UNIT 1 INTRODUCTION TO MARKETING

Marketing is one of the key functions of management. It brings success to business organizations. A
business organization performs two key functions : (a) producing goods and services, and (b) making
them available to the potential customers for use.
An organization's business success largely depends on how efficiently the products and services are
delivered to the customers, and how differently do the customers perceive the difference in delivery in
comparison to the competitors. This is true of all firms -from large business enterprises to small firms,
from multinationals operating in different countries to small firms operating in a small market and from
giant enterprises like Sony, Lever, General Motors to the next door kirana shop. Quality production and
efficient marketing are the key success factors in building sustainable competitive
advantage for every business corporation.
In this introductory unit on Marketing Management, you will study the meaning of marketing and various
marketing concepts, evolution of marketing management philosophy, the difference between selling and
niarketingand importance of marketing in a country like India. It will also higliliglit few issues related to
contemporary marketing.
1.2 THE MEANING OF MARKETING MANAGEMENT
Marketing is a process in a social system by which tlie demand pattern for product and services can be
anticipated, enlarged, created and satisfied through the conception, production, promotion and physical
distribution of goods and services in an exchange process.
The American Marketing Association defined marketing as "the performance of business activities that
direct tlie flow of goods and services from producer to consumer or user". This definition seems
somewhat narrow because of its emphasis On flow of products that have already been produced. Thus,
according to this definition, marketing starts with the product.
According to Pliillip Kotler "marketing is a societal process by which individuals and groups obtain what
they need and want througli creating, offering and freely exchanging products and services of value witli
others. Marketing is an ongoing process of discovering and translating consumer needs and desires in to
products and services, creating demands for these products and services, serving the consumer and hiss
demand through a network of marketing channels and expanding the market base
in the face of competition".
Paul Mazur defined marketing as "the creation and delivery of a standard of living to society." A broader
approach views the firm as an organized behavior system designed to generate outputs of value to
consumers. Marketing is defined as the development and efficient distributioli of goods and services for
chosen consumer segments by which profitability is achieved through creating customer satisfaction.
Marketing activities begin witli new product concepts and designs analyzed and developed to meet
specific consumer needs.
This elaborate definition of marketing includes many other organizational activities than mere distribution
function. A correct marketingeffort is in accordance with ethical business practices and is effective from
the standpoint of both society and the individual firm. This approach emphasizes the need for efficienicy
in distribution. The nature, type and degree of efficiency are largely dependent upon the kind of
marketing environment within which the firm operates. The final assumption is that the customer
determines the marketing program. The marketer identifies those consumer segments
who will be satisfied through production and marketing activities of the firm before production.
There are various misconceptions about marketing. Unfortunately these misconceptions have emerged out
of grapevine than solid research background. A student reader of introductory tnarketing at this stage of
learning needs to test his misconceptions before proceeding further, This checklist will help him to do
introspection regarding his previous knowled,ge and subject orientation towards marketing.
So we can take the definition propounded by American Marketing Association.
According to the Alnericain M arketing Association" marketing is the performance of business activities
tliat directs the flow of goods and services from producer to Consumer or user".This definition is

undoubtedly an improvement in the description of marketing as selling. According to this definition,

nlarketing also enconipasses other activities alongwith selling.
Marketing has a process orientation olso. Based on the above, we can develop a process-oriented
definition of marketing, as "the process of ascertaining consumer needs, converting them into products or
services, and moving the product or service to the .final consumer or user to satisfy certain needs and
wants of specific consumer segment or segments with emphasis on profitability, ensuring the optimum use
of the resources available to the organization"
1.3 MARKETING MANAGEMENT PHILOSOPHIES
There are five different marketing concepts under which business enterprises conduct their marketing
activity:
1) Production concept
2) Product concept
3) Selling concept
4) Marketing concept
5) Societal concept
1.3.1 Production Concept
The Production Concept emerges out of the production orientation. The basic proposition is that
customers will choose products and services that are widely available and are of low cost. So managers
try to achieve higher volume with low cost and intensive distribution strategy. The managers believe that
consumers prefer products that are priced low and are widely available. This seems a viable strategy in a
developing market where market expansion is the survival strategy for the business. Companies interested
to take the benefit of scale economies persue this kind of orientation. It is natural that the companies can
not deliver quality products and suffer from problems arising out of impersonal behavior with the
customers.
1.3.2 Product Concept
The Product Concept has the proposition that consumers will favor those products that offer the most
attributes like quality, performance and other innovative features. The managers focus on developing
superior products and i~nprovingth e existing product lines over a period of time. The illnovations in tlie
scientific laboratory are commercialized and the consumers get an opportunity to know and use these
products.
This is called "Technology Push Model". The problem with this orientation is that the managers forget to
read the customers mind and launcll products. Many times it is observed that the innovations enter in to
the market before the market is ready for the product. Innovative products are launched without educating
the customers about the innovation and the probable advantage that the customer is going to get. The
Golden Eye Technology was brought to the Indian Market by the television major Videocon but the
market could not perceive the benefit of this advantage. On subsequent period at an advance stage of the
market LG brought the technology and made its Unique Selling Proposition for marketing success.
1.3.3 Selling Concept
The Selling Concept proposes that customers, be individual or organizations w ill not buy enough of the
organisation's products unless they are persuaded to do so through selling effort. So organisations should
undertake selling and promotion of their products for marketing success. The consumers typically are
inert and they need to be goaded for buying by converting their inert need in to a buying motive through
persuasion and selling action. This approach is applicable in the cases of unsought goods like life
insurance, vacuum cleaner, fire fighting equipments including fire extinguishers. These industries are
seen having a strong network of sales force. This concept is applicable for the frms having over capacity
in which their goal is to sell what they produce than what the customer really wants. In a modern
marketing situation the buyer has a basket to choose from and the customer is also fed with a Iligh decibel
of advertising. So often there is a misconception that marketing is all about selling. The problem with this
approach is that the customer will certainly buy the product after the persuasion and if dissatisfied will

not speak to others. In reality this does not happen and companies pursuing this concept often fail in the
business.
1.3.4 Marketing Concept
The Marketing Concept proposes that the reason for success lies in tlie company's ability to create, deliver
and communicate a better value proposition tlirougll its marketing offer in comparison to the competitors
for its chosen target market.
According to Theodore Levitt "Selling focus on the needs of the seller and marketing focuses on the
buyer. Selling is preoccupied with the seller's need to convert his product in to cash, marketing with the
idea of satisfying the needs of the customer by means of the product and the whole cluster ofthings
associated with creating, delivering and finally consuming it". The marketingc oncept is an elaborative
attempt to explain the phenolnenon that rests on four key issues like target market,
customer need, integrated marketing and profitability.
Companies are interested to increase their return on investment. Instead of spending On a mass
undifferentiated market, they have started looking for specific markets to which their product will best
match and accordingly design a marketing program that suits to the taste of this target market. The next
important act is the understanding of the need of the customer in that target market so that a suitable
marketing offer can be designed. Needs are the inner state of felt deprivation. They can be spelt and unspelt also. It is difficult to understmd the un-spelt need of the customer.
Marketers use various sopllisticated techniques of consumer rescarch to understand the customer need. It
is important to understarld and act upon the need of the customer because theeffort to keep a satisfied
customer is almost one fifth of the effort expended to get a new customer. The whole organization as to
be integrated to this mantra of custolner satisfaction. So business needs an integrated approach.
The integration has to start at marketing department level where various key marketing functions like
product design, distribution channel selection, advertising and promotion, customer service and marketing
research need to be integrated with common marketing goal understanding.
Marketing culture should be adopted by other departments of the enterprise also.
While external marketing targets customers outside, internal marketing targets customers inside the
organization who can be trained to serve the customer better. The ultimate goal of any business house is
to earn profit. Today's world not only looks at profit but also tries to bench mark the effort and cost
required to achieve this level of profit. In this situation profitability of the enterprise through sole goal of
efficient marketingis the key success criteria. This profitability is now treated as a byproduct of creation
of superior custonler value and better understanding of the custorner need.
1.3.5 Societal Concept
The Societal Concept proposes that the enterprise's task is to determine the needs, wants and intentions of
the target market and to deliver the expccted satisfaction more effectively and efficiently than the
competitors in a way to preserve or enlarge the consume and society's well being. It combines the best
elernents of marketing to bring social change in an integrated planning and action framework with the
utilization of communication technology and marketing techniques. It also looks for marketers to build
social and ethical considerations into the marketing practices.
The goals of profit maximization should match with the goals ofcustomer satisfaction and responsible
corporate citizenship. Social marketing often termed as cause related marketing utilizes concepts of
market segmentation, consumer research, product concept development and testing, communication to
maximize the target adopters response.
With the growing awareness of the social relevance of business, there is an attempt to make marketing
also relevant to the society. In a sense, marketing is not a business activity alone but milst take into
account the social needs. Excessive exploitation of resources, environmental deterioration and the
customer movements in particular have necessitated the recognition of the relevance of marketing to the
society. Marketing then must be a socially responsible or accountable activity. The societal concept holds
that the business organization must take into account the needs and wants of the consumers and deliver
the goods and services eflicieritly so as to enhance consumer's satisfaction as well as the society's well

being. The societal concept is an extension of the marketing concept to cover the society in addition to the
consumers.
1.4 DIFFERENCE BETWEEN SELLING AND MARKETING
Many managers use 'marketing' and 'selling' as synonyms though there is a substantial difference between
both the concepts. It is necessary to understand the differences between them for a successful marketing
manager.
Selling has a product focus and mostly producer driven. It is the action part of marketing only and has
short term goal of achieving market share. The emphasis is on price variation for closing the sale where
the objective can be worded as " I must somehow sell the product to the customer'. This short term focus
does not consider a prudential planningfor building up the brand in the market place and winning
competitive advantage through a high loyal set of customers. The end means of any sales activity is
maximizingp rofits through sales maximizationWhen the focus is on selling, the businessman thinks that
after production has been completed the task of the sales force starts. It is also the task of the sales
department to sell whatever the production department has manufactured. Aggressive sales methods are
justified to meet this goal and customer's actual needs and satisfaction
are taken for granted. Selling converts the product in to cash for the company in the
short run.
Marketing as a concept and approach is much wider than selling and is also dynamic as the focus is on the
custonier rather than the product. While selling revolves around the needs and interest of the manufacturer
or marketer, marketing revolves around that of consumer. It is the whole process of meeting and
satisfying the needs of the consumer. Marketing consists of all those activities that are associated with
product planning, pricing, promoting and distributing the product or service.
The task of marketing commences with identifying consumer needs arid does not end till feedback on
consumer satisfaction from the consu~nptiono f the product is received. It is a long chain ofactivity,
which comprises production, paclting, promotion, pricing, distribution and then the selling. Consumer
needs become the guiding force behind all these activities. Profits are not ignored but they are built up on
a long run basis. Mind share is more important than market share in Marketing. According to Prof.
Theodore Levitt 'The difference between selling and marketing is more than semantic. A truly
marketing minded firm tries to create value satisfying goods and services which the consumers will want
to buy. What is offered for sale is determined not by the seller but by the buyers. The seller takes his cues
from the buyer and the product beconles the consequence of the marketing effort, not vice versa. Selling
merely concerns itself with the tricks and techniques of getting the customers to exchange their cash for
the company's products, it does not bother about the value satisfaction that the exchange is all about. On
the contrary, marketing views the entire business as consisting of a tightly integrated effort to discover,
create, arouse and satisfy customer needs'. The differences between selling and marketing are summarized
in Table 1 .I

1.5 EVOLUTION OF MARKETING MANAGEMENT PHILOSOPHY

The origin of marketing management dates back to prehistoric period when people started settlement and
there was a division of labor for the community living. As it was difficult for every one to engage in
activities to satisfy all the need requirement, a mutual cohabitation led to this division of labor in the
society. The birth of a barter system where two parties are involved in the physical exchange of goods and
services for mutual benefits and voluntary agreement of both the parties for the transfer of ownership of
the physical goods exchanged, started the evolutionary
growth of modern day marketing.
When the volumes grew beyond the individual and community consumption, then the intermediaries
emerged in the social system that became part of the trade. These are the people who aided in the transfer
of ownership between two parties at two different periods of time. At the time of production, the producer
had the need or the value of the output for his survival and business where as the end consumer was not
ready to own the final product as the demand for consumption was at a future period of time. So
intermediaries took over the ownership, stored and distributed the ownership at the future period of time

in different assortment as desired by end consumer for benefit which was subsequently marked as trades
man's profit. The industrial revolution and progress in transportation and communication made the
business of marketing to cross geographic borders of country and marketing grew as an economic
activity.
In the initial stages of Industrial Revolution, producers were able to sell whatever they have produced. So
they concentrated on higher production. At that stage most of the enterprises adopted the production
concept. Later when the competition started building-up, producers faced difficulties to sell whatever they
produced and the need to improve the product arose. This led to the emergence of product concept and
selling concept. With the increase in competition, producers realised the
advantage of producing what consumer's need instead of selling whatever is produced.
This lead to the consumer orientation and the emergence of marketing concept. As the industry was
expected to play the role of corporate citizen and care about the welfare of the modern society, the
industry was expected to produce products and services that are contributing to the greater cause of the
society and in the process of making profit, contribute towards the building of the nation. This give rise to
the modern day concept of social marketing. In the developed countries where the markets are developed,
most of the producer adopts the marketing concept. In the developing countries markets are
heterogeneous and one can see the co-existence of all the five concepts. Thus, the concept of marketin,g
has grown along with the process of economic development.
The growth ofcivilization, the increasing standard of living, the changing life styles and technological
growth have created new wants. These can be satisfied only with a wide variety of new goods and
services apart from changes and improvements in the existing goods and services. This however the
general trend, and there are several exceptions. Markets for all products and services have to reach a
certain maturity to experience this evolutionary trend. It may not be so in the case of each and every
product or market. The rural market in India, for example, is fairly different from the urban market. Even
among a set of consumer goods, for example, cosmetics which serve the middle/upper income groups are
much more consumer oriented than the market for undergarments for men. Besides, there is a seller's
market in some goods and services, and a buyer's market in some others.
Another feature in the evolutionary process of marketing is the growing role of service marketing. The
demand for service contracts to maintain the gadgets in use have to become more easily marketable and a
reliable service commands a premium in the market. Some of the developed economies are now thriving
more on service industry than manufacturing, as the customers are looking for better service facilities
with the product and the success of a company is decided on the basis of quality of product support
services. The globe is now treated as a single market place because large numbers of players are
manufacturing and delivering products and services in a global scale where by they can achieve
economies of scale and offer a lower price to the customers. Global life styles, tastes and products have
emerged due to rapid advent of television and global media. So brands like Coca Cola, Sony, Honda are
no more identified by their country of origin. They have become global brands in true sense.
1.6 MARKETING MANAGEMENT PROCESS: AN OVERVIEW
As already dis;cussed, the effective marketing starts with the identification of consulner and his need. The
marketer develops marketing program for satisfying customer needs with a firm's products and services.
One of the myths of marketing rests with the fact that people wants and needs vary greatly, and it is
unlikely that any particular product or service can adequately satisfy everyone.
The marketing process consists of four steps: (i) analysing the marketing opportunities, (2) selecting
target markets, (3) developing the marketing mix, and (4) implementing and controling. Now let us
study each of them briefly.
1. Analysing the Marketing Environment: As discussed earlier, marketing task starts with the
idelitification of consumer needs. Therefore, the first step in the marketing process is the analysis of
marketing opportunities to identify the consumer needs. Marketer has to identify the new needs or the
existing needs not satisfied by any product offer or the needs which can be satisfied through better
product offerings. For this purpose, you have to analyse the opportunities by
scanning the marketing environment.

Marketing analysis talks about finding out the current position of the company in the form of current
market share, market power, the relevant strengths and weaknesses of the company in relation to
competitors and market opportunity and threats it is likely to face in the marketing environment. The
marketer uses various techniques like SWOT analysis, scenario building, cross impact analysis and other
environmental scanning techniques.
2. Selecting Target Markets: At the second stage, the marketer has to decide aboult the target, the
company's business mission, the category of customer markets it wants to serve, the type of strategy to
arrive at the set goals. For this reason, one of the first tasks in marketing planning is to divide the
heterogeneous market into relatively homogeneous segments. Once a particular customer group is
identified and analyzed, the marketing manager can direct company resources and activities to profitably
satisfy the selected segment. Thus, at this stage marketer divides the market into various segments, called
market segmentation. Each segment consists of consumers who respond in a
similar way to a given set of marketing efforts. Then the marketer evaluates each segment and selects one
or more segments in which lie can generate the greatest custonler value and sustain it over a long period.
This is called market targeting. After identifying the target market, you must decide market
positioning, that is the place product occupies relative to the competitors product in consumers' mind. If
the product is perceived to be exactly like competitor's product, consumers would have no reason to buy it
3. Developing the Marketing Mix: The third step in the marketing process is deciding the marketing
mix. It is easier to divided the marketing activities into four basic elements which are together referred to
as the marketing mix. These four basic elements are: 1) product, 2) price, 3) promotion and 4) physical
distribution.
As all these four start with the letter 'P', they are referred to as the four Ps of the marketing mix or the four
Ps in marketing. Thus, marketing mix may be defined as the set of controllable marketing
variables/activities that the firm blends to produce the response it wants in the target markets.
The word product stands for the goods or services offered by the organisation. Once the needs are
identified, it is necessary to plan the product and after that keep on analysing whether the product still
satisfies the needs which were originally planned for, and if not, to determine the necessary changes.
Decisions such as branding packaging, after sale service etc., are to be decided.
Price is the money that the consumer has to pay. Price must be considered as worth the value of the
product to become an effective marketing tool. The product has to be reasonably priced. The
manufacturer has to take into account cost factors, profit margin, the possibility of sales at different price
levels and the concept of the right price.
Promotion is the aspect of selling and advertising or cominuilicating the benefits of the product or
service to the target customers or the market segment in order to persuade them to purchase such products
or services. It includes selling through advertising as well as the sales force. Besides, a certain amount of
proinotion is also done through special seasonal discounts, competitions, special price reductions, etc.
Physical Distribution refers to the aspect of the channels of distribution through which the product has to
move before it reaches the consumer. It also includes the logistic aspects of distribution such as
warehousing, transportation, etc., needed for geographical distribution of products. It is also concerned
with the selection of distribution channels. The organisation must decide whether it should
sell through wholesalers and then to retailers, or whether directly to the consumers. There are many ways
in which a product can be moved from the producer to the consumer. The optimum method has to be
determined in terms of both consumer satisfaction and profitability to the organisation, or optimum use of
the organisation's resources.
4. Implementing and Controlling: At the fourth stage marketing plan is to be implemented. Without a
proper implementation program, marketing planning exercise is just a paper work. The marketing
implementation revolves around executing the strategy and resources for achieving the marketing goals or
targets. The marketing managers execute the strategy by converting it to operational plans which are
achievable within a specified period of time frame.
The fourth stage also includes marketing control, which is a process of benchmarking the expended effort
and resources with the set goals. You have to get the feedback from the market whether the consumers

received the desired level of satisfaction from the product offering or not. Based on this feedback you
further plan to enhace the consumer satisfaction or overcome the deficiencies in the product offerings, if
any. The achievements are evaluated with the objectives set at the planning stage to find out the
deficiencies if any and to take modified action in the future so that the efficiency of the resource expended
increases and gets translated in to profit.
Every organization has a structure and culture that reflects its readiness and effectiveness to the ever
changing need of the customers in providing a sustained level of satisfaction. Marketing function
confined to a particular departmental structure in the organization seldom brings success. It creates goal
confusion due to functional myopia in the organization. In this context the whole organization has to
understand the urgency of market orientation and understanding of customer need for greater success. The
concept of organization structure revolves around two issues. The first is the relative importance of
marketing departnzent inside the organization and second, its relationships with other jirnctional
deparlntenls and external players in the valtre chain.
A marketing manager has to take decisions regarding various aspects of marketing. He takes these
decisions under certain environmental situations. The decision variables over which he makes decisions
are called marketing mixes and which are controllable factors for a marketing manager. He takes these
decisions under certain environnlental conditions. These environmental conditions are called
uncontrollable forces and the decisions are taken in relation to immediate players affecting business.
These players constitute the part of the micro environnlent and are called as actors.
1.7 MARKETING MANAGEMENT IN INDIAN CONTEXT
The development of marketing in India and emergence of Indian market as a force to reckon in the global
business front is an interesting subject for marketing students. There are three distinct phases in the
growth of Indian nzarket. The first phase counts to the period of independence where the colony was
subsistent in nature. The imperial government controlled the output and large number of customers did
not have adequate purchasing power. Customers were largely agriculturists debarring few salaried people
working in the British establishinents. Most of the products were froill British and the stakes of ownership
in large enterprises were vested with them. The consumers did not have any choice, as there were few
alternatives available. It was a seller's market with product orientation and consumer welfare was unheard
of.
The second phase started immediately after the independence and the new government dlecided to follow
the socialistic principles where the public sector dominated the ownership of large enterprises. There was
a rationing and quota system for the: private players and the production was limited to the whim of the
government decisions. Most of the markets remained as seller's market. The seller was in a dominating
position due to the protection from government and no formal competition. The seller dominated the
pattern of consumption with product alternatives, price propositicms and on the availability front. There
were few manufactures those who believed about product quality and consumer satisfaction. There was a
ban to the direct entry of foreign participants for giving protection to the domestic sector. The consumer
had very limited opportunity to complain about the pseudo promises and hazardous practice of the
manufacturer until the Consumer Protection Act of 1994. Lack of ef'fectiveness and non-availability of
competition allowed the manufacturer to sell the sub-standard products. The per capita income was low
and people had less purchasiing power. Majority of people spent money buying necessities, which
allowed the commodities market to grow in a snail's pace to cater to the common person. Cities grew in
size due to establishment of large manufacturing units and the1 rural and urban divide started to emerge
in urban market. Demand for quality education, decent housing and entry of women to the active
workforce brought radical change to the Indian urban market. The rural Indian market remains
unexploited due to poor econonly of average rural consumer, resultant lower purchasing power of the
rural consumer, irregularity in saving and occupation pattern. Non-availability of transportation and
communicationf acility also restricted the growth of the rural market in India.
The urban Indian market was undergoing radical changes due to emergence of a large middle class with
constant and regular income pattern. Adequate savings, support from the rural agricultural income flow to
the urban middle class and the benefits given by the welfare state to this class increased the consumption

level and demand for various products unheard before for thern. The strength of this market increased due
to increase in consumer's knowledge about their rights and redress mechanism introduced by the
government. Various products became the mark of the class and a pseudo consumption culture emerged
in the Indian market until early 1990s.
Whatever the argument may be Indian industry and consumer wake up to the global reality in the early
nineties due to the liberalizatioll process. 'This is the starting of the third phase.
The role of the public sector as seller and as buyer came down as efficiency and competition became the
mantraof survival in place of protection. The abolition of Monopoly Restrictive Trade Practice allowed
firms to have both organic and , inorganic growth. Firms started producing higher capacity for the market
as there was no quota restriction. Mergers and acquisitions saw the emergence of large conglomerates and
consolidation of business in Indian market. Government allowed foreign equity participation in the
domestic business, whicll brought large global players to Indian market. The domestic companies
liquidated a part of their ownership and allowed joint ventures for smooth flow of foreign equity capital
and technology. Large multinationals like Mindustan Lever, Proctor and Gamble, LG Electronics, Ford,
Mitsubishi, Honda, Sainsung entered in to the markel with more financial muscle and better teclinology
for Indian consumer.
Domestic and Foreign financial institutions reposed their faith on Indian industry and the industry got a
good funding through both long-term debt and equity route. The government brought drastic changes in
various draconian and imperial legislations for smooth conduct of business. The Indian industy also
responded positively by offering better products and services to the consumers. The free market
competition gave rise to a new mechanism of market power. Marketers started bridging the gap between
the urban and rural, rich and poor by offering products and services at all price points. They also
strengthened the management of the distribution channel through new methodologiest like Supply Chain
Management, Just in TimeTechnology and increased productivity through continuous improvement,
Because of such radical changes in the market, product prices came down, the quality level went up to
match the global standard, customers at various sub urban places could access the availability of various
products suiting to their pockets.
On the other hand, advent oftelevisio~an~d cable television revolution provided a larger platform to the
marketers to take their marketing communication to consumers. It was possible to disseminate product
information to a wider audience than the urban noveaue rich were. Higher demand in the product put a
time pressure for the companies who had to follow shorter product manufacturing cycles and deliver
products with global standards as customers had many options to choose from the market. Financial
institutions started provisions of periodic payments and instant ownership through installment schemes
for many products categories. This kind of support helped in the market penetration of few products
in a faster rate. 'The attitude of indian consumer also underwent swapping changes.
People started spending money in acquiring products and services for a comfortable stay than saving as in
the past. This spending orientation gave birth to a viable service sector. The service sector grew in leaps
and bounds in last few years due to advent of modern technology. People started enjoying life like never
before, businesses like airline, professional education, tourism, restaurants and hotels, telecoms, hospitals
and quality health services and computer related services grew in matching order with the manufacturing
sector. The telecom revolution brought changes in communication services expected by customers
through adoption of mobile telepliony, WLL, intenlet telephony and subsequent reduction in the
Communication cost. Rapid penetration of Personal Computers and internet services are also a significant
change happening in urban and semi urban India.
Indian market has changed from a developing market to an emerging market. The market is enroute to a
developed market as the choices in the consumption basket of consumers have increased in the last
decade. However, one cannot ignore the negative effects also. The divide between the rich and poor is
increasing day by day. A large section of tlie society is staying away from the use of benefits of these
changes. Marketing managers have to rethink at all these issues and try to take a developmental
orientation so that more and more customers will enjoy tlie benefit of liberalization and free market
economy.

The recent thrust by Hindustan Lever through its operation Bliarat, Procter and Gamble's tie up with
Marico for enhancing rural distribution, the e-Choupal strategy by ITC are indicators that the marketers
are trying to woo the rural customers for increasing their consumption. This will be only possible when
tlie income power of the rural consumer increase. Marketers have to take the developlnental approach
for building such a strategy. Hindustan Lever is now trying to market the products through self-help
groups where by the socially backward arid vulnerable people can become part of the mainstream and
earn to consume. In the long run, marketing manager's success will be measured on different parameters
than the current approach of market share, as the revenue as well as the profits from the urban
market will sure to dry down in future. There is no doubt that tlie status of the Indian consumer has
increased but the percentage is so small that tlie task now is to bring more people to the field of
consumption.
1.8 IMPORTANCE OF MARKETING AS A SUBJECT OF STUDY
In one of his classic articles, Peter Ducker said that Marketing is everything. Rest other activities in the
organization are support services to the marketirig strategy that a firm pursue. Marketing has higher
significance in an emerging economy like that of India where it not only has to satisfy tlie customer need,
but also to support the process of economic development. The success of business is known by its
achievement in marketing front in the form of market share and return on investment on marketing
programs. Marketing has significance to tlie consumer as it provides more alternatives to consumers,
controls the price mechanism ,allow the consumers to bring a balance between his income and
consumption. It is important to the economic progress of tlie country as it opens up new vistas of research
by supporting product innovation and enhancing the quality of living for the ultimate consumer.
Marketing generates resources that are ploughed back to the economic system and it fastens the process of
growth for the country. Over a period of time people in industry, government and academia have realized
the macro level importance of marketing. Therefore, special concentration is available under the domain
of marketing to understand consumer behavior, marketing for services and industrial products, advertising
and sales pro~notione ffects on consumers. Marketing brings revenue and earns goodwill for a
manufacturer or marketer, provides alternatives of choice in goods and services to consumer and enables
the society for redistribution of income, generation of additional employment through manufacturing and
trading and improvement in the over all standard of living of the
citizens of a country.
Marketing looks in to the business management challenges like environmental scanning, identification of
marketing opportunities, formulation of marketiag programs, evaluation and tracking of consumer choice
and response to business.
Marketing aids the consumers to have choices and final say in tlie acceptance of a inarketing offer
available to him. The easy availability of high quality goods and services at competitive prices is made
possible by efficient marketing system. Marketing management createstime, place and possession utility
to products and services. Products and Services are useful if they are available for consumption at the
right time and place. Management of marketing creates such utility.
Marketing generates additional employnient, increases per capita income and helps in the over all
progress of an economy. The per capita availability of essential goods is an indicator of the level of
consumption and poverty in an economic system.
1.9 LET US SUM UP
Marketing is a dynamic subject in business. The success of a business largely depends on the success of
marketing. There are various definitions to Marketing. We can generalize the definition through the
definition of the famous inarketing author, Philip Kotler. According to him, "Marketing is a social activity
directed at satisfying needs and wants through exchange process". It is a management
process of identifying consumer needs, developing products and services to satisfy consumer needs,
making these products and services available to the consumer through an efficient distribution network
and promoting these products and services to obtain greater competitive advantage in the market place.
This emphasizes the optimum utilization of resources and delivering value to customers through efficient
process and with a profit to the organization.

Marketing as a concept has evolved over a period. It has augmented the process of exchange as an
economic activity and there are five concepts associated with marketing. They are 1) Production Concept,
2) Product Concept, 3) Selling Concept, 4) Marketing Concept, and 5) Societal Concept.
The greatest confusion in understanding marketing is the confused line of difference between selling and
marketing. While selling is product focused and looks after the interest of the seller, marketing takes a
more welfare view and the key focus of marketing is consumer satisfaction than sales. Marketing explains
the whole process of identifying consumer needs, developing products and satisfying consumers through
a marketing program.
Marketing plays a pivotal role in tlie development process of a country like India.Different phases of
development in Indian market are indicators that there is a revolution undergoing in Indian market. We
envisage a greater role for marketing in Indian market whereby marketing can help in bringing more and
more people to the fold of enhanced and qualitative consumption. The recent economic and social
changes in Indian market bring a new and enterprising picture of growth of marketing in Indian business.
Marketing has to play a greater role than just satisfying the consumers in an emerging economy like that
of India. Marketing should bring significant changes affecting the quality of life eof everybody in a
country like India
UNIT 2 MARKETING ENVIRONMENT
Marketing functions are to be carried out in a given environment. Even the marketing opportunity has to
be scanned and identified by carefully observing the environment. The marketing mix is also decided in
the context of a given marketing environment. Though marketing managers cannot control the forces in a
marketing environment, they must take them into account when making marketing decisions. While
formulating the marketing strategies, the marketers must closely observe the
environ~nenitn which they are functioning. In this unit, you will study the factors that constitute the
marketing environment, and the marketing environment in India. You will also study bow various Acts
and Statutes influence the marketing decisions in India.
2.2 WHAT IS MARKETING ENVIRONMENT?
Marketing activities are influenced by several factors inside and outside a business firm. These factors or
forces influencing marketing decision making are collectively called marketing environment. It comprises
all those forces which have an impact on market and marketing efforts of the enterprise. According to
Philip Kotler, marketing environment refers to "external factors and forces that affect the company's
ability to develop and maintain successfill transactions and relationships with its target customers." For
example, the relevant environment to a car tyre manufacturer may be the car manufacturers and buyers,
the tyre manufacturing technology, the tax
structure, imports and export regulations, the distributors, dealers, competitors, etc. In addition to these,
the company may have to consider its internal environment interms of Finance, Purchasing, Accounting,
Manufacturing Technology, R&D. Top Management, etc. However, this internal environment is
controllable to a large extent. The external environment becomes important due to the fact that it is
changing and there is uncertainty. Most of these external environmental factors are uncontrollable. There
is both a threat and opportunity in these changes.
The external marketing environment may be broadly divided into two parts:
1) Micro environment
2) Macro environment
Micro Environment refers to the company's immediate environment, that is, those environmental factors
that are in its proximity. They include the company's own capabilities to produce and serve the consumer
needs, the dealers and distributors, the competitors, and the customers. These are also the groups of
people who affect the company's prospects directly.
Macro Environment refers to those factors which are external forces in the company's activities and do
not concern the immediate environment. Macro environment are uncontrollable factors which indirectly
affect the concern's ability to operate in the market effectively. These incIude demographic, economic,

natural, technological, political and cultural forces. The influence ofthese factors are indirect and often
take time to reach the company. Look at Figure 2.1 carefully which presents these forces.

The forces in the outer circle may be taken to constitute the macro environment and those in the irtner
circle as the micro environment of a company.
2.2.1 Micro Environment
Micro environmental factors whicli influence the marketing decisions of the company are: i)
organisation's internal environment, ii) suppliers, iii) marketing intermediaries, iv) competitors, and v)
consumers.
Organisation's Internal Environment
Organisation's financial, production and human resource capabilities influence its marketing decisions to
a large extent. For instance, while deciding about the sales targets, it is necessary to see whether the
existing production facilities are enough to produce the additional quantities or not. If the existing
facilities are not enough and expansion to plant and machinery is required, it is necessary to think about
financial capabilities.
You may have a responsivc research and develop~nendt epartment to develop a new product. So also the
production department may have its own facilities for producing the new product. It is also necessary to
consider how non-marketing departments in the organisation cooperate with the marketing department.
The top management may not agree with the views of the marketing department on the marketing
strategies or their implementation. Besides, the marketing department must work in close cooperation
with the other departments, especially the quality control and production departments. Sometimes it is the
sale force that must bear the major task in
the strategy.
Suppliers

For production of goods or services,'you require a variety of inputs. The individuals or firms who supply
such inputs are called suppliers. Success of the marketing organisation depends upon the smooth and
continuous supply of inputs in required quantities on reasonable terms. Hence suppliers assume
importance. The timely supplies of specified quality and quantity makes the producer to keep up the
delivery schedule and the quality of the final product. The dependence on the supplier is Naturally more
when the number of suppliers is more. During periods of shortages, sole suppliers may not supply
materials on favourable terms. Each supplier may negotiate his own terms and conditions, depending
upon the competitive position of his firms. Some suppliers, for example, expect payment in advance, and
goods are supplied on the basis of a waiting list, whereas others may be ready to supply on credit basis.
Intermediaries
Normally, it is not possible for all the producers to sell their goods or services directly to the consumers.
Producers use the services of a number of intermediaries to move their products to tlie consumers. The
dealers and distributors, in other words the marketing intermediaries, may or may not be willing to extend
their cooperation. These persons normally prefer well-established brands.
Newcomers may find it extremely difficult to find a willing dealer to stock his goods. From newcomers
they may denand favourable terms by way of discount, credit, etc., and the producer may find it difficult
to satisfy them. There are also other intermediaries like transport organisations, warehousing agencies,
etc., who assist in physical distribution. Their cost of service, accessibility, safe and fast delivery, etc.,
often influence the marketing activities.
Competitors
Competitors pose competition. Competitors' strategies also affect the marketing decisions. Apart from
competition on the price factor, there are ,other forms of competition like production differentiation.
There are also competitors who use brand name, dealer network, or close substitute products as the focal
point. Their advertising may present several real or false attributes of their product. If one advertises that
his product has an imported technology, the other may say that he is already exporting his product.
Competitor's strategies sometimes may change an opportunity in the
environment into a challenge.
Customers
There are many types of customers. A firm may be selling directly to the ultimate users, the resellers, the
industries, the Government or international buyers. It may be selling to any one or all of these customers.
Each type of consumer market has certain unique characteristics and the marketer should be fillly
acquainted with the art of persuading and selling to these consumers. The environment presented by
customer profile will have a direct influence on these marketing activities.
The population also corltains the potential consumers of the company's product. It may not be easier to
identify the persons who are likely to become the customers of a company. The goodwill built-up by a
company sometimes influences the consumers to become the customers of acompany. Companies
generally try to build good public relations and create a favourable attitude among the people or groups of
people. Government and consumer action groups are special categories with whom a negative attitude is
to be avoided. Thus, the public also constitute an element in the
environment.
2.2.2 Macro Environment
The macro environmental factors that exert influence on an organisation's marketing system are: I)
physical environment, 2) technological environment, 3) political and legal environment, 4) economic
environment, 5) demographic environment, and 6) socialcultural environment.
Physical Environment
The earth's natural renewable resources (e.g. forest, food products from agriculture, etc.) and finite nonrenewable resources (e.g, oil, coal, minerals, etc.), weather (climatic) conditions, landscapes and water
resources are components of an environment which quite often change the level and type of resources
available to a marketer for his production. For exanlple, India does not have enough petroleum resources,
and imports petrol and other products. Recently, the Gulf War drastically
affected the supply of petrol and diesel in the country. This had lot of implications for

the companies consuming petro-products.

