MB0030 Marketing Management

Marketing Management
MB 0030
Contents
Unit 1
Introduction to Marketing 1
Unit 2
Strategic Marketing process 18
Unit 3
Marketing environment 35
Unit 4
Understanding the marketing information systems 53
Unit 5
Consumer buyer behavior 69
Unit 6
Business buyer Behavior 91
Unit 7
Segmentation, Targeting and Positioning 102
Unit 8
Product Management: decisions, development and
lifecycle strategies 123
Edition: Fall 2008
Contents
Unit 9
Product Management: Services and branding strategy 144
Unit 10
Pricing 160
Unit 11
Distribution Management 176
Unit 12
Promotion Management – managing the
non personal communications 204
Unit 13
An introduction to sales management 240
Unit 14
Customer relatoioshp management 264
Unit 15
International Marketing management 275
Edition: Fall 2008
BKID – B0672
Dr. K. Jayakumar
Vice Chancellor
Sikkim Manipal University of Health, Medical, and Technological studies
Prof. Nandagopal V. B.
Director and Dean
Sikkim Manipal University of Health, Medical, and Technological studies.
Board of Studies
Dr. T. V. Narasimha Rao Prof. K. V. Varambally
Professor, Manipal Universal Learning Director, Manipal Institute of Management,

Manipal
Ms. Vimala Parthasarathy Mr. Shankar Jagannathan
Asst. Professor, Sikkim Manipal University of Former Group Treasurer

Health,
Wipro Technologies Limited, Bangalore
Medical and Technological studies.
Ms. Sadhana Dash Mr. Abraham Mathews
Senor Manager HR Chief Financial Officer
Microsoft India corporation ( Pvt) limited Infosys BPO, Bangalore
Mr. Pankaj Khanna
Director, HR, Fidelity Mutual Fund
Content Preparation Team Peer Review By
1. Prasad Kulkarni Prof. N. S . Vishwanath
Senior Lecture, Sikkim Manipal University of Health, Resident Director Bhanvan Marshal
Medical and Technological Sciences Institute of Management, Bangalore
Edition: Fall 2008
This book is a distance education module comprising of collection of learning material for our students.
All rights reserved. No part of this work may be reproduced in any form by any means without permission in
writing from Sikkim Manipal University of Health, Medical and Technological Sciences, Gangtok, Sikkim.
Printed and Published on behalf of Sikkim Manipal University of Health, Medical and Technological Sciences,
Gangtok, Sikkim by Mr. Rajkumar Mascreen, GM, Manipal Universal Learning Pvt. Ltd., Manipal – 576 104.
Printed at Manipal Press Limited, Manipal.
INTRODUCTION
In the emerging environment of 21 st century, marketing management automatically occupies the
centre stage in the socioeconomic development in all nations. Organizations today strongly believe
that profit goals will be reached through satisfied customers. This courseware deals with various
facets of marketing and consumer behavior. It has been carefully designed to give a basic knowledge
of marketing to the students. It aims at presenting how marketing process takes place and its
business implications. Modern trends in marketing have been dealt with in detail. This courseware
comprises 15 units:
Unit 1: Introduction to Marketing
Describes the meaning & modern concept of marketing with its evolutionary background
and marketing environment.
Unit 2: Strategic Marketing process
Provides an overview of strategic marketing process in the organization
Unit 3: Marketing environment
Deals with environmental factors that affect organization.
Unit 4: Understanding the marketing information systems
Deals with marketing information systems
Unit 5: Consumer buyer behavior
Analyses the fundamentals of consumer behavior
Unit 6: Business buyer Behavior
Explains the business buyer behavior
Unit 7: Segmentation, Targeting and Positioning
Explains the segmentation, Targeting and Positioning
Unit 8: Product Management: decisions, development and lifecycle strategies
Discusses the decisions, development, and lifecycle strategies of the product.
Unit 9: Product Management: Services and branding strategy
Describes the service and branding strategies of the product.
Unit 10: Pricing
Explains the pricing strategies of different companies
Unit 11: Distribution Management
Discusses the basics of distribution management
Unit 12: Promotion Management – managing the non personal communication
Describes the non personal communication channels used in the promotion management
Unit 13: An introduction to sales management
Provides an overview of sales force management
Unit 14: Customer relatoioshp management
Outlines the importance of CRM in marketing
Unit 15: International Marketing management
Discuss the international marketing management concepts.
Marketing Management Unit 1
Unit I Introduction to Marketing
Structure
1.1. Introduction
1.2. Market and Marketing
1.3. The Exchange Process
1.4. Core Concepts of Marketing
1.5. Functions of Marketing
1.6. Importance of Marketing
1.7. Marketing Orientations
1.8. Summary
Terminal Questions
Answers to SAQs and TQs
1.1. Introduction:
Marketing is an activity which can be seen every where. Any time you try to buy something,
marketing has a role to play. It is often viewed by many as being advertising or sales promotion or
marketing research. But it is a concept much larger than any of them or all of them put together.
Marketing consists of all activities designed to create exchanges which satisfy human or
organizational needs or wants in a way that brings profit for the firm. It performs the task of both
identifying and satisfying customer needs. This helps business enterprises in anticipating customer
demand and creating satisfied customers through conception, production, promotion and physical
distribution of goods and services. No example can better illustrate this than the popularity of Mobile
Phone. In less than fifteen years, mobile phones have become such an important part of our lives
that many of us cannot think of a life without it.
This unit deals with meaning, importance and functions of marketing. The old concepts of marketing
under which companies have conducted marketing activities and the modern concepts which are
now being used are explained in detail.
Sikkim Manipal University 1
Learning Objectives
This introductory unit will help you get familiar with important concepts in marketing. After reading
this unit you should be able to
1. Define market and marketing.
2. Understand the concepts and functions of marketing.
3. Explain the importance of marketing.
4. Differentiate between types of marketing orientations.
5. Understand how marketing function has changed over the period.
1.2. Market and Marketing
What is Market?
Originally, a “Market” was a public place in a town or village, where household provisions and other
objects were available for sale. The definition of market has expanded in this globalized world. The
traders may be spread over a whole town, or city or region or a country and yet form a market. For
example, stock market, Oil & Oilseeds market, Steel or Metals market etc where people across the
countries can participate in the business. The essentials of a market are (i) a commodity / item which
is dealt with, (ii) the existence of buyers and sellers, (iii) a place; be it a certain region, a country or
the entire world and (iv) interactions between buyers & sellers to facilitate transactions.
1. On the basis of Geographic Area –
Local Market is the place where the purchase and sale of goods / services involve buyers and
sellers of a small local area. The example of local market is a village or a town, market. In this
market day to day requirement like vegetable, fruits, meat and fish are sold.
Regional Market –
When the purchase and sale of goods involve buyers and sellers of a region, such as a large town
market catering to needs of a group of villages or towns, such a market is common in case of
wholesale / retail sale of food grains.
National Market –
When the purchase and sale of goods involve both buyers and sellers of the entire nation then it is
called as national market. This type of market in the case of commodities such as Cotton & Textiles
Market located in Mumbai, Tea and Jute Markets located in Kolkata. With the advent of internet, this
concept is also getting obsolete, as you can operate in any market, sitting in your town or city.
Global or World Market –
When the purchase and sale of goods involve buyers and sellers of many nations, there is said to be
a World or Global Market. Many commodities such as Gold, Silver, Tea, Coffee, Spices are sold in
such global markets. Many manufactured products and specialized services are also sold across the
globe by many companies. Producers of Cocacola and Sony brand sell their products in the global
market in almost all countries. Indian companies like TCS, Infosys, and WIPRO sell and provide
their IT enabled services to many companies in different parts of the world. They operate in a Global
Market.
2. On the basis of Nature of Competition in the market –
Perfect Market –
It refers to a market or market situation where there is perfect competition. Competition is said to be
perfect when (a) the sellers & buyers of a particular product are so many that none of them have to
sell or buy at a single uniform price. (b) Price is determined by the market forces of supply &
demand.
Imperfect Market –
In contrast to the perfect competition, the imperfect market will have imbalance between number of
buyers and sellers. This market is further divided into three parts. They are Monopoly, Monopolistic
and oligopoly. In case of monopoly, single seller dominates the entire market where as in oligopoly
few sellers dominate the market. The details of these types of markets will be discussed in the pricing
unit.
3. On the basis of Nature of Goods Sold –
Consumer Goods Market –
Definition: A Consumer Goods Market is defined as a market where the final output of the firm goes
for the consumption of individual or household.
Consumer Goods Market –
This is a market, where the buyers who are individuals and households purchase a variety of
products and services to satisfy their needs and wants. For example, an individual buys a chocolate
for his personal consumption whereas a family buys a refrigerator for household or family
consumption. Products sold in consumer goods market are classified as NonDurables, such which
are frequently purchased such as bathing soap, detergent etc. and Durables such as refrigerator, TV
Set, Washing Machine, Car, Clothing etc. NonDurables are also known as FMCG – Fast Moving
Consumer Goods e.g. Soap, detergent etc...
Industrial Goods Market –
Definition: A business market is defined as a market where output of one firm goes either as raw
material, goods in process or as consumables of another industry.
This market is also known as organizational or B 2 B market. It is made up of organizations including
manufacturing units, service firms, government departments and other business enterprise. The
products which are sold in the industrial goods market are typically, raw materials, machines,
machine tools, equipments, components and spares etc. Generally, the buyers of industrial goods,
purchase products and services either for producing other products and services which can be sold
in the consumer markets or for using them to facilitate the operation of business enterprise. In many
such cases, the buyer is an organization whose consumption will depend on how the end user’s
demand will change. Hence, in business markets, the demand is a derived demand. Demand for
steel will depend on the consumption of steel equipments, rods and other accessories in the
construction and real estate sector.
NonProfit and Government Markets –
This market which consists of NonProfit organizations such as socialservice agencies, educational
organizations, charitable organizations and Government Departments and agencies needs special
skills to sell to them. These buyers have limited purchasing power which is why pricing to this market
needs to be planned carefully. Government, which is a large buyer, makes purchases on the basis
of tenders, bids and negotiation.
What is Marketing?
Marketing is a set of business activities that facilitate movement of goods and services from producer
to consumer. It is an ongoing process of discovering and translating consumer needs into products
and services, creating demands for them, serving the customer and his demand through a marketing
programme of promotion and distribution to fulfill the company’s marketing goals in a competitive
environment.
It is evident that customer, his needs and wants are very important aspects of today’s marketing.
Customer focus is the very essence of marketing and his viewpoints should be taken into account
while making marketing decisions.
In this era of rapid changes, it is marketing which keeps the business in close contact with its
economic, political, social and technological environment and informs it of events and changes that
can influence its activities.
American Marketing Association (AMA) offers the following definition of Marketing.( AMA 2004)
Definition: Marketing is an organization function and a set of process for creating, communications
and delivering value to customers and for managing customer relationships in ways that benefit the
organization and its stake holders.
The Chartered Institute of Marketing defines Marketing as:
Marketing is the management process responsible for identifying, anticipating and satisfying
customer requirements, profitably.
Having understood what a Market is and what is Marketing, we will now look what is an exchange
and the exchange process.
1.3. The Exchange Process
Today’s marketing system has evolved from the time of a simple barter of goods through the stage of
a money economy to today’s complex marketing. Throughout all these stages, exchanges have
been taking place. In small town and villages there were artisans such as carpenters, weavers,
potters blacksmiths, barbers and others such service providers who produced goods and services
not only for their own consumption but also for exchanging with others what they could not produce
but needed. This was barter system of exchange. For a transaction to take place between two
parties, it was necessary that there be needs and wants on both sides. The development of money
came to act as a common medium, and the exchange process became very easy and
convenient.Fig.1.1. below shows the exchange process under money economy in which products
and services flow to the market from the producers and sellers and money, the value of the products
and services, flow from the buyers to the sellers.
Market –
Producers Flow of Goods Flow of Money Buyers
Place of
& Services exchange
Sellers
Figure 1.1
Thus, exchange is an act of obtaining a desired product or service from someone by offering
something in return. This exchange process will continue as long as human society exists because
satisfying one’s needs is the basic instinct of human beings and no one can produce everything that
he /she needs. For an exchange process to take place, between two or more parties, few conditions
have to be met. They are:
1. Each party has something that could be of value to other party.
2. Each party has desire, willingness and ability to exchange.
3. Each party is capable of communicating and delivering.
4. Each party has the freedom to accept or reject the offer.
Self Assessment Questions 1
1. Marketing performs the task of _______________ and _______________ customer
needs.
2. In perfect competition, price is determined by the market forces of _________ and
______________.
3. _____________ refers to a market where a single seller controls the entire supply of a product or
service.
4. In Industrial (Business) Markets, the demand, in most cases is ___________.
5. Frequently purchased consumer goods are known as _____________.
1.4. Core Concepts
There are certain fundamental concepts and tasks which one needs to know to fully understand the
marketing function. These concepts provide foundation for a marketing orientation and to manage
the marketing function.
1. Needs and Wants
The marketer’s task lies in satisfying human needs and wants through the exchange process. It is
alleged that “marketing creates needs” and makes people buy things they do not actually need. In
reality, marketing or marketers do not create “needs”, but they create “wants”. Needs are the basic
human requirements of food, clothing shelter water and air. When we desire certain specific objects
or items to fulfill these needs, they are called wants. For example, when a person is hungry, he can
satisfy his hunger by taking a simple meal at home. Instead, if he wants to eat a Pizza or a
Hamburger or a 5Star Hotel meal, it is not a ‘need’ but a ‘want’.
The task of a marketer is to influence our wants rather than needs. He does so along with other
influential such as sociocultural forces and institutions such as family, religion, and different
reference groups.
Marketers, suggest to consumers that a particular car would satisfy the person’s need for esteem.
They do not create the need for esteem, but try to point out how a particular product would satisfy
that need.
2. Demand
Human wants are unlimited, but their resources are limited. When a want for an object is backed or
supported by buying ability, willingness to spend and desire to acquire a product / service, it
becomes a potential demand. The task of assessing or estimating demand is very crucial for a
marketer. He should understand the relationship of the demand for his product with its price.
Demand forecasting is essential for allocation of resources in a company.
3. Product and Services
‘Product is a generic term used to describe what is being offered by a seller or marketer. It may be a
good, a service or idea, which can be marketed by offering a set of benefits it offers to customers to
satisfy their needs. However, there is a distinction between products and services. When we say
‘product’ we mean a physical or a tangible product such as a tooth paste, a refrigerator or a mobile
phone, whereas ‘service’ refers to an act, performance, a benefit and indicates intangibility and
absence of ownership or possession. Services can include banking service, hospitality service,
airlines service, health service, entertainment service etc. Thus, a product can be defined as
anything that can be offered to market to satisfy a need or want. Today, many types of entities such
as goods, services, experiences, events, persons, places and ideas are being marketed.
4. Target Market
Very few products can satisfy everyone in the market. Therefore, marketers divide the market into
distinct groups of buyers who have similar preferences. These groups are called segments with their
own specific demographic, psychographic and behavioral characteristics. The marketer decides as
to which of these segment or segments offer highest opportunity for his company. For each of these
target markets, the firm develops a product / service suited to their needs. TATA group has recently
designed an economy car called ‘NANO’ is priced around Rs.1 Lakh. The target market for this car
is all aspirants who dream of owning a car but cannot afford cars which are now available for
minimum Rs.2.5 Lakh. A Target Market is the group of people at whom a marketer targets his
marketing efforts to sell his goods and services.
5. Marketing Management
Marketing Management which is also the title of this course refers to all the activities which the
marketing managers, executives and personnel have to undertake to carry out the marketing function
of the firm. It involves (i) analyzing the market opportunities by under taking consumer needs and
changes taking place in the marketing environment, (ii) planning the marketing activities, and (iii)
implementing marketing plans and settings control mechanism to ensure smooth and successful
accomplishment of the organizations goals. Marketing Management is a critical function, especially in
highly competitive markets. It provides competitive edge to an organization through strategic
analysis and planning.
6. Values and Satisfaction
In developed and developing economies, consumers have several products or brands to choose to
satisfy his/her need. Consumers’ perceptions about value that they can expect from different
products or services depend upon several factors. Sources that build the customer expectations
include own experience with products, friends, family members, consumers’ reports and marketing
communications. Customer value is the difference between total benefits received and total costs
incurred by him in acquiring the product or services. The types of benefits could be product’s
functional value, or its brand related image value and any accompanying service value. The types of
costs a customer can incur may be monetary cost and energy cost.
Value is primarily a function of quality, service and cost. Value increases with increase in quality and
service and decreases with increase in cost. Value is an important marketing concept and the task
of marketing is to identify, create, communicate, deliver and monitor customer value.
Customers generally experience satisfaction when the performance level meets minimum
performance expectations of a product or service. When the performance as perceived exceeds the
expected performance level, the customer will be not just satisfied, but delighted. Thus customer
satisfaction or delightment with respect to a product or service encourages customers to come back
and repurchase the product or service in future. Satisfied customers can be an asset to the
marketing company over a period of time, as they will spread favorable wordofmouth information or
opinions.
1. are the basic human requirements like food, clothing, water and air.
2. Service refers to an act or a benefit, which does not have a physical form and thus indicates
.
3. Value with increase in quality and service and with increase in cost.
4. When the performance of a product as perceived by a customer exceeds his expectations, he is
.
5. Marketer analyzes the market opportunities by monitoring changes taking place in the marketing
.
1.5. Functions Of Marketing
The delivery of goods and services from producers to their ultimate consumers or users includes
many different activities. These different activities are known as marketing functions. Different
thinkers have described these functions in different ways. Some of the most important functions of
marketing are briefly discussed below:
1. Marketing Research and Information Management
Marketers need to take decisions scientifically. Marketing research function is concerned with
gathering, analyzing and interpreting data in a systematic and scientific manner. The types of market
information could be analysis of market size and characteristics, consumer tastes and preferences
and changes in them from time to time, channels of distribution and communication and their
effectiveness, economic, social, political and technological environment and changes therein. A
company can procure such information from specialized market research agencies, government or
can decide to collect themselves.
2. Advertising and Sales Promotion – Advertising is a mass media tool used to inform, persuade
or remind customers about products or services. It is an impersonal message targeted at a
chosen group through paid space or time.
3. Sales Promotion is a shortterm incentive given to customers or intermediaries to promote sales.
It supplements advertising and personal selling and can be used at the time of launching a new
product or even during its maturity period.
4. Product Planning and Management – A Marketer should identify the needs and wants of
consumers, develop suitable products / services and make them available. Marketer is also
required to maintain the product and its variations in size, weight, package and price range
according to the changing needs and requirements of his customers. Information available
through Market Research helps product management in taking appropriate decisions while
planning the marketing efforts.
5. Selling – This function of marketing is concerned with transferring of products to the customer.
An important part of this function is organizing sales force and managing their activities. Sales
force management includes recruitment, training, supervision, compensation and evaluation of
salesmen. They need to be assigned targets and territories where they can operate. The
salesmen interact with prospective purchasers facetoface in order to sell the goods. The
purchaser may be end customer or an intermediary, such as a retailer or a dealer.
6. Physical Distribution – Moving and handling of products from factory to consumers come under
this function. Order processing, inventory, management, warehousing and transportation are the
key activities in the physical distribution system.
7. Pricing – This is perhaps the most important decision taken by marketer, as it is the only revenue
fetching function and success and failure of the product may depend upon this decision.
Therefore, the decision regarding how much to charge should be taken such that the price is
acceptable to the prospective buyers and at the same time fetches profits for the company.
While deciding on the price, the factors to be considered are competition, competitive prices,
company’s marketing policy, government policy, and the buying capacity of target market etc.
1.6. Importance Of Marketing.
Peter Drucker, the famous management thinker in one of his classic articles has said “Marketing is
everything”. All other activities in the organization are support services to the marketing strategy that
the company pursues. Marketing is important not only to the company but to the consumers and
society and to the economy.
Consumer stands to benefit from marketing activities. He has more alternatives to choose from,
improved and better quality products are available and he is able to buy goods at convenient
locations. Thanks to much improved customer service, a consumer is able to complain and expects
his complaint to be attended in reasonable time. He can now buy with credit or debit card or cash or
on installments.
For the society as a whole, marketing is important because it acts as a change agent making people
use latest products and improves the standard of living of the people. As we know, the main
objective of marketing is to produce products and services for the society as per their needs and
tastes, and while doing so it creates demand for these goods and services, encourages them to use
them, thus leading to higher demand and sales. This higher demand allows the company to achieve
economies of scale in both production and distribution resulting in decrease in production and
distribution costs which can be used to reduce prices to consumers.
For a company in any business, marketing is considered to be the most important activity. It helps an
organization to keep abreast of changes taking place in the market and consumer tastes and
preferences through market research. Based on this reliable data, it responds to these changes by
rectifying any drawbacks in its products or changing its competitive strategy. Thus the company’s
decision making and planning are not based on just hunches but on sound market information. The
firm that follows such practices is sure to prosper under all conditions. Marketing provides an
effective channel of communication to the company with its consumers by way of advertising and
sales promotion. Marketing thus brings revenue and earns goodwill for the company.
Successful operation of marketing activities creates, maintains and increases the demand for goods
and services in the economy. It results in the increased level of production. This, in turn, increases
the national income, which is beneficial to the economy. Marketing operations require the services of
intermediaries such as wholesalers, retailers, transporters, and service provides for storage, finance,
insurance and advertising. These services provide employment in large numbers.
1. The aim of Advertising is , and customers about products and services.
2. The tasks of moving and handling of products come under .
3. For the society as a whole, Marketing acts as a change agent and improves the
of the people.
4. is the only revenue fetching function in Marketing.
5. Credit Card, Debit Card, Cash and Installments are available to a customer for buying
products and services.
1.7 Marketing Orientations
Companies adopt different philosophies to market their products and services. An analysis of
evolution of marketing thought over last several decades and reliance of marketing managers on
specific marketing orientations, leads us to classify marketing concepts into several categories.
These categories reflect the philosophies guiding the company’s marketing efforts. The philosophy
adopted by a company should strike a balance between the interests of the company, customers,
society and public. There are five competing concepts and an organization can choose any one of
them for conducting marketing activities.
1. The Production Concept – This is one of the oldest concepts of marketing and assumes that
consumers will prefer those products and services that are easily available and affordable.
Companies which adopt this philosophy for their marketing should focus on improving production
and distribution efficiency.
Production concept is a useful philosophy under situations where demand is more than supply
and the companies are trying to increase production and when production costs are high.
Companies are trying to achieve economies of scale. Under such conditions, it is likely that
quality of products is neglected and service to customers is very impersonal.
2. The Product Concept assumes that consumers will prefer those products that offer quality,
performance or innovative features. Managers in such companies focus on developing superior
products and improving the existing product lines by devoting time to innovations. The problem
with this orientation is that managers forget to read the customer’s mind and launch products
based on their own technological research and scientific innovations. Very often it is observed
that innovations enter the market before the market is ready for the product, or is aware or clear
about its benefits.
3. This productoriented management with excessive attention to product rather than customer
leads to shortsightedness about business. This was termed as “Marketing Myopia” by Prof.
Theodore Levitt of Harvard Business School. He recommended that companies should have a
clearer and broader vision of business they are in and should adapt to the changes in the needs
of the customers and in the environment. For example, a company like KODAK should not think
they are only in the business of selling cameras and photographic films. They should believe that
they are in the business of preserving memories for customers and photography in general
4. The Selling Concept – The Selling concept assumes that consumers generally, will not buy a
company’s products unless aggressive selling and promotion efforts are undertaken. It also
holds that consumers typically do not think of buying these products which are nonessential
goods without persuasion or aggressive selling action. Use of this concept leads people to
believe that marketing is all about selling. The problem with this approach is the belief that the
customer will certainly buy the product after persuasion and will not complain even if dissatisfied.
In reality, this does not happen and companies pursuing this concept fail in business. This
approach is applicable in the cases of unsought goods such as life insurance, vacuum cleaners
that buyers normally do not think of buying.
5. The Marketing Concept The Marketing Concept proposes that a company’s task is to create,
communicate and deliver a better value proposition through its marketing offer, in comparison to
its competitors; to its target segment and that this customer oriented approach only can lead to
success in the market place.
To day, marketing function is seen as one of the most important function in the organization.
Many marketers put the customers at the centre of the company and argue in favor of such a
customer orientation where all functions work together to respond, serve and satisfy the
customer.
Many successful and well known multinational companies have adopted marketing concept as
their business and marketing philosophies. Many Indian companies in the banking and other
service sectors follow customer orientation and service as their motto. According to this concept,
a company’s marketing effort must start right from identifying, through Market Research, exact
needs & wants of the target market.
Table 1.1. Differences between Selling and Marketing Concepts
6. Selling Concept 7. Marketing Concept
8. Emphasis on Product 9. Emphasis on Customer needs and

wants
10. Goal is to sell what is 11. Goal is to produce what is
produced needed by
12. the customers
13. Aggressive Sales and 14. All the departments of the

Promotion used company
15. work together for serving the
16. customers
17. Objective is profits 18. Objective is profit through

through Sales volume customer
19. Satisfaction
6. The Societal Marketing Concept – This marketing concept emphasizes that the key task of the
company is not only to determine the needs and wants of the target markets and delivering the
desired satisfaction but also to preserve and enhance the consumers and society’s overall well
being.
This concept calls upon marketers to build social, ethical and environmental considerations into their
marketing practices. It seems to be an appropriate philosophy for marketing at this time when there
is environmental degradation and social services have been neglected in India. In the recent years,
we have been witnessing a lot of complaints about products and packaging that are harmful to health
and ecology. Marketers must come forward to protect the interest of both the customers and the
environment and this they can achieve by adopting or following the societal marketing concept.
1. Under _________________ concept it is likely that the quality of products is neglected.
2. Standard Furniture’s, makers of office furniture, has a goal of introducing a major product
improvement of at least one product every year. The company is following ______________
concept.
3. Firms which sell what they make instead of what the market wants follow the _______________
concept.
4. The _____________ concept says that providing customer satisfaction is the key to fulfilling
organizational objectives.
5. _______________ Marketing concept calls for marketers to balance company profits, customer
need satisfaction and societal welfare.
1.8 Summary
1. Marketing is a dynamic and all pervasive subject in business
2. The main functions of Marketing are Marketing Research and Information Management, Product
Planning, Advertising and Sales Promotion, Selling, Physical Distribution and Pricing.
3. Marketing plays an important role in the economic development of a country like India. It is also
very important from the customer and societal point of view as it helps improve the standard of
living of people through better product and service offers.
4. Marketing as a concept has evolved over a period of time and has witnessed changes and
modifications in its philosophy. There are five concepts which describe this development and
offer ways to companies on how to conduct their business – Production Concept, Product
Concept, Selling Concept, Marketing Concept and Societal Marketing Concept However, the first
three are of limited use today.
Terminal Questions
1. Define the terms “Market” and “Marketing”.
2. Discuss the importance of marketing for a consumer, for the economy and for the
society as a whole.
3. Distinguish between Marketing and Selling concepts.
4. Explain the term “Marketing Myopia”.
Answers to Self Assessment Questions
1. Identifying and Satisfying
2. Supply and Demand
3. Monopoly
4. Derived
5. FMCG
1. Needs
2. Intangibility
3. Increases and Decreases
4. Delighted
5. Environment
1. Inform, persuade and remind
2. Physical Distribution
3. Standard of living
4. Pricing
5. Options
1. Production
2. Product
3. Selling
4. Marketing
5. Societal
Answers to Terminal Questions
1.Refer to 1.2
2.Refer to 1.6
3. Refer to 1.7
4.Refer to 1.7
Unit 2 Strategic Marketing Process
Structure
2.1 Introduction
2.2. Strategic Planning
2.3. SWOT analysis
2.4. Developing the Marketing mix
2.5. Planning, Control and Implementation.
2.6. Summary
2.7. Terminal Questions
2.8. Answers to SAQs and TQs
2.1. Introduction.
Marketing strategies and programs in the organizations are derived from the companywide strategic
planning. Thus, you have to understand how organizations develop their strategic plans. After
analyzing the strategic plan, you should be able to relate these plans’ role in guiding the marketers,
and their application in serving the customers with the help of company’s employees as well as
intermediaries.
Learning Objectives
After studying this chapter you should be able to:
1. Understand the marketing mix exists in the company
2. Describe the companywide strategic planning.
3. Discuss how to design marketing planning models
4. Prepare marketing planning for the company.
2.2. Strategic Planning
Strategic planning is the process of defining the company mission, setting the long term and short
term objectives, designing an appropriate business portfolio and coordinating functional strategies of
the company.
Looking at the definition, you will be able to identify four important factors of the strategic planning.
They are
1. Defining the company mission.
2. Formulating the objectives
3. Designing an appropriate business portfolio
4. Coordination at business levels.
Now, we will discuss the above points and their relevance to the marketing plans.
2.2.1. Defining the company mission:
An organization mission explains who its customers are, how it satisfies their needs and what type of
products it offers.
Let me explain this concept by taking a mission statement of the Trends in Vogue, a family beauty
saloons chain from Cavin Kare, a well known fast moving consumer goods (FMCG) company in
India. The mission statement is
1. “To provide the customer an unparalleled service experience
2. To provide the customer the largest range of "natural" products and services
3. To be the first to introduce subformats and valueadded services
4. To be the most preferred family beauty salon chain for customers, employees and
Alliance partners.
5. To provide consistent profits to all stakeholders”
Trends in Vogue mission statement analysis:
a. Who its customer is? Mission statement 4 states “family who are going to beauty
saloons” as their customers.
b. How it satisfy their needs? Mission statement 1 and 2 describes the needs as unparalleled
service experience and offering largest range of natural products and services
c. What type of products it offers? The company offers natural products in their beauty
saloons.
2.2.2: Formulating the objectives.
Mission statement provides a general view of the company’s products and its method of satisfying
the customer. Mission statement is once again divided into specific objectives which are stated in
writing, can be measured quantitatively and fixed for particular time. Objectives may be business
oriented or market oriented. They help marketers to develop strategies and programs. You will come
to know how organizations deduce their mission into different objectives form the following example
of Bharat Electronics Limited (BEL), a public sector enterprise in the electronic field.
Mission: To be a customer focused globally competitive company in defence electronics and in other
chosen areas of professional electronics, through quality, technology and innovation.
Objectives:
1. To be a customer focused company providing stateoftheart products & solutions at competitive
prices, meeting the demands of Quality, delivery & service.
2. To generate internal resources for profitable growth.
3. To attain technological leadership in defence electronics through inhouse R&D, partnership with
defence/research laboratories & Academic institutions.
4. To give thrust to exports.
5. To create a facilitating environment for people to realize their full potential through continuous
learning & team work.
6. To give value for money to customers & create wealth for shareholders.
7. To constantly benchmark company’s performance with bestinclass internationally.
8. To raise marketing abilities to global standards.
9. To strive for selfreliance through indigenization
2.2.3: Designing an appropriate business portfolio.
After setting mission and objectives, management will develop its business portfolio.
Business portfolio is the right mix of businesses that company operates and products that offers to
customers.
Portfolio analysis is the process by which company analyze its products and businesses.
Company develops their business portfolio in two steps
a. Analyze the existing business portfolio and decide which business should receive more, less or
no investment.
b. Developing the new business portfolio for future to meet growth opportunities and eliminating the
unprofitable portfolios.
Analyzing the existing business portfolio:
The current business portfolio of the company is analyzed by the businesses in which it operates. To
make it clearer, let me take an example of ITC group. The company operates in FMCG, hotels, paper
boards, specialty papers and packaging and agribusiness. These businesses are independent from
each other and have their mission and objectives separately. These subsidiaries of organizations are
called as Strategic business units (SBU)
Strategic business unit: The unit of the company that has separate mission and objectives and that
can be planned independently from other businesses.
Characteristics of SBU.
1. It may be brand, or a product line or separate division of the company.
2. It is having distinct mission and objectives.
3. It is managed by separate executive team.
Strategic planning models used in assessing the existing businesses:
1. BCG matrix ( Boston Consultancy Group)
2. GE matrix ( General electric)
BCG matrix: This model is used to identify company’s SBU’s position in the market. This model
identifies the SBU’s strength, weaknesses, opportunities and threats on the basis of market growth
rate and relative market share. This model is also known as growth share matrix.
Figure 2.1.
Market growth rate
High
Question Mark
STAR
Low
DOG
COW
High Low
Relative Market Share
Axis components:
1. Market growth rate: The rate at which market is growing
2. Relative market share: Market share of the SBU divided by the market share of the largest
competitor.
Model components:
Star: This category represents the high market share and high industry growth. SBU’s in this
category require large investment to defend their position. SBU will turn as cash cow after some
time.
Cash cows: This category represents the low growth rate and high market share which is the
characteristic of SBU operating in mature industry. Here company needs less investment to hold their
position. Hence it generates more cash or in management terms we say cash cow can be milked.
Question Mark: This category represents high market growth and low market share. SBU’s in this
category has two options, either to invest heavily and bring them to star position or divest / liquidate
from that position.
Dogs: SBU’s in this category generates less cash for the company as it operates in low growth and
low market share. Usually companies will not invest in this category and try to liquidate or divest.
BCG matrix for ITC
1. SBU: FMCG
Industry growth rate: 24% (AC Nielson retail audit report 2007)
Company growth rate: 50% (the Hindu business line 19 th January 2008)
Company’s market share : 8% (outlook business)
Largest competitor share: HUL: 54% (outlook business)
Relative market share= 0.14
2. SBU: Paper board
Industry growth rate: 7.2% (the Hindu business line 27 th May 2007)
Company growth rate: 11% (the Hindu business line 19 th January 2008)
Company’s market share: 55%
Largest competitors share: BILT 35%
ITC’s FMCG segment analysis shows that though it is market leader in some categories their overall
relative market share is 0.14. Company is in the high growth low relative market share area i.e.
question mark position. ITC should invest heavily to convert its SBU position into star.
ITC’s Paperboard industry is in low growth and high market share category i.e. in cash cow segment.
It should plan for investing the cash generated from this position into other businesses.
GE matrix:
1 Management can use the GE business matrix to classify SBU’s on the basis of two factors
a. Market attractiveness: Market size, entry barriers, competitors, technology and
profit margin are some factors used to analyze the market attractiveness.
b. Business position can be determined on the basis of market share, SBU size, R&D capabilities
and cost controls
Each cell in the model represented by the particular strategy namely, invest strategy, protect
strategy, harvest strategy and divest strategy
2 Invest strategy: In this position SBU
a. Should receive ample resources
b. Should support by well financed marketing efforts.
3 Protect strategy: SBU’s in this position should
a. Allocate the resources selectively.
b. Develop strategies which help in maintain its market position.
c. Generate cash needed by other SBU’s.
Business position
High Medium Low

Low Medium High
Market attractiveness
Invest Invest Protect
Invest Protect Harvest
Protect Harvest Divest
Figure 2.2
4. Harvest strategy: SBUs should not receive substantial new resources and if required, sell them.
5. Divest strategy: SBUs which falls into this category should not receive any resources and sell i or
shut it as early as possible.
Developing the new business portfolios
After analyzing the existing business of the company, let us discuss company’s future plans i.e.
growth or downsizing. Company adopts growth strategies to become more competitive in the market,
tap new opportunities and become preferred employer. Downsizing is used when the product or
market became unattractive to it. The Ansoff ProductMarket Growth Matrix is a marketing tool
created by Igor Ansoff and first published in his article "Strategies for Diversification" in the Harvard
Business Review (1957). The matrix allows marketers to consider ways to grow the business via
existing and/or new products, in existing and/or new markets.
Ansoffs model of product/ market expansion.
Figure 2.3.
a. Market penetration: A strategy used in increasing the sales of company’s existing products without
modifying it in the existing market.
Characteristics of market penetration.
1. Serve customer with existing products by opening new stores.
2. Increase the promotion activities to increase the consumption.
3. Improve the service offerings.
Café coffee day a reputed coffee chain in south India, started its operation in brigade road,
Bangalore, in the year 1996. It offers different varieties of the coffee to its existing customers. Today
it is having 100 stores in Bangalore.
b. Market development: In this strategy company identifies the new markets to sell their existing
products.
In case of market development company identifies and develops new markets for its existing
products
Café coffee day, enthused by the success of offering a worldclass coffee experience, has opened a
Café in Vienna, Austria and is planning to open other Cafes in the Middle East, Eastern Europe,
Eurasia, Egypt and South East Asia in the coming months.
(Source: www.cafécoffeeday.com)
c. Product development: In this strategy, company identifies new product and sells them existing
markets.
Café coffee day added quick bites and icecream in their menu to cater to the needs of customers.
d. Diversification: A strategy for company growth through starting up or acquiring businesses
outside the company’s current products and markets.
Café coffee day started offering tea and cold drinks in its highway café retail outlets. These highway
café outlets offer excellent service to the travelers on the high way.
Downsizing: Eliminating the unprofitable products of the company from its product line
In the year 2000 M.S. Banga then chairman of Hindustan Unilever limited (HUL), used power
branding strategy to improve the sales and productivity. He reduced HUL’s number of products from
110 to 35.
2.2. 4. Coordination at business levels
1. Organization’s strategies exist in three different levels. They are corporate level, business level
and operation level.
2. Corporate level:
a. High risk and greater profit
b. Greater need for flexibility exists.
c. Long term planning
d. Choice of businesses, dividend policies, sources of longterm financing, and priorities for growth
3. Operation level strategies
a. Implement the overall strategy formulated at the corporate and business levels
b. Involve actionoriented and operational issues
c. Relatively short range and low risk
d. Modest costs: depend upon available resources
e. Relatively concrete and quantifiable
4. Business level strategies
a. Acts as a bridge between decisions at the corporate and functional levels
b. Less costly, risky, and potentially profitable than corporatelevel decisions
c. More costly, risky, and potentially profitable than functionallevel decisions
d. Include decisions on plant location, marketing segmentation, and distribution
In the strategic plan, company brings the synergy between all the three levels. To make it more
clearer, company’s marketing strategy are different from HR strategies but it should bring
coordination between both to meet organization’s objectives. Company should bring the coordination
between its growth plans and segmentation then only the operation strategy works well.
1.3. SWOT analysis
S W O T represents strengths, weaknesses, opportunities and threats. SWOT analysis helps

