, this approach is a dicey proposition. Even in markets showing
variations in consumer profiles, this approach is not useful.
(c) Each product is denied a special identity, which can go a long way to make it click.
Like Nokia is a corporate or family brand. There is no sub-branding and the individual products are
merely defined by numeric descriptors such as 5110, and even these do not appear on the product
itself. Yet, the brand has leapfrogged most of its competitors like Motorola and Ericsson. Even in
technology-based businesses, a company can have a brand strategy.
Individual Brand
(a) Individual brand invokes associations and imageries. These psychological factors influence the
buying decision.
(b) Even if the product fails, the effects are restricted to that product only. They are not transferred
to the whole product line.
(c) Costlier strategy.
(d) No benefit to the brand of the organization’s reputation.
Modified Strategy -These days’ companies tend to brand the products individually, but also give
prominence to the company’s name or logo in all promotional efforts and product packaging. Some
companies adopt brand extension strategy, by introducing similar or dissimilar products, e.g., Nirma
toilet soaps. Some organizations decide several brand names of the same product where each brand
has its own following. The brands compete amongst themselves. Soap manufacturers follow this
strategy. Al ries and Jack Trout are against brand extensions. In their opinion, brands are not dying –
the companies are killing them through mindless line extensions. When a company line extends, it
weakens itself. Product categories can be given extensions, e.g., gel pastes, detergent ultras, puri-
gerators. Telephone directory reclassified becomes Yellow Pages. It is more than mere positioning.
It is creating a new product category with just an extra push. Tinker in the lab and let the brand or
product plus emerge, e.g., gel, cologne soap, micro system, germi check etc.
The choice of an individual brand name is the next important decision. The choice is not so easy.
There are really few good brand names. As a wit has aptly remarked, “Searching for a brand name

is like search for a wife – there are lots of choices, but the best ones have already been taken.”
Sometimes, brand names are based on a person’s name, e.g., Honda Estee Lauder, Khaitan. Brand
names can be based on locations, e.g., Indian Airline, Kentucky Fried Chicken. Brand names can
suggest an important product attribute, e.g., Duracell. Thee are brand names which suggest a life
style, e.g., Fleet Footers. EXXON and Kodak have an interesting history behind them. When ESSO
found it necessary to change its name, the computer was fed with various vowels and consonantal
combinations, and 44,990 four letter and 500,000 five-letter combinations came out. EXXON was
finally chosen because it is distinctive and has graphic design possibilities. Kodak was coined by
George Eastman in 1888 because he liked the letter ‘K” and wanted a name which could not be
misspelt.
Characteristics of a Good Brand Name - A good brand name should possess as many of the
following characteristics as possible
(i) It should be distinctive: The market is filled with over-worked names and over-used symbols.
A unique and distinctive symbol is not only easy to remember but also a distinguishing feature.
“Northstar” shoes have a distinct name.
(ii) It should be suggestive: A well-chosen name or symbol should be suggestive of quality, or may
be associated with superiority or a great personality. The name VIP Classic for travelers is sugges-
tive of a superior quality for a distinct class of people. Promise is suggestive of an assurance of tooth
health.
(iii) It should be appropriate: Many products are surrounded by a certain mystique in the minds of
the consumers. Carefree is an appropriate brand name of a sanitary towel.
(iv) It should be easy to remember: It should be easy to read, pronounce and spell. Tide, Surf,
Gold Spot are examples of such brand names.
(v) It should be adaptable to new products: Videocon is was good brand name for TVs and
VCRs but when it is extended to refrigerators and washing machines, some of the sales appeal is
lost. Hotline was a good name for gas stoves, but definitely not a suitable name for TVs.
(vi) It should be registerable under the Indian laws of Trade Marks and Copyrights.
Mostly a company develops several names for a product and makes a choice later after debate and
discussion.
Generic Usage of Brand Names - Sometimes, a brand name becomes so successful that it comes
to be associated with a particular product category, e.g., Dalda is a brand name commonly used for
any vanaspati ghee. The brand names then do not remain distinct and become generic. Cellophane,
nylon, fiberglass, celluloid, Kerosene and aspirin have thus become generic. Xerox and Band Aid are
not yet legally generic, but they have been so well promoted that many people just use them generi-
cally. Though each firm strives to have a popular and preferred brand names, it does not like it
becoming generic. It is a tight-rope walk.
To protect against such generic use, a brand name can be combined with a company’s name, e.g.,
Eastman Kodak. A brand name can be combined with a generic name, e.g., Dacron polyester, Dabur
Chyavanprash.
Generic Brand - A brand that becomes generic becomes a product category, and no longer remains
a brand. Frigidaire is GE’s brand. But now well call any refrigerator a ‘fridge’ so it has become
generic. Other well-positioned brands have overtaken Frigidaire, and it is no longer a market-leader.
Dalda Vanaspati has become generic. It is now again trying to lose its generic label. Though con-

sumer asks a product by the generic name, he ends up buying a brand that offers attractive benefits.
The generic brand sits on the shelf.
Brand Strategy Decisions - A Company has four choices in respect of its brand strategy:
(i) Line extensions: Extend the existing brand name in the existing product category.
(ii) Brand extensions: Extend the brand name to new product category.
(iii) Multiple brands: Have new brand names in the same product category.
(iv) New brands: Invent a new brand name for a new product category.
The following diagram illustrates these four choices:
PRODUCT CATEGORY
EXISTING NEW
LINE EXTENSION BRAND EXTENSION
MULTIPLE BRANDS NEW BRANDS
EXISTING BRAND
NAME NEW
Most of the new products in the day-to-day use and grocery products are line extensions. A few are
brand extensions. A few new brand names appear in both multiple brand strategy and new brand
strategy.
Line Extensions: Here the company introduces additional items in the same product category,
keeping the brand name same. The additional items may be of a different size (say a 150 gm cake of
Palmolive Soap). There may be a new form, say Liquid Lifebuey Soap. The additional item can be of
different colour say, a lilac soap instead of a white soap. The package may be different, say a satchet
of a shampoo. Some additional flavours can be introduced, say Brown & Polson Custard Powder is
now available in chocolate and with elaichi flavour. There may be added ingredients, say, Lifebuoy
Gold. Lux is available in three skin types, say for normal skin, dry skin and oily skin, making it “your
kind of soap for your kind of skin.” Line extensions can be innovative, or “me-too” or may be void-
filling. Most of the new product activity is of line extension type. Line extensions offer a variety to the
customers. An advantage can be taken of consumer’s latent need. Or else, a competitor is to be
matched in terms of its offer. Line extensions also allow a company to command more shelf-space at
the retail level. Line extensions can be made available through a specific mix of trade channels, e.g.,
lower end products are available at general stores and higher end products at a few specialized
outlets.
Line extension, though very popular, is not without its drawbacks. The specific meaning of a brand
might be lost by heavy extensions. Ries and Trout are against line extensions. Today, Coke in India
means a 300ml bottle of the real thing. Say, an extension brings a 500 ml and 1 litre bottle. Again, a
can may be introduced. Perhaps, there may be a diet Coke later. All this may become confusing.
Besides, what is the guarantee that all these extensions will have sales sufficient to cover the costs?
Even additional sales may be at the cost of other items in the line. Line extensions work only if the
sales are taken away from the competitors. Mostly, they eat up the sales of our own brands.
Brand Extensions - An existing brand name is extended to a product being launched in a new

product category. Honda is a brand in the field of motorbikes. The same brand name is given to
products in the field of lawnmowers, and marine engines. Brand extension works well for rubbing off
the success of established brand names to new products. The new product, therefore, finds easy
acceptance. However, if the new product is not satisfactory in performance, it might affect the
reparations of the company’s other products. Most of the times, brand name may not be appropriate
for the new product category. While brand extending, it advisable to see how the associations of the
parent brand are consistent with the extended brand.
Multiple Brands - The strategy is employed to saturate the market. Additional brands are intro-
duced to cater to the different segments, e.g., P&G’s Tide is for soiled clother and Draft is for gently
clothes. P & G produces nine different brands of detergents. Sometimes, flanker brands are intro-
duced to protect the major brand, e.g., high-priced Seiko watches are protected by introducing low-
priced Pulsar watches, which are flanker brands. Multiple brands offer us price flexibility. A
competitor’s’ fighting brands’ are so priced that they beat those of the competitor. This way the main
brand is protected, and its price is not cut. Multiple brand strategy may not allow the company’s
resources to be focused. They may get dissipated over a large number of brands. Besides, if each
brand has a small market share, the overall profitability may get affected. Our brands should affect
the competitor’s brands, and not the other brands of our own-Sometimes, a company gets a legacy of
new brands in the process of acquisition. Thus Coca Cola got the Thums Up, Gold Spot and Limca
brands.
In India, consumer durable are showing stagnant demand. Companies have to launch several brands
at different price points either with one mother brand as umbrella brand, and several differentiated
sub-brands or a separate new brand like Evelux TV from BPL or Akai and Sansui from Videocon.
Multi-branding - In the market place of today, there is a virtual marketing warfare where brands
fight with one another on the basis of quality, reputation and market share. Marketing strategy to a
large extent is defined by brand strategy. Multi-branding approach is a measure adopted by many
FMCG companies , followed by consumer durable and service sector companies to survive in the
competitive environment.
A company must first identify its core brand, which delivers the largest volume and highest cash
flow. In a sense, it is the market leader. Our effort should be directed towards the protection of this
core brand, by creating one or more smaller product categories to protect the flanks, after strength-
ening the top and the rear with a slew of other aggressive products. HLL follows this strategy to
market Lux by creating other soaps like Jai to product it. Colgate follows multibranding strategy to
guard its main product Colgate Dental Cream. Videocon protected itself by creating Bazooka as a
top-of-the line product and introducing Toshiba. It protected the brand in all size and price categories
by introducing private. Sansui protected its flanks. In this process, the core brand tends to get
compressed over a medium-to-long-term period, leading to gain in the market share of other brands.
But as the production capacities are shored up, the brand shares get fragmented, leading to an overall
consolidation of the core brand. Multi-branding can be practiced by segmenting the market on socio-
economic parameters e.g. Raymond as a core brand is surrounded by Park Avenu for professional ,
Parx range of casuals for youth and manzoni, , to-of-the-line range of ties, suits, and jackets. Multi-
branding is a strategy followed be big players.
New Brands- To make brand names more appropriate, a company puts a new brand name when it
enters a new product category. A new brand again has to be built up, and this is quite expensive. It
should be considered whether the sales and profits estimated for the new brand justify it.
Key Role of any Brand - A brand does not merely satisfy a need of the consumer. It is no use
force-fitting a brand to the consumer. A consumer as such has aims, ambitions, motivations, drives
and desires. Each consumer tries to satisfy the higher level needs after satisfying the basic needs. It

is a desire to each, and a desire to have power that goals a consumer to higher and higher levels. A
brand should be a means to empower the consumer – he should feel more powerful when he uses the
brand. The emotional payoff of the brand should lead to enhancement of positive self-image. Self-
image can be improved when a consumer’s intrinsic or extrinsic worth is enhanced. Intrinsic worth
denotes a better feeling about oneself. Extrinsic worth means a better feeling of the consumer in the
eyes of the world around him. Brand payoff should ensure that emotional payoff is exclusive and
relevant. It takes a brand to its destination.
Garden Woman and Vareli Woman
Product : Garden sarees, Vareli dress material.
Advertising : Indian fashion advertising.
Ad. Budget : ON an average Rs. 2 crores excepting in 1985 when it
was 2.6 crore.
Agency : Creative Unit formerly, Ambience now.
Typical garden look : Muted colours, no loud contrasts. Soft harmonies brought together.
Floral prints.
1972 Advertising : Whenever you see a flower, remember garden. How garden
understands
a women : In every woman, there is a traditional part and there is a modern

part. There are occasions that demand the traditional and these
are occasions that demand the modern. How basic garden ads
Work : It looks good on the model. Maybe, it will look good on me.
Price range : Rs. 185 – Rs. 800
Advertising Manager : Shilpa Shah
Path breaking ad : Garden creates the new woman ( Kamlesh Pandey, formerly of
Rediffusion.)
: Garden, because every woman has a dream.
: Garden woman, ever-changing yet never changing.
Appeal of a garden woman : Her mystique .
She is there yet not there. She seems to be a woman of mountain mist. She simmers, she’s gone. She
swings back and forth on a jhoola. She goes out of frame for an intent with every swing and comes
back in a new incarnation each time. Then suddenly, the jhoola has nothing – it’s empty. Had she
been there at all?
She floats at you through early morning mist in a shikara but ultimately it’s an empty shikara.
She is a dream. She is usually shown enjoying. She feels at ease in a garden saree. She feels
beautiful in it. She is a riddle.

1985 : Persis Khambatta became the garden woman.
Vereli Woman : She is a new personality.
She is aspirational. She is assertive and independent. She knows her mind. She knows she is edu-
cated and career-minded. She is equal to a man. She retains her feminine charm shile being equal ot
man. She ventures out on her own. She is passionate. (She is therefore put in erotic setting). She is
brave ( and so she can be put in hostile environment ). In each campaign, a different dimension of a
woman’s personality was explored. There is always a hovering presence of a male admirer ( though
face not revealed).
Branding Decisions
Salient feature : The ads never explain themselves. Neither do the woman.
Comparison : Garden Saree Vereli Dress Material
Woman Woman
Older Younger
Married Unusual,
Unpredictable Softer,
quieter, Venturesome
Intensely feminine. Exotic
Grace and dignity Dreamer
Secret of Success : Garden women make a statement about woman in

general.Regional Brands
In India we come across many regional brands, which compete with the national brands in several
product categories. A regional brand is unique to a particular region. Some brands remain regional on
account of the constraints of resources. Some do so on account of their very provincial appeal.
Regional brands are under assault by the national and transnational companies. They have started
offering regional variants. Brands like Fights in processed food witness a number of brands from
Nestle and Milkmaid gobbling up the market created by it.
When a regional brand remains confined to a region, it faces the competition from the regional
variant of a national brand. When regional brands venture to go national, they may over-leverage
their meager resources. But there is not way they can afford to remain silent spectators. They should
extrapolate the regional model in spirit, and not in letter.
Attitude Brands - Body shop puts forward human body as an asset. Benetoon ads denote an
irreverent attitude. MTV as a brand is thought of as one packed with rebelliousness of this genera-
tion. We have an ‘honest shirt’. These brands do things differently. They jolt the customer who take
notice of the brand.
In – Store Brands - Even you would have come across what are known as ‘private label’ brands.
These are store brands.
They are defined as a product line, which is owned, controlled, merchandised and sold by a specific

retailer in its own stores. They enable a retailer to attain higher margins by providing higher value to
the customers and by saving costs.
They also increase a retailer’s bargaining power with the suppliers of national brands. By being
exclusive, private labels generate customer loyalty.
We come across private levels in garments and foods. Shopper’s Stop gets more than 15 per cent of
its total sales through private label brands. Foodworld too has private label grocery brands.
Private lablels should be more consumer-centric. They should fill up the consumer need gaps. Re-
tailers are quit close to the customer. They observe the shopping behavior of the consumers. They
are thus in a better position to design suitable products.
A retailer who chooses to launch private labels becomes a marketer, and not merely a seller of
products. It brings he whole brand building process in the organization. Retailers can exercise flex-
ibility in marketing these brands by adapting to change.
There are a few questions. Should a private label contribute to the store’s image or should store’s
image be used to market a private label? What should be the brand strategy? What should be the mix
between private labels and national brand? Which categories are suitable for private labeling?
Private brands can be a no-frill discount product and is perceived as a lower quality product.
A private brand can be an exact copy of a manufacturer’s brand like perfumes, which resemble the
originals. But such copy cats can violate the trade dress and patent laws. The idea is to take advan-
tage of the brand equity of the manufacturer. Small-undercapitalized retailers follow this strategy.
‘Invitation to compare’ copycat brands closely imitate the national brand’s trade dress and product
qualities. They are similar to the manufacturer’s brand. The two differ in price.
Manufacturer’s brand attracts store traffic, and the private brand leverages this traffic. Premium
private labels offer the consumers the same or better quality than manufacturer’s brand.
There is no intention to take advantage of the brand equity of a manufacturer’s brand. Such premium
brands compete with national brands.
Private label thus have to commit resources to build up its brand just like a national brand. Private
brands improve the margins of the retailer by cross brand cannibalization – converting sales from
national brands at lower margins into private label sales at higher margins at the point of sale.
Now lets see it is Brand Driving that is driving the Product or Product Driving the Brand
Most of us actually buy products, and not brands per se. You may need a new motorbike, and decides
to buy Kawasaki Bajaj. Thus the first decision after deciding to buy a product is to decide which
brand of mobike would serve my purpose. Actually, both these recessions are though of so quickly,
that they merge with each other, and we feel that the brand is the driving force. However, the first
decision is always the product or category.
Brand and National Identity - In this wired world, brands are becoming global, but still they do
maintain their original roots, e.g., Coke is an American brand and Mercedes Bens is a German brand.
‘Brand’s national identity is based on where that brand is created. We may make a Sony in India, but
still it is a Japanese brand. A product can be manufactured and created anywhere but a brand has a
national identity. However, national identity sometimes does not work to our advantage. American
computers have strong positive national identity, but American cars are considered mediocre.
Brand Roles - Aaker identifies four types of roles for the brands. A brand becomes a driver brand

when it leads to the purchase decision. Here the brands represents the package of benefits a cus-
tomer expects from the brand. The driver brand can be the basic brand or sub-brand or corporate
brand or a combination. In a computer industry, Intel can be a driver brand, rather than the computer
brand itself. In detergents, we have Surf Excel, and Excel becomes the driver brand owing to the
presence of enzymes it suggests which the consumer is actually buying. In Bajaj Chetak, Bajaj is the
driver brand as it represents reliability and performance Driver brands must be emphasized in promo-
tion and packaging.
A brand plays the role of endorser also. Here it supports the driver brand and its claims. It thus lends
credibility to the driver brand. Corporate brands are generally the endorser brands. A brand can be
both a driver and endorser brand. In several courses, to being with corporate brand which supports a
driver brand is usually used. Later, the corporate brand is withdrawn, when the driver brand can
stand-alone.
Issuing Bank + Mastercard or Issuing Bank + Visa The credit issuring banks either issue a
Mastercard or Visa. Here instead of the issuing bank, the sub-brand Mastercard or Visa becomes
the driver brand, and dance into the limelight. In a recent seminar held in Mumbai. ( 1998) some
banks complained about this. Lafferty Business Research vice-chairman said, ‘It is like the tail
wagging the dog, instead of the dog wagging the tail.’ Mr. Sannon, General manager, Mastercard,
South Asia countered this observing that associations like Mastercard and VISA, were owned by the
banks themselves, and therefore, they were only gaining in the process of building these brands.
(TOI, Jan. 25, 1998)
A brand can play a strategic role in the future performance of the company.
A brand can play the role of a sub-brand reserved for a part of the product line, e.g., Videocon
Bazooka where Bazooka is a sub-brand of Videocon TV. This distinguished the Bazooka TV from
other TV sets in Videocon range. In some cases like Ariel Micro-shine, the sub-brand does not
remain just descriptive, but plays a driver role.
A sub-brand that describes the driver brand does not dilute the driver brand, or distract us from it. A
sub-brand that describes the driver brand does not dilute the driver brand, or distract us from it, a sub-
brand can specify segments. An organization can use common prefixes or suffixes to denote sub-
brands, e.g., Philishave.
Benefits of Branding - It Provides benefits to buyers and sellers
TO BUYER:
Help buyers identify the product that they like/dislike.
Identify marketer
Helps reduce the time needed for purchase.
Helps buyers evaluate quality of products especially if unable to judge products characteristics.
Helps reduce buyers perceived risk of purchase.
Buyer may derive a psychological reward from owning the brand, IE Rolex or Mercedes.
TO SELLER:
Differentiate product offering from competitors
Helps segment market by creating tailored images
Brand identifies the company’s products making repeat purchases easier for customers.
Reduce price comparisons
Brand helps firm introduce a new product that carries the name of one or more of its existing
products...half as much as using a new brand, lower co. designs, advertising and promotional
costs.EXAMPLE, Gummy Savers

Easier cooperation with intermediaries with well known brands

Facilitates promotional efforts.
Helps foster brand loyalty helping to stabilize market share.
Number of Brands - Some companies have just one or two brand names, whereas some have
brand names in hundreds. A right number of brand name is a result of a trade-off between the value
a brand name creates and cost of maintaining it. We should consider whether the brand is sufficiently
different to get a new name and whether the new name will add any value. While extending the
brand, we should consider whether the core values are getting diluated or not. We should also con-
sider what marketing support a new brand can be given.
Brand Strategy - To develop meaningful brand strategy, our brands should be treated as a system.
We should examine the role of each brand and should avoid inconsistencies. Brands should fit into
brand identity profile. Sub-brands should be considered to modify or change the brand identity. We
should dwell upon how sub-branding a feature of component or service programme would support
the basic brand. We should select strategic brands, and decide on the right number of brands.
Sub-Brands are a Mistake- John Philips Hones, A professor of advertising, feels that brand stretching
makes you lose the scale of economies. Big brands have considerable scale economies. It is also not
known precisely what happens to the core values of the brand equity. Sub-brands address to small
niches and it becomes difficult to visualize how it affects the core brand values.
Now with too much of discussion on branding now lets focus on Packaging All of us know how
important it is to get our product packaged as it helps in better acceptance.
A good package in the representation of the artistic combination of the designer’s creative skills and
the product, marketing and sales knowledge of the manufacturer’s management team. The develop-
ment of packaging is the sum total of the talents of the designer, the researcher the technician, the
advertising man, the marketing expert, the sales department and the top management.
Now lets define what is packaging “Packaging may be defined as the general group of activities in
product planning which involve designing and producing the container or wrapper for a product” (
William J. Station).
Thus packaging is a brand activity that requires careful consideration by the management.
The potentialities of packaging especially in the field of demand creation have been widely accepted
now. It is often remarked as silent salesman’. This is perfectly so because of its advertising appeal,
identifying power and intrinsic value.
Under the modern marketing concept, in which all aspects of a business are corrected from a market
point of view to enhance their ability to win profitable customers, packaging decisions almost always
have complex ramification. Any such decision may simultaneously affect production, distribution,
research and development, sales advertising, public relation, personnel accounting and finance,
Hence packaging should be looked upon both as a thing and a person or step by which a company is
economically able to contain man-made or natural product for shipment, storage, sale and final use.
Is packaging a component of advertising? Or is it really a component of a product?
These are the questions that are most commonly asked. The answer to both the questions is “yes.”
We already know that packaging is an integral component of a product; but the package also plays an
important role in its sale ability. It, therefore, becomes partly a component of promotional advertising.

Packaging is no longer a mere outer covering for the protection of the product; it is very much a
contributing factor to its increasing marketability. Ads after ads feature a beautiful package; and the
product image in the minds of consumers is, to a good extent, due to attractive packaging In the case
of the similar products, the brand difference is only due to differences in packaging.
Good packaging covers an idea of the quality of the product; it has a value, which is distinct from the
value of the product. Attractive packaging is an effective Point of Purchase (POP), and stimulates
gift sales.
As the old adage goes, “Clother makes the man.” So, also, does the package make the product?
Products are often judged by their packages – particularly for impulse product. Perfume is a good
example of this. There is a close interrelationship between the advertising and packaging compo-
nents of the marketing mix. Several advertisements feature the product in its package.
Though packaging is primarily a means of protection during transportation and storage, our interest in
it is primarily for its use as a marketing and promotion tool. Advertising people are involved because,
in addition to be being a protective device, packaging is featured as a campaign theme.
The package is a vehicle for carrying the manufacturer’s name, the brand name, the trademark,
apart from the information it provides about the ingredients and direct advantages of product use.
Packaging identifies products, their quantity, constituents, shelf life, mode of use and nutritional or use
value. Packaging serves as a significant source of information.

Point to remeember
Slide 1 ___________________________________
___________________________________
Brand
A name, term, symbol, design, or

combination thereof that identifies a
___________________________________
seller’s products and differentiates
them from competitors’ products.
___________________________________
18
___________________________________
___________________________________
___________________________________
Slide 2 ___________________________________
___________________________________
Branding 4
Brand
Brand
Name
Name
Brand
That
That part
part of
including
of aabrand
brandthat
including letters,
The
that can
letters, words,
can be
words, and
be spoken,
spoken,
andnumbers.
numbers. ___________________________________
Brand The elements
elementsof
of aa brand
brand that
that
Mark
Mark cannot
cannot be
be spoken.
spoken.
Brand
Brand
Equity
Equity
Master
The
The value
A
value of
Abrand
brandso
of company
companyand
and brand
so dominant
brand names.
dominant that
names.
that itit comes

comes to
to
___________________________________
Master mind
mind immediately
immediatelywhen
when aa product
product category,
category,
Brand
Brand use,
use, attribute,
attribute, or
or benefit
benefit is
is mentioned.
mentioned.
19
___________________________________
___________________________________
___________________________________
Slide 3 ___________________________________
___________________________________
Benefits of Branding 4
Branding
Branding
distinguishes
distinguishes
products
productsfrom
from
___________________________________
competition
competition
Product
Product New
NewProduct
Product
Identification
Identification
Repeat
Repeat Sales
Sales
Sales
Sales
___________________________________
___________________________________
20
___________________________________
___________________________________

Slide 4 ___________________________________
___________________________________
An Effective Brand Name 4
Is easy to pronounce
Is easy to recognize and remember
___________________________________
Is short, distinctive, and unique
Describes the product, use, and benefits
Has a positive connotation
Reinforces the product image
___________________________________
Is legally protectable
21
___________________________________
___________________________________
___________________________________
Slide 5 ___________________________________
___________________________________
Branding Strategies 4
Brand
Brand No
NoBrand
Brand
___________________________________
Manufacturer’s
Manufacturer’s Private
PrivateBrand
Brand
Brand
Brand
Individual
Individual
Brand
Family
Family
Brand
Combi-
Combi-
nation
Individual
Individual
Brand
Family
Family
Brand
Combi-
Combi-
nation
___________________________________
Brand Brand nation Brand Brand nation
23
___________________________________
___________________________________
___________________________________
Slide 6 ___________________________________
___________________________________
Generic Brand 4
A no-frills, no-brand-name, low-cost

product that is simply identified by its
___________________________________
product category.
___________________________________
24
___________________________________
___________________________________
___________________________________

Slide 7 ___________________________________
Manufacturers’ Brands Versus

___________________________________
4
Private Brands
Manufacturers’
Manufacturers’
Brand
Brand
The
The brand
brand name
nameof
of aa manufacturer.
manufacturer.
___________________________________
Private
Private
Brand
Brand
A
A brand
brand name
nameowned
wholesaler
wholesaler or
owned by byaa
or aa retailer.
retailer. ___________________________________
25
___________________________________
___________________________________
___________________________________
Slide 8 ___________________________________
Advantages of
___________________________________
4
Manufacturers’ Brands
Develop customer loyalty

Attract new customers
___________________________________
Enhance prestige
Offer rapid delivery, can carry less inventory
Ensure dealer loyalty ___________________________________
26
___________________________________
___________________________________
___________________________________
Slide 9 ___________________________________
Advantages of
___________________________________
4
Private Brands
Earn higher profits

Less pressure to mark down prices
___________________________________
Manufacturer may drop a brand or become a
direct competitor to dealers
Ties to wholesaler or retailer
No control over distribution of manufacturers’
___________________________________
brands
___________________________________
27
___________________________________
___________________________________

Slide 10 ___________________________________
Individual Brands Versus

___________________________________
4
Family Brands
Individual
Individual
Brand
Brand
Using
Using different
different brand
different
brandnames
namesfor
different products.
products.
for
___________________________________
Family
Family
Brand
Brand
Marketing
Marketing several
products
several different
productsunder
different
under the
brand
the same
brandname.
name.
same ___________________________________
28
___________________________________
___________________________________
___________________________________
Slide 11 ___________________________________
___________________________________
Packaging 5
Contain
Containand
andProtect
Protect
___________________________________
Promote
Promote
Functions
Functions
of
of
Facilitate
FacilitateStorage,
and
Storage, Use,
andConvenience
Convenience
Use, Packaging
Packaging
___________________________________
Facilitate
FacilitateRecycling
Recycling
32
___________________________________
___________________________________
___________________________________

Unit 3
Chapter 11 - Introduction to Service Marketing
Lesson 28 - Introduction to Service Marketing
In our earlier session we have discussed on branding in terms of what is branding? Why is it impor-
tant to brand? Then what is brand equity then? How do you position your brand then concepts like
brand extension was also discussed? In fact it is one of the most interesting topic I hope most you are
clear with this concept.
Now lets move out from the world of branding to the world of service marketing. Lets start with the
discussion on it. I hope all of you have been to bank at some or the other moment of life. Have you
ever experienced that the amount of time taken to serve you was to long and your reaction to it was
ooh the services offered by XYZ bank are bad. Now tell me what do you understand from service?
Why is it important to study? What is the difference between products and services? What is service
mix?
All these question will be answered by you once we are through with the discussion of this lecture.
Before moving on to any other topic do this
Application exercise - Choose a service that you are familiar with and create a simple flowchart of
how you see it; commenting on the sequence, your expectations at each stage, and encounters with
other people (staff and customer).
We have already discussed to much on product and I think most of you are clear with this concept
and finally discuss what are services and why is important to have services.
‘Product is basically a generic term and can in many cases include services’ for the practical purpose
of marketing . As all of us have studied in economics and seen in newspaper that the service sector
has grown rapidly in the recent years in India.
There are certain basic characteristics of services industries, which differentiate them from other
business operations. By these characteristics I mean to say that the successful marketing and deliv-
ery service requires attention to areas not really covered by the 4 P’s; who gives the service (people);
how is the service given (process); the environment in which the service is given (physical evidence).
The nature of quality in service is complex. This lesson discusses what are the service-quality gaps
and how to bridge those gaps.
In this unit you will learn about the following thing.
a) The Importance of having a separate marketing mix for services
b) The features of service marketing
c) The characteristics of services and what they imply for marketing strategy

d) The importance of people in service quality
e) The issues of service quality
Can you tell me what is service according to you?
A service is an activity which has some element of intangibility associated with it, which involves
some interaction with customer or with property in their possession, and does not result in a transfer
of ownership.
A change in condition may occur and production of the service may or may not be closely associated
with a physical product. It includes a wide variety of services.
There are the business and professional services such as advertising, marketing, research, banking,
insurance, computer-programming, legal and medical advice. Then there are services which are
provided by professionals but consumed for reasons not of business, rather for leisure, recreation,
entertainment and fulfillment of other psychological and emotional needs such as education, fine arts,
etc.
W.J Stanton
“Services as fulfilling certain wants and states that, “services are those separately identifiable, es-
sentially intangible activities which provide want-satisfaction, and that are not necessarily tied to the
sale of a product or another service.”
Why do you think manufacturing industries grew?
Manufacturing industries grew because they produced tangible goods, which satisfied our physiologi-
cal needs for food, shelter and clothing. As our basic needs were fulfilled there was demand for
improved satisfaction, and this led to a proliferation of variations of the same product and a number
of companies involved in its manufacture.
If we talk in growth of specific service industry it is basically result of a combination of several

reasons.
As we notice increased wealth coupled with the desire to utilize leisure time for leisure rather than
remaining confined to the home has led to increase in travel resorts, restaurants, shopping malls,
cinema halls etc.
Increasing affluence combined with increasing complexity of lie and increasing insecurity has led to
the phenomenon of credit cards and traveler’s cheques, which proved to be almost perfect substi-
tutes for money. Tell me why do you use a credit card?
I think because it provides convenience and safety.

In fact convenience is proving to be a key concept in the provision of services. Also with higher
number of women in the labor force there is a greater demand for crèches, baby-sitting, and house-
hold domestic help.
Phillip Kotler has distinguished four categories of offer, varying from a pure good to a pure service:
A pure tangible good such as soap, toothpaste or salt. No services accompany the product.
A tangible good with accompanying services to enhance its consumer appeal. Computers are an
example.
A major service with accompanying minor goods and services such as first class airline travel.
A pure service like baby-sitting and psychotherapy.
First lets go through few examples of service marketing and then move on to characteristics of
services.
Examples of Service Industries
Health Care -Hospital, medical practice, dentistry, eye care
Professional Services - Accounting, legal, architectural
Financial Services - Banking, investment advising, insurance
Hospitality - Restaurant, hotel/motel, bed & breakfast, Ski resort, rafting
Travel - Airlines, travel agencies, theme park
Others: hair styling, pest control, plumbing, lawn maintenance, counselling services, health clubCharts
shows you basic difference between product and services
Lets see what are the characteristics of services.
Basically services have a number of unique characteristics that make them so different from prod-
ucts. Some of the most common ones are:
Intangibility
When you buy a cake of soap, you can see, feel, touch and use it to check its effectiveness in
cleaning.
But when you pay fees for a term in college, you are paying for the benefit of deriving knowledge and
education, which is delivered to you by teachers.

In contrast to the soap you can immediately check its benefits, there is no way you can do so in case
of the teachers who are providing you the benefits.
Teaching is an intangible service. Services cannot be felt, tasted, touched or seen in the same way as
-goods.
However, there are always some tangible components, which help consumers, evaluate services. On
a flight, for example the total service experience is an amalgam of many disparate components, such
as the experience at the airport, the nature of the services, on board and the in-flight entertainment.
There are clearly many tangible able elements during the flight but this is hardly comparable with
buying a television or a suit, where the total product can be seen, examined and evaluated.
We should see what are the result as well as marketing implication of intangibility:
Intangibility actually presents several marketing challenges: Services cannot be inventoried, and
therefore fluctuations in demand are often difficult to manage.
For example, there is tremendous demand for resort accommodations in XYZ in February, but little
demand in July. Yet resort owners have the same number of rooms to sell Yet-round.
Services cannot be patented legally, and new service concepts can therefore easily be copied by
competitors.
Services cannot be readily displayed or easily’ communicated to customers, so quality may be diffi-
cult for consumers to assess.
Decisions about what to include in advertising and other pro-motional materials are challenging, as is
pricing. The actual costs of a “unit of service” are hard to determine and the price/quality relationship
is complex.
The range shown in fig highlights that fact that most services are a combination of product and
services having both tangible and intangible aspects. There are only a few truly pure tangible prod-
ucts or pure intangible services
The distinguishing feature of a service is that its intangible aspect is dominant. These intangible
features are:
A service cannot be touched
Precise standardisation is not possible
There is no ownership transfer
A service cannot be patented
Production and consumption are inseparable

There are no inventories of the service

The consumer is a part of the production process so the delivery system must go to the market or
the customer must come to the delivery system
Inseparability - The most basic and universally cited, difference between goods and services is
intangibility. Because services are perform
In most cases services cannot be separated from the person or firm providing it. A person who
possesses a particular skill provides Service. A plumber has to be physically present to provide the
service; the beautician has to be available to perform the massage
Heterogeneity
As we say services it is performances and are frequently produced by humans and no two services
will be precisely alike.
The employees delivering the service frequently are the service in the customer’s eyes, and people
may differ in their performance from day to day or even hour to hour.
Heterogeneity also results because no two customers are precisely alike; each will have unique
demands or experience the service in a unique way.
Thus, the heterogeneity connected with services is largely the result of human interaction (between
and among employees and customers) and all of the vagaries that accom-pany it.
For example, a tax accountant may provide a different service experience to two different customers
on the same day depending on their individual needs and per-sonalities and on whether the accoun-
tant is interviewing them when he or she is fresh in the morning or tired at the end of a long day of
meetings
The doctor who gave you his complete attention last visit may behave a little differently the next time.
Airlines, restaurants, banks, hotels have a large number of standardised procedures.
Resulting Marketing Implications: - Now you know that services are heterogeneous across
time, organizations, and people, ensuring consistent service quality is challenging.
Quality actually depends on many factors that cannot be fully controlled by the service supplier, such
as the ability of the consumer to articulate his or her needs, the ability and willingness of personnel to
satisfy those needs, the presence (Of absence) of other customers, and the level of demand for the
service.
Because of these compli-cating factors, the service manager cannot always know for sure that the
service is be-ing delivered in a manner consistent with what was originally planned and promoted.
Sometimes services may be provided by a third party, further increasing the potential heterogeneity
of the offering.
For example, a consulting organization may choose to subcontract certain elements of its total offer-
ing. From the customer’s perspective, these subcontractors still represent the consulting organiza-
tion, even though their ac-tions cannot be totally predicted or controlled by the contractor.
Perishability - Can you save the treatment given to you by your doctor?
Obviously no, so it basically refers to the fact that services cannot be saved, stored, resold, or re-
turned.

A seat on an airplane or in a restaurant, an hour of a lawyer’s time, or telephone line capacity not
used cannot be reclaimed and used or resold at a later time.
A car mechanic who has no cars to repair today, or spare berths on a train, unsold seats in a cinema
hall represent service capacity, which is lost forever.
Apart from the fact that service is not fully utilised represents a total loss, the other dimension of this.
There is a peak demand time for buses in morning and evening (office hours), certain train routes are
always more heavily booked than others. This is in contrast to goods that can be stored in inventory
or resold another day, or even re-turned if the consumer is unhappy.
Wouldn’t it be nice if a bad haircut could be re-turned or resold to another consumer?

Perishability makes this an unlikely possibility for most services.
Resulting Marketing Implications

A primary issue that marketers face in rela-tion to service Perishability is the inability to inventory.
Demand forecasting and cre-ative planning for capacity utilization are therefore important and chal-
lenging decision areas. The fact that services cannot typically be returned or resold also implies a
need for strong recovery strategies when things do go wrong.
For example, while a bad hair-cut cannot be returned, the hairdresser can and should have strategies
for recovering the customer’s goodwill if and when such a problem occurs.
Ownership
As we know that all the goods are produced first, then sold and consumed, most services are sold
first and then produced and consumed simultaneously. For example, an automo-bile can be manufac-
tured in Detroit, shipped to San Francisco, sold two months later, and consumed over a period of
years. But restaurant services cannot be provided un-til they have been sold, and the dining experi-
ence is essential produced and con-sumed at the same time. Frequently this also means that the
customer is present while the service is being produced and thus views and may even take part in the
production process. This also means that frequently customers will interact with each other dur-ing
the service production process and thus may affect each others’ experiences.
For example, just suppose strangers are seated next to each other in an airplane may well affect the
nature of the service experience for each other. That passengers understand this fact is clearly
apparent in the way business travellers will often go to great lengths to be sure they are not seated
next to families with small children.
Another outcome of simultaneous production and consumption is that service producers find them-
selves playing a role as part of the product itself and as an essential ingredient in the service experi-
ence for the consumer. When you buy a product you become its owner –be it a pencil, book, shirt,
refrigerator, or car. In case or service, you may pay for its use but you never own it. In case of
service the payment is not for purchase, but only for the use or access to or for hire of items or
facilities.
Resulting Marketing Implications

As services often are produced and consumed at the same time, mass production is difficult if not
impossible.
The quality of service and customer satisfaction will be highly dependent on what happens in “real
time,” including actions of employees and the interactions between employees and customers.

Similarly, it is not usually possible to gain significant economies of scale through centralization. Usu-
ally operations need to be relatively decentralized so that the service can be delivered directly to the
consumer in convenient locations.
Also be-cause of simultaneous production and consumption, the customer is involved in and observes
the production process and thus may affect (positively or negatively) the out-come of the service
transaction. In a related vein, “problem customers” (those who disrupt the service process) can
cause problems for themselves or others in the service setting, resulting in lowered customer satis-
faction.
For example, in a restaurant setting, an over demanding and intoxicated patron will command extra
attention from the service provider and negatively impact the experiences of other customers.
Variability
When we are talking about services in terms of variability it depend on who provides you those
services and when and where they were provided, services are highly variable.
As some of you would have experienced that’ some doctors have excellent bedside manner; others
are less patient with their patients. Some surgeons are every successful in performing a certain
operation and others are less successful. Service buyers are often aware of the variability and talk to
others before selecting a service provider.
So as to improve the quality service firms can take three steps towards quality control.
The first is investing in good hiring and training procedures. Recruiting the right service employees
and providing them with excellent training
The second step is standardising the service performance process throughout the organisation. This
is helped by preparing a service blueprint that depicts events and process in a flowchart; with objec-
tive of recognising potential fail points.
The third step is monitoring customer satisfaction through suggestion and complaint systems, cus-
tomer surveys, and comparison-shopping.
Challenges for Services
Defining and improving quality
Communicating and testing new services
Communicating and maintaining a consistent image
Motivating and sustaining employee commitment
Coordinating marketing, operations and human resource efforts
Setting prices
Standardization versus personalization
Article :
How do you make it a good one?

by Dick Barnes, Principal, The Freeland Group
A new car dealership is an interesting business venture. Most consumers actually think the dealer
makes big money selling those bright and shiny new machines. In reality it just ain’t so. The company
lives or dies depending on the service department. Many business-to-business distributors may be in
a very similar situation.
A successful automobile dealership will likely pull half or better of its revenue from the service
department. All of the profit may well come from that half. The sales portion of the business might be
running in the red and be supported by service department profits. Of course this means without a
successful service business the entire firm will go under.
As service becomes a more and more important part of what we are doing, managers often find
themselves in a quandary as to how to compete with other service providers. They may under-price
other dealers on product, not making the money they need in the process, only to lose the connected
service contracts to some one else. Why does it happen? How can we differentiate ourselves from
others in the oft times nebulous arena of services?
An important question to ask ourselves; are the services we normally compete to provide the only
services we should be concerned with? Or does service start well before the sale takes place? If the
answers are respectively “no” then “yes” it means we have a “service mix.” So how do we differ-
entiate each of the services in this mix so our customers will want the entire package?
To help you assess your own enterprise it’s first necessary to define the different service functions
your firm might supply. There are some services that are nearly universal; most every firm must
worry about them. There are others that are specific to a smaller number of firms.
In the first category we find the service we call “Contact and Ordering Ease,” sometimes called
“Transaction Ease.” This service function is supplied to some degree by just about every firm that
exists. Often times the success of the firm has to do with how great that degree of service is.
To test your “Transaction Ease” ask some questions about your own firm. Can customers find your
contact information (phone number, web address, fax number) easily? Can they call you at conve-
nient hours and does someone pick up the phone within a few rings? Do they get connected immedi-
ately to a salesperson or wait, on hold, for a couple of minutes or even tens of minutes? Can they
order online on your web site? Can they reach the order section of your site easily or do they have to
wade through half a dozen pages of ads before they get there?
Now how about the transaction itself? Do they have open accounts that are quickly accessed and
approved? Can they use purchase orders, credit cards, COD, or other means of payment and how
easy do you make it for them to give you their money? Do your order takers help them through the
rough spots with a smile and some patience?
Believe it or not, this first service function, “Contact and Ordering Ease” is sometimes not thought of
as a service at all. It’s an easy step to overlook in differentiating yourself through service, but it’s a
far too important one to do so.
The next service function in the universal category is “Delivery.” This is an extremely vital service
from the customer’s viewpoint. Particularly in the parts supply industry, delivery might be the one
thing the firm does that places it above, or below, the competition. Is your delivery dependable?
Accurate? Timely? Safe? Have you developed a reputation for reliability?
There are firms that have carved their market niches simply by supplying this one service and supply-
ing it well. They don’t have to under-price the competition or advertise hot deals. They retain their

customers because reliable delivery is the foremost service the customer wants to buy.
Sometimes equipment dealers also offer to install their products. This brings us to “Installation” as a
service. It might actually be thought of as the final stage of “Delivery” as the product may be in place
physically, but is not really “there” until it is up and running. It’s good to remember that the customer
will not feel they have been delivered to until the installation is complete.
Do your installers start work when the equipment reaches the site? Do they work within the customer’s
schedule? Do they work efficiently and get the job done? Do they clean up the job site when they are
finished? Do they look professional? Is their attitude business like, yet pleasant and positive?
Do your installers teach the customer anything about the new product? If so, this leads us logically to
the next service function, which is “Training.” Reliable delivery and installation, followed by hands-on
training, can be the decisive factor in a buyer choosing your firm over a competitor who sells the
same equipment for a lower price.
You might have follow-up training as time goes on, or give seminars or workshops, and you may have
an expert go to the customer’s place of business on a regular basis and make certain employees are
actually using the equipment effectively. This type of customer care service can be used to help a
firm to really stand out from the crowd.
To extend the training concept, you might offer the service of “Consulting.” Instead of just training
employees on use and maintenance, your experts are made available to make certain the equipment
is used effectively within the overall context of the business. Do their business processes coordinate
well with the equipment they are using? Can you suggest additions or changes that will make things
work more smoothly? Many material-handling equipment suppliers are making such service avail-
able these days. It results in increased good will and greater sales.
Lastly we have the service of “Maintenance and Repair.” At the front of this column we spoke of the
new car dealership. It’s in maintenance and repair that such a business puts its greatest effort. It’s an
area wholesalers are putting more and more effort into as well. As margins on sales become tighter
because of increased competition, firms need to make up the difference in service, and this function
is the most visible.Once we realize we have a mix of services, however, we know that after market
maintenance and repair is not the only area of service we need to be concerned with. In fact, without
solid service skills in the remainder of the service mix, we may not reach the point of making the
equipment sale that will enable us to sell the maintenance contract.So take a good look at the services
your firm provides the customer. Do they all work? Do they all work together as part of a total
customer care package? It’s by weighing all the services you make available that the customer
judges your firm. Be sure the decision is in your favour by making certain your services are up to
snuff. That will make it easy for your customer to make the decision to buy

Point to remember
Slide 1 ___________________________________
4
___________________________________
SM Introduction
• Services are deeds,processes and

performance
___________________________________
• Intangible, but may have a tangible
component
• Generally produced and consumed at the
same time
• Need to distinguish between SERVICE and
___________________________________
CUSTOMER SERVICE
McGraw-Hill © 2000 The McGraw-Hill Companies
___________________________________
___________________________________
___________________________________
Slide 2 ___________________________________
5
___________________________________
SM Challenges for Services
• Defining and improving quality

