DINA BUSINESS SCHOOL

DINA INSTITUTE OF HOTEL AND BUSINESS

MANAGEMENT
PUNE – 411 028
CENTRE CODE – 02758

ASSIGNMENT – SET 1 / SET 2

NAME : TAHA MOHAMMED DHILAWALA

ROLL.NO. : 520850852
PAPER / SUBJECT : Marketing Management
CODE : MB0030
SEMESTER : I / II / III / IV

SIKKIM MANIPAL UNIVERSITY

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1. Analyze the existing business portfolio of any one
company using BCG matrix, GE matrix, and Ansoff
model.
ANS.
BCG Matrix of KFC
The need for strategy, in order to expand its existing product in
very promising markets for KFC is very essential. KFC, along with
McDonalds, and other major fast food chains have dominated the
American continent as well as else where. Since the 1950’s when the
founder of KFC had a dream, of building an empire in the fast food
market, the company has undergone lots of changes. The company has
changed ownership; it has taken over from Pepsi and passed over to
Tricon, which owns Pizza hut, Taco bell and others.
Nowadays, KFC, still dominates the chicken fast food industry
while has stores in more than 100 countries operating vast profits. (De
Witt 'et al.2004a) Although, due to increased conditions of life, and
differentiation of the life style of the population around the world, there
is still a lots of room for expansion, especially in countries with large
population, and high development rate. KFC using the BCG matrix and
SWOT analysis to analyze what is the current position of the company
and identify that the company has the potentials to growth in fast food
market.

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 In the late 1960s the Boston Consulting Group, a leading
management consulting company, designed a four-cell matrix known as
BCG Growth/Share Matrix. This tool was developed to aid companies
in the measurement of all their company businesses according to
relative market share and market growth.
The BCG Matrix made a significant contribution to strategic
management and continues to be an important strategic tool used by
companies today. The matrix provides a composite picture of the
strategic position of each separate business within a company so that
the management can determine the strengths and the needs of all
sectors of the firm. The development of the matrix requires the
assessment of a business portfolio, which include an organization’s
autonomous divisions ( activities, or profit centers).
The BCG or growth- share matrix imposes a two- dimensional
analysis on management of Strategic Business Units: a comparative
analysis of business strength and an assessment of the environment.
The business strength measure is the business;s Relative Market share.
The environmental measure is the Market Growth Rate.
BCG Matrix: The market growth rate measures industry
attractiveness. Because for the case of YUM Brand, all SBUs ( KFC,
Taco Bell, Pizza Hut, Long John Silver’s, A&W) are located in the
same fast- food industry, the referent standard is the industry growth
rate measured against the SBUs’ growth rate. The underlying theory for
examining market growth rate is the industry life cycle. The BCG
assumes that growth rates ( life cycle stages) affect a firm’s finances.

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 Asia

USA
? Europe

Americas

Placing products in the BCG matrix results in 4 categories in a portfolio

of a company:
1. Stars (=high growth, high market share)
• Use large amounts of cash and are leaders in the business so
they should also generate large amounts of cash.
• Frequently roughly in balance on net cash flow. However if
needed any attempt should be made to hold share, because
the rewards will be a cash cow if market share is kept. So,
KFC Malaysia is under Star position.
2. Cash Cows (=low growth, high market share)

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 • Profits and cash generation should be high, and because of
the low growth, investments needed should be low.
Keep profits high.
3. Dogs (=low growth, low market share)
• Avoid and minimize the number of dogs in a company.
• Beware of expensive ‘turn around plans’.
4. Question Marks (= high growth, low market share)
• Have the worst cash characteristics of all, because high
demands and low returns due to low market share
• If nothing is done to change the market share, question
marks will simply absorb great amounts of cash and later, as
the growth stops, a dog.
The Characteristics of each SBU
Type SBU Strategy SBU Required Net Cash
profits Investment Flow
STAR Hold/ Increase High High -or+
Cash Cow Hold High Low High+
Question Increase/Divest 0 or - Very High or High-or+
Mark Disinvest
DOG Harvest or Low Disinvest +
Divest or-
The analysis requires that both measures be calculated for each
SBU. The business strength dimension, relative market share, is
included to measure competitive advantage. The KFC is falling on cash
cow where a low growth and high market share is. So, the profit and
cash generation is high and because of low growth, investments needed
should be low. The funds received from cash cows are often used to