company to implement its strategies by leveraging strengths, overcoming from weaknesses, tapping
the opportunities and minimizing the threats
1) Strengths:
Following are the list of strengths that company should have
i. Valuable competencies or knowhow
ii. Valuable physical assets
iii. Valuable human assets
iv. Valuable organizational assets
v. Valuable intangible assets
vi. Important competitive capabilities
2) Weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage.
Resource weaknesses relate to inferior or unproven skills, expertise, or intellectual capital and
Lack of important physical, organizational, or intangible assets.
3) Opportunities: Opportunities are those which match with its financial and organizational
resources, can generate profits for long term and become strength in future.
4) Identifying External Threats
i. Improved technology
ii. Improved products by competitors
iii. Dumping of materials
iv. Unfavorable political situation
v. Potential of a hostile takeover
vi. Change in the demography
SWOT helps marketer to understand the current position of the company. It also helps to leverage its
strengths to improve the performance and tap the opportunity that exists. Weaknesses and threats
analysis helps company to overcome from them and become more agile.
Self Assessment Questions 1:
1. explains who its customers are, how it satisfies their needs and what type of products it
offers.
2. Growth share matrix is also known as
3. Cash cow in BCG matrix represents
4. High market growth and high relative market share
5. High market growth and low relative market share
6. Low market growth and high relative market share
7. Low market growth and low relative market share
8. Product market growth model was developed by
9. A strategy for company growth through starting up or acquiring businesses outside the it’s
current products and markets is known as
1.4. Developing the marketing mix.
Marketing mix: The product, its price, promotion and distribution blended together to get favorable
response from the customer.
This is also called as 4P’s of Marketing or Market assortment.
1. Product: It is a good, service, idea, place or person that offered to customer to satisfy his/her
need. The attributes of product are variety, quality, warranty, design, packaging, and service
For example, Marico, a FMCG company offers hair oil in two brand names i.e. parachute and
nihar. The brand nihar, offered in two types of packaging i.e. Sachets and bottles and offered in
two qualities i.e. coconut oil and perfumed hair oil.
2. Price: the value at which customer is willing to purchase the product.
For example, BSNL offers prepaid service recharge coupons in Rs175, Rs335, Rs500, Rs 1000,
Rs2000 and Rs 5000 denominations.
Figure 2.4.
The marketing mix
Product Price
· Variety · List price
· Quality · Discounts
· Features · Allowances
· Brand name · Credit period
· Packaging · Credit terms
· Services
Customers and
Intended
positioning
Promotion Place
· Advertising · Channels
· Sale promotion · Coverage
· Public relation · Assortments
· Publicity · Locations
· Personal selling · Inventory
· Transportation
3. Place: Distribution of goods from the factory to the target customer. It includes distributors,
stockiest and retailers. To illustrate, Zenith computers uses authorized distributor to sell laptops
and desktops to the target customers.
4. Promotion: communicating product features and its uses to target customers through different
Medias. For example, Bharati group promotes its cellular services (AIRTEL) through TV, Radio
and news paper.
1.5. Planning, control and implementation.
2.5.1 Marketing planning:
Though strategic plan exists in the organization but it is very essential to have functional plans to
coordinate departmental activities. For example, the marketing plan guides the sales and distribution
activities of the organization. Therefore it is essential to know what the contents of a marketing plan
are.
Contents of marketing plan
a. Executive summary: Brief summary of plan, which help busy executives to go through the points
very quickly.
b. Analyzing the current market situation: The following factors should be answered in this section.
1. What is the intended market and market segment?
2. What is the consumer buying behavior process for particular category of products?
3. How conducive is the marketing environment to do the business?
4. Whether company got right marketing mix for intended target customer?
5. Who are major competitors and what are their marketing strategies?
c. PEST analysis: In this section, the external environment of the company is analyzed to find
opportunities and threats.( for detail see UNIT 3)
d. Objectives and issues: This part of the marketing plan should discuss marketing objectives that
company would like to achieve in particular period and issues that may affect them.
e. Marketing strategy: This section should highlight on
1. Identifying the segmentation, target customer and positioning strategy
2. 4P’s of marketing
3. Planned activities: the following factors should be discussed in this section
4. What are the programs that company plans to undertake?
5. Who are responsible to monitor these programs?
6. How much time it takes to complete the program?
7. How much will it cost?
8. Marketing Budget
9. Control: Any program implemented need to be controlled to check its performance. Hence
organization should take periodic auditing by a review committee. The control process for the
plan should be discussed in this section.
2.5.2 Marketing Implementation and control.
Marketing implementation: The process in which marketing strategies and plans are converted in
to proper marketing actions to achieve the objectives.
Marketing implementation depends on the following factors:
1. Organization structure
2. Organization culture
Marketing control: The process of evaluating marketing performance and taking corrective actions.
Marketing control involves four steps. They are
a. Set specific marketing goals.
b. Measure the marketing performance
c. Evaluate the market performance against objectives
d. Take corrective actions
Marketing control is divided into two parts. They are operation control and strategic control.
Operation control involves assessing the current activities against annual plan and taking corrective
actions. Strategic control is used to assess whether existing strategic plans of the company meets
the opportunities exist for it. Marketing audit is used as a strategic control tool.
According to Philip Kotler “marketing audit is comprehensive, systematic, independent and periodic
examination of a company’s environment, objectives, strategies and activities to determine problem
areas and opportunities and to recommend a plan of action to improve the company’s marketing
performance”.
Characteristics of marketing audit:
1. Comprehensive.
2. Systematic
3. Independent
4. periodic
Components of marketing audit:
1. Marketing environment audit
2. Marketing strategy audit
3. Marketing organization audit
4. Marketing systems audit
5. Marketing productivity audit.
6. Marketing function audit
Self assessment questions2:
f. Example of strategic control is
ii. Marketing implementation depends on and .
iii. Marketing mix is also known as and
iv. Which of the following does not belong to the marketing control?
1. Set specific marketing goals.
2. Measure the marketing performance
3. Evaluate the market performance against objectives
4. Understand the organization culture
5. PEST analysis helps to identify company’s and
2.6. Summary:
1. Strategic planning process involves defining the company mission, formulating the objectives,
designing an appropriate business portfolio and coordination among functional strategies.
2. BCG and General electric models are used to analyze existing market situation of SBU.
3. SBU’s growth and downsizing strategies are determined by Ansoff model of product market
growth matrix.
4. Marketing mix or 4Ps of marketing is the assortment of product, place, price and promotion.
5. Marketing implementation depends on organization structure and its culture.
6. Marketing Audit is used as strategic control tool.
Terminal questions:
1. Explain how organization defines its mission..
2. Discuss the models used to analyze the existing business portfolio of the company.
3. Explain the Ansoff ‘s product market growth matrix
4. What is marketing mix? Explain its components.
5. Briefly explain the contents of marketing planning.
Answers to Self Assessment Questions:
1. Mission
2. BCG
3. C. Low market growth and high relative market share
4. Igor Ansoff
5. Diversification.
1. Marketing audit
2. Organization stricture and organization culture
3. 4P’s of marketing and market assortment.
4. D. understanding the organization culture
5. Opportunities and threats.
Answers to Terminal Questions:
1. Refer 2.2.1
2. Refer 2.2.3
3. Refer 2.2.3
4. Refer 2.3
5. Refer 2.4
Unit 3 Marketing Environment
Structure
3.1. Introduction
3.2. Environmental scanning
3.3. Analyzing the organization’s micro environment.
3.4. Company’s macro environment.
3.5. Difference between micro environment and macro environment.
3.6. Summary
Terminal questions
3.1. Introduction.
A marketing oriented company always keeps tab on its external environment carefully to analyze
opportunities and threats. This external environment influences company’s strategies in two levels
i.e. external macro environment and external micro environment. The macro environment involves
political and legal, economic and natural, social and cultural and technology environment. The micro
environment consists of supply chain, customer and competitor. These factors are uncontrollable by
the organization. Even the best company faces threat if one of the external environments is adverse
to it. A moderate company will be successful if the external environment favors it. Hence marketing
companies should monitor the external environment carefully and continuously.
Learning Objectives
After studying this chapter you should be able to
1. The need of environmental scanning.
2. How external micro environment affects the company’s strategies.
3. The influence of external macro environment on company’s plans.
4. The difference between the external macro and micro environment.
5. The role of organization’s internal environment in dealing with opportunities and threats.
3.2. Environmental scanning
This is the process of gathering, analyzing and forecasting of external environments’ information to
identify opportunity and threats that company faces.
Need for environmental scanning:
It helps in
1. Identifying the opportunities that company has in immediate future.
2. Identifying the threats faced by the company.
3. Demand forecasting
4. Developing appropriate business plans.
5. Adjusting the company strategy in changing competitive environment.
3.3. Analyzing the organization’s micro environment
Marketing department let alone can not satisfy all the needs of customer. Therefore it is essential to
integrate the functions of suppliers, publics, company departments and intermediaries in creating the
value to the customer. These forces are known as organization’s micro environment.
Microenvironment: The forces which are very close to company and have impact on value creation
and customer service
Figure 3.1
Forces in the micro environment
Micro
Environment
3.3.1. The company
Remember in the previous unit we discussed about the strategic and marketing planning. Deducing a
strategic plan in to specific marketing plan require coordination of other functions like finance, Human
resource, production, and research and development. For example, Safe Express, a leader in the
supply chain management solution wants to hold its position in the US $ 90 billion Indian logistics
market. Company plans to expand its service areas in the coming months. To meet the targets of the
marketing plan, other departments of safe express also expanding their horizon. Company is coming
out with logistics parks in different cities; plan’s to hold seven million square feet of warehousing
capacity in the next three years and investing Rs 10 billion in three years to meet that targets. The
above example shows that company’s marketing plan should be supported by the other functional
department activities also.
3.3.2. Intermediaries
Marketing intermediaries: The firms which distribute and sell the goods of the company to the
consumer.
Marketing intermediaries plays an important role in the distribution, selling and promoting the goods
and services. Stocking and delivering, bulk breaking, and selling the goods and services to customer
are some of the major functions carried out by the middlemen. Retailers, wholesalers, agents,
brokers, jobbers and carry and forward agents are few intermediaries to name. Retailers are final link
between company and customers. Their role in the marketing of product is increasing every day.
3.3.3. Publics
These are microenvironment groups, which helps company to generate the financial resources,
creating the image, examining the companies’ policy and developing the attitude towards the
product.
We can identify six types of publics
1. Financial publics influence the company’s ability to obtain funds. For example, Banks,
investment houses and stockholders are the major financial publics.
2. Media publics carry news and features about the company e.g. Deccan Herald
3. Advertisement regulation agencies, telecom regulation agency( TRAI), and insurance regulation
agency(IRDA) of the government
4. Citizen action groups: Formed by the consumer or environmental groups. For example, people
for ethical treatment of animals (PETA) or Greenpeace.
5. General publics: a company should be concerned towards general publics’ attitude towards its
products and services.
6. Internal publics: Employees who help in creating proper image for the company through word of
mouth.
3.3.4. Competitors
A company should monitor its immediate competitor. The product should be positioned differently
and able to provide better services.
3.3.5. Suppliers
Suppliers are the first link in the entire supply chain of the company. Hence any problems or cost
escalation in this stage will have direct effect on the company. Many companies adopted supplier
relation management system to manage them well.
3.3.6. Customers
A company may sell their products directly to the customer or use marketing intermediaries to reach
them. Direct or indirect marketing depends on what type of markets Company serves. Generally we
can divide the markets into five different categories. They are
a. Consumer market.
b. Business market
c. Reseller market
d. Government market and
e. International market
You will come to know about these five different markets from the following example.
MRF a tyre company sells its product directly to consumer (in case of urgency, customer purchases
directly from showroom) i.e. operates in consumer market. It operates in business markets by selling
tyres to companies like Maruti Udyog limited. MRF also sells TYREs to BMTC and KSRTC, transport
organizations of Karnataka government. If MRF sells tyre in African or American countries then it is
operating in the international market. If MRF buys the old tyres, retreads it and sells it to the
consumer at a profit then company is operating in the reseller market.
1. Political and legal environment belongs to environment.
2. Suppliers are part of marketing intermediaries
a. True b. false
3. Newspaper is an example of
a. Citizen action publics
b. Internal publics
c. General publics
d. Media publics
4. In market, company buy goods and services to resell at a profit.
5. Retailers are final link between and
3.4. Company’s macro environment.
Figure 3.2 Forces in the macro
environment.
Macro
Environment
3.4.1. Demographic Environment.
Demography: The study of population characteristics like size, density, location, gender composition,
age structure, occupation and religion.
Demography statistics helps companies to develop their products in better way. These statistics are
also used in developing proper supply chain, communicating product information and changing the
product attributes. Demographic environment is analyzed on the basis of the following factors.
1. Age structure of the population
2. Marital status of the population
3. Geographic distribution of the population
4. Education level
5. Migration
6. Occupation.
Age structure of the population: from the following table you can generalize that India is having
48% population who are aged less than 21 and 28% of the population are in the bracket of 2125.
Many marketing companies are focusing on these two segments. For example, Radio Indigo, FM
radio station from Jupiter capital venture operates in Bangalore and Goa, plays international music.
Radio indigo targets youth segment who like western music.
TABLE 3. 1: POPULATION IN DIFFERENT AGE GROUPS AND THEIR PROPORTIONS TO
TOTAL POPULATION
Age group Population Percentage

All Ages 1,028,610,328 100.0
0 4 110,447,164 10.7
5 9 128,316,790 12.5
10 14 124,846,858 12.1
15 19 100,215,890 9.7
20 24 89,764,132 8.7
25 44 284,008,819 27.6
45 64 139,166,661 13.5
65 79 41,066,824 4.0
80+ 8,038,718 0.8
Less Than 18 422,808,543 41.1
Less than 21 492,193,906 47.9
Age no stated 2,738,472 0.3
Source: C2 and C14 Table, India, Census of India 2001.
Marital status of the population:
TABLE 3.2: POPULATION BY MARITAL STATUS AND SEX: INDIA – 2001
Number of Persons ( in '000) Percentage to Total
Marital status
Persons Males Females Males Females
Total 1,028,610 532,157 496,454 100 100
Never Married 512,668 289,619 223,048 49.8 54.4
Married 468,593 231,820 236,773 45.6 43.6
Widowed 44,019 9,729 34,290 4.3 1.8
Divorced /
3,331 988 2,343 0.3 0.2
Separated
Source : C2 and C14 Table, India, Census of India 2001
Half of the Indian population falls into the never married category. This provides an opportunity for
organized wedding industry. Indian wedding industry is worth Rs 1, 25,000 crore today. Vintage
group and shaadi.com are few to name in this industry. These companies are offering end to end
solution to the customers who are looking for lavish wedding in the exotic locations both in domestic
and abroad.
Geographical distribution of the population
Table 3.3; Rural – urban distribution of the population
Population
Persons 1,028,737,436
Males 532,223,090
Females 496,514,346
Rural 742,617,747
Urban 286,119,689
% Urban population 27.8%
Rural India with 74 crore population is a biggest market. Companies are trying to get a pie in this
untapped market. For example, DCM Shriram limited, opened ‘Hariyali’ bazaars in rural market.
These bazaars offer quality agriculture inputs, financial services, and farm output services.
Education level: More than 3 crore people in India either have graduation or post graduation. This
has led to the growth of many sunrise sectors. This educated population fuelled the growth of
information technology (IT), information technology enabled services (ITES), and biotechnology
industries.
TABLE 3.4: NUMBER AND PERCENT LITERATES BY LEVEL OF EDUCATION: INDIA 2001
Absolute Numbers (000')
Level of education
Persons Males Females
Literate 560,688 336,534 224,154
Literate without educational

20,023 11,361 8,662
level $
Below Primary 144,831 81,148 63,683
Primary 146,740 83,525 63,215
Middle 90,227 55,940 34,286
Matriculation/Secondary 79,230 51,202 28,028
High secondary/
Intermediate/PreUnivercity/ 37,816 24,596 13,220
Senior Secondary
Non technical diploma or

certificate not equal to 386 259 128
degree
Technical diploma or

certificate not equal to 3,667 2,901 766
degree
Graduate and above 37,670 25,533 12,137
Migration: Geographical shift in the population is becoming an interesting area in the demographic
studies. The Table 6, list out the various reasons for migration.
TABLE 3.5: NUMBER OF MIGRANTS BY PLACE OF BIRTH – INDIA 2001
Migrations by Place of

Category Percentage
birth
A. Total Population 1,028,610,328
B. Total Migrations 307,149,736 29.9
B.1 Migrants within the state of enumeration 258,641,103 84.2
B.11 Migrants from within the districts 181,799,637 70.3
B.12 Migrants from other districts of the state 76,841,466 29.7
B.2 Migrants from other states in India 42,341,703 13.8
B.3 Migrants from other countries 6,166,930 2.0
Source: Table D1 India, Census of India 2001.
TABLE 3.6: REASONS FOR MIGRATION OF MIGRANTS BY LAST RESIDENCE WITH DURATION
(09 YEARS) INDIA 2001
Reason for
Number of Migrants Percentage to Migrants
migrations
Persons Males Females Persons Males Females
Total migrants 98,301,342 32,896,986 65,404,356 100.0 100.0 100.0
Reason for migration :
14,446,224 12,373,333 2,072,891 14.7 37.6 3.2
Work / Employment
Business 1,136,372 950,245 186,127 1.2 2.9 0.3
Education 2,915,189 2,038,675 876,514 3.0 6.2 1.3
Marrige 43,100,911 679,852 42,421,059 43.8 2.1 64.9
Moved after birth 6,577,380 3,428,673 3,148,707 6.7 10.4 4.8
Moved with
20,608,105 8,262,143 12,345,962 21.0 25.1 18.9
households
Other 9,517,161 5,164,065 4,353,096 9.7 15.7 6.7
Source: Table D3, Census of India 2001
Marketers started identifying the niches in the migrated communities and offered their goods and
services. For example, Nandhini, an Andhra restaurant in Bangalore catering to the food needs of the
Andhra community. Patrika, a Rajasthan based daily now available through out the country.
Occupation:
TABLE 3.7: DISTRIBUTION OF MAIN WORKED BY DIFFERENT INDUSTRIAL CATEGORIES,
INDIA 2001
Industrial category Main Workers ('000s) Percentage (%)
Total main workers * 312,972 100.0
Agricultural & allied activities 176,979 56.6
Mining & quarrying 1,908 0.6
Manufacturing 41,848 13.4
Electricity, gas and water supply 1,546 0.5
Construction 11,583 3.7
Wholesale, retail trade & repair work, Hotel and 29,333 9.4
restaurants
Transport, storage & communications 12,535 4.0
Financial intermediation, Real estate, business activities 6,109 2.0
Other services 31,131 10.0
Source : Industrial classification data based on sample
Agriculture is the main occupation of the people in India but the share of other services is growing
rapidly. The other service category includes IT and ITES. Employees of these categories have high
disposable income. This has led to the opening of specialty stores and manufacturing of the luxury
items in the country.
3.4.2. Political And Legal Environment.
Government policies, legislations, regulations, and stability will directly affect the business. Therefore
it is inevitable for the firm to closely monitor this environment. The political and legal forces are
grouped into the following four categories.
Monetary and fiscal policies: These policies regulate government spending, money supply and tax
legislations.
1. Social legislations and regulations. Environmental protection act which specifies the emission
level.
2. Government relationships with industries: Government subsidies and change in tariff rate will
have direct impact on the particular company.
3. Legislations related to marketing: Following are the list of legislations which affect marketing
activities of the company.
Table 3.8
· Companies act 1956. · Industrial dispute act 1957
· Consumer protection act · Minimum wages act
· Payment of bonus act. · Environmental protection act
· Industries development and regulation · Trade union act

act.
· Contract law · Factories act 1948
· The contract labor (regulation and · Sales promotion employees’ act1976
abolition) act1970.
· Shops and establishment act 1953 · Copyright act 1957
· Trade marks act 1999 · Patents act 1970
· Designs act 2000 · Foreign exchange management act 1999
3.4.3. Economic And Natural Environment:
Consumer spending pattern
According to National sample survey 200506,
1. Monthly per capita consumption in rural area: Rs625.
2. Monthly per capita consumption in urban area: Rs1, 171.
3. Food expenditure in monthly per capita consumption: 53 %( Rural area)
4. Food expenditure in monthly per capita consumption: 40%( urban Area)
The above data shows that most of the expenditure in monthly per capita income goes to the food
expenditure only. Marketers in the non food category should promote heavily to change this spending
pattern. Companies in the food category should note that food expenditure in monthly per capita
expenditure is coming down. Hence extra efforts are required by these companies to sell their
products.
Interest rate: when interest rates are high, consumer tend not to make long term purchase like
housing. If the interest rate is low people put their money in alternative financial options where they
get better return.
Inflation: Higher the inflation rate lesser will be the purchasing power of the consumer. Hence
government always tries to control the inflation within the limit.
Changes in income: The rise in the salaries of the employees, improved performance of stock
market and better industrial growth led to the change in the income pattern in India. Many Indians
became millionaires and billionaires. Percentage of below poverty line is decreasing, but the concern
is rich and poor divide is growing.
Natural Environment:
Environmental concerns are growing over the years. Governments increased regulations to manage
the natural resources. Marketers should aware of such trends in the natural environment. Some of
the factors which organizations should keep a vigil are
a. Inadequate raw materials
b. Global warming and pollution levels and
c. Regulatory world.
a. Inadequate raw materials: We are over depending on Middle East countries for petroleum
products. Automobile companies are improving their technologies and also planning to come out
with hybrid cars which use alternative fuels.
b. Global warming is a big issue today.
c. Regulatory world; The Indian government through environmental protection act, making stringent
rules on emission and environment standards. Companies, particularly in automobiles should
adhere to those norms, which are expensive and time consuming.
3.4.4. Social and cultural environment:
1. Working women and rise of metro sexual man.: Number of women who are working in India is
increasing. This segment is looking towards products which help them in bringing better work life
balance. MTR a fast food giant in south India started offering ready to eat products to this segment.
These products are instant in nature where a woman dips a product in the hot water for 23 minutes
and serves. Metro sexuality is another new phenomenon, wherein a man also assumes the role of
women like purchasing household items and helping in kids’ education etc. It made marketers’ task
more difficult on positioning their products.
2. Time short people: This segment involves people who work long hours and have less personal
time. These people are looking for products which satisfy them quickly and conveniently. For
example, Easy bill, from Hero group offers one stop solution to consumer to pay their utility bills and
do other financial transactions.
3.4.5. Technology environment
1. Growth of information technology and biotechnology industries: Information technology has
revolutionized the lives of the people. It bought dramatic changes in the way organizations operates.
It helped in cost reduction, automation, better communication and efficiency in the organizations.
Indian banks few years ago use to take lengthy time to process the customer requests reduced it to
few hours because of information technology.
2. Nano technology: The technology in waiting, which is expected to reduce the size and cost of the
materials.
1. Demographic environment is the study of characteristics.
2. Inflation is studied in environment.
3. Ready to eat product is targeted to working women segment
a. Yes b. No
4. Which of the following is not the macro environment variable?
a. Technology environment
b. Competitive environment
c. Social and cultural environment
d. Demographic environment
5. is the major occupation in India.
3.5. Difference between Micro environment and Macro environment.
Table 3.9
Macro environment Micro environment
Size Large small
Control Cannot be controlled Can be controlled to some
extent
Uncertainty Very high low
complexity High low
Examples Political, social, cultural, Customer, publics, competitors,
technology, demography and suppliers and intermediaries.
natural environment
PEST (Political and legal, economic and natural, social and cultural, and technology
environment) Analysis:
Table 3.10
Factors Opportunity Threat

1. Political and legal environment
a. Monetary policy
b. Fiscal policy
c. Environmental policy
d. Lobby groups
2. Social and cultural environment
a. Gender
b. demographics
c. work culture
3. Economic and natural environment
a. Income
b. Spending power
c. Inflation
d. Interest rate
e. Raw materials
f. Taxation
4. Technology environment
a. Entry barriers
b. Growth of technology
c. Transfer of technology
3.6. Summary
1. Environment scanning is necessary to understand opportunities and threats faced by the
company.
2. Micro environment factors like marketing intermediaries, suppliers, competitors, publics and
customers influences company’s strategies. These are controllable to some extent.
3. Population variables like age, gender, marital status and occupation helps the company to
assess the market and change or develop their offerings
4. Shortage of raw material and increase in the income disparity are immediate concerns of the
organizations.
5. Working women and time short people changing the socio cultural environment of the country.
6. Technology is helping company to reduce cost, increase the efficiency and save time.
7. Micro and macro environment are differentiated on the basis of size, complexity, and uncertainty.
Terminal Question
1. Explain the need of environment scanning.
2. Discuss the forces in micro environment and their influence on company’s strategies.
3. Bring out the difference between Macro environment and micro environment.
4. Write a note on demographic environment in India.
5. Discuss the importance of political and legal environment study with examples.
Answers To Self Assessment Questions
1. Macro
2. False
3. Media publics
4. Reseller market.
5. Company and customers
1. Population
2. Economic and natural environment.
3. Yes
4. Competitive environment.
5. Agriculture.
Answer to Terminal Questions
1. Refer 3.2
2. Refer 3.3.
3. Refer 3.5.
4. Refer 3.4.1
5. Refer 3.4.2.
Unit 4 Understanding the Marketing Information Systems (MIS)
Structure
4.1 Introduction
4.2 Characteristics of MIS
4.3 Benefits of MIS
4.4 Types of Marketing Information
4.5 Components of MIS
4.6 Marketing Research
4.7 Features of Marketing
4.8 Objectives of Marketing
4.9 Marketing Research Process
4.10 Importance of Marketing Research
4.11 Advantages and Limitations of Marketing Research
4.12 Summary
Terminal Questions
Answers to SAQs and TQs.
4.1. Introduction
In the earlier chapter, we saw how marketing environment is changing and presenting new
opportunities and threats to an organization. The main responsibility for identifying significant
changes in the market place falls on the marketing department. They are better placed and have
advantages in undertaking this task because they are regularly interacting with customers and
observing competition.
The Marketing Departments need to develop Marketing Information Systems that provide them
information about buyer wants, preferences, behavior and also about competition. They are able to
do this by setting up systems and marketing related research methods to collect this valuable
information which is ultimately used to help make marketing decisions.
A Marketing Information System is a set of procedures to collect, analyze and distribute accurate,
prompt and appropriate information to different levels of marketing decision makers.
Learning Objectives
After studying this unit, you will be able to:
1. Understand the concept of Marketing Information System, as well as its characteristics &
benefits.
2. Outline different components of a Marketing Information system and classify different types of
Marketing Information that are being used.
3. Understand role and scope of Marketing Research in making Marketing decisions.
4. Define the objectives of a typical marketing research study
5. Outline and explain the steps involved in Marketing Research process
6. Understand the importance of marketing research
7. Explain the advantages and limitations of the marketing research function.
4.2. Characteristics of MIS
Philip Kotler defines MIS as “a system that consists of people, equipment and procedures to gather,
sort, analyze, evaluate and distribute needed, timely and accurate information to marketing decision
makers.
Its characteristics are as follows:
1. It is a planned system developed to facilitate smooth and continuous flow of information.
2. It provides pertinent information, collected from sources both internal and external to the
company, for use as the basis of marketing decision making.
3. It provides right information at the right time to the right person.
A well designed MIS serves as a company’s nerve centre, continuously monitoring the market
environment both inside and outside the organization. In the process, it collects lot of data and stores
in the form of a database which is maintained in an organized manner. Marketers classify and
analyze this data from the database as needed.
With the advent of Computer Technology, MIS has taken a step further to provide managers direct
access to the databases. This system called Marketing Decision Support System (MDSS) links a
decision maker to relevant databases and analysis tools, thereby allowing him to gain deep insights
into needs and trends of customers with the help of sophisticated statistical analysis.
Today companies organize the information in databases such as customer database, product
database, and field sales database and combine them to be stored in a huge database called Data
Warehouse. The process of searching through information in data warehouse to identify meaningful
patterns that guide decision making is called Data Mining.
4.3. Benefits of MIS
Various benefits of having a MIS and resultant flow of marketing information are given below:
1. It allows marketing managers to carry out their analysis, planning implementation and control
responsibilities more effectively.
2. It ensures effective tapping of marketing opportunities and enables the company to develop
effective safeguard against emerging marketing threats.
3. It provides marketing intelligence to the firm and helps in early spotting of changing trends.
4. It helps the firm adapt its products and services to the needs and tastes of the customers.
5. By providing quality marketing information to the decision maker, MIS helps in improving the
quality of decision making.
4.4. Types of Marketing Information
A Marketing Information System supplies three types of information.
1. Recurrent Information is the data that MIS supplies periodically at a weekly, monthly, quarterly,
or annual interval. This includes data such as sales, Market Share, sales call reports, inventory
levels, payables, and receivables etc. which are made available regularly. Information on
customer awareness of company’s brands, advertising campaigns and similar data on close
competitors can also be provided.
2. Monitoring Information is the data obtained from regular scanning of certain sources such as
trade journals and other publications. Here relevant data from external environment is captured to
monitor changes and trends related to marketing situation. Data about competitors can also be
part of this category. Some of these data can be purchased at a price from commercial sources
such as Market Research agencies or from Government sources.
3. Problem related or customized information is developed in response to some specific
requirement related to a marketing problem or any particular data requested by a manager.
Primary Data or Secondary Data (or both) are collected through survey Research in response to
specific need. For example, if the company has developed a new product, the marketing
manager may want to find out the opinion of the target customers before launching the product in
the market. Such data is generated by conducting a market research study with adequate sample
size, and the findings obtained are used to help decide whether the product is accepted and can
be launched.
4.5. Components of MIS
The following diagram shows a typical Marketing Information System with its components. Which
are?
1. Internal Records System
2. Marketing Intelligence System
3. Marketing Research System
4. Analytical Marketing System
Fig 4.1 The Marketing Information System
Marketing Marketing
Marketing Information System
Information Information
Internal Marketing
Marketing Environment Marketing Managers
reports research
system system
Target markets Analysis
Marketing channels Planning
Competitors Publics Marketing Analytical Implementation
Macro environment Intelligence marketing Control
forces system system
Marketing decisions and Communications
Source: Phillip Kotler, Marketing Managemnet: Analysis, Planning, and Control,
5 th ed. (Englewood Cliffs, N.J.: PrenticeHall, 1984), p. 189
Internal Records System
This includes information on (i) Order to payment cycle and (ii) sales information systems.
Order to payment cycle has a system which records, the timing and size of orders placed by
consumers, the payment cycle followed by consumers and the time taken to fulfill the orders, in the
shortest possible time. Customers place order through sales people and companies dispatch the
goods and receive payments directly or through bank. A proper record system pertaining to order –
to – payment cycle management helps mangers to decide on production and dispatch schedule,
inventory and accounts receivable schedule and also logistics and distribution management
schedules,
Sales Information Systems record everything in the sales Department, starting from Sales Call
Reports to prospects history to Sales territory and quota information for better sales planning and
forecasting purpose.
Marketing Intelligence System
This is a set of procedures and sources used by managers to obtain everyday information about
developments in the marketing environment. This system supplies ‘happenings’ data unlike Internal
Records System which supplies ‘results’ data. Marketing managers collect data from published
sources like books, magazines and journals; by talking to customers, intermediaries and sales
personnel. Some companies appoint specialists to gather consumer and competitor information, who
does mystery shopping to monitor the performance of their own or competitor’s dealers. Competitor
information can also be obtained by buying their product, attending their press conferences, trade
shows and reading their annual reports. Companies purchase commercial information from outside
suppliers and market research agencies like IMRB, ORG – MARG to obtain competitive data on their
sales, advertising expenditures etc., besides their own.
Marketing Research System
This is the third component of MIS. Marketing Research provides information to marketing manager
when he/she encounters marketing problems. This may involve conducting Marketing Research
survey by collecting primary data. These surveys may be conducted by the marketing department
itself or a it can hire services of an external marketing research agency.
Analytical Marketing Systems
Also known as Marketing Decision Support systems (MDSS), this is a coordinate collection of data,
systems, tools and techniques with supporting software and hardware by which an organization
gathers and interprets relevant information from business and environment and turns it into a basis
for marketing action. All the data which is generated through the other three systems described
above are stored in a data base. The storage and retrieval capability of decision support system
allows the collection and use of a wide variety of data throughout the company. Senior managers can
access the data base and continually and monitor sales, markets, performance of the sales people
and other marketing systems as well.
1. A Marketing Information System (MIS) caters to the needs of ______________
2. MIS enables a company to develop effective ______________ against emerging marketing
threats.
3. Recurrent Information is the data that MIS supplies _______________
4. ____________ Information is developed and provided in response to any specific data requested
by a marketing manager.
5. In Marketing Decision support systems, the manger is provided direct access to
_______________
4.6. Marketing Research
Earlier we saw that Marketing Research is an important component of the Marketing Information
System. Marketers need to acquire good understanding of their own markets to monitor the changing
environment. They need information to assess their own past performance as well as to prepare
future marketing plans. Hence they require timely and accurate information on their consumers and
competitors as well as on the performance of their products. In today’s highly competitive and
complex environment consumer needs are changing at a fast pace. Hence decision making is very
challenging.
Marketing Research performs the task of collecting, recording and analyzing relevant data. Thus, it
has emerged as one of the important activities of the marketing function.
American Marketing Association (AMA) defines Marketing Research as –
Definition: Marketing Research is the function which links the consumer, customers and public to
the marketer through information – information used to identify and define marketing opportunities
and problems; generate, refine and evaluate marketing actions; monitor marketing performance; and
improve understanding of marketing as a process.
Philip Kotler defines Marketing Research as – the systematic design, collection, analysis and
reporting of data findings relevant to a specific marketing situation facing the company.
5.7 Features of Marketing Research
1. It is a systematic process – It has to be carried out in a stepwise and systematic manner and
the whole process needs to be planned with a clear objective.
2. It should be objective – It is important that the methods employed and interpretations are
objective. The research should not be carried out to establish an opinion nor should it be
intentionally suited towards predetermined results.
3. It is multidisciplinary – Marketing Research draws concepts from other disciplines such as
Statistics for obtaining reliable data and from Economics, Psychology and sociology for better
understanding of buyers.
4.8. Objectives of Marketing Research
Marketing Research may be conducted for different purposes. Based on how organizations use
Marketing Research, objectives of Marketing Research can be summarized as follows:
1. To understand why customers buy a product
2. To forecast the probable volume of future sales or expected market share
3. To assess competitive strengths and strategies
4. To evaluate the effectiveness of marketing action already taken
5. To assess customer satisfaction of company’s products/services
4.9. Marketing Research Process
Every marketing research problem is different requiring a special approach or emphasis. Still there is
a sequence of steps, called the research process which can be followed in all the marketing research
studies and projects. Each step in this research process in independent but it is closely related to
other steps, because the result of the preceding step is the basis for the succeeding step.
Define the problem & research
objectives
Develop the Research Plan & Design
Collect the information
Analyze the information
Present the findings
Fig 4.2 Marketing Research Process
Step I – Define the problem and research objectives
It is said that ‘a problem well – defined is a problem half – solved’. A careful and precise definition of
the marketing problem will lead to useful and relevant results which can solve the marketing problem.
Each research project should have one or more objectives which form the broad frame within which
research has to be conducted.
It is very important to formulate the problem properly as being the first step in the process; any error
in this can mislead the entire study towards incorrect and erroneous results.
Step II Develop the Research Plan and Design
A Research plan is simply the framework within which collection and analysis of data is undertaken.
This step involves decisions on the data sources, research approaches, research instruments,
sampling plan and contact methods.
1. Data sources – The researcher has to decide which data sources to use – Secondary Data or
Primary Data or both.
Secondary Data are data which collected for some other purpose or for commercial purpose of
selling.
Primary Data are freshly gathered for a specific purpose or a specific research project.
Researchers usually look for Secondary Data to see whether the research problem can be partly or
fully solved without collecting primary data. Secondary Data, when available, should be checked for
reliability, accuracy and relevance to specific situation. If so, it is a much better option as it is cheaper
and is immediately available. If such needed data is not available, primary data will have to be
collected.
2 Research Approaches – Primary Data can be collected using any of the five approaches. They
are:
1. Observational Research – Fresh data can be collected by observing the situation and the
people in the situation.
2. Focus Group Research is a method of discussion in which a team of eight to twelve persons
invited for a group discussion in presence of a skilled moderator to discuss a product, service, a
firm or any marketing related activity. The proceedings are observed and recorded on videotape
and subsequently analyzed to understand consumer attitudes, beliefs and behavior.
3. Survey Research – This is the most common of the approaches wherein surveys are undertaken
with the help of a questionnaire to learn about people’s knowledge, beliefs and preferences.
4. Behavioral Research – Customer’s actual behavior in terms of actual purchases reflect their
preferences and are more reliable than responses provided in surveys which are memory based.
5. Experimental Research – The most scientific method of research is experimental research
which tries to capture cause and affect relationships.
Experiments are conducted by selecting matched groups of subjects, which are subjected to different
treatments. Extraneous variables (The external variable that affect the research process) are
controlled and then responses of the two groups are observed and checked for statistically significant
differences, if any. Since the extraneous factors are eliminated or controlled, the observed effects are
related to the variations in the treatments.
3 Research Instruments – There are mainly two types of research instruments: questionnaires
and mechanical devices
i Questionnaire – This consists of a set of questions logically arranged and presented to the
respondents to answer. Questionnaire is the most commonly used instrument for collection of
primary data due to its flexibility. It needs to be carefully prepared and pre – tested before being
used for actual data collection.
ii Mechanical Devices – Mechanical Devices such as galvanometers are used to measure the
interest or emotions aroused by exposure to an ad. Eye Cameras study respondent’s eye
movement to see which part of an ad attracted attention first and how long they pay attention to a
single item. These days Television audience ratings are measured using Audiometers which can
be attached to TV’s in a set of sample households. These devices record when the set is on and
to which channel it is tuned. The data collected by mechanical devices are generally found to be
more accurate than by human observation.
4 Sampling Plan – Now the researcher must prepare a sampling plan which outlines who should
be surveyed (Sampling Unit), How many should be surveyed (Sample Size) and how should they
be selected for the survey (Sampling Procedure).
i Sampling Unit – Researcher must define the element of the target population by whom
information shall be collected. For example, housewife or a youth between 16 – 25 years or an
office located on M. G. Road.
ii Sample Size – Large samples provide more reliable results than smaller samples. But normally
sample size is decided based on nature of the study and variance in the population, level of
accuracy desired and above all money available for research.
iii Sampling procedure – Two types of methods are available for selecting the samples –
Probability Sampling and Non– Probability Sampling.
Probability sampling method requires that each element of the population has an equal or known
chance of getting selected. It also allows the calculation of confidence limits for Sampling Error.
Three commonly used Probability sampling methods are Simple Random Sampling, Stratified
Random Sampling and Cluster Sampling.
In Non Probability Sampling method, respondents are chosen on the basis of researcher’s judgment
or convenience and this method does not allow sampling error to be measured. In spite of these
limitations, many researchers take Non – probability samples due to time and cost constraints. Three
commonly used Non – Probability sampling methods are Convenience Sampling, Judgment
Sampling and Quota Sampling.
5 Contact Methods – Now the researcher has to decide how the respondent should be
contacted.The choices of methods available are mail, telephone, personal interview or online
interview.
Mail Questionnaire – This is the best way to reach people who may not give personal interview or if
the subject of the study is of a personal nature. This questionnaire should be simple and clearly
worded so that respondent can fill up the answers without any assistance. The response rate in this
method is usually low and responses come slowly.
Telephone Interview – This method is very quick way for gathering information. The method is
interactive, in case any clarification is required, but such an interview typically should be short. Only
few questions can be asked through this method. In India, Telephone interviewing is difficult as
people do not like to answer questions coming from strangers.
Personal Interview – This is the most versatile method which can be adapted to any kind of
research subject. By face to face interaction researcher will be able to make personal observations.
It is the most expensive and also time consuming method. Personal Interviews can be undertaken
after arranging interviews at the respondent’s premises or at Shopping Malls by stopping people and
requesting interview. The latter method is called Mall Intercept Method. This method is necessarily a
non – probability method but is less expensive and does not take too much time.
Online Interviews – There are many ways to collect information through the internet. A Company
can put a questionnaire on its web site and offer incentive to people to answer; a banner can be kept
on a popular site like Yahoo!, inviting people to answer some questions and win a prize. Every day
new methods are being evolved to start a new way to collect data. Advantages of online Interview
are that it is very inexpensive and can be very fast, whereas disadvantage is that it has limited reach
and results can be skewed.
Step III Collect the Information – After designing the research instrument, the researcher should
now actually contact the respondent and collect the information. At this stage, it is very important to
keep the quality of the data under control by ensuring accurate unbiased answers and by seeking the
entire respondent’s co – operation. In case the researcher has to appoint data collectors to collect
the information from respondents, they must be well trained and motivated.
Step IVAnalyze the information –In this stage researcher collects the data and codify it.
Nowadays, many questionnaires are pre coded which makes the task of data entry very easy. The
coded data is then tabulated to provide frequency distributions. Tabulated data is now analyzed.
Averages and measures of dispersion are computed for the major variables. Advanced Statistical
Techniques are used to discover findings. Here the data is converted to information which may be
used in decision – making.
Step V Present the findings – At this last step, the researcher should present findings to the
decision makers or users of the information.
Normally, the findings are presented in the form of a report which should present the following
aspects of the research undertaken.
General Format of a Report
1. Introduction – An introduction to background of the marketing problem and the firm.
2. Statement of Purpose – Statement of purpose and objectives of the study including
hypothesis/hypotheses is/ are proposed.
3. Research Methodology – Methodology of data collection used and tools used, Sampling
Procedure used and Sample Size, Limitations of the study if any.
4. Analysis of Data – Includes tables /graphs and statistical analysis used along with data
interpretation.
5. Findings and Conclusions Major findings and conclusions.
6. Recommendations – Recommendations for action.
7. Appendix and Bibliography.
4.10. Importance of Marketing Research
With the increase in customer orientation, it has become necessary to acquire information on
consumers’ needs, preferences and opinions. This will help the marketers to make changes in the
marketing mix. Thus marketing research is a very important and useful tool in enhancing the decision
– making ability of the marketer in today’s dynamic environment.
1. ___________ involves collection of information from a group of 8 – 12 persons who are invited
to discuss matters related to a product or service.
2. ____________ Data are data collected for some other purpose.
3. _______________ Research tries to capture cause and effect relationships.
4. In _____________ sampling method, respondents are chosen based on researcher’s judgment
or
5. ______________ Method involves stopping people while they are shopping and requesting an
interview.
4.11. Advantages And Limitations Of Marketing Research.
Advantages: Marketing Research has several advantages
1. It uses a scientific approach in designing the problem and finding out alternative solutions
through use of statistical and mathematical techniques.
2. It helps to make better marketing decisions as they are based on authentic information, rather
than pure judgment or guess work.
3. It helps in evaluating the effectiveness of various marketing actions and draws attention to likely
problem areas.
4. It is helpful in ascertaining the reputation of the firm and its products.
5. It helps the firm in knowing the marketing and pricing strategies of its competitors.
6. It is helpful to a firm in making sales forecasts for its products and thereby, establishes a
harmonious match between demand and supply of its products.
Limitations:
Like any other managerial tool, marketing research is not free from flaws. It is seen that in many
cases, wrongly executed marketing research project or improperly interpreted findings, has had to
disasters in business. Following are some of the limitations of marketing research.
1) Not an exact Science: Though marketing research uses scientific methods but it is not an exact
science. It deals with human behavior and many controllable and uncontrollable factors, which
influence marketing forces, play their role.
2) It is not a panacea: Marketing Research can only provide accurate information, based on which
marketers have to take their decision using their experience and judgment as well. Marketing
Research is only an aid, it does not provide solutions.
3) Human Tendencies – Consumers, dealers, wholesalers etc are the basic constituents on whom
marketing research is carried out. Human beings behave artificially when targeted for research
information. These aspects of human behavior affect the quality of marketing research data.
4) Inexperienced research staff: It needs well trained and experienced researcher, interviewer and
investigator, otherwise quality of data will be adversely affected.
5) Involves high cost: It is considered a luxury or a wasteful activity in India, as it involves high
cost.
6) Limitations of tools and techniques: The validity of marketing research is also limited by the
limitation of tools and techniques involved.
4.12 Summary
1. Marketing Research is the systematic gathering recording and analyzing of data about problems
relating to marketing of goods and services.
2. Marketing managers need a Marketing Information System (MIS) to carry out their tasks of
analysis, planning, implementation and control related to the marketing function, effectively.
3. By providing timely and accurate information, MIS helps in improving the quality of decision –
making.
4. An MIS has four Components (I) Internal Records System (II) Marketing Intelligence System (III)
Marketing Research System (IV) Analytical Marketing System.
5. Marketing Research Process refers to a set of sequential steps to be followed to conduct a
marketing research study.
6. The main features of Marketing Research are that it is a systematic process; it should be
objective and it is multidisciplinary in nature.
7. With the changing character of markets, increase in Customer needs and wants and increasing
competition, it is important that marketers acquire information about consumer, the markets and
the competition. Marketing Research now is an important tool for marketers as an aid in decision
making.
Terminal Questions
1. Explain the benefits of MIS?
2. Discuss briefly the process of Marketing Research?
3. What are the features of Marketing Research?
4. What is the usefulness of Marketing Decision support system?
5. Write a short note on limitations of Marketing Research?
1. Marketing Decision – Makers
2. Safeguard / Defuse
3. Periodically
4. Customized
5. Databases
1. Focus Group Research
2. Secondary
3. Experimental
4. Non – Probability
5. Mall Intercept
1. Refer to 4.3
2. Refer to 4.9
3. Refer to 4.7
4. Refer to 4.5
5. Refer to 4.11
Unit 5 Consumer Buyer Behavior
Structure
5.1. Introduction
5.2. Characteristics of consumer behavior
5.3. Types of buying decision behavior: Henry Assael model
5.4. Consumer buying decision process
5.5. Buyer decision process for new products
5.6. Buying motives
5.7. Buyer behavior models
5.8. Summary
Terminal questions
Answers to SAQ’s and TQ’s
5.1. Introduction
Consumers are individuals, households or businesses who use the products. In this unit we are
limiting our study to individual and households’ use of products for personal consumption. Consumer
characteristics vary from country to country. Therefore it has become challenging task for marketer to
understand the need, buying behavior of consumer before developing product and marketing
program. In this section we will discuss consumer buying behavior and his/her decision making
process. We will also look into the decision process of buyer for new product. Consumer motives and
behavior models are analyzed to identify buying environment.
Learning Objectives
After studying this unit you will be able to
1. Identify the characteristics those affect consumer behavior.
2. Explain different types of buyer behavior.
3. Analyze the consumer decision making process
4. Discuss consumer decision process for new products.
5. Examine the buying motives and behavioral models.
5.2. Characteristics affecting consumer behavior
Cultural, Social, Personal and Psychological factors influence the consumer behavior. These are
external to the company and cannot be controlled. Marketer would like to understand the impact of
these factors on his/her organization
I. Cultural factors:
1. Culture is the combination of customs, beliefs and values of consumers in a particular nation.
Majority Indians are vegetarians and a company which sells non vegetarian items should analyze
these values of the consumer. For example, KFC which sells chicken dishes all over the world added
vegetarian burgers in their menu to serve vegetarian consumers. Another multinational McDonald,
whose majority of sales comes form selling beef lets, didn’t include in the Indian menu as cow is a
sacred animal.
2. Subcultures are part of culture comprising, geographic regions, religions, nationalities and racial
groups. The value system of these groups differs from others. For example, Hindus in north India eat
special vegetarian food during the Navaratra festival. They prefer to spend their time with their family.
During this time restaurants will have lesser traffic. To attract the customers, restaurants started
offering the authentic Navaratra dish. This helped the restaurant to attract the family who don’t have
time, bachelors and people want to spend their time with family without allotting much time for food
preparation and so on.
3. Social class these are permanent groups in the society whose members have common likings.
According to Mckinsey consumer report, Indian consumers can be classifies into five different
categories. They are,
a. Deprived
b. Aspires
c. Seekers
d. Strivers and
e. Global Indians.
1. Deprived are the people who earn less than Rs 90,000 annually. This group is also known as
below poverty line. They are the poorest people in the country. They won’t get continuous
employment and they earn their lively hood from seasonal work. People in this category will do
less skilled or semi skilled work.
2. Aspires belongs to the families who earn between Rs90, 000 to Rs 2, 00,000. This group consist
small shop keepers, industrial workers, and small land holding farmers. Though they earn more
than deprived class, but half of their money goes for basic amenities and food.
3. Seekers earn between Rs 200,000 to 500,000. This class varies largely. The group contains
fresh workers, middle level employees, government employees and business people. The class
varies widely on the age, attitude and other factors.
4. Strivers belong to the group who earn between Rs 500,000 to 1,000,000. People in this category
are considered very successful. The group contains business people, large farmers, senior
government officials and professionals. Their earnings are enough to fill their apatite of materials.
They are leading the consumption led growth in India.
5. Global Indians are earning more than Rs 1,000,000. This group is comprised of senior
government officials, professionals, business people and top business executives. India is
witnessing the growth in this class. They are truly global; they purchase international brands and
have international cuisine.
II. Social factors
Human beings are social animals. They live and interact with other people. Therefore there is a
chance of influence by others on their opinions. Marketers like to identify such influential persons or
groups of consumer. Generally such groups are classified into two major groups namely reference
groups and family.
Reference groups are used in order to evaluate and determine the nature of a given individual or
other group's characteristics and sociological attributes. Reference groups provide the benchmarks
and contrast needed for comparison and evaluation of group and personal characteristics.
“Reference groups are groups that people refer to when evaluating their own qualities,
circumstances, attitudes, values and behaviors." William Thompson & Joseph Hickey, Society in
Focus, 2005.” Reference groups act as a frame of reference to which people always refer to evaluate
their achievements, their role performance, aspirations and ambitions
Family: Indian culture gives utmost importance to the family. People discuss with their family before
purchasing the valuable items. Wife, children and parents influence the decisions of the family.
Therefore many companies use either whole family or kids in their promotional programs.
Figure 5.1 Figure 5.2
Godrej introduced memory back up auto washing machine. They have shown the family in the
advertisement who are enjoying without any problems of washing clothes. In the second
advertisement Dabur chyavanprash uses kids in their advertisements. The target customers are used
with celebrity to provide necessary image and convey the attributes of the product.
III. Personal factors:
Individual factors like age, occupation, lifestyle and personality influence the consumer decision
making. We discussed age and occupation factors and their application earlier in the marketing
environment unit. We will discuss lifestyle and its influence on the consumer in the segmentation unit.
In this section we will focus on the personality and its influence on the consumer decision making
process. Personality is the image of people’s traits. Traits include Self confidence, Dominance,
autonomy, defensiveness, adaptability and aggressiveness. Many companies used these concepts in
their marketing communications. Bajaj pulsar used muscularity to highlight its image (definitely male).
Fair and lovely and stay free tried to highlight 21 st century Indian girl and their aspirations in their
communications.
IV Psychological factors:
Motivation:
Abraham Maslow’s “Need Hierarchy Theory”:
One of the most widely mentioned theories of motivation is the hierarchy of needs put forth by
psychologist Abraham Maslow. Maslow saw human needs in the form of a hierarchy, ascending from
the lowest to the highest, and he concluded that when one set of needs is satisfied, this kind of need
ceases to be a motivator. As per his theory these needs are:
(i) Physiological needs: These are important needs for sustaining the human life. Food, water,
warmth, shelter, sleep, medicine and education are the basic physiological needs which fall in the
primary list of need satisfaction. Maslow was of an opinion that until these needs were satisfied to a
degree to maintain life, no other motivating factors will work.
(ii) Security or Safety needs: These are the needs to be free of physical danger and of the fear of
losing a job, property, food or shelter. It also includes protection against any emotional harm.
(iii) Social needs: Human beings are social animals. They strive to be in the society. In this type of
needs people will try to satisfy their needs for affection, acceptance and friendship.
(iv)Esteem needs: According to Maslow, once the people satisfied with social needs. They would
like to have esteem needs. This category includes power, prestige status and selfconfidence needs.
It includes both internal esteem factors like selfrespect, autonomy and achievements and external
esteem factors such as states, recognition and attention.
(v) Need for selfactualization: Maslow regards this as the highest need in his hierarchy. It is the