• Communicating and testing new services
___________________________________
• Communicating and maintaining a consistent
image
• Motivating and sustaining employee commitment
• Coordinating marketing, operations and human
resource efforts
___________________________________
• Setting prices
• Standardization versus personalization
___________________________________
___________________________________
___________________________________
Slide 3 ___________________________________
Examples of Service
6 ___________________________________
SM
Industries
• Health Care
– hospital, medical practice, dentistry, eye care
• Professional Services
– accounting, legal, architectural
___________________________________
• Financial Services
– banking, investment advising, insurance
___________________________________
• Hospitality
– restaurant, hotel/motel, bed & breakfast,
– ski resort, rafting
• Travel
– airlines, travel agencies, theme park
• Others:
– hair styling, pest control, plumbing, lawn
McGraw-Hill
maintenance, counseling services, health club
© 2000 The McGraw-Hill Companies
___________________________________
___________________________________
___________________________________

Slide 4 ___________________________________
Figure 1
1--1
7
___________________________________
SM Tangibility Spectrum
Salt
Soft Drinks
Detergents
Automobiles
Cosmetics
___________________________________
Fast-food
Outlets
Intangible
Dominant
Tangible
Dominant Fast-food
Outlets
___________________________________
Advertising
Agencies
Airlines
Investment
Management
___________________________________
Consulting
McGraw-Hill
Teaching
___________________________________
___________________________________
Slide 5 ___________________________________
Differences Between
10
___________________________________
SM
Goods and Services
Intangibility Heterogeneity
___________________________________
Simultaneous
Production
and
Perishability
___________________________________
Consumption
___________________________________
___________________________________
___________________________________
Slide 6 ___________________________________
11 ___________________________________
SM Implications of Intangibility
Services cannot be inventoried

Services cannot be patented
___________________________________
Services cannot be readily displayed
or communicated
Pricing is difficult ___________________________________
___________________________________
___________________________________
___________________________________

Slide 7 ___________________________________
12
___________________________________
SM Implications of Heterogeneity
Service delivery and customer satisfaction

depend on employee actions
___________________________________
Service quality depends on many
uncontrollable factors
There is no sure knowledge that the service
delivered matches what was planned and
___________________________________
promoted
___________________________________
___________________________________
___________________________________
Slide 8 ___________________________________
Implications of Simultaneous
13
___________________________________
SM
Production and Consumption
Customers participate in and affect the

transaction
___________________________________
Customers affect each other
Employees affect the service outcome
Decentralization may be essential
Mass production is difficult
___________________________________
___________________________________
___________________________________
___________________________________
Slide 9 ___________________________________
14 ___________________________________
SM Implications of Perishability
It is difficult to synchronize supply and

demand with services
___________________________________
Services cannot be returned or resold
___________________________________
___________________________________
___________________________________
___________________________________

Slide 10 ___________________________________
15
___________________________________
SM Table 1-
1-2
Services are Different
Goods
Tangible
Standardized
Services
Intangible
Resulting Implications
Services cannot be inventoried.
Services cannot be patented.
Services cannot be readily displayed or communicated.
Pricing is difficult.
Heterogeneous Service delivery and customer satisfaction depend on
___________________________________
employee actions.
Service quality depends on many uncontrollable factors.
There is no sure knowledge that the service delivered
matches what was planned and promoted.
Production Simultaneous Customers participate in and affect the transaction.
separate from production and Customers affect each other.
consumption consumption
Nonperishable Perishable
Employees affect the service outcome.
Decentralization may be essential.
Mass production is difficult.
It is difficult to synchronize supply and demand with
___________________________________
services.
Services cannot be returned or resold.
___________________________________
Source: Adapted from Valarie A. Zeithaml, A. Parasuraman, and Leonard L. Berry, “Problems and Strategies in Services Marketing,”
Journal of Marketing 49 (Spring 1985): 33-46.
___________________________________
___________________________________
Slide 11 ___________________________________
___________________________________
5
Core and Supplementary Services
Problem solving Advice and

information
Order taking ___________________________________
Overnight
Billing transportation Supplies
statements
Tracing
and delivery
of packages
Pickup
___________________________________
Documentation
___________________________________
___________________________________
___________________________________

Unit 3
Chapter 11 - Introduction to Service Marketing
Lesson 33 - 3 More Ps, Differentiating Services
I hope know you are quiet clear with services and its characteristics now lets move on to important
issues in service marketing to start with lets take the topic special Considerations for Service Mar-
keting first.
First all of you must consider how the intangible/inventory/inseparable/inconsistency component af-
fects the service.
Marketing strategies for service firms: - If we see traditionally four Ps marketing approach
worked well for goods, but additional elements require attention in service businesses. People, physi-
cal evidence and process provide three additional Ps for service marketing.
Most of the services are provide by People. In this case we are referring to the selection, training
and motivation of employees, which can make a huge difference in customer satisfaction.
Ideally employees should exhibit competence, a caring attitude, responsiveness, initiative, problem-
solving ability and goodwill.
Companies also try to demonstrate service quality through physical evidence and presentation. A
hotel will develop a look and observable style of dealing with customers that carry out its intended
customer value proposition, whether it is cleanliness, speed or some other benefit.
Finally service companies can choose among different processes to deliver their services. Restau-
rants have developed such different formats as cafeteria-style, fast food, buffet and candle light
service.
In view of this complexity, Gronroos has argued that service marketing requires not only external
marketing but also internal and interactive marketing. As described in the figure below
External marketing: describes the normal work to prepare, price, distribute and promote the ser-
vice to customers.
Internal marketing: describes the work to train and motivate employees to serve customers better.
Interactive marketing describes the employee’s skill in serving the client. Because the client judges
service not only by its technical quality but also by functional quality service providers must deliver
“high-touch” and “high-tech” products.
Interactive marketing: marketing by a service firm that recognizes that perceived service quality
depends heavily on the quality of buyer-seller interaction.
Services Marketing Triangle Applications Exercise

Focus on a service organization. In the context you are focusing on, who occupies each of the three
points of the triangle?
How is each type of marketing being carried out currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of the three areas?
Focus on a service organization. In the context you are focusing on, who occupies each of the three
points of the triangle?
How is each type of marketing being carried out currently?
Are the three sides of the triangle well aligned?
Are there specific challenges or barriers in any of the three areas?
Lets look at the Expanded mix for services - By now everyone is clear knows that services are
usually produced and consumed simultaneously, customers are often present in the firms factory,
interact directly with the firm’s personnel and are actually part of the service production process.
Also, because services are intangible customers will often be looking for any intangible cue to help
them understand the nature of the service experience. These facts have led services marketers to
conclude that they can use additional variables to communicate with and satisfy their customers.
For example, in the hotel industry the design and décor of the hotel as well as the appearance and
attitudes of its employees will influence customer perceptions and experiences.
Acknowledgment of the importance of these additional communication variables has led services
marketers to adopt the concept of “an expanded marketing mix for services in addition to the
tradi-tional four P’s, the services marketing mix includes people, physical evidence, and
process. “ table 11. is presenting expanded marketing mix for services.
Lets start with the first additional P that is People:

All human actors, who play a part in service delivery and thus influence the buyer’s perceptions;
namely, the firm’s personnel, the customer, and other customers in the service environment.
All of the human actors participating in the delivery of a service provide cues to the customer regard-
ing the nature of the service itself. How these people are dressed, their personal appearance, and
their attitudes and behaviors all influence the customer’s per-ceptions of the service.
The service provider, or contact person can be very important. In fact, for some services, such as

consulting, counseling, teaching, and other profes-sional relationship-based services, the-provider is

the service. In other cases the con-tact person may play what appears to be a relatively small part in
service delivery, for instance, a telephone installer, an airline baggage handler, or an equipment deliv-
ery dispatcher. Yet research suggests that even these providers may be the focal point of service
encounters that can prove critical for the organization.
In many service situations, you can also influence service deliv-ery, thus affecting service quality
and their own satisfaction.
For example, a client of a consulting company can influence the quality of service received by
providing needed and timely information and by implementing recommendations provided by the
consultant.
Similarly, health care patients greatly affect the quality of service they receive when they either
comply or don’t comply with health regimens prescribed by the provider.
If you are a customers you will obviously influence your own service outcomes, but you can also
influence other customers as well.
In a theater, at a ballgame, or in a classroom, customers can influence the quality of service received
by others-either enhancing or detracting from other customers’ experiences.
Given the strong influence they can have on service quality and service delivery, employees, the
customer him/herself, and other customers are included within the people element of the services
marketing mix.
The second additional P is Physical evidence
It is basically related with the environment in which the service is delivered and where the firm and
customer interact, and any tangible components that facilitate performance or commu-nication of the
service.
The physical evidence of service includes all of the tangible representations of the service such as
brochures, letterhead, business cards, report formats, signage, and equipment. In some cases it in-
cludes the physical facility where the service is of-fered-the servicescape
For example, the retail bank branch facility. In other cases, such as telecommunication services, the
physical facility may be irrelevant. In this case other tangibles such as billing statements and appear-

ance of the repair truck may be important indicators of quality.
Especially when consumers have little on which to judge the actual quality of service they will rely on
these cues, just as they rely on the cues provided by the people and the service process. Physical
evidence cues pro-vide excellent opportunities for the firm to send consistent and strong messages
re-garding the organization’s purpose, the intended market segments, and the nature of the service.
Final additional P is Process:
It is related to actual procedures, mechanisms, and flow of activities by which the service is deliv-
ered-the service delivery and operating systems.
The actual delivery steps the customer experiences, or the operational flow of the service, will also
provide customers with evidence on which to judge the service.
Some services are very complex it requires you to follow a complicated and extensive series of
actions to complete the process. Highly bureaucratized services fre-quently follow this pattern, and
the logic of the steps involved often escapes the cus-tomer.
Another distinguishing characteristic of the process that can provide evidence to the customer is
whether the service follows a production-line/standardized ap-proach or whether the process is an
empowered/customized one. None of these char-acteristics of the service is inherently better or
worse than another. Rather, the point is that these process characteristics are another form of evi-
dence used by the consumer to judge service.
For example, two successful airline companies, Southwest in the United States and Singapore Air-
lines have extremely different process models.
Southwest is a no-frills (no food, no assigned seats), no exceptions, low-priced airline that offers
frequent, relatively short-length domestic flights. All of the evidence it pro-vides is consistent with its
vision and market position as figure Exhibit 1-2. Sin-gapore Airlines, on the other hand, focuses on
the business traveler and is concerned with meeting individual traveler needs. Thus the process is
highly customized to the individual, and employees are employees are empowered to provide non-
standard service when needed. Both airlines have been very successful.
SOUTHWEST AIRLINES: ALIGNING PEOPLE, PROCESSES, AND PHYSICAL EVIDENCE
Southwest Airlines occupies a solid position in the minds of U.S. air travelers as a reliable and
convenient, fun, low-fare, no-frills airline. Translated, this position means high value-a position rein-
forced by all elements of South-west’s services marketing mix. It has maintained this posi-tion con-
sistently over 25 years while, at the same time, making money every year-no other U.S. airline
comes close to this record. Success has come for a number of rea-sons. One is the airline’s low cost
structure. They fly only one type of plane (Boeing 737s), which lowers costs be-cause of the fuel
efficiency of the aircraft itself combined with the ability to standardize maintenance and operational
procedures. The airline also keeps its costs down by not serving meals, having no preassigned seats,
and keeping employee turnover very low. Southwest Airline’s presi-dent, Herb Kelleher, is famous
for his belief that employ-ees come first, not customers. The Dallas-based carrier has managed to be
the low-cost provider and a preferred em-ployer while, at the same time, enjoying high levels of cus-
tomer satisfaction and strong customer loyalty. Southwest Airlines has the best customer service
record in the airline industry and has won the industry’s “Triple Crown” for best baggage handling,
on-time performance, and best cus-tomer complaint statistics several years in a row. This is a feat
accomplished by no other airline.
Observing Southwest Airline’s success, it is clear that all of its marketing mix is aligned around its

highly suc-cessful market position. The three new marketing mix ele-ments all strongly reinforce the
value image of the airline:
People: Southwest uses its people and its customers very effectively to communicate its position.
Employees are unionized, yet they are trained to have fun, allowed to define what “fun” means, and
given authority to do what it takes to make flights lighthearted and enjoyable. People are hired at
Southwest for their attitudes; technical skills can and are trained. And, they are the most productive
work force in the U.S. airline industry. Customers also are included in the atmosphere of fun, and
many get into the act by joking with the crew and each other and by flooding the airline with letters
expressing their satisfac-tion. Herb Kelleher, the airline’s fun-loving president, en-courages employ-
ees and customers alike through his infa-mous antics.
Process: The service delivery process at Southwest also reinforces its position. There are no as-
signed seats on the aircraft, so passengers line up and are “herded” by number onto the plane where
they jockey for seats. The airline does not transfer baggage to connecting flights on other airlines.
Food is not served in flight. In all, the process is very efficient, standardized, and low cost, al-lowing
for quick turnarounds and low fares. Customers are very much part of the service process-taking on
their roles willingly.
Physical evidence: All of the tangibles associated with Southwest further reinforce the market
position. Southwest’s aircraft are orange and mustard brown in color, which accentuates their unique-
ness and low-cost orientation. Employees dress casually, wearing shorts in the hot summer months to
reinforce the “fun” and further emphasize the airline’s commitment to its employees’ comfort. The
reusable plastic boarding passes are another form of physical evidence that signals low cost and no
frills to customers. No meal service in flight confirms the low-price image through the absence of
tangibles-no food. Because many people joke about airline food, its ab-sence for many is not viewed
as a value detractor.
The consistent positioning using the services marketing mix reinforces the unique image in the
customer’s mind, giving Southwest Airlines its high-value position, which has resulted in a huge and
committed following of satisfied customers.
Source: Kevin Freiberg. and Jackie Freiberg, Nurs! Southwest Air-lines’ Crazy Recipe for Busi-
ness and Personal Success (Austin, TX: Bard Press, Inc., 1996): and Kenneth Labich, “Is Herb
Kelleher America’s Best CEO?” Fortune (May 2, 1994).
The three new marketing mix elements (people, physical evidence and process) are included in the
marketing mix as separate elements because they are within the control of the firm and any or all of
them may influence the customer’s initial decision to purchase a service, as well as the customer’s
level of satisfaction and repurchase decisions.
As all of us know that it is very difficult to differentiate your self from your competitor as most of the
services are copied in this part we will focus on how to manage differentiation.
We have seen that most of the service marketers frequently complain about the difficulty of differen-
tiating their services .The de regulation of several major service industries-communications, trans-
portation, energy, banking-precipitated intense price competition.
The alternative to price competition is to develop a differentiated offer, delivery. Or image.
Lets see what is Offer all about:
It can include innovative features. What the customer expects is called the primary service package,
and to this can be added secondary service features.

In an airline industry, various carriers have introduced such secondary service features as movies,
merchandise for sale, air-to-ground telephone service, and frequent flier award programs.
Marriott is setting up hotel rooms for high-tech travelers who need accommodations that will support
computers, fax machines, and e-mail.
The major challenge is that most service innovations are easily copied. Still the company that regu-
larly introduces innovations will gain a succession of temporary advantages over competitors.
DELIVERY
A service company can hire and train better people to deliver its services. It can develop a more
attractive physical environment in which to deliver to service (music stores, PVR cinemas etc.) or it
can design a superior delivery process (Domino’s Pizza)
IMAGE
Service Companies can also differentiate through symbols and branding.
MANAGING SERVICE QUALITY

Any service firm can win by delivering consistently higher-quality service than competitors and
exceeding customer’s expectations. These expectations are formed by their past experiences, word
of mouth, and advertising.
After receiving the service, customers compare the perceived service with the expected service. If
the perceived service falls below the expected service the, customers lose interest in the provider. If
the perceived service meets or exceeds their expectations, they are apt to use the provider.
Paasuraman, Zeithaml and Berry formulated a service quality that highlights the main requirements
for delivering high service quality. The model, shown in the below figure identifies five gaps that
cause unsuccessful delivery.
1.Gap between consumer expectations and management perception; Management-does not

perceive correctly what customers want. Hospital administrators may think that patients want better
food, but patients may be more concerned with nurse responsiveness.
2.Gap between management perception and service-quality specifications: management might

correctly perceive the customer’s wants nut not set a specified performance standard. Hospital
administrators may tell the nurses to give fast service but without specifying it quantitatively.
3.Gap between service-quality specifications and service delivery-The personnel might be

poorly trained, or incapable or unwilling to meet the standard. Or they may be held to conflicting
standards, such as taking time to listen to the customers and serving them fast.
4.Gap between service delivery and external communications; statements made by company
representatives and ads affect Consumer expectations. If a hospital brochure shows a beautiful
room, but the patient arrives and finds the room to be cheap and dirty looking, external communica-
tions have distorted the customer’s expectations.
5. Gap between perceived service and expected service: The gap occurs when the consumer
misperceives the service quality .The Physician may keep visiting the patient to show care, but the
patient may interpret this as an indication that something really is wrong.
Translation of perceptions into service –quality specifications

GAP 5
GAP 4
GAP 3
GAP 2
GAP 1

Article :
Service Offerings versus Products
Most physical goods tend to be relatively high in search qualities; these are attributes that a customer
can determine prior to purchasing a product, such as colour, style, shape, price, fit, feel, hardness and
smell. Services, by contrast, may emphasise experience qualities, which can only be discerned after
purchase or during consumption; as with taste, wearability, ease of handling, quietness and personal
treatment. Finally, there are credence qualities-characteristics that customers find hard to evaluate
even after consumption like surgery, legal services, etc.
Since services are very competitive and there is a very high level of replication of products, consum-
ers do not perceive a drastic fall in quality with falling price. For highly intangible service offerings in
particular, organisation-wide factors, such as the level of functional service quality, may be emphasised
when adding value (Gronroos, 1984; Parasuraman et al, 1991). Zeithaml, Parasuraman and Berry
(1985) also highlighted the uniqueness of service offerings in terms of their intangibility, non-
standardisation, perishability and inseparability of production and consumption. In addition, contribu-
tions from Bharadwaj et al (1993), and Zeithaml (1988) suggest that extrinsic cues such as image and
reputation may be particularly important in adding value in cases where consumer understanding of
service offerings is limited. This is likely to be the case, in particular, where service offerings are
complex and, as a result, highly ‘mentally intangible’ to the average consumer. Leonard L Berry, in
his model shown above, highlights the importance of the customer’s experience, which in turn is
based on the service performance.
The presented brand is the company’s controlled communication of its identity through advertisement
while the external brand communication refers to the information customers absorb about the com-
pany that essentially is uncontrolled by the company. These factors, combined with the customer’s
experience, lead to increased brand awareness and brand meaning. Brand meaning refers to the
customer’s dominant perceptions of the brand and hence differs from awareness. Both these factors
put together lead to development of brand equity. In services marketing, unlike in product marketing,
it is the customer’s experience that plays a very important role and even if his services experience
differs from the advertising message, he will go more by his experience. Thus, the main differentiat-
ing role is played by the service performance.
Service branding—the emerging paradigm

Services’ marketing has a very sensitive aspect where the strategy revolves around the customer.
Building a strategic relationship with the customer is very essential. By identifying the drivers of
consumer choice, a service marketer can identify the factors that can be leveraged in different
service conditions to add value to the consumer and thus differentiate the offering. The process of
adding value is in essence differentiating one’s offerings effectively in the eyes of the consumer, and
this is where branding services becomes important.
Some of the reasons that make branding a valuable proposition for services are:Strong brands in-
crease customers’ trust of the invisible purchase. Strong-brand companies have high ‘mind share’
with targeted customers, which contributes to market share. They enable customers to better visualise
and understand intangible products.They reduce customers’ perceived monetary, social and safety
risks in buying services.
Steps for building a service brand With appropriate senior management commitment, building a
relevant and powerful brand for any consumer-focused company, including a bank, is a reasonable
goal. There are six components that go into successfully branding a service sector firm. These steps
blueprint the process of developing a concise message or promise that an institution wants to commu-
nicate to its customers, and for executing a strategy that delivers on that promise. The above figure

illustrates the process of building brands.
1) The first step in building a branded business is to understand the role of the brand in that particular
business, including the leverage it can provide across markets and product categories. A brand can
provide information and communicate efficiently, qualify a product or service, or establish differen-
tiation. A truly powerful brand can do all three if necessary. To decide what role brands should play,
it is important to take a dispassionate look at the current status of the organisation and product/
service offering-how they are perceived by customers, competitors and employees. In addition, the
institution has to understand what these distinct constituencies need to know and believe about the
brand. For instance, in General Electric’s (GE) appliance business, the retail trade is most interested
in product quality, marketing support and access to credit. Consumers are interested in product
quality, but in addition seek a set of design attributes. GE’s brands thus play two roles.
2) Secondly, brand builders must choose a brand architecture consistent with the chosen role and the
institution’s products, services and market landscape. There are three types of brand architectures:
the first is a single brand—one brand that covers the entire product range, for example, Sony, Home
Depot and Visa. Then come tiered brands—with a parent brand supported by sub-brands for each
product line. Companies such as Sears and Nabisco use a tiered brand architecture, where individual
brands benefit from the corporate brand umbrella. The third architecture is multiple brands—with
each product carrying its own brand distinct from the parent. Procter & Gamble is a company that
uses multiple brand architecture, with each of its products—Tide, Pampers, Ivory Soap—building
and supporting its own brand identity. Which brand architecture you choose depends on business
objectives and market conditions. The single brand architecture best applies when customers seek
the same attributes across market segments and product lines. The tiered brand architecture allows
the institution to build on critical foundation attributes while still tailoring the marketing message to
specific segments. Multiple brands are needed when each market segment has distinct needs.
3) The third step in branding a business and developing a brand strategy is to position the brand to
effectively communicate the value proposition. Critical here are clarity, consistency and relevance.
Volvo (safety), Nike (limitless performance) and Wal-Mart (good deals) are examples of companies
that have clear brand positions. The clarity is achieved through the consistent use of all marketing
levers (price, product design, image and channel selection) to drive home a single message.
4) In the fourth step, a company must develop the programmes needed to deliver the brand and the
brand promise. This happens through programmes or services that convey the brand message to the
target audience. Nike’s support of grassroots athletic events and Visa’s Olympic sponsorship illus-
trate the type of programmes needed to creatively deploy brands. Nike helps amateur athletes per-
form, while Visa demonstrates its global reach.
5) Essential for generating brand performance is the fifth step in effective branding: creating or
designing an organisation to lead and manage a branded business, one that includes the right skills and
structure to execute the brand strategy. Citibank, for example, has recently recruited a number of
people with brand-building skills, including William Campbell, formerly the marketer behind many of
Philip Morris’ successes.
6) Finally, for a brand to be effective in the marketplace, the business system must be aligned with the
brand promise. It must start at the very top with a vision and strategy that is embraced and articulated
by senior management. Imagine Virgin Air without Richard Branson or Nike without Phil Knight and
the importance of leadership in establishing and driving a brand becomes obvious.

Points to remember:
Slide 1 ___________________________________
Services Marketing Mix:

19
___________________________________
SM
7 Ps for Services
• Traditional Marketing Mix ___________________________________

• Expanded Mix for Services: 7 Ps
• Building Customer Relationships Through
People, Processes, and Physical Evidence
• Ways to Use the 7 Ps
___________________________________
___________________________________
___________________________________
___________________________________
Slide 2 ___________________________________
20
___________________________________
SM Traditional Marketing Mix
• All elements within the control of the firm that

communicate the firm’s capabilities and image to
___________________________________
customers or that influence customer satisfaction
with the firm’s product and services:
Product
Price
Place
___________________________________
Promotion
___________________________________
___________________________________
___________________________________
Slide 3 ___________________________________
Table 1-
1-3 22 ___________________________________
SM Expanded Marketing Mix for
Services
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________

Slide 4 ___________________________________
Table 1-
1-3 (Continued)
23
___________________________________
SM Expanded Marketing Mix for
Services
PEOPLE
Employees
PHYSICAL
EVIDENCE
Facility design
PROCESS
Flow of activities
___________________________________
Customers Equipment Number of steps
Communicating
culture and values
Employee research
Signage
Employee dress
Level of customer
involvement ___________________________________
Other tangibles
___________________________________
___________________________________
___________________________________
Slide 5 ___________________________________
24
___________________________________
SM Ways to Use the 7 Ps
Overall Strategic
Assessment
Specific Service
Implementation
• Who is the customer?
___________________________________
• How effective is a firm’s
services marketing mix? • What is the service?
• Is the mix well-aligned • How effectively does the
with overall vision and
strategy?
• What are the strengths and
services marketing mix for a
service communicate its
benefits and quality?
• What
___________________________________
weaknesses in terms of the changes/improvements are
7 Ps? needed?
___________________________________
___________________________________
___________________________________
Slide 6 ___________________________________
Figure 1-
1-5
16 ___________________________________
SM The Services Marketing Triangle
Internal
Company
(Management)
External
___________________________________
Marketing Marketing
“enabling the “setting the
promise”
Employees Interactive Marketing

promise”
Customers
___________________________________
“delivering the promise”
Source: Adapted from Mary Jo Bitner, Christian Gronroos, and Philip Kotler
___________________________________
___________________________________
___________________________________

Slide 7 ___________________________________
Ways to Use the

17
___________________________________
SM
Services Marketing Triangle
Overall Strategic
Assessment
• How is the service
Specific Service
Implementation
• What is being promoted
___________________________________
organization doing and by whom?
on all three sides of • How will it be delivered
the triangle?
• Where are the
weaknesses?
and by whom?
• Are the supporting

systems in place to
___________________________________
deliver the promised
• What are the service?
McGraw-Hill
strengths?
___________________________________
___________________________________
___________________________________
Slide 8 ___________________________________
___________________________________
3
The Gap Model of Service Quality
Customer Expected
ExpectedService
GAP 5
Perceived
Service
PerceivedService
Service
___________________________________
Provider Delivery GAP 4 Communication
GAP 1
Service
ServiceDelivery
Quality
GAP 3
QualitySpecifications
Specifications
Communication
with
withCustomers
Customers
___________________________________
GAP 2
Mgmt
Mgmtperception
perception
___________________________________
___________________________________
___________________________________

Tutorial - I
Case study
Merrill Lynch
Merrill Lynch was founded when Charles Merrill and Edmund Lynch opened an underwriting firm on
Wall Street in 1914. The company built a legacy of personalized service, and became the first major
firm to introduce investing to the mass market. Charles Merrill coined the phrase “Bringing Wall
Street to Main Street” and is credited with helping to change consumer attitudes about investing.
Merrill advocated sound investment strategy and made it accessible to the American public using
advertisements with titles like “How to Invest.” Merrill Lynch had 400,000 clients by 1956, making it
the largest brokerage in the country. In 1971, the company unveiled its now-famous bull icon with an
advertising campaign titled “Merrill Lynch Is Bullish On America.” In 1977, Merrill Lynch introduced
one of its most innovative and successful products, the Cash Management Account, which combined
checking, money market, and margin accounts.
A Modern Merrill Lynch

As more Americans turned to investing to protect and build their wealth, Merrill Lynch distinguished
itself from other brokerages with the financial security it could provide, the high level of service it
offered, the personal contacts it established with its retail offices, and the advanced financial re-
search it performed. As Merrill aggressively expanded into institutional investing and banking in the
1980s, its image as a main street brokerage became somewhat muddled. The company’s association
with high finance and corporate Wall Street became a negative after recession and scandals shook
the economy in the 1980s and early 1990s. So Merrill streamlined its operations and developed
advertising campaigns with themes like “A Tradition of Trust” that were intended to inspire confi-
dence in the everyday investor. The company continued to grow its retail brokerage businesses and
other financial services during the rest of the decade.
Recently, Merrill Lynch found itself under assault from an unlikely segment: discount brokers. Online
trading sites set up by discount brokers like Ameritrade and Charles Schwab attracted waves of new
investors as the Internet took hold in the latter half of the 1990s. Merrill was slow to move online,
primarily because its brokers were reluctant to see the company give total control of trading to
investors via an online portal, and the company was concerned about the effect of a proprietary
Internet e-commerce site on its heritage as a full-service, customer-focused broker. At the same
time, Merrill Lynch was losing current clients and failing to attract new ones as Internet technology
gained popularity among investors. In 1998, Schwab’s assets under management grew by 39 per-
cent, while Merrill’s grew by only 18 percent. By March of that year, Merrill Lynch executives were
exhorting the rest of the company to embrace the Internet. The company’s vice-chairman, John L.
Steffens, argued that Merrill Lynch “had to offer an online-only account or it would lose too many
assets, not to mention the next generation of investors.”
Merrill Arrives OnlineMerrill Lynch decided that it would provide online trading tools that augmented
its traditional off-line services. First, the company opened a bare-bones online site, called
Merrill Lynch Online, that enabled high-value customers to access accounts and information using
the Internet. In December 1999, the company created Merrill Lynch Direct, a full-service, online-
only retail trading site. To provide content and technology, the company invested in or partnered with
a number of technology companies, such as IBM, Cisco, Microsoft, Bloomberg, and Real Networks.
For $29.95 a trade, Merrill Lynch Direct gave customers broker-less trading, real-time market up-
dates, a spectrum of services from the vaunted off-line side of the business, such as Merrill research,
access to Merrill initial public offerings, and portfolio management tools. Many customers continued
to work closely with their brokers, whom the company encourages to provide consulting-type service

to clients. To better combine its off-line strengths with its emerging on-line capabilities, the Merrill
Lynch developed a strategy called “Merrill Anywhere” that links clients to their accounts via the
Internet, the telephone, and eventually a host of wireless platforms.
Merrill Lynch Direct was recognized by Financial NetNews as the best in its category in 2000. The
award for the individual investor portal applauded Merrill for “outshin[ing] its counterparts in the full
service space” by combining its traditional off-line service with the Internet site. The addition of
online trading technology helped Merrill Lynch achieve revenue records in every category and region
in 2000. Its institutional clients made a record $1.9 trillion in trades using Merrill’s online technology.
The company earned $3.8 billion in 2000, a 41 percent increase from record earnings of $2.7 billion
in 1999. Merrill Lynch may have been slow to adopt the online trading model, but today the company
is combining the Internet with its traditional financial services to yield impressive results.
What are the service marketing strategy differences between Merrill Lynch on-line, Merrill Lynch
Direct and Schwab? Merrill Lynch On-line is designed to support and / or augment the regular full
service, broker-based, operations for the “Priority Client” investor demographic that Merrill Lynch
seeks to replace the middle America demographic of the 1950s and 1960s. Merrill Lynch Direct is a
discount competitor to Schwab and essentially copies or responds to the Schwab concept. However,
Merrill Lynch Direct is separate from the Merrill Lynch Online and corporate operations and effec-
tively is a separate brand and company. This could present some image and branding problems for
Merrill Lynch as they work through adjustment to the fact that they have very different demograph-
ics to work with in the future.
Questions for discussions

1. Given the direction of investment firm marketing, do you believe that the Merrill Lynch marketing
service strategy is heading in the right direction? Could the Merrill Lynch marketing strategy
backfire? Discuss
2. How would you compare the service marketing concepts discussed in the text with how Merrill
Lynch operates? Why did it take Merrill Lynch so long to get on board with the 21st Century?
Test your self (See your understanding of the concept)

Multiple Choice:
1. A (n) _____________________ is any act or performance that one party can offer to another
that is essentially intangible and does not result in the ownership of anything.
offer
service
product
contract
2. Which of the following is not one of the five categories of offerings that are characteristic of the
Service Mix? [Hint]
Basic need
Pure tangible good
Tangible good with accompanying service
Pure service
3 . Because of the varying goods-to-service mix, it is difficult to generalize about services without
further distinctions. Which of the following is not one of those distinctions?
Services vary by being equipment-based or people-based.

Services require the client’s presence and some do not.

Services differ by whether they meet a personal need or a business need.
All of the above are characteristics of services.
4. Which of the following is not one of the four major characteristics that greatly affect the design of
service marketing programs? [Hint]
Intangible
Inseparable
Standardization
Perishable
5. There are a number of ways that a service provider can “tangibilize” a service. Which of the
following is not one of those ways?
Place
Rules
People
Price
6. Because services depend on who provides them and when and where they are provided, services
are highly __________________________.
variable
intangible
inseparable
perishable
7. There are several strategies for producing a better match between demand and supply in a service
business. Which of the following would be used to help out on the supply side?
Part-time employees can be hired to serve peak demand.
Peak-time efficiency routines can be introduced.
Shared services can be developed.
All of the above would help on the supply side.
8. Traditional four Ps marketing approaches work well for goods, but additional elements require
attention in service businesses. Which of the following is not one of the suggested three additional Ps
to consider?
People
Physical evidence
Price
Process
9. Because services are generally high in experience and credence qualities, there is more risk in the
purchase. This has several consequences. Which of the following is not one of the consequences of
the high risk?
Consumers rely on word of mouth rather than advertising.
Consumers rely more on the search qualities than the experience qualities.
Consumers rely heavily on price, personnel, and physical cues to judge quality.
Consumers are highly loyal to service providers who satisfy them.
10. Besides the price competition, there are a number of ways to differentiate among services.
Which of the following is not one of those ways to manage differentiation?
Policies for employees

Offering
Delivery
Image
11. A service company can differentiate itself by designing a better and faster delivery system.
Which of the following is not one of the levels of differentiation?
Reliability
Resilience
Innovativeness
All of the above are levels for designing a better and faster delivery system.
12. Customers form their service expectations based on a number of elements such as word of
mouth, advertising, and which of the following?
Management surveys
Employee surveys
Past experiences
Unknown variables
13. Parasuraman, Zeithaml, and Berry formulated a service-quality model that highlights the main
requirements for delivering high service quality. Which of the following is not one of the Gaps of their
model?
Gap between consumer expectation and management perception
Gap between management perception and employees’ perception
Gap between service-quality specifications and service delivery
Gap between perceived service and expected service
14. Service firms are under great pressure to keep costs down and increase productivity. Which of
the following is not one of the seven approaches to improving service productivity?
Decrease the quantity of service by surrendering some quality
Have service providers work more skillfully
Design a more effective service
Increase the quantity of service by surrendering some quality
15. A service company must define customer needs carefully in designing its service support pro-
gram. Customers have three specific worries about this service. Which one of the following is not
one of these worries?
Failure frequency
Downtime duration
Out of pocket costs of maintenance and repair
All of the above are customer worries.
Essay question:
Q1. Describe the five categories of offerings and how they are distinguished with services.
Q2. There are four major characteristics of a service that make services different from products.
What are they?
Q3. In terms of marketing strategies for service firms, what are the three additional “Ps” that need
to be added to the four traditional “Ps” of marketing?

Unit 3
Chapter 12 - Price-Decision and Strategies
Lesson 34 - Setting the Price
Students after reading the chapter you would understand:

The six-step procedure in establishing product or service price
How varying situational considerations influence price
The factors considered in making a price change
Various pricing strategies.
We have often heard our parents telling us when we misuse our things saying ,”You better utilize to
the maximum, because I have paid a price for it.” Now at that time we do not understand the
importance or the meaning of the price we take it very casually.But now, when we shell out money
from our pockets to make purchases we realize the importance of the above statement.
LET US KNOW ABOUT YET ANOTHER COMPONENT OF MARKETING MIX-

PRICE
We have often heard our parents telling us when we misuse our things saying ,”You better utilize to
the maximum, because I have paid a price for it.” Now at that time we do not understand the
importance or the meaning of the price we take it very casually.But now, when we shell out money
from our pockets to make purchases we realize the importance of the above statement.
Pricing is undoubtedly a vital decision area in marketing. We must get a good picture of the signifi-
cance of pricing before we proceed with the discussion of the various issues relating to it
You are already aware of the concept of marketing mix . Price is one of the components of
marketing mix. As you know that all profit organizations and many non-profit organizations must set
prices on their products and services.
You will agree that price remains a critical element of the marketing mix, despite the increased role
of non-price factors in modern marketing. Price is the one element of marketing mix that produces
revenue; the other elements produce costs.
You would understand that the organizations are concerned with various issues or decision areas
regarding pricing such as – adapting and responding to competitor(s) pricing strategies, pricing new
products, pricing across various distribution channels etc.
As You know today companies are wrestling with a number of difficult pricing Tasks such as
How to respond to aggressive price cutters
How to price the same product when it goes through different channels.
How to price the same product in different countries
How to price an improved product while still selling the previous version

HOW DO WE DEFINE PRICE
Can you attempt to define Price ?

In the narrowest sense, price is the amount of money charged for a product or service. More broadly,
price is the sum of all the values that consumers exchange for the benefits of having or using the
product or service.
PRICE- The amt of money charged for a product or service, or the sum of the values that consumers
exchange for the benefits of having or using the product or service.
“One can define price as that which people have to forego in order to acquire a product or service.”
What does a buyer think ?To a buyer, price is the value placed on what is exchanged. Something of
value -usually purchasing power - is exchanged for satisfaction or utility. Purchasing power depends
on a buyer’s income, credit, and wealth.
What is your opinion ? Is price is not always money or some other financial consideration.?
Buyers’ concern about price is related to their expectations about the satisfaction or utility associated
with a product. Buyers must decide whether the utility gained in an exchange is worth the purchasing
power sacrificed. Different terms can be used to describe price for different forms of exchange,
(rent, premium, toll, retainer, fee, interest, etc.).
Historically, price has been the major factor affecting buyer choice. This is still true in poorer nations,
among poorer groups and with commodity products. However, non-price factors have become more
important in buyer-choice behavior in recent decades.
Price is also one of the most flexible elements of the marketing mix. Do you agree ? Unlike product
features and channel commitments, price can be changed very quickly. At the same time, pricing and
price competition is the number-one problem facing many marketers.
SETTING THE PRICE - Let us now attempt to understand the process of how firms set
prices. When does a firm set prices ? A firm must set a price for the first time when it develops a
new product, when it introduces its regular product into a new distribution channel or geographical
area, and when it enter bids on new contract work.
Is Setting prices easy ?. It involves making a number of guesses about the future. You would
want to Know how , an organization should proceed as follows:
Identify the target market segment for the product or service, and decide what share of it is desired
and how quickly.
Establish the price range that would be acceptable to occupants of this segment. If this looks un-
promising, it is still possible that consumers might be educated to accept higher price levels, though
this may take time.
Examine the prices (and costs if possible) of potential or actual competitors.
Examine the range of possible prices within different combinations of the marketing mix (e.g. differ-
ent levels of product quality or distribution methods).
Determine whether the product can be sold profitably at each price based upon anticipated sales
levels (i.e. by calculating break-even point) and if so, whether these profits will meet strategic objec-
tives for profitability.

If only a modest profit is expected it may be below the threshold figure demanded by an organization
for all its activities. In these circumstances, it may be necessary to modify product specifications
downwards until costs are reduced sufficiently to produce the desired profit.
Anticipate the likely reaction of competitors (actual or potential).
According to Kotler an organization goes through the following steps in setting its pricing policy: -
Selecting the pricing Objective
Determining the demand
Estimating Costs
Analyzing competitor’s costs, prices and offers
Selecting a pricing method
Selecting the final Price
Now let us discuss the process in detail :-
1) Selecting the pricing Objective - You would agree that the foremost step is identifying pricing
objectives.
The company first decides where it wants to position its marketing offering. The clearer a firm’s
objectives, the easier it is to set price. What are pricing objectives ? A company can pursue any of
five major objectives through pricing: survival, maximum current profit, maximum market share,
maximum market skimming, or product-quality leadership.

Companies pursue survival, as their major objective if they are plagued with overcapacity intense
competition, or changing consumer wants. As long as prices cover variable costs and some fixed
costs, the company stays in business. Survival is a short-run objective: in the long run, the firm must
learn how to add value or face extinction.
What happens when companies wants to maximize profit ? Many companies try to set a price that
will maximize current profits. They estimate the demand and costs associated with alternative
prices and choose the price that produces maximum current profit, cash flow or rate of return on
investment. This strategy assumes that the firm has knowledge of its demand and cost functions; in
reality these are difficult to estimate.
Some companies want to maximize their market share. They believe that a higher sales volume will
lead to lower unit costs and higher long-run profit. They set the lowest price, assuming the market is
price sensitive. The following conditions favor setting a low price
The market is highly price sensitive, and a low price stimulates market growth. Production and
distribution costs fall with accumulated production experience; A low price discourages actual and
potential competition Companies unveiling a new technology favor setting high prices to “skim” the
market. Sony is a frequent practitioner of market skimming pricing.
Whatever the specific objective, businesses that use price as a strategic tool will profit more than
those who simply let costs or the market determine their pricing
2. Determining the demand - Following the identification of objectives , the firm needs to
determine demand. Each price will lead to a different level of demand and therefore have a differ-
ent impact on a company’s marketing objectives. In the normal case, demand and price are inversely
related: the higher the price, the lower the demand .In the case of prestige goods, the demand curve
sometimes slopes upward. E.g. Perfume Company raised its price and sold more perfume rather
than less! Some consumers take the higher price to signify a better product. However if the price is
too high, the level of demand may fall.
Do you agree that generally speaking customers are most price-sensitive to products that cost
a lot or are bought frequently? . They are less price-sensitive to low –cost items or items they buy
infrequently. They are also less price-sensitive when price is only a small part of the total cost of
obtaining, operating and servicing the product over its lifetime. A seller can charge a higher price
than competitors and still get the business if the company can convince the customer that it offers the
lowest total cost of ownership (TCO).
The process of estimating demand therefore leads to

i. Estimating Price sensitivity of market
ii. Estimating and analyzing demand curve
iii. Determining price elasticity of demand.
3. Estimating Costs - Demand sets a ceiling on the price the company can charge for its product.
Can you discuss this statement in detail ? Costs set the floor. The company wants to charge a
price that covers its cost of producing, distribution and selling the product, including a fair return for
its effort and risk.
Do you know different costs of organization ? How are these costs related with pricing ?A
company’s cost take two forms, fixed and variable. Fixed costs (also known as overhead) are costs
that do not vary with production or sales revenue. A company must pay bills each month for rent
heat, interest, salaries and so on. , Regardless of output. Variable costs vary directly with the level of
production. These costs tend to be constant per unit produced. They are called variable because
their total varies with the number of units produced. Total costs consists have the sum of the fixed

and variable costs for any given level of production. Average cost is the cost per unit at the level of
production; it is equal to total costs divided by production.
To price intelligently, management needs to know how its costs vary with different levels of produc-
tion.
Do you want to know what the Japanese do ?
THE JAPANESE METHOD- TARGET COSTING - Costs change as a result of a concen-

trated effort by designers, engineers and purchasing agents to reduce them. The Japanese use a
method called target costing. They use market research to establish a new product’s desired func-
tions. Then they determine the price at which the product will sell, given its appeal and competitor’s
prices. They deduct the desired profit margin from this price, and this leaves the target cost they must
achieve.
4. Analyzing competitor’s costs, prices and offers - You would agree that analyzing
competitor’s costs, prices and offers is also important factor in setting prices .
Within the range of possible prices determined by market demand and company costs, the firm must
take the competitor’s costs, prices and possible price reactions into account.
While demand sets a ceiling and costs set a floor to pricing, competitors’ prices provide an in be-
tween point you must consider in setting prices. Learn the price and quality of each competitor’s
product or service by sending out comparison shoppers to price and compare. Acquire competitors’
price lists and buy competitors’ products and analyze them. Also ask customers how they perceive
the price and quality of each competitor’s product or service. If your product or service is similar to
a major competitor’s product or service, then you will have to price close to the competitor or lose
sales. If your product or service is inferior, you will not be able to charge as much as the competitor.
Be aware that competitors might even change their prices in response to your price.
5. Selecting a pricing method - Do you Know any pricing methods ? As consumers have you been
able to distinguish between pricing strategies ? Let us have a look at various pricing methods .
WHAT ARE VARIOUS PRICING METHODS?

There are three pricing methods that can be employed by a firm:
1. Cost Oriented Pricing
2. Competitor Oriented Pricing
3. Marketing Oriented Pricing
Cost Oriented Pricing - Companies often use cost oriented pricing methods when setting prices.
Two methods are normally used
Full cost pricing - Can you attempt to explain this ? What does a firm do here ? Here the
firm determines the direct and fixed costs for each unit of product. The first problem with Full-cost
pricing is that it leads to an increase in price as sales fall. The process is illogical also because to
arrive at a cost per unit the firm must anticipate how many products they are going to sell. The is an
almost impossible prediction. This method focuses upon the internal costs of the firm as opposed to
the prospective customers’ willingness to pay.
Direct (or marginal) Cost Pricing - Do you have some idea about this ? This involves the
calculation of only those costs, which are likely to increase as output increases. Indirect or fixed
costs (plant, machinery etc) will remain unaffected whether one unit or one thousand units are
produced. Like full cost pricing, this method will include a profit margin in the final price. Direct cost

approach is useful when pricing services for example. Consider aircraft seats; if they are unused on
a flight then the revenue is lost. These remaining seats may be offered at a discount so that some
contribution is made to the flight expenses. The risk here is that other customers who paid the full
price may find out about the discounted offer and complain. Direct costs then, indicate the lowest
price at which it is sensible to take business if the alternative is to let machinery, aircraft seats or hotel
rooms lie idle.
Competition-based approach - Going-Rate Pricing

In going-rate pricing, the firm bases its price largely on competitors’ prices, with less attention paid to
its own costs or to demand. The firm might charge the same, more, or less than its major competitors.
Where the products offered by firms in a certain industry are very similar the public often finds
difficulty in perceiving which firm meets there needs best. In cases like this (for example in financial
services and delivery services) the firm may attempt to differentiate on delivery or service quality in
an attempt to justify a higher selling price.
Competitive Bidding - Many contracts are won or lost on the basis of competitive bidding. The
most usual process is the drawing up of detailed specifications for a product and putting the contract
out for tender. Potential suppliers quote a price, which is confidential to themselves and the buyer. In
sealed-bid pricing (i.e. only known to client and not to the other parties tendering for the service),
firms bid for jobs, with the firms basing the price on what it thinks other firms will be bidding rather
than on its own costs or demand. All other things being equal the buyer will select the supplier that
offers the lowest price.
Marketing Oriented Pricing - The price of a product should be set in line with the marketing
strategy. The danger is that if price is viewed in isolation (as would be the case with full cost pricing)
with no reference to other marketing decisions such as positioning, strategic objectives, promotion,
distribution and product benefits. The way around this problem is to recognize that the pricing deci-
sion is dependent on other earlier decisions in the marketing planning process. For new products,
price will depend upon positioning, strategy, and for existing products price will be affected by strate-
gic objectives.
6. Selecting the final Price - Pricing methods narrow the range from which the company must
select its final price. In selecting that price, the company must consider additional factors, including
psychological pricing, gain and risk pricing, the influence of other marketing –mix elements on price,
company –pricing policies, and the impact of price on other parties.
Have a brief look at the factors affecting pricing strategy :-
FATORS TO CONSIDER WHEN SETTING PRICES*
Internal Factors
Marketing Objectives
Marketing mix strategy
Costs
Organizational considerations
External Factors
Nature of market and demand
Competition
Environment factors

Activity
Take any fashion industry product , and identify the various steps involved in the fixing of
the price
Case - “Sterling Design”
You have recently been employed as a marketing officer for “Sterling Design”, a local highly resourced
small firm that specializes in the production of silver designer jeweler (brooches, necklaces, brace-
lets).
The firm has been in operation for 1 year and employs 5 staff, 3 of whom three design / produce the
jeweler. The firm is owned and managed by Mr. Smith, who used to produce jeweler as a hobby.
When he inherited a large amount of money he set up Sterling Design. Mr. Smith has no formal
business training.
In the past year the company has sold all production through the personal contact network of the
staff - friends, relatives etc. They have found it difficult to keep pace with this demand, and have sold
the products at discounted rates to their contacts.
Now, given this favorable response, Smith feels it the ideal time to expand his operation and sell his
jewellery through retail outlets in Belfast / NI in order to capitalize upon the Christmas market.
Smith recently met with a contact that told him that he should develop some sort of marketing
strategy or plan in order to really “clean up.” This was the rationale behind your appointment.
Develop an appropriate pricing and positioning strategy for Sterling Design.
POINTS TO REMEMBER


Unit 3
Lesson 35 - Responding to changes in price
Students , we have already discussed the process of six step process of setting prices in the last
chapter . We had also discussed some factors affecting pricing process. Let us now understand how
a firm changes prices and how it responds to price changes by others.
HOW TO INITIATE PRICE CHANGES - You would agree that companies often face
situations where they may need to cut or raise prices. The key issues associated with initiating
price changes are the circumstances that may lead a company to raise or lower prices, the tactics
that can be used, and estimating competitor reactions.
What are the options available to the organization? The options available to the organization for
making changes in prices would generally include the following: -
Maintain price and perceived quality; selectively prune customers
Raise price and perceived quality
Partially cut price and raise quality
Fully cut price, maintain perceived quality
Maintain price, reduce perceived quality
Introduce an economy model
Initiating price cuts

Why do firms initiate price cuts ? Interested ? Lets find out …….
Several circumstances lead a firm to cut prices. Such as the following: -
Circumstances leading to price cuts:
Excess plant capacity (or excess production, therefore a need to push sales)
Declining market share (to give a boost to its sagging sales)
Attempt to dominate the market via lower costs
Either the company starts with lower costs than its competitors or it initiates price cuts in the hope of
gaining market share and lower costs; but a price-cutting strategy involves possible traps: -
Price cutting traps:

Price cutting could also be tricky , or could lead to what we commonly refer as price cutting traps.