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help other businesses within the company, to allow the company to
purchase other businesses, or to return dividends to stockholders. So
the KFC should hold on what it has doing now.
Three Paths to Success (star-cash cow-question mark)
 Continuously generate cash cows and use the cash throw-up by
the cash cows to invest in the question marks that are not self-
sustaining
 Stars need a lot of reinvestments and as the market matures, stars
will degenerate into cash cows and the process will be repeated.
 As for dogs, segment the markets and nurse the dogs to health or
manage for cash
Three Paths to Failure (star-question mark-dog, cash cow-dog)
 Over invest in cash cows and under invest in question marks
 Trade further opportunities for present cash flow
 Under invest in the stars
 Allow competitors to gain share in a high growth market
 Over milked the cash cows

strategy - portfolio analysis - ge matrix

The business portfolio is the collection of businesses and products that
make up the company. The best business portfolio is one that fits the
company's strengths and helps exploit the most attractive opportunities.

The company must:

(1) Analyse its current business portfolio and decide which businesses
should receive more or less investment, and

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(2) Develop growth strategies for adding new products and businesses
to the portfolio, whilst at the same time deciding when products and
businesses should no longer be retained.

The two best-known portfolio planning methods are the Boston

Consulting Group Portfolio Matrix and the McKinsey / General
Electric Matrix (discussed in this revision note). In both methods, the
first step is to identify the various Strategic Business Units ("SBU's") in
a company portfolio. An SBU is a unit of the company that has a
separate mission and objectives and that can be planned independently
from the other businesses. An SBU can be a company division, a
product line or even individual brands - it all depends on how the
company is organised.

The McKinsey / General Electric Matrix

The McKinsey/GE Matrix overcomes a number of the disadvantages of

the BCG Box. Firstly, market attractiveness replaces market growth
as the dimension of industry attractiveness, and includes a broader
range of factors other than just the market growth rate. Secondly,
competitive strength replaces market share as the dimension by
which the competitive position of each SBU is assessed.
The diagram below illustrates some of the possible elements that determine market attractiveness
and competitive strength by applying the McKinsey/GE Matrix to the UK retailing market:

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Factors that Affect Market Attractiveness
Whilst any assessment of market attractiveness is necessarily
subjective, there are several factors which can help determine
attractiveness. These are listed below:
- Market size
- Market growth
- Market profitability
- Pricing trends
- Competitive intensity / rivalry
- Overall risk of returns in the industry
- Opportunity to differentiate products and services
- Segmentation
- Distribution structure (e.g. retail , direct, wholesale)
Factors that Affect Competitive Strength

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Factors to consider include:

-Strength of assets and competencies

- Relative brand strength
- Market share
- Customer loyalty
- Relative cost position (cost structure compared with competitors)
- Distribution strength
- Record of technological or other innovation
- Access to financial and other investment resources

Ansoff's product / market matrix

Introduction

The Ansoff Growth matrix is a tool that helps businesses decide their
product and market growth strategy.

Ansoff’s product/market growth matrix suggests that a business’

attempts to grow depend on whether it markets new or existing
products in new or existing markets.

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The output from the Ansoff product/market matrix is a series of
suggested growth strategies that set the direction for the business
strategy. These are described below:

Market penetration

Market penetration is the name given to a growth strategy where the

business focuses on selling existing products into existing markets.

Market penetration seeks to achieve four main objectives:

• Maintain or increase the market share of current products – this can

be achieved by a combination of competitive pricing strategies,
advertising, sales promotion and perhaps more resources dedicated to
personal selling

• Secure dominance of growth markets

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• Restructure a mature market by driving out competitors; this would
require a much more aggressive promotional campaign, supported by a
pricing strategy designed to make the market unattractive for
competitors

• Increase usage by existing customers – for example by introducing

loyalty schemes
A market penetration marketing strategy is very much about “business
as usual”. The business is focusing on markets and products it knows
well. It is likely to have good information on competitors and on
customer needs. It is unlikely, therefore, that this strategy will require
much investment in new market research.

