Marketing in the Twenty-First Century [CHAPTER-1]

Change is occurring at an accelerating rate; today is not like yesterday, and tomorro ill !e
di""erent "rom today# Continuing today$s strategy is risky; so is turning to a ne strategy# There"ore,
tomorro$s success"ul com%anies ill ha&e to heed three certainties'
1#(lo!al "orces ill continue to a""ect e&eryone$s !usiness and %ersonal li"e#
)#Technology ill continue to ad&ance and ama*e us#
+#There ill !e a continuing %ush toard deregulation o" the economic sector#
These three de&elo%ments,glo!ali*ation, technological ad&ances, and deregulation s%ell endless
o%%ortunities# -ut hat is marketing and hat does it ha&e to do
ith these issues.
/arketing deals ith identi"ying and meeting human and social needs# 0ne o"
the shortest de"initions o" marketing is 1meeting needs %ro"ita!ly#2 3hether the marketer is Procter
4 (am!le, hich notices that %eo%le "eel o&ereight and ant tasty !ut less "atty "ood and in&ents
0lestra; or Car/a5, hich notes that %eo%le ant more certainty hen they !uy a used automo!ile
and in&ents a ne system "or selling used cars; or 67EA, hich notices that %eo%le ant good
"urniture at a su!stantially loer %rice and creates knock-don "urniture,all illustrate a dri&e to turn
a %ri&ate or social need into a %ro"ita!le !usiness o%%ortunity through marketing#
MARKETING TASKS
A recent !ook, Radical /arketing, %raises com%anies such as Harley-8a&idson "or succeeding !y
!reaking all o" the rules o" marketing#1 6nstead o" commissioning e5%ensi&e marketing research,
s%ending huge sums on ad&ertising, and o%erating large marketing de%artments, these com%anies
stretch their limited resources, li&e close to their customers, and create more satis"ying solutions to
customers$ needs# They "orm !uyers clu!s, use creati&e %u!lic relations, and "ocus on deli&ering
9uality %roducts to in long-term customer loyalty# 6t seems that not all marketing must "ollo the
P4( model#6n "act, e can distinguish three stages through hich marketing %ractice might %ass'
1# Entrepreneurial marketing ' /ost com%anies are started !y indi&iduals ho &isuali*e an
o%%ortunity and knock on e&ery door to gain attention# :im 7och, "ounder o" -oston -eer Com%any,
hose ;amuel Adams !eer has !ecome a to%-selling 1cra"t2 !eer, started out in 1<=> carrying !ottles
o" ;amuel Adams "rom !ar to !ar to %ersuade !artenders to carry it# ?or 1@ years, he sold his !eer
through direct selling and grassroots %u!lic relations# Today his !usiness %ulls in nearly A)@@
million, making it the leader in the B#;# cra"t !eer market#)
)# Formulate marketing ' As small com%anies achie&e success, they ine&ita!ly mo&e toard more
"ormulated marketing# -oston -eer recently !egan a A1C million tele&ision ad&ertising cam%aign#
The com%any no em%loys more that 1DC sales %eo%le and has a marketing de%artment that carries
on market research, ado%ting some o" the tools used in %ro"essionally run marketing com%anies#
+# Intrepreneurial marketing ' /any large com%anies get stuck in "ormulated marketing, %oring
o&er the latest ratings, scanning research re%orts, trying to "ine-tune dealer relations and ad&ertising
messages# These com%anies lack the creati&ity and %assion o" the guerrilla marketers in the
entre%reneurial stage#+ Their !rand and %roduct managers need to start li&ing ith their customers
and &isuali*ing ne ays to add &alue to their customers$ li&es#
T!E SC"#E "F MARKETING
Marketing people are involved in marketing 10 types of entities: goods, services, experiences, events,
persons, places, properties, organizations, information, and ideas.
1.Goods. Physical goods constitute the !ulk o" most countries$ %roduction and marketing e""ort# The
Bnited ;tates %roduces and markets !illions o" %hysical goods, "rom eggs to steel to hair dryers# 6n
de&elo%ing nations, goods %articularly "ood, commodities, clothing, and housing,are the mainstay
o" the economy#
2.Services. As economies ad&ance, a groing %ro%ortion o" their acti&ities are "ocused on the
%roduction o" ser&ices# The B#;# economy today consists o" a D@E+@ ser&ices-to-goods mi5# ;er&ices
include airlines, hotels, and maintenance and re%air %eo%le, as ell as %ro"essionals such as
accountants, layers, engineers, and doctors# /any market o""erings consist o" a &aria!le mi5 o"
goods and ser&ices#
3.xperiences# -y orchestrating se&eral ser&ices and goods, one can create, stage, and market
e5%eriences# 3alt 8isney 3orld$s /agic 7ingdom is an e5%erience; so is the Hard Rock Ca"e#
!.vents. /arketers %romote time-!ased e&ents, such as the 0lym%ics, trade shos, s%orts e&ents,
and artistic %er"ormances#
".#laces. Cities, states, regions, and nations com%ete to attract tourists, "actories, com%any
head9uarters, and ne residents#C Place marketers include economic de&elo%ment s%ecialists, real
estate agents, commercial !anks, local !usiness associations, and ad&ertising and %u!lic relations
agencies#
$.#roperties. Pro%erties are intangi!le rights o" onershi% o" either real %ro%erty Freal estateG or
"inancial %ro%erty Fstocks and !ondsG# Pro%erties are !ought and sold, and this occasions a marketing
e""ort !y real estate agents F"or real estateG and in&estment com%anies and !anks F"or securitiesG#
%.&rganizations. 0rgani*ations acti&ely ork to !uild a strong, "a&ora!le image in the mind o" their
%u!lics# Phili%s, the 8utch electronics com%any, ad&ertises ith the tag line, 1Het$s /ake Things
-etter#2 The -ody ;ho% and -en 4 :erry$s also gain attention !y %romoting social causes#
Bni&ersities, museums, and %er"orming arts organi*ations !oost their %u!lic images to com%ete more
success"ully "or audiences and "unds#
'.(nformation. The %roduction, %ackaging, and distri!ution o" in"ormation is one o" society$s maIor
industries#J Among the marketers o" in"ormation are schools and uni&ersities; %u!lishers o"
encyclo%edias, non"iction !ooks, and s%eciali*ed maga*ines; makers o" C8s; and 6nternet 3e! sites#
THE 8EC6;60K; THAT /AR7ETER; /A7E
/arketing managers "ace a host o" decisions in handling marketing tasks# These range "rom maIor
decisions such as hat %roduct "eatures to design into a ne %roduct, ho many sales%eo%le to hire,
or ho much to s%end on ad&ertising, to minor decisions such as the ording or color "or ne
%ackaging#
Among the 9uestions that marketers ask Fand ill !e addressed in this te5tG are'
Ho can e s%ot and choose the right market segmentFsG.
Ho can e di""erentiate our o""ering.
Ho should e res%ond to customers ho %ress "or a loer %rice.
Ho can e com%ete against loer-cost, loer-%rice ri&als.
Ho "ar can e go in customi*ing our o""ering "or each customer.
Ho can e gro our !usiness.
Ho can e !uild stronger !rands.
Ho can e reduce the cost o" customer ac9uisition and kee% customers loyal.
Ho can e tell hich customers are more im%ortant.
Ho can e measure the %ay!ack
/AR7ET6K( C0KCEPT; AK8 T00H;
/arketing !oasts a rich array o" conce%ts and tools to hel% marketers address the decisions they must
make# 3e ill start !y de"ining marketing and then descri!ing its maIor conce%ts and tools#
8E?6K6K( /AR7ET6K('
3e can distinguish !eteen a social and a managerial de"inition "or marketing# According to a social
de"inition, marketing is a societal %rocess !y hich indi&iduals and grou%s o!tain hat they need
and ant through creating, o""ering, and e5changing %roducts and ser&ices o" &alue "reely ith
others#
As a managerial de"inition, marketing has o"ten !een descri!ed as 1the art o" selling %roducts#2 -ut
Peter 8rucker, a leading management theorist, says that 1the aim o" marketing is to make selling
su%er"luous# The aim o" marketing is to kno and understand the customer so ell that the %roduct
or ser&ice "its him and sells itsel"# 6deally, marketing should result in a customer ho is ready to
!uy#2 The American /arketing Association o""ers this managerial de"inition' 1Marketing
)management* is t+e process of planning and exec,ting t+e conception, pricing, promotion, and
distri-,tion of ideas, goods, and services to create exc+anges t+at satisfy individ,al and
organizational goals#
C"RE MARKETING C"NCE#TS
Target Markets an Segmentation
A marketer can rarely satis"y e&eryone in a market# Kot e&eryone likes the same so"t drink,
automo!ile, college, and mo&ie# There"ore, marketers start ith market segmentation# They identi"y
and %ro"ile distinct grou%s o" !uyers ho might %re"er or re9uire &arying %roducts and marketing
mi5es# /arket segments can !e identi"ied !y e5amining demogra%hic, %sychogra%hic, and !eha&ioral
di""erences among !uyers# The "irm then decides hich segments %resent the greatest o%%ortunity,
those hose needs the "irm can meet in a su%erior "ashion#
?or each chosen target market, the "irm de&elo%s a market o""ering# The o""ering is %ositioned in the
minds o" the target !uyers as deli&ering some central !ene"itFsG# ?or e5am%le, Lol&o de&elo%s its cars
"or the target market o" !uyers "or hom automo!ile sa"ety is a maIor concern# Lol&o, there"ore,
%ositions its car as the sa"est a customer can !uy#
A global industry is one in hich the strategic %ositions o" com%etitors in maIor geogra%hic or
national markets are "undamentally a""ected !y their o&erall glo!al %ositions#(lo!al "irms,!oth
large and small,%lan, o%erate, and coordinate their acti&ities and e5changes on a orldide !asis#
Marketers an #rospe$ts
Another core conce%t is the distinction !eteen marketers and %ros%ects# A marketer is someone ho
is seeking a res%onse Fattention, a %urchase, a &ote, a donationG "rom another %arty, called the
%ros%ect# 6" to %arties are seeking to sell something to each other, !oth are marketers#
*** NEE%S& 'ANTS& AN% %EMAN%S
The success"ul marketer ill try to understand the target market$s needs, ants, and demands# .eeds
descri-e -asic +,man re/,irements s,c+ as food, air, 0ater, clot+ing, and s+elter. #eople also +ave
strong needs for recreation, ed,cation, and entertainment. These needs !ecome 0ants hen they are
directed to s%eci"ic o!Iects that might satis"y the need# An American needs "ood !ut ants a
ham!urger, ?rench "ries, and a so"t drink# A %erson in /auritius needs "ood !ut ants a mango, rice,
lentils, and !eans#

1emands are ants "or s%eci"ic %roducts !acked !y an a!ility to %ay# /any %eo%le ant a /ercedes;
only a "e are a!le and illing to !uy one# Com%anies must measure not only ho many %eo%le
ant their %roduct, !ut also ho many ould actually !e illing and a!le to !uy it#
Product or Offering
Peo%le satis"y their needs and ants ith %roducts# A %roduct is any o""ering that can satis"y a need
or ant, such as one o" the 1@ !asic o""erings o" goods, ser&ices, e5%eriences, e&ents, %ersons, %laces,
%ro%erties, organi*ations, in"ormation, and ideas#
Value and Satisfaction
6n terms o" marketing, the %roduct or o""ering ill !e success"ul i" it deli&ers &alue and satis"action
to the target !uyer# The !uyer chooses !eteen di""erent o""erings on the !asis o" hich is rcei&ed to
deli&er the most &alue# 3e de"ine &alue as a ratio !eteen hat the customer gets and hat he gi&es#
The customer gets !ene"its and assumes costs, as shon in this e9uation'
Lalue M-ene"it M F"unctional !ene"its N emotional !ene"itsG
Cost /onetary cost Ntime cost Nenergy costN %sychic cost#
-ased on this e9uation, the marketer can increase the &alue o" the customer o""ering !y
)1* raising -enefits, )2* red,cing costs, )3* raising -enefits and red,cing costs, )!* raising -enefits -y
more t+an t+e raise in costs, or )"* lo0ering -enefits -y less t+an t+e red,ction in costs. 2 c,stomer
c+oosing -et0een t0o val,e offerings, 31 and 32, 0ill examine t+e ratio 31432. S+e 0ill favor 31 if
t+e ratio is larger t+an one5 s+e 0ill favor 32 if t+e ratio is smaller t+an one5 and s+e 0ill -e
indifferent if t+e ratio e/,als one.

E($hange an Transa$tions
E5change, the core o" marketing, in&ol&es o!taining a desired %roduct "rom someone !y o""ering
something in return# ?or e5change %otential to e5ist, "i&e conditions must !e satis"ied'
1# There are at least to %arties#
)# Each %arty has something that might !e o" &alue to the other %arty#
+# Each %arty is ca%a!le o" communication and deli&ery#
># Each %arty is "ree to acce%t or reIect the e5change o""er#
C# Each %arty !elie&es it is a%%ro%riate or desira!le to deal ith the other %arty#
3hether e5change actually takes %lace de%ends u%on hether the to %arties can agree on terms that
ill lea&e them !oth !etter o"" For at least not orse o""G than !e"ore# xc+ange is a val,e6creating
process -eca,se it normally leaves -ot+ parties -etter off.
Marketing Channels
To reach a target market, the marketer uses t+ree kinds of marketing c+annels #
1.7omm,nication c+annels deli&er messages to and recei&e messages "rom target !uyers# They
include nes%a%ers, maga*ines, radio, tele&ision, mail, tele%hone, !ill!oards, %osters, "liers, C8s,
audiota%es, and the 6nternet# -eyond these, communications are con&eyed !y "acial e5%ressions and
clothing, the look o" retail stores, and many other media# /arketers are increasingly adding dialogue
channels Fe-mail and toll-"ree num!ersG to counter!alance the more normal monologue channels
Fsuch as adsG#
2.distri-,tion c+annels used to dis%lay or deli&er the %hysical %roduct or ser&iceFsG to the !uyer or
user# There are %hysical distri!ution channels and ser&ice distri!ution channels, hich include
arehouses, trans%ortation &ehicles, and &arious trade channels such as distri!utors, holesalers, and
retailers# The marketer also uses
3.selling c+annels to e""ect transactions ith %otential !uyers# ;elling channels include not only the
distri!utors and retailers !ut also the !anks and insurance com%anies that "acilitate transactions#
/arketers clearly "ace a design %ro!lem in choosing the !est mi5 o" communication, distri!ution,
and selling channels "or their o""erings#
Supply Chain
3hereas marketing channels connect the marketer to the target !uyers, the su%%ly chain descri!es a
longer channel stretching "rom ra materials to com%onents to "inal %roducts that are carried to "inal
!uyers# ?or e5am%le, the su%%ly chain "or omen$s %urses starts ith hides, tanning %erations,
cutting o%erations, manu"acturing, and the marketing channels that !ring %roducts to customers# This
su%%ly chain re%resents a &alue deli&ery system# Each com%any ca%tures only a certain %ercentage o"
the total &alue generated !y the su%%ly chain# 3hen a com%any ac9uires com%etitors or mo&es
u%stream or donstream, its aim is to ca%ture a higher %ercentage o" su%%ly chain &alue#
Competition
Com%etition, a critical "actor in marketing management, includes all o" the actual and %otential ri&al
o""erings and su!stitutes that a !uyer might consider# ;u%%ose an automo!ile com%any is %lanning to
!uy steel "or its cars# The car manu"acturer can !uy "rom B#;# ;teel or other B#;# or "oreign
integrated steel mills; can go to a mini mill such as Kucor to !uy steel at a cost sa&ings; can !uy
aluminum "or certain %arts o" the car to lighten the car$s eight; or can !uy some engineered %lastics
%arts instead o" steel#
3e can !roaden the %icture !y distinguishing "our le&els o" com%etition, !ased on degree o" %roduct
su!stituta!ility'
1.8rand competition: A com%any sees its com%etitors as other com%anies that o""er similar %roducts
and ser&ices to the same customers at similar %rices# /aruti might see its maIor com%etitors as
Toyota, Honda, Hyundai and other manu"acturers o" medium-%rice automo!iles, rather than
/ercedes#
2. (nd,stry competition: A com%any sees its com%etitors as all com%anies that make the same %roduct
or class o" %roducts# Thus, /aruti ould !e com%eting against all other car manu"acturers#
3. 9orm competition: A com%any sees its com%etitors as all com%anies that manu"acture %roducts
that su%%ly the same ser&ice# /aruti ould see itsel" com%eting against manu"acturers o" all
&ehicles, such as motorcycles, !icycles, and trucks#
!. Generic competition: A com%any sees its com%etitors as all com%anies that com%ete "or the same
consumer dollars# /aruti ould see itsel" com%eting ith com%anies that sell maIor consumer
dura!les, "oreign &acations, and ne homes#
Marketing Mi(
/arketing mi5 is a maIor conce%t in modern marketing and in&ol&es %ractically e&erything that a marketing
com%any can use to in"luence consumer %erce%tions "a&ora!ly toards its %roducts or ser&ices#
/arketing mi5 is a model o" cra"ting and im%lementing marketing strategy
/arketers use numerous tools to elicit the desired res%onses "rom their target markets# These tools
constitute a marketing mi5' Marketing mix is t+e set of marketing tools t+at t+e firm ,ses to p,rs,e
its marketing o-:ectives in t+e target market.
M$Carthy)s Classi*i$ation +,#s-. /auter0orn)s Classi*i$ation +,Cs-
,#s o* marketing1 ,Cs o* marketing1
2 #rou$t Consumer solution
3 #ri$e Consumer $ost
4 #la$e Con5enien$e
, #romotion6 Communi$ation $ost
/arketing-mi5 decisions must !e made to in"luence the trade channels as ell as
the "inal consumers# Ty%ically, the "irm can change its %rice, sales-"orce si*e, and ad&ertising
#rou$t #la$e #ri$e #romotion
Product &ariety
Ouality
8esign
?eature
-rand name
Packaging
si*e
ser&ice
arranties
Return
Channels
Co&erage
Assortments
Hocations
6n&entory
Trans%ort
Hist %rice
8iscounts
Alloances
Payment %eriod
Credit terms
;ales %romotion
Ad&ertising
;ales "orce
Pu!lic relations
8irect marketing
C0/PAKP 0R6EKTAT60K; T03AR8 THE /AR7ETPHACE
Clearly, marketing acti&ities should !e carried out under a ell-thought-out %hiloso%hy
o" e""icient, e""ecti&e, and socially res%onsi!le marketing# 6n "act, t+ere are five competing concepts
,nder 0+ic+ organizations cond,ct marketing activities: prod,ction concept, prod,ct concept,
selling concept, marketing concept, and societal marketing concept.
I6 The #rou$tion Con$ept
The %roduction conce%t, one o" the oldest in !usiness, holds that consumers %re"er %roducts that are
idely a&aila!le and ine5%ensi&e# /anagers o" %roduction-oriented !usinesses concentrate on
achie&ing high %roduction e""iciency, lo costs, and mass distri!ution# This orientation makes sense
in de&elo%ing countries, here consumers are more interested in o!taining the %roduct than in its
"eatures# 6t is also used hen a com%any ants to e5%and the market# Te5as 6nstruments is a leading
e5%onent o" this conce%t# 6t concentrates on !uilding %roduction &olume and u%grading technology in
order to !ring costs don, leading to loer %rices and e5%ansion o" the market#
This orientation has also !een a key strategy o" many :a%anese com%anies#
36 The #rou$t Con$ept
0ther !usinesses are guided !y the %roduct conce%t, hich holds that consumers "a&or those
%roducts that o""er the most 9uality, %er"ormance, or inno&ati&e "eatures# /anagers in these
organi*ations "ocus on making su%erior %roducts and im%ro&ing them o&er time, assuming that
!uyers can a%%raise 9uality and %er"ormance#
Product-oriented com%anies o"ten design their %roducts ith little or no customer in%ut, trusting that
their engineers can design e5ce%tional %roducts# A (eneral /otors e5ecuti&e said years ago' 1Ho
can the %u!lic kno hat kind o" car they ant until they see hat is a&aila!le.2 (/ today asks
customers hat they &alue in a car and includes marketing %eo%le in the &ery !eginning stages o"
design#
46 The Selling Con$ept
The selling conce%t, another common !usiness orientation, holds that consumers and !usinesses, i"
le"t alone, ill ordinarily not !uy enough o" the organi*ation$s %roducts# The organi*ation must,
there"ore, undertake an aggressi&e selling and %romotion e""ort# This conce%t assumes that
consumers must !e coa5ed into !uying, so the com%any has a !attery o" selling and %romotion tools
to stimulate !uying#
The selling conce%t is %racticed most aggressi&ely ith unsought goods that !uyers normally do not
think o" !uying, such as insurance and "uneral %lots# The selling conce%t is also %racticed in the
non%ro"it area !y "und-raisers, college admissions o""ices, and %olitical %arties#
,6 The Marketing Con$ept
The marketing conce%t holds that the key to achie&ing organi*ational goals consists o" the com%any
!eing more e""ecti&e than its com%etitors in creating, deli&ering, and communicating customer &alue
to its chosen target markets# Marketing concept proposes t+at an organization s+o,ld foc,s on c,stomer
needs and 0ants, coordinate its efforts, and endeavo,r to accomplis+ organisational goals.
Theodore He&itt o" Har&ard dre a %erce%ti&e contrast !eteen the selling and marketing conce%ts'
1;elling "ocuses on the needs o" the seller; marketing on the needs o" the !uyer# ;elling is
%reoccu%ied ith the seller$s need to con&ert his %roduct into cash; marketing ith the idea o"
satis"ying the needs o" the customer !y means o" the %roduct and the hole cluster o" things
associated ith creating, deli&ering and "inally consuming it#2
The marketing conce%t em%hasises three main %rinci%les
26 Customer-oriente planning an implementations
36 Coorination o* all organisational a$ti5ities
46 Coorinate marketing is $riti$ally important to a$hie5e organi7ational goals6
The marketing conce%t rests on "our %illars' target market, c,stomer needs, integrated
marketing, and profita-ility# The selling conce%t takes an inside-out %ers%ecti&e# 6t starts ith the
"actory, "ocuses on e5isting %roducts, and calls "or hea&y selling and %romoting to %roduce %ro"ita!le
sales# The marketing conce%t takes an outside-in %ers%ecti&e# 6t starts ith a ell-de"ined market,
"ocuses on customer needs, coordinates acti&ities that a""ect customers, and %roduces %ro"its !y
satis"ying customers#
Customer Nees
A com%any can care"ully de"ine its target market yet "ail to correctly understand the customers$
needs# Clearly, understanding customer needs and ants is not alays sim%le# ;ome customers ha&e
needs o" hich they are not "ully conscious; some cannot articulate these needs or use ords that
re9uire some inter%retation# 3e can distinguish among "i&e ty%es o" needs' F1G stated needs, F)G real
needs, F+G unstated needs, F>G delight needs, and FCG secret needs# Res%onding only to the stated need
may shortchange the customer# ?or e5am%le, i" a customer enters a hardare store and asks "or a
sealant to seal glass indo %anes, she is stating a solution, not a need# 6" the sales%erson suggests
that ta%e ould %ro&ide a !etter solution, the customer may a%%reciate that the sales%erson met her
need and not her stated solution#
A distinction needs to !e dran !eteen res%onsi&e marketing, antici%ati&e marketing, and creati&e
marketing# A res%onsi&e marketer "inds a stated need and "ills it, hile an antici%ati&e marketer looks
ahead to the needs that customers may ha&e in the near "uture# 6n contrast, a creati&e marketer
disco&ers and %roduces solutions that customers did not ask "or, !ut to hich they enthusiastically
res%ond# ;ony e5em%li"ies a creati&e marketer !ecause it has introduced many success"ul ne
%roducts that customers ne&er asked "or or e&en thought ere %ossi!le' 3alkmans, LCRs, and so on#
;ony goes !eyond customer-led marketing' 6t is a market-dri&ing "irm, not Iust a market-dri&en "irm#
Akio /orita, its "ounder, %roclaimed that he doesn$t ser&e markets; he creates markets#
Com%any 0rientations Toard the /arket%lace
3hy is it su%remely im%ortant to satis"y the needs o" target customers. -ecause a com%any$s sales
come "rom to grou%s' ne customers and re%eat customers# &ne estimate is t+at attracting a ne0
c,stomer can cost five times as m,c+ as pleasing an existing one# 2nd it mig+t cost 1$ times as m,c+
to -ring t+e ne0 c,stomer to t+e same level of profita-ility as t+at of t+e lost c,stomer# Customer
retention is thus more im%ortant than customer attraction#
The ma8or i**eren$es 0etween selling $on$ept an marketing $on$ept
1# The selling conce%t starts ith the seller and its "ocus is on e5isting %roducts, it !eing seller-oriented# The
com%any !elie&es in aggressi&e selling and other %romotions# Customer &alue and satis"action are no concern
"or the seller# The "irm %roduces the %roducts "irst and then "igures out ays to sell and make %ro"its#
8i""erent com%any de%artments o%erate ithout coordination#
)# /arketing orientation starts ith the customer and the com%any stri&es to learn customer needs and ants,
de&elo%s a%%ro%riate %roducts or ser&ices to satis"y the customer# -usiness is &ieed as a customer need
satis"ying acti&ity# All de%artments coordinate their acti&ities and the "ocus is on customer needs# Pro"its
are an outcome o" doing the Io! ell !y the com%any# 6t re9uires relia!le com%anyide in"ormation system
and maintains it# All de%artments are res%onsi&e to in"ormational in%uts# E&ery!ody understands the critical
role %layed !y marketing, a "act &isi!ly demonstra!le hen the head o" marketing is %art o" to% management#
96The So$ietal Marketing Con$ept
The societal marketing conce%t calls u%on marketers to !uild social and ethical considerations into
their marketing %ractices# They must !alance and Iuggle the o"ten con"licting criteria o" com%any
%ro"its, consumer ant satis"action, and %u!lic interest# Pet a num!er o" com%anies ha&e achie&ed
nota!le sales and %ro"it gains !y ado%ting and %racticing the societal marketing conce%t#
Societal marketing concept is a management p+ilosop+y t+at takes into acco,nt t+e 0elfare of
society, t+e organisation, and its c,stomers.
#
:6Relationship marketing1
?rom "ocusing on transactions to !uilding long-term, %ro"ita!le customer relationshi%s# Com%anies
"ocus on their most %ro"ita!le customers, %roducts, and channels#
The term Qrelationshi% marketing$ re"ers to long-term and mutually !ene"icial arrangements herein !oth
!uyer and seller "ocus on &alue enhancement through the creation o" more satis"ying e5changes
According to ?rederick ?# Reichheld, the im%ortance o" customer retention can !e Iudged !y o!ser&ing some
o" the "olloing !ene"its it %ro&ides'
Ac9uiring ne customers can !e "i&e times more e5%ensi&e than the costs in&ol&ed in satis"ying and
retaining e5isting customers#
The a&erage com%any loses 1@ %er cent o" its customers each year
A decrease o" C %er cent in the customer de"ection rate can increase %ro"it !y )C %er cent to =C %er
cent, de%ending on the industry
The customer %ro"it rate tends to increase o&er the li"e o" retained customer#