Let us know them……..
Low-Quality trap (Price/quality perceptions)
Fragile-market-share trap (Low prices don’t create market loyalty)
Shallow –pocket trap (Competition may match or beat price cuts)
Initiating price increases

Like price cuts , a firm can also initiate to increase the price …..
A successful price increase can raise profits considerably. For example, if the company’s profit
margin is 3% of sales, a 1% increase will increase profits by 33% if sales volume is unaffected. The
circumstances provoking price increases are generally as follows: -
Knowing circumstances leading to price increases:

Cost inflation: A major circumstance provoking price increases is cost inflation. Rising costs un-
matched by productivity gains squeeze profit margins and lead companies to regular rounds of price
increases. Companies often raise their prices by more than cost increase, in anticipation of further
inflation and govt. price controls, in a practice called anticipatory pricing.
Over demand: when a company cannot supply all of its customers, it can raise its prices, ration
supplies to its customers, or both. The price can be increased in the following ways:
Methods of dealing with over demand:
Delayed quotation pricing: The company does not set a final price until the product is finished or
delivered. This pricing is prevalent in industries with long production lead times, such as industrial
construction and heavy equipment.
Escalator clauses: The company requires paying today’s price and all or part of any inflation in-
crease that takes place before delivery. An escalator clause bases price increases on some specified
price index. Escalator clauses are found in contracts for major industrial projects, like aircraft con-
struction and bridge building.
Unbundling: The Company maintains its price but removes or prices separately one or more ele-
ments that were part of the former offer, such as free delivery or installation.
Reduction of discounts: The company instructs its sales force not to offer its normal cash and
quantity discounts.
REACTIONS TO PRICE CHANGES
Any price change can provoke a response from customers, competitors, distributors, suppliers and
even government.
Customer reactions - How do you think customers react ? How do you react when the price
of you r favorite perfume goes up ? Will you stop using it ?
Customers often question the motivation behind price changes. A price cut can be interpreted in
different ways: the item is about to be replaced by a new model; the item is faulty and not selling well;
the firm is in financial trouble; the price will come down even further, the quality has been reduced.
A price increase, which would normally deter sales, may carry some positive meaning to customers
.The item is “hot” and represents an unusually good value.

Competitor’s reactions
Will the competitors sit quiet ? What do you think ?
A company thinking of changing its prices must also consider how it’s competitors is likely to react.
Such reactions are especially important where:
There are few firms in the market and your own share is relatively large;
The product/services are relatively homogenous;
Complex strategy models can be developed to try to estimate how competitors are likely to react to
price changes under different circumstances. Broadly speaking, the approaches are either statistical
or conjectural. The statistical approach analyses how competitors have responded in the past on the
assumption that they have a consistent price reaction policy. Unfortunately the problem with this is
that firms do not always react logically.
The conjectural approach, on the other hand, amounts to putting yourself in your competitor’s shoes
and estimating how you would react in the circumstances. To do this you need to find out as much
about each of your competitors as possible. Are they pursuing a market share objective? If so they
may well decide to match your price change. On the other hand, if they are trying to maximize profits,
they may well respond to a price reduction by taking action on another front such as spending more
on advertising or improving product quality.
How much profit are your competitors making? If you don’t know then you should try to find out.
You will then be in a much better position to judge how any price change will affect their profitability
and how much freedom of action they actually have. Knowing whether or not your competitors can
afford to enter a price war is something you should try to find out before you start one- not after-
wards.
RESPONDING TO COMPETITOR’S PRICE CHANGES

We have looked at the possible effects of initiating price changes - let us now consider the opposite
question. How should we react to price changes made by competitors?
A key factor in the price change decision is the extent of competitor reaction. Effective environmen-
tal scanning and competitor shopping are ways that a firm can keep close to what their competitor
offerings to the market are. This closeness brings with it both formal and informal intelligence that
will give the firm a clear idea of the strategic objectives of the competitor in question. However
another important consideration before reacting to competitor price changes is to fully understand the
positioning of the product in the mind of the consumer
When competitors initiate price changes, companies need to analyze their appropriate reactions
When to Follow - Competitor price increases are likely to be followed when they are due to general
rising cost levels or industry wide excess demand. Initially the pressure is similar on all market
players. Another factor is where the product in question is price insensitive which means that the
follower will not gain much advantage by resisting the price increase (egg cigarettes). Price cuts are
likely to be followed in price sensitive markets (egg groceries) or perhaps where they are stimulated
by excess supply (e.g. T-Shirts in a wet summer). However care must be taken here, as mentioned
above, the price movement must be consistent with the image of the company and the positioning of
the products.
When to Ignore - Opposite of the above; stable costs, excess supply, price insensitivity, a grow
market share objective. However care must be taken here, as mentioned above, as the price move-

ment must be consistent with the image of the company and the positioning of the products.
In some situations - in markets with near perfect competition and homogenous products - you may
have little choice but to match a competitor’s price cut. Not to do so would probably mean losing
most if not all of your sales. If on the other hand the competitor increases his price you must choose
between fully or partly matching the rise and making no change at all. In doing this you must judge
how the market as a whole is likely to react, as well as estimating the subsequent response of your
competitors to your own actions. A refusal to increase your price may make the competitors reverse
the original increase, so that an opportunity to raise overall profit margins may be lost.
In markets with on-homogenous products, you have more freedom in deciding how to respond to a
price change. Since price may be only one factor - albeit an important one - in determining buyer
behaviors, you may decide to change other elements of the marketing mix, for example, by concen-
trating more on advertising, improving product quality or deliveries.
The best approach is to consider the expected pay-off from adopting different responses. Start by
trying to answer the following questions:
Why did the competitor change his price in the first place? Was it to raise his own market share? To
utilize spare capacity? To offset increased costs?
Is the price change likely to be permanent or only temporary?
What will happen to your market share and profitability if you do not match the price change?
What are other competitors likely to do?
We do not pretend that there is a simple solution to this problem. However, a logical approach should
pay dividends. Always try to put yourself in your competitor’s shoes and estimate how he will re-
spond to your own actions. The fewer firms there are in the market the more complex things can
become, since each company’s actions have a greater effect on the position of others. A further
problem is that decisions about responding to price changes will often have to be made quickly
whereas the competitor who initiated the change may well have spent considerable time making this
decision.
Responding to competitor’s price changes would be depended upon the following: -
The degree of product homogeneity affects how firms respond to price cuts initiated by the com-
petition
Market leaders can respond to aggressive price cutting by smaller competitors in several ways
Market Leader Responses to Competitor Initiated Price Cuts

What does a market leader do ? What do you think ?
Maintain price and profit margin
Maintain price, add value
Increase price, improve quality
Launch a low-price fighter line
Students here is an article which would be an interesting reading for it is closely related with what
we have studied of pricing .

Think Twice Before You Re-Price

by James H. Geisman, MarketShare, Inc.Many times companies try to change prices to stabilize or
increase revenues. The results, unfortunately, are often disastrous. In the low end of the PC busi-
ness, for example, several companies have tried cutting prices by more than 50% and found their
customer base has expanded by 10% or less. Revenues drop off a cliff and the person responsible
for the price cut often follows. Although price is an obvious variable in the business equation, it should
not be the first thing to change. When companies feel the need for new prices, they are responding
to various economic forces. In this article we suggest focusing on how to increase cashflow and
profitability before making a price change. People involved in pricing complex, differentiated prod-
ucts like software or engineered products can use the cashflow approach to identify other non-price
methods for increasing cashflow. In addition, cashflow can be used to unify the activities in several
departments thereby taking some of the heat off the role of pricing alone. There are many tricks for
increasing cashflow. Below is a series of ideas companies have used to improve their operations and
thereby increase profitability.
Look for Improvements Systematically

If you want to improve your company’s operations without being overwhelmed by the options, there
are two keys to success. First, search systematically for improvements to find the most effective
ones. Then second, select a few of the most promising ideas, implement them carefully and apply
them consistently. Good management is 1% inspiration and 99% execution.One of the major reasons
for searching systematically for improvements is simple: People are involved and people do not like to
change without understanding why. If changes are imposed on people without their involvement,
their resistance to change goes up as the number of available options goes down.By systematically
looking for ways to improve a company’s operations, people have a chance to make contributions
and adapt to change. Often one of the smarter (or more often outspoken) members of a team will
have an “Ah-ha!” experience about how to improve profitability. If the team locks onto a “the solu-
tion” prematurely, regardless of whether the idea is good or bad, other people cannot easily accept or
internalize the idea. Even if the new idea is a good idea, people will reject it outright, drag their feet,
or give it little support.However, by looking for improvements systematically, more people can par-
ticipate in the process. As people participate in the search for improved cashflow, people have time
to adjust to potential changes and feel a part of the process. Furthermore, there will be more “Ah-
ha’s” working from which management can choose the best.But of course, systematic examination
does not lead to improved (or any) cashflow. Action does.What is the best way to proceed?First,
recognize that improvements take time and constant effort. For improvements to have the greatest
long-term impact, they must be part of an ongoing process. Home run solutions are possible but most
ball games are won on singles and doubles (and making fewer errors than your competition).Here’s
an example.
Suppose a company wants to increase customer loyalty, which leads to predictable cashflow. One
way to achieve this is increasing customer satisfaction among new customers and their existing base
of customers. If the company has a base of five thousand customers and works 500 existing custom-
ers per month, it will take 10 months to work through the existing customer base — in addition to the
efforts spent on satisfying new customers.Maybe the process can be accelerated but it will still take
a while. Be patient.Look for Cash flow ImprovementsIn these days of complex financial transac-
tions and less-than-straightforward accounting practices, the best way to ensure business success is
to watch cash flow. If you understand the “cash cycle” (production, delivery collection and disburse-
ment) and cash flow needs of the business, the business will never get out of hand. The “fishbone
chart” below shows some of the components of cash flow.First you’ll notice overall profitability and
timing of payments to your company or others will affect cash flow. Even if your sales bookings are
strong with good margins and profitability, companies can still go broke if the collections are slow. If
revenue levels are high enough but there isn’t enough cash to pay current expenses, then get paid

sooner (customer advances) or stretch out your payables (pay in installments).One of the favorite
bootstrapping tricks of entrepreneurs is to use this month’s collections to pay some of this month’s
expenses and make product for next month. But beware: This balancing act will catch up to a
company that is unprofitable.Although the credit department will set credit terms, the person respon-
sible for pricing can affect the timing and predictability of cash flow by encouraging the equivalent of
layaway plans — especially in industries with seasonal or cyclical demand.A wonderfully practical
book had a title that captured the essence of all cash flow improvement techniques: “Buy Low, Sell
High, Collect Early and Pay Late”.
Look for Profitability Improvements Moving up the fishbone, there are two ways to increase profit-
ability: Increase contribution (a.k.a. Gross Profit) or decrease costs. While there are many cost
centers, start with the major overhead cost areas. For example in high tech companies, sales and
marketing is the major cost element. Although most marketing and sales departments know how to
increase their effectiveness, these adjustments take time — a scarce commodity in fast moving
markets especially. This is one of the reasons companies change prices instead of marketing and
sales processes.Here are some examples where sales and marketing changes alone can affect total
contribution without changing prices. Note that these changes can take from six months to two years
before the effect is felt.·Find more effective promotional methods or more cost effective sales meth-
ods. · Substitute a telemarketing and telesales front-end for expensive direct sales.
Use sales reps instead of salaried sales people; · Change sales compensation programs to increase
rewards when higher sales and profit levels are achieved. To be sure, these areas and programs are
hard to change (and may be expensive). However, it may be possible to time these changes to
coincide with a series of time-limited price deals whose increased revenues can offset the higher
initial costs/lower initial sales of these programs.Another alternative to a price change is to look at
where money is being spent in the sales and marketing process. If it is in lead generation, find more
effective methods of generating leads to less price sensitive customers. Often different mail lists,
advertising copy, choice of trade show, or introductory offers will have the desired effect.If sales are
slowing down and closing deals are getting harder or happening later, find out why. Perhaps collaterals
can be just as effective as a personal sales call in educating a customer about the value of high value

added services? Maybe a sales training course or providing materials about handling price objections
or creating a value proposition are in order...For some time I have been a fan of “cycle time reduc-
tion” which is used to reduce time to market, expenses, etc. One of the premises of this method is the
less time you spend in doing something, the less time (and hence expenses) can get burdened on the
activity. This suggests looking more carefully at where in the sales and marketing process the sales
organization spends most of its time. Saving time in the sales cycle, will save company money.Sales
and marketing is but one area to look for profitability improvements. It goes without saying that there
are ways to trim “G&A” (General and Administrative). Shift receptionists to telesales and use voice
mail. Use part-time help instead of full-timers. Look at using a payroll or bookkeeping service. See if
high cost credit lines can be replaced with low cost ones.Look for changes anywhere monies are
being spent — even in the pricing process. One major area to save costs in the pricing process is to
have fewer meetings and make the meetings more effective. Look for Improvements in Total Con-
tribution While it is always useful to look at ways to increase efficiency/effectiveness, remember the
objective is to increase cash flow.
The best way to do this is generate more contribution (gross profits) to overhead. Since total contri-
bution is average unit margin multiplied by total unit volume across all sales, there are two more
variables with which to work .One obvious way to increase product volumes is to appeal to higher
volume customers. If high volume customers want service, give them service (at a reasonable price).
If they want lower cost distribution, do that (and pass some of the cost savings along). The point is to
make sure products and associated services appeal to important customers segments. As markets
become more competitive, the traditional approach — volume discount schedules — are becoming
less effective in attracting the “heavy user” segment in a market or in the existing customer base.
These days it is essential to look for creative alternatives.Here is another alternative to increased
product volume: increased customer loyalty. More loyalty means customers will buy more product
over a longer period of time. In the software business we are finding customers that buy 3-4 product
upgrades and an initial support contract often generate more revenues than the initial purchase of the
product (net of discounts given to the sales channel).What can you do to increase product loyalty?
Suppose your company makes business products that appeal to the home office user (e.g. the “SOHO”
market — small office, home office), lowering prices won’t generate loyal customers as much as
effectively using cross promotions with other companies with products that complement yours. Maybe
a newsletter or some other direct contact piece will obtain the same “share of mind” as a favorable
price. Some office product companies have been known to use dealer seminars, small local/regional
trade shows and free factory consultations to increase customer loyalty.The Internet and the World
Wide Web offer new opportunities for lowering the cost of information delivery. In some markets,
direct e-mail may be as useful as fax support and on-line bulletin boards for increasing loyalty.As an
aside, if you want to increase customer loyalty, you’d better start measuring it just as you would
measure volume changes per transaction from price changes. Don’t forget rough measures are
better than no measures at all. Roughly right is better than precisely wrong — or late.Loyal custom-
ers generate positive word-of-mouth references. And these are the references that sell products.Look
for Improvements in Unit Margins Increased unit volumes won’t increase cashflow if unit margins
fall off a cliff. Therefore, look at ways to maintain margins (or at least minimize margin
erosion.)Maintaining current levels of cashflow is particularly tough as competitors cut prices in a
scramble for revenues and as customers tighten their belts. About the only thing that can be done to
keep unit margins high in a price competitive market is to make sure the cost to manufacture and
develop product falls faster than prices erode.People in manufacturing organizations tend to be pretty
good at cost control. For example, they may be able to use less costly cardboard instead of plastic
(and be more environmentally friendly). Perhaps some activities can be done in sheltered workshops
— this is a community service and there may even be some tax incentives to encourage this.Don’t
forget to look to the product development group for help. Project schedules and product release dates
can affect cashflow. Also, a surprising number of organizations do not use “design to cost” or “design
to manufacture and assembly”. These techniques can reduce product costs by 20-60% — often by

using standard sized anythings, which are cheaper than custom sized anythings.Prices — Finally
There is one group to whom pricing is the most important product attribute: sales people. Countless
surveys show customers that buy industrial or consumer products and services rank price third or
fourth in importance. That is why we, too, have made pricing the last topic of this article.On the price
side, the best way to maintain prices is to offer customers high quality product and service bundles.
But make sure the product value delivered lines up with the needs of customers and their willingness
to pay.Customers that have beer tastes and a beer budget won’t pay for champagne so doesn’t serve
it.As a rule it is always better to look for customers that are less price sensitive. Build in reliability.
Provide premium support at premium prices. Don’t be all things to all people. Focus on what you do
well and get paid for it.If customers won’t pay for it, start stripping out features, services, updates,
whatever you have to so your customer will pay less while getting less.If your customers want lower
prices, often they don’t know what trade-offs they will have to make. Make sure the trade-offs are
obvious but not undesirable. (For example, no one gives a $1000 discount on a car without tires). If
customers want lower prices, they will have to order more. If they won’t order more, they will have
to pay for support. If they won’t pay for support, help them contract with a third party for support if
they won’t pay you for doing that task.If you want to keep your prices up there, make sure your
product reeks of desirability. Tasteful collaterals, packaging, ads, sales people, voice mail.... Make it
clear that you and your customers both belong to a very exclusive club with proven membership
advantages like an active user community, stable account reps, easily accessible senior executives,
widely quoted users.Above all, make sure that any demands for price concessions are countered
politely with a demand for a product or service concession. Remember most customers want a good
deal, which will not drive you out of business. Push back — politely. Learn to negotiate.But if you
find a customer that doesn’t care about your survival (i.e. won’t give on price), give them a great deal
on an older model. Another alternative if you are in the capital goods business is to help customers
sell their old products to make way (and pay) for yours. GM takes Fords in trade why shouldn’t
you?But ultimately if you find a customer that only cares about price and doesn’t want to hear about
anything else, let them go. Give the lead to a competitor. This will surely drive your competitor’s sales
rep crazy and, if you send enough of these customers their way, your competitor may even go broke.
Review, Re-do, Repeat

In the above sections I’ve suggested an approach and several examples of how to improve profitabil-
ity and cash flow before changing prices.To ease the culture shock, often the best way to improve
cash flow and profitability comes from what you are now doing! Most companies are doing a
number of things to increase profitability and increase cash flow. Often some of these activities are
not as effective as they might be.Therefore, let me close by suggesting you to look at everything that
can be done a little better. It is very likely that a 10% improvement in three things you are now doing
ineffectively will increase profitability and cash flow more than any one new idea a team might
implement over a 12-month period.Clearly, the operational changes having an impact on cash flow go
well beyond pricing. In many companies pricing is an activity that cuts across many departments.
Therefore, when it comes time to change prices, it may be a good idea to look for new approaches
that can have the same impact on cash flow as price changes can have. You’d be surprised at how
many useful and often elegant ideas are out there.
APPLICATION EXERCISE :
Review the following article. Bring out the key points. Discuss your points of agreement and dis-
agreement .
*
CASE HIGHLIGHT 1 - SUPERMARKET PETROL PRICING
This case study outlines how Safeway launched a petrol price war in 2002 to boost grocery market
share.

Predatory pricing on the supermarket petrol forecourts
Introduction
In June 2002, Safeway used a predatory pricing strategy for the sale of petrol from its supermarket
garages in an attempt to increase its share of the UK grocery market. The strategy stunned competi-
tors – and angered non-supermarket petrol retailers.
The Safeway petrol price offer : Safeway’s offer to the consumer comprised a price reduction on
fuel purchases based on the amount customers had spent on groceries at its stores each visit.
Customers received 2p off a liter if they spent £25, 5p for £50, 12p for £100 and 20p for £150. The
maximum 20p discount equated to a saving of £10 a week for the driver of an average family car.
The maximum 20p price reduction brought the price of a liter of petrol at Safeway down to 53p. This
meant customers only had to pay enough to cover duty and VAT.
Safeway was effectively giving its petrol away in an effort to increase its share of the grocery
market, which stood at around 10 per cent.
On the first day of the price promotion, fuel sales at Safeway’s 180 petrol stations rose by 25 per
cent.
Competitor response : An ad, which controls 15.6 per cent of the grocery market, was the only
supermarket-based petrol retailer to react to Safeway’s promotion. It swiftly cut its prices by 0.8p a
liter.
Sainsbury’s and Tesco, with 16.6 per cent and 26 per cent of the grocery market respectively, re-
fused to be drawn into a fuel price war. They maintained their existing pricing strategies.
Both retailers guarantee to match the cheapest petrol prices within a three to four mile radius of their
stores, but exclude promotional offers from this pledge. Sainsbury’s introduced a petrol discount
scheme in 1998, but the maximum discount offered is 4p a litre - awarded when customers spend
£100.
Petrol retailers, rather than supermarkets, had the most to lose from Safeway’s offer. Profit margins
on petrol tend to be less than 4p a litre and, unlike supermarkets, petrol retailers are not able to fund
losses through other activities.
The impact on the overall petrol retail market was softened by the comparatively small number of
Safeway petrol stations. Large petrol companies such as Shell and Texaco each have more than
1,000 stations throughout the UK.
Reasons behind the strategy :Why would Safeway decide to instigate a price war of this kind?
How frequent are price wars and do they work?
Price wars are not a new idea. For example, daily newspapers often engage in them – with varying
degrees of success.
Price wars, of varying intensity, are fought in every market. Price-cutting is often seen as a way to
eliminate smaller competitors, grab market share and boost sales. But any temporary increase in
sales is not necessarily sustained after normal pricing is resumed.
What was the motivation behind Safeway’s decision? A Safeway marketing spokesman claimed
that:

“We are aiming to drive sales and increase individuals’ spend. The fuel promotion will encour-
age customers to increase their current spending levels from the average £80 a basket, and
may also pull in customers who usually shop with competitors If the promotion generates high
levels of sales it will fund itself, so we could keep it going for some time. But it is a promotion.”
Retail analysts say that pricing strategies like Safeway’s petrol promotion can be an effective way of
gaining market share. To be successful, however, they must be
Well-timed
Well-planned, and
Well-executed
According to a retail analyst:
“Price can make customers switch temporarily to a competitor, but it is not enough to make
them stay. If price was the only factor grocery shoppers considered, then Aldi would win every
time - yet the budget chain has a UK market share of just 1.7 per cent. “
Price-cutting may bring people in the door, but you cannot keep customers on price alone. Customer
loyalty has to be earned, not bought. There is also a risk that price-cutting can devalue a brand
Price, then, can be an effective marketing tool - but it must be combined with a thorough strategy
incorporating quality, service and customer retention. Implemented properly, price-cutting has the
potential to bring down competitors and boost sales. Done badly, it can be a destructive waste of time
and money.

Unit 3
Lesson 36 - Pricing Strategies
Would it not be interesting to how organizations make strategies for pricing? Let us dig deeply
into it and find out…
The only time when price setting is not a problem is when you are a “price-taker” and have to set
prices at the going rate, or else sell nothing at all. This normally only occurs under near-perfect
market conditions, where products are almost identical. More usually, pricing decisions are among
the most difficult that a business has to make. In considering these decisions it is important to distin-
guish between pricing strategy and tactics. Strategy is concerned with setting prices for the first time,
either for a new product or for an existing product in a new market; tactics are about changing
prices. Changes can be either self-initiated (to improve profitability or as a means of promotion) or in
response to outside change (i.e. in costs or the prices of a competitor).
Pricing strategy should be an integral part of the market- positioning decision, which in turn depends,
to a great extent, on your overall business development strategy and marketing plans.
Companies usually do not set a single price, but rather a pricing structure that reflects variations in
geographical demand’ and costs, market-segment requirements, purchase timing, order levels, deliv-
ery frequency, guarantees, service contracts, and other factors As a result of discounts, allowances,
and promotional support, a company rarely real-izes the same profit from each unit of a product that
it sells. Here we will examine sev-eral price-adaptation strategies: geographical pricing, price dis-
counts and allowances, promotional pricing, discriminatory pricing, and product-mix pricing.
WHAT ARE DIFFERENT PRICING STRATEGIES ?

1. Geographical pricing (cash. Counter trade. Barter) - Geographical pricing involves the’
company in deciding how to price its products to different. Customers in different locations and
countries. For example, should the company charge higher prices to distant customers to cover the
higher shipping costs or a lower price to win additional business? Another issue is how to get paid.
This issue is critical when buyers lack sufficient hard currency to pay for their purchases. Many
buyers want to offer other items in payment, a practice known as counter trade. American compa-
nies are often forced _o engage in counter trade if they want the business. Counter trade may
account for 15 to 25 percent of world trade and takes several forms: barter, compensa-tion deals,
buyback agreements, and offset.
Barter: The direct exchange of goods, with no money and no third party involved
Compensation deal: The seller receives some percentage of the payment in cash and the rest
in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest
in coffee.
Buyback arrangement: The seller sells a plant, equipment, or technology to another country
and agrees to accept as partial payment products manufactured with the supplied equipment. A
US. Chemical company built a plant for an Indian company and accepted partial payment in
cash and the remainder in chemicals manufactured at the plant.
Offset: The seller receives full payment in cash but agrees to spend a substantial amount of the
money in that country within a stated time period. For example, PepsiCo sells its cola syrup to
Russia for rubles and agrees to buy Russian vodka at a certain rate for sale in the United States.
2. Price discounts and allowances - The role of discount Offering discounts can be a useful tactic
in response to aggressive competition by a competitor. However, discounting can be dangerous un-
less carefully controlled and conceived as part of your overall marketing strategy.
Discounting is common in many industries - in some it is so endemic as to render normal price lists
practically meaningless. This is not to say that there is anything particularly wrong with price dis-
counting provided that you are getting something specific that you want in return. The trouble is that,
all too often, companies get themselves embroiled in a complex structure of cash, quantity and other
discounts, whilst getting absolutely nothing in return except a lower profit margin.
Let us look briefly at the main types of discounts common today
Cash and settlement discounts - These are intended to bring payments in faster. However, since
such discounts need to be at least 2,5% per month to have any real effect, this means paying your
customer an annual rate of interest of 30% just to get in money which is due to you anyway. What is
more, customers frequently take all the discounts on offer and still do not pay promptly, so that you
lose both ways. Much better, we believe, is either to eliminate these discounts altogether and intro-
duce an efficient credit control system, or change your terms of business so that you can impose a
surcharge on overdue accounts instead. Whilst you may lose some business by doing this, these will
probably be the worst payers anyway. If some customers will not pay you for months you are
probably better off trying to win others who will
Quantity discounts - The trouble with these is that, when formalized on a published price list, they
become an established part of your pricing structure and as a result their impact can be lost. If you
are not very careful, although they may have helped you win the business to start with, in the long run
the only effect they have is to spoil your profit margin. As a general rule, only publish the very
minimum of quantity discounts - your very largest customers will probably try to negotiate something
extra anyway. Also keep quantity discounts small, so that you hold something in reserve for when
your customers do something extra for you, such as offering you sole supply, or as part of a special
promotion.

Promotional discounts - These are the best kind of discounts because they enable you to retain the
power to be flexible. There may be times when you want to give an extra boost to sales - to shift an
old product before launching an updated one for example. At times like these special offers or
promotional discounts can be useful. But try to think of unusual offers - a larger pack size for the
same price or a “ five for the p [rice of four “ can often stimulate more interest than a straight
percentage discount. They also make sure that the end user gets at least some of the benefit, which
doesn’t always happen with other types of discounts. Two other points to remember are
Make sure you retain control over your special promotions, with a specific objective, a beginning and
an end point. Be sure to terminate them once they have outlived their usefulness.
Ensure that your offers are linked to sales and not simply to orders. Otherwise you may find that
orders to you are up for a while, only to be followed by a barren period whilst your customer supplies
the end user from his accumulated stocks.
Clearly the role of discounts will vary from one type of business to another and not all of the com-
ments above will apply to you. In part your ability to minimize discounts, or eliminate them altogether,
will depend on the non-price benefits of your product. But, whatever business you are in, you should
always ask yourself what your discounts are supposed to achieve, whether they are effective, and
how long they are expected to last. In general, keep standard discounts low to retain maximum
flexibility and ensure that they are consistent with your overall marketing and pricing strategy.
3. Promotional Pricing - Companies can use several pricing techniques to stimulate early pur-
chase:
Loss-leader pricing: Supermarkets and department stores often drop the price on well-
Known brands to stimulate additional store traffic. This pays if the revenue on the addi-tional sales
compensates for the lower margins on the) boss-leader items. Manufacturers of loss-leader brands
typically object because this practice can dilute the brand image and bring complaints from retailers
who charge the list price. Manufacturers have tried to restrain intermediaries from loss leader pricing
through lobbying for retail-price -maintenance laws, but these laws have been revoked.
Special-event pricing: Sellers will establish special prices in certain seasons to draw in more cus-
tomers
Cash rebates: Auto companies and other consumer-goods companies offer cash rebates to Encour-
age purchase of the manufacturers’ products within a specified time period. Rebates can help clear
inventories without cutting the stated list price.
Low-interest financing: Instead of cutting its price, the company can offer customers low- interest
financing. Automakers have even announced no-interest financing to attract Customers.
Longer payment terms: Sellers, especially mortgage banks and auto companies, stretch loans over
longer periods and thus lower the monthly payments. Consumers often worry less about the cost
(i.e., the interest rate) of a loan and more about whether they can afford the monthly payment.
Warranties and service contracts: Companies can promote sales by adding a free or low- cost
warranty or service contract.
Psychological discounting: This strategy involves setting an artificially high price and then offering
the product at substantial savings
Promotional-pricing strategies are often a zero-sum game. If they work, competitors

Copy them and they lose their effectiveness. If they do not work, they waste money that could have
been put into other marketing tools, such as building up product quality and service or strengthening
product image through advertising.
4. Discriminatory pricing - Companies often adjust their basic price to accommodate differences
in customers, products, locations, and so on. Price discrimination occurs when a company sells a
product or service at two or more prices that do not reflect a proportional difference in costs. In first-
degree price discrimination, the seller charges a separate price to each customer depending on the
intensity of his or her demand. In second-degree price discrim-ination, the seller charges less to
buyers who buy a larger volume. In third-degree price discrimination, the seller charges different
amounts to different classes of buyers, as in the following cases:
Customer-segment pricing: Different customer groups are charged different prices for the same
product or service. For example, museums often charge a lower admission fee to students and senior
citizens.
Product-form pricing: Different versions of the product ‘are priced differently but not pro-portionately
to their respective costs
Image pricing: Some companies price the same product two different levels based on image differ-
ences at. A perfume manufacturer can put the perfume in one bottle, give it a name and image, and
price it at Rest. 50. It can put the same perfume in another bot-tle with a different name and image
and price it at Rs.200.
Channel pricing: Coca-Cola carries a different price depending on whether it is purchased ill a fine
restaurant, a fast-food restaurant, or a vending machine.
Location pricing: The same product is priced differently at different locations even though the cost
of offering at each location is the same. A theater varies its seat prices according to audience
preferences for different locations.
Time pricing: Prices are varied by season, day, or hour. Public utilities vary energy rates to commer-
cial users by time of day and weekend versus weekday. Restaurants charge less to “early bird”
customers. Hotels charge less’ on weekends. Hotels and airlines use yield pricing, by which they
offer lower rates on unsold inventory just before it expires. Coca-Cola considered raising its vending
machine soda prices on hot days using wireless technology, and lowering the price on cold days.
However, customers so dis-liked the idea that Coke abandoned it.
For price discrimination to work, certain conditions must exist. First, the market must be segment
able and the segments must show different intensities of demand. Second, members in the lower-
price segment. Must not be able to resell the product to the higher-price segment. Third, competitors
must not be able to undersell the firm in the higher-price segment. Fourth, the cost of segmenting and
policing the market must not exceed the extra revenue derived from price discrimination. Fifth, the
practice must not breed customer resentment and ill will. Sixth, the particular form of price discrimi-
nation must not be illegal.
As a result of deregulation in several industries, competitors have increased their use of discrimina-
tory pricing. Airlines charge different fares to passengers on the same flight, depending on the seat-
ing class; the time of day (morning or night coach); the day of the week (workday or weekend); the
season; the person’s company, past business, Of status (youth, military, senior citizen); and so on.
Airlines are using yield pricing to cap-ture as much revenue as possible.
Computer technology is making it easier for sellers to practice discriminatory pric-ing. For instance,

they can use software that monitors customers’ movements over the Web and allows them to cus-
tomize offers and prices. New software applications, how-ever, are also allowing buyers to discrimi-
nate between sellers by comparing prices instantaneously.
5. Product-mix pricing - Price-setting logic must be modified when, the product is part of a product
mix. In this case, the firm searches for a set of prices that maximizes profits on the total mix. Pricing
is difficult because the various products have demand and cost interrelationships and are subject to
different degrees of competition. We can distinguish six situations involv-ing product-mix pricing:
product-line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-product
pricing, and product-bundling pricing.
Product line Pricing: Companies normally develop product lines rather than sin-gle products and
introduce price steps. In many lines of trade, sellers use well-established price points for the products
in their line. A men’s clothing store might carry men’s suits at three price levels: Rs800, Rs.1500, and
Rs.4500. Customers will associate low-, average-, and high-quality suits with the three price points.
The seller’s task is to establish perceived-quality differences that justify the price differences.
Optional-feature pricing ‘Many companies offer optional products, features, and services along
with their main product. The automobile buyer can order electric window controls, defoggers, light
dimmers, and an extended warranty. Pricing is a sticky problem; automobiles companies must decide
which items to include in the price and which to offer as options. Restaurants face a similar pricing
problem. Customers can often order liquor in addition to the meal. Many restaurants price their liquor
high and their food low. The food revenue covers costs, and the liquor produces the profit. This
explains why servers often press hard to get customers to order drinks. Other restaurants price their
liquor low and food high to draw in a drinking crowd.
Captive-product pricing - Some products requires the use of ancillary, or captive, products. Manu-
facturers of razors and cameras often price them low and set high markups on razor blades and film,
respectively. A cellular service operator may give a cellular phone free if the person commits to
buying two years of phone service.
Two-part pricing - Service firms often engage in two-part pricing, consisting of a fixed fee plus a
variable usage fee. Telephone users pay a minimum monthly fee plus charges for calls beyond the
minimum number. Amusement parks charge an admission fee plus fees for rides over a certain
minimum. The service firm faces a problem sin1ilar to captive -product pricing-namely, how much to
charge for the basic service and how much for the variable usage. The fixed fee should be low
enough to induce purchase of the ser-vice; the profit can then be made on the usage fees.
By-product pricing - The production of certain goods- meats, petroleum prod-ucts, and other chemi-
cals—often results in by-products. If the by-products have value to a customer group, they should be
priced on their value. Any income earned on the by-products will make it easier for the company to
charge a lower price on its main product if competition forces it to do so.
Product-Bundling pricing - Sellers often bundle products and features. Pure bundling occurs when
a firm only offers its products as a bundle. In mixed bundling, the seller offers goods both individually
and in bun-dles. When offering a mixed bundle, the seller normally charges less for the bundle than if
the items were purchased separately. An auto manufacturer might offer an option package at less
than the cost of buying all the options separately. A theater company will price a season subscription
at less than the cost of buying all the performances sepa-rately. Because customers may not have
planned to buy all the components, the savings on the price bundle must be substantial enough to
induce them to buy the bundle.

Students here is something interesting for you ……..
Point to remember


agreement .
*
CASE HIGHLIGHT 2 - PRICING IN THE PACKAGE HOLIDAY MARKET
This case highlight-considers how prices are set in the package holiday market and how price dis-
crimination is used as part of the pricing strategies used
Introduction - UK holidaymakers take some 36 million overseas holidays each year. Of these,
almost half are “packaged holidays” - where the consumer buys a complete package of accommo-
dation, flight and other extras - all bundled into one price. This is a highly competitive market with
a small number of large tour operators (including Thomson Holidays, Air tours, First Choice, JMC)
battling hard for market share.
Package holidays were devised partly as a way of achieving high sales volumes and reducing unit
costs by allowing tour operators to purchase the different elements (flight, catering, accommodation
etc) in bulk, passing some of the savings on to consumers.
Low margins require high asset utilization - Estimates of tour operating margins vary, but fairly
low average figures - of the order of 5% (or around £22 on the typical holiday price of around £450)
are widely assumed in the mainstream segment of the market. It should however be noted that
vertically integrated holiday operators (where the tour operator also owns an airline and a travel
agency) will normally also generate profit from consumers. Accordingly, the gross margins on the
total operations of the integrated operators may be larger than those on their tour operation activities
alone.
Tour operators need to operate at high levels of capacity utilization (figures of the order of 95% or
more in terms of holidays sold) in order to maintain profitability. Matching capacity and demand is
therefore critical to profitability, especially since package holidays are perishable goods - a given
package loses all its value unless it is sold before its departure date.
Perishable goods markets require highly flexible production and distribution systems so that supply
and demand can be closely matched and ‘waste’ production minimized. But suppliers of package
holidays are severely hampered in precisely aligning capacity and demand. They need to ‘produce’
(i.e. contract for the necessary flights, accommodation etc) virtually the whole of what they expect
to sell a long time before it is ‘consumed’ (i.e. when the consumer departs for the holiday destination,
or at the earliest, when the consumer pays the bulk of the price – usually around 8 weeks before
departure).
Long-term management of capacity - Tour operators’ capacity plans, and the associated con-
tracts with hoteliers and airlines, are typically fixed 12-18 months ahead of the holiday season. Some
adjustments are possible after this date. However, within about 12 months of departure date, once
the booking season has begun (i.e. from about the summer of 2002 for departures in summer 2003)
the scope for changes is severely limited. This is due to the inflexibility of many commitments with
suppliers and the problems associated with changing dates, flights, hotels etc of customers who have
already booked.
Only by contracting for their expected needs well ahead of time, enabling suppliers to plan ahead, can
tour operators obtain a sufficiently low price to attract an adequate volume of profitable sales. Tour
operators therefore need to encourage early bookings. These improve cash flow – a substantial
deposit (usually around£100 per person, equivalent to around 25% of a typical short-haul holiday
price) is paid by consumers on booking; the balance is payable two months in advance of departure

(except, naturally, for ‘late’ bookings).
Tour operators also reduce the risk of unsold holidays, and the consequent need for discounting, later
on. Adding capacity is easier than reducing it during a season, although in some instances, e.g. where
a particular resort is proving especially popular, all suitable accommodation (and/or flights to the
relevant airport) will already have been reserved, at least for the peak period. But it is generally
difficult for tour operators to ‘unwind’ their contracts, especially those for air transport, without
substantial penalties. The tour operator, accordingly, bears almost all of the risk of any contracted
capacity remaining unsold.
The price mechanism - Faced with this limited ability to reduce output in the short-term (i.e. once
the brochures are published and the selling season has started), tour operators can, for the most part,
only try to match supply and demand via the price mechanism – in other words, by discounting once
it becomes clear that sales of their holidays appear unlikely to match the supply that they have
contracted.
The fixed costs of tour operation (mainly, the cost of the airline seat and most of the accommodation
and catering costs) make up a high proportion of total costs, so that relatively high levels of discount
can be applied if necessary to clear unsold stock. Reductions of up to 25% off the initial brochure
price are available on some ‘late’ sales – although consumers will often in such cases be required to
accept the operator’s choice of hotel, or even the resort, according to availability.
Discounting of holidays during this ‘lattés’ part of the selling season is a similar phenomenon to that
of ‘end of season stock clearance’ sales in other retail sectors (e.g. clothing). However the impact of
discounting on ‘latest’ in a normal season should be seen in the context of the operator’s turnover for
the season; it is effectively reduced by only about 5% (25% off 25% of holidays sold). Discounts (or
equivalent incentives such as ‘free child’ places or ‘free insurance’) for early purchase are also
offered, but they are much less significant both as to the amount of the reduction (5-10% appears
typical) and its impact on costs and turnover. About three-quarters of all package holidays typically
are sold at or close to the brochure price.
The fundamental rigidities in the market have important consequences for competition. They make
suppliers closely dependent on each other from a strategic, as well as a short-term, viewpoint. In
particular, any decision by a tour operator to try to increase market share by increasing capacity (i.e.
offering more holidays for sale) will lead to a fall in prices unless competitors reduce their share by an
equivalent amount by cutting capacity.
SUMMARY - Price – decisions and strategies
Price is a major element in developing an effective marketing strategy because it is the only compo-
nent of the marketing mix that directly generates revenue: all the others are costs. It is also the
marketing mix variable that can be changed most quickly. Price setting can be cost-oriented, com-
petitor-oriented or marketing oriented.
Despite the increased role of nonprime factors in modern marketing, price remains a critical element
of the marketing mix. Price is the only one of the four Ps that produces rev-enue; the others produce
costs. In setting pricing policy, a company follows a six-step pro-cedure. First, it selects its pricing
objective. Second, it esti-mates the demand curve, the probable quantities that it will sell at each
possible price. Third, it estimates how its costs vary at different levels of output, at different levels of
accu-mulated production experience, and for differentiated mar-keting offers. Fourth, it examines
competitors’ costs, prices, and offers. Fifth, it selects a pricing method. Finally, it selects the final
price.

Companies do not usually set a single price, but rather a pricing structure that reflects variations in
geographical demand and costs, market-segment requirements, purr- chase timing, order levels, and
other factors. Several price adaptation strategies are available: (1) geographical pricing; (2) price
discounts and allowances; (3) promotion. Pricing; (4) discriminatory pricing; and (5) product-m pric-
ing, which includes setting prices for product lint optional features, captive products, two-part items,
b products, and prod uct bundles.
After developing pricing strategies, firms often L1ce situations in which they need to change prices.
A pr! Decrease might be brought about by excess plant capacity declining market share, a desire to
dominate the mark through lower costs, or economic recession. A pri. Increase might be brought
about by cost inflation over demand
EXCERCISES
Multiple Choice
1. Many companies do not handle pricing well. They make some common mistakes. Which of the
following is not one of those mistakes?
Price is too cost oriented.
Price changes with demand.
Price is not revised often enough to capitalize on market changes
Price is not varied enough for different product items.
2. If the price is _______________ than the value received, the company will miss potential profits;
if the price is ___________ than the value received, then the company will fail to harvest potential
profits
Higher, lower
The same as, lower
The same as, higher
Lower, higher
3. When selecting the pricing objective, a company can pursue any of five major objectives. Which of
the following is not one of those objectives?
Survival
Maximize the current profits
Maximize their market share
All of the above are objectives
4. Market skimming makes sense for a company if each of the following conditions is in place except
which one?
A sufficient number of buyers have high current demand.
The unit costs of producing a small volume are not so high that they cancel the advantage of
charging what the traffic will bear.
The low price communicates the image of a superior product.
The high initial price does not attract more competitors to the market.
5. Customers prefer to work with customers who are fewer prices sensitive. Each of the following is
a factor associated with lower price sensitivity except which one?
The product is more distinctive.
Buyers are more aware of substitutes
Buyers cannot easily compare the quality of substitutes.
Buyers cannot store the product.

6. Most companies make some attempt to measure their demand curves. Which of the following is
one of the methods discussed?
Statistically analyze prices, quantities sold, and other factors to estimate their relationships
Set the prices at one price and leave the price there to see how it affects customers
Analyze advertising costs
Avoid asking customers what their purchasing demands might be
7. If the price of a product goes up or down and demand hardly changes, this would be called what
kind of demand
Elastic demand
Joint demand
Stretch demand
Inelastic demand
8. Which of the following is an example of a fixed cost that a business might incur in the production
of a product?
Materials included in the production of a product
The fluids used in the production of a product
Executive salaries
Hourly salaries
9. There are a number of risks involved in experience curve pricing. Which of the following is not a
risk involved in experience curve pricing?
The pricing might give the product a cheap image
It assumes competitors are strong.
The strategy leads the company into building more plants to meet demand while a competitor
innovates a lower cost technology and obtains lower costs than the market leader company
It assumes competitors are weak.
10. The process, used by the Japanese, where market research is conducted to establish a new
product’s desired functions and price and then the company tries to build to that price, less their
desired profit margin is called what?
Target costing
Goal costing
Level costing
Main costing
ESSAY QUESTIONS
Describe under what conditions market skimming makes sense for a company.
Describe how the “three Cs” affect the setting of prices
What are some examples of counter trade associated with geographical pricing?