drive to become what one is capable of becoming; it includes growth, achieving one’s potential and
selffulfillment. It is to maximize one’s potential and to accomplish something
Marketer is interested in finding what state of need hierarchy the consumer is in and what type of
product to be developed to suit his or her needs. If person needs security for his car than the mileage
then auto companies should highlight that benefit in their marketing communications.
Perception:
It is the process of acquiring, interpreting, selecting and organizing sensory information.
Explanation of the definition: stimulus is generated by hearing, smelling, seeing, touching, and
tasting. People develop stimulus about product or services through any of the above themes and
creates an image in the mind.
The marketing implication of the definition; Marketer researches his consumer profile and
communicates the product or service messages either through radio, demo, or television. By seeing,
hearing or experiencing the product or service consumer will develop an image in the mind. The
message given by company may pass through three different selection procedures.
a. Selective attention: The habit of the people to analyze the information completely and
interpreting it. They develop the perception about the product or service only after complete
analysis. This is very difficult group to handle as they request for more information.
b. Selective distortion: the phenomena in which consumer will have predispositions and interpret
the organizations information as they like it. This type of perception is both effective and non
effective for the company. If consumer understands the wrong message in a right way it is
advantageous but if he understand right message in wrong way then company will be under
trouble.
c. Selective retention: consumer will not remember all the points informed by the company.
He/she may remember the good points of company and forget the negative points of the
company.
5.3. Types Of Buying Decision Behavior: Henry Assael Model.
Figure 5.3
High Involvement Low involvement
Significant difference Complex buying Variety seeking

between brands behavior buying behavior
Few differences Dissonance Habitual buying

between brands reducing buying behavior.
behavior
Complex buying behavior: customers who are representing this behavior are highly involved in the
purchase of the product or service. The process became complex as difference between brands are
very high. For example, customer who wants to purchase refrigerator would like to know the
meanings of defrosting, door lock, digital temperature control etc... The price of the product usually
high let me show you the comparison of three brands and significant difference between them.
Table 5.1
LG GR T Akai D186 Electrolux

282 GV/GE TT DX Kelvinator
386
Defrost
system
Door Lock
Adjustable
Shelves
Moisture
and
Humidity
Control
Deodorizing
Ability
Water
Dispenser
Defrost
system
From the above example it is clear that marketer should first develop the belief about the brand,
provide the information and differentiate the company brand from others. In the above example you
can see both Akai and LG don’t have water dispenser while Electrolux have. Both LG and Electrolux
have moisture and humidity control while Akai lacks it. Customer would like to know what these
features are and how they add value to the product.
Dissonance reducing buying behavior:
The behavior exhibited by the customer when product purchase requires high involvement but only
few differences exist. For example, customers who want to purchase CTV will not find many
differences between the brands but the price of the product and its technicality makes customer to
involve more. One of the major disadvantages of this type of behavior is customer will show post
purchase dissonance which is very difficult to control.
Variety seeking buying behavior.
When there are significant difference between the brands existing but customer will not involve more
while purchasing, marketer identify this behavior as variety seeking buying behavior. Let us discuss
the purchasing behavior of customer for biscuits. There are many varieties of biscuits available. One
can purchase salt biscuits, cream biscuits, Marie biscuits, and milk biscuits of Britannia, Parle, ITC
sun feast and others. The customer who purchased Britannia tiger earlier may purchase Sun feast
cream biscuit next time. This doesn’t mean that quality of Britannia tiger is inferior to other brands but
customer would like to try the varieties available in the market. In this situations marketer should
undertake following steps
a. The market leader should encourage customers to buy repeatedly.
b. Make the product available and visible to the customer in the shopping places.
c. The firm who are not market leader should come out with sales promotion techniques to
encourage customer to purchase the product.
Habitual buying behavior:
The low involvement between the brands and few differences between the brands leads to the
habitual buying behavior. For example spice powder marketed by MDH, Everest or MTR have very
few difference between them and customer do not search the information to purchase particular
product. Marketers whose customer represents this category should follow below listed strategies
a. Use price and sales promotions to stimulate product trial.
b. Use more visual aspects than the wordings in the advertisements
c. Television is the better media for this type of products.
d. Use classical conditioning theory to create advertisements.
1. Religion is one of the factor that influence consumer behavior
a. Culture
b. Social
c. Personal
d. Psychological
2. Seekers income varies between
a. 90,000 to 200,000
b. 200,000 to 500,000
c. 500,000 to 1,000,000
d. None of these
3. The habit of the people to analyze the information completely and interpreting it in the perception
is called as
4. Dissonance reducing behavior is
a. Significant difference between brands and high involvement
b. Significant difference between brands and low involvement
c. Few difference between the brands and high involvement
d. Few difference between the brands and low involvement
5. The process of acquiring, interpreting, selecting and organizing sensory information is called as

5.4 Consumer buying decision process.
After discussing the factors those influence the buying behavior, now, we will discuss the consumer
decision making process. Consumer passes through five different stages while purchasing the
product.
Figure 5.4
1. Need recognition: customer posses two type of stimuli’ at this juncture. One is driven by the
internal stimuli and another is external stimuli. The examples of internal stimuli are customer’s
desire, attitude or perception and external stimuli are advertising etc...From both stimuli customer
understand the need for the product. Here marketer should understand what customers needs
have that drew customers towards the product and should highlight those in the communication
strategy.
2. Information search: In this stage customer wants to find out the information about the product,
place, price and point of purchase. Customer collects the information from different sources like
a. Personal sources: Family, friends and neighbors
b. Commercial sources: Advertising, sales people, dealers, packaging and displays.
c. Public sources: mass media and consumer rating agencies.
d. Experiential sources: Demonstration, examining the product.
In this stage marketer should give detailed information about the product. The communication should
highlight the attributes and advantages of the product in this stage so that he created the positive
image about the product.
3. Evaluation of alternatives : After collecting the information, consumers arrive at some
conclusion about the product. In this stage he will compare different brands on set parameters
which he or she thinks required in the product. The evaluation process varies from person to
person. In general Indian consumer evaluate on the following parameters
a. Price
b. Features
c. Availability
d. Quality
e. Durability
At this stage marketer should provide comparative advertisements to evaluate the different brands.
The advertisement should be different for different segments and highlight the attribute according to
the segment.
4. Purchase decision
In this stage consumer buy the most preferred brand. In India affordability plays an important role
at this stage. Organizations’ bring many varieties of the products to cater to the needs of customers.
5. Post purchase behavior
After purchasing the product the consumer will experience some level of satisfaction and
dissatisfaction. The consumer will also engage in post purchase actions and product uses of interest
to the marketer. The marketer’s job does not end when the product is bought but continues into the
post purchase period. Customer would like to see the performance of the product as he perceived
before purchase. If the performance of the product is not as he expected then he develops
dissatisfactions. Marketer should keep an eye on how consumer uses and disposes the product. In
some durable goods Indian consumer want resale value also. Many automobile brands that not able
to get resale value lost their market positions.
5.5. Buyer decision process for new products.
The buyer’s decision for existing products and new products varies. You already seen in the existing
product buying decision process consumers have the option to search for the information and
evaluate them. In the new product such options don’t exist. Therefore we should understand how
consumer comes to know about the product. Kotler defined this process as adoption process.
According to Philip Kotler Adoption is ‘The mental process through which an individual passes from
first hearing about an innovation to final adoption’
Adoption process
Figure 5.5
1. Awareness: the consumer became aware of the product but lacks information about it.
2. Interest: As know previous information available consumer shows interest to get the information
about the product.
3. Evaluation: After receiving the information consumer analyzes the benefits of new products over
any existing products or substitutes and decides whether to buy or not.
4. Trial: The consumer tries the new product on a small scale to improve his or her estimate of its
value.
5. Adoption: In this stage consumer decides to make full and regular use of the product.
Adoption rate:
Figure 5.6
The adoption of new product varies from individual to individual.
1. 2.5% of the consumers adopt any new product that enters to the market. These consumers are
status conscious people. Marketer should highlight how the new product will bring the esteem to
the consumer.
2. 13.5% of the customers fall into the early adopter categories. In this categories customer
observed the advantage of the new product and the moment the price of the product falls into the
affordable category they buy the product.
3. The next group is the biggest one in the adoption process. These group customers are attracted
towards the benefits of the product. They make sure that there are no technical or general
problems associated with the product. This group contains 34% of the total customers.
4. This group consist 34% of customers. The group looks for the quality product at the affordable
prices
5. The final group is called as laggards. These are traditional and price conscious people. They
often take lot of time to adoption of the product.
1. Sales people are sources of information
a. Public sources
b. Personal sources
c. Commercial sources
d. Experiential sources.
2. The third stage in the adoption process is
a. Awareness
b. Interest
c. Evaluation
d. Trial.
3. The group of customers who adopt the new product at the end are called as
4. % of consumers belongs to early adopter category
5. Customer satisfaction or dissatisfaction is determined in stage of consumer decision process
a. Information search
b. Evaluation of alternative
c. Purchase
d. Post purchase.
5.6. Buying Motives
‘The thoughts, feelings, emotions and instincts that induces customer to buy a product are called as
buying motives’
According to Prof D.J. Duncan ‘buying motives are those influences or considerations which provide
the impulse to buy, induce action and determine choice in the purchase of goods and services’.
Classification of buying motives:
Figure 5.7
Buying Motives
Product buying motives Patronage motives
Emotional product Emotional product
buying motive buying motive
Rational product Rational patronage
buying motive buying motive
1 Product buying motives are those influences and reasons which prompt a buyer to choose a
particular product in preference to others. It may be design, shape, dimension, size, color,
package etc…
Product buying motives are further classified as
a. Emotional product buying motive and
b. Rational product buying motive
2 Emotional product buying motives in which buyer decides to purchase a product without
thinking over the matter logically and carefully. Buyer takes the decisions on the emotions.
Following factors provides the list that influence the emotional product buying motives
1. Customer attaches the pride with the product.
2. Customer try to imitate form others
3. Purchase d the goods for affection on any family member.
4. Products that provide comfort are usually purchased on the emotions.
5. Sexual appeal products are brought on emotional product motives
6. The product those used as recreation, hunger or habit products are usually bought emotionally.
7. Products those provide distinctiveness or individuality.
3 Rational product buying motives: when buyer examines pros and cons of purchasing a product
and takes decisions then the behavior is called as rational product buying motives. Buyers will be
looking for any of the following factors before taking rational decisions
1. The safety or security features provided by the product.
2. The value for money provided by the product.
3. Suitability and utility of the product.
4. Durability of the product.
5. Convenience of the product.
4 Patronage buying motives are those considerations or reasons that make a buyer patronage a
particular shop in preference to other shops while buying a product.
Patronage buying motives are classified into two categories. They are
a. Emotional patronage buying motives.
b. Rational patronage buying motives.
e. Emotional patronage buying motives are patronizing the particular shop without logical thinking or
reasoning. Emotional patronize buying motives include the following decisions
1. Appearance of the shop
2. Visual merchandising in the shop.
3. Reference groups influence about one particular shop.
4. Shopping in a big mall is a prestige issue.
5. Imitating the other reference groups’ members.
5 Rational patronage buying motive will arises after buyer analyzing the shop carefully and
providing the information to reference group members. Rational patronage buying motives
include the following
1. Convenience of the shop to the buyers.
2. Value for money provided by the shops.
3. Financial schemes and facilities provided by the shop.
4. Availability of wide range of goods.
5. Reputation of the shop in the area.
6. Sales force efficiency to convince the customer.
7. Services provided by the sales executives.
5.7. Buyer behavior models.
The influence of social sciences on buyer behavior has prompted marketing experts to propound
certain models for explaining buyer behavior. Broadly, they include the economic model, the learning
model, the psychoanalytical model and the sociological model.
1) The Economic Model: According to the economic model of buyer behavior, the buyer is a
rational man and his buying decisions are totally governed by the concept of utility. If he has a
certain amount of purchasing power, a set of needs to be met and a set of products to choose
from, he will allocate the amount over the set of products in a very rational manner with the
intention of maximizing the utility or benefits.
2) The Learning Model: According to the learning model which takes its cue from the Pavlovian
stimulus response theory, buyer behavior can be influenced by manipulating the drives, stimuli
and responses of the buyer. The model rests on man’s ability at learning, forgetting and
discriminating. The stimulus response learning theory states that there develops a bond between
behavior producing stimulus and a behavior response (S. R. Bond) on account of the conditioning
of behavior and formation of habits. This theory may be traced to Pavlov and his experiments on
salivating dogs. Pavlov’s experiments brought out associations by conditioning.
In his well known research with dogs, a bell was rung every time food was served to a dog.
Eventually, the dog started salivating each time upon hearing the bell though no food was served.
The dog’s behavior is conditioned; it is related to behaviorproducing stimulus (bell ringing) and
behavior response (salivation). The S.R. bond so established causes a set pattern of behavior learnt
by the object – dog. In terms of consumer behavior, an advertisement would be a stimulus whereas
purchase would be a response.
Learning Process: According to the stimulusresponse theory, learning is dependent on drive, cue
(stimulus), response and reinforcement.
Drive: Drive may be defined as any strong stimulus that impels action. It arouses an individual and
keeps him prepared to respond. The drives may be classified as primary drives and secondary
drives. Primary drives are based upon innate physiological needs such as thirst, hunger, pain
avoidance, and sex. The secondary drives are based upon learning. They are not innate and are
derived from the primary drives. These include the desire for money, fear, pride, rivalry, etc.
Cue: Cue or stimulus may be defined as any object in the environment perceived by the individual.
The aim of the marketing man is to find out or create the cue of sufficient importance that it becomes
the drive stimulus or elicits other responses appropriate to his objective. Here, the objective is to find
out those conditions under which a stimulus will enhance the chances of eliciting a particular kind of
response.
Response: Response is an answer to a given drive or cue. When a man feels thirsty, he attempts to
get water at any cost. Here attempt to get water is a response to the primary drive of thirst.
“Response also includes attitudes, familiarity, perception and other complex phenomena.”
Responses may be generalized or discriminatory. Generalized response refers to a uniform response
to similar though not identical stimuli. Discriminatory response refers to the selective response to
similar stimuli. Undifferentiated products such as cigarettes and detergents normally elicit
generalized consumer responses but by huge advertising outlays companies try to induce
consumers to perceive differences in brands and to make discriminatory responses.
Reinforcement: Reinforcement or reward means reduction in drive and stimulus. It has been defined
as “environmental events exhibiting the property of increasing the probability of occurrence of
responses they accompany.” Thus, when consumption of a product or a brand of product leads to
satisfaction of the initiating need (drive/stimulus) there is reinforcement. If at some later date the
same needs are aroused, the individual will tend to repeat the process of selecting and getting the
same product or brand of product. Each succeeding time that product or brand brings satisfaction,
further reinforcement takes place, thus, further increasing the possibility that in future also, the same
product or brand will be bought. This type of behavioral change, increasing possibility that an act will
be repeated, is called learning; reinforcement increases the rapidity and vigor of learning.
3) The Psychoanalytical Model: The psychoanalytical model draws from Freudian Psychology.
According to this model, the individual consumer has a complex set of deepseated motives which
drive him towards certain buying decisions. The buyer has a private world with all his hidden fears,
suppressed desires and totally subjective longings. His buying action can be influenced by appealing
to these desires and longings. The psychoanalytical theory is attributed to the work of eminent
psychologist Sigmund Freud. Freud introduced personality as a motivating force in human behavior.
According to this theory, the mental framework of a human being is composed of three elements,
namely,
1. The id or the instinctive, pleasureseeking element. It is the reservoir of the instinctive impulses
that a man is born with and whose processes are entirely subconscious. It includes the
aggressive, destructive and sexual impulses of man.
2. The superego or the internal filter that presents to the individual the behavioral expectations of
society. It develops out of the id, dominates the ego and represents the inhibitions of instinct
which is characteristic of man. It represents the moral and ethical elements, the conscience.
3. The ego or the control device that maintains a balance between the id and the superego. It is the
most superficial portion of the id. It is modified by the influence of the outside world. Its processes
are entirely conscious because it is concerned with the perception of the outside world.
The basic theme of the theory is the belief that a person is unable to satisfy all his needs within the
bounds of society. Consequently, such unsatisfied needs create tension within an individual which
have to be repressed. Such repressed tension is always said to exist in the subconscious and
continues to influence consumer behavior.
4. The Sociological Model: According to the sociological model, the individual buyer is influenced
by society or intimate groups as well as social classes. His buying decisions are not totally
governed by utility; he has a desire to emulate, follow and fit in with his immediate environment.
5. The Nicosia Model: In recent years, some efforts have been made by marketing scholars to
build buyer behavior models totally from the marketing man’s standpoint. The Nicosia model and
the Howard and Sheth model are two important models in this category. Both of them belong to
the category called the systems model, where the human being is analyzed as a system with
stimuli as the input to the system and behavior as the output of the system. Francesco Nicosia,
an expert in consumer motivation and behavior put forward his model of buyer behavior in 1966.
The model tries to establish the linkages between a firm and its consumer – how the activities of
the firm influence the consumer and result in his decision to buy. The messages from the firm first
influence the predisposition of the consumer towards the product. Depending on the situation,
he develops a certain attitude towards the product. It may lead to a search for the product or an
evaluation of the product. If these steps have a positive impact on him, it may result in a decision
to buy. This is the sum and substance of the ‘activity explanations’ in the Nicosia Model. The
Nicosia Model groups these activities into four basic fields. Field one has two subfields the
firm’s attributes and the consumer’s attributes. An advertising message from the firm reaches the
consumer’s attributes. Depending on the way the message is received by the consumer, a certain
attribute may develop, and this becomes the input for Field Two. Field Two is the area of search
and evaluation of the advertised product and other alternatives. If this process results in a
motivation to buy, it becomes the input for Field Three. Field Three consists of the act of
purchase. And Field Four consists of the use of the purchased item.
Terminal Questions
1. Explain the characteristics that affect consumer behavior.
2. Discuss the types of consumer buyer behavior with the help of Henry Assael model.
3. Explain the consumer decision making process.
4. Discuss the buyer decision strategies for new products.
5. Write a note on buying motives
1. Culture
2. 200,000 to 500,000
3. Selective attention
4. Few difference between the brands and high involvement
5. Perception
1. Commercial sources
2. Evaluation
3. Laggards
4. 13.5%
5. Post purchase
1. Refer 5.2
2. Refer 5.3
3. Refer5.4
4. Refer 5.5
5. Refer 5.6
Unit 6 Business Buyer Behavior
Structure
6.1 Introduction
6.2. Differences between consumer and business buyer behavior
6.3. Buying situations in industrial marketing
6.4. Buying roles in business buying process
6.5. Factors that influences business buyers
6.6. Steps in business buying process.
Terminal Questions
6.1 Introduction
Any market in which customer buys the product for other than personal consumption is called
business market. This market includes organizational buying, institutional buying and government
buying. The market consist very few buyers but they purchase in a very big quantity. These
customers are usually found in the industrial towns, tech parks and industrial area. The demand for
the product in this market is derived i. e depend upon the final consumption of the product and
service. For example, Demand for car engines will depend on the how many consumers will
purchase the car. If the number of people who purchase car declines in a particular month then
demand for the engines also goes down. This shows how engine companies are depending on the
final consumption. The fluctuation in the market is inelastic. The product is purchased only after
thorough examination. Therefore it includes more than one member in the purchasing department.
This has resulted in the complex buying behavior.
Learning Objectives
After studying this unit, you will be able to:
1. Differentiate between consumer behavior and organization behavior.
2. Discuss the different types of buying situations involved in the organizational buying.
3. Understand the buying roles and their importance in industrial marketing.
4. Analyze the factors that influence the organization buying process.
5. Examine the business buying process in the Industrial marketing.
1.2. Difference between consumer and business buyer behavior.
Table 6.1
Characteristics Consumer Market Business market
1. Demand Direct Derived
2. No of customers Large Few
3. Location Dispersed Concentrated.
4. Nature of buy Personal Profession
5. No of buying roles Few Many
6. Negotiations Easy Complex
7. Promotion Advertising Personal selling
6.3. Buying situations in the industrial marketing.
Buying situations varies to the large extent in the industrial marketing compared to the consumer
markets. The negotiation process and vendor evaluation stages will not be there if company wants to
purchase the same material from the existing suppliers. It means for each situations buying process
changes. Therefore in this section we are discussing the different situation involved in the business
buying. Industrial marketing usually involves three different types of buying situations. They are
a. New Task
b. Straight rebuy and
c. Modified rebuy.
1. New task: The stage in which an organization is purchasing a major product for the first time.
Therefore company will be having more number of people involved in the decision making. In this
situation seller try to meet all the buying participants of the organization and convince them. This
will be resulted in higher uncertainty and cost for the seller.
2. Straight rebuy: In this situation organization follow routine step of informing sellers about their
requirements and supply specifications. This is the easiest situation in the organization buying.
This provides lot of flexibility to both buyers and sellers. Company already has the list of
suppliers, it gets the information from the floor about their requirements and the same is
conveyed to the supplier. After the advent of ERP software things have become simpler and
easier.
3. Modifies rebuy: In this stage buyer wants either product modification, price modification, terms
modification or suppliers’ modifications. For example, a company X is buying Rs 100,000 worth of
iron materials from company Y every month. Company would like to reduce the cost of Iron Ore.
It starts the negotiation with their suppliers on the new terms and conditions.
6.4. Buying roles in the Industrial marketing.
As we discussed in the beginning the difference between the consumer buying process and
business buying process, the number of people involved in the decision making are more in the
industrial marketing. Therefore many business organizations constitute the buying center or
buying committee. The characteristics of buying center are listed below
1. Several individuals can occupy a given role (e.g. many users / influencers) and one individual can
occupy multiple roles.
2. The buying center may include people outside the organization such as government officials,
consultants, technical advisors and other members of the marketing channel.
3. Different members of the buying centre have different influences, for e.g. the engineering
department may be concerned with actual performance of the product, whereas production may
be more interested in ease of use and reliability of supply.
4. Members of buying centre have different personal motivations, perceptions and Preferences
which in turn are dependent on age, income, education, job position, personality, attitudes
towards risk and culture
Different buying roles involved in the business buying process are
a. Users are people who actually use the product. For example, lathe machine is used by the
shop floor employee. This person can tell the specification clearly than any other person.
b. Influencers are people who provide the information required to evaluate the vendor and his

products. Example: technical personnel.
c. Buyers: Purchasing persons who put the specification for vendors. These people also
evaluate the vendor and select him.
d. Deciders: These people give final consent on the chosen suppliers
e. A gatekeeper acts as filtering agents between buying committee and sellers. For example, a
technical person may see the vendor quotations and filter it before it goes to buying committees.
1. Any market in which customer buys the product for other than personal consumption is called

2. Common method used in promoting the product in the business marketing is
3. Derived demand exists market.
4. Shop floor employees are type of buying roles.
5. Business organizations are dispersed in many locations
a. True b. False.
6.5. Factors that influences on business buyers.
1. Economic developments: Purchasing of materials depend upon the country’s economic
conditions. If the economy is growing rapidly usually the consumption also grows proportionately
then company should source materials accordingly. The economic health of the nation provides
image for the organization too.
2. Supply conditions: raw materials required should be matched with the demand condition of the
company. If there is an irregular or seasonal demand exists then company should adjust their
supplies. Any shortage of the raw materials will force the company to go out of the company.
3. Political and Legal environment: the unstable government will have unpredictable policies. Any
change in the government policy will have direct or indirect impact on the company. For example, An
engineering firm work towards better environment standards in their products assuming that all
automobile companies adhere to the international regulations but the government decided to post
pone the regulation standard implementation for 12 years the entire material manufactured and raw
materials will have extra holding and inventory costs.
4. Competitive environment: Business buying is very complex. The numbers of buyers are very
few. Any technology change adopted by the competitor should be carefully observed. If the company
not able to identify the competitors move survival will become difficult.
5. Culture and customs: Every country has its own culture and customs. As we discussed in the
previous unit, why one should not sell beef products in India, in same way business buying is also
influenced by the culture and customs. For example, most of the products produced in Japan are of
small size to suit their customers. Any company buying products in Japan should always keep these
things in mind.
6. Organizational objectives: Purchasing objectives are derived from the organization objectives.
For example, an organization objective is to reduce the overall cost of 20%. Its purchasing objectives
take this as benchmark and try to reduce the cost by 20%. Some times they will be forced to cancel
the negotiation with a major supplier who may provide value to the organization in the future to meet
the current cost projection.
7. Organizational policies and procedures: Companies’ policies like centralization versus
decentralization of buying and selling will have direct impact on the company’s production.
8. Organization structure and systems: Lesser the hierarchy more will be the flexibility in the
organization. Companies with more number of hierarchies will have plenty of problems to be
addressed.
9. Interpersonal factors: business buying will have different outcome on the basis of authority,
status, empathy and persuasiveness that customer and organization posses.
10. Individual factors. Age, education, job position, Personality risk attitudes of individual will
determine the buying behavior of each role and in turn these changes will have direct impact on the
organization buying.
6.6. Steps in business buying process
Problem Need description Product

Supplier search
recognition specification
Proposal Supplier selection Order routine Performance

association specification review
Figure 6.1
Stage 1: Problem recognition
1. Problem can be identified from either internal stimuli or external stimuli. Company would like to
launch new product hence it searches for the suppliers who can supply the material and
equipments required for the new product.
2. External stimuli like trade show, conference also helps the company to identify the problem.
Stage 2: Need description: After finalizing the problem, companies will define need description. The
need description includes
1. Characteristics and quantity of the needed item.
2. For the complex products team assessment is required.
3. The required items are assessed on the basis of reliability, durability, price, and other attributes
needed in the item.
Stage 3: Product specification:
Organizations develop detailed product specification with value analysis. In the value Analysis
Company analyzes the components and their production process. Here emphasis is given to find the
alternative methods of producing the components and finding the optimum method that suits the
company.
Stage 4: Supplier search
The buyer now tries to identify the most appropriate suppliers. The buyer can examine trade
directories, do a computer search, phone other companies for recommendations, watch trade
advertisements, and attend trade shows. The supplier’s task is to get listed in major business
directories, develop a strong advertising and promotion program, and build a good reputation in the
marketplace. Suppliers who lack the required production capacity or suffer from a poor reputation will
be rejected. Those who qualify may be visited to examine their manufacturing facilities and meet their
personnel. Qualified suppliers are shortlisted for further process.
Stage 5: Proposal solicitation
The buyer will now invite qualified suppliers to submit proposals. Some suppliers will send only a
catalog or a sales representative. Where the item is complex or expensive, the buyer requires a
detailed written proposal from each qualified supplier. The buyer will invite qualified suppliers to
make formal presentations.
Thus business marketers must be skilled in researching, writing and presenting proposals. Their
proposals should be marketing documents, not just technical documents. Their oral presentations
should inspire confidence. They should position their company’s capabilities and resources so that
they stand but from the competition.
Stage 6: Supplier selection
This stage is also known as vendor selection. During this stage companies will prepare the checklist.
Weightages are assigned against each checklist point and evaluated. Some of the important
attributes those commonly found in the vendor evaluations are
a. Quality
b. Delivery
c. Communication
d. Competitive prices.
e. Servicing
f. Technical advice
g. Performance history
h. Reputation
Stage 7: Order routine specifications:
The buyer now negotiates the final order with the chosen supplier(s), listing the technical
specifications; the quantity needed, the expected time of delivery, return policies, warranties and so
on. In case of MRO items (Maintenance, Repair and Operating items), buyers are increasingly
moving towards blanket contracts rather than periodic purchase orders. Writing a new purchase
order each time stock is needed, is expensive. Nor does the buyer want to write fewer and larger
purchase orders because that means carrying more inventories. A blanket contract establishes a
longterm relationship where the supplier promises to resupply the buyer as needed on agreed price
terms over a specified period of time. The stock is held by the seller, hence the name stockless
purchase plan. The buyer’s computer automatically sends an order to the seller when stock is
needed. This locks the supplier with the buyer and makes it difficult for outsuppliers to break in
unless the buyer becomes dissatisfied with the insupplier’s prices, quality or service.
Stage 8: Performance review
In this stage organization review the performance of the suppliers. This will help it to decide whether
to continue with existing suppliers or should search for the new vendor.
These eight stages are very much essential for new task but not necessary for straight rebuy or
modified rebuy. To know which stages are important in the new task, a straight rebuy or modified
rebuy we will study Buy grid Model
Buy grid model
Buy grid model is developed to understand the business buying process in three different business
buying situations
Table 6.2.
Buying process New task Modified rebuy Straight rebuy.
1. Problem √
recognition
2. General need √ √( some times)

description
3. Product √ √ √
specification
4. supplier search √ (Sometime)
5. Proposal √ √( some times)