Market development

Market development is the name given to a growth strategy where the

business seeks to sell its existing products into new markets.

There are many possible ways of approaching this strategy, including:

• New geographical markets; for example exporting the product to a

new country

• New product dimensions or packaging: for example

• New distribution channels

• Different pricing policies to attract different customers or create new

market segments

Product development

Product development is the name given to a growth strategy where a

business aims to introduce new products into existing markets. This
strategy may require the development of new competencies and
requires the business to develop modified products which can appeal to
existing markets.

Diversification

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Diversification is the name given to the growth strategy where a
business markets new products in new markets.

This is an inherently more risk strategy because the business is moving

into markets in which it has little or no experience.

For a business to adopt a diversification strategy, therefore, it must

have a clear idea about what it expects to gain from the strategy and an
honest assessment of the risks

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2. Discuss the Macro environment of a pharmaceutical
company

ANS. India has become an attractive destination for R&D, with

opportunities emerging in this new market post- WTO (World Trade
Organization) accession. India’s industrial development has accelerated
and its pharmaceutical industry has become one of the most successful.
Driving factors attracting international investment include:

1WTO accession

2 low labor costs

3 tax incentives from the Chinese government

4 R&D collaboration opportunities.

The Chinese pharmaceutical market is split almost equally between

chemical and biotechnology products

at 70%, and TCM (traditional Chinese medicine) products at 30%. The

Chinese government has changed the face of the industry dramatically
by:

● implementing WTO guidelines and protection for intellectual

property rights

● shifting authority from the Ministry of Foreign Trade to the State

Food and Drug Administration (SFDA). The SFDA has imposed higher
drug registration requirements for imported as well as locally
manufactured products and promoted general compliance with the
Chinese Good Manufacturing Practice (GMP) standards for
domestically produced products. A number of domestic players could
not withstand this pressure from the government—many of them closed
their businesses whilst others looked to upgrade their technologies
through tie-ups with foreigncompanies. The total value of the market in
India was US$12.8 billion in 2005. Antibiotics have slowly decreased
in sales; however, they still represent one-third of the whole market.
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This is a large market share compared with the other therapeutic
classes. The three top therapeutic classes (antibiotics, circulatory and
alimentary tract) represent around 60% of the whole market.

India’s TCM industry possesses great potential. The key issue is

how to inspire this, which requires government attention and enterprise
efforts. On one hand, the government must provide support with its
policies; on the other hand, the government should strengthen its
recommendations on Chinese medicine planting. India possesses
12,807 kinds of medicinal materials from natural sources out of which,
11,146 are of plant origin, 1,581 are from animals, and 80 are from
minerals, including more than 5,000 clinically validated folk
medicines.Compared with the big global players, domestic vaccine
producers have small-scale production, are backward in production
technology and have high operation costs. In India, clinical trials can be
conducted at a much lower cost than in the West. India has a pool of
highly educated doctors who are keen to participate in clinical trials.
Although India is beginning to accept foreign clinical data, almost all
new drugs entering the country must conduct domestic testing in some
form. At present, Class I, II and III drugs must undergo phase I, II and
III trials, although some Class III products are exempt from phase I
trials.

The major forces attracting foreign investors to India are:

● quality of the clinical data

● reasonable costs

● ability to select patients rapidly.

Despite the huge growth potential, commercial health insurance

still plays a minor role in the local market,

covering only a meager 10% of local residents' total medical

expenditures. Health insurance divides into

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two types in India:

● Rural Health Protection System.

● Urban Health Protection System

● Government Insurance Scheme—covers government employees

● Labor Insurance Scheme—covers enterprise employees.

In India, only 15% of the population has health insurance. Most of

the rural population is not covered.