Tutorial - J
Application Exercise – 1
Cadbury Schweppes Beverages India Ltd. Sold an estimated 2.8 million cases of soft drinks in 1996
(2% market share). The company introduced Sport Cola, a cola drink at Rs. 6 for a 300 ml bottle at
a time when Pepsi and Coke were selling at around Rs. 8 The Cola drink holds a major chunk of the
soft drinks market. The company spends most of the advertising budget on its non-cola brands.
Given the consumer segments for colas, the brand building strategies of leading brands in the
cola market, What is the importance of pricing in the Cola market? Explain the pricing strat-
egy of Sport Cola.
Madura Coats launched the Peter England brand covering around 100 towns ( five lakh plus out-
lets). The company has three successful brands – Louis Philippe, Van Heusen and Allen Sally.
Peter England was launched in the range of Rs. 355 to 455. The Indian market for readymade shirts
is around 60 million and around a million are in the mid-priced segment. Peter England’s target
consumer is urban males in the 25 plus age group in SEC A2, B and C households
Collect information on readymade shirt market to define low, medium and high price ranges.
Explain how Peter England is associated with value pricing.
The pen market in India is around Rs. 450 crores and 60 to 65% of the market belongs to ball pens.
Growth is in the range of 20% every year. The Reynolds brand created a kind of revolution by
bringing in an offering priced higher than a number of brands which existed at that time and also
offered reliability and flow much superior to its competing brands. The brand is a leader. Rotomac
was a follower brand priced below Reynolds and it has become a Rs. 50 crore brand. The brand also
provided a “secondary” differentiation by introducing a number of colors.
Explain the pricing strategy of Rotomac and its relevance to this situation.
The soap market in India has seen a proliferation of bands in recent times. There are various kinds of
segments – economy value , premium, mid-price and super-premium. Dave have positioned itself as
a moisturizing bar with a high premium in he soap market. Ponds also has a moisturizing cream
based sop at a much lesser price. Dove during its initial launch used attractive models to convey the
proposition. In recent times, it is using a “common man” appeal ( the user in the TV commercial is a
lady who looks like a regular consumer who says she does not have much time to care for her
complexion and that Dove is effective). Ponds does not seem to have created a high visibility about
its offering.
Examine the pricing approach of Pond’s with an explanation on how it is relying on other
marketing mix elements to support pricing ?
American express has launched credit cards in India . The target segment for these cards are
consumers who can earn over Rs. 1 Lakh p.a. The interest rate on outstanding payment is 1.99 per
cent per month . The annual fee for the card is Rs.995 . The company charges 1.45 per cent as
interest on outstandings for the first six months . There are also benefits like access to American
Express membership Rewards Programme , free travel insurance and 24-hours customer services .
Given your understanding of pricing methods , explain the pricing method used by American express
and also explain the logic behind it.

Unit 4
Delivering Marketing Programs
Chapter 13 - Distribution Decisions and Strategies
Lesson 37 - Marketing through channel partners
Students we will discuss yet another component You can describe distribution as
of marketing mix i.e. Distribution. This chapter follows :-
will help you know the importance and the pro-
cess of distribution in the marketing process :- A channel of distribution comprises a set of
institutions which perform all of the activities
More specifically it will help you know the fol- utilised to move a product and its title from
lowing production to consumption.
You will know why companies use distribu-
tion channels and understand the functions We define a value network as follows:
that these channels perform. A value network is a system of partnerships and
You will learn how channel members inter- alliances that a firm creates to source, augment,
act and how they organize to perform the and deliver its offerings
work of the channel.
Marketing channels are sets of interdependent
You will know the major channel alternatives organizations involved in the process of making a
that are open to a company. product or service available for use or consump-
tion!
You will Know concept and different forms
of retailing and wholesaling. Marketing-channel decisions are among the most
You will comprehend how companies se- critical decisions facing management. The chan-
lect, motivate, and evaluate channel member nels cho-sen intimately affect all the other mar-
keting decisions. The company’s pricing depends
You will understand the nature and impor- on whether it uses mass-merchandisers or high-
tance of marketing logistics and integrated quality boutiques. The firm’s sales force and ad-
supply chain management You are already vertising decisions depend on how much training
familiar that distribution is the place element and motivation dealers need. In addition, the
of the marketing mix. Products need to be company’s channel decisions involve relatively
available in adequate quantities, in convenient long-term commitments to other firms. When an
locations and at time when customers want automaker signs up independent dealers to sell
to buy them. Producers need to consider not its automobiles, the automaker cannot buy them
only the needs of their ultimate customer but out the next day and replace them with. Com-
also the requirement of channel intermediar- pany -owned outlets.
ies, those organisations who facilitate the dis-
tribution of products to customers. The choice Marketers, for their part, have traditionally fo-
of the most effective channel of distribution cused on the side of the value network that looks
is an important aspect of marketing strategy. forward toward the customer. Hopefully, they will

increasingly participate in and influence their competitive advantage

panies’ upstream activities and become network Channel decisions involve long-term commit-
managers, not only product and customer man- ments to other firms
agers. Most producers do not sell their goods di-
rectly to the final users; between them stands a More specifically, producer do gain several ad-
set of intermediaries performing a variety of func- vantages by using intermediaries:
tions. These intermediaries constitute a market-
ing channel (also called a trade channel or distri- A marketing channel performs the work of mov-
bution channel). ing goods from producers to con-sumers. It over-
comes the time place, and possession gaps that
Some intermediaries-such as wholesalers and separate goods and ser-vices from those who need
retailers-buy, take title to, and resell the merchan- or want them. Members of the marketing chan-
dise; they are called merchants. Others-brokers, nel perform a number of key functions:
manufacturers’ representatives, sales agents- They gather information about potential and
search for customers and may negotiate on the current customers, competitors, and other
producer’s behalf but do not take title to the goods; actors and forces in the marketing environ-
they are called agents. Still others-transportation ment.
companies, inde-pendent warehouses, banks, They develop and disseminate persuasive
advertising agencies-assist in the distribution pro- communications to stimulate purchasing.
cess but nei-ther take title to goods nor negotiate They reach agreements on price and other
purchases or sales; they are called facilitators. terms so that transfer of ownership or pos-
session can be effected.
They place orders with manufacturers.
They acquire the funds to finance invento-
ries at different levels in the marketing chan-
nel
They assume risks connected with carrying
out channel work.
They provide for the successive storage and
movement of physical products.
They provide for buyers’ payment of their
MARKETING THROUGH bills through banks and other financial insti-
CHANNEL PARTNERS tutions
Students the most basic question to ask when
deciding channel strategy is whether to sell di- They oversee actual transfer of ownership from
rectly to the ultimate customer, or to use channel one organization or person to another.
intermediaries such as retailers and/or wholesal-
ers.
KNOWING THE NATURE &

IMPORTANCE OF MARKETING
CHANNELS
Can you highlight the importance of using inter-
mediaries .?
In brief the following highlights the importance

of marketing channels :-
Channel choices affect other decisions in the
marketing mix
Pricing, Marketing communications etc.
A strong distribution system can be a com-

Students can you identify the flows here ?

All channel functions have three things in com-
Some functions (physical, title, promotion) con-
mon:
stitute a forward flow of activity from the com-
pany to the customer; other functions (ordering They use up scarce resources;
and payment) constitute a backward flow from they can often be performed better through
customers to the company. Still others (informa- specialization;
tion, negotiation, finance, and risk tak-ing) occur and they can be shifted among channel mem-
in both directions. Five flows are illustrated in the bers.
above figure for the marketing of forklift trucks. When the manufac-turer shifts some functions
If these flows were superimposed in one diagram, to intermediaries, the producer’s costs and prices
the tremendous complex-ity of even simple mar- are lower, but the intermediary must add a charge
keting channels would be apparent. A manufac- to cover its work. If the intermediaries are more
turer selling a physi-cal product and services might efficient than’ the manufacturer, prices to con-
require three channels: a sales channel, a de- sumers should be lower. If con-sumers perform
livery channel, and a service channel. some functions themselves, they should enjoy
even lower prices.
The question is not whether various channel func-
tions need to be performed-they must be-but Marketing functions, then, are more basic than
rather, who is to perform them. the institutions that perform them at any given
time. Changes in channel institutions largely re-
flect the discovery of more
WHAT ARE CHANNEL LEVELS

The producer and the final customer are part of (4) to dispose of products and packaging (waste
every channel. We will use the number of inter- products )
mediary levels to designate the length of a chan-
nel. The figure illustrates several consumer-goods Several intermediaries play a role in reverse-flow
marketing channels of different lengths. channels, including manufactur-ers,’ redemption
centers, community groups, traditional interme-
A zero-level channel (also called a direct-mar- diaries such as soft-drink intermediaries, trash-
keting channel) consists of a manufacturer sell- collection specialists, recycling centers, trash-re-
ing directly to the final customer. The major ex- cycling bro-kers, and central-processing ware-
amples are door-to-door sales, home par-ties, mail housing.
order, telemarketing, TV selling;-Internet selling,
arid manufacturer-owned stores- Avon sales rep- Service sector channels.
resentatives sell cosmetics door-to-door; The concept of marketing channels is not limited
Tupperware representatives sell kitchen goods to the distribution of physical goods. Producers
through home parties; of services and ideas also face the problem of
making their output available and accessible to
A one-level channel contains one selling inter- target populations. Schools develop “educational-
mediary, such as a retailer. dissemination sys-tems” and hospitals develop
“health-delivery systems.” These institutions must
A two level channel contains two intermediar-
figure out _agencies and locations for reaching a
ies. In consumer markets, these are typically a
population spread out over an area.
wholesaler and a retailer
Hospitals must be located in geographic space to
A three-level channel_ contains three
serve the people with com-plete medical care,
intermediaries.e.g., food distribution may involve
and we must build schools close to the children
as many .as six levels , there can be many bro-
who have to learn. Fire stations must be located
kers and agents involved . From the producer’s
to give rapid access to potential conflagra-tions,
point of view, obtaining information about end
and voting booths must be placed so - that people
users and exercising control becomes more diffi-
can cast their ballots without expending unrea-
cult as the number of channel levels increases.
sonable amounts of time, effort, or money to reach
The figure also shows channels commonly used the. polling stations. Many of our states face the
in industrial marketing. An industrial- goods manu- problem of locating branch ‘cam-puses to serve
facturer can use its sales force to sell directly to a burgeoning and increasingly well educated popu-
industrial customers; or it can sell to industrial lation. In the cities we must create and locate
distributors, who sell to the industrial customers; playgrounds for the children. Many overpopu-
or it can sell through manufacturer’s representa- lated countries must assign birth control clinics to
tives or its own sales branches directly to indus- reach the people with con-traceptive and family
trial customers, or indirectly to industrial custom- planning information.
ers through industrial distributors. Zero-, one-, and
As Internet technology advances,’ _service in-
two -level marketing channels are quite common
dustries such ‘as banking, insurance, travel, and
in industrial marketing channels.
stock buying and selling will take place through
Channels normally describe a forward movement new channels,
of products from source to user. One can also Information highway channels
talk about reverse-flow channels. They are
important in the following cases: There was a time when information could only
be passed from mouth to mouth, or by posters, or
(1) to reuse products or containers (such as re-
by mail.
fillable chemical-carrying drums);
(2) to refurbish . ,products (such as circuit boards Each information channel was originally designed
or computers) for resale; to carry one type of information. Telephone car-
(3) to recycle products (such as paper ) ried voice, cable networks carried video program-
ming, ATMs carried data.. Today, there is a ma-

jor drive to expand bandwidth so that these chan- Do you know what are push and pull strate-
nels can effec-tively carry data, voice, video, gies ?
and text. The rapid growth of the Internet,
extranets, and intranets has created a huge de- Push strategy
mand for information channel capacity. Copper A push strategy involves the manufacturer us-
wires have too limited a bandwidth, so much hope ing its sales force and trade promotion money to
lies in expanding the carrying capacity of fiber induce intermediaries to carry, promote, and sell
and in wireless transmission. These conditions the product to end users. Push strategy is appro-
have initiated fresh marketing challenges. priate where there is low brand loyalty in a cat-
egory, brand choice is made in the store, the prod-
uct is an impulse item, and product benefits are
well understood.
Pull strategy
A pull strategy involves the manufacturer using
advertising and promotion to induce consumers
to ask intermediaries for the product, thus induc-
ing the intermediaries to order it. Pull strategy
_is appropriate when there is high brand loyalty
and high involvement in the category, when people
perceive differ-ences between brands, and when
people choose the brand before they go to the
store. Companies in the same industry may dif-
fer in their emphasis on push or pull.
WHAT ARE CHANNEL DESIGN
DECISIONS? There are six basic ‘channel’ decisions:
You will understand that a new firm typically 1. Do we use direct or indirect channels? (e.g.
starts as a local operation selling in a limited ‘direct’ to a consumer, ‘indirect’ via a whole-
market, using existing intermediaries. The saler)
number of intermediaries in any local market is 2. Single or multiple channels
apt to be limited: a few manufacturers’ sales 3. Cumulative length of the multiple channels
agents, a few wholesalers, several established 4. Types of intermediary (see later)
retailers, a few trucking companies, and a few 5. Number of intermediaries at each level (e.g.
warehouses. Deciding on the best channels might how many retailers in Southern Spain).
not be a problem. The problem might be to con- 6. Which companies as intermediaries to avoid
vince the available intermediaries to handle the ‘intrachannel conflict’ (i.e. infighting between
firm’s line. local distributors)
If the firm is successful, it might branch into new How to Design a channel system ?
markets. It might have to use dif-ferent channels Can you attempt to describe the process of de-
in different markets. In smaller markets, the firm signing a channel system ?
might sell directly to retailers; in larger markets,
it might sell through distributors. In rural areas, it Following four steps help design a channel sys-
might work with general-goods merchants; in tem :-
urban areas, with limited-line merchants. In one 1. Analyzing customer needs
part bf the country, it might grant exclusive fran- 2. Establishing channel objectives
chises; in another, it might sell through all outlets
3. Identifying major channel alternatives
willing to handle the merchandise
4. Evaluating major channel alternatives
In managing its intermediaries, the firm must de-
cide how much effort to devote to push vs. pull
1. Analyze Customers’ Desired
marketing
Service Output Levels

It is imperative for you to understand that in chinery and specialized business forms, are sold
designing the marketing channel, the marketer directly by company sales representatives. Prod-
must understand the service output levels de- ucts requiring installation or maintenance services,
sired by target customers. Channels produce five
service outputs 3. Identify Major Channel
Alternatives
Lot size : The number of units the channel per- Companies can choose from a wide variety of
mits a typical customer to purchase on one occa- channels for reaching customers-from sales
sion, customers normally prefer fast delivery forces to agents, distributors, dealers, direct mail,
channels. telemarketing, and the Internet. Each channel has
unique strengths as well as weaknesses. Sales
Waiting time : The average time customers of
forces can handle com-plex products and trans-
that channel wait for receipt of the goods.
actions, but they are expensive. The Internet is
Spatial convenience : The degree to which the much less expen-sive, but it cannot handle com-
marketing channel makes it easy for customers plex products. Distributors can create sales, but
to purchase the product the com-pany loses direct contact with custom-
ers.
Product variety: The assortment breadth pro-
vided by the-marketing channel. Normally, cus- The problem is further complicated by the fact
tomers prefer a greater assortment because more that most companies now use a mix of channels.
choices increase the chance of finding what they Each channel hopefully reaches a different seg-
need. ment of buyers and delivers the right products to
each at the least cost. When this does not hap-
Service backup: The add-on services (credit, pen, there is usually channel conflict and exces-
delivery, installation, repairs) provided by the chan- sive cost.
nel. The greater the service backup, the greater
the work provided by the channel A channel alternative is described by three
elements
2. Establish Objectives and i. : the types of available business inter-
Constraints mediaries,
Students ,the next logical step is to establish
objectives and constraints .Channel objectives ii. the number of intermediaries needed, and
should be stated in terms of targeted service out- Exclusive distribution
put levels under competitive conditions, channel Exclusive dealing
institutions should arrange their functional tasks Selective distribution
to minimize total channel costs with respect to Intensive distribution
desired levels of service outputs Usually, several
market segments that desire differing service iii. the terms and responsibilities of each chan-
output levels can be identified. Effective plan- nel member.
ning requires determining which market segments
Price policy
to serve and the best channels to use in each
Conditions of sale
case.
Distributors’ territorial rights
Channel objectives vary with product character-
istics. Why and how they vary ? Can you ex- 4. Evaluate the Major Alternatives
plain ? Perishable products require more direct (time, cost, image parameters particularly)
marketing. Bulky products, such as building ma- Economic criteria—sales versus costs
terials, require channels that minimize the ship- Control and adaptive criteria—degree of in-
ping distance and the amount of handling. Non termediary commitment
standardized products, such as custom-built ma-

Students we are through with channel portant role in marketing channels and supply
design process . Here is something which chains. As we enter the 21st century, wholesale
you would find interesting …………. distribution remains an important force in mar-
ket-oriented economic systems. In the United
APPLICATION EXERCISE : States, wholesale distribution contributes 7 per-
cent of U.S. national income and accounts for
Review the following article. Discuss one in every 20 US jobs.
the key points.
Online ordering will be adopted slowly. Custom-
ers will adopt new e-business technologies when
it benefits them and limit technology usage when
the technology does not help them. In Facing the
Forces of Change: Future Scenarios for Whole-
sale Distribution, we found that the percentage
of orders received on-line will grow substantially,
Managing Channels for Results but not overtake more traditional methods within
the next five years. In other words, the phone,
MANAGING CHANNELS FOR RESULTSIn fax and sales rep will remain common modes of
today’s fast changing environment, supply chain order placement in B2B channels despite the
management is assuming growing importance. Internet and other new technologies.
Adam J. Fein analyses the macro trends of the The distribution sales force will be under increas-
SCM industry and suggests strategies for suc-
ing pressure. As customers begin to educate them-
cess in channel marketing.
selves by relying on the manufacturer for prod-
Supply chains and marketing channels are being uct information, the value of a distributor’s sales
redrawn as e-business, consolidation, and power force is being reduced in the eyes of customers.
retailers alter the relationship between manufac- Today, customers and purchasing managers are
turer, distributor and customer. This evolution is increasingly using the Internet to bypass sales
much more complicated that the naïve predic- channels and directly gather product specifica-
tions that distributors would be “disintermediated” tions, warranty and rebate information, material
as customers and manufacturers established di- safety data sheets, and potential suppliers.
rect relationships. But how can manufacturers
Manufacturers will explore new distribution op-
best leverage their existing marketing channels
tions. Third-party logistics providers, who have
to grow sales in this era of uncertainty?
traditionally been package-handling enterprises,
Every three years, the National Association of
are moving “inside the box” by offering product-
Wholesaler-Distributors sponsors a major trend
handling services such as warehouse manage-
study titled Facing the Forces of Change that
ment, order processing, pick/pack/ship, just-in-
examines the future of distribution channels. The
time parts delivery, and many other “wholesale
most recent edition, written by Pembroke Con-
distribution” functions. Manufacturers are also
sulting, sheds lights on strategies for manufac-
turning to logistics companies to provide “master
turers who still need the services of an indepen-
distribution” services to the highly fragmented
dent distributor or dealer channel.
industrial distribution channel.
We found e-business is a powerful tool for in-
creasing market share in business-to-business Manufacturer-Distributor relationships will evolve.
industries, particularly for manufacturers that rely Manufacturers and distributors continue to rely
on intermediaries to reach end-customers. How- on each other’s actions and resources. Simulta-
ever, e-business also calls for rethinking traditional neously, each side struggles to maintain autonomy
approaches to channel management. and control over its own operations in this era of
dynamic uncertainty. This mutual dependency
Macro Trends
creates conflicts about direction, strategy, and
Here are seven of the most important channel commitments. The trends highlighted above sug-
trends identified in our study: gest a more uncertain era for manufacturer-dis-
Wholesaler-distributors will continue play an im- tributor relationships.

Strategies for Success offers a lower price.

Manufacturers can profit from new developments
The successful evolution and transformation of a
in channel marketing with three interrelated strat-
go-to-market channel occurs in response to
egies.
changes in the requirements of customers. By
1. Understand the End-Customer’s developing early partnerships with the best chan-
Buying Process nel in the eyes of end-customers, manufacturers
can better leverage their resources and meet the
Too many manufacturers remain insulated from
needs of more powerful and demanding custom-
customers by channel relationships. Reaching all
ers.
but the largest customers requires manufactur-
ers to cede responsibility for sales and fulfillment Manufacturers need to under-stand how end-user
to distributors and other intermediaries. Manage- customers buy and want - not just which prod-
ment at industrial and technology companies fur- ucts they buy or who they are. This requires re-
ther heightens their isolation from the marketplace search and insight about the “how” of product
by devoting their energies to designing top-qual- selection, not simply the “what” decision. Prod-
ity products without regard to the process by ucts are a means to an end in the eyes of a buyer.
which customers purchase and use the product. Product satisfaction surveys and feature/function
market research miss the behavioral trends that
Manufacturers must understand their end-user’s
provide clues to the evolving channel.
current and future purchasing priorities in order
to generate market share gains from new tech- 2. Restructure the Economics of
nologies. What’s more, e-business and channel Your Channel Partners
investments will be squandered and unproduc-
E-business is unbundling channel activities by giv-
tive without a clear understanding of what end-
ing customers lower cost, higher service alterna-
customers require from the buying process –
tives to the sub-components of traditional go-to-
beyond a first-rate product.
market. Unbundling requires new approaches to
Consider the changes in business procurement. channel compensation.
During the past 10 years, business customers have
For example, the Internet overcomes traditional
focused on improving efficiencies in their inbound
cost limitations of geography, time, or number of
supply chain by consolidating supply contracts,
customers, giving manufacturers an affordable
implementing integrated supply agreements, in-
way to take greater control over the information
stalling e-procurement systems, experimenting
(not product) flow to the customer. This repre-
with reverse auctions, and rationalising vendors.
sents a shift from the era when smaller custom-
To respond, manufacturers must identify the win- ers would rely more heavily on a local sales rep
ning channels and partner with them to retain to get technical and business help.
access to customers. The winner might be a dis-
These developments create an opportunity for
tribution intermediary with sophisticated transac-
manufacturers to redefine traditional channel
tional services, such as electronic data inter-
economics because the value of a distributor’s
change and e-procurement support. Or the win-
sales force is reduced in the eyes of customers.
ner could be an integrated e-procurement ven-
The challenges to traditional channels are not
dor who controls access to customers.
online exchanges or direct-buy strategies. Instead,
The key to picking the winners comes from truly our research shows that e-business squeezes
understanding the way in which end-customers channel profits as some, but not all, functions are
procure your products. For example, customers shifted away from the traditional channel. Either
in business-to-business channels face enormous overhead shrinks or distributors must find other
organisational costs for procurement, purchasing ways to justify their gross margin.
and inventory maintenance. A distributor or chan-
When this transition has occurred in channels such
nel that lowers a customer’s total cost of acqui-
as pharma-ceuticals or automobiles, channel
sition is generally preferred over one that simply
margins drop since the intermediary is adding less

value. Yet our research shows that busi-ness Here are a few specific questions to begin a quali-
customers are reluctant to migrate their entire tative evaluation of e-business with a channel
purchasing process to a direct on-line relation- partner:
ship if it means sacrificing local service, techni-
cal support, or complex fulfillment requirements. What plans do you have for upgrading your tech-
nology systems?” Establishing and maintaining
Manufacturers can manage the fragmenting roles technology is costly. Many smaller distributors do
of their traditional channel using functional dis- not have the available capital to make the needed
counts programs. In a functional discount pro- investments in technology or to build private ex-
gram, distributors are compensated so that pay- changes for their manufacturers. For others, the
ments (discount off list) are tied to the actual initial investment, along with the integration and
activities being performed by the channel. ongoing maintenance, negates the benefits of
communicating electronically with suppliers.
Customers, not manufacturers, are best positioned
to determine the value provided by their channel. *How will we work together to avoid disappoint-
That’s another reason that deep insight about ending customers”? A customer will expect a seam-
customer behavior becomes invaluable to imple- less experience when interacting with systems
menting an e-business strategy. that link distributors and manufacturers. This in-
teraction raises the stakes, because customer
3. Lead from the Top management and inventory systems must be
Manufacturers stand at the top of the supply chain seamlessly integrated across the channel. This
and can use a variety of sales, marketing, and complexity of operations and interactions creates
physical distribution systems to connect their prod- increased opportunities to perform below a
ucts with customers. Therefore, they are well customer’s expectations. Develop knowledge of
positioned to evaluate the business needs of their customer’s buying preferences to help design
distribution channel partners before implement- these systems for a sales channel.
ing new technologies and programs. Technology
link-ages in the channel must benefit customers *What are your future strategic objectives?”
as well as demonstrate a clear return on invest- A critical part of channel evaluation is an assess-
ment for distributors and dealers. ment of distributor and dealer growth plans. Not
all distributors and dealers will want to grow. For
Leadership begins by knowing your channel part- those that do, the desire to grow starts with se-
ners and assessing their competencies and per- nior management and permeates the company’s
formance. Yet we freq-uently encounter indus- business practices, service culture and compen-
trial manufacturers with e-business and channel sation plans. Growth plans must be realistic, re-
management initiatives but without formal dis- flecting the investments and skills required to sell
tributor evaluation programs. new products or to sell to new customers. Deal-
ers and distributors must be able to articulate the
Evaluations should be conducted yearly and in- reasons why a customer buys from them and
clude both quantitative and qualitative assess- have a clear plan for how technology fits into
ments. Quantitative measures can include the their company.
distributor’s purchase patterns, pricing abilities,
and market share. Qualitative assessment can Business relationships between manufacturers
include the strength of the distributor’s manage- and distributors are not altruistic, nor should they
ment, the effectiveness of their growth plans, and be. A strategic perspective on evolving channel
overall customer experience they offer. systems will create a better and more effective
go-to-market strategy.

Points to remember

Unit 4
Lesson 38 - Wholesalers And Retailers, Current Trend
Students in the previous lesson we have studied Let us study how retailers are classified:
about channel design .In this chapter we will study Students I will just highlight in brief the
the importance and structure of two popular in- classifications . Why don’t you give me
termediaries involved in distribution function- examples of the same .?
Retailers and Wholesalers
1. Amount of service
WHAT IS RETAILING ? Self-service retailers
All of you are familiar with retailing process . Customers are willing to self-serve to save
You have bought so many things so many times money
as consumers . Let us understand the marketers Discount stores
perspective to retailing : Limited-service retailers
Retailing includes all the activities involved in
Most department stores
selling goods or services directly to final con-
sumers for personal, non business use. A retailer Full-service retailers
or retail store is any business enter-prise whose Salespeople assist customers in every aspect
sales volume comes primarily from retailing. of shopping experience
High-end department stores
Any organization selling to final consumers-
whether it is a manufacturer, whole-saler, or re- Specialty stores
tailer-is doing retailing. It does not matter how
2. Product lines
the goods or services are sold (by person, mail,
Specialty stores
telephone, vending machine, or Internet) or where
they are sold (in a store, on the street, or in the Narrow product lines with deep assortments
consumer’s home).
Department stores
Therefore, Wide variety of product lines
Retailer - Business whose sales come primarily

Supermarkets
from retailing.
WHAT ARE DIFFERENT TYPES OF Convenience stores

RETAILERS ? Limited line
1. Amount of service
2. Product lines Superstores
3. Relative prices Food, nonfood, and services
4. Organizational approach
Category killers
Giant specialty stores

3. Relative prices the target market is defined and profiled , the

Discount stores retailer cannot make consistent decisions on prod-
Low margins are offset by high volume uct assortment , store décor, advertising messages
and media, price, and service levels.
Off-price retailers
2. Product assortment,
Don’t you expect your grocer to stock every-
Independent off-price retailers
thing you need ? The retailer’s product assort-
ment must match the target market’s shopping
Factory outlets expectations. The retailer has to decide on prod-
uct assortment- breadth and depth . The chal-
Warehouse clubs lenge is to develop a product-different ion strat-
egy.
4. Organizational approach The store can adopt the following options :-

Corporate chain stores Feature exclusive national brands that are not
Commonly owned / controlled available at competing retailers
Feature blockbuster distinctive merchandise
Voluntary chains events
Wholesaler-sponsored groups of independent Feature surprise or ever-changing merchan-
retailers dise
Feature the latest or newest merchandise first
Retailer cooperatives Offer merchandise customizing services
Groups of independent retailers who buy in Offer a highly targeted assortment
bulk
3. Service mix and Store’s
atmosphere
Franchise organizations
Based on something unique You want to be treated well when you shop ?
Is it not ? Therefore the retailers must also
decide on the service mix to offer customers
Merchandising conglomerates
Pre-purchase services- accepting telephone
Diversified retailing lines and forms under
and mail orders, advertising, window and in-
central ownership
terior display , fitting rooms , shopping hours,
fashion shows, trade ins.
WHAT ARE VARIOUS RETAIL
Post purchase include – shipping and deliv-
MARKETING DECISIONS ? ery ,gift wrapping , adjustments and returns,
Let us study various marketing decisions affect- alterations and tailoring ,installations, engrav-
ing the retail business :- ing.
Target marketing and positioning Ancillary services –general information ,
Product assortment, check cashing , parking , restaurants , repairs
Service mix, store’s atmosphere etc.
Price
4. Price
Promotion
Place (location) Prices are a key positioning factor and must be
decided in relation to the target market, the prod-
uct and service assortment mix and competition.
Let us discuss in detail each of these .
All retailers would like to achieve high volumes
1. Target Marketing and and high gross margins. Retailers must also pay
Positioning attention to pricing tactics. Most retailers will put
low prices on some items to serve as traffic build-
Like other marketing activities, retailing too is
ers or loss leaders. They will run storewide sales
concerned with defining its target market. Until

. They will plan marks down on slower –moving APPLICATION EXERCISE :

merchandise .
Review the following article. Bring out the
5. Promotion key points. Discuss your points of
Retailers use a wide range of promotion tools to agreement and disagreement
generate traffic and purchases.
Promotion methods include :-
Ads
Special sales
Money saving coupons
Sample distribution etc.
6. Place
Location is often described as the most success- Retailing in India: Are you game for
ful strategy for retailing. Retailers can locate it!!!!!
their stores in the
They say ‘If you aren’t in IT or entertainment,
central business district, you ought to be in retailing. Or you’re miss-
a regional shopping center , ing the boom times altogether.’
a community shopping center
In India, the retail sector is the second largest
DO YOU KNOW THE TRENDS IN employer after agriculture. The retailing sector
RETAILING ? in India is highly fragmented and predominantly
consists of small independent, owner-managed
Let us know look at what are the trends in retail
shops. There are some 12 million retail outlets in
business and the main developments retailers and
India. Besides, the country is also dotted with
manufacturers need to take into account in plan-
low-cost kiosks and pushcarts. In 2001, organised
ning competitive strategies
retail trade in India was worth Rs11,228.7 billion.
1. New retail forms and combinations
2. Growth of intertype competition. There has been a boom in retail trade in India
3. Growth of giant retail owing to a gradual increase in the disposable in-
4. Growing investment in technology comes of the middle class households. More and
5. Global presence of major retailers more players are coming into the retail business
6. Selling an experience, not just goods in India to introduce new formats like malls, su-
permarkets, discount stores, department stores
Non store retailing – Categories and even changing the traditional looks of book-
stores, chemist shops, and furnishing stores.
Direct selling There are no hypermarkets in the country as yet.
Direct marketing
More so, a billion people in overall population leads
Telemarketing to very large numbers. While the middle class
may not be as big as expected, it could still add
Television direct-response marketing up to say the sizeable number.
Electronic shopping Food sales constitute a high proportion of total

retail sales. The share was 62.7% in 2001, worth
Automatic vending approximately Rs7,039.2 billion in 2001 while non-
Buying service
food sales were worth Rs4189.5 billion. How-
ever, the non-food retailing sector registered faster
Let us have a look at something interesting year-on-year growth than food sales.
………..

Retail Infrastructure improve margins. The turnover from private la-

In 2001, there were an estimated 11.2 million re- bels by major retail chains was estimated at
tail outlets in the country. The concept of retail- around Rs 1200 million in 2001.
ing chain stores is at a very nascent stage in In-
In urban India, families are experiencing growth
dia. Organized retailing represent a small frac-
in income and dearth of time. More and more
tion of the Indian retail market. However, these
women are also turning to corporate jobs, which
modern formats are showing robust growth as
is adding to the family income but making
several retail chains have established a base in
lifestyles extremely busy. Rising incomes has led
metropolitan cities, especially in south India, and
to increasing demand for better quality products
are spreading all over India at a rapid pace.
while lack of time has led a demand for conve-
Total retail sales area in India was estimated at nience and service. The demand for frozen, in-
328 million sq m in 2001, with an average selling stant, ready-to-cook, ready-to-eat food has been
space of 29.4 sq m per outlet. This trend towards on the rise, especially in the metropolitan and large
larger outlets is leading to a rise in average retail cities in India. There is also a strong trend in
space. However, space and rentals are proving favour of one-stop shops like supermarkets and
to be the largest constraints to development of department stores.
large formats in metropolitan cities, since retail-
ers are aiming the prime locations.
Competitive Environment
Bata India Ltd is one of the largest retailer, with
The mid 1990s marked the arrival of new, well- 1600 footwear stores spread across the country,
endowed malls and shopping centres, which are and a retail turnover of Rs6 billion in 2001. With
spacious, airy and equipped with modern ameni- almost a monopolistic presence in the organised
ties. They have big label stores as well as in- footwear market until the 1980s, Bata is synony-
house eateries and entertainment zones. Each mous with footwear in middle-class India. The
mall typically has an anchor, which occupies a stores retail mainly Bata products, with a mar-
sizeable percentage of the total usable area. The keting arrangement with Lotto and Nike as well.
anchor is expected to attract a variety of con-
sumers and hence is the key to increasing foot Spencer & Co Ltd another large retail group in
traffic. the country, with interests in supermarkets, mu-
sic stores and the beauty and health chain, Health
The number of large mega-malls is expected to & Glow. However, each retail business at the
increase significantly as India is now experienc- time of writing was run as a separate entity.
ing a “mall boom”. Shopping malls is set to one Foodworld is operated by Foodworld Supermar-
of the most visible faces of the Indian retail scene kets Ltd, while Health & Glow by RPG Group.
by the end of 2002. According to estimates apart
from the metropolitan and larger cities, as many The K Raheja-run department store chain, Shop-
as 50 new malls will be coming up by 2005 in the pers Stop, is the second largest fascia in the coun-
smaller cities as well. try with retail sales of Rs2.7 billion in 2001. The
real estate development group has converted its
Key Developments in Retailing retailing operation into an Indian success story. It
100% foreign direct investment (FDI) in the re- has also acquired the Crossword chain of book-
tailing sector is not permitted yet, in order to pro- stores.
tect the interests of the small retailers. There is a
Another strong retailer is Subhiksha, whose dis-
strong lobby of small traders that has been vocal
counters and chemists/druggist chain is very popu-
on the issue of not permitting FDI into retail. The
lar in South India.
lobby is based on the premise that modern retail
will impact the livelihood of millions of small fam- Retail Forecasts
ily-run businesses.
The retail business is expected to reach
The trend to market private labels by a specific Rs19,069.3 billion by 2006, with further growth
retail chain is catching on in India as it helps to of organised retailing, in both food and non-food

segments. The proportion of sales through cial markets and most importantly the highest ever
organised retailing is estimated to increase to FDIs, the retail industry analyst estimate a growth
around 6% by 2010. of 15-20% per annum in the organised retail sec-
tor. The Indian Retail Council formed in this re-
There is already a strong trend in favour of large spect in 2000, under the auspices of the Confed-
format retail outlets, in both food and non-food eration of Indian Industry (CII), is active in lob-
sectors, as people are showing preference for bying for the industry. Until then, retailing had
one-stop shops. Customers are also looking for not been considered as an industry, and there were
ambience and convenience in shopping. This only traders associations at the local levels. In
would continue more strongly in the forecast pe- the coming years we can expect to see maxi-
riod. In the future, with more dual income fami- mum action in three areas — apparel and cloth-
lies, the consumer ability to spend will increase, ing, food retailing and entertainment. This is also
but at the same time, it is predicted that the time evident from the current mall developments in
available for shopping will go down. In such a pipeline not only in Indian metros but also in up-
scenario, the retailers will have to increasingly coming satellite towns such as Noida, Gurgaon,
develop shopping as an experience and at the Pune, Navi Mumbai, Bangalore, and Hyderabad.
same time, the more successful ones will be those The other areas — consumer durables, music,
that provide faster service. furniture and books — would definitely see the
growth but on a slower pace. The key drivers for
Retail rush this projection, according to analysts, are increas-
ANUJ PURITIMES NEWS NETWORK ing disposable income amongst the huge urban
[ SUNDAY, NOVEMBER 30, 2003 12:31:47 middle class, change in the family structures, more
AM] exposure to the media, new entrants, and devel-
Gone are the days when shopping used to be a opment of supply chain. Too many regulations,
tiring experience — running from pillar to post in high bureaucracy, labour laws, high taxation, in-
search for specifics. Now it has become an out- adequate infrastructure have acted as major ob-
ing for the entire family of a typical Indian house- stacles for the entry of global players. The econo-
hold. Indian consumers now can fulfil their needs mies of scale are difficult to achieve in this in-
and desires under one roof. Modern organised dustry with a general norm of at least five to seven
retail in India, even though in its nascent stage years for break even. The Indian players would,
(only 2% of the entire retail market), has come a therefore, have to adopt a penetration strategy
long way — from singly focused and multifac- (expansion of the target market and brand pro-
eted shops to sprawling shopping centers, super- motion), positioning and experimenting with dif-
markets, multi-storied malls and entertainment ferent locations to survive and stay in the com-
complexes. One can understand the tremendous petition by entering and establishing their formats
opportunities present in this sector by comparing in ‘B’ and ‘C’ class Indian cities. However, the
the sales of biggest Indian private retail company benefits of organised retailing would be felt once
RPG with that of Wal-Wart of the US. Accord- an equitable scale is achieved. This depends on
ing to industry sources, RPG’s worth is Rs 500 the store size, the footfalls, bills per customer per
crore and Wal-Mart’s worth is Rs 1,091,250 annum, average bill size and the revenue earned
crore. As estimated by CII-McKinsey Report, per sq. ft. But besides resources, a variety of
‘Retailing in India – The Emerging Revolution’, other aspects such as qualified and trained man-
retailing is the biggest industry in the country with power would be the need The point to be noted
gross sales totalling $180 billion and second larg- over here is that the Indian retail sector is still
est generator of employment after agriculture. dominated by small and medium-sized stores. Can
This sector, however, being fragmented has not we then say that the organised retail market
been fully recognised as an industry and has suf- would in the near future grab more than half the
fered from the limited access to capital, labour share of the entire retail industry? Probably not.
and suitable real estate options. With the Indian Obviously, the development trends would mean
economy predicted to grow by more than 6.5%, the transformation of neighbourhood grocery or
comparably lower interest rates, booming finan- kirana stores into self-serviced convenience and
speciality stores — possibly similar to that of

Harts-The Grocer, UK. The recent example in 6. Financing

this respect could be the opening of Akbarallys 7. Risk bearing
convenio in India. But still the paan-beedi pat- 8. Market information
terns of shops are here to stay. Reason being, 9. Management services and counseling
the Indian culture and the sizeable population liv-
ing below a dollar a day. Increased competition, Looking at the Growth and Types of
however, would force the neighbourhood stores Wholesaling
to improvise and to innovate different strategies,
ideas and benefits to attract the customer. Such Wholesalers fall into four groups. Merchant
small players would definitely leave a mark, may wholesalers take possession of the goods and in-
be as a strong contender in the retail market. Also, clude full-service wholesalers (wholesale mer-
online shopping, which didn’t take off as expected, chants, industrial distributors) and limited-service
is not likely to cannibalise the retail industry as wholesalers (cash-and-carry wholesalers, truck
the significant share of consumers prefer to ac- wholesalers, drop shippers, rack jobbers, produc-
tually feel the goods before buying. In terms of ers’ cooperatives, and mail-order wholesalers).
magnitude, the non-food sector at present has Agents and brokers do not take possession of
more number of outlets and they would continue the goods but are paid a commission for facilitat-
to dominate the retail industry in India in terms of ing buying and selling. Manufacturers’ and re-
numbers. Department stores are expected to tailers’ branches and offices are wholesaling op-
witness the most dynamic growth in the coming erations conducted by non wholesalers to bypass
years. With new format chain of drug stores and the wholesalers. Miscellaneous wholesalers in-
toy stores gaining popularity in the country, these clude agricultural assemblers, petroleum bulk
two sectors are also likely to become more promi- plants and terminals, and auction companies.
nent. Indian consumers can now have variety and Merchant Wholesalers:
value for their money and a different shopping - Independently owned businesses that take
experience from the organised as well as frag- title to the merchandise they handle.
mented retail sector. Hence, the Indian consum- - —They are called jobbers, distributors, or
ers reign supreme. mill supply houses and
- fall into two categories: full service and lim-
WHAT IS WHOLESALING? ited service.
Wholesaling includes all the activities involved in Full-Service Wholesalers: Carry stock,
selling goods or services to those who are buying maintain a sales force, offer credit, make
for the purpose of resale or for business use. deliveries, and provide management assis-
tance.
Can you distinguish between retailers and There are two types of full-service wholesalers
wholesalers ? Wholesalers help manufacturers (1) Wholesale merchants sell primarily to retail-
deliver their products efficiently to the many re- ers and provide a full range of service
tailers and industrial users across the nation. - General-merchandise wholesalers carry sev-
Wholesalers perform many functions, including eral merchandise lines.
selling and promoting, buying and assortment-
- General-line wholesalers carry one or two
building, bulk-breaking, warehousing, transport-
lines.
ing, financing, risk bearing, supplying market in-
- Specialty wholesalers carry only part of a line
formation, and providing management services
and counseling.
(2) Industrial distributors sell to manufacturers
In brief we can say , following are the functions rather than to retailers and provide several
performed by wholesalers, services—carrying stock, offering credit, and
1. Selling and promoting providing delivery.
2. Buying and assortment building
Wholesaler Marketing Decisions
3. Bulk breaking
Shall we now take a look at wholesalers mar-
4. Warehousing
keting decisions .? Wholesalers also must make
5. Transportation

decisions on their target market, product assort- A wholesaler will often take on the some of
ment and services, pricing, promotion, and place. the marketing responsibilities. Many produce
Wholesalers who fail to carry adequate assort- their own brochures and use their own
ments and inventory and provide satisfactory ser- telesales operations.
vice are likely to be bypassed by manufacturers.
Progressive wholesalers, on the other hand, adapt 2. Channel Intermediaries - Agents
marketing concepts and streamline their costs of Agents are mainly used in international mar-
doing business. kets.
Target Market An agent will typically secure an order for a
Product Assortment and Services producer and will take a commission. They
Price Decision do not tend to take title to the goods. This
means that capital is not tied up in goods.
Promotion Decision
However, a ‘stockist agent’ will hold con-
Place Decision signment stock (i.e. will store the stock, but
the title will remain with the producer. This
The marketing concept calls for paying increased
approach is used where goods need to get
attention to marketing logistics, an area of poten-
into a market soon after the order is placed
tially high cost savings and improved customer
e.g. foodstuffs).
satisfaction. When order processors, warehouse
planners, inventory managers, and transportation Agents can be very expensive to train. They
are difficult to keep control of due to the physi-
managers make decisions, they affect each
cal distances involved. They are difficult to
other’s costs and demand-creation capacity. The
motivate.
physical-distribution concept calls for treating all
these decisions within a unified framework. The 3. Channel Intermediaries -
task becomes that of designing physical-distribu- Retailers
tion arrangements that minimize the total cost of
Retailers will have a much stronger personal
providing a desired level of customer service.
relationship with the consumer.
Types of Channel Intermediaries And The retailer will hold several other brands and
products. A consumer will expect to be ex-
Their Functions - Summarized.
posed to many products.
There are many types of intermediaries such as Retailers will often offer credit to the cus-
wholesalers, agents, retailers, the Internet, over- tomer e.g. electrical wholesalers, or travel
seas distributors, direct marketing (from manu- agents.
facturer to user without an intermediary), and Products and services are promoted and
many others. The main modes of distribution will merchandised by the retailer.
be looked at in more detail.
The retailer will give the final selling price to
1. Channel Intermediaries - the product.
Wholesalers Retailers often have a strong ‘brand’ them-
selves e.g. Ross and Wall-Mart in the USA,
They break down ‘bulk’ into smaller pack-
and Alisuper, Modelo, and Jumbo in Portu-
ages for resale by a retailer.
gal.
They buy from producers and resell to retail-
ers. They take ownership or ‘title’ to goods 4. Channel Intermediaries -
whereas agents do not (see below). Internet
They provide storage facilities. For example, The Internet has a geographically disperse
cheese manufacturers seldom wait for their market.
product to mature. They sell on to a whole-
The main benefit of the Internet is that niche
saler that will store it and eventually resell to
products reach a wider audience e.g. Scot-
a retailer.
tish Salmon direct from an Inverness fish-
Wholesalers offer reduce the physical con- ery.
tact cost between the producer and consumer
There are low barriers low barriers to entry
e.g. customer service costs, or sales force
as set up costs are low.
costs.