Technological Environment
Technology is shapingthe destiny ofthe people. The revolution in computers, electronics and
communication in general may make one's production out oftune with the current products and services.
For exanlple, new printing technology like Insel. printing and desk top publishing, has already made the
labour-intensive type-set printing uneconomical.
Political and Legal Environment
Political changes bring in new policies and laws relevant to industry. Government regulation continues
wit11 different intensities and the law and the rules framed thereunder are becoming complex. Many
areas of business are brought under one law or the other, and the marketer cannot escape from the
influence of these laws. The tax laws for example, the sales tax. excise duty, income-tax, etc., have direct
bearing on the costs and prices of the products and services marketed. So also the policies
relatirig to imports and exports. Since these factors affect all the units, (they do not affect a single
marketer alone), these are considered as the forces in the macro environment.
Economic Environment
Under economic environment, a marketing manager generally studies the following factors and trends:
i) Trends in gross national product and real income growth;
ii) Pattern of income distribution;
iii) Variations in geographical income distribution and its trends;
iv) Expenditure pattern and trends.
v) Trends of consumer savings and how consumers like to hold their savings, i.e., either in the form of
bank account, investments in bonds arid securities; purchase of real estate, insurance policies, or any other
assets;
vi) Borrowing pattern, trends and governmental and legal restrictions; and
vii) Major economic variables, e.g., cost of living, interest rates, repayment terms, disposable income, etc.
These factors determine the purchasing power, along with savings and credit availability. Study and
knowledge of economic forces is essential for preparing effective marketing plans. No firm is immune to
economic forces although som e are less vulilerable than others. Anticipation of future economic
conditions will enable the firm to devise appropriate marketing strategies.
Marketing organisations are susceptible to economic conditions, both directly and through the medium of
market place. Economic conditions affect marketing directly because such organisations are themselves a
part of market place. For instance, the cost of a1 l inputs positively respond to upward swing of economic
condition. This will affect the output price and consequently affect the sales. The effect on marketplace
(consumers) also influences the marketing through changes in consumer habits. 'This is an indirect
influence. For example, in tlle event of spiraling prices, cousurners often curtail or postpone their
expenditures for luxury products. Conversely, during times of relative affluence, consumers are much less
conscious of small price differences and would buy luxury products.
Demographic Environment
Marketers are keenly interested in tlle demographic characteristics such as the size of the population, its
geographical distribution, density, mobility trends, age distribution, birth rate, death rate, the religious
composition, etc. The changing life styles, habits and tastes of the population, have potentials for the
marketer to explorc. For example, when both husband and wife go for jobs, the demand for gadgets that
make house keeping easier and tlle semi-cooked food products increase.
Socio-Cultural environment
There are core cultural values which are found stable and deep rooted, and hence change very little. There
are also secondary cultural values which are susceptible to fast changes. Some of them like hair styles,
clothing, etc. just fade. Even in a given culture, the entire population may not adopt the changes. There
are different degrees with which people adopt them. Religion is also an important component of culture
which has implications for the marketer. For example, Hindus worship the cow and do not eat beef. So
the products made out of beef meat do not have demand. Thus, the culture of the society influences the

consumption pattern to a certain extent. Culture also pervades other human activities by determining their
values and beliefs.
2.3 RELEVANCE OF ENVIRONMENT IN MARKETING
You have studied that the marketing environment of a company comprises a variety of forces. Most of
these forces are external to the company and may not be controllable by the marketing executives of the
company. So the marketing system of the company has to operate within the framework of these everchanging environmental forces.
This uncertain marketingenvironment offers both opportunities, and shocks and threats. Therefore, it is
necessary for a company to scan the changing environment continuously, and change the marketing mix
strategies in accordance with the trends and developments in the marketing environment.
The company responds to these environmental factors and forces by its policies depending on its own
capabilities particularly the finance, sales force and technical facilities. Among all these environmental
factors, some ofthem may be controllable by the organisation to some extent, and others may be
uncontrollable. Macro environmental factors are totally uncontrollable by the firm whereas micro
environmental factors may be controlled to some extent. For instance, organisation's interna1
environment can be controlled by the firm to a large extent. Sinlilarly, the firm can exert some influence
on suppliers, dealers and distributors by offering liberal terms. And through its advertising effort, a firm
can influence the prospective and present consumers.
Each aspect of the environment has some relevance in marketing. It is easy to imagine how various
environmental factors affect the demand and supply, the distribution and proniotional policies, etc. For
example, with the oil crisis there will be demand for more oil-efficient machines. Similarly, the popularity
of computers will create demand for more computer operators, voltage stabilizers, etc.
The following benefits ofenvironnient scanning have been suggested by various authorities:
It creates an increased general awareness of environmental changes on the part of management.
It guides with greater effectiveness in matters relating to Government.
It helps in marketing analysis.
It suggests improvements in diversification and resource allocations.
It helps firms to identify and capitalize upon opportunities rather than losing out to competitors.
It provides a base of 'objective qualitative information' about the business I environment that can
subsequently be of value of designing the strategies.
It provides a continuing broad-based education for executives in general, and the strategists in particular.
2.4 MARKETING ENVIRONMENT IN INDIA
India is a vast country populated by around 100 crore people. Its unique feature is its diversity of
religions, languages, social customs, regional characteristics, which is both a boon and a bane for the
marketer. Boon because there is tremendous scope for a wide variety of products and services to be
successfully marketed and a bane because the marketer often needs to adapt the marketing strategy to suit
different tastes and values. There are marketers who may find that the Indian environment is full of profit
potential. It means that there are buyer for anything one may produce and there is market for everything.
There are others who take a somewhat pessimistic view by considering the poverty and shortages of
requisite inputs. However, one can confidently say that the market is vast, quality consciousness among
consumers is increasing, and there is demand for new and improved products and services and these
trends may continue for a long time.
Despite more than 55 years of independence, India is still domi1;ated by villages and almost 70 percent of
population is located in the rural areas. But these rural areas are today enjoying the fruits of the Green
Revolution and the purchasing power of the rural population is increasingly demanding attention from the
marketer who had so far concentrated only in urban areas. No doubt tlie urban areas with their
concentration of numbers and inarket potential are the priority target markets, but a firns which wants
to ensure its future survival must start making in roads into the rural market as well.
Government expenditure on rural development has increased the purchasing power of the rural public.
Improvements in transport, communication, literacy, etc. have made many new markets accessible. The

capacity to see the opportunity and work out an appropriate marketing strategy can open the doors to the
marketers.
There are a large number of companies, public sector undertakings, factories and small-scale units, all of
which comprise the organisational consumers, operating in the country. While the public sector usually
follows a bureaucratic long winded and time consuming procedure for making even the smallest
purchase, the private sector decision-making is relatively quicker and free of bureaucratic procedures. If
you are marketing your products/services to both the public and private sectors, you may like to
think about having separate marketing organisations for them. Another major difference between the
public and private sector is in the timing of the purchase decision. The public sector cornpanies have an
annual budget sanctioned to them by the governmerit and the money from this is used for purchasing a
variety of products.
The public sector units feel compelled to use tlie entire budget amount, because if they do not, they run
the risk of having a reduced budget in the subsequent years. You would find a flurry of purchases during
the quarter preceding March when the financial year ends so if the public sector companies are your
major consumers, you should bear the timing factor in mind. In case of private sector companies, you
would generally not find such a peaking of purchases in any particular month of the year
unless it is linked to seasonality ofproduction or sales.
2.5 GOVERNMENT REGULATIONS AFFECTING MARKETING
A number of laws affecting business have become operational over the years. The important ones
affecting marketing are listed below:
1) The Indian Contract Act, 1872
2) Sales of Goods Act, 1930
3) The Industries (Development & Regulation) Act, 195 1
4) The Prevention of Food Adulteration Act, 1954
5) The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954
6) Tlie Essential Commodities Act, 1955
7) Tlie Companies Act, 1956
8) Tl~Te rade Marks Act, 1999
9) The Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act)
10) Tlle Patents Act, 1970
11) The Standal-ds of Weights and Measures Act, 1976
12) The Consumer Protection Act, 1986
13) The Environment Protection Act, 1986
14) The Bureau of Indian Standards Act, 1986
15) The Agricultural Produce Grading and Marketing Act (AGMARK), 1937
Some of the legislations mentioned above apply to every undertaking, irrespective of the nature of the
product sold or the service provided by it like the Indian Contract Act, the Sale of Goods Act, the
CompaniesA ct, the Trade Marks Act and the standards of Weights and Measures Act.
As against this, there are certain legislations listed above which seek to regulate certain decisions of the
undertakings engaged in the specific industries. These include The Industries (Development &
Regulation) Act, 195 1; The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954; The
Prevention of Food Adulteration Act, 1954; The Essential Commodities Act, 1955.
It would be too much to expect a marketer to know all about the various Acts listed above. But
nevertheless, it is essential for you to have a good working knowledge of the major laws protecting
competition, consuniers and the larger interest of society.
Such an understanding would help you to examine the legal implications of your decisions.
The main reasons for government control can be summarized as follows:
Protectingthe welfare of individuals and promoting higher standards of public health, general well being,
safety, etc.
Maintaining equality of opportunity for all persons irrespective of sex, nationality, race or re1 igion.

Restraining business from engaging in practices harmful to the interests of the public like making false
and misleading statements about a product or service, manipulating prices for personal gains, failing to
support warranties, etc.
Protecting small firms fro111 the threats of unfair competition by big firms.
Preventing unfair practices resulting from mergers or other forms of combinations like price fixing.
Conserving national resources especially forests, fuels, water, energy, etc.
Preventing pollution ofthe environment.
Preventing concentration of economic power and industrial wealth.
Encouragingwidely dispersed industrial growth and the growth of small scale industries.
Protecting the economy from dominance by foreign inventors and helping save the valuable foreign
exchange resources.
The Indian Contract Act, 1872
Regulates the economic and commercial relations of citizens. The scope of this Act extends to all such
decisions which involve the formation and execution of a contract. The essentials of a valid contract are
specified and examined in detail. A contract is an agreement enforceable at law between two or more
persons by which rights are acquired by one or more to act or forbearances on the part of the other or
others. The Act also specifies provisions for the creation of an agency and the rights and duties of
a principal and an agent.
Sales of Goods Act, 1930
Governs the transactions of sale and purchase. A contract of sale of goods is defined as a contract
whereby the property in goods is transferred or agreed to be transferred by the seller to the buyer for a
price. The Act also lays down rules about passing of property in goods, the rights and duties of the buyer
and seller, rules regarding the delivery of goods as well as the rights ofthe unpaid seller.
The Industries (Development & Regulation) Act, 1951
It is through this Act that the industrial I icensing system operates, in effect, it empowers the government
to licence (or permit) new investment, expansion of licensed units, production of new articles, change of
location by the licensed units and also to investigate the affairs of licensed units in certain cases and to
take over the management thereof, if cotiditions so warrant. The objectives behind these powers are, of
course, development and regulation of important industries involving fairly large investments which have
an all-India importance. It is in the actual implementation ofthese objectives that the relevant aspects of
the industrial policy are expected to be fulfilled.
Industrial licensing is a form of direct state intervention in the market to overrule its forces. The
underlying assumption here is that the government is the best judge about the priorities from the national
point of view and also that it can do the allocation in a better and socially optimal way. It must, however,
be understood that there are ecollomic costs involved in the measures of control and the benefits that are
expected to accrue at least equal to or more than the costs involved.
Prevention of Food Adulteration Act (1954)
Prohibits the publication or issue of advertisement tending to cause harm to the ignorant consulner by
consuming certain food articles. It also ensures purity in the articles of food.
Drugs and Magic Remedies (Objectionable Advertisement) Act (1954)
This Act proliibits the publication or issue ofadvertisements tending to cause the ignorant consumers to
resort to self-medication with harmful drugs and appliances. Advertisements for certain drugs for
preventing diseases and disorders like epilepsy, prevention of conception, sexual impotency, etc., are also
prohibited. The Act also prohibits advertisements making false claims for the drugs.
Essential Commodities Act (1955)
This Act provides for the control of production, supply and distribution in certain commodities declared
as essential under Section 2(a) of the Act, in the public interest. Under Section 3(a) of this Act, the
government can fix the price of such a commodity.
Companies Act (1956)
It is a piece of legislation wliicli has far-reaching effects on business by regulation of the organisation and
functioning of companies. With more tlian 650 sections, it is one of the longest legal enactments. It is

meant to regulate the growing uses of the company system as an instrument of business and finance and
possibilities of abuse inherent in that system.
Trade Marks Act (1999)
It deals with the trade and merchandise marks registered under this Act. A mark includes a device, brand,
heading, label, ticket, name, signature, word, letter, numeral, shape of goods, packaging or combination
of colours or any combination thereof. A Trade Mark is a distinctive symbol, title or design that readily
identifies the company or its product. The owner of the trademark has the right to its exclusive use
and the Act provides legal protection against infringement ofthis right. A trademark is registered for a
maximum period of 10 years and is renewable for a similar number of years, each time the period of 10
years expires.
However; no sucli trademark should be used which is likely to be deceptive or confusing or, is scandalous
or obscene or which hurts the religious sentiments of the people of India.
Monopolies and Restrictive Trade Practices Act (1969) (MRTP Act)
'This Act provides for tlie control of monopolies, for the prohibition of monopolistic, restrictive and ufair
trade practices and for matters connected therewith or incidental thereto.
It may be of interest for you to know that the first country to pass such a legislation was tlie United States
wliicli lias a free enterprise system. There, such an Act was passed as far back as 1890 and is called the
Sherman Antitrust Act, But, so far as the UnitedKingdom is concerned it was only in 1948 that the
Monopolies and Restrictive Practices (Inquiry Control) Act was passed. In 1956 and 1964 two more
Acts were added, viz., Restrictive Trade Practices Act and Resale Prices Act, respectively. Our Act is
modelled on tlie lines of the above three Acts.
Patents Act (1970)
Provisions of tliis Act are attracted especially where the company intends to produce patented products. A
patent is tlie exclusive right to own, use and dispose of an invention for a specified period. Tlie patent is
granted by the Central Government to the first inventor or his legal representative.
Standards of Weights and Measures Act (1976)
This Act specifies the quantities in which products can be packed. The products covered include bread,
butter, cheese, biscuits, cereals and pulses, cigarettes. cigar, cleaning and sanitary fluids, cleaning power,
condensed milk, tea. coffee, cooking oils, cosmetics, honey, ice cream, jams, sauces. milk powder, soaps,
spices, toothpaste, etc. I
Consumer Protection Act (1986)
ConsumerP rotection Act, 1986, as amended by the Consumer Protection (Amendment) Act, 2002, is the
latest addition to the list oftlie legislations regulating marketing decisions in India. The Act is in addition
to and not in derogation of the provisions ofany other law which influence marketing decisions. The Act
is intended to provide better protection of the interests of consumers and for that purpose make provision
fortlie establishment of Central Consumer Council, State Consumer Councils, District Consumer
Councils and other authorities for the settlement of consumers' disputes and for matters connected
therewith.
The Act has sharper teeth. One of the weaknesses of earlier legislations was the confusion regarding the
burden of proof. They never made it sufficieintly clear whether the onus of proof rested with the
manufacturer, the irader or the consumer.
This Act establishes a landmark in the sense that for the first time the onus has been shifted to the
manufacturer and the seller. Lesides, no court fee is payable. Also, the I aggrieved consumer can himself
argue his case. Moreover, decision lias to be dispensed within a given Lime-frame - 3 months, where no
testing is required and 5 montlis where testing ofthe goods complained of is required. The Act provides
the consumer the right:
to be protected against marketing of goods which are hazardous to life and People;
to be informed aboutthe quality, quantity, potency, purity, standard and price of goods thereby protecting
the consumer against unfair trade practices;
to be assured, wherever possible, access to a variety of goods at competitive prices;
to be heard and to be assured that consumers interest will receive due considerationa t appropriateforurns.

to seek redressal against unfair trade practices and unscrupulous exploitation of consumers.
to consumer education.
These objects are sought to be promoted and protected by the Consumer P rotection Councils establislied
at the Central, State and District levels.
To provide speedy and simple redressal to consumer disputes, a quasi-judicial machinery(s pecial courts
ha s been set up at the District, State and Central levels. ,
These (Special Courts) quasi-.judicial bodies observe the principles of natural justice and have been
empowered to give reliefs of a specific nature and to award, wherever appropriate, compensation to
consumers. Penalties for non-compliance of the orders given by tlie quasi-judicial bodies (Special Courts)
have also been provided.
Environment Protection Act (1986)
It provides for the protection and improvement of environment and the prevention of hazards to liuman
beings, otlier living creatures, plants and property.
Environment includes, water, air and land and the inter-relationship existing between them and tlie human
beings, living creatures, plants, etc. Any solid, liquid or gaseous substances present which may tend to be
injurious to environment is an environmental pollutant and the presence thereof is pollution.
The present enactment covers not only all matters relating to prevention, control and abatement of
environmelltal pollution but also powers and functions of the Central Government and its officers in that
regard and penalties for committing offences.
Bureau of Indian Standards Act (1986)
Provides for the establisll~nenot f a Bureau for the harmonious development of the activities of
standardisation, marking and quality certification of goods and for matters connected therewith
or.incidenta1 thereto.
It has been provided that the Bureau of Indian Standards will be a body corporate and there will be an
Executive Committte to carry on its day-to-day activities. Staff, assets and liabilities of the Indian
Standards Institution will perform all functions of the Indian Standards Institution. It has also been
stipulated that access will be provided for to the Bureau's Standards and Certification Marks to suppliers
or like products originating in General Agreement on Trade and Tariff (GATT) code countries.
The Act does not make any change in existing law except to provide a new forum for
deciding the cases effectively and without delay. When the Indian Standards I~istitutionw as establislied
in 1947, the industrial development in the country was still in its infancy. Since then there has been
substantial progress in various sectors of the Indian econolny and hence the need for a new thrust to be
given to standardisation and quality control. A national strategy for according appropriate recognition and
importance of standards is to be evolved and integrated with the growth and development of production
and exports in various sectors of the national economy. The public sector and private sectors, including
small scale industries, have to intensify efforts to produce higher standard and quality goods to help in
inducing faster growth, increasing exports and making available goods to the satisfaction of the
consumers. It was to achieve the these objectives that the Bureau of Indian Standards has been set up as a
statutory institution.
Agricultural Produce Grading and Marketing Act (AGMARK) (1937)
This Act provides for grading and standardization of agricultural commodities. The main commodities
graded are -vegetable oil, ghee, cream, buttel; eggs, wheat flour, rice, cotton, gur, maize, honey and
ground spices. The graded goods are stamped with the seal of the Directorate of Agriculture, Marketing
and Inspection, Ministry of Rural Areas and Employment - AGMARK. The seal is an assurance of
quality and purity to the buyers of the agricultural products. In case AGMARIC goods are found to be of
poor quality or defective, the consumer can complait to the Agriculture Marketing Advisor at Directorate
of Marketing and Inspection. Defective goods are replaced free of cost or money refund With
amendments of 1986, there is now a provision for penalty for misgrading and counterfeiting grade,
designation mark- imprisonment upto 6 months and fine not exceeding Rs.5,000. Consumer organisations
have been authorized to draw samples for testing.
Government Agencies

To enforce the laws, the Government has established a number of regulatory agencies like the Bureau of
Industrial Costs and Prices, the Agricultural Prices Comission and the MRTP Commission.
The Bureau of Industrial Costs and Prices was establislied by the Government in 1971 to conduct
enquiries about industrial products and recommended prices.
The Agricultural Prices Commission was set up in January 1965 to advise the government on pricing
policies for agricultural commodities. The Governmerit has also framed rules like the Prevention of Food
Adulteration Rules, 1955 and the Standards of Weights and Measures (Packaged Commodities) Rules,
1977 to enforce the provisions of the related Acts. The enforcement of these Acts is the responsibility of
the Central and the State Government.
The MRTP Commission has been established by tlie Government under Section 5 of the MRTP Act,
1969. The Commission may inquire into (a) any restrictive trade practice; (b) any monopolistic trade
practice; and (c) any unfair trade practice.
In the case of restrictive and unfair trade practice, the Commission may proceed: I
i) upon receiving a complaint of facts which constitute such practice from any trade association or from
any consumer or a registered consumers' association, whether the affected consumer is a member of that
consumers' association or not;
ii) upon a reference made to it by the Central Government or a State Government; or
iii) upon an application made to it by the Director General; or
iv). upon its own knowledge or information.
In the case of monopolistic trade practice, however, the Commission may proceed:
i) upon a reference made to it by the Central Government; or
ii) upon a reference made to iL by tlie DGIR; or
iii) upon its own knowledge or information.
In respect of complaints received from a consumer, registered consumers association and trade
associations directly, the MRTP Cornmission has to make a preliminary investigation through its Director
General of Investigation to satisfy itself that the complaint deserves a full-scale inquiry. Public interest
groups have also grown up during the last two decades or so. These groups try to influence both
government as well as business to pay more attention to consumer rights. They even take the matter to a
law court to get justice to affected consumers against unfair dealings on the part
of business enterprises.
2.6 MARKETING IMPLICATIONS OF SOME REGULATIONS
The objective of MRTP Act, as amended by the Amendment Act, 1991, is to curb monopolistic,
restrictive and unfair trade practices and these have relevance from the point of view of decision making
with respect to 4Ps of the marketing mix. If the Consumer Protection Act becomes effectively
enforceable, it would be really difficult for marketers to ignore the interests of consumers in taking
decisions about different components of the marketing mix.
The Industries (Development & Regulation) Act also is one of the major economic laws of the country
which has been designed to regulate tlle industrial activity. Certain legislations which affect marketing
decisions like the Indian Contract Act 1972, the Sale of Goods Act 1930, the Companies Act 1956, the
Trade Marks Act 1999 and the Bureau of Indian Standards Act 1986, apply to every undertaking,
irrespective of the nature of product sold or service rendered.
As against these, there are other laws which seek to regulate marketing decisions of undertakings engaged
in specific industries only. Some of these are the Industries (Development & Regulation) Act 195 1, the
Prevention of Food Adulteration Act 1954, the Drugs and Magic Remedies (Objectionable
Advertisements) Act 1954, the Essential Commodities Act 1955, and the Sales
Promotion Employees (Conditions of Service) Act 1976.
All these Acts, thus, affect decision-making in relation to different elements of the marketing mix. The
following are some examples to illustrate these. In the area of the product, the government control may
affect decision-making with regard to productline expansion, product quality and safety, provision of
adequate and efficient services, packaging, labelling, and branding, sizes and shapes of packages,

information to be given on the wrapper or container, claims with regard to sponsorship, performance,
characteristics, etc., warranty or guarantee provisions and the after-sales service. The
decisions that may get affected in the context of regulation of pricing practices by the Government may
concern collusive price fixing agreements, re-sale price maintenance and agreements for price control to
eliminate conipetition, or competitors and also excessive, deceptive, bargain or bait pricing. So far as
advertising, sales promotion and personal selling is concerned, the government tries to regulate activities
like false, misleading and deceptive advertising, bait advertising and prize contests and other sales
promotion devices. The other decision areas concern the use of deceptive or
confusing trade marks, use of advertisements to cause the ignorant consumer to resort to self-medication
with harmful drugs and appliances and regulation ofthe service conditions of sale personnel of
pharmaceutical and other industries that may be covered. Tlie main aspects in relation to wliich the
government tries to exercise control in respect of channels and distribution decisions relate to restrictive
and unfair trade practices like hoarding and cornering ofgoods, refusal to sell goods or provide services,
etc., and arrangements like sole selling agency agreements, tie-up sales, boycott, exclusive dealing,
territorial restrictions, full-line forcing, re-sale price maintenance, etc . The marketer must ensure that his
decision in all these fields conform to the relevant provisions of the various Acts.
LET US SUM UP
Marketing decisions of every business organisation is influenced by a large number of uncontrollable
factors that surround tlie company. A company's marketing environment consists of the factors and forces
outside the marketing that affect marketing management's ability to develop and maintain successful
transactions with its target consumers..
These enviro~imentafla ctors may be classified as micro environment and macro environment. Micro
environment refers to the companies immediate environment, that is, those environmental factors that are
in its closer circle. They include the company's own capabilities to produce and serve tlie consumer
needs, the dealers and distributors, tlie competitors, and the customers. These are also the groups of
people who affect tlie company's prospects directly. The macro environment consists of larger societal
forces, which may be placed in an outer circle. These include demographic, economic, natural,
technological, political and cultural forces. The influence of these factors are indirect and often take time
to reach the company.
Macro environmental factors are totally uncontrollable by the firm whereas micro environmental factors
may be coiltrolled to some extent. It is necessary for the cornpany to scan the ever-changing environment
continuously, and adopt marketing mix strategies in accordance with the trends and developments in the
marketing environment.
A number of laws' affecting business have become operational over the years in India. Some of the
legislations apply to every undertaking irrespective of the nature of the product sold or the service
provided by it like the IndiaContract Act, Sale of Goods Act, the Companies Act, the Trade Marks Act
and the Standards of Weights and Measures Act. As against this, there are certain legislations which seek
to regulate certain decisions of undertakings engaged in the specific industries. These include the
Industries (Development & Regulation) Act; the Drugs and Magic Remedies (Objectionable
Advertisements) Act; tlie Preventive of Food Adulteration Act; the Essential Commodities Act.
UNIT 4 BUYER BEHAVIOUR
One of the few common features among all of us is that we are all buyers irespective of what we are. As
buyers, we play a vital role in the economy-local, national, and international. We need to study buyer
behaviour to gain insights into our own consumption related decisions like what we buy, why we buy,
how we buy, and the promotional influences that persuade us to buy. Marketers too need to adapt and
dovetail their strategies by taking the buyer into consideration. In this unit, you will learn various
dimensions of buyer behaviour, types of buyers, factors influericing the buyer behavior and the buying
decision process. Before proceeding further, the students should note that in this unit, the terms buyer
behaviour and consumer behaviour are used interchangeably and should not lead to any confusion.
4.2 MEANING OF BUYER BENAVIOUR

While marketing a product the firm aims at satisfying the needs and wants of actual and potential users of
that product. But to achieve this, first it is essential to understand the tastes, preferences, likes, dislikes,
consumption patterns, process of purchase, etc. of the buyers of that product. You may prefer to use
Babool toothpaste, LUX toilet soap, and Clinic shampoo while your friend may prefer Miswak toothpaste,
Rexona soap and Shikakai shampoo. It is interesting to note that your preference vis-a-vis food, clothing,
books, magazines, recreation, banks; stores may be different not only from those of your friends but also
your neighbours and colleagues. For example, take the case of banks. You may prefer to maintain a
savings bank account with State Bank of India while your friend may prefer Central Bank of India. Thus,
each buyer is unique and this uniqueness is reflected in the consumption behaviour and pattern as well as
process of purchase.
Various experts have defined buyer/consumer behaviour differently. According to Schiffman and Kanuk
consumer behaviour is the behaviour that buyers or consumers display in searching for,
purchasing, using, evaluating, and disposing of products and services that they expect will satisfy
their needs.
Moven has defined it as the study of decision- making units arid the process involved in acquiring,
consuming, and disposing of goods, services, experiences, and ideas.
Both the above definitions of buyer behaviour say more or less the same thing except that Schiffman and
Kanuk used the buyers whereas Moven has used the term decision-making units. Here decision-making
units mean the group of people in the family who may be involved in the purchase process instead of all
individual. So behaviour occurs either for the individual, or in the context of a group (e.g., friends may
influence what kinds of clothes a person wears) or an organization (people on the job make decisio~isa s
to which products the firm should use). From these definitions we can identify three phases of buyer
behaviour as follows:
a) Acquisition Phase: This refers to how buyers acquire the products and services for their consumption.
Much of the research in the buyer behaviour has focused on the acquisition phase. When investigating the
acquisition phase marketers should analyse the factors thal influence the product and service choice of
buyers or consumers.
b) Consumption Phase: This refers to how buyers use or consume the products and services. Here the
marketers should analyse how buyers actually use a product or service and the experiences that the buyer
obtains from such use. The investigation is important both for tangible products as well as for services.
c) Disposition Phase: It refers to what buyers do with a product once they have completed its use.
Therefore, the marketers in understanding the buyer behaviour should take into account the acquisition,
consumption and disposition phases. If they do so they will be in a position to develop viable marketing
strategies in terms of right product positioning. Buyer behaviour illvolves purchase of services and ideas
as well as tangible products.
4.3 IMPORTANCE OF UNDERSTANDING BUYER BEHAVIOUR I
All marketing strategies and tactics are based on explicit or implicit beliefs about buyer behaviour. The
study of buyers helps firms and organizations improve their marketing strategies by understanding issues
such as:
How buyers think, feel, reason, and select between different alternatives (e.g., brands, products)?
How is the buyer influenced by his or her environment (e.g., culture, family, signs, and media)?
Helps in understanding the behaviour buyers display while shopping or making other marketing decisions
How buyer motivation and decision strategies differ between products that differ in their level of
importance or interest that they entail for the buyer; and
How marketers can improve their promotional campaigns and marketing strategies to target the buyer
more effectively'?
There are four main applications of buyer behavior which are discussed below:
The most obvious is for marketing strategy-i.e., for making better marketing decisions. For example, by
understanding that buyers are more receptive to food advertising when they are hungry, we learn to
schedule snack advertisements late in the afternoon.

A second application is public policy. In the 1980s, when Accutane, a near miracle cure for acne, resulted
in severe birth defects in pregnant women, Federal Drug Administration (FDA) of US took the step of
requiring that very graphic pictures of deformed babies be shown on the medicine containers.
Social marketing involves getting ideas across to buyers rather than selling something. Understanding
buyer behaviour will help in espousing for social causes such as planned families,, prohibition, equality of
girl child etc. Government agencies with the help of buyer behaviour knowledge may develop appropriate
promotional strategies for greater acceptance of social causes.
As a final benefit, studying buyer behaviour should make us better buyers. Common sense suggests, for
example, that if you buy a 200 ml liquid bottle of laundry detergent, you should pay less per ml than if
you bought two 100 ml bottles. In practice, however, you often pay a size premieum by buying the larger
quantity. In other words, in this case, knowing this fact will sensitize you to the need to check the unit
cost labels to determine if you are really getting a bargain.
In today's world of high technology, buyer tastes are also changing rapidly. To survive in such a rapidly
changing market, a firm has to constantly understand the latest consumer trends and lastes. Buyer
behaviour provides invaluable clues and guidelines to marketers on new technological frontiers which
they should explore. For example, let us consider the advent of colour television in India. When we
switched over from black and white transmission to colour transmission in the early eighties, the buyers
exhibited a desire to purckrase colour TVs for closer-to-life picture viewing.
4.4 TYPES OF CONSUMERS
People purchase thousands of products and services for their consumption and use. They may purchase
these products and services for different purposes and they may have myriad objectives, So the term
consumer is often used to describe two different kinds of consuming entities: (1) personal consumer and
(2) organizational consumer.
1) Personal Consumer: Personal consumer buys goods or services for his or her own use (e.g, shaving
cream, shampoo, lipstick) or for use of the household (TV, VCR) or family. In each of the above, the
goods are brought for final use by the individuals who are referred to as "end users" or "ultimate users".
2) Organizational Consumer: Organizational consumer can be for profit and not for-profit businesses,
government agencies, institutions (schools, colleges, hospitals). In each of the above examples we note
that the products/services are being bought in order to run the organization. For example, a travel agency
purchasing a computer and printer so as to render services they sell.
Buyers and Users: Buyers are not always the users or the only users, of the product they buy, nor are
they necessarily the persons who make the product selection decisions. Individuals buy products for
themselves and their family. The person who makes the actual purchase decision may be usel-Inon-user
and or only user. For example, mother may buy toys for her children (actual users); she may buy food for
dinner (and may be one of the users); or she may buy handbag or lipstick (and may be the only user).
Marketers have to decide at whom to direct their promotional efforts: buyer or user. For some products
they must identify the person who is most likely to influence the decision. We will discuss various roles
played by the family members in the purchase decisions in the section dealing with factors influencing
buyer behaviour.
4.5 FACTORS INFLUENCING BUYER BEHAVIOUR
The central question for marketers is: How do consumers respond to various marketing efforts the
company might use? The company that really understands how consumers will respond to different
product features, prices, and advertising appeals has a great advantage over its competitors. For a clear
understanding of the various factors that influence buyer behaviour, the stimulus-response model of
buyerbehaviour can be considered as the starting point.
According to this model, marketing and other stimuli enter the consumer's "black box" and produce
certain responses. Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other
stimuli include major forces and events in the buyer's environment: economic, technological, political,
and cultural. All these inputs enter the buyer's black box, where they are turned into a set of observable
buyer responses: product choice, brand choice, dealer choice, purchase timing, and purchase amount.
Look at Figure 4.1 which shows model of buyer behaviour.

The marketer wants to understand how the stimuli are changed into responses inside the buyer's black
box, which has two patts. 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 behaviour.
We as consumers do not make the purchase decisions in a vacuum. We are being continuously influenced
by a number of factors. These are: psychological, social, personal, and cultural factors. For most part
marketers cannot control such factors, but they must take them into account. These influences are shown
in Figure 4.2.
4.5.1 Psychological Factors
Consumers are being influenced by a number of psychological factors in the purchase of various products
and services. These factors influence consumers in a differential way i.e., some factors may influence
more and some less. The influence of these factors may vary from product to product and from time to
time. There are four psychological factors which may influence buyer behaviour. They are: motivations,
perception, learning, and beliefs and attitudes. Let us discuss them in detail.

Motivation: A consumer may be interested to buy a specific product or service. One question comes to
the mind that why s/he wants to buy this product or service? The possible answer is that s/he is motivated
to buy this product. Then what is motivation? We may define motivation as the driving force within
individuals that impels them to take action. This driving force is produced by a state of tension, which
exists as the result of an unfulfilled need, Individuals strive-both consciously and unconsciously-to reduce
this tension through behaviour they anticipate will fulfill their needs and thus relieve them of the stress
they feel. The specific goals they select and the patterns of action they undertake to achieve their goals are
the result of individual thinking and learning. Whether gratification is actually achieved depends on the
course of action being pursued. For example, if a high school boy expects to become a great cricket player
by wearing the same brand of sports shoes that Sachin Tendulkar wears, he is likely to be disappointed; if
he takes cricket lessons and practices diligently, he may succeed. Psychologists have developed a number
of theories of motivation. Two of the most popular motivation theories which are relevant in the context
of buyer behaviour are 1) Abraham Maslow's Hierarchy of need theory, and 2) Sigmund Freud's
Psychoanalytical theory of personality. These two theories have different meaning and interpretations
with regard to marketing and consumer analysis
Maslow's Hierarchy of Need Theory of Motivation: Abraham Maslow tried to explain that people have
hierarchy of needs at particular time, which they want to satisfy. According to him the most pressing
human needs are required to be satisfied first and the least pressing are at the last. In terms of hierarchy
they may be arranged as 1) physiological needs, 2) safety needs, 3)social needs, 4) esteem needs, and 5)
self-actualization needs.
Maslow's Hierarchy of needs theory is based on the following premises:
All human beings acquire a similar set of needs through genetic endowment and social interaction.
Some needs are more basic or critical than others.
The more basic neeas must be satisfied to a minimum level before other needs are activated.