solicitation
6. Supplier √ √
selection
7. order routine √ √

specification
8. Performance √ √ √
review
1. Trade show is an internal stimulus in
a. True b. False
2. Problem recognition is required in straight rebuy situation
a. True b. False
3. is also known as vendor selection stage.
4. stage qualified suppliers are invited to make formal presentations
5. The full form of MRO is ,, and .
Terminal Questions
1. Differentiate between consumer and business buyer behavior.
2. Explain the buying situations.
3. Discuss the buying roles in the industrial marketing.
4. Write a note on factors that influence business buying.
5. Describe the stages of business buying process.
1. Business market or industrial market.
2. Personal selling.
3. Business market.
4. Users.
5. False
1. External stimuli
2. False
3. Supplier selection
4. Proposal solicitation.
5. Maintenance, Repair, and operating items.
Answers to Terminal Question.
1. Refer 6.2
2. Refer 6.3
3. Refer 6.4
4. Refer 6.5
5. Refer 6.6
Unit 7 Segmentation, Targeting And Positioning
Structure
7.1. Introduction
7.2. Concept of market segmentation
7.3. Benefits of market segmentation.
7.4. Requisites of effective segmentation.
7.5. The process of market segmentation.
7.6. Bases of consumer market segmentation
7.7. Targeting
7.8. Market positioning
7.9. Summary
7.10. Terminal Questions
7.11. Answers to SAQs and TQs
7.1. Introduction
Market segmentation is the starting step in applying the marketing strategy. In this process the
marketer divide the market into homogeneous sub markets by understanding the needs, perceptions
and expectations of the consumers. On the basis of segmentation, the company will prepare and
follow different marketing programs for different segments to ensure better customer relationship.
This unit deals with the bases of market segmentation, its targeting and positioning its propositions in
the mind of consumer in detail.
Learning Objectives
After studying this unit, you will be able to
1. Explain the concepts and benefits of market segmentation.
2. Mention the requisites of effective segmentation.
3. Explain the bases of market segmentation.
4. Describe the process of evaluating market segments.
5. Identify appropriate target market for given segment.
6. Analyze positioning strategies of companies on the basis of product differentiation
7.2. Concept of Market Segmentation
Market Segmentation is the process of dividing a potential market into distinct submarkets of
consumers with common needs and characteristics.
For example, Cadbury India operates in three different markets namely, Malted foods, cocoa powder
and drinking chocolates and chocolates and sugar confectionary.
Figure 7.1
The malted food market is divided into two different segments i.e. white malted food drinks and
brown malted food drinks. Cadbury India positioned its flagship brand Bournvita in the brown malted
food drinks.
7.3. Benefits of Market Segmentation
1. Understanding the needs of Consumers:
2. To adopt better positioning strategies.
3. Proper allocation of marketing budget.
4. Helps in preparing a better competitive strategy.
5. Provides guidelines in preparing media plan of the company.
6. Different offerings in different segments enhance the sales.
7. Customer gets more customized product.
8. Helps Company to identify niche markets.
9. Provides opportunities to expand market
10. Encourages innovations:
7.4. Requisites of Effective Segmentation
To be useful, segmentation of market must exhibit some characteristics that are as follows:
1. Measurable and Obtainable: The size, profile and other relevant characteristics of the segment
must be measurable and obtainable in terms of data. If the information is not obtainable, no
segmentation can be carried out. For example, Census of India provides the data on migration
and education level, but do not specifies how many of the migrated employees are educated and
if educated how many are there in white color jobs. If a company wants to target white color
employees who are migrated to particular city, will not able to measure due to non availability of
data.
2. Substantial: The segment should be large enough to be profitable. For consumer markets, the
small segment might disproportionably increase the cost and hence products are priced too high.
For example, when the cellular services started in India cost of the incoming calls and outgoing
calls were charged at Rs 12/minute. As the number of subscribers grew, incoming calls became
free. Further growth of subscribers resulted in lowering tariffs to the lowest level in the world.
3. Accessible: The segment should be accessible through existing network of people at a
affordable cost. For example, Majority of the rural population still not able to access the internet
due to high cost and unavailability of connections and bandwidth.
4. Differentiable: The segments are different from each other and require different 4Ps and
programs. For example, Life Insurance Corporation of India needs separate marketing programs
to sell their insurance plans, unit plans, pension plans and group schemes
5. Actionable: The segments which a company wishes to pursue must be actionable in the sense
that there should be sufficient finance, personnel, and capability to take them all.
7.5. The process of Market segmentation:
Figure 7.2
1. Identify existing and future wants in the current market.
Marketers must examine the changing needs of the customer. This process provides opportunity to
examine whether customers are satisfied with the existing products or not. If they are not satisfied
what are the features they are looking at. It also helps to test the innovative concepts that company
has, commercially viable or not. For example, Titan, wrist watch manufacturer from Tata group
should analyze whether customer are satisfied with the time accuracy in the watch. It should also
analyze what are the other features customer is looking in the watch. It may be style, calculator,
voice recorder, jewels studded or pulse monitor. In this case, time accuracy became existing want
and other features become future wants.
2. Examine the attributes that distinguish among segments.
In this process marketers should segregate different types of wants into homogeneous categories.
This may be on the basis of product features, lifestyle or behavior. For example, Titan should analyze
how style, calculator, voice recorder, jewels studded and pulse monitor attribute are different. Is there
any possibility of bringing some of these features together? If yes what are the attributes that makes
it homogeneous. To illustrate, student community may be interested in style and also wants
calculator.
3. Evaluate the proposed segment attractiveness on the basis of measurability, accessibility,
and size.
Segments selected in second steps should be evaluated against the requisites i.e. measurability,
accessibility, substantial, actionable and differentiability. Company’s further programs will depend on
the outcome of this process.
Titan should examine
a. How big this student segment who like style and also wants calculator?
b. How to get the data pertaining to these students?
c. Whether this segment is accessible to existing Titan showroom?
d. How this segment is different from current segments? If selected what value this proposed
segment adds to the company.
Self Assessment Questions I
1. is the process of dividing a potential market into distinct submarkets of consumers
with common needs and characteristics.
2. Measurability of the segment assessed on
a. Size
b. Profitability
c. Required resources
d. All the above.
3. The requisite of segmentation which specify on 4Ps and programs is
a. Action
b. Substantial
c. Differentiability
d. All the above.
4. Future wants of the customer should be analyzed before identifying the segments.
a. Yes
b. No
5. Segmentation encourages innovation
a. True
b. False
7.6. Bases for Segmenting Consumer Markets
Figure 7.3
Consumer
Market
Segments
1) Geographic segmentation: Dividing the market into different geographical units such as
nations, states, regions, cities or neighborhoods. The company can operate in one or a few
Geographic areas or operate in all but pay attention to local variations. For example, Bennett,
Coleman and co Ltd divided markets according to geographical units for their tabloids. In
Bangalore the tabloid is known as Bangalore Mirror where as it is Mumbai Mirror in Mumbai.
2) Demographic Segmentation: In demographic segmentation the market is divided into groups on
the basis of variable such as age, family size, family lifecycle, gender, income, occupation,
education, religion, race, generation, nationality and social class. Demographic variables are the
most popular bases for distinguishing customer groups. One reason is that consumers’ wants,
preferences and usage rates are often associated with demographic variables. Demographic
variables are easy to measure. Even when the target market is described in nondemographic
terms, the link back to demographic characteristics is needed in order to estimate the size of the
target market and the media that should be used to reach it efficiently. Some of the demographic
variables used are :
a) Age and LifeCycle Stage: Consumers’ wants and abilities change with age. On the basis of
age, a market can be divided into four parts viz., children, young, adults and old. For
consumers of different age groups, different types of products are produced. For instance,
different types of readymade garments are produced for consumers of different age groups.
A successful marketing manager should understand the age group for which the product
would be most suited and determine his marketing policy, pricing policy, advertising policy
etc., accordingly.
For example, HUL launched ‘pepsodent kids’ for small children.
b) Gender: Gender segmentation has long been applied in clothing, hairstyling, cosmetics and
magazines. For example, Emami segmented its personal care business on the basis of
gender. For women, it is having Emami naturally fair, and for men it is fair and handsome.
c) Income: Income segmentation is a longstanding practice in such product and service
categories as automobiles, clothing, cosmetics and travel. However, income does not always
predict the best customers for a given product.
For example, Baja Auto limited, a leading automobile company, different bikes for different
commuters. For entry level (less than Rs35000) it is Bajaj CT 100, for mid segment (greater
than Rs35000 but less than Rs60000) it is pulsar and for the upper segment greater than Rs
60000 Avenger and Eliminator is positioned.
3) Psychographic Segmentation: In Psychographic segmentation, buyers are classified into
different groups on the basis of lifestyle or personality and values. People within the same
demographic group can exhibit very different psychographic profiles.
a) Lifestyle: People exhibit different lifestyles and goods they consume express their life
styles. Many companies seek opportunities in lifestyle segmentation. But lifestyle
segmentation does not always work.
Figure 7.4
One of the most used psychographic profiling schemes is called VALS TM. Developed by SRI
International, Inc., its first version groups the entire U.S. population into eight groups, based on the
identities they seek and implement via marketplace behaviors.
The Eight VALS TM Group: Using the selforientation and resources dimensions, VALS defines eight
segments of adult consumers who have different attitudes and exhibit distinctive behavior and
decision making patterns. These segments are Innovators Thinkers, Achievers, Experiencers,
Believers, Strivers, Makers and survivors
Innovators are successful, sophisticated, active, takecharge people with high selfesteem and
abundant resources. They are leaders in business and government and are interested in growth,
innovation, and change. They seek to develop, explore and express themselves in a variety of ways,
sometimes guided by Principle and sometimes by a desire to have an effect or to make a change.
They seek to develop, explore and express themselves in a variety of ways, sometimes guided by
principle and sometimes by a desire to have an effect or to make a change. Image is important to
them, not as evidence of status or power but as an expression of their taste, independence, and
character. They possess a wide range of interests, are concerned with social issues, and show a
cultivated taste for the finer things in life.
Thinkers are mature, satisfied, comfortable, reflective people who value order, knowledge, and
responsibility. Most are well educated and in (or recently retired from) professional occupations,
content with their career, families, and tend to center around the home. Thinkers have a moderate
respect for the status quo institution, but they are open minded to new ideas and social changes.
They tend to base their decision on firmly held principles and consequently appear calm and self
assured. Thinkers are conservative, practical consumers, and the universal values of performance,
service, and price are more important than person values (e.g., social and emotional values).
Achievers are successful career ad work oriented people who like to feel in control of their live. They
value predictability and stability over risk. They are deeply committed to work and family. Work
provides them with a sense of duty, material rewards, and prestige. Their social lives are centered on
family, church, and career. Achievers live conventional lives are phonically conservative, and respect
authority and the status quo. Image is important to them: they favor established prestige products
and services that demonstrate success to their peers.
Experiencers are young, vital, enthusiastic, impulsive, and rebellious. They seek variety and
excitement, savoring the new, the offsets, and the risky. Still in the process of formulating life values
and patterns of behavior they quickly become enthusiastic about new possibilities but are equally
quick to cool. At this stage in their lives they are politically uncommitted, uninformed, and highly
ambivalent about what they believe. Their energy finds an outlet in exercise, sports, outdoor
recreation, and social activities. Experiences are avid consumer and spend much of their income on
clothing, fast food, music, movies and video.
Believers are conservative, conventional people with commitment to family, church, community, and
the nation. Living by a moral code is very important to them. As consumers, Believers are
conservative and predictable and favor American products and established brands. Their income,
education, and energy are modest but sufficient to meet their needs.
Strivers seek motivation, selfdefinition and approval from the world around them. They strive to find
a secure place in life, unsure of themselves and low on economic, social, and psychological
resource. Strivers are concerned about the opinions and approval of others. Money defines success
for Strivers, who don’t have enough of it and often feel that life has given them a raw deal. Strivers
are impressed by possessions, but what they wish to obtain is often beyond their reach.
Makers are practical people who have constructive skills and value selfsufficiency. They live within a
traditional context of family, practical work and physical recreation and have little interest in what lies
outside that context. Makers experience the world by working in it, building a house, raising children,
fixing a car, or canning vegetable and have enough skill, income and energy to carry out their
projects successfully. Makers are politically conservative, suspicious of new ideas, respectful of
government authority and organized labor, but resentful of government intrusion on individual rights.
They are unimpressed by material possessions other than those with a partial or functional pursuing
pressed by martial possession other than those with a practical or functional purpose, such as tools,
utility vehicles, and fishing equipment.
Survivors tend to be chronically poor, illeducated, low skilled, elderly and concerned about their
health. Preoccupied with the urgent needs of the present moment, they do not show a strong self
orientation. Their chief concerns are for security and safety. Survivors are cautious consumers. They
represent a very modest market for most products and services but they are loyal to favorite brands.
b) Personality: Marketers have used personality variables to segment the markets. They endow
their products with brand personality that corresponds to consumer personalities.
c) Social Class: It has a strong influence on preference in cars, clothing, home furnishings,
leisure activities, reading habits etc. Many companies design products and services for
specific social classes.
Behavioral Segmentation or Consumer Response Segmentation:
In behavioral segmentation, buyers are divided into groups on the basis of their knowledge or attitude
towards the use of, or response to a product. Some marketers believe that behavioral variables are
the best starting points for constructing market segments.
a) Occasions: According to the occasions, buyers develop a need, purchase a product or use a
product. It can help firms expand product usage. A company can consider critical life events to
see whether they are accompanied by certain needs. For example, Tanishq a TATA enterprise
offers schemes and promotions for Akshaya Thrutiya ( auspicious day to purchase jewellary)
b) Benefits: Buyers can be classified according to the benefits they seek. For example, Peter
England, a madhura garment brand positioned its wrinkle free trousers on the basis of benefits.
c) User Status: Markets can be segmented into nonusers, potential users, first time users and
regular users of a product. Each market segment requires a different marketing strategy. The
company’s market position will also influence its focus. Market leaders will focus on attracting
potential users, whereas smaller firms will try to attract current users away from the market
leader. For example, Kishkinda resort near Hampi classifies its customers according to this
characteristic. Resort believes that locals falls into non user category, affluent class who comes
to Hampi as potential users, foreigners as first time users rich people near Hampi who frequently
come there as regular users.
d) Usage Rate: Markets can be segmented into light, medium and heavy product users. Heavy
users are often a small percentage of the market but account for a high percentage of total
consumption. Marketers prefer to attract one heavy user rather than several light users and they
vary their promotional efforts accordingly.
For example, Alan Paine textile brand, offered 4 cotton trousers for Rs 999. Company is
interested in getting profit from sales volume.
e) Loyal Status: Consumers have varying degrees of loyalty to specific brands, stores and other
entities. Buyers can be divided into four groups according to brand loyalty status.
a) Hardcore Loyal: Consumers who buy one brand all the time. For example, customer may
be using only BSNL cellular services though there are different options available.
b) Split Loyal: Consumers who are loyal to two or three brands. For example, consumer may
go for tax savings schemes of post offices and Life Insurance Corporation of India
c) Shifting Loyal: Consumers who shift from one brand to another. For example, consumer
who used Nokia cell phones starts buying Sony Ericsson mobiles.
d) Switchers: Consumers who show no loyalty to any brand. When there is a low involvement
and few significant perceived brand differences consumer try to purchase different brands in
the category. To illustrate, customer who bought cinthol wants to try Medimix, Mysore sandal,
Himalaya, Santoor, Chandrika etc…
A company can identify its product’s strengths by studying its Hardcore Loyal. By studying its Split
Loyal, the company can pinpoint which brands are most competitive with its own. By looking at
customers who are shifting away from its brand, the company can learn about its marketing
weaknesses and attempt to correct them.
(f) BuyerReadiness Stage: A market consists of people in different stages of readiness to buy a
product. Some are unaware of the product, some are aware, some are informed, some are
interested, some desire the product and some intend to buy. The relative number makes a big
difference in designing a marketing program. For example, People may be aware of Aqua guard
but don’t know much about it.
7.7. Targeting
Targeting is defined as a group of people or organizations for which an organization designs,
implements and maintains the marketing mix.
Once the bases for segmentation are selected, you have to identify the people or organization to
which the product meant. Organizations may not differentiate their customer or it may have different
customer for different products. In the next section we will study how to identify the target customers.
Selecting Target Market Segments
Depending upon the emerging patterns of market segmentation, homogeneous preference (showing
no natural segments) as in case of soft drinks sale by Pepsi and CocaCola), diffused preference
(showing clear preferences as in case of automobile market), and clustered preference (market
showing natural segments as in case of occupation having impact on the types of clothes worn), a
company chooses its market segmentation strategy.
A) Undifferentiated Marketing: It is a market coverage strategy in which the company treats the

target market as one and does not consider that there are market segments that exhibit
uncommon needs. The company focuses on the centre of the target market to get maximum
advantage. The feature of ‘one productall segments’ calls for presenting one marketingmix for
the target market. For example, the CocaCola Company sells Coke, Limca, Thumsup etc., and
does not distinguish the target audience.
B) Differentiated Marketing: It is a market coverage strategy in which the company goes for proper
market segmentation as depicted by its analysis of the total market. The company, therefore,
goes for several products or several segment approach which calls for preparing different
marketing mixes for each of the market segment. This strategy is followed by Hindustan Lever
Limited which sells different soaps (Life Buoy, Lux, Rexona, Liril, Pears etc.) and each of them
has its own market. Thus, the company creates segments in the soap market and not in toiletries
market (including soaps, detergents, toothpaste, etc.)
C) Concentrated Marketing: It is a market coverage strategy in which company follows ‘one
productone segment’ principle. For example, Ashok Leyland produces large chassis of machine
which can be used for buses and trucks. The manufacturer gets maximum knowledge about the
segment’s needs and therefore acquires special reputation. This strategy can also help the small
company to stand against a large corporation because the small company can create niches in its
oneproduct onesegment approach by providing maximum varieties.
Choosing a Market Coverage Strategy: The below table depicts an overview of the three market
coverage strategies will help to choose one for a particular company. Table 7.1 provides a snapshot
view.
Table 7. 1: Comparison of Market Coverage Strategies
Focus Undifferentiated Differentiating Concentrated

Marketing Marketing Marketing
Product One/Few Many One/Few

Segment All Many One/Few
MarketingMix One Many One/Few
Given the comparison of different coverage strategies, it is easy to locate the relevant strategies as
shown in Table 7.2.
Table 7.2: Choosing a Market Coverage Strategy
Undifferentiated Differentiating Concentrated

Marketing Marketing Marketing
Constrained More suitable Least suitable Most suitable

Firm Resources
Common usage Most suitable More suitable Least suitable
Products
Different need Least suitable Most suitable More suitable
Satisfying products
Given the above table, the firm’s resources and the product’s requirement in its present form (by all
or few) would decide the choice of a particular market coverage strategy. Finally, the competitor’s
adaptation of a particular strategy should be considered for deciding company’s own strategy. For
example, CocaCola starts segmenting soft drinks market and targets family, Pepsi cannot ignore it
because it would be suicidal for them (segmentation would provide differentiation of products more
easily).
7.8 Market Positioning
Each firm needs to develop a distinctive positioning for its market offering.
Positioning is the act of designing the company’s offering and image to occupy a distinctive place in
the target market’s mind. Each company must decide how many differences to promote to its target
customers. Many marketers advocate promoting only one central benefit and Rosser Reeves called it
as “a unique selling proposition”. Some of the USPs includes “best quality”, “best service”, “Lowest
price”, “best value”, “safest”, “more advanced technology” etc. If a company hammers away at one of
these positioning and delivers on it, it will probably be best known and recalled for this strengths.
Not everyone agrees that singlebenefit positioning is always best. Doublebenefit positioning may be
necessary if two or more firms claim to be best on the same attribute. There are even cases of
successful triplebenefit positioning.
As the companies increase the number of claims for their brand, they risk disbelief and a loss of clear
positioning. In general, a company must avoid four major positioning errors.
1) Under positioning: Some companies discover that buyers have only a vague idea of the brand.
The brand is seen as just another entry in a crowded marketplace.
2) Overpositioning: Buyers may have too narrow image of the brand.
3) Confused Positioning: Buyers might have a confused image of the brand resulting from the
company’s making too many claims or changing the brand’s positioning too frequently.
4) Doubtful Positioning: Buyers may find it hard to believe the brand claims in view of the
product’s features, price or manufacturer.
Positioning maps:
Two dimensional graphs of how a product, brand or company is perceived versus competition.
Before identifying the positioning strategies for the product marketer prepares its perceptual maps.
These maps are drawn on important buying dimensions of consumer for company products as well
as competitor products.
How to construct Position maps?
1. Evaluate the buying dimensions of customer
2. Select two buying dimensions of consumer for example price and quality.
3. Identify the relative market share: relative market share is the ratio of company’s market share to
its largest competitors’ share.
4. Draw the circles according to relative market share on two dimension graph
Position map for Toilet soaps
Cosmetic
Godrej No1 Pears Dove
Lifebuoy Santoor
Low price cinthol High Price
Hamam
Medimix Himalaya cucumber
Ayurvedic
Type of product
Bases for positioning the product
Overcoming the positioning difficulties enables the company to solve the marketingmix problem.
Thus seizing the “highquality position” requires the firm to produce high quality products, charge a
high price, distribute through highclass dealers and advertise in highquality media vehicles.
The bases for positioning strategies that are available are:
1 Attribute Positioning: A company positions itself on an attribute such as size or number of years
in existence. Sun feast position its snacky brand as bigger lighter and crisper. (Figure 7.5)
Figure 7.5
Figure 7.6
2 Benefit Positioning: The product is positioned as the leader in a certain benefit.
Automotive: Hyundai Santro
Headline: India's bestloved family car is now also India's simplest car to drive.
Subhead: Hyundai introduces Santro Zip plus Automatic.
No shifting gears, no clutch, no problems.
Baseline: The simplest car to drive.( Positioning)
3 Use or Application Positioning: Positioning the product as best for some use and application.
For Example, Kenstar positioned its product as unexpectedly cold.( figure 7.7)
4 User Positioning: Positioning the product as best for some user group.
In this advertisement( Figure 7.8) of Parle –G, the boy was positioned as rock star. This
advertisement basically targets the kids and boys.
5 Competitor Positioning: The product claims to be better in some way than a named competitor.
In this advertisement( Figure 7.9) Mathrubhumi base line says ‘In the wake of ABC results,
Mathrubhumi celebrates the addition of 33,960 copies while nearest competitor laments the loss of
7,258 copies. Planners, take note’. It is directly mentioning its and competitors sales of newspaper.
6 Product Category Positioning: The product is positioned as the leader in a certain product
category.Bajaj CT 100 was positioned as leader in the entry segment bikes.( Figure 7.10)
7 Quality or Price Positioning: The product is positioned as offering the best value.
Figure 7.11
The vegetable oil brand dhara position it self as ‘anokhi shuddata, anokha asar’. This means,
company offers unique purity and unique effect.
1. In………………..segmentation, buyers are divided into different groups on the basis of lifestyle
or personality and values.
2. By studying its…………….., a company can pinpoint which brands are most competitive with its
own.
3. …………… is a market coverage strategy in which company follows ‘one productone segment’
principle.
4. ………………..is the act of designing the company’s offering and image to occupy a distinctive
place in the target market’s mind.
5. …………………….are consumers who buy one brand all the time.
7.9 Summary
· Market Segmentation is the process of dividing a potential market into distinct submarkets of
consumers with common needs and characteristics.
· The size, profile and other relevant characteristics of the segment must be measurable and
obtainable in terms of data.
· Target marketing helps the marketer to identify the markets – the group of customers for whom
the product is designed.
· Buyers can be classified into four groups based on brand loyalty status:
a) ‘Hardcore Loyal’ are those consumers who buy one brand all the time.
b) ‘Split Loyal’ is those consumers who are loyal to two or three brands.
c) ‘Shifting Loyal’ are those consumers who shift from one brand to another.
d) ‘Switchers’ are those consumers who show no loyalty to any brand.
· Positioning is the act of designing the company’s offering and image to occupy a distinctive place
in the target customers’ mind.
Terminal Questions
1) What do you mean by segmentation? What are its benefits?
2) Discuss the various bases for segmenting consumer markets.
3) Explain the methods of selecting target market segments.
4) Write a note on positioning of the product.
5) What are the requisites of effective segmentation?
1. Market segmentation
2. Size
3. differentiability
4. Yes
5. True
1. Psychographic segmentation
2. Split Loyal
3. Concentrated Marketing
4. Positioning
5. Hardcore Loyal
1. Refer to 7.2 & 7.3
2. Refer to 7.6
3. Refer to 7.7
4. Refer to 7.8
5. Refer to 7.4
Unit 8 Product Management: Decisions, Development And
Lifecycle Strategies
Structure
8.1. Introduction
8.2. Levels of product
8.3. Classification of products
8.4. Product hierarchy
8.5. Product line strategies
8.6. Product mix strategies
8.7. Packaging and labeling
8.8. New product development
8.9. Product life cycle
8.10. Summary
Terminal questions
8.1. Introduction
Product: A good, service, person, place, events or organizations offered to consumers to satisfy his
need or want.
A good is a tangible product, which can be seen and touch. These tangible items can be produced in
bulk and inventoried. For Example, Switches from Bajaj Electricals are goods.
A service is an intangible product, which requires simultaneous consumption and production. These
are also perishable in nature. For example, A Wockhard hospital offers heart surgery, which
consumers can not see but need to undergo when there is a pain in the heart. Hence surgery a
service, is perishable in nature, need to be produced and consumed simultaneously.
Differences between goods and services:
Table 8.1
Goods Services
1. Tangible Intangible.
2. Inventoried Simultaneous production and consumption.
3. Non perishable Perishable
4. Homogeneous Heterogeneous
A product may be person also. Here marketer tries to buy and sell the celebrities or sports persons of
a league or club etc… For, example, Board of cricket control in India (BCCI) asks its Indian premier
league (IPL) teams to buy Iconic players and foreign players for certain price.
An event is also considered as product. Many event management companies earn their revenue by
selling tickets and advertisement space at the event. The following example explains how an event
can be marketed.
Figure 8.1
An organization is also considered as a product. It can be bought and sold on the basis of value of
the firm. To make it more clear Tata’s bought Tetley for £271mn on 27 th February 2000
Many state governments and central governments sell their places to get the pie in the tourism
market. Here governments provides advertisements of a place to attract tourists from India and
abroad. For example, Karnataka government under ‘one state many world’ campaign highlighted
historical places, wildlife, waterfalls etc... In the following advertisement it provides the inputs on
Hampi to tourists, a historical place in Karnataka.
Figure 8.2
Learning Objectives
1. Analyze how products are classified.
2. Discuss the product line and product mix strategies.
3. Describe the product life cycle.
4. Assess the stages involved in the new product development.
8.2. Levels Of Product
1. Core product: This is the fundamental goods or service offered to the consumer. E.g. Hospital
services
2. Generic product: This is the basic version of the product. E.g. Hospital having doctors, nurses,
beds and laboratories.
3. Expected product: The minimum attributes consumer expects in the product. E.g. Hospital should
have qualified doctors, good service and proper amenities.
4. Augmented product: Inclusion of value added services to the expected product to distinguish it

from competitors. E.g. Online or tele medicine facilities, expert knowledge sharing, 24 hour
ambulance service etc...
5. Potential product: these are future products provided by the company which customer didn’t
anticipate. Ultimately consumer will be delighted by this product. E.g. Medical insurance from the
hospital, after service care etc…
8.3. Classification Of Products
Table 8.2
Product
Consumer Products Business products
Convenience goods Materials and parts
Shopping products Capital items
Specialty product Supplies and services
Unsought goods
Products are classified into two broad categories. They are consumer products and business
products.
Consumer products are purchased by the consumer for his personal consumption.
Business products: These products are purchased by business concern for further product
development
8.3.1. Consumer Products
As these products are purchased by the final consumer for his own consumption, the market is very
big. The large market need to serve different needs of consumer. Therefore company should create
different types of products. Hence consumer products are classified into four different categories.
They are
a. Convenience goods.
b. Shopping goods
c. Specialty goods
d. Unsought goods.
a. Convenience goods: The fast moving consumer goods, which are purchased regularly with
less amount of effort.
1. These are purchased frequently.
2. Customer involvement is very low.
3. Price of the product is very low.
4. Intensive distribution is used to reach the consumer.
5. The stock turnover is high.
6. Aggressive promotion is required
i. Example: soaps and detergents.
b. Shopping goods: High consumer involvement products in which consumer process the
information of product suitability, quality and price.
Comparing with convenience goods, shopping goods are purchased less frequently. Consumer takes
lot of time to search and evaluate the information. These products are available in selected outlets.
The price of the product is very high. For example, a consumer want to purchase washing machine
will collect the information on type of washing machine, type of control, loading, wash method, pre
wash, delicate wash, cycle time, after sales service, sensors and water consumption.
c. Specialty goods: A tangible product for which a consumer posses high brand loyalty and ready
to wait, or spend time
i. Consumers are having strong brand loyalty.
ii. Usually companies adopt premium pricing strategy.
iii. Exclusive distribution and selective communication strategies are adopted.
To illustrate, a consumer is willing to pay Rs 32000 for Bose Digital home theater though
competitors’ products are available at Rs 15,000 to Rs 25000.
d. Unsought goods: These products are called unsought because consumer usually unaware or
ignorant to purchase. Marketers need heavy promotion activities to educate and sell their
products.
Insurance is the product which most of the consumer are aware but very few are willing to purchase.
Life Insurance Corporation trains its agents to promote and sell aggressively. These agents provide
lot of inputs regarding insurance to consumers.
8.3.2. Business Products Classification
Business products are purchased by the business consumer who uses this product as a material,
part, capital item or service in producing his/her final product. For example, CET offers range of
services to Birla copper, Jindal vijayanagar steel and Mukund limited. These services are used to
develop the final products of these companies.
Table 8.3
Centre for Engineering & Technology
Center for Engineering & Technology (CET), an ISO: 9001 certified organization is the design,
engineering & consultancy unit of SAIL. It has its Head Office at Ranchi, Sub Centers at Bhilai,
Durgapur, Rourkela, Bokaro, Burnpur & Bhadravati, Unit Offices at Bangalore, and New Delhi for
formulation of Interplant Standards for Steel Industry. As a solution provider for all project needs,
CET had been rendering complete range of services not only to the Steel Plants under SAIL but
also to various clients other than SAIL – both within and outside the country. Some of the important
clients other than SAIL include EGITALEC (Egypt), Ashok Steel (Nepal), Chittagong Steel Mills
(Bangladesh), Birla Copper, Mukand Ltd., Jindal Vijayanagar Steels Ltd., National Iron & Steel Co.,
Hindustan Zinc Ltd., National Mineral Development Corporation and Romelt SAIL (India) Ltd.,
CET is also the nodal agency for acquisition and lateral transfer of technologies within SAIL plants.
The range of services includes conceptualization, project evaluation & appraisal, project
consultancy, design & engineering and project management in the areas of iron and steel making.
Apart from this, CET has been providing its services in the related areas like mine planning and
development, infrastructure development, industrial piping, industrial warehousing, material
handling system, industrial pollution control and environment management systems, water supply
and sanitation, town planning, power projects, etc
(Source: www.sail.co.in)
Business products are classified into three categories. They are
a. Materials and parts.
b. Capital items
c. Supplies and services.
a. Materials and parts: These products are further classified as raw materials and manufactured
material and parts.
Materials and parts.
Raw materials manufactured materials &
parts
1. Natural products 1.component materials
2. Farm products 2. Component parts
Materials are classified into raw materials and manufactured materials and parts.
Raw materials are of two types firstly, Natural products and secondly, Farm products.
Natural products are extracted and used for further product development. For example, Orex
minerals private limited supplies iron ore to Adani exports limited, Nobel resources and trading
private limited and Sino steel India private limited.
Farm products are also used in further product development. For example, Parle agro division
supplies required wheat for the production of biscuits.
Manufactured materials are further classified into two types. They are component parts and
component materials.
Component parts. For example, Melco Precisions private limited supplies Heat resistant steel to
Grasim, NTPC and NFL for further product development.
Component materials These are also called as original equipment manufacturer products. These
companies’ products are directly fitted in the final product. For example, MRF tyres are directly fitted
in Maruti Udyog Limited cars.
b. Capital items includes developing the building( for example, L & T and Siemens developing
Bangalore International Airport) Fixed equipments( for example, Lenovo supplying computers to
Manipal university) Accessory equipments( for example, Hindustan Everest tools limited sells its
spanners and pliers to industrial customers) and office equipments ( HP supplying fax machine to
Shristi automation private limited)
c. Suppliers and services: Supplies includes operating supplies( Castrol sells its lubricants to VRL
limited) maintenance and repair services (Eagle securities service to corporate clients)
1.4. Product Hierarchy
The different stages in the product and their attributes are listed below
Table 8,3
1. Need family : The core need that underlies the product family
2. Product family : All the product classes that can satisfy a core need with reasonable
effectiveness.
3. Product class : A group of products within the product family recognized as having a
certain functional coherence
4. Product line : A group of products within a product class that are closely related
because they function in a similar manner or are sold to the same
customer groups or are marketed through the same types of outlets or
fall within given price ranges.
5. Product type : Those items within a product line that share one of several possible
forms of the products.
6. Brand : The name associated with one or more items in the product line that is
used to identify the source or character of the item
7. Item : A distinct unit within a brand or product line that is distinguishable by
size, price, appearance, or some other attribute.
(Adopted from Kotler Philip, Marketing Management)
8.5. Product line strategies
Product line: The group of related products which uses same marketing effort to reach the
consumer.
The product line identifies profitable and unprofitable products and helps in allocation of resources

according to that. The product line understanding helps the marketer to take line extension, line
pruning and line filling strategies of the company.
Pidilite industries, the adhesives and chemical company have following group of related products (or
product lines) in consumer and business markets.
Consumer market.
1. Adhesives and sealants.
2. Art materials and stationeries.
3. Construction chemicals.
4. Automotive chemicals
5. Fabric care
Business market.
1. Industrial adhesives.
2. Textile chemicals.
3. Organic pigment powders.
4. Industrial resins and
5. Leather chemicals.
PRODUCT LINE DECISIONS:
The major product line decisions are
a. Product line length:
b. Product line stretching
c. Product line filling
d. Product line pruning.
a. Product line length: The number of items in the product line is called the product line length.
Company should decide whether it requires longer chain or shorter length. The decision depends
upon the objective of the company, competitive environment and profitability. If the chain is short
company can add new products and if it is lengthy company can reduce the number of products.
For example, Pidilite’s adhesives and sealants line has following 11 items in the product line.
Hence the length of product line is 11
1. White Glue 2. Paper Glue
3. Glue Stick 4. Instant Adhesive
5. Epoxy Putty 6. Epoxy Adhesive
7. PVC Insulation Tape 8. Silicone Sealants
9. Contact Glue 10. All Purpose Glue
11. Maintenance Spray
b. Product line stretching: Company lengthens its products line either by stretching upwards or
downwards or both ways. Line stretching decision depends on three situation
i. Company which operates in high end market may come up with mid class or low class
targeted products.
ii. The company which operates in lower end of market may come up with high end market
products.
iii. If the company operates in mid segment and comes out with low end product as well as high
end product then it is stretching both ways.
To explain let me take an example of Maruti Suzuki limited. Company launched its first product
Maruti 800 in the year 1983 and in the year 1985 it launched Maruti Gypsy. Gypsy is costlier than
Maruti 800 and targeted for higher segment. This shows that company extended its product line
upwards or in short, upward stretch.
A Tata motor is planning to launch their Rs 1 Lakh car NANO in the year 2008. The company which
was targeting upper class and middle class with their products SUMO and Indica respectively has
stretched downwards to reach another segment. This illustrates the downward stretch.
Toyota Kirloskar limited which extended their line from Qualis and Corolla to Innova and
Camry, is planning to come out with small car in India. This clearly illustrate the two way
stretch of the product line.
c. Product line filling: Adding more items in the present line. For example, in the year 2000
Maruti Suzuki launched Alto. This product was between Maruti 800 and Maruti Zen. Here
company was trying to fill the gap existed in the segment by introducing ALTO i.e. line filling.
d. Product line pruning: removing the unprofitable products form the product line. Toyota
Kirloskar phased out their well known brand Qualis when it thought the brand is not adding
value to the product line.
8.6. Product mix strategies
Product mix: The number of product line and items offered by marketer to the consumer
A company’s product mix has four different dimensions. They are product mix width, product mix
length, and product mix depth and product mix consistency.
Table 8.4
Fabric care House hold Utensil Fragrances Personal Allied

insecticide cleaners care business
Ujala Maxo Exo dish Maya Jeeva Natural Continental

supreme cyclothrin wash bar special
coil (8, 15, 20, 40 (Coconut Milk
(9ml, 30ml, (100g, 200g and 100 with Milk
75ml, (8hr, 10hr, 380g) sticks.) Protein,
125ml,250ml) 12hr) Coconut Milk
with Jasmine
and Coconut
Milk with
Kasturi
Manjal, and is
presented in
75gm packs.
)
Ujala Max Exo dish Marketing of

washing vaporizer wash liquid godrej Tea
powder
(30ml, 45ml) (500ml,
(25g, 500g,
1Kg) 125ml)
Stiff & shine Max aerosol Marketing of

Ekta dhoop
(20gm (150ml,300ml)
sachets,
100ml and
200ml
bottles)
Product mix width: The total number of product line that company offers to the consumers.
For example, Jyothy laboratories product mix has six lines. Hence width is 6
Fabric care House hold Utensil Fragrances Personal Allied

insecticide cleaners care business
Product mix length: The total number of items that company carries within its product line.
For example, Jyothy laboratories fabric care division has three items
Fabric care
Ujala
supreme
Ujala
washing
powder
Stiff & shine
Product line depth: The number of versions offered of each product in the line.
For example, Jyothy laboratories’ Jeeva Natural is offered in three versions i.e. Coconut Milk with
Milk Protein, Coconut Milk with Jasmine and Coconut Milk with Kasturi Manjal, and is presented in
75gm packs.
Product mix consistency: If company’s product lines usage, production and marketing are related
then product mix is consistent else it is unrelated.
Incase of Jyothy laboratories, all six product lines are FMCGs. Hence it is having consistent product
mix. But ITC Company’s cigarette and cloth product line are totally unrelated.
8.7. Packaging and labeling.
Packaging: The process of designing and producing the container or wrapper for a product.
Packaging plays vital role in marketing a product. Some rural consumers identify and buy the product
on the design or cover of the product. Packaging has other benefits to the consumers also. They are
1. It gives proper protection to the product.
2. It helps in bulk breaking.
3. Entices the customer to buy the product.
Companies those not give much importance faces severe problems in the market.
Table 8.5
Worm turns for Cadbury (www.domain_b.com)
Mohini Bhatnagar
28 November 2003
Hyderabad: The worms in the chocolate bars controversy has hit Cadbury India where it hurts most
and that is in sales. The company today faces tough times ahead as the business environment for its
chocolates becomes increasingly negative with rising raw material prices and low consumer
sentiments, post the worms controversy in October this year. While the sales of chocolates
(institutional and retail) fell by 3 to 4 per cent last month and are predicted to be down by 10 per cent
in November by the trade, Cadbury India has had to incur additional costs in upgrading packaging
and damage control promotional efforts. To add to all this, prices of milk and cocoa have been on the
upward path in recent months, adding further to the costs. The largest impact on sales has been in
Maharashtra, and specifically in Mumbai, which is where the whole controversy arose as worms were
found in Cadbury chocolates in allegedly eight outlets across the state. If it weren't bad enough that
the controversy blew up at the festival season when the chocolates sales are at their peak, the
company may also just have to shelve plans of becoming a major sourcing hub for British chocolates
and beverages giant Cadbury Schweppes. As part of a global realignment of its supply chain
management, the company was giving finishing touches to a plan that might have seen Cadbury
India emerge as a major supplier of chocolates to the AsiaPacific region and the Middle East. The
outsourcing model could have resulted in significant revenue generation for Cadbury India. Initially
the company blamed retailers for not storing the products properly but is now engaged in putting in
place a regular monitoring and checking system of the storage of the chocolates.
Cadbury India managing director Bharat Puri says the company has made substantial investments in
packaging in order to maintain product quality from the manufacturer to the customer. And now it is
making all attempts to reassure the consumer and win back their confidence and interest in the
category. It has initiated Project Vishwas, a threestep programme involving wholesalers and retailers
in which the company partners with the traders on a warfooting to build awareness about storage
requirements for Cadbury products. In Maharashtra where the maximum damage has been done the
company has involved a team of qualitycontrol managers along with 300 salespeople to carry out
checks of over 50,000 retail outlets which retail Cadbury products. The products in upgraded
packaging are expected to hit retail stores early next year. Analysts say in the past couple of years in
the face of increasing competition from Swiss chocolates major Nestle India and the homegrown
Amul, Cadbury has been pushing its products aggressively and targeting the adult audience
especially to expand the market.
Packaging strategies:
1. Adopting a same package for entire product line.
2. Multiple packs for multiple products
3. Changing the packages continuously.
Labeling:
Labeling: it carries the information about the product and the seller.
Types of label:
a. Brand label: only brand name is mentioned on the packaging. For example, Dharawad mangoes
pack, only brand name is highlighted.
b. Grade label: Identifies the products judged quality with a letter, number or word. For example,
fertilizers 1919019, 17191919 etc…
c. A descriptive label: gives the entire information about the product, use, and care. For example,
vasemol hair dye packet contains brochure in which it tells how to use product, what are the
precautions one should take etc…
1. A place is a product
a. true b. False
2. Insurance is type of consumer good
3. Phasing out of the brand form the product line is called as
4. The number of versions offered of each product in the line is known as
5. are called as original equipment manufacturer products.
8.8. New Product Development
New products are essential for existing firms to keep the momentum and for new firms they provide
the differentiation. New product doesn’t mean that absolutely new to the world. It may be
modification, or offered in the new market, or differentiate from existing products. Therefore it is
necessary to understand what are new products?
New Products are
a. They are really innovative: Google’s Orkut a networking site which revolutionized social
networking. In this site people can meet like minded people; they can form their own groups and
many more.
b. They are very different from the others: Haier launches pathbreaking 4Door Refrigerators First time in