The Chinese R&D investment approach has been shifting from

technological alliances towards international mergers and acquisitions.
Overseas companies in India have established 700 R&D centers.
Pharmaceutical regulation in India is based around the Drug
Administration Law. The government first implemented this law in
1984, with the last major amendments taking place in 2001. In this
emerging market, intellectual property protection is a big challenge.
When India became a member of the WTO in 2001, it promised to
uphold the Trade-Related Aspects of Intellectual Property Rights
(TRIPS) Accord, which mandates that drugs receive at least 20 years of
patent protection.

Political and legal reluctance to uphold the patent rights of foreign

investors is not the only issue. Intellectual theft comes in many forms,
including small scale reverse engineering and copying, systematic
reverse R&D and reverse engineering, and counterfeiting. The major
distribution channel in retail market is the hospitals, with 80% of
pharmacy products going to patients through hospitals. Biotechnology
globally has experienced rapid growth in recent years and promises
enormous potential for future growth. In India, the biotechnology
companies have developed more quickly than the pharmaceutical
companies have.

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3. Explain the components of Marketing information
systems
ANS. Components of a marketing information system

A marketing information system (MIS) is intended to bring together

disparate items of data into a coherent body of information. An MIS is,
as will shortly be seen, more than raw data or information suitable for
the purposes of decision making. An MIS also provides methods for
interpreting the information the MIS provides. Moreover, as Kotler's1
definition says, an MIS is more than a system of data collection or a set
of information technologies:

"A marketing information system is a continuing and interacting

structure of people, equipment and procedures to gather, sort, analyse,
evaluate, and distribute pertinent, timely and accurate information for
use by marketing decision makers to improve their marketing planning,
implementation, and control".

Figure .1. illustrates the major components of an MIS, the

environmental factors monitored by the system and the types of
marketing decision which the MIS seeks to underpin.
Figure .1. The marketing information systems and its subsystems

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The explanation of this model of an MIS begins with a description of
each of its four main constituent parts: the internal reporting systems,
marketing research system, marketing intelligence system and
marketing models. It is suggested that whilst the MIS varies in its
degree of sophistication - with many in the industrialised countries
being computerised and few in the developing countries being so - a
fully fledged MIS should have these components, the methods (and
technologies) of collection, storing, retrieving and processing data
notwithstanding.

Internal reporting systems: All enterprises which have been in

operation for any period of time nave a wealth of information.
However, this information often remains under-utilised because it is
compartmentalised, either in the form of an individual entrepreneur or
in the functional departments of larger businesses. That is, information
is usually categorised according to its nature so that there are, for
example, financial, production, manpower, marketing, stockholding
and logistical data. Often the entrepreneur, or various personnel
working in the functional departments holding these pieces of data, do
not see how it could help decision makers in other functional areas.
Similarly, decision makers can fail to appreciate how information from
other functional areas might help them and therefore do not request it.
The internal records that are of immediate value to marketing decisions
are: orders received, stockholdings and sales invoices. These are but a
few of the internal records that can be used by marketing managers, but
even this small set of records is capable of generating a great deal of
information. Below, is a list of some of the information that can be
derived from sales invoices.

· Product type, size and pack type by territory

· Product type, size and pack type by type of account
· Product type, size and pack type by industry
· Product type, size and pack type by customer
· Average value and/or volume of sale by territory
· Average value and/or volume of sale by type of account
· Average value and/or volume of sale by industry
· Average value and/or volume of sale by sales person

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By comparing orders received with invoices an enterprise can establish
the extent to which it is providing an acceptable level of customer
service. In the same way, comparing stockholding records with orders
received helps an enterprise ascertain whether its stocks are in line with
current demand patterns.

Marketing research systems: The general topic of marketing research

has been the prime ' subject of the textbook and only a little more needs
to be added here. Marketing research is a proactive search for
information. That is, the enterprise which commissions these studies
does so to solve a perceived marketing problem. In many cases, data is
collected in a purposeful way to address a well-defined problem (or a
problem which can be defined and solved within the course of the
study). The other form of marketing research centres not around a
specific marketing problem but is an attempt to continuously monitor
the marketing environment. These monitoring or tracking exercises are
continuous marketing research studies, often involving panels of
farmers, consumers or distributors from which the same data is
collected at regular intervals. Whilst the ad hoc study and continuous
marketing research differs in the orientation, yet they are both
proactive.