As the basic needs become satisfied, more advanced needs come into play.
These needs can be arranged in a hierarchy.
Let us take an example to explain this theory in the context of buyer behaviour: Suppose a consumer is
interested in buying digital video camera. We may presume that this consumer has satisfied his
physiological, safety, and social needs and his interest in buying digital video camera might come from a
strong need for fulfilling esteem needs or it might have come from satisfying self-actualization need he
wants to be a creative person to show his talent in photography.
Maslow's theory is a good guide to general behaviour. It is important to remember that any given
consumption behaviour can satisfy more than one need. Likewise, the same consumption behaviour can
satisfy different needs at different times.
The major problem with Maslow's theory is that it can not be teslecl empirically; there is no way to
measure precisely how satisfied one need must be before the next higher need becomes operative. But
despite the criticisms Maslow's hierarchy is a useful tool for understanding consumer motivations and is a
readily adaptable to marketing strategy, primarily because consumer goods often serve to satisfy each of
the need levels. This hierarchy offers a useful, comprehensive framework for marketers trying to develop
appropriate advertising appeals for their products.
Freud's Psychoanalytical Theory of Personality: According to this theory, which is considered to be
the cornerstone of modern psychology much of individual's personality stems from a fundamental conflict
between a person's desire to gratify his or her physical needs and tlie necessity to function as a
responsible member of society. This struggle is carried out among tlie three subsystems of a person's
personality. These subsystems he called as id, superego and ego.
a) 'The id was conceptualized as a repository of primitive and impulsive drives basic physiological needs
such as thirst, hunger and sex-for which the individual seeks immediate gratification without concern for
the specific means of gratification. The id operates according to the pleasure principle; behaviour is
guided by the primary desire to maximize pleasure and avoid pain. It directs a person's psychic energy
towards pleasurable acts without regard for any consequences.
b) The superego is the counterweight to the id. It is conceptualized as the individual's internal expression
of society's moral and ethical code of conduct. Murkets The superego's role is to see that the individual
satisfies needs in a socially acceptable manner. Thus, the superego is a kind of brake that restrains or
inhibits the impulsive forces of the id.
c) Finally, the ego, the third subsystem, mediates between the impulsive powers of id and the repressive
powers of superego. In a way it works as a referee between the id and superego. The ego tries to balance
these opposing forces according to the reality principle, whereby it finds ways to gratify the id that will be
acceptable to the moral values of the superego. The conflicts among these three subsystems occur on an
unconscious level, so the person is not necessarily aware of the underlying reasons for behaviour. The
Figure 4.4 represents the three subsystems and their interrelationships.

Some of the Freud's ideas have been adapted by consumer researchers. In particular, his work highlights
the potential importance of unconscious motives underlying purchases. The implication is that consumers
cannot necessarily tell their true motivations for choosing a product, even if someone devises a sensitive
way to ask them directly. One of the major applications of Freud's theory is the development of
motivational research, which is based on certain psychoanalytical tools. The main purpose is to uncover
the underlying motives of purchase which are normally not divulged by the consumers if conventional
marketing research tools are used.
Motivation researchers collect in-depth infoi-rnation from small samples of consumers to uncover the
deeper motives for their product choices, They use non-directive depth interviews and various projective
techniques. Motivation researchers have reached some interesting and sometimes odd conclusions about
what may be in the buyer's mind regarding certain purchases. For example, one motivational research
says men smoke cigars as an adult version of thumb sucking, females like killing the cockroaches and
other insects with sprays like "Hit" as they derive sadistic pleasure.
Despite its sometimes bizarre findings, motivational research remains a useful tool for marketers seeking
a deeper understanding of consumer behaviour.
Perception: Another important psychological factor, which may influence the consumers, is perception.
How a motivated person acts depends on his or her perception of the prevailing situation. It has been
found quite often that two people with the same level of motivation and in the same situation act
differently because of differing perceptions. For example a consumer who visits a superstore for the
purpose of purchasing a colour television, on being confronted with an over enthusiastic salesperson may
consider this sales person as being too pushy without understanding his needs. Another consumer may
perceive the same salesperson as being genuine and sincere. This happens because the difference in the
perception of the salesperson by the two consumers.
Why do people have different perceptions of the same situation? The answer is that people learn by the
flow of information through their five sense organs. However, they receive, organize and interpret this
sensory information according to their prior experiences in an individual way. We may define perception
as a process through which individuals select, organize, and interpret information into a
meaningful and coherent picture of the world. Perception is an individual process; it depends on
internal factors such as a person's beliefs, experiences, needs, moods, and expectations. The perception
process is also influenced by the characteristics of a stimulus (such as its size, colour, and intensity) and
the context in which it is received.
People can form different perceptions of the same stimulus because of four perceptual processes or
selective perception. These are: selective exposure, selective attention, selective distortion, and selective
retention. Look at Figure 4.5 which shows selective perception.

a) Selective Exposure: Everyday people are exposed to a great number of stimuli including marketing
stimuli. One study has indicated that a typical consumer is exposed to more than 1000 ads per day. Since,
it is impossible to pay attention to all these stimuli, nost of them are screened out. Research has shown
that people are more likely to notice stimuli that relate to a current need. People are also more likely to
notice stimuli that they expect (for example, in a retail store dealing in apparels a shopper is unlikely to

notice mobile phones on sale, because she did not expect them to be there). Finally, people are more
likely to notice stimuli that deviate from the normal. Thus, marketer's ads must stand out from the rest for
people to notice them.
b) Selective Attention: This occurs when the consumer chooses to focus attention on certain stimuli
while excluding others. For example, out of the large number of advertisements a consumer is exposed,
he perceives or attends to a few advertisements. This means advertisers must make considerable effort to
get their messages noticed. Advertisers often use the creative aspects of their ads to gain consumer's
attention. For example, some advertisers set their ads off from others by showing their products in colour
against a black-and-white background.
c) Selective Distortion: Each person tries to fit incoming information into an existing mind-set. People
tend to interpret information in a way that will support what they already believe. For example, an
advertiser compares its brand with a consumer's favourable brand which may be seen as biased or
untruthful, and its claim may not be accepted. Selective distortion means that the marketers must
try to understand the mind-sets of consumers and how they will effect interpretation of advertising and
sales information. Thus, marketer's need to understand consumer's mind-sets.
d) Selective Retention: People tend to retain only that information which supports their attitudes and
beliefs. Even messages that are received undistorted are subject to selective retention. Consequently, ads
are repeated many times. The hope is that numerous exposures will etch the message into the recipient's
memory. This also partially explains why a firm with very familiar products, such as Pepsi, Coke, KFC,
McDonald's spend billions of rupees annually on advertising.
Learning: Learning involves changes in an individual's behaviour arising from observation and
experience. Learning plays an important role at every stage of the buying decision process. No universally
workable and acceptable learning theory has emerged. However, from marketing perspective consumer
leanling can be thought of as the process by which individuals acquire purchase and consumption
knowledge and experience that they apply to future purchase related behaviour.
Despite their different viewpoints, learning experts in general agree that for occurring learning, certain
basic elements must be present. Four basic elements that are fundamental to learning process are:
Drives: A drive is a strong internal stimulus that calls for action. A drive becomes a motive when it is
directed toward a particular stimulus.
Cues: Are minor stimuli or signals from the environment that determine the pattern of response. Cues are
the stimuli that give direction to the drives. For example an advertisement of a brand of soft drink may
serve as a cue for those who are feeling thirsty. Cues serve to direct consulner drives when they are
consistent with consumer expectations. Therefore, it is necessary for the marketers to provide only those
cues, which are in tune with the consumer expectations.
Response: How individuals react to drives and configuration of cues-how they behave-constitute their
response. It is the behavioural reactions to the drives and cues. Learning can occur even when responses
are not overt. Many cues may lead to the formation of positive attitudes and in future these attitudes may
lead to behaviour.
Reinforcement: This results when the response'is rewarding. Reinforcement can be either positive or
negative. For example, if a consumer purchases a specific brand and he finds it satisfying and next time
he needs that product there is likelihood that he may purchase the same brand. The response has been
reinforced. In addition the same consumer may develop a positive attitude towards other brands
manufactured by the same company. In case the response is not rewarding, then the consumer may not
purchase the brand and may develop negative feelings towards other products manufactured by that
company.
If the response is rewarded by either positive or negative reinforcement, a connection among the drive,
cues, and responses will be established. Learning, then, emerges from reinforcement, and repeated
reinforcement leads to a habit or brand loyalty. The practical significance of learning to the marketers is
that they can build demand for a product or brand by associating with strong drives, using motivating
cues, and providing positive reinforcement, However, learning is not a perfect predictor of behaviour
because a variety of other factors also influence a consumer. For example, a pattern of repeatedly

purchasing the same brand may be disrupted by a person's desire for variety or novelty. Or a temporary
situation such as being short of money or pressed for time may produce behaviour different than a learned
response. Thus, a learned response does not necessarily occur every time a stimulus appears.
4.5.2 Personal Factors
A buyer's decisions are also intluenced by personal characteristics. They include: age and life-cycle stage,
occupation, economic circumstances, lifestyle and personality.
Age & Life-cycle Stage: People change the goods and services they buy over their life time. For
example, we all rely on some sort of baby food during infancy, most other foods during growing years
and may rely on special diets in later years. The clothes that we wear, furniture we buy, and recreation are
all age-related. Because product needs and interests often vary with consumer's age, marketers have found
age to be a particularly useful demographic variable for distinguishing segments. Many marketers have
carved themselves a niche in the marketplace by concentrating on a specific age segment. For example,
Cartoon Network channel on cable is aimed at children. Buying is also shaped by the stage of the family
life
cycle-the stages through which families might pass as they mature over time. The basic assumption
underlying the family life cycle approach is that most families pass through an orderly progression of
stages, each with its own characteristics, financial situations, and purchasing patterns. Each stage in the
family life cycle poses a series of problems, which the family decision makers must solve. For example,
young married couples with no children have time for relaxation and recreation. They may consume
tickets to the cinema, theater, restaurant meals etc. Each stage presents unique needs and wants as well as
financial conditions and experiences.
Occupation: The importance of occupation as a social class indicator is highlighted by the fact that we
often "size up" people by enquiring about it. A person's occupation affects the goods and services bought.
Marketers frequently think in terms of specific occupations when defining a target market for their
products or broader occupational categories. Truck drivers and auto mechanics may earn as much as a
young retail executive or college teacher, but the buying patterns of the first two are likely to be different
from the second two because of differing attitudes and interests. Thus, occupation may be more
meaningful criterion than income in segmenting some markets. A company may even specialize in
making products needed by a given occupational group. For example, computer software companies
design software for engineers, accountants, lawyers, doctors, managers etc.
Economic Circumstances: A person's economic situation may greatly affect product choice. People
alone do not make a market; they must have money to spend. Consequently income distribution is one of
the most commonly used bases for segmenting consumer markets. Marketers should analyze the spending
patterns of people at different income levels. Marketers of income-sensitive goods closely watch trends in
personal income, savings, and interest rates. If economic iildicators point to a recession, marketers can
take steps to redesign, reposition, and re-price their products.
As discussed earlier, some consumer researchers argue that income alone does not provide us a clear
picture of the consumer spending patterns. For example, a bluecollar automobile mechanic and a whitecollar assistant bank manager may both earn Rs. 15000 per month, yet because of social-class differences
each will spend that income in a different way. How they decide to spend their incomes reflects different
vnlcles. Within this context, it is the difference in values that is an important determinant of social class
between people, not the amount of'income they earn.
Life-Style: People belonging to the same subculture, social class, and occupation may exhibit different
lifestyles. Lifestyle is defined simply as how one lives in the world, which is expressed in his activities,
interests and opinions. It influences all aspects of our consumption behaviour. It is influenced by the
factors such as culture, values, demographics, subculture, social class, reference groups, family, and
individual characteristics such as motives, emotions, and personality. Individuals and households
both have lifestyles. Our desired lifestyle influences our needs and attitudes and thus our purchase and use
behaviour. Buyers are seldom explicitly aware of the role lifestyle plays in their purchase decisions. For
example, some time poor families who pursue an active lifestyle may think it appropriate to serve cold
drinks to their guests; or instant coffee etc. because of its convenience, since time is important in an active

lifestyle.
The technique of measuring lifestyles is known as psychographics. It is the science of using psychology,
sociology, anthropology, and demographics to understand buyers. Psychographics can help marketer finetune its offering to meet the needs of different segments. Psychographic research attempts to place
consumers on psychological-as opposed to purely demographic-dimensions. Psychographic research
has been heartily embraced by marketing practitioners in the promotion of such a diverse group of
products as AT&T services, Kentucky Fried Chicken, Nescafe, Newport Jeans, and Timex Watches etc.
Probably the best-known psychographics segmentation tool is va1ues antd Lifestyles (VALS), developed
in 1978 by the research film SRI International in USA. The VALS system was developed from a large
study of the US population that divided adults into nine segments based on similarities in their values
(beliefs, desires and prejudices) and their lifestyles-hence the acronym VALS.
Personality: Marketers have long been intrigued by the possibility of appealing to consumers In terms of
personality traits. They have felt that what consumers purchase, and when and how they consume, are
likely to be influenced by personality factors. For this reason, advertising and marketing people have
frequently depicted specific personality traits or characteristics in their advertising messages. Personality
refers to those inner psychological characteristics that both determine and reflect how a person responds
to his or her environment. The emphasis in this definition is on inner characteristics - those specific
qualities, attributes, traits, factors, and mannerisms that distinguish one individual from the other
individuals. The deeply ingrained characteristics that we call personality are likely to influence the
individual's product choices (and even certain brand choices); they also affect the way the consumer
responds to a firm's promotional efforts, and when, where and how they consume particular products or
services.
Therefore, identification of specific personality characteristics associated with buyer behaviour may be
highly useful in the development of a firm's market segmentation strategies.
Some marketers use a concept related to personality-a person's self-concept. The basic premise is that
people's possession contribute to and reflect their identities: that is "we are what we have." Self-concept
can be defined as the totality of the individual's thoughts and feelings having reference to him or her as an
object. It is, therefore, argued by some marketers that to understand consumer behaviour, one must
understand the relationship between consumer self-concept and possessions. All of us have complex
mental pictures of ourselves. For example, a consumer may see himself or herself as outgoing, creative
and active. Thus, he may favour a car that projects the same qualities.
4.5.3 Social Factors
In addition to psychological and personal factors, buyer behaviour is influenced by social factors. These
social factors influence the buyers in different ways. For some products the intluence of social factors is
quite pronounced and for others it may not be that pronounced. Important social factors which have
certain bearings on buyer behaviour are: reference groups, family, and social roles and statuses.
Reference Groups: A reference group is any person or group that serves as a point of comparison (or
reference) for an individual in forming either general or specific values, attitudes, or behaviouc From the
buyer behaviour perspective, reference groups are groups that serve as frames of reference for individuals
in their purchase or consumption decisions. This may consist of all the groups that have a direct (facetoface) or indirect influence on the person's attitudes or behaviour.
Reference groups can be classified in terms of a person's membership or degree of involvement with the
group, as well as in terms of the positive or negative influences they have on his or her values, attitudes,
and behaviour. These groups are as follows:
a) A contractual Group: This is a group in which a person holds membership or has regular face-to-face
contact and of whose values, attitudes, and standards he or she approves. Thus, a contractual group is
likely to have a congruent intluence on an individual's attitudes or behaviour. This group includes friends,
family members, neighbours, and company-workers.
b) An aspirational Group: In this group, a person does not hold membership and does not have face-toface contact but wants to be a member. Thus, it often serves as positive influence on that persons
attitudes or behaviour. Young people would like to be associated as well as like to emulate sports heroes,

movie stars, prominent personalities etc. for them these work as aspirational groups.
C) A disclaimant Group: In this group, a person holds membership or has faceto- face contact but
disapproves the group's values, attitudes or behaviour. Thus, the person tends to adopt attitudes and
behaviour that are in opposition to the norms of the group. For example, neighborhood friends who have
been dropped out of school.
d) An avoidance Group: In this group, a person does not hold membership and does not have face-toface contact and of whose values, attitudes, and behaviours he or she disapproves. Thus, the person tends
to adopt attitudes and behaviour that are in opposition to those of the group. For example, one may
vocally reject the actions of those peers who do not demonstrate adequate respect for their parents and
religion. These four groups influence on the buyer have been shown in the Table 4.1.

Marketers are of the view that people, including consumers, are significantly influenced by their reference
groups particularly with those reference groups which exert positive influence such as contractual and
aspirational groups. These reference groups influence a person in at least three ways: 1) Reference groups
expose the person to new behaviours and life-styles. 2) They influence the person's attitudes and selfconcept because he or she wants to "fit in". 3) They create pressures to conform that may affect the
person's product and brand choices.
The importance of group influence varies across products and brands, but it tends to be strongest for
conspicuous purchases. A product or brand can be conspicuous for one of the two reasons. Firstly, the
product is used or owned by very few people in a society. For example, luxuries are more conspicuous
than necessities. Secondly, a brand may be more conspicuous because it is consumed in public where
others can see it. By cornbilling these two dimensions i.e. luxury products and public products one may
get four categories of products: public luxuries, public necessities, private luxuries and private
necessities. Research has found that the reference group influence varies in terms of product and brand
choice decision on these four categories of products.
If an item is a luxury as opposed to a necessity, the decision to buy or not to buy the product is influenced
by the reference groups. If the item will be consumed publicly rather than privately, reference-group
influellce tends to affect the brand choice.T he relative influence of reference group is shown in fig 4.6.

Advertisers are relying on reference group influence when they use celebrity endorsers to work as
aspirational reference group. Professional athletes, musicians, and actors can influence people who would

like to be associated with them in some way-for example Michael Jordan for Nike Shoes, Narayan
Karthikeyan for JK Tyres, Shahrukh Khan for Santro car, Ustad Zakir Husain Khan for Taj Mahal tea.
If the marketers come to know that their products and brands are susceptible to strong group influences
they must figure out how to reach opinion leaders in these product areas with their marketing messages.
Opinion leaders are people within reference groups who, because of special skills, knowledge, personality
or other characteristics, exert influence on others. Opinion leaders are found in all areas and strata of
society, and one person may be an opinion leader in certain product areas an opinion follower in others,
Therefore, marketers must try to identify the personal characteristics of opinion leaders in their respective
product areas and then find out what media they use so that they may direct marketing messages to them.
a) Family: A family is a group of two or more people related by blood, marriage, or atloption living
together in a household. Because of strong bond and close continuous interaction family members may
strongly influence buyer behaviour. During their lives many people belong to at least two types of
families:
b) Family of Orientation: The buyer's parents make up the family of orientation: Even if the buyer no
longer interacts very much with his or her parents, the parents can still significantly influence the buyer's
unconscious behaviour. In countries like India where parents continue to live with their children their
influence can be profound.
Family of Procreation: It consists of the buyer, his/her spouse and children. It exerts a more direct
influence on everyday buying behavior.
The family is the most important consumer buying organization in society, and it has been researched
extensively. Marketers are especially interested the relative roles and influence of husband, wife, and
children on the purchase of a large variety of products and services. Research has shown that husbandwife involvement varies significantly across different product categories and the stage in the buying
process.
Marketers have acknowledged the role of family in general and involvement of husband-wife dyad in the
purchase decision-making process in particular. However, one of the trickiest problems for marketers is to
figure out who makes purchase decisions for a household. The problem being that there is rarely
consensus among couples themselves. The information about who influences the purchase decision
within a family setup serves as the basic input in designing the marketing cornmunicalion and
subsequently in media selection.
Researchers who worked on the role and influence of family in the purchase decisions have classified
family decision-making as husband dom inated, wife dominated, joint (i.e., equal or syncratic), and
autolzomic (i.e., individualised or solitary or unilateral).
Research on family-member influence in durable goods buying is more abundant than that on frequently
purchased items. Even a casual observer would probably agree that important, one-time purchases are
likely to involve more than one household member. In contrast to non-durables, purchases of durable
goods are often preceded by a progression of interrelated decisions and activities through time. Husbands,
wives, and children have more opportunities become involved at one or more steps in the process. One
can presume that family members are also more motivated to participate, since the purchase of an
automobile, for example, often precludes other acquisitions, given families' budget constraints.
Another important aspect of family decision-making is the role played by the family members in the
purchase of various products and services. There are nine distinct roles in the family decision-making
process which provide an insight into how family members interact in their various consumption- related
roles:
a) Initiators: The family member(s) who first recognizes the need or starts the purchase process.
b) Influencers: Family member(s) who influence the alternatives evaluated, the criterion considered, and
the final choice.
c) Gatekeepers: Family member(s) who control the flow of information about a product or service into
the family. It is generally the individual who has expertise and interest in a particular purchase.
d) Deciders: Family member(s) with the power to determine unilaterally or jointly whether to shop for,
purchase, use, consume, or dispose of a specific product or service.

e) Buyers: Family member(s) who make the actual purchase of a particular product or service.
f) Preparers: Family member(s) who transform the product into a form suitable for consumption by other
family members.
g) Users: Family memberts) who use or consume a particular product or service.
h) Maintainers: Family member(s) who service or repair the product so that it will provide continued
satisfaction.
i) Disposers: Family member(s) who initiate or carry out the disposal or discontinuation of a particular
product or service.
The number and identity of the family members who fill these roles vary from family to family and from
product to product. Therefore, marketers should identify what roles are being performed by various
family members in their respective product areas and accordingly may develop marketing communication
strategies.
Finally, it is important for the marketers to know which family member is likely to make the purchase
decision. This knowledge will influence a company's entire marketing mix. For example, if it is found that
children are the key decision makers, as is often the case with toys, confectionaries and breakfast cereal,
then a manufacturer should come out with a product in consonance with the children preferences; design
the package children in mind, and advertise in those media, which cater to the children.
Roles and Status: In life a person performs various roles and may belong to many groups such as family,
clubs and work environment. The person's position can be defined in terms of both role and status. A role
is a prescribed pattern-of behavior expected of a person in a given situation by virtue of the person's
position in that situation. Each role carries a status reflecting the general esteem given to it by
society. For example the role of a product manager has more status in a society than the role of a son. As
a product manager, a consumer will buy the kind of clothing that reflects his role and status. People often
choose products that show their status in a society.
4.5.4 Cultural Factors
Cultural Factors exert the broadest and deepest influence on buyer behaviour. The marketers need to
understand the roles played by the buyer's culture, sub-culture and the social class.
Culture: Culture is that complex whole which includes knowledge, belief, art, law, morals, customs, and
any other capabilities and habits acquired by humans as a member of society. In the context of buyer
behaviour we may define culture as the sum total of learned beliefs, values, and customs that serve to
direct the buyer Sehaviour of members of a particular society. It is the most basic cause of a person's
wants and behaviour. Human behaviour is largely learned. Growing up in a society, a child learns basic
values, perceptions, wants and behaviour from the family and other important institutions.
The nature of cultulal influences is such that we are seldom. aware of them. One behaves, thinks, and
feels in a manner consistent with other members of the same culture because it seems "natural" or "right"
to do so: Culture typically evolves and changes slowly over time. However, there can be major changes
during relatively short time periods due to rapid technological advances, conflicts between existing
values, exposure to another culture's values, or dramatic events such as war.
Marketing managers must understand both the existing cultural values.and the emerging cultural values of
the societies they serve. They must always try to spot cultural shifts in order to imagine new products that
might be wanted. Some cultural trends affecting the buying behaviour of Indian consumers include the
following:
Gender roles are losing their identity
Greater concern about health and fitness (has created a huge industry for exercise equipment and clothing,
low calorie foods, health and fitness services)
There has been a shift toward informality (it has resulted in more demand for casual clothing, sports
shoes, lighter entertainment etc.)
There is an increased desire for leisure time (it has resulted in more demand for convenience products and
services such as microwave ovens, fast food etc.)

In metros, two-income families are becoming the norm (some view it as a necessity to achieve a
reasonable standard of living; this is also bound to affect their ability to buy, choice of products, time
available for purchase and consumption)
Sub-culture: In any society as heterogeneous as the one in India, there are bound to be subcultures.
Subcultures are groups in a culture that exhibit characteristic behaviour patterns sufficient to distinguish
them from other groups within the same culture. The behaviour patterns that distinguish subcultures are
based on factors such as race, nationality, religion and urban-rural identification. A subculture takes on
importance in marketing if it constitutes a significant part of the population and
specific purchasing patterns can be traced to it. Each subculture has different attitudes, beliefs, customs
and languages that must be taken into consideration by the firms attempting to sell to them,
Social Class: Social class is a ranking within a society determined by the members of the society. Social
classes are relatively permanent and ordered divisions in a society whose member share similar values,
interests, and behaviours. Social class is not determined by a single factor such as. income but is
measured as a combination of occupation, income, education, wealth, and other variables. The lines
between social classes are normally not fixed and rigid; people belonging to one social class call move to
a higher class or lower class. Marketers are interested in social class because the buying behaviour of
people is strongly influenced by the class to which they belong or which they aspire. Social class is not an
indication of spending capability; rather it is an indication of preferences and life-style. For example, a
young manager might be having the same income as that of a middle aged foreman in a steel factoly, but
they probably have quite different family backgrounds, tastes, and aspirations. Social scientists have come
out with a number of social class classifications, where they have divided the society in five, seven or
nine divisions.
We provide the five division of classification of social class below.
a) The Upper Class: People who are in the top strata of the society. This class includes two groups: (1)
socially prominent "old families," often with inherited wealth, and (2) newly rich corporate executives,
owners of large businesses, and highly-paid professionals. They live in large houses in exclusive
neighbourhoods and exhibit a sense of social responsibility. The upper class patronises exclusive and
fancy shops. They go for expensive goods and services, but they do not display their wealth in a
conspicuous manner. They form a very small part of the society. In terms of percentage they may range
between 2 to 3 percent.
b) The Upper-middle Class: This class comprises moderately successful businessmen, professionals and
owners of medium to small size companies. People belonging to this class are well educated, and they
crave for success in life. They may engage in conspicuous consumption as compared to upper class. This
class buys products that signifies its class status. In terms of percentage they may range between 12 to 15
percent.
C) The Lower-middle Class: This class comprises office employees-both government and private, junior
executives, teachers, technicians, and small business owners. People from this class crave for
respectability by engaging in those activities, which are approved by the society as "right things". They
are future oriented, strive to move up in the next higher socialclass, exhibit selfconfidence, and are risk
takers. In terms of percentage they may range between 30 to 40 percent.
d) The Upper-lower Class: People in this class are blue-collar workers, semi skilled workers, and lower
grade service personnel such as clerks etc. they are more tied with their families and maIe female roles
are sharply defined. They live in smaller houses. They patronize products keeping an eye on economy
aspect of purchase. In terms of percentage they may range between 30 to 35 percent.
e) The Lower-lower Class: They belong to the lowest strata of the society. 'This class includes unskilled
workers, the unemployed, uneducated and low-income earners. They live in substandard houses. Their
priority is to purchase only essential things. They are not in the position of purchasing durable products.
In terms of percentage they may range between 20 to 25 percent. In some developing and poor countries
their percentage may go up to 40 percent. The conclusions from social class research are:
There are substantial differences among these classes with respect to buying behaviour.

Because of this diversity, different social classes are likely to respond differently to a seller's marketing
program. Thus it may be necessary to tailor marketing programs, which are in tune with the
characteristics of a specific social class.
4.6 CONSUMER BUYING DECISION PROCESS
In the preceding section we have discussed the various factors that influence buying behaviour.
Understanding the influence of these factors is importanl for the marketers for designing effective
marketing strategies. However, this is not sufficient. Marketers should also develop an understanding of
how consumers actually make their buying decisions. Understanding buying decision process requires the
knowledge of three things. Firstly, marketers should find out in their respective product
categories the roles played by difrerent family members in the buying decision process. Secondly, the
types of buying behaviour consumers display in different buying situations. Finally, the different stages
through which, a consumer goes through in the buying decision process. We have already discussed the
different roles played by various family members in the context of family influences on buying behaviour.
Therefore, in this section we will discuss the different buying situations, and stages of buying decision
process.
4.6.1 Types of Buying Behaviour Situations
Marketers are required to know that consumer decision-making varies with the type
of buying behaviour in different buying situations. The buyer decision making process
varies considerably if he is buying a soap, clothing, a scooter, a personal computer or
a major home appliance. In general, buyers are highly ii~volvedw hen purchasing
complex and expensive products and Inore members of the family are expected to
take part in the decision making process. Consumer decision-making is also
influenced by whether the consumers perceive significant differences among
available brands in a specific product category or not. Based on these two dimensiolis
(i.e., degree of buyer involvement and the degree of differences among brands)
Henry Assael, a consumer behaviour specialist, has identified following four types of
buying behaviour situations:
1) Complex Buying Behaviour: In this situation, firstly, buyers are highly involved with the product as
the product is expensive, bought infrequently, risky and self expressive. Secondly, buyers perceive
significant differences between the available brands. Therefore, buyers first develop beliefs about the
product, then deveIop attitudes about it, and finally make a thoughtful choice. Knowing
this, marketers can help educate buyers about product attributes, differentiate and describe the brand's
features, and motivate store personnel and others to influence the final brand choice.
2) Dissonance Reducing Buying Behaviour: Here also the buyers are highly involved with the purchase
but they may consider most brands in the given price range as being similar in product attributes. This
situation also occurs in case of expensive, and infrequently purchased products. The buyer takes less time
in purchasing the product but later experiences somesamount of post purchase
dissonance if he notices certain disquieting features or hears favourable things about other discarded
brands. Marketers should therefore supply beliefs and evaluations that help consumers feel good about
their brand choices.
3) Variety Seeking Buying Behaviour: This situation applies to low involvement products. However,
buyers perceive significant differences among the available brands in that product category such as
biscuits, ice creams etc. Here, buyers may switch brands because they want variety and not because of
dissatisfaction. Mostly buyers have some beliefs about the product, choose a brand with little evaluation,
and later evaluate the product during consumption.
Marketers should therefore try to encourage habitual buying behaviour by dominating retailers' shelf
space, keeping shelves fully slocked, running reminder advertisements, and resorting to consumer sales
promotion campaigns.
4) Habitual Buying Behaviour: This situation applies to low involvement products as well as where the
buyers do not perceive significant differences among the available brands. Here the products are low-cost
and purchased frequently. Buyers keep buying the same brand out of habit and not because of brand

loyalty. Buyers make decision on the basis of brand familiarity. Marketers of such products should try to
create brand familiarity by of advertisements repetition, with competitive pricing, and frequent consumer
sales promotion campaigns. These four buying behaviour situations are shown in Figure 4.7:

4.6.2 Stages in Buying Decision Process

Buyers make large number of buying decisions in their daily life. Marketing savvy companies research
consumer buying decisions process involved in their respective product categories. Marketing experts
have developed a "five-stage model" of the buying decision process wahich has been shown in Figure 4.8.
This model shows that the consumer passes through five stages in the buying decision process. These
stages are: 1) problem recognition, 2) information search, 3) evaluation of alternatives, 4) actual purchase
decision, and 5) post purchase behaviour.

Though this model is a useful starting point for examining purchase decision process, the purchase
process is not always as straightforward as it may appear. Certain important points are to be noted before
we proceed to explain this model. These are:
This model emphasises that the buying process starts much before the actual purchase and continues after
the purchase has been made.
This model seems to imply that consumers pass through all five stages with every purchase. As discussed
earlier, consumers are more likely to pass through all the five stages when they face either complex or
dissonance reducing buying behaviour situations. However for frequently purchased, familiar products,
purchasing may be a routine matter and problem recognition may be followed by
repurchase of a familiar brand, and thus, the second and third stages of the fivestage model are bypassed.
The consumer may withdraw at ally stage prior to the actual purchase, If for example, the need diminishes
or no satisfactory alternatives are available, the process will come to an abrupt end.
The stages are not necessarily of the same length. For complex buying behaviour situation consumers
may take longer time in information search and evaluation of alternative stages as compared to other
buying situations.

However, we discuss all Lhe stages of this model because it captures the full range of considerations that
arise when a buyer faces a highly involving new purchase.
Stage 1: Problem Recognition or Need Arousal
This stage starts whenever the consumer sees a significant difference between his or her current state of
affairs and some desired or ideal state. The consumer perceives there is a problem to be solved, which
may be small or large, simple or complex. This problem recognition is experienced because people have
needs and unsatisfied needs create tension and discomfort. Acquiring and consuming goods and services
can satisfy some of the needs. Many experts are of the view that needs are aroused by factors both internal
and external to the individual.
Marketers need to identify the circumstances that activate a particular need. By gathering information
from a number of consumers, marketers can identify the most frequent reasons that kindle an interest in a
product category. On the basis of this knowledge they may develop marketing strategies that trigger
consumer interest in a product.
Stage 2: Information Search
A consumer who is in the state of need arousal may or may not go for information search. If the
consumer's need is strong enough and a satisfying product is readily available, the consumer is likely to
buy it immediately. However, in many situations the aroused consumer may engage in more information
search.
The consumer may engage in two types of information search depending on his intensity of need. These
are heightened attention and active information se arch.
In the first case the consumer becomes more receptive to information which comes to him aboul the
product, which may satisfy his need. For example, an aroused consumer may pay more attention to
advertisements for various brands, products used by friends, and conversations related with the product
and brand. Here the information search is passive in nature. In the later case, the consumer seeks
information from various sources. He spends time and efforts to obtain product information. For example,
in active information search aconsumer may read magazines, seek information from friends or visit retail
outlets to see the actual brands. Here the consumer is the seeker of information rather than the receiver of
information. The amount of information search activity increases as the consumer moves from habitual
buying behaviour situation to complex buying behaviour situation.
There exists number of information sources from where a consumer can obtain information. Some of
these sources are company coiltrolled or dominated and while others emanate from the environment. The
marketers should have knowledge about these sources and the influence each source exerts on buying
decision process. Consumer information sources fall into four categories:
Personal sources: family members, friend circle, neighbourhoods, coworkers, peers
Commercial sonrces: advertising, sales personnel, marketing intermediaries (dealers, retailers,
distributors), point-of-purchase displays
Public sources: mass media (newspapers, magazines, television channels), consumer-rating organizations
Experiential sources: actual handling of a product, Consumers whether they are in heightened state or in
active information search state, get information from the above mentioned information sources. In the
former case they are receivers of information and in the later they are the seekers of information.
Look at Figure 4.9 which shows information search process.

Note: Arrow originating from the source(s) toward the buyer indicates that the buyer is passive recipient
of information while iice versa is indicative of the buyer actively seeking out information.
The marketers need to find out in respective product categories the relative influence exerted by these
information sources on the consumer buying decision process. The relative influence of these information
sources varies with the product and the buyer.
Generally, a buyer receives most information from commercial (marketer-dominated) sources, although
the most effective information comes from personal sources. Each information source performs a
different function in influencing the buying decision process. Commercial information normally performs
an informing function and personal information sources perform a legitimizing or evaluative function..
For example, a consumer may learn about a new product from commercial sources such as advertisements
but may turn to social sources such as friends and colleagues for evaluation.
As more infoimation is obtained, the consumer's awareness and knowledge of available brands increases.
For example, if a prospective buyer is contemplating to purchase an expensive product such as a
refrigerator, he may gathering information from various sources aidut many refrigerator brands available
in the market. A company must design its marketing mix to make prospective buyers aware of and
knowledgeable about its brand. If it fails to do this, the company loses an opportunity to sell.
Stage 3: Evaluation of Alternatives
This stage of buying decision process is the most complex and least understood. Important question for
the marketers is once a buyer has progressed through the information search stage how he or she
processes the infortnation relating to competing brands and makes a final decision? The marketer needs to
know about alternative evaluation-that is, how the buyer arrives at brand choice set. Research in this area
has indicated that buyers use different evaluative criteria in choosing different products and services. The
same buyer may use one criterion for one type of product and another criterion for other product. There
are several evaluation procedures at work; the most current models view the evaluation process as being
cognitively oriented i.e., buyers form judgments largely on a conscious and rational basis.
Before discussing the buyer evaluation process one has to understand certain basic concepts, which are
used in it. These are:
Product Attributes and Benefits: In the purchase of a product, a buyer is basically trying to satisfy some
of his needs. Hcre he is looking for certain benefits, which he may obtain by purchasing that product.
Further each consumer sees a product as a bundle of product attributes with varying capacities for
delivering these benefils. For example, for a motorcycle, the product attributes that may be considered are
fuel consumption, power, ease in handling, style, and price. Buyers may differ regarding as to which of
these attributes they consider relevant. For some motorcycle buyers all the attributes inay be relevant and
for others only some may be relevant.
Attribute Importance: Consumers do not attach same importance to all the relevant attributes and
instead they may attach different degrees of importance to each each attribute.
Brand Beliefs: On tlle basis of the obtained information the consumer may develop a set of brand beliefs
about each brand's ranking on each attribute.
Brand Image: The Lola1 set of beliefs held about a particular brand is known as brand image. The
consumer's beliefs may vary from true attributes because of his or her experience and also due to the
effect of selective perception, selective distortion and selective retention.
Utility Function: The congumer assumes that each attribute to which he gives importance has a utility
function. The utility function describes how the consurner expects total product satislaction to vary with
different levels of different attributes.
For example, ill case of motorcycle purchase, a consumer's satisfaction is likely to increase with better
fuel consumption, more power, ease in handling, better style and lower price. If we combine the attribute
levels at which each attribute utility is highest, then it may lead to his ideal motorcycle.
Evaluation Procedure or Criterion: on the basis of brand beliefs, brand attributes, brand image, and
utility function the consumer may use some evaluative procedure or criterion for selecting the brand. As
mentioned earlier buyers have been found to use one or more of several evaluation criteria, depending on
the consumer and buying decision situation.