Use e-commerce technology (for payment, There is a paradigm shift in commerce and
shopping software, etc) consumption which benefits distribution via
the Internet.
Points to remember


Unit 4
Lesson 39 - Channel Management
Let us study about various aspects of channel Selecting channel members would therefore in-
management. volve
evaluate experience,
WHAT ARE CHANNEL- number of lines carried,
MANAGEMENT DECISIONS growth and profit record
solvency, cooperativeness, and reputation
What does channel management
involve ? Do you have any idea ? 2. Training channel members
Channel management calls for selecting particu-
Companies need to plan and implement careful
lar middlemen and motivating them with a cost-
training programs for their intermedi-aries, be-
effective trade relations mix. The aim is to build
cause they will be viewed as the company by
a “partnership” feeling and joint distribution pro-
end users .
gramming. Individual channel members must be
periodically evaluated against their own past sales They prepare the channel member employees to
and other channel members’ sales. Channel modi- perform more effectively and efficiently The com-
fication must be performed periodically because pany should provide training programs, market
of the continuously changing marketing environ- research programs, and other capability-building
ment. The company has to evaluate adding or programs to improve intermediaries’ perfor-
dropping individual middlemen or individual chan- mance.
nels and possibly modifying the whole channel
system. 3. Motivating channel members
1. Selecting Channel Members A.company needs to view its intermediaries in
2. Training Channel Members the same way it views its end users. It needs-to
3. Motivating Channel Members determine intermediaries’ needs and construct a
4. Evaluating Channel Members channel positioning such that its, channel offer-
5. Modifying Channel Arrangements ing is tailored to provide superior value to these
intermediaries
Let us discuss this in detail :-
Producers vary in their ability to attract interme-
1. Selecting Channel Members diaries . They can exercise the following types
of power
Companies need to select their channel members
carefully. To customers, the channels are the Coercive power
company. Consider the negative impression you Reward power
would get of McDonald’s, , or Hyundai if one or Legitimate power
more of their outlets or dealers consistently ap- Expert power
peared dirty, inefficient, or unpleasant. Referent power

More sophisticated companies try to form part- wholesaling and retailing institution emerge,
nerships and can evolve into long-term distribu- and new channel systems evolve. We will look
tion programming. at the recent growth of vertical , horizontal,
and multi channel marketing systems.
3. Evaluating channel members
Producers must periodically evaluate intermedi- Marketing channels are characterized by continu-
aries’ performance against such stan-dards as ous and sometimes dramatic change, especially
sales-quota attainment, average inventory levels, with the changes brought by the growth of the
customer delivery time Internet as a major marketing tool and channel
of distribution. For example, the new competition
treatment of damaged and lost goods, and coop- in retailing no longer involves competition be-
eration in promotional and training programs. A tween individual firms but rather between retail
producer will occasionally discover that it is pay- systems. Three of the most significant trends are
ing too much to particu-lar intermediaries for the growth of vertical, horizontal, and multichan-
what they are actually doing. One manufacturer nel marketing systems. All channel systems have
that was com-pensating a distributor for holding a potential for vertical, horizontal, and mult
inventories found that the inventories were ac- ichannel conflict stemming from such sources as
tual _.-held in a public warehouse at its expense. goal incompatibility, unclear roles and rights, dif-
Producers should set up functional discounts in ferences in perception, and high dependence.
which they pay specified amounts for the trade Managing these conflicts can be sought through
channel’s performance of each agreed-upon ser- super ordinate goals, exchange of persons, co-
vice. Under performers need to be counseled, optation, joint membership in trade associations,
retrained, re motivated, or terminated. diplomacy, mediation, and arbitration. Market-
ers should continue to explore and respond to the
They are evaluated on the following parameters legal and moral issues involved in channel devel-
sales quota attainment, opment decisions.
average inventory levels,
customer delivery time, A. Conventional Marketing
treatment of damaged and lost goods, System
and cooperation in promotional and training A channel consisting of one or more independent
programs producers, wholesalers, and retailers each a sepa-
rate business seeking to maximize its own profits
4. Modifying channel arrangements even at the expense of profits for the system as
a whole .
A producer must periodically review and modify
its channel arrangement. Modification becomes B. Vertical Marketing System
necessary when the
A distribution channel structure in which produc-
distribution channel is not working as planned, ers, wholesalers, and retailers act as a unified
consumer buying patterns change, the mar- system. One channel member owns the others,
ket expands has contracts with them, or has so much power
new competition arises, that they all cooperate.
innovative distribution channels emerge,
and the product moves into later stage in the VMS s arose as. result of strong channel mem-
product life cycle. bers’ attempts to control channel behavior and
eliminate the conflict that results when indepen-
Therefore the system will require periodic modi- dent members pursue their own objectives. VMS
fication to meet new conditions in the market- achieve economies through size, bargaining
place . power, and elimination of duplicated ser-vices.
Channel Dynamics A. Vertical marketing system

comprises of
It would be of great interest to know that dis-
tribution channels do not stand still. New i. Corporate VMS

ii. Administered VMS ii. Planning channel architecture (companies

iii. Contractual VMS thinking through their channel architecture—
which are efficient and not, and developing
i. Corporate VMS new means)
A vertical marketing system that combines suc- iii. Roles of individual firms in a multi channel
cessive stages of production and distribution un- system: (insiders, strivers, complementers,
der single ownership—channel leadership is es- transients, outside innovators)
tablished through common ownership.
Why Do We Have Channel Conflicts?
ii. Administered VMS
CHANNEL CONFLICT
A vertical marketing system that coordinates suc-
cessive stages of production and distribution, not Disagreement among marketing channel mem-
through common ownership or contractual ties, bers on goals and roles—who should do what
but through the size and power of one of the par- and for what rewards.
ties.
Types of conflict
iii. Contractual VMS Let us Know why conflicts occur ?
A vertical marketing system in which indepen- i. Vertical channel conflict - means conflict
dent firms at different levels of production and between different levels within the same
distribution join together through contracts to ob- channel
tain more economies or sales impact than they ii. Horizontal channel conflict- conflict in-
could achieve alone. volves conflict between members at the same
le\’e: within the channel.
Contractual VMS could have the following forms iii. Multi channel conflict- exists when the
a Wholesaler-sponsored voluntary chains manufacturer has established two or more
b. Retailer cooperatives channels that sell to the same market
c. Franchise organizations
Knowing Causes of channel conflict
d. Manufacturer-sponsored retailer franchise
or manufacturer-sponsored wholesaler fran- It is important to identify the causes of chan-
chise nel conflict. Some are easy to resolve, others
are not.
C. Horizontal Marketing Systems
One major cause is goal incompatibility. For
A channel arrangement in which two or more
example, the manufacturer may want to’ achieve
companies at one level join together to follow a
rapid market penetration through a low-price
new marketing opportunity.
policy. Dealers, in contrast may’ prefer to work
i. Two or more unrelated firms put together re- with high margins and pursue short-run profit-
sources or programs.
ability. Sometimes conflict arises from unclear
ii. Each firm lacks the capital, technology, mar- roles and rights.
keting resources or other variables to take
on the venture alone Conflict can also stem from differences in per-
iii. Can be permanent or temporary ception. The manufacturer may be opti-mistic
about the short-term economic outlook and want
D. Multichannel Marketing Systems dealers to carry higher inven-tory. Dealers may
A distribution system in which a single firm sets be pessimistic. Conflict might also arise because
up two or more marketing channels to reach one of the intermediaries’ dependence on the manu-
or more customer segments. facturer.
i. Multi channel marketing—single firm uses
two or more marketing channels to reach one Following highlight the common causes of con-
or more customer segments—advantages: flict :-
increased coverage, lower cost, customized Goal incompatibility
selling Unclear roles and rights

Differences in perception In brief we can say following can be used as

“Over” dependence conflict resolving methods
i. Adoption of superordinate goals
How to manage channel conflict ii. Exchange of people between channel levels
(responses) iii. Co-optation—winning support at different
Some channel conflict can be constructive and levels
lead to more dynamic adaptation to a changing iv. Joint membership in and between trade as-
environment, but too much is dysfunc-tional sociations
The challenge is not to eliminate conflict but to v. Diplomacy, mediation, arbitration
manage it better. There are several mechanisms
for effective conflict management . Legal and ethical issues in channel
relations
One is the adoption of superordinate goals. Chan-
For the most part, companies are legally free to
nel members come to an agreement on the
develop whatever channel arrange-ments suit
fundan1ental goal they are jointly seeking,
them. In fact, the law seeks to prevent compa-
whether it is survival, market share, high quality,
nies from using exclusionary tactics that might
pr customer satisfaction. They usually do this
keep competitors from using a channel. Here we
when the channel faces an outside threat, such
briefly consider the legality of certain practices,
as a more efficient competing channel, an ad-
including exclusive dealing, exclusive territories,
verse piece of legisla-tion, or a shift in consumer
tying agreements, and dealers’ rights.
desires.
i. Exclusive dealing- Many producers like to
A useful step is to exchange persons between
develop exclusive channels for their products. A
two or more channel levels Hopefully, the partic-
strategy in which the seller allows only certain
ipants will grow to appreciate the other’s point
outlets to carry its products is called exclusive
of view.
dis-tribution, and when the seller requires that
Co-optation is an effort by one organization to these dealers not handle competitors’ products,
win the support of the leaders of another organi- this is called exclusive dealing. Both parties ben-
zation by including them in advisory councils, efit from exclusive arrange-ments: The seller
boards of directors, and the like. As long as the obtains more loyal and dependable outlets, and
initiating organization treats the leaders seriously the dealers obtain a steady source of supply of
and listens to their opinions, co-optation can re- special products and stronger seller support. ex-
duce conflict, but the initiating organization may clusive arrangements are legal as long as they do
have to compromise its policies and plans to win not substantially lessen competition or tend to
their support. create a monopoly, and as long as both parties
enter into the agreement voluntarily.
Much can be accomplished by encouraging joint
membership in and between trade associations. ii. Exclusive territories - Exclusive dealing
When conflict becomes acute or chronic, the often includes exclusive territorial agreements.
parties may have to resort to diplomacy, medi- The producer ma_’ agree not to sell to other deal-
ation, or arbitration. Diplomacy takes place when ers in a given area, or the buyer may agree to sell
each side sends a person or group to meet with only in its own territory. The first practice in-
its counterpart to resolve the conflict. Mediation creases dealer enthusiasm and commitment. It is
means resorting to a neutral third party who is also perfectly legal-a’ seller has no legal obliga-
skilled in conciliating the two parties’ interests. tion to sell through more outlets than it wishes.
Arbitration occurs when the two parties agree The second practice, whereby the producer tries
to present their arguments to one or more arbi- to keep a dealer from selling outside its territory,
trators and accept the arbitration decision. Some- has become a major legal issue.
times, when none of these methods proves effec-
iii. Tying agreements- Producers of a strong
tive, a company or a channel partner may choose
brand sometimes sell it to dealers only if they will
to file a lawsuit.

take some or all of the rest of the line. This prac- but they cannot drop dealers if, for example, the
tice is called full-line forcing. Such tying agree- dealers refuse to cooperate in a doubtful legal
ments are not necessarily illegal, but they do vio- arrangement. such as exclusive dealing or tying
late. laws if they tend to lessen com-petition sub- agreements .
stantially.
Producers are free to select their dealers, but their Find out cases of channel channel conflict in any
right to terminate dealers is some-what restricted. FMCG . Find out reasons of conflict and ways
In general, sellers can drop dealers “for cause,” to overcome them.
Point to remember


CHAPTER SUMMARY Channel management calls for selecting particu-

Value network and marketing channel decisions lar middlemen and motivating them with a cost-
are among the most complex and challenging effective trade relations mix. The aim is to build
decisions facing the firm. Each channel system a “partnership” feeling and joint distribution pro-
creates a different level of sales and costs. gramming. Individual channel members must be
Middlemen typically are able to perform channel periodically evaluated against their own past sales
functions more efficiently than the manufactur- and other channel members’ sales. Channel modi-
ers. The most important channel functions and fication must be performed periodically because
flows are information, promotion, negotiation, or- of the continuously changing marketing environ-
dering, financing, risk taking, physical possession, ment. The company has to evaluate adding or
payment and title . dropping individual middlemen or individual chan-
nels and possibly modifying the whole channel
Manufacturers face many channel alternatives system.
for reaching a market. They can choose selling
direct or using one, two, three or more intermedi- EXCERCISES
ary channel levels. Channel design calls for de-
MULTIPLE CHOICE QUESTIONS
termining the service outputs (lot size, waiting time,
spatial convenience, and product variety), estab-
lishing the channel objectives and constraints, 1. ________ are ideally suited for carrying high-
identifying the major channel alternatives (types value, low bulk goods.
and number of intermediaries, specifically inten-
Trucks
sive, exclusive, or selective distribution), and the
channel terms and responsibilities. Each channel Water carriers
alternative has to be evaluated according to eco- Air carriers
nomic, control, and adaptive criteria. Pipelines
Retailing and wholesaling consists of many orga- 2. Which of the following is not one of the crite-
nizations designed to bring goods and services ria used to evaluate channel alternatives?
from the point of production to the point of use. . Control
Retailers can be classified in terms of store re- Adaptive
tailers, nonstore retailing, and retail organizations. Selective
Store retailers include many types, such as spe- Economic
cialty stores, department stores, supermarkets,
convenience stores, superstores, combination 3. A ________ Marketing System occurs when
stores, hypermarkets, discount stores, warehouse two or more companies at one level join together
stores, and catalog showrooms. Nonstore retail- to follow a new marketing opportunity
ing is growing more rapidly than store retailing. It Horizontal
includes direct selling (door-to-door, party sell- Virtual
ing), direct marketing, automatic vending, and Integrated
buying services. Administered
Wholesaling includes all the activities involved in 4. A ________ VMS integrates successive
selling goods or services to those who are buying stages of production and distribution under single
for the purpose of resale or for business use. ownership
Wholesalers help manufacturers deliver their
Contractual
products efficiently to the many retailers and in-
Conglomerate
dustrial users across the nation. Wholesalers per-
form many functions, including selling and pro- Contextual
moting, buying and assortment-building, bulk-
5. Physical Distribution as a marketing channel
breaking, warehousing, transporting, financing,
function involves
risk bearing, supplying market information, and
the development and dissemination of per-
providing management services and counseling.

suasive communications about the offer two-level

the searching out and communicating with direct-leve
prospective buyers
the assumption of risks in connection with 11. Which of the following major types of retail-
carrying out channel work ers would be described as offering several prod-
the transportation and storage of the goods. uct lines-typically clothing, home furnishings, and
household goods- with each line operated as a
6. Christine Robert, a fashion designer and pro- separate department managed by specialist buy-
ducer of women’s fashions, sells her creations ers or merchandisers?
through her own chain of boutiques (retail out- Specialty store
lets). Christine Robert, as both the producer and Department store
retailer is an example of Convenience store
Corporate VMS Superstore
Administered VMS
Contractual VMS 12. Which of the following is not one of the four
Conventional VMS major categories of non-store retailing that is part
of the retail industry?
7. Iron City Beer is brewed in Pittsburgh, Penn- Direct selling
sylvania and is sold throughout the northeast by Direct marketing
independent beverage wholesalers. Each whole- Automatic vending
saler attempts to have Iron City sold in as many All of the above are categories
grocery stores, taverns, and convenience stores
as possible. The strategy for distributing Iron City 13. Retailers must decide on the services mix to
is ________ distribution offer customers. Which of the following is not an
selective example of the services mix?
intensive Pre-purchase services, like mail orders
exclusive Post-purchase services, like gift wrapping
interdependent Ancillary services, like check cashing
All of the above make up the services mix
8. Which of the following is not one of the key
functions performed by members of marketing 14. Wholesalers are used when they are more
channels? efficient in performing one or more of the fol-
Production lowing functions except which one?
Contact Buying and assortment building
Promotion Warehousing
Risk taking Atmospherics in a store
Bulk breaking
9. In a direct marketing channel
the manufacturer sells directly to the con- 15. Which of the following is not one of the mar-
sumers keting decisions that a wholesaler needs to be
a wholesaler must be present. concerned with while marketing their products?
a retailer or wholesaler is between the pro- Human Resources at the retailer
ducer and consumer. Target Market
none of the above. Price Decision
Promotion Decision
10. Kevin Stiles is a farmer who sells his pro-
duce directly to a supermarket chain, which in ESSAY QUESTIONS
turn, sells it to customers. This is an example of a Discuss the alternatives available when de-
________ ________ marketing channel system ciding on the number of marketing interme-
zero-length diaries
one-level Compare and contrast conventional and ver-

tical marketing systems. product, comment on the pros and cons of

What is the difference between the product an outlet of this kind? Would such outlets
assortment breadth and depth decision that alone enhance sales? Explain your answer.
retailers make
Wholesalers differ from retailers in a num- Application
ber of ways. State three ways in which they Exercise – 3
differ from retailers
Elder Pharmaceuticals Ltd launched Tiger Oil
as an extension of Tiger Balm. Tiger Oil is an
Tutorial - K analgesic available at Rs. 35 for a 25 ml bottle
and it can be used for relief from joint poins, back-
Application
aches, sprains and bruises. It has berbal ingredi-
Exercise – 1 ents. Tiger Oil will bank on the credibility of
Tiger Balm. The target segment consists of con-
Washing machines have been in the Indian mar-
sumers above the age of 40 years. Research had
ket for over a decade. The market is around one
shown that consumers associate oil with case of
lakh units per year, and about 75% of the market
application and effectiveness. The paiin balm
consists of semi-automatic machines in which
market is around Rs. 216 crores and Tiger Balm
Videocon is the leader. Fully automatic machines
has around three per cent share of the market.
are marketed by Videocon, BPL, IFB and Whirl-
Iodex, Moov, Bio, Life and Deep Heat are some
pool, Siemens well known brand in the indus-
of the brands which will be competing with Tiver
trial segments has entered the market. Leading
Oil. The brand is distributed through a network
bands like BPL and Videocon market a number
of 850 stockiest.
of durables and have a wide distribution network.
Taking into consideration the market tar-
A leading brand should have a network of around
get segment and competition, what kind
3000 to 4000 outlets to perform well in the mar-
of retail outlets should the brand focus
ket.
on? Should it be different in different geo-
As a consultant what kind of distribution
graphical areas? Give reasons.
strategies would you recommend for a
brand like Siemens after taking into ac- Application
count the target segment for fully auto-
matic machines and the established net- Exercise –4
work of competitive brands? Piaget International is a watch manufactur-
ing company which was established a century
Application
ago and the brand ( Piagel) has also entered
Exercise – 2 thee Indian market. The price range of this
brand is between Rs. 1.5 lakhs and Rs. 11.5
ACC is a well known brand in he category of
crores. The company produces just 20,000
cements. It has a large distribution network of
pieces every year and the watch is perceived
around 7000 stockists and 120 C and F agents.
almost as a jewellery. Indian consumers have
In 1995, the company’s market share declined to
a strong liking towards gold, and gold watches
fifteen per cent from the earlier thirty per cent.
from the brand are likely to be sold in the
About three years back the brand opened its first
market. A number of consumers buy the brand
company-owned retail outlet called “ACC Ki
during their visits abroad. The sale target is
Duniya” ( World of ACC). The outlet reassures
around 400 watches in India. The brand will
the customer about the genuine material, and
be sought after by lifestyle oriented consum-
encourages interaction besides displaying a range
ers who may be from the upper-upper socio-
of refractory and aluminum based products. This
economic class and also by collectors who
type of outlet is also likely to enhance the
would be leading the same kind of lifestyle.
company’s image.
There seems to be no competition for a brand
Taking into consideration the cement mar-
of this kind in the Indian market ( grey mar-
keting and the commodities nature of the

ket may be bringing in completion). Hertal are the competing brands in the respec-
What kind of retail outlets will be most ap- tive categories. All products of Handy Maid
propriate for the brand? Analyse different are priced at a premium of around 30% to 40%
distribution alternatives.) over the competing brands. The products were
initially available in Bombay through 15 distribu-
Application tors covering around 1500 outlets in the city. The
company competes with HLL and RCI and hence
Exercise – 5 building a network is one of the important as-
The household cleaning products market is esti- pects for the success of the brand.
mated to be around Rs. 500 crores. SMZS Chemi- As a consultant to the brand what kind of
cals has launched household cleaning products distribution plan would be recommend
like dishwashing liquid , ( which could also be among the three choices given ( I) Cover
used for glassware and metal utensils), glass and all zones in the country (ii) Confine the
multi-surface cleaner, floor cleaner, fabric bright- brand only to one zone (iii) Cover only
ener, fabric softener and a cleaning gel for major cities and towns. Give reasons (
clothes. All these products were launched under collect information on the consumption of
the brandname Handy Maid. HLL’s Vim, Com- these product categories before deciding
fort and Ala and other brands Bambi, Colin and your answer).

Unit 4
Chapter 14 - Promotion-Decisions and Strategies
Lesson 40 - Process for effective communication
Students in this chapter you would following - directed towards helping a company justify its
You would know how communication works existence and maintain healthy, positive relation-
You would be able to determine the major ships between itself and various groups in the
steps in developing an integrated marketing marketing environment. To develop and imple-
communications program ment effective promotional activities, a firm must
You will understand who should be respon- use information from the marketing environment,
sible for marketing communication planning often obtained from its marketing information
State what steps are involved in developing system. The degree to which marketers can ef-
an advertising program fectively use promotion to maintain positive rela-
You would know what is driving the growing tionships with environmental forces depends
use of sales promotion, and how sales pro- largely on the quantity and quality of information
motion decisions are made an organisation takes in.
You would understand how companies ex- Let us now define promotion
ploit the potential of public relations and pub-
licity Promotion is communication about an
You would be able to determine how compa- organization and its products that is intended
nies use integrated direct marketing for com- to inform, persuade, or remind target market
petitive advantage members
What Is Promotion ? A promotion mix (sometimes called a marketing

Let us study about -marketing communications communications mix) is the particular
which is one of the four major elements of the combination of promotional methods a firm uses
company’s marketing mix.
to reach a target market. In this chapter, we
Can you attempt to define promotion ? Promo- examine the process for effective communication
tion in marketing terms……….. and promotion methods of advertising, personal
selling, sales promotion, and public relations.
Promotion’s role is to communicate with
Let us begin by discussing the process of
individuals, groups, or organisations to di-
rectly or indirectly facilitate exchanges by in-
effective communication.
forming and persuading one or more of the
audiences to accept an organisation’s prod- WHAT IS EFFECTIVE
ucts. COMMUNICATION ?
To facilitate exchanges directly, marketers com- THE COMMUNICATION PROCESS:
municate with selected audiences about their All of us are a part of communication process
companies and their goods, services and ideas. of marketers as consumers .Today there is a
Marketers indirectly facilitate exchanges by fo- new view of communication as a interactive dia-
cusing information about company activities and logue between the company and its customers
products on interest groups, current and potential that takes place during the pre-selling, selling,
investors, regulatory agencies, and society in gen- consuming, and post-consuming stages. Compa-
eral. nies must ask not only “How can we reach our
customers?” but also, “How can our customers
Promotion can play a comprehensive communi-
reach us”’
cation role. Some promotional activities can be

COMMUNICATION PROCESS feedback channels. To monitor the responses. The

Have you observed that the product’s styling more the sender’s field of experience overlaps
and price, the shape and color of the pack- with that of the receiver, the more effective the
age, the salesperson’s manner and dress, the message is likely to be.
store decore, the company’s stationer – all
Sometimes the target audience may not receive
communicate something to buyers? Every
the intended message. Why do you think so ?:
brand contact delivers an impression that can
strengthen or weaken a customer’s view of the Some of the possible reasons could be –
company. The whole marketing mix must be in-
tegrated to deliver a consistent message and stra- Selective attention: People are bombarded with
tegic positioning. many commercial messages a day, of which only
a few are consciously noticed and provoke some
The starting point is an audit of all the potential reaction. Selective attention explains why ads with
interactions target customers may have with the bold headlines promising something, such as “How
product and the company. For example, some- to Make a Million,” have a high likelihood of get-
one interested in purchasing a new computer ting attention.
would talk to others, see television ads, read ar-
ticles, look for information on the Internet, and Selective distortion: People will retain in long-
observe computers in a store. Marketers need to term memory only a small fraction of the mes-
assess which experiences and impressions will sages that reach them. If the receiver’s initial
have the most influence at each stage of the buy- attitude toward the object is positive and he or
ing process. This understanding will help them she rehearses support arguments, the message
allocate communications dollars more efficiently. is likely to be accepted and have high recall. If
the initial attitudes negative and the person re-
Marketers also need to understand the fundamen- hearses counterarguments, the message is likely
tal elements of effective communications. Fig- to be rejected but to stay in long-term memory.
ure above shows a communication model with Because persuasion requires the receiver’s re-
nine elements. Two represent the major parties hearsal of his or her own thoughts, much of what
in a communication – sender and receiver. Two is called persuasion is actually self- persuasion
represent the major communication tools – mes-
sage and media. Four represent major communi- Let us now focus about effective communica-
cation function – encoding, deconding, re- tions ?
sponse, and feedback. The last element in the
system is noise (random and competing mes- How To Develop Effective Communica-
sages that may interfere with the intended com- tions?
munication). I am sure all of you would want to know about
developing effective communications . Let us
The model emphasizes the key factors in effec- discuss about it step by step.
tive communication. Senders must know what
audiences they want to reach and what responses 1. Identify the target audience -The process
they want to get. They must encode their mes- must start with a clear target audience in mind:
sages so that the target audience can decode potential buyers of the company’s products, cur-
them. They must transmit the message through rent users, deciders, or influencers; individuals,
media that reach the target audience and develop groups, particular publics, or the general public.

The target audience is a critical influence on the message will require solving four problems: what
communicator’s decisions on what to say, how to say ( message content,) how to say it logically
to say it, when to say it, where to say it, and to ( message structure ), how to say it symbolically
whom to say it. ( message format), and who should say it (
message source).
2. Determine the communication objectives
- The marketer can be seeking a cognitive, af- Message content: In determining message
fective, or behavioral response. That is, the content, management searches for an appeal,
marketer might want to put something into the theme, idea, or unique selling proposition (
consumer’s mind, change an USP). There are three types of appeals: ra-
tional, emotional, and moral.
Message structure Effectiveness depends
on structure as well as content
Message format The message format needs
to be strong. In a print ad, the communicator
has to decide on headline, copy, illustration,
and color. For a radio message, the commu-
nicator has to choose words, voice qualities,
and vocalizations. The “sound” of an an-
nouncer promoting a used automobile has to
be different from one promoting a new
Cadillac. If the message is to be carried on
television or in person, all these elements plus
body language ( nonverbal clues) have to be
planned. Presenters have to pay attention to
facial expressions, gestures, dress, posture,
and hairstyle, If the message is carried by
the product or its packaging, the communi-
cator has to pay attention to color, texture,
scent, size, and shape
Message source Message delivered by at-
tractive or popular sources achieve higher
attention and recall. This is why advertisers
often use celebrities .What is important is the
spokesperson’s credibility. Pharmaceutical
companies what doctors to testify about prod-
uct benefits because doctors have high cred-
ibility. Anti drug crusaders will use ex-drug
addicts because they have higher credibility
for students than teachers do.
What factors underlie source credibility? The
three most often identified are expertise,
trustworthiness, and likability.19 attractive-
ness.
4. Select the communication channels - The

communicator must select efficient channels to
3. Design the message - Having defined the carry the message. For example, pharmaceuti-
desired response, the communicator moves to cal company salespeople can rarely wrest more
developing an effective message. Ideally, the than five minutes’ time from a busy physician.
message should gain attention, Hold interest, Their presentation must be crisp, quick, and con-
arouse desire, and elicit action Formulating the vincing. This makes pharmaceutical sales calling

extremely expensive. The industry has had to ex- KNOWING THE ROLE OF
pand its battery of communication channels. These PROMOTION
include placing ads in medical journals, sending
Do you know that Promotion is commonly the
direct mail ( including audio and videotapes ),
object of two misconceptions.
passing out free samples, and even telemarketing.
People take note of highly visible promotional
5. Establish the total marketing communi- activities, such as advertising and personal
cation budget - One of the most difficult mar- selling, and conclude that these make up the
keting decisions is determining how much to spend entire field of marketing.
on promotion. John Wanamaker, the department- People sometimes consider promotional ac-
store magnate, once said, “ know that half of my tivities to be unnecessary, expensive, and the
advertising is wasted, but I don’t know which cause of higher prices.
half.” Neither view is accurate.
The role of promotion is to facilitate ex-
6. Deciding on the marketing communica- changes directly or indirectly by informing
tions mix - Companies must allocate the pro- individuals, groups, or organizations and in-
motion budget over the give promotional tools – fluencing them to accept a firm’s products
advertising, sales promotion, public relations and or to have more positive feelings about the
publicity, sales force, and direct marketing. Here firm.
is how one company touches several bases.
a. To expedite exchanges directly, marketers con-
Let us now study about Integrated Marketing vey information about a firm’s goods, services,
Communications. and ideas to particular market segments.
What Is Integrated Marketing Communications? b. To bring about exchanges indirectly, market-

A. Integrated marketing communications is the ers address certain interest groups, regulatory
coordination of promotion efforts to ensure the agencies, investors, and the general public.
maximum informational persuasive impact on
customers. c. he broader role of promotion, therefore, is to
maintain positive relationships between a com-
B. A major goal of integrated marketing commu- pany and groups in the marketing environment.
nications is to send a consistent message to cus-
tomers. d. Marketers must carefully plan, implement, and
coordinate promotional communications to make
C. This approach fosters long-term customer re- the best use of them.
lationships and the efficient use of promotional i The effectiveness of promotional activities
resources. depends greatly on the quality and quantity
of information available to marketers about
D. The concept of integrated marketing commu- the organization’s marketing environment.
nications has been increasingly accepted for a
ii (Marketers must gather and use information
number of reasons.
about particular audiences to communicate
Mass media advertising is used less today successfully with them.
because of its high costs and less predictable
audience sizes. The Promotion Mix: An Overview
Marketers can now take advantage of more Have you heard of promoton mix ? let us know
precisely targeted promotional tools, such as it a little better ………..
cable TV, direct mail, CD ROMS, the
Internet, special interest magazines, and Marketers can use several promotional methods
voice broadcasts. to communicate with individuals, groups, and or-
Database marketing is also allowing market- ganizations.
ers to be more precise in targeting individual
customers.

Advertising, personal selling, sales promotion, Here is something interesting for you ……
and publicity are the four major elements in an
organization’s promotion mix. APPLICATION EXERCISE : Review the fol-
lowing article. Bring out the key points. Discuss
Two, three, or four of these ingredients are used your points of agreement and disagreement .
in a promotion mix, depending on the type of prod-
uct and target market involved. Promotion plot Should FMCG’s stop Mindless
Promotions? Sanjiv Kakkar GM, Sales and Cus-
Factors Affecting The Selection Of tomer Development (Personal Products)-
The Promotion Mix Elements Hindustan Lever Ltd
We will broadly look at some of the major con-
siderations in promotion.:- The early and mid nineties were boom times.
Marketers never had it so good. The economy
Promotion Resources, Objectives, and was liberalising and growing rapidly, media ex-
Policies plosion was fuelling consumer aspirations and a
–A limited promotional budget affects the num- cut in excise duties was resulting in a decline in
ber and types of promotion mix components af- real prices. Everything marketers touched turned
fordable to a firm. to gold. Marketers began to believe that they were
infallible!
–Objectives and policies influence the types of
promotion selected. Hence, as market growth rates began to slow
Characteristics of the Target Market down, marketers felt this was a temporary phe-
nomenon. Declining growth rates could be cir-
–Market size, geographic distribution, and
cumvented through promotions that would in-
demographics help dictate the choice of
crease trade inventory, consumer upstocking and
promotion mix elements.
market share. The patron of sales was enclosed
Characteristics of the Product
in one word: Promotions! Amidst persistent fears
We will discuss these in detail in the forthcoming of recession, marketers continued to ignore the
lessons. fundamental economic problem of declining mar-
kets. Instead of fashioning a viable response to
Business Products Consumer
Personal Selling the fundamental problem, marketers embraced
durables Exclusive distribu-
tion, high priced products promotions to buy short-term volume. Scheme
expenditure, as a percentage of total support, in-
creased dramatically.However, as the slowdown
was more fundamental in nature, the resultant
Consumer goods Seasonal
Products Highly personal
effect of the promotional onslaught was merely
products Intensively Distrib- an increase in trade and consumer inventory. Over
uted ,low priced Convenience Advertisement a period of time, promotions became a zero sum
products game. Increasingly, promotions were aimed at the

competitors rather than at the consumers. Instead justify what are essentially promotions that at-
of exercising caution in the selective usage of tempt to buy volume. Every promotional act fall-
promotions, marketers succumbed blindly to its ing in these categories should certainly emanate
short-term allure. In some categories, the from a well thought through promotional platform
commoditisation of brands had begun.Result: No for the brand that stems from or builds the equity
impact on shares; no impact on trend line of mar- of the brand.* Awareness of Action being
ket growth; increase in trade inventory and con- taken to Meet Objectives: Depending on the
sumer inventory. Promotions then degenerated promotional objective the right tool/scale of ac-
further into a tool to buy trade focus and shelf tivity needs to be employed. With a wide variety
share. The number of activities on brands in- of techniques available, it is quite conceivable for
creased enormously leading to activity fatigue in a young marketer to use a revolver to shoot down
the trade, consumer and sales force.In order to a low flying aircraft or the scattered blast of a
beat activity fatigue innovation came into play - shotgun to shoot down a clear, well defined tar-
scratch cards, games of chance, gold coins and get- Building Awareness: A variety of means
diamond’s in the pack etc. The innovation fade could be used, from the more common market
was however very rapid. Data suggested that place visibility - display contests - to sponsorship
promotions were increasingly influencing a very of events, direct marketing etc.- Building Trial:
limited set of brand decisions or switches. The This is normally done through sampling, price offs,
time for reflection had arrived!Caught between pack premiums, banded offers, cross promotions
the tentacles of unaffordable levels of scheme and in shop promotions- Increasing Repeat Pur-
expenditure and insignificant impact of promo- chase/loyalty/ depth of consumption: On-pack
tions marketers were forced to ask the basic ques- coupons that give money off on next purchase,
tion - are promotions mindless? The answer for- collector schemes e.g. cards, stickers that are
tunately is NO! The principles that govern pro- collected over a period of time, loyalty cards col-
motions are no different from all else in life. Ac- lected over a period of time leading to a gift at
tivity carried out with full mindfulness - aware- the very end, reusable containers with lower priced
ness of objectives, awareness of action being refill packs and extra product free are the more
taken to meet them and awareness of its conse- commonly employed tools- Competitive Re-
quences - is meaningful activity. Promotional plans sponse: The approach employed most often dur-
that follow these principles build and enhance ing a competitive launch is to take loyal consum-
brand value over time.Consumer promotions play ers out of the market for an extended period of
a key role in the life cycle of a brand. The role time. This can be done through promotions like
varies according to the stage in the life cycle, Buy One Get One free, Price offs’, on pack dis-
market situation and competitive scenario. Pro- counts on larger pack sizes and extra quantity of
motions can have a significant impact on pen- product free- Distribution coverage Expansion/
etration build for new brands and for stimulating Building Trade Involvement: Trade discounts to
growth in existing brands provided they are an- push the product through wholesale into the rural
chored on a well defined activation platform that hinterland to expand width of coverage, field force
builds brand equity.* Awareness of Objectives: incentives, display contests are the more com-
Promotions are an important element of the mar- monly employed means of achieving distribution
keting mix and can serve many objectives- Build- width and depth- Visibility Activity: In store mer-
ing awareness, trial, conversion, distribution cov- chandising, display contests that are either the-
erage and visibility during launch of a new brand- matic or aimed at announcing a major
Build retrial, consumption frequency and depth promotionThe era of mindless promotions
during the re-launch of an existing brand- Re- would have come to an earlier halt had mar-
ward loyal consumers of existing brands/build keters paid heed to the consequences of
distribution width or depth- Manage a brand in a their actions - through a thorough evalua-
declining market/situation - retaining loyal con- tion of promotions* Awareness of conse-
sumers or keeping distribution width/depth intact- quences: The era of mindless promotions would
Response to a competitive threat that seeks to have come to an earlier halt had marketers paid
erode shareThe last three are most often mis- heed to the consequences of their actions -
used with marketers using “marketing speak” to through a thorough evaluation of promotions. The

factors to be kept in mind are- Evaluation: tech- sible to vary the marketing mix by state rather
nique and action standards - should be agreed at than rely on promotional activity alone to build
the conception of the promotion itself- Evalua- regional brands. This also entails shifting mar-
tion should be done after an agreed time interval keting responsibility to operating teams based in
when the full effects of the promotion will be the regions rather than run it as a central func-
known- A clear evaluation of cost vs. benefits tion from the corporate office* Changing Na-
i.e. objectives met but at what costWhat gives ture of Trade and Shopper: The relatively ho-
hope for the future is that we have numerous mogenous nature of the trade in the country is
examples of promotions that worked - achieved changing rapidly with the emergence of modern
domination of consumer mindspace, drove aware- trade in pockets, key accounts in self service for-
ness and built sales/share. Britannia Khao World mats and consolidation of large grocery outlets.
Cup Jao, Lux Gold Star offer, Pepsi Hai Koi At the same time, we are seeing the rapid mush-
Jawaab and Mera Number Kab Ayegaa are ex- rooming of outlets due to growth of urban cen-
amples of promotions that stuck by certain rules tres. Shoppers and shopping behaviour are being
that helped them to win in the marketplace:- A segmented by outlet type. This will have a huge
Big Activation Idea that linked back to and built impact on both the scale and type of promotions.
the core equity of the brand. The Idea helped the Marketers will be forced to design and imple-
brand to break through the clutter and grab the ment channel based promotions in order to
consumer emotionally- Aggressive support on maximise their effectiveness* Rural markets
media across media types to generate rapid contribute to over a third to half the sales
awareness build. Rapid build up of awareness is for some brands. While designing promotions
critical as promotions are a short lived phenom- marketers have however treated them as adjuncts
ena- Substantial on ground promotional support of urban centres. As rural markets emerge as
though local market place events and enormous the powerhouse for future brand growth promo-
visibility at retail outlets- Leveraging the national/ tions designed exclusively for these markets will
local press and celebrities to drive awareness become the norm. Marketers will ignore this seg-
build- Involvement of all channel partners by ment at their own peril.* Direct to Consumer
incentivising them and giving them a chance to is an emerging channel to approach a select
win the big prizes in the promotion. This helped target audience. As consumer needs become
build strong trade recommendation for the brand- sharply segmented and specialised products are
Consumer prizes that were a combination of in- available to satisfy them, the use of this channel
stant gratification as well as mega prizes at the will explode. Promotions in this channel are quite
close of the promotion- A superb fulfilment pro- specialised but their effectiveness is well docu-
gram that ensured prizes reached the consumers mented in the industrialised nations.Promotions
on time As we look into the future we find a few that follow the basic tenets - a Big Idea that builds
key trends in the marketplace that will impact the equity of the brand, sharp clarity of objec-
the nature and intensity of promotional activity.* tives and tools to be used and post promotion
Micromarketing rather than Promotions: evaluation - will dominate the vast Indian Bazaar
The sheer diversity of India poses a challenge to in the future. Mindlessness will give way to
marketers but also offers enormous opportunity Mindfulness!The views expressed in this article
to differentially target and grow select regions are the author’s own and may not represent
and states. As media becomes localised, it is pos- HLL’s views.

Point to remember

Unit 4
Lesson 41 - Introduction to Advertising
Now that we’ve looked at overall integrated consumers in a developing nation to use birth
marketing communications planning, let’s dig more control.Comments by Dr. Demo
deeply into the specific marketing communica-
tions tools. In this chapter, we’ll explore the most Organizations handle advertising in different
popular mass-communications tool—advertising. ways. In small companies, advertising is handled
by someone in the sales or marketing department,
How Do We Define Advertising ? who works with an advertising agency. A large
All of you are well exposed to advertising . You company will often set up its own department,
like ads , sometimes you don’t , some are catchy whose manager reports to the vice president of
and some very boring…. Is it not ? marketing. The advertising department’s job is to
propose a budget; develop advertising strategy;
Now let us have look at what Advertising is to approve ads and campaigns; and handle direct-
marketers. We will begin the discussion by de- mail advertising, dealer displays, and other forms
fining advertising. of advertising. Most companies use an outside
agency to help create advertising campaigns and
Advertising- Any paid form of nonpersonal pre- to select and purchase media.
sentation and promotion of ideas, goods, or
services by an identified sponsor. Knowing types of Advertising by
Purpose.
Advertising can be traced back to the very be-
ginnings of recorded history. Archaeologists work- Depending on its purpose and message, adver-
ing in the countries around the Mediterranean Sea tising may be classified into three groups.
have dug up signs announcing various events and
1.Primary-Demand Advertising. Primary-
offers. The Romans painted walls to announce
demand advertising is advertising aimed at in-
gladiator fights, and the Phoenicians painted pic-
creasing the demand for all brands of a product
tures promoting their wares on large rocks along
within a specific industry.
parade routes. Modern advertising, however, is a
far cry from these early efforts. Trade and industry associations are the ma-
jor users of primary-demand advertising.
Although advertising is used mostly by business Their advertisements promote broad product
firms, it also is used by a wide range of not-for- categories without mentioning specific brands.
profit organizations, professionals, and social 2. Selective Demand Advertising. Selective
agencies that advertise their causes to various demand (or brand) advertising is advertis-
target publics In fact, the twenty-fourth largest ing that is used to sell a particular brand of
advertising spender is a not-for-profit organiza- product.
tion—the U.S. government. Advertising is a good It is by far the most common type of adver-
way to inform and persuade, whether the pur- tising, and it accounts for the lion’s share of
pose is to sell Coca-Cola worldwide or to get advertising expenditures.

Selective advertising that aims at persuading classified according to whether their aim is to in-
consumers to make purchases within a short form, persuade, remind, or reinforce.
time is called immediate-response advertis- Informative advertising aims to create
ing. awareness and knowledge of new products
Selective advertising aimed at keeping a or new features of existing products.
firm’s name or product before the public is Persuasive advertising aims to create lik-
called reminder advertising. ing, preference, conviction, and purchase of
Comparative advertising compares specific a product or service. Some persuasive ad-
characteristics of two or more identified vertising uses comparative advertising, which
brands. makes an explicit comparison of the attributes
3. Institutional Advertising. Institutional ad- of two or more brands..” Comparative ad-
vertising is advertising designed to enhance vertising works best when it elicits cognitive
a firm’s image or reputation. and affective motivations simultaneously.
Reminder advertising aims to stimulate re-
DEVELOPING ADVERTISEMENT peat purchase of products and services. Ex-
PROGRAM pensive, four-color Coca-Cola ads in maga-
zines are intended to remind people to pur-
Marketers must make four important decisions
chase Coca-Cola
when developing an advertising program (see
Reinforcement advertising aims to convince
Figure ):
current purchasers that they made the right
setting advertising objectives,
choice. Automobile ads often depict satisfied
setting the advertising budget, customers enjoying special features of their
developing advertising strategy (message new car.
decisions and media decisions), and
evaluating advertising campaigns. 2. Deciding on the advertising budget - How
does a company known if it is spending the right
The Five Ms of Advertising amount? Some critics charge that large, con-
sumer packaged-goods firms tend to overspend
1. Setting the advertising objectives - The on advertising as a form of insurance against not
advertising objectives must flow from prior deci- spending enough, and that industrial companies
sions on target market, market positioning, and underestimate the power of company and prod-
marketing mix. Advertising objectives can be uct image building and tend to underspend

There are five specific factors to consider when Message evaluation and selection a good
setting the advertising budget: ad normally focuses on one core selling
proposition. Dik Twedt suggested that mes-
1. Stage in the product life cycle - New prod- sages be rated on desirability, exclusive-
ucts typically receive large advertising budgets ness, and believability
to build awareness and to gain consumer trial. Message execution The message’s impact
Established brands usually are supported with depends not only on what is said, but often
lower advertising budgets as a ratio to sales. more important, on how it is said. Some ads
aim for rational positioning and other for
2. Market share and consumer base - High- emotional positioning. Message execution
market-share brands usually require less adver- can be decisive for highly similar products,
tising expenditure as a percentage of sales to such as detergents, cigarettes, coffee, and
maintain share. To build share by increasing mar- vodka.
ket size requires larger expenditures. On a cost- Social responsibility review advertisers
per-impression basis, it is less expensive to reach and their agencies must be sure their “cre-
consumers of a widely used brand than to reach ative” advertising does not overstep social
consumers of low-share brands. and legal norms. Most marketers work hard
to communicate openly and honestly with
3. Competition and cluster - In a market with
consumers. Still, abuses occur, and public
a large number of competitions and high adver-
policy makers have developed a substantial
tising spending, a brand must advertise more
body of laws and regulations to govern ad-
heavily to be heard. Even simple cluster from
vertising.
advertisements not directly competitive to the
brand creates a need for heavier advertising. Deciding on media and measuring
4. Advertising frequency: The number of rep- effectiveness
etitions needed to put across the brand’s mes- After choosing the message, the advertiser’s next
sage to consumers has an important impact on task is to choose media to carry it. The steps
the advertising budget. here are deciding on desired reach, frequency,
and impact; choosing among major media types;
5. Product substitutability: Brands in a com- selecting specific media vehicles; deciding on
modity class ( cigarettes, beer, soft drinks ) re- media timing; and deciding on geographical me-
quire heavy advertising to establish a differential dia allocation. Then the results of these decisions
image. Advertising is also important when a brand need to be evaluated. Media is discussed in de-
can offer unique physical benefits or features. tail in section- 14 ( c )
Choosing the advertising message: 6. Evaluating advertising effectiveness -
Good planning and control of advertising depend
Advertising campaigns vary in creativity: - on measures of advertising effectiveness. Yet the
amount of fundamental research on effectiveness
Message generation: advertising people have
is appallingly small.
proposed different theories for creating an ef-
fective message. Most measurement of advertising effectiveness
deals with specific ads and
Whatever method is used, creative people should
talk to consumers, dealers, and experts. How- campaigns. Most of the money is spent by agen-
ever, when competitors all hear the same talk cies on pretesting ads, and much less is spent on
from members of the target market, they often evaluating their effectiveness. A proposed cam-
end up using the same appeal. Many of today’s paign should be tested in one or a few cities first
ads for automobiles have a sameness about them and its impact evaluated before rolling it out na-
– a car driving 90 miles an hour on a curved tionally. One company tested its new campaign
mountain road – with the result that only a weak first in Phoenix. The campaign bombed, and the
link is established between the brand and the company saved all the money that it would have
message.

spent by going national Most advertisers try to

measure the communication effect of an ad-that
is, its potential effect on awareness, knowledge,
or preference. They would also like to measure
the ad’s sales effect.
There are three major methods of advertising

pretesting. Advertising in trouble times Piyush Pandey
i. The consumer feedback method asks consum-
ers for their reactions to a proposed ad. They Why do you think Indian companies have
respond to such questions as these resorted to cutting down their advertising
1. What is the main message you get from this budgets in the last twelve months?
ad? During recessionary times, businesses around the
world tend to cut down their outlay in every area.
2. What do you think they want you t know,
Obviously advertising budgets also suffer in the
believe, or do?
process. But there is nothing new about this phe-
3. How likely is it that this ad will influence you
nomenon. When the chips are down, it is quite
to undertake the implied action?
natural for companies to rationalize their ex-
4. What works well in the ad and what works penses.
poorly?
5. How does the ad make you feel.? But does cutting down ad spend not affect
6. Where is the best place to reach you with the long-term brand building prospects of
this message? the company? I don’t think so. I know long-
7 Where would you be most likely to notice it term brand building objectives are necessary. But
and pay attention to it that does not mean that we completely ignore
8. Where are you when you make decisions the short-term perspectives. After all, a manager’s
about this action? performance is not judged entirely on the basis
of where the brand will be five years hence. He
Ii Portfolio tests ask consumers to view or lis- or she is also judged by the short-term perfor-
ten to a portfolio of advertisem4ents, taking as mance of the brand/organization. So it is only fair
much time as they need. Consumers are then that during economic slowdown, marketing ex-
asked to recall all the ads and their content, aided penses (including advertising) are curbed.
or unaided by the interviewer. Recall level indi- I know that there are purists who would disagree
cates an ad’s ability to stand out and to have its with this view. According to them, long-term brand
message understood and remembered. building comes before everything else and so
should not be compromised. But one must keep
iii Laboratory tests use equipment to measure in mind that economic boom as well as recession
physiological reaction – heartbeat, blood pres- is a generic component of the normal economic
sure, pupil dilation, galvanic skin response, per- cycle and one always follows the other. Besides,
spiration – to an ad; or consumers may be asked a strong brand is unlikely to get terribly affected
to turn a knob to indicate their moment-to-mo- by tighter ad spends and fewer ad campaigns
ment liking or interest while viewing sequenced during recession.
material. These tests measure attention-getting
power but reveal nothing about impact on beliefs, While we’re on the subject of brand build-
attitudes, or intentions. Table 20.2 describes some ing, it is often observed that agencies don’t
specific advertising research techniques. do sufficient to go up the value chain by con-
tributing to their client’s strategic thinking.
APPLICATION EXERCISE : Your views... That’s not true, at least not in the
case of professional agencies. Proficient adver-
Review the following article. Bring out the key
tising agencies always work closely with the cli-
points.
ent to evolve solid strategic thinking. Whether it
*
The Guru Says... is segmentation, positioning or the broad value
proposition that a particular brand offers, agen-

cies have to work, and do work, closely with the ents? An agency should be selected on the merit
clients. It’s a different matter when some clients of each of the services offered by it. But merely
choose not to involve the agencies in such mat- because an agency offers a whole basket of ser-
ters. But my advice to them would be to always vices does not necessarily make it the best op-
include agencies in charting out such decisions tion. In fact, I would actually go so far as to rec-
for an overall perspective. ommend a specialist agency for certain activities
that I think they can implement better than us.
What is your opinion about the effectiveness For instance, there are a number of media-buy-
of POP/trade promotion, especially during ing houses that do a good job of optimizing media
economic slowdown? During economic slow- spends of the client. It certainly makes more sense
down, promotion is often preferred over adver- for the client to employ the services of such me-
tising as it gives you the desired short-term re- dia buying houses.
sults. In my view, there is nothing wrong with
this approach. As long as you don’t follow any Once again, what’s important is that an agency
path that dilutes your brand, it is perfectly fine to must keep the client’s best interest in mind, and
do so. A good agency would always recommend not just its own profitability.
strategies that serve the client’s best interests.
Given the budgetary constraints, what
Do you think agencies can improve their should agencies do to ensure improvement
chances of maintaining advertising budgets in quality of marketing efforts made by cli-
by focusing more on issues that enhance ents while simultaneously also pushing up
their clients’ strategic posture in the mar- their own top line? Client-agency relationships
ketplace while at the same time also elimi- are based on mutual trust and evolve over a long
nating unproductive and unnecessary cam- term period. An agency’s long term prospects
paigns? Absolutely! We should always look for are directly linked to their clients’ performance.
ways to eliminate redundant and unyielding cam- With performance-based incentives becoming the
paigns, not just during recession but during boom norm, it follows that an agency that works closely
time also. Advertising budgets must be used ef- with the client and makes a positive difference in
fectively to accomplish the bottom line objectives the client business will grow with the client. So
of the marketing plan - which media vehicle is agencies must always strive to work at helping
used, which channel of communication is used - the client accomplish the short-term and long-term
is irrelevant, as long as these objectives are met. objectives.
So, yes, it is extremely important to focus on is-
sues that augment our clients’ position in the How many of the top agencies would be able
marketplace. If that requires us to focus on sales to execute the above and achieve the re-
promotions instead of advertising, so be it. sults? I think almost all the top agencies have
remained at the top for some time now. And this
Do you think that during economic slow- is so because they have followed the basic busi-
down, as compared to niche agencies offer- ness principles in advertising - those of providing
ing select services, broad-scope (full ser- the best possible service, adding value and mak-
vice) agencies create more value for the cli- ing a positive difference to the client’s marketing
efforts.