India
c. They are imitative; these products are not new to the market but new to the company. For
example, cavin Kare launched ruche pickles. This product is new to cavin kare but not to the
market.
New product development process:
Stage 1: Idea generation: new product idea can be generated either from the internal sources or
external sources. The internal sources include employees of the organization and data collected from
the market. The external source includes customers, competitors and supply chain members. For
example, Ingersoll rand welcomes new ideas from the General public
.
Stage 2: Idea screening: Organization may have various ideas but it should find out which of these
ideas can be translated into concepts. In an interview to Times of India, Mr. Ratan Tata, chairman
TATA group discussed how his idea saw many changes from the basic version. He told that he
wanted to develop car with scooter engine, plastic doors etc... But when he unveiled the car so many
change were there in the product. This shows that initial idea will be changed on the basis of market
requirements.
Stage 3: concept development:
Concepts used for Tata Nano car are
Concept 1: lowend 'rural car,' probably without doors or windows and with plastic curtains that rolled
down, a fourwheel version of the autorickshaw
Concept 2: a car made by engineering plastics and new materials, and using new technology like
aerospace adhesives instead of welding.
Concept 3: Indigenous, inhouse car which meets all the environment standards
Stage 4; concept testing: at this stage concept was tested with the group of target customers.
Stage 5: Marketing strategy development: The marketing strategy development involves three parts.
The first part focuses on target market, sales, market share and profit goals. TATA’s initial business
plan consisted sales of 2 Lakh cars per annum. The second part involves product price, distribution
and marketing budget strategies. TATA’s fixed Rs 1 Lakh as the car price, and finding self employed
person who works like agent to distribute the cars. The final part contains marketing mix strategy and
profit goals.
Stage 6: business analysis: it is the analysis of sales, costs and profit estimated for a new product to
find out whether these align with company mission and objectives.
Stage 7: Product development:
TATA nano car development (source; business world nanolution)
1. Tried to outsource the product from allover the world.
2. Development of ‘mule’ or prototype with 20bhp.
3. Designing the small engine
4. Thermodynamic simulations and final engine
5. Development of MPFI with help of Bosch.
6. Cost reduction and negotiating with vendors.
7. Sona Koyo and Rane Group came up with hollow steering shafts, saving cost and cutting weight.
Sharda Motors and Emcon designed the exhaust system and MRF tweaked the tyres to bear
extra weight on rear wheels.
Stage 8: test marketing:
1. The product is introduced into the realistic market
2. The 4P’s of marketing are tested.
3. The cost of test marketing varies with the type of product.
Stage 9: commercialization: In this stage product is completely placed in the market and aggressive
communication program is carried out to support it.
8.9. Product life cycle management:
The product which is introduced into the market will undergo some modifications over the period. Its
sales also fluctuate. Therefore marketer is interested in finding out How sales changes over period?
And what strategies best suits at that point? A product life cycle can be graphed by plotting
aggregate sales volume for a product category over time. Generally the curve resembles bell shaped
curve but it is not the only one type of curve. We can obtain style, fashion or fad style of product life
cycles also.
Product life cycle (bell shaped curve)
According to this type of cycle a product passes through five stages:
1. Product development stage: In this stage company identifies the viable idea and develops it.
Sales in this stage are zero but require huge research and development budget. Therefore
company incurs losses at this stage.
2. Introduction stage: Company introduces the product into the market. As the product is new to
the market, awareness is usually very low. Here company adopts heavy sales promotion and
product awareness programs. The cost of product is very high and a sale is very low. At this
juncture company charges high price to the customer.
3. Growth stage: Company gets experience over the period and now tries to get the maximum
market share (take first mover advantage). Sales will grow rapidly resulting in lesser cost and
better profit. Company reduces the price of the product and offers varieties and values in it. It
focuses on building better distribution network and pushes the product through it. Therefore
company needs less sales promotion. Number of competitors will grow and it forces company
to keep tab on them.
4. Maturity stage:
a. Peak sales.
b. Low cost per customer.
c. High profits.
d. Competition based pricing
e. Communicating the product differentiation to consumer.
f. Improving supply chain efficiency.
g. Defend the market share
h. Industry experiences the consolidation.
5. Decline stage: In this stage, product sales and profit declines. Company should phase out
weak items from their product mix. The advertisement budget of the company also comes
down.
Other product life cycles:
1. Style: a style is a basic and distinctive mode of expression appears in the field of human
behavior. For example, style appears in homes, art, and clothing. Once the style is invented it
will lost for longer period.
2. Fashion: currently accepted or popular style in a given field for example, cargo jeans are now
fashion with college going students.
3. Fad: a fashion that enters quickly, adopted with great zeal, peaks early, and decline very fast
for example, when the pager is introduced, every body would like to have the product. But
when people found mobile as alternatives the demand for the product went down drastically.
1. In life cycle product sales reach peak very quickly and declines very quickly.
2. Maximizing the market share is the objective of company in stage of product life cycle.
3. In product development stage of product life cycle sales are
4. Imitative products are also considered as a new product
a. True b. false.
5. Marketing mix strategy of the company decided in stage of new product development.
8.10 Summary
1. Product: A good, service, person, place, events or organizations that are offered to consumers to
satisfy his need or want.
2. A product is having five levels i.e. Core product, generic product, expected product, augmented
product, and potential product.
3. A product can be classified as consumer products and industrial products.
4. Product line length: The number of items in the product line is called the product line length.
5. Product mix width: The total number of product line that company offers to the consumers.
6. New products may be really innovative, different form others or imitative one.
7. In the growth stage sales and profit of the company increases.
Terminal questions:
1. How do you classify consumer products?
2. Bring out the difference between goods and services.
3. Describe the new product development process.
4. Discuss the different strategies adopted by marketer in product life cycle.
5. Write a note on product mix strategies.
1. True.
2. Unsought.
3. Line pruning.
4. Product line depth.
5. Component material
1. Fad
2. Growth.
3. Zero
4. True
5. Market strategy development.
1. Refer 8.3.1.
2. Refer 8.1.
3. Refer 8.8.
4. Refer 8.9.
5. Refer 8.6.
Unit 9 Product Management: Services And Branding Strategy
Structure
9.1. Introduction
9.2. Brand
9.2.1. Advantages and disadvantages of branding
9.3. Brand equity
9.4. Brand positioning
9.5. Brand name selection
9.6. Brand sponsorship
9.7. Brand development
9.8. Nature and characteristics of a service
9.9. Strategies for service organizations.
9.10. Summary
Terminal questions
9.1 Introduction
Services are deeds or performances. The importance of services in India is growing every year. The
rise of Information technology (IT) and Information technology enabled services (ITES) is enhancing
the contribution of services to the Indian economy. According to the National council of applied
economic research (NCAER) services contributes 55% to the total GDP.
Table 9.1. Share of services in GDP
Year Share of services in GDP (%)
200102 50
200203 52
200304 52
200405 53
200506 54
200607 55
(Source: Central Statistical organization)
Services may be used for intermediate consumption or final consumption. Transportation is an
example of intermediate consumption whereas beauty saloons are part of final consumption. The
increase in the purchasing power and professional retail services fuelled the growth of services in
India. Deregulated telecom industry and integrated supply chain companies contribute the majority of
the service share in the GDP. Thus, we will discuss the importance of service sector to the Indian
economy.
Branding is another important area in the product management. It helps in providing the identity to
the product and build loyal customers. Organizations use their existing brand names to new product
or services. These phenomena show that brands are assets of the company. Brand manager should
take various brand decisions like name, positioning, extension, image and so on. Companies all over
the world spend huge amount on acquiring brands.
Learning Objectives
1. Understand the constituents of brand equity.
2. Analyze the techniques of brand development
3. Evaluate the brand name selection strategies.
4. Know the characteristics of services.
5. Discuss the strategies used in service marketing management.
9.2. Brand
American marketing association defines the brand as
‘A name, term, design, symbol, or any other feature that identifies one seller's good or service as
distinct from those of other sellers’.
The legal term for brand is trademark. A brand may identify one item, a family of items, or all items
of that seller. If used for the firm as a whole, the preferred term is trade name
Explanation of the definition:
Brand is a name: TVS, Infosys, Santoor, Chandrika, and Mysore Sandal.
Brand is a term: victor means the person who won. TVS Company can protect this name from
copying by any other automobile company.
Brand is a design: the exteriors of retail outlet which helps the customer to identify it very quickly.
Brand is a symbol: Mercedes is recognized by its symbol.
9.2. 1. Advantages and disadvantages of branding
Advantages
1. Helps in identifying the goods and services.
2. It stimulates the purchase decision of the consumer.
3. It helps in creating customer loyalty.
4. It helps the company to maintain the leadership position in the market( if they are already market
leader)
Disadvantages
1. Requires huge investment.
2. An unsuccessful brand will bring negative image to the company.
3. Customer may not be willing to pay extra just because it is branded.
9.3. Brand equity
Brand equity is set of assets linked to a brand‘s name and symbol that adds to the value provided by
the product or a service to a firm and/or that firm’s customer.
Components of brand equity:
1. Brand loyalty
2. Brand awareness
3. Perceived quality
4. Brand associations
9.3.1. Brand loyalty is consumer's commitment to repurchase the brand and can be demonstrated
by repeated buying of a product or service or other positive behaviors such as word of mouth
advocacy. True brand loyalty implies that the consumer is willing, at least on occasion, to put aside
their own desires in the interest of the brand. This will help organization to reduce the promotion cost.
For example, many girls in India use only Ponds products though competitors’ products like Fa,
Spinz, cuticura, and Mysore sandal present in the market and vice versa.
9.3.2. Brand awareness: The number of customers exposed to the brand name. Higher the brand
awareness, higher will be the brand equity. Organizations put all the effort in the introduction stage of
the product to create awareness among the customers.
9.3.3. Perceived quality: the customer perception about the actual quality level of the product.
9.3.4. Brand associations: The attribute of the brand that customer associates with his/ her belief. A
person may associate the brand for power, strength or protectiveness.
9.4. Brand positioning
As we discussed in the segmentation, targeting and positioning unit, the image of the product should
be created in the minds of consumer. Brand managers use three levels of positioning strategies to
get the mind share of the customer.
Table 9.2
Level Character Illustration.
Product attributes Ingredients: the product

speaks about the innovative
ingredients that company
offers in the product. In the
gore example the company
explains the four way water
pressure technology in the
advertisement
Figure 9.1
Taste: Kiss an sauce explains
how their product is different
from others and how the
target customer likes it
Figure 9.2
Benefit Safety ICICI Lombard
Caring ITC Ashrivad
Adventure Mountain dew: Do the dew
On time delivery Dominos: 30 minutes nahi to free.
Performance Sharp guarantee offer
Beliefs and values Peaceful Bharti AXA
Happy Nestle Kitkat
9.5. Brand Name selection
Brand provides the image to the product. Brand manager should be careful while selecting proper
name for the brand. There are six suggestions from the Philip Kotler to create a successful brand
name. They are
1. It should suggest something about the product benefits and qualities; Frooti or appy Fizz
2. It should be easy to pronounce, recognize, and remember: Amul, Kissan, Ruchi
3. The brand name should be distinctive: cello, VIP
4. It should be extendable: Aashirwad, Wills
5. The name should be easily translated into foreign language: Mr. White.
6. It should be capable of registration and legal protection
9.6. Brand sponsorship
Brand manager have four options of sponsoring the brand. They are
1. Manufacturer brand
2. Private brand
3. Licensing
4. Co branding
Ø Manufacturer brand: The brand owned by manufacturer and promoted either directly or
indirectly. This type of strategy is followed from years. Pillsbury atta is the manufacturer brand. In
the below image you can see the Pillsbury is launching the Punjabi atta in the market. ( figure
9.4)
Ø Private Brand:
Private brands are also called as store brands. These brands bearing the store name or store
selected vendor name. Basic ingredients of private labels are
1. It must be a unit package: It is difficult to assign a Private Label character to, say rice sold loose
from a 100 kg bag. Even though it may enhance consumer loyalty for whatever
reason, it does not qualify as a Private Label product.
2. Relabeling: The unit pack must bear only the brand name of the particular store or any other
party the store may choose for its Private Label programme.
Private labels will enhance the category profitability; increase the negotiation power of the retailer
and better value creates better consumer loyalty. All retailers cannot go for the private labeling.
Private labels can be introduced if and only if
a. The consumer is not getting the tangible value.
b. The retailer is not making the enough returns from the sale of the branded goods.
Emerging issues in private labeling:
1. The private label strategy is effective, profitable and reality.
2. The retailer must understand the price, quality and willingness to pay.
3. The retailer must have a sufficiently large base of loyal customers in the store before
introducing the private label.
4. The focus must be on consumer need and not any private agenda of the retailers
5. There must be stringent system for the private label production. Quality control is a must
since there is no else to blame.
6. Private label must work to fill in gaps in the category and not target the brand leader
7. Smart manufacturers may take a private label initiative of the retailer seriously and avoid
value gaps in the categories as an impediment to growing private labels.
(Source: Praxis Business line)
Ø Brand licensing: It is the legal authorization by the trade marked brand owner to allow
another company to use its brand for a fee. For example, Hugo boss, Tommy Hilfiger, Lovable,
Lacoste, and Nike are some of the textile brands those licensed their brands in the Indian market.
The major benefits of brand licensing are low cost, free publicity and revenue from royalty fees.
Brand licensing also suffers from serious limitations like lack of manufacturing control, and
licensing arrangements may fail.
Ø Co Branding: According to Kotler co branding is ‘the practice of using the established
brand names of two different companies on the same product’. For example, ICICI and HPCL
came together to sell ICICIHPCL petro cards to the customer. Here card is the co branding
between the two companies. Co branding helps ICICI to utilize their financial resources well. It
adds another banking facility to the bank while HPCL can lock the customer from buying the
petroleum products from competitors. HPCL also gets the benefit of financial power which it
doesn’t have. Both companies promote these products. Hence they can leverage brand image
and can reduce the cost. All companies will not get benefit from cobranding. Some times
company may loose the brand image if the product fails.
9.7. Brand Development
Company can develop the brand on the basis of product category and brand name. Now we will
discuss the different strategies adopted by companies to develop the brands.
Product category
Existing New
Brand Name
Existing Line extension Brand extension
New Multi brands New brands
Figure 9.5
1. Line extension: Company uses its well known brand name to introduce additional items in a
given product category such as new forms, flavors, ingredients or package sizes.
For example, Karnataka Milk federation, Uses its top brand name Nandini to introduce new

items like toned milk, full cream milk , curd and milk powder.
Figure 9.6
It is less risky and requires fewer investments to introduce the product. In the above example nandini
used the extension to meet the excess capacity that it has. The milk procurement was more than the
demand from the customer. Hence it started producing the milk powder. But all the products
introduced need not to be successful in the market. In case of KMF nandini Ice creams didn’t click in
the market. Another risk of line extension is brand cannibalization i.e. company’s brand/items
compete each other.
2. Brand extension: A strategy in which company uses one of its familiar brand names to new
product category’s items. For example, United breweries (UB) limited group used its flagship
brand kingfisher to different categories. Kingfisher was originally a beer brand extended to
airlines.
Figure 9.7
Brand extension gives instant recognition to the brand. In the above example people
required very less time to know kingfisher airline brand because parent brand was very well
known. Brand extension if it fails then it may hurt the parent brand reputation in the market.
3. Multi brands: The techniques of introducing the product or items in existing product category
with a new brand name.
Figure 9.8
For example, Hindustan Unilever uses different brand names for their home and personal care
category. The above example shows us that HUL have breeze, Dove, Liril Lux, Lifebuoy and Pears in
the bath soap segment itself.
It helps company to come out with new features in the product or product category. Organizations
adopt this strategy to avoid brand cannibalization in the given category. The major disadvantage of
this strategy is none of the brands will enjoy major market share and result in lesser profitability. In
case of Hindustan Unilever company had more than 100 brands and was forced to reduce it to 30
power brands. Other brands were not adding enough profit for the company.
4. New brands: The strategy of coming out with new brand for new category products. In this

strategy, company believes that existing brands can not be extended to the new category. The new
brand strategy requires huge resources to build it. The new category if it already had some brands
of other companies, investment requirement will go up. For example, Hindustan Unilever launched
Pure it in the water purifier category. The category and brand is new to the company
1. The number of customers exposed to the brand is called as
2. Positioning the product on safety belongs to
a. Product attributes
b. Beliefs and values
c. Benefits
d. All the above
3. The practice of using the established brand names of two different companies on the same
product
a. Manufacturer brand
b. Private brand
c. Brand licensing
d. Co branding
4. Line extension strategy used in which of the following situation
a. New product category and new brand name
b. New brand name and existing product category
c. Existing product category and existing brand name
d. New product category and existing brand name
5. The technique of introducing the product or items in existing product category with a new brand
name is called as .
9.8. Nature And Characteristics Of Services
In the beginning of this unit we discussed the importance of services to the Indian economy. Services
are becoming important part of companies. Manufacturing companies which are averse to the
services earlier are now giving priority to them. Some manufacturing companies like IBM become
more of Service Company today. In this context, we are discussing what makes services so
important. This can be explained with characteristics of services.
1. Intangibility means services cannot be seen tasted, felt, hears or smelled before they are
bought. For example, a patient undergoing surgery in Jaydev hospitals will not know how the
surgery is or what is the smell of surgery is. Intangibility offers many challenges to the marketers.
First customer can not evaluate the service he/she gets. Second, though customer purchases
the services but he/she will not posses any physical product for it. Third, it is very difficult to
communicate to the consumer and finally setting the price for services will become difficult
because of this characteristics.
2. Inseparability of production and consumption means services are produced and
consumed simultaneously. To explain, in hotel industry food is prepared and sold to customers
immediately. This character results in more customization of the services rather than mass
production. In case of manufacturing of goods customer involvement is less or will not be there
but in services like Haircut customer involvement is necessary. Word of mouth plays an important
role in communicating the services.
3. Perishability means service cannot be stored for later sale or use. This character of service
leads to imbalance in the supply and demand situation in the organization. Some time demand is
more for the services and some times demand is very less. For example, airline service provider
will have huge demand at the time of new year and may not be having enough demand in the
other time. So capacity may be excess or inadequate.
4. Heterogeneity or variability means quality of the service provided differs from person to
person, place to place, time to time. To explain, Tourism services provided by an organization in
Karwar is different from Mumbai. This variability of the services creates difficulties in maintaining
the service quality and standardization.
9.9. Strategies For Service Organizations
1 Service differentiation
a. Service firms offer different strategies to be recognized in the competition. Air Deccan started
no frill airline services when all the companies were trying to put luxury in their airline services.
b. Service firms differentiate their services in supply chain management practices. For example,
Air Deccan started booking their tickets only on website and telephone. It didn’t used agent
network like other competitors.
c. Service firms differentiate on the basis of image too. To explain, Merrill lynch’s bull, and ING’s
lion are two symbols differentiated them from the others.
2 Service quality: Managing the quality is very difficult because of service characteristics. Few
organizations try to standardize their services to improve the service quality. They worked on
following dimensions to ensure better service quality
a. Reliability
b. Responsiveness
c. Assurance
d. Empathy and
e. Tangibility
3 Service productivity: the service productivity can be increased in the following ways
a. Train the existing employees.
b. Recruit new employees who work better.
c. Increase the quantity of their services.
d. Provide physical evidence to the services.
1. Intangibility character of service means
a. Can not be tasted.
b. Produced and consumed simultaneously.
c. Differs from place to place
d. All the above.
2. Heterogeneity is also known as
a. Intangibility
b. Responsiveness
c. Assurance
d. None of these
3. Please find the odd man out
a. Reliability
b. Tangibility
c. Responsiveness
d. Empathy
4. means service cannot be stored for later sale or use.
5. means services are produced and consumed simultaneously
9.10 Summary
1. A brand is a name, term, design, symbol, or any other feature that identifies one seller's good or
service as distinct from those of other sellers’.
2. Components of brand equity are brand loyalty, brand awareness, brand association and
perceived quality
3. Brand licensing: It is the legal authorization by the trade marked brand owner to allow another
company to use its brand for a fee.
4. Companies use line extension, brand extension, multi brands and new brand strategies to
develop the brand
5. Characteristics of services are intangibility, perishability, heterogeneity and inseparability of
production and consumption.
6. The dimensions of service quality are reliability, responsiveness, assurance, intangibility and
empathy.
Terminal questions.
1. What is brand sponsorship? Explain how organizations maintain their sponsorship positions.
2. Explain the important characteristics of a good brand name
3. Discuss the different strategies used in the brand development.
4. Explain the characteristics of services with example.
5. Write a note on brand equity.
1. Brand awareness
2. Benefit
3. Cobranding
4. Existing product category existing brand name.
5. Multi brands
1. Can not be tasted
2. None of these
3. Tangibility
4. Perishability
5. Inseparability of production and consumption.
1. Refer 9.6
2. Refer 9.5
3. Refer 9.7
4. Refer 9.8
5. Refer 9.3
Unit 10 Pricing
Structure
10.1. Introduction
10.2. Factors affecting price determination
10.3. Cost based pricing
10.4. Value based and competition based pricing
10.5. Product mix pricing strategies
10.6. Adjusting the price of the product
10.7. Initiating and responding to the price change
10.8. Summary
Terminal questions
10.1. Introduction
Price determination is very important aspect of strategic planning. Marketers fix the price of the
product on the basis of cost, demand or competition. Dell, which allows customers to customize the
product adopted flexible pricing methods. In contrast, Indian oil companies’ product prices are fixed
by the government where company does not have any control. Retailer like big bazaar Fair price and
Subhiksha targeted price conscious consumer. Manufacturers and service providers all over the
world outsourced some of their functions to developing countries to get cost advantage which help
them in reducing their final price. Internet has become alternative tool for shopping to the consumer.
It offers wide range of products and lesser price.
Learning Objectives
1. Find out the factors that influence the pricing strategies.
2. Understand various approaches to pricing
3. Analyze the pricing strategies adopted by marketers
4. Know the situations when marketer should initiate the price cuts.
10.2. Factors Affecting Price Decisions
1. Marketing objectives: There are four major objectives on which prices are determined. They are
survival, current profit maximization, Market share leadership and product –Quality leadership.
Survival strategy adopted when company is facing stiff competition from the competitors and it wants
quick reaction and recovery. Current profit maximization strategy is used to defend the market
position. To explain, assume a company is operating in the lubricants business. Its sales and market
share are very high. It always tries to hold their current position. To do this it increases the price of
the product. The next objective is market share leadership. Here, company strives to achieve the
leadership position in the market. It reduces the price of the product so that more number of
customers buys the product. Through volume generation company gets the market leadership
position. Product quality leadership objective is used when company decides to come with high
quality product and premium price. The intention of the company is to cater to the needs of the niche
segment.
2. Costs: The cost of marketing and promoting the product will have direct impact on the price. For
example, Airline fuel cost went up recently. All airline companies increased the price of the ticket.
Company will be incurring fixed cost (plant, Machinery etc...) as well as variable cost (Raw material,
labor etc…) The fixed cost will go down if the number of products produced increases. The variable
cost of the product decreases if the product is produced up to optimal level and then once again it
goes up. Hence the total cost (fixed cost plus variable cost) vary according to both fixed cost and
variable cost. Marketer is interested in knowing the break even analysis when he introduces the
product in the market. The break even point for a product is the point where total revenue received
equals the total costs associated with the sale of the product (TR=TC). A break even point is typically
calculated for businesses to determine whether it would be profitable to sell a proposed product, as
opposed to attempting to modify an existing product instead so it can be made lucrative. BreakEven
Analysis can also be used to analyze the potential profitability of an expenditure in a salesbased
business.
3. 4Ps of marketing: The price of the product is determined by the other marketing mix elements
also. Product influences the price level i.e. if the product quality is very high company would like to
price it high and vice versa. The new product requires aggressive promotion and results in higher
promotion cost and higher price. Supply chain management also plays an important role in the price
determination. If the organization able to integrate their supply chain well then it will be having
distribution advantage than others. Let me explain these concepts with examples. Nokia when it
introduced 1100 handset in Indian market priced at Rs 5200. It did so to get back its R&D and
promotion cost. When the sales picked up, the price of the product has come down to Rs3800. Cavin
care introduced sachets and priced at 50 paisa. HUL was forced to come out with sachets at the
same price.
4. Nature of the market and demand: The price determination depends on the nature of the market
also. The nature of the market is classified into following categories.
a. Perfect competition
b. Monopolistic competition
c. oligopolistic competition
d. Monopoly
a. Perfect competition: The nature of the market where many buyers and sellers exists. Both the
buyers and sellers exhibit the switching habit. If the seller charges more for the product then buyer
will shift to another seller. Usually in these type of market companies should set their prices
according to the competition.
b. Monopolistic competition: The nature of the market where many buyers and sellers exists. The
difference between Perfect competition and monopolistic competition is in case of latter prices for the
products vary according to the differentiation where as in case of former there is only one price
exists. In case of Monopolistic competition prices are fixed by the gap in the product line of all
competitors and level of differentiation the company is able to do.
c. Oligopolistic competition: The market consist few players and dominant in the market. They do
not allow new players to enter the market. They are price sensitive to each other
d. Monopoly: Here market consists of one seller. An Indian railway has monopoly over the railway
industry in India. It is able to sell its products and services at the determined rates. In the monopoly
markets usually controlled by the government prices are economical.
Demands for the product vary according to the price set. Generally customers think that higher the
prices better the quality of the product and lower the price lower the quality of the price. Marketer
should understand this perception. This perception will determine the demand for the product. For
example, customer thinks that Mercedes as high quality product and chik shampoo which costs less
than other shampoo as low quality. After analyzing the perception about the price, marketer is
interested in finding out the price elasticity of demand.
The price elasticity of demand is defined as percentage change in quantity demanded to the
percentage change in the price. To explain, assume that the price of the product is Rs 12 and
market is perfect. Company is able to sell 1000 units per month. If the price is revised to Rs 13 and
company expects 900 units to be sold in the particular month. The price elasticity of demand for the
product is
Price elasticity of demand= % change in quantity demanded/ % change in price.
= 10%/ 8.33%
=1.2
This means company is having negative Price elasticity of demand.
The marketing implication is less is the prices elasticity of demand it is very easy for the marketer to
change the price. Marketers who are interested in sales and product have inelasticity of demand will
go for the lowering of the prices.
5. Competition: Price is also determined by how intense the competition is in the industry. Cellular
industry and airline industry in India are involved in such type of price wars. The price war between
Hutch (Now Vodafone) and Airtel is exemplary. Air Deccan which started no frill airline made other
airliners like go air, spice jet and paramount to reduce the price of their airlines.
6. Environmental factors. These external factors are very crucial for the company’s price decisions.
We discussed the impact of Macro and micro environment on the company’s strategies. For
example, in the union budget tax on cigarette is increased. Hence company that manufactures
cigarette should increase the price. The increase in the price is determined by the government
environment which is external to the company.
10.3. Cost based pricing
I. Cost plus pricing: The method of adding markup to the total cost of the product
Procedure for calculating cost plus pricing:
a. Find out the variable cost per unit and fixed cost.
b. Estimate the number of units the company is intended to sell.
c. Calculate the Unit cost by the following formula
Fixed costs
Unit cost = Variable cost +
Unit sales
d. Find out the required mark up( desired return on sales)
e. Calculate the price by the following formula.
Unit cost
Price=
(1 Desired return on sales)
Problem: Company X would like to sell 75,000 units in the year 2008. The fixed cost of the company
is Rs 2 Lakh and variable cost is Rs 5 per unit. Company wants 30 % profit after sales. Calculate the
Price of the product to achieve desired sales and profit.
Solution:
Unit cost= VC+ (FC/ unit sales)
= 5+ (200,000/75000)
= 7.67
Price = Unit cost/ (1 desired return on sale)
= 7.67/ (10.3)
= 10.85
Approx Rs 11/unit.
Advantages of cost plus pricing:
1. Sellers are more certain about the cost than the demand.
2. If all the companies in the industry use this method price become standard.
3. It is fairer to both buyers and sellers.
Disadvantages of cost plus pricing:
1. It ignores the demand and competition
2. If fewer units are sold then fixed cost will be spread to less number of units. This lead s to
higher unit cost and higher final price.
II. Break even pricing:
The firm determines the price at which it will make the target profit.
Procedure to calculate the break even volume:
1. Find out the total fixed cost of the company.
2. Determine the price on which company would like to sell
3. Calculate the variable cost per unit.
4. Determine the break even volume by the following formula
Break even volume= Fixed cost/ (Price variable cost)
Procedure to identify breakeven price
1. Determine the unit demand needed to break even at a given price.
2. Find out the expected unit demand at given price.
3. Find out the total revenue at a given price.
4. Calculate the total cost ( assuming fixed cost and total of variable cost)
5. Determine the profit from the following formula
Profit= Total revenue – total cost.
Assume:
Fixed cost: Rs 1,000,000
Price: Rs 20
Variable cost: Rs 12
BEV = 1,000,000/ (2012)
=125,000.
Price Unit demand Expected unit Total revenue Total cost iv( Profit viiiiv
needed to demand at given iii= (Price*ii) assumed
break even(i) price(ii) fixed cost Rs
10 Lakh and
constant
variable cost
Rs 12)
Rs 16 250,000 340,000 4,800,000 5,080,000 280,000
Rs 18 166,667 180,000 3,240,000 3,160,000 80,000
Rs 20 125,000 140,000 2,800,000 2,680,000 120,000
Rs 22 100,000 90,000 1,980,000 2,080,000 100,000
Rs 24 83,333 60,000 1,440,000 1,720,000 280,000
Rs 20 are the ideal price to break even.
10.4. Value Based and Competition Based pricing
I. Value based pricing: Setting the price of a product on the basis of consumers’ value rather than
manufacturers’ cost.
Difference between value based and competition based pricing
COST BASED PRICING
Product Cost Price Value Customers
VALUE BASED PRICING
Customers Value Price Cost Product
Cost based pricing starts with development of product and prices were fixed later. In case of value
based pricing customers are given utmost importance. The product is developed only after the price
and cost estimation in value based pricing method. To explain both theories let me take examples,
company X that manufactures electric switches develops the product and sets the price on the basis
of total cost and target return required. Company Y that manufactures food products researches the
consumer need and prepares customer values. On the basis of values company sets the price
Every day low pricing:
In this strategy organization charges constant low prices and no temporary discounts. This method is
popularized by WalMart.
High Low pricing:
Charging higher prices everyday but running frequent promotions to lower the prices on temporary

prices.
2. Competition Based pricing: Method in which a seller uses prices of competing products as a
benchmark instead of considering own costs or the customer demand
a) Destroyer Pricing
This strategy is used as an attempt to eliminate competition. It involves lowering companies’
prices to an extent where competition cannot compete and consequently, they go out of
business. It is therefore important that one has to recognize how threatening the competition is
and research how competitive they can be with their prices: they may be able to compete with
organization’s price cuts and consequently both, or even just competitor may go out of business.
b) Price Matching or Going Rate Pricing
Many businesses feel that lowering prices to become more competitive can be disastrous for
them (and often very true!) and so instead, they settle for a price that is close to their competitors.
Any price movements made by competition is then mirrored by the organization so long that one
can compensate for any reductions if they lower their price.
c) Price Bidding or Close Bid Pricing
Price bidding is a strategy most common with manufacturing, building and construction services.
In this strategy, companies submit the quotation according to the tender stipulations
Self Assessment questions 1
1. Current profit maximization strategy is used to defend the
2. Break even point occurs when
a. Total cost equals fixed cost
b. Total cost equals total revenue
c. Total cost equals variable cost
d. All the above
3. market consists few number of sellers
a. Perfect market
b. Monopolistic
c. Oligopolistic
d. Monopoly
4. Unit cost equals to
a. Variable cost+ ( fixed cost/unit sales)
b. Fixed cost + ( variable cost/ unit sales)
c. (Variable cost+ fixed cost)/unit sales
d. All the above.
5. Every day low pricing is
a. Value based pricing
b. Competition based pricing
c. Cost based pricing
d. All the above.
10.5. Product Mix Pricing Strategies
1. Product Line pricing: strategy of setting the price for entire product line. Marketer differentiate the
price according to the range of products i.e. suppose the company is having three products in low,
middle and high end segment and prices the three products say Rs 10 Rs 20 and Rs 30 respectively.
Figure 10.1
NOKIA 1110 NOKIA 7610 NOKIA E90
Price: Rs 1349 Price Rs 6249 Price Rs 34599
In the above example of Nokia mobile phones Nokia 1110 is priced @ Rs 1349, Nokia 7610priced @
Rs 6249 and Nokia E90 priced @ Rs 34599. All the three products cater to the different segments
Low, middle and high income group respectively. The three levels of differentiation create three price
points in the mind of consumer. The task of marketer is to establish the perceived quality among the
three segments. If the customers do not find much difference between the three brands, he/she may
opt for low end products.
2 Optional Product pricing strategy is used to set the price of optional or accessory products along
with a main product.
Figure 10.2
Rare underbody Rs

Body cover Rs 1521 Slide Molding Rs 8883 Roof End Rs 6396
1123
Maruti Suzuki will not add above accessories to its product Swift but all these are optional customer
has to pay different prices as mentioned in the picture for different products. Organizations separate
these products from main product so that customer should not perceive products are costly. Once
the customer comes to the show room, organization explains the advantages of buying these
products.
3. Captive product pricing: Setting a price for a product that must be used along with a main
product. For example, Gillette sells low priced razors but make money on the replacement cartridges.
4. By product pricing is determining the price for by products in order to make the main products
price more attractive. For example, L.T. Overseas manufacturers of Dawaat basmati rice, found that
processing of rice results in two by products i.e. rice husk and rice brain oil. If the company sells husk
and brain oil to other consumers, then company
5. Product bundle pricing is offering companies several products together at the reduced price. This
strategy helps companies to generate more volume, get rid of the unused products and attract the
price conscious consumer. This also helps in locking the customer from purchasing the competitors
products. For example, Anchor toothpaste and brush are offered together at lower prices.
10.6 Adjusting the price of the product.
Competition has forced companies to adjust their base prices according to the situations. There are
six different types of strategies companies are adopting. They are
1. Discounts and allowances
2. Location pricing
3. Psychological pricing
4. Promotional pricing
5. Geographical pricing and
6. International pricing.
· Discounts and allowances. Companies offer reduction in the price for the customers on the basis
of four different conditions.
a. Cash discount is given when the customer makes early payment before the due date. To explain
a manufacture gave 21 days credit to a grocery store person. If the customer pays the bill within 7
days company may ask him to pay 2% less than the actual amount.
b. Quantity discount is a price reduction to buyers who buy the products in large quantities.
Suppose a manufacture sells submersible pumps for Rs 20,000, and if customer buys three
motors at one go then he will reduce the price of the product to Rs 18,000.
c. Functional discount is offered when customer carries the promotion or other marketing
activities. To illustrate a chemist will be paid nominal amount for displaying the company products
or promoting the company products.
d. Seasonal discount is usually offered when customer purchases the product in the off season.
For example, if customers purchase the winter cloth in rainy season then he/she will get discount
on the total products produced.
Allowances are usually paid to the middlemen who actively involved in promoting the products.
1. Location pricing is the method of setting the price of the product according to the locations. Here
company changes the price from one location to another location though other cost remains the
same. To make it more clearer, company X is having two stores, one in a market area and
another in suburban area. It charges more in the market area and less in the suburban area.
2. Psychological pricing: According to Kotler Psychological pricing is ‘a pricing approach that
considers the psychology of prices and not simply the economics; the price is used to say
something about the product. For example, V. K. export sets Rs 299 and Rs 399 for its leather
products.
3. Promotional pricing: Organizations sets the price of their product below the list price and
sometimes even below cost. The objective of such pricing is to achieve immediate sale, increase
the customer footfall, avoid the competition and introduce the product. Big bazaar annual
clearance sale etc… is the example of this type of pricing.
4. Geographical pricing: setting the price on the basis of geographies they are selling the product
and freight charges. In this strategy different options exist for the company. They are
a. Freight charges to be paid by the customer( FOB pricing)
b. Different zones have different prices i.e. company may charge different prices in south and north
zone. ( Zone pricing)
c. Same price plus freight charges for all the customers ( Uniform delivered pricing)
5 International pricing: organizations should consider the different external factors and customer
profile in different countries. It should adopt their products and their prices according to that. For
example, CIPLA sells its AIDS medicines in Africa and America with different prices.
10.7 Initiating and responding to the price changes
1. INITIATING THE PRICE CHANGES
Ø Initiating the price cuts: Below we are discussing the situations when organizations think
of initiating the price cuts
a. Companies reduce their price when they have excess capacity.
b. Falling market share in the face of strong market competition
c. Dominate the market through lower costs.
Ø Initiating price increases
a. Rising cost of raw materials.
b. Demand for the product exceeds the supply.
Ø Buyer reactions to price changes
a. Reduce price means reduced quality
b. Reduced price means company is not selling the product as expected.
c. Prices may go down further.
d. May avoid buying the product for some time
2. Responding to price changes
In the competitive world other manufacturer some times initiates the price changes. In such
situations company should analyze two situations
Ø If the price cut of other company is not affecting our company, then hold current price and
monitor the market. This situation helps to keep the profitability of the company.
Ø If the price change of other company affects the company then it should take any one of
the following steps
a. Reduce the price of the product on par with competition or below the competition.
b. Increase the perceived quality of company and product.
c. Improve the quality of the product and then increase the price.
d. Launch different brand which can fight in the lower end.
1. Strategy used to set a price for a product that must be used along with a main product.
2. The pricing strategy in which company sells its several products at reduced price
a. Bundle pricing
b. By product pricing
c. Captive pricing
d. Options pricing
3. Razor and cartridge example is used for
a. Bundle pricing
b. By product pricing
c. Captive pricing
d. Options pricing
4. FOB pricing is an example of
a. Promotion pricing
b. International pricing
c. Discounts and allowances
d. None of these
5. is given when the customer makes early payment before the due date.
10.8. Summary
1. There are four major objectives on which prices are determined. They are survival, current profit
maximization
2. The break even point for a product is the point where total revenue received equals the total
costs associated with the sale of the product (TR=TC).
3. The price elasticity of demand is defined as percentage change in quantity demanded to the
percentage change in the price.
4. Optional Product pricing strategy is used to set the price of optional or accessory products along
with a main product.
5. By product pricing is determining the price for by products in order to make the main products
price more attractive
6. Product bundle pricing is offering companies several products together at the reduced price.
Terminal Questions:
1. Discuss the factors those influence price decisions
2. Write a note on cost based pricing.
3. Explain value based and competition based pricing.
4. How organizations should adjust their prices of the product?
5. Write a note on product mix pricing strategies.
1. Market position.
2. Total cost equals total revenue.
3. Oligopolistic
4. Variable cost+ ( fixed cost/unit sales)
5. Value based pricing
1. Optional product pricing
2. Bundle pricing
3. Captive pricing
4. None of these
5. Cash discount
1. Refer 10.2
2. Refer 10.3
3. Refer 10.4
4. Refer 10.6
5. Refer 10.5
Unit 11 Distribution Management
Structure
11.1. Introduction
11.2. Need of marketing channels
11.3. Decisions involved in setting up the channel.
11.4. Channel management strategies.
11.5. Introduction to logistics management
11.6. Introduction to retailing
11.7. Wholesaling
11.8. Summary
Terminal questions
Answers to SAQs and TQs.
11.1 Introduction
Distribution of goods or services from the factory to the consumer provides strategic advantage to the
company in the highly competitive environment. Earlier people used to wait to get the products but
now companies should make them available as and when customer demands. This has thrown up an
opportunity as well as challenge to the organizations to provide right product at a right place in a right
time. Companies are also emphasizing on how to reduce the cost in the supply chain. To meet the
cost reduction objectives, they are integrating their system with information technology, outsourcing
the distribution functions and streamlining the supply chain. Use of technology and interest of
corporate in the distribution management resulted in the evolution of professional retailing and
wholesaling in India. These above factors made distribution as one of the important part of the
marketing planning.
Learning Objectives
1. Explain the nature and functions of marketing channels.
2. Analyze the decisions involved in the distribution management.
3. Evaluate the different distribution strategies adopted by the company.
4. Understand the importance of logistics management.
5. Discuss the growth and scope of retailing and wholesaling.
11.2. Need of marketing channels
Marketing channels are set of independent organizations involved in the distribution of the goods or
services to the consumer from the factory at right time, and right place.
For example, Haldiram a company which produces snacks, chats and sweets have two
manufacturing locations at Delhi and Nagpur. The products from Delhi will be sent to 25 C&F agents.
These C&F agents distribute the goods to 700 distributors, who in turn sell to 0.4 million retail outlets.
In the same way, goods reaches to 0.2 million retailers from Nagpur plant via 25 C&F’s and 375
distributors. Consumer buys Haldiram snacks throughout India through these 0.6 million retailers.
Marketing channels include retailers, wholesalers, agents, brokers etc. Some companies do not use
these channels. They directly market their products to consumer. For example, Dell computers ask
its customers to login to the website, configure their product, and order the same on the internet.
Then generally a question comes to the mind, why many companies use marketing channels and
some do not. To answer the question we need to understand what are the functions marketing
channels do and how they are advantageous than direct marketing.
11.2.1. Functions of marketing channels
1. Physical distribution: transporting and storing goods.
2. Communication: Marketing intermediaries promotes the company’s products. Here channel
member provide the information regarding the product and pushes it to customer.
3. Information: retailers and wholesalers collect the information from the customer and provide the
same to the company.
4. Title transforming: Marketing intermediaries purchases the goods from the company and
transform the title of goods to next intermediary or customer.
5. Relationship management: Here marketing intermediaries try to understand the needs of
consumer, try to match his needs and satisfy them.
11.3. Decisions involved in setting up a channel
Marketer should consider various factors before deciding the particular type of channel. It may be
company or competitive factors. The type of goods to be transported and stored will decide the
length and intensity of channel. To decide on the particular channel, marketer will take following
decisions.
1. Understanding the customer profile: Purchasing habits differs from individual to individual.
Individuals who face shortage of time would like to purchase on the net (direct channel) and who
have abundance of time would like to experience the shopping. Some of them would like to have
variety of goods while others want unique or specialized products. Hence marketer should
understand who are his customers? How do they purchase? For example, customer don’t like to
travel half a kilometer to purchase a shampoo sachet but he don’t mind travelling two kilo meters
while purchasing durable goods.
2. Determine the objectives on which channel to be developed.
a. Reach: Company would like to make the goods available in most of the retail outlets. It will adopt
intensive distribution channel.
b. Profitability: Company wants to reduce the cost in the channels and enhance their profitability. It
will restructure the channel to optimum level so that it can reduce the cost and increase the profit.
c. Differentiation: Company positions their products differently. When most of the industry players

follow conventional system, company goes with new format of channels. For example, all
computer manufacturers were adopting dealer retailer channel to sell their products but Dell
started selling its product on the internet.
3. Identify type of channel members: Once the objectives are set on the basis of company’s policies,
it will analyze which type of the channel best suits. Merchants, agents and resellers are some
intermediaries involved in the distribution. Merchants are those who buy the product, take title
and resell the merchandise. Agents will find the customers, negotiate with them but do not take
the title of the product. Facilitators are the people who aid the distribution but do not negotiate or
take the title of the product.
4. Determining intensity of distribution: Intensity of distribution means how many middlemen will be
used at the wholesale and retail levels in a particular territory. If the numbers of intermediaries
are excess then the cost of the channel will increase vice versa if the number of intermediaries
are less then company will not be able to meet all target customers. Therefore company should
adopt optimum number of intermediaries. On the basis of how many intermediaries required,
company can adopt any one of the following strategies.
a. Intensive distribution: A strategy in which company stocks goods in more number of outlets. The
intention is to make the goods available near to the customer. For example, you can find ParleG
glucose biscuits available in almost all the retail outlets in rural and urban areas.
b. Selective distribution: A strategy in which company stocks goods in limited number of retail
outlets. For example, televisions are sold only in selected retail outlets. TVs cannot be sold like
toothpaste. Onida TVs are available in electronic retail shops like Viveks, Girias, Next, Ezone
etc…
c. Exclusive distribution: In this type of channel format marketer gives only a limited number of
dealers the excusive right to distribute its products in their territories. For example, a Kaya skin
care solution of Marico was marketed through exclusive distribution.
5. Assigning the responsibilities to channel members. Company should define the territory in which
channel member should operate, at what price he should sell, services he should perform, and
how he should sell.
6. Selecting the criteria to evaluate the channel member: company may have different types of
channel alternatives. It would like to choose any one of the alternatives, which meets its
objectives. Channels can be evaluated in the design phase by the method called SCPCA.
a. Sales(S): The ability of each channel member to generate the sales for company in a given
period.
b. Cost(C): how much cost each channel alternatives incur? Which one of the alternative
provides the optimum solution?
c. Profitability (P): various channel alternatives available to the company and their profitability
shall be compared. Company with better profitability shall be selected.
d. Control (C): Every company would like to have better control over its channel members.
Alternative channels can be evaluated on the basis of how much control each channel
member desires? And how much control the company is willing to provide?
e. Adaptability (A): Marketing is dynamic world. Competition exerts pressure on companies to
relook at their practices and supply chain continuously. The channel alternatives should be
flexible enough to meet the changing requirements. Whichever channel alternative meets
such objectives shall be selected.
11.4. Channel management strategies
In the previous section we discussed channel alternatives and identification of proper channel for the
organization. The proper channel which is selected should be managed properly, motivated and
evaluated against set standards. Now we shall discuss what are the strategies companies are
following to meet their objectives.
11.4.1. Managing and motivating channel member
Now day’s companies are considering their channel members as partners. These companies are
asking its intermediaries to integrate their business with them. Integrated business reduce the cost,
increase the efficiency, and helps in better customer service. Companies are adopting partner
relationship management (PRM) software to add value to their supply chain.
Partner relationship management @ AIRTEL
Partner Relationship Management
Bharti Airtel's requirements with respect to Partner Relationship Management. Bharti Airtel partner
engagement strategies focus on selecting the most capable partners worldwide and continuously
working with them to enhance their capabilities of providing conforming goods or services, on time.
The fundamental criterion for selecting and developing a longterm relationship with our partners is
Best Value. Best Value applies not only to product cost, but also to costs and risks of acquisition
and materials handling. Best Value, therefore includes the partner's service level, contribution to
initiatives, and conformance to quality on all the requirements outlined in this manual.
Bharti Airtel's PRM Process comprises of the following steps
Categorization
Rewards & recognition
Satisfaction level
Communication
Grievances
Categorization
Partner categorization is done on the following parameters
Business Size
Business Impact
Business Model
Type of product/item/service
Type of Technology & Domain knowledge
Performance status
Partner Categories are
Privileged Partners Registered, Approved, have contracts, currently supplying and
Delight us on every aspect of business engagement.
Preferred Partners Registered, Approved, Have contracts, supplying with

satisfactory performance
Present Partners Registered, Approved, Have contracts and currently supplying
Potential Partners Registered & Approved but no contract with them
Partner categorization is decided by the panel of experts from costing and pricing vertical
of SCM function. Based on the category type, following privileges are given to partners
Privileged Preferred Present Potential