After explaining the above mentioned basic concepts we try to explain the evaluation procedure being
used by buyers with a specific example. Consider a prospective buyer is in the process of purchasing a
motorcycle. He has gathered information from various information sources about various brands available
in the market. His choice has been narrowed down to four motorcycles: A, B, C, and D. Further assume
that he is primarily interested in five attributes-fuel consumption, power, ease in handling, style, and
price. Table 4.2 shows his ratings of each brand attributes on a 10-point scale. In his ratings he gives 10 to
an attribute if that exists at the highest level in a specific brand and 1 to the same attribute in another
brand if that attribute does not exists or exists at the lowest level. He rates in between 10 and 1 if the
attribute varies between the highest and the lowest.

The above table shows the ratings on different attributes for four brands of motorcycles. From this table it
is very difficult to predict which brand will be purchased by the consumer because no brand is rated best
on all attributes. However, the brands vary in appeal. Some buyers base their buying decision on only one
attribute, and their choices are easy to predict. If this buyer wants fuel consumption above everything, he
would buy brand A; if he wants the motorcycle that is easiest to handle, he would buy brand C; if he
wants best power, he should buy brand B; if he wants lowest price motorcycle, then he should go for
brand D.
In case of expensive and infrequently purchased products such as motorcycle or television, most buyers
normally consider several attributes but assign different importance weights to each attribute. If one
knows the importance weights the motorcycle buyer attached to the five attributes, one could predict his
motorcycle choice in a more reliable way. Suppose this buyer assigns 30 percent importance weight to
fuel consumption, 25 percent to power, 20 percent to ease in handling, 15 percent to style, and 10 percent
to price. To find his perceived value for each brand of motorcycle, we multiply his importance weights by
his beliefs about each brand. This gives the following perceived values which has been shown in Table
4.3.

From the above calculations of attribute importance and their respective weight one may predict that this
consumer will, in order of preference, favour brand A, followed by brand 3, and C. The least preferred
brand f& this consumer is D. This evaluative procedure is known as expectczrzcy value model.

Marketers should try to study how the buyers actually evaluate various brand alternatives. Knowledge of
this enables marketers to take steps, which can influence the buying decision process. For example, if the
motorcycle buyer is inclined to buy Brand A because he rates it high on fuel consumption and power,
then what strategies another inotorcycle brands owners use to influence consumers who give high rating
to fuel consumption and power.
Stage 4: Actual Purchase Decision
This stage is the culmination of the earlier stage i.e., evaluation of alternatives. Once the consumer has
evaluated various alternative brands through some evaluative criterion lie or she forms some brand
preferences within the choice set. This leads to the formation of purchase intentions. The consumer is now
likely to take the actual purchase decision for the most preferred brand but some times two factors may
come between the purchase intentions and the actual purchase decision. These factors are attitudes of
others, and unanticipated situational factors. If these two factors go in favour of tlie consumer's brand
intentions then the buyer may purchase the most preferred brand. However, if they go against the most
preferred brand, the buyer is likely to change his or her intentions and may purchase another brand from
among his or her choice set. How much another person's attitudes will affect buyer's choices depends both
on the strength of the other person's attitudes toward buyer's buying decision and the buyer's motivation to
comply with the wishes of others.
Unanticipated situational factors if they are adverse then they may also go against the purchase of the
preferred brand. The effect of these factors is shown in the Figure 4.10.

In addition to the factors described above, a buyer's purchase decision is also influenced by the amount of
perceived risk associated with the product choice. As a rule, purchase decisions that involve extensive
search also entail some kind of perceived risk, or belief that the product has potentially negative
consequences.
Perceived risk may be present if the product is expensive or is complex and difficult to understand.
Alternatively, perceived risk can be a factor when the product choice is visible to others and the buyers
run the risk of embarrassment if tlie wrong choice is made. Because of this perceived risk some sort of
pre-purchase anxiety is produced. A buyer takes certain actions to reduce risk, such as avoiding purchase
decisions, gathering more information, and looking for highly reputed brands, and brands with warranties.
The amount of perceived risk may also vary with the type of buyers. Buyers with greater "risk capital" are
less likely to be affected by perceived risks associated with the products. For example, a highly selfconfident buyer would be less worried about the social risk inherent in a product, whereas a more
vulnerable, insecure buyer might be reluctant to take a chance on a product that might not be accepted by
peers. Therefore, marketers should understand the factors that lead to the feelings of risk in the buyers and
should respond with information and support that will reduce the perceived risk.
Stage 5: Postpurchase Behaviour
As indicated in the model of buying decision process the marketer's job does not end here. After the
purchase, the consumer may experience either satisfaction or dissatisfaction with .the product or service.

This has a bearing on buyer's future behaviour with regard to the purchase of the same product if the same
need arises.
Therefore, a buyer will engage in post purchase behaviour which has implications to the marketers.The
satisfaction or dissatisfaction of a buyer is a function of two things-buyer's expectations and product's
perceived performance.A fter purchasing and using the product, if the buyer finds that the product's
performance is below the expectations, the buyer is dissatisfied, if the performance equals the
expectations, the buyer is satisfied and if the pelformance exceeds the expectations the buycr is highly
satisfied and/or delighted.
These feelings of satisfaction influence the buyer's future purchase decisions. Satisfied buyers are more
likely to purchase the product again, talk favourably to others about the product, that is, they may engage
in positive word of mouth (WOM) communication, pay less attention to competing brands and their
advertising, and buy other products from the same company. On the other hand, a dissatisfied buyer
responds differently. Dissatisfied buyer may take a number of actions. For example, a dis-satisfied buyer
may abandon or return the product; seek information which may support his decision; take public action
by complaining to the company, file a law suit or complain to the govelnment and private agencies such
as consumer forums or consumer courts, or take private actions by not buying the product or engage in
negative WOM communication. The consumer's post-purchase actions are shown in Figure4.1 I.

The post purchase actions as shown in the Figure 4.9 have great implications to the marketers. As we
know that a company's sales come from two basic groups-new customers and repeat customers. It usually
costs more to attract new customers than to retain cument ones. And the key to keeping current customers

is customer satisfaction. Thus a customer-oriented company regularly measures customer satisfaction and
dissatisfaction.
Understanding the buyer's needs and buying process will help tho marketers to develop appropriate
marketing strategies for getting desired market response.
4.7 LET US SUM UP
Buyer or consumer behaviour is the behaviour that buyers or consumers display in searching for,
purchasing, using, evaluating, and disposing of products and services that they expect will satisfy their
needs. There are three phases of buyer behaviour. These are: accusition phase, consumption phase and
disposition phase.
The four main implications of buyer behaviour are in developing marketing strategy, public policy
formulation, sociai marketing and in consumer education. To survive in a rapidly changing market, a firm
has to constantly understand the latest consumer trends and tastes for coming out viable marketing
strategies.
In purchasing various products and services buyers are influenced by host of factors. These are:
psychological factors, personal factors, social factors, and cultural factors.
Psychological factors include: motivation, perception, learning and beliefs. Personal factors include:
age and life cycle stage, occupation, economic circumstances, lifestyle, and personality. Social factors
include: reference groups, family, and roles and statuses. Cultural factors include: culture, subcu!ture,
and social class. All these factors influence the buyer in different way. Therefore marketers are required
to analyse the relative influence of these factors in their product areas.
Finally, buyers while making purchases of different products pass through different stages of buying
decision process. These stages are: problem recognition, information search, evaluation of alternatives,
actual purchase decision and post purchase behaviour. Depending upon the buying situations buyers may
or may not go through all these stages. Buyers face four types of buying behaviour situations. These are:
complex buying behaviour, dissonance reducing buying behaviour, variety seeking buying behaviour and
habitual buying behaviour.
UNIT 5 MARKETS AND MARKET SEGMENTATION
From the study of the previous four units you must have understood various aspects of marketing
management. Yo u may be aware by now that basic purpose of a company's marketing department is to
perform "three S" for its consumers. The first S stands for sensing the consumer, the second S stands for
serving the consumer, and the third S stands for satisfying the consumer. In doing so the marketer is
basically looking towal-ds its market, which is the set of actual and potential buyers of product with want
satisfying products and services. To be successful in its marketing efforts a company should understand
the characteristics of the market in order to sense, serve and satisfy its consumers-market with its
products. In this unit, you will learn the meaning of a market, types of markets and their characteristics.
You will further learn the meaning and importance of market segmentation, requiremenis of effective
segmentation, bases of segmentation, and the meaning of micro marketing and mass customization.
5.2 WHAT IS A MARKET?
The term market has many meanings and connotations. Originally the term market stood for the place
where buyers and sellers gathered to exchange their goods, such as a village bazaar. Another popular way
of describing a market is in the context of a particular place where several shops or buyers or users may
be located. For example, Connaught Place is considered a market in New Delhi. Economists use the term
market to refer to a collection of buyers and sellers who transact a particular product category or a range
of products such as computer market, two-wheelers market, car market, etc. But marketers do not agree
with economists as they consider the sellers as constituting the industry and the buyers as constituting the
market.
From the marketing point of view it can be defined as group of people or organisations with needs to
satisfy, money to spend, and the willingness to spend it. It can be identified by some common
characteristic, interest, or problem; use a certain product to advantage; and be reached through some
medium. However, within a total market there is always some diversity among the buyers. The size of the

market depends on the number of people who exhibit the need, have resources to engage in exchange and
are willing to offer these resources in exchange for what they want.
Within the sane general market there we groups of customers with different needs, buying preferences, or
product-use behaviour. In some markets these differences are relatively minor, and the primary benefit
sought by consumers can be satisfied with a single marketing mix. In other markets customers are
unwilling to make the compromises necessitated by a single marketing mix. As a result different
marketing mixes are required to reach the entire market. Whether it is large or small, the group of
consumers (people or organizations) for whom the seller designs a particular marketing mix is a target
market. Thus a target market refers to a group of people or organizations at which a firm directs a
marketing program with a specific marketing mix. For example, Malvti Udyog, the market leader in
passenger car market, focuses on one target market for its Maruti 800, for Zen it has another target
market, for Esteem it considers yet another target market, and for Baleno it is targeting a different target
market. Therefore, a company may have different target markets for its various brands in the same general
market in a product category. For each target market the company has to develop distinct marketing
program if it wants to succeed in that target market.
5.3 TYPES OF MARKETS AND THEIR CHARACTERISTICS
We as consumers, buy various goods and services for our own consumption or use in our daily life. In the
same way business enterpiises buy innumerable goods and services for the purpose of using them in
manufacturing process, helping in manufacturing process, for running the business, and reselling them to
the final consumers. For proper understanding of the markets, therefore, it is essential to classify the
markets on the basis of the type of buyer group. As such, markets are classified into two broad categories.
They are: consumer markets and organizational markets. Let us study these two types of markets in detail.
5.3.1 Consumer Markets
Here consumers mean all the individuals and households who buy goods and services for their personal or
household consumption. Thus the consumer market consists of all the individuals and households who
buy or acquire goods and services for their own personal or household use. They buy strictly to satisfy
their non-business personal needs and wants. For example, you purchase items such as toothpaste, soap,
biscuits, sweets etc., for your personal consumption or your family consumption. But when an individual
or organization buys goods for resale or for further production, such an individual or organization is not
treated as belonging to the consumer market.
These ultimate consumers are large in numbers and spread throughout the country. They also vary
tremendously in age, income, educational level, tastes, preferences, etc. In Unit 4 we have discussed in
detail that buyers are influenced by a host of factors in purchasing various products arid services. These
factors are cultural, social, personal, economic and psychological characteristics of the buyer. You may
also recall while buying different products and services a buyer typically goes through five stages of
buying decision process. These five stages are: problem recognition or need arousal, information search,
evaluation of alternatives, actual purchases decision and post-purchase beliaviour.
5.3.2 Organizational Markets
It is generally considered that business organizations engage in selling their products and services to their
consumers. This is tiue, but they also buy vast quantities of raw materials, manufactured components,
plants and equipments, supplies, and business services. Thousands of business, institutional, and
government organizations represent a huge, lucrative buying market for goods and services purchased
from both domestic and international suppliers. In fact, organizational markets involve many more rupees
and items than do consumer markets.
Today most of the large companies, in addition to selling their products to the consumer market, sell to
other organizations. Many industrial goods manufacturing companies sell most of their products to other
business organizations. Even large consumer goods manufacturer engage in organizational marketing. For
example, MRF, the leading manufacturer of various types of tyres, in addition to selling to the ultimate
consumers it also sells tyres to different automobile companies w ho manufacture different types of
vehicles. Organizational market purchases goods and services lo achieve specific goals, such as making
money, reducing operating costs, and satisfying social or legal obligations. The organizational market

comprises all the organizations that buy goods and services for use in the production of the other products
and services that are sold or rented, or supplied to other customers or used by themselves for running the
organization.
Marketing various products and services to organizations is different from marketing to consumer market.
The unique considerations of organizationd market, which are not present in consumer markets, are:
Organizations do not buy for personal consumption but to obtain goods and services that will be used in
further production, reselling or servicing.
More persons are normally got involved in organizational buying, especially for rnajor items, than in
consumer buying.
The organization imposes policies constraints, and recluirements that must be kept in mind by its sellers.
The buying instmments, such as request for quotations, proposals, and purchase contract, adcl another
dimension not found in consumer buying.
2Types of Organizational Markets
There are four types of organizational markets: the industrial market, the reseller market, the government
market, and the institutional market.
a) The Industrial Market: It is also called producer or business market. It consists of all the individuals
and organisations that buy or acquire goods and services that enter into the production of other products
and services that are sold, rented or supplied to others. The major industries making up the organizational
market are agriculture, forestry and fisheries; mining; manufacturing; construction; transportation;
communication; public utilities; banking; finance, and insurance; distribution; and services. For example,
Maruti Udyog purchases large number of raw materials, component parts, machinery, and supplies. After
manufacturing different brands of passenger cars it sells to final consumers and organizations. Within the
industrial market, customers tend to be larger and fewer than in consumer markets. But even here, great
variations are found. First, the number of industrial firms making up the market varies from one
(monopsony), to few (oligopsony), to many. Secondly, we can also distinguish between indusrial markets
made up of only large films, or a few large and many small firms, or only small firms.
b) The Reseller Market: It consists of all the individuals and organisations that acquire goods for the
purpose of reselling or renting them to others at a profit.
The basic activity of resellers-unlike industrial or business market-is buying products from manufacturing
organizations and reselling these products essentially in the same form to the resellers' customers. In
economic terms resellers create time, place and possession utilities rather than form utility.
Resellers also buy many goods and services for use in operating their businesses-items such as office
supplies and equipment, warehouses, materialshandling equipment, legal services, and electrical services.
In the case of the resellers like small wholesale and retail organisations, buying is done by one or a
few individuals. In large reseller's organizations, buying is done by a buying committee made up of
experts on demand, supply, and prices. One of the major problems a reseller faces is to determine its
unique assortment-the combination of products and services that it will offer to its customers. The
wholesaler or retailer can choose any four of the following assortment strategies:
Excluive Assortment: It represents the line of only one manufacturer. For example, an exclusive show
room of cars from a single manufacturer.
Deep Assortment: It represents a given homogenous product family in depth, drawing on many
manufacturers products. For example, a TV dealer who keeps many brands of TVs from different
manufacturers.
Broad Assortments: They represent a wide range of product lines that still fall within the natural coverage
of reseller's type of business. For example, an electronic goods dealer that keeps different electronic
goods from various manufacturers.
Scrambled Assortment: It represents many unrelated product families. For example, a grocery store or a
super market that keeps thousands of products and brands in different product categories from hundreds
of manufacturers.
This choice of assortment may be available to a single reseller also. For example, a camera store may
decide to sell only Kodak cameras (exclusive assortment), many brands of cameras (deep assortment),

cameras, tape recorders, TVs, music systems (broad assortment), and many different products altogether
(scrambled assortment).

c) The Governrnent Market: In most countries, government organizations are a major buyer of goods
and services. The government market consists of central, state, and local governmental units that purchase
or rent goods for carrying out the main functions of government. The government market constitutes a
huge market potential for many companies. For example, government market buys hundreds of products
and services from large number of companies. The governmental agencies buy amazing range of products
and services; they buy every thing from toiletries, clothing, furniture, computers, vehicles, and fuel to
sculpture, fire engines, weapons, and practically everything.
Government purchasing processes are different from those in the private sector of the industrial or
business market. A unique feature of the government buying is the competitive bidding system. Much
government procurement, by law, must be done on a bid basis. That is, the government agency advertises
for bids using a standard format called a request for proposal (RFP), or quotation that states specifications
for the intended purchase. Then it must accept the lowest bid that meets these specifications. An
alternative to this system, the government may sometimes negotiate a purchase contract with an
individual supplier. This system is used when government wants to purchase a specialized product that
has no comparable products on which to base bidding specifications. In India, most of the government
purchases for standard products are based on the rates approved by the Directorate General of Supplies
and Disposal (DGS&D). From time to time DGS&D decides the rates of various products and services
which are needed by governmental agencies. Despite the vast opportunities available from the
government market, many companies are reluctant to sell because they are intimidated by the red tape.
d) The Institutional M arket: This is also known as non-profit organization or "nonbusiness" business
market. This market consists of various non-profit institutions other than the government market. This
includes: educational institutions (schools, colleges, universities, and research laboratories), hospitals,

nursing homes, religious institutions, etc. Many non-profit institutions have low budgets and captive
clienteles. For example, many universities, colleges and governmental hospitals work on funds provided
by the government and in most of the cases these are limited. Therefore, those companies who wish to sell
to this market should keep in mind the inherent budget constraints.
Characteristics of Organizational Market
After discussing various types of organizational market we now describe briefly the distinguishing
characteristics of organizational market which make it different from consumer market. These
characteristics are more or less applicable to all types of organizational market, but these are more
applicable to industrial or business market. These are:
Fewer Buyers: Normally organizational buyers are less in number compared with consumers. Therefore,
an industrial marketer normally deals with fewer buyers than does the consumer marketer. For instance, if
a MRF a leading tyre manufacturing company wants to sell its tyres in the industrial market, it may
concentrate on one of the big automobile manufacturing concerns. When the same company wishes to sell
tyres to consumers (vehicle owners) it has to contact lakhs of vehicle owners.
Larger Buyers: Organizational buyers norlnally require large quantities of goods whereas personal
consumers require smaller quantities. Thus industrial buyers are large scale buyers. Even among
industrial buyers a few large buyers normally account for most of the purchasing. In such industries as
automobiles, telephone, soaps, cigarette, synthetic yarn etc., a few top manufacturers account for more
than a substantial part of total production. Such industries account for a major share of raw material
bought in the market,
Geographical Concentration: Organizational buyers are mainly concentrated in few places like,
Mumbai, Kolkata, Delhi, Chennai, Bangalore, Pune, Hyderabad, etc., whereas consumers are spread
throughout the country. For example, most of the companies in textile sector are located in the westetn
belt of India. Because of this geographical concentration of industrial markets, the marketers need not
establish distribution network throughout the country. This helps in reducing the cost of distribution.
Derived Demand: The demand for industrial goods is ultimately derived from the demand for consumer
goods. For instance, Maruti Udyog Ltd. purchases steel and produces cars for the consumer market. If the
consumer demand for cars drops, so will the demand for the steel and all the other products used to make
cars. Therefore, industrial marketers sometimes promote their products directly to final consumers to
increase business demand. For example, Intel Corporation, the largest supplier of computer processors
engages in mass media advertising quite often.
Inelastic Demand: Demand for many industrial goods and services is inelastic and not much affected by
price changes, especially in the short run, because producers can not make quick changes in production
schedules. For example, footwear manufacturers will not buy much more leather if the prices of leather
fall. Nor will they buy less leather if the prices rise unless they can find satisfactory substitutes. In
case of price increase of industrial product such as key raw material, the manufacturers will increase the
price of the finished product. In this way they pass on the price increase to the ultimate consumers.
Fluctuating Demand: The demand for industrial goods and services tends to be more volatile than for
consumer goods and services. This is especially true of the demand for new plant and equipment. A given
percentage increase in consumer demand can lead to a much larger percentage increase in the demand for
necessary plant and equipment to produce the additional quantity in order to meet the increased demand.
Economists refer to this as the acceleration principle.
Professional Purchasing-: Most of the organisations have professionally trained personnel in the
purchasing division. Goods are purchased by these specialists. There are professional journals which
provide inforlnation for the benefit of these 40 professional buyers. Consumers, on the other hand are less
trained in the art of careful buying. In industrial purchasing, if the buying decision is complex; it is likely
that several persons will participate in the decision-making process. Purchase committee comprising
experts and top management are common in the purchase of major goods. In addition to this, Inany of the
buying instruments-such as purchase contracts-are not found in consumer buying.

Close Supplier-Customer Relationship: With the smaller customer base and the importance and power
of the larger customers, industrial sellers are frequently required to customize their offerings, practices,
and performance to meet the needs of individual customers.
Multiple Buying Influences: More people typically influence business buying decisions. Buying
committees are common in the purchase of major goods; marketers have to send well trained and
experienced sales people and often sales teams to deal with these well-trained buyers
Multiple Sales Calls: With the more people involved in the process, the sales representatives or sales
teams from the industrial supplier are required to call many times before getting an order from an
industrial buyer. A long period, ranging from a few weeks to few months is required to get an order for
major capital equipment from an industrial buyer.
Direct Purchasing: Organizational buyers particularly business buyers often buy directly from
manufacturers rather than through intermediaries, especially products that are technically coinplex or
expensive.
Reciprocity: Organizational buyers often select suppliers who also in turn buy from them. For example a
paper manufacturer who buys chemicals from a chemical company that is buying a considerable quantity
of its paper. Even in this reciprocal buying situation the buyer will make sure to get the supplies at a
competitive price, of proper quality and service.
Leasing: In case of ma-jor and expensive eq~lipmentm any induslrial buyers lease rather than buy in
order to conserve funds, get the latest products, receive better service, and gain tax advantages. The lessor
often makes more profit and sells to customers who could not afford outright purchase of equipment,
There are certain income tax benefits according to Indian Income Tax Act given to both lessor and leasee.
5.4 MEANING AND CONCEPT OF MARKET SEGMENTATION
Today companies that sell their products and services to various consumer and industrial markets are
aware that they cannot serve to all buyers in the entire market for a specific product or service category.
The reason is that buyers in a specific product market are too numerous, too widely spread, and have
different needs and buying motives. This is known as heterogeneity or diversity of buyers. For examples,
not all consumers wlio wear pants want to wear jeans. Even those wear jeans some will go for designer's
jeans and some go for cheaper jeans. In the same way businesses who use computers may not want the
same amount of memory or speed in computers. Thus rather than to compete in an entire market each
company must identify the parts of the market that it can serve in a more meaningful way.
What we are seeing here is that within the same general market there are groups of consumers with
different needs, buying preferences, or product-use behaviour.
some product markets these differences are relatively minor, and the primary beliefit sought by
consumers can be satisfied with a single marketing mix. In other product markets these differences are
pronounced and consumers are not likely to compromise on single product and other elements of
marketing mix. As a result, alternative or multiple marketing mixes are rcquired to reach the entire
product market. For example, today in India there are various brands of cars which are serving the "small
car market", some are serving "mid-size car market", and some brands of cars are serving "luxury car
market". Whether it is large or small, the group of consumers (personal consumers or business buyers) for
whom the seller designs and directs a particular marketing mix is a target market.
Historically speaking, companies did not practice target market approach. They have, over the years
passed through three stages in marketing their products and services. These are:
Mass Marketing: In this marketing practice companies use to produce a single product on a mass scale,
distkibuted and promoted on a mass level. The main advantage that has been advocated for mass
marketing is that this will lead to economies of scale to the manufacturers and lower price to the
consumers. This practice is also known as "shotgun approach" or market aggregation. In the present
market scenario this practice is seldotn used by the marketers as consumers in most of the markets exhibit
differences in terins of bnying preferences, needs and product use behaviour. This has made mass
mnrketingn more difficult in the present tirnes.
Target Marketing: Here the tolal market is viewed as consisting of several smaller segments with
differences significant enough that one marketinp mix will not satisfy everyone or even a majority in a

given product or servicc, market.T herefore, a firm here identifies different submarkets or market
segments, selects one or more of them, and develops products and marketing mixes talored to each. This
strategy employs a "rifle" approach instead of "shotgun approach.
Today most of the companies are moving away from mass marketing and adopting target marketing
approach. Marketers who want to practice target marketing effectively are required to take three steps.
The first step is market segmentation,the second step is market targeting, and the third step is market
positioning.
Therefore, target marketing is also known as STP marketing i,e. segmenting, targeting, and positioning.
In this unit we will discuss market segmentation and the remaining two steps i.e., market targeting and
market positioning will be discussed in the next unit. Look at Figure 5.2 which shows various steps in
target marketing.

As buyers of a product exhibit different needs and wants, and therefore, each group with similar needs
rnay be treated as a separate market. Customer-oriented companies take these differences into
consideration, but they usually cannot afford to tailor-made n different product and marketing mix for
every consumer. Consequently, most marketers operate between the extremes of one marketing mix for
all (mass marketing) and a different one for each consumer. Therefore, companies go for market
segmentation. We define market segmentation as the process of dividing the total market for a
product or service into several smaller groups, such that the members of each group are similar
with respect to the factors that influence demand. Therefore, companies through market segmentation
divide large, heterogeneous markets into smaller segments that can be reached more efficiently and
effectively with products and services that match their unique needs.
The stratergy of market scgmentation involves the development of two or more different marketing
programmes for a given product or service, with each marketing program aimed at a different market
segment. A strategy of marketing scgmentation requires that the company first clearly defines the number
and nature of the customer groupings (market segments) to which, it intends to offer its product or
service. This is necessary (though not sufficient) condition for optimizing efficiency of marketing effort
against those segments or the total market where it is likely to yield higher returns on the effort and
investment. Some people criticize that marketers create the segments. This is not true. They do not create
the segments but they first identify the segments and then decicie to focus on one or more segments with
different marketing mixes.
5.5 IMPORTANCE OF MARKET SEGMENTATION
Market segmentation being customer-oriented is in consonance with the marketing concept philosophy. In
marltet segmentation, a company first identifies the needs of consumers within a segment and then
decides if it is practical to develop a product and marketing mix to satisfy those needs. By practicing
market segmentation company may obtain the following advantages and benefits.
By tailoring marketing programs to each lnarket segment, a company can do a better marketing job and
can make more efficient use of its'marketing resources.
A small company with limited resources may be in a better position to compete more effectively in one or
two small market segments, whereas the same company would be overwhelmed by the competition from
bigger companies if it aimed for a major segment.

A company with effective market segmentation strategy can create a more fine tuned product or service
offering and price it appropriately for the target segment.
The company can more easily select the most appropriate distribution network and communication
strategy, and it will be able to understand its competitors in a better way, which are serving the same
segment.
By developing strong position in a specialized market segments, a medium sized company can grow
rapidly.
Even very large companies with the vast resources at their disposal are abandoning mass marketing
strategies and embracing market segmentation as more effective strategy to reach various market
segments in broad product market. For example, Hindustan Lever Ltd (HLL), one of the most admired
companies, has developed a number of detergent brands to cater to the needs of various segments in
detergent market. This has been done by HLL after it faced stiff competition in the 1970s from a sinall
and lesser known Nirma Chemicals Ltd, in the form of Nirma brand. As a result of Nirma's onslaught
HLL came up with an economical brand named Wheel to cater to the needs of middle class
and economy conscious detergent buyers.
Because of these factors and the benefits from the market segmentation most of the companies both in
consumer and industrial markets are practicing this strategy. Because of obvious benefits, today not only
market segmentation is practiced by the companies manufacturing goods and services but it has also been
adopted by retailers. Many marketing experts are of the view that the days of mass marketing have gone
and even if some companies are following mass marketing its days are numbered. Therefore, today
companies use market segmentation to stay focused rather than scattering their marketing resources.
5.6 REQUIREMENTS OF EFFECTIVE MARKET SEGMENTATION
The goal of segmentation is to divide a market so that each segment responds to a different or unique
marketing mix. The variables on the basis on which the market is segmented should be capable of
measurement and quantification. It should not be merely a subjective phenomenon. For this measurement,
adequate data should be available or be capable of being collected. If the data is not available and not
quantifiable, the segmentation w ill be difficult or unscientific. As we will see in the next section that
there are several ways to segment a market, but not all segmentation approaches are equally effective. To
carry out effective market segmentation, the selected segments should be (I) identifiable and measurable,
(2) sufficient (in terms of size), (3) stability, (4) reachable (accessible) in terms of media and costs, (5)
differentiable, and (6) actionable. Let us discuss them in detail.
Identifiable and Measurable: To divide the market into separate segments on the basis of a common
need or characteristics that is relevant to the product or service, marketers must be able to jdeiitify the
relevant characteristics or variables. Some segmentation variables, such as geography (location) or
demographics (age, gender, occupation), are relatively easy to ibntify or are even observable. Others, such
as education, 'income, or marital status, can be determined through survey research using questionnaire.
Still other characteristics, such as benefits sought or lifestyle, are more difficult to identify. Even after the
proper identification of variable(s) the marketers will be in a position to measure the resultant segments in
terms of their size, purchasing power, and profile. Certain segmentation variables are difficult to measure
because they are difficult to identify. Therefore, if any segmentation variable can not be measured
properly segmentation of muket will not be effective.
Sufficient (in terms of size): For a market segment to be worthwhile target, it must have a sufficient
number of people to warrant tailoring a product or promotional campaign to its specific needs or interests.
The segment not only should be large but it should also be profitable enough to serve with a specific
marketing mix. In estimating the size of each segment under consideration, marketers often use secondary
demographic data or undertake a probability based survey whose findings may be projected to the total
market. For example, it would not pay for a motorcycle manufacturer to develop not or cycles that are
physically challenged.
Stability: Most marketers prefer to target consumer segments that are relatively stable in terms of
demographic and psychographic variables and needs that are likely to grow larger over time. They
normally prefer those market segments which can be predicted with certain amount of certainty and

stability. In the context of certain products which are amenable to fashion and fads, trying to segment a
market on the basis of fads, which may change in a short period, will be a risky proposition. For example,
teens are a sizeable and easily identifiable market segment, eager to buy, able to spend, and easily
reached. Yet, by the time a marketer produces merchandise for a popular teenage fad; interest in it may
have waned or decreased.
Reachable (accessible) in Terms of Media and Costs: A fourth requirement for effective market
segmentation is accessibility. It refers to the degree to which the segments can be effectively reached and
served in an economical way. Despite the wide availability of special-interest magazines and cable TV
network, marketers are constantly looking for new media to reach their target markets with a minimum of
waste circulation and competition. With the advent of Internet, now marketers are able to reach to a
narrow group of segments. Suppose, a perfume manufacturing company finds that the regular users of its
brands are unmarried men who are out late at night and frequently visit bars, unless this group of men
lives in a specific locality or do shopping at certain places, for the company it will be difficult to identify
them and reach them. Therefore, when markets are segmented, each segment should be accessible and
approachable.
Differentiable: The resultant segments should be conceptually distinguishable and respond differently to
different marketing mix elements and programs. For example, if married and unmarried respond similarly
to a sale on perfume, they do not constitute separate segments.
Actionability: It refers to the degree to which effective programs can be formulated for attracting and
serving the segments. A small travel agency, for example, identified seven market segments, but its staff
was too small to develop separate marketing programs for each segment.
5.7 BASES FOR MARKET SEGMENTATION
The first step in market segmentation strategy is to select the most appropriate base(s) on which to
segment the market. Because of inherent differences between consumer and organizational or business
markets, marketers cannot use exactly the same variables to segment both. Instead, they use one broad
group of variables as the basis for consumer market segmentation and another broad group for business
market segmentation. We will disclss various bases used in segmenting a consumer market and then
discuss the bases for segmenting business markets. Before we discuss the bases for segmentation one
caveat is in order. There are innumerable ways of segmenting a market. However, not every base is
equally applicable for every product category. For some products one base may be more appropriate and
for other product category another base may be more appropriate. As you know, market segmentation
means dividing the market into several homogeneous submarkets or segments. Now the question is: what
is the basis of segmenting the market? In fact there is no single way to segment a market. A marketer has
to try different segmentation variables to view the rnarltet structure. You have learnt that the market can
be broadly divided into two categories: consumer market and organizational or business market. We need
to identify some of the widely used base for segmenting these two broad types of markets. We will first
take various bases used in segmenting consumer markets.
5.7.1 Bases for Segmenting Consumer Markets
As stated earlier there is no single way of segmenting a market. A marketer has to try different
segmentation variables, alone and in combination, to find the best way to view the market structure. Eight
major categories of consumer characteristics provide the most popular bases for consumer market
segmentation. They include: geographic factors, demographic factors, psychological factors, sociocultural
variables, use-related characteristics, use-situation factors, benefit sought, and hybrid segmentation forms
such as demographic/psychographic profiles, geodemographic factors, and values and lifestyles. Hybrid
segmentation forms a combination of several segmentation bases to create rich and comprehensive
profiles of particular consumer segments. All eight segmentation bases are divided further into specific
variables. Look at Figure 5.3 which shows these bases.