Point to remember

Unit 4
Lesson 42 - Media
We have already discussed the basics of communication and advertising in the previous lessons. Let
us know of different advertising media and about media planning
DIFFERENT ADVERTISING MEDIA

The advertising media are the various forms of communication through which advertising reaches
its audience.
I. Newspapers. Newspaper advertising accounts for almost one-fourth of all advertising expendi-
tures.
Newspaper advertising is used extensively by retailers because it is relatively inexpensive com-
pared to other media.
Because it provides only local coverage, advertising dollars are not wasted in reaching people
who are outside the market area.
It is also timely.
There are some drawbacks to newspaper advertising.
i. It has a short life span.
ii. Color reproduction is usually poor.
iii. Marketers cannot target specific markets through newspaper ads.
iv. Ads are usually read once and then discarded.
II. Magazines. The advertising revenues of magazines have been climbing..

Advertisers can reach very specific market segments through ads in special-interest magazines.
A number of magazines like Time and Cosmopolitan publish regional editions, which provide
advertisers with geographic flexibility.
Magazine advertising is more prestigious than newspaper advertising, and it provides high-quality
color reproduction.
Magazine advertisements have a longer life span.
The major disadvantages of magazine advertising are high cost and lack of timeliness.
III. Direct Mail. Direct-mail advertising is promotional material mailed directly to individuals.
Direct mail is the most selective medium: Mailing lists are available (or can be compiled) to reach
almost any target audience.
The effectiveness of direct-mail advertising can be measured because the advertiser has a record
of who received the advertisement and can track who responds.
Some organizations are using direct e-mail.
A direct-mail campaign may fail if the mailing list is outdated and the mailing does not reach the

right people.
IV. Outdoor Advertising. Outdoor advertising consists of short promotional messages on bill-
boards, posters, and signs.
Sign and billboard advertising allow the marketer to focus on a particular geographic area, and it
is fairly inexpensive.
However, because most outdoor advertising is directed at a mobile audience, the message must
be limited to a few words.
The medium is especially suitable for products that lend themselves to pictorial display.
V. Television. Television ranks number one in total revenue.

Television advertising is the primary medium for larger firms whose objective is to reach national
or regional markets.
1. A national advertiser may buy network time, which means that its message usually will be
broadcast by hundreds of local affiliated stations.
2. Both national and local firms may buy local time on a single station that covers a particular
geographic selling area.
Advertisers may sponsor an entire show, or they may buy spot time for a single 10-, 20-, 30-, or
60-second commercial during or between programs.
To an extent, they may select their audience by choosing the day of the week and the time of day
when their ads will be shown.
Infomercial. An infomercial is a program-length (usually a half-hour) televised commercial
message resembling an entertainment or consumer affairs programs.
Television advertising rates are based on the number of people expected to be watching when a
commercial is aired.
Unlike magazine advertising, and perhaps like newspaper ads, television advertising has a short
life.
VI. Radio. Advertisers 8 percent of total expenditures, on radio advertising Like magazine ad
vertising, radio advertising offers selectivity.
Radio can be less expensive than other media.
Actual rates depend on geographic coverage, the number of commercials contracted for, the
time period specified, and whether the station broadcasts on AM, FM, or both.
Even small retailers are able to afford radio advertisements.
VII. Internet. The Internet is the newest advertising medium and is growing in popularity. Thereare
five types of Internet advertisements.
Banner ads are rectangular graphics appearing at the top of most consumer web sites.
Button ads are small squarish ads appearing at the bottom of a web page; they contain only a
corporate or brand name.
Sponsorship (or co-branded) ads integrate a company’s brand with editorial comment.
Keyword ads, featured primarily on Internet search engines, link a specific ad to text or subject
matter that an information seeker may enter.
Interstitial ads (in-your-face ads) pop up to display a product ad when viewers click on a web
site.
Cost per thousand (CPM) for Internet advertising is higher than that of television advertising.
Benefits of using the Internet as an advertising medium include the growth of Internet use by a

variety of different types of people and the ability to precisely target a specific audience.
Problems associated with using the Internet as an advertising medium include the relatively mediocre
quality of the advertisements that can be created and the lack of evidence regarding the effective-
ness of Net ads.
DECIDING ON MEDIA AND MEASURING EFFECTIVENESS

Let us now focus n media planning
After choosing the message, the advertiser’s next task is to choose media to carry it. The steps here
are
Deciding on desired reach, frequency, and impact;
Choosing among major media types
selecting specific media vehicles;
Deciding on media timing; and
(i) Deciding on reach, frequency , and impact Media selection is finding the most cost-effective
media to deliver the desired number and type of exposures to the target audience. What do we mean
by the desired number of exposures? Presumably, the advertiser is seeking a specified advertising
objective and response from the target audience – for example, a target level of product trial. The
rate of product trial will depend, among other things, on level of brand awareness. Suppose the rate
of product trial increases at a diminishing rate with the level of audience awareness, as shown in
Figure. If the advertiser seeks a product trial rate of (say) t*, it will be necessary to achieve a brand
awareness level of A*.
The next task is to find out how many exposures, E*, will produce a level of audience awareness of
A.* The effect of exposures on audience awareness depends on the exposures’ reach, frequency,
and impact:
Reach : The number of different persons or households exposed to a particular media schedule
at least once during a specified time period.
Frequency (F): The number of times within the specified time period that an average person or
household is exposed to the message
Impact (I ): The qualitative value of an exposure through a given medium (thus a food ad in Good
Housekeeping would have a higher impact than in the Police Gazette).
(ii) Choosing among major media types The media planner has to know the capacity of the major
media types to deliver reach, frequency, and impact.
Media planners make their choice among media categories by considering the following variables:
Target-audience media habits: For example , radio and television are the most effective media
for reaching teenagers.
Product characteristics: Media types have different potentials for demonstration, visualization,
explanation, believability, and color. Women’s dresses are best shown in color magazines , and
Polaroid cameras are best demonstrated on television.
Message Characteristics: Timeliness and information content will influence media choice. A
message announcing a major sale tomorrow will require radio, TV, or newspaper. A message
containing a great deal of technical data might require specialized magazines or mailings.
Cost: Television is very expensive, whereas newspaper advertising is relatively inexpensive.
What counts is the cost-per-thousand exposures.
(iii) Selecting specific vehicles The media planner must search for the most cost-effective ve-
hicles within each chosen media type. The advertiser who decides to buy 30 seconds of A u d i -

ence size has several possible measures:

Circulation: The number of physical units carrying the advertising.
Audience: The number of people exposed to the vehicle. (If the vehicle has pass-on readership,
then the audience is larger than circulation)
· Effective audience: The number of people with target audience characteristics exposed to the
vehicle.
Effective ad-exposed audience: The number of people with target audience characteristics who
actually saw the ad.
Media planners are increasingly using more sophisticated measures of effectiveness and employing
them in mathematical models to arrive at the best media mix. Many advertising agencies use a
computer program to select the initial media and then make further improvements based on subjec-
tive factors. 34
(iv) Deciding on media timing - In choosing media, the advertiser faced both a macroscheduling and
a microscheduling problem involves scheduling the advertising in relation to seasons and the business
cycle. Suppose 70 percent of a product’s sales occur between June and September. The firm can
vary its advertising expenditures to following the seasonal pattern, to oppose the seasonal pattern, or
to be constant throughout the year. Most firms pursue a seasonal policy. Yet some year ago, a soft-
drink manufacturer put more money into off-season advertising. This resulted in increased non sea-
sonal consumption of its brand, while not hurting seasonal consumption. Other soft drink manufac-
tures started to do the same, and the result was a more balanced consumption patters.
The most effective pattern depends on the communication objectives in relation to the nature of the
product, target customers, distribution channels, and other marketing factors. The timing patterns
should consider three factors. Buyer turnover expresses the rate at which new buyers enter the
market; the higher this rate, the more continuous the advertising should be. Purchase frequency is
the number of times during the period that the average buyer buys the product; the higher the pur-
chase frequency, the more continuous the advertising should be. The forgetting rate at which the
buyer forgets the brand; the higher the forgetting rate, the more continuous the advertising should be.
In launching a new product, the advertiser has to choose among ad continuity, concentration, flighting,
and pulsing. Continuity is achieved by scheduling exposures evenly throughout a given period. Gen-
erally, advertisers use continuous advertising in expanding market situations, with frequently pur-
chased items, and in tightly defined buyer categories. Concentration calls for spending all the adver-
tising dollars in a single period. This makes sense for products wi9th one selling season or holiday. F
lighting calls for advertising for some period, followed by a hiatus with no advertising, followed by a
second period of advertising activity. It is used when funding is limited, the purchase cycle is rela-
tively infrequent, and with seasonal items. Pulsing is continuous advertising at low-weight levels
reinforced periodically by waves of heavier activity. Pulsing draws on the strength of continuous
advertising and flights to create a compromise scheduling strategy. 38 Those who favor pulsing feel
that the audience will learn the message more thoroughly, and money can be saved. Here is an
interesting article ……
Review the following article. Bring out the key points. Discuss
your points of agreement and disagreement .
…….
Strategic Issues

Should Indian media giants diversify? G. Krishnan

Over the last few years, Indian Media has undergone a revolution. The country’s large and expand-
ing middle class is proving to be an irresistible target for international business, whose advertising
expenditure is driving this rapid media expansion. The birth of Indian Mass Media took place with the
advent of a newspaper called ‘Hickey’s Gazette’ in 1869. Since then Print has witnessed a series of
changes - introduction of colour, new supplements, and separate city editions. In all there are over
39,000 print vehicles in India, published in over a hundred languages with a combined circulation
exceeding ninety million.
For a long time print was seen as a popular and a dominant medium in the Indian scenario. The
Annual Report of the Registrar of Newspapers for India lists 41 papers that are over hundred years
old. However over the years, other media such as radio, cinema & TV have grown at the expense of
Print. This is more so in the case of television. Television experienced its first phase of growth after
going colour in 1982; the next boom began with the satellite invasion in 1991. As a result, the last
decade has seen a hugely increased choice for the Indian audience who have enthusiastically wel-
comed the greater diversity.
Television has acted as a catalyst not only in impacting other media but influencing and changing
culture and consumption habits. The change has resulted in a shift in focus from broadcasting to
narrow casting, from distribution to content, from being led by cost to being led by value, from being
driven by ownership/editorial interests to being consumer driven. With all the growth and the compe-
tition, media conglomerates have looked to expand their opportunities and protect their business
across states and across media.
This propagation of media has in a way been the result of technology. Over time, various technolo-
gies have been responsible for changing the face of the Indian Media and will continue to do so. For
instance, in the coming years, TV will also provide content to net with the expansion of bandwidth.
Thanks to the latest technology, multi media convergence is now possible such as Broadbanding,
WAP, Internet on cable, News through the short messaging system (SMS). In other words the
audience now has more choice and greater accessibility to information. All this will permit the media
giants to diversify since an information hungry audience is ready to digest this change. Not just that,
Indian Media continues to reap the benefits of the fastest growing economies of the world. The
opening up of the economy, rise in per capita income, the age break up, the escalation in urban
population, the constant increase in literacy rate in India are some of the factors that have made
conditions favorable for media giants to diversify into related or unrelated areas. For example, con-
stant growth in literacy rate makes innovations in print viable and therefore extremely popular with
the advertisers. The age break up works in favor of producing niche or specialized content across
media, the rise in per capita income has provided greater purchasing power in the hands of the Indian
consumer giving them a chance to explore and venture into new territories.
This increase in per capita income has spurred the growth of brands, which in turn has provided both

the opportunity as well as the need in the growth of advertising & media.
The bottom line, therefore, is that the Indian audience is getting more aware of the surroundings
around them and craving for more information. In such a context, diversifying would help to reach
out to the consumer in a different and a more meaningful manner. Diversifying has undoubted
advantages for both the audience as well as for the media owner. For the audience, there is extended
choice, better entertainment, a broader international perspective, more credible news reporting and a
greater sense of inclusiveness. On the other hand for the media owner it means higher quality enter-
tainment programming, possibility of developing new markets, retaining loyal audience by giving him
greater than before options. Diversification in media could take a number of forms. For example,
within Print separate newspapers for Morning, Afternoon, and Evening could help to leverage the
brand equities that have been built over the years. The recent launch of the afternoon newspaper in
Delhi - ‘Today’ by the India Today group is an example of filling a need gap. An afternoon newspa-
per will surely help in giving a unique shape to this medium. In Television, for certain markets having
potential, content customisation will be able to provide value to the viewer. However, what the media
owners need to keep in mind is that the content will be the key to drive future media and in years to
come will play a vital role in the success of a company. A feature across media would be to have
minimal wastage of content so as to provide value to the consumer. Providing synergies across media
will not just drive the media owners but would also be helpful in cultivating advertising opportunities.
POINTS TO REMEMBER

Tutorial- L
Almost a decade back Hot Shot attempted to create an excitement in the camera market, and
succeeded in having a short-term success. After this initial success, the market for cameras how-
ever has not improved significantly in the last decade. Kodak is currently attempting to develop the
market with limited advertising on TV and by introducing a model ( KB-10) at the lower end of its
productline. The camera market is around 6 lakh units ( including the grey market). Pentax has
introduced three models for professional ket is still underdeveloped ( as stated earlier), the profes-
sional market is likely to register a better growth rate. Pentax also has a model at around Rs. 7,200.
How would you formulate a promotional plan for Pentax in the professional segment?
Microwave oven is a product category that has been in the market for the last ten years, in spite of
the lifestyle changes of consumers, the product has not caught on. Bathiboi, Kelvinator, IFB and
BPL are some of the brands which have been attempting to create a market for the product. Re-
cently LG has launched its version ( which the brand refers to as multiwave oven). Kelvinator, has
launched campaigns which highlighted the usefulness of the product with regard to Indian delicacies.
It also launched a campaign with an emotional backdrop which project, the need for a caring husband
who would think about the brand.
Apart from advertising to create awareness about the product and brand, what other pro-
motional methods could be used to market the product? ( Specify the reasons for your
decisions.)
It is a well known fact that surrogate advertising has been used by liquor manufacturers for getting
over legal stipulations. They have also been introducing bottle openers, glasses, cutlery, playing cards
and soda with liquor brand names. About three years back, Maharashtra intoroduced a ban on liquor-
related advertising according to which no product can be advertised if it bears a name remotely
similar to an approved label of potable liquor. It is also to be noted that satellite TV is a major vehicle
still available for liquor advertising
As a manufacturer of a leading brand of liquor what other promotional strategy ( other

than satellite TV) would you formulate for promoting the brand?
Ashok Leyland entered the commercial vehicles market in 1987. The company initially introduced
Iveco-designed cargo range ( Cargo 1323 and 1614) in the medium-size segment of the market.
The proposition of the brand is aerodynamic design, good finish, “driver-friendly” control panels and
lower operating expenses. Telco, also has a very good image among fleet operators. Ashok Leyland
has about thirty-five distributors.
Draw up promotional plan for marketing the commercial vehicles of Ashok Leyland. Rea-
son out the decision on including specific types of promotional activity?

The direct mailer campaign for Teacher’s 12 whisky was featured in the New York-based one show
club’s “One Show Book”. As liquor advertising is not permitted in India direct mailing was used for
the brand. Number 12 was used extensively in the mailer to ensure a high brand recall. The cover
had a line “Thoughts on 12 a very special offer inside)”. On the last page there was a visual of the
brand with the line :”This is most important 12". The mailer was sent to 5000 prospective consumers
and about eighty per cent of them contacted the company ( very high for a director mailing exercise).
As a marketing manager working for a competitive brand positioned against Teacher’s 12

how would you perceive direct maiol? How would you promote your brand?
Application – 6
T/s Suzuki was for a longtime without a product in the scooter category. This category accounts for
40% of the total market for two-wheelers. Though the scooter market in terms of growth is only next
to the bike segment, any two-wheeler manufacturer has to have a product in this category to make
the productline complete. TVS Suzuki has been in the two-wheeler market for more than a decade.
In a survey the company found that only 22% people in Delhi ( who participated in the survey )
associated the name with two wheelers. The survey was undertaken before the launch of Spectra,
a four stroke scooter from TVS Spectra’s launch was different from the manner in which launch in
the category takes place. World renowned illusionist Franz fired about 1500 shells ( lazer based ) in
25 minutes in the launch which was named “TVS Millennium Show” ( at Delhi). The northern region
is an important market for scooters. A gone up significantly. It was also reported that around one
million people would have watched the event.
What are the pros and cons of this kind of a launch? What other aspects of promotion
should be considered/ implemented to support a launch of this kind? \

Unit 4
Lesson 43 - Sales Promotion
Let us now know about yet another popular component of promotion mix-sales promotion.
A good definition of sales promotion would be as follows:
“An activity designed to boost the sales of a product or service. It may include an advertising cam-
paign, increased PR activity, a free-sample campaign, offering free gifts or trading stamps, arranging
demonstrations or exhibitions, setting up competitions with attractive prizes, temporary price reduc-
tions, door-to-door calling, telemarketing, personal letters on other methods”.
Sales promotion - Short-term incentives to encourage the purchase or sale of a product or service.
You would agree that more than any other element of the promotional mix, sales promotion is
about “action”. It is about stimulating customers to buy a product. It is not designed to be informa-
tive – a role which advertising is much better suited to.
Sales promotion consists of short-term incentives to encourage purchase or sales of a product or

service., whereas advertising and personal selling offer reasons to buy a product or service, sales
promotion offers reasons to buy now.
You would find it interesting to note :

Sales promotion is commonly referred to as “Below the Line” promotion.
Advertising and personal selling Sales promotion can be directed at:
The ultimate consumer (a “pull strategy” encouraging purchase)
The distribution channel (a “push strategy” encouraging the channels to stock the product).
This is usually known as “selling into the trade”
DO YOU KNOW THE PURPOSE OF SALES PROMOTION ?

Sales promotion activities may be used singly or in combination, both offensively and defensively, to
achieve one goal or a set of goals.
Sales-promotion tools vary in their specific objectives. A free sample stimulates consumer trial,
whereas a free management-advisory service aims at cementing a long-term relationship with a
retailer.
Sellers use incentive-type promotions to attract new users, to reward loyal customers, and to
increase the repurchase rates of occasional users. Sales promotions used in markets of high brand
similarity produce a high sales response in the short run but little permanent gain in market share. In
markets of high brand dissimilarity, sales promotions can alter market share permanently.
Sales promotions enable manufacturers to adjust to short-term price they can charge, because they
can always discount it. They induce consumers to try new products instead of never straying from

current ones. They lead to more varied retail formats, such as the everyday-low-price store and the
promotional-pricing store. They promote greater consumer awareness of prices. They permit manu-
facturers to sell more than they would normally sell at the list price. They help the manufacturer
adapt programs to different consumer segments. Consumers themselves enjoy some satisfaction
from being smart shoppers when they take advantage of price specials.
Today, many marketing managers first estimate what they need to spend in trade promotion,
then what they need to spend in consumer promotion. Whatever is left they will budget for advertis-
ing. There is a danger, however, in letting advertising take a back seat, because advertising typically
acts to build brand loyalty. The question of whether or not sales promotion weakens brand lo9yality is
subject opt different interpretations. Sales promotion , with its incessant price off, coupons, deals, and
premiums, may devalue the product offering in buyers’ mind . Buyers learn that the list price is
largely a fiction. However, before jumping to any conclusion, we need to distinguish between price
promotions and added-value promotions. These examples show how certain types of sales promotion
can axially enhance brand image.
WHAT ARE METHODS FOR SALES PROMOTION?

Sales Promotion Methods. Most sales promotional methods can be classified as promotion tech-
niques either for consumer sales or for trade sales.
1. A consumer sales promotion method attracts consumers to particular retail stores and moti-
vates them to purchase certain new or established products.
2. A trade sales promotion method encourages wholesalers and retailers to stock and actively
promote a manufacturer’s products.
3 . A number of factors enter into marketing decisions about which and how many sales promotion
methods to use.
You must be familiar with many of the following sales promotion methods:-
Rebates. A rebate is a return of part of the purchase price of a product.
- Usually the rebate is offered by the producer to consumers who send in a coupon along with a
specific proof of purchase.
- Rebating is a relatively low-cost promotional method.
Coupons. A coupon reduces the retail price of a particular product by a stated amount at the
time of purchase.
- These coupons may be worth anywhere from a few cents to a few dollars.
- They are made available to customers through newspapers, magazines, direct mail, online, and in
shelf dispensers in the store.
- Coupons may also offer free merchandise, either with or without an additional purchase of the
product.
Samples. A sample is a free product given to customers to encourage trial.
- Samples may be offered via online coupons, direct mail, or in stores.
- Samples are the most expensive sales promotion technique.
Premiums. A premium is a gift that a producer offers the customer in return for using its
product.
Frequent-User Incentives. Frequent-user incentives are programs developed to reward

customers who engage in repeat (frequent) purchases.
- Frequent-user incentives build customer loyalty.
- An airline’s frequent-flyer program is one example of a frequent-user incentive.
Point-of-Purchase Displays. A point-of-purchase display is promotional material placed within
a retail store.

It may actually hold merchandise or inform customers of what the product offers and encourage
them to buy it. Most point-of-purchase displays are prepared and set up by manufacturers and
wholesalers.
Trade Shows. A trade show is an industry wide exhibit at which many sellers display their
products.
- Some trade shows are organized exclusively for dealers–to permit manufacturers and wholesal-
ers to show their latest lines to retailers.
- Others are promotions designed to stimulate consumer awareness and interest.
Buying Allowances. A buying allowance is a temporary price reduction to resellers for pur-
chasing specified quantities of a product.
A buying allowance may serve as an incentive to resellers to handle new products, stimulate pur-
chase of items in large quantities.
Buying allowances are simple, straightforward, and easily administered.
They can easily be copied by competitors.
Cooperative Advertising. Cooperative advertising is an arrangement whereby a manufac-
turer agrees to pay a certain amount of the retailer’s media costs for advertising the manufacturer’s
product.
WHAT ARE THE MAJOR DECISIONS IN SALES PROMOTION ?

1. Establish its objectives,
2. Select the tools,
3. Develop the program,
4. Pretest the program,
5. Implement and control it, and
6. Evaluate the results.
Establishing objectives Sales-promotion objectives are derived from broader promotion ob-
jectives, which are derived from more basic marketing objective developed for the product. For
Consumers, objectives include encouraging purchase of larger – sized unit, building trial among
nonusers, and attracting switchers away from competitiors’ brands. For retailers, objectives
include persuading retailers to carry new items and higher levels of inventory, encouraging off-
season buying, encouraging stocking of related items, offsetting competitive promotions, building
brand loyalty, and gaining entry into new retail outlets. For the sales force, objective include
encouraging support of a new product or model, encouraging more prospecting, and stimulating
off-season sales.
Selecting consumer – promotion tools The promotion planners should take into account the
type of market, sales-promotion objectives, competitive conditions, and each tool’s cost-effec-
tiveness
The main consumer-promotion tools have been discussed in previous section. We can distinguish
between manufacturer promotions and retailer promotions. The former are illustrated by the auto
industry’s frequent use of rebates, gifts to motivate test-drives and purchases, and high-retailer con-
tests or premiums., We can also distinguish between sales-promotion tools that are “consumer-fran-
chise building,” which reinforce the consumer’s brand preference, and those that are not., The
former impart a selling message along with the deal, as in the case of free samples, frequency
awards, coupons when they include a selling message, and premiums when they are related to the
product. Sales-promotion tools that are not consumer-franchise building include price-off packs, con-
sumer premiums not related to a product, contests and sweepstakes, consumer refund offers, and
trade allowances.
Sales promotion seems most effective when used together with advertising. In one study, a price

promotion alone produced only a 15 percent increase in sales volume. When combines with feature
advertising, sales volume increased 19 percent; when combined with feature advertising and a point-
of-purchase display, sales volume increased 24 percent.
Many large companies have a sales-promotion manager whose job is to help brand managers
choose the right promotional tools. The following example shows how2 one firm determined the
appropriate tools.
Selecting trade-promotion tools Manufacturers use a number of trade-promotion tolls. Super

pressingly, a higher proportion of the promotion pie is devoted to trade-promotion tools ( 46.9
percent) than to consumer promotion ( 27.9 percent), with media advertising capturing the
remaining 25.2 percent. Manufacturers award money to the trade (1) to persuade the retailer or
wholesaler to carry the brand; (2) to persuade the retailer or wholesaler to carry more units than
the normal amount; (3) to induce retailers to promote the brand by featuring, display, and price
reductions; and (4) to stimulate retailers and their sales clerks to push the product.
The growing power of large retailer has increased their ability to demand trade promotion at the
expense of consumer promotion and advertising. 57 These retailers depend on promotion money from
the manufacturers. No manufacturer could unilaterally stop offering trade allowances without losing
retailer support. The company’s sales force and its brand managers are often at odds over trade
promotion. The sales force says that the local retailers will not keep the company’s products on the
shelf unless they receive more trade-promotion money; whereas the brand managers want to spend
the limited funds on consumer promotion and advertising. Manufacturers face several challengers in
managing trade promotions., they often find it difficult to police retailers to make sure they are doing
what they agreed to do. Manufacturers are increasingly insisting on proof of performance before
paying any allowances
Selecting business – and sales-force-promotion tools Companies spend billions of dollars on

business – and sales-force-promotion tools (Table 20.5). These tools are used to gather business
leads, impress and reward customers, and motivate the sales force to greater effort. Companies
typically develop budgets for each business-promotion tools that remain fairly constant from year to
year.
Developing the program In planning sales-promotion programs, marketers are increasingly blend-
ing several media into a total campaign concept. Kerry E. Smith describes a complete sales-promo-
tion program:
A sports trivia games to create pull-through at taverns for a premium beer brand would use TV to
reach consumers, direct mail to incentives distributors, point-of—purchase for retail support, tele-
phones for consumer cal-ins, a service bureau for call processing, live operators for data entry, and
computer software and hardware to tie it all together… companies use teleprompting not only to pull
product through at retail but also to identify customers, generate leads, build databases and deliver
coupons product samples, and rebate offers.60
Pretesting, implementing, controlling, and evaluating the program
Although most sales-promotion programs are designed on the basis of experience, pretests should be
conducted to determine if the tools are appropriate, the incentive size optimal, and the presentation
method efficient. Roger Strange maintains that promotions usually can be tested quickly and inex-
pensively and that large companies should test alternative strategies in selected market areas with
each national promotion. Consumers can be asked to rate or rank different possible deals, or trial
tests can be run in limited geographic areas.

Marketing managers must prepare implementation and control plans for each individual promotion
that cover lead time and sell-in-time. Lead time is the time necessary to prepare the program prior to
launching it: initial planning, design, and approval of package modifications or material to be mailed or
distributed; preparation of advertising and point-of-sale materials; notification of field sales person-
nel; establishment of allocations for individual distributors; purchasing and printing of special premi-
ums or package materials; production of advance inventories in preparation for release at a specific
date; date; and, finally, the distribution to the retailer. sell-in time begins with the promotional launch
and ends when approximately 95 percent of the deal merchandise is in the hands of consumers.
To evaluated the program, manufacturers can use three method:

sales data,
consumer surveys,
and experiments.
The first method involves using scanner sales data, which are available from companies such as
Information Resources Inc. and Nielsen Media Research. Marketers can analyze the types of people
who took advantage of the promotion, what they bought before the promotion, d how they behaved
late toward the brand and other brands.
In general, sales promotions work best when they attract competitors’ customers to try a superior
product and these customers switch. If the company’s product is not try a superior product and these
customers switch. If the company’s, product is not superior, the brand’s share is likely to return to this
– pre-promotion level. If more information is needed, consumer surveys can be conducted to learn
how many recall the promotion, what they thought of it, how many took advantage of it, and how the
promotion affected subsequent brand-choice behavior.
Sales promotions can also be evaluated through experiments that very such attributes as incentive
value, duration , and distribution media. For example, coupons can be sent to half of the households in
a consumer panel. Scanner data can be sued to track whether the coupons led more people to buy
the product immediately and in the future.
Beyond the cost of specific promotions, management must recognize additional costs. First, promo-
tions might decrease long-run brand loyalty by making more consumers deal-prone rather than ad-
vertising-prone . Second, promotions can be more expensive than they appear. Some are inevitably
distributed to the wrong consumers.
Third, there are the costs of special production runs, extra sales-
force effort, and handling requiems. Finally, certain promotions
irritate retailers, who may demand extra trade allowances or refuse
to cooperate.
Review the following article. Comment on the strategy fol-

lowed .
Something interesting for you ……….
Microwave sales sizzle in small towns
AMRITA NAIR GHASWALLA
MUMBAI: Experiential marketing is the new buzzword for the microwave oven category. For con-
sumer durable majors catering to microwave ovens, cookery shows are the order of day and tagging

along for the sales pitch are microwave oven cookbooks and even microwave cookware. The target:
B and C class towns.
While earlier markets like Ranchi, Haryana and Coimbatore accounted for 30 to 40 microwave
ovens, today, consumer durable firms are selling approximately 400 microwave ovens in these and
smaller towns. The positive response has had firms ramping up their marketing and communication
efforts.
Consumer durable major LG Electronics has chalked out a clear strategy to tap the mass market and
is looking at selling one million microwave ovens in the next five years.
Saurabh Baisakhia, LG product group head, maintains that consumer sale for LG is happening pre-
cisely as a result of “these marketing initiatives.”
The firm appears to have broken the seasonality myth associated with the MWO category. Adds
Baisakhia, “The focussed initiatives of meeting our consumers need through pre sales promotions
and post purchase experience (read cookery classes) has ensured that LG MWOs sales this year
was not affected by the popular misconception of slow summer sales.”
According to the latest figures released by ORG, LG has cornered a 33.3 per cent market share for
the first half of 2003. Samsung is a close second with a market share of 31.4 per cent. While LG sold
18,256 units in the first six months, Samsung sold 17,203 units during the same period
Samsung director R Zutshi pointed out that, “Cookery classes, MWO melas in smaller markets and
a fullyequipped demonstration centre in Pune, where cooking classes are held for housewives and
potential customers, are some of our marketing initiatives which have yielded results.”
In a bid to boost sales, Samsung is also giving a free Tarla Dalal recipe book, a MWO starters-kit
comprising of five bowls, a chappati warmer, a dhokla maker and a coffee maker among other
cookware.
POINTS TO REMEMBER


Unit 4
Lesson 44 - Public Relations
Students, another major mass-promotion tool is- public relations. Let us know how marketers
develop public relations to meet their promotional objectives.
Simply speaking , public relations would mean - building good relations with the company’s various
publics by obtaining favorable publicity, building up a good corporate image, and handling or heading
off unfavorable rumors, stories, and events. Public relations departments may perform any or all of
the following functions
Public relations
Building good relations with the company’s various publics by obtaining favorable publicity, building
up a good “corporate image,” and handling or heading off unfavorable rumors, stories, and events.
Not only must the company relate constructively to customers, suppliers, and dealers, but it must also
relate to a large number of interested publics.
A public is any group that has an actual or potential interest in or impact on a company’s
ability to achieve its objectives.
Public relations (PR) involves a variety of programs designed to promote or protect a company’s
image or its individual products.
WHAT IS THE ROLE AND IMPACT OF PUBLIC RELATIONS ?

Public relations has often been treated as a minor element in the promotion mix, but the wise
company takes concrete steps to manage successful relations with its key publics. Most companies
have a public-relations department that monitors the attitudes of the organization’s publics and
distributes information and communications to build of the goodwill. The best PR departments
spend time counseling top management to adopt positive programs and to eliminate questionable
practice so that negative publicity does not arise in the first place.
Public relations is used to promote products, people, places, ideas, activities, organizations, and even
nations. Public relations can have a strong impact on public awareness at a much lower cost than
advertising can. The company does not pay for the space or time in the media. Rather, it pays for a staff
to develop and circulate information and to manage events. If the company develops an interesting
story, it could be picked up by several different media, having the same effect as advertising that would
cost millions of dollars. And it would have more credibility than advertising.
Public Relations perform the following five functions:

1. Press relations: Presenting news and information about the organiza-

tion in the most positive light.
2. Product publicity: Sponsoring efforts to publicize specific products.
3. Corporate communication: Promoting understanding of the organiza-
tion through internal and external communications.
4. Lobbying: Dealing with legislators and government officials to pro-
mote or defeat legislation and regulation.
5. Counseling: Advertising management about public issues and com-
pany positions and image during good times and crises.
KNOWING MAJOR PUBLIC RELATIONS TOOLS

Organizations use a variety of public relations tools to convey messages
and to create images.Public relations professionals use several tools. One of the major tools is news.
PR professionals find or create favorable news about the company and its products or people. Some-
times news stories occur naturally, and sometimes the PR person can suggest events or activities that
would create news. Speeches can also create product and company publicity. Increasingly, company
executives must field questions from the media or give talks at trade associations or sales meetings,
and these events can either build or hurt the company’s image
Another common PR tool is special events, ranging from news conferences, press tours, grand
openings, and fireworks displays to laser shows, hot air balloon releases, multimedia presentations
and star-studded spectaculars, and educational programs designed to reach and interest target pub-
lics. Recently, mobile marketing—traveling promotional tours that bring the brand to consumers—
has emerged as an effective way to build one-to-one relationships with targeted consumers.
Public relations people also prepare written materials to reach and influence their target markets.
These materials include annual reports, brochures, articles, and company newsletters and maga-
zines. Audiovisual materials, such as films, slide-and-sound programs, and video- and audiocas-
settes, are being used increasingly as communication tools. Corporate identity materials can also
help create a corporate identity that the public immediately recognizes. Logos, stationery, brochures,
signs, business forms, business cards, buildings, uniforms, and company cars and trucks—all become
marketing tools when they are attractive, distinctive, and memorable. Finally, companies can improve
public goodwill by contributing money and time to public service activities.
In brief one can summarize the tools as follows :-

Public relations professionals prepare written materials such as brochures, newsletters, com-
pany magazines, annual reports, and news releases.
Corporate identity material such as logos, business cards, signs, and stationery are also public
relations tools.
Event sponsorship is a public relations tool in which a company pays for all or part of a special
event such as a concert, sports competition, festival, or play.
a. Sponsoring special events is an effective way for an organization to increase brand recognition
and receive media coverage with relatively little investment.
b. Public relations personnel sometimes organize events, such as grand openings, to create news
about a company.
Some public relations tools are associated specifically with publicity. Publicity is communication
in news story form about an organization, its products, or both. Publicity-based public relations
tools include:
a. News release–a typed page of about 300 words provided by an organization to the media as a
form of publicity

b. Feature article–a piece (of up to 3,000 words) prepared by an organization for inclusion in a
particular publication
c. Captioned photograph–a picture accompanied by a brief explanation
d. Press conference–a meeting at which invited media personnel hear important news announce-
ments and receive supplementary textual materials and photographs
The specific types of public relations tools chosen depend on several factors.
a. Composition of the target audience
b. Response of media personnel
c. Significance of the news item
THE NEW ADAGE- MARKETING PUBLIC RELATIONS

Comments by Dr. Demo
Marketing managers and PR specialists do not always talk the same language. Marketing managers
are much more bottom-line-oriented, whereas PR practitioners see their job as preparing and dis-
seminating communications; but these differences are disappearing. Many companies are turning to
marketing public relations (MPR) to directly support corporate or product promotion and image
making. MPR, like financial PR and community PR, serves and special constituency, namely, the
marketing department.
The old name for MPR was publicity, which was seen as the task of securing editorial space – as
opposed to paid space – in print and broadcast media to promote or “hype” a product, service, idea,
place, person, or organization. However, MPR goes beyond simple publicity and plays and important
role in the following tasks:
Assisting in the launch of new products:
Assisting in repositioning a mature product:
Building interest in a product category:
Influencing specific target groups:
Defending products that have encountered public problems:
Building the corporate image in a way that reflects favorably on its products:
WHAT ARE MAJOR DECISIONS IN MARKETING PR?

In considering when and how to use MPR, management must establish the marketing objectives,
choose the PR massages and vehicles, implement the plan carefully, and evaluate the results.
1. ESTABLISHING THE MARKETING OBJECTIVES MPR can build awareness by plac-

ing stories in the media to bring attention to a product, service, person, organization, or idea. It can
build credibility by communicating the message in an editiorial context. It can help boost sales-force
and dealer enthusiasm with stores about a new product before it is launched. It can hold down
promotion cost because MPR costs less than direct-mail and media advertising.
Some product launches are able to garner publicity without much effort.
Whereas PR practitioners reach their target publics through the mass media, MPR is increasingly
borrowing the techniques and technology of direct-response marketing to reach target audience
members one on one. MPR expert Thomas L. Harris offers suggestions for how PR and direct-
response marketing can work together to achieve specific marketing objectives: 74
Build marketplace excitement before media advertising breaks: The announcement of a new
product offers a unique opportunity for obtaining publicity and for dramatizing the product.
Build a core consumer base: Marketers recognize the value of maintaining consumer loyalty,

because it cost far less to keep a consumer than to get a new one.
Build a one-to-one relationship with consumers: Marketers can use telephone hot lines, plus the
Internet, to build and maintain relationships with individual consumers.
Turn satisfied customers into advocates: Customer databases and profiles can yield satisfied
customers who can become role models and spokespeople for the product.
Influence the influential: The influencer may be an authority figure like a teacher, doctor, or
pharmacist, but it also can be someone who has a different kind of one-to-one relationship with
the consumer, such as a hair stylist or personal trainer.
2. CHOOSING MESSAGES AND VEHICLES The MPR manager must identify or develop
interesting stories to tell about the product.
Event creation is a particularly important skill in publicizing fund-raising drives for nonprofit organiza-
tions. Fund-raisers have developed a large repertoire of special events, including anniversary cel-
ebrations, art exhibits, auctions, benefit evenings, bingo games, book sales, cake sales, contents,
dances, dinners, fairs, fashion shows, parties in unusual places, phonations, rummage sales, tours, and
walkathons, For – profit organizations also use events to call attention to products and services.
3. IMPLEMENTING THE PLAN AND EVALUATING RESULTS implementing public rela-

tions requires care. A great story is easy to place, but most stories are less than great and might not
get past busy editors. One of the chief assets of publicists is their personal relationship with media
editors. PR people look at media editors as a market to satisfy so that these editors will continue to
use their stories.
MPR’s contribution to the bottom line is difficult to measure, because it is used along with other
promotional tools. The three most commonly used measures of MPR effectiveness are number of
exposures; awareness, comprehension, or attitude change; and contribution to sales and profits.
The easiest measure of MPR effectiveness is the number of exposures carried by the media.
POINTS TO REMEMBER


Unit 4
Lesson 45 -Direct marketing
Let us now learn more about the fast becoming popular promotional tool-Direct Marketing. You
are already aware that , direct marketing is concerned with establishing an individual relationship
between the business offering a product or service and the final customer.
Direct marketing has been defined by the Institute of Direct Marketing as:
The planned recording, analysis and tracking of customer behavior to develop a relational
marketing strategies
Direct marketing Direct connections with carefully targeted individual consumers to both obtain an
immediate response and cultivate lasting customer relationships; Direct communications with care-
fully targeted individual consumers to obtain an immediate response.
Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods and ser-
vices to customers without using marketing middlemen.
What does direct marketing channels include ? You must have also received direct mails or
might have been approached by telemarketers !
These channels include direct mail, catalogs, telemarketing, interactive TV, kiosks, Web sites, and
mobile include direct mail, catalogs, telemarketing, interactive TV, kiosks, Web sites, and mobile
devices. Direct marketing is one of the fastest growing avenues for service customers.
Direct marketers seek a measurable response, typically a customer order. This is sometimes called
direct-order marketing. Today, many direct marketers use direct marketing to build along-term rela-
tionship with the customer ( customer relationship marketing). They send birthday card, information
materials, or small premiums to select customers. Airlines, hotels, and other businesses build strong
customer relationships through frequency award programs and club programs.
Is their growth of direct marketing ?
What do you think ? Sales produced through traditional direct-marketing channels ( catalogs, direct
mail, and telemarketing) have been growing rapidly. In developed countries retail sales grow around
3 percent annually, catalog and direct-mail sales grow at about double that rate.
Is it not interesting to know that direct sales include sales to the consumer market ( 53 percent ), B2B
(27 percent), and fund raising by charitable institutions ( 20 percent ). Total media spending for all
direct marketing is increasing now. Electronic marketing is also showing even more explosive growth.
The extraordinary growth of direct marketing is the result of many factors.