Customer li*etime 5alue1 ?rom making a %ro"it on each sale to making %ro"its !y managing
customer li"etime &alue# ;ome com%anies o""er to deli&er a constantly needed %roduct on a regular
!asis at a loer %rice %er unit !ecause they ill enIoy the customer$s !usiness "or a longer %eriod#
#
Customer share' ?rom a "ocus on gaining market share to a "ocus on !uilding customer share#
Com%anies !uild customer share !y o""ering a larger &ariety o" goods to their e5isting customers and
!y training em%loyees in cross-selling and u%-selling#
#
Target marketing1 ?rom selling to e&eryone to trying to !e the !est "irm ser&ing ell-de"ined target
markets# Target marketing is !eing "acilitated !y the %roli"eration o" s%ecial-interest maga*ines, TL
channels, and 6nternet nesgrou%s#
#
Ini5iuali7ation1 ?rom selling the same o""er in the same ay to e&eryone in the target market to
indi&iduali*ing and customi*ing messages and o""erings#
#
Customer ata0ase1 ?rom collecting sales data to !uilding a data arehouse o" in"ormation a!out
indi&idual customers$ %urchases, %re"erences, demogra%hics, and %ro"ita!ility# Com%anies can 1data-
mine2 their %ro%rietary data!ases to detect di""erent customer need clusters and make di""erentiated
o""erings to each cluster#
#
C!A#TER -3
STRATEGIC #/ANNING& IM#/EMENTATI"N& AN% C"NTR"/
C0RP0RATE AK8 86L6;60K ;TRATE(6C PHAKK6K(
The aim o" strategic %lanning is to sha%e the com%any$s !usinesses and %roducts so that they yield
target %ro"its and groth and kee% the com%any healthy des%ite any une5%ected threats that may
arise#
;trategic %lanning calls "or action in t+ree key areas# The first area is managing a com%any$s
!usinesses as an in&estment %ort"olio# The second area in&ol&es assessing each !usiness$s strength
!y considering the market$s groth rate and the com%any$s %osition and "it in that market# And the
t+ird area is the de&elo%ment o" strategy, a game %lan "or achie&ing long-term o!Iecti&es# The
com%lete strategic %lanning, im%lementation, and control cycle#
Regardless o" the degree o" in&ol&ement, all strategic %lans are !ased on the cor%orate mission#
%e*ining the Corporate Mission
2n organization;s mission states 0+at c,stomers it serves, 0+at needs it satisfies, 0+at types of
prod,cts it offers, t+e -o,ndaries for activities.
3hen management senses that the organi*ation is dri"ting "rom its mission, it must rene its search
"or %ur%ose# According to Peter 8rucker, it is time to ask some "undamental 9uestions#) 3hat is our
!usiness. 3ho is the customer. 3hat is o" &alue to the customer. 3hat ill our !usiness !e. 3hat
should our !usiness !e. ;uccess"ul com%anies continuously raise these 9uestions and anser them
thought"ully and thoroughly#
A ell-orked-out mission statement %ro&ides em%loyees ith a shared sense o" %ur%ose, direction,
and o%%ortunity# 6t also guides geogra%hically dis%ersed em%loyees to ork inde%endently and yet
collecti&ely toard reali*ing the organi*ation$s goals#
An organisationRs /ission states hat customers it ser&es, hat needs it satis"ies, and hat ty%e o" %roduct it
o""ers# A com%anyRs mission statement is ty%ically "ocused on its %resent !usiness sco%e E Sho e are and
hat e doS; mission statements !oldly descri!e an organisationRs %resent ca%a!ilities, customer "ocus,
acti&ities and !usiness makeu%#
Some Mission Statements
The mission statement o" /otorola, "or e5am%le, is 1to honora!ly ser&e the needs o" the community
!y %ro&iding %roducts and ser&ices o" su%erior 9uality at a "air %rice to our customers; to do this so as
to earn an ade9uate %ro"it hich is re9uired "or the total enter%rise to gro; and !y so doing %ro&ide
the o%%ortunity "or our em%loyees and shareholders to achie&e their reasona!le %ersonal o!Iecti&es#2
REH6AKCE 6K8B;TR6E;' STo !ecome a maIor %layer in the glo!al chemicals !usiness and simultaneously
gro in other groth industries like in"rastructure#S
CA8-BRP 6K86A' STo attain leadershi% %osition in the con"ectionery market and achie&e a strong %resence
in the "ood drinks sector#S
(ood mission statements "ocus on a limited num!er o" goals, stress the com%any$s maIor %olicies
and &alues, and define t+e company;s ma:or competitive scopes# These include'
Inustry s$ope1
The industry or range o" industries in hich a com%any ill o%erate#?or e5am%le, 8uPont o%erates
in the industrial market; 8o o%erates in the industrial and consumer markets; and +/ ill go into
almost any industry here it can make money#
#rou$ts an appli$ations s$ope1
The range o" %roducts and a%%lications that a com%any ill su%%ly# ;t# :ude /edical aims to 1ser&e
%hysicians orldide ith high-9uality %roducts "or cardio&ascular care#2
# Competen$e s$ope1
The range o" technological and other core com%etencies that a com%any ill master and le&erage#
:a%an$s KEC has !uilt its core com%etencies in com%uting, communications, and com%onents to
su%%ort %roduction o" la%to% com%uters, tele&isions, and other electronics items#
Market-segment s$ope1
The ty%e o" market or customers a com%any ill ser&e# ?or e5am%le, :A(BAR makes only
e5%ensi&e cars "or the u%scale market and licenses its name "or high-9uality accessories#
;erti$al s$ope1
The num!er o" channel le&els "rom ra material to "inal %roduct and distri!ution in hich a
com%any ill %artici%ate# At one e5treme are com%anies ith a large &ertical sco%e; at the other
e5treme are "irms ith lo or no &ertical integration that may outsource design, manu"acture,
marketing, and %hysical distri!ution#
#
Geographi$al s$ope1
The range o" regions or countries in hich a com%any ill o%erate# At one e5treme are com%anies
that o%erate in a s%eci"ic city or state# At the other e5treme are multinationals such as Bnile&er and
Cater%illar, hich o%erate in almost e&ery one o" the orld$s countries# A com%any must rede"ine its
mission i" that mission has lost credi!ility or no longer de"ines an o%timal course "or the com%any#
7odak rede"ined itsel" "rom a "ilm com%any to an image com%any so that it could add digital
imaging; ;ara Hee rede"ined itsel" !y outsourcing manu"acturing and !ecoming a marketer o" !rands#
Esta0lishing Strategi$ <usiness =nits +S<=-
A !usiness can !e de"ined in terms o" three dimensions' c,stomer gro,ps, c,stomer needs, and
tec+nology# ;-B must ha&e to has "olloing things in it'-
1# Separately e*ine 0usiness1 6t is a single !usiness or collection o" related !usinesses that
can !e %lanned se%arately "rom the rest o" the com%any
)# %istin$t mission1 hich is se%arate "rom its grou%#
+# "wn $ompetitors1 it has its on set o" com%etitors
># "wn team pro*it responsi0ility1 it has a manager res%onsi!le "or strategic %lanning and
%ro"it %er"ormance ho controls most o" the "actors a""ecting %ro"it#
(eneral Electric, as one e5am%le, has esta!lished >< strategic !usiness units F;-BsG#
Assigning Resour$es to S<=s
The %ur%ose o" identi"ying the com%any$s strategic !usiness units is to de&elo% se%arate
strategies and assign a%%ro%riate "unding to the entire !usiness %ort"olio# ;enior managers generally
a%%ly analytical tools to classi"y all o" their ;-Bs according to %ro"it %otential# To o" the !est-
knon !usiness %ort"olio e&aluation models are the -oston Consulting (rou% modelF-C(
/ATR6TG and the (eneral Electric mode#

>>>>T!E <"ST"N C"NS=/TING GR"=# A##R"AC! +<CG MATRI?-
The -oston Consulting (rou% F-C(G, a leading management consulting "irm, de&elo%ed and
%o%ulari*ed the groth-share matri5 shon in ?igure # The eight circles re%resent the current si*es
and %ositions o" eight !usiness units in a hy%othetical com%any# The dollar-&olume si*e o" each
!usiness is %ro%ortional to the circle$s area# Thus, the to largest !usinesses are C and J#
The market groth rate on the &ertical a5is indicates the annual groth rate o" the market in hich
the !usiness o%erates# Relati&e market share, hich is measured on the hori*ontal a5is, re"ers to the
;-B$s market share relati&e to that o" its largest com%etitor in the segment# 6t ser&es as a measure o"
the com%any$s strength in the rele&ant market segment# The groth-share matri5 is di&ided into "our
cells, each indicating a di""erent ty%e o" !usiness'
<,estion marks are !usinesses that o%erate in high-groth markets !ut ha&e lo relati&e market
shares# /ost !usinesses start o"" as 9uestion marks as the com%any tries to enter a high-groth
market in hich there is already a market leader# A 9uestion mark re9uires a lot o" cash !ecause the
com%any is s%ending money on %lant, e9ui%ment, and %ersonnel# The term 9uestion mark is
a%%ro%riate !ecause the com%any has to think hard a!out hether to kee% %ouring money into this
!usiness#

Stars are market leaders in a high-groth market# A star as once a 9uestion mark, !ut it does not
necessarily %roduce %ositi&e cash "lo; the com%any must still s%end to kee% u% ith the high market
groth and "ight o"" com%etition#

7as+ co0s are "ormer stars ith the largest relati&e market share in a slo-groth market# A cash
co %roduces a lot o" cash "or the com%any Fdue to economies o" scale and higher %ro"it marginsG,
%aying the com%any$s !ills and su%%orting its other !usinesses#
#
1ogs are !usinesses ith eak market shares in lo-groth markets; ty%ically, these generate lo
%ro"its or e&en losses#

A"ter %lotting its &arious !usinesses in the groth-share matri5, a com%any must determine hether
the %ort"olio is healthy# An un!alanced %ort"olio ould ha&e too many dogs or 9uestion marks or too
"e stars and cash cos#
The ne5t task is to determine hat o!Iecti&e, strategy, and !udget to assign to each ;-B# 9o,r
strategies can !e %ursued'
1.8,ild: The o!Iecti&e here is to increase market share, e&en "orgoing short-term earnings
to achie&e this o!Iecti&e i" necessary# -uilding is a%%ro%riate "or 9uestion marks hose market
shares must gro i" they are to !ecome stars#
2. =old: The o!Iecti&e in a hold strategy is to %reser&e market share, an a%%ro%riate strategy
"or strong cash cos i" they are to continue yielding a large %ositi&e cash "lo#
3.=arvest: The o!Iecti&e here is to increase short-term cash "lo regardless o" long-term
e""ect# Har&esting in&ol&es a decision to ithdra "rom a !usiness !y im%lementing a %rogram o"
continuous cost retrenchment# The ho%e is to reduce costs "aster than any %otential dro% in sales, thus
!oosting cash "lo# This strategy is a%%ro%riate "or eak cash cos hose "uture is dim and "rom
hich more cash "lo is needed# Har&esting can also !e used ith 9uestion marks and dogs#
!. 1ivest' The o!Iecti&e is to sell or li9uidate the !usiness !ecause the resources can !e !etter used
elsehere# This is a%%ro%riate "or dogs and 9uestion marks that are dragging don com%any %ro"its#
;uccess"ul ;-Bs mo&e through a li"e cycle, starting as 9uestion marks and !ecoming stars, then cash
cos, and "inally dogs# (i&en this li"e-cycle mo&ement, com%anies should !e aare not only o" their
;-Bs$ current %ositions in the groth-share matri5 Fas in a sna%shotG, !ut also o" their mo&ing
%ositions Fas in a motion %ictureG# 6" an ;-B$s e5%ected "uture traIectory is not satis"actory, the
cor%oration ill need to ork out a ne strategy to im%ro&e the likely traIectory#
***THE GENERAL ELECTRC !O"EL #GE !ATR$% &
An ;-B$s a%%ro%riate o!Iecti&e cannot !e determined solely !y its %osition in the groth-share
matri5# 6" additional "actors are considered, the groth-share matri5 can !e seen as a s%ecial case o" a
multi"actor %ort"olio matri5 that (eneral Electric F(EG %ioneered# 6n this model, each !usiness is
rated in terms o" to maIor dimensions market attracti&eness and !usiness strength# These to
"actors make e5cellent marketing sense "or rating a !usiness# Com%anies are success"ul to the e5tent
that they enter attracti&e markets and %ossess the re9uired !usiness strengths to succeed in those
markets# 6" one o" these "actors is missing, the !usiness ill not %roduce outstanding results# Keither
a strong com%any o%erating in an unattracti&e market nor a eak com%any o%erating in an attracti&e
market ill do ell#
STR"NG ME%I=M 'EAK
PR0TECT P0;6T60K
1#6n&est to gro at
)#ma5imum digesti!le rate
+#Concentrate e""ort on
maintaining strength
6KLE;T T0 -B6H8
Challenge "or leadershi%
-uild selecti&ely on
strengths
Rein"orce &ulnera!le areas
-B6H8 ;EHECT6LEHP
1#;%eciali*e around limited strengths
)#;eek ays to o&ercome eaknesses
+#3ithdra i" indications o" sustaina!le
groth are lacking#
-B6H8 ;EHECT6LEHP
6n&est hea&ily in most
attracti&e segments -uild u%
a!ility to counter
com%etition Em%hasi*e
%ro"ita!ility !y raising
%roducti&ity
;EHECT6L6TPU/AKA(E
?0R EARK6K(;
Protect e5isting %rogram
Concentrate in&estments in
segments here %ro"ita!ility
is good and risks are relati&ely
lo
H6/6TE8 ETPAK;60K 0R
HARLE;T
Hook "or ays to e5%and ithout high
risk;otherise, minimi*e in&estment
and rationali*e o%erations
PR0TECT AK8 RE?0CB;
1#/anage "or current
earnings
)#Concentrate on attracti&e
segments
+#8e"end strengths
/AKA(E ?0R EARK6K(;
Protect %osition in most
%ro"ita!le segments
B%grade %roduct line
/inimi*e in&estment
86LE;T
;ell at time that ill
ma5imi*e cash &alue
Cut "i5ed costs and a&oid
in&estment meanhile
-B;6KE;; ;TREK(TH-----------------------------------------------------------------------------------
Bsing these to dimensions, the (E matri5 is di&ided into nine cells, as shon in ?igure#
1#The three cells in the u%%er-le"t corner indicate strong ;-Bs suita!le "or in&estment or groth#
)#The diagonal cells stretching "rom the loer le"t to the u%%er right indicate ;-Bs o" medium
attracti&eness; these should !e %ursued selecti&ely and managed "or earnings#
+#The three cells in the loer-right corner indicate ;-Bs lo in o&erall attracti&eness, hich the
com%any may ant to har&est or di&est#
6n addition to identi"ying each ;-B$s current %osition on the matri5, management should also
"orecast its e5%ected %osition o&er the ne5t + to C years# /aking this determination in&ol&es
analy*ing %roduct li"e cycle, e5%ected com%etitor strategies,
Criti@ue o* #ort*olio Moels
-oth the -C( and (E %ort"olio models ha&e a num!er o" !ene"its# They can hel%
managers think more strategically, !etter understand the economics o" their ;-Bs,
im%ro&e the 9uality o" their %lans, im%ro&e communication !eteen ;-B and cor%orate
management, identi"y im%ortant issues, eliminate eaker ;-Bs, and strengthen
their in&estment in more %romising ;-Bs#
>><=SINESS STRATEGIC #/ANNING
-elo the cor%orate le&el, the strategic-%lanning %rocess "or each !usiness or ;-B
consists o" the eight steps shon in ?igure 3e e5amine each ste% in the sections
that "ollo#
Step-21 <usiness Mission
Each !usiness unit needs to de"ine its s%eci"ic mission ithin the !roader com%any mission# Thus, a
tele&ision studio-lighting-e9ui%ment com%any might de"ine its mission as 1The com%any aims to
target maIor tele&ision studios and !ecome their &endor o" choice "or lighting technologies that
re%resent the most ad&anced and relia!le studio lighting arrangements#2
Step-31S'"T Analysis
The o&erall e&aluation o" a !usiness$s strengths, eaknesses, o%%ortunities, and threats
is called ;30T analysis# ;30T analysis consists o" an analysis o" the e5ternal and
internal en&ironments#
Step-41E?TERNA/ EN;IR"NMENT ANA/ASIS
6n general, a !usiness unit has to monitor key macroen&ironment "orces Fdemogra%hiceconomic,
technological, %olitical-legal, and social-culturalG and microen&ironment actors Fcustomers,
com%etitors, distri!utors, and su%%liersG that a""ect its a!ility to earn %ro"its Fsee Cha%ter > "or more
detailG# Then, "or each trend or de&elo%ment, management needs to identi"y the associated marketing
o%%ortunities and threats#
;30T analysis 6m%lementation
Step-,1INTERNA/ EN;IR"NMENT ANA/ASIS
6t is one thing to discern attracti&e o%%ortunities and another to ha&e the com%etencies to succeed in
these o%%ortunities# Thus, each !usiness needs to %eriodically e&aluate its internal strengths and
eaknesses in marketing, "inancial, manu"acturing, and organi*ational com%etencies# Clearly, the
!usiness does not ha&e to correct all o" its eaknesses, nor should it gloat a!out all o" its strengths#
The !ig 9uestion is hether the !usiness should limit itsel" to those o%%ortunities in hich it
%ossesses the re9uired strengths or consider !etter o%%ortunities to ac9uire or de&elo% certain
strengths#
Step-91G"A/ F"RM=/ATI"N
0nce the com%any has %er"ormed a ;30T analysis o" the internal and e5ternal en&ironments,
it can %roceed to de&elo% s%eci"ic goals "or the %lanning %eriod in a %rocess called goal "ormulation#
Managers ,se t+e term goals to descri-e o-:ectives that are s%eci"ic ith res%ect to magnitude and
time# Turning o!Iecti&es into measura!le goals "acilitates management %lanning, im%lementation,
and control#
To !e e""ecti&e, goals must %ossess'
F1G !e arranged hierarchically to guide the !usinesses in mo&ing "rom !road to s%eci"ic o!Iecti&es
"or de%artments and indi&iduals;
F)G !e stated 9uantitati&ely hene&er %ossi!le;
F+G !e realistic;
F>G !e consistent#
Step-:1STRATEGA F"RM=/ATI"N
(oals indicate hat a !usiness unit ants to achie&e; strategy descri-es t+e game plan for ac+ieving
t+ose goals# E&ery !usiness strategy consists o" a marketing strategy %lus a com%ati!le technology
strategy and sourcing strategy# Although many ty%es o" marketing strategies are a&aila!le, /ichael
Porter has condensed them into three generic ty%es that %ro&ide a good starting %oint "or strategic
thinking' o&erall cost leadershi%, di""erentiation, or "ocus#
#
Step-B1";ERA// C"ST /EA%ERS!I#' Here the !usiness orks to achie&e the loest
%roduction and distri!ution costs so that it can %rice loer than com%etitors and in more market
share# ?irms %ursuing this strategy must !e good at engineering, %urchasing, manu"acturing, and
%hysical distri!ution; they need less skill in marketing#
Step-C1%IFFERENTIATI"N1 Here the !usiness concentrates on achie&ing su%erior %er"ormance in
an im%ortant customer !ene"it area, such as !eing the leader in ser&ice, 9uality, style, or technology
,!ut not leading in all o" these things# 6ntel, "or instance, di""erentiates itsel" through leadershi% in
technology, coming out ith ne micro%rocessors at !reakneck s%eed#
#
F"C=S' Here the !usiness "ocuses on one or more narro market segments, getting to kno these
segments intimately and %ursuing either cost leadershi% or di""erentiation ithin the target segment#
K67E shoes, "or instance, came to "ame !y "ocusing on the &ery narro e5treme-s%orts segment#
>>>#R"%=CT MARKET GR"'T! MATRI?1>>>>
Present %roduct Ke %roduct
T!E MARKETING #R"CESS
Planning at the cor%orate, di&ision, and !usiness le&els is an integral %art o" %lanning "or the
marketing %rocess# To understand that %rocess "ully, e must "irst look at ho a com%any de"ines its
!usiness# The task o" any !usiness is to deli&er &alue to the market at a %ro"it# There are at least to
&ies o" the &alue-deli&ery %rocess# The traditional &ie is that the "irm makes something and then
sells it in this &ie, marketing takes %lace in the second hal" o" the &alue-deli&ery %rocess# The
traditional &ie assumes that the com%any knos hat to make and that the market ill !uy enough
units to %roduce %ro"its "or the com%any#
Com%anies that su!scri!e to this traditional &ie ha&e the !est chance o" succeeding in economies
marked !y goods shortages in hich consumers are not "ussy a!out 9uality, "eatures, or style# -ut the
traditional &ie o" the !usiness %rocess ill not ork in more com%etiti&e economies in hich
%eo%le "ace a!undant choices# The 1mass market2 is actually s%lintering into numerous
micromarkets, each ith its on ants, %erce%tions, %re"erences, and !uying criteria# The smart
com%etitor there"ore must design the o""er "or ell-de"ined target markets#
STE#S IN T!E MARKETING #R"CESS
The marketing %rocess consists o" analy*ing market o%%ortunities, researching and selecting target
markets, designing marketing strategies, %lanning marketing %rograms, and organi*ing,
im%lementing, and controlling the marketing e""ort# The "our ste%s in the marketing %rocess are'
26ANA/ADING MARKET "##"RT=NITIES6 The marketer$s initial task is to identi"y %otential
long-run o%%ortunities gi&en the com%any$s market e5%erience and core com%etencies#
To e&aluate its &arious o%%ortunities, assess !uyer ants and needs, and gauge market si*e, the "irm
needs a marketing research and in"ormation system# Ke5t, the "irm studies consumer markets or
!usiness markets to "ind out a!out !uying !eha&ior, %erce%tions, ants, and needs#
36 %E;E/"#ING MARKETING STRATEGIES# 6n this ste%, the marketer %re%ares a %ositioning
strategy "or each ne and e5isting %roduct$s %rogress through the li"e cycle, makes decisions a!out
%roduct lines and !randing, and designs and markets its ser&ices#
46#/ANNING MARKETING #R"GRAMS6 To trans"orm marketing strategy into marketing
%rograms, marketing managers must make !asic decisions on marketing e5%enditures, marketing
mi5, and marketing allocation# The "irst decision is a!out the le&el o" marketing e5%enditures needed
to achie&e the "irm$s marketing o!Iecti&es# The second decision is ho to di&ide the total marketing
!udget among the &arious tools in the marketing mi5' %roduct, %rice, %lace, and %romotion#And the
third decision is ho to allocate the marketing !udget to the &arious %roducts, channels, %romotion
media, and sales areas#
,6 MANAGING T!E MARKETING EFF"RT# 6n this ste% Fdiscussed later in this cha%terG,
marketers organi*e the "irm$s marketing resources to im%lement and control the marketing
%lan# -ecause o" sur%rises and disa%%ointments as marketing %lans are im%lemented,
the com%any also needs "eed!ack and control#

T!E NAT=RE AN% C"NTENTS "F A MARKETING #/AN
The marketing %lan created "or each %roduct line or !rand is one o" the most im%ortant
out%uts o" %lanning "or the marketing %rocess# A ty%ical marketing %lan has eight sections'
1.xec,tive s,mmary and ta-le of contents: This !rie" summary outlines the %lan$s main
goals and recommendations; it is "olloed !y a ta!le o" contents#
2.7,rrent marketing sit,ation: This section %resents rele&ant !ackground data on sales,
costs, %ro"its, the market, com%etitors, distri!ution, and the macroen&ironment,
dran "rom a "act !ook maintained !y the %roduct manager#
3.&pport,nity and iss,e analysis: This section identi"ies the maIor o%%ortunities and
threats, strengths and eaknesses, and issues "acing the %roduct line or !rand#
!.&-:ectives: This section s%ells out the "inancial and marketing o!Iecti&es to !e achie&ed#
".Marketing strategy: This section e5%lains the !road marketing strategy that ill !e
im%lemented to accom%lish the %lan$s o!Iecti&es#
$.2ction programs: This section outlines the !road marketing %rograms "or achie&ing the !usiness
o!Iecti&es# Each marketing strategy element must !e ela!orated to anser these 9uestions' 3hat
ill !e done. 3hen ill it !e done. 3ho ill do it. Ho much ill it cost.
%.#ro:ected profit6and6loss statement: Action %lans allo the %roduct manager to !uild a
su%%orting !udget ith "orecasted sales &olume Funits and a&erage %riceG, costs F%roduction,
%hysical distri!ution, and marketingG, and %roIected %ro"it# 0nce a%%ro&ed, the !udget is the !asis
"or de&elo%ing %lans and schedules "or material %rocurement, %roduction scheduling, em%loyee
recruitment, and marketing o%erations#
#
'.7ontrols: This last section outlines the controls "or monitoring the %lan# Ty%ically, the goals and
!udget are s%elled out "or each month or 9uarter so senior management can re&ie the results each
%eriod# ;ometimes contingency %lans "or handling s%eci"ic ad&erse de&elo%ments are included#
Ko to com%anies handle marketing %lanning and marketing %lan content e5actly
the same ay# /ost marketing %lans co&er one year and &ary in length; some "irms take
their %lans &ery seriously, hile others use them as only a rough guide to action# The most
"re9uently cited shortcomings o" marketing %lans, according to marketing e5ecuti&es, are
lack o" realism, insu""icient com%etiti&e analysis, and a short-run "ocus#
C!A#TER 4
I%ENTIFAING MARKET SEGMENTS AN%
SE/ECTING TARGET MARKETS
SECTI"N -2 SEGMENTATI"N =SING MARKET SEGMENTATI"N
#rocess of dividing t+e total market for a good or service into several smaller, internally
+omogeneo,s gro,ps.
Mem-ers of eac+ gro,p are similar 0it+ respect to t+e factors t+at infl,ence demand.
There"ore, to stay "ocused rather than scattering their marketing resources, more marketers are using
market segmentation# 6n this a%%roach, hich "alls miday !eteen mass marketing and indi&idual
marketing, each segment$s !uyers are assumed to !e 9uite similar in ants and needs, yet no to
!uyers are really alike# To use this techni9ue, a com%any must understand !oth the le&els and the
%atterns o" market segmentation#
/e5els o* Market Segmentation
3e ha&e "our le&els o" segments
1# ;egments
)# Kiches
+# Hocal areas
># 6ndi&iduals#
Segment Marketing
A market segment consists o" a large identi"ia!le grou% ithin a market, ith similar ants,
%urchasing %oer, geogra%hical location, !uying attitudes, or !uying ha!its# ?or e5am%le, an
automaker may identi"y "our !road segments in the car market' !uyers ho are %rimarily seeking F1G
!asic trans%ortation, F)G high %er"ormance, F+G lu5ury, or F>G sa"ety#
-ecause the needs, %re"erences, and !eha&ior o" segment mem!ers are similar !ut not identical,
Anderson and Karus urge marketers to %resent "le5i!le market o""erings instead o" one standard
o""ering to all mem!ers o" a segment# A "le5i!le market o""ering consists o" the %roduct and ser&ice
elements that all segment mem!ers &alue, %lus o%tions F"or an additional chargeG that some segment
mem!ers &alue# ?or e5am%le, 8elta Airlines o""ers all economy %assengers a seat, "ood, and so"t
drinks, !ut it charges e5tra "or alcoholic !e&erages and ear%hones#
;egment marketing allos a "irm to create a more "ine-tuned %roduct or ser&ice o""ering and %rice it
a%%ro%riately "or the target audience# The choice o" distri!ution channels and communications
channels !ecomes much easier, and the "irm may "ind it "aces "eer com%etitors in certain segments#
Ni$he Marketing
A niche is a more narroly de"ined grou%, Ftypically a small market 0+ose needs are not -eing 0ell
servedG# /arketers usually identi"y niches !y di&iding a segment into su!segments or !y de"ining a
grou% seeking a distincti&e mi5 o" !ene"its# ?or e5am%le, a to!acco com%any might identi"y to
su!segments o" hea&y smokers' those ho are trying to sto% smoking, and those ho don$t care#
6n an attracti&e niche, customers ha&e a distinct set o" needs; they ill %ay a %remium to the "irm that
!est satis"ies their needs; t+e nic+e is not likely to attract ot+er competitors5 t+e nic+er gains certain
economies t+ro,g+ specialization; and the niche has si*e, %ro"it, and groth %otential# 3hereas
segments are "airly large and normally attract se&eral com%etitors, niches are "airly small and may
attract only one or to ri&als# ;till, giants such as 6-/ can and do lose %ieces o" their market to
nichers' 8algic la!eled this con"rontation 1guerrillas against gorillas#2
Ko the lo cost o" marketing on the 6nternet is making it more %ro"ita!le "or "irms,including
small !usinesses,to ser&e e&en seemingly minuscule niches# 6n "act, 1C %ercent o" all commercial
3e! sites ith "eer than 1@ em%loyees take in more than A1@@,@@@, and ) %ercent ring u% more
than A1 million# The reci%e "or 6nternet niching success'
/o$al Marketing
Target marketing is leading to some marketing %rograms that are tailored to the needs and ants o"
local customer grou%s Ftrading areas, neigh!orhoods, e&en indi&idual storesG# Citi!ank, "or instance,
adIusts its !anking ser&ices in each !ranch de%ending on neigh!orhood demogra%hics; 7ra"t hel%s
su%ermarket chains identi"y the cheese assortment and shel" %ositioning that ill o%timi*e cheese
sales in lo-, middle-, and high-income stores and in di""erent ethnic neigh!orhoods#
Those "a&oring local marketing see national ad&ertising as aste"ul !ecause it "ails to address local
needs# 0n the other hand, o%%onents argue that local marketing dri&es u% manu"acturing and
marketing costs !y reducing economies o" scale# /oreo&er, logistical %ro!lems !ecome magni"ied
hen com%anies try to meet &arying local re9uirements, and a !rand$s o&erall image might !e diluted
i" the %roduct and message di""er in di""erent localities#
Ini5iual Marketing
The ultimate le&el o" segmentation leads to 1segments o" one,2 1customi*ed marketing,2 or 1one-to-
one marketing#2?or centuries, consumers ere ser&ed as indi&iduals' The tailor made the suit and the
co!!ler designed shoes "or the indi&idual# /uch !usinessto-!usiness marketing today is customi*ed,
in that a manu"acturer ill customi*e the o""er, logistics, communications, and "inancial terms "or
each maIor account#
#atterns o* Market Segmentation
/arket segments can !e !uilt u% in many ays# 0ne common method is to identi"y %re"erence
segments# ;u%%ose ice cream !uyers are asked ho much they &alue seetness and creaminess as
to %roduct attri!utes# >+ree different patterns can emerge'