Geographic Segmentation: This calls for dividing the market on the basis of location. A company may
divide the market into different geographical areas such as nations, regions, states, cities, urbanliural
areas, or neighbourhoods and then decides to operate in one or few geographical areas, or to operate in all
areas but pay attention to geographical differences in consumer needs and wants. The basic reason of
using geographic base for segmentation is that people who live in the same area share some similar needs
and wants that these needs and wants differ from those people living in other areas. For example, certain
food and beverages sell better in one region than in others. Take the example of coffee which is consumed
in India, but it is more consumed in South India than any other region. A company who is
marketing coffee may keep the taste and flavour preferences in the different regions and accordingly it
may come out with different variants of coffee in terns of taste and flavours which may be liked by people
belonging to different regions. In the context of India, another variation may be found in terms of
purchasing pattern among urban and niral consumers. Companies, if they observe divergent pattern of
purchasing in a specific product category among the people of these areas then they may develop products
and marketing mixes to suit the consumers' tastes and preferences belonging to urban or rural areas.
In short, geographic segmentation may prove to be a useful strategy for many marketers. It is relatively
easy to find geographical differences in many products. In addition, geographic segments can be easily
reached through the local media, including newspapers, TV, and radio, and through regional edition of
magazines.
Demographic Segmentation: Demographic segmentation consists of dividing the market into groups on
the basis of demographic characteristics of consumers such as age, sex, family size, income, occupation,
education, religion, nationality, etc.
Demography refers to the vital and the measurable statistics of population. Demographic variables are the
most population bases for distinguishing customer groups. One of tlie reasons for preferring demographic
bases is that consumer wants, preferences and usage rates are, often highly associated with demographic
characteristics. Another reason is that demographic variables are easier to measure than most other types
of variables, even when the target market is described in nondemographic terms (say, a personality type),
it should be linked back to demographic characteristics in order to know the size of the target market and
rcach it effectively.
Another reason of its popularity is that demographic variables reveal ongoing trends, such as shifts in age,
sex (gender), and income distribution that signal business opportunities. Let us discuss how certain
demographic variables can be applied to market segmentation.
a) Age and life cycle stage: Because product needs and interest often vary with consumer age, marketers
have found age to be particularly useful demographic variable for distinguishing segments. Many
marketers have carved themselves a niche in the marketplace by concentrating on a specific age segment.
For instance, children of six months age differ from children of three months age in their food
requirements and consumption potential. A toy manuracture may realize this and may design different
toys to be used by children belonging to different age groups. A bay food company may market different

foods which may suit the requirements of different aged babies. Recently, different cable channels have
come up which cater to the children, youth, and males/females of different age groups. Segmenting a
market on the basis of age sometime create problems. Marketers must be carefull in defining market
segments in strictly chronological age terms as it can sometimes be stereotypical and misleading,
particularly because many adult consumers have a perceived age (i.e., cogtiitive age) about 10 to 15 years
younger than their chronological age. A useful segmentation approach categorizes older consumers in
terms of their cognitive age rather than chronological age.
b) Sex (Gender): Segmentation of markets based on sex or gender has long been used in the case of
products such as clothing, cosmetics, and magazincs. Gender has long been a distinguishing segmentation
variable. Women have traditionally been the main users of such products as hair colouring, shampoo, and
cosmetics and men have heen the main users of tools and shaving goods. However, sex roles, in the recent
years, have blurred considerably, and gender is no longer an accurate way of distinguishing consumers in
somc product categories. For example, women are buying all types of household products and men have
become significant users of skin care, shampoo and cologne and hair care products. It is becoming
increasingly common to see magazine ads and TV commercials to depict man and women in roles
traditionally occupied by the opposite sex . Much of the sex role change has occurred because of
emergence of increased number of dual-income families. in every country including India more and more
women are going for employment and this has resulted in the change in traditional roles of men and
women. Till few years back, men were the main users of two-wheelers in India. Now, two-wheeler
industry has already recognized sex as a basis of segmelltation. In the past, two wheelers were designed to
appeal to the men only. With the increase in the number of working women, many companies in this
industry have designed scooters which are suitable for women.
C) Marital Status: another way of segmenting a market is on the basis of marital status. Traditionally the
family has been the focus of most marketing efforts, and many products and services; the household
continues to be the relevant consuming unit. Marketers are interested in the number and kinds of
households that own and/or buy certain products they are also interested in determining the demographic
and media profiles of household decision makers (the person involved in the actual selection of the
product) to develop appropriate marketing strategies.
d) Income, Education, and Occupation: In the recent years the popularity of income as segmenting
variable of a market has been decreased. Although income has long been an important variable for
distinguishing market segments, a major problem with segmenting the market on the basis of income
alone is that income simply indicates the ability (or inability) to pay for a product. For this reason,
marketers often combine income with some other demographic variable(s) to define their target market,
more accurately. For example, very often marketers combine income with age to identify the important
affluent elderly and affluent younger segments. Many marketers are of the view that education,
occupation, and income tend to be closely correlated in almost a cause-and-effect relationship. High level
occupations that produce high incomes usually require advanced educational training. Individuals with
little education rarely qualify for higher level jobs. Because of the interrelationship among these three
variables, education, occupation, and income are combined into a composite index of social class. Income
is another basis of segmenting the markets for automobiles, clothing, cosmetics and travel. Other
industries occasionaIly adopt this basis. However, at macro level the per capita income of a person or
family can be a basis for segmentation. Accordingly, segmentation could be made in terms of low, middle
and higher income groups. Price may be the sole criterion to fit into a particular per capita income group.
It is more so at the lower levels of income. As the income goes up other non-economic considerations or
bases have a greater influence.
Psychographic S egmentation: Demographic data are used to segment markets because these data are
related to behaviour and are relatively easy to gather. However, demographics are not in themselves the
causes of behaviour. Consumers do not buy products purely on the demographic variables but these
variables may correlate with certain psychological characteristics of consumers. Therefore, marketers
have gone beyond demographic attributes in an effort to better understand why consumers behave as they
do. They now engage in psychological segmentation, which involve examining attribute such as

personality, and lifestyles. When demographic and psychological attributes are combined, richer
description of segments is produced. Let us learn some of the psychographic bases of segmentation.
a) Lifestyle Segmentation: l ifestyle relates to activities, interests, and opinions. A person's lifestyle
reflects how he spends his time and what his beliefs are on various social, economic, and political issues.
People are found to exhibit many types of lifestyles and their lifestyles undoubtedly affect what goods
they purchase and what brands they prefer. Marketers are aware of this and attempt to segment their
markets based on lifestyle characteristics. One theory retailing to lifestyles is that lifestyles are shaped
partly by whether consumers are time-constrained or money-constrained. Consumers who experience
time-constrain i.e., paucity of time at their disposal, are prone to multitasking, that is, doing two or more
things at the same time. Companies aiming to serve them will try to create convenient services for this
group. As for the money-constrained individuals companies aiming to serve them will create lower-cost
products and services. The technique of measuring lifestyles is known as psychographics. It is the science
of using psychology, sociology, anthropology, and demographics to better understand buyers.
Psychographics can help marketer fine-tune its offering to meet the needs of different segments.
Psychographic research attempts to place consumers on psychological-as opposed to purely demographicdimensions. Companies making cosmetics, alcoholic beverages, and furniture are always seeking
opportunities in lifestyle segmentation, but lifestyle segmentation does not always work. It is difficult to
accurately measure the size of lifestyle segment in a cluantitative manner. Another problem is that a given
lifestyle segment might not be accessible at a reasoilable cost through a company's usual distribution
system or promotional program.
b) Personality Segmentation: Marketers also use personality variables to segment markets. An
individual's personality characteristics are described in terms of traits that influence behaviour. In trying
to segment a market on personality traits marketers endow their products with what is known as brand
personality that corresponds to target group personality. Then they project this brand personality through
their promotional campaigns. For example, Bajaj Scooter has been pro-jected ~nosol ften as "Trusted
friend" and Red and White Cigarettes as 'Daring" Lipton Tiger Tea as "valiant". However, using
personality traits as a basis for segmentation solnetilnes create problems that limit their usefulness in
practical market segmentation. First the presence and strength of these traits are virtually impossible to
measure. Another problem is associated with the accessibility condition of segmentation. There is no
advertising medium which can reach to a particular personality type. For example, a TV medium reaches
to all types of personality types. Therefore, one of the major goals of segmentation, to avoid wasted
marketing effort, is not likely to be accomplished using personality segmentation. Nevertheless, many
companies tailor their advertising messages to appeal to certain personality traits, even though the
iniportance of the personality dimension in a particular decision may be difficult to measure.
Value Segmentation: Some marketers try to segment a particular market by values. According to
psychologists, values are a reflection of our needs adjusted for the realities oi'the world in which we live.
In other words values are the belief systems that underline consumer attitudes and behaviours. Research at
the Survey Research Center at thc University of Michigan has identified nine basic values that relate to
purchase behaviour. These are known as List of Values (LOV). These values are:
Self-respect
Self-fulfiIlrnent
Sense of accomplishment
Fun and enjoyment in life
Security
Being well respected
Sense of belonging
Having warm relationship
Excitement
While most people will view all of these values as desirable, their relative importance differs among
people and their importance changes over a person's life. Marketers who attempt to segment their markels

on the basis of values believe that by appealing to peoples' inner selves, that is, values, it is possible to
influence their outer selves, that is, their purchase behaviour.
Sociocultural Segmentation: Sociological (i.e., group) and anthropological (i.e., cultural) variables-that is
sociocultural variables-provide further bases for market segmentation. We will briefly discuss three bases
under this head. These are: family, life cycle, social class, and culture. Let us learn them.
a) Family Life Cycle Segmentation: This is based on the premise that many families pass through
similar phases in their formation, growth, and final dissolution. At each phase, the family unit needs
different products and services.
Family life cycle is a composite variable based explicitly on marital and family status, but implicitly
including relative age, income, and employment status. Each of the stages in the traditional family life
cycle (i.e., bachelorship, newly married couple, couple with small children, couples with grown up
children, and retired people with no children) represents an important target segment to a variety of
marketers. For example, Life Insurance Corporation of India (LIC) has different life insurance policies for
young married couples, couples with grown up children and for retired persons.
b) Social Class Segmentation: Social class is a potential market segmentation variable. It is traditionally
measured by a weighted index of several demographic variables, such as education, occupation, income
(we have already discussed social class influence in Unit 4). The concept of social class implies that
people belonging to different social classes vary in tenns of values, product preferences, and buying
habits. Therefore, marketers have used their knowledge of social class differences to appeal to specific
segments.
Culture Segmentation: Some marketers have found it useful to segment their markets on the basis of
cultural heritage, because members of the same culture tend to share the same values, beliefs, and
customs. Marketers who use cultural segmentation stress specific, widely held cuItural values which they
hope consumers will identify. Cultural segmentation is particularly successful in international marketing,
but in such instances, it is important for the marketer to understand fully the beliefs, values, and customs
of the countries in which the product marketed. Within the larger culture, there exist subcultures. These
subcultures sometime exhibit distinct purchase preferences. If this is the case then marketers may segment
a particular market on the basis of subcultures. Also culturally distinct segments can be prospects for the
same product but often are targeted more efficiently with different promotional appeals.
Use-Related Segmentation: An extremely popular and effective form of segmentation is based on the
user-related variables. We will briefly discuss three bases of segmentation under this category. These are:
user rate, awareness status, and loyalty status.
a) User Rate Segmentation: Here the rnnrketer differentiates among heavy users, medium users, light
users, and non users of a specific product, service, or brand. Normally a company is most interested in the
heavy users of its product because heavy users are often a small percentage of the market but account for
a high percentage of total consumption. For example, research has consistently indicated that between 25
and 35 percent of beer drinkers account for more than 70 percent of all beer consumed. In many
frequently purchased product categories less than 50 percent of all users account for 80 to 90 percent of
total purchases. For this reason, most marketers prefer to target their promotional campaigns to the heavy
users to retain them. They also try to encourage the heavy users of competitors' brands to switch.
Sometime a marketer will select as a target market the nonuser or light user; intending to woo these
consumers into higher usage. Or light users may constitute an attractive niche for a marketer simply
because they are being ignored by the cornpanies that are targeting heavy users. Marketers who use this
type of segmentationf irst try to find out the demographic and psychographic characteristics of light users
and then come out with a product and marketing mix to suit the requirements of this segment.
b) Awareness Status Segmentation: This is also known as buyer-readiness stage segmentation. A
market consists of people in different stages of readiness to buy a product. Marketers have to determine
what percent of potential consumers are aware of the product, interested in the product, or need to be
informed about the product. The relative numbers make big difference in designing the marketing
program.

c) Loyalty Status Segmentation: Sometimes brand loyalty is used as the basis of segmentation. Buyers
can be divided into four groups according to brand loyalty status: ( I ) hard-core loyals (who always buy
one brand), (2) soft-core loyals or split loyals (who are loyal to two or three brands), (3) shifting loyals
(who sh ift from one brand to another), and (4) switchers (who show no loyalty to any brand). Each
market consists of different numbers of these four types of buyers: thus a brand-loyal rnarket has a high
percentage of hard-core loyals. Companies that sell in such a market Iiave a hard time gaining more
market share, and new competitors have a hard time breaking in. In the recent years, many marketers
in order to retain their loyal customers offer special benefits to them in the form of loyalty rewards. For
example, Indian Airlines lias introduced "frequent flyer" scheme to retain the regular passengers by
offering heavy discounts or free tickets to family members after a certain number of flying trips.
Usage-Related Segmentation: Marketers recognize that the occasion or situation determines what
consumers will purchase or consume. For this reason, they sometimes focus on the usage situation as a
segmentation variable. We will briefly discuss one variable under this category i.e., occasion.
Occasion Segmentation: Buyers can be distinguished according to the occasions on which they develop
a need, purchase a product, or use a product.
For example air travel is undertaken by occasion related to business, vacation or family, so an airline can
specialize in one of these occasions. Another example is of hotel accommodation.Many hotels in India
develop different stay packages for vacation, for honeymooners, for regular visitors etc. apart from this,
many products are promoted for special usage occasions. For example the greeting card industry stresses
special cards for a variety of occasions such as on Diwali, Eid, Christmas,Valentine Day, Mother's Day
etc. Today many companies are promoting their products for different occasions.
Benefit Segmentation: Marketing people constantly attempt to isolate the one particular benefit that they
should communicate to consumers. Segmenting the market on the basis of benefit sought by various
consumers has been a popular segmenting base for many products ancl services. For example, motorcycle
manufacturers tried to segment the market on the basis of benefits sought by various consumers. Hero
Honda emphasized fuel consumption, kawasaki Bajaj and Yamaha emphasised on power and style.
Benefit segmentation can be used to position various brands within the same product category. The
classic case of successful benefit segmentation is the market for toothpaste: Colgate for total dental care,
Close-up with a special appeal that stresses bright teeth, Forhans appeals to the protection of gums.
Hybrid Segmentation: Marketers commonly segment markets by combining several segmentation
variables rather than relying on a single segmentation base. We will discuss two hybrid segmentation
approaches i.e., psychographic/demographic profiles, and geodernographics. These two approaches
provide marketers with more accuralely defined consumer segments than can be derived using a single
segmentation base.
a) Psychographic-demographic Profiles: Psychographic and demographic profiles are highly
complernentary approaches that work best when used together, By combining the knowledge gained from
both demographic and psychographic studies, marketers are provided with powerful information about
their target markets. The demographic information provide the marketer about the prospective customers'
age, education, income, etc. and the psychographic information provides the basis of the prospective
consumers personality, and lifestyle pattern. Used together, this type of segmentation help in creating
customer profiles (for product and service marketers) and creating audience
profiles (for mass and special interest media to attract advertisers).
Demographic/psychographic profiling has been widely used in the development of advertising campaigns
by various companies.
b) Geodemographic Segmentation: This type of hybrid segmentation scheme is based on the notion that
people who live close to one another are likely to have similar financial means, tastes, preferences,
lifestyles, and consumption habits.
Many marketing research firms collect information on geodemographic clusters and then provide this
information to advertisers for developing effective advertising campaigns. These clusters are based on
consumer lifestyles, and a specific cluster include similar neighbourhoods, that is, neighbourhoods

composed of people with similar lifestyles widely scattered throughout the country. Geodemographlc
segmentation is most useful where advertiser's best prospects (in terms of personality, goals, and
interests) can be isolated in terms of where they live. However, for products and services used by broad
crosssection of people in a country, other segmentation schemes may be more productive.
5.7.2 Bases for Segmenting Organizational Markets
Organizational markets can be segmented with many of the same variables used in segmenting the
consumer markets. For example, we can segment organizational markets on a geographic basis. Some
industries are geographically concentrated. For example, in India most of the companies belonging to
textile industry are located in Maharashtra and Gujrat. Any company that sells to this industry could use
geographic segmentation.
Also, like consumers, businesses have demographics that can be used to segment market. For example,
the size of a company (measured by sales volume or number of employees), the company's type of
business (advertising agencies typically focus on cither clients that market to consumers or companies
that sell to other businesses), or the company's method of buying (some rely on price and select the lowest
bidder, while others use criteria such as quality or delivery time). Companies can also segment their
orgailizational markets on the benefit desired by buyer and on product usage rates. We will discuss brietly
the specific segmentation approaches for organizational markets below. In parlicular, there are tliree
colnmonly used bases: 1) type of customer 2) size of customel; and 3) type of buying situation.
a) Type of Customer Segmentation: A common way lo segment industrial markets is by end users.
Different users often seek different benefits and can be approached with different marketing mixes. For
example, a company that sells small electric motors would have broad potential market among many
different industries such as automobiles, electrical appliances, government departments etc, However, this
company will do better by segmenting its potential market by type of customer and then specialization to
meet the needs of businesses in a limited number of these segments.
b) Customer Size Segmentation: Customer size is another variable used for segmenting organizational
markets. Many companies set up separate systems for dealing with major and minor customers. For
example, a company which manufactures office furniture, may divide its customers into two groups as
major accounts and minor accounts. Accounts of large and reputed companies come
under major accounts. Such accounts are handled by national account managers working with district
field managers. Smaller accounts are categorized as dealer accounts. These accounts are handled by the
field personnel working withfranchised dealers who sell company's products.
c) Type of Buying Situations Segmentation: While discussing organizational markets we have
identified three types of buying situations: new buy, modified rebuy, and straight reby. These buying
situations, as you know, are different from each other in a significant way. An industrial seller can
segment his market on this basis of buying situations and adopt marketing strategies accordingly.
5.8 MICRO SEGMENTATION AND MASS CUSTOMIZATION
In the market segmentation we have discussed the process of dividing a product market into various
submarkets or segments. Market segments are normally large, identifiable groups within a market. Many
companies are focusing their marketing efforts on the subgroups within these market segments. These
small segments are known as niches. Going beyond niche marketing, a marketer may further divide the
market into micro segments. Micro segmentation takes the form of micro marketing and mass
customization. We will discuss these in the following:
Micromarketing: Segment and niche marketers tailor their offers and marketing programs to meet the
needs of various market segments. At the same time, however, they do not customize their offers to each,
individual customer. Thus segment marketing and niche marketing fall between extremes of mass
marketing and micromarketing. Micromarketing is the practice of tailoring products and marketing
programs to suit the tastes of specific individuals and locations. Micro marketing includes local marketing
and individual inarketing or mass customization. Let us learn them.
a) Local Marketing: This involves tailoring brands and promotions to the needs and wants of local
customer groups-cities, neighbourhoods, and even specific stores. Many big retailers routinely customize

each store's merchandise and promotions to match its specific clientele. Local marketing has some
drawbacks.
It can drive up manufacturing and marketing costs by reducing economies of scale. It call also create
logistics problems as companies try to meet the varied requirements of different regional and local
markets. Despite some of these drawbacks, local marketing helps a company to market more effectively
in the face of pronounced regional and local differences in community demographics and lifestyles. It also
meets the needs of the company's first line customers retailers- who prefer more fine-tuned product
assortments for their neighbourhoods.
b) Individual Customer Marketing or Mass Customization: In its extreme form, micro marketing
becomes individual customer marketing or mass customization-tailoring products and marketing
programs to the needs and preferences of individual customers. This has also been labeled one-to-one
marketing, customized marketing, and markets-of-one marketing. Mass customization is tlie ability of a
company to prepare on a mass basis individually designed products, services, programs, and
communication, to meet each customer's requirements. In the context of consumer market, not every
company can use this approach. However, if a company achieves mass customization it may gain
competitive advantage over its competitors. Business-to-business marketers are also finding new ways to
customize their offerings. A number of companies-both in consumer market and organizational marketare using existing technologies to customize their products to the individual customers. The examples
include Dell Computers, Mattel-the manufacturer of Barbie Dolls, Levi's-the jean maker, AcuminsInternet based vitamin company, DeBeers-maker of diamond jewellery. All of these companies are
practicing mass customization successfully.
5.9 LETUSSUMUP
From the marketing point of view a market may be defined as group of people or organisations with (I )
needs to satisfy; (2) money to spend, and (3) the willingness to spend it. Basically markets may be
divided in to two broad categories, that is, consumer market and organizational market. The consumer
market consists of all the individuals and households who buy or acquire goods and services for their own
personal or household use. Organizational market purchases goods and services to achieve specific goals,
such as making money, reducing operating costs, and satisfying social or legal obligations. The
organizational market comprises all the organizations that buy goods and services for use in the
production of other products and services that are sold or rented, or supplied to other customers or used
by themselves for running the organization. There are four types of organizational markets: the industrial
market, the reseller market, the government market, and the institutional market. In many respects
organizational market differs with consumer market. Therefore, marketers should keep in mind these
differences while selling their products to the organizational market.
Within the same general market there are groups of consumers with different needs, buying preferences,
or product-use behaviour. Today most of the companies are moving away From mass marketing and
adopting target marketing approach. Target requires that a broad market has to be divided into
homogenous smaller markets through the process of market segmentation. Market segmentation is the
process of dividing the total market for a product or service into several smaller groups, such that the
members of each group are similar with respect to the factors that influence demand. To carry out
effective market segmentation, the selected segments should be (1) iclentifiable and measurable, (2)
sufficient (in terms of size), (3) stability, (4) reachable (accessible) in terms of media and costs, (5)
differentiable, and (6) actionable.
A marketer has to use different segmentation variables, alone and in combination, to find the best way to
view the market structure. Eight major categories of consumer characteristics provide the most popular
bases for consumer market segmentation. They include: geographic factors, demographic factors,
psychological factors, sociocultural variables, use-related characteristics, use-situation factors, benefit
sought, and hybrid segmentation. Organizational markets can be segmented with many of the same
variables used in segmenting the consumer markets. The specific segmentation approachesf or
organizational markets are: I) type of customer 2) size of customer, and 3) type of buying situation.

In the recent years many companies going beyond market segmentation and moving toward micro
segmentation and mass customization. Micro segmentation is also known as micro marketing.
Micromarketing is the practice of tailoring products and marketing programs to suit the tastes of specific
individuals and locations. Mass customization is the process of tailoring products and marketing
programs to the needs and preferences of indiviclual customers. This has also been labeled one-to-one
marketing, customized marketing, and markets-of-one marketing.
UNIT6 MARKET TARGETING AND MARKET POSITIONING
You have already learnt the buyer behnviour and bases of segmenting the market. It is time now to
understand how as a marketer you call target these markets and how the product offer can be positioned in
the market. While segmentation explains whom to target for, targeting explains haw to target these
markets. In this unit, you will learn the meaning and importance of market targeting, the evaluation of
potential targets and strategies for market targeting. You will also learn the meaning and requirements for
positioning and the process of positioning. You will be further exposed to the concept of repositioning.
6.3 MARKET TARGETING
By applying the learning from the market segmentation chapter, you as a business manager will be able to
identify your firm's markets segment opportunities. These opportunities have to be evaluated to select
either one or a number of strategically significant segments for launching your marketing program. It is a
stage where the firm has to evaluate different segments and decide how many and which ones to target for
. This method is called market targeting. A target market is defined as a
set of buyers sharing common needs or characteristics that the company decides to serve. It is very
important to select the target market to which the company decides to serve because knowledge about
how the consumers decide, what are the criteria of buying products, the characteristics and life style of the
targeted customers can help the marketers to develop a suitable marketing strategy.
Every marketing slsategy involves marketing expenditure and the return on a market program can only be
identified if we are able to know the target market for which the marketing program is targeted. It is
observed from research that a majority of the marketing expenditure is actually wastage of company
resources as they are spent on non buyers. So an understanding oT the nature and characteristics of the
target market will help Lhe marketer to derive higher returns on a marketing program.
Knowledge on the target market and its growth and changes in attitude will help the marketer to modify
and design new marketing programs for the success of the enterprise as a whole. Hence, an understanding
of the target market and measurement of their altractiveness is a key decision in marketing.
6.3.1 Evaluation of Potential Targets
After the firm has identified the target markets, the next task is to evaluate the target segments. The
marketingm anager should look at five factors for evaluating each segment. They are: segment size and
worthwhileness, segment measurability, segment ntlractiveness, accessibility of the segment, coinpany
objectives and resources. The colnpnny shoulcl first collect and analyze data on size of the current
segment, growth rates in the past and the likely rate of growth from the market indicators for the future on
short term and long term basis, and expected profitability frorn each segment. One of the best ways to
calculate the profitability is to find out through the calculation of response elasticity. Response elasticity
can be calculated by taking past rnarketing expenditures as independent variable and the returns from the
past marketing expcnclirures in different pel-iods of time. A graph of response elasticity where responses
(sales) on the Y-axis and the corresponding marketing expenditures on tlie X-axis is a sufficient indicator
about the profit growth potential in each of the segments. The myth of marketing says that the fastest
growing and largest size markets may not be so for a long period of time. Hence future profitability may
slow down as more competitors will enter in to the business looking at the profit potential. So a marketer
should be careful about this behaviour of the market. The segments identified should be also measurable
from its size and market share from
the potential market. The segments should also be evaluated from the point of view of accessibility as
there may be a very attractive segment available but the cost to reach at that segment and serve the
segment will be higher compared to segments where potential may seem moderate. The Indian rural
'market suffers from this problem of accessibility. The company should also evaluate the resources

available for market coverage. If the compilny lacks the skill and resources then it should concentrate on
markets geographically closer or with a higher density if potential customers in limited markets called a
niche segment.
6.3.2 Market Targeting Strategies
You have learnt the meaning of targeting, let us now look at what are the various strategic options
available to the marketers for targeting their products and services in the market. The targeting strategy
will largely depend upon the kind of product market coverage that the firm takes for the future. The
resources, capabilities and intent of the respective firms influence this product market coverage decisions.
The product market coverage strategies are broadly classified as concentrated marketing, differentiated
marketing and undifferentiated marketing. Let us learn them in detail.
Concentrated Marketing : When company resources are limited and the competition is intense enough
that the marketing manager has to stretch the market budget for market coverage, the companies follow a
concentrated marketing strategy.
The company decides to cover a large niche than fighting for a small share in a large market. It is an
excellent strategy for small manufacturers those can stay closer to the segment and cater to the emerging
needs of a close loop customers. This helps them to gather market share in small markets against strong
and large competitors.
Through concentrated marketing firms can achieve strong market positions in the segments or niches they
serve because of the greater knowledge of the target customers and the special reputation they acquire.
Medimix was a regional brand with a very strong South Indian presence that helped them to go for a
national launch in a latter period. The firms can enjoy operating economies because of the specialization
in production, distribution and promotion, which can give a higher return on the investments also.
Concentrated marketing strategy has its own share of risk also. Looking at the profit potential large
competitors may decide to enter in to this market, which may ultimately lead to a take over bid by the
large player in business.
Differentiated Marketing: In differentiated marketing strategy, marketers target several market
segments and design separate offers for each segment. They target several segments or niches with a
varied marketing offer to suit to each segment needs. For example, Maruti as an automobile company has
the distinction of having products for different segments. Where as its Maruti 8OO is targeted for the
upcoming middleclass, the Baleno is targeted for the upper rich class people and Maruti Omli is targeted
for large families. The main objective of offering varied marketing offer is to cater to different segments
and get higher sales with a dominant position on each segment. Developing a stronger position within
each segment creates more total sales than a mass marketing strategy across all segments. The risk
involved in this kind of a marketing strategy is in the form of extra cost in marketing research, product
development, different forecasting models, varied sales analysis, promotion planning and channel
management. Trying to reach different market segments with different promotion plan involves higher
promotion budget. Thus, the marketing manager has to decide the pay off between the higher cost and the
higher sales due to such a strategy
Undifferentiated Marketing: marketers may go against the idea of a segmented market and decide to
sale the product in the whole market. Here the marketing manager ignores the idea of segment
characteristics differences and develop a marketing program for the whole market. This approach keeps
the over all marketing costs low and makes it easier to manage and track the market forces uniformly.
Here the marketer tries to find out the commonality across the segments rather than focusing on the
differences. The company designs a marketing offer and a marketing program that will appeal to the
largest number of buyers with a mass distribution and mass advertising program. The problem of this
strategy lies in finding a common product and marketing program catering to large number of customers
with different characteristics and interests. Here the marketer finds it difficult to fight with focused
players in business.
Choosing a Product - Market Strategy
As mentioned earlier, the market coverage strategy largely depends on company's resources and ability to
cater to the market. The best strategy also depends on the product variability. Undifferentiated marketing

suits best to uniform products and commodities like petrol, steel and sugar. The product's life cycle is also
another important factor considered while selecting a market coverage strategy. At the introductory stage
of a product, the company will prefer a single product in an undifferentiated market or concentrated
market. In the maturity stage of the product life cycle, many players follow differentiated marketing
strategy. If all the customers have uniform taste, buy the same amount and respond to a marketing
program in the same way then market variability is minimum. So an undifferentiated marketing strategy is
most suitable. Every marketing manager should also look at the competitor's marketing strategy. If the
competitor is following a differentiated strategy with specific offer for distinct segments then an
undifferentiated marketing strategy will be fatal to follow in the market but the vice versa is a suitable
strategy for the marketer.
6.4 POSITIONING
After the company has decided its market targeting strategy, the next managerial challenge is to decide
what position it wants to occupy in the selected segment(s). Kotler has defined product positioning as the
way the product is defined by consumers on important attributes-the place- the product occupies in
consumer's mind relative to competing products. Thus product's position reflects important attributes
which a consumer gives to the product. It is the position in the perceptual space of the consun~er'sm ind
that the product takes in relation to competitor's products, which is often verbalized by customers on
certain attributes. Product positioning depends on market structure, competitive position of the firm and
the concepts of substitution and competition among products.
Product positioning reflects most of the features of the word position, For example, position of a placewhat place does the product occupy in its market, a rank, how does the product fare against its
competitors in various evaluative dimensions and a mental attitude-what are consumer attitudes i.e., the
cognitive, effective and action tendencies towards the given product. Therefore product positioning
should be assessed by measuring consumer's or organisational buyer's perceptions and preference for the
product in relation to its competitors.
Brand positioning involves implanting the brand's unique benefits and differences in customer's mind. A
Maggi noodle is positioned in Indian market as a convenience food, which can solve the frequent food
demand of the growing kids. Dove soap is positioned as a premium brand in the market with high
moisturizer content which can be used as a face wash also. Vicks Vapo-rub is positioned as a rub
exclusively for the purpose of cold and cough relief.
6.4.1 Requirements for Positioning
There is a high decibel of marketing communication aimed at consumers of today. They are exposed to
various level and type of communication through multiple media like newspaper, television, radio,
internet and unconventional media like fairs, festivals, exhibitions, events and outdoor media. But the
ability of the consumer to evaluate the information and remember all of them are limited by two factors.
The consumer at a particular point of time pursues one consumption goal which makes other information
redundant for him. Secondly, the ability of the consumer to process all the information is limited due to
high level of distortion and poor retention rate in consumer's memory box. So consumers are overloaded
with information in market place but consumer's intention and ability to process this information is
limited. So to simplify the buying process and reduce the mental tension consumer's group information
about competing products, and evaluate them on perceptual attributes depending on perceived quality to
create distinct position in their mind.
A product's position is the complex set of perceptions, impressions and feelings that consumers have for
the product in comparison with the competing alternatives available in the market. They position with or
without the help of the marketers. A successful marketer provides requisite information to the consumer
while the consumer is still in the process of developing a position through company's marketing
communication program. Therefore, a marketer can plan positions to his product and can create a
sustainabIe competitive advantage for the product in the selected segments. Rest other marketing strategy
can support the position that is capable of providing sustainable colnpetitive advantage to the firm. Each
firm must create a set of differentiation or unique bundle of benefits that appeals to a substantial segment
of the market place.

6.4.2 Positioning Process

A firm call decide a quaIity and price positioning in a single player situation as the customers do not have
alternatives to compare with. However, it is observed that any successful positioning decision motivates
the competitors to position their offerings in the same platform. Therefore, over a period product clusters
are formed in the market with similar offerings. Instead of creating uniqueness in offer this creates
more confusion in the customer's mind and then a new position emerges in the market. Let us take Indian
bathing soap category in to considerations, The market has more than fifty brands avaiIable in two
distinct clusters viz. the Do Good category like Margo, Dettol and the Feel Good Category like Lux, Evita
etc. Each one of these brands tries to create differentiation within the clusters by offering different brand
values. But suddenIy Fair and Lovely Launched a new categoty of shop which is a combination of Feel
Good and Do Good variety and entered in to the market with its unique offering. The success of Fair and
Lovely in the highly competitive market is attributed to identification of the competitive advantage and
developing a marketing strategy based over that. A successful positioning strategy involves three steps:
identifying a set of possible competitive advantages, upon which to build a position, choosing the right
competitive advantage and selecting an over all positioning strategy. The company must then effectively
communicate effectively and deliver the chosen position to the market.
Identifying Possible Competitive Advantages: The success of any marketing program largely depends
on understanding the needs and characteristics of the target markets and delivering higher value to the
customers in comparison to the competitor.
When the company can position itself as providing superior value to customers, then we can say that the
company has competitive advantage in the market place. If the company decides to position the product in
the market as a superior product on quality dimension, then the brand should also deliver the same to the
customers failing which there is likely to be consumer dissonance and subsequent rejection of the product
by the customers. So positioning begins with differentiating the product on actual attributes so that the
consumers will receive higher value than the competitor. A customer-oriented company can create a
differentiation at all the stages of the value chain and not necessarily at the stage of product only.
A firm call create competitive advantage by deciding on the positioning in the industry, leveraging
capabilities and neutralizing competition. The positioning in the industry is decided by identifying the
entry'barriers and attractive segments and understanding the nature of the competitive game played by
each player. The technological capabilities which the firm adopts, the reputation of the firm aid the
country of origin in the global marketing environment. The capabilities should be unique in nature so that
they will be difficult to replicate by the competitors and these capabilities should be widely applicable
across all the offerings in a multi product or service environment.
The uniqueness of the capability will provide sustainable competitive advantage to the firm. The third
aspect of creating competitive advantage is by neutralizing competition. Competition inherently has a
tendency to grow on its own as the profitability will attract new and major players to enter in to the
business and competition for existing players is susceptible to imitation. Neutralizing competition
demands a strategic perspective, which starts identifying who are your rivals in business. There may be
large number of players but the firm has to decide with whom he has to fight in the market for that
segment (identify the strategic group).
The manager should understand the capabilities of the competitors which can be neutralized through
tactics (a sales promotion program for instance) or a sustained effort is necessary to develop a strategy to
neutralize the competition .The manager should try to create barriers to the imitation of his strategy.
Let us analyze the decision of Reliance Industries to enter in to the telecom business. To create
competitive advantage and offer benefit the company invested heavily on the spread of optical fiber
network in almost large part of the country. When everybody was using GSM technology, the firm
decided to launch CDMA technology to have a technology advantage. As they decided to have an access
through WLL, they targeted a larger market with a low cost pricing strategy e.g. making a call as low as
forty paisa per minute to the customers. This created a sustainable competitive advantage for the firm as
they do not have to take the lease from the carriers like BSNL and could basgain with competing carriers
due to their own network facilitation benefit and due to technology advantage could stay at the top end of

the market with a low price structure. Reliance has used all the three methods that we have discussed for
creating competitive advantage in business of telecom in India, which needs huge investments for other
firms to copy and save the firm from the imitation of the strategy.
A marketing offer can be differentiated based on the product, services, channels, people or image. Product
differentiation is on a continuum. There are commodities that allow little variation, yet marketers can
create differentiation. Chiquita as a company markets bananas all across the globe with a differentiation
that its products are ripen on the tree and no artificial means are used for this and enjoys a premium in the
market. On the extreme, we have highly differentiated products like automobiles, furniture and consumer
durables that are differentiated for every product line and across all the manufacturers through the process
of brand communication. The firms can differentiate products based on consistency, durability, reliance
and precision.
Beyond differentiating at the physical level, firms can differentiate the accompanying services with the
product. Companies like DHL talk about speedy delivery with accuracy and lesser damage and with
convenience through home pick up for creating - a differentiation in the courier service industry. Banks
are differentiating their services based on twenty-four hour banking, ATMs, distributed customer
interaction points and internet banking facility. Firms can create competitive advantage through channel
differentiation by designing alternate channels through channel coverage, expertise and performance. Dell
computer world wide created a competitive advantage through web based direct marketing and
distribution model, which was difficult for many strong competitors to imitate in business. Real Value,
Eureka Forbes and Amway are examples of business success with channel differentiation.
People differentiation is another method for building differentiation in marketing offerings, Many
companies handle their internal customers and groom them so that they can deliver the same service with
a differentiation. Customers rate Singapore Airlines in flight services better. It needs a careful selection of
the customer contact staff that can impress upon the customers through a professional approach. Image
differentiation is also possible for firms operating at different stages of the choice
spectrum where a company or brand image should convey the product's distinctive benefits and
positioning. Development of a strong and distinctive differentiation largely depends on creative strategy
by the brand communication expert. An enduring and distinctive image positioning is possible through
consistent communication and matching product performance. The Kodak (red and yellow), The Sargam
Tea (Distinct Green), Wipro (with Rainbow and catch line 'Applying Thought') are some of the stories of
successful image differentiation in business.
Choosing the Right Competitive Advantage: After the identification of possible competitive
advantages, the firm has to decide the best suitable one over which the positioning strategy will be based
upon. Therefore, it should decide about the number of possible differences and which one in particular to
promote.
Rosser Reeves has propounded about promoting a single difference on which the company has a distant
advantage than its competitors. This strategy has come to be known as Unique Selling Proposition (USP).
In the eighties Godrej refrigerator was promoted on the basis of one selling proposition called PUF which
was unique to the brand at that point of time. While other refrigerstors were selling with glass wool
insulation Godrej introduced poly urethane foam (PUF) and had a distinctive advantage than its
competitors. As we have said, the advantage should be such that it should be difficult for the competitor
to copy, but a unique advantage always runs the risk of imitation and hence the firm will lose its
competitive advantage very soon. In the case of Godrej, the competitors Voltas from the house of Tata
and Allwyn entered in to the market with PW and then the advantage was lost. Nevertheless, buyers tend
to remember the number one always and hence the TOMA (Top of the Mind Awareness) test reveals
about Godrej being identified with PUF slogan. Other theory in marketing proposes that more than one
difference should be promoted so that the flanker differences can take over as and when the major
advantage is lost due to imitation. This strategy has come to be known as Extra Value proposition (EVP).
When the mass market is fragmented with many players and each holding a substantial amount of market
share to influence the marketing

decisions of other players, companies are trying to broaden their positioning strategies to appeal to more
segments. BPL washing machines positioning strategy is based on the fundamentals of extra value
proposition. While they talk about the fuzzy logic technology as the main advantage, still they promote
the other value proposition supporting the product superiority like rotary compressor, digital power
switching etc.
The second proposition is mostly seen in white goods industry. But as companies develop large number
of positioning differences they tend to lose unique positioning and suffer from the dilution of this
distinctiveness in the consumer's perception and risk an element of disbelief.
A manager should always avoid three kind of positioning errors. They are under positioning, over
positioning and confused positioning. Many times, it is observed that buyers carry very vague idea or no
idea about the company and its brands where as the company may be promoting the brand. This is due to
under positioning of the brand on the uniqueness platform. The company is not known for any distinctive
product or service attribute. Contrary to this, managers tend to give too narrow a picture about the
cornpany to the customers making the consumer think that the company only makes that variety of the
product. Suffola as a brand suffered in Indian market because of too a narrow positioning strategy where
as its competitor Sundrop broadened the scope of the positioning which helped the later brand to capture a
larger market share. Finally, managers should avoid the situation of confused positioning where the buyer
is left with a high level of confusion about the brand. In multi-product situations, managers tend to make
such mistakes and the positioning of the flanker brands does not stand in coherence with the master brand.
It is apprehended that the current range of Ayush toiletries will create consumer confusion for Hindustari
Lever, as they are not known for herbal formulations. They have to promote "Ayush" as a separate line of
business.
All brand differences are not worthwhile for positioning and they do not necessarily carry same meaning
to the consumers. Each difference has the potential of an additional cost of communication and an
additional benefit of revenue due to distinct differentiation. A difference should satisfy the following
criteria:
Distinctive: Competitors cannot offer or the company can offer better than the competitor can.
Snperior: The difference is superior to other ways that the customers might obtain the same benefit.
Profitable: The manager can introduce the difference with a profit.
Preemptive: Competitors cannot imitate the difference easily.
Affordable: Buyers can afford to pay for the difference.
Communicable: The difference should be communicable and visible to the buyer.
Important: The difference delivers a highly values benefit to target buyers.
6.4.3 Selecting an Overall Positioning Strategy
The product position strategy is decided by analyzing the features of the product, price, usage, etc. Let us
first learn the bases for the product positioning which are discussed below:
Alternative Bases for Positioning
Marketers use a number of alternative bases for positioning their products. While positioning a product,
specific features may be highlighted. Price and specific performance features are used usually as a basis
for positioning. Let us lean them in detail.
Positioning on Benefits, Problem Solution or Needs: In this positioning strategy, the marketer
highlights the benefits of the product to the consumer. For example, herbal cosmetics focus on natural
products, no side effects, skin friendly, etc.
Positioning for Specific Usage Occasions: Here positioning is based on specific usage occasioiis. For
example, Maggi 2 minutes noodles suggests preparation of snack as fast as possible.
Positioning for User Category: Product is positioned based on the category of the user. For example,
Raymond's 'The Complete Man'. Another example is Electrolux's fully automatic washing machine whose
users are those whose hands are cleaned, lotioned and nail polished, and they are sophisticated and
intelligent. They would consider it insulting and way below their manicured dignity to turn more than
one knob.