Parameters
Partners Partners Partners Partner
Strategic Strategic
Partner Partnership
can done
Airtel Office
Facilities for space,
Partners Canteen,
Parking
Risk Risk
Sharing
Advances Max. 5% of requirement
the buying justification
within a
fiscal and
recovery in
12 equal
installments
Engagement High Medium Need
Meetings Based
New Preferred Considered Considered

Preferred
Business over over non
opportunities potential registered
Rewards and Recognition
Consistent performance is the basis for rewarding and recognizing Partners. The reward and
recognition a criterion is partner performance score card. The performance is analyzed for
different partner categories.
Parameters
The list of parameters and their weightages are
Weightages
SN Ranking Parameters
1 Cost 25
2 Quality 15
3 Delivery 15
4 Development / Innovation / New 10
Technology
5 After Sales service / SLA 15
6 Responsiveness / Flexibility 10
7 BACKWARD Compatibility / 5
Scalability
8 Systems and Processes 5
Differentiators
Key differentiators for the parameters are
Key Differentiators
SN Parameter
1 Cost Beating Inflation
Alternate Sourcing
Value Engineering
Continuous Cost
Reduction YonY
2 Quality Minimum Failure on
Receipt
No infant Failure
First time Acceptance
Quality Certification
Consistent Quality in
long run
Quality Culture
initiatives
Minimum Outage
Eco Friendliness
3 Delivery On Time, as required
Consistency
Handling Challenges
Delivery in Exigency
4 Development / Value Engineering
Innovation / New Time to Market
Technology Competitive advantage
Value for Money / Value
Added
Focus on R & D
Additional Revenue
Stream
Go to Market
5 After Sales service / No Outage
SLA Spares Availability
Meeting TAT
Preventive Maintenance
Response Time
Resolution within SLA
Detectability of the
defects online
monitoring
24 X 7 Support
6 Responsiveness / Meeting Challenges
Flexibility Speed of Response
Willingness to raise the
bar
Understanding
Customer needs
7 BACKWARD Product Life Cycle
Compatibility / integration with
Scalability Technology
Timely Investments
Breadth & Depth
Alignment with Airtel 's
Strategy
8 Systems and Processes Proactive Regulatory
Compliance
Innovative Business
Models implementation
Improvement Focus
Partners are selected based on the following criteria
Covers all major categories
Major share of business in the category
The scoring of each partner is carried by an evaluation team consisting of key users. Scores are
compiled and ranking is carried out.
Award Categories
The award categories are dynamic and primarily depend on Airtel's Key thrust areas for the
fiscal.
Product
Services
Special
Award Announcement
Awards are announced and presented during the annual partnership meets. Consistent & good
performers are recognized whereas bad performances are warned and punitive actions taken, as
required, from time to time.
Partner Satisfaction
Partner Satisfaction is considered as important tool by Bharti Airtel to improve and further
develop its internal processes and external processes with partners in the supply chain network.
Partner Satisfaction is considered
As an element of supply chain management including partnership, supply
management and collaboration, quality management and reverse marketing
As an analogical element with customer satisfaction including marketing research
As analogical approach with 360° methodology.
In order to obtain an unbiased feedback, the survey is conducted by an independent external
agency. Survey parameters are jointly decided by partner approval team and the agency. These
surveys are conducted once a year for selected Partners.
The confidentiality of the survey data is maintained by the agency and is not disclosed to Bharti
Airtel.
The outcome of the survey would include
Area of improvements
Internal Benchmarks
Competition Benchmarking
Best Practices
The results and feedback received from the partner satisfaction survey would be used to improve
partner engagement processes at all levels of the organization. Partner touchpoints would also
be given feedbacks on their interaction & support effectiveness.
Partner Grievances
Bharti Airtel recognizes Partners as one of the key stakeholders of its business and hence it is
important to address their grievances in transparent and structured manner. Issues related to
ethics and integrity is handled by Ombudsman Process as per the Bharti Airtel Code of Conduct
policy.
All other grievances are monitored, reviewed and resolved by Supply Chain Council. This council
comprises of senior members of the supply chain function.
Partner identity is kept confidential in case of sensitive grievances like integrity issues.
Types of grievances
Grievances are broadly classified in the following categories
Payments
Dispute/Disagreement in business
Unethical/Integrity/Code of Conduct violations
There are different channels through which Partners can register their grievances
Partner Portal (to be activated soon)
Emails to helpdesk
Overview of Partner grievances handling process is given below
Partner Grievance Handling Stages
Partner registers grievance through available channels
Receive the grievance and forward to respective teams.
Analysis on the grievance and come out with action plan.
Implementation of the action plan.
Partners are communicated with action taken
Partner Communication
This section outlines Bharti Airtel requirements with respect to Partner Communication. Bharti
Airtel believes that Communication is the nerve line for any partnership and focuses on
establishing a transparent, twoway and trusting relationship with all partners.
Communication with partners is done at different levels
Functional Directors Conceptualization of requirement, delivery timing and KPI's
User Owner Delivery as per specification, timeline and usage requirement
Supply Chain Team Commercial and Contractual Agreements
Governance Team Code of Conduct, Contractual Obligations and Ethical Issues
Three types of communications are considered
Strategic
Operational
Need Based
11.4.2. Evaluating Channel Members
The channel members need to be evaluated on a regular basis to assess their performance. In case
of Airtel cellular service provider channel members are evaluated on the basis of
SN Ranking Parameters Weightages
1 Cost 25
2 Quality 15
3 Delivery 15
4 Development / Innovation / New Technology 10
5 After Sales service / SLA 15
6 Responsiveness / Flexibility 10
7 BACKWARD Compatibility / Scalability 5
8 Systems and Processes 5
11.5. Introduction to Logistics management
Providing the right product at a right place in a right time is a challenging task. Marketing managers
are developing or outsourcing the better storage and transportation facilities to make goods available
to customer at a right time. Therefore in the modern marketing the study of movement of goods
(Logistics management) becomes prominent.
According to Philip Kotler logistics management is
‘ The tasks involved in planning, implementing, and controlling the physical flow of materials, final
goods and related information from points of origin to points of consumption to meet customer
requirements at a profit’.
The above definition clearly shows that logistics management involves the moving the products and
materials from suppliers to the factory (Inbound logistics), and moving the product from the factory to
resellers and to customers (Out bound logistics). This stream of study involving the suppliers and
reverse distribution (return the products to factory) in the logistics management is now days
considered as supply chain management.
Supply chain management is the process of flow of goods, information and fund from supplier’s
supplier to consumer (supplier’s supplier supplier factory intermediaries consumers) effectively
and efficiently.
Supply chain management@ Airtel (adopted from www.airtel.in )
Bharti Airtel understands the importance of partners to remain competitive in a dynamic business
environment. As a step in that direction, the Supply Chain (SCM) function has been created with a
mandate to develop partner relationships to maximize mutual opportunities for growth and
profitability. The SCM organization has a central core team of supply chain subject mater experts and
execution teams operating under different business divisions across the country.
Supply Chain Characteristics Bharti Airtel Approach
Number & Structure Fewer; Clustered
Procurement personnel Limited
Outsourcing Strategic
Nature of Interactions Cooperative, positive
sum
Relationship focus Mutuallybeneficial
Relationship focus Performance
Contract length Longterm
Pricing practices Target costing
Price Changes Downward
Quality Designedin
Delivery Smaller Quantities (JIT)
Inventory buffers Minimized, eliminated
Communication Extensive; multilevel
Communication Collaborative; twoway
Role in development Substantial
Production flexibility High
Technology sharing Extensive
Dedicated investments Substantial
Mutual commitment High
Governance Selfgoverning
Future Expectations Considerable
11.5.1 Major logistics functions
a. Warehousing: Goods produced at the factory may not be consumed simultaneously. Therefore
companies need to store the goods. Companies able to use proper warehousing facilities enhanced
their operation efficiency. Warehousing can also be used as hub where goods come to the facility
and cross docked. Now days many companies are assigning this work to specialized players in ware
housing. Hence warehousing itself grew like separate industry. Below is an example of how Barista a
coffee chain company used the services of safe express (Logistics Company) to improve their
competitiveness.
Better Latte than ever
Safexpress is right on time with front, the mocha and crackers. Its just in Time management ensures
minimal inventory for the Barista chain of coffee bars. Both parties are involved in a winwin situation
Barista, one of the favored outlets for coffee and snacks in the Indian subcontinent, is a good
example of transparency in supply chain management operations. In fact, it would be a good case
study to highlight as to how a logistics service provider can make his operations transparent to the
consumer oriented company, in this case the Barista chain of coffee shops. For the newly
established Barista outlets in Indian cities, warehousing the supplies at posh locations in the heart of
the city is a costly proposition. Leading logistics company Safexpress has taken over as third party
logistics (3pl) partner to supply each Barista outlet in different Indian cities their ingredients for that
just right coffee cup, JustInTime, (JIT). This will leave Barista absolutely free of any investment and
recurring costs for logistics and warehouse management.
Warehouse management is the latest area where companies are trying to cut the costs and dilute the
level of resources employed to that area. Outsourcing logistics is a trend that started with the large
supermarket chain in the United States and Canada. For the supermarket in North America, logistics
is a nonentity as far as the operations workflow chart goes. They just concentrate on the
maintenance of the shelf space. The JIT operations aided by weather forecasting are fully carried out
by third party logistics providers.
Safexpress, with considerable expertise in Supply Chain Management looks after the distribution and
inventory requirement of Barista outlets operating from its mother warehouse in Delhi. This mother
warehouse further supports three regional warehouses in Mumbai, Calcutta and Bangalore. Barista
currently operates 82 outlets across 11 cities in India. It is serving around 15,000 people every day,
and by the look of things, this is just the beginning of a bigger wave. With a new outlet opening every
10 days, Barista expects to have 175 coffee bars by 2003.
In such a scenario, how does Barista manage its supply chain? This, of course, is not its core
business but is still critical to its success. The answer lies in their logistics and Supply Chain
Management Company, Safexpress. Safexpress, India's largest express company, offers complete
logistics management solutions to Barista and in a way contributes to giving the Barista customer a
world class coffee experience at a much better price.
A typical Barista outlet world is 1000 sqft store with seats around a table. Around 95 per cent of the
space is occupied by around 60 seats and the rest of it is the administration utility corner required for
processing orders. The inventory space is zero per cent and a set amount of supplies ranging from
paper cups to coffee beans are replenished on daily basis. The daily replenishment ensures
minimum order quantities. The efficiency of supply chain, in such a case, becomes a critical issue
and hence requires the best of logistics management.
Safexpress with its hands fully into Supply Chain Management looks after the distribution and
inventory requirement of Barista outlets operating from its mother warehouse in Delhi, Which further
supports three regional warehouses in Mumbai, Calcutta and Bangalore.
The above four warehouses cater to the supplies for the outlets in the respective cities as well as the
whole of that region's outlets. So Delhi's mother warehouse is the biggest of the four supplying the
remaining three at Mumbai, Calcutta and Bangalore as well as all the four regions' demands. All
three regional warehouses in Mumbai, Calcutta and Bangalore have oneweek stock for fast moving
items and threeweek stock for slow moving items.
The Safexpress logistics strategy focuses on reducing product response time thereby ensuring that
the customer's demand is met at the right time, right place and at the right cost. The key lies in
understanding the customer demand pattern, tracking transit time reliability, capturing real time data
and through continuous replenishment. Any supply chain strategy has to dovetail with the business
strategy. The two have to be in tandem and there had to be a perfect alignment between them, which
is exactly what Safexpress aims to do. So with Safexpress in charge of Barista's supply chain
operations, the muchdesired cup of coffee will never be late, will never be unavailable.
How the supply chain in this new venture is going to be in a winwin situation is something worthwhile
to contemplate given the rich experience that Safexpress has. Safexpress Barista tie up is an
example for those who are trying to get familiar with the role of third party logistics or popularly
known as 3PL partner's role in Supply Chain Management in the current business environment.
As globalization catches up, outsourcing is getting more and more popular as a business strategy. In
the supply chain management 3PL is a proven practice worldwide and is gaining acceptance now in
India as well. Ideally, a 3PL partner should unburden a client off its logistics tensions. At the same
time, a 3PL partner must prove credentials by way of ensuring cost rationalization as a measurement
of his performance.
Safexpress as an expert 3PL solution provider is exactly trying to be the same role model that purists
of Supply Chain Management philosophy talk of i.e., to really unburden Barista off it's logistics
tensions through expert logistics manpower, optimum utilization of resources, including manpower,
space, infrastructure, etc.
Barista stands to gain from Safexpress' faster TAT for all performance indicators, handling expertise
of consignment, products in general. Currently, Safexpress is having a nationwide network of over
425 metropolitan cities and townships with stateoftheart infrastructure, backed by cutting edge
Information Technology, systems and warehousing space exceeding one million square feet. The
company has more than 2,000 all weatherproof IICL V containerized vehicles, covering 750 routes,
through 20 hubs and super hubs. Being a frontline 3PL company its domain knowledge of all aspects
including statutory, Functional, operational, logistical and managerial will also go a long way in
maintaining smooth operations. And no doubt it will boost cost effective partnership.
Further, Safexpress has the capability to suggest business models packaging parameters, reduction
of logistics costs, as a value addition to its customers. Domestically, Safexpress is the largest 3PL
service provider with over 40 customers in the 3PL area. Meaning Safexpress can not only carry
expertise and experience in 3PL but also can bring in these experiences to best use in whichever of
the crunch area client is requiring, as bulk of its expertise comes from Indian context.
Safexpress is streamlining its warehouse management too by developing innovative software and
web tracking facilities. It has offered to create warehouse space for Barista to offer effective
warehouse management system and complete MIS solutions. It will be offering its solutions through
inhouse WMS software, which has been developed and customized on the Tally based platform.
The end result is a completely, web compatible solution for cargo and warehouse management. This
shall be utilized wherever there is a gap of reports/analysis in the Barista system, if any.
Safexpress is has also offered Barista a completely web based waybill tracking system for online
delivery tracking of consignments. Safexpress has adopted state of the art information technology
applications to leverage value added services. The company provides online real time information
through its unique track and trace system. Safexpress has also pioneered a perfect blend of 'Radio
Trunking' technology along with VSAT links and satellite communication for monitoring route
vehicles and intra city runs through a Global Positioning System. Strategic Alliances with Supply
Chain Management Software Organizations provides a cutting edge for a holistic service. In the end
that cup of coffee tastes doubly good.
b. Inventory management: Organizations need to store the goods required for day to day operation.
They can not store high inventory as stock piles up and cost also increases. They are not sure of
demand fluctuation and its impact on the inventory, so they do not want take risk by carrying little
inventory. For example, safe express which provides inventory solution to Barista replenishes the
goods on daily basis so that barista can maintain zero inventory space in their outlets.
c. Transportation: The goods need to be carried from one place to another. Transporters ship the
goods from supplier location to factory and from factory till customer. They use different modes to
perform the function. The different modes are
i. Air transportation.
ii. Water transportation.
iii. Surface transportation.
iv. Pipelines and
v. Internet carriers.
i. Air transportation: This mode of transportation is used to transport perishable goods. The
dominant characteristics of this mode are quick delivery, premium pricing and limited quantity
transportation.
ii. Water transportation: this is the slowest but cost efficient mode of transportation. It can carry
wide varieties of goods but it can reach only limited places. This mode is usually suited for bulky,
low value non perishable goods.
iii. Surface transportation: This mode is again divided as highway transportation and rail
transportation. It can carry wide variety of assortments. In case of rail transportation it can carry
bulky products while in highway transportation it is of high value goods.
iv. Pipelines: this mode is excellent in meeting delivery schedules as it is having fewer obstacles.
The drawback of this type of transportation mode is it carries very limited variety of products and
cover very limited geographic space. The cost of the transportation is very low. The most suitable
products for this mode are oil, natural gas and slurried products.
v. Internet carriers: This mode is used to carry digital products from producer to consumer via
satellite able modem or telephone wires. Software companies, education institutions etc are very
few to name, who are using this mode of transport.
1. A Strategy In Which Company Stores Goods In Maximum Number Of Retail Outlets Is
2. In Exclusive Distribution Maximum Number Of Retailers Enjoy The Right To Sell In Their
Territory
a. True B. False
3. Scpca Method Is Used To Analyze
a. Channel Motivation
b. Channel Design.
c. Inventory Management In Channel
d. All The Above.
4. Pipeline Mode Of Transport Is Used To Transport Goods.
5. Satellite Is Type Of Transportation Mode.
11.6 Introduction to Retailing
Retail sector has witnessed tremendous growth in the last few years. The major factors which drive
the retail boom are change in consumer profile and demographics, increase in the number of
international brands available in the Indian market, economic implications of the government,
increasing urbanization, credit availability, improvement in the infrastructure, increasing investments
in technology and real estate . The Indian retail market, which is the fifth largest retail destination
globally, according to industry estimates is estimated to grow from US$ 330 billion in 2007 to US$
427 billion by 2010 and US$ 637 billion by 2015. Simultaneously, organized retail which presently
accounts for 4 per cent of the total market is likely to increase its share to 22 per cent by 2010.
As per Associated Chambers of Commerce and Industry of India (ASSOCHAM), the overall retail
market is expected to grow by 36%. The organized sector is expected to register growth amounting
to Rs 150 billion by 2008. Retail is amongst the fastest growing sectors in the country and India
ranks 1st, ahead of Russia, in terms of emerging markets potential in retail.
11.6.1. Characteristics of retailing
i. Direct interaction with customers. Retailer is the final link between company and customer.
Retailer understands the need of the customer and provides the proper solution to him. For
example, neighborhood grocery store person knows his customer profile better. He reminds
the customer of what to purchase and provides credit.
ii. Purchased in small quantity: Customer purchases small quantity of merchandise at the retail
store. Though customer purchased at less quantity he purchases frequently. This has led to
the better relationship between customer and retailer.
iii. Tool of marketing communication: Companies use retailer location for point of purchase
displays. They also encourages retailer to promote the products through word of mouth
communication.
11.6.2. Functions of retailing
i. Sorting: Retailers arrange the items in proper order so that customer can easily identify his
goods or services.
ii. Breaking bulk: the process of unpacking big packets into small packets. Retailer will perform
this function as customer may not be able to purchase large quantity of goods and services.
iii. Holding stock: Retailer works as storage facility to organizations. Retailer holds inventory to
meet the day to day needs of consumer.
iv. Channels of communication: Retailer promotes the company product through word of mouth
communication. The retailer location is also used for point of purchase display.
v. Transportation: Retailer undertakes door delivery order in case of durable goods. This feature
is now adopted by the small grocery stores also.
11.6.3 Type of retailing
A. Store retailing: The mode of retailing where a store is essential in a particular location to do
business. Store retailing can be performed in different formats. They are
1) Specialty store: The stores carry large amount of merchandise but in a limited product lines
like Textile store or furniture store. For example, Tanishq a jewellary retail store.
2) Department store: In this retail format apparel, home furnishing and consumables goods and
services are sold. Each of the formats is considered as a different department and managed
in the retail store. For example, Shoppers stop of Raheja group.
3) Supermarkets: According to Philip Kotler ‘ supermarkets are a relatively large, low cast, low
margin, high volume, self service operation designed to serve the consumer’s total needs for
food and house hold products. For example, Food world of RPG group.
4) Convenience store: These stores are very near to customer residence. Usually carry day
today products of high turnover at premium price. For example, Reliance fresh
5) Discount store: These stores sell products at low prices with low margin. The store achieves
their profit by generating high volumes. Subhiksha, a south India based retailer follows this
format.
6) Off price retailers: This type of retailer buys the goods less than wholesale prices. These
products are sold less than retail prices. For example, factory outlets in marathahalli
Bangalore.
7) Super stores: These are very large stores where customer can purchase food and non food
products. The super store includes category killers that carry large merchandise in particular
category. For example, Nalli sarees which carries large variety of sarees in their stores.
Another type of super store format exists in India is Hypermarkets. These retail outlets have
huge space and carry large merchandise. For example, Reliance Mart in Ahmedabad.
B. Non store retailing: The mode of retailing where a company uses electronic media or direct
selling medium to sell their products. For example, direct selling, Telemarketing, Automatic
vending, online retailing and direct marketing. These examples will be discussed in detail in
the Unit 13.
11.7 Wholesaling
According to Philip Kotler wholesaling is
‘All activities involved in selling goods and services to those buying for resale or business use’
Wholesale trading in India is changing in character. Since preIndependence, it has been dominated
by the traditional castespecific trading community. However, today, foreign investors seem to be
making a beeline for this traditional trade. Government approved Rs 256.79 crore worth of
investment in the last three months. The Foreign Investment Promotion Board (FIPB) had approved
100 FDI proposals, out of which 33 are proposals to undertake wholesale trading in India by foreign
companies. These are in a wide range of product categories — from shoes to animal feed, from color
TVs and electrical equipments to hardware for doors and windows, to name a few. This is
revolutionary change in the wholesale business because earlier foreign companies looking at
wholesale trading in India were mainly interested in importing products to sell in the Indian market.
But now these companies are coming in purely as trading firms and sourcing and selling domestically
only. This may pose strong competition to the local trading population. The single largest investor in
wholesale trading to have got Government approval is Cargill Holding BV of Holland, which is poised
to invest Rs 238 crore for trading in commodities including food grains and animal feed, and other
industrial commodities. Similarly, Sharp Corporation of Japan, which already has a manufacturing
base in India, will now start trading in color TVs, VCRs and similar items from other manufacturers as
well. The UKbased Randox Laboratories, whose products were earlier imported by domestic
importers, will now be setting up its own subsidiary with an investment of Rs 15.5 crore for importing
its own products and undertaking wholesale trading in them.
11.7.1. Functions of wholesaler
1) Selling: wholesalers have well defined network of retailers. Hence, they can sell the company
product in the large area.
2) Bulk breaking: wholesalers buy the product in large quantities and send in small quantities to
retailers.
3) Warehousing: Wholesalers have huge space to store the goods. They help in reducing the
inventory cost to the company.
4) Transportation: Some companies have agreements with wholesalers on transporting the goods to
retailers.
5) Credit and risk taking: wholesalers provide credit to the retailers. By doing this they take the risk
of finance as well as products.
6) Information: Wholesalers provide the information to company on retailers purchase, retail market
characteristics.
11.7.2. Types of wholesalers
Merchant wholesalers. These are independently owned wholesalers who take the risk of possessing
the titles. Often they are classified on the basis of product line. Full service wholesalers perform all
the above mentioned functions. Limited service wholesalers’ offer controlled services to retailers and
customers. For example cash and carry business of METRO in Bangalore.
Brokers and agents: These wholesalers do not take the title of goods and perform few functions.
Brokers have knowledge of buyer and seller, and bring both to the negotiation. Agents represent the
company or retailer or customer on a permanent basis.
1) Tanishq is type of store.
2) Discount store sells the product as low price and high margin
a. a) True b) False
3) Hypermarkets are examples of
a. discount store
b. department store
c. super markets
d. super stores.
4) Direct selling is a type of retailing
a) True b) False
5) Cash and carry business is an example of
a. Full service merchant wholesaler.
b. Limited service merchant wholesaler.
c. agent
d. Broker.
11.8. Summary
Ø Marketing channel perform physical distribution, transportation, warehousing, financing and risk

taking functions.
Ø Channels are design on the basis of reach, profitability and differentiation objectives.
Ø Companies decide the number of marketing intermediaries on intensity required. They may use
intensive distribution, exclusive distribution or selective distribution.
Ø SCPCA method is used to evaluate the channel design.
Ø Three major logistics functions performed are warehousing, inventory management and
transportation of goods.
Ø Specialty stores carry large amount of merchandise but in a limited product lines like Textile or
furniture product lines.
Ø Wholesaling is defined as ‘All activities involved in selling goods and services to those buying for
resale or business use’
Terminal questions
1) Discuss the decisions involved in setting up marketing channels.
2) Explain the functions of marketing channels.
3) Describe the major logistics functions with examples.
4) Write a note on retailing.
5) Explain the different types of wholesalers.
1. Intensive distribution.
2. False
3. Channel design
4. Oil
5. Internet
1. Specialty store
2. False.
3. Super store.
4. True
5. Limited service wholesaler
Answer to Terminal Questions:
1. Refer 11.3
2. Refer 11.2.1
3. Refer 11.5.1
4. Refer 11.6
5. Refer 11.7
Unit 12 Promotion Management: Managing Non Personal
Communication Channels
Structure
12.1. Introduction
12.2. Integrated marketing communication
12.3. Communication development process
12.4. Budget allocation decisions in marketing communications
12.5. Introduction to advertising
12.6. Fundamentals of sales promotion
12.7. Basics of public relations
12.8. Summary
Terminal questions
12.1 Introduction
A good product with better distribution and affordable price will fail if its attributes are not
communicated to target customer. Marketer should understand how shall company develop and
channelize the communication in effective way. The communication is defined as "Any act by which
one person gives to or receives from other person information about that person's needs, desires,
perceptions, knowledge, or affective states. Communication may be intentional or unintentional, may
involve conventional or unconventional signals, may take linguistic or nonlinguistic forms, and may
occur through spoken or other modes." The definition provides the general view of all types of
communication. The definition can be interpreted in the marketing as follows “marketing
communication is the process of providing the information to the consumers about the marketing mix
either through personal channels (direct selling, direct marketing etc..)Or through non personal
channels (advertising, sales promotion etc...)”. Both personal channels and non personal channels
constitutes the Marketing communication mix or promotion mix.
Promotion mix: This is an assortment of advertising, sales promotion, public relation, Personal selling
and direct marketing.
Advertising Any paid form of nonpersonal presentation and promotion of ideas, goods, or services
by an identified sponsor. For example: Print ads, radio, television, billboard, brochures and, signs, in
store displays, posters, motion pictures, and banner ads,
Personal selling The type of promotion mix that helps and persuades one or more prospects to
purchase a good or service or to act on any idea through the use of an oral presentation. Examples:
Sales presentations, sales meetings, sales training and incentive programs for intermediary
salespeople.
Sales promotion Incentives designed to stimulate the purchase or sale of a product, usually in the
short term. Examples: Coupons, sweepstakes, contests, product samples, rebates, tieins, and self
liquidating premiums.
Public relations This is the process of nonpaid nonpersonal stimulation of demand for a product,
service, or business unit by planting significant news about it or a favorable presentation of it in the
media. Examples: Newspaper and magazine articles/reports, TVs and radio presentations, charitable
contributions, speeches, issue advertising, and seminars.
Direct Marketing: The communication tool used to interact with the customers directly by using
telephone, online mediums and other tools.
Learning Objectives
1. Explain the importance of integrated marketing communication.
2. Describe the stages involved in developing effective communication.
3. Analyze budget allocation decisions in marketing communication.
4. Understand the fundamentals of advertising and sales promotion.
5. Discuss the role of public relation (PR) in marketing communication.
12.2. Integrated Marketing Communications (IMC)
According to The American Marketing Association, Integrated Marketing communication is “a
planning process designed to assure that all brand contacts received by a customer or prospect for a
product, service, or organization are relevant to that person and consistent over time.”
Objective of Integrated Marketing Communication (IMC):
To plan, develop, execute and evaluate coordinated communications with organizations’
stakeholders.
Reasons for the growth of Integrated Marketing Communication (IMC)
1. The growth of innovative promotional tools and need to integrate them.
2. Specialized media vehicles for niche target customers.
3. Growth of retailer dominated market and passing of control from manufacturer to the customer.
4. Growth of database marketing.
5. Wider geographical coverage through internet.
6. Higher accountability and performance linked compensation schemes.
12.3. Communication development process
Preparing target customer profile
Identifying promotion objectives
Designing a message
Selecting channels of communication
Selecting the message source
Target customer feedback
12.3.1 Preparing target customer profile: Effective marketing communication starts with identifying
the target customer to whom the communication is developed. In this stage company prepares target
customer profile.
Company: Exide industries.
Copy: Help, whenever wherever your car battery is in trouble we will be there, just dial the bat mobile
number of your city and we will be right their to bring your car back to life. Because we love cars.
Target customer profile:
Customer characteristics Description
Type of customer Individual
Income Upper middle class and upper class.
Media exposure Print ( English magazines, dailies and

journals)
occupation Salaried or business class.
Need of the product OEM of a car
12.3.2. Identifying promotion objectives: Target customer profile provides inputs about his/her
readiness to purchase the product. Customer may be in any of the six stages of hierarchy of effects.
The six stages are awareness, knowledge, liking, preference, conviction and purchase. Every
company likes to bring their customer to purchase stage from other five stages. Therefore it create
different promotion program at different stage. To make it clearer, Company first creates awareness
about the product, educate them about the advantages, induce them to choose the brand, stimulates
and monitor that customer purchases the product.
a. Awareness: Marketer creates the new range of products. Awareness level for these products is
very low. Intention of the advertisement is to create awareness about these new products. In the
following example of Reebok play dry technology garments, it focuses to create awareness among
the target audience. Look at the message copy of print advertisement.
Copy: Dravid does this simply by sporting his Reebok Play Dry apparel. These fabrics have been
designed with a special moisture ventilation system that dries away perspiration in action. Working
effectively by pushing moisture away from the skin to the outer layer of the fabric for evaporation. So
if you want to stay cool all summer, just do what the hottest players do. Walk into the nearest Reebok
Store.
b. Knowledge: In this stage target audience don’t have complete knowledge of the product. Marketer
explains the product in detail and its advantages to the target customers. Following advertisement of
Parry Neutraceuticals explains the advantages of beta carotenes.
Unit 12
and vegetables. They're some of the

biggest reasons why fruits and veggies are
good for you. They help prevent the worst
things that can happen to you cancer,
heart disease, diabetes, arthritis, cataract
and even ageing. The agerelated or
'degenerative' diseases begin with repeated
damage to cells, which adds up over time.
The biggest cause of damage to cells is a
common process called
oxidation.Carotenoids help prevent
oxidation damage because they're some of
nature's best antioxidants. But to get
Company: enough natural beta carotene and other
carotenoids, you need to eat 5 servings of
Parry Neutraceuticals
fruits and 5 servings of vegetables every
Copy: You know these are good for you, day. Or just one soft gel of Parry's Natural
Natural beta carotene and other carotenoids Beta Carotene. It is a mixture of natural
like it, are the natural pigments found in carotenoids that comes from Dunaliella
orange, yellow, red and some green fruits salina, one of nature's best sources of
carotenoids
c. Liking: Promotion is used to convert knowledgeable audience into likeable category. Marketer
uses celebrities to create interest in the product. For example, Reid and Taylor highlight their
product quality in the advertisement by using Amitabh Bachhan a film actor.
d. Preference: Creating differentiation in the market place so that customer identifies it over the
rival brands. Big bazaar advertisement with tag line ‘ is se sasta aur achcha kahin nahi’ or
nobody sells cheaper and better is alluring the customer by telling them what differentiation they
can bring.
e. Conviction: customer may have preference over the product but he/she still not able to
decide. In this situation, marketer develops the messages in such a way that it provides platform
for him to decide. For example, Tata indigo, requests its customer to go for test drive and
Unit 12
experience the truth. Customer may be convinced about indigo but not developed the
conviction. Look at the words used in the copy.
Copy: Business class travel. Now with

power dressing. Presenting the stylish new
Tata Indigo. Make a powerful style
statement on the roads with the new Tata
Indigo. The fascia is accentuated by dual
chamber headlamps and more pronounced
chromelined grille, while sill valance
covers, chrome insert door rub rails and
dual tone ORVMs add a sporty touch to the
overall elegance of the car. The rear sports
a chiseled bodyhugging bumper, new tail
lamps and chrome surround registration
plate garnish. The interiors turn beige for
the full range, and the new cockpit topped
off by the 3spoke steering wheel carries
forward the classic modernity of the
exteriors. The bestselling sedan just got
better. Take a test drive today. And discover
power dressing on. wheels Spoil yourself.
f. Purchase: Sometimes customers are having strong desire to buy the product but due to
affordability or any other environmental character, they are not able to purchase. In this situation,
marketer uses promotional schemes particularly reduced price schemes to attract the customer.
Company also comes out with communication programs for repeat purchasers and loyal customers.
12.3.3. Designing a message
After deciding the communication objectives, Marketer turns to develop right message which should
create attention, interest, desire or action (AIDA) by the customer. Before deciding what should be
their in the message, we will understand AIDA model in detail.
I. AIDA model:
Ø Attention: The marketing communication should generate attention towards the

product. In this stage customer is having the need; organization should provide
solution from their communication.
Ø Interest: Once the customer provides enough attention towards the communication,
organization should stimulate it to create interest.
Ø Desire: The interest created should be forced in the customer mind so that he will
develop desire towards the product.
Ø Action: Strong desires should be turned into action. Hence company should provide
the advantages of purchasing of the product in their communication messages.
II. Deciding the message content.
Message content must have any one of the following appeals
Ø Emotional appeal: Positive emotional appeal or negative emotional appeals are strong
tools used to intensify the purchasing activity of the customer. Positive emotions like
love, pride, joy and humor are used in the message. Following are the advertisement
where such attributes of positive emotions used.
www.makemytrip.com Joy BMW fastest saloon car in the world

pride
Fevicol humor Wheel love.
The negative emotions like fear guilt and shame are also used in the advertisement to
attract the customer.
ICICI prudential fear. NIIT if you are not studying at NIIT

you are missing something guilt
Rexona deodorant – shame.
Ø Rational appeals highlight on the desired benefits about the products. They highlight
quality, economy value or performance of the product.
Dabur Amla – value appeal ( long Hair) Lakme brilliance Quality products.
Reliance India mobile performance( Reliance Infocom Like the first three,
works even in flood situations) the mobile phone must come to me as
a necessity and not as a luxury
economy
Ø Moral appeal: These are concerned towards public health or environment or social
responsibility. For example, Shell lubricants show its commitment towards
environment in their advertisements.
III. Message format: In this section we will discuss how message should look and stimulate the
interest.
Constituents of message format:
Characteristics Suitable media.
1. Headline Print, Outdoor, Online
2. Copy Print, TV, outdoor, online
3. Illustration Print, TV, Outdoor, online
4. Color Print, TV, outdoor, online
5. Pictures Print, Outdoor, online
6. Message size Print, TV, Outdoor
7. Shape Print, Outdoor, Online
8. Words Print, TV, Product, Outdoor
9. Sounds Radio, TV, Online, Outdoor
10. Voice Radio, TV, Online
11. Body language TV, Online
12. Texture Product, Print, Online
13. Scent Product
14. Distinctive formats Print, Online, Outdoor
Print advertisement Message format:
Pictures
Headline
Sub Headline
Body copy
Base line
Colors used: Saffron, Yellow, Red, Watermark brown, Black, Brown.
Size: 3.5inch breadth* 4.2 inch length
Shape: Rectangle
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12.3.4. Selecting the channels of communications
v The communicator may use company sales people, reference groups, blogs, RSS, webinar,
online communities and social networking sites to promote their products. These media are
called as personal communication channels. The word of mouth campaigns buzz marketing
and viral marketing are some examples of personal communication channels.
Word of mouth communication: the personal communication between customers and their
reference groups about the product
Buzz marketing: The marketing technique in which organizations create opinion leaders
(people whose opinion are sought by others) and spread the product information to others.
For example, Gmail Google did no marketing, they spent no money. They created scarcity
by giving out Gmail accounts only to a handful of "power users." Other users who aspired to
be like these power users "lusted" for a Gmail account and this manifested itself in their
bidding for Gmail invites on eBay. Demand was created by limited supply; the cachet of
having a Gmail account caused the word of mouth, rather than any marketing activities by
Google.
Viral marketing: The marketing technique of using social networks on the internet to create
the brand image.
Viral marketing is a phenomenon that facilitates and encourages people to send messages to
others voluntarily Viral promotions may take the form of video clips, interactive Flash games,
images, or even text messages. For example, Cadbury's Dairy Milk 2007 Gorilla advert was
heavily popularized on YouTube and Face book.
v The communicators are using mass media like print (Newspaper, magazine, journals)
Broadcast (radio, television) Outdoor (hoardings, Bill board posters) and online (email,
communities, groups, websites) to communicate their product attributes.
12.3.5. Selecting the message source
Messages communicated by the celebrities and proper sources have high credibility among the
target consumers. Many companies use well known actors and actresses, cricket players, and even
cartoon characters to promote their advertisements. Colgate Palmolive well known FMCG company
used Indian Dental Association’s (IDA) recommendation to promote their toothpaste. As we have
seen earlier Rahul Dravid, Amitabh Bachan and Karishma Kapoor are used as sources for Reebok,
Reyd and Tayolr, and Dabur Amla respectively. Companies should be very careful about the
selection of the sources. If the product character does not match with sources, then product will fail in
the market. Recently Pepsi dropped its sources Rahul Dravid and Sourav Ganguly and selected
Rohit Sharma for the promotion campaigns.
12.3.6. Target Customer Feedback
The communicator collects the feedback on the promotion campaign to assess how many of target
customer able to see, hear or read the message. This stage helps communicator to understand how
many of target customers actually able to recall the message? And among them how many of them
really purchased it. Some companies go further and ask the customer to provide suggestion to
improve the promotion campaign.
12.4. Budget allocation decisions in marketing communications
Media vehicle selection, number of insertions and message structure depend on the budget allotted
for the communication program. A popular channel may charge more for advertisement but
organization gets better viewership. A newspaper having high circulation charges premium for the
advertisement but all the organization may not have enough budgets to support such campaign.
Hence marketer would like to decide what is the budget for the communication program? And how
shall it be allotted optimally? There are four different methods on which a media planner decides the
allocation of advertisement budget.
12.4.1. Affordable method: The method is used by small companies who don’t have enough
communication budgets. In this method company allots the fixed amount for the communication
program. The advantage of this method is company can have better control over the spending on the
communication. The disadvantage is if sales require higher communication effort, company is not in
a position to allocate the budget.
12.4.2. Percentage of sales method. In this method company allots the budget on the basis of total
sales forecasted. This is the simplest method. Marketer can have better control over the budget and
also have flexibility to allocate the budget.
12.4.3. Competition method: The Company sets its promotion budget on the basis of competitors
advertising effort. Here company closely monitors the developments of the competitors’
communication program and study the industry trends in communication budget prior to setting up
communication budget.
12.4.4. Objective and task method: The procedure involved in estimating the advertisement budget
by this method are First, Objectives are set for the communication programs. Second, identifying the
task to be performed to achieve the objective and third, estimating the cost of achieving these
objectives.
1. Expansion of AIDA is
2. The three appeals used in the message content are , and .
3. The technique of using the social network on the internet to create the brand image is called as