A6!omogeneous pre*eren$es1 /arket in hich all o" the consumers ha&e roughly the same
%re"erence, so there are no natural segments# 3e %redict that e5isting !rands ould !e similar and
cluster around the middle o" the scale in !oth seetness and creaminess#
#
<6%i**use pre*eren$es1 At the other e5treme, consumer %re"erences may !e scattered throughout
the s%ace indicating great &ariance in consumer %re"erences# 0ne !rand might %osition in the center
to a%%eal to the most %eo%le; i" se&eral !rands are in the market, they are likely to %osition
throughout the s%ace and sho real di""erences to re"lect consumer-%re"erence di""erences#
#
C6Clustere pre*eren$es1 The market might re&eal distinct %re"erence clusters, called natural
market segments # The "irst "irm in this market might %osition in the center to a%%eal to all grou%s,
choose the largest market segment Fconcentrated marketingG, or de&elo% se&eral !rands "or di""erent
segments# 6" the "irst "irm has only one !rand, com%etitors ould enter and introduce !rands in the
other segments#
Figure -asic /arket-Pre"erence Patterns
Market-Segmentation #ro$eure
/arketers use a t+ree6step proced,re for identifying market segments'
26Sur5ey stage6 The researcher conducts e5%loratory inter&ies and "ocus grou%s to gain insight into
customer moti&ations, attitudes, and !eha&ior# Then the researcher %re%ares a 9uestionnaire and
collects data on attri!utes and their im%ortance ratings, !rand aareness and !rand ratings, %roduct-
usage %atterns, attitudes toard the %roduct category, and res%ondents$ demogra%hics, geogra%hics,
%sychogra%hics, and mediagra%hics#
36 Analysis stage6 The researcher a%%lies "actor analysis to the data to remo&e highly correlated
&aria!les, then a%%lies cluster analysis to create a s%eci"ied num!er o" ma5imally di""erent segments#
46 #ro*iling stage6 Each cluster is %ro"iled in terms o" its distinguishing attitudes, !eha&ior,
demogra%hics, %sychogra%hics, and media %atterns, then each segment is gi&en a name !ased on its
dominant characteristic# 6n a study o" the leisure market,
Andreasen and -elk "ound si5 segments'1@ %assi&e home!ody, acti&e s%orts enthusiast, inner-
directed sel"-su""icient, culture %atron, acti&e home!ody, and socially acti&e# They "ound that
%er"orming arts organi*ations could sell the most tickets !y targeting culture %atrons as ell as
socially acti&e %eo%le#
ET' Com%anies can unco&er ne segments !y researching the hierarchy o" attri!utes that customers
consider hen choosing a !rand# ?or instance, car !uyers ho "irst decide on %rice are %rice
dominant; those ho "irst decide on car ty%e Fe#g#, %assenger, s%ort-utilityG are ty%e dominant; those
ho "irst decide on !rand are !rand dominant# 3ith these segments, customers may ha&e distinct
demogra%hics, %sychogra%hics, and mediagra%hics to !e analy*ed and addressed through marketing
%rograms#
>>SEGMENTING C"NS=MER AN% <=SINESS MARKETS
-ecause o" the inherent di""erences !eteen consumer and !usiness markets, marketers cannot use
e5actly the same &aria!les to segment !oth# 6nstead, they use one !road grou% o" &aria!les as the
!asis "or consumer segmentation and another !road grou% "or !usiness segmentation#
<ases *or Segmenting Consumer Markets
6n segmenting consumer markets, marketers can a%%ly geograp+ic, demograp+ic, psyc+ograp+ic
and -e+avio,ral &aria!les related to consumer characteristics as ell as !eha&ioral &aria!les related
to consumer res%onses Fsee Ta!le +#CG# 0nce the segments are "ormed, the marketer sees hether
di""erent characteristics are associated ith each consumer-res%onse segment#
A1 Geographi$ Segmentation +region, climate, %o%ulation densityG
(eogra%hic segmentation calls "or di&iding the market into di""erent geogra%hical units such as
nations, states, regions, counties, cities, or neigh!orhoods# The com%any can o%erate in one or a "e
geogra%hic areas or o%erate in all !ut %ay attention to local &ariations# ;ome marketers e&en segment
don to a s%eci"ic *i% code# Consider a !ig retail house ha&ing large no o" retail outlets di&ide on the
(eogra%hic segmentation !asis and kee% their stock as %er di""erent regions according to their
regional %re"erences and !elie&es#
ET' A automo!ile com%any ha&ing good !usiness in 6ndia, ile ser&ing in 6ndia it only has to take
care o" the local norms o" di""erent conditions, hen it goes international means ser&ing to another
market segment (eogra%hically a%art "rom the other then the co# has to take care o" V
<1 %emographi$ Segmentation +age, se5, education, occu%ation, religion, race, nationality, "amily si*e, "amily li"estyle-
6n demogra%hic segmentation, the market is di&ided into grou%s on the !asis o" age and t+e ot+er
varia-les# 0ne reason this is the most %o%ular consumer segmentation method is that consumer
ants, %re"erences, and usage rates are o"ten associated ith demogra%hic &aria!les# Another reason
is that demogra%hic &aria!les are easier to measure# E&en hen the target market is descri!ed in
nondemogra%hic terms Fsay, a %ersonality ty%eG, the link !ack to demogra%hic characteristics is
needed in order to estimate the si*e o" the target market and the media that should !e used to reach it
e""iciently#
Here is ho certain demograp+ic varia-les ha&e !een used to segment consumer markets'
Age an li*e-$y$le stage6 Consumer ants and a!ilities change ith age, as Horlicks
introduced many health drinks "or di""erent age grou% starting "rom + yrs to old age ones#
#
Gener6 (ender segmentation has long !een a%%lied in clothing, hairstyling, cosmetics, and
maga*ines# 0ccasionally other marketers notice an o%%ortunity "or gender segmentation# 3e
ha&e se&eral maga*ines s%eciali*ed "or ladies and gents# 3e also ha&e se&eral cosmetics
%roducts di""erentiated on (ender !asis like E/A/6$s cream "or men, KEL6A "or men and
many more "or "emale#
In$ome6 6ncome segmentation is a long-standing %ractice in such categories as automo!iles,
!oats, clothing, cosmetics, and tra&el# Hoe&er, income does not alays %redict the !est
customers "or a gi&en %roduct# The most economical cars are not !ought !y the really %oor,
!ut rather !y those ho think o" themsel&es as %oor relati&e to their status as%irations;
medium-%rice and e5%ensi&e cars tend to !e %urchased !y the o&er%ri&ileged segments o"
each social class#
#
Generation6 Each generation is %ro"oundly in"luenced !y the times in hich it gros
u%,the music, mo&ies, %olitics, and e&ents o" that %eriod# ;ome marketers target (eneration
Ters Fthose !orn !eteen 1<J> and 1<=>G, hile others target -a!y
-oomers Fthose !orn !eteen 1<>J and 1<J>G#
#
So$ial $lass6 ;ocial class strongly in"luences %re"erence in cars, clothing, home
"urnishings, leisure acti&ities, reading ha!its, and retailers, hich is hy many "irms
design %roducts "or s%eci"ic social classes# Hoe&er, the tastes o" social classes can
change o&er time# The 1<=@s ere a!out greed and ostentation "or the u%%er
classes, !ut the 1<<@s ere more a!out &alues and sel"-"ul"illment# A""luent tastes
no run toard more utilitarian rather than ostentatious %roducts#1D
Psychogra%hic ;egmentation

/i*estyle6 Peo%le e5hi!it many more li"estyles than are suggested !y the se&en social
classes, and the goods they consume e5%ress their li"estyles# /eat seems an unlikely
%roduct "or li"estyle segmentation, !ut one 7roger su%ermarket in Kash&ille "ound
that segmenting sel"-ser&ice meat %roducts !y li"estyle, not !y ty%e o" meat, had a !ig
%ayo""# This store grou%ed meats !y li"estyle, creating such sections as 1/eals in
/inutes2 and 17ids Ho&e This ;tu""2 Fhot dogs, ham!urger %atties, and the likeG# -y
"ocusing on li"estyle needs, not %rotein categories, 7roger$s encouraged ha!itual
!ee" and %ork !uyers to consider lam! and &eal as ell,!oosting sales and
%ro"its#1= -ut li"estyle segmentation does not alays ork' KestlW introduced a
s%ecial !rand o" deca""einated co""ee "or 1late nighters,2 and it "ailed, %resuma!ly
!ecause %eo%le sa no need "or such a s%eciali*ed %roduct#
#
C1 <E!A;I"RA/ SEGMENTATI"N +attitude, knoledge, !ene"its, user status, usage rate, loyalty status, readiness
to !uy, occasions-
6n !eha&ioral segmentation, !uyers are di&ided into grou%s on the !asis o" their knoledge
o", attitude toard, use o", or res%onse to a %roduct# /any marketers !elie&e that !eha&ioral
&aria!les,occasions, !ene"its, user status, usage rate, loyalty status, !uyer-readiness
stage, and attitude,are the !est starting %oints "or constructing market segments#
&ccasions# -uyers can !e distinguished according to the occasions on hich they
de&elo% a need, %urchase a %roduct, or use a %roduct# ?or e5am%le, air tra&el is
triggered !y occasions related to !usiness, &acation, or "amily, so an airline can
s%eciali*e in one o" these occasions# Thus, charter airlines ser&e grou%s o" %eo%le
ho "ly to a &acation destination# 0ccasion segmentation can hel% "irms e5%and
%roduct usage, as the Curtis Candy Com%any did hen it %romoted trick-or-treating
at Halloeen and urged consumers to !uy candy "or the eager little callers#
#
8enefits. -uyers can !e classi"ied according to the !ene"its they seek# 0ne study o"
tra&elers unco&ered three !ene"it segments' those ho tra&el to !e ith "amily, those
ho tra&el "or ad&enture or education, and those ho enIoy the 1gam!ling2 and
1"un2 as%ects o" tra&el#)1
#
?ser stat,s. /arkets can !e segmented into nonusers, e5-users, %otential users, "irst-
time users, and regular users o" a %roduct# The com%any$s market %osition also
in"luences its "ocus# /arket leaders Fsuch as America 0nlineG "ocus on attracting
%otential users, hereas smaller "irms Fsuch as Earthlink, a "ast-groing 6nternet
ser&ice %ro&iderG try to lure users aay "rom the leader#
#
?sage rate. /arkets can !e segmented into light, medium, and hea&y %roduct users#
Hea&y users are o"ten a small %ercentage o" the market !ut account "or a high
%ercentage o" total consum%tion# ET' CE;C HT8 do the same !y charging di""erent unit
charges according to their use#
Attitude# ?i&e attitude grou%s can !e "ound in a market' F1G enthusiastic, F)G %ositi&e,
F+G indi""erent, F>G negati&e, and FCG hostile# ;o, "or e5am%le, orkers in a %olitical
cam%aign use the &oter$s attitude to determine ho much time to s%end ith that
&oter# They may thank enthusiastic &oters and remind them to &ote, rein"orce those
ho are %ositi&ely dis%osed, try to in the &otes o" indi""erent &oters, and s%end no
time trying to change the attitudes o" negati&e and hostile &oters#
"'Psyc(ogra)(ic Seg*entation& Here !uyers are di&ided into di""erent grou%s on the !asis o" li"estyle or
%ersonality or &alue# The term Psychogra%hics descri!es a ide &ariety o" %sychological and !eha&ioural
%atterns o" an indi&idual U market# Lalues are a re"lection o" our needs adIusted "or the realities o" the orld in
hich e li&e# There are nine !asic &alues Faccording to a research at the Bni&ersity o" /ichiganG'
;el" Res%ect
;el" ?ul"illment
;ecurity
;ense o" !elonging
E5citement
;ense o" Accom%lishment
?un 4 EnIoyment in Hi"e
-eing ell res%ected
Ha&ing arm relationshi%s#
/ulti-Attri!ute ;egmentation F(eo clusteringG
/arketers are increasingly com!ining se&eral &aria!les in an e""ort to identi"y smaller,
!etter de"ined target grou%s# Thus, a !ank may not only identi"y a grou% o" ealthy
retired adults, !ut ithin that grou% may distinguish se&eral segments de%ending on
current income, assets, sa&ings, and risk %re"erences#
<ases *or Segmenting <usiness Markets
-usiness markets can !e segmented ith some &aria!les that are em%loyed in consumer market
segmentation, such as geogra%hy, !ene"its sought, and usage rate# Pet !usiness marketers can also
use se&eral other &aria!les# -onoma and ;ha%iro %ro%osed segmenting the !usiness market ith the
&aria!les shon in Ta!le +#J# The demogra%hic &aria!les are the most im%ortant, "olloed !y the
o%erating &aria!les don to the %ersonal characteristics o" the !uyer#
XXXTa!le +#J /aIor ;egmentation Laria!les "or -usiness /arkets %emographi$
1# 6ndustry' 3hich industries should e ser&e.
)# Com%any si*e' 3hat si*e com%anies should e ser&e.
+# Hocation' 3hat geogra%hical areas should e ser&e.
O)erating Variables
># Technology' 3hat customer technologies should e "ocus on.
C# Bser or nonuser status' ;hould e ser&e hea&y users, medium users, light users, or
nonusers.
J# Customer ca%a!ilities' ;hould e ser&e customers needing many or "eer ser&ices.
Purchasing A%%roaches
D# Purchasing-"unction organi*ation' ;hould e ser&e com%anies ith highly centrali*ed or
decentrali*ed %urchasing organi*ations.
=# Poer structure' ;hould e ser&e com%anies that are engineering dominated, "inancially
dominated, and so on.
<# Kature o" e5isting relationshi%s' ;hould e ser&e com%anies ith hich e ha&e strong
relationshi%s or sim%ly go a"ter the most desira!le com%anies.
1@#(eneral %urchase %olicies' ;hould e ser&e com%anies that %re"er leasing. ;er&ice
contracts. ;ystems %urchases. ;ealed !idding.
11# Purchasing criteria' ;hould e ser&e com%anies that are seeking 9uality. ;er&ice. Price.
;ituational ?actors
1)# Brgency' ;hould e ser&e com%anies that need 9uick and sudden deli&ery or ser&ice.
1+#;%eci"ic a%%lication' ;hould e "ocus on certain a%%lications o" our %roduct rather
than all a%%lications.
1># ;i*e o" order' ;hould e "ocus on large or small orders.
1C# -uyerEseller similarity' ;hould e ser&e com%anies hose %eo%le and &alues are
similar to ours.
1J# Attitudes toard risk' ;hould e ser&e risk-taking or risk-a&oiding customers.
1D# Hoyalty' ;hould e ser&e com%anies that sho high loyalty to their su%%liers.
1. #rogrammed -,yers' -uyers ho see the %roduct as not &ery im%ortant to their o%eration# This is a
&ery %ro"ita!le segment' The !uyers &ie the %roduct as a routine %urchase item, usually %aying "ull
%rice and recei&ing !elo-a&erage ser&ice#
2. @elations+ip -,yers: -uyers ho regard the %roduct as moderately im%ortant and are
knoledgea!le a!out com%etiti&e o""erings# They get a small discount and a modest amount o"
ser&ice and %re"er the &endor as long as the %rice is not "ar out o" line# This is the second most
%ro"ita!le segment#
3. >ransaction -,yers: -uyers ho see the %roduct as &ery im%ortant to their o%erations#They are
%rice and ser&ice sensiti&e and recei&e some discounts, !ut they kno the com%etition and ill
sitch "or a !etter %rice, e&en at the sacri"ice o" some ser&ice#
!. 8argain +,nters: -uyers ho see the %roduct as &ery im%ortant and demand lo %rices and to%
ser&ice# They kno the alternati&e su%%liers, !argain hard, and are ready to sitch i" dissatis"ied# The
com%any needs these !uyers "or &olume %ur%oses, !ut they are not &ery %ro"ita!le#
E**e$ti5e Segmentation
E&en a"ter a%%lying segmentation &aria!les to a consumer or !usiness market, marketers must reali*e
that not all segmentations are use"ul# ?or e5am%le, ta!le salt !uyers could !e di&ided into !lond and
!runette customers, !ut hair color is not rele&ant to the %urchase o" salt# ?urthermore, i" all salt
!uyers !uy the same amount o" salt each month, !elie&e all salt is the same, and ould %ay only one
%rice "or salt, this market ould !e minimally segmenta!le "rom a marketing %ers%ecti&e#
>o -e ,sef,l, market segments m,st -e:
/easura!le' The si*e, %urchasing %oer, and characteristics o" the segments can !e measured#
;u!stantial' The segments are large and %ro"ita!le enough to ser&e# A segment should !e the largest
%ossi!le homogeneous grou% orth going a"ter ith a tailored marketing %rogram#
Accessi!le' The segments can !e e""ecti&ely reached and ser&ed#
8i""erentia!le' The segments are conce%tually distinguisha!le and res%ond di""erently
to di""erent marketing mi5es# 6" to segments res%ond identically to a %articular
o""er, they do not constitute se%arate segments#
To sum up Segmentation1----
#rocess of Market Segmentation
6denti"y ants ithin a market EF 6denti"y characteristics EF 8etermine si*e and satis"action