Positioning against another Product: Both implicit and explicit positioning strategies are used against
rival products. For example, Thomson presents "what is missing in other televisions". It focuses the
features of Thomson without naming its competitor. This is an example of implicit positioning. Another
examples are: attribute charts shown by cars and televisions which highlight their own features without
naming their competitor's name.
In the explicit positioning, the product is positioned by comparing its superior features with other
products. For example, before launch, Telco positioned Tata Indica by claiming the features as - Maruti
Zen's size, Ambassador's internal dimensions, the price of a Maruti 800 and with running cost of diesel.
Production Class Dissociation : It is a less common positioning strategy. It is effective when a
new.product is introduced and it differs from the typical products in an established category. For example,
at the brand level most successful antiproduct class positioning is that of 7-up with un-colapositioning.
Hybrid bases : In this strategy, marketers use a hybrid approach incorporating features from more than
one bases for positioning.
Consuiners will buy products and services which gives them the highest possible value among all the
available alternatives. Therefore, managers should position the brands in such a way that they offer the
highest value to the consumers. The over all effect of the brand and its full positioning is termed as value
proposition i.e. the net colnbination of all the brand benefits over which the brand is positioned. Probably
the value proposition is well ans&red by the consumer when he answers the reason of ownership of a
particular brand. The consumer's possible answer may include: the value proposition alternatives like
buying more for more money ( premium positioning strategy), more for the same ( comparable quality at
a lower pricing point), The same for less ( price performance positioning strategy), Less for much less
(lower performance at a lower price point proposition), More for less ( high value proposition).
6.4.4 Communicating and Delivering the Chosen Positioning Strategy
The managers should take the next step in comnmnictlting the selected position to the target audience.
The marketing mix should support the desired positioning communication through integrated marketing
communication. If the brand is communication talks about a specific positioning proposition then the
brand should deliver the same at trial as well as the adoption stage of the product. The marketing mix
design involves the ractical execution of the strategic brand position decision. It is easier to find a good
positioning platform but difficult to deliver the desired brand proposition as it involves coordination of
the over all marketing function. A minor tactical failure may lead to loss of position built for the brand
over a period. Rasna suffered in Indian market due to high level ofbrominized vegetable oil (BVO)
content and lost its position as the largest soft drink concentrate brand of India. Therefore, after a
company has built up the desired position, it should continue to monitor its position through continuous
brand tracking and monitoring study. It is also necessary for the brand to evolve over aperiod with
changing attitude and behaviour of the target consumer and changes in competitor's strategy. Any abrupt
changes may also confuse the consumer. Therefore, a brand's position should evolve by adopting itself to
the changing market dynamics.
6.5 REPOSITIONING
Repositioning is a critical decision in marketing. The manager can go for repositioning due to two reasons
viz. the failure of the current positioning strategy due to the three positioning mistakes like under
positioning, over positioning and confused positioning, the opening up of another positioning opportunity
due to evolution of the customers on value life cycle or emergence of new technology to redefine the
structure of competition. Brand managers normally undertake brand tracking and monitoring studies to
identify the gap between the desired positioning or stated position through brand communication alld the
perceived position by the customers. Any substantial gap in these two measures will warn the brand
managers to go for a reposition decision. Similarly, the customers and their value expectation from a
brand undergo change over a period. Brands, symbols and ideas prevalent in one period may not stand
significant at a different time due to this value migration of customers.
Therefore, a customer centric company will prefer to reposition the brand in this changing context. As we
have already discussed the technology life cycle of a product also changes with every phase of innovation
in product and its delivery to consumers. These kinds of changes demand repositiollillg of the product

offer in the changing situation. So repositioning is necessary. Repositioning will follow the same process
like that of positioning as discussed with suitable modifications on the selection of competitive advantage
in the new context.
6.6 LET US SUM UP
Managers tend to define their market in specific terms through the method of target marketing. Target
marketing involves three issues. These are market segmentation, market targeting and market positioning.
The market targeting is done to find out the exact customers and learn their characteristics and response
pattern to marketing program. By market targeting, a company can realize a higher return on investment
as the effectiveness of the marketing program will increase. A market can be targeted through three
methods. They are full market coverage, concentrated marketing and differentiated marketing. While full
market coverage talks about delivering one product for the whole market without recognizing any
significant difference in customer characteristics, differentiated marketing program regroups customers in
to distinct groups and offers specific program for each market. Once the target markets are identified then
the marketer should look in to the evaluation and selection of each segment for marketing profitability.
Then the manager should decide about thepositioiiing strategy of the firm.
The positioning strategy is an attempt by the marketer to create a situation by which the consumers will
perceive the product differentiation and brand value delivery as superior to the competitors. A positioning
decision is normally taken for creating a sustainable competitive advantage by the firm in the market
place so that the competitors call not easily imitate the strategy and hence the film will be able to generate
higher profits. While positioning the brand in customer's mind the manager should be careful about the
common mistakes of under positioning, over positioning and confused positioning. Failing in a
positioning strategy leads a manager to reposition the brand again in the market through repositioning
strategy. Brands and products need a constant monitoring in the market place so that the customer always
receives an additional value compared to competitors due to brand ownership of the manager's brand.
--UNIT 7 PRODUCT CONCEPTS AND CLASSIFICATION
In the previous two blocks you have learnt the basic concepts of marketing i.e., nature and scope of
marketing, marketing environment, marketing information and research, buyer behaviour, segmentation,
targeting and positioning. When a marketer starts his operation, he has to contend with certain
environmental forces that tend to influence his activities. To match such forces, keeping organisational
strengths and limitiltiorls in mind, he develops an overall marketing programme called marketing mix.
The marketing mix is composed of four elements viz., product, pricing, place and promotion. It is also
referred to as four 'Ps' of the marketing mix. In this unit you will study the first element of the markeling
mix - the product. You will study the meaning and essential attributes of a product, types of products,
product mix and product Line and related stralegies. The unit also explains the concept of service and
how services are different from goods, the service classification scheme, the chalIenges involved in
services marketing and the services marketing mix.
7.2 MEANING OF PRODUCT
We take steel sheet, nuts and bolts, a motor, paint, and other accessories, process them in a given manner
and our effort may result in the form of a washing machine. However, when the consumer buys the
machine, it is not simply the machine that emerged out of the efforts and things that went into it. The
consumer buys it because he has a specific want (i.e., something to aid in washing clothes) and the
comsumer is exploring a way to satisfy that want. He looks for an accepted brand name, a warranty, an
assured after-sales service, some appealing physical features and an impressive colour. Thus, marketers
should recognize that people are not simply interested in buying the physical features of the product, but
they buy to satisfy their wants. For that matler some products which people buy do not have physical
feature at aIl. Take for instance an income-tax consultant. He sells his advice which does not have any
physical features. It means, apart from physical products. we must also iilclude services within tlie scope
of our discussion.
Thus, a product may be defined in a narrow as well as broad sense. In a narrow sense, it is a set of
tangible physical aid chemical altributes in an identifiable and readily recognizable form. In a broader

sense we may look at it in the form of an object, idea, service, person, place, activity, goods, or an
organisation. It can even be a combination of some of these factors.
Let us study how 'product' is being defined by various people. According to Philip Kotler, a product is
anything that can be offered to a market for attention, acquisition use or consumption; it includes
physical objects, service,personalities, place, organization or ideas.

From the above definitions it can safely be concluded that the word product, in the context of marketing,
has a much wider connotation. It is applicable to any offering to a market for possible purchase or use. It
encompasses physical objects (e.g., a television), services (e.g., airlines), places (e.g.. lourisl resorts),
organibations (e.g., Red Cross), persons (e.g., an athlete) and ideas (e.g., flood relief aid). It also includes
supporting services e.g., design, brand, package, label, price, etc. To sum up,product is combination of
physical, economic, soc ial and psyological benefits.
Essential Attributes of a Product
Based on the above definitions, we can list out the essential characteristics of a product as follows:
1) Tangible or Intangible: It may be capable of being touched, seen and felt. For example, products like
a co~nbr,e frigerator ant1 motor cycle are tangible. At the sume time, a product need not necessarily be
tangible. It can be intangible but capalble of providing a service. For instance, reparing, hair-dressing,
insurance, etc. are intangible but provide satisfaction to the customers.
2) Associated Attributes: A product consists or various product features and accompanying services.
Thus, a product is comprised of attributes including colour, package, brand name, accessories,
installation, instructions to use, manufacturer's prestige, retailer's prestige, after sale service, etc. These
attributes differentiate the products From each other.
3) Exchange Value: A product must be capzible of being exchanged between a buyer and seller at a
mutually acceptance cost.
4) Satisfaction: It should be capable of providing,satisfactioton to the buyer; both real and psychnlogical.
As far as the seller is concerned, it should provide the much needed business benefit.
A product, therefore, can be considered as comprising of three distinct levels. At the First level is the core
product is., the core benefit which the consumers seek to buy. The second level of the product can be

described as tlie actual product. This includes the packaging, brand name, features of the product, the
design, the shape, quality etc. The third level is the augmented product. In addition to the actual product,
the provider may give additional customer services such as after sales scrvice, warranty, delivery,
installation etc.
7.3 CLASSIFICATION OF PRODUCTS
You have studied in Unit 5 that, in order to market effectively, the markets are segmented and marketing
strategies are developed for each segment. In the same way, it is also useful to classify products into
homogeneous groups, as different types of products require different marketing approach. There are
several ways of classifying products:
I ) On the basis of the user status, products may be classified as consumer goods and industrial goods.
2) On the basis of the extent of durability, products may be classified as durable goods and non-durable
goods.
3) On the basis of tangibility, products may be classified as tangible goods and non tangible goods. These
non-tangible goods are referred to as services.

Look at Figure 7.1 carefully for a detailed classification of products. These classifications are necessary
for a marketer, as different types of products require different marketing strategies.
Let us now take the following four major types, and analyse their characteristics and marketing strategies:
1 ) Consumer goods
2) Industrial goods
3) Durable and Non-durable goods
4) Services.
7.3.1 Consumer Goods
Consumer goods are those products which are bought by the households or ultimate consumers,for
personal non-business use. Consumers use the product in the form in which the product is being offered
i.e., no further processing is done. For example, a tooth brush, a comb, a wrist watch or a moped are all
meant for personal use of households use are, thus, classified as consumer goods. Consumer goods may

be classified into three types as : i) convenience goods, ii) shopping goods, and iii) speciality goods. Let
us discuss these three categories in detail.
i) Convenience Goods
A class of consumer goods that people buy frequently with the least possible time and effort are called
'convenience goods'. These are the products the consumers want to purchase frequently, immediately, and
with minimum effort. Milk, bread, butter, eggs, soap, newspaper, biscuits, tooth pastes, etc., are some
examples of convenience goods. This category of goods has a low unit price, and not greatly affected by
fad and fashion. They have two significant characteristics : 1) the consumer has complete knowledge of
the products which he wants to buy and 2) the product is purchased with a minimuni of effort.
Convenience goods are usually sold by brand name and are low-priced. Many of them such as bread, inilk
and edible oil, are staple items, and the supply must be constantly replenished. In most cases, the buyer
has already decided to buy a particular brand at a particular store and spends little time deliberating about
the purchase decision. So convenience goods must be readily available when the consumer demand arises.
To ensure this, the manufacturer must secure wide distribution.
The consumers rarely visit competing stores to compare prices and quality while purchasing convenience
goods. The possible gains from such comparisons are outweighed by the costs of acquiring the additional
information. This does not mean, however, that the consumer remains permanently loyal to one brand or
cigarette, or soap or biscuit. A consumer is willing to accept any of several brands and thus, will buy the
brand that is most accessible. Since the price of most convenience goods is low, trial purchases of
competing brands or products are made with little financial risk, and often new habits are developed.
Retailers usually carry several competing brands of convenience products, and are not able to promote
any particular brand. Therefore, the promotional burden to develop consumer acceptance for the products
falls on the manufaclurer.
ii) Shopping Goods
These are a class of consumer goods that are purchased only after the buyer has spent some time and
effort comparing price, style, quality and colour, etc. The purchaser of shopping goods lacks complete
information prior to the shopping trip and gathers information during it. For instance, a woman intending
to buy a new dress may visit many stores, try on a number of dresses, and spend time making the final
choice. She may go from store to store in surveying competing offerings and ultimately select the dress
that appeals the most to her. In addition to women's apparel shopping goods include such items as
jewellery, furniture, appliances, shoes, etc. It is important to place the shopping goods in stores located
near other stores carrying competing items, as it facilitates the customers to compare the product.
Shopping goods are typically more expensive than convenience goods.
Some shopping goods, such as children's shoes, are considered homogeneous i.e., the consumer views
them as essentially the same. Others such as furniture and clothing are considered heterogeneous i.e.,
essentially different. Price is an important factor in the purchase of homogeneous shopping goods, while
quality and style are relatively more important in the purchase of heterogeneous goocls.
iii) Speciality Goods
A class of consumer goods with perceived unique characteristics, such that consumers are willing to
spend special effort to buy items, are known as Speciality Goods. The buyer of speciality goods is well
aware of what he or she wants and is willing to make a special effort to obtain it. The nearest camera
dealer may be twenty miles away, but the camera enthusiast will go there to inspect and buy that camera.
To purchase a colour TV a person in a village may require a special trip to a nearby city which is several
miles away. Still he will go there, spend his time in inspecting several brands and finally buy a set of his
own choice. Examples of some of the speciality goods are photographic equipments, TV sets, video
players, mobile phones, automobiles, etc.
Speciality goods possess unique characteristics that cause the buyer to prefer that particular brand. For
these products the buyer possesses complete information prior to the shopping trip and is unwilling to
accept substitutes. Speciality goods are typically high-priced and are always branded. Since consumers
are willing to exert considerable effort to obtain them, fewer retail outlets are needed. Since brand is
important, the manufacturers of speciality goods advertise extensively.

This three-way classification of consumer goods allows the marketing manager to gain additional
information for developing an effective marketing strategy for the product. For instance, once the new
,food prorduct has been classified as a convenience product, you gain insight about marketing strategies
in brandig, promoting,pricing and distribution methods.
7.3.2 Industrial Goods
Industrial goods are those goods which are meant to be bought by the buyer as inputs in production of
other products or for rendering some service. The product may, thus, undergo further commercial
processing. Industrial products are meant for non-personal and commercial use. Industrial goods include
items like machinery, raw matesials, components, etc. It may be worthwhile clarifying a point that the
same product may sometimes be classified as a consumer product and as an industrial product depending
upon the end-use. Take the case of coconut oil. When it is used by a person as hair oil or cooking oil, it
would be treated as a consumer product. However when coconut oil is used in the manufacture of a toilet
soap it is treated as an industrial product. Similarly, take the case of car tyres. When it is used by a car
owner, it becomes a consumer product. The same tyre when used by a car manufacturing company, it
becomes an industrial product. Thus, many products can be treated as industrial goods as well as
consumer goods. However, the industrial buyer is cost-conscious and is concerned about the quality and
standard of the product being offered to him. An industrial buyer is not impulsive and is rational in
buying effort. Therefore, industrial goods are to be sold in a dtfferent way from consumes goods.
Depending on how the goods enter the production process, industrial goods may be classified into
following five groups.
i) Raw Materials
Raw materials are those industrial goods that become part of another physical product. Raw materials
include goods found in natural state such as minerals, marine products, land, products afforests, elc., and
agricultural goods like'cotton, fruits, milk, eggs, etc. Marketing strategies for the two categories of raw
materials are different.
First group of raw materials are normally bulky and have low unit value. They are produced by a few
large producers. Second category of raw materials (agriculture products) is produced by a large number of
sinall producers spread over a large area. Most of the second category products are perishable.
ii) Fabricating Materials and Parts
This category of industrial goods also becomes actual part of the finished product. Unlike raw materials,
fabricating materials and parts have already been processed, to some extent, but may need further
processing before actual use. For example, yarn being woven into cloth and pig iron being converted into
steel.
iii) Installations
They are manufactured industrial proclucls, e.g., a generator and a large pump set for city water supply
scheme. They alter the scale of operations in a firm, Normally, installations are directly sold to the
industrial user and ~niddlemena re not involved. Pre-sale and post-sale servicing is required for these
products.
iv) Accessory Equipment
They are used to aid production operations of an ilidustrial buyer and do not have an influence on scale of
operations of tlie buyer. They do not form part of the finished product.
v) Operating Supplies
They are low priced, short-lived items purchased with mininiuln effort and could well be termed as
convenience goods of industrial field. They aid in the firm's operations without becoming part ofthe end
product e.g., lubricating oil, stationery, etc. It may be added that the demand for industrial products is
derived, inelastic and widely fluctuating. 'The buyer is knowledgeable and their number is limited.
Because of large size of demrlnd, an industrial buyer can influence the market to a large extent.
7.3.3 Durable Goods and Non-Durable Goods
Tangible products with a long life and lusting many years of active service to owners are termed as
durable goods. Television, fan, refrigerator, pressure cooker, etc., may be cited as examples of durable
goods. A durable product would require a lot of personal selling, and pre-sales ancl post-sales service.

Such products provide a higher margin to seller but require an assu~.ecla fter sales guzuantee. Therefore
in case of refrigerators, the number of years of guarantee (particularly for the compressor) is an important
consideration when a consumer malces his final selection. If a customer purchases a photocopying
machine or duplicating machine, it is necessary for the salesman to 'follow through' and visit the customer
to see how it is installed and used. We often this product is operated by persons who may not know
how to use it. This results in poor duplication and copies look unattractive and the customer gets the
impression that the fault lies with tlie machine. So, while marketing such a product, it is important to
guide tlie actual use of the machines.
Products vvhich are consumed in on go or last a ,few uses and get depleted on cosumption are termed as
non-durable~goods. Soap, tooth paste, cigarette, soft drinks, etc., are some examples of non-durable
goods. For example, a bottle of soft drink is consumed at once on one occasion within a matter of
minutes. Soap obviously takes a little longer. However, in both these cases, the goods are consumed very
fast.
The advantage of these goods is that they are purchased very often and, therefore, there are Inally repeat
purchases once the customer is satisfied with one product. Therefore, one must ensure quality and
appropriateness of price. These are the products that have to be advertised heavily, with a view to
inducing people to try them out, and thus, build up brand preference and brand loyalty. In view of the fact
that such products are consumed very fast and require frequent purchases, they need to be made available
in a large number of sales points.
7.3.4 Services
Services are specially mentioned here because it is generally thought that marketing is related to products
alone. It should be remembered that marketing ideas and practices are equally applicable to services with
slight adaptations in certain decisional areas.
Services in content are different from products. Services are those separately identifiable, essentially
intangible activities which provide want satisfaction,and which are not necessarily tied to the sale of a
product or another service.
For example, courts offer a service. So are hospitals, the fire department, the police and the post office.
These are not products in the normal sense and yet it is very important for each of these institutions to
have an appropriate image. The police are often criticized; the fire department generally praised; the post
office criticized for delays; the hospitals perhaps criticized for negligence and exorbitant rates and so on.
It is obvious that controlling the quality of service is important for building up its image.
Apart from government or public sector undertakings, there are 'non-profit' organisations such as
museums and charities. Although non-profit, they also have to provide the best form of service for their
popularity. The business and commercial sectors which include airlines, banks, hotels, and insurance
companies, and the professionals such as chartered accountants, management consulting firms, medical
practitioners, etc. also need marketing.
7.4 PRODUCT MIX
A product mix is the set of all products and items that a particular seller offers for sale. It is also termed as
product assortment. Product .mix consists of product lines. For example, the product mix of ITC consists
of product lines like hotels, cigarettes, ready-made garments, grocery, and paper.
A company's product inix consisting of different product lines has a certain width, length, depth and
consistency. These concepts are illustrated in Figure 7.2 for selected Hindustan Lever Limited (HLL)
products:
i) Product Line: A product line is an expression generally used to describe a group of closely related
products. A group of products may be referred to as a product line either because they cater to the needs
of a particular group of buyers, or they function in similar manner or they are sold through identical
marketing facilities or fall within the same price range. The crux of the situation is that such reasoning
may be consistently used for referring to a product group as a product line. A seller may identify a
number of product lines to be offered to buyers by keeping in view the buyer's considerations, economy
of production, distribution, etc. Figure 7.2 shows different product lines of HLL viz. personal wash, oral
care etc.

ii) Product Mix Width: This refers to how many different product lines the company carries. Figure 7.2
shows aproduct mix width of six lines.
iii) Product Mix and Product Line Length: The length of the product mix refers to the total number of
items in the mix. In Figure 7.2, it is 18. We can also calculate the average length of the product line by
dividing the length of the product mix (here 18) by the number of lines (here 6). In this case average
length of product line is (18/6) i.e. 3. The length of the product line refers to the total number of product
items offered in a product line. For example, in figure 7,2 the personal wash line has the length of seven
product items and the oral care line has two product items. A product item can be defined as a specific
version of a product that has a separate brand name or designation in the seller's list.
iv) Depth: The depth of a product mix refers to how many variants are offered of each product in the line.
IS Pears comes in 2 sizes (75 gms. and 125 gms.) and four formulations (Pears, Pears Oil Control, Pears
Germ Shield and Pears Junior), it has a depth of (2x4) i.e. 8. The average depth of HLL product mix can
be calculated by averaging the number of variants within the brand groups.
v) Consistency: The consistency of the product mix refers to how closely related the various product
lines are in terms of end-use, production requirements, distribution channels, etc.

7.5 PRODUCT MIX AND PRODUCT LINE STRATEGIES

Product mix of a seller, while giving expression to its current position, is also an indicator of the future.
Thus, product mix is not a static position but a highly dynamic concept. A company may withdraw a
product from its existing mix, if the product is not contributing to the profitability and growth of the
company. Similarly, a new product may also be added to cash on some attractive opportunity that comes
its way.
Thus, the companies always attempt to maintain an optimal product mix with a view to maintain a
balance between current profitability and future growth and stability. Towards this end, a company alters
or modifies the existing product line in any of the following ways:
1) Contraction of the Product Line: When a company finds that some of its products are no more
profitable, it may decide to suspend their production. Similarly, changes in the marketing environment
inay also necessitate withdraw1 of a product. A product may also be dropped froin the product line if it is
found that the same resources used for the production of the product can be put to more profitable use by
producing another product. Decisions relating to these aspects are termed as "Contraction of the Product
Line".Thus, thinning out the product 1ine either by eliminating an entire line or simplifying the
product items within the line is called contraction of product line. This is also called Contraction of
Production Mix or Product Line Simplification. This strategy is adopted mainly to elilninate low-profit
products and to get more profit from fewer products.
2) Expansion of Product Mix: To cash on available opportunities, a company decides to expand its
present product line. It may also increase the nurnber of product lines and the depth within a line. Such

new lines may be related or unrelated to the existing product mix. For example, a company dealing in
drugs and chemicals may add products in a relatively new area like computers.
3) Changes in Quality Standards: When the market expectations undergo a change, a film may have to
react by altering quality standards of the existing products. Such changes call be brought about through
Trading Up and Trading Down.
i) Trading Up : When we add a higher priced prestige product to the existing low-priced product line, it
is termed as trading up. This strategy is adopted with the hope of increasing the sales volume of the
existing low-priced products. If conditions so demand in future, the company may increase promotional
efforts for the new product and thus add overall sales volume through the new product, thereby improving
profitability of the firm. In this manner a conipany known for low-quality products tries to raise its image
of dealing in high-quality goods on the one hand and offering an alternative to buyer to choose from. We
often hear such terms as "Janta Model" and "Deluxe Model" and this illustrates the point.
ii) Trading Down: It is the reverse of trading up. When a firm adds low quality products at relatively
lower price to its line of high priced prestige products, it is termed as trading down strategy. It helps in
widening the marketing base and results in expanding overall sales volume. Introduction of moped by a
company manufacturing motor cycles is a case of trading down.
4) Affecting Change in Modelfstyle of an Existing Product: The desire of the consumer varies with
varying times. To cope with such change in the consumer mood, a company can react by offering new
models of a product or changing the style of an existing product.
5 ) Product Differentiation: Under this strategy, a firm tries to differentiate its products from the
competitor's products or other products within the same product line offered by the company by
highlighting quality or design. This strategy is aimed at avoiding competition on price basis. The
competition is then met at non-price front and a pricewar is avoided. The firm, thus, promotes awareness
of the good attributes of the product offering. In view of the fact that this strategy involves large
pro~notionael ffort with huge financial outlays, it is also known as promotional strategy.
6) Product Positioning: As an integral part of product segmentation, after the market is segmented, it
becomes necessary to pinpoint the needs of each segment and offer products to satisfy the needs of
specific segments. This process is referred to as product positioning. It includes all activities from
identification of a market segment to directing marketing effort at it.
7) Ncw Product: In view of increasing competition, scientific advancements, enhanced consumer
expectations, it is necessary that new products are introduced. Such introduction is essential for the
survival and growth of an organisation. The rate of increase in expenditure on Research and Development
by many organisations is a clear proof of the need and realization to introduce new products.
7.6 SERVICES - MEANING AND SCOPE
7.6.1 What are services?
It is generally thought that marketing is related to products only. This perception is not peculiar to India
or developing world only. In fact, till recently services never found a place in multilateral discussions in
GAAT(now WTO) or data and information relating to services were never included in either international
or national publication. It should be remembered that marketing concepts and techniques are equally
applicable to services with relevant adaptations in certain decision areas. As mentioned earlier; services
are those separately identifiable, essentially intangible activities which
provide want satisfaction, and which are not necessarily tied to the sale of a product or another service.
For example, hospitals, universities, banks, insurance companies, transport films, fire departments, police
and post office.
To put it in simple terms, a product is an object, a device, a tangible thing; and a service is a deed, a
performance, an effort. This captures the essence of the difference between products and services.
Services are a series of deeds, processes and performances; hence tend to be more intangible,
personalized, and custom-made than products. The services offered by,SBI, LIC, IGNOU and MTNL are
not tangible things that can be touched, seen and felt, but rather are intangible deeds and
performances. Similarly, the core offerings of hospitals, hotels, and utilities comprise primarily deeds and
actions performed for customers.

Services are produced not only by service businesses such as those listed above, but are also integral to
the offerings of many goods. For example, car manufacturers offer warranties and servicing contracts, and
industrial equipment producers offer maintenance services. White goods manufachurers provide aftersales services. Even producers of items such as medicines and food items offer services to the consumers
in the form of educating them through pamphlets as to how to use and maintain the item. These are
examples of deeds, processes and performances associated with
product offerings.
Compatible with broad definitions given above services may include all economic activities whose output
is not a physical product, is generally consumed at the time it is produced, and provides added value in
forms (such as convenience, amusement, timeliness, comfort or health) that are essentially intangible
concerns of its first purchaser. This definition has been used also to delineate the service sector of the
economy.
Details of industries classified within the service sector (as presented by Valarie Zeithami and Mary Jo
Jitner, Services Marketing, McGraw Hill), is discussed below for understanding of the broad spectrum of
the services sector.
Transportation and Public Utilities
Transportation (Railroad transportation, Local and inter-urban passenger transit, Trucking a nd
warehousing, Water transportation, Air transportation, Pipelines except natural gas, and other
Transportation services)
Communication (Telephone and telegraph, Radio and television broadcasting)
Electric gas and sanitary services
Wholesale trade
Retail Trade
Finance, Insurance, and Real Estate
Banking, Credit agencies other than banks, Security and commodity brokers, and services, Real estate
Holding and other Investment
Other Services
Hotels and other lodging places, Personal services, Business services, Auto repair, services and garages,
Miscellaneous repair services, Motion pictures, Amusement and recreation services, Health services,
Legal services, Education services, Social services and membership organisations, Miscellaneous
professional services, Private household services
Federal Government
Civilian, Military
Government Enterprises
State and Local Government
Education, Other services
Though the above is not a very exhaustive listing, this should give a clear idea as to, how services
encompass a wide range of activities.
7.6.2 Difference between Services and Products
Based on the above discussion, we can identify four basic characteristics of services, that differentiate
them from products. They are : (1) intangibility, (2) heterogeneity, (3) simultaneous production and
consumption, and (4) perishability. Let us discuss them in detail.
Intangibility
The most basic difference between goods and services is intangibility. Services are performances or
actions rather than objects. Therefore, they cannot be seen, felt, tasted, or touched in the same manner that
we can sense tangible goods. The absence of tangible features means that it is difficult for the seller to
demonstrate or display services, and for buyers to sample, test or make a thorough evaluation before
buying them. For example, health care services are actions (e.g. surgery, diagnosis, examination,
treatment) performed by doctors and directed towards patients. One cannot see or touch these services,
although you may be able to see and touch certain tangible components of them (e.g. equipment, hospital
room). In fact, many services such as health care are not easy for the consumer to grasp even mentally.

Even after a diagnosis or surgery has been completed, the patient may not fully comprehend the services
performed.
Heterogeneity
It is often impossible to assure homogeneity and consistency in the service provided by a seller, because
services are peifonnances rendered by human beings. Hence no two services will be precisely alike. The
service is performed and delivered by employees (people), 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 and requires the service in a unique way. For
instance, take the case of a restaurant which is a hospitality service. One customer may prefer a crisp
Masala Dosa with sambar, while another may prefer soft Masala Dosa with coconut chutney. The cook
has to prepare and serve according to their tastes. Thus, the heterogeneity connected with services is
largely the result of human interaction between employees and customers and all of the vagaries that
accompany it.
Simultaneous Production and Consumption
Most goods are produced first, then sold and consumed while most services are sold first and then
produced and consumed simultaneously. For example, an automobile may be manufactured in Mumbai
shipped to Delhi, sold two months later, and used over a period of years. But restaurant services cannot be
provided until they have been sold and the dining experience is essentially produced and consumed at the
same time. Similarly, in travel services, the ticket has to be bought first and then the travel service has to
be availed of. Very often, the customer is present while a service is being produced ancl thus the views of
the customer are taken into account in the production process. For example, in the restaurant when one
orders for a cup of coffee, he may ask for strong coffee (more coffee, less milk) without sugar. Here the
customer has influenced the productioi~p rocess of coffee. Frequently, customers may interact with one
another during the service production process and thus may effect one another's experiences. For
example, strangers seated next to each other in an airplane may well affect the nature of the services
experience for each other.
Another outcome of simultaneous production and consumption is that service producers find themselves
playing a roie as part of the product itself and as an essential ingredient in the service experience for the
consumer.
Perishability
Perishability refers to the fact that services cannot be saved or resold or returned. A seat on an airplane or
in a restaurant, an hour of a lawyer's time or telephone line capacity not used canot be reclaimed and used
or resold at a later time. This is in contrast to goods that can be stored or resold another day, or even
returned if the consumer is unhappy. It is not easy to reset a bad haircut nor is it possible to transfer it to
another consumer. Perishability makes this an unlikely possibility for must
services.
7.6.3 Interdependence of Products and Services
Though, the products differ from services in many respects, there are so many interlinkages between
services and products in several instances. In fact, services and products complement each other in many
cases. Sales prospects of products that are in need of substantial technological support and maintenance
will be badly affected if proper airangement for service is not made. For this reason, the initial contract of
sale of a product often includes a service clause. This practice is common in the case of many durable
goods. In the case of TV s, cars, refrigerators, washing machines, etc., manufacturers provide free after
sale service for a cerlain period.
Similarly, the sale of computer hardware is critically linked to availability of proper servicing and
software. Sellers of capital equipment often enter into maintenance contracts with buyers. These are some
instances of services complementing products. Similarly products also complement services. For
example, an airline cannot exist without airplanes. Without rooms, furniture and kitchen equipment, a
hotel cannot provide hospitality service. In the same way, hospitals (health care service)
cannot provide services without using tangible products such as operation instruments, testing equipment,
medicines, hospital buildings, etc.

There is an increasing recognition of this complementary nature of services and products. Manufacturing
based industries (such as automobiles and computers) are recognizing the role of service in improving the
competitiveness of a product. In many industries providing quality service is no longer simply an option.
The quick pace of developing technologies makes it difficult to gain strategic competitive advantage
through physical products alone. Customers not only expect high quality goods, but also expect high
levels of service along with them. Companies are realizing the need to focus on service to keep pace with
rising customer expectations and to compete effectively. Similarly, various services sectors are depending
on quality products to improve their service quality. Good hospitals use the latest technical and testing
equipment, hotels provide well furnished rooms, TV channels use the digital transmission equipment,
banks use the A TM equipment, airlines use most comfortable airplanes, etc. Thus, continuous product
improvement and service improvement are simultnneously going on in many sectors.
Michael Porter in his book, 'The Competitive Advantage of Nations' identified three distinct links
between manufacturing and services as explained below:
i) Buyer/supplier Relationship: Many service industries have come into existence through the deintegration of service activities by manufacturing firms.
An automobile manufacturer may outsource number of service activities like transportation, warehousing,
marketing research, legal services, education and training of its employees, information Processing etc.
Service industries depend a lot on manufacturing firins for a significant share of their sales.
ii) Services Tied to the Sale of Manufactured Goods: Sale of a wide variety ' of manufactured goods
creates demad for associated services. The sale of consumer durables require ongoing need for servicing,
sale of computers leads to demand for training services and after sales services, exports of any
mannfactured goods would require sale of insurance, financial services and transport services.
iii) Manufactured Goods Tied to the Sale of Services: This link is reverse of the previous one. The sale
of certain services leads to demand for manufactured goods, for example, sale of engineering or
management consulting from a nation can lead to demand for equipment and other associated
manufactured goods from that nation. Also provision of a service requires a lot of manufactured
goods.
7.7 SERVICE CLASSIFICATION
A large number of classification schemes for services have been developed to provide strategic insights in
managing them. Utilizing different bases, these schemes allow us to understand the nature of the service
act, the relationship between service organization and its customers, the nature of service demand and the
attributes of a service product. Let us discuss the schemes briefly.
1) The Nature of the Service Act
Using the two dimensions of tangibility of the service act and to whom services are directed at, Lovelock
classified services according to whether services are directed at people or possessions, at minds, physical
possessions or assets. Table 7.1 will help you understand this classification scheme.