Let us find out why ? Market demassification has resulted in an ever-increasing number of
market niches. Higher costs of driving, traffic congestion, parking headaches, lack of time, a short-
age of retail sales help, and line at checkout counters all encourage at-home shopping. Consumers
appreciate direct marketers’ toll-free phone numbers available 24 hours a day, 7 days a week, and
their commitment to customer service. They growth of home deliveries has made ordering fast and
easy. In addition, many chain stores have dropped slower-moving specialty items, creating an oppor-
tunity for direct marketers to promote these items to interested buyers. The growth of the Internet, e-
mail, mobile phones, and fax machines has made product selection and ordering much simpler. More
and more business marketers have turned to direct mail and telemarketing in response to the high and
increasing costs of reaching business markets through a sales force.
Knowing benefits of Direct marketing
Let us now know about the benefits of direct marketing . Can you highlight some ?
Direct marketing benefits customers in many ways. Home shopping is fun, convenient, and hassle-
free. It saves time and introduces consumers to a larger selection of merchandise. They can do
comparative shopping by browsing through mail catalogs and online shopping services. They can
order goods for themselves or others. Business customers also benefit by learning about available
products and services without tying up time in meeting salespeople.
Sellers also benefit. Direct marketers can buy a mailing list containing the names of almost any
group: left-handed people , overweight people, millionaires. They can customize and personalize their
messages. Direct marketers can build a continuous relationship with each customer. The parents of
a newborn baby will receive periodic mailings describing new clothes, toys, and other goods as the
child grows. Nestlé’s baby-food division continuously builds a database of new mothers and mails six
personalized packages of gift and advice at key stages in the baby’s life.
Direct marketing can be timed to reach prospects at the right moment, and direct marketing material
receives higher readership because it is sent to more interested prospects. Direct marketing permits
the testing of alternative media and messages in search of the most cost-effective approach. Direct
marketing also makes the direct marketer’s offer and strategy less visible to competitors. Finally,
direct marketers can measure responses to their campaigns to decide which have been the most
profitable.
Although direct and online marketing are booming, a large number of companies still relegate them to
minor roles in their communication / promotion mix.. Advertising, sales promotion sales force may
also see direct marketing as a threat when it has to turn over smaller customers and prospects to
direct mailers and telemarketers.
However, companies are increasingly recognizing the importance of integrating their marketing com-
munications.
In brief the following summarize the benefits of direct marketing
The advertiser can target a promotional message down to an individual level, and where possible
personalise the message. There are a large number of mailing databases available that allow
businesses to send direct mailing to potential customers based on household income, interests,
occupation and other variables
Businesses can first test the responsiveness of direct mailing (by sending out a test mailing to a
small, representative sample) before committing to the more significant cost of a larger cam-
paign
Direct mailing campaigns are less visible to competitors – it is therefore possible to be more
creative, for longer

However, direct mail has several weaknesses:

A piece of direct mail is less “interactive” than a television or radio advert, although creative
packaging can still stimulate customer response
Lead times to produce direct mailing campaigns can be quite long
There is increasing customer concern with “junk mail” – the receipt of unsolicited mail which
often suggests that the right to individual privacy has been breached.
WHAT ARE THE MAJOR CHANNELS FOR DIRECT MARKETING ?

Direct Marketers can use a number of channels for reaching individual prospects and customers .
Let us discuss some of them:-
1. Face to Face Selling - Do you know that the original and oldest form of direct marketing is the
field sales call ? Many companies use direct sales force or agents to locate prospects and de-
velop them into customers. Amway, Avon and Tupperware are examples of such companies.
2. Direct Mail - Direct mail marketing involves sending an offer , announcement , reminder or
other item to a person. Using highly selective mailing lists , direct marketers send out millions of
mail pieces each year – letters , flyers ,foldouts etc.
Can you highlight how to construct a direct mail campaign ?

3. Catalog Marketing - In catalog marketing, companies may may send full-line merchandise
catalogs, specialty consumer catalogs, and business catalogs, usually in print form but also some-
times as CDs, viewos, or online
1. Face to Face selling
2. Direct Mail.
3. Catalog Marketing
4. Telemarketing
5. Kiosk Marketing
6. e-marketing
The success of a catalog business depends on the company’s ability to manage its customer lists
carefully so that there is little duplication or bad debts, to control its
inventory carefully, to offer quality merchandise so that returns are low, and to project a distinctive
image. Some companies distinguish the catalogs by adding literary or information features, sending
swatches of materials, operating a special hot line to answer questions, sending fights to their best
customers, an d donating a percentage of the profits to good causes
4. Telemarketing - Telemarketing involves the use of the telephone and call centers t attract pros-
pects, sell to existing customers, and provide service by taking orders and answering questions.
Telemarketing helps companies increase revenue, reduce selling costs, and improve customer satis-
faction.
Companies use call centers for inbound telemarketing ( receiving calls from customers ) and out-
bound telemarketing ( initiating calls to prospects and customers ). In fact, companies carry out four
types of telemarketing:
Telesales: Taking orders from catalogs or ads and also doing outbound calling.
Telecoverage: Calling customers to maintain and nurture key account relationships.
Teleprospecting: Generating and qualifying new leads for closure by another sales channel.
Customer service and technical support: Answering service and technical questions.
5. Kiosk marketing - A kiosk is a small building or structure that might house a selling or informa-
tion unit. The term describes newsstands, refreshment stands, and free-standing carts whose ven-
dors sell watches, costume jewelry, and other items often seen along the aisles in a mall. The term

also covers computer-linked vending machines and “customers-order –placing machines” that one
sees in stores, airports, and other locations. All of these are direct-selling tools.
6. E-marketing - The newest channels for direct marketing are electronic. E-business describes a
wide variety of electronics platforms, such as the sending of purchase orders to suppliers via elec-
tronics data interchange (EDI) or extranets; the use of fax and e-mail to conduct transactions; the
use of ATMs, EFTPOS, and smart cards to facilitate payment and obtain digital cash; and the use of
the Internet and online services. All of these involve doing business in a “market space” as compared
to a physical “marketplace.
The Internet today functions as a information source, an entertainment source, a communication

channel, a transaction channel, and even a distribution channel. One can use it as a shopping mall, a
TV set , a newspaper, a library, or a phone. Users can send e-mail, exchange views, shop for
products, and access news, receipes, art, and business information.
The Internet provides marketers and consumers with opportunities for much greater interaction and
individualization. Companies in the past would send standard media-magazines, newsletters, ads-
without any individualization or interaction. Today these companies can send individualized content
and consumers themselves can further individualize the content; and today companies can interact
and dialogue with larger groups than ever in the past.
Direct Marketing in India:

In India, direct selling is growing at a fast pace. Total sales through direct selling route in 2002
was Rs.1,723.7 crore.
India was the fastest growing market in 2000 in terms of revenues from direct selling, registering
a 54% yoy growth.
90% of goods sold by the direct sellers in India are sourced from goods manufactured within the
country.
Most of the Direct Selling companies operating in India today are in the field of cosmetics,
personal products, household products, cookware and healthfood.
Amway is the largest player in India with annual sales exceeding Rs5bn
Other major players are Avon Beauty Products (I) Pvt Ltd, Oriflame India Pvt Ltd, Tupperware
India Pvt Ltd, Lotus Learning Pvt Ltd, LB Publishers and Distributors Pvt Ltd and DK Family
Learning
The Indian Direct Selling Association is an association of companies engaged in the business of
direct selling in India. All major players in India are affiliated to IDSA.
Mass-market penetration is now catching up within the Rs 1,800-crore direct selling industry as
well, and direct selling majors such as Amway, Tupperware and Avon now seem to be following
the path charted by FMCG giants such as Hindustan Lever, Marico, Britannia, Nestle, Dabur,
Godrej and Tata Tea.
Considering the above facts, the following questions come into picture.
What are other challenges it would face and what are the possible solutions?
How should the company frame its strategies, to account for the gaping demographic differ-
ences present in the Indian market?
How should a new direct-selling company compete with an established FMCG major, such as
HLL, if it also adopts direct-selling strategies?
What are the strategies that should be followed by a direct-selling company to create a strong
brand name?
What are the new fields into which direct-selling companies could venture?

Here is something you would find interesting……….
agreement
*
Telemarketing: Dial N for nuisance SRIKALA BPTI [ WEDNESDAY, NOVEMBER 26, 2003
04:33:29 PM ]
BANGALORE : The CEO of ING Vysya Bank, Bart Hellemans, got an unusual call on his cell
phone a few months ago. The caller wanted him to open a savings account with a foreign bank.
When polite refusal didn’t work, Hellemans finally had to get tough with the caller and remind her
that she was talking to the CEO of a bank, and he didn’t need to bank with another bank.
Increasingly, high-income people in Indian metros including Bangalore , are being swamped by nui-
sance phone calls from smooth-talking telemarketers, offering everything from loans to credit cards
to insurance policies. They are persuasive, persistent and often insufferable, intruding into your work
and private hours.
Personal information like your residence address, contact number and your email IDs are no more
personal details. Hundreds of telemarketing companies store and sell such information to businesses
wanting to direct sell their products and services.
Chaitra, who runs a telemarketing company, dredges out potential clients by conducting painting
competitions in residential complexes. “We ask residents for contact information for communicating
the contest results,’ she says. The moment a resident passes on the information, he enters the hit-list
of an insurance company’s barrage of unsolicited mail and calls.
Sharath, an entrepreneur in the business of database collection, says that even the attendance regis-
ters at colleges have become a scavenging ground for data predators. “We collect student addresses
from various colleges and pass them on to companies in the computer education businesses.”
A number of home finance and insurance companies participate in exhibitions and fairs exclusively
for collecting data. On the other hand, credit card issuers themselves are huge database repositories.
Take the case of a well-known MNC bank. The moment a card-user does a high-value transaction,
he becomes a candidate for its personal loans and the target of a marketing offensive.
Insurance company sources say that many card issuers part with their database for a fee but handle
the task of sending out direct mailers themselves.
Intriguingly, businesses swear by telemarketing despite its low success rate. This is because at even
a 1-2 per cent hit rate, this strategy is more cost-effective than advertising-led marketing strategies.
At Rs 3,000 per month telemarketing executives come cheap. Add the 15-20 per cent commission
involved, and still the cost of direct marketing is a pittance. According to Srinivas, a business insider,
the big advantage is that “We hire executives on project basis so their salary is not our burden”.
No wonder, Bangalore is a base for nearly 200 telemarketing companies, which hire students and
housewives who are looking for flexi-time jobs.
If the current trend is any indication, the future is even brighter for telemarketing companies
which means more harassment for those of us who value our privacy and our time.

No no-call list
While the citizens in the US have the luxury of ‘a no-call list’ and can choose not to receive calls from
telemarketing companies, Indians have to wait for a few more years.
The Indian law is silent on telemarketing issues and according to Standard Chartered Bank’s credit
card division head, Shyam Srinivasan, it is left to the companies to draw up the no-call list.
“If a customer chooses not to receive calls, he can inform the company and will be taken out of the
database,” says Srinivasan. Unfortunately, only a few have put the concept to practice.
Point to remember


Tutorial - M
Kellogg’s Has introduced Choco breakfast cereal biscuits priced at Rs. 5 for 50 gms. These biscuits
as per the claims of the brand contain vitamins and the brand makes an attempt to change the
perception of consumers in having biscuits for breakfast. The brand’s target market is the entire
family comprising adults and children, and is aimed at meeting a part of the nutritional requirements
of the family
What are the leading brands of biscuits advertised widely through different kinds of me-
dia? What is the size of the biscuit market in India? What is the size of the biscuit market in
India? With these details draw out a media plan for Chocos?
Youth is the target segment for bar type chocolates ( 5 Star, Charge, Picnic brands). Perk is
positioned as a snacking chocolate while 5 star and Charge are positioned as energy bars. There
seems to be considerable potential for developing the market for bar type of chocolates. These
chocolates if they are positioned as snack foods may also compete with biscuits, savories and ice
creams. Te psychographics profile of the target your segment is urban, lively, fun loving in the age of
18-25 years.
What kinds of media would you recommend for a national brand of bar chocolate? ( Take
into consideration the reach, frequency and media costs involved in collecting appropri-
ate information
The refrigerator market has almost revived after the introduction of no-frost models and the entry of
a number of brands in recent times. Godrej made a tremendous impact on the perception of consum-
ers when it used ‘puf’ attribute in its positioning. Samsung, LG, Whirlpool and BPL are some of
the brands which have come out with campaigns to get into the ‘consideration’ aspect of the mindset
of consumers . Whirlpool had launched a campaign for its range of frost-free fridges with an appeal
different from those of the competitive brands. The advertisement projects Whirlpool as a very
dependable brand in social situation avoiding embarrassment in front of hosts. It emphasizes the
capability of the refrigerator to produce ice quickly when it is most needed.
Study the various appeals of refrigerators in the market and comment on the appeal of
Whirlpool in particular. Identify the specific conceptual appeal involved and comment on
he positive and negative aspects of the appeal.
The battery market has a few brands in the alkaline battery segment – Duracell Energizer and
Excel. A large sum ( about Rs. 10 Crores ) was spent in advertising durable batteries for a total sale
of Rs. 40 crores ( 1997-98). These batteries form about one per cent of the total battery market.
Duracell’s appeal was “Lasts six to seven times longer than ordinary batteries”. Engizer came out
with a product-specific campaign which emphasized the longer life in high drain equipments like
pagers and cellular phones. Excel claimed it was the longest lasting alkaline battery.
Given the consumer usage pattern of batteries and the appeals of the alkaline brands,
what kind of appeal would you formulate for a new brand of alkaline battery?

Unit 4
Lesson 46 - Personal selling - concept and process
In previous chapter we have discussed about Direct marketing and its growth ,importance and chan-
nels of direct Marketing.
Let us move on to another component of promotion mix- Personal selling. You all have prob-
ably experienced personal selling efforts. Have you ever bought something from the door
salesman ? Do you find personal selling efforts worth appreciating or have you found them
iritatating?
Personal selling is somewhat different from other promotion components . Do you agree ? Lets get
started and know it better………
Students you would agree that personal selling is the most adaptable of all promotion methods
because the person who is presenting the message can modify it to suit the individual buyer.
However, personal selling is also the most expensive promotion method.
Lets define personal selling now…
Personal selling is paid personal communication that attempts to inform customers and persuade
them to purchase products or services.
You would agree that it is the personal selling process that allows marketers the greatest freedom to
adjust a message to satisfy customers’ information needs. Personal selling allows the marketer or
seller to communicate directly with the prospect or customer and listen to his or her concerns, an-
swer specific questions, provide additional information, inform, persuade, and possibly even recom-
mend other products or services.
It would be interesting for you to know that personal selling is one of the oldest forms of promotion.
It involves the use of a sales force to support a push strategy (encouraging intermediaries to buy
the product) or a pull strategy (where the role of the sales force may be limited to supporting
retailers and providing after-sales service).
Let us look at how personal selling facilitates marketers :-

The greatest freedom to adjust a message to satisfy customers informational needs, dynamic.
Most precision, enabling marketers to focus on most promising leads. vs. advertising, publicity
and sales promotion
Give more information
Two way flow of information, interactivity.

Discover the strengths and weaknesses of new products and pass this information on to the
marketing department.
Highest cost. Businesses spend more on personal selling than on any other form of promotional
mix.
Goals range from
finding prospects
convincing prospects to buy
keeping customers satisfied—help them pass the word along.
KINDS OF SALESMEN
Let us know about kinds of salesmen . Can you give some examples ? Have you met different kind
of sales people ? Following are some categories of sales person
A. Salespersons may be order getters, order takers, and support personnel. A single individual can,
and often does, perform all three functions.
1. Order Getters. An order getter is responsible for what is sometimes called creative selling:
selling the firm’s products to new customers and increasing sales to present customers.
a. An order getter must perceive buyers’ needs supply customers with information about the firm’s
product, and persuade them to buy the product.
b. Order-getting activities fall into two groups.
1. In current-customer sales, salespeople concentrate on obtaining additional sales.
2. In new-business sales, sales personnel seek out new prospects and convince them to make an
initial purchase.
2. Order Takers. An order taker handles repeat sales in ways that maintain positive relationships
with customers.
a. Inside order takers receive incoming mail and telephone orders; they also include salespersons in
retail stores.
b. Outside (or field) order takers travel to customers.
3. Support Personnel. Sales support personnel aid in selling but are more involved in locating
prospects, educating customers, building goodwill for the firm, and providing follow-up service.
a. A missionary salesperson usually works for a manufacturer and visits retailers to persuade
them to buy the manufacturer’s products.
b. A trade salesperson generally works for a food producer or processor and assists its customers
in promoting products, especially in retail stores.
A technical salesperson assists the company’s current customers in technical matters.
PROS AND CONS OF PERSONAL SELLING

What are the advantages of using personal selling as a means of promotion?
Personal selling is a face-to-face activity; customers therefore obtain a relatively high degree of
personal attention
The sales message can be customised to meet the needs of the customer
The two-way nature of the sales process allows the sales team to respond directly and promptly
to customer questions and concerns
Personal selling is a good way of getting across large amounts of technical or other complex
product information
The face-to-face sales meeting gives the sales force chance to demonstrate the product
Frequent meetings between sales force and customer provide an opportunity to build good long-
term relationships
Given that there are many advantages to personal selling, why do more businesses not maintain a

direct sales force?
Main disadvantages of using personal selling

The main disadvantage of personal selling is the cost of employing a sales force. Sales people are
expensive. In addition to the basic pay package, a business needs to provide incentives to achieve
sales (typically this is based on commission and/or bonus arrangements) and the equipment to make
sales calls (car, travel and subsistence costs, mobile phone etc).
In addition, a sales person can only call on one customer at a time. This is not a cost-effective way of
reaching a large audience
KNOWING PERSONAL SELLING PROCESS

Let us know how the salesperson proceeds with personal selling efforts .Very commonly known are
the following seven steps of personal selling process :-
1. PROSPECTING
2. PRE-APPROACH
3. APPROACH
4. SALES PRESENTATION
5. HANDLING OBJECTIONS
6. CLOSING SALE
7. FOLLOW UP
1. PROSPECTING - Prospecting refers to identifying and developing a list of potential clients.

Salespeople can seek the names of prospects from a variety of sources including trade shows,
commercially-available databases or mail lists, company sales records and in-house databases, public
records, referrals, directories, and a wide variety of other sources. Prospecting activities should be
clearly structured so that they identify only potential clients who fit the profile and are able, willing,
and authorized to buy the product or service. Once prospecting is underway, it then is up to the sales
professional to qualify those prospects to further identify likely customers and screen out poor leads
Let us look at the prospecting methods in brief :

Referrals from customers
Trading leads with other sales representatives (non-competitive)
Internal Lists
Purchased lists (some interest)
Cold calling (no prior indication of interest)
2. PRE-APPROACH - Before engaging in the actual personal selling process, sales professionals
first analyze all the information they have available to them about a prospect to understand as much
about the prospect as possible. During the pre approach phase of the personal selling process, sales
professionals try to understand the prospect’s current needs, current use of brands and feelings about
all available brands, as well as identify key decision makers, review account histories (if any), assess
product needs, plan/create a sales presentation to address the identified and likely concerns of the
prospect, and set call objectives. The sales professional also develops a preliminary overall strategy
for the sales process during this phase, keeping in mind that the strategy may have to be refined as he
or she learns more about the prospect.
In brief pre-approach would involve the following :-

Does the customer have a need that would be filled by the product/service?
Is it financially possible for the customer to buy?
Can the person make or influence the decision?

3. APPROACH - The approach is the actual contact the sales professional has with the prospect.
This is the point of the selling process where the sales professional meets and greets the prospect,
provides an introduction, establishes rapport that sets the foundation of the relationship, and asks
open-ended questions to learn more about the prospect and his or her needs.
4. SALES PRESENTATION - During the presentation portion of the selling process, the sales
professional tells that product “story” in a way that speaks directly to the identified needs and wants
of the prospect. A highly customized presentation is the key component of this step. At this point in
the process, prospects are often allowed to hold and/or inspect the product and the sales professional
may also actually demonstrate the product. Audio visual presentations may be incorporated such as
slide presentations or product videos and this is usually when sales brochures or booklets are pre-
sented to the prospect. Sales professionals should strive to let the prospect do most of the talking
during the presentation and address the needs of the prospect as fully as possible by showing that he
or she truly understands and cares about the needs of the prospect.
5. HANDLING OBJECTIONS - Professional salespeople seek out prospect objections in order

to try to address and overcome them. When prospects offers objections, it often signals that they
need and want to hear more in order to make a fully-informed decision. If objections are not uncov-
ered and identified, then sales professionals cannot effectively manage them. Uncovering objections,
asking clarifying questions, and overcoming objections is a critical part of training for professional
sellers and is a skill area that must be continually developed because there will always be objections.
Trust me when I tell you that as soon as a sales professional finds a way to successfully handle “all”
his or her prospects’ objections, some prospect will find a new, unanticipated objection— if for no
other reason than to test the mettle of the salesperson.
6. CLOSING SALE - Although technically “closing” a sale happens when products or services are
delivered to the customer’s satisfaction and payment is received, for the purposes of our discussion
I will define closing as “asking for the order”. There are many closing techniques as well as many
ways to ask trial closing questions. A trail question might take the form of, “Now that I’ve addressed
your concerns, what other questions do you have that might impact your decision to purchase?”
Closing does not always mean that the sales professional literally asks for the order, it could be asking
the prospect how many they would like, what color they would prefer, when they would like to take
delivery, etc. Too many sales professions are either weak or too aggressive when it comes to closing.
If you are closing a sale, be sure to ask for the order. If the prospect gives an answer other than
“yes”, it may be a good opportunity to identify new objections and continue selling.
7. FOLLOW UP - Followup is an often overlooked but important part of the selling process. After
an order is received, it is in the best interest of everyone involved for the salesperson to followup with
the prospect to make sure the product was received in the proper condition, at the right time, installed
properly, proper training delivered, and that the entire process was acceptable to the customer. This
is a critical step in creating customer satisfaction and building long-term relationships with customers.
If the customer experienced any problems whatsoever, the sales professional can intervene and
become a customer advocate to ensure 100% satisfaction. Diligent followup can also lead to uncov-
ering new needs, additional purchases, and also referrals and testimonials which can be used as sales
tools.
WHAT SHOULD A GOOD SALESPERSON DO ?

What do you think ? What are the qualities of a good salesperson ?
Let us discuss a few of them…..
1) Be sincere with people. Too many salespeople are fake and feign interest in their prospects.
People are smart and see right through such insincerity. If you are not sincere and honest with
everyone you meet then you should not be in sales.
2) It is vitally important to constantly hone your sales and communications skills. Continuous growth

and training in formal professional selling techniques is also very important. Take training classes,
listen to audio cassette professional development tapes, read all the professional development
material you can get your hands on, and start a program of self-study and development in sales
today if you haven’t already.
3) First listen to your customer, understand his or her wants and needs, and only then try to deter-
mine whether or not you can deliver the product or services to meet those wants and needs. If
you approach a prospect with a solution before understanding the problem you are likely to be
wrong about the solution.
4) The best salespeople ask a lot of questions and genuinely listen to the answers before speaking
again.
5) Your prospects and customers are all different so you should treat them differently.
6) The best sales people listen much more than they talk.
7) Find out what your prospects want and then give it to them.
8) If you think you cannot make sales then you probably should not even try.
Here is something interesting for you…….
Review the following article. Share Your views.
Shorn close personal - VARSHA GUPTA & MALIKA

RODRIGUESTIMES NEWS NETWORK[ WEDNESDAY,
AUGUST 11, 1999 12:32:29 AM ]
Marketing in the year 2005: Virtually all products are available without going to a store. The customer
can access pictures on the Internet, shop among online vendors for the best terms, and click order
and payment. Most companies have built proprietary databases containing information on individual
customer preferences, and use them to “mass-customise” their offerings. Businesses are doing a
better job of retaining customers by finding imaginative ways to exceed customer expectations.
Companies are focusing on building customer share rather than market share. An increasing amount
of personal selling is occurring over electronic media, mass TV advertising has greatly diminished.
Companies are unable to sustain competitive advantages, and believe that their only sustainable
advantage lies in an ability to learn faster and change faster. * Philip Kotler, Kotler on Marketing
THROW away those stilettos and clogs. Barefoot days are here. Feel the earth, scream marketers
as they wait for the new millennium to unfold. Trying to be heard above the din of the big M, Indian
marketers say, “Let’s go back to the basics”. Making consumers want - but more essentially, buy -
products is what marketing is about. And this what it will always be about, Y2K or not. As Sergio
Zyman, former head of marketing at The Coca-Cola Company, has put it, “It’s the consumer, stupid.”
That’s what marketers will focus on in the new age. Only, the many ways of getting to the consumer
are evolving at the speed of thought. So it seems only fitting that technology will take over marketing,
and move it from being a science to sounding like science fiction. On the cutting edge of the century,
terms from the lexicons of finance, economics and technologyhave found their way onto marketers’
tongues. Here’s what they’re chanting: E-commerce. Data mining. EVA. Customer value creation.
Decommoditisation and dimensionalisation. All these are now considered by various battle-scarred
marketing warriors to be essential for survival in the brave new world. But again, while the tools may
be getting increasingly complicated, it’s all being put to a very simple, single-minded purpose - under-
standing consumers and selling better to them. It’s a goal that most marketers are shooting for, as the
sun sinks lower on this millennium. Ashok Jain, managing director, Cadbury Schweppes feels that
“Marketing made itself so complex that it got lost in its own maze of complexity.” Sunil Alagh,
managing director of Britannia Industries, elaborates on the need for consumer-study: “New market-

ing research will have to focus on understanding in greater depth the moments of consumption for
their products.” More familiarity won’t breed contempt, it will break common ground. Jain adds,
“The consumer will actually become a customer now.” Millennium marketers will be using a differ-
ent box of tools to get more people to buy more products, more often. In The End of Marketing as We
Know It, Sergio Zyman suggests what he calls ‘dimensionalising’. Simply, if more customers are to
buy more of a product, they will need more reasons to do so. One needs to add newer dimensions to
the image of the product in consumers’ minds.
This means looking at consumers in new and more creative ways, to come up with different appeals
for the same old selling proposition. This will be imperative, as in the absence of a powerful appeal to
the emotions, or the rationale, a consumer will pick on the only differentiator he truly understands:
Price. Technology will make things cheaper, and many will be able to afford the things that only a few
have so far. Says Subroto Sengupta, professor of marketing at IIM Calcutta, “Barefoot marketing
will ride again. There will be a great need for no-frills products and services.” Walter Viera, presi-
dent, Marketing Advisory Services Group, warns that it won’t be only the mass-market players
who’ll have to think value. “Top-end marketers such as Cartier will have to address the fact that their
customers want value even at that price.” It’s specially important for marketers in this country, feels
Rajeev Bakshi, managing director, Cadbury India, as he believes “India will be a VFM (value for
money) products market.” The marketer of tomorrow will cut his teeth selling to the customer of
today. A customer who is smarter, savvier, and needs more and better reasons to buy. That’s be-
cause customers are being spoilt with increasing choice, they’re becoming more price-sensitive and
quality-conscious.
They’ll be more focused on self-satisfaction. Helping them achieve the nirvana of ‘customer self-
empowerment’, will be newer and easier ways to buy - teleshopping, online malls and door-to-door
network marketers all offer a reason to choose their products. The key lies in the capacity to excite
the consumer. Says Abraham Koshy, professor of marketing, IIM-Ahmedabad: “Newer methods
and technologies to understand consumers will evolve. These in turn automatically take into account
the drive towards providing better value to customers. The concept of relationship marketing will
transcend personal relationships to encompass brand relationships.” So, come 2000, the customer’s
kingdom will finally come. And then, one will see how successful his most faithful courtier’s efforts
to keep him satisfied have been.
Point to remember


Unit 4
Lesson 47 - Management of sales force
Students ,we have discussed the personal selling process in the previous chapter. You therefore
know that it would entail having a sales force .Management of sales force is a critical task . Do you
agree ? Do you Know why? Can you tell me how the job profile of sales department is different from
others ?
Let us begin the discussion by knowing what all is included in management of sales force. .
WHAT DOES MANAGEMENT OF SALES FORCE INVOLVE ?

It is the attainment of sales force goals in an effective and efficient manner through planning,
staffing, training, leading and controlling of organizational resources.
It would involve the following ‘:-
1. Establishing Sales force objectives - You would agree that setting personal selling objectives is the
foremost task. What are personal selling objectives ?
Types of personal-selling objectives
The qualitative personal-selling objectives are long term and concern the contributions manage-
ment expects personal selling to make in achieving long-term company objectives. These objectives
generally are carried over from one period’s promotional program to the next. Depending upon
company objectives and the promotional mix, personal selling may be assigned such qualitative objec-
tives as
1. To do the entire selling job ( as when there are no other elements in the promotional mix).
2. To “service” existing accounts ( that is, to maintain contacts with present customers, take orders,
and so forth).
3. To search out and obtain end customers.
4. To secure and maintain customers’ cooperation in stocking and promoting the product line.
5. To keep customers informed on changes in the product line and other aspects of marketing
strategy.
6. To assist customers in selling the product line ( as through “missionary selling”).
7. To provide technical advice and assistance to customers ( as with complicated products and
where products are especially designed to fit buyers’ specification ).
8. To assist with ( or handle ) the training of middlemen’s sales personnel.
9. To provide advice and assistance to middlemen on management problems.
10. To collect and report market information of interest and use to company management.

The basic considerations in setting qualitative personal-selling objectives are decision on sales poli-
cies and personal-selling strategies and their role in the total promotional program. After this role is
defined, qualitative long-term personal-selling objectives are set. In turn, the qualitative personal-
selling objectives become the major determinants of the quantitative personal – selling objectives.
The quantitative objectives assigned to personal selling are short term and are adjusted from one
promotional period to another. The sales volume objective – the dollar or unit sales volume manage-
ment sets as the target for the promotional period – is the key quantitative objective. All other
quantitative personal –selling objectives derive from or are related to the sales volume objective.
Thus, discussion here focuses upon the setting of sales volume objectives. Setting the sales volume
objective influences the setting of other quantitative personal – selling objectives, among them the
following:
1. To, capture and retain ascertain market share.
2. To obtain sales volume in ways that contributes to profitability ( for example, by selling the
“optimum” mix of company products).
3. To obtain some number of new accounts of given types.
4. To keep personal-selling expenses within set limits.
5. To secure targeted percentages of certain accounts’ business.
MANAGEMENT OF SALES FORCE

1. Establishing Sales force objectives
2. Determining sales force size
3. Recruiting and Selecting
4. Training
5. Compensation
6. Motivating
7. Controlling and evaluating performance
2. Determining sales force size - Do you know why it is important to have the right number of
sales staff ? Broadly speaking , lesser number than required could possibly lead to loss of sales and
overburdening of present sales staff. On the other hand more than adequate number would not be
cost effective and can also lead to confusion and duplication of work.
To be specific Size of sales force affects

compensation methods for salespersons.
morale of salespersons.
overall sales force management.
How to we arrive at optimal sales force size ? Can you tell me ? Do you think there are formulas for
arriving at that ?
Two simple methods for determining optimal sale force size could be :
Dividing the number of sales calls necessary to serve customers by the number of sales calls a
salesperson makes annually
Adding additional salespersons until the cost of adding one more salespersons equals the addi-
tional sales that would be generated by that person
Can you think of some more ?
3. Recruiting and Selecting - The organization for recruiting and selection of sales personnel
varies from company to company. Company size , executives personalities , and departmental struc-
ture all influence the organization decisions regarding this.

Who undertakes these processes of recruiting and selecting ?

It could be centralized
It could be through Human resources department
It could be with sales department itself.
Recruiting - involves Developing a list of qualified applicants for sales positions. The
organization needs
to establish a set of required qualifications before beginning to recruit
Prepare a job description that lists specific tasks the salesperson should perform and
analyze traits of the successful salespeople within the organization.
Recruitment should be a continual activity aimed at reaching the best applicants.

Applicants that most match the demographics of the target market.
– Establish a set of qualifications that best match the firm’s particular sales tasks
Prepare a job description listing specific tasks
Analyze successful salespeople among current employees
–Sources of applicants
Other departments in the company
Employment agencies
Other firms
Educational institutions
Job ad respondents
Employee referrals
-Selection systems for sales personnel range from simple one –step systems consisting of noting
more than an informal personal interview , to complex multiple –step systems .
What methods do you think would be appropriate for selection of sales staff ?
Generally the following steps go in the selection process :-

Preliminary Interview and pre-interview screening
Formal application
Interview
References
Testing (thematic/stimulation/simulation tests )
Physical examination
Employment offer
4. Training - Why do you think training is important ? Do you think sales staff should be trained or
let experience teach them ? Does training kill the spontaneity or pre-conditions them?
The purpose of sales training is to achieve improved job performance .In the absence of training , job
performance involves with experience .Training however, substitutes for or supplements experience,
so sales personnel given training reach high job performance levels earlier.
What should the training program focus on ?
Training should focus on:

the company
products

selling techniques.
customers.
Are you aware of some training methods ? What training methods should be used for sales people ?
Let us briefly out line them :-
On the job training (with close supervision )
Off the job:-
Class room
Demonstrations
Role playing
Case Discussion
Gaming
Case discussion etc.
5. Compensation - Do you think sales people should be compensated differently ? why and
what factors should be kept in mind ?
You would be agree that sales people have a a very different job profile . They often do tasks which
were not categorized or specified . Let us have a look at some factors :-
To attract, motivate and retain sales people
facilitate and encourage good treatment of the customers.
Need to understand personalities of sales people
Strive for proper balance of freedom, income and incentives.
Need to determine the best level of compensation required
best method of calculating it.
In brief one can say that a properly designed sales compensation plan fits a company’s special needs
and problems , and from it flows attractive returns for both the company and its sales personnel.
Let us now have look at common compensation methods :-

Straight salary
Straight commission
Combination plan
Use of bonus
Fringebenefits.
6. Motivating - What motivates a sale person ? Money , Job profile ,perks….? High productivity
in a sales force comes about neither naturally nor accidentally. Some sales personnel are self-starters
, requiring little external incentive , but they are the exceptions. Most sales personnel require motiva-
tion to reach and maintain satisfactory performance levels.
Here are some factors which highlight why sales people require extra attention :-
Inherent nature of the sales job
Sales person’s role conflicts
Tendency towards apathy
Maintaining a feeling of group identity
Here are some ways of motivating the sales staff:-

Compensation packet that rewards quality salesmanship and extra effort
Recognition of extra effort of sales force
Make sure feel important

Keep informed of company activities

Make certain they believe in the company
Goals must be realistic and achievable and changeable
Determine what they want and give it to them
7. Controlling and Evaluating Performance- You would agree that controlling and evaluating
performance is very much included in management of sales force.
Following are the main steps involved:-

Establishing Standards
Recording performances
Evaluating performance
Taking action
Evaluating performance means taking into account both Quantitative and qualitative factors. Effec-
tive procedures for evaluating and supervising sales personnel assure that sales department objec-
tives are reached with minimum effort . Evaluating and supervising are concerned with monitoring
the balance between standards and actual performance. Both are instrumental in achieving sales
force control.
Consider yourself as a sales representatative of an organization which provides assistance for car
breakdowns and other support services through membership. Design a sales presentation program to
sell membership to employees of a national bank.
Points to remember




Unit 4
Lesson 48 - Relationship marketing
Students , we have talked of many promotion tools in previous chapters such as Advertising , Sales
promotion ,Personal selling ,Direct Marketing etc.
We will talk of Relationship Marketing now . We can not exactly term it as promotion tool for it is
much more beyond it.
WHAT IS RELATIONSHIP MARKETING ?

Can you tell me about it ?
Relationship Marketing -The process of creating , maintaining and enhancing strong ,value-laden
relationships with Customers and other stakeholders.
Students, Relationship marketing is based on the premise that important accounts need focused and
continuous attention. Let us look at a relationship focused definition of marketing
Relationship focused definition of marketing - ‘The purpose of marketing is to establish,

maintain, enhance and commercialise customer relationships (often, but not necessarily al-
ways, long term relationships) so that the objectives of the parties involved are met. This is
done by the mutual exchange and fulfilment of promises. - Gronroos, C (1990)
Specifically speaking relationship marketing focuses on with the following

Focal point is integrating customer service and quality with a market orientation.
Focus is on getting and keeping customers
Concept of total quality across all functions focuses on total relationship between firm and its
customers, suppliers and key markets on an ongoing basis
GROWING IMPORTANCE OF RELATIONSHIP MARKETING

You would agree that today’s customers face a growing range of choices in the products and ser-
vices they can buy . . They are making their choice on the basis of their perceptions of quality,
service, and value. Companies need to understand the determinants of customer value and satisfac-
tion.
Here lies the role of relationship marketing.
A major challenge for high-performance companies is that of building and maintaining viable busi-
nesses in a rapidly changing marketplace. They must recognize the core elements of the business
and how to maintain a viable fit between their stakeholders, processes, resources, and organization
capabilities and culture

To create customer satisfaction, companies must manage their value chain as well as the whole
value delivery system in a customer-centered way. The company’s goal is not only to get customers,
but even more importantly to retain customers. Customer relationship marketing provides the key to
retaining customers and involves providing financial and social benefits as well as structural ties to
the customers. Companies must decide how much relationship marketing to invest in different mar-
ket segments and individual customers, from such levels as basic, reactive, accountable, proactive,
and full partnership. Much depends on estimating customer lifetime value against the cost stream
required to attract and retain these customers.
Let us look at the differences between transaction marketing and relationship marketing ,
which would further highlight the role of relationship marketing.

Main steps in establishing a relationship marketing program

Can you suggest how to incorporate relationship marketing program ? Students, do you think
there are set rules or guidelines for the same ?Obviously there can not be. Each organization
has to look at its business offerings , its resources and most importantly its customer profile to
arrive at a suitable relationship marketing program.
Broadly speaking the following outline the relationship marketing program

1. Identify the key customers meriting relationship marketing
2. Assign a skilled relationship manager to each key customer
3. Develop a clear job description for relationship managers
4. Appoint an overall manager to supervise the relationship managers Have relationship managers
develop long-range goals and annual customer-relationship plans
Here is an interesting article for you……….
Review the following article. Which strategies did you find interesting and why ? Discuss some of
the points you did not agree to .
Customer retention: The key to business performance

Customer retention is not given the attention due to it, by most firms. It has been found that
customer retention has more impact on profits than market share, economies of scale and
other variables that are considered to provide competitive advantage to a firm. In fact, it has
been found that companies, which reduced customer defections by 5 per cent, could boost
profits from 25 per cent to 85 per cent. Traditionally, marketing management has relied on
permutations and combinations of the marketing mix elements (product, price, place and promotion)
to achieve market dominance through enhanced market share by acquiring new customers. This
approach considers the formation of homogenous segments of relatively heterogeneous customers.
It does not take into account the history of association between the customer and the seller and
hence does not reveal the actual buying behaviour of the customer. Aggressive branding and promo-
tions are other tactics used by sellers adopting the traditional marketing approach. But brands with
the highest market share are not always the most profitable. In some cases, they may even be
unprofitable. The relationship marketing approach on the other hand, focuses on customer retention,
encouraging increased spends and on long-term relationships with customers. Gronroos, a research
scholar, has stated - ‘Marketing is to establish, maintain and enhance relationships with customers
and other parties at a profit so that the objectives of the parties involved are met. This is done by a
mutual exchange and fulfillment of promises’. Customer retention should thus become a part of the
strategic marketing planning process of any firm. It is important to define customer retention and also
to understand how it can be measured. Definition of customer retention Since customer retention
is of prime importance, it is imperative to understand what any organisation should retain. Table 1
illustrates the type of variables that ought to be retained.
Aggressive branding and promotions are other tactics used by sellers adopting the tradi-
tional marketing approach. But brands with the highest market share are not always the
most profitable . Both attitudinal and behavioural variables need to be understood when studying
customer retention. Attitude variables act as antecedents in most cases of behavioural changes. So
it is inappropriate to consider only one variable as explaining customer retention. It is generally a
resultant composite of multiple variables. The definition of customer retention should take into con-
sideration its appropriateness to the business of the firm. There are issues regarding whether the
absolute number of customers or their relative purchases should be considered for definition purpose.
An associated concern is whether the purchases should be in terms of volume or value. Research

has also indicated that the definition of customer retention that is in terms of percentage share of
customer savings, borrowings, spending, or purchases is more useful than just absolute numbers of
customers. Table 1: The assortment of variables that can be retained Behaviour variables
Attitudinal variables Number of customers (including dormant) Salience of brand proposition and
its components Number of active customers Brand preference Frequency of buying Psychological
commitment/loyalty Recency of buying Trust Size of expenditure Empathy Share of expenditure
Propensity to consider buying/use again/ contribute resources Extent of cross-sales Propensity to
pay more/ a premium Contract Customer satisfaction/delight Adjust buying/usage procedures to fit
supplier Likelihood to recommend/advocacy Routinized re-ordering Top-of-mind awareness Join club
Proven adequacy Enquiries Provide information when requested regarding needs and/or charac-
teristics Notification of complaints and successes Give you more time than competitors/before
Pay attention to organization’s announcement Source: Aspinall et al (2001) Hidden defections
have also to be kept track of. An example of hidden defection is that the growth in sales to a
particular retained customer is slower than the growth of the market. Appropriateness of definition
thus leads us to the issue of measurement of customer retention. Measurement of customer
retention It is important to measure customer retention since this helps set benchmarks and gauge
performance against this benchmark. Without measuring customer retention it cannot be managed.
Studies have shown that a relatively small percentage increase in the customer retention rate can
lead to a large increase in the net present value of customers. Crude retention rate is the absolute
percentage of customers that are retained. For example, if the number of customers drops from 1000
to 900, the crude rate is 90 per cent. A better measure is the weighted retention rate in which the
customers are weighted by the volume of purchases made by each of them. The ‘lifetime value’
(LTV) is a useful concept in measuring customer retention. The LTV of a customer depicts the
customer’s net present value to the seller. In this kind of analysis the cost of acquiring a customer is
taken as a sunk cost. The only costs considered are the selling and servicing costs for a customer.
The aim of the seller is to achieve a positive level of revenues as against these costs. By assuming
the period of future sustained relationship, the net value of cash flows and a suitable discount rate
(this is taken after accounting for the company’s cost of capital and risk), the LTV for a customer is
arrived at. It is important to retain employees and investors in order to retain customers.
Disloyal employees are not motivated enough to build a base of loyal customers LTV is a
difficult concept to operationalise. There is no clarity about what the lifetime of a consumer is - it can
be age, working life, product life cycle, etc. Estimating the value through studying the past is also not
precise. Assuming purchase probabilities into the future is also not easy. Moreover, carrying out this
exercise for each and every individual customer is a long and tedious process. Hence, if carried out
at an aggregate group level, questions about who should actually be the constituents of the group play
a significant role. Benefits of customer retention Customer retention affects both revenues and
cost in the equation of profitability Profit = Revenue – Cost Revenues are enhanced due to in-
creased sales and costs are lowered due to lesser generation and marketing costs of such revenues.
Scholars have outlined six economic benefits of customer retention:
a) savings on customer acquisition or replacement costs,
b) a guarantee of base profits as existing customers are likely to have a minimum spend per period,
c) growth in per customer revenue over time,
d) a reduction in relative operating costs as firms can spread the cost over many more customers
and over a longer period,
e) free of charge referrals of new customers from existing customers, and
f) price premiums as current customers usually do not wait for promotions or price reductions
before they make their purchases. Certain non-economic benefits from customer retention are
increased customer trust, commitment and cooperation.
Strategies for retaining customers In service marketing, customer retention has been
conceptualised as resulting from customer perceptions of service quality and customer satisfaction.
Scholars have advocated four steps as essential to retain customers:

a) define the market structure,

b) segment the customer base and determine segment value,
c) identify the segments’ service needs, and
d) implement a segmented service strategy. It is important to retain employees and investors in
order to retain customers. Disloyal employees are not motivated enough to build a base of loyal
customers. Similarly, disloyal investors will not be interested in building long-term relationships.
The team of customers, employees and investors must hence share a common vision of a long-
term relationship. It is important for the firm to understand the reasons that make customers
switch. Some of the reasons could be price, inconvenience, core service failure, failed employee
responses to service failure, ethical problems, involuntary factors, competitive issues and service
encounter failures. Understanding the causes of switching will help the firm develop barriers to
prevent switching. Interviewing former customers is another way to understand why they switched.
This can provide information that is specific and actionable.
Studies have revealed six types of defectors. These are:
a) Price defectors, who switch to a low-priced competitor,
b) Product defectors, who defect to a superior product offered by a competitor,
c) Service defectors, who leave due to poor service,
d) Market defectors, who are lost but not to any other business - they may go out of business or to
another market,
e ) Technological defectors, who switch to products offered by companies outside the industry, and
f) Organisational defectors, who switch due to internal or external politics. Analysing complaint
and service data is a good method to identify problems and understand why customers defect.
Analysis should be statistical and should be fairly detailed in order to understand the underlying
patterns of the problems. Strategic bundling is another way of erecting a barrier against defec-
tions that can lead to enhanced customer retention.
A bundle is a group of products or services offered as a single cost saving and convenient package.
A customer who opts for a bundle will not switch to a competitor even if he is offered a better deal
on a single item of the bundle. Usage analysis is a method that can be effectively used to help in
customer retention. Segmenting markets by consumption can provide valuable insights into the mix of
customers. Heavy users are more valuable than the medium or light ones and appropriate marketing
strategies have to be devised to retain them. Similarly in the business context, we find the Pareto
Principle or the 80/20 rule in operation. Key accounts that comprise about 20 per cent of the business
customers are responsible for about 80 per cent of the sales generated. Such heavy and key users
are prone to poaching by competitors. Hence it is important to concentrate advertising, promotion,
sales and communication efforts on this segment. Medium customers should be targeted with rev-
enue enhancement strategies through phone calls and e-mails. The light or unprofitable customers
should be served in new ways to upgrade them. In some cases, the unprofitable customers might also
have to be ignored. The strategies for retaining customers are a function of the nature of the product,
the stage of the product life cycle, and the buying behaviour of the customers. The relationships
between the core elements that create value in an organisation can be depicted as shown in Figure 1.
Customer value affects customer satisfaction, which in turn affects loyalty. Customer loyalty affects
customer retention. Loyalty of the customer increases with customer satisfaction at an increasing
rate. Segmentation of customers should be done by satisfaction levels, prior to the strategising of
retention activities. Beyond customer retention It is not enough to just retain customers through
prevention of defections. Positive changes in customer spending can have ten times the impact of
customer retention. It has been found that a lot more of customers decrease their spending than
defect. Managing this downward migration in spends is a challenge. This is more important in indus-
tries where the customer deals with more than one company for the same product or service. An
example is the credit card industry where a customer can have credit cards of more than one com-
pany. Managing this kind of migration effectively helps stop the downward spiral and brings about a
reversal in spends towards higher figures. Customer satisfaction, measured broadly, can indicate the

likelihood of customers defecting. But it does not help understand what makes customers loyal.
Loyalty may be related to the difficulty of finding a replacement. Customer satisfaction measure-
ment alone does not explain the tendencies of customers to change their spending patterns. Spending
patterns may change as a result of changes in lives, changes in what the company or its competitors
are offering. Thus, it is crucial to understand what factors actually drive loyalty. Researchers have
combined the different degrees of loyalty exhibited with the spending patterns, into six customer
segments. Figure 2 illustrates these in detail. Three of these segments, the loyalists, either maintain or
increase their spends. Loyalists may be emotionally attached to their brands (emotive loyalists), don’t
feel like taking the trouble to switch (inertial loyalists) or rationally choose the best option (delibera-
tive loyalists). The remaining three segments are the downward migrators who spend less. Down-
ward migrators may do so since their lifestyles have changed (lifestyle downward migrators), ratio-
nally reassess their options and needs (deliberative downward migrators) or may be actively dissat-
isfied with the product or service (dissatisfied downward migrators). The emotive loyalists are least
likely to defect. Inertial loyalists too are unlikely to switch easily. Thus, retention activities aimed at
the deliberative loyalists are the most rewarding. Loyalty profiling is influenced by factors such as the
frequency of purchase, the frequency of interactions such as service calls, the emotional or financial
importance of a purchase, the degree of differentiation among competitive offerings, and the ease of
switching. The loyalty profiles consisting of the six segments illustrated above help develop different
tactics to address different segments. When this is combined with customer-value analysis, the com-
pany can concentrate on loyalty building by assessing the size of each opportunity. Downward migra-
tion has been reduced by 20 to 30 per cent by companies who have understood the many facets of
customer retention and loyalty. Customer retention and arresting downward migration thus hold the
key to superior business performance.
Points to remember


SUMMMARY
Promotion’s role is to communicate with individuals, groups, or organisations to directly or indirectly
facilitate exchanges by informing and persuading one or more of the audiences to accept an
organisation’s products.
Promotion tolls consists of –Advertising, personal selling , sales promotion , public relations .There is
an growing importance of Direct Marketing and Relationship marketing in promotion practices too.
Advertising is any paid form of nonpersonal presentation and promotion of ideas, goods, or services
by an identified sponsor. Advertisers include not only business firms but also charitable, nonprofit,
and government agencies that advertise to various publics.
Developing an advertising program is a five-step process: (1) Set advertising objectives; (2) establish
a budget that takes into account stage in product life cycle, market share and consumer base, com-
petition and clutter, advertising frequency, and product substitutability; (3) choose the advertising
message, determine how the message will be generated, evaluate alternative messages for desirabil-
ity, exclusiveness, and believability; and execute the message with the most appropriate style, tone,
words and format and in a socially responsible manner; (4) decide on the media by establishing the
ad’s desired reach, frequency, and impact and then choosing the media that will deliver the desired
results in terms of circulation, audience, effective audience, and effective ad-exposed audience; and
(5) evaluate the communication and sales effects of advertising.
Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to
stimulate quicker or greater purchase of particular products or services by consumers or the trade.
Public relations would mean - building good relations with the company’s various publics by obtaining
favorable publicity, building up a good corporate image, and handling or heading off unfavorable
rumors, stories, and events
Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods and ser-
vices to customers without using marketing middlemen. These channels include direct mail, catalogs,
telemarketing, interactive TV, kiosks, Web sites, and mobile include direct mail, catalogs, telemarketing,
interactive TV, kiosks, Web sites, and mobile devices. Direct marketing is one of the fastest growing
avenues for service customers.
Personal selling process that allows marketers the greatest freedom to adjust a message to satisfy
customers’ information needs. Personal selling allows the marketer or seller to communicate directly
with the prospect or customer and listen to his or her concerns, answer specific questions, provide
additional information, inform, persuade, and possibly even recommend other products or services.
Personal selling process consists of –prospecting, pre-approach, approach ,sales presentation ,
handling objections and follow up. Management of sales force is equally important, it includes ,
establishing objectives , determining sales force size , recruiting ,selecting ,training motivating and
evaluating performance.
Relationship marketing is also critical in today’s scenario . Relationship marketing is based on the
premise that important accounts need focused and continuous attention

EXCERCISES
MULTIPLE CHOICE QUESTIONS
1. There are five major decisions in developing an advertising program. These are known as the five
“Ms.” Which of the following is not one of the five “Ms”?
Mission
Morale
Money
Media
2. There are a number of objectives of advertising that need to be considered. Which of the following
is not one of the objectives of advertising?
Entertainment advertising
Informative advertising
Persuasive advertising
Reminder advertising
3. There are five specific factors to consider when setting the advertising budget. Which of the
following is not one of those considerations?
Stage in the product life cycle
Market share and consumer base
Competition and clutte
All of the above are considerations
4. Ads that make claims that are simple exaggerations not intended to be believed are described as
what
Funny
Cheaper
Puffery
Outlandish
5. _______________ is the number of different persons or households exposed to a particular

media schedule at least once during a specific time period
Frequency
Reach
Impact
Audience
6. _________________ indicates how much brand holdover occurs independent of the level of
advertising
Habitual behavior
Carryover
Holdover
Matriculation
7. Which of the following is an example of a promotional device that would be used to entice consum-
ers to purchase a good?
Trade show
Sales conventions
Cash refund offers
Contests for sales reps

8. A __________________________ is a program providing rewards related to the consumers’

frequency and intensity in purchasing the company’s products or services
free trial
frequency program
tie-in promotion
product warranty
9. A good public relations department does a number functions. They include press relations, product
publicity, corporate communications, lobbying, and which one of the following?
Creating ads
Creating marketing plans
Counseling
Human resource audits
10. Which one of the following is not one of the five major modes of the marketing communications
mix?
Advertising
Commercials
Sales Promotions
Personal Selling
11. Which of the following is not one of the steps in developing effective communication?
Identify target audience
Determine objectives
Select channels
All of the above are steps
12. There are three distinct benefits to using sales promotions. Which of the following is not one of
the benefits?
Communication
Incentive
Invitation
All of the above are benefits
13. Companies need to take several steps to stimulate personal influence channels to work on their
behalf. Which of the following is not one of those steps?
Identify influential individuals and companies and devote extra effort to them
Develop word-of-mouth referral channels to build business
Use influential or believable people in testimonial advertising
All of the above would stimulate the channel
14. There are several tasks that are specific to the salesperson Which of the following is not one of
those tasks?
Prospecting
Packaging
Selling
Servicing
15. Which of the following is not one of the major steps in effective selling?
Prospecting
Product production

Pre-approach
Follow-up and Maintenance
ESSAY QUESTIONS
Describe the parts of a creative brief that is used to create advertising.
Describe how an advertiser chooses the media to be used for an advertisement.
What are the reasons a manufacturer would award money to the trade?
A target audience may not receive the intended message delivered by a company for three
reasons. Describe the reasons
State the steps in developing effective communication.