Market Segmentation 7onditions
1# /easura!le and 0!taina!le 8ata
)# ;egment is Accessi!le
+# Harge enough to !e Pro"ita!le
># /6CR0/AR7ET6K( Treat each single customer as a se%arate segment
Market Segmentation 6 9irst 7,t
1# Customer$s reason "or !uying
)# C0K;B/ER' Purchase "or %ersonal use
+# -B;6KE;;' Purchase to use in organi*ations, to resell, or to make other %roducts
Segmentation o* %etergent market in Inia
1#Premium
Ariel- Bltramatic 4 ;%ring clean ;ur" -Automatic 4 Ouick ash,
)#/id E %riced
;ur" E5cel -lue, Tide, ;tain Cham%ion
+#/ass /arket
3heel , ?ena, Kirma,(hadi etc#
------------------------------------------------------------------------------------------------------------------------
SECTI"N -3
MARKET TARGETING STRATEGIES
0nce the "irm has identi"ied its market-segment o%%ortunities, it is ready to initiate market targeting#
Here, marketers e&aluate each segment to determine ho many and hich ones to target and enter#
E5aluating Market Segments
6n e&aluating di""erent market segments, the "irm must look at to "actors'
F1G the segment$s o&erall attracti&eness,
F)G the com%any$s o!Iecti&es and resources#
?irst, the "irm must ask hether a %otential segment has the characteristics that make it generally
attracti&e, such as si*e, groth, %ro"ita!ility, scale economies, and lo risk#
;econd, the "irm must consider hether in&esting in the segment makes sense gi&en the "irm$s
o!Iecti&es and resources# ;ome attracti&e segments could !e dismissed !ecause they do not mesh
ith the com%any$s long-run o!Iecti&es; some should !e dismissed i" the com%any lacks one or more
o" the com%etences needed to o""er su%erior &alue#
Sele$ting an Entering Market Segments
Ha&ing e&aluated di""erent segments, the com%any can consider "i&e %atterns o" target market
selection#
Single-Segment Con$entration
/any com%anies concentrate on a single segment' /ercede*e , "or e5am%le, concentrates on the high
end car market, hile Porsche concentrates on the s%orts car market# Through concentrated
marketing, the "irm gains a thorough understanding o" the segment$s needs and achie&es a strong
market %resence# ?urthermore, the "irm enIoys o%erating economies !y s%eciali*ing its %roduction,
distri!ution, and %romotion; i" it attains segment leadershi%, it can earn a high return on its
in&estment#
Hoe&er, concentrated marketing in&ol&es higher than normal risks i" the segment turns sour
!ecause o" changes in !uying %atterns or ne com%etition# ?or these reasons, many com%anies %re"er
to o%erate in more than one segment#
Sele$ti5e Spe$iali7ation
Here the "irm selects a num!er o" segments, each o!Iecti&ely attracti&e and a%%ro%riate# There may
!e little or no synergy among the segments, !ut each segment %romises to !e a moneymaker# This
multisegment co&erage strategy has the ad&antage o" di&ersi"ying the "irm$s risk#
Consider a radio !roadcaster that ants to a%%eal to !oth younger and older listeners using selecti&e
s%eciali*ation# Emmis Communications ons Ke Pork$s 3R7;R/, hich descri!es itsel" as
1smooth R4- [rhythm and !lues] and classic soul2 and a%%eals to older listeners, as ell as 3OHT-
?/, hich %lays hi%-ho% Fur!an street musicG "or under-)C listeners#
#rou$t Spe$iali7ation
Another a%%roach is to s%eciali*e in making a certain %roduct "or se&eral segments# An e5am%le
ould !e a microsco%e manu"acturer that sells microsco%es to uni&ersity la!oratories, go&ernment
la!oratories, and commercial la!oratories# The "irm makes di""erent microsco%es "or di""erent
customer grou%s !ut does not manu"acture other instruments that la!oratories might use# Through a
%roduct s%eciali*ation strategy, the "irm !uilds a strong re%utation in the s%eci"ic %roduct area# The
donside risk is that the %roduct may !e su%%lanted !y an entirely ne technology#
Market Spe$iali7ation
3ith market s%eciali*ation, the "irm concentrates on ser&ing many needs o" a %articular customer
grou%# An e5am%le ould !e a "irm that sells an assortment o" %roducts only to uni&ersity
la!oratories, including microsco%es, oscillosco%es, and chemical "lasks# The "irm gains a strong
re%utation in ser&ing this customer grou% and !ecomes a channel "or "urther %roducts that the
customer grou% could use# Hoe&er, the donside risk is that the customer grou% may ha&e its
!udgets cut#
Full Market Co5erage
Here a "irm attem%ts to ser&e all customer grou%s ith all o" the %roducts they might need# 0nly
&ery large "irms can undertake a "ull market co&erage strategy# E5am%les include 6-/ Fcom%uter
marketG, (eneral /otors F&ehicle marketG, and Coca-Cola Fdrink marketG# Harge "irms can co&er a
hole market in to !road ays' through undi""erentiated marketing or di""erentiated marketing#
6n ,ndifferentiated marketing, the "irm ignores market-segment di""erences and goes a"ter the hole
market ith one market o""er# ?ocusing on a !asic !uyer need, it designs a %roduct and a marketing
%rogram that ill a%%eal to the !roadest num!er o" !uyers#
6n differentiated marketing, the "irm o%erates in se&eral market segments and designs di""erent
%rograms "or each segment# /ARBT6 ;BYB76 does this ith its &arious &ehicle !rands and models;
6ntel does this ith chi%s and %rograms "or consumer, !usiness, small !usiness, netorking, digital
imaging, and &ideo markets#
MARKET TARGETING
0nce the organisation has identi"ied the o%%ortunities e5isting in di""erent market segments, it has to decide
and select on ho many and on hich a %articular segmentFsG to "ocus on, and o""er their market o""ering#
Targeting Multiple Segments an Supersegments
Lery o"ten, com%anies start out !y marketing to one segment, then e5%and to others# ?or e5am%le,
Paging Ketork 6nc#,knon as PageKet,is a small de&elo%er o" %aging systems, and as the "irst
to o""er &oice mail on %agers# To com%ete ith ;outhestern -ell and other -ell com%anies, it sets
its %rices a!out )@ %ercent !elo ri&als$ %rices# 6nitially, PageKet used geogra%hic segmentation to
identi"y attracti&e markets in 0hio and Te5as here local com%etitors ere &ulnera!le to its
aggressi&e %ricing# Ke5t, the "irm de&elo%ed a %ro"ile o" users "or %aging ser&ices so it could target
sales%eo%le, messengers, and ser&ice %eo%le# PageKet also used li"estyle segmentation to target
additional consumer grou%s, such as %arents ho lea&e their children ith a sitter# ?inally, PageKet
!egan distri!uting its %agers through 7mart, 3al-/art, and Home 8e%ot, o""ering attracti&e
discounts in return "or the right to kee% the monthly ser&ice charge re&enues on any %agers sold#
Ethi$al Choi$e o* Market Targets
/arket targeting sometimes generates %u!lic contro&ersy#The %u!lic is concerned hen marketers
take un"air ad&antage o" &ulnera!le grou%s Fsuch as childrenG or disad&antaged grou%s Fsuch as
inner-city %oor %eo%leG, or %romote %otentially harm"ul %roducts# ?or e5am%le, the cereal industry
has !een critici*ed "or marketing to children# Critics orry that high-%oered a%%eals %resented
through the mouths o" lo&a!le animated characters ill o&erhelm children$s de"enses and lead them
to eat too much sugared cereal or %oorly !alanced !reak"asts#
As another e5am%le, R# :# Reynolds as critici*ed "or %lans to market B%ton, a menthol cigarette
targeted toard lo-income A"rican Americans# Recently, internal documents "rom R# :# Reynolds
and -ron 4 3illiamson To!acco Cor%oration Fmarketer o" the 7ool !randG ha&e re&ealed the
e5tent to hich these com%anies target !lack youths aged 1J to )C, %articularly ith menthol !rands#
To sum up
Target-/arket ;trategy
Market-aggregation Strategy Gmass-marketH Guni**erentiate-marketH an
#rou$t i**erentiation Strategy
Single-Segment Strategy G$on$entration H +"ne Marketing Mi( -
Sele$ting a Target Market Guielines
Compati0le with $ompany)s goals
Mat$h market opportunity with resour$es
#ro*it that 8usti*ies in5estment
Competitors are *ew an.or weak
MARKET TARGETING
INTR"%=CTI"N1 - There as a time hen "inding the !est customers as like throing darts in
the dark# Target marketing changed all that###TodayRs sa&&y marketers kno that "inding their !est
%ros%ects and customers hinges on ell thought out targeted marketing strategies# 8e"ining a target
market re9uires market segmentation, the %rocess o" %ulling a%art the entire market as a hole and
se%arating it into managea!le, dis%arate units !ased on demogra%hics# Target market is a !usiness
term meaning the market segment to hich a %articular good or ser&ice is marketed# 6t is mainly
de"ined !y age, gender, geogra%hy, socio-economic grou%ing, or any other com!ination o"
demogra%hics# 6t is generally studied and ma%%ed !y an organi*ation through lists and re%orts
containing demogra%hic in"ormation that may ha&e an e""ect on the marketing o" key %roducts or
ser&ices#
Target Marketing in&ol&es !reaking a market into segments and then concentrating your marketing
e""orts on one or a "e key segments# Target marketing can !e the key to a small !usiness$s success#
The !eauty o" target marketing is that it makes the %romotion, %ricing and distri!ution o" your
%roducts andUor ser&ices easier and more cost-e""ecti&e# Target marketing %ro&ides a "ocus to all o"
your marketing acti&ities#
/arket targeting sim%ly means choosing one$s target market# 6t needs to !e clari"ied at the onset that
marketing targeting is not synonymous ith market segmentation# ;egmentation is actually the
%relude to target market selection# 0ne has to carry out se&eral tasks !eside segmentation !e"ore
choosing the target market#
Through segmentation, a "irm di&ides the market into many segments# -ut all these segments need
not "orm its target market# Target market signi"ies only those segments that it ants to ado%t as its
market# A selection is thus in&ol&ed in it# 6n choosing target market, a "irm !asically carries out an
e&aluation o" the &arious segments and selects those segments that are most a%%ro%riate to it# As e
kno that the segments must !e rele&ant, accessi!le, si*a!le and %ro"ita!le# The e&aluation o" the
di""erent segments has to !e actually !ased on these criteria and only on the !asis o" such an
e&aluation should the target segments !e selected#
Z #R"CESS "F C!""SING T!E TARGET MARKET
The %rocess o" choosing the target /arket are'-
Choosing the target market is related to, !ut not synonymous ith, market segmentation#
;egmentation is the means o" the tool; choosing the target market is the %ur%ose#
;egmentation can also !e &ieed as the %relude to target market selection#
Choosing the target market usually "ollos multi-le&el segmentation using di""erent !ases#
Choosing the target market in&ol&es se&eral other tasks in addition to segmentation#
Hooking at each segment as a distinct marketing o%%ortunity#
E&aluating the orth o" each segment FsalesU%ro"it %otentialG#
E&aluating hether the segment is '
8istinguisha!le#
/easura!le#
;i*a!le#
Accessi!le#
(roing#
Pro"ita!le#
Com%ati!le ith the "irm$s resources#
E5amining hether it is !etter to choose the hole market, or the only a "e segment, and
deciding hich ones should !e chosen#
Hooking "or segments, hich are relati&ely less satis"ied !y the current o""er in the market
"rom com%eting !rands#
Checking out i" the "irm has the di""erential ad&antages U distincti&e ca%a!ility "or ser&ing the
selected segments#
E&aluating the "irm$s resources and checking hether it is %ossi!le to %ut in the marketing
%rogrammes re9uired "or ca%turing the s%otted segments ith those resources#
?inal selecting those segments that are most a%%ro%riate "or the "irm#
TARGET MARKET STRATEGIES
There are se&eral di""erent target-market strategies that may !e "olloed# Targeting strategies usually
can !e categori*ed as one o" the "olloing'
Z Single-segment strategy - Also knon as a concentrated strategy# 0ne market segment Fnot the
entire marketG is ser&ed ith one marketing mi5# A single-segment a%%roach o"ten is the strategy o"
choice "or smaller com%anies ith limited resources#
Z Sele$ti5e spe$iali7ation- This is a multi%le-segment strategy, also knon as a di""erentiated
strategy# 8i""erent marketing mi5es are o""ered to di""erent segments# The %roduct itsel" may or may
not !e di""erent E in many cases only the %romotional message or distri!ution channels &ary# Z
Product s%eciali*ation- The "irm s%eciali*es in a %articular %roduct and tailors it to di""erent market
segments#
Z Market spe$iali7ation- The "irm s%eciali*es in ser&ing a %articular market segment and o""ers that
segment an array o" di""erent %roducts#
Z Full market $o5erage - The "irm attem%ts to ser&e the entire market# This co&erage can !e
achie&ed !y means o" either a mass market strategy in hich a single undi""erentiated marketing mi5
is o""ered to the entire market, or !y a di""erentiated strategy in hich a se%arate marketing mi5 is
o""ered to each segment
I %ECISI"NS IN;"/;E% IN TARGETING STRATEGA INC/=%E1-
hich segments to targeting#
ho many %roducts to o""er#
hich %roducts to o""er in hich segments#
#"SITI"NING
INTR"%=CTI"N1 -
Positioning is a conce%t in marketing hich as "irst %o%ulari*ed !y Al Ries and :ack Trout in their
!estseller !ook 1Positioning E a !attle "or your mindS# According to them QPositioning is hat you do
to mind o" the %ros%ect$# They iterate that any !rand is &alued !y the %erce%tion it carries in the
%ros%ect or customerRs mind# Each !rand has thus to !e RPositionedR in a %articular class or segment#
E5am%le' /ercedes is %ositioned "or lu5ury segment, Lol&o is %ositioned "or sa"ety# The %osition o"
a %roduct is the sum o" those attri!utes normally ascri!ed to it !y the consumers E its standing, its
9uality, the ty%e o" %eo%le ho use it, its strengths, its eaknesses, any other unusual or memora!le
characteristics it may %ossess, its %rice and the &alue it re%resents# Although there are di""erent
de"initions o" Positioning, %ro!a!ly the most common is' SA %roductRs %osition is ho %otential
!uyers see the %roductS, and is e5%ressed relati&e to the %osition o" com%etitors# Positioning is a
%lat"orm "or the !rand# 6t "acilitates the !rand to get through to the mind o" the target consumer# The
%osition o" the !rand has thus to !e care"ully maintained and managed# E5am%le' hen /al!oro cut
don its %rices, its sales dro%%ed immediately, as it !egan !eing associated ith the generic segment#
3atches like Role5 are %ositioned as lu5ury segment atches, thus they !eing one o" the most
e5%ensi&e ha&e !ecome a sym!ol "or accom%lishment in li"e# 6" Role5 reduces its %rices, it loses its
%ercei&ed image and hence is in danger o" losing its customers# This di""ers slightly "rom the conte5t
in hich the term as "irst %u!lished in 1<J< !y Al Ries and :ack Trout in the %a%er SPositioningS is
a game %eo%le %lay in today$s me-too market %laceS in the %u!lication 6ndustrial /arketing, in hich
the case is made that the ty%ical consumer is o&erhelmed ith unanted ad&ertising, and has a
natural tendency to discard all in"ormation that does not immediately "ind a com"orta!le Fand em%tyG
slot in the consumers mind# 6t as then e5%anded into their ground-!reaking "irst !ook, SPositioning'
The -attle "or Pour /indS, in hich they de"ine Positioning as San organi*ed system "or "inding a
indo in the mind# 6t is !ased on the conce%t that communication can only take %lace at the right
time and under the right circumstances#S
I #"SITI"NING C"NCE#TS1- (enerally, there are three ty%es o" %ositioning conce%ts' Z
Fun$tional positions
-;ol&e %ro!lems#
- Pro&ide !ene"its to customers#
- (et "a&ora!le %erce%tion !y in&estors Fstock %ro"ileG and lenders#
Z Sym0oli$ positions
-;el"-image enhancement#
- Ego identi"ication#
- -elongingness and social meaning"ulness#
- A""ecti&e "ul"illment#
I E(periential positions
- Pro&ide sensory stimulation#
- Pro&ide cogniti&e stimulation#
I A##R"AC!ES "F #"SITI"NING 1-
The main %ositioning strategy is to either de&elo%ing or rein"orcing a %articular image "or the !rand
in the mind o" the customer# The main a%%roaches to %ositioning strategy are'-
Z Customer !ene"its a%%roach#
Z The %rice-9uality a%%roach#
Z The use or a%%lication a%%roach#
Z The %roduct user a%%roach#
Z The %roduct class a%%roach#
Z The cultural sym!ol a%%roach#
Z The com%etitor a%%roach#
26 C=ST"MER <ENEFIT A##R"AC!1 -
This is an im%ortant %ositioning strategy# 6t in&ol&es %utting the !rand a!o&e com%etitors, !ased on
s%eci"ic !rand attri!utes and customer !ene"it# 6n the automo!iles sector e can see many car
manu"acturer gi&e em%hasis on di""erent technical as%ects such as "uel e""iciency, sa"ety, engine
%er"ormance, %oer indos etc# (enerally marketers identi"y %ositioning in res%ect o" %roduct
characteristics that ha&e !een ignored !y the com%etitor# 0"ten e can see that "irms attem%ts to
%osition their !rands along ith to or more characteristic simultaneously, this is done to gi&e an
e5tra edge to the %roduct "rom its ri&al and also hel%s increase the %roduct$s li"e cycle# Thus a single
%roduct can sol&e many %ro!lem is the main theme !ehind the %roduct# E5am%le' Procter 4(am!le$s
Head 4 shoulder sham%oo "unctions as anti dandru"" and anti hair"all sham%oo# Head 4 ;houlder
%ositioned as !oth anti-dandru"" 4 anti-hair"all sham%oo #
36 #RICE J=A/ITA A##R"AC!1 -
;ometimes !rands attem%ts to o""er more in term o" ser&ice, "eature, 9uality, or %er"ormance#
/anu"acturer o" such !rands charge higher %rices %artly to co&er the cost and %artly to communicate
the "act that they are o" high 9uality# 6n "act in the same %roduct category there are !rands, through
com%ara!le in 9ualities, hich a%%eal on the !asis o" %rice# ?or e5am%le !rands like Rado and Time5
use 9uality and %rice %ositioning techni9ue res%ecti&ely# Rado com%etes "or 9uality and Time5
com%etes "or %rice# 6t is di""icult to use !oth 9uality and %rice %ositioning together !ecause there is a
risk that high 9uality-lo %rice %ositioning techni9ue may in"er the image o" the %roduct in the mind
o" the consumer#
46 T!E =SE AN% A##/ICATI"N A##R"AC!1 - 6n this strategy the %roduct is %ositioned ith a
use or a%%lication a%%roach# ?or e5am%le' - Hargest /o!ile manu"acturer in the orld Kokia
%ositioned its "e &ariant o" K-series mo!iles as music %hones ith enhanced memory and
multimedia ca%a!ilities# Kokia K-D@ /usic edition Kokia K-D+ /usic edition
3ith 1(- memory ith 1(- memory
,6 T!E #R"%=CT =SER A##R"AC!1- 6n this a%%roach, the !rand identi"ies and determines the
target segement "or hich the %roduct ill !e %ositioned# /any !rand uses a model or a cele!rity to
%osition their %roduct# The e5%ectation are that a model or a cele!rity is likely to in"luence the
%roduct$s image !y re"lecting their on image to it# ?or e5am%le'- 8a!ur Chy&an%rash is %ositioned
"or all age grou%s#
96 T!E #R"%=CT C/ASS A##R"AC!1- This a%%roach is use so that the !rand is associated
ith a %articular %roduct category# This is generally used hen a category is too croded# ?or
e5am%le'- HHH has %ositioned 8o&e toilet soa% as a cleansing cream %roduct "or young omn ith
dry skin and its is %ositioned as a %remium segment toilet soa%#
:6 T!E C=/T=RA/ SAM<"/ A##R"AC!1- The %ositioning strategy is !ased on dee%ly
entrenched cultural sym!ol# The use o" cultural sym!ol can hel% to di""erentiate the !rand "rom
com%etitors !rands# ?or e5am%le'- The %ositioning techni9ue o" /arl!oro cigarettes use the image o"
ty%ical American co!oy # /arl!oro gi&es its cigarette !rand a American co!oy image
E5am%le o" cultural sym!ol a%%roach
B6 T!E C"M#ETIT"R A##R"AC!1- /any !rands use com%etitor as a dominant %lank in their
cam%aign# These !rands are %ositioned "olloing its com%etitor# This is an o""ensi&e strategy#
Z 86??EREKT P0;6T60K6K( PHAK7; U -A;E;'- 8i""erent ty%es o" %ositioning %lanks U!ases are
used !y the marketers are'-
26 E$onomy1- Product %ositioned toard a %articular segment kee%ing in mind it economy#E5am%le-
/aruti =@@, Tata Kano, Kirma detergent %oder etc are %ositioned "or the economy segment
36 <ene*it1- Product %ositioned ith some !ene"icial "eatures# E5am%le- Colgate total, Clinic %lus
etc#
46 Gener1- Product %ositioned "or a %articular segment# E5am%le- ;cooty Pe%, Titan Raga#
,6 /u(ury an e($lusi5eness1- Product or ser&ices %ositioned toard lu5ury segment# E5am%le-TaI
grou% o" hotel, /ercedes -en* E-class etc# /ercedes Car - sym!ol o" lu5ury and e5clusi&eness
96 Fashion *or elite $lass1- Product %ositioned "or "ashiona!le elite class or mem!er o" the society,
ho alays ant to stay ahead in term o" "ashion and demands e5clusi&e %roducts only# E5am%le
Peter England, Lan Heusen, Raymond etc#
:6 Te$hnology an 5alue ae *eatures1- Positioning o" a %roduct according to its technological
ad&ancement and &alue added "eatures# E5am%le'- /icroso"t$s %ositioning o" its recent o%erating
system 3indos Lista as the ad&anced o%erating system, ;ony ith &arious elecronic goods, H( etc
Pre&ie o" /icroso"t$s indo Lista o%erating system
I #"SITI"NING #/ANNING
Positions are descri!ed !y &aria!les and ithin %arameters that are im%ortant to the customers#
Common e5am%les are %rice, su%%orting ser&ices, 9uality, relia!ility, and &alue "or money# 0"ten,
customers %osition a %roduct in relation to a !rand or %roduct that is es%ecially &isi!le to them# This
could !e the market leader or any other o""er ith a high media e5%osure and an a!o&e a&erage
marketing !udget# There"ore, it is ad&isa!le to use in-de%th market research to determine rele&ant
%arameters in order to understand ho customers rate di""erent %roducts and marketing &aria!les#
The num!er o" rele&ant %arameters is normally lo# /ost o"ten, they can !e descri!ed ith a to- or
three-dimensional matri5# This tool to &isually de%ict customers$ %erce%tions o" a %roduct and its
%osition is called %erce%tual ma%%ing#
=NIT-9
ANA/ADING C"NS=MER MARKETS AN% <=AER <E!A;I"R
3e ill address the "olloing 9uestions'
=o0 do c,lt,ral, social, personal, and psyc+ological factors infl,ence cons,mer -,ying
-e+aviorA
=o0 does t+e cons,mer make a p,rc+asing decisionA
The aim o" marketing is to meet and satis"y target customers$ needs and ants# The "ield o" consumer
!eha&ior studies ho indi&iduals, grou%s, and organi*ations select, !uy, use, and dis%ose o" goods,
ser&ices, ideas, or e5%eriences to satis"y their needs and desires#
;till, all marketers can %ro"it "rom understanding ho and hy consumers !uy# ?or e5am%le,
3hirl%ool$s sta"" anthro%ologists go into %eo%le$s homes, o!ser&e ho they use a%%liances, and talk
ith household mem!ers# 3hirl%ool has "ound that in !usy "amilies, omen are not the only ones
doing the laundry# 7noing this, the com%any$s engineers de&elo%ed color-coded asher and dryer
controls to make it easier "or kids and men to %itch in#1
!"' AN% '!A C"NS=MERS <=A
The starting %oint "or understanding consumer !uying !eha&ior is the stimulus res%onse model
shon in ?igure +-1# As this model shos, !oth marketing and en&ironmental stimuli enter the
!uyer$s consciousness# 6n turn, the !uyer$s characteristics and decision %rocess lead to certain
%urchase decisions# The marketer$s task is to understand hat ha%%ens in the !uyer$s consciousness
!eteen the arri&al o" outside stimuli and the !uyer$s %urchase decisions#
2s t+is model indicates, a cons,mer;s -,ying -e+avior is infl,enced -y c,lt,ral, social, personal,
and psyc+ological factors.
A1 Cultural Fa$tors In*luen$ing <uyer <eha5ior
Culture is a com%le5 amalgam o" sym!ols Fattitudes, !elie"s, &alues, language, etc#G#
Culture, su!culture, and social class are %articularly im%ortant in"luences on consumer !uying
!eha&ior# The ay %eo%le %er"orm their !iological acti&ities such as eating is culturally determined# Thus, a
hungry 6ndian consumer may like to eat rice and dal hereas a hungry American consumer may like to eat a
ham!urger, "olloed !y a Coke#
I6Culture6 Culture is the most "undamental determinant o" a %erson$s ants and !eha&ior# A child
groing u% in the Bnited ;tates is e5%osed to these !road cultural &alues' achie&ement and success,
acti&ity, e""iciency and %racticality, %rogress, material com"ort, indi&idualism, "reedom, e5ternal
com"ort, humanitarianism, and youth"ulness##
II6Su0$ulture6 Each culture consists o" smaller su!cultures that %ro&ide more s%eci"ic identi"ication
and sociali*ation "or their mem!ers# ;u!cultures include nationalities, religions, racial grou%s, and
geogra%hic regions# /any su!cultures make u% im%ortant market segments, leading marketers to
tailor %roducts and marketing %rograms to their needs# E5am%le, the "astest-groing 6ndian
su!culture in B7 are targeted !y many restaurant ser&ing 6ndian "ood and /arketers are targeting
and ha&ing good !usiness out o" them#
< -So$ial $lass <uyer <eha5ior#
;ocial classes are relati&ely homogeneous and enduring di&isions in a society# They are
hierarchically ordered and their mem!ers share similar &alues, interests, and !eha&ior Fsee Ta!le +#1G#
;ocial classes re"lect income as ell as occu%ation, education, and other indicators# Those ithin
each social class tend to !eha&e more alike than do %ersons "rom di""erent social classes# Also, ithin
the culture, %ersons are %ercei&ed as occu%ying in"erior or su%erior %ositions according to social
class# ;ocial class is indicated !y a cluster o" &aria!les rather than !y any single &aria!le# ;till,
indi&iduals can mo&e "rom one social class to another,u% or don,during their li"etime# -ecause
social classes o"ten sho distinct %roduct and !rand %re"erences, some marketers "ocus their e""orts
on one social class# -anks, "or e5am%le, "ocuses on the u%%er classes, o""ering credit cards ith a
!undle o" o""erings to them like huge credit limits#
ConsumersR !eha&iours are determined to a great e5tend !y social "orces and grou%s
such as re"erence grou%s, "amily etc#'
Re*eren$e Groups
Re"erence grou%s consist o" all o" the grou%s that ha&e a direct F"ace-to-"aceG or indirect in"luence on
a %erson$s attitudes or !eha&ior# (rou%s that ha&e a direct in"luence on a %erson are called
mem!ershi% grou%s# ;ome %rimary mem!ershi% grou%s are "amily, "riends, neigh!ors, and co-
orkers, ith hom indi&iduals interact "airly continuously and in"ormally# ;econdary grou%s, such
as %ro"essional and trade-union grou%s, tend to !e more "ormal and re9uire less continuous
interaction# Re"erence grou%s e5%ose %eo%le to ne !eha&iors and li"estyles, in"luence attitudes and
sel"-conce%t, and create %ressures "or con"ormity that may a""ect %roduct and !rand choices#
Family
The "amily is the most im%ortant consumer-!uying organi*ation in society, and it has !een
researched e5tensi&ely# The "amily o" orientation consists o" one$s %arents and si!lings# ?rom
%arents, a %erson ac9uires an orientation toard religion, %olitics, and economics as ell as a sense
o" %ersonal am!ition, sel"-orth, and lo&e#
/arketers are interested in the roles and relati&e in"luence o" the hus!and, i"e, and children in the
%urchase o" a large &ariety o" %roducts and ser&ices# These roles &ary idely in di""erent cultures and
social classes# Lietnamese Americans, "or e5am%le,
So$ial Class Chara$teristi$s
B%%er B%%ers
Fless than 1 %ercent o" The social elite ho li&e on inherited ealth; they
B#;# %o%ulationG gi&e large sums to charity, maintain more than one
home, and send their children to to% schools# This
small grou% ser&es as a re"erence grou% "or other
social classes#
Hoer B%%ers Fa!out ) %ercent o" Peo%le coming u% "rom the middle class ho ha&e
B#;# %o%ulationG earned high income or ealth through %ro"essions
or !usiness; they tend to !e acti&e in social and
ci&ic a""airs, !uy status-sym!ol %roducts, and as%ire
to !e acce%ted in the u%%er-u%%er stratum#
B%%er /iddles F1) %ercent o" B#;# Peo%le ithout "amily status or unusual ealth ho
%o%ulationG are "ocused on their careers as %ro"essionals,
inde%endent !usiness %ersons, and cor%orate
managers; they !elie&e in education and are ci&ic-
minded and home-oriented#
/iddle Class F+) %ercent o" B#;# A&erage-%ay hite- and !lue-collar orkers; they
%o%ulationG o"ten !uy %o%ular %roducts to kee% u% ith trends,
and they !elie&e in s%ending more money on
orthhile e5%eriences "or their children and
aiming them toard a college education#
3orking Class F+= %ercent o" B#;# A&erage-%ay !lue-collar orkers and those ho
%o%ulationG lead a orking-class li"estyle; they de%end on relati&es
"or economic and emotional su%%ort, Io!
ti%s, and assistance, and they tend to maintain shar%
se5-role di&isions and stereoty%ing#
B%%er Hoers F< %ercent o" B#;# 3orkers hose li&ing standard is Iust a!o&e
%o%ulationG %o&erty; they %er"orm unskilled ork, are %oorly
%aid, and are educationally de"icient#
Hoer Hoers FD %ercent o" B#;# Peo%le on el"are, &isi!ly %o&erty stricken, and
%o%ulationG usually out o" ork; some are uninterested in
"inding %ermanent ork, and most de%end on
%u!lic aid or charity "or income#
Roles an Statuses
The !uying !eha&iour o" an indi&idual de%ends on the ty%e o" role an indi&idual is e5%ected to %lay hile
%urchasing, e#g#, an indi&idual %lays the role o" a "ather hile !uying !irthday gi"ts "or his son or the same
indi&idual is a hus!and !uying an anni&ersary gi"t "or his i"e# Each role carries a status e#g#, the indi&idual
mentioned a!o&e could !e the /anaging 8irector o" an /KC or a teacher in a %rimary school#
A %erson %artici%ates in many grou%s, such as "amily, clu!s, or organi*ations# The %erson$s %osition
in each grou% can !e de"ined in terms o" role and status# A role consists o" the acti&ities that a %erson
is e5%ected to %er"orm# Each role carries a status# A ;u%reme Court Iustice has more status than a
sales manager, and a sales manager has more status than an administrati&e assistant# 6n general,
%eo%le choose %roducts that communicate their role and status in society# Thus, com%any %residents
o"ten dri&e /ercedes, ear e5%ensi&e suits, and drink Chi&as Regal scotch# ;a&&y marketers are
aare o" the status sym!ol %otential o" %roducts and !rands#
C 1 #ersonal Fa$tors In*luen$ing <uyer <eha5ior
Cultural and social "actors are Iust to o" the "our maIor "actors that in"luence consumer !uying
!eha&ior# The third "actor is %ersonal characteristics, including the !uyer$s age, stage in the li"e cycle,
occu%ation, economic circumstances, li"estyle, %ersonality, and sel"-conce%t#
Age an Stage in the /i*e Cy$le
Peo%le !uy di""erent goods and ser&ices o&er a li"etime# They eat !a!y "ood in the early years, most
"oods in the groing and mature years, and s%ecial diets in the later years# Taste in clothes, "urniture,
and recreation is also age-related, hich is hy smart marketers are attenti&e to the in"luence o" age#
;ome recent research has identi"ied %sychological li"e-cycle stages# Adults e5%erience certain
1%assages2 or 1trans"ormations2 as they go through li"e# Heading marketers %ay close attention to
changing li"e circumstances,di&orce, idohood, remarriage,and their e""ect on consum%tion
!eha&ior#
"$$upation an E$onomi$ Cir$umstan$es
0ccu%ation also in"luences a %erson$s consum%tion %attern# A !lue-collar orker ill !uy ork
clothes and lunch!o5es, hile a com%any %resident ill !uy e5%ensi&e suits and a country clu!
mem!ershi%# ?or this reason, marketers should identi"y the occu%ational grou%s that are more
interested in their %roducts and ser&ices, and consider s%eciali*ing their %roducts "or certain
occu%ations# ;o"tare manu"acturers, "or e5am%le, ha&e de&elo%ed s%ecial %rograms "or layers,
%hysicians, and other occu%ational grou%s#
6n addition, %roduct choice is greatly a""ected !y a consumer$s economic circumstances' dis%ensa!le
income Fle&el, sta!ility, and time %atternG, sa&ings and assets Fincluding the %ercentage that is li9uidG,
de!ts, !orroing %oer, and attitude toard s%ending &ersus sa&ing# Thus, marketers o" income-
sensiti&e goods must track trends in %ersonal income, sa&ings, and interest rates# 6" a recession is
likely, marketers can redesign, re%osition, and re-%rice their %roducts to o""er more &alue to target
customers#
/i*estyle
The %atterns in hich %eo%le li&e, s%end time and money are collecti&ely called their li"estyles#
Peo%le "rom the same su!culture, social class, and occu%ation may actually lead 9uite di""erent
li"estyles# 2 lifestyle is t+e person;s pattern of living in t+e 0orld as expressed in activities, interests,
and opinions. Bifestyle portrays t+e C0+ole personD interacting 0it+ +is or +er environment.
S,ccessf,l marketers searc+ for relations+ips -et0een t+eir prod,cts and lifestyle gro,ps# ?or
e5am%le, a com%uter manu"acturer might "ind that most com%uter !uyers are achie&ement-oriented#
The marketer may then aim its !rand more clearly at the achie&er li"estyle#
The li"estyle %attern can !e determined !y the A60 dimensions as shon in the ta!le !elo'
ACTIVITIES INTERESTS OPINIONS
Work Family Themselves
Hobbies Home Social issues
Social events Job Politics
Vacation Community Business
Entertainment Recreation Economics
Clubs Fashion Education
Community Food Products
Shoin! "edia Future
Sorts #chievements Culture
A$tuali7ers1 ;uccess"ul, so%histicated, acti&e, 1take-charge2 %eo%le hose %urchases o"ten re"lect
culti&ated tastes "or relati&ely u%scale, niche-oriented %roducts#
Ful*illes1 /ature, satis"ied, com"orta!le, and re"lecti&e %eo%le ho "a&or dura!ility, "unctionality,
and &alue in %roducts#
A$hie5ers1 ;uccess"ul, career- and ork-oriented consumers ho "a&or esta!lished, %restige
%roducts that demonstrate success#
E(perien$ers1 Poung, &ital, enthusiastic, im%ulsi&e, and re!ellious %eo%le ho s%end much o" their
income on clothing, "ast "ood, music, mo&ies, and &ideo#
#<elie5ers1 Conser&ati&e, con&entional, and traditional %eo%le ho "a&or "amiliar %roducts and
esta!lished !rands#
Stri5ers' Bncertain, insecure, a%%ro&al-seeking, resource constrained consumers ho "a&or stylish
%roducts that emulate the %urchases o" ealthier %eo%le#

Makers1 Practical, sel"-su""icient, traditional, and "amily-oriented %eo%le ho "a&or %roducts ith a
%ractical or "unctional %ur%ose, such as tools and "ishing e9ui%ment#
#
Strugglers' Elderly, resigned, %assi&e, concerned, and resource-constrained consumers ho are
cautious and loyal to "a&orite !rands#
#ersonality an Sel*-Con$ept
Each %erson has a distinct %ersonality that in"luences !uying !eha&ior# #ersonality refers to t+e
disting,is+ing psyc+ological c+aracteristics t+at lead to relatively consistent and end,ring responses
to environment. Personality is ,s,ally descri-ed in terms of s,c+ traits as self6confidence,
dominance, a,tonomy, deference, socia-ility, defensiveness, and adapta-ility#
Personality can !e use"ul in analy*ing consumer !eha&ior, %ro&ided that %ersonality ty%es can !e
classi"ied accurately and that strong correlations e5ist !eteen certain %ersonality ty%es and %roduct
or !rand choices# ?or e5am%le, a com%uter com%any might disco&er that many %ros%ects sho high
sel"-con"idence, dominance, and autonomy, suggesting that com%uter ads should a%%eal to these
traits#

%1 #sy$hologi$al Fa$tors In*luen$ing <uyer <eha5ior
A %erson$s !uying choices are in"luenced !y the %sychological "actors o" motivation, perception,
learning, -eliefs, and attit,des#
I1 Moti5ation
A %erson has many needs at any gi&en time# ;ome needs are !iogenic; they arise "rom %hysiological
states o" tension such as hunger, thirst, discom"ort# 0ther needs are %sychogenic; they arise "rom
%sychological states o" tension such as the need "or recognition, esteem, or !elonging# 2 need
-ecomes a motive 0+en it is aro,sed to a s,fficient level of intensity. 2 motive is a need t+at is
s,fficiently pressing to drive t+e person to act.
Psychologists ha&e de&elo%ed theories o" human moti&ation# Three o" the !est knon,the theories
o" ;igmund ?reud, A!raham /aslo, and ?rederick Her*!erg carry 9uite di""erent im%lications "or
consumer analysis and marketing strategy#
>>>FreuKs Theory1 ;igmund ?reud maintained that human !eha&iour is sha%ed !y the %sychological
"orces hich are rooted in the unconscious state o" hisUher mind#

>>>Maslow)s theory6 A!raham /aslo sought to e5%lain hy %eo%le are dri&en !y %articular needs
at %articular times#His theory is that human needs are arranged in a hierarchy, "rom the most to the
least %ressing# 6n order o" im%ortance, these five categories are p+ysiological, safety, social, esteem,
and self6act,alization needs. A consumer ill try to satis"y the most im%ortant need "irst; hen that
need is satis"ied, the %erson ill try to satis"y the ne5t-most-%ressing need# /aslo$s theory hel%s
marketers understand ho &arious %roducts "it into the %lans, goals, and li&es o" consumers#
>>>!er70erg)s theory6 ?rederick Her*!erg de&elo%ed a to-"actor theory that distinguishes
dissatis"iers F"actors that cause dissatis"actionG "rom satis"iers F"actors that cause satis"actionG#The
a!sence o" dissatis"iers is not enough; satis"iers must !e acti&ely %resent to moti&ate a %urchase# ?or
e5am%le, a com%uter that comes ithout a arranty ould !e a dissatis"ier# Pet the %resence o" a
%roduct arranty ould not act as a satis"ier or moti&ator o" a %urchase, !ecause it is not a source o"
intrinsic satis"action ith the com%uter# Ease o" use ould, hoe&er, !e a satis"ier "or a com%uter
!uyer# 6n line ith this theory, marketers should a&oid dissatis"iers that might unsell their %roducts#
They should also identi"y and su%%ly the maIor satis"iers or moti&ators o" %urchase, !ecause these
satis"iers determine hich !rand consumers ill !uy#

>>#er$eption
A moti&ated %erson is ready to act, yet ho that %erson actually acts is in"luenced !y his or her
%erce%tion o" the situation# Perce%tion is the %rocess !y hich an indi&idual selects, organi*es, and
inter%rets in"ormation in%uts to create a meaning"ul %icture o" the orld#Perce%tion de%ends not only
on %hysical stimuli, !ut also on the stimuli$s relation to the surrounding "ield and on conditions
ithin the indi&idual# The key ord is indi&idual# 6ndi&iduals can ha&e di""erent %erce%tions o" the
same o!Iect !ecause o" t+ree percept,al processes: selective attention, selective distortion, and
selective retention.
Sele$ti5e attention6 Peo%le are e5%osed to many daily stimuli such as ads; most o" these stimuli are
screened out,a %rocess called selecti&e attention# The end result is that marketers ha&e to ork hard
to attract consumers$ attention# Through research, marketers +ave learned t+at people are more likely
to notice stim,li t+at relate to a c,rrent need, hich is hy car sho%%ers notice car ads !ut not
a%%liance ads#