4. Percentage of sales method of advertisement budget decision is determined on the basis of
affordability of the company
a. True b. False
5. The promotion objective used when customer may have preference over the product but he/she
still not able to decide is
12.5. Introduction to Advertising
Please remember we already discussed definition of advertisement in the promotion mix concepts at
the beginning of this unit. In this section we will discuss different types of advertisement and four
important decisions management takes in developing advertisement program.
12.5.1. Types of advertisements
Ø Institutional advertising: The objectives of advertisements are to enhance the image of the
company rather than selling the product.
Ø Product advertising: The objective of this type of advertisement is to communicate about the
product attributes to the target customer. Product advertising is further classified into three types.
They are
1. Pioneer advertising: This mode of advertisements is used to create awareness and demand
in the initial stage of the product life cycle.
2. Competitive advertisements: This type of advertisement is used to highlight the differentiation
of organization’s product. This method is usually used in the growth phase of product life
cycle.
3. Comparative advertisements: This type of advertisements highlight on the comparing
company’s communication message with competitors product information. This method is
used when the competition is very high or sales are sluggish.
12.5.2. Decisions involved in developing advertisement programs
Ø Determining the advertisement objectives: Marketing management should determine the

objectives of advertisements in the initial phase of the program. The objectives of
advertisements are
i. Provide the information about advertisements and create awareness about the product.
ii. Highlight the uniqueness of company’s products over competitors.
iii. Reminding about the product and facilitating the thinking about the product.
Ø Determining the advertisement budget: We discussed four important techniques used in
setting up communication budget in the beginning of this unit. In this section we will discuss
the factors that influence the advertisement budget decisions.
i. The product stage in the product life cycle: In the introduction stage of product life
cycle Company spends more money on consumer to inform about the product and to
create the awareness.
ii. The market share of the company: If the share of the company is high, it tries to
defend by heavy advertisement and if it is low and market is attractive organizations
promote company’s product heavily.
Ø Developing advertisement strategy: Advertisement strategy depends on two important

factors. They are developing messages and choosing proper media.
i. Message development:
· Message should be developed only after preparing the complete target profile.
· Understand what interests target customer.
· Message should answer the objectives of the program.
· Message should be simple and can be understood by anybody.
· Use more interactive communication tools.
ii. Selecting advertising media:
· Assess how many target customers should view the communication message.
· Point out how many times a target customer will expose to the advertisement.
· Evaluate the impact of advertisement message on the target audience.
· List out the media habits of the target customers.
· Find the suitable media for type of product organization have.
· Prepare cost sheet and choose optimum media.
· Choose particular media vehicle (Zee channel, Times now, Prajavani, Hindu
etc…)
· Decide how many times advertisement should be given in the year and also
decide the continuity of advertisement.
· Allocate the media execution strategy on the basis of prime time and non
prime time or seasonal and non seasonal decisions.
Ø Evaluating advertising: Communication department is interested in identifying whether the
message given is effectively reaching the consumer and inducing them to purchase the
product. Therefore they critically evaluate the advertisements through various methods. Some
of the important methods through which advertisements evaluated are recognition method
(showing the advertisement and asking whether thy have seen it before), aided recall (asking
people to tell the brand they remember) and unaided recall (asking people if they can
remember seeing any ads within an identified product category).
12.5.3. Characteristics of major media
I. Broad cast media
Radio
1. Provides up to date information
2. Reaches the local audience effectively
3. After FM revolution this is one of the fastest growing media.
Television
1. Expensive medium
2. Products can be well explained and demonstrated.
3. It provides wide geographic coverage
4. Image creation is difficult in this medium because of spontaneity.
5. Wide number of media vehicle creates the problem for media planners.
II. Print media
Newspapers
1. Continue to dominate local markets
2. Retail and classified advertisement are key
3. Important advantages include flexibility and community prestige
4. Newspapers offer powerful merchandising services like promotional and research
support
Magazines
1. Divided into two broad categories of consumer magazines and business magazines
2. These categories are also subdivided into monthly publications and weekly
publications
3. Specialty advertisements can be promoted through this media.
III. Outdoor Advertising
1. Includes billboards, painted bulletins or displays, and electric boards
2. The oldest and simplest media business
3. Effective in the high traffic areas.
4. Environmentalists oppose this type of advertisement.
IV. Online advertising
1. Contains characteristics of both print and broadcast media
2. Enhances twoway communication and encourages audience participation
3. Example of this media is e mail.
V. Other Advertising Media
1. Transit advertisement: advertisements placed on the buses and moving vehicles.
2. Movie advertising: Inserting the advertisement inside the movie
3. In flight commercials: advertisements placed in the airplanes.
4. Using yellow pages and pamphlets to advertise the product.
12.6. Fundamentals of sales promotion
Sales promotions are short term programs that encourage consumers purchase or sale of a
product or service immediately.
According to the Institute of Sales Promotion,
"Sales Promotion comprises that range of techniques used to attain sales or marketing objectives in
a cost effective manner by adding value to a product or service either to intermediaries or end users,
normally but not exclusively within a defined time period."
Sales promotions are short term incentives and best suits for generating instant sales. Organizations
that are into the retailing and managing it independently are using these to the maximum. According
to AdEX India a TAM India subsidiary, sales promotion accounted for 18% of total print
advertisement.
Sales promotion methods according to Indian market:
Sales promotion uses three different types of tools. They are consumer promotion tools, Trade
promotion tools and business promotion tools.
Consumer promotion tools: These promotion tools are directly targeted to customer. These tools
stimulate an interest among target customer to purchase the products quickly. Some of the consumer
promotion tools used in the Indian market is listed below.
(Source: AdEX a TAM media company)
1. Price promotion: Organization offers price reduction on the product. For example, Rs 5 off on
the purchase of Revive 200g.
2. Contest promotion: organization requests the customer to purchase the product to participate
in the contest and win the prizes. For example, Britannia’s ‘Britannia khao, world cup jao’
3. Multiple promotions: Promotions offer includes more than one promotional offer. For example,
Rs 30 off and a multipurpose jar free on the purchase of 1 liter pack of Halo shampoo.
4. Add on promotion: Promotion offers a free or an add on product (same or different) on the
product. For example, an 8 ml Sunsilk shampoo sachet is free with 75g Pears.
5. Exchange promotion: Price of a product is reduced in an exchange of an old product. For
example, bring your old color television and take home a Philips LCD TV for Rs 15,000.
6. Combination promotion: two or more products are offered together at a discount price or
some incentive is given on a combination pack. For example, save Rs 10 on the combined
purchase of Colgate toothpaste and tooth brush.
7. Volume promotion: allows additional quantity of product free on its purchase. For example,
get 50g extra on purchase of 100g Tide.
Top 10 companies on usage of sale promotions (2007).
1. Maruti Suzuki limited
2. Reliance communications limited
3. Nokia Corporation.
4. LG electronics India ltd.
5. Pantaloons India limited.
6. HP India limited
7. Tata Sky limited
8. Planning consultant India limited.
9. Samsung India electronics limited.
10. Hero Honda motors limited.
Trade promotion tools: These promotions are targeted to retailers and wholesalers. The
objective of this type of promotion is to get the self space, motivate to sell the products and
promote brands in the local media. There are various types of Trade promotion tools are used in
the market but we are limiting our discussion to two major types. They are discounts and
allowances.
1. Discounts: manufacturer offers straight reduction in the list price on every purchase that
channel member does in the particular period.
2. Allowances: This is the promotion value provided by the manufacturer to the channel member
to advertise the product in the local media or display the product in the store.
Business Promotion tools: the promotion tools used to lead generation, reward customer and
motivate salespeople for business customers. An organization uses conventions and trade
shows. For example, Machine tool industry organizes Amtex exhibition in different places of the
country. Organization also conducts sales contest to its sales executives to motivate them to sell
more.
12.7 Basics of Public Relations
Public relations (PR) are the management of internal and external communication of an
organization to create and maintain a positive image. Public relations involve popularizing
successes, downplaying failures, announcing changes, and many other activities.
Methods of public relations:
Ø Lobby groups: these are established to influence government policy, corporate policy, or
public opinion. These groups claim to represent a particular interest.
Ø News conferences and grand openings to attract media and customers.
Ø Using written and audio visual material to reach the publics.
Ø Social responsibilities of the organization have shown through public service activities.
Ø Preparing interactive website, communities and blogs on the internet.
Advantages of public relations:
Ø It helps in building and maintaining relations with local community. For example, coca cola
India’s initiatives of transforming villages’ campaign helped it to get better image among
the rural consumers.
Ø It helps in keeping better relations with the investors.
Ø A good image with social groups creates word of mouth advertising.
Ø It helps in reducing the conflicts and misconception about company or product
Ø It helps in publicizing the products.
Role of public relations in communications: Public relation messages are created by the
company staff and circulated in the media without any cost. If the message is powerful, it reaches
different media. Whenever the company faces the issues, it looked towards the public relations rather
than advertisements. For example, Cadbury chocolate warm issue or cola pesticide issue in which
the public relations is used more than the advertisements. The firms public relations should be
blended smoothly with the other promotion activities within the company have overall integrated
marketing communications effort.
1) advertisements are used to create awareness.
2) and are factors determine the advertisement budget.
3) Television is a type of
a. Broadcast media.
b. Print media.
c. Out door media.
d. Online media
4) A sales promotion technique in which marketer offers two or more products together at a
discount price or some incentive is given on a combination pack is called as
5) Lobbying is the method of
a. Sales promotion
b. Public relations
c. Advertising
d. All the above
12.8. Summary
i. Promotion mix is an assortment of advertising, sales promotion, public relation, Personal selling
and direct marketing.
ii. Some of the promotion objectives are awareness, knowledge, liking, preference, conviction and
purchase.
iii. Buzz marketing: The marketing technique in which organizations create opinion leaders (people
whose opinion are sought by others) and spread the product information to others.
iv. Advertisement allocation can be done on the basis of affordable method, percent of sales
method, competition and objective and task method.
v. Advertisements are classified as institutional advertising and product advertising.
vi. Media planner have Broadcast media, print media, outdoor media, online media and other
Medias to allocate the budget.
vii. Trade promotions are provided to channel members.
viii. Conference and exhibitions are examples of business promotion tools.
ix. Lobbying and press conference are tools of public relations.
Terminal Questions:
1. What do you mean by promotion mix?
2. Explain the reasons for growth of integrated marketing communications.
3. Explain the communication development process with examples.
4. What do you mean by consumer sale promotion? Explain the consumer sales
promotion techniques used in the Indian market.
5. Write a note on public relations.
1) Attention, interest, desire and action.
2) Emotional, rational and moral
3) Viral marketing
4) False
5) Conviction
1) Pioneer.
2) Product stage in the product life cycle and market share.
3) Broadcast media.
4) Combination promotions.
5) Public relations.
1) Refer 12.1
2) Refer 12.2
3) Refer 12.3
4) Refer 12.6
5) Refer 12.7
Unit 13 Personal Communication Channels
Structure
13.1. Introduction
13.2. Personal selling
13.3. Sales management:
13.4. Personal selling process
13.5. Direct marketing
13.6. Summary
Terminal questions
13.1. Introduction
Advertisement clutter and large product assortment are posing new challenges. One of the major
challenges is how to reach consumer. The indirect media has an influence on consumer but its
effectiveness in generating the sales has diminished over the period. Organizations are looking
towards interpersonal communications. As we discussed in the last chapter, companies are
encouraging word of mouth communication and viral marketing. They are concentrating on
enhancing the effectiveness and efficiency of their sale force. In this unit, we are discussing the
personal selling, sales force management and direct marketing concepts
Learning Objectives
1. Define the personal selling
2. Understand the process of personal selling
3. Analyze the sales management techniques.
4. Identify and discuss the major forms of direct marketing.
13.2. Personal selling
The communication technique in which sales people builds the personal relationship with
customers to generate the value for the organization.
The value may be sales for the sales force and benefits to the customer. The value may not be only
financial gains, but it may be providing the information to customer. For example, Medical
representatives of CIPLA provide the information to doctors and they don’t sell the medicine to them.
13.2.1. Nature of personal selling
Personal selling has experienced the paradigm shift. There was time when sales jobs are perceived
to be low. The emergence of modern corporations and rise of new India is in dire need of
professional selling. Now days it is not mere selling. It is using professional skills to have a long term
relationship with the customers to generate the value continuously. This has resulted in the growth
of professional sales force. Even companies that believed in marketing through channels entered into
the personal selling. For example, Hindustan Unilever Limited (HUL) which is having retail and
wholesale channels, recently entered into the network marketing. There are various types of sales
jobs used to sell the product of the organizations. They are
1. Delivering: The job of sales executive is to reach the products to the customer destination. For
example, A sales person working for transport or courier company reaches the goods to the
customer places.
2. Inside order taker: Sales executives in the retail stores like subhiksha help the customer in
identifying the product. The person in the hotel takes the order and serves better.
3. Outside order: these are field executives who go to the customer place and get the order.
4. Missionary selling: sales executives provide the information and promote the company products
medical representatives.
5. Sales engineer: In this position, the sales executive is technical expert and works with
nontechnical sales executive to provide assistance on technical information sought by the
customer.
13.2.2. Approaches To Personal Selling
1. Stimulus response selling: In this approach, sales person provides the stimulus and expects the
response from the buyer. This process will continue till purchase decision has made.
2. Need satisfaction selling: In this approach, sales executive identifies the need of the product in the
customer and confirms it. He provides the various offerings to the customer to choose and continue
this process till the purchase has made.
3. Problem solving selling: This approach is used when the customer faces the purchasing problem.
In this approach, sales executive defines the problem of the customer, generate the alternative
solution and evaluate them. Then he works with particular solution till the customer purchase.
13.3.3. Situations That Favor Personal Selling
1. The price of the product is high, technical in nature and needs demonstration.
2. The product is in the introductory stage of the product life cycle.
3. Organization does not have enough money to carry advertisement campaigns.
4. Product can be customized and
5. Market is concentrated.
13.3.4. Advantages And Disadvantages Of Personal Selling
Advantages
v It can be customized
v It can focus on prospective customers.
v It results in the actual sale, while most other forms of promotion are used in moving the customer
closer to the sale.
Disadvantages
v It is costly to develop and operate a sales force.
v It is very difficult to attract upper class people.
13.3. Sales management
13.3.1. Deciding the sales territory: This is the geographical boundary set for sales executives to
work in. The objective of setting up territory is to avoid the conflict between two sales
executives. This will help to set particular quota for sales executives and shall be used for
performance evaluation.
13.3.2. Sales force size: The sales force size is decided by the work load method. Work load method
consists of
a. Identification of customers and grouping them into different categories.
b. List out the activities sales executive has to perform.
c. find out the time available for selling and non selling activities of sales executives.
d. Analyze the number of calls one has to do in a particular period.
e. calculate the number of sales people required.
13.3.3. Sales organization: sales activities in the organization are allotted on the basis of geography
(Bangalore, Mysore etc), product (personal care, water purifier etc) customer (steel
companies, electric companies etc) or matrix type. This helps company to have better
control over the sales executives.
13.3.4. HR practices in sales management
v Recruiting:
Recruitment is a process of finding out candidates, who are encouraged to apply. Selection is
process of choosing some out of many candidates. Therefore, we can say that selection is
recruitment, but recruitment is not selection. Selection is a process of rejection of unfits.
Recruitment precedes the selection process.
After deciding the number of salesman and the objectives, the sales manager must select personnel.
The usual sources of recruitment may be either internal or external.
Internal Sources: Many firms feel that the best policy to fill the vacancies of salesmen is from out of
the existing employees of the same organization. It may also be termed as promotion. This can well
be adopted by analyzing the ability and promising character of the staff on the basis of seniority i.e.,
length of services.
Merits:
1. Much cooperation can be expected.
2. They are loyal.
3. Since it is a promotion, sincere and honest performance can be expected.
4. They may not need training.
5. They may not need high salary.
Demerits:
1. There is limited scope for selection.
2. Favoritism plays its role.
3. The person may not adjust himself to the new job as the nature of work is different.
Apart from the internal selection, exemployees of the company can also be appointed if they are
willing to accept a job. This policy is better and can profitably be adopted.
External Sources: We have the following sources:
1. Employment Exchange
2. Competitors’ organization
3. Salesman of noncompeting firms
4. Educational Institutions
5. Recommended cases
6. Advertisement
7. Unsolicited applications etc.
1)`Employment Exchange: Private and public employment exchanges are the best source of
personnel. They maintain proper registers with names and other full details of persons, such as
job referred by those who seek jobs. The sales manager can call persons from exchange, by
giving job specification to the officer concerned. In almost all cases the candidates may be
untrained; and inexperienced hands requiring further training.
2) Competitors’ Organization: The salesmen employed in other competing firms can also be
chosen. But this method is not morally accepted. He may be trained and may be developing his
firm. Such a person can be drawn by temptation by giving more facilities and a higher salary.
But it must be verified how far he is able to meet the sales objectives, considering his sincerity,
loyalty, habits etc Such a man, when he gets some additional benefits from some other firms, will
follow the same tactics i.e., leave the firm.
3) Salesman of Noncompeting Firms: Salesman can also be chosen from noncompeting firms.
Such persons may have experience in the line, if not touch with the particular product. They may
need training to come up to the level of aimed sales objectives.
4) Educational Institutions: Advanced countries like America, England etc., select students
directly from specialized institutions, where theoretical and practical knowledge is gained by
them. The Institutional Heads maintain complete records of students but as far as India is
concerned, the chances are rare. It has been neglected with the feeling, ‘just from egg’ i.e.,
inexperienced.
5) Recommended cases: The employees of the firmmanagers, superintendents, section heads
etc., may recommend candidates from their friend circles. They have a moral responsibility when
such persons are recruited. The employee who recommends personnel will be blamed, if the
person is found unit.
6) Advertisement: This is a system generally accepted by firms in recruiting salesmen.
Advertisements are displayed in newspapers, trade journals specifying the job and the required
qualifications, experience and skill. There is the possibility of a wider scope of selection, as the
news spreads over a wide geographical area.
v Selecting: Selection procedure differs from firm to firm. Each firm has got its own method in
choosing men for employment. The qualities that the recruiters seek in men to be appointed,
depends on the job description. Similarly the selection method also depends upon the sales
management. Generally, the following steps are followed:
1. Application blank
2. Screening
3. Reference
4. Personal interview
5. Test
6. Medical examination
7. Final interview (appointment)
a) Application Blank: Necessary information about the applicant is required to be considered for
appointment. Generally, the candidates are asked to apply on company’s application form, sent
directly to applicants against a requisition or an application is known as application blank given in
the advertisement itself. This is with a view to gather only the necessary details of the applicants.
It contains a number of questions, when filled in, gives a clear idea about the candidate.
Generally, it may contain the name, sex, qualification, age, experience, health, social activities,
references etc.
b) Screening: All applications will not be considered. Screening is a process by which applications
are to be screened out (rejected) from further consideration, on the basis of unsuitability. The
remaining applications are formally considered for appointment, subject to further formalities. By
rejecting the applications of unqualified applicants, much time and energy can be saved in further
processing.
c) Reference: Generally, it is a common practice to ask the applicant to mention the names of two
references or referees, to whom the sales manager can make enquiries about the integrity,
general character and ability of the applicant concerned. The qualities are checked with care and
caution by the sales manager, by contacting the referees. If the opinions are favorable, the
applications pass on to the next stage; and in case the referee gives unfavorable comment, the
application is rejected at this stage.
Personal contact is necessary and it is better, because people are straight forward in tongue
better than in pen. This is onesided, but the effectiveness of such opinion is doubted, as there
may be chances of telling only the good qualities of applicants. Moreover, only the names of
such favorable persons are mentioned in reference, with preintimation. To overcome this,
personal interview is essential.
d) Personal Interview: This is an important step in the process of selection. Only the screened
applications are considered for selection and the firm sends out interview letters. Personal
interview is a must. By this interview, the sales manager can understand the positive and
negative qualities of the applicant, with reference to the job duties. A good interviewer must be
unbiased, able to discover facts and be a keen observer of the interviewee.
Interviews are also of two types: (a) Patterned and nonpatterned. Under patterned interview,
questions are designed and the same questions are asked to all, which is easy for comparison
purposes. (b) In nonpatterned interview, no standardized questions are asked. The
applicant is allowed to talk freely. A few direct questions are asked. By this type of interview, the
applicant gets a chance of speaking about his attitude and interest freely. The interviewer must
be able to make an easy evaluation of the interview.
e) Tests: Test is an additional tool, with which the applicants are further tested to determine their
suitability to the job. Generally, following are the important types of psychological tests
conducted:
(i) Ability Test: This test is devised to ascertain the capacity to grasp things, and is a measure to
know how well a person performs a particular task with motivation. This can also be called a
mental ability or intelligence test. Such tests determine the suitability of a candidate for a
particular job.
(ii) Habitual Characteristic Test: A man may be intelligent but may hesitate to take a decision.
This test is aimed to know one’s aptitude and interest on normal, daily work, irrespective of the
best behavior occasionally.
(iii) Achievement Test: This test is designed to know what knowledge a man has gained from his
education or training.
By all these psychological tests, the ability and suitability of a candidate can be verified. One can
aim to evaluate the honesty, cheerfulness, leadership quality, assertiveness, cooperation,
supervision capacity, emotional stability, determination, ability etc., of the personnel. The
effectiveness and reliability of these tests are questionable, as the qualities cannot be measured
exactly and the circumstances to be faced by salesman are also different.
f) Medical Examination: The important thing about any person, apart from all qualities and
eligibility, is that he must be physically fit for the job. Diseases and physical deficiencies of the
salesmen will affect the business. As such, selected applicants have to undergo medical
examination.
g) Final Interview and Appointment: The selected applicant is probably, called for a final
interview and his suitability is measured through different tests, physical reports etc. The job must
be explained to him along with all relevant details, which are required to perform the duties
efficiently.
If everything is in favor of the applicant, an agreement must be executed by him. Generally, the
agreement contains duties and authorities, sales quota, sales territory allotted, salary and
conditions of resigning. It is followed by an appointment order, which contains designation, jobs
to be performed, salary and other financial benefits etc.
v Training
Training is a continuation of selection. Having selected the salesmen, there are two options. They
can be sent to the field directly with samples, order books etc., (born salesman) and/or they can be
sent for training programme. Some people think that salesmanship is born in man, but there are only
born salesmen, like born doctors, lawyer, engineers, teachers etc. However all these people need
training to call them qualified, and so also is the case with salesman. A man may have interest in the
profession. The interest can be fully developed, through proper training. One attains perfection, self
development etc., through training.
Training means it is the process of perfecting the salesmen for their work. Training programme are
organized procedure or methods through which knowledge as well as skill, for a definite purpose, is
acquired. By training, one can increase knowledge in a particular field. The salesmanship is not
born but can be made effective through training.
Significance of Training: The present era of marketing world is full of stiff and cutthroat
competition. The world is dynamic and not static. Customers are more benefitoriented. Producers,
in order to meet the everchanging demands of the consumers, produce new products, new devices,
and products with multiple uses and so on. Thus, training or repeated training is essential to keep the
salesmen, with uptodate knowledge, in respect of new or developed goods. Training gives scope
for improvement.
Objectives of Training: The objectives are summed up below:
1. To facilitate the salesmen to acquire the technique and principles of salesmanship, process of
sales, canvassing etc.
2. To bring down the labor turnover in the sales force.
3. To facilitate better sales performance.
4. To improve the relations with the customers.
5. To increase the efficiency of sales personnel.
6. To keep the salesman informed of the knowledge of products, market, competitors etc., to face all
situations.
7. To lower the selling expense so as to increase the profits.
8. To maintain sound relation between employer and employee.
9. To develop better knowledge, and the ways and means to resist all situations.
10. To motivate the consumers more effectively.
Advantages of Training to Salesman
1) A trained salesman always wins customers by systematic approach.
2) Salesman acquires better understanding of the firm, as to its past history, policies and
procedures and this helps the salesman for effective dealings.
3) A trained salesman takes less time in concluding a saleearly selling maturity.
4) A trained salesman brings increased volume of sales, in turn, more profit to the firm and himself.
5) A trained salesman is able to meet consumer’s demand and help in solving problems.
6) Increased volume of sales facilitates reduction in cost of production i.e., sales rise faster than
expected. The cost per unit of order or per prospect can be minimized.
7) A better relation is created among the customers through reducing customer’s complaint,
increasing brand loyalty etc. Customer’s satisfaction is gained.
8) The ability of the salesman is increased by expert knowledge.
9) Controlling of salesman becomes easy.
10) Training facilitates better demonstrations, selling the products which have high profit margin,
better methods of canvassing etc. Sales training helps to increase the sales volume.
Supervision cost is reduced as trained salesman needs less supervision.
Training Programme: A firm should chalk out a programme for sales training. The training is based
on the nature of the job and the products to be sold. A planned training programme should function
with the following ideas or principles, often referred to as ACMEE.
A: Aim of Training
C: Content of Training
M: Method of Training
E: Execution of Training
E: Evaluation.
1. Aim of Training: The whole idea behind the training is to make a recruit a good salesman. It is
true that some of the qualities of a good salesman may be inherent in him, but not all qualities. It is
the training which makes him to have all qualities required of a salesman. It must aim to make him a
guide to the buyer taking into account his needs, problems etc. and to make him a salesman of
effective power by which an interest in the product may be aroused and a desire to purchase may be
created.
2. Content of Training: No hard and fast rules can be laid down as to the contents of training. The
content of the training programme relates to the subjectmatter of training. A training programme
varies from firm to firm, because of the differences in products, markets, policies of the company,
trainee’s ability etc. In general terms, sales training is the teaching of salesman and prospective
salesmen how to do their jobs better. A good training programme facilitates the traineesalesman to
learn and understand the following contents:
(a) The knowledge of his job
(b) The products
(c) The company
(d) The markets and consumers
(e) The competitors
(f) The sales techniques
(g) The routine reports etc.
(a) The Knowledge of his Job: The job of a salesman is not complete, as soon as the transfer of
goods takes place. The salesman of today carries more weight than the salesman who merely takes
orders. He must understand what the firm expects of him; what power he possesses and how to
convince the buyers about the company’s product and image. The company assigns responsibilities
and powers, with which he works as a guide to buyers by projecting the merits of the products and on
the other hand with profit to the firm. He is expected to do services to both the firm and the
customers. He must have concrete plans as to his sales planning, meeting customers, sales talks,
demonstration, presenting the goods, concluding sales, securing order, collecting dues, handling
objections and complaints etc. Apart from these, he must be a keen observer of market conditions,
competition, consumers’ likes and dislikes etc. He should cooperate with his senior fellows. Thus,
he is trained with a purpose, the aim of his appointment being to know what the firm eagerly expects
from him.
(b) The Products: A good understanding of the product is essential. The firm must give or ensure
that the salesman has a thorough knowledge of the products, to be dealt with. In brief, they are:
1. Raw materials used in the product.
2. Manufacturing methods in brief.
3. Research and development undertaken.
4. Improvement brought out.
5. Its suitability to the consumers.
6. Its trade mark, brand, characteristics.
7. Its color, weight, packaging, quality control etc.
8. Selling points of the products.
9. Product merits and uses to consumers.
10. Limitation of the product performance.
11. Its price and discounts offered.
12. Service after sales and guarantee period.
13. Demonstration of its actual working.
14. Availability of the products.
15. Cost of operation and maintenance.
16. Comparative study of similar products.
17. Strength and weakness of competitors’ products.
18. The position of the product in the product line.
The abovesaid knowledge of the products is essential for a salesman so as to emerge as a creative
salesman. When the salesman has a sound knowledge, he meets the public and converts them as
buyers, in a better and more efficient way.
(c) The Company: A salesman should be wellinformed about the following:
1) Brief history of the firm.
2) Its marketing policies.
3) Objectives and purposes of the firm.
4) Economic and social objectives.
5) Its position in the market field.
6) Credit policies, sales policies, personnel policies.
7) Capacity of the plant.
8) Personnel of the firmdirectors, stockholders.
9) Execution and handling of orders, sales accounting and collection methods.
10) Salary, commission computation, traveling and daily allowances etc. and their payment
procedures.
11) Method of exercising control over the salesman.
12) Allocation of quotas and territories.
13) Marketing policies, pricing policies.
14) Handling of complaints and their adjustment. A clearcut knowledge about the company is
essential to the salesman to enable himself to work accordingly.
(d) The Markets and Consumers: Information about the market is an important and essential part
of the training programme. The salesman must have a thorough knowledge of the size of the
market, demand for the products and the area under the competitor’s side. Besides the knowledge
of the market, salesman should know about the type of customers, buying motives, likes and dislikes
of the products. Different types of customers need different types of approaches. People differ
widely from person to person, sex to sex, age to age, place to place etc. Persons of different types
require specialized way of persuasion. The salesman must adjust himself according to the nature of
the customers. A blanket policy to all classes of people is not advisable.
(e) The Competition: Salesman must be given a good knowledge or comparative study of the
selling activities of rivals. Study relating to comparison with the rivals as to the merits and demerits
of the product is important i.e., strong as well as weak points. The salesman should know the rival
firm’s policies, method of approaching the customers, how they are paid, the customers’ opinion,
how their product is, how they fulfill their duties, the area they like or dislike, their sellingpoints etc.
(f) The Sales Technique: The sales techniques are the essential part in sales training. After the
training, the salesman has to be sent to the field, where he has to sell the company’s product. He
must be given exhaustive training in “Sales Process”. The selling points must be correlated and
sales talk be applied at the appropriate situation. A born salesman has to be instructed with the
various selling techniques in detail. In short, training on the following items must be imparted.
(a) Selling process.
(b) Method of gaining interview from consumers.
(c) Method of approach to consumers.
(d) Demonstration and presentation.
(e) Method of handling objections of consumers.
(f) Why salesman fails in the field etc.
(g) Routine Reports: Salesmen should be trained to know their routine works and submit their
reports to the firm. The report may include:
(a) Amount of sales made.
(b) List of new customers.
(c) Credit outstanding of customers.
(d) Collection of Outstanding dues.
(e) Competitor’s position in the market.
(f) Maintenance of Accounts of expenses.
(g) Demonstration and display of products.
(h) Action taken on complaints, grievances etc.
(i) The attitude of market in respect of competitors.
(j) Consumers’ suggestion if any.
The reports may be sent to the firm, daily, weekly or monthly etc. as directed. The salesmen are
eyes and ears of the selling firm. The salesman must be aware of the method of reporting and its
importance.
Training Needs of Salesmen at Different Times:
New Salesmen Need:
1. Facts about the companyhistory, policies etc.
2. Product details
3. Company’s system and procedures
4. Fundamentals of selling their specific products
5. Moral training
Regular Salesmen need
1. The above five items
2. Changes in policies and procedures
3. Facts about new products
4. Future plans of the company
5. Knowledge to supervise others
6. Knowhow to discharge responsibility
7. Attitude or moral training
Supervisors Need:
1. Skill needed by others in discharging duties
2. Ability to train others
3. Ability to organize
4. Ability to analyze and plan
5. Ability to evaluate and follow up
Training Methods:
For imparting training to the salesman, different methods are being used. Broadly, these methods
may be divided into two:
1. Group Training
(a) Lecture Method: An expert or a lecturer speaks to traineesalesmen about the various
aspects of selling. It consists of oral talk in a classroom. This system is widely used. The
trainees listen to the lectures. The instructor invites questions and answers from them. To
make the lecture more interesting, visual aids, demonstration, suitable examples may be
added. This system is more economical, and is the easiest and quickest in imparting
theoretical training to a group of salesman. But it is difficult to evaluate the effectiveness of
lecture method. This method can be used more effectively in continuing sales training
programme to provide new information or changes in the policies of the firm. This may include
seminars, demonstration etc., by expert salesmen.
(b) AudioVisual Method: In order to supplement the lecturing (telling) method, training programs
include the use of visual aids, such as films, slides, posters etc., and are capable of making, them
more interesting.
(c) Discussion Method: This is a good method. Here an actual case or an imaginary case is given
as a problem to be solved, to the different groups. The case or the problem may be typed or
printed. Each group is asked to understand the problem and draw a conclusion. After this, the
different conclusions or suggestions are analyzed collectively, under the leadership of the
instructor, in drawing generalizations from each case or problem. This type of training enables
the salesmen in correcting their own views. It is suitable for a small group. It is slow and costly.
(d) Conference Method: Sales conferences and sales meeting are a kind of ‘get together’ of all the
concerned staff, weekly, fortnightly or monthly. The thoughts of various persons are pooled in the
conference. Meetings or conferences have motivating effects as the participants are given
chances for creative thinking and to express their views. To make the conference more
interesting, dramas, demonstrations etc., are included. Topics like, sales policies, facing
competition, publicity ideas, dealings with complaints etc., are dealt with. And these will facilitate
the participants in broadening their outlook and ideas. But this type of meetings or conferences
is not suitable for new recruits.
(e) Role Playing Method: Role playing is a newly developed method. The sales trainees are made
to act out roles in contrived problems. The trainer explains the situation of the problem and
assigns the role of salesman and customers of different characters to the sales trainees. Each
one has to act the assigned role. The trainer watches the role played by each and discusses
their weaknesses and strong points. A few may be selected to act the play, while others may
watch it. Thus, the salesman have chance to see and understand the ideas in different
situations. It is not suitable for new recruits.
(f) Panel Method: Members in the panel group may be permanent. The members, who are experts
in the panel, discuss the problems, and solutions are passed to the salestrainee groups, who
may have further discussion. This system is ineffective.
(g) Round Table method: It is similar to the discussion method. It consists of few members. The
salesmen sit around a table along with a good discussion leader. They deal with the problems of
actual cases. Every participant takes part freely in discussing the problems and solutions.
Exchanges of new ideas take place advantageously.
(h) Brain Storming Method: Under this method, more or less, similar to round table conference,
persons sit around the table. The leader presents the problems for discussion. The sales
trainees have to understand the problems and find the solutions. The solutions are analyzed by
the leader or tested by the panel of experts. This method practically fetches no value.
2. Individual Training
(a) Onthejob Training: Under this method, a new salesman is placed under an experienced or
senior salesman who trains him. First the coach explains the sales techniques under different
situations. He also takes the trainee along with him on his rounds and gives him chances to
observe the dealings with the customers. Doubts of the trainee are also clarified. Then the
coach along with the trainee calls on customers; the sales trainee is allowed to deal with the
customer and the coach observes the performance. If any weak point or shortcoming is found in
the sales trainee, they discuss how to overcome them. After some time, the sales trainee
becomes a trained and independent salesman. This system is good for traveling salesman.
(b) Sales Manual: It is a complied textbook. It contains details of the firm and products, job
description, sales policies, opinions or reports required for reference purposes etc. Generally, it
contains many problems with suggestive solutions. A copy of the book is given to a salesman to
go through it and understand the ideas. It works as a readyreckoner.
(c) Initial or Breakin Training: New recruits are given an orientation training so as to know about
the company and its products. He may be allowed to work for some time in the firm itself to gain
sufficient information about the products. After that he is sent to work in his field.
Apart from the above, salesman can also be sent to specialized educational institutions. The training
cost is borne by the firm. There are many institutions in India which impart theoretical training along
with practical work. Doors are open and firms can send their new recruits for training.
Correspondence courses are also available for initial training. In certain cases, one can undergo
training while one is fully employed. This is suitable for salesmen who are widely scattered. There
are many firms which have permanent training departments like colleges.
It is important to note that even the trained or experienced salesmen need periodic training, called
refresher training or follow up training. This is because of the changes in products, sales policies,
changes in consumers and market, government policies, new developments, new ideas etc.
Evaluation of Training: Having trained the salesmen, the marketing manager must evaluate the
usefulness or effectiveness of training, individually and collectively on the basis of the performance of
the sales personnel. Money, effort and time have been spent on training. Therefore, it is natural to
expect returns. Evaluation can be made on the basis of performance of sales executive in terms of
sales volume, sales profitability, ordersize, expenses etc., between, before and after training
periods.
Aims of Training:
1. To prepare the salesman to discharge his job efficiently.
2. To tell him what to do.
3. To guide him how to demonstrate.
4. To allow him to practice or perform it.
5. To check him in his performance.
v Motivating: In this stage organization identify the attributes that motivates the sales executive to
perform well. Some executive may require money and others may status or control. Here
organizations draw two types of incentives. They are financial incentives and non financial
incentives. In financial incentives salary package, flexible expenses and fringe benefits serves as
motivators. The non financial incentives include promotion, recognition and awards are included
to motivate the sales executives.
v Evaluating: Companies are interested to know whether sales executives are achieving the quotas
set for them. To know this they ask sales executives to send the different sales reports. It may be
call reports, expense reports, loss order report, travel plan and expenditure and so on. These
reports information are compared against the set standards. On the basis of evaluation report
incentives are announced, if required sales executives are motivated and trained.
v Compensation: sales executives are compensated on three methods. They are direct salary,
direct commission and combined plans. In Direct salary method sales executives are given fixed
salary per month. In case of direct commission sales executives will be working on commission
basis only. For example, Life insurance agents get straight commission. The combined method is
mixture of straight salary and straight commission method. In this method sales executives are
paid fixed salary and also commission on the sales they make. For example, BMTC pays its
conductors fixed salary and also 2% of commission on total tickets sold in a day.
13.3.5. Quota: These are the targets set for the sales executive for a fixed period
The quota can be of different types. They are
v Sales quota: Here sales executives are asked to sell on particular volume. For example,
organization may ask sales executives to sell Rs 50,000 worth of goods in a year or 5000 units in
a year.
v Expense quota: In this case, sales executives’ quotas are set on the basis of Sales generated
and percentage of it is used for the sales expenses. For example, If sales executive X achieves
Rs 1, 00,000 worth of sales and his expense ratio is 5% then he can spend Rs 5000 for his
expenses.
v Profit quotas: Here emphasis is on the profit margin but not on the volume. Company would like
to realize better profit. Hence it always asks sales executives to get better margin from the sales.
v Activity Quota: In this method sales executive should do multiple tasks. For example, Medical
representatives meet the doctors in the morning and explain the product. They also meet the
retailers where they try to push the product and takes promotional activities. In the afternoon they
meet distributors and in the evening they sends all the report to company and checks the order
status from the head office.
v Combination quota: In this type of quota, any of the above five quotas can be mixed and quotas
shall be set for a certain period.
Self Assessment Question 1:
1. Medical representative work istype of sales job.
2. Work load method is used to
a. Determine the sales quota
b. Determine the sales territory
c. Determine the sale force size
d. None of the above
3. Employees are source of recruitment
4. is the first step in the selection process.
5. The full form of ACMME is
13.4. Personal Selling Process
1. Lead generation: Identification of prospects is first step in personal selling process.
Organizations’ generates the lead through customer references, trade association, customer
directories or through cold calling.
2. Lead evaluation: All the methods used for lead generation may not be genuine. For example,
after do not call registry option from telecom department, most of the cell phone users opted for it.
Customer who opted for such facility belongs to middle and upper class. Hence if some executive
uses cold calling there is doubt about its reliability. Marketer also should concentrate on whether
the lead generated has necessary willingness, purchasing power and authority to buy.
3. Buyer analysis: Before approaching the customer sales force should understand what products
prospects bought in the past, what products he is now using and what are his attitude and buying
habits towards the products. Sales personnel should set sales objectives and prepare draft for
customer approach.
4. Approaching the customer: In this step sales person should know how to meet the prospect and
what is the mode to build rapport with him. For example, In Japan business meetings start in the
evening. If any company sells its product in china should not use number 8 in their presentation.
Sales executive should decide the presentation format. Please see work book for the checklist on
sales presentation.
5. Presentation and demonstration: Sales presentation starts with briefing the product,
Understanding the need of the customer and changing the mode of presentation according to the
need of customer. The presentation should be vivid, simple and attracting.
6. Providing solutions to customer: After the presentation and product demonstration if any queries
or ambiguity exists, then sales executive should handle the questions properly with lot of
attentiveness and should solve the problems of customer.
7. Order generation: This process is very important one in the entire personal selling process. Some
time sales executives feel how to ask for the order. Such executives usually will not get the order.
Handling customer at this stage is also very difficult. Customer may get all the information from
sales executive and then show their reluctance to buy. Sales people also face unrealistic
expectation from the customer. Sales executive should be smart enough to use order closing
techniques. ( these techniques are discussed in the workbook)
8. Follow up: Sales executives should follow up the order generated. It will help the company to
identify the customer satisfaction towards the product. It also helps them to induce the buyer to
go for repeated purchase.
13.5. Direct Marketing
1. Telephone marketing:
Telephone marketing is used to sell the product directly to consumer. The growth of BPOs in
India fuelled the development of telephone marketing. In case BPOs there are two types of
verticals exist. They are inbound call center and outbound call center. In case of inbound call
center, customer is given a toll free number for enquiry and executives try to sell the product to
such customers. In out bound call center employees call the customers and sell the products.
The expansion of Indian telecommunication industry and its cheapest tariffs in the world attracted
domestic sellers to use this type of channel.
2. Catalog marketing: According to Philip Kotler catalogue marketing is ‘direct marketing through
print, video or electronic catalogs that are mailed to select customers, made available in stores or
presented online’. The growth of catalogue marketing in India is in nascent stage. The notable
example in this type of marketing worldwide is J.C. Penny.
3. Kiosk marketing: organizations spread the information and keep ordering machines called kiosks
in the shopping malls and other places. For example,
Ambi pur a perfume company recently organized a kiosk related marketing campaign in the Nirmal
life style Mumbai. Company used inflatable as shown in the pictures to attract the small boys.
Parents who came with children stopped at Kiosk and got the information from the company. The
objective of campaign is to create awareness about the product among the target customers.
4. Online marketing: Marketing the organization’s product on the virtual medium
In this format buyers and sellers exchanges the products on the internet. Organizations sell their
products directly to consumer ( called B2C), uses trading networks or auction sites to reach new
customers and serves to current customers ( called B2B) and encourages one customer to sell
the product to the another customer ( called C2C).
To do the business on the internet organizations create an effective website, place the ads and
promote it online, create web communities, and uses e mail. The other sides of E Commerce
are problems of profitability and legal and ethical issues.
1. customer directories are used in of personal selling
2. Organizations which sells their products on the internet directly to consumer is
called as
3. J. C. Penny is famous for format of direct marketing.
4. The presentation should be, and .
5. In call center employees telephone the customers and sell the products
13.6. Summary
Ø The sales force size is decided by the work load method
Ø The communication technique in which sales people builds the personal relationship with
customers to generate the value for the organization.
Ø According to Philip Kotler catalogue marketing is ‘direct marketing through print, video or
electronic catalogs that are mailed to select customers, made available in stores or
presented online’
Ø Organizations’ generates the lead through customer references, trade association, customer
directories or through cold calling.
Ø Evaluation can be made on the basis of performance of sales executive in terms of sales
volume, sales profitability, ordersize, expenses etc., between, before and after training
periods.
Ø Expansion of ACMEE is A: Aim of Training C: Content of Training, M: Method of Training, E:
Execution of Training, E: Evaluation.
Terminal Questions
1. Discuss the advantages and disadvantages of personal selling.
2. Explain the internal and external sources of recruitment.
3. Describe the steps involved in the selection process.
4. Explain ACMEE with examples.
5. Write a note on direct marketing.
1. Missionary
2. Sales force size
3. Internal
4. Application Bank
5. Aim, content, Method, execution and evaluation.
1. Lead generation
2. B2B
3. Catalogue marketing
4. Vivid, simple and attracting
5. Outbound
1. Refer 13.3.
2. Refer 13.3.4.
3. Refer 13.3.4.
4. Refer 13.3.4.
5. Refer 13.5
Unit 14 Customer Relationship Management – An Overview
Structure
14.1. Introduction
14.2. Relationship Marketing vs Relationship Management
14.3. Definitions Customer Relationship Management
14.4. Forms of Relationship Management
14.5. Managing Customer Loyalty and Development
14.6. Reasons behind Losing Customers by Organizations
14.7. Significance of Customer Relationship Management
14.8 Social Actions Affecting BuyerSeller Relationships
14.9 Summary
Terminal Questions
14.1 Introduction
In the marketing world managers quite often says ‘retaining customer is more important than
acquiring one’. We will examine the importance of this sentence. The organization uses
communications tools to make their product and brand aware among the consumer. It uses its supply
chains and human resources to sell their products. Each stage costs for the company. In this
competitive world organizations want to reduce the cost and develop the database which helps in
creating loyalty programs. Therefore it is very essential for the organizations to use software to pile
up big database of customer. Many Indian companies like Infosys, Wipro and others started offering
CRM software to companies. The benefits of CRM software are quicker, better, quality, and timely
services to the customers. This increases the word of mouth communications and reduces the cost
of mass media.
Learning Objectives
1. Explain the meaning, need and relevance of customer relationship management.
2. Mention the forms of relationship management.
3. Cite reasons for losing customers by organizations.
4. Bring out the significance of customer relationship management.
14.2. Relationship Marketing Vs. Relationship Management
The relationship marketing approach considers customers as insiders to the business and aims at
building a long term and neverending relationship with them. The focus of relationship marketing
approach centers on developing ‘hard core loyal’ customers with the idea of retaining them forever. A
high degree of customers’ contact, commitment and services are maintained.
The relationship marketing approach has gradually taken the shape of customer relationship
management. Relationship marketing has a narrow focus on the customers and focuses only on the
marketing function of the organization concerned. On the other hand, customer relationship
management focuses more widely on customers and on the entire functions connected with value
creation and delivery chain of the organization concerned. The customer relationship management is
a process of acquiring customers by understanding their requirements, retaining customers by
fulfilling their requirements more than their expectations and attracting new customers through
customer specific strategic marketing approaches. The process invites total commitment on the part
of entire organization in evolving and implementing relationship strategies that would be rewarding to
all concerned.
Organizations have preferred the usage of the term ‘Customer Relationship Management’ rather than
‘Customer Relationship Marketing’. However, in practice, both these terms are used interchangeably.
14.3 Definitions of Customer Relationship Management
Berry defines CRMS as “attracting, maintaining and in multiservice organizations
enhancing customer relationships.”
Berry and Parasuraman define CRMS as “attracting, developing and retaining customer
relationships.”
In industrial marketing, Jackson defines CRMS as “marketing oriented toward strong, lasting
relationships with individual accounts.”
Doyle and Roth define CRMS as “the goal of relationship selling is to earn the position of preferred
supplier by developing trust in key accounts over a period of time.”
The sequence of activities for performing relationship marketing would include developing core
services to build customer relationship, customization of relationship, augmenting core services with
extra benefits, and enhancing customer loyalty and finetuning internal marketing to promote external
marketing success.
Christopher considers relationship marketing as “a tool to turn current and new customers into
regularly purchasing clients and then progressively moving them through being strong supporters of
the company and its products to finally being active and vocal advocates for the company.”
Relationship marketing is in essence “selling by using psychological rather than economic
inducements to attract and retain customers. It seeks to personalize and appeal to the hearts, minds
and purses of the mass consumers.” James J. Lynch
Thus, “Customer Relationship Management is about acquiring, developing and retaining satisfied
loyal customer; achieving profitable growth, and creating economic value in company’s brand,”
From the above definitions, it could be concluded that Customer Relationship Management refers to
all marketing activities directed towards establishing, developing, and sustaining long lasting,
trusting, winwin, beneficial and successful relational exchanges between the focal firm and all its
supporting key stakeholders.
CRM is not a new concept but an ageold practice, which is on the rise because of the benefits it
offers, especially in the present marketing scenario. So, CRM today is a discipline as well as a set of
discrete software and technology which focuses on automating and improving the business process
associated with managing customer relationships in the area of sales, marketing, customer service
and support. CRM helps companies understand, establish and nurture longterm relationships with
clients as well as help in retaining current customers. The most important step that an organization
has to take in the direction of CRM is to create an interdisciplinary team to review how the
organization interacts with each customer and determine how to improve and extend the relationship.
14.4. Forms of Relationship Management
An extensive review of literature reveals ten different but interrelated forms of relationship marketing
as mentioned below:
1. The partnering involved in relational exchanges between manufacturers and their external goods
suppliers.
2. Relational exchanges involving service providers, as between advertising or marketing research
agencies and their respective clients.
3. Strategic alliances between firms and their competitors, as in technology alliances; comarketing
alliances and global strategic alliance.
4. Alliances between a firm and nonprofit organizations, as in publicpurpose partnerships.
5. Partnerships for joint research and development, as between firms and local, state, or national
governments.
6. Longterm exchanges between firms and ultimate customers, as particularly recommended in the
services marketing area.
7. Relational exchanges of working partnerships as in channels of distribution.
8. Exchanges involving functional departments within a firm.
9. Exchanges between a firm and its employees, as in internal marketing.
10. Within firm relational exchanges involving such business units as subsidiaries, divisions or
strategic business units.
These different forms of relationship marketing both jointly and severally influence the emergence
and growth of enduring longterm dyadic, triadic network, and web of relationships between the focal
firm and its supporting key stakeholders.
14.5. Managing Customer Loyalty and Development
Managing customerdevelopment process is one of the critical dimensions of relationship marketing.
Basically it involves a twin focuscustomer catching, and customer keeping. ‘Customer catching’ is
the process of attracting new customers (inviting new blood), while the customer keeping aims at the
process of retaining the existing ones (encouraging old blood).
Customer – Development Process:
Suspect
Prospect
s
First time
customers
Repeat clients Members Advocate Partners