Tutorial-N
Marketing Spotlight-Oracle
Larry Ellison, along with three partners, founded the database management software company Sys-
tem Development Laboratories in 1977. In 1982, the company changed its name to Oracle, after the
name of its first product. By 1988, Oracle had a 36 percent share of the U.S. government’s PC
database market. The company began offering consulting services to its customers in 1989.
Oracle’s adjustment to this rapid growth was not seamless, however. The company developed a
reputation as a leader in “vaporware,” or products that are announced publicly but are still under
development and therefore unavailable. Its software often contained numerous bugs or lacked prom-
ised features. The company found itself embroiled in an accounting scandal in 1990, a result of a
widespread practice among the sales representatives of recording sales a quarter early in order to
boost earnings during slow quarters. Oracle was forced to restate earnings, pay a fine to the SEC,
and spend millions of dollars settling shareholder lawsuits. The company’s stock plummeted as a
result of these developments.
Beginning in 1991, Ellison enacted a plan that rescued Oracle from the brink. He secured $80 million
in financing from Nippon Steel, installed experienced Booz Allen manager Ray Lane as COO and
president, reduced headcount by 10 percent, and imposed stricter policies governing its sales force.
Ellison took a hands-on approach to establishing sales protocol for his company. He rewrote sales
contracts himself and initiated a standard pricing policy that eliminated haggling. He also altered the
compensation scheme so that managers were rewarded for meeting profit-margin targets rather
than for reaching sales volume quotas regardless of cost.
These moves, along with the launch of the next-generation Oracle 7 database in 1993, allowed the
company to complete a turnaround. By 1994, the company was the number-one database manage-
ment software maker in the world, with sales exceeding $2 billion that year. Oracle’s revenues tripled
between 1995 and 1999, yet the company’s sales force doubled during the same period. In 1998, the
company split its sales force into two teams. One team concentrated on the company’s core products
– database software – while the other team was charged with selling Oracle’s data-processing
applications. More than anything else, however, Oracle’s sales reps were able to handle the heavy
workload because the company embraced the Internet. In 1999, 25 percent of the company’s soft-
ware sales were accomplished online.
As business continued to flood the company, Oracle sought to take more of its business to the Web.
It invested in a new e-commerce site called OracleSalesOnline.com – later renamed Sales.Oracle.com
– that enables customers to place orders directly online. The site also allows customers to purchase
upgrades and add users to its license. Oracle also developed another site that sales reps use to
demonstrate software during phone calls with customers, who are then directed to order online.
Additionally, it required sales reps to enter detailed customer data into a central system that other
salespeople or executives can access. In 2001, the company integrated online customer service and
support features with the Sales.Oracle.com service, calling this new site Support.Oracle.com. The
company also licensed its sales and support applications to more than 10,000 companies around the
world.
Oracle’s network of information and its powerful software helped trim costs considerably. The com-
pany claimed in an aggressive ad campaign that it saved $1 billion in 2000 by running its own e-
business software. In a specific instance, a manager noticed one day that U.S. sales forecasts
dropped $3.5 million. Using the network, the manager identified which company had changed its
purchase, contacted the sales rep working with the account, who renegotiated the deal in less than 24
hours. In another example of cost cutting, the company moved its sales and training meetings with

customers from hotels and conference centers to the Web. These Web-conferences reduced costs
from $325 per person to two dollars a head.
Competitors are quick to criticize Oracle’s aggressive sales tactics. An executive from IBM criti-
cized Oracle’s strategy of over promising: “They take the P.T. Barnum approach to business: There’s
a sucker born every minute.” Oracle’s 85 percent customer-retention rate, which is higher than
either Microsoft’s or IBM’s, proves that many customers are satisfied with the company’s products
and service.
Aggressive sales and marketing, along with sales force automation based on the Internet, have
helped Oracle become the largest application server company in the world. However, Oracle
faces some complex marketing issues for the future. Develop some of these issues, based on
information from the text and case materials
Oracle’s turnaround was rapid and dramatic, but was their marketing success the cause or the
effect of other important changes? Discuss
If Oracle continues to apply aggressive sales tactics, despite the high rate of customer retention,
what can we assume about its customers and the future of the business sector?

Glossary of Marketing
A- B- C- D- E- F- G- H- I- J- K- L- M- N- O- P- Q- R- S- T- U- V- W- X- Y- Z
Glossary of Marketing Definitions

access
Access to library materials and services, on one dimension, is represented in the location of physical
facilities. Because libraries are travelled-to outlets, marketing location theories can be applied suc-
cessfully to library siting. (Wood and Koontz)
accountability
Libraries like private sector businesses are increasingly called upon to make all units accountable for
results. Growing funds are needed for technology as opposed to only books. Funders often cut the
library budget first, in favor of other agencies such as police and fire or other seemingly, more
necessary agencies. Libraries are developing better performance measures within the present day
control systems to offer better accountability. (Wood and Koontz)
acculturation
The process by which people in one culture or subculture learn to understand and adapt to the norms,
values, life styles and behaviors of people in another culture or subcultures. For example, accultura-
tion is the process by which a recent immigrant learns the way of life of the new country. Library
services and materials facilitate this process.
acquisition value
The users’ perception of the relative worth of a product or service to them. Formally defined as the
subjectively weighted difference between the most a buyer would be willing to pay for the product or
service, less the actual price of the item. Time user must spend to ‘acquire’ is often used as a
surrogate for ‘relative worth or price paid,’ in library research. For example, a user might be willing
to expend drive time and a brief time in the library to check out a best seller, but not wait two weeks
for a copy to be returned.
activities, interests, and opinions (AIO)

A measurable series of psychographic (as opposed to demographic) variables involving the interests
and beliefs of users. Note, because psychographics are usually expensive to gather, yet offer a more
precise profile of users, demographic variables are usually relied upon.
adopter categories
Persons or agencies that adopt an innovation are often classified into five groups according to the
sequence of their adoption of it. (To illustrate this think of individual use of the Internet within the
library, and for an agency, libraries that offer Internet access to the general public. 1) Innovators
(first 2-5%); 2) Early adopters (10-15%)’ 3) Early majority (next 35%); 4) Late majority (next 35%);
5) Laggards (final 5-10%). This is important when considering how long it may take for the general
public to ‘adopt’ a product or service.
advertising
The placement and purchase of announcements and persuasive messages in time or space in any of
the mass media by business firms, nonprofit organizations. This has not been a traditional method of
informing the public, rather public service announcements, which are placed at no cost, are the norm
for libraries.

A concept of market segmentation that assumes that most consumers are alike. A library of the past
had an ‘opening day’ collection of materials, that could be found in most towns and cities. Today’s
libraries are more aware of considering the unique needs of individuals in the market area.
aging
The length of time merchandise has been in stock. For the library this could be of benefit by gaining
knowledge about the duration of certain goods.
all-you-can-afford budgeting
An approach to the advertising budget that establishes the amount to be spent on advertising as the
funds remaining after all other necessary expenditures and investments are covered. Libraries often
relegate all promotion related materials and services into this category.
ambiance
An overall feeling or mood projected by a store through its aesthetic appeal to human senses. A
brightly colored children’s room is more appealing to juveniles than an area sectioned off within the
adult room which blends in.
analysis
In marketing and other social science disciplines, a variety of statistical and nonstatiscal methods are
used to analyze data, instead of sheer intuition, or simple descriptive statistics— which have been the
norm in the library filed. (Wood and Koontz)
attitudes
Enduring systems of positive or negative evaluations, emotional feelings, and action tendencies with
respect to an object. Consumer’s overall liking or preference for an object. (Assael)
atmospherics
The physical characteristics of the library such as architecture, layout, signs and displays, color,
lighting, temperature, access, noise, assortment, prices, special events, etc., that serve as stimuli and
attention attractors of users to the library or information agency.
audience
The number and/or characteristics of the persons or households who are exposed to a particular type
of advertising media or media vehicle. In a library this could be a certain number of people that attend
a library program.
audit
The process of reviewing the library’s strengths and weaknesses (internally), and opportunities and
threats (externally) to shed light on the agency’s performance.
balanced stock
The composition of merchandise inventory in the colors, sizes, styles and other assortment character-
istics that will satisfy user wants. For the library this would mean, services and materials based upon
users wants and needs.
barcode
An information technology application that uniquely identifies various aspects of product character-
istics, increasing speed, accuracy, and productivity of distribution process. Most library materials are
barcoded for security.

benefit segmentation
The process of grouping users into market segments on the basis of the desirable consequences
sought from the product. For example, the library market for children’s books, may include children
and parents who are benefiting by developing the library and reading habit, and or recent immigrants
who benefit from learning the language of the new country. Each is receiving a benefit from the
product or service.
body language
The nonverbal signals communicated in interactions through facial expressions, arms, legs and hands—
or nonverbal communication. This can be positive ( a smile) or negative (a frown.)
brand
A name, term, design, symbol, or any other feature that identifies one seller’s good or service as
distinct from those of other sellers. The legal term for brand is trademark. A brand may identify one
item, a family of items, or all items of that seller. If used for the firm as a whole, the preferred term
is trade name. Library could be considered a trade name.
broadcast television
A method of distributing television signals by means of stations that broadcast signals over channels
assigned to specific geographic areas.
budget
The detailed financial component of the strategic plan that guides the allocation of resources and
provides a mechanism for identifying deviations of actual from desired performance so corrective
action can be taken. A budget assigns a dollar figure to each revenue and expense related activity. A
budget is usually prepared for a period of one year by each component of an organization. A budget
provides both a guide for action and a means of assessing performance. A budget is a library’s post
control system.
bureaucratic organization
Official decision making is circumscribed by laws, rules, and regulations which often result in inflex-
ibility, “red tape” and slowness to act. A hierarchical business structure, unlike business that operates
in a competitive environment that does not reward slow decision making if it results in poor sales or
customer service. Library’s are often linked to large bureaucracies, government or schools and
universities.
cable television
A method of distributing television signals by means of coaxial or fiber-optic cables. Some libraries
have programs on public access channels.
census
A complete canvass of a population.
census block
Usually a well-defined rectangular area bounded by streets or roads. It may be irregular in shape and
may be bounded by physical features such as railroads or streams. Census block do not cross bound-
aries of countries, tracts, or block numbering areas.
census tract
A small, relatively permanent area (US) into which metropolitan statistical areas (MSAs) and certain
other area are divided for the purpose of providing statistics for small areas. When census tracts are

established they are designed to be homogeneous with respect to population characteristics, eco-
nomic status and living conditions. Census tracts generally have between 2,500 and 8,000 residents.
chain store system

A groups of retail stores of essentially the same type, centrally owned and with some degree of
centralized control of operation. This would be similar to the public library’s system of branches.
channel of distribution
An organized network of agencies and institutions which in combination perform all the functions
required to link producers with end customers to accomplish the marketing task. For a library this
would include vendors, publishers as well as library facilities.
circulation
The number of copies of a print advertising medium that are distributed. For the library field, this is
numbers of items checked out by users.
classic merchandise
The merchandise that is not influenced by style changes for which a demand virtually always exists.
For the library this might be print encyclopedias, indexes, classical literary works.
clustering
A statistical method of forming natural groupings in which a number of important characteristics of a
large diverse group are identified in order to define target markets. For a library such a cluster might
include higher education levels, and income. (Wood and Koontz)
community analysis
For a public library this is a market research exercise reviewing library statistics, population served
characteristics, users and other stakeholders in the library characteristics to better profile the library’s
market area. (Wood and Koontz)
community relations
The library’s interactions with the locality in which it operates, with emphasis on disseminating li-
brary-related information to foster trust in the library or information organization’s activities.
competition
The rivalry among sellers trying to achieve such goals as increasing profits, market share and sales
volume by varying the elements of the marketing mix: price, product, distribution and promotion. The
agency changes to better meet consumer wants and needs. For a library competition may be book-
stores, community events, video stores or even other libraries.
consumer
The ultimate user of goods, ideas or services. Also the buyer or decision maker, for example, the
parent selecting children’s books is the consumer.
consumer behavior
The behavior of the consumer or decision maker in the market place of products and services.
Library user behavior is often captured in library literature under use studies.
consumer characteristics
The demographic, lifestyle and personality characteristics of the consumer. For a library this would
be the user.

consumer satisfaction
The degree to which a consumer’s expectations are fulfilled or surpassed by a product. User satis-
faction with library services and materials is often difficult to determine because: 1) there is no clear
ring of the cash register at the end of the day; 2) privacy issues concerning use of library materials
and services usually deter marketing-type exit interviews; 3) and little research is conducted in this
area due to lack of expertise.
contingency planning
Developing plans to provide alternative plans to the main plan. This is proactive management that
deals with events considered unlikely to occur. For example, while a library budget may appear to be
adequate and stabile, a contingency plan should be in place in case of cutbacks in funding.
convenience product
A consumer good and/or service (such as soap, candy bar, and shoe shine) that is bought frequently,
often on impulse, with little time effort spent on the buying process. A convenience product usually is
low-priced and is widely available. For a public library this type of material might be newspapers or
magazines, or perhaps a quick selection of other materials with little browsing or research. These
materials or services are usually located within facility for easy and quick access.
convenience sample
A nonprobability sample of individuals who just happen to be where the study is being conducted
when it is being conducted. For example, a library could interview people exiting the library asking,
‘Were you satisfied with the materials and services, if not why?’
copyright
A copyright offers the owner of original work that can be printed, recorded or “fixed” in any manner
the sole right to reproduce and distribute the work, to display or perform it and to authorize other to do
so., during the author’s lifetime and for fifty years thereafter.
core product
The central benefit or purpose for which a consumer buys a product or service. The core product
varies from purchaser to purchaser. For a library user the core benefit of checking out a book, may
be for one user that there is no charge, and to another the availability of a work which can no longer
be purchased.
correlation analysis
A statistical technique used to measure the closeness of the linear relationship between two or more
intervally scaled variables. For example public library use has a close linear relationship with people
of higher education and income.
culture
The set of learned values, norms, and behaviors that are shared by a society and are designed to
increase the probability of the society’s survival. These include shared superstitions, myths, folk-
ways, mores and behavior patterns that are rewarded or punished. For libraries, the understanding of
different cultures, as new immigrant groups move into the market area is extremely important to take
into consideration, in order to provide the needed materials and services.
customer
The actual or prospective purchaser of products or services. The library user is the library’s cus-
tomer.

database
A compendium of information on current and prospective users that usually includes demographic
data as well as use data, volume and content. This is a privacy issue in American libraries. The
address data of library users can be called “point-of-sale (use) data and is a rich source of marketing
data for library management.
decennial census
In the U.S. this is a complete count of the population every ten years. For example the next count is
the year 2000, and previous years 1990, 1908, etc. There is also a sample census which is taken for
hundreds of other population descriptive characteristics. For the library field census data are identi-
fied that strongly indicate library use through research.
decision support system (DSS)

A decision support system (marketing definition) is a systematic collection of data, techniques and
supporting software and hardware by which an organization gathers and interprets relevant informa-
tion from business and the environment and turns it into a basis for making management decisions. A
DSS differs from a management information system in that it is designed to answer precise questions
and what/if questions. An example would be, ‘What affect on system library use will there be if
Branch X is closed?’
Delphi technique
A frequently used method in futures research to gain consensus opinion among experts about likely
future events, through a series of questionnaires.
demand
The number of units of a product sold in a market over a period of time. For example, six thousand
library books were circulated in Branch X’s market area last year.
demarketing
The process of reducing the demand for a product—or decreasing consumption.
demographics
Objective characteristics of consumers such as age, income, education, sex or occupation (Assael.)
descriptive research
A research design in which the major emphasis is on determining the frequency with which some-
thing occurs. For example, how often users access the Internet in a given month.
destination merchandise
A type of merchandise that motivates or triggers a trip to a specific store. A library’s special collec-
tion on African history is an example. This is also a ‘specialty good.
developing country
Characteristics: 1) more than 33% of the population is engaged in agriculture, less than 30% of
population is urban; 2) at least 50% of population is literate; and 3) highly developed industrial sectors
and consumer markets of significant per capita size.
diffusion model
A model representing the contagion or spread of something through a population. (Examples: spread
of air conditioning in Florida and subsequent population growth, and spread of Library of Congress
pre-printed cards to American libraries.) Mathematical formulations are available to predict spread/
growth.

diffusion of innovation
The spread of innovation with a market group in stages—innovators (2- 5%), early adopters (10-
15%), early majority (next 35%), late majority(next 35%), and laggards (final 5-10%.) Fair amount of
disagreement about the percentages.
direct marketing
Marketing efforts, in total directed toward a specific targeted group—direct selling, direct mail, cata-
log or cable—for soliciting a response from customer. A library may mail a library registration card
to every new mother in the hospital.
directional and departmental signage

A signage system that helps guide the library user through the library and locate specific departments
of interest.
display
A special exhibit of a product or service at the point of sale, generally over and above standard shelf
stocking. Simply books place on display over specific subject areas.
distribution
The marketing and carrying of products to customers (bookmobiles, facilities, library loan.)
diversification (Wood)
Extends skills or experience from current product or market activities rather than covering totally
unfamiliar territory. Customized online searches by reference librarians would extend their current
research in print skills.
dummy
Preliminary layout for an ad, or other print material.
dwell time
The amount of time a customer/user spends in time waiting in line. For a library user this is a price
expended.
dwelling unit
A single home or other unit in which a cohesive set of individuals reside, and typically many good s
are purchased in common.
economic environment
Part of the macroenvironment encompassing wealth, income, productivity, inflation, credit, employ-
ment, etc. which affect the agency/library’s markets and opportunities.
eighty-twenty principle
The situation in which a disproportionately small number (e.g., 20%) of staff, products or users
generate a disproportionately large amount (e.g., 80%) of a firm’s use/profits. A use analysis should
be conducted to determine what the cause is.
elasticity
The degree that an economic variable changes in response to a change in another economic variable.
For example how much library use changes according to how far an individual must travel for library
services.

environment, external
The complex set of physical and social stimuli in the external world of consumers.
environmental analysis
Gathering data regarding political, cultural, social, demographic, economic, legal, international and
ecological forces , identifying trends affecting agency.
environmental monitoring
Keeping track of a changes in the environment.
erratic demand
A pattern of demand for a product that is varied and unpredictable, e.g., some best sellers, or specific
online databases randomly assigned in curriculum by teachers.
evoked set
A set of alternatives that are activated directly from memory—certain brands considered during the
buying process.
exchange
All activities associated with receiving something from someone by giving something voluntarily in
return. This is the heart of the marketing process. A library user gives time instead of money to
borrow materials, but it is still an exchange.
exhibit
The gathering and displaying of products, people, or information at a central location for viewing by
a diverse audience. Most libraries have exhibits created by staff, community or other stakeholders.
experience survey
A series of interviews with people knowledgeable about the general subject being investigated.
exploratory research
A research design in which the major emphasis is on gaining ideas and insights.
external data
Data that originate outside the organization for which research is being done.
factor analysis
A body of statistical techniques concerned with study of interrelationships among a certain set of
variables—none of which is given the special status of a criterion variable.
family
A group of at least two people in a household based on marriage, cohabitation, blook relationships or
adoption.
family decision making

The processes, interactions, and roles of family members involved in making decisions as a group.
family life cycle

A sociological concept that describes changes in families across time, emphasizing effects of mar-
riage, divorce, births and deaths on families and changes in income.

feature
The use of advertising, displays, or other activity, generally by a retailer, to call special attention to a
product, generally for a limited period of time.
feature story
A type of publicity material that can be used by the media at their convenience because it is not time-
related. Library materials and services available are good candidates for this type of story.
fill rate
An inventory’s availability goal used when setting customer service objectives, for example 80 out of
100 reference questions were answered in a workday.
flagship store
In a local department store organization/library system, the main or central store/library when it is
large or dominant in relation to other company stores.
focus group
A method of gathering quantitative data on the preferences and beliefs of consumers through group
interaction and discussion usually focused on a specific topic or product.
forecasting models
In forecasting sales, or library use, or other objectives, a variety of statistical models are used and
available, offering insights otherwise difficult to obtain.
galley proof
A copy of the individual pages of an ad, brochure, poster or other printed material used for final
proofreading of the text before final negatives are made for the printing process.
gatekeeper
Usually the individual who controls the flow of information from the mass media to the group or
individual.
geodemography
The availability of demographic consumer behavior and life style data by arbitrary geographic bound-
aries that are typically quite small. For example, a library-designated service area of two census
tracts (US).
goals
A concrete point of measurement that the business unit/library intends to meet to achieve objectives.
For example, the library’s goal is to improve reference services, its objectives include increasing fill
rate by 20% in two months.
goods
A product that has tangible form in contrast to services that are intangible. A book versus a story
read.
gravity model
A theory about the structure of market areas. The model states that the volume of purchases by
consumers/users the frequency of trips to the outlets are a function of the size of the stores/library
and the distance between the store and the origin of the shopping trip.
growth state of product life cycle

Second stage during which sales/use are increasing.
habit
A learned response to a stimulus that has become automatic and routine, requiring little or no cogni-
tive effort. It is often said that the reading and library habit if not learned as a child, will not be learned
as an adult.
halo effect
A problem that arises in data collection when there is carry over from one judgement to another.
high income countries

Countries whose income per capita are high compared to the rest of the world.
image
The sum of beliefs, ideas and impressions that a person has of an object or agency. (Assael). For
example, the library holds an image of prestige for some communities.
income differential
The difference in income levels among people of various categories, such as different jobs, geo-
graphic areas, age classes, sexes, races and the like.
industrialized country
Characteristics: 1) degree of urbanization increases, literacy levels are high, exceeding 85%, popula-
tion engaged in agriculture drops substantially; 2) wage levels rise sharply and ownership of durables;
3) need for labor saving methods creates new industries.
key success factors

The factors that are a necessary condition for success in a given market. For example in a highly
hispanic market, a library to succeed would have spanish language materials.
knowledge
Consumers’ meanings or beliefs about products, brands, stores, that are stored in memory.
life style
The manner in which people conduct their lives, including their activities, opinions, and interests
(AIO).
literature search
A search of statistics, trade journal articles and other media for data or insight into the problems at
hand. Special libraries often provide customized searches for a fee.
low income countries

Countries with the lowest income per capita compared with the rest of the world. The bottom quartile
is often considered low income.
macroenvironment
The conditions facing a company/library including demographic economic, natural, technological,
political, and cultural forces.
market

The set of actual of potential users/customers. (Kotler)
market area
A geographical area containing the customers/users of a particular firm/library for specific goods or
services. (The library’s legal service area.)
market demand
The total volume of a product or service bought/used by a specific groups of customers/users in a
specified market area during a specified period.
market development
Expanding the total market served by 1) entering new segments, 2) converting nonusers, 3) increas-
ing use by present users.
market positioning
Positioning refers to the user’s perceptions of the place a product or brand occupies in a market
segment. Or how the company/library’s offering is differentiated from the competition’s.
market profile
A breakdown of a facility’s market area according to income, demography, and life style (often.)
market research
The systematic gathering, recording and analyzing of data with respect to a particular market, where
market refers to a specific user group in a specific geographic area.
market segmentation
The process of subdividing a market into distinct subsets of users that behave in the same way or
have similar needs. Segments for the library could be demographic (Asian); geographic (branch-
level); psychographics (leisure-oriented); customer size (largest user group area); benefits (have
children in the home learning to read.)
market share
A proportion of the total sales/use in a market obtained by a given facility or chain.
marketing
The process of planning and executing the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that satisfy individual and organizational goals.
marketing channel
A set of institutions necessary to transfer the title to goods and to move goods from the point of
consumption. (Vendors, publishers, library facilities.)
marketing mix
The mix of controllable variables that the firm/library uses to reach desired use/sales level in target
market, including price, product, place and promotion- 4 P’s.
marketing opportunity
An attractive arena of relevant marketing action in which a particular organization is likely to enjoy a
superior and competitive advantage. (Kotler) marketing plan A document composed of an analysis
of the current marketing situation, opportunities and threats, analysis, marketing objectives, market-
ing strategy, action programs, and projected income statement

maturity stage of product life cycle

Initial rapid growth is over and use/sales level off. microenvironment The set of forces close to an
organization that have direct impact on its ability to serve its customers, including channel member
organizations, competitors, user markets, publics and the capabilities of the organization.
mission statement
An expression of a company’s/library’s history, managerial preferences, environmental concerns,
resources, and competencies. It is used to guide the company’s decion making process, answering
what is our business, who do we serve, etc.
mores
The cultural norms that specify behavior of vital importance to society and embody its basic moral
values.
motivation
The positive or negative needs, goals, desires and forces that impel an individual toward or away
from certain actions, activities, objects or conditions. The inner needs and wants of an individual—
what affects behavior.
multiple purpose trip

A key concept in central place theory that argues consumers prefer to visit more than one store per
trip, generating positive externalities for neighboring stores. This view has mixed reviews in the
library field.
newsletter
A brief digest of important or noteworthy information. A method of reaching various publics quickly—
e.g., the friends of the library newsletter.
nominal scale
A measurement scale in which numbers are assigned to attributes of objects or classes of objects
solely for the purpose of identifying the objects.
nonprobability sample
A sample that relies on personal judgment somewhere in the element selection process.
nonprofit marketing
The marketing of a product or service in which the offer itself is not intended to make a monetary
profit for the marketer.
norms
The rules of behavior that are part of the ideology of the group. Norms tend to reflect the values of
the group and specify those actions that are proper and those that are inappropriate, as well as
rewards for adherence and the punishment for conformity. Norms are important for librarians to
understand when serving culturally diverse markets.
objectives
The desired or needed result to be achieved by a specific time. An objective is broader than a goal,
and one objective can be broken down into a number of specific goals.
observation
A method of data collection in which the situation of interest is watched and the relevant facts,

actions and behaviors are recorded. This is a important area of library use which is usually un-
counted—what people are actually doing in the library e.g., browsing, using the computer, reading to
a child, etc.
opinion
A belief or emotionally neutral cognition the individual holds about some aspect or object in the
environment.
ordinal scale
A measurement in which numbers are assigned to attributes of objects of classes of objects to reflect
the order.
output evaluation
An objective measure of use performance, such as circulation per capita of a library population,
reference transactions per capita, etc.
patronage motives
The motives that drive an individual/user toward selection of a particular outlet, retailer, or supplier of
services.
penetrated market
Actual set of users actually consuming the product/service. (Kotler)
per capita income

A nation’s or other geographic market’s total income divided by the number of persons in its popula-
tion.
perception
Perception is the cognitive impression that is formed of “reality” which in turn influences the individual’s
actions and behavior toward that object.
personal income
The current income received by persons from all sources less contributions for social insurance—
e.g., Social Security (US).
personal interview
A direct, face-to face conversation between a representative of the research organization (the inter-
viewer) and a respondent or interviewee.
personality
Consistent pattern of responses to the stimuli from both internal and external sources.
physical inventory
An inventory determined by actual count and evidenced by a listing of quantity, weight, or measure.
Number of volumes, periodicals, vides a library owns.
place
In the channels of distribution, the physical facilities point of location.
point-of-purchase
Promotional materials placed at the contact sales point designed to attract user interest or call atten-

tion to a special offer, e.g., ‘Sign up for Summer Reading Program.
point-of-sale(POS)
A data collection system that electronically receives and stores bar code information derived from a
sales transaction. This could the zip codes for library users, facilitating the library in determining
geographic market are that users reside in.
population
The totality of cases that conforms to some designated specifications.
positioning
(see product positioning)
potential market
Set of users who profess some level of interest in a designed market offer. (Kotler)
poverty level
The poverty level is based solely on money income and updated every yearr to reflect changes in the
consumer price index, used to classify families as being above or below the poverty level.
preindustrialized country
Characteristics: 1) Low literacy rates and high perecentage of employment in agriculture; 2) low
population density and low degree of urbanization; 3) linguistic heterogeneity and a small percentage
of working age population; 4) industrial sectors nonexistent and undeveloped; 5) heavy reliance on
foreign sources for all manufacturers and principal engagement in agricultural endeavors.
press conference
A convening of media by a person or organization to explain, announce or expand on a particular
subject.
price
The formal ratio that indicates the quantities of money goods or services needed to acquire a given
quantity of goods or services. For a library user price may come in the form of time the library users
must expend to obtain library materials or services.
private sector
Activities outside the public sector that are independent of government control, usually, but not al-
ways carried on for a profit.
product
A bundle of attributes or features, functions, benefits and uses capable of exchange, usually in tan-
gible or intangible forms. The library’s products include materials to use, questions answered, storyhours,
online searching, etc.
product life cycle

The four stages products go through from birth to death: introductory, growth, maturity, and decline.
product mix
The full set of products offered by an organization e.g., books, videos, storyhours, etc.

product positioning
The way users/consumers view competitive brands or types of products. This can be manipulated by
the organization/library. The library’s video collection, available for free, is competitive with local
video stores that charge, if video collections are comparable. If the collections are not, the library is
differentiating the video collection from the video store.
promotion mix
The various communication techniques such as advertising, personal selling, sales promotion, and
public relations/ product publicity available to the marketer to achieve specific goals. A library may
use a combination of newspaper editorial, public service announcements (PSAs) on radio and pos-
sible television, if no budget is available for advertising.
psychographic analysis
A technique that investigates how people live, what interests them, what they like—also called lifestlye
analysis or AIO because it relies on a number of statements about a person’s activities, interests and
opinions.
psychographic segmentation
Dividing markets into segments on the basis of consumer life styles.
public opinion
The consensus view of a population on a topic. public policy A course of action pursued by the
government pertaining to people as a whole on which laws rest.
public relations
The form of communication management that seeks to make use of publicity and other nonpaid
forms of promotion and information to influence feelings, opinions or beliefs about the agency/library
and its offerings. This is a traditional form of communication for library management, as paid adver-
tising media is rarely used.
public sector
Those marketing activities that are a carried out by government agencies for public service rather
than for profit.
public service announcement (PSA)

An advertisement or commercial that is carried by an advertising vehicle at no cost as a public
service to its readers, viewers, or listeners. While the no cost aspect is appealing, a library or other
agency utilizing this media quickly realizes there is no control on the most effective time of place-
ment.
publics
The groups of people that have an actual or possible interest in or impact on the company’s efforts to
achieve its goals.
quality control
An ongoing analysis of operations, to verify goods or service meet specified standards, or to better
answer customer/user complaints. Libraries have been criticized for not employing more quality
control standards on library services.
quality of life

Sometimes measured by income, wealth, safety, recreation and education facilities, education health,
aesthetics, leisure time and the like.
quantity discount
A reduction in price for volume purchases.
questionnaire
A document that is used to guide what questions are to be asked respondents and in what order,
sometimes lists the alternative responses that are acceptable. An excellent research instrument for
libraries to assess customer satisfaction on exit interviews.
range
The maximum distance a consumer is ordinarily willing to travel for a good or service; as such it
determines the outer limit of a store/library’s market area. Research in the library field indicate there
is an average two mile limit for a library user to travel to a branch, while for a central library with
specialized good, it may widen to even 10 or 15 miles. This research does not allow for the travel
limitations imposed by culture, age, or physical handicap, or topographical barriers.
reach
The number of people or households exposed to a particular advertising media or media schedule
during a specified time.
reference group
A group that the individual tends to use as the anchor point for evaluating his/her own beliefs and
attitudes. Teenagers influence their peers regarding library use.
regression analysis
A statistical technique to derive an equation that relates a single, continuous criterion variable to one
or more continuous predictor variables.
Reilly’s law
A model used in trad area analysis to define the relative ability of two cities to attract users from the
area between them.
respondent
A person who is asked for information using either written or verbal questioning, typically employing
a questionnaire to guide the questioning.
roles
The behavior that is expected of people in standard situations.
rural population
The part of the total population not classified as urban.
salary
Compensation paid periodically to a person independent of performance (in sales or levels of use
stimulated.)
sample
The selection of a subset of elements from a larger group of objects.

sample survey
A cross sectional study in which the sample is selected to be representative of the target population
and in which the emphasis is on the generation of summary statistics such as averages and percent-
ages.
scanner
An electronic device that automatically reads imprinted codes, as the product is pulled across the
scanner. The library field is successfully using these for circulation and other use counts.
secondary shopping district

A cluster of stores outside the central business district that serves a large population within a section
or part of a large city.
segmentation
(see market segmentation)
self-concept
The ideas, attitudes, and perceptions people have about themselves.
self service
The type of operation in which the customer/user is exposed to merchandise (browsing and self-
selection) without assistance, unless customer/user seeks assistance.
selling orientation (Wood)

A company-centered rather than a client-centered approach to conduct of business. This orientation
tends to ignore what the customer/user really wants and needs.
service(s)
Products such as a bank loan or home security or library loans, that are intangible or at least substan-
tially so.
shopping good
Goods and products can be classified as convenience, shopping or specialty. A shopping good is one
that more time is spent selecting (browsing) than a quick convenience good. Example, a certain type
of mystery book.
situation analysis (SWOT)

An examination of the internal factors of a library to identify strengths and weaknesses, and the
external environment to identify opportunities and threats.
slogan
The verbal or written portion of an advertising message that summarizes themain idea in a few
memorable words—a tag line.
social advertising
The advertising designed to education or motivate target audiences to undertake socially desirable
actions.
social class
A status hierarchy by which groups and individuals are classified on the basis of esteem and prestige.

social indicator
The data and information that facilitate the evaluation of how well a society or institution is doing.
specialty advertising
The placement of advertising messages on a wide variety of items of interest to the target markets
such as calendars, coffee cups, pens, hats, note paper, t-shirts, etc. These are widely given out to
librarians at professional conferences from vendors. Libraries may use these items as well, but are
usually sold in library gift shops.
specialty good
A specialty good is one that users/consumers will spend more time searching for, and time travelling
to and pay higher for. A library specialty good could be a certain online service or special collection
of materials.
stakeholder
One of a group of publics with which a company must be concerned. Key stakeholders for a library
could be users, employees, board members, vendors or other who have a relationship with the library.
store layout
The interior layout of the store/library for the ease of user movement through the store to provide
maximum exposure of good and attractive display. Retail store layout, is also successfully applicable
to library layout.
strategic market planning

The planning process that yields decisions in how a business unit can best compete in the markets it
elects to serve. The strategic plan is based upon the totality of the marketing process.
subculture
The segments within a culture that share distinguishing meanings, values, and patterns of behavior
that differ from those of the overall culture. These subcultures are important to recognize in library
communities that may serve a disproportionate number, whose information needs may be nontradi-
tional and unique.
subliminal perception
A psychological view that suggests that attitudes and behaviors can be changed by stimuli that are
not consciously perceived.
target market
The particular segment of a total population on which the retailer focuses its merchandising expertise
to satisfy that submarket in order to accomplish its profit objectives. Or for the library, a target
market might be within the market area served, children 5-8 years old, for summer reading programs,
to increase juvenile use and registration.
target market identification

The process of using income, demographic, and life style characteristics of a market and census
information for small areas to identify the most favorable locations.
technology
The purposeful application of scientific knowledge; an environmental force that consists of inven-
tions and innovations from applied scientific and engineering research.
telephone interview

A telephone conversation between a representative of the research organization, the interviewer,

and a respondent or interviewee.
thumbnail
A rough sketch for a layout for a piece of print advertising.
transportation
A marketing function that adds time and place utility to the product by moving it from where it is
made to where it is purchased and used. In includes all intermediate steps in the process.
underdeveloped country
Characteristics: small factories erected to supply batteries, tires, footwear, clothing, building materi-
als and packaged foods; agricultural activity declines and egree of urbanization increases; available
educational effort expands and literacy rises.
underprivileged family
A family in social class that does not have enough money to purchase the necessities, i.e., shelter,
clothing and transportation, appropriate for its class status.
unit control
The control of stock in terms of merchandise units rather than i terms of dollar value. This is repre-
sentative of a the number of books, magazines, etc of a library collection.
urban population
Persons living in places of 2,500 or more inhabitants incorporated as cities, villages, boroughs, or
areas designated as such by the US Census, with some exceptions.
utility
The state or quality of being useful. What is the utility of marketing practices to the library field?
VALS (values and lifestyles)

An acronym standing for values and life styles. VALS is a psychographic segmentation approach
developed at Stanford Research Institute International. This data is useful to public and private
sector. Unfortunately, the data is still largely expensive, therefore, libraries and other non-profits still
widely rely on demographics.
value
The power of any good to command other goods in peaceful and voluntary exchange.
values
The beliefs about the important life goals that consumers are trying to achieve. The important endur-
ing ideals or beliefs that guide behavior within a culture or for a specific person.
variety
The number of different classifications of goods carried in a particular merchandising unit. How
many different children’s authors are represented in the juvenile collection?
vicarious learning
The changes in an individuals behavior brought about by observing the actions of others and the
consequences of those actions. Research indicates that immigrant adults often learn about the read-
ing land library habit through their children’s same experiences at school.

vision
A guiding theme that articulates the nature of the business/library and its intentions for the future,
based upon how management believes the environment will unfold. A vision is informed, share,
competitive and enabling.
wants
The wishes, needs, cravings, demands or desires of human beings.
wealth
The aggregate of all possessions of economic good owned by a person.
will-call
The products ordered by customers/users in advance of the time delivery desired. Books on reserve.
word of mouth communication(WOM)

This occurs when people share information about products or promotions with friends—research
indicate WOM is more likely to be negative.
workroom
A service department such as apparel alterations, drapery manufacture, library materials processing.
young single stage

(see family life cycle)
ZIP code
A geographical classification system developed by the U.S. government for mail distribution, a nested
numeric range of 5 to 9 numbers.
REFERENCES
Assael, Henry. Consumer Behavior and Marketing Action, 2nd ed. Boston, MA.: Kent Publishing
Co., 1984.
Bennett, Peter D., ed. Dictionary of Marketing Terms,, 2nd ed. Published in conjunction with the
American Marketing Association. Chicago, IL.: NTC Business Books, 1995.
Koontz, Christine. Florida State University, Tallahassee, FL 32306. Developed library definitions
from fifteen years of work and reading in the marketing field. Taught non-profit marketing to gradu-
ate library and information studies students utilizing a nonprofit business text.
Kotler, Philip. Marketing for Non-Profit Organizations, 5th ed. Englewood Cliffs, NJ: Prentice- Hall,
Inc., 1996.
Wood, Elizabeth J. Strategic Marketing for Libraries: a Handbook. Westport, CT: Greenwood Pub-
lishing, 1988.
Latest Revision: October 28, 1998 Copyright © 1995-2000
International Federation of Library Associations and Institutions
www.ifla.org

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Marketing Management

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System Analysis

You are what your deep, driving desire is

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Marketing is a key function of management. It Activity 1:

Today’s companies also have new capabilities as

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Yet another facet of marketing has emerged with

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Activity: The three major challenges faced by businesses

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Eg: Hunger food. A physical object is a means of packaging a ser-

Let us understand it now.

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Examining Concepts of Marketing Each party is capable of communication &

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Needs of Internal Customer

3 C’s Of Internal Customer Care

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Marketing Management – “Art & science of 2] No Demands:

*More fuel efficient cars.

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6] Full Demand: Rule Of Marketing In The Non-Profit

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DISNEY “We run theme parks” “We provide fantasies”

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Changing Role Of Marketing

Simple Trade Era Prior to 1920’s Sell Surplus

Production Era 1920 – 1930 Increase Supply

Sales Era 1930 – 1950 Beat Competition

Marketing Dept. Era 1950 – 1960 Coordinate & Control

Marketing Company Era began 1960’s Long – run customer satisfaction

Consumer Focused Era 1990’s…………….??????????

Production Concept suffer from problems arising out of impersonal

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Marketers use various sophisticated techniques 6. Interdepartmental cooperation is valued and

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3. Management is sales volume oriented 3. Management is profit oriented

4. Planning is short-run-oriented in terms of today’s 4. Planning is long-run-oriented in today’s products

5. Stresses needs of seller 5. Stresses needs and wants of buyers

9. Cost determines Price 9. Consumer determine price, price determines cost

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Different Types of Market

White goods (e.g. fridge-freezers; cookers; dish-

Brown goods (e.g. DVD players; games con-

Services (e.g. hairdressing, dentists, childcare)

Consumer Markets Industrial Markets

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Selling finished goods Selling services to businesses

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