Sele$ti5e retention6 Peo%le "orget much that they learn !ut tend to retain in"ormation that su%%orts
their attitudes and !elie"s# -ecause o" selecti&e retention, e are likely to remem!er good %oints
mentioned a!out a %roduct e like and "orget good %oints mentioned a!out com%eting %roducts#
;electi&e retention e5%lains hy marketers use drama and re%etition in messages to target audiences#
/earning
3hen %eo%le act, they learn# Hearning in&ol&es changes in an indi&idual$s !eha&ior that arise "rom
e5%erience# /ost human !eha&ior is learned# Theorists !elie&e that learning is %roduced through the
inter%lay o" dri&es, stimuli, cues, res%onses, and rein"orcement# A dri&e is a strong internal stimulus
that im%els action# Cues are minor stimuli that determine hen, here, and ho a %erson res%onds#
;u%%ose you !uy an 6-/ com%uter# 6" your e5%erience is rearding, your res%onse to com%uters and
6-/ ill !e %ositi&ely rein"orced# Hater, hen you ant to !uy a %rinter, you may assume that
!ecause 6-/ makes good com%uters, it also makes good %rinters# Pou ha&e no generali*ed your
res%onse to similar stimuli#
<elie*s an Attitues
Through doing and learning, %eo%le ac9uire !elie"s and attitudes that, in turn, in"luence !uying
!eha&ior# 2 -elief is a descriptive t+o,g+t t+at a person +olds a-o,t somet+ing. 8eliefs may -e -ased
on kno0ledge, opinion, or fait+, and t+ey may or may not carry an emotional c+arge# 0" course,
manu"acturers are &ery interested in the !elie"s that %eo%le ha&e a!out their %roducts and ser&ices#
These !elie"s make u% %roduct and !rand images, and %eo%le act on their images# 6" some !elie"s are
rong and inhi!it %urchase, the manu"acturer ill ant to launch a cam%aign to correct
these !elie"s#
Attitues are Iust as im%ortant as !elie"s "or in"luencing !uying !eha&ior# 2n attit,de
is a person;s end,ring favora-le or ,nfavora-le eval,ations, emotional feelings,and action
tendencies to0ard some o-:ect or idea 6Peo%le ha&e attitudes toard almost e&erything' religion,
%olitics, clothes, music, "ood# Attitudes %ut them into a "rame o" mind o" liking or disliking an o!Iect,
mo&ing toard or aay "rom it# Attitudes lead %eo%le to !eha&e in a "airly consistent ay toard
similar o!Iects# -ecause attitudes economi*e on energy and thought, they are &ery di""icult to
change; to change a single attitude may re9uire maIor adIustments in other attitudes#
Thus, a com%any ould !e ell ad&ised to "it its %roduct into e5isting attitudes rather than to try to
change %eo%le$s attitudes# 0" course, trying to change attitudes can %ay o"" occasionally# Hook at the
milk industry# -y the early 1<<@s, milk consum%tion had !een in decline "or )C years, !ecause the
general %erce%tion as that milk as unhealthy, outdated, Iust "or kids, or only good ith cookies
and cakes# Then the 0PERAT60K VVVVVV# kicked o"" a multi-million dollar %rint ad
cam%aign and ith "ormation o" Co-o%erati&e mo&ement like A/BH
T!E C"NS=MER <=AING %ECISI"N #R"CESS
/arketers ha&e to go !eyond the &arious in"luences on !uyers and de&elo% an in-de%th
understanding o" ho consumers actually make their !uying decisions# Specifically, marketers m,st
identify 0+o makes t+e -,ying decision, the ty%es o" !uying decisions, and the stages in the !uying
%rocess#
<uying Roles
/arketers can identi"y the !uyer "or many %roducts easily# 6n the Bnited ;tates, men normally
choose their sha&ing e9ui%ment, and omen choose their %antyhose# A"ter the giant -ritish chemical
"irm 6C6 disco&ered that omen made J@ %ercent o" the decisions on the !rand o" household %aint, it
!egan ad&ertising its 8euHu5 !rand to omen#
3e can distinguish five roles that %eo%le might %lay in a !uying decision#
1#An initiator "irst suggests the idea o" !uying the %roduct or ser&ice#
)#An in"luencer is the %erson hose &ie or ad&ice in"luences the decision#
+# A decider actually decides hether to !uy, hat to !uy, ho to !uy, or here to !uy#
>#A !uyer makes the actual %urchase, hile a
C#Bser consumes or uses the %roduct or ser&ice#
<uying <eha5ior
A consumer is a %erson ho %urchases goods and ser&ices "or his on %ersonal needs# Consumer -eha&iour
can !e de"ined as those acts o" Rindi&idualsR hich are directly in&ol&ed in making decisions to s%end their
a&aila!le resources Ftime, money, energyG in o!taining and using goods and ser&ices#
/arketers also need to !e aare that consumer decision making &aries ith the ty%e o" !uying
decision# The decisions to !uy tooth%aste, a tennis racket, a %ersonal com%uter, and a ne car are all
&ery di""erent# 6n general, com%le5 and e5%ensi&e %urchases are likely to in&ol&e more !uyer
deli!eration and more %artici%ants#
1.7omplex -,ying -e+avior a%%lies to high-in&ol&ement %roducts such as %ersonal com%uters#
-uyers may not kno hat attri!utes to consider in these %roducts, so they do research# 7noing this,
marketers can hel% educate !uyers a!out %roduct
2.=a-it,al -,ying -e+avior a%%lies hen the %roduct is lo-cost and "re9uently %urchased; !uyers do
not %ass through normal se9uence o" !elie", attitude,and !eha&iour !ut instead o" making decision
!ased on !rand "amiliarity#
3.1issonance6red,cing -,yer -e+avior a%%lies to high-in&ol&ement %roducts such as car%eting#
Car%eting is e5%ensi&e and sel"-e5%ressi&e, yet the !uyer may consider most !rands in a gi&en %rice
range to !e the same# A"ter !uying, the consumer might e5%erience dissonance a"ter noticing certain
dis9uieting "eatures or hearing "a&ora!le things a!out other !rands# /arketers should there"ore su%%ly
!elie"s and e&aluations that hel% consumers "eel good a!out their !rand choices#
!.=a-it,al -,ying -e+avior a%%lies to lo-in&ol&ement %roducts such as salt# Consumers kee%
!uying the same !rand out o" ha!it, not due to strong !rand loyalty, !ecause they are %assi&e
reci%ients o" in"ormation con&eyed !y ad&ertising# Ad re%etition creates -rand familiarity rather than
-rand conviction. /arketers o" such %roducts can use %rice and sales %romotions to entice ne
customers to try their %roducts#
". 3ariety6seeking -,ying -e+avior a%%lies to lo-in&ol&ement %roducts such as cookies# 6n this
category, consumers sitch !rands o"ten !ecause they ant more &ariety# The market leader ill
there"ore try to encourage ha!itual !uying !eha&ior !y dominating the shel" s%ace, kee%ing shel&es
stocked, and running "re9uent reminder ads#
The Stages o* the <uying %e$ision #ro$ess
3e ha&e "i&e stage model o" !uying %rocess
Stage 21 #ro0lem Re$ognition
The !uying %rocess starts hen the !uyer recogni*es a %ro!lem or need# This need can !e triggered !y
internal stimuli Fsuch as "eeling hunger or thirstG or e5ternal stimuli Fsuch as seeing an adG that then
!ecomes a dri&e#
Stage 31 In*ormation Sear$h
An aroused consumer ho recogni*es a %ro!lem ill !e inclined to search "or more in"ormation# 3e
can distinguish !eteen to le&els o" arousal# At the milder search state o" +eig+tened attention, a
%erson sim%ly !ecomes more rece%ti&e to "ormation a!out a %roduct# At the active information
searc+ le&el, a %erson sur"s the 6nternet, talks ith "riends, and &isits stores to learn more a!out the
%roduct# Consumer in"ormation# Consumer in"ormation sources include %ersonal sources F"amily,
"riends, neigh!ors, ac9uaintancesG, commercial sources Fad&ertising, 3e! sites, sales%ersons, dealers,
%ackaging, dis%laysG, %u!lic sources Fmass media, consumer-rating organi*ationsG, and e5%eriential
sources Fhandling, e5amining, using the %roductG# The consumer usually recei&es the most
in"ormation "rom commercial Fmarketer-dominatedG sources, although the most in"luential
in"ormation comes "rom %ersonal sources#
Stage 41 E5aluation o* Alternati5es
0nce the consumer has conducted an in"ormation search, ho does he or she %rocess com%etiti&e
!rand in"ormation and make a "inal Iudgment. There are se&eral e&aluation %rocesses; the most
current models &ie the %rocess as !eing cogniti&ely oriented, meaning that consumers "orm
Iudgments largely on a conscious and rational !asis# consumer sees each %roduct as a -,ndle of
attri-,tes ith &arying a!ilitieso" deli&ering the !ene"its to satis"y this need# Hoe&er, the attri!utes
o" interest to !uyers &ary !y %roduct# ?or e5am%le, the attri!utes sought in a camera might !e %icture
shar%ness, camera si*e, and %rice# 6n addition, consumers &ary as to hich %roduct attri!utes they see
as most rele&ant and the im%ortance they attach to each attri!ute#
Stage , 1 #ur$hase %e$ision
6n the e&aluation stage, the consumer "orms %re"erences among the !rands in the choice set and may
also "orm an intention to !uy the most %re"erred !rand#
Stage 91 #ost pur$hase <eha5ior
A"ter %urchasing the %roduct, the consumer mo&es into the "inal stage o" the consumer !uying
%rocess, in hich he or she ill e5%erience some le&el o" satis"action or dissatis"action# This is hy
the marketer$s Io! does not end hen the %roduct is !ought# 6n %articular, marketers must monitor
%ost%urchase satis"action, %ost%urchase actions, and %ost%urchase %roduct uses#
Post %urchase ;atis"action The !uyer$s satis"action ith a %urchase is a "unction o" the closeness
!eteen the !uyer$s e5%ectations and the %roduct$s %ercei&ed %er"ormance# 6" %er"ormance "alls short
o" e5%ectations, the customer is disa%%ointed; i" it meets e5%ectations, the customer is satis"ied; i" it
e5ceeds e5%ectations, the customer is delighted# These "eelings o" satis"action in"luence hether the
customer !uys the %roduct again and talks "a&ora!ly or un"a&ora!ly a!out the %roduct to others#
C!A#TER :
ANA/ADING <=SINESS MARKETS AN% <=AER <E!A;I"R
'!AT IS "RGANIDATI"NA/ <=AINGL
0rgani*ational !uying, according to 3e!ster and 3ind, is the decision6making process -y 0+ic+
formal organizations esta-lis+ t+e need for p,rc+ased prod,cts and services and identify, eval,ate,
and c+oose among alternative -rands and s,ppliers.:ust as no to consumers !uy in e5actly the
same ay, no to organi*ations !uy in e5actly the same ay# There"ore, as they do "or the consumer
market, !usiness sellers ork hard to distinguish clusters o" customers that !uy in similar ays and
then create suita!le marketing strategies "or reaching those targeted !usiness market segments#
The <usiness Market ;ersus the Consumer Market
The !usiness market consists o" all o" the organi*ations that ac9uire goods and ser&ices used in the
%roduction o" other %roducts or ser&ices that are sold, rented, or su%%lied to other customers# 6n
general, more dollars and items are in&ol&ed in sales to !usiness !uyers than to consumers#
Spe$iali7e "rgani7ational Markets
The o&erall !usiness market includes institutional and go&ernment organi*ations in addition to %ro"it-
seeking com%anies# Hoe&er, the !uying goals, needs, and methods o" these to s%eciali*ed
organi*ational markets are generally di""erent "rom those o" !usinesses, something "irms must kee%
in mind hen %lanning their !usiness marketing strategies#
The Institutional Market
The institutional market consists o" schools, hos%itals, nursing homes, %risons, and other institutions
that %ro&ide goods and ser&ices to %eo%le in their care#
Chara$teristi$ %es$ription E(ample
?eer !uyers -usiness marketers normally deal (oodyear Tire Com%any aims to get
ith "ar "eer !uyers than do orders "rom !uyers "or the -ig Three
consumer marketers# B#;# automakers F(eneral /otors,
?ord, and 8aimler-ChryslerG#
Harger !uyers' -uyers "or a "e large "irms do most /aIor com%anies are !ig customers
o" the %urchasing in many industries# in industries such as aircra"t engines
and de"ense ea%ons#
Close su%%lier- 3ith the smaller customer !ase and Tooling su%%lier ;tillater
customer the im%ortance and %oer o" the Technologies shares o""ice and
relationshi% larger customers, su%%liers are manu"acturing s%ace ith key
"re9uently re9uired to customi*e customer /otoman,a su%%lier o"
o""erings, %ractices, and %er"ormance industrial ro!ots,to minimi*e deli&ery
to meet the needs o" indi&idual istances and enhance their sym!iotic
customers# orking relationshi%#
concentrated are concentrated in se&en states' automakers ha&e their B#;#
!uyers Ke Pork, Cali"ornia, Pennsyl&ania, head9uarters in the 8etroit area,
6llinois, 0hio, Ke :ersey, and industry su%%liers head there on sales
/ichigan, hich hel%s to reduce calls#
selling costs#
8eri&ed 8emand "or !usiness goods is demand The -ig Three B#;# automakers are
6s ultimately deri&ed "rom demand "or seeing higher demand "or steel-!ar
consumer goods, so !usiness %roducts, mostly deri&ed "rom
marketers must monitor the !uying consumers$ demand "or mini&ans and
%atterns o" ultimate consumers# other light trucks, hich consume "ar
more steel than cars#
6nelastic Total demand "or many !usiness ;hoe manu"acturers ill not !uy
demand goods and ser&ices is inelastic and much more leather i" the %rice o"
not much a""ected !y %rice changes, leather "alls# Kor ill they !uy much
es%ecially in the short run, !ecause less leather i" the %rice rises unless
%roducers cannot make 9uick they can "ind satis"actory su!stitutes#
%roduction changes#
?luctuating 8emand "or !usiness %roducts tends An increase o" only 1@[ in consumer
demand to !e more &olatile than demand "or demand "or com%uters might result in
consumer %roducts# An increase in a )@@[ increase in !usiness demand
consumer demand can lead to a "or related %arts, su%%lies, and
much larger increase in demand "or ser&ices; a 1@[ dro% in consumer
%lant and e9ui%ment needed to demand "or com%uters might cause a
%roduce the additional out%ut# com%lete colla%se in !usiness demand
these organi*ations ha&e lo !udgets and ca%ti&e clienteles# ?or e5am%le, hos%itals ha&e to decide
hat 9uality o" "ood to !uy "or their %atients# The !uying o!Iecti&e here is not %ro"it, !ecause the
"ood is %ro&ided to the %atients as %art o" the total ser&ice %ackage# Kor is cost minimi*ation the sole
o!Iecti&e, !ecause %oor "ood ill cause %atients to com%lain and hurt the hos%ital$s re%utation# The
hos%ital %urchasing agent has to search "or institutional "ood &endors hose 9uality meets or e5ceeds
a certain minimum standard and hose %rices are lo# 7noing this, many "ood &endors
set u% a se%arate di&ision to res%ond to the s%ecial needs o" institutional !uyers# Thus, Hein*, "or
e5am%le, ill %roduce, %ackage, and %rice its ketchu% di""erently to meet the di""erent re9uirements
o" hos%itals, colleges, and %risons#
The Go5ernment Market
6n most countries, go&ernment organi*ations are a maIor !uyer o" goods and ser&ices# The B#;#
go&ernment, "or e5am%le, !uys goods and ser&ices &alued at A)@@ !illion, making it the largest
customer in the orld# The num!er o" indi&idual %urchases is e9ually staggering' 0&er )@ million
indi&idual contract actions are %rocessed e&ery year# Although the cost o" most items %urchased is
!eteen A),C@@ and A)C,@@@, the go&ernment also makes %urchases o" A)C,@@@ and u%, sometimes
ell into the millions o" dollars#
(o&ernment organi*ations ty%ically re9uire su%%liers to su!mit !ids# Kormally, they aard the
contract to the loest !idder, although they sometimes take into account a su%%lier$s su%erior 9uality
or re%utation "or com%leting contracts on time# -ecause their s%ending decisions are su!Iect to %u!lic
re&ie, go&ernment organi*ations re9uire considera!le documentation "rom su%%liers, ho o"ten
com%lain a!out e5cessi&e %a%erork, !ureaucracy, regulations, decision-making delays, and shi"ts in
%rocurement %ersonnel#
<usiness <uying Situations
-usiness !uyers in com%anies, institutions, and go&ernment organi*ations "ace many decisions in the
course o" making a %urchase# The num!er o" decisions de%ends on the ty%e o" !uying situation#
Ro!inson and others distinguish t+ree types of -,ying sit,ations: the straight re!uy, the modi"ied
re!uy, and the ne task#

26Straight re0uy1 The straight re!uy is a !uying situation in hich the %urchasing de%artment
reorders on a routine !asis Fe#g#, o""ice su%%lies, !ulk chemicalsG# The !uyer chooses "rom su%%liers
on an 1a%%ro&ed list#2 These su%%liers make an e""ort to maintain %roduct and ser&ice 9uality# They
o"ten %ro%ose automatic reordering systems to hel% %urchasing agents sa&e time# The 1out-su%%liers2
attem%t to o""er something ne or to e5%loit dissatis"action ith a current su%%lier# 0ut-su%%liers try
to get a small order and then enlarge their %urchase share o&er time#
#
36Moi*ie re0uy' The modi"ied re!uy is a situation in hich the !uyer ants to modi"y %roduct
s%eci"ications, %rices, deli&ery re9uirements, or other terms# The modi"ied re!uy usually in&ol&es
additional decision %artici%ants on !oth sides# The insu%%liers !ecome ner&ous and ha&e to %rotect
the account; the out-su%%liers see an o%%ortunity to gain some !usiness#
#
+#New task1 The ne task is a !uying situation in hich a %urchaser !uys a %roduct or ser&ice "or
the "irst time Fe#g#, o""ice !uilding, ne security systemG# The greater the cost or risk, the larger the
num!er o" decision %artici%ants and the greater their in"ormation gathering,and there"ore the longer
the time to decision com%letion# Ke-task !uying %asses through se&eral stages' aareness, interest,
e&aluation, trial, and ado%tion#Communication tools$ e""ecti&eness &aries at each stage# /ass media
are most im%ortant during the initial aareness stage, sales%eo%le ha&e their greatest im%act at the
interest stage, and technical sources are the most im%ortant during the e&aluation stage#
>>Systems <uying an Selling
Many -,siness -,yers prefer to -,y a total sol,tion to t+eir pro-lem from one seller. >+is practice,
called systems -,ying, originated ith go&ernment %urchases o" maIor ea%ons and communication
systems# The go&ernment solicited !ids "rom %rime contractors; the inning contractor then !id out
and assem!led the system "rom su!com%onents %urchased "rom other contractors# Thus, the %rime
contractor as %ro&iding ;ellers ha&e increasingly recogni*ed that !uyers like to %urchase in this
ay, and many ha&e ado%ted systems selling as a marketing tool# ;ystems selling can take di""erent
"orms# ?or e5am%le, many auto %arts manu"acturers no sell hole systems, such as the seating
system, the !raking system, or the door system# A &ariant on systems selling is systems contracting,
in hich a single su%%ly source %ro&ides the !uyer ith all
re9uired /R0 su%%lies Fmaintenance, re%air, and o%erating su%%liesG# This loers the !uyer$s costs
!ecause the seller maintains the in&entory, less time is s%ent on su%%lier selection, and the !uyer
enIoys %rice %rotection during the li"e o" the contract# The seller !ene"its "rom loer o%erating costs
!ecause o" steady demand and reduced %a%erork#
;ystems selling is a key industrial marketing strategy in !idding to !uild large-scale industrial
%roIects such as dams, steel "actories, and %i%elines# ProIect engineering "irms must com%ete on
%rice, 9uality, relia!ility, and other attri!utes to in these contracts# ?or e5am%le, hen the
6ndonesian go&ernment re9uested !ids to !uild a cement "actory near :akarta, a B#;# "irm made a
%ro%osal that included choosing the site, designing the cement "actory, hiring the construction cres,
assem!ling the materials and e9ui%ment, and turning o&er the "inished "actory to the 6ndonesian
go&ernment# The %ro%osal o" a :a%anese !idder included all o" these ser&ices, %lus hiring and training
the "actory orkers, e5%orting the cement, and using the cement to !uild
roads and o""ice !uildings around :akarta# Although the :a%anese %ro%osal as more costly, it on#
This is true system selling' The "irm took the !roadest &ie o" its customer$s needs and %ositioned
itsel" as an economic de&elo%ment agency#
#ARTICI#ANTS IN T!E <=SINESS <=AING #R"CESS
3ho does the !uying o" the trillions o" dollars$ orth o" goods and ser&ices needed !y !usiness
organi*ations. Purchasing agents are in"luential in straight-re!uy and modi"iedre!uy situations,
hereas other de%artment %ersonnel are more in"luential in ne-!uy situations# Engineering
%ersonnel carry the most in"luence in selecting %roduct com%onents, and %urchasing agents dominate
in selecting su%%liers#= these are Iust some o" the %eo%le ho may !e %art o" the !uying center#
The <uying Center
3e!ster and 3ind call the decision-making unit o" a !uying organi*ation the !uying center# >+e
-,ying center is composed of Call t+ose individ,als and gro,ps 0+o participate in t+e p,rc+asing
decision6making process, 0+o s+are some common goals and t+e risks arising from t+e decisions.DE
>+e -,ying center incl,des organizational mem-ers 0+o play any of seven roles in t+e p,rc+ase
decision process:

nitiators' Peo%le ho re9uest that something !e %urchased, including users or others#
=sers' Those ho ill use the %roduct or ser&ice; o"ten, users initiate the !uying %ro%osal and hel%
de"ine %roduct re9uirements#
In*luen$ers' Peo%le ho in"luence the !uying decision, including technical %ersonnel# They o"ten
hel% de"ine s%eci"ications and also %ro&ide in"ormation "or e&aluating alternati&es#
%e$iers' Those ho decide on %roduct re9uirements or on su%%liers#
Appro5ers' Peo%le ho authori*e the %ro%osed actions o" deciders or !uyers#

<uyers1 Peo%le ho ha&e "ormal authority to select the su%%lier and arrange the %urchase terms,
including high-le&el managers# -uyers may hel% sha%e %roduct s%eci"ications, !ut their maIor role is
selecting &endors and negotiating#
Gatekeepers' Peo%le ho ha&e the %oer to %re&ent sellers or in"ormation "rom reaching mem!ers
o" the !uying center; e5am%les are %urchasing agents, rece%tionists, and tele%hone o%erators#
There is also a trend toard team-!ased !uying# 6n one sur&ey, =D %ercent o" the %urchasing
e5ecuti&es at ?ortune 1@@@ com%anies see more use o" teams dran "rom di""erent de%artments and
"unctions to make !uying decisions#This trend is leading to more team selling, as shon in the earlier
Cutler-Hammer e5am%le#
Ma8or In*luen$es on <usiness <uying
-usiness !uyers res%ond to "our main in"luences' en&ironmental, organi*ational, inter%ersonal, and
indi&idual, culture is also a "actor#
En5ironmental Fa$tors
3ithin the macro en&ironment, !usiness !uyers %ay close attention to numerous economic "actors,
including interest rates and le&els o" %roduction, in&estment, and consumer s%ending# 6n a recession,
!usiness !uyers reduce their in&estment in %lant, e9ui%ment, and in&entories# -usiness marketers can
do little to stimulate total demand in recessionary %eriods; they can only "ight harder to increase or
maintain their share o" demand#
Com%anies that "ear materials shortages o"ten !uy and hold large in&entories
and sign long-term contracts ith su%%liers to ensure steady a&aila!ility# 6n "act,
8uPont, ?ord, and other maIor com%anies regard long-term su%%ly %lanning as a maIor
res%onsi!ility o" their %urchasing managers#
-usiness !uyers also acti&ely monitor technological, %olitical-regulatory, and
com%etiti&e de&elo%ments# ?or e5am%le, en&ironmental concerns can cause changes
in !usiness !uyer !eha&ior# A %rinting "irm might "a&or su%%liers that carry recycled
%a%ers or use en&ironmentally sa"e ink# 0ne !uyer claimed, 13e %ush su%%liers ith
technical e5%ertise to !e more socially conscious#2
"rgani7ational Fa$tors
E&ery organi*ation has s%eci"ic %urchasing o!Iecti&es, %olicies, %rocedures, organi*ational
structures, and systems# -usiness marketers need to !e aare o" the "olloing organi*ational trends
in %urchasing'
Purchasing de%artment u%grading# ;%urred !y com%etiti&e %ressures, com%anies are sta""ing their
%urchasing de%artments ith /-As ho as%ire to !e CE0s,like Thomas ;tallkam%,
8aimlerChrysler$s recently retired %resident# 6n his earlier role as e5ecuti&e &ice %resident o"
%rocurement and su%%ly, ;tallkam% as highly success"ul in cost-cutting and in streamlining
manu"acturing %rocesses#These ne, more strategically %ositioned 1%rocurement de%artments2 seek
out the !est &alue "rom "eer and !etter su%%liers# At Cater%illar and other multinationals,
%urchasing de%artments ha&e !een ele&ated into 1strategic su%%ly de%artments2 ith res%onsi!ility
"or glo!al sourcing and %artnering# 6n res%onse to this trend, !usiness marketers must
corres%ondingly u%grade their sales %ersonnel to match the higher cali!er o" the !usiness !uyers#
#
Cross-"unctional roles# 6n a recent sur&ey, most %urchasing %ro"essionals descri!ed their Io! as more
strategic, technical, team-oriented, and in&ol&ing more res%onsi!ility than e&er !e"ore# 1Purchasing
is doing more cross-"unctional ork than it did in the %ast,2 says 8a&id 8u%rey, a !uyer "or Anaren
/icroa&e 6nc#, hich makes microa&e-signal %rocessing de&ices "or communication and de"ense#
;i5ty-one %ercent o" !uyers sur&eyed said the !uying grou% as more in&ol&ed in ne-%roduct
design and de&elo%ment than it as C years ago# /ore than hal" o" the
!uyers no %artici%ate in cross-"unctional teams, ith su%%liers ell re%resented#
#
Centrali*ed %urchasing# 6n multidi&isional com%anies, most %urchasing is carried out !y se%arate
di&isions !ecause o" their di""ering needs# ;ome com%anies, hoe&er, ha&e recentrali*ed their
%urchasing, identi"ying materials %urchased !y se&eral di&isions and !uying them centrally to gain
more %urchasing clout# 6ndi&idual di&isions can !uy "rom other sources i" they can get a !etter deal,
!ut centrali*ed %urchasing usually %roduces su!stantial sa&ings# ?or the !usiness marketer, this
means dealing ith "eer and higher-le&el !uyers, and using a national account sales grou% to deal
ith large cor%orate !uyers#
#
8ecentrali*ed %urchasing o" small-ticket items# /ore com%anies are decentrali*ing selected
%urchasing o%erations !y em%oering em%loyees to %urchase small-ticket items such as s%ecial
!inders and co""ee makers# This has come a!out through the a&aila!ility o" cor%orate %urchasing
cards issued !y credit-card "irms# Com%anies distri!ute the cards to su%er&isors, clerks, and
secretaries; the cards incor%orate codes that set credit limits and restrict usage# Kational
;emiconductor$s %urchasing chie" says these cards ha&e cut %rocessing costs "rom A+@ an order to a
"e cents# 1Ko !uyers and su%%liers can s%end less time on %a%erork, so %urchasing de%artments
ha&e more time "or !uilding %artnershi%s#2
6nter%ersonal ?actors
-uying centers usually include se&eral %artici%ants ith di""ering interests, authority, status,
em%athy, and %ersuasi&eness# The !usiness marketer is not likely to kno hat kind o" grou%
dynamics take %lace during the !uying decision %rocess# There"ore, success"ul "irms stri&e to "ind out
as much as %ossi!le a!out indi&idual !uying center %artici%ants and their interaction and train sales
%ersonnel and others "rom the marketing organi*ation to !e more attuned to the in"luence o"
inter%ersonal "actors#
6ndi&idual ?actors
Each !uyer carries %ersonal moti&ations, %erce%tions, and %re"erences, as in"luenced !y the !uyer$s
age, income, education, Io! %osition, %ersonality, attitudes toard risk, and culture# /oreo&er, !uyers
de"initely e5hi!it di""erent !uying styles# ?or e5am%le, some younger, highly educated !uyers are
e5%ert at conducting rigorous, com%uteri*ed analyses o" com%etiti&e %ro%osals !e"ore choosing a
su%%lier# 0ther !uyers are 1toughies2 "rom the old school and %it com%etitors against one another#
Bnderstanding these "actors can !etter %re%are marketers "or dealing ith indi&iduals
ithin the !uying center#
Cultural ?actors
;a&&y marketers care"ully study the culture and customs o" each country or region here they ant
to sell their %roducts, to !etter understand the cultural "actors that can a""ect !uyers and the !uying
organi*ation# ?or e5am%le, in (ermany, !usiness%eo%le %re"er to !e introduced !y their "ull, correct
titles, and they shake hands at !oth the !eginning and the end o" !usiness meetings# As another
e5am%le, !oth 7orean and :a%anese !usiness%eo%le o!ser&e Con"ucian ethics !ased on res%ect "or
authority and the %rimacy o" the grou% o&er the indi&idual#)@ /arketers that sell to "irms in other
nations must !e aare o" such cultural attitudes and %ractices, !ecause they %ermeate
!usiness-to-!usiness transactions#
STAGES IN IN%=STRIA/ <=AING #R"CESS
Stage 21 #ro0lem Re$ognition
The !uying %rocess !egins hen someone in the com%any recogni*es a %ro!lem or need that can !e
met !y ac9uiring a good or ser&ice# The recognition can !e triggered !y internal or e5ternal stimuli#
6nternally, %ro!lem recognition commonly occurs hen a "irm decides to de&elo% a ne %roduct and
needs ne e9ui%ment and materials, hen a machine !reaks don and re9uires ne %arts, hen
%urchased material turns out to !e unsatis"actory, and hen a %urchasing manager senses an
o%%ortunity to o!tain loer %rices or !etter 9uality# E5ternally, %ro!lem recognition can occur
hen a !uyer gets ne ideas at a trade sho, sees a su%%lier$s ad, or is contacted !y a sales
re%resentati&e o""ering a !etter %roduct or a loer %rice# ?or their %art, !usiness marketers can
stimulate %ro!lem recognition !y direct mail, telemarketing, e""ecti&e 6nternet communications, and
calling on %ros%ects#
Stage 31 General Nee %es$ription
0nce a %ro!lem has !een recogni*ed, the !uyer has to determine the needed item$s general
characteristics and the re9uired 9uantity# ?or standard items, this is not a &ery in&ol&ed %rocess# ?or
com%le5 items, the !uyer ill ork ith others,engineers, users, and so on,to de"ine the needed
characteristics# These may include relia!ility, dura!ility, %rice, or other attri!utes# 6n this stage,
!usiness marketers can assist !uyers !y descri!ing ho their %roducts ould meet such needs#
Stage 41 #rou$t Spe$i*i$ation
3ith a general need descri%tion in hand, the !uying organi*ation can de&elo% the item$s technical
s%eci"ications# 0"ten, the com%any ill assign a %roduct &alue analysis FPLAG engineering team to
the %roIect# Product &alue analysis is an a%%roach to cost reduction in hich com%onents are
care"ully studied to determine i" they can !e redesigned or standardi*ed or made !y chea%er methods
o" %roduction#
Stage ,1 Supplier Sear$h
The !uyer no tries to identi"y the most a%%ro%riate su%%liers, !y e5amining trade directories, doing
a com%uter search, %honing other "irms "or recommendations, scanning trade ad&ertisements, and
attending trade shos# Hoe&er, these days the most likely %lace to look is on the 6nternet# This
le&els the %laying "ield, !ecause smaller su%%liers ha&e the same ad&antages as larger ones and can
!e listed in the same on-line catalogs "or a nominal "ee#
0ne o" the more com%rehensi&e, glo!al on-line catalog li!raries is !eing assem!led !y 3orldide
6nternet ;olutions Ketork 6nc, !etter knon as 36Y-net F#i*net#netG# The "irm$s data!ase
includes "ull catalogs "rom more than D),@@@ manu"acturers, distri!utors, and industrial ser&ice
%ro&iders around the orld, containing more than = million %roduct s%eci"ications# ?or %urchasing
managers, this kind o" one-sto% sho%%ing can !e an incredi!le time sa&er Fand %rice sa&er, !ecause it
allos easier com%arison sho%%ingG# And it is more con&enient' 36Y-Ket also o""ers secure e-
mail so !uyers can communicate directly ith su%%liers to ask "or !ids or to %lace orders#
Stage 91 #roposal Soli$itation
6n this stage, the !uyer is ready to in&ite 9uali"ied su%%liers to su!mit %ro%osals# 3hen the item is
com%le5 or e5%ensi&e, the !uyer ill re9uire a detailed ritten %ro%osal "rom each 9uali"ied su%%lier#
A"ter e&aluating the %ro%osals, the !uyer ill in&ite a "e su%%liers to make "ormal %resentations#
-usiness marketers must thus !e skilled in researching, riting, and %resenting %ro%osals# Their
ritten %ro%osals should !e marketing documents, not Iust technical documents# Their oral
%resentations should ins%ire con"idence, %ositioning their com%any$s ca%a!ilities and resources so
that they stand out "rom the com%etition#
Stage :1 Supplier Sele$tion
-e"ore selecting a su%%lier, the !uying center ill s%eci"y desired su%%lier attri!utes Fsuch as %roduct
relia!ility and ser&ice relia!ilityG and indicate their relati&e im%ortance# 6t ill then rate each su%%lier
on these attri!utes to identi"y the most attracti&e one#
At this %oint, the !uyer may attem%t to negotiate ith %re"erred su%%liers "or !etter %rices and terms
!e"ore making the "inal selection# 8es%ite mo&es toard strategic sourcing, %artnering, and
%artici%ation in cross-"unctional teams, !uyers still s%end a large chunk o" their time haggling o&er
%rice, hich remains a key criterion "or su%%lier selection#)> /arketers can counter a !uyer$s re9uest
"or a loer %rice in a num!er o" ays# They may !e a!le to sho e&idence that the 1li"e-cycle cost2
o" using the %roduct is loer than that o" com%etitors$ %roducts# They can also cite the &alue o" the
ser&ices the !uyer no recei&es, es%ecially here those ser&ices are su%erior to those
o""ered !y com%etitors#
=#)Helett-Packard*discovered t+at some companies 0ant a partner and ot+ers simply 0ant a
prod,ct t+at 0orks. Still, t+e company estimates t+at t+e tr,sted6advisor approac+ +as contri-,ted
to $0 percent gro0t+ of its +ig+6end comp,ter -,siness.
Stage B1 "rer-Routine Spe$i*i$ation
A"ter selecting su%%liers, the !uyer negotiates the "inal order, listing the technical s%eci"ications, the
9uantity needed, the deli&ery schedule, and so on# 6n the case o" /R0 items, !uyers are mo&ing
toard !lanket contracts rather than %eriodic %urchase orders# A !lanket contract esta!lishes a long-
term relationshi% in hich the su%%lier %romises to resu%%ly the !uyer as needed at agreed-u%on
%rices o&er a s%eci"ied %eriod# -ecause the seller holds the stock, !lanket contracts are sometimes
called stockless %urchase %lans# The !uyer$s com%uter automatically sends an order to the seller
hen stock is needed, and the su%%lier arranges deli&ery and !illing according to the
!lanket contract#
-lanket contracting leads to more single-source !uying and ordering o" more items "rom that single
source# This system locks su%%liers in tighter ith the !uyer and makes it di""icult "or out-su%%liers
to !reak in unless the !uyer !ecomes dissatis"ied ith the in-su%%lier$s %rices, 9uality, or ser&ice#
Stage C1 #er*orman$e Re5iew
6n the "inal stage o" the !uying %rocess, the !uyer %eriodically re&ies the %er"ormance
o" the chosen su%%lierFsG# Three methods are commonly used# The !uyer may
contact the end users and ask "or their e&aluations# 0r the !uyer may rate the su%%lier
on se&eral criteria using a eighted score method# 0r the !uyer might aggregate the
cost o" %oor su%%lier %er"ormance to come u% ith adIusted costs o" %urchase, including
%rice# The %er"ormance re&ie may lead the !uyer to continue, modi"y, or end the
relationshi% ith the su%%lier# There"ore, to stay in the running "or "uture %urchases,
su%%liers should monitor their %er"ormance care"ully using the same criteria a%%lied
!y the %roduct$s !uyers and end users# ;mart su%%liers also analy*e the ri&als ho com%ete
"or the same !usiness, as discussed in the ne5t cha%ter#
C!A#TER-B
Managing #rou$t /ines an <rans
3e ill address the "olloing 9uestions'
1#3hat are the characteristics o" %roducts.
)#Ho can a com%any !uild and manage its %roduct mi5 and %roduct lines.
+#Ho can a com%any make !etter !rand decisions.
>#Ho can %ackaging and la!eling !e used as marketing tools.
Product, as success"ul "irms the orld o&er are keenly aare, is a key element in the market o""ering#
This holds true hether the %roduct is a tele&ision sho Fo""ered !y Arts 4 Entertainment KetorkG,
an 6nternet access ser&ice Fo""ered !y AT4TG, a ham!urger Fo""ered !y 3endy$sG, a 8L8 %layer
Fo""ered !y ;onyG, a seater Fo""ered !y -enettonG, or a chocolate !ar Fo""ered !y KestlWG# Ko matter
here the %roduct originates, no matter hich market segment is !eing targeted, marketing-mi5
%lanning !egins ith "ormulating an o""ering to meet customers$ needs or ants#
Pre&iously, e looked at ho com%anies de&elo%, di""erentiate, and %osition their %roducts
throughout the li"e cycle# Here, e e5amine the conce%t o" %roduct and %roduct-line decisions# 3e
also e5%lore !asic !rand decisions and key %ackaging and la!eling issues# Three elements,%roduct,
ser&ices, and %rice,must !e meshed into a com%etiti&ely attracti&e o""ering i" a com%any ants to
%er"orm ell in the market%lace#
T!E #R"%=CT AN% T!E #R"%=CT MI?
A %roduct is anything that can !e o""ered to a market to satis"y a ant or need# Products include
%hysical goods, ser&ices, e5%eriences, e&ents, %ersons, %laces, %ro%erties, organi*ations, in"ormation,
and ideas# The customer ill Iudge the o""ering !y three !asic elements' prod,ct feat,res and
/,ality, services mix and /,ality, and price appropriateness # As a result, marketers must care"ully
think through the le&el at hich they set each %roduct$s "eatures, !ene"its, and 9uality#
#rou$t /e5els
/arketers %lan their market o""ering at five levels, as shon in ?igure >-)#1 Each le&el adds more
customer &alue, and together the "i&e le&els constitute a customer &alue hierarchy#
The most f,ndamental level is t+e core -enefit' the "undamental ser&ice or !ene"it that the customer
is really !uying# A hotel guest is !uying 1rest and slee%2; the %urchaser o" a drill is !uying 1holes#2
E""ecti&e marketers there"ore see themsel&es as %ro&iders o" %roduct !ene"its, not merely %roduct
"eatures#
At the second level, the marketer has to turn the core !ene"it into a !asic %roduct# Thus, a hotel room
includes a !ed, !athroom, toels, and closet#
>+ird level, the marketer %re%ares an e5%ected %roduct, a set o" attri!utes and conditions that
!uyers normally e5%ect hen they !uy the %roduct#
At the fo,rt+ level, the marketer %re%ares an augmented %roduct that e5ceeds customer e5%ectations#
A hotel might include a remote-control tele&ision set, "resh "loers, and e5%ress check-in and
checkout# Today$s com%etition essentially takes %lace at the %roduct-augmentation le&el# F6n less
de&elo%ed countries, com%etition takes %lace mostly at the e5%ected %roduct le&el#G Product
augmentation leads the marketer to look at the user$s total consum%tion system' the ay the user
%er"orms the tasks o" getting, using, "i5ing, and dis%osing o" the %roduct#) As He&itt notes' 1The ne
com%etition is not !eteen hat com%anies %roduce in their "actories, !ut !eteen hat they add to
their "actory out%ut in the "orm o" %ackaging, ser&ices, ad&ertising, customer ad&ice, "inancing,
deli&ery arrangements, arehousing, and other things that %eo%le &alue#2
#rou$t Classi*i$ations
6n addition to understanding a %roduct$s %osition in the hierarchy, the marketer also must understand
ho to classi"y the %roduct on t+e -asis of t+ree c+aracteristics: d,ra-ility, tangi-ility, and cons,mer
or ind,strial ,se# Each %roduct classi"ication is associated ith a di""erent marketing-mi5 strategy#