Marketing intelligence systems: Whereas marketing research is

focused, market intelligence is not. A marketing intelligence system is a
set of procedures and data sources used by marketing managers to sift
information from the environment that they can use in their decision
making. This scanning of the economic and business environment can
be undertaken in a variety of ways, including2

Unfocused The manager, by virtue of what he/she reads, hears and watches
scanning exposes him/herself to information that may prove useful.
Whilst the behaviour is unfocused and the manager has no
specific purpose in mind, it is not unintentional

Semi- Again, the manager is not in search of particular pieces of

focused information that he/she is actively searching but does narrow
scanning the range of media that is scanned. For instance, the manager
may focus more on economic and business publications,

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 broadcasts etc. and pay less attention to political, scientific or
technological media.

Informal This describes the situation where a fairly limited and

search unstructured attempt is made to obtain information for a
specific purpose. For example, the marketing manager of a firm
considering entering the business of importing frozen fish from
a neighbouring country may make informal inquiries as to
prices and demand levels of frozen and fresh fish. There would
be little structure to this search with the manager making
inquiries with traders he/she happens to encounter as well as
with other ad hoc contacts in ministries, international aid
agencies, with trade associations, importers/exporters etc.

Formal This is a purposeful search after information in some systematic

search way. The information will be required to address a specific
issue. Whilst this sort of activity may seem to share the
characteristics of marketing research the manager him/herself
rather than a professional researcher, carry it out. Moreover, the
scope of the search is likely to be narrow in scope and far less
intensive than marketing research

Marketing intelligence is the province of entrepreneurs and senior

managers within an agribusiness. It involves them in scanning
newspaper trade magazines, business journals and reports, economic
forecasts and other media. In addition it involves management in
talking to producers, suppliers and customers, as well as to competitors.
Nonetheless, it is a largely informal process of observing and
conversing.

Some enterprises will approach marketing intelligence gathering in a

more deliberate fashion and will train its sales force, after-sales
personnel and district/area managers to take cognizance of competitors'
actions, customer complaints and requests and distributor problems.
Enterprises with vision will also encourage intermediaries, such as
collectors, retailers, traders and other intermediaries to be proactive in
conveying market intelligence back to them.

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Marketing models: Within the MIS there has to be the means of
interpreting information in order to give direction to decision. These
models may be computerised or may not. Typical tools are:

· Time series sales modes

· Brand switching models
· Linear programming
· Elasticity models (price, incomes, demand, supply, etc.)
· Regression and correlation models
· Analysis of Variance (ANOVA) models
· Sensitivity analysis
· Discounted cash flow
· Spreadsheet 'what if models

These and similar mathematical, statistical, econometric and financial

models are the analytical subsystem of the MIS. A relatively modest
investment in a desktop computer is enough to allow an enterprise to
automate the analysis of its data. Some of the models used are
stochastic, i.e. those containing a probabilistic element whereas others
are deterministic models where chance plays no part. Brand switching
models are stochastic since these express brand choices in probabilities
whereas linear programming is deterministic in that the relationships
between variables are expressed in exact mathematical terms.

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4. Explain the Henry assael model of buying decision
behavior.
ANS.
High involvement Low involvement
Significant difference Complex buying Variety seeking buying
between brands behavior behavior
Few differences Dissonance reducing Habitual buying
between brands buying behavior behavior.