2) Relationship between Service Organisation and Customers

In the service sector both institutional and individual customers may enter into continuing relationships
with service providers wd opt for receiving services continually. Services can therefore be classified on
the basis of whether the nature of the relationship is continuous or intennittent and whether a consumer
needs to get into a membership relationship with the service organisation to access and utilize the
service.

3) How the Service is Delivered

I
Lovelock has used two issues of number of delivery sites (whether single or multiple) and the method of
delivery to classify services in a 2 x 3 matrix. The implications here are that the convenience of receiving
the service is the lowest when the customer has to come to the service and niust use a single or specific
outlets. .As his options multiply, the degree of convenience can go on rising, from being able to choose
desirable sites, to getting access at convenient locations. (Table 7.3)

4. Proportion of Tangibility and Intangibility

Using the characteristic of intangibility of services, Shostack proposed that all goods and services can be
placed on a tangibility intangibility continuum, with services clustering towards low to high intangibility.
Accordingly, services call be classified as those with a low intangibility content (a fast food restaurant)
and a pure service, having very high intangibility content (education, consultancy, medical advice).
5) Service Inputs

Services based on this criterion have been classified as primarily equipment based or primarily people
based service depending upon which input is primary applied to get service outputs. The equipment based
services can be further classified according to whether they are fully automated, or consist of equipment
monitored by unskilled persons (lift operators, delivery van personnel) or need the presence of skilled
personnel to man the equipment (quality control, diagnostic services).
6) Contact between the Consumer and the Service Provider
Services also differ in the extent of contact that needs to be maintained between the User and Provider;
the marketing implication in this case being the necessity of physical presence of the provider as well as
need to manage desired quality of personnel in case of high contact services. On this basis all services can
be classified as high contact or low contact services, depending upon the time a user needs to spend with
the service organisation/provider in order to utilizelacquire the service.
Examples of low contact services are telecommunications, drycleaning and broadcasting while high
contact services are education, hospitality, theatre performance.
7) Profit and Public vs Private Services
Service can also be classified on the basis of whether they are primarily directed at public at large or
primarily at individuals. The public services include utilities and infrastructural services like transport and
communication. They also include services provided by the state for public welfare like hospitals,
educational and vocational institution, parks and museulns etc. The private services on the other hand
include the whole gamut of services designed for and consumed by customers as individuals e.g.,
restaurants, beauty care and medical advice. The implications underlined by this classification manifest
themselves In issues regarding planning and design of service for public vs. private consumption.
Involved here are issues of process, volume and distribution of services when they are designed as public
services. Services have also been classified by Kotler as services designed for profit and non profit
services, depending upon the marketing objectives to be pursued in the exchange of services.
7.8 CHALLENGES IN MARKETING OF SERVICES
The traditional marketing mix is composed of the 4 Ps viz., product, price, promotion and place
(distribution). These elements appear as core decision variables in any marketing plan. All these four
variables are interrelated, and there is an optional mix of the four factors for a given market segment at a
given point of time. Though, conceptually marketing of services is no different from marketing of
products, the strategies of the 4 P's, however, require some modifications when applied to services.
Because of the significant differences between goods and services, marketers of services face some
distinctive challenges. Such challenges revolve around understanding customer needs and expectations,
and the efforts to keep promises made to customers. The basic differences between products and services,
and the associated marketing implications, are shown in Table 7.4

Intangibility presents several marketing challenges. As services cannot be inventoried, fluctuations in

demand are often difficult to manage. For example, there may be very huge demand for hotel
accornmodation in Shirnla in summer as against low demand in winter. Yet, hotel owners have the same
number of rooms to sell year round. Services cannot be patented legally. Hence, new service concepts can
be easily copied by competitors. Since services cannot be readily displayed on easily communicated to
customers, it may be difficult for consumers to assess the quality of a particular service before use.
Decisions about what to include in advertising and other promotional materials may prove challenging, as
is pricing. The actual costs of a unit of service are hard to determine and the price-quality relationship is
complex. As services are not tangible, it is not possible to provide snrnples and significant physical
evidence. The physical evidence of services includes all of the tangible representations of the service sucli
as brochures, letterhead, business cards, report formats, and equipment. These physical evidence cues
provide excellent opportunities for the film to send consistent and strong messages regarding the
organisation's purpose, the intended market segment, and the nature of the service.
The intangibility of the service reduces the marketers' ability to provide samples. This makes
communicating the service offer iiiuch Inore difficult than communicating a product offer. Brochures or
catalogues explaining serviccs often must show a "proxy" for the service in order to provide the
prospective customer with tangible clues. A cleaning servicc for instance, can show apicture of an
individual removing trash or cleaning a window or even a photograph of a clean room. However, the
picture will not fully succeed in communicating the quality of service.
As services are heterogeneous,ensuring consistent service quality is challenging. Further, quality depends
on many factors that cannot be Fully controlled by the service supplier, such as the ability of the
collsumer to articulate his or her needs, the presence (or absence) of other customer, and the level of
demand for the service etc.
Because of these complicating factors, a marketer is often not sure whether the service is being delivered
as originally planned and promoted. An associated problem is that, unlike in the case of products there is
no objective yardstick to determine the quality of a service. Laboratory tests can establish the quality of a
product but the quality of service is dependent on the perception of the customer.
Since services often are produced and consumed simultaneously, mass production is difficult, if not
impossible. Moreover, it is not usually possible to gain significant economies of scale through centralized
production. Usually operations need to be relatively decentralised so that the service can be delivered
directly to the consumer in convenient locations. Also because of simultaneous production and
consumption, the customer is involved in and observes the production process thereby affecting
(positively or negatively) the outcome of the service transaction. Some customers can cause probleins in
the service setting, leading to loweriilg of customer satisfaction. For example, in a cinema theatre, one
person misbehaving with other audience can create negative experience to the entire audience and may
become a dissuading factor next time.
As services are perishable, they cannot be stored for future consumption. Hence, demand forecasting and
planning for capacity utilisation are challenging decision areas for marketers. The fact that services
cannot typically be returned or resold implies the necessity for strong recovery strategies when things do
go wrong. For example, while a bad hair cut cannot be returned, the hairdresser should have strategies for
recovering the customer's goodwill when such a problem occurs. The hair dresser may, by refunding the
charges collected from the customer, perhaps, recover part of the goodwill lost.

The role of personnel deserves special consideration in the marketing of services. Because the customer
interface is intense, proper provisions need to be made for training personnel. Major emphasis must be
placed on appearance and behaviour. Most of the time, the person delivering the service (rather than the
service itself) will communicate the spirit, values.and attitudes of service provider. All human actors who
playa part in service delivery influence the buyer's perceptions and provide cues to the customer regarding
the nature of the service itself. How these people are dressed, their personal appearance, their attitudes
and the way they interact with customers, all influence the customer's perceptions of the service.
Therefore, the role of service provider or contact person is very important.
The areas of pricing and financing require.special attention. Because services cannot be stored, much
greater responsiveness to demand fluctuation must exist and therefore, much greater pricing flexibility
must be maintained. Hotels offering discounts in room tariff during off seasons is part of the flexible
pricing strategy. The intangibility of services also makes financing more difficult. Financial institutions
are less willing to provide financial support to services than for products. This is because of three reasons:
(a) the value of services is more difficult to assess, (b) service performance is more difficult to monitor,
and (c) services are difficult to repossess.
Therefore, receiving payments may be much more troublesome for a financier in the case of services than
products. This poses a challenge to the marketer of services in procuring finances.
Usually, short and direct channels are required for marketing of services. Closeness to the customer is of
overriding importance in order to correctly understand what the customers want, to reach them fast with
minimum cost;to monitor the flow and utilization of services, and to assist the construct in obtaining a
truly tailor made service.
7.9 THE SERVICES MARKETING MIX
The unique characteristics of services make the traditional 4 P marketing mix seem inadequate. Careful
management of these 4 Ps -Product, Price, Place and Promotion though essential, are not sufficient for
successful marketing of services. Further the strategies for the four Ps require some ~nodificatioiwl hile
applying to services.
Since services are produced and consumed simultaneously, the contact personnel or the service delivery
personnel become extremely important. It is during these encounters of service providers and custoiners
i.e. the process - on which a lot depends with regards to the final outcome as well as the overall
perception of the service by the customer. The actual physical surroundiiigs during these encounters have
also a substantial bearing on the service delivery. All these facts lead to the development of an expanded
marketing mix with three new P's added'to the traditional mix. These are:
People All hurnan actors who playa part in service delivery and thus influence the buyer's perceptions;
namely, the firms's personnel, the customer, and other customers in the service environment
Physical evidence The environment in which the service is delivered and where the firm and customer
interact, and any tangible components that facilitate performance or communication of the service.
Process The actual procedures, mechanisms and flow of activities by which the service is delivered - the
service delivery and operating system
Because of the simultaneous production, delivery and consumption of services, the nature of marketing
departments and marketing functions become quite different as compared to goods. The marketing
function - all activities which influence the preferences of the consumers towards the offerings is mainly
handled by marketing departments in case of goods. Here as far as consumers are concerned, marketing
departments (the organisational entity which is responsible for some, but not necessarily all marketing
activities performed by the firm) can plan and implement most of the marlteting activities i.e., the
marketing department is able to control almost the total marketing function. In the service sector the
situation is entirely different. A traditional mnrkcting department in services can only control a minor part
of the marketing function. Usually, it does not have the necessary authority to manage the buyer/seller
interaction. The marketing department therefore, cannot plan and implement activities pertaining to
interactive marketing function.
Therefore the marlteling ti~nctionw, hich is a key fiinction in service sector require a special lreatment.
The total marketing in services include three different types of marketing as shown in Figure 7.3 .

As can be seen from the triangle, the traditional marketing rnix and marketing departments basically
address to 'External Marketing' only. However, all three sides are critical to succesbful services marketing
and the triangle can't be supported in the absence of anyone of the sides.
7.10 LET US SUM UP
A product is any offering to the inarket for possible purchase or use. It encompasses physical objects,
services, places, organisations, persons and ideas. Essential attributes of a product include tangibility or
intangibility, associated with some attributes f& being identified and accepted, should have exchange
value and should provide satisfaction.
Products may be classified in many ways. Based on the user status, products can be classified as
Consumer goods and industrial goods. The goods which are bought by the households or ultimate
consumers for their non-business personal consumption are called consumer goods. Consumer goods may
be further classified as convenience goods, shopping goods and speciality goods. Industrial goods are
those products which are meant to be used by the buyers as inputs in production of other products. They
can be classified into raw materials, fabricating materials and parts, installations, accessory equipment,
and operating supplies.
We can also categorise tangible products into durable and non-durable depending upon the period during
which a product is used by a cons,umer. Services are those separately identifiable, intangible activities
which provide want satisfaction, and which are necessarily tied to the sale of a product or another service.
A product line is an expression generally used to describe a group of closely related products. Product
mix refers to all the products offered by a firm and has different components, viz. width, length, depth and
consistency. Product line strategies are: I ) contraction of product line, 2) expansion of product line, 3)
changes in quality standards, 4) changes in model and style of an existing product, 5) product
differentiation, 6) product positioning, and 7) new products.
The term service is rather general in concept and includes a wide variety of services. Services are
essentially performances. Marketing of services needs a different treatment because of the unique
characteristics of services that distinguish them from products. These characteristics are intangibility,
heterogeneity, inseparatability and perishability. Due to these characteristics services marketing includes
three additional marketing mix elements viz. People, Physical Evidence and Process.
UNIT 8 PRODUCT DEVELOPMENT AND PRODUCT LIFE CYCLE
The rate at which "new" products are introduced in the market, has, in recent years, accelerated and
simultaneously "old" products are disappearing from the market very fast. Why is it happening? Why
should companies spend resources on introducing so called "new" products with such high frequency?
What are the risks involved in product developinent? How do the companies decide that the time has
come for introducing "new" products? Is any scientific process involved in developing a "new" product?
This unit seeks to address these issues.

8.2 PRODUCT INNOVATION - MEANING, TYPES AND IMPORTANCE

The term "innovation" means "bringing in novelties" or "making changes". As far as "product innovation"
is concerned, it covers a wide range from making minor or major changes in the existing product to
introduction of substitute products or totally new products. It is true that it is not easy to claim any
product as totally "new" since the idea for a new product originates trom the existing products. That is
why it is advised that a company should define its business in broad terms i.e. it is in "dental hygiene
business" and not in "tooth paste or tooth powder business" or in "transportation business" and not in
"bicycle or automobile or rail road businessW.Defined this way, no product can be construed as a "new
product". As far as business is concerned, a "new product is one which the target consumer segment
considers new" in the sense the consumer feels that the need is met by the "new product" cannot be met
by any other substitute product at a particular point of time.
Why do companies go in for new products? A simple answer to this question is "to meet the changes in
environment". The changes can encompass one or more of environment factors viz., competitive
environment, technological environment, cultural environment, political environment, legal environment.
Thus, to meet competition, which has come out with a better product or fearing that competitors may
introduce, in the market, a new product, companies go in for new products. Technology may open up new
avenues in the form of better raw materials or better production process or better management, opening
opportunities to make better products; the likes and dislikes of consumers may change forcing changes in
the type of products to be produced; government and other policy formulating and enforcing authorities
may make it obligatory for a company to make changes in the existing product.
The above are all external environment factors forcing the firm to bring about changes in the product.
However, an enlightened conlpany should be always on the look out, as a policy, for opportunities for
product innovation, instead of waiting for it to be forced into it by external factors because, this way, it
will not only pre-empt competition, but will also be able to build up an image of a firm always tlying lo
meet changing market requirements.
What are the alternatives available to a firm to make changes in its existing product? The company can
consider improving the functional quality of the product and project the "new product" as one of better
quality. This change call be brought about by use of better quality inputs andlor better engineering as and
when it is possible. This option is advised if quality is the major consideration in the purchase of the
product and the market is a quality conscious market. High unit value consumer items and engineering
and chemical items normally fall into this category.
Another option for the company is to change the product features i.e. increasing the number of real or
fancied benefits of the product by redesigning so that the new product offers more functions,
convenience, safety, etc. Iteins like refrigerators, television sets and washing machines fall into this
category. The features frequently added to products such as cell phones, automobiles and two-wheelers
are common knowledge.
Changes are also brought about in the style of the product to make it appear new. In this case, what is
attempted is to improve the aesthetic image of the product as against the functional appeal. Highly
personalized products like garments, footwear, handbags and luggage, which are not high unit value
items, undergo such changes frequently. Shows such as summer wear and winter wear shows that are held
regulariy for garments, for instance, bear this out.
Product "innovation" or "change" does not end with the above. It encompasses a larger area. On account
of availability of improved technology, it may be possible for a company to "replace" the existing version
of the product with another version, which meets the same requirement of the consumer, but with more
ease and convenience. For instance, a brand of tooth powder may be replaced by the same brand of tooth
paste, ground coffee by instant coffee, tea leaves by tea bags and
shaving cream by shaving foam etc. These are instances of "adaptive replacement". Introduction of
substitute products for the existing product is also a case of product innovation. Replacement by ball pens
of fountain pens and pencils is a good example of this strategy. This has been made possible by
technology. Substitution of steel by plastics in Inany products also falls in this category. The point to be

noted is that the new products meet the same requirement of the consumer much better and, perhaps, at
cheaper cost, though they involve use of different raw materials and different
production processes.
In all the above types of innovation, the new product need not necessarily be "new" to the company or to
the industry. The competing firms, or, even the concerned firm itself, may be selling such versions of the
product in other markets. What is important is that the target market must consider the product "new". It
is common knowledge that most products are first introduced in a limited number of countries/limited
parts of a country and then they are taken to other countries/other parts of a country.
8.3 PRODUCT DEVELOPMENT PROCESS
It is very important for a company to be constantly on the look out for opportunities for product
development for long time survival and prosperity in today's fast changing competitive environment. It
should not be lulled into complacency even if it is the monopoly producer and seller of a product, for the
present. For, competition may not emerge ftoln another producer of the same product but ftom other
sources. For example, jute is facing competition trom synthetic fibres aid technological
developments like bulk handling techniques; steel is facing competition from plastics; minerals such as
copper used in telecom~nunicationa re facing competition trom plastics and fibre glass and, most
importantly, from cell phones which use air waves; a monopoly producer of tea lnay not have another tea
manufacturer to compete with him but a coffee or aerated drinks manufacturer; cane sugar faces
competition from beet sugar and sugar substitutes. Thus, it is always in the interest of a company to be at
least one step ahead of other companies and introduce a "new product" before the competitors do it. It
will also project the company as the "leader".
What then is a systematic way of going about for product development? Figure 8.1 presents the step-bystep process involved in product development.
8.3.1 Idea Generation
Product development exercise commences with sourcing for ideas. Ideas can come from any source and,
in fact, some even the most unlikely source. The most important source is, of course, the user of the
product. The problems faced by the consumers in the use of the existing version of the product will throw
up ideas for product development. For instance, the problem posed by the heaviness and large size of the
tape recorder gave birth to Walkman. Similarly, distributors, retailers, employees of
the company, friends and relatives, independent researchers and consultants or, for that matter, anyone
can be a source for ideas. Incidentally, in a number of cases, competitors have proved to be a good source
for ideas because, a close watch on their products and the problems faced by users of those products has
thrown up a number of ideas. What is important is that the management must encourage ideas and keep
its eyes, ears and mind open for ideas.

There should be a deliberate policy to generate and encourage ideas and reward the successful idea
providers. Some formal system such as institution of an "idea bank" may be considered in this regard.
Some of the commonly used methods of generating new product ideas are Brainstorming, Focus Group
Interviews and Attribute Analysis which are briefly discussed below.
Brainstorming:it is a poplular creative technique with a Long track record. It was first developed in 1938
by A.F. Osborn and gained acceptance by the business world in the 1950s. Brainstorming aids in idea
generation by encouraging the creativity latent in many of us. It irlvolves meeting, usually of a group of
six to ten people, where participants are free to express any and all ideas they concoct.
Focus Groups: The conducting of focus group interviews is very much like that of brainstorming. But the
members of the group are consumers (rather than employees of the firm) and, usually, are decided on by a
market research agency. That is to say, focus group interviews can be thought of as brainstorming with
consumers/potential consumers.
Attribute Analysis: By decomposing existing products into combinations of specific parts, qualities, or
attributes, Attribute Listing (or Analysis) seeks to modify one or more of these to improve the whole
product. Although Attribute Analysis may not produce major breakthroughs, it can undoubtedly aid in
"remarketing" - "new" and "improved" products -and possibly in product differentiation.
Besides the above methods, scanning trade publications, visiting trade shows, setting up an idea vault in
the organization and allowing employees to review the ideas, surveying customers etc. are some of the
other means of generating new product ideas.
8.3.2 Idea Screening
Once a reasonable number of ideas have been generated, the next job is to screen them by a group
representing as many interests as possible, such as management, labour, marlceting, finance, consumer,
research.and development, engineering, etc. Such a screening enables the idcas being loolced at from
various angles and the implications of conversion of an idea into a product analysed, such as the nature
and extent of resources to be committed, the irnpact of product development on labour, the problems
likely to be faced ill production and sales, etc. At this stage, some ideas may get rejected totally, some
accepted "in toto" and some accepted with modification. Some ideas may be referred back to the idea
givers for modification, seeking clarification, etc.
Screening of new product ideas is essential for costs and risk of developling new products run very high.
Once a product reaches the market place, what is done cannot be easily undone. Screening criteria usually
concern themselves with three factors - mnrlcets, products, and finances. More frequently used 'market
criteria' are market size, share; market growth; market positioning; distribution features etc. The
'product-criteria' are newness, feasibility; servicing requirements; legal considerations etc. The 'financial
criteria' are profitability return on investment; cash flow etc.
8.3.3 Concept Development
The approved idea must now get transformed into a specific product concept with a complete picture
regarding the new offer of the company. This means spelling out, in clear terms, details such as tlie
profile of the target consumer segnlent, the specific want that is sought to be met, the differences between
the product presently being used by the consumers and tlie new product, particularly its positive
attributes, the likely impact of the new product on tlie company's image and on the other products
of the company, etc.
8.3.4 Business Analysis
Thc foregoing analysis is carried forward in the next stage, with detailed appraisal of the proposal
including sales forecasting, estimation of costs, prices and profits at different sales levels, the possible
retaliatory strategies of the competitors and the company's likely response to the same etc. Since all the
above cannot be estimated with total precision and, in any case, a number of assumptions are involved in
the exercise, it is generally the practice to work out different sets of figures under different ilssumptions
and so long as the final performance falls within an acceptable range, the utility of this exercise is
established.
8.3.5 Engineering Development and Marketing Strategy Development

During this stage, tlie technical personnel i.e. the engineering department responsible for production,
work on conversion of the approved idea into a product, with all the suggested attributes. At this stage,
anyone of the three possibilities exist; the engineering department lnay meet with total success in
manufacturing the product, or it may. meet wit11 total failure, or it may be able to come out with a
product that may not fully, but only partially, reflect tlie original idea.
Simultaneously with engineering development, the comnpany also develops the marketing strategy in
terms of branding, servicing, packaging, pricing, distribution and promotion. Individuals and groups
within the firm are identified for specific assignments and the sequence of events is worked out.
8.3.6 Test Marketing
Once the prototypes of the product are ready, the company does not go in for carnmercial production
immediately. Though all care might have been taken till now to come out with a product that meets the
present needs of the consumer, it is advisable to "test market" before commencing commercial
production. Test marketing is selling the product underconditions, in a market, which, to the extent
possible, reflect the conditions likely to prevail in the market, at the time of commercial sales. Test
marketing will enable the company to get feedback on its offer so that the drawbacks can be rectified
before commercial production. Test marketing will also provide information on the likely level of sales
that the product can generate during commercial sales. However, the company should guard against two
problems during test marketing; one,..it should ensure that competing firms do not benefit by advance
information on the company's strategy which may enable them take effective preemptive measures and
two, test marketing should not raise the expectations of the consumers too much because, if the company
is not able to rise to the expectations subsequently, its sales will be badly affected.
8.3.7 Commercialisation
Test marketing is the last stage before a company takes a decision regarding whether to go ahead with
commercial production or what modifications are still required in the product or to drop the exercise
totally. Once it is decided to proceed to the next stage, it should initiate steps for commercial production
of the product. It is advisable to keep the time lag between test marketing stage and commercial
production stage to the barest minimum since, if the time lag is large, there are possibilities of changes in
environmental factors such as government policies, the country's laws, technological factors, consumer
choices etc., which may make the entire exercise futile. It should also be emphasized that the company
should have the guts to abandon the product development exercise at any stage if circumstances so
warrant, notwithstanding the fact that the investment made so far would go waste, since proceeding
further will only add to the losses.
8.4 CHARACTERISTICS OF PRODUCT DEVELOPMENT
Two aspects of product development merit mention. One, product development must be treated as a
continuous process, which does not have a beginning or an end. This means that a company should not
wait till the product sales stagnate or decline to commence product development exercise. Even if the
sales are increasing and, in fact, as soon as a particular version of the product is introduced in the market,
the company should initiate action for coming out with the next version of the product as early as
possible. The motto should be "nothing is perfect; there is always scope for improvement". The second
aspect, which is equally important is, success in product development is possible if only there is
concurrency and healthy inter-relationship in all the functions of a firm. Product development should not
be construed as the responsibility of any one department or one group or limited number of departments
or limited number of groups of persons in a company. On the contrary, it encompasses all departments
and the entire staff of a company, from the lowest level to the top management, should get involved in the
exercise and the activities of each department should be geared to the requirements of the other
departments and viceversa.
The idea givers and evaluators should take into account the strengths and limitations of the company and
should not give utopian ideas; those who are in charge of converting the idea into a product should strive
to meet the requirements of the market as conveyed to them. Profit is a function of total efficiency and not
sectional efficiency and no weak link in the chain should be allowed to snap the chain.

Risks in Product Development: Though, for long term survival in the market and prosperity, a firm
should definitely go in for product development, it is, by no means, an easy job. It is important that a
company, before it embarks on product development exercise, is aware of the risks it is likely to face
during this phase.
First, the exercise involves substantial commitment of resources, depending on the nature and extent of
the development that has to be brought about in the product. The firm should be cleal; right at the
beginning, whether it can marshall the needed resources for the exercise. Apart from the resources to be
spent on bringing out the new product, more resources have to be employed to successfully market the
product.
The second risk relates to the nature of research and development. There is high wastage rate in research
and development and it is quite likely that, even after spending the resources, a company may not succeed
in coming out with a "new product" meeting its own perception. This means that the firm has to abandon
its efforts and the resources spent till then are dead investment.
The third risk arises due to tlie fact that markets all over the world are not generally favourably inclined to
accept new products easily. The failure rate of "new products" is very high. Failure does not inean that not
a single unit of the product was sold; it means that the sales turnover was not sufficiently high to justity
continuation of production.
8.5 WHY NEW PRODUCTS FAIL?
Why is the rate of failure of "new products" very high? The obvious answer is that the "offer" has not met
with the customer requirement in terms of any one or more than one valuable. This arises because either
the company has not read the customer mind correctly or the customer wants have changed in the
meantime or the company has not fully siicceeded in translating the custoiner requirements into its offer.
Specifically, the Fdilure may be traced to one or more of the following factors:
Product: Product factors such as functional quality, size, shape, colour, design, materials used in its
production etc. of the product not upto customers' requirement
Package: Functional quality, the material used in the package, size, shape, colour; design, and
instructions on the package including the languages used, disposability or reusability of tlie package,
compatibility with the product, aesthetic appeal, ease of opening and closing the package etc., determine
acceptability or otherwise of the package and, along will1 it, the product.
Label: The size, colour, language(s) used, shape and material influence customer preference.
Brand: Brand name and brand logo are, along with trademark, major considerations in purchase
decisions.
Service: Pre-sale, point-of-sale and after sales service play a major role in the purchase, particularly of
high unit value durable consumer goods and capital equipment. Before buying a product, the consumers
want to be educated about it and how to maintain and use it; they also desire that the seller should install
the product ancl train them to maintain it and finally they want quality after sales service at reasonable
cost at a time and place convenient to them for a reasonable length of time. If a company fails in ally of
these, the product fails.
Distribution: Selection of inappropriate channels and outlets, lack of motivation among distributors,
inconvenient location of distributors and poor service quality of distributors are some of the problems
associated with the failure of the product.
Pricing: Product quality-price relationship not being optimal, nonavailability of credit for high unit value
items, lack of incentives such as price discounts, and frequent price revisions cause product failure.
Promotion: Selection of inappropriate promotional tool, non-availability of effective promotional tool,
communication m istakes, poor literacy level of the market, nonavailability of capable promotional firms,
problems in personal selling and sales promotion lead to poor communication with the customer affecting
product sales.
Environment: Changes in environment - technological, legal, competitive, cultural, political -which could
not be anticipated in advance and provided for, lead to product failures.
8.6 PRODUCT LIFE CYCLE (PLC)

It is generally said that products are like human beings; they are born, grow (in sales), fall sick
(declinelstationary sales) and ultimately, in most cases, die (disappear from the market). New generation
of products replace their earlier ones. Pencil has been replaced by steel pen; fountain pen by ball point
pen; mechanical typewriters by electric typewriters, electronic typewriters and computers; blister packs
have replaced glass bottles in pharmaceutical industry; dial telephones have been replaced by push button
phones, chordless phones and cell phones; letters, as a means of long distance comm~~njcatiohna, ve
been replaced by telegrams, telephones, telefax and electronic mail. The entertainment sector has seen
many products, such as radio, tape recorder, walkman, television, VCP, VCR, DVD, CD-Rom, cable TV
etc.; washing bar soaps have been replaced by cakes, synthetic detergents, powders and liquid soaps, Such
examples are too many to warrant exhaustive listing. The above fact has been conceptualized in the
product life cycle (PLC) concept.
Figure 8.2 is a useful reference for the PLC concept, indicating the different stages a branded product
normally passes through in its life.

The above figure has been drawn in terms of four stages but a five stage PLC or a seven stage PLC can be
thought of. The reference in the above figure is to a brand (of the product) and not to the generic product.
Just as a brand (a particular. company's product) passes through a life cycle, a generic product (of the
industly as a whole) also has a life cycle. Industry life cycles are long as compared to the life cycle of a
branded product. For a firm, what matters most is the life cycle of its own branded product although if the
generic product as a whole dies, its own brand will also die.
Figure 8.2 refers to a typical product life cycle. It does not mean that all the products/brands have to
necessarily pass through the typical life cycle. The shape of the life cycle curve will vary from product to
product and from brand to brand. It may have a steep rise and sudden fall; or slow rise, long maturity
period and slow decline; or it may move up and down; it may be long or short; generally for low
technology low unit value items and fashion goods, the life cycle tends to be short, in a seller's market
and for a high technology, high unit value item and for "necessities" for which no effective substitutes
exist, lhe life cycle tends to be long.
Thus, the concept of YLC can be made applicable to all types of products and all brands. Competitors are
always on the look out for opportunities to cut into the market share of a successful product; they try to
wean away the customers with "better" offers in terms of product, package, brand, service, price,
promotion and distribution. Even so called "necessities" are "necessities" only at a particular point of
time: petrol may be a necessity today; but alternate sources of energy may pose challenges to petrol at a
future date; a particular foodgrain, such as rice or wheat, may be a necessity today to a consumer group,
but changes in food habits may lead to decline in demand for rice and/or wheat after some time; same will

be the case for other 'food' items such as beverages, sugar, vegetable oils, pulses, etc.; agricultural raw
materials such as 'cotton and jute, which were considered as "necessities" not long back, are facing
cotnpetition from synthetic products today; minerals such as iron ore and copper are being challenged by
plastics, fibre glass and technological developments; technological developments have also enabled
production of low weight and slnall sized products, resulting in reduced demand for raw materials. Thus,
just as some human beings and animals enjoy long life as compared to others, in the product category
also, "necessities" may have a longer life as compared to others.
What a company should, however, be concerned with, is the life cycle of its own brand (or product), even
if'it belongs to an industry that is producing a "necessity" for, it is quite likely that its own brand may be
in the decline stage notwithstanding the fact that the industry (product) is in the growth stage,
What are the characteristics of a four stage PLC as depicted in figure 8.2 ?
Introduction Stage: During the stage of introduction of a new brand modified product, sales tend to be
low. This is because majority of consumers, being what they generally are, do not have any high degree
of awareness and are known, by and large, to be reluctant to quickly switch over to a "new product" if
they are not highly dissatisfied with the brand they are presently using; only such of those consumers,
who are not many in number, who, generally, are quick to "experiment" with new products and whose
awareness level is relatively high, try out the new offer by the company. On account of the low sales
level, profits are likely to be low or even negative. This is also the time when the competitors, like
consumers, come to know of the new offer of the company and watch the response of the market to the
new offer before initiating retaliatory strategy.
Growth Stage: Assuming the company's new offer does not die in infancy and has found customer
awareness and acceptance, the sales graph rises slowly. It may register a steep rise in the case of
fashionlfad items or during periods of temporary shortage or emergency. Demand for "face masks" rose
rapidly throughout the world during April-May 2003 when the fear of Severe Acute Respiratory
Syndrome (SARS) hit most countries. Similarly, during earthquakes, floods and other calamities,
demand for medicines, clothing and building materials rises shai-ply. Barring the above exceptions, a
"typical" growth in sales will be a slow growth. This is the stage in which sales will grow maximum,
profits will touch peak levels and the market size will be the largest. In view of the foregoing three
characteristics, competition will also be growing during this stage.
Maturity Stage: By now, all those who have found the company's offer acceptable, have started using
the new product. Many rival companies have also started putting their strategies in place, trying to wean
away the custoiners by their "better offers".
Sales of the company are characterized by stagnation or, at best, a very slow growth. Though the market
size is still the largest, profits will show a tendency to decline since the company may have to resort to
price cutting on the one hand, and spend more on promotion, distribution, etc. on the othel; to maintain
the sales level.
Decline/death Stage: If no action is initiated by the company to ensure maintenancelgrowth of level of
sales, or if the action taken does not succeed, then the product sales start declining after some time since
the inajority of consumers, as they switched their loyalty from other companies' brands to this brand
during the earlier stages, start switching their loyalty once again, this time in favour of the "better
offers" made by other films. There may still be some laggards favouring the company's product; those
who were late in the beginning to accept the product generally are also late in dropping the product. Sales
being low, other things being equal, profits also start declining during this stage and, at some point, may
even turn negative forcing the company to discontinue production.
8.7 IMPLICATIONS OF PLC ON MARKETING STRATEGIES
What do all the above mean to a company? During the introduction stage, the company must deploy
various techniques so that the product does not meet with early death. It should try to build up awareness
among the target group about the "newness" of the product, its attributes etc. and provide attractive
incentives to both consumers and distributors through "introductory offersw involving price discount and
sales promotion. The company should spend rather heavily on promotion and target its strategy to
"innovative" customers. Taking into account only price and promotion, four strategies are possible during

the introduction stage. These are Rapid Skimming (high price and high promotion level), Slow Skimming
(high price and low promotion level), Rapid Penetration (low price and high promotion level) and Slow
Penetration (low price and low level of promotion).
During the growth stage, the compruiy should attempt to take maximum advantage of the rising demand.
All activities in the colnpany should be geared to take advantage of the demand growth. Under no
circumstances production should be found wanting and orders should be met immediately. Logistics
should be streamlined so that the product reaches the ultimate consumer with minimum time loss and at a
place where lie wants it. Promotion must ensure that brand insistence is built UP and, though a loyal
customer base may make a marginal price rise easy, complacency should not be allowed to set in, just
because the sales volume is high. It should shift from product awareness advertising to product-preference
advertising. The prices tend to be lowered in the growth stage to attract the next level of price-sensitive
buyers. In terms of product, product quality is improved, new product features are added and new models
are introduced. It must also be remembered that success invites competition and the companys should be
ready with preemptive action to meet competitors' challenges.
It is during the maturity stage that the company should intensify its efforts to counter the problems posed
by stagnating sales. Stepping up promotional efforts, particularly in terms of sales promotion directed
both at the consumer and distribution; increased allocation to adverlisemenl, rise in margins and other
incentives to distributors, price cutting, discounts, etc. are some of the strategies normally adopted by
majority of companies. Most importantly, this is the time when "life cycle stretching strategies" should be
put into practice by the finn. "Repositioning" of the product in tune with the changed environment is one
of the strategies adopted by some companies. For instance, most companies in cooking oil business have
repositioned their products in recent years highlighting, to the health conscious consumer segment, the
cholesterol free attribute of their product; condoms have been repositioned, the emphasis shifting from the
original one of "family planning" to "safe sex". Marketers should, therefore, consider some of the
following points to avoid or postpone the decline stage:
i) improve product quality
ii) add new product fealures resulting in extra benefits
iii) find new uses or new user segments
iv) reposition the product
V) give incentives to distribution channels
vi) expand distribution intensity
vii) improve advertising and sales effort.
When it is reasonably certain that no successful life cycle stretching strategy can be put into practice or,
the strategies attempted have not brought in the desired results, the company should think in terms of
withdrawing from the market either partially or fully, so far as the present version of the product is
concerned, at least momentarily.
Since overall profits become low or even negative during this stage, the firm should undertake a detailed
review of revenue and costs, segmentwise, and take a decision regarding total or partial withdrawal. This
is not an easy decision to take but it must be remembered that "product elimination" is as much a part of
product development as product introduction or modification is for, unsuccessful products only add to the
company's losses.
What is'the basic philosophy behind PLC? The philosophy is "anything that is born in this world must die
one day"; "nothing is perfect and there is always scope for improvement". An enlightened company must
shoot down its own product before the competitor shoots it down; "a company must mess with success or,
otherwise, success will mess with the company".
8.8 LET US SUM UP
Product decisions are more basic than decisions in respect of other marketing variables, When a company
claims that it has introduced, in the market, a "new product" it does not necessarily mean that the product
is a totally innovative one. A "new product" may mean an existing product with minor or major changes
or it may be a totally new one in the sense that the market has not been exposed to it earlier.