1,ra-ility and tangi-ility# Kondura!le goods are tangi!le goods that are normally consumed in one
or a "e uses Fsuch as !eer and soa%G# -ecause these goods are consumed 9uickly and %urchased
"re9uently, the a%%ro%riate strategy is to make them a&aila!le in many locations, charge only a small
marku%, and ad&ertise hea&ily to induce trial and !uild %re"erence# 8ura!le goods are tangi!le goods
that normally sur&i&e many uses Fsuch as re"rigeratorsG# These %roducts normally re9uire more
%ersonal selling and ser&ice, command a higher margin, and re9uire more seller
guarantees# ;er&ices are intangi!le, inse%ara!le, &aria!le, and %erisha!le %roducts Fsuch as haircuts
or cell %hone ser&iceG, so they normally re9uire more 9uality control, su%%lier credi!ility, and
ada%ta!ility#
7ons,mer6goods classification. Classi"ied according to consumer sho%%ing ha!its, these %roducts
include' con&enience goods that are usually %urchased "re9uently, immediately, and ith a minimum
o" e""ort, such as nes%a%ers; sho%%ing goods that the customer, in the %rocess o" selection and
%urchase, characteristically com%ares on the !asis o" suita!ility, 9uality, %rice, and style, such as
"urniture; s%ecialty goods ith uni9ue characteristics or !rand identi"ication, such as cars, "or hich
a su""icient num!er o" !uyers are illing to make a s%ecial %urchasing e""ort; and unsought goods
that consumers do not kno a!out or do not normally think o" !uying, such as smoke detectors#
8ealers that sell s%ecialty goods need not !e con&eniently located !ut must communicate their
locations to !uyers; unsought goods re9uire more ad&ertising and %ersonal sales su%%ort#
(nd,strial6goods classification. /aterials and %arts are goods that enter the manu"acturer$s %roduct
com%letely# Ra materials can !e either "arm %roducts Fe#g#, heatG or natural %roducts Fe#g#,
lum!erG# ?arm %roducts are sold through intermediaries; natural %roducts are generally sold through
long-term su%%ly contracts, "or hich %rice and deli&ery relia!ility are key %urchase "actors#
/anu"actured materials and %arts "all into to categories' com%onent materials FironG and
com%onent %arts Fsmall motorsG; again, %rice and su%%lier relia!ility are im%ortant considerations#
Ca%ital items are long-lasting goods that "acilitate de&elo%ing or managing the "inished %roduct#
#rou$t Mi(1
A %roduct mi5 is the set o" all %roducts and items that a %articular seller o""ers "or sale# A com%anyRs %roduct
mi5 has certain idth, length, de%th and consistency#
A %roduct mi5 Falso called %roduct assortmentG is the set o" all %roducts and items that a %articular
marketer o""ers "or sale# At 7odak, the %roduct mi5 consists o" to strong %roduct lines' in"ormation
%roducts and image %roducts# At KEC F:a%anG, the %roduct mi5 consists o" communication %roducts
and com%uter %roducts#
>+e prod,ct mix of an individ,al company can -e descri-ed in terms of 0idt+, lengt+, dept+, and
consistency. >+e 0idt+ refers to +o0 many different prod,ct lines t+e company carries. >+e lengt+
refers to t+e total n,m-er of items in t+e mix. >+e dept+ of a prod,ct mix refers to +o0 many variants
of eac+ prod,ct are offered. The consistency o" the %roduct mi5 re"ers to ho closely related the
&arious %roduct lines are in end use, %roduction re9uirements, distri!ution channels, or some other
ay#
These "our %roduct-mi5 dimensions %ermit the com%any to e5%and its !usiness !y F1G adding ne
%roduct lines, thus idening its %roduct mi5; F)G lengthening each %roduct line; F+G dee%ening the
%roduct mi5 !y adding more &ariants; and F>G %ursuing more %roduct-line consistency#
#R"%=CT-/INE %ECISI"NS
Es%ecially in large com%anies such as 7odak and KEC, the %roduct mi5 consists o" a &ariety o"
%roduct lines# 6n o""ering a %roduct line, the com%any normally de&elo%s a !asic %lat"orm and
modules that can then !e e5%anded to meet di""erent customer re9uirements# 2s one example, many
home !uilders sho a model home to hich additional "eatures can !e added, ena!ling the !uilders
to o""er &ariety hile loering their %roduction costs# Regardless o" the ty%e o" %roducts !eing
o""ered, success"ul marketers do not make %roduct-line decisions ithout rigorous analysis#
#rou$t-/ine Analysis
To su%%ort decisions a!out hich items to !uild, maintain, har&est, or di&est, %roductline managers
need to analy*e the sales and %ro"its as ell as the market %ro"ile o" each item'

Sales and profits# The manager must calculate the %ercentage contri!ution o" each item to total sales
and %ro"its# A high concentration o" sales in a "e items means line &ulnera!ility# 0n the other hand,
the "irm may consider eliminating items that deli&er a lo %ercentage o" sales and %ro"its unless
these e5hi!it strong groth %otential#
Market profile. The manager must re&ie ho the line is %ositioned against com%etitors$ lines# A
use"ul tool here is a %roduct ma% shoing hich com%etiti&e %roducts com%ete against the
com%any$s %roducts on s%eci"ic "eatures or !ene"its# This hel%s management identi"y di""erent market
segments and determine ho ell the "irm is %ositioned to ser&e the needs o" each#
#rou$t-/ine /ength
Com%anies seeking high market share and market groth ill carry longer lines; com%anies
em%hasi*ing high %ro"ita!ility ill carry shorter lines o" care"ully chosen items#Hine stretching
occurs hen a "irm lengthens its %roduct line#
3ith a do0nmarket stretch, a "irm introduces a loer %rice line# Hoe&er, mo&ing donmarket can
!e risky, as 7odak "ound out# 6t introduced 7odak ?untime "ilm to counter loer-%riced !rands, !ut
the %rice as not lo enough to match the loer-%riced com%etiti&e %roducts# 3hen regular
customers started !uying ?untime canni!ali*ing the core !rand,7odak ithdre ?untime#
3ith an ,pmarket stretc+, a com%any enters the high end o" the market "or more groth, higher
margins, or to %osition itsel" as a "ull-line manu"acturer# All o" the leading :a%anese automakers ha&e
launched an u%scale automo!ile' Toyota launched He5us; Kissan launched 6n"inity; and Honda
launched Acura#
/ine Featuring an /ine #runing
The %roduct-line manager ty%ically selects one or a "e items in the line to "eature;
this is a ay o" attracting customers, lending %restige, or achie&ing other goals# 6" one
end o" its line is selling ell and the other end is selling %oorly, the com%any may use
"eaturing to !oost demand "or the sloer sellers, es%ecially i" those items are %roduced
in a "actory that is idled !y lack o" demand# 6n addition, managers must %eriodically
re&ie the entire %roduct line "or %runing, identi"ying eak items through sales and
cost analysis#
<RAN% %ECISI"NS
-randing is a maIor issue in %roduct strategy# 0n the one hand, de&elo%ing a !randed %roduct
re9uires a huge long-term in&estment, es%ecially "or ad&ertising, %romotion, and %ackaging#
Hoe&er, it need not entail actual %roduction' /any !rand-oriented com%anies such as ;arah Hee
su!contract manu"acturing to other com%anies# 0n the other hand, manu"acturers e&entually learn
that market %oer comes "rom !uilding their on !rands# The :a%anese "irms ;ony and Toyota, "or
e5am%le, ha&e s%ent li!erally to !uild their !rand names glo!ally# E&en hen com%anies can no
longer a""ord to manu"acture their %roducts in their homelands, strong !rand names continue to
command customer loyalty#
'hat Is a <ranL
Perha%s the most distincti&e skill o" %ro"essional marketers is their a!ility to create, maintain,
%rotect, and enhance !rands#
C>+e 2merican Marketing 2ssociation defines a -rand as a name, term, sign, sym-ol, or design, or a
com-ination of t+ese, intended to identify t+e goods or services of one seller or gro,p of sellers and
to differentiate t+em from t+ose of competitors.D
6n essence, a !rand identi"ies the seller or maker# 3hether it is a name, trademark, logo, or another
sym!ol, a !rand is essentially a seller$s %romise to deli&er a s%eci"ic set o" "eatures, !ene"its, and
ser&ices consistently to the !uyers# The !est !rands con&ey a arranty o" 9uality# -ut a !rand is an
e&en more com%le5 sym!ol# 6t can con&ey u% to si5 le&els o" meaning, as shon in Ta!le >#1#
/eaning 8escri%tion E5am%le
Attri!utes A !rand !rings to mind certain /ercedes suggests e5%ensi&e,attri!utes# ell-!uilt, dura!le,
high-%restige &ehicles#
-ene"its Attri!utes must !e translated The attri!ute 1dura!le2 could into "unctional and emotional
translate into the "unctional#

!ene"its# !ene"it 16 on$t ha&e to !uy another car "or se&eral years#2
Lalues The !rand says something a!out /ercedes stands "or high the %roducer$s &alues#
%er"ormance, sa"ety, and %restige#
Culture The !rand may re%resent a /ercedes re%resents (erman certain culture# culture' organi*ed,
e""icient, high 9uality#
<ran E@uity
-rands &ary in the amount o" %oer and &alue they ha&e in the market%lace# At one e5treme are
!rands that are not knon !y most !uyers# Then there are !rands "or hich !uyers ha&e a "airly high
degree o" !rand aareness# -eyond this are !rands ith a high degree o" !rand acce%ta!ility# Ke5t
are !rands that enIoy a high degree o" !rand %re"erence# ?inally there are !rands that command a
high degree o" !rand loyalty# Aaker distinguished "i&e le&els o" customer attitude toard a !rand'
1# Customer ill change !rands, es%ecially "or %rice reasons# Ko !rand loyalty#
)# Customer is satis"ied# Ko reason to change the !rand#
+# Customer is satis"ied and ould incur costs !y changing !rand#
># Customer &alues the !rand and sees it as a "riend#
C# Customer is de&oted to the !rand#
High !rand e9uity allos a com%any to enIoy reduced marketing costs !ecause o" high !rand
aareness and loyalty, gi&es a com%any more le&erage in !argaining ith distri!utors and retailers,
%ermits the "irm to charge more !ecause the !rand has higher %ercei&ed 9uality, allos the "irm to
more easily launch e5tensions !ecause the !rand has high credi!ility, and o""ers some de"ense against
%rice com%etition#
;ome analysts see !rands as outlasting a com%any$s s%eci"ic %roducts and "acilities, so !rands
!ecome the com%any$s maIor enduring asset# Pet e&ery %oer"ul !rand really re%resents a set o"
loyal customers# There"ore, the "undamental asset underlying !rand e9uity is customer e9uity# This
suggests that the %ro%er "ocus o" marketing %lanning is that o" e5tending loyal customer li"etime
&alue, ith !rand management ser&ing as a maIor marketing tool#
<raning Challenges
-randing %oses se&eral challenges to the marketer Fsee ?igure >-+G# The "irst is hether or not to
!rand, the second is ho to handle !rand s%onsorshi%, the third is choosing a !rand name, the "ourth
is deciding on !rand strategy, and the "i"th is hether to re%osition a !rand later on#
To <ran or Not to <ranL
The "irst decision is hether the com%any should de&elo% a !rand name "or its %roduct#
-randing is such a strong "orce today that hardly anything goes un!randed, including salt, oranges,
nuts and !olts, and a groing num!er o" "resh "ood %roducts such as chicken and turkey#
6n some cases, there has !een a return to 1no !randing2 o" certain sta%le consumer goods and
%harmaceuticals# (enerics are un!randed, %lainly %ackaged, less e5%ensi&e &ersions o" common
%roducts such as s%aghetti or %a%er toels# They o""er standard or loer 9uality at a %rice that may
!e as much as )@ %ercent to >@ %ercent loer than nationally ad&ertised !rands and 1@ %ercent to )@
%ercent loer than retailer %ri&ate-la!el !rands# The loer %rice is made %ossi!le !y loer-9uality
ingredients, loer-cost la!eling and %ackaging, and minimal ad&ertising# ;ellers !rand their
%roducts, des%ite the costs, !ecause they gain a num!er o" ad&antages' The !rand makes it easier "or
the seller to %rocess orders; the seller$s !rand name and trademark legally %rotect uni9ue %roduct
"eatures; !randing allos sellers to attract loyal, %ro"ita!le customers and o""ers some %rotection
"rom com%etition; !randing hel%s the seller segment markets !y o""ering di""erent !rands ith
di""erent "eatures "or di""erent !ene"it-seeking segments; and strong !rands hel% !uild
the cor%orate image, easing the ay "or ne !rands and ider acce%tance !y distri!utors and
customers#
<ran-Sponsor %e$ision
A manu"acturer has se&eral o%tions ith res%ect to !rand s%onsorshi%# The %roduct may !e launched
as a manu"acturer !rand Fsometimes called a national !randG, a distri!utor !rand Falso called reseller,
store, house, or %ri&ate !randG, or a licensed !rand name# Another alternati&e is "or the manu"acturer
to %roduce some out%ut under its on name and some under reseller la!els# 7ellogg, :ohn 8eere, and
6-/ sell &irtually all o" their out%ut under their on !rand names, hereas 3hirl%ool %roduces !oth
under its on name and under distri!utors$ names F;ears 7enmore a%%liancesG# Although
manu"acturers$ !rands dominate, large retailers and holesalers ha&e !een de&elo%ing their on
!rands !y contracting %roduction "rom illing manu"acturers#
Today$s consumers are also more %rice sensiti&e, !ecause a steady !arrage o" cou%ons and %rice
s%ecials has trained them to !uy on %rice# 6n "act, o&er time, com%anies ha&e reduced ad&ertising to
+@ %ercent o" their total %romotion !udget, eakening !rand e9uity# /oreo&er, the endless stream o"
!rand e5tensions and line e5tensions has !lurred !rand identity and led to a con"using amount o"
%roduct %roli"eration# ?urther, consumers see little di""erence in 9uality among !rands no that
com%eting manu"acturers and retailers are co%ying and du%licating the 9ualities o" the !est !rands#
Strategy E(amples Rationale
6ndi&idual names (eneral /ills F-is9uick,
(old /edal, -etty CrockerG
The "irm does not tie its
re%utation to the %roduct$s; i" the %roduct
"ails or seems lo 9uality, the com%any$s
name or image is not hurt#
Blanket
family names
Cam%!ell$s, Hein*, (eneral
Electric
The "irm s%ends less on
de&elo%ment !ecause there is no need "or
1name2 research or hea&y ad s%ending to
create !rand-name recognition; also,
%roduct sales are likely to !e strong i" the
manu"acturer$s name is good#
;e%arate "amily
names "or all
%roducts
;ears F7enmore "or a%%liances,
Cra"tsman "or toolsG; -ank
0ne F-ank 0ne "or the
%hysical !ranches,
3ings%an-ank#com "or the
6nternet-!ased !ankG
3here a "irm o""ers 9uite
di""erent %roducts, se%arate
"amily names are more
a%%ro%riate than one !lanket
"amily name#
Com%any trade
name ith
indi&idual
%roduct names
7ellogg F7ellogg$s Rice
7ris%ies,
7ellogg$s Raisin -ranG
The com%any name legitimi*es
hile the indi&idual name
indi&iduali*es each %roduct#
0nce a com%any decides on its !rand-name strategy, it must choose a s%eci"ic !rand name# The
com%any could choose the name o" a %erson FHonda, EstWe Hauder,TATAG, location FAmerican
Airlines, 7entucky ?ried ChickenG, 9uality F;a"eay, 8uracellG, li"estyle F3eight 3atchers, Healthy
ChoiceG, or an arti"icial name FE55on, e-ayG# Among the desira-le /,alities "or a !rand name are the
"olloing'
1# 6t should suggest something a!out the %roduct$s !ene"its# E5am%les' -eauty-rest,
Priceline#com
)# 6t should suggest %roduct 9ualities# E5am%les' ;%ic and ;%an, :i""y Hu!e
+# 6t should !e easy to %ronounce, recogni*e, and remem!er# E5am%les' Tide, Ama*on#com
># 6t should !e distincti&e# E5am%les' 7odak, Pahoo\
C# 6t should not carry %oor meanings in other countries and languages# E5am%le' Ko&a is a
%oor name "or a car to !e sold in ;%anish-s%eaking countries !ecause it means
1doesn$t go#2
/any "irms stri&e to !uild a uni9ue !rand name that e&entually ill !ecome intimately identi"ied
ith the %roduct category# E5am%les are ?rigidaire, 7leene5, 7itty Hitter, He&is, :ell-0, Po%sicle,
;cotch Ta%e, Tero5, and ?i!erglas# 6n 1<<>, ?ederal E5%ress o""icially shortened its marketing
identity to ?edE5, a term that has !ecome a synonym "or 1to shi% o&ernight#2 Pet identi"ying a !rand
name ith a %roduct category may threaten the com%any$s e5clusi&e rights to that name# ?or
e5am%le, cello%hane and shredded heat are no in the %u!lic domain and are a&aila!le "or any
manu"acturer to use#
(i&en the ra%id groth o" the glo!al market%lace, success"ul com%anies and e-!usinesses are care"ul
to choose !rand names that are meaning"ul orldide and %ronouncea!le in other languages# 0ne
thing Com%a9 liked a!out the name Presario "or its line o" home com%uters is that it conIures u%
similar meanings in &arious Hatin-in"luenced languages# 6n ?rench, ;%anish, Hatin, or Portuguese,
Presario has the same, or similar, association that it does in English' 6t suggests an 16m%resario,2 the
magical master o" the hirl and "antasy o" a stage %roduction#
<ran Strategy %e$ision
A com%any has "i&e choices hen it comes to !rand strategy'
1# Hine e5tensions Fe5isting !rand name e5tended to ne si*es or "la&ors in the e5isting
%roduct categoryG,
)# -rand e5tensions F!rand names e5tended to ne-%roduct categoriesG,
+# /ulti!rands Fne !rand names introduced in the same %roduct categoryG,
># Ke !rands Fne !rand name "or a ne category %roductG,
C# Co-!rands F!rands !earing to or more ell-knon !rand namesG#
1. Bine xtensions Hine e5tensions introduce additional items in the same %roduct category
under the same !rand name, such as ne "la&ors, "orms, colors, added ingredients, and %ackage
si*es#Bnile&er e5tended its !rand o" HBT toilet sho% introduces line e5tensions on regular !asis !y
introducing Hu5 international, Hu5 -lack Hu5 3hite "or di""erent ty%e o" skins# The &ast maIority o"
ne %roducts are actually line e5tensions#
&n t+e do0nside, extensions may lead to the !rand name losing its s%eci"ic meaning; Ries and Trout
call this the 1line-e5tension tra%#2 A consumer asking "or a Coke in the %ast ould recei&e a )@@ml
+@@ml and so on# Today the seller ill ha&e to ask' )@@, +@@ml regular or diet. -ottle or can.
;ometimes the original !rand identity is so strong that its line e5tensions ser&e only to con"use and
do not sell enough to co&er de&elo%ment and %romotion costs#
&n t+e ,pside, line extensions ha&e a much higher chance o" sur&i&al than do
!rand-ne %roducts# 6n "act, some marketing e5ecuti&es de"end line e5tensions as the
!est ay to !uild a !usiness# /aruti Bdyog HT8# 6nitially introduced /aruti =@@ and then e5tend its
!rand u%side !y launching /aruti 1@@@ and /aruti Esteme# Hero Honda e5tended its !rand o"
e5isting 1@@cc !yke !y introducing some ne !ykes o" 1C@ cc and )@@ cc ca%acity#
8rand xtensions A com%any may use its e5isting !rand name to launch ne %roducts
in other categories# -aIaI auto a %ioneer o" to heeler in 6ndia used !rand e5tensions to introduce
automoti&e "inancing, insurance# A recent trend in cor%orate !rand-!uilding is cor%orations licensing
their names to manu"acturers o" a ide range o" %roducts,"rom !edding to shoes# Harley-8a&idson,
"or e5am%le, uses licensing to reach audiences that are not %art o" its core
market, ith !randed armchairs "or omen and !randed a -ar!ie doll "or the "uture
generation o" Harley %urchasers#
M,lti-rands A com%any ill o"ten introduce additional !rands in the same %roduct category#
;ometimes the "irm is trying to esta!lish di""erent "eatures or a%%eal to di""erent !uying moti&es#
/ulti!randing also ena!les the com%any to lock u% more distri!utor shel" s%ace and to %rotect its
maIor !rand !y setting u% "lanker !rands# ?or e5am%le, T6TAK uses one !rand "or higher-%riced
atches FT6TAK RA(AG and another "or loer-%riced atches F;0KATAG to %rotect its "lanks#
6deally, a com%any$s !rands ithin a category should canni!ali*e the com%etitors$ !rands and not
each other# At the &ery least, net %ro"its "rom multi!rands should !e larger des%ite some
canni!alism#
.e0 8rands 3hen a com%any launches %roducts in a ne category, it may "ind that none o" its
current !rand names are a%%ro%riate# 6" Time5 decides to make tooth!rushes, it is not likely to call
them Time5 tooth!rushes# Pet esta!lishing a ne !rand name in the B#;# market%lace "or a mass-
consumer-%ackaged good can cost anyhere "rom AC@ million to A1@@ million, making this an
e5tremely critical decision#
7o6-rands A rising %henomenon is the emergence o" co-!randing Falso called dual !randingG, in
hich to or more ell-knon !rands are com!ined in an o""er# Each !rand s%onsor e5%ects that the
other !rand name ill strengthen %re"erence or %urchase intention# 6n the case o" co-%ackaged
%roducts, each !rand ho%es it might !e reaching a ne audience !y associating ith the other !rand#
Co-!randing takes a &ariety o" "orms# 0ne is ingredient co-!randing, as hen Lol&o
ad&ertises that it uses /ichelin tires or -etty Crocker$s !ronie mi5 includes Hershey$s
chocolate syru%# Another "orm is same-com%any co-!randing, as hen (eneral /ills
ad&ertises Tri5 and Po%lait yogurt# ;till another "orm is Ioint &enture co-!randing, as in
the case o" (eneral Electric and Hitachi light!ul!s in :a%an and the /;K-C 3e! site
"rom /icroso"t and K-C# ?inally, there is multi%le-s%onsor co-!randing, as in the case o"
Taligent, a technological alliance o" A%%le, 6-/, and /otorola#1=
<ran Repositioning
Hoe&er ell a !rand is currently %ositioned, the com%any may ha&e to re%osition it later hen
"acing ne com%etitors or changing customer %re"erences# Consider D-B%, hich as one o" se&eral
so"t drinks !ought %rimarily !y older %eo%le ho anted a !land, lemon-"la&ored drink# Research
indicated that although a maIority o" so"t-drink consumers %re"erred a cola, they did not %re"er it all
o" the time, and many other consumers ere noncola drinkers# D-B% sought leadershi% in the noncola
market !y call
#ACKAGING AN% /A<E/ING
/ost %hysical %roducts ha&e to !e %ackaged and la!eled# ;ome %ackages,such as the
Coke !ottle,are orld "amous# /any marketers ha&e called %ackaging a "i"th P, along
ith %rice, %roduct, %lace, and %romotion; hoe&er, %ackaging and la!eling are usually
treated as an element o" %roduct strategy#
Pac+aging
Packaging includes the acti&ities o" designing and %roducing the container "or a %roduct# The
container is called the %ackage, and it might include u% to three le&els o" material# 0ld ;%ice
a"tersha&e lotion is in a !ottle F%rimary %ackageG that is in a card!oard !o5 Fsecondary %ackageG that
is in a corrugated !o5 Fshi%%ing %ackageG containing si5 do*en !o5es o" 0ld ;%ice#
The "olloing "actors ha&e contri!uted to %ackaging$s groing use as a %otent marketing tool'
Self6service: The ty%ical su%ermarket sho%%er %asses !y some +@@ items %er minute# (i&en that C+
%ercent o" all %urchases are made on im%ulse, an e""ecti&e %ackage attracts attention, descri!es
"eatures, creates con"idence, and makes a "a&ora!le im%ression#
7ons,mer affl,ence: Rising consumer a""luence means consumers are illing to %ay a little more "or
the con&enience, a%%earance, de%enda!ility, and %restige o" !etter %ackages# Com%any and
-rand image: Packages contri!ute to instant recognition o" the com%any or !rand# 6nno&ation
o%%ortunity' 6nno&ati&e %ackaging can !ring !ene"its to consumers and %ro"its to %roducers#
8e&elo%ing an e""ecti&e %ackage "or a ne %roduct re9uires se&eral decisions# The "irst task is to
esta!lish the %ackaging conce%t, de"ining hat the %ackage should !asically !e or do "or the
%articular %roduct# Then decisions must !e made on additional elements,si*e, sha%e, materials,
color, te5t, and !rand mark, %lus the use o" any 1tam%er%roo"2 de&ices# All %ackaging elements must
!e in harmony and, in turn, must harmoni*e ith the %roduct$s %ricing, ad&ertising, and other
marketing elements#
/a0eling
E&ery %hysical %roduct must carry a la!el, hich may !e a sim%le tag attached to the %roduct or an
ela!orately designed gra%hic that is %art o" the %ackage# Ha!els %er"orm se&eral "unctions# ?irst, the
la!el identi"ies the %roduct or !rand,"or instance, the name ;unkist stam%ed on oranges# The la!el
might also grade the %roduct, the ay canned %eaches are grade la!eled A, -, and C# The la!el might
descri!e the %roduct' ho made it, here it as made, hen it as made, hat it contains, ho it is
to !e used, and ho to use it sa"ely# ?inally, the la!el might %romote the %roduct through
attracti&e gra%hics#
Ha!els e&entually !ecome outmoded and need "reshening u%# The la!el on 6&ory soa% has !een
redone 1= times since the 1=<@s, ith gradual changes in the si*e and design o" the letters# The la!el
on 0range Crush so"t drink as su!stantially changed hen com%etitors$ la!els !egan to %icture
"resh "ruits, there!y %ulling in more sales# 6n res%onse, 0range Crush de&elo%ed a la!el ith ne
sym!ols to suggest "reshness and ith much stronger and dee%er colors#
C!A#TER-
%esigning an Managing Ser5i$es
3e ill address the "olloing 9uestions'
Ho are ser&ices de"ined and classi"ied.
Ho can ser&ice "irms im%ro&e their com%etiti&e di""erentiation, ser&ice 9uality, and %roducti&ity.
Ho can goods-%roducing com%anies im%ro&e their customer su%%ort ser&ices.
/arketing theory and %ractice de&elo%ed initially in connection ith %hysical %roducts such as
tooth%aste, cars, and steel# Pet one o" the maIor megatrends o" recent years has !een the %henomenal
groth o" ser&ices# 6n the Bnited ;tates, ser&ice Io!s no account "or D< %ercent o" all Io!s and D>
%ercent o" gross domestic %roduct# According to the -ureau o" Ha!or ;tatistics, ser&ice occu%ations
ill !e res%onsi!le "or all net Io! groth through the year )@@C#1 These num!ers ha&e led to a
groing interest in the s%ecial challenges and o%%ortunities o" ser&ices marketing#
T!E NAT=RE "F SER;ICES
;er&ice industries are 9uite &aried# The go&ernment sector, ith its courts, em%loyment ser&ices,
hos%itals, loan agencies, military ser&ices, %olice and "ire de%artments, %ost o""ice, regulatory
agencies, and schools, is in the ser&ice !usiness# The %ri&ate non%ro"it sector, ith its museums,
charities, churches, colleges, "oundations, and hos%itals, is in the ser&ice !usiness# A good %art o" the
!usiness sector, ith its airlines, !anks, hotels, insurance com%anies, 6nternet ser&ice %ro&iders, la
"irms, management consulting "irms, medical %ractices, motion-%icture com%anies, %lum!ing-re%air
com%anies, real estate "irms, and 3e!-!ased ser&ices, is in the ser&ice !usiness# /any orkers in the
manu"acturing sector, such as com%uter o%erators, accountants, and legal sta"", are really ser&ice
%ro&iders# 6n "act, they make u% a 1ser&ice "actory2 that %ro&ides ser&ices to the
1goods "actory#2
C2 service is any act or performance t+at one party can offer to anot+er t+at is essentially intangi-le
and does not res,lt in t+e o0ners+ip of anyt+ing. (ts prod,ction may or may not -e tied to a p+ysical
prod,ct.D
>>Categories o* Ser5i$e Mi(
As the %re&ious e5am%les sho, ser&ices are o"ten %art o" a com%any$s total o""ering in the
market%lace# 9ive categories of an offering;s service mix can -e disting,is+ed'
1.#,re tangi-le good: The o""ering is a tangi!le good such as soa%; no ser&ices accom%any
the %roduct#
2.>angi-le good 0it+ accompanying services: The o""ering consists o" a tangi!le good accom%anied
!y one or more ser&ices#HER0 H0K8A "or e5am%le, o""ers re%airs, maintenance, arranty
"ul"illment, and other ser&ices along ith its motor !ykes#