Complex buying behavior :- customer 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

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the comparison of three brands and significant difference between
them.
Lg ge t – 282 Akai d186 tt Electrolux
gv/ge 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 exits. For example,
customers who want to purchase ctv will not many differences between
the brands but the price of the product and its technically makes
customer to involve more. One of the major disadvantages of this type

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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 of the customer for biscuits. There are many varieties of
biscuits available. One can purchased salt biscuits, cream biscuits,
marie biscuits, and milk biscuits of Britannia, parle, itc sun feast and
other. 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 situation
marketer should undertake following steps
 The market leader should encourage customers to buy
repeatedly.
 Make the product available and visible to the customer in
the shopping places.
 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 brand leads to the habitual buying behavior. For example spice
powder marketed by mdh, everest or mtr have very feew differences
between them and customer do not search the information to purchase

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particular product. Marketers whose customer represent this category
should follow below listed strategies
 Use price and sales promotion to stimulate product trial
 Use more visual aspect than the wordings in the
advertisement
 Television is the better media for this type of products.
 Use classical conditioning theory to create
advertisements.

5. Discuss the segmentation strategy of a cement company

ANS. MARKET SEGMENTATION
INTRODUCTION: - The market for any product is normally made up
of several segments. A ‘market’ after all is the aggregate of consumers
of a given product. And, consumer (the end user),
user who makes a market,
are of varying characteristics and buying behavior. There are different
factors contributing for varying mind set of consumers. It is thus
natural that many differing segments occur within a market.
In order to capture this heterogeneous market for any product,
marketers usually divide or disintegrate the market into a number of
sub-markets/segments and the process is known as market
segmentation.
segmentation

Thus we can say that market segmentation is the segmentation of

markets into homogenous groups of customers, each of them reacting

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differently to promotion, communication, pricing and other variables of
the marketing mix. Market segments should be formed in that way that
difference between buyers within each segment is as small as possible.
Thus, every segment can be addressed with an individually targeted
marketing mix.

The importance of market segmentation results from the fact that the
buyers of a product or a service are no homogenous group. Actually,
every buyer has individual needs, preferences, resources and behaviors.
Since it is virtually impossible to cater for every customer’s individual
characteristics, marketers group customers to market segments by
variables they have in common. These common characteristics allow
developing a standardized marketing mix for all customers in this
segment.
Through segmentation, the marketer can look at the differences among
the customer groups and decide on appropriate strategies/offers for
each group. This is precisely why some marketing gurus/experts have
described segmentation as a strategy of dividing the markets for
conquering them.

MARKETING STRATEGY AND MARKET SEGMENTATION: -

When it comes to marketing strategies, most people spontaneously
think about the 4P (Product, Price, Place, Promotion) – maybe extended
by three more Ps for marketing services (People, Processes, Physical
Evidence).

Market segmentation and the identification of target markets, however,

are an important element of each marketing strategy. They are the basis
for determining any particular marketing mix. Basic steps in marketing
strategy are as follows:-

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• ATTRIBUTES OF EFFECTIVE SEGMENTATION

Market segmentation is resorted to for achieving certain practical

purpose. For example, it has to be useful in developing and
implementing effective and practical marketing programmes. For this
to happen, the segments arrived at must meet certain criteria such:-

a. Identifiable: The differentiating attributes of the segments must

be measurable so that they can be identified.
b. Accessible: The segments must be reachable through
communication and distribution channels.
c. Sizeable: The segments should be sufficiently large to justify the
resources required to target them. A very small segment may not
serve commercial exploitation.
d. Profitable: - There is no use in locating segments that are
sizeable but not profitable.
e. Unique needs: To justify separate offerings, the segments must
respond differently to the different marketing mixes.
f. Durable: The segments should be relatively stable to minimize
the cost of frequent changes.
g. Measurable: The potential of the segments as well as the effect
of a specific marketing mix on them should be measurable.
h. Compatible: - Segments must be compatible with firm’s
resources and capabilities.

• REASONS FOR MARKET SEGMENTATION

Segmentation is the basis for developing targeted and effective

marketing plans. Furthermore, analysis of market segments enables
decisions about intensity of marketing activities in particular segments.

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A segment-orientated marketing approach generally offers a range of
advantages for both, businesses and customers.

1. Facilitates proper choice of target marketing:-

marketing:
Segmentation helps the marketers to distinguish one customer group
from another within a given market and thereby enables him to decide
which segment should form his target market.