customer
To understand customer relationship management, we must first examine the process involved in
attracting and keeping the customers. The starting point is suspects. Suspect is everyone who might
conceivably buy the product or service. The company looks hard at the suspects to determine who
the most likely prospects are. The prospects are those people who have a strong potential interest in
the product and the ability to pay for it. Disqualified prospects are those whom the company rejects
because they have poor credit or would be unprofitable. The company hopes to convert many of its
qualified prospects into first time customers, and to then convert those satisfied firsttime customers
into repeat customers. Both first time and repeat customers may continue to buy from competitors
as well. The company then acts to convert repeat customers into clients. Clients are those people
who buy only from the company in the relevant product categories. The next challenge is to turn the
clients into advocates. Advocates are those people who praise the company and encourage others
who buy from it. Ultimate challenge is to turn advocates into partners, where the customer and the
company work actively together. At the same time, it must be recognized that some customers will
inevitably become inactive or drop out for various reasons causing relationships to dissolve. The
company’s challenge is to reactivate the dissatisfied customers through customer winback
strategies. It is often easier to reattract excustomers than to find new ones. Unfortunately, the
traditional marketing approach with its emphasis on making sales rather than building relationships
fails to achieve this.
1. ………is the process of attracting new customers, while the ………….aims at the process of
retaining the existing ones.
2. …………..is everyone who might conceivably buy the product or service.
3. ………….are those people who have a strong potential interest in the product and the ability to
pay for it.
4. ……………are those people who buy only from the company in the relevant product categories.
5. …………..are those people who praise the company and encourage others who buy from it.
14.6 Reasons behind Losing Customers by Organizations
It is said that cost of attracting a new customer is estimated to be five times the cost of keeping a
current customer happy. It requires a great deal of effort to induce satisfied customers to switch away
from their current suppliers. Unfortunately, most marketing theory and practice center on the art of
attracting new customers rather than retaining existing ones. The emphasis traditionally has been on
making sales rather than building relationships. The focus has been on preselling and selling rather
than on caring for the customer afterwards. Today, however, more companies are recognizing the
importance of satisfying and retaining the current customers.
Today’s companies must pay closer attention to their defection rate and take steps to reduce
it. The possible reasons for customer defection would include:
14.6.1 Price related reasons: A customer tries to match the price to pay for acquiring a brand and
the value the brand could generate. If the customer perceives a mismatch between the price and the
value, he would opt for a competitor’s brand. Also, if the price of brand for any reason goes beyond
his reach, he would switch over to a low priced brand. Thus, the role of price in customer retention is
very significant.
14.6.2 Product related reasons: In view of technological advancement, the new brand which
makes market entry would be capable of offering better performance as compared to the already
existing brand. This would induce the customers to make a brand switch over.
14.6.3 Services related reasons: The customer’s concentration is not only on the brand, but also
on the accompanying services offered at three different stagespresales, during sales and after
sales. Any dissatisfaction as regards to services would cause the customer to move away from the
brand.
14.6.4 Benefit related reasons: The customers may be attracted by various augmented benefits
offered by the competitors. Such benefits may be more appealing and induce customers towards
brand changes.
14.6.5 Competitor related reasons: Technological advancement, attractive offers, value added
services, etc., offered by competitors would also draw the attention and induce customers towards
brand switching.
14.6.6 Personal reasons: On the personal front, a customer would become a brand defector due to
the following reasons:
· Moved away from the market area where the brand is sold.
· Role changes in life cycle and consequently leading changes in brand preference.
· Anger, disgust, distress developed within the process of product delivery.
· Sentimental reasons.
· Influence of other members of the family.
The organization must periodically analyze the reasons behind losing customers and accordingly
develop a customer retention plan that would serve as the basic tool towards building a strong and
long lasting relationship with customers.
14.7 Significance of Customer Relationship Management
· Reduction in customer recruitment cost.
· Generation of more and more loyal customers.
· Expansion of customer base.
· Reduction in advertisement and other sales promotion expenses.
· Increase in the number of profitable customers.
· Easy introduction of new products.
· Easy business expansion possibilities.
· Increase in customer partnering.
The customers are also benefited by relationship marketing in terms of improved service quality,
personalized care, reduction of customer stress, increased value for money, customer
empowerment, etc.
In today’s highly competitive business world, CRM is becoming the ultimate solution for both,
customers as well as organizations. Any organization must have a clear idea as to why it loses its
customers. This would help informing proactive and reactive measures to minimize or avoid the
same. This chapter mainly focuses on the causes responsible for losing customers and deals at
length, the various strategies that can be employed to build and maintain long term relationship with
customers, enabling a reader to consolidate relevant strategies suitable to his business context.
Traditional Organizational Chart Vs Modern Customer – Oriented Company Organization Chart
Many managers who believe that the customer is the key to profitability considered the traditional
organization chart as in fig. (a) – a pyramid with the president at the top, management in the middle,
and frontline people (sales and service people, telephone operators, receptionists) and customers at
the bottom – to be obsolete. Master marketing companies know better; they invert the chart, as
shown in fig. (b) above. At the top of the organization are the customers. Next in importance are the
frontline people who meet, serve, and satisfy the customers. Under them are the middle managers,
whose job is to support the frontline people so they can serve the customers well. Finally, at the
base is top management whose job is to support the middle managers. We have added customers
along the sides of Fig. (b) to indicate that all the company’s managers are personally involved in
knowing, meeting, and serving customers.
Broadening the concept of Relationship Marketing
Companies should realize that there are multiple constituencies important to organizational success
other than customers. The stakeholders of an organization would include: investors, the financial
community, vendors and suppliers, employees, competitors, the media, neighbors and community
leaders, special interest groups, and government agencies. These stakeholders can affect and be
affected by a company’s marketing programme. Adopting an integrated view of multiple
constituencies has bottomline implications. Kotter and Heskett (1992) found that firms that
emphasized the interests of three constituenciescustomers, employees and stakeholders –
outperformed those that emphasized only one or two.
Figure14.1. Showing Integrated View of Multiple Corporate Constituencies
External goods suppliers Investors and

Employees
Financial
Service provider
Ultimate
(ad and marketing

Customers
research agencies
Functional departments Subsidiaries, divisions,

(interfunctional coordination Strategic business units (SBU’s)
among production, finance,
marketing, R & D, HRM)
FOCAL FIRM
Channel of distribution Completions (strategic aliances:
(distribution and dealers) technology, comarketing and
global)
Government
Neighbours and agencies
Community leaders
Governmentlocal
Special interest
State, and central
Groups in the society
Integration of Soft and Hard Versions of Relationship Marketing
At this juncture, it is necessary to clarify and elaborate the ‘soft’ and ‘hard’ versions of relationship
marketing. Soft version of relationship marketing is more reminiscent of ‘humanistic relationship
development’, whereas the hard version reflects a ‘utilitarian instrumentalism’. The soft version lays
stress on the term ‘relationship’, thus conjuring up echoes of the relationship management. Because
it strongly advocates that all management is basically relationship management and all managers are
relationship managers. It invariably focuses on ‘developmental humanism’ as a foundation to build
and nurture enduring relationships in marketing exchanges. On the other hand, the hard version puts
the stress on the idea of ‘marketing’, that is something to be used dispassionately and in a formally
rational manner.
14.8 Social Actions Affecting BuyerSeller Relationships
Good Things Bad Things
Initiate positive phone calls. Make only callbacks.
Make recommendations. Make justifications.
Candor in language. Accommodative language.
Use “we” problemsolving language. Use “oweus” legal language.
Get to problems. Only respond to problems.
Use jargon or shorthand. Use longwinded communications.
Accept responsibility. Shift blame.
Plan the future. Rehash the past.
Source: Thedone Levitt, The Marketing Imagination (New York: Free Press, 1983) p. 119. Reprinted
by permission of the Harvard Business Review. An exhibit from Theodore Levitt, “After the Sale is
Over”, Harvard Business Review (SeptemberOctober 1983, p. 119). Copyright @ 1983 by the
President and Fellows of Harvard College.
1. Soft version of relationship marketing is more reminiscent of ………………, whereas the hard
version reflects a………………….
2. Kotter and Heskett found that firms that emphasised the interests of three constituencies, namely
……….., employees, and ………….. outperformed those that emphasized only one or two.
14.9 Summary
· The focus of relationship marketing approach centers on developing ‘hard core loyal’ customers
with the idea of retaining them forever.
· The customer relationship management is a process of acquiring customers by understanding
their requirements, retaining customers by fulfilling their requirements more than their
expectations and attracting new customers through customer specific strategic marketing
approaches.
· Customer Relationship Management is about acquiring, developing and retaining satisfied loyal
customer; achieving profitable growth, and creating economic value in company’s brand,”
· CRM is becoming the ultimate solution for both, customers as well as organizations.
Terminal Questions:
1. Define customer relationship marketing.
2. State the various forms of customer relationship marketing.
3. What are the various reasons for losing customers by organizations?
4. State the significance of customer relationship management.
Answer to Self Assessment Questions
1. Customer catching; customer keeping
2. Suspect
3. The prospects
4. Clients
5. Advocates
1. Humanistic relationship development; utilitarian instrumentalism
2. Customers ; stakeholders
Answers to Terminal Questions:
1. Refer to 7.3
2. Refer to 7.4
3. Refer to 7.6
4. Refer to 7.7
Unit 15 International Marketing Management
Structure
15.1 Introduction
15.2. Nature of International marketing concept
15.3. International marketing concept.
15.4. International market entry strategies.
15.5. Approaches to international marketing
15.6. International product policy
15.7. International promotions policy
15.8. International branding
15.9. Country of origin effects
15.10. International pricing
15.11. Summary
Terminal questions
15.1. Introduction
In the previous chapters our study was focused on how marketing strategies are formulated,
implemented and controlled in the Indian marketing. After the globalization and liberalization of the
Indian economy in the year 1991, Indian enterprises started facing the competition from the global
brands. In this context it has become inevitable for all the companies small or big to analyze the
international marketing environment and strategies to adapt to it. The companies which were
operating in the domestic market are also aggressively redrafting their policies and strategies to suit
the global needs. Companies express their desire to enter into the international market because of
the following reasons
1. It identified potential in the foreign markets for its products.
2. The domestic market is matured.
3. Existing customers demand for the international availability of organization’s products and
services.
Learning Objectives
1. Understand the nature of international market.
2. Analyze the appropriate entry strategies for the firm in international market.
3. Examine the approaches to the international market.
4. Asses the importance of components of marketing mixes in the international market.
5. Bring out the importance of country of origin effects.
15.2. Nature Of International Marketing Concept
International marketing is defined as “The performance of business activities designed to plan, price,
promote and direct the company’s flow of goods and services to consumers or users in more than
one nation for a profit”.
A company that wants to sell their product in other than domestic market should understand the
environmental factors, consumer behavior, market forces and other characters relevant to the
international market. After understanding the definition several questions may arise in your mind like
why marketer should go the international market? And what is the difference between international
marketing and domestic marketing. As we discussed in the introduction part companies enter into the
international market to tap the potential, to support the customer requirements or to avoid the
unprofitable domestic market. The difference between domestic marketing and international
marketing are listed below.
Characteristics International Marketing Domestic Marketing
1. Culture Multi culture Single culture and in some

cases multi culture.
2. Data Very difficult Easy
accessibility
3. Data reliability Very Low High
4. Control difficult Relatively easy.
5. Consumer Vary from country to country Vary in small extent

preferences
6. Product mix Adaptability required Standardization required.
7. Business More than one country Home country only

operation
8. Currency Required Required only if it into the

exposure importing.
Advantages of international marketing:
1. International marketing provides growth opportunities for the companies whose domestic market
is maturing. For example, General motors focusing its strategies on the emerging markets like
India
2. It brings the major portion of sales and profits to the company. For example, Unilever’s major
revenue comes from the Asian markets.
3. It generates employment: Indian textile sector which exports majority of the product produced is
large employer after agriculture and retail.
4. International market also acts as survival place for the companies. If one market become
unattractive either they establish their operation in another country or outsource the major
functions to streamline the businesses.
5. It helps in improving the standard of living in the country.
15.3. The International Marketing Concept
The marketing concept is the idea that a firm should seek to evaluate market opportunities before
production, assess potential demand for good, determine the product characteristics desired by the
consumers, predict the prices consumers are willing to pay and then supply goods corresponding to
the needs and wants of target markets. Adherence to marketing concept means the firm conceives
and develops products to satisfy consumer wants. For international marketing this means the
integration of the international side of the company’s business with all aspects of its operations and
the willingness to create new products and adapt existing products to satisfy the needs of world
markets. Products may have to be adapted to suit the tastes, needs and other characteristics of
consumers in specific regions, rather than it being assumed that an item which sells well in one
country will be equally successful elsewhere.
15.4. International Market Entry Strategies
Organizations that plans to go for international marketing should answer some basic questions like
a. In how many countries the company would like to operate?
b. What are the types of countries it plans to enter?
To answer the above questions companies evaluate each country against the market size, market
growth, and cost of doing business, competitive advantage and risk level.
Checklist for country evaluation
Characteristics weightages score
1. Political rights
2. Civil liberties
3. Control of corruption
4. Government
effectiveness
5. Rule of law
6. Health expenditure
7. Education
expenditure
8. Regulatory quality
9. Cost of starting a

business
10. Days to start a

business
11. Trade policy
12. Inflation
13. Fiscal policy
14. Consumption
15. Competition
Once the market is found to be attractive companies should decide how to enter this market.
Companies can enter international market from any one of the following strategies. They are
a. Exporting
b. Licensing
c. Contract manufacturing
d. Management contract
e. Joint ownership
f. Direct investment
Exporting is the techniques of selling the goods produced in the domestic country in a foreign
country with some modifications. For example, Gokaldas textiles export the cloths to different
countries from India. Exporting may be indirect or direct. In case of indirect exporting, company
works with independent international marketing intermediaries. This is cost effective and less risky
too. Direct exporting is the techniques in which organization exports the goods on its own by taking
all the risks. Maruti udyog limited India’s leading car manufacturer exports its cars on its own.
Company can also set up overseas branches to sell their products. Adani exports another leading
exporter from India has international office in the Singapore.
Licensing: According to Philip Kotler licensing is a method of entering a foreign market in which the
company enters into an agreement with a license in the foreign market, offering the right to use a
manufacturing process, trademark, patent, or other item of value for a fee or royalty’. For example,
torrent pharmaceuticals has license to sell the cardiovascular drugs of Chinese manufacturer Tasly.
Licensing may cause some problems to the parent company. Licensee may violate the agreement
and can use the technology of the parent company.
Contract manufacturing: company enters the international market with a tie up between
manufacturer to produce the product or the service. For example, Gigabyte technology has contract
manufacturing agreement with D link India to produce and sell their mother boards. Another
significant manufacturer is TVS electronics; it produces key boards in its own name as well as for
other companies too.
Management contracting: In this type a company enters the international market by providing the
know how of the product to the domestic manufacturer. The capital, marketing and other activities
are carried out by the local manufacturer hence it is less risky too.
Joint ownership: A form of joint venture in which an international company invest equally with a
domestic manufacturer. Therefore it also has equal right in the controlling operations. For example,
Barbara a lingerie manufacturer has joint venture with Gokaldas images in India.
Direct Investment: In this method of international market entry Company invest in manufacturing or
assembling. The company may enjoy the low cost advantages of that country. Many manufacturing
firms invested directly in the Chinese market to get its low cost advantage. Some governments
provide incentives and tax benefits to the company which manufactures the product in their country.
There is government restriction in some countries to opt only for direct investment as it produces the
jobs to the local people. This mode also depends on the country attractiveness. It may become risky
if the market matures or unstable government exists.
15.5. Approaches To International Marketing
The orientation towards the market varies with a company to company. Each one adopts different
approaches on the basis of their expertise or strength of the company. Some companies adapt same
product for all the markets while others differentiate to each countries. In this context we would like to
know what are the common approaches adopted by the company in the international marketing. The
three common approaches used in the international market are
a. Domestic market extension approach.
b. Multi domestic market orientation.
c. Global market orientation.
Domestic market extension approach: Companies that adopt this strategy thinks international
markets are secondary to its domestic markets.
Multi domestic market orientation: In the international market each country has its uniqueness. Their
preference varies. The Consumer profile is different from domestic operation. Companies develop
different market plans for such markets. For example, In France men use more cosmetics than the
women where as in India women use more cosmetics than men. A cosmetics company should
change the product positioning differently.
Global market orientation: In this approach company thinks that products’ needs are universal in
nature irrespective of country they work. Here company tries to standardize their products or
services. For example, Sony walkman is same across the world. The product information brochure
contains explanation in different languages of different countries. The final product is same in all the
countries.
15.6. International Product Policy
Customer satisfaction towards company offerings will be positive if they able to meet their needs.
Therefore product planning became integral part of international marketing plan. The distinctiveness
in the different countries forces companies to think in different ways of product offerings and support
promotion programs. These organizations adopt five different types of product strategies in the
international markets. They are
1. Product extension
2. Communication adaptation
3. Product adaptation
4. Product and communication adaptation
5. Product invention.
1. Product extension is marketing a product in the international market without change in the
product and promotion activities. Microsoft office 2007 and Microsoft servers are similar to USA
market and communication is also unaltered.
2. Communication adaptation: Company does not change the product but adopt the different
communication strategy in the foreign market. Colgate sells its toothpaste in a same way all over the
world. Their communication strategy varies in different countries. In India and USA white teeth are
preferred by the consumers while in Indonesia yellow teeth are preferred. Hence Colgate changed
its communication strategies for these countries.
3. Product adaptation: Marketer understand the different needs of the consumer and adopts the
product according to the local tastes but keeps the communication strategies same. Majority of the
Indian consumers are vegetarians. KFC started selling vegetarian burgers in India though it is
famous for chicken. The communication strategies of KFC remain same all over the world.
4. Product and communication adaptation: The product will be modified according to the needs
of local market. Nokia world’s largest cell phone manufacturer increased the volume options in the
India as most of the places are overcrowded. Consumers in India are not so familiar with English
language. Hence Nokia changed its promotion to regional languages also. This is adoption of
product and communication by the company. This strategy is also known as dual strategy.
5. Product invention: Here, marketer develops entirely new product to suit the requirements of
the local customers. Nokia manufactured 1100 cell phone only for the Indian market and promoted it
as made for India. In this strategy company may adopt communication strategy same as in the other
country or change according to the local market.
1. The method in which management know how is transferred
a. Exporting
b. Licensing
c. Management contract
d. Contract manufacturing
2. Global market orientation focuses on product standardization.
a. True b. False
3. Company does not change the product but adopt the different communication strategy in the
foreign market is known as
4. Product and communication adaptation is also known as
a. Product invention
b. Straight product extension
c. Dual adaptation
d. All the above.
5. Method of international market entry in which company invests in manufacturing or
assembling directly.
15.7. International Promotions Policy
Communication in the international market is very challenging. There exist many languages and
dialects and different perceptions about communication strategies. In some countries there are
regulations on the advertisements and sales promotions. In India alcohol advertisements are banned.
In this section we are discussing what the communication strategies the company should adapt are
and what are the barriers to it. The marketer may face the language barrier, culture barrier, legal
barriers in some countries. In Saudi Arabia using women in advertisements are prohibited. Vodafone
has to change its promotion program to Tamil in Tamilnadu, a state in India. Organizations also face
the problem of media and production and cost in different countries.
Global promotional program will have three set of objectives. First, setting the global objectives,
Secondly, formulating the regional objectives and finally setting the local objectives. The media
decisions depend on the objectives of the promotion program. As we discussed in the promotion unit
media budget in the international marketing is also determined by percentage sales method,
competitive parity, resource allocation and objective and task method.
Global promotion program may be standardized or adapted. Standardization will help the company to
reduce cost and add the value to the product. The pitfall of standardization is local customers can not
understand global messages. One of the famous companies in the world was showing its
advertisements on supply chain management software in India in the same way as in the USA. The
advertisement evaluation results were very strange. People can recall only the horse word in the
advertisement. As we discussed in the earlier section of the unit company can adapt its
communication strategy only to the local market or both product and communication can be adapted.
Advertisements will have modifications. If marketer wants to sell their products in Japan should not
use white color as it is considered only for mourning. Communication should not contain anything
using cow in the Nepal as it is considered as sacred. The following examples of the united colors of
Benetton and Microsoft depict the different advertisements strategies adopted by them.
Unit 15
Global marketer also uses sales promotion, Public relation and direct marketing techniques to
communicate it to the consumer. Amway direct marketing company adapts same strategy in India,
while Cadbury and Microsoft also use Public relation and sales promotion techniques to
communicate the messages.
Sales promotion covers the issue of coupons, the design of competitions, special offers, and
distribution of free samples. International businesses wishing to employ sales promotions for cross
border campaigns face a number of serious practical difficulties, because in many nations the use of
certain sales promotion techniques is regarded as unfair competition and as such is subject to
stringent legal control. Indeed conflicting laws sometimes apply to these matters in various countries.
Money off vouchers is legal in Spain but not in Germany; Lower price for the next purchase are legal
in Belgium but illegal in Denmark. In Germany and certain other countries free gifts are forbidden if
they constitute a genuine incentive to buy.
15.8. International Branding
Brand names used in foreign markets need to be internationally acceptable distinct and easily
recognizable, culture free, legally available and not subject to local restrictions. Brand name
communicates its messages and appeals to consumers. They create the stimulus in the minds of
consumer to purchase the product. Brand name should be small, easy to pronounce and should
have proper meaning. Such brand names can be used in several countries simultaneously for family
branding and may be s8upported within the advertisements by a wide variety of pictorial illustrations.
Brand positioning: As we discussed in the product standardization the debate exist for brand
communication standardization or adaptability. We will discuss the various factors that influence the
opting the single or multiple positioning strategies.
a. The influence of local substitutes on the foreign brand
b. The coverage of the brand( mass versus niche)
c. Acceptability for product uniqueness in all purchase points
d. Brand name suitability in the particular market.
Now we will discuss the advantages of brand standardization in the global markets.
1. Firms’ concentration on the positioning will be effective.
2. It helps in saving the costs.
3. A standardized product and standardized promotion helps to have same packaging.
But all the companies will not go for standardizing the brand. Standardization of branding strategies
has its own limitations. They are
1. Stereotype image of the national products (Germany for engineering, china for low price
product). If the customer thinks that any product coming out of the china is of low price and
low quality whatever the effort the Chinese company does in other market will fail.
2. Patriotism of the people and their perception that their national brand s is superior to others.
Brand valuation in the international markets: Brand valuation in one country helps it to leverage the
same brand in the other country. It also helps it to acquire different brands in the international
markets. Brand valuation can be done on the following factors
1. Brand image in the market.
2. Consumer lifestyle and brand influence
3. Branded sales versus unbranded sales
4. Brands contribution to the corporate image.
5. Length of brand loyalty.
6. Market share of brand in each category it operates.
7. Adaptability and standardization of the brand in different countries.
8. Brands ability to be extended to other lines or category.
The top 10 brands of 2007(Source: Business week)
INTERBRAND TAKES lots of ingredients into account when ranking the world's most valuable
brands. To even qualify for the list, each brand must derive about a third of its earnings outside its
home country, be recognizable outside of its base of customers, and have publicly available
marketing and financial data. One or more of those criteria eliminate such heavyweights as Visa,
WalMart, Mars, and CNN. Interbrand doesn't rank parent companies, which explains why Procter &
Gamble doesn't show up. And airlines are not ranked because it's too hard to separate their brands'
impact on sales from factors such as routes and schedules.
BUSINESSWEEK CHOSE Interbrand's methodology because it evaluates brands much the way
analysts value other assets: on the basis of how much they're likely to earn in the future. The
projected profits are then discounted to a present value, taking into account the likelihood that those
earnings will actually materialize.
THE FIRST STEP IS figuring out what percentage of a company's revenues can be credited to a
brand. (The brand may be almost the entire company, as with McDonald's Corp., or just a portion, as
it is for Marlboro.) Based on reports from analysts at J.P. Morgan Chase, Citigroup, and Morgan
Stanley, Interbrand projects five years of earnings and sales for the brand. It then deducts operating
costs, taxes, and a charge for the capital employed to arrive at the intangible earnings. The company
strips out intangibles such as patents and management strength to assess what portion of those
earnings can be attributed to the brand.
FINALLY, THE BRAND'S strength is assessed to determine the risk profile of those earnings
forecasts. Considerations include market leadership, stability, and global reach—or the ability to
cross both geographic and cultural borders. That generates a discount rate, which is applied to brand
earnings to get a net present value. Business Week and Interbrand believe this figure comes closest
to representing a brand's true economic worth.
Brand Country of origin Sector Valuation(in

Million$)
1. Coca cola USA Beverages 65,324
2. Microsoft USA Software 58,709
3. IBM USA Software 57,091
4. GE USA Diversified 51,569
5. Nokia Finland Telecommunication 33,696
6. Toyota Japan Automobiles 32,070
7. Intel USA Computer Hardware 30,954
8. McDonalds USA Restaurants 29,398
9. Disney USA Media 29,210
10. Mercedes Germany Automotive 23,568
15.9. Country of origin effects.
Country of origin is the country of manufacture, production, or growth where an article or product
comes from. There are differing rules of origin under various national laws and international treaties.
Country of origin as a marketing strategy
From a marketing perspective, "country of origin" gives a way to differentiate the product from the
competitors. It is believed that the country of origin has an impact on the willingness to buy a product,
and studies have shown that consumers may tend to have a relative preference to products from
their own country or may tend to have a relative preference for or aversion to certain products that
originate from certain countries. The effect of country of origin is however debated as studies have
shown that the origin of design (for instance Apple computers or Nike shoes) can be more important
than the country of origin.
Ambiguous country of origin labeling
While many products made within the European Union carry the country of origin label or marking
"Made in EU" or "Made in EC", some nonEU manufacturers in Europe and some others outside the
continent of Europe use ambiguous markings, such as "Made in Europe" (made anywhere else in
Europe, but not in the EU or EC; this may constitute any country geographically close to Europe or
the EU that also wishes to be in) or "Made for Europe" (made anywhere else in the world, but not in
Europe or the European Union). These tactics appear to be intended for consumer deception,
whereby a buyer not proficient in English may come to believe from looking at the label that the non
EU product he is interested in is made in the EU.
Country of origin in international trade
When shipping products from one country to another, the products may have to be marked with
country of origin, and the country of origin will generally be required to be indicated in the
export/import documents and governmental submissions. Country of origin will affect its admissibility,
the rate of duty, its entitlement to special duty or trade preference programs, antidumping, and
government procurement.
Today, many products are an outcome of a large number of parts and pieces that come from many
different countries, and that may then be assembled together in a third country. In these cases, it's
hard to know exactly what the country of origin is, and different rules apply as to how to determine
their "correct" country of origin. Generally, articles only change their country of origin if the work or
material added to an article in the second country constitutes a substantial transformation, or, the
article changes its name, tariff code, character or use (for instance from wheel to car). Value added
in the second country may also be an issue.
15.10. International Pricing
Determination of selling prices:
The price of an organization may change for its output depends on many factors. They are
a. Customer perception towards the product.
b. Total demand for the good
c. The degree of competition in the market.
d. Competitors price reactions
e. Substitute products and its effect on the product.
f. Products brand image
g. Cost of production and distribution.
h. Price elasticity of demand for the product
Special problems apply to international pricing particularly in relation to lack of information, uncertain
consumer response, and foreign exchange rate influences and the difficulty of estimating all the extra
costs associated with foreign sales. These extra costs might include translating and interpreting fees,
export packaging and documentation costs, insurance payments, clearing agents’ fees, preshipment
inspection and many other items. Credit period are very long in some countries. Government price
controls apply in certain states. A company may adopt penetration pricing, skimming pricing, cost
plus pricing and product life cycle pricing. (As discussed in Pricing Unit)
Transfer pricing:
Transfer pricing means the determination of the prices at which an MNC moves goods between its
subsidiaries in various countries. A crucial feature of large centralized MNCs is their ability to engage
in transfer pricing at artificially high or low prices. To illustrate, consider an MNC which extracts raw
materials in one country, uses them as production inputs in another, assembles the party finished
goods in a third and finishes and sells them in a fourth. The governments of the extraction,
production, and assembly countries will have sales or value added taxes; while the production
assembly and finished goods countries will impose tariffs on imports of goods. Suppose the MNC
values its goods at zero prior to their final sale at high prices. The government of the extraction
country receives no revenue from sales taxes because the MNC’s subsidiary in that country is selling
its output to the same MNC’s subsidiary in the production country at a price of zero. Equally the
production country raises no income from import tariffs on this transaction because the raw materials
are imported at zero prices! The only tax the MNC pays is a sales tax in the last country in the chain.
Transfer pricing at unacceptably low values has been major problem for many developing nations.
Sometimes, therefore the government of the country in which an MNC operated the government
officially shall declare the price at which the MNC exports its output, not an employee of the MNC
itself. Thus the government of host country will ensure that it receives an appropriate amount of sales
tax. Similarly importing countries might impose quantity based instead of price based import duties to
ensure reasonable revenues from taxes on imports of an MNC’s goods.
Tax considerations aside, transfer prices need to be realistic in order that the profitability of various
international operations may be assessed. Possible criteria for setting the transfer price include
1. The price at which the item could be sold on the open market.
2. Cost of production or acquisition.
3. Acquisition/ production cost plus a profit mark up
4. Senior management’s perceptions of the value of the item to the overall international operations.
5. Political negotiations between the units involved.
Normally the solution adopted is at which maximize profits for the company taken as a whole and
which best facilities the parent control over subsidiaries operations. Arm’s length pricing is the
method generally preferred by national governments and is recommended in a 1983 code of practice
on the subject drafted by the organization for economic cooperation and development. Note how
subsidiary that charges a high transfer price will accumulate cash which might be invented more
profitability in the selling country than elsewhere. Problems with setting a realistic transfer price as
follows.
1. Differences in the accounting systems used by subsidiaries in different countries.
2. Executives in operating units deliberately manipulate the transfer to enhance the book value of
subsidiary profits.
3. Disparate tax rates and investment subsidy levels in various countries.
4. Possible absence of competition in local markets at various stages in the supply chain. Thus a
market price in such an area may be artificially high in consequences of the lack of local
competition.
5. There might not be any other product directly comparable to the item in question, again making it
difficult to establish a market price.
6. If the price is set too high level the selling unit will be able to attain its profit targets too easily and
lead perhaps to idleness and inefficiency in the selling subsidiaries.
1. Money of vouchers is illegal in
a. Spain
b. Brazil
c. Germany
d. Denmark.
2. means the determination of the prices at which an MNC moves goods between its
subsidiaries in various countries.
3. Country of origin need not be marked on the shipping goods but should be entered in the
export/import documents
a. True b. false.
4. World’s No 1 brand on the basis of its valuations.
5. Which of the following is not used while setting the transfer pricing
a. The price of the product
b. Political negotiations
c. Cost of production
d. Competitors’ price.
15.11. Summary
Ø International marketing is defined as “The performance of business activities designed to plan,
price, promote and direct the company’s flow of goods and services to consumers or users in
more than one nation for a profit”.
Ø International market entry strategies are exporting, licensing, contract manufacturing,

management contract, direct investment and joint ownership.
Ø International marketing approaches are of three types. They are domestic market orientation,
multi domestic market orientation and global market orientation.
Ø Country of origin is the country of manufacture, production, or growth where an article or product
comes from. There are differing rules of origin under various national laws and international
treaties.
Ø Transfer pricing means the determination of the prices at which an MNC moves goods between
its subsidiaries in various countries.
Terminal Questions
1. Define international marketing.
2. Discuss the advantages of international marketing.
3. Explain the different modes of market entry strategies available for a company in the international
market.
4. Write a note on international product policy
5. What is country of origin effects/ explain its role in the international trade.
6. Explain transfer pricing with example.
Self Assessment Questions1
1. Management contract
2. True
3. Communication adoption.
4. Dual adaption
5. Direct investment
1. Germany
2. Transfer pricing
3. False
4. Coca cola
5. Competitors price
Answer to Terminal Question
1. Refer 15.2
2. Refer 15.2
3. Refer 15.4
4. Refer 15.6
5. Refer 15.9
6. Refer 15.10

MB0030 Marketing Management

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Marketing Management

Professor, Manipal Universal Learning Director, Manipal Institute of Management,

Asst. Professor, Sikkim Manipal University of Former Group Treasurer

Senor Manager HR Chief Financial Officer

Microsoft India corporation ( Pvt) limited Infosys BPO, Bangalore

6. Selling Concept 7. Marketing Concept

8. Emphasis on Product 9. Emphasis on Customer needs and

13. Aggressive Sales and 14. All the departments of the

17. Objective is profits 18. Objective is profit through

High Medium Low

Invest Invest Protect

Invest Protect Harvest

Protect Harvest Divest

S W O T represents strengths, weaknesses, opportunities and threats. SWOT analysis helps

Age group Population Percentage

Literate 560,688 336,534 224,154

Literate without educational

Below Primary 144,831 81,148 63,683

Primary 146,740 83,525 63,215

Middle 90,227 55,940 34,286

Matriculation/Secondary 79,230 51,202 28,028

Non technical diploma or

Technical diploma or

Graduate and above 37,670 25,533 12,137

Migrations by Place of

Persons Males Females Persons Males Females

Total migrants 98,301,342 32,896,986 65,404,356 100.0 100.0 100.0

Business 1,136,372 950,245 186,127 1.2 2.9 0.3

Education 2,915,189 2,038,675 876,514 3.0 6.2 1.3

Marrige 43,100,911 679,852 42,421,059 43.8 2.1 64.9

Moved after birth 6,577,380 3,428,673 3,148,707 6.7 10.4 4.8

Other 9,517,161 5,164,065 4,353,096 9.7 15.7 6.7

Industrial category Main Workers ('000s) Percentage (%)

Total main workers * 312,972 100.0

Agricultural & allied activities 176,979 56.6

Mining & quarrying 1,908 0.6

Manufacturing 41,848 13.4

Electricity, gas and water supply 1,546 0.5

Construction 11,583 3.7

Transport, storage & communications 12,535 4.0

Financial intermediation, Real estate, business activities 6,109 2.0

Other services 31,131 10.0

· Industries development and regulation · Trade union act

Factors Opportunity Threat

(v) Need for self­actualization: Maslow regards this as the highest need in his hierarchy. It is the

Significant difference Complex buying Variety seeking

Few differences Dissonance Habitual buying

LG GR T­ Akai D186 Electrolux

Characteristics Consumer Market Business market

1. Demand Direct Derived

2. No of customers Large Few

3. Location Dispersed Concentrated.

4. Nature of buy Personal Profession

5. No of buying roles Few Many

6. Negotiations Easy Complex

7. Promotion Advertising Personal selling

b. Influencers are people who provide the information required to evaluate the vendor and his

Problem Need description Product

Proposal Supplier selection Order routine Performance

Buying process New task Modified re­buy Straight re­buy.

2. General need √ √( some times)

4. supplier search √ (Sometime)

5. Proposal √ √( some times)

(v) Need for selfactualization: Maslow regards this as the highest need in his hierarchy. It is the

LG GR T Akai D186 Electrolux

Buying process New task Modified rebuy Straight rebuy.

MarketingMix One Many One/Few

b. They are very different from the others: Haier launches pathbreaking 4Door Refrigerators First time in

Rs 16 250,000 340,000 4,800,000 5,080,000 280,000

Rs 22 100,000 90,000 1,980,000 2,080,000 100,000

Rs 24 83,333 60,000 1,440,000 1,720,000 280,000

Preferred Partners Registered, Approved, Have contracts, supplying with

www.makemytrip.com Joy BMW fastest saloon car in the world

ICICI prudential fear. NIIT if you are not studying at NIIT