3.=y-rid: The o""ering consists o" e9ual %arts o" goods and ser&ices# ?or e5am%le, %eo%le %atroni*e
restaurants "or !oth "ood and ser&ice#
!. Ma:or service 0it+ accompanying minor goods and services: The o""ering consists o" a maIor
ser&ice along ith additional ser&ices or su%%orting goods# ?or e5am%le, airline %assengers are
!uying trans%ortation ser&ice, !ut they get "ood and drinks, as ell#
".#,re service: The o""ering consists %rimarily o" a ser&ice; e5am%les include !a!y-sitting and
%sychothera%y#
An increasing num!er o" com%anies that are knon "or their tangi!le goods o""erings are no
looking to !oost %ro"its "rom ser&ices# Consider (eneral Electric, hich !uilt its !usiness on the
%roduction o" goods such as re"rigerators and light !ul!s# These days, its "astest-groing unit is (E
Ca%ital, hich consists o" )= !usinesses ranging "rom credit cards to truck leasing to insurance#
(ermany$s ;iemens is mo&ing in the same direction !y setting u% a "inancial ser&ices di&ision as a
%ro"it center#
+ imp >>-Chara$teristi$s o* Ser5i$es an Their Marketing Impli$ations
;er&ices ha&e "our maIor characteristics that greatly a""ect the design o" marketing %rograms'
1#6ntangi!ility
)#6nse%ara!ility
+#Laria!ility
>#Perisha!ility#
Intangi0ility
;er&ices are intangi!le# Bnlike %hysical %roducts, they cannot !e seen, tasted, "elt, heard, or smelled
!e"ore they are !ought# The %erson ho is getting a "ace li"t cannot see the e5act results !e"ore the
%urchase, Iust as the %atient in the %sychiatrist$s o""ice cannot kno the e5act outcome !e"ore
treatment#
To reduce uncertainty, !uyers ill look "or signs or e&idence o" the ser&ice 9uality# They ill dra
in"erences a!out 9uality "rom the %lace, %eo%le, e9ui%ment, communication material, sym!ols, and
%rice that they see# There"ore, the ser&ice %ro&ider$s task is to 1manage the e&idence,2 to 1tangi!ili*e
the intangi!le#2 3hereas %roduct marketers are challenged to add a!stract ideas, ser&ice marketers
are challenged to add %hysical e&idence and imagery to a!stract o""ers# This is hy Allstate uses the
slogan 1Pou$re in good hands ith Allstate#2
6n general, ser&ice marketers must !e a!le to trans"orm intangi!le ser&ices into concrete !ene"its#
Consider 8un 4 -radstreet, a A) !illion "irm ith a data!ase o" 11 million B#;# "irms that !usinesses
can access to check the creditorthiness o" their commercial customers# 84-$s senior LP o"
marketing says, 16" e$re calling on a !ank$s credit manager, e$ll research the !ank$s %ort"olio o"
customers, and using the in"ormation in our data!ase, score them !ased on their creditorthiness and
sta!ility and say, QPou ha&e T[ o" customers in the high-risk category and T[ in lorisk#$2This
translates 84-$s intangi!le ser&ices into tangi!le !ene"its "or !anking
customers#
Insepara0ility
;er&ices are ty%ically %roduced and consumed simultaneously, unlike %hysical goods, hich are
manu"actured, %ut into in&entory, distri!uted through resellers, and consumed later# 6" a %erson
renders the ser&ice, then the %ro&ider is %art o" the ser&ice# -ecause the client is also %resent as the
ser&ice is %roduced, %ro&ider-client interaction is a s%ecial "eature o" ser&ices marketing,!oth
%ro&ider and client a""ect the outcome#
0"ten, !uyers o" ser&ices ha&e strong %ro&ider %re"erences# ;e&eral strategies e5ist "or getting around
this limitation# 0ne is higher %ricing in line ith the %ro&ider$s limited time# Another is ha&ing the
%ro&ider ork ith larger grou%s or ork "aster# A third alternati&e is to train more ser&ice %ro&iders
and !uild u% client con"idence, as H4R -lock has done ith its national netork o" trained ta5
consultants#
;aria0ility
-ecause ser&ices de%end on ho %ro&ides them and hen and here they are %ro&ided, they are
highly &aria!le# 7noing this, ser&ice "irms can take three ste%s toard 9uality control# >+e first is
recruiting the right ser&ice em%loyees and %ro&iding them ith e5cellent training# This is crucial
regardless o" hether em%loyees are highly skilled %ro"essionals or lo-skilled orkers#
?or e5am%le, the Cali"ornia-!ased Horn (rou% handles %u!lic relations "or high-%oered ;ilicon
Lalley so"tare makers and technology consultants# ?ounder ;a!rina Horn in&ests hea&ily in training
her em%loyees and in !uilding morale and enthusiasm# ;he has de&elo%ed education %rograms that
include lunchtime seminars on e&erything "rom ho to rite a %ress release to ho to manage an
account# Em%loyees also recei&e tuition reim!ursement "or continuing education#=
>+e second step is standardi*ing the ser&ice-%er"ormance %rocess throughout the organi*ation#
Com%anies can do this !y %re%aring a "lochart that de%icts e&ery ser&ice e&ent and %rocess# Bsing
this "lochart, management can identi"y %otential "ail %oints and then %lan im%ro&ements# The third
ste%,taken !y Priceline#com and many other ser&ice "irms,is monitoring customer satis"action
through suggestion and com%laint systems, customer sur&eys, and com%arison sho%%ing#
Demand-Side Strategies Supply-Side Strategies
Use diferential pricing to shift
demand from
peak to of-peak periods; movie
theaters and car rental frms do this
by lowering prices during of-peak
periods.
Hire part-time employees to meet
peak demand; restaurants, stores, and
eb-based businesses often bring in
temporary stafers to help out during
holidays and other peak periods.
Cultivate nonpeak demand to build
sales during of-peak periods; hotels
do this with their weekend mini
vacation packages.
Introduce peak-time efciency
routines to keep productivity high
during periods of high demand;
paramedics often assist physicians
during busy periods.
Develop complementary services to
provide
alternatives for customers during peak
periods; many banks do this by
providing drop-of bo!es for deposits
and payments.
Increase consumer participation to
speed
transactions; this is one reason why
supermarkets are e!perimenting with
self service checkouts where shoppers
scan and bag their own groceries.
Install reservation systems to better Plan facilities for future expansion to
manage demand levels; airlines,
hotels, and physicians employ such
systems e!tensively.
increase supply; an amusement park
can buy surrounding land for later
development as demand
increases.Share services with other
providers to help manage demand;
hospitals can do this by sharing
medical-e"uipment purchases and
scheduling.
#erisha0ility
;er&ices cannot !e stored; once an air%lane takes o"" or a mo&ie starts, any unsold seats cannot !e
held "or "uture sale# Perisha!ility is not a %ro!lem hen demand "or a ser&ice is steady, !ut
"luctuating demand can cause %ro!lems# ?or e5am%le, %u!lic-trans%ortation com%anies ha&e to on
much more e9ui%ment !ecause o" higher rush-hour demand, Iust as Charles ;cha! must ha&e
su""icient ser&er ca%acity to handle its !rokerage customers$ on-line trading during %eak stock market
%eriods#
MARKETING STRATEGIES F"R SER;ICE FIRMS
6n addition to the traditional "our Ps o" marketing, ser&ice %ro&iders must %ay attention
to t+ree more #s s,ggested -y 8ooms and 8itner for services marketing: people, p+ysical evidence,
and process#-ecause most ser&ices are %ro&ided !y %eo%le, the selection, training, and moti&ation o"
em%loyees can make a huge di""erence in customer satis"action# 6deally, ser&ice em%loyees should
e5hi!it com%etence, a caring attitude, res%onsi&eness, initiati&e, %ro!lem-sol&ing a!ility, and
goodill#
Com%anies should also try to demonstrate their ser&ice 9uality through %hysical e&idence and
%resentation# Thus, a hotel such as the ?our ;easons ill de&elo% a look and o!ser&a!le style o"
handling customers that em!odies its intended customer &alue %ro%osition Fin this case, lu5ury
accommodationsG# ?inally, ser&ice com%anies can choose among di""erent %rocesses to deli&er their
ser&ice# ?or instance, /c8onald$s outlets o""er sel"-ser&ice, hile 0li&e (arden restaurants o""er
ta!le ser&ice#
A ser&ice encounter is a""ected !y !oth &isi!le and in&isi!le elements Fsee ?igure >->G# Consider a
customer &isiting a !ank to get a loan Fser&ice TG# The customer sees other customers aiting "or this
and other ser&ices# The customer also sees a %hysical en&ironment Fthe !uilding, interior, e9ui%ment,
and "urnitureG as ell as !ank %ersonnel# Kot &isi!le to the customer is a hole 1!ackroom2
%roduction %rocess and organi*ation system that su%%orts the &isi!le !usiness# Thus, the ser&ice
outcome, and hether or not %eo%le ill !e satis"ied and ultimately remain
loyal to a ser&ice %ro&ider, are in"luenced !y a host o" &aria!les#
6n &ie o" this com%le5ity, (ronroos has argued that ser&ice marketing re9uires not only e5ternal
marketing, !ut also internal and interacti&e marketing F?igure >-CG#1) E5ternal marketing descri!es
the normal ork to %re%are, %rice, distri!ute, and %romote the ser&ice to customers#
(nternal marketing descri!es the ork to train and moti&ate em%loyees to ser&e customers ell#
-erry has argued that the most im%ortant contri!ution the marketing de%artment can make is to !e
1e5ce%tionally cle&er in getting e&eryone else in the organi*ation to %ractice marketing#2
6nteracti&e marketing descri!es the em%loyees$ skill in ser&ing the client# -ecause the client Iudges
ser&ice not only !y its technical 9uality Fe#g#, as the surgery success"ul.G !ut also !y its "unctional
9uality Fe#g#, did the surgeon sho concern and ins%ire
Managing %i**erentiation
;er&ice marketers "re9uently com%lain a!out the di""iculty o" di""erentiating their ser&ices on more
than %rice alone# Price is a maIor marketing "ocus in ser&ice industries such as communications,
trans%ortation, and energy, hich ha&e e5%erienced intense %rice com%etition since deregulation# 6n a
deregulated en&ironment, the continued e5%ansion o" !udget-%riced airlines like ;outhest Airlines
indicated that many "liers care more a!out tra&el costs than ser&ice# ;imilarly, the success o" EXTrade
and other discount 3e!-!ased !rokerages shoed that many customers had little loyalty to more
esta!lished !rokerages hen they could sa&e money !y trading on-line# To the e5tent that customers
&ie a ser&ice as "airly homogeneous, they care less a!out the %ro&ider than the %rice#
The alternati&e to %rice com%etition in ser&ices marketing is to de&elo% a di""erentiated o""er,
deli&ery, or image#
0""er# The ser&ice o""ering can include inno&ati&e "eatures# The customer e5%ects the %rimary ser&ice
%ackage; to this secondary ser&ice "eatures can !e added# /arriott, "or e5am%le, o""ers hotel rooms
F%rimary ser&ice %ackageG ith connections "or com%uters, "a5 machines, and e-mail Fsecondary
ser&ice "eaturesG# Although most ser&ice inno&ations are easily co%ied, the com%any that regularly
introduces ne "eatures ill gain a succession o" tem%orary com%etiti&e ad&antages and earn a
re%utation "or inno&ation# Ama*on#com has continually e5%anded its o""ering to include auctions, e-
mail greeting cards, and other ser&ices, rein"orcing the "irm$s re%utation as an 6nternet %ioneer and
retaining loyal customers#
8eli&ery# A ser&ice com%any can hire and train !etter %eo%le to deli&er its ser&ice FHome 8e%ot,
KordstromG# 6t can de&elo% a more attracti&e %hysical en&ironment in hich to deli&er the ser&ice
F-orders -ooks and /usic stores, Cine%le5 0deon mo&ie theatersG# 0r it can design a su%erior
deli&ery %rocess F/c8onald$s, e-ayG# 8eli&ery thus enhances the "irm$s di""erentiation#
#
6mage# ;er&ice com%anies can also di""erentiate their image through sym!ols and !randing#
Prudential uses the Rock o" (i!ralter as its cor%orate sym!ol to signi"y strength and sta!ility#
8i""erentiation through !randing is a s%ecialty o" the charge-card di&ision o" American E5%ress#
3orldide, a record >1#C million %eo%le 1can$t lea&e home ithout it#2 Pet, no the com%any needs
to rein&ent itsel"' Credit cards like Lisa and /asterCard ha&e eaten into Ame5$s tur", and
customers are "locking to no-"ee credit cards ith "re9uent-"lier miles and other !ene"its# ?ighting
!ack, Ame5 has launched a allet"ul o" ne %roducts, including the 1-lue Card,2 aimed at u%scale
)C- to +C-year-olds# And the "irm has care"ully retained all o" the %ositi&e things its !rand stands "or,
such as good ser&ice, %restige, and &alue, making them rele&ant to the young, hi%, a""luent
consumer#
Managing Ser5i$e Juality
Another ay "or a ser&ice "irm to succeed is !y deli&ering consistently higher-9uality ser&ice than
that o" its com%etitors and !y e5ceeding customers$ e5%ectations# These e5%ectations are "ormed !y
the "irm$s %ast e5%eriences, ord o" mouth, and ad&ertising# A"ter recei&ing the ser&ice, customers
com%are the %ercei&ed ser&ice ith the e5%ected ser&ice# 6" the %ercei&ed ser&ice "alls !elo the
e5%ected ser&ice, customers lose interest in the %ro&ider# 6" the %ercei&ed ser&ice meets or e5ceeds
their e5%ectations, they are a%t to use the %ro&ider again#
Parasuraman, Yeithaml, and -erry "ormulated a ser&ice-9uality model that highlights the main
re9uirements "or deli&ering high ser&ice 9uality#The model, shon in ?igure, identi"ies five gaps t+at
ca,se unsuccess"ul ser&ice deli&ery'
Ser5i$e-Juality Moel
1.Gap -et0een cons,mer expectation and management perception: /anagement does not alays
%ercei&e correctly hat customers ant# Hos%ital administrators may think that %atients ant !etter
"ood, !ut %atients may !e more concerned ith nurse res%onsi&eness#
2.Gap -et0een management perception and service6/,ality specification: /anagement might
correctly %ercei&e the customers$ ants !ut not set a s%eci"ied %er"ormance standard# Hos%ital
administrators may tell the nurses to gi&e 1"ast2 ser&ice ithout s%eci"ying it 9uantitati&ely#
3.Gap -et0een service6/,ality specifications and service delivery: ;er&ice %ersonnel might !e
%oorly trained, or inca%a!le or unilling to meet the standard# 0r they may !e held to con"licting
standards, such as taking time to listen to customers and ser&ing them "ast#
!.Gap -et0een service delivery and external comm,nications: Customer e5%ectations are
a""ected !y statements made !y com%any re%resentati&es and ads# 6" a hos%ital !rochure shos an
attracti&e, modern room, !ut the %atient "inds an older, una%%ealing room, e5ternal communications
ill ha&e distorted the customer$s e5%ectations#
".Gap -et0een perceived service and expected service: This ga% occurs hen the consumer
mis%ercei&es the ser&ice 9uality# The %hysician may kee% &isiting the %atient to sho
care, !ut the %atient may inter%ret this as an indication that something really is
rong#
6n addressing these ga%s and %ursuing ser&ice 9uality, ell-managed ser&ice com%anies share the
"olloing common %ractices' a strategic conce%t, a history o" to%-management commitment to
9uality, high standards, systems "or monitoring ser&ice %er"ormance and customer com%laints, and an
em%hasis on em%loyee satis"action#
Strategi$ Con$ept
To% ser&ice com%anies are 1customer o!sessed#2 These "irms ha&e a clear sense o" their target
customers and their needs, and they ha&e de&elo%ed a distincti&e strategy "or satis"ying these needs#
Cle&eland-!ased Progressi&e 6nsurance, "or e5am%le, knos its customers ant to get their auto
accident claims %rocessed and %aid as 9uickly as %ossi!le# Thus, its ser&ice strategy "ocuses on
e5%editing claims handling# The com%any no has a "leet o" claims adIusters ready to rush to the
scene o" any auto accident in their territory# There, the adIusters record all o" the in"ormation they
need and o"ten settle claims on the s%ot#
Top-Management Commitment
/arket-leading com%anies such as /arriott, 8isney, and /c8onald$s ha&e thorough commitments to
ser&ice 9uality# E&ery month, their management looks not only at "inancial %er"ormance !ut also at
ser&ice %er"ormance# To%-management commitment can !e demonstrated in &arious ays# ?ounder
;am 3alton o" 3al-/art re9uired the "olloing em%loyee %ledge' 16 solemnly sear and declare
that e&ery customer that comes ithin 1@ "eet o" me, 6 ill smile, look them in the eye, and greet
them, so hel% me ;am#2 To rein"orce its cor%orate-ide commitment to ser&ice 9uality, H#H# -ean$s
management has tacked u% a 13hat is a Customer.2 %oster in e&ery o""ice#
!igh Stanars
The !est ser&ice %ro&iders set high ser&ice-9uality standards# ;issair, "or e5am%le, aims at ha&ing
<J %ercent or more o" its %assengers rate its ser&ice as good or su%erior# Citi!ank aims to anser
%hone calls ithin 1@ seconds and customer letters ithin ) days# ;till, ser&ice standards must !e set
a%%ro%riately high# A <= %ercent accuracy standard may sound good, !ut it ould result in ?edE5
losing J>,@@@ %ackages a day, 1@ miss%elled ords on each %age, >@@,@@@ mis"illed %rescri%tions
daily, and unsa"e drinking ater = days a year# Com%anies can !e distinguished !eteen those
o""ering 1merely good2 ser&ice and those o""ering 1!reakthrough2 ser&ice aiming at 1@@ %ercent
de"ect-"ree ser&ice#
Monitoring Systems
To% "irms regularly audit ser&ice %er"ormance, !oth their on and their com%etitors$# They use a
num!er o" measurement de&ices' com%arison sho%%ing, ghost sho%%ing, customer sur&eys,
suggestion and com%laint "orms, ser&ice-audit teams, and letters to the %resident# (eneral Electric
sends out D@@,@@@ res%onse cards a year asking households to rate its ser&ice %eo%le$s %er"ormance;
Citi!ank checks continuously on measures o" ART Faccuracy, res%onsi&eness, and timelinessG#
RedEn&elo%e (i"ts 0nline, an on-line retailer s%eciali*ing in u%scale gi"ts, analy*es ho many o" its
orders ere correctly "illed, ho many ere shi%%ed on time, and ho many orders ere returned !y
customers#
3hen designing customer "eed!ack mechanisms, ser&ice marketers need to ask the right 9uestions,
as Bnited Parcel ;er&ice FBP;G disco&ered# BP; alays assumed that on-time deli&ery as its
customers$ %aramount concern, and !ased its de"inition o" 9uality on the results o" time-and-motion
studies# To get %ackages to customers "aster, BP; ould "actor in such details as ho long it took
ele&ators to o%en and ho long it took %eo%le to anser their door!ells# Accordingly, BP;$s sur&eys
included 9uestions a!out hether customers ere %leased ith deli&ery time and hether they
thought the com%any could !e any s%eedier# Pet, hen the com%any !egan asking !roader 9uestions
a!out ser&ice im%ro&ements, it disco&ered that hat customers anted most as more "ace-to-"ace
contact ith dri&ers# 6" dri&ers ere less hurried and ould anser 9uestions, customers might get
%ractical ad&ice on shi%%ing# BP; has no taken ser&ice a ste% "urther, alloing customers to track
their BP; shi%ments and deli&eries through its 3e! site F#u%s#comG, here customers can also
order shi%%ing su%%lies and re9uest %arcel %ick-u%#
Satis*ying Customer Complaints
;tudies o" customer dissatis"action sho that although customers are dissatis"ied ith their %urchases
a!out )C %ercent o" the time, only a!out C %ercent com%lain# The other <C %ercent either "eel that
com%laining is not orth the e""ort, or that they don$t kno ho or to hom to com%lain# 0" the C
%ercent ho com%lain, only a!out hal" re%ort a satis"actory %ro!lem resolution# Pet the need to
resol&e a customer %ro!lem in a satis"actory manner is critical# &n average, a satisfied c,stomer tells
t+ree people a-o,t a good prod,ct experience, -,t t+e average dissatisfied c,stomer gripes to 11
people. 6" each o" them tells still other %eo%le, the num!er o" %eo%le e5%osed to !ad
ord o" mouth may gro e5%onentially#
Konetheless, customers hose com%laints are satis"actorily resol&ed o"ten !ecome more com%any-
loyal than customers ho ere ne&er dissatis"ied# A!out +> %ercent o" customers ho register maIor
com%laints ill !uy again "rom the com%any i" their com%laint is resol&ed, and this num!er rises to
C) %ercent "or minor com%laints# 6" the com%laint is resol&ed 9uickly, !eteen C) %ercent FmaIor
com%laintsG and <C %ercent Fminor com%laintsG ill !uy again "rom the com%any#
Managing #rou$ti5ity
;er&ice "irms are under great %ressure to kee% costs don and increase %roducti&ity#There are seven
approac+es to improving service prod,ctivity:
1#Ha&e ser&ice %ro&iders ork more skill"ully# To% ser&ice com%anies such as ;tar!ucks go out o"
their ay to hire and "oster more skill"ul orkers through !etter selection and training#
)# 6ncrease the 9uantity o" ser&ice !y surrendering some 9uality# 8octors orking "or some
H/0s ha&e mo&ed toard handling more %atients and gi&ing less time to each %atient#
+# 6ndustriali*e the ser&ice !y adding e9ui%ment and standardi*ing %roduction# He&itt ecommended
that com%anies ado%t a 1manu"acturing attitude2 toard %roducing ser&ices as re%resented !y
/c8onald$s assem!ly-line a%%roach to "ast-"ood retailing, culminating in the 1technological
ham!urger#2
># Reduce or make o!solete the need "or a ser&ice !y in&enting a %roduct solution, the ay car%et-
cleaning ser&ices o""er stain-remo&ing %roducts "or consumers to use on their on#
C# 8esign a more e""ecti&e ser&ice# ?or e5am%le, hiring %aralegal orkers reduces the need "or more
e5%ensi&e legal %ro"essionals#
J# Present customers ith incenti&es to su!stitute their on la!or "or com%any la!or# Customers o"
iPrint F#i%rint#comG sa&e at least )C %ercent !y designing, in%utting, and %roo"reading the
content o" their %rinting Io!s !e"ore su!mitting their orders through iPrint$s 3e! site#
D# Bse technology to gi&e !etter customer ser&ice and make ser&ice orkers more %roducti&e#
Com%anies, such as Cisco ;ystems, that use their 3e! sites to em%oer customers can lessen
orkloads, ca%ture &alua!le customer data, and increase the &alue o" their !usinesses# Cisco$s on-line
7noledge -ase o" ?re9uently Asked Ouestions F?AOsG allos customers to 9uickly "ind ansers to
9uestions ithout talking to any em%loyees# As a result, Cisco cut the num!er o" customer calls !y
D@ %ercent or C@,@@@ calls a month, sa&ing A1@ million a month#
Ma8or Trens in Customer Ser5i$e
;er&ice remains a critical com%onent "or %roduct marketers in today$s dynamic, interconnected
glo!al market%lace# Hele has noted the "olloing maIor trends in the customer ser&ice area'
1#E9ui%ment manu"acturers are !uilding more relia!le and more easily "i5a!le e9ui%ment#
0ne reason is the shi"t "rom electromechanical e9ui%ment to electronic e9ui%ment, hich has "eer
!reakdons and is more re%aira!le# Com%anies are adding modularity and dis%osa!ility to "acilitate
sel"-ser&icing !y customers#
)# Customers are !ecoming more so%histicated a!out !uying %roduct su%%ort ser&ices and are
%ressing "or 1ser&ices un!undling#2 They ant se%arate %rices "or each ser&ice element and the right
to select Iust the elements they ant#
+# Customers increasingly dislike ha&ing to deal ith a multitude o" ser&ice %ro&iders that handle
di""erent ty%es o" e9ui%ment# 6n res%onse, some third-%arty ser&ice organi*ations ha&e !egun
ser&icing a greater range o" e9ui%ment#
># ;er&ice contracts Falso called e5tended arrantiesG, in hich sellers agree to %ro&ide "ree
maintenance and re%air ser&ices "or a s%eci"ied %eriod o" time at a s%eci"ied contract %rice, may
diminish in im%ortance# ;ome ne car arranties no co&er 1@@,@@@ miles !e"ore ser&icing# The
increase in dis%osa!le or ne&er-"ail e9ui%ment makes customers less inclined to %ay "rom ) %ercent
to 1@ %ercent o" the %urchase %rice e&ery year "or a ser&ice#
C# Customer ser&ice choices are increasing ra%idly, and this is holding don %rices and %ro"its on
ser&ice# E9ui%ment manu"acturers increasingly ha&e to "igure out ho to make money on their
e9ui%ment inde%endent o" ser&ice contracts#
Add to these trends the no common%lace use o" the 6nternet to deli&er ser&ice, ad&ice, and
maintenance or re%air in"ormation at any hour to any customer at any location,and it is clear that
the most success"ul com%anies ill !e those that marry high-tech ca%a!ilities ith customi*a!le,
high-touch customer ser&ice# ;uch to%-9uality customer ser&ice comes at a %rice, o" course; %ricing
strategies and %rograms "or goods and ser&ices ill !e discussed in the ne5t cha%ter#
C!A#TER-
Strategies an #rograms Strategies an #rograms %esigning
#ri$ing
3e ill address the "olloing 9uestions'
Ho should a com%any %rice a ne good or ser&ice.
Ho should the %rice !e ada%ted to meet &arying circumstances and o%%ortunities.
3hen should the com%any initiate a %rice change, and ho should it res%ond to
com%etiti&e %rice changes.
6n the entire marketing mi5, %rice is the one element that %roduces re&enue; the others %roduce costs#
Price is also one o" the most "le5i!le elements' 6t can !e changed 9uickly, unlike %roduct "eatures and
channel commitments# Although %rice com%etition is a maIor %ro!lem "acing com%anies, many do
not handle %ricing ell# The most common mistakes are these' Pricing is too cost-oriented; %rice is
not re&ised o"ten enough to ca%itali*e on market changes; %rice is set inde%endent o" the rest o" the
marketing mi5 rather than as an intrinsic element o" market-%ositioning strategy; and %rice is not
&aried enough "or di""erent %roduct items, market segments, and %urchase occasions#
SETTING T!E #RICE
A "irm must set a %rice "or the "irst time hen it de&elo%s a ne %roduct, introduces its regular
%roduct into a ne distri!ution channel or geogra%hical area, and enters !ids on ne contract ork#
Price is also a key element used to su%%ort a %roduct$s 9uality %ositioning, as descri!ed in Cha%ter <#
-ecause a "irm, in de&elo%ing its strategy, must decide here to %osition its %roduct on %rice and
9uality, there can !e com%etition !eteen %rice-9uality segments#
6n setting a %roduct$s %rice, marketers "ollo a si5-ste% %rocedure' F1G selecting the %ricing o!Iecti&e;
F)G determining demand; F+G estimating costs; F>G analy*ing com%etitors$ costs, %rices, and o""ers; FCG
selecting a %ricing method; and FJG selecting the "inal %rice Fsee ?igure >-<G#
Step 21 Sele$ting the #ri$ing "08e$ti5e
A com%any can %ursue any o" "i&e maIor o!Iecti&es through %ricing'
1S,rvival. This is a short-term o!Iecti&e that is a%%ro%riate only "or com%anies that are %lagued ith
o&erca%acity, intense com%etition, or changing consumer ants# As long as %rices co&er &aria!le
costs and some "i5ed costs, the com%any ill !e a!le to remain in !usiness#
2.Maxim,m c,rrent profit. To ma5imi*e current %ro"its, com%anies estimate the demand and costs
associated ith alternati&e %rices and then choose the %rice that %roduces ma5imum current %ro"it,
cash "lo, or return on in&estment# Hoe&er, !y em%hasi*ing current %ro"its, the com%any may
sacri"ice long-run %er"ormance !y ?igure >-< ;etting Pricing Policy ignoring the e""ects o" other
marketing-mi5 &aria!les, com%etitors$ reactions, and legal restraints on %rice#
;electing
%ricing
o!Iecti&e
8etermining
demand
Estimating
cost
Antici%ating
com%etitors
cost %rice and
o""ers
;electing
%ricing
method#
;electing "inal
%rice#