2. Higher Profits: -

It is often difficult to increase prices for the whole market.

Nevertheless, it is possible to develop premium segments in which
customers accept a higher price level. Such segments could be
distinguished from the mass market by features like additional services,
exclusive points of sale, product variations and the like. A typical
segment-based price variation is by region. The generally higher price
level in big cities is evidence for this. When differentiating prices by
segments, organizations have to take care that there is no chance for
cannibalization between high-priced products with high margins and
budget offers in different segments. This risk is the higher, the less
distinguished the segments are.

3. Facilitates tapping of the market, adapting the offer to the

target:-Segmentation
target:- also enables the marketer to crystallize the
needs of target buyers. It also helps him to generate an accurate
prediction of the likely responses from each segment of the target
buyer. Moreover, when buyers are handled after careful
segmentation, the responses for each segment will be homogeneous.
This in turn, will help the marketer develop marketing
offer/programmers that most suited to each groups. He can achieve
specialization that is required in product, distribution, promotion
and pricing for matching the particular customer group and develop
offers and appeals for the segmented group.

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 Example of Ford: - Ford has gained useful insights through
segmentation and adapted its offer to suit the Indian target market.
For the Indian segment Ford made some changes in its cars in
comparison to their European version. Modifications such as: -

a. Higher ground clearance to make the car compatible to the

rougher road surface in India.
b. Stiffer rear springs to enable negotiating the ubiquitous potholes
on Indian roads.
c. Changes in cooling requirement, with greater airflow to the rear.
d. Higher resistance to dust.
e. Compatibility of engine with the quality of fuel available in India.
f. Location of horn buttons on the steering wheel. As Indian
motorists use horn far more frequently than the European where the
horns are located on the lever.

4. Stimulating Innovation: -

An undifferentiated marketing strategy that targets at all customers

in the total market necessarily reduces customers’ preferences to the
smallest common basis. Segmentations provide information about
smaller units in the total market that share particular needs. Only the
identification of these needs enables a planned development of new
or improved products that better meet the wishes of these customer
groups. If a product meets and exceeds a customer’s expectations
by adding superior value, the customers normally is willing to pay a
higher price for that product. Thus, profit margins and profitability
of the innovating organizations increase.

5. Makes the marketing effort more efficient and economic: -

Segmentation ensures that the marketing effort is concentrated on
well defined and carefully chosen segments. After all, the resources
of any firm are limited and no firm can normally afford to attack
and tap the entire market without any delimitation whatsoever. It

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 would benefit the firm if the efforts were concentrated on segments
that are more profitable and productive ones.
Segmentation also helps the marketer assess as to what extend
existing offer from competitors match the needs of different
customer segments. The marketer can thus identify the relatively
less satisfied segments and succeed by concentrating on them
and satisfying their needs.

6. Benefits the customer as well: -

Segmentation brings benefits not only to the marketer, but to the
customer as well. When segmentation attains higher levels of
sophistication and perfection, customers and companies can
conveniently settle down with each other, as at such a stage, they
can safely rely on each other’s discrimination. The firm can
anticipate the wants of the customers and the customers can
anticipate the capabilities of the firm.

7. Sustainable customer relationships in all phases of customer life

cycle: - Customers change their preferences and patterns of
behavior over time. Organizations that serve different segments
along a customer’s life cycle can guide their customers from stage
to stage by always offering them a special solution for their
particular needs. For example, many car manufacturers offer a
product range that caters for the needs of all phases of a customer
life cycle: first car for early teens, fun-car for young professionals,
family car for young families, etc. Skin care cosmetics brands often
offer special series for babies, teens, normal skin, and elder skin.

8. Targeted communication: -

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 It is necessary to communicate in a segment-specific way even if
product features and brand identity are identical in all market
segments. Such a targeted communications allows to stress those
criteria that are most relevant for each particular segment (e.g. price
vs. reliability vs. prestige).