What is important is, the consumer segrnent should feel that no close substitute exists for the product at a
particular point of time.
Companies go in for new products because of the changes in environment political, social, cuhural,
economic, competitive, technological, etc. Changes in quality, features, style, adoptive replacenlent and
introduction of substitute products are all part of the exercise to impart "newness" to the product.
Product Development (PD) exercise is answer to the company's search to impart newness to the product.
The exercise begins with generation of ideas and follows a course comprising idea screening, concept
development, business analysis, engineering and marketing strategy development, test marketing and
Commercialization. In the entire exercise, it must be ensured that all activities towards product
development run concurrently and there is healthy interrelationship among various departments of the
firm. PD should be considered a continuous exercise with no beginning or end. The risks in PD must also
be kept in view.
Though, basically, failure of a new product can be traced to the company's offer not meeting consumer
requirements, a combination of factors relating to all marketing variables and environmentiil changes,
which have not been provided for, contribute to product failures.
Most of the products pass through a life cycle comprising, introduction, growth, maturity and decline
stages whether they are necessities, high unit value items, low unit value items or fad items. A company
should accept this fact and not only fornlulate strategies appropriate to each stage of the product life cycle
but attempt to find out ways and mans of slretching the life cycle of the product as much as possible. If it
does not succeed in stretching the life cycle beyond a point and finds sales decline setting in, it should not
hesitate to eliminate the product.
UNIT 9 BRANDING, PACKAGING AND SERVICING
You have understood that a product that is offered to the market has various levels. The first level
comprises of the core benefit of the product for which the consumer pays. A market opportunity analysis
leads to identification of the core benefit and expectation of the consumer. Then the physical product is
developed at the next level called tangible level. This level involves styling, featuring, branding,
packaging and labeling of the product. The augmented level of the product, the third level, involves
the after sales service and issues related to product support services like warranty and guarantee. You
have completed your study on definition of product, classification of Products, product line strategies,
new product development process and product life cycle in units 7 and 8. In this unit we will discuss in
detail about tlie second level and third level of the product offer namely branding, packaging, labeling and
product support service issues. We will learn about how the branding decisions are taken and how the
product packaging and labeling serves various key functions for consumers and marketers.
9.2 BRANDING
9.2.1 Meaning and Importance
Brands are valuable to organizations and consumers. Their wealth generating capabilities result from the
way organizations seek to add value to customer lives. Products need names, as we do, as it will help the
consumer to have an instant recall at the point of purchase. This serves as a key differentiator in business
that provides immediate attention and subsequent perception of value among customers. Brands are
clusters of functional and emotional value. The traditional branding strategy speaks about initiating the
process of branding by starting a brand name decision and then building the benefits around tlie brand
name for customer to remember the brand name whenever he is confronted with buying situations.
There are various methods by which we can give a brand name to a product. Deciding a brand name for a
new product being introduced is a strategic decision. Traditionally brand management has focused
externally, seeking to understand customer behavior from which a unique rnix of values is derived to
enhance customer life styles. The l-udimentary method of branding evolved the idea of using the family
name or the product range as tlle method of branding like Tatas, Birlas, Godrej soaps, Yamaha RX 100,
RX200 etc. It seems the function that brand was supposed to perform was either to indicate tlie source or
tlie origin of the product or indicate the product range. However, branding has emerged as one of tlie
most important elements of the marketing strategy in the recent times and will become more and more
crucial as the competition intensifies in India. With the growth of services sector- and the importance of

service in product based brands, customers' increased level of interaction with staff provide them with a
powerful clue about brand values. Let us understand what the conceptual meaning of the term brand and
brand name is.
Brand: A traditional 1960 American Marketing Association (AMA) definition describes a brand as a
name, word, mark, symbol, device or a combination thereof, used to identify goods or services of one
seller and to differentiate them from those of competitors. The definition clearly focuses on the function
of a brand, that is, to identify, irrespective of the specific means emp toyed for the identification. David
Aaker defines a brand in a similar meaning adding that it signals to the consumer the source of the
product atid protects the consumer and the producer from the competitors who would attempt to provide
products that appear to be identical. A modern definition talks about the delivery of certain value to the
consumer and hence a brand is a mental patent that gives certain set of functional and emotional value to
the consumer in a uniclue way which are not found with another brand.
Lesle de Chernatony has developed a brand spectrum to facililate the appreciation of the variety of
interpretation is of what a brand is. He groups these interpretations of brand into three categories. Tllese
three categories are based on whether the perspective is input based i.e. stressing branding as a particular
way managers direct resources to influence consumers, or output based i.e. consumer's interpretation is
and consideration of the way brands enable consumers to achieve more; and time based recognizing their
evolutionary nature. He concluded that brand consultants did not have a single definition of a brand, but
rather regarded the concept of a brand as a link between the firm's marketing activities, consumer
perceptions of functional and emotional elements. Brands are complex offerings that are conceived in
brand plans but ultimately theye reside in consumer's mind. Brands exist by virtue of a continuous process
whereby tlie coosdinated activities across the organization, concerned with delivering a cluster of values,
are interpreted and internalized by customers.
Brand Name and Logo: Brand name is the face of a brand consisting of a word, letter, group of words or
letters that can be vocalized. Comparing this definition with that of a brand, it is found that the function
remaining the same, brand name is only one of the means that the bsand can use for identification. Brand
name is a word or a combination of worcls/lctters that is pronounceable, e.g. Promise toothpilste, Rexona
soap etc. Brand as a logo is unique to that product as a product design and signage. Examples of brands
easily identifiable include theunique shape of Coca Cola bottle, the distinctive rainbow mark of Wipro,
the golden arch of McDonalds, part eaten apple of Apple Macintosh. A Brand mark can be a design, a
distinctive logo type or a colouring scheme, a picture etc. In other words, it is not just a name but a means
of identification.
Brand as a Legal 1nstrument: Branding is significant from a legal perspective. It is used for ensuring a
legally enforceable statement of ownership. Brand building represents an investment and organizations
seek legal ownership of title as protection against imitators. Though brand name and trade name are used
synonymously, there is difference between these two terms. A trademark is the legal version of a brand.
Brand falls under tlie category of industrial property rights and therefore, subject to certain rules and
regulations.
It can be registered and protected from being used by othes. The American Marketing Association defines
a trademark as a brand that is given legal protection because, under the law, it has been appropriated by
one seller. Therefore, we can define a trademark is a brand or a part that is given legal protection because
it is capable of exclusive appropriation. Trademark is essentially a legal term. All trademarks are brands,
but a brand can be called as a trademark only when it is legally protected and has been appropriated by
one seller. As all trademarks are brands, a trademark may include words, letters or numbers that can be
pronounced and also may include pictorial design (brand mark). When a hand is registered, it becomes
trademark and such trademark is shown by clisplaying the letter R enclosed in a circle.
9.2.2 Advantages and Disadvantages of Branding
We have already explained that branding is a mental patent as it promises certain amount of value to the
customers. Brand serves as an assurance to the customer about product performance. Brand helps
customers to identify the product in the shelf and also in their decision making. Brands which are symbols
of status and social significance give psychological satisfaction to the consumers. Brand also serves as a

medium of social stratification as it reflects a person's choice and social class due to specific usage.
Brands are used as a tool for product differentiation by the seller. It helps to create a niche for the brand
through this differentiation. Over a period of time the brand enjoys a monopolistic advantage due to the
brand name with a loyal set of customers.
Brands also help for the overall improvement of product quality in a society through healthy competition
to offer better product benefits to customers. They help in better dissemination of product knowledge
which helps the consumers to make decisions on rational basis and improves the efficiency of use of
scarce resources in the society. Branding is not free from the critique of creating disadvantages for the
customers.
Brand building is an expensive procedure for which the average cost of the product goes high and in
many instances this is passed to consumers and leads lo a higher cost of the final offering. It is also felt
that consumers become loyal to established brands and may not be willing to shift to new brands.
This,may ultimately prevent the new producers form entering the market and the manufacturer may
develop a tendency to compromise on the quality over a period of time due to the strong brand Image.
There is also a scope for one-dimensional price enhancement by the lnanufacturer due to high loyalty rate
with consumers. Brand building involves a huge expenditure by the firm and if this fails then the brand
can not sustain the pressure of these expenses and in many situations a higher budget may not lead to
building a stronger brand. As the expenses to retain the brand in customers mind increases, it becomes
unsustainable to sell the brand at a lower price.
9.2.3 Branding Decisions
Branding has moved from the domain of tactical marketing to strategic marketing as it has the ability to
sustain a business and provide long term value to customers. Following are some of the decisions that a
brand manager has to take with regard to brand selection and it's positioning in business
To Brand or Not to Brand?
Whether to brand a product or not is a decision which can be taken only after considering the nature of the
product, the type of outlets envisaged for the product, the perceived advantages of branding and the
estimated costs of developing the brand. Historically, it is found that brand development is closely
correlated with the increase in disposable income, the sophistication of the distribution system and the
increasing size of the national market. The same trend is visible in India now. Even few years back,
nobody could have thought of selling branded rice or refined flour.
But now several firms in the recent past have become successful even in such product categories. The
basic reason is that the consumers are willing to pay more for uniform and better cluality product
represented by the brand. When customers buy a branded product, they get the same quality in whichever
retail shop they go.
Many other commodities, such as spices are also now being branded. There is no doubt that this trend will
become stronger in the coming years.
Brand Sponsorship Decision
The question of sponsorship of a brand refers basically to the decision as to whether it should be a
manufacturer's brand (also known as a national band) or a private brand (also known as private label) orpartly manufacturer's brand and partly private brand. In most developed countries where large chain
departmental stores dominate the retail distribution system, retailers buy the products form manufacturers
and sell them under their own brand. This is a growing phenomenon in Indian context as we see
emergence of organized retailing with large chain storcs corning up in different product categories.
Mother Diary, Ainul, Pantaloons, Big Bazaar, Shoppers' Stop, Life Style, Kids Kemp, Cross Roads are
some of the upcoming super marltets and chain stores marketing exclusive and extensive product
categories.
Brand Quality Decision
Since the brand delivers a higher value than a commodity, perceived quality is a critical decision. The
matrix of such attributes will decide Ihe product positioning. A marketer has the option to position his
product at any segment of the market viz. top, bottom or the intermediate.
Individual Branding Vs. Umbrella Branding

You have to decide whether to adopt an umbrella brand or individual brand. Under umbrellil bl-anding all
the products gel the same brand name. This is also called family branding. Godrej, Vidoecon and L&T
follow this kind of policy. One basic advantage of using the Family brand is that it reduces the costs of
product launching and promotional expenditure substantially. The firm has to promote only one brand,
which, if successful, would be able to sell the entire product line. Lining up the distribution channel
members also becomes comparatively easier. A family brand name has been found to be very cost
effective marketing. If one product does exceptionally well, other products marketed under the same
brand enjoy the success of this brand.
It is however, necessary to be cautious in following family branding. It will be a very ill-advised strategy
if the products being offered are of highly uneven quality. It may not also be a good strategy if tlie
markets are quite dissimilar in terms of consumer profile. A greater weakness of this strategy is that it
does not recognize that each product can be given a specific identity by a suitable brand, which can go a
long way to make it successful. Similarly the research says that the equity enjoyed with the master brand
not always get translated in lhe same way to the other brands. A company sometimes identified with one
brand and when this brand name is given to other product categories, there can be confusion on
customer's part to believe that the same brand is available in other product categories also.
Under the individual branding each product is given a different name. For example, Hindustan Lever sells
its products under different brand names like Rin, Surf, Lux, etc. The weakness of family branding
becomes the principal strength of individual branding strategy. Recenl consumer researches have
established that a name can have varied associations and conjure diverse images. These psychological
factors can immensely influence the buying decisions. The second advantage of this strategy is that if
there is a product failure in one product category, its damaging effect will be limited to that particular
product only and will not extend to the entire product line of the company. The basic disadvantage of
individual branding lies in the economics of developing an individual brand. It is obviously a costlier
strategy than the other.
TO take care of these problems, some firms follow a slightly modified strategy. This involves using
individual brands but also giving prominence to the company name or logo in all promotional campaigns
as well as in product packaging. For example, Godrej follows individual brand strategy but displays
prominently the works 'Godrej Evita or Godrej Locks'.
In many cases a brand extension strategy is adopted. This really is an effort on the part of the
manufacturer to secure additional mileage from a particular successful product for launching either
similar or even dissimilar product under the same brand. A recent successful example is the decision to
introduce Wills clothing range from the Wills Cigarette class. Similarly, Surf has extended its name to
Surf Excel, Surf Excelmatic also.
Brand Portfolio Decision
A firm may decide to have several brands of the same product which to some extent are competing with
each other. The basic reason is that, at least in the consumer products, various benefits and appeals and
even marginal difference between brands can win a large following. Similarly the brand manager can
decide about the combination of brands that the company should offer to the customers. Though
Hindustan Lever Limited has a bigger portfolio, they are concentl-ating on few brands in their portfolio as
power brands, which will give rich dividend to the company in future.
Brand Repositioning Decision
Brands also undergo through an ageing process and the customers correspondingly move in the value life
cycle. So unless the brands are rejuvenated they will not enjoy the market position what they were having
in the past. Over the life cycle of a product, several market parameters may also undergo change such as
introduction of a competing product andlor brand in the same category, shifts in consumer preferences,
emergence of new needs, etc. All and each of such changes call for an evaluation as to whether the
original positioning of the brand is still optimnl or not.
Stagnating or declining sales also point to a need for reassessment of the original brand positioning. For
example, Lifebuoy has been repositioned several times in the recent past, from the health segment to the
sports segment and now in beauty segment through Lifebuoy plus extension.

9.2.4 Selecting a Good Brand Name

One of the difficult tasks in marketing is finding a suitable brand name for the product. This is so from
two perspectives. The primary being the one that says that the name should be one, which satisfies several
marketing criteria. Secondly, the name should not be one, which is already being used by another firm.
This necessitates extensive investigations. A brand can be defined as a composite set of beliefs in the
minds of consumers.
Conventionally a brand name is supposed to indicate the product's benefits, be memorable and help in
reinforcing the belief in the consumer's psyche. The name has to be unique to rise above the clutter.
However when unique names become run of the mill, then suddenly a simple name becomes a hit and
people remember this name. A simple brand name will be effective only if the overall brand personality
supports the "I am different brand promise". Brand names have to be relevant to the category
and audience also.
There is no simple solution lo the problem of selecting a brand name. However, through exlensive resewch and past experiences, market researchers have developed certain principles which should be followed
while selecting the brand name. Following are the general traits of a brand:
I . Acceptable to the social settings
2. Easy to recognize
3. A brand name should reflect directly or indirectly some aspect of the product viz. benefit, function, etc.
4. A brand should be distinctive, especially if there is a higher clutter in the category
5.A brand name should be easy to pronounce.
6. It should be easy to memorize and recall
7. It should be such that it can be legally protected, if necessary.
Brand building is an expensive exercise and it takes a long time to create a successful brand. It is
observed that many competitors lake advantage of the situation and try to imitate the brand which rnakes
brand managers to provide legal protection to the brand through trademark registration.
9.2.5 Elements of Brand Management
There are four elements of brand management namely brand identity, brand image, brand position and
brand equity. You should understand the differences between these four terms and apply them to your
business decision situations. We will discuss these four terms from brand commnunication perspective.
Brand Identity
According to David Aaker brand identity is a unique set of brand associations that the brand strategist
aspires to create or maintain. These associations represent what the brand stands for and imply a promise
to customers from the organization members. It helps in establishing a relationship between the brand and
the customer by generating a value proposition involving functional, emotional and self expressive
benefits. It consists or twelve dimensions around four perspectives. The brand as a product (product
scope, product attribute, quality/value, uses, users, country of origin), brand as an organization
(oganizational attributes, local vs. global), brand as person (brand personality and brand customer
relationship) and brand as a symbol (visual imagery metaphors and brand heritage). Brand identity
structure includes a core and extended identity. Core - the central, timeless essence of the brand-is most
likely to remain constant as the brand travels to new markets and products. The extended identity
includes brand identity elements organized in to a cohesive and meaningful grouping that provide texture
and completeness.

Brand Image
In simple words, what the customer perceive about the brand is called the brand image. A brand may
aspire to commuricate lot wdny things through its brand conimunication strategy but what the customers
receive and perceive as the brand is termed as the brand image. It is a combination of brand associations
and brand personality. It includes a set of brand associations usually structured in a logical fashion.
In understanding brand image, it is important to see and understand if consumer see themselves as 'fit' for
the brand and vice versa. As there is a high level of brand clutter, many brands enjoy similar kind of
image and brands in the consideration set having a higher fitness get preference over others. Brand
personality helps define the personality of the brand as a combination of different traits that people tend to
associate with the brand. For example Horlicks is perceived as a great nourisher whereas Boost is
perceived as an energy drink of the sportsman due to its typical positioning and celebrity endorsernent.
The brand image of' Amritanjan' Balm is that of an all puspose balrn where as that of Vicks Vaporub as a
cold balm applicable mostly to the children. These kinds of fit are well planned by the brand manager that
leads to the creation of brand image in the minds of customers. In summary brand personality determines
whether the brand and the audience are made for each other or not. Psychologically audience try to build
up some comparison and conclusion between own personality and that of the brand.
Brand Position
After the decision of the brand identity and the value proposition leading to the development of brand
image, implementation of a branding strategy begins. The next task is to establish communication
objectives and plan the execution strategy. The beginning of an execution strategy is the brand position
statement. Brand position is the part of the brand identily and value proposition that is to be actively
communicated to the target audience and that demonstrates an advantage over competing brands. When a
brand position exists, the brand identity and value proposition can be developed fully, with texture and
depth.
There arc three places to look at within the brand identity system to identify elements for including in the
bl-and positioning statement. One is the core identity statement which explains the central, timeless
essence of the brand. The most unique and valuable aspects of the brand are often represented in the core
identity. So brand position should include the core identity so that the brand communications do not stray
way from the brand's essence. Secondly, a brand position can be based on a point of leverage that is not
necessarily in the core identity. Sub brands, features or service can become a point of leverage. Thirdly, a
customer related benefit is part of the value proposition and forms a basis for brand customer relationship.
For example, the positioning statement of Titan as a 'Tata product" explains the core identity as a part
of brand positioil stateinent whereas the brand positioning statement of DHL courier explains about the
servlce component with 'No body delivers like us' . The BPL washing machine with fuzzy logic
technology explains higher value propositions compared lo all other washing machines and serves as a
positioning statement.

Brand Equity
Brand equity is a set of brand assets and liabilities linked to a brand, its name and symbol that add to or
subtrrtct from the value provided by a product or service to a firm and/or to that firm's customers. If the
brand's name or symbol should change, some or all of the assets or liabilities could be affected and even
lose significance in business. These equity componenls can be grouped into five categories namely brand
loyalty, name awareness, perceived quality, brand association in addition to the perceived quality and
other proprietary brand assets like patents, trademarks, channel relationships.
To simplify the definition we can conclude that it is the incremental that the customer is ready to pay for a
brand in place of a commodity. It is the additional premium charged by the marketer that the customer is
ready to pay when confronted with a buying situation betweenra commodity and a brand. It is simply the
price premium that a cornpany can charge to customers or the irnpact of the name on customer preference
or stock price movement or future earnings or a combination thereof.
9.3 PACKAGING AND LABELING
A package is basically an extension of the product offered for sale. Sometimes the package is more
important than the product it contains as it contains the product and protects it till the consumer is ready
for the consumption or use. Some marketers even call packaging a 'fifth P', along with product, price,
promotion and place. As stated earlier, however, all the marketers consider packaging as an element of
product mix.
9.3.1 Meaning and Functions of Packaging
Packaging is necessary to deliver the product to the consumer in sound condition. For example, one needs
a bottle for delivering shampoo or a box with moulded shock absorbing padding to protect delicate
electronic precision equipment. The requirement here is purely technical; the container has to be designed
to be most efficient at containing and protecting the product. In recent years, particularly as self service
has become a predominant feature in most distribution chains, the packaging of a product has become a
major element of the promotion of that product to the potential consumer. Packaging requirements
therefore include:
Product Description: The pack must convey to the potential consumer not just what the product is, but
what it does; in terms of the benefits it offers- the promotional message. This ]nay be conveyed by words,
but for the most impact graphics and over all design are usually chosen to deliver the main, initial
message. The potential buyer is expected to read these messages in a few seconds and probably at a
distance of three feet or more.
Product Image: The packaging must also match the required image, so that the boxes for expensive
jewels look expensive themselves-so much so that one almost hates the waste of throwing the packaging
away.
Product Value: The pack is often designed to make it contents look more than they really are. Those
apparently 'artistic' designs should show the value of the content also
Shelf Display: The pack should be designed to make the most of the shelf space available which may
mean making the pack loolc more compact as possible, so that more can be placed in the shelf. Stakability
so that the shelf can take several layers of the product is another feature of a good packaging.
Packaging as a function consisls of two distinct elements, (i) the positive aspects, viz., the science and
technology related to package design, selection of packaging materials, etc, and (ii) the behavioral
aspects, viz., the art of product design which is associated with consumer motivation research, buying
research, etc.
The second aspect is highlighted in another definition of packaging 'Properly designed, the package
sbould enhance the value of its contained product, and impart that impression, either directly or subtly, to
the customer'. The role of packaging in value enhancement is increasingly becoming important in
consumer marketing today.
In marketing, packaging is defined as the activities of designing and producing the container or wrapper
for a product. The container or wrapper is called the 'package'. According to Philip Kotler and Gary
Annstrong, the packaging may include up to three levels of material. The primary package is the product's

immediate container. If you consider a toothpaste, the tube holding the toothpaste is the primary package.
The secondary package is the card board material that protects the primary package and that is thrown
away when the product is about be used. The shipping packaging is the packaging necessary to store,
identify, and ship the product (a carton in this case, which contains hundred toothpaste units). Finally
labeling is part of packaging and consists of printed information appearing on or with the package.
To summarize the key functions of packaging we can say that packaging should perform the following
basic functions: it should (1) protect, (2) appeal, (3) perform, (4) offer convenience to the end-users, and
(5) be cost-effective. We will now discuss these five key functions of packaging.
I ) Protection: The primary function of packaging is to protect the products from the environmental and
physical hazards to which the product may be exposed in transit from the manufacturer's plant to the
retailer's shelves and while on display on the shelves, The specific types of hazards against which
protection has to be sought would obviously vary from product to product. However, the principal
hazards, which are almost universal, are:
i) BreakageIdainage due to rough mechanical or manual handling during transportation.
ii) Extremes of climatic conditions which may lead to melting, freezing, etc.
iii) Contamination, either bacterial or non-bacterial, such as by dirt or chemical elements.
iv) Absorption of moisture or odors of foreign elements.
v) Loss of liquid or vapors.
vi) Pilferage during transit or storage.
2) Appeal: The package is increasingly being used as a marketing tool. The importance is also increasing
clue to the changed structure of retail business, especially the emergence of self-service stores. In the case
of consumer products, package serves as a silent salesman. This is true, irrespective of whether the
products are a luxury, semi-luxury or an ordinary everyday use product, The following characteristics
have been identified to help a package pel-fonn the self-selling tasks:
i) The package must attract attention
ii) The package must tell the product story
iii) The package IIIUSL build confidence
iv) The package inust look clean and hygienic
v) The package must be co,lvenient to handle, to carry out, to store and to use
vi) The package must reflect good value
Packaging, however, is of greater importance in the case of certain specific types of articles. Industrywise studies in several countries show that packaging cost in the cosmetics industry is much higher than
other industries. This excessively high incidence is not due to the packaging, which is required for the
protective function, but for making the product attractive, a status symbol and
ego-satisfying. Other products such as chocolates in gift packs also are instances where packaging
performs a basic marketing function by making the products more appealing.
Consumer research on packaging concentrates on two aspects, which have an influence on consumer
purchase decisions. The first one is color and the second is the package or container design. Almost all
researchers have come to the conclusion that each color has its own distinct characteristics and, therefore,
has to be used in a package so that there is no mismatch between what is expected
of the package and the color used in the packaging.
One additional problem in this area is that people in different countries display divergent color
preferences, due to their diverse socio-cultural-religious backgrounds. Similarly, research is carried out
on the desirable properties of a container. Slender and cute containers are often used for beauty-care
products for the feminine sex, as these are expected to create an appropriate image of
the product. Graphics and Logo types are also impostant in designing and conveying the total product
image.
3) Performance: This is the third function of a pacliage. It must be able to perform the task for which it is
designed. This aspect becomes crucial in certain types of packaging. For example, an aerosol spray is not
only a package but also an engineering device. If the package does not function, the product itself
becomes totally useless.

4) Convenience: The package must be designed in a way, which is convenient to use. It should be
convenient not only to the end user but also to the distribution channel members, such as wholesalers and
retailers. From the intermediaries standpoint the convenience relates to handling and stocking of
packages. The specific attributes the intermediaries would seek in a package are:
i) The package must be convenient to stock
ii) The package must be convenient to display
iii) The package does not waste shelf-space.
iv) The package must retain its looks during the shelf-life
V) The matter of the package/cartons should be easy to dispose of
Because of the increasing concern with solid-waste disposal, the last factor has assumed importance in the
developed countries and is also a growing concern in a populated country like India with less civic
intervenlion for waste management. From the standpoint of the domestic or institutional end users, the
convenience would refer to the ease of using the package, such as opening and closure of the package, the
repetitive use value, disposilbility etc.
5) Cost-effectiveness: The package finally must be cost-effective. Packaging cost as a percentage of
procluct cost varies dramatically from one industry to another, from less than one percent in engineering
industry to more than ten percent in the cosmetics industry. It is important to appreciate that while
analyzing packaging costs, it is not enough to consider only the cost of paclcage. Cost in this supply chain
includes:
i) Package costs incurred in inward delivery to the factory when the product is purchased from outside
ii) Storage and handling costs of the empty packages
iii) Filling cots, including quality control and handling of f illed packages
iv) Storage costs of the filled packages
V) Transport cost for distributing filled packages
vi) Insurance cost for the transit period
vii) Losses due to breakage/spoilage of the product
9.3.2 Packaging Industry
An understanding of the packaging industry is necessary to fully appreciate the packaging revolution that
has occurred in the consumer and industrial goods sectors.
The packaging industry consist primarily of two distinct segments: I ) firms which manufacture the
packaging materials, viz,, tin, paper, plastics, etc, and 2) firms engaged in the formation of packaging i.e.
converting the packaging materials into unit/master packages. In addition there are other firms engaged in
the printing of labels to be used in the unit/master packages, and the marketing research agencies which
conduct specialised packaging research, generally for package development and adaptation.
Newer materials are constantly emerging in the packaging field and in many cases have eliminated or
threatened the older materials such as wood and steel, because of the relative cost advantage or better
performance characteristics. The important packaging materials today are:
I . Metals Aluminium, tin, plate and steel
2. Plastics - PVC, HDPE, etc
3. Wood -Wood and cellulose film
4. Paper - Paper, board, corrugated board, etc
5. Glass - Clear, tinted etc
6. Laminates - Aluminum foils, plastic film etc
7. Polyester PET
9.3.3 Packaging Strategies
We have already mentioned that packaging plays a greater role in the promotion of the product. It serves
the core function of protection and also provides information to the consumers. With the increase in the
large number of self service retail outlets where the consumers make a choice by themselves packaging
provides ample opportunity to communicate various sales promotion schemes for enticing customers to
go for a buy. For example, Colgate Dental Cream is always perceived in a red color package. When the
company decided to go for a sales promotion program of giving 20% extra for every purchase of a 100

grams toothpaste, it brought a yellow strip marked with 20% extra on red as a promotional tool which
could catch the attention of the customer on the shelf immediately compared to a full fledged
advertising campaign where every toothpaste manufacturer gives something as an extra value proposition.
So product package often plays an important role in implementing sales promotion campaigns. Some of
the widely used promotional packaging techniques include
1) Discount Pack: A 'flash' in distinctive colour is superimposed on the package, announcing the special
price discount being offered. This is the most widely used form.
2) Coupon-Pack: A coupon of certain values, either as a part of the package or placed separately in the
package, can be redeemed after the purchase of the product.
3) Premium Package: A premium package can take three fonns. If the premium accompanying the
product within the package then it is called in pack premium. If it accompanies the pack as a separate unit
then it is called with pack premium, A coupon on the pack allowing a discount is called on pack premium
package.
4) Prime Packaging: A specially made package having either a re-use or prestige value is referred to as
prime package. Instant coffee packed in glass tumblers having colours is an example of the first type. The
set of watches presented by Titan for the married couple in a gold plated package called "Bandhan" is an
example of a prime pack.
5) Self-Liquidators: The buyer has to send to the company a number of packages or part thereof as
evidence of buying the product in return, he may purchase additional quantity of the same product at
reduced prices or be rewarded with a different product. Several companies in India, in the processed
food like Maggi and Top Ramen and Sargam Tea occasionally use this technique.
6) Redesigning of the Package: Introduction of a new package can also be used as a promotional
technique. For example, till the very recent past, edible oils were packed in tin cans in India, which
looked messy and dirty. Most of the larger firms have now started using transparent one-liter PET
(polyethylene terephthalate) bottles, which look gleaming and fresh. The companies are using this change
of packaging quite effectively as an additional element in their advertising campaigns. The change in
packaging of liquid soaps is also used as a promotional tool. Similarly Sargam tea started bringing pet jars
for family consumption and people inoved from card board tea packs to the brand to have the jar for other
consumption storage purpose.
7) Odd Size Packaging: Packaging can also be used ingenuously to avoid direct price comparison with
the competing products. This is done by a deliberate choice of odd size, while the competing brands
follow a standard size. A recent example in India is the launch of soft drinks by Pepsi in 200 ml bottles at
Rs 5when the industry standard was 300 ml at a price point of Rs 7 and rest other
players immediately followed the brand leader with a 200 ml, pack size. The size of Dove soap also is
also odd enough for the slim bathing soap category in Indian market.
8) Packaging the Product Line: Packaging can be used to develop a family resemblance in the
packaging of its several products. Identical packages or the packages with some common features are
used for all the products of a product line. This kind of packaging strategy had the benefits of umbrella
branding. Under this strategy, when new products are added to a line, promotional value
associated with old products extends to the new ones.
9) Bundle Packaging: Placing inore than one unit in one container is referred to as bundle or multiple
packaging. This packaging strategy increases the sales to a large extent. This is seen in bathing and
washing soap category in India.
10) Packaging in Perishables: In specific product areas where shelf life is an integral issue, packaging
brings a combination of functional as well as promotional value. For example in ice cream business, the
refrigerator serves as a status symbol for the retailer and also with the sale of the brand.
9.3.4 Labeling
The paper or the plastic wrapper attached to a bottle of medicine or a jam bottle carrying product
information is technically called a label. But as packaging technology improves and cans and bottles
become less prominent, labels become incorporated in to the protective aspects of the package rather than

simply being affixed to the package. So labels may range from simple tags attached to products to
complex graphics that are part of the package.
The label helps in identification of the brand. It also describes several things about the product. In a
inediciiie bottle the label explains about the composition and maximum retail price to the customer with
directions of use and statutoly warnings. Normally a label provides details about the mai~ufacturer,t he
place of manufacturing, the date of manufacturing, its contents, the directions for use and the safety
measures involved in the product use and expiry date. In many cases the label also does the promotion
function due to its highly visible graphics. A label must also carry the suitable instruction for the proper
disposal of the product and its package or at least a plea to consumers to avoid littering. As per the legal
provisions a label must carry any specific nutrition information, warnings and legal instructions as
required by law. Most consumer packaged goods are labeled with an appropriate Universal Product Code
(UPC), an array of black bars readable by optical scanner, The advantage of the UPC which allows
computerized checkout and compiling of computer generated sales volume information have become
clear to distributors, retailers and consumers in recent years.
Labeling is affected by unit pricing (stating the price per unit of standard measure); open dating (stating
the expected shelf life of the product) and nutritional labeling (stating the nutritional villues in the
product). Package designers are relatively free to design the packages under the conditions of the legal
requirement about maintaining a standard label. Business houses operating in a global scale have to
decide whether to use a single package with one language or a single package with multiple languages,
depending on the legal requirements of the host country. Decisions about colors and symbols, protection
in transit over long distances and other aspects of the package design should be made only after local
culture and usage patterns have been studied.
Many countries have laws against deceptive packaging. Packages intentionally designed to mislead
consumers, labels that bear false or misleading information or packages that do not provide sequired
warning soon draw the attention of the legal authorities. I-Ience marketing inanager has to be careful
about these issues.
A good label is one which helps a potential buyer to make his decision by providing relevant and correct
infoimation. Apart from the information, which must be statutorily given, the label should therefore
provide:
i) Picture of the product, accurate as to size, colour and appearance
ii) Description of raw products used along with methods of processing
iii) Directions for use, including cautions against misuse
iv) Possible adverse effects, if any
V) Brand name
8.4 PRODUCT SUPPORT SERVICES
Custormer service is a key element of the product strategy. Product support services constitute the
augmented part of the product. In today's world when the cost of acquiring the customer is so high, a good
product support service strategy will augment the customer retention stategy with a higher basic of loyal
customers. More and more firms are using product support services as a key element of custumor
relationship management and for creating competitive advantage.
As a manager you should utilize the benefits of product support services in creating better interaction with
custotners. You should start surveying the customers regularly to understand the need of the support
service by the consumers by evaluating the value of the current services and to find out gays if any in the
service delivery. A survey of tlie customer complaints will also help in identifying the new support
service mix by the firms. Once the company has assessed the value of the current services, the expectation
of the new services by the consumers, next it should go for finding out the cost of providing the service.
Then it can develop a service offer to delight its consumers and increase the loyalty I-ate among existing
consumers which can be easily translated into additional profits. Product Support Services include
product warranty, after sales service, delivery, installation, helpline, etc. Companies are using multiple
customer interaction points in the form of personnel, telephone, internet or web and mail as means to
provide the information about these support services.

One of the key product support service is the product warranty. A product warranty cornmunicates a
written guarantee of a product's integrity and outlines the manufacturers responsibility for repairing or
replacing defective parts. It may subtantially reduce the risks the buyer perceives to be associated with the
purchase.
Many a times consumer research suggests that warranties are difficult to understand by the common man
as they are written in legal jargons. Some of the marketers have started writing these warranty statements
in words like fullly guaranteed, unconditionally guaranteed and life time guarantee which do not carry
any meaning to the buyers.
A warranty is part of the total product; the seller should not view it as a nuisance. Effective marketers use
the warranty as an opportunity to create satisfied customers and to offer an intangible product attribute
that many buyers desire. These services are auxiliary dimension of the procluct and create goodwill in the
market.
LET US SUM UP
Brand is a name, term, sign, symbol used by the marketer to create a differentiation in the customer's
mind and value Promise to the customer. A brand name gives the product unique personality and a
successful brand sometimes takesover the generic Product category. Brands like Icerosene, Mobil, Xerox
are examples of such long standing brands. Branding gives a mental assurance to the customer about a
desired functional and emotional performance.
The selection of brand name is an important decision. You can choose any brand name you like as long as
it is unique, easy to read, write, pronounce and remember, and does not liave any unl'avourable or
negative meanings associated with it. There are various brand namin~st rategies available to a marketer.
A brand manager can go for individual branding or umbrella branding. Each choice has its advantages
and disadvantages and there are enough cases of success and failure to justify your choice. Sometimes
even the most difficult sounding brand names succeed while catchy and simple brand names fail.
Packaging is another crucial aspect of marketing because the buyer confronts the product within the
package in the market. Packaging does various functions incluclding protection to the product,
information dissemination and a platform for product promotion. Attractive packnges have an advantage
in attracting the attention of the buyers in a cluttered market. There are instances galore when the products
with high quality have failed because the packaging was poor. Indian small-scale sector suffers from this
problem of inedequate packaging. New packaging materials have started replacing the traditional
packaging material. These are evident in tetra packs of Frooti, Dhara edible Oil, Dove soap, potato chips,
soacks and other fragile food items.
Some key decisions in packaging also cover the disposal of the package and waste management, cost of
packaging, health hazards, use of scarce resources and the scope for consumer misleading. Labeling is
gaining relevance today as more and more self service retail outlets are coming up in urban markets in
India. The label provides the product information, usage information, ownership and shelf life issues.
Product support services are gaining relevance due to its inclusion in the overall product strategy. As the
cost to acquire new customers is increasing, firms are concentrating on holding a large loyal customer
base through product support services in order to reduce the customer's dissonance in post purchase
behavior.