3.Maxim,m market s+are. ?irms such as Te5as 6nstruments choose this o!Iecti&e !ecause they
!elie&e that higher sales &olume ill lead to loer unit costs and higher long-run %ro"it# 3ith this
market-%enetration %ricing, the "irms set the loest %rice, assuming the market is %rice sensiti&e#
This is a%%ro%riate hen F1G the market is highly %rice sensiti&e, so a lo %rice stimulates market
groth; F)G %roduction and distri!ution costs "all ith accumulated %roduction e5%erience;
and F+G a lo %rice discourages com%etition#
!.Maxim,m market skimming. /any com%anies "a&or setting high %rices to 1skim2 the market# This
o!Iecti&e makes sense under the "olloing conditions' F1G A su""icient num!er o" !uyers ha&e a high
current demand; F)G the unit costs o" %roducing a small &olume are not so high that they cancel the
ad&antage o" charging hat the tra""ic ill !ear; F+G the high initial %rice does not attract more
com%etitors to the market; and F>G the high %rice communicates the image o" a su%erior %roduct#

".#rod,ct6/,ality leaders+ip. Com%anies such as /aytag that aim to !e %roduct-9uality leaders ill
o""er %remium %roducts at %remium %rices# -ecause they o""er to% 9uality %lus inno&ati&e "eatures
that deli&er anted !ene"its, these "irms can charge more# /aytag can charge A=@@ "or its Euro%ean-
style ashers,dou!le hat most other ashers cost,!ecause, as its ads %oint out, the a%%liances
use less ater and electricity and %rolong the li"e o" clothing !y !eing less a!rasi&e# Here, /aytag$s
strategy is to encourage !uyers to trade u% to ne models !e"ore their e5isting
a%%liances ear out#
Step 31 %etermining %eman
Each %rice ill lead to a di""erent le&el o" demand and, there"ore, ill ha&e a di""erent im%act on a
com%any$s marketing o!Iecti&es# The relationshi% !eteen alternati&e %rices and the resulting
current demand is ca%tured in a demand cur&e# Kormally, demand and %rice are in&ersely related'
The higher the %rice, the loer the demand# 6n the case o" %restige goods, hoe&er, the demand
cur&e sometimes slo%es u%ard !ecause some consumers take the higher %rice to signi"y a !etter
%roduct# ;till, i" the %rice is too high, the le&el o" demand may "all#
#rice Sensitivity
The demand cur&e shos the market$s %ro!a!le %urchase 9uantity at alternati&e %rices, summing the
reactions o" many indi&iduals ho ha&e di""erent %rice sensiti&ities# The "irst ste% in estimating
demand is to understand hat a""ects %rice sensiti&ity# Kagle says there is less %rice sensiti&ity hen'
1# The %roduct is more distincti&e,
)# -uyers are less aare o" su!stitutes,
+# -uyers cannot easily com%are the 9uality o" su!stitutes,
># The e5%enditure is a loer %art o" !uyer$s total income,
C# The e5%enditure is small com%ared to the total cost o" the end %roduct,
J# Part o" the cost is !orne !y another %arty,
D# The %roduct is used in conIunction ith assets %re&iously !ought,
=# The %roduct is assumed to ha&e more 9uality, %restige, or e5clusi&eness#
<# -uyers cannot store the %roduct#
stimating 1emand 7,rves
Com%anies can use one o" three !asic methods to estimate their demand cur&es# The "irst in&ol&es
statistically analy*ing %ast %rices, 9uantities sold, and other "actors to estimate their relationshi%s#
Hoe&er, !uilding a model and "itting the data ith the %ro%er techni9ues calls "or considera!le skill#
#rice lasticity of 1emand
/arketers need to kno ho res%onsi&e, or elastic, demand ould !e to a change in %rice# 6" demand
hardly changes ith a small change in %rice, e say the demand is inelastic# 6" demand changes
considera!ly, demand is elastic#
8emand is likely to !e less elastic hen F1G there are "e or no su!stitutes or com%etitors; F)G !uyers
do not readily notice the higher %rice; F+G !uyers are slo to change their !uying ha!its and search
"or loer %rices; and F>G !uyers think the higher %rices are Iusti"ied !y 9uality di""erences, normal
in"lation, and so on# 6" demand is elastic, sellers ill consider loering the %rice to %roduce more
total re&enue# This makes sense as long as the costs o" %roducing and selling more units do not
increase dis%ro%ortionately#
Setting t+e #rice
Price elasticity de%ends on the magnitude and direction o" the contem%lated %rice change# 6t may !e
negligi!le ith a small %rice change and su!stantial ith a large %rice change; it may di""er "or a
%rice cut &ersus a %rice increase# ?inally, long-run %rice elasticity may di""er "rom short-run
elasticity# -uyers may continue to !uy "rom their current su%%lier a"ter a %rice increase !ecause they
do not notice the increase, or the increase is small, or they are distracted !y other concerns, or they
"ind that choosing a ne su%%lier takes time# -ut they may e&entually sitch su%%liers# The
distinction !eteen short-run and long-run elasticity means that sellers ill not kno the total e""ect
o" a %rice change until time %asses#
Step 41 Estimating Costs
3hile demand sets a ceiling on the %rice the com%any can charge "or its %roduct, costs set the "loor#
E&ery com%any should charge a %rice that co&ers its cost o" %roducing, distri!uting, and selling the
%roduct and %ro&ides a "air return "or its e""ort and risk#
To %rice intelligently, management needs to kno ho its costs &ary ith di""erent le&els o"
%roduction# A "irm$s cost %er unit is high i" only a "e units are %roduced e&ery day, !ut as
%roduction increases, "i5ed costs are s%read o&er a higher le&el o" %roduction results in each unit,
!ringing the a&erage cost don# At some %oint, hoe&er, higher %roduction ill lead to higher
a&erage cost !ecause the %lant !ecomes ine""icient Fdue to %ro!lems such as machines !reaking
don more o"tenG# -y calculating costs "or di""erent-si*ed %lants, a com%any can identi"y the o%timal
%lant si*e and %roduction le&el to achie&e economies o" scale and !ring don the a&erage cost#
A$$umulate #rou$tion
Ko su%%ose T6 com%etes against to other "irms FA and -G in this industry# T6 is the loest-cost
%roducer at A=, ha&ing %roduced >@@,@@@ units in the %ast# 6" all three "irms sell the calculator "or
A1@, T6 makes A) %ro"it %er unit, A makes A1 %er unit, and - !reaks e&en# The smart mo&e "or T6
ould !e to loer its %rice to A< to dri&e - out o" the market; e&en A ill consider lea&ing# Then T6
ill %ick u% the !usiness that ould ha&e gone to - Fand %ossi!ly AG# ?urthermore, %rice-sensiti&e
customers ill enter the market at the loer %rice# As %roduction increases !eyond >@@,@@@ units,
T6$s costs ill dro% e&en more, restoring its %ro"its e&en at a %rice o" A<# T6 has used this aggressi&e
%ricing strategy re%eatedly to gain market share and dri&e others out o" the industry#
E5%erience-cur&e %ricing is risky !ecause aggressi&e %ricing may gi&e the %roduct a chea% image#
This strategy also assumes that the com%etitors are eak and not illing to "ight# ?inally, the strategy
may lead the "irm into !uilding more %lants to meet demand hile a com%etitor inno&ates a loer-
cost technology and enIoys loer costs, lea&ing the leader stuck ith old technology#
%i**erentiate Marketing "**ers
Today$s com%anies try to ada%t their o""ers and terms to di""erent !uyers# Thus, a manu"acturer
ill negotiate di""erent terms ith di""erent retail chains, meaning the costs and %ro"its ill di""er
ith each chain# To estimate the real %ro"ita!ility o" dealing ith di""erent retailers, the manu"acturer
needs to use acti&ity-!ased cost FA-CG accounting instead o" standard cost accounting#
A-C accounting tries to identi"y the real costs associated ith ser&ing di""erent customers# -oth the
&aria!le costs and the o&erhead costs must !e tagged !ack to each customer# Com%anies that "ail to
measure their costs correctly are not measuring their %ro"it correctly, and they are likely to
misallocate their marketing e""ort# 6denti"ying the true costs arising in a customer relationshi% also
ena!les a com%any to e5%lain its charges !etter to the customer#
Target Costing
3e ha&e seen that costs change ith %roduction scale and e5%erience# They can also change as a
result o" a concentrated e""ort !y the com%any$s designers, engineers, and %urchasing agents to
reduce them# /any :a%anese "irms use a method called target costing# ?irst, they use market research
to esta!lish a ne %roduct$s desired "unctions, then they determine the %rice at hich the %roduct
ill sell gi&en its a%%eal and com%etitors$ %rices# They deduct the desired %ro"it margin "rom this
%rice, and this lea&es the target cost they must achie&e#
Step ,1 Analy7ing Competitors) Costs& #ri$es& an "**ers
3ithin the range o" %ossi!le %rices determined !y market demand and com%any costs, the "irm must
take into account its com%etitors$ costs, %rices, and %ossi!le %rice reactions# 6" the "irm$s o""er is
similar to a maIor com%etitor$s o""er, then the "irm ill ha&e to %rice close to the com%etitor or lose
sales# 6" the "irm$s o""er is in"erior, it ill not !e a!le to charge more than the com%etitor charges# 6"
the "irm$s o""er is su%erior, it can charge more than does the com%etitor,remem!ering, hoe&er,
that com%etitors might change their %rices in res%onse at any time#
Step 91 Sele$ting a #ri$ing Metho
The three Cs the AG Customers$ demand schedule, -GCost "unction, CG Com%etitors$ Prices are maIor
considerations in setting %rice Fsee ?igure >-11G# ?irst, costs set a "loor to the %rice# ;econd,
com%etitors$ %rices and the %rice o" su!stitutes %ro&ide an orienting %oint# Third, customers$
assessment o" uni9ue %roduct "eatures esta!lishes the ceiling %rice# Com%anies must there"ore select
a %ricing method that includes one or more o" these considerations#
Fe 0ill examine six price6setting met+ods:
marku% %ricing, target-return %ricing, %ercei&ed-&alue %ricing, &alue %ricing, going-rate %ricing,
and sealed-!id %ricing#
1.Mark,p #ricing
The most elementary %ricing method is to add standard marku% to the %roduct$s cost# Construction
com%anies do this hen they su!mit Io! !ids !y estimating the total %roIect cost and adding a
standard marku% "or %ro"it# ;imilarly, layers and accountants ty%ically %rice !y adding a standard
marku% on their time and costs#
;u%%ose a toaster manu"acturer has the "olloing costs and sales e5%ectations'
Laria!le cost %er unit A 1@
?i5ed cost +@@,@@@
E5%ected unit sales C@,@@@
The manu"acturer$s unit cost is gi&en !y'
?nit cost G varia-le cost H )fixed costs4 ,nit sales*G 10H)300,0004"0000*G1$.
6" the manu"acturer ants to earn a )@ %ercent marku% on sales, its marku% %rice is
gi&en !y'
Mark,p price G ,nit cost4)16desired ret,rn on sales* G 1$4)160.20*G20
Here, the manu"acturer charges dealers A)@ %er toaster and makes a %ro"it o" A> %er unit# 6" the
dealers ant to earn C@ %ercent on their selling %rice, they ill mark u% the toaster to A>@# This is
e9ui&alent to a cost marku% o" 1@@ %ercent#
8oes the use o" standard marku%s make logical sense. (enerally, no# Any %ricing method that
ignores current demand, %ercei&ed &alue, and com%etition is not likely to lead to the o%timal %rice#
Mark,p pricing 0orks only if t+e marked6,p price act,ally -rings in t+e expected level of sales.
Com%anies that introduce a ne %roduct o"ten %rice it high, ho%ing to reco&er their costs as ra%idly
as %ossi!le# -ut a high-marku% strategy could !e "atal i" a com%etitor is %ricing lo# This ha%%ened
to Phili%s, the 8utch electronics manu"acturer, in %ricing its &ideodisc %layers# Phili%s anted to
make a %ro"it on each &ideodisc %layer# /eanhile, :a%anese com%etitors %riced lo and succeeded
in !uilding their market share ra%idly, hich in turn %ushed don their costs su!stantially#
/arku% %ricing remains %o%ular "or a num!er o" reasons# ?irst, sellers can determine costs much
more easily than they can estimate demand# -y tying the %rice to cost, sellers sim%li"y the %ricing
task# ;econd, hen all "irms in the industry use this %ricing method, %rices tend to !e similar, hich
minimi*es %rice com%etition# Third, many %eo%le "eel that cost-%lus %ricing is "airer to !oth !uyers
and sellers' ;ellers do not take ad&antage o" !uyers hen demand !ecomes acute, and sellers earn a
"air return on in&estment#
2.>arget6@et,rn #ricing
6n target-return %ricing, the "irm determines the %rice that ould yield its target rate o" return on
in&estment FR06G# Target %ricing is used !y many "irms, including (eneral /otors, hich %rices its
automo!iles to achie&e a 1CE)@ %ercent R06#
;u%%ose the toaster manu"acturer in the %re&ious e5am%le has in&ested A1 million and ants to earn
a )@ %ercent return on its in&ested ca%ital# The target-return %rice is gi&en !y the "olloing "ormula'
Target-return %rice M ]unit cost N Fdesired return X in&ested ca%italG^U unit sales
M[1J N F@#) X 1@@@@@@G]UC@@@@ M )@
The manu"acturer ill reali*e this )@ %ercent R06 %ro&ided its costs and estimated sales turn out to
!e accurate# -ut hat i" sales do not reach C@,@@@ units. The manu"acturer can %re%are a !reak-e&en
chart to learn hat ould ha%%en at other sales le&els F?igure >-1)G# Kote that "i5ed costs remain the
same regardless o" sales &olume, hile &aria!le costs, hich are not shon in the "igure, rise ith
&olume# Total costs e9ual the sum o" "i5ed costs and &aria!le costs; the total re&enue cur&e rises ith
each unit sold#
According to this !reak-e&en chart, the total re&enue and total cost cur&es cross
at +@,@@@ units# This is the !reak-e&en &olume# 6t can !e &eri"ied !y the "olloing "ormula'
-reak-e&en &olume M "i5ed costUF%rice E &aria!le costG
M +@@@@UF)@-1@G
M+@@@@ units
6" the manu"acturer sells C@,@@@ units at A)@, it earns a A)@@,@@@ %ro"it on its A1 million in&estment#
-ut much de%ends on %rice elasticity and com%etitors$ %rices, to elements that are ignored !y
target-return %ricing# 6n %ractice, the manu"acturer needs to consider di""erent %rices and estimate
their %ro!a!le im%acts on sales &olume and %ro"its# The manu"acturer should also search "or ays to
loer its "i5ed or &aria!le costs, !ecause loer costs ill decrease its re9uired !reak-e&en &olume#
3.#erceived63al,e #ricing
An increasing num!er o" com%anies !ase %rice on customers$ %ercei&ed &alue# They see the !uyers$
%erce%tions o" &alue, not the seller$s cost, as the key to %ricing# Then they use the other marketing-
mi5 elements, such as ad&ertising, to !uild u% %ercei&ed &alue in !uyers$ minds#
?or e5am%le, hen 8uPont de&elo%ed a ne synthetic "i!er "or car%ets, it demonstrated to car%et
manu"acturers that they could a""ord to %ay 8uPont as much as A1#>@ %er %ound "or the ne "i!er
and still make their target %ro"it# 8uPont calls the A1#>@ the &alue-in-use %rice# -ut %ricing the ne
material at A1#>@ %er %ound ould lea&e the car%et manu"acturers indi""erent# ;o 8uPont set the
%rice loer than A1#>@ to induce car%et manu"acturers to ado%t the ne "i!er# 6n this situation,
8uPont used its manu"acturing cost only to Iudge hether there as enough %ro"it to go ahead ith
the ne %roduct#
The key to %ercei&ed-&alue %ricing is to determine the market$s %erce%tion o" the o""er$s &alue
accurately# ;ellers ith an in"lated &ie o" their o""er$s &alue ill o&er%rice their %roduct, hile
sellers ith an underestimated &ie ill charge less than they could# /arket research is there"ore
needed to esta!lish the market$s %erce%tion o" &alue as a guide to e""ecti&e %ricing#
!.3al,e #ricing
Lalue %ricing is a method in hich the com%any charges a "airly lo %rice "or a high-9uality
o""ering# Lalue %ricing says that the %rice should re%resent a high-&alue o""er to consumers# This is a
maIor trend in the com%uter industry, hich has shi"ted "rom charging to% dollar "or cutting-edge
com%uters to o""ering !asic com%uters at loer %rices# ?or instance, /onorail Com%uter started
selling PCs in 1<<J "or as little as A<<< to oo %rice-sensiti&e !uyers# Com%a9 and others 9uickly
"olloed suit# /ore recently, e/achines !egan selling its PCs "or less than AC@@ ithout a monitor,
targeting the CC %ercent o" com%uterless households ith annual incomes o" A)C,@@@ to A+@,@@@#1+
Lalue %ricing is not a matter o" sim%ly setting loer %rices on one$s %roducts com%ared to those o"
com%etitors# 6t is a matter o" reengineering the com%any$s o%erations to !ecome a lo-cost %roducer
ithout sacri"icing 9uality, and loering %rices signi"icantly to attract a large num!er o" &alue-
conscious customers# An im%ortant ty%e o" &alue %ricing is e&eryday lo %ricing FE8HPG, hich
takes %lace at the retail le&el# Retailers such as 3al-/art and Ama*on#com use E8HP %ricing,
%osting a constant, e&eryday lo %rice ith "e or no tem%orary %rice discounts# These constant
%rices eliminate eek-to-eek %rice uncertainty and can !e contrasted to the 1high-lo2 %ricing o"
%romotion-oriented com%etitors# 6n high-lo %ricing, the retailer charges higher
%rices on an e&eryday !asis !ut then runs "re9uent %romotions in hich %rices are tem%orarily
loered !elo the E8HP le&el#
".Going6@ate #ricing
6n going-rate %ricing, the "irm !ases its %rice largely on com%etitors$ %rices# The "irm might charge
the same, more, or less than its maIor com%etitorFsG charges# 6n oligo%olistic industries that sell a
commodity such as steel, %a%er, or "ertili*er, "irms normally charge the same %rice# The smaller "irms
1"ollo the leader,2 changing their %rices hen the market leader$s %rices change rather than hen
their on demand or costs change# ;ome "irms may charge a slight %remium or slight discount, !ut
they ty%ically %reser&e the amount o" di""erence# 3hen costs are di""icult to measure or com%etiti&e
res%onse is uncertain, "irms "eel that the going %rice re%resents a good solution, since it seems to
re"lect the industry$s collecti&e isdom as to the %rice that ill yield a "air
return and not Ieo%ardi*e industrial harmony#
Step :1 Sele$ting the Final #ri$e
The %re&ious %ricing methods narro the range "rom hich the com%any selects its "inal %rice# 6n
selecting that %rice, the com%any must consider additional "actors' %sychological %ricing, the
in"luence o" other marketing-mi5 elements on %rice, com%any %ricing %olicies, and the im%act o"
%rice on other %arties#
#syc+ological #ricing
/any consumers use %rice as an indicator o" 9uality# 6mage %ricing is es%ecially e""ecti&e ith ego-
sensiti&e %roducts such as %er"umes and e5%ensi&e cars# A A1@@ !ottle o" %er"ume might contain A1@
orth o" scent, !ut gi"t gi&ers %ay A1@@ to communicate their high regard "or the recei&er# ;imilarly,
%rice and 9uality %erce%tions o" cars interact' Higher-%riced cars are %ercei&ed to %ossess high
9uality; higher-9uality cars are likeise %ercei&ed to !e higher %riced than they actually are# 6n
general, hen in"ormation a!out true 9uality is una&aila!le, %rice acts as a signal o" 9uality#
3hen looking at a %articular %roduct, !uyers carry in their minds a re"erence %rice "ormed !y
noticing current %rices, %ast %rices, or the !uying conte5t# ;ellers o"ten mani%ulate these re"erence
%rices# ?or e5am%le, a seller can situate its %roduct among e5%ensi&e %roducts to im%ly that it
!elongs in the same class# Re"erence-%rice thinking is also created !y stating a high manu"acturer$s
suggested %rice, !y indicating that the %roduct as %riced much higher originally, or !y %ointing to a
ri&al$s high %rice#
0"ten sellers set %rices that end in an odd num!er, !elie&ing that customers ho see a tele&ision
%riced at A)<< instead o" A+@@ ill %ercei&e the %rice as !eing in the A)@@ range rather than the A+@@
range# Another e5%lanation is that odd endings con&ey the notion o" a discount or !argain, hich is
hy !oth toysrus#com and etoys#com set %rices ending in <<# -ut i" a com%any ants a high-%rice
image instead o" a lo-%rice image, it should a&oid the odd-ending tactic#
Company #ri$ing #oli$ies
The %rice must !e consistent ith com%any %ricing %olicies# To accom%lish this, many "irms set u% a
%ricing de%artment to de&elo% %olicies and esta!lish or a%%ro&e decisions# The aim is to ensure that
the sales%eo%le 9uote %rices that are reasona!le to customers and %ro"ita!le to the com%any#
A%A#TING T!E #RICE
Com%anies usually do not set a single %rice, !ut rather a %ricing structure that re"lects
&ariations in geogra%hical demand and costs, market-segment re9uirements, %urchase
timing, order le&els, deli&ery "re9uency, guarantees, ser&ice contracts, and other "actors#
As a result o" discounts, alloances, and %romotional su%%ort, a com%any rarely
reali*es the same %ro"it "rom each unit o" a %roduct that it sells# =ere 0e 0ill examine
several price6adaptation strategies: geograp+ical pricing, price disco,nts and
allo0ances, promotional pricing, discriminatory pricing, and prod,ct6mix pricing.
Geograp+ical #ricing
6n geogra%hical %ricing, the com%any decides ho to %rice its %roducts to di""erent
customers in di""erent locations and countries# ?or e5am%le, should the com%any
charge distant customers more to co&er higher shi%%ing costs, or set a loer %rice to
in additional !usiness. Another issue is ho to get %aid#
8arter: The direct e5change o" goods, ith no money and no third %arty in&ol&ed# ?or e5am%le,
Eminence ;#A#, a maIor clothing maker in ?rance, !artered A)C million orth o" B#;#-%roduced
underear and s%ortsear to customers in eastern Euro%e in e5change "or trans%ortation, maga*ine
ad&ertising s%ace, and other goods and ser&ices#

8,y-ack arrangement: The seller sells a %lant, e9ui%ment, or technology to another country and
agrees to acce%t as %artial %ayment %roducts manu"actured ith the su%%lied e9ui%ment# As one
e5am%le, a B#;# chemical "irm !uilt a %lant "or an 6ndian com%any and acce%ted %artial %ayment in
cash and the remainder in chemicals manu"actured at the %lant#
#ri$e %is$ounts an Allowan$es
/ost com%anies ill adIust their list %rice and gi&e discounts and alloances "or early %ayment,
&olume %urchases, and o""-season !uying, as shon in Ta!le >#># Hoe&er, com%anies must do this
care"ully or they ill "ind that their %ro"its are much less than %lanned#
7as+ 1isco,nts' A cash discount is a %rice reduction to !uyers ho %ay their !ills %rom%tly#A ty%ical
e5am%le is 1)U1@, net )@,2 hich means that %ayment is due ithin +@ days and that the !uyer can
deduct ) %ercent !y %aying the !ill ithin 1@ days# ;uch discounts are customary in many industries#
<,antity 1isco,nts' A 9uantity discount is a %rice reduction to those !uyers ho !uy large
&olumes#A ty%ical e5am%le is 1A1@ %er unit "or less than 1@@ units; A< %er unit "or 1@@ or more
units#2 Ouantity discounts must !e o""ered e9ually to all customers and must not e5ceed the cost
sa&ings to the seller associated ith selling large 9uantities#They can !e o""ered on a
noncumulati&e !asis Fon each order %lacedG or a cumulati&e !asis Fon the num!er o" units ordered
o&er a gi&en %eriodG#
9,nctional 1isco,nts' ?unctional discounts Falso called trade discountsG are o""ered !y a
manu"acturer to trade-channel mem!ers i" they ill %er"orm certain "unctions, such as selling,
storing, and record kee%ing# /anu"acturers may o""er di""erent "unctional discounts to
di""erent trade channels !ut must o""er the same "unctional discounts ithin each channel#
Seasonal 1isco,nts: A seasonal discount is a %rice reduction to !uyers ho !uy merchandise or
ser&ices out o" season# ;ki manu"acturers ill o""er seasonal discounts to retailers in the s%ring and
summer to encourage early ordering# Hotels, motels, and airlines ill o""er seasonal discounts in
slo selling %eriods#
2llo0ances' Alloances are e5tra %ayments designed to gain reseller %artici%ation in s%ecial
%rograms# Trade-in alloances are %rice reductions granted "or turning in an old item hen !uying a
ne one#Trade-in alloances are most common in dura!le-goods categories# Promotional alloances
are %ayments or %rice reductions to reard dealers "or %artici%ating in ad&ertising
and sales su%%ort %rograms#
#romotional #ricing
Com%anies can use any o" se&en %romotional %ricing techni9ues to stimulate early
%urchase Fsee Ta!le >#CG# Hoe&er, smart marketers recogni*e that %romotional-%ricing
strategies are o"ten a *ero-sum game# 6" they ork, com%etitors co%y them and
they lose their e""ecti&eness# 6" they do not ork, they aste com%any money that
could ha&e !een %ut into longer im%act marketing tools, such as !uilding u% %roduct
9uality and ser&ice or strengthening %roduct image through ad&ertising#