9. Higher market Shares: -

In contrast to an undifferentiated marketing strategy, segmentation

supports the development of niche strategies. Thus marketing
activities can be targeted at highly attractive market segments in the
beginning. Market leadership in selected segments improves the
competitive position of the whole organization in its relationship
with suppliers, channel partners and customers. It strengthens the
brand and ensures profitability. On that basis, organizations have
better chances to increase their market shares in the overall market.

• BASES FOR SEGMENTATION

Markets can be segmented using several relevant bases. There are
huge number of variables which leads to market segmentation. They
comprise easy to determine demographic factors as well as variables
on user behavior or customer preferences. Segmentation is done for
consumer market and industrial market.

6. Case study
Software pricing: issues of client billing

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Infosys, one of the major IT companies in India, has developed a new
method of pricing software maintenance project. The new method is
called as ‘ticket – based pricing. The customer payment will be based
on three types of client request or ticket. First, customer may request
for small enhancement in the software application. Second, customer
may request for big enhancement in the software application and third,
request may be for a bug fix. Earlier the methods used for pricing were
‘fixed price’ and ‘time and material-based pricing’. Under the ‘time and
material based pricing’, customers are billed based on the number of
man-hours spent on a project, while under the fixed price, the customer
pays an agreed price that doesn’t vary with the manpower deployed on
the project. Infosys developed this new pricing strategy after
examining the current pricing methods. Software application methods
become more stable after some time. If the client opted for fixed
pricing and his request for software maintenance reduced, still has to
pay fixed maintenance charges. Ticket based pricing will provide
flexibility to the client. Many IT majors have been trying to decrease
the dependence of revenue growth on manpower addition. But this is
for the first time such an attempt has been made to bring a transaction-
based pricing model. The new move is expected to increase the revenue
without a proportional increase in the number of employees. Contrary
to this view many industry observers still feel that fixed price or time
and material based pricing provide continuous revenue. The excess
revenue available from these two methods can be used for reserves or

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hedging. In case of ticket based pricing client has to negotiate with the
company every time.
a. Do you think ticket based pricing will provide continuous
revenue to Infosys in the long term? Comment
b. Compare three pricing strategies discussed here and
choose any one as your choice

ANS:-
A. yes, it should be provide continues revenues to infosys in
the long term
B. Pricing strategies:-
1. Competition-based pricing
Setting the price based upon prices of the similar competitor products.
Competitive pricing is based on three types of competitive product:
• Products have lasting distinctiveness from competitor's product.
Here we can assume
o The product has low price elasticity.
o The product has low cross elasticity.
o The demand of the product will rise.
• Products have perishable distinctiveness from competitor's
product, assuming the product features are medium
distinctiveness.
• Products have little distinctiveness from competitor's product.
assuming that:
o The product has high price elasticity.
o The product has some cross elasticity.
o No expectation that demand of the product will rise.
The pricing is done based on these three factors.

2. Cost-plus pricing

Cost-plus pricing is the simplest pricing method. The firm calculates

the cost of producing the product and adds on a percentage (profit) to
that price to give the selling price. This method although simple has
two flaws; it takes no account of demand and there is no way of
determining if potential customers will purchase the product at the
calculated price.
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 Price = Cost of Production + Margin of Profit

3. Limit pricing

A limit price is the price set by a monopolist to discourage economic

entry into a market, and is illegal in many countries. The limit price is
the price that the entrant would face upon entering as long as the
incumbent firm did not decrease output. The limit price is often lower
than the average cost of production or just low enough to make entering
not profitable. The quantity produced by the incumbent firm to act as a
deterrent to entry is usually larger than would be optimal for a
monopolist, but might still produce higher economic profits than would
be earned under perfect competition. The problem with limit pricing as
strategic behavior is that once the entrant has entered the market, the
quantity used as a threat to deter entry is no longer the incumbent firm's
best response. This means that for limit pricing to be an effective
deterrent to entry, the threat must in some way be made credible. A way
to achieve this is for the incumbent firm to constrain itself to produce a
certain quantity whether entry occurs or not. An example of this would
be if the firm signed a union contract to employ a certain (high) level of
labor for a long period of time.

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