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Bangladesh Institute of Management

Program PGDMM-2015
Subject Principles of Marketing
Part -1
Course outlines
Classes
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
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17
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Topics
Define Market and Marketing
Contd.
Tasks of Marketing Management
Contd.
Marketing Mgt. Orientation
Contd.
Customer Relationship Mgt.
Contd.
Marketing Environment
Micro & Macro Environment
4 Ps of Marketing
Contd.

Date
01-03-15

Time PM
6.30-8.00

Teachers
Dr. U.K.D

02-03-15

6.30-8.00

Dr. U.K. D

08-03-15

6.30-8.00

Dr. U.K. D

18-03-15

6.30-8.00

Dr. U.K D

25-03-15

6.30-8.00

Dr. U.K. D

30-03-15

6.30-8.00

Dr. U. K. D

05-04-15

6.30-8.00
Dr. U.K.D

Marketing Segmentation
Cont.
07-04-15
Target Marketing
Positioning
for
Competitive
Advantage.
What is Product
Classification and levels of Product
In course Examination
Contd.
New Product Development Process
Contd...
New Product Development
Contd.
Product Life cycle
Contd.
Pricing approaches
Contd.
Importance of Marketing Channels
Channel design Decisions.
Marketing Communication Mix
Contd.
Competition Analyzing
Contd.
Competition analyzing
Contd.

6.30-8.00

Dr. U.K.D

6.30-8.00

Dr. U.K. D

12-04-15
13-04-15
15-04-15

6.30-8.00

Dr. U.K D

6.30-8.00

Dr. U.K.D

19-04-15

6.30-8.00

Dr. U.K.D

21-04-15

6.30-8.00

Dr. U.K.D

22-04-15

6.30-8.00

Dr. U.K.D

26-04-15

6.30-8.00

Dr. U.K.D

29-04-15

6.30-8.00

Dr. U.K.D

10-05-15

6.30-8.00

Dr. U.K.D

11-05-15

6.30-8.00

Dr. U.K.D

17-05-15

6.30-8.00

Dr. U.K Datta

Paper Leader: Dr. U. K Datta

-1-

1. What is Market?
A market is the set of actual and potential buyers of a product. These buyers share a particular
need or want that can be satisfied through exchange relationships.
The Size of a market depends on:

The number of people who exhibit the need,

Who have resources to engage in exchange,

Who are willing to exchange these resources for what they want.

2. What is marketing?
Marketing is the planning and executing of the conception, pricing, promotion and distribution of
ideas, goods and services that create exchanges to satisfy the individual and organizational
goals.---American Marketing Association.
Marketing is a societal process by which individuals and groups obtain what they need and want
through creating, offerings, and freely exchanging products and services of value with others. --Philip Kotlar.
Communication
Goods/Services
Industry
(A collection of Sellers)

Money

Information

A simple marketing system

-2-

Market
(A collection of buyers)

What is Marketing Management?


We define marketing management as the art and science of choosing target markets and building
profitable relationships with them. This involves getting, keeping and growing customers
through creating, delivering and communicating superior customer value. Thus marketing
management involves managing demand, which is turn involve managing customer
relationships.
The organization has a desired level of demand for its products. At any point in time, there may
be:
1) Negative demand: A market is in a state of negative demand if a major part of the market
dislikes the product and may even pay a price to avoid it- vaccinations, dental work,
vasectomies, and life insurance offers.
The marketing task is to analyze why the market dislikes the product and whether a marketing
program consisting of product redesign, lower prices. And more positive promotion can change
beliefs and attitudes.
2) No demand: Target consumers may be unaware of or uninterested in the product. Farmers
may not be interested in a new farming method, and college students may not be interested in
foreign- language courses.
The marketing task is to find ways to connect the benefits of the product with the persons
natural needs and interests.
3) Latent dement: Many consumers may share a strong need that cannot be satisfied by any
existing product. There is a strong latent demand for harmless cigarettes, more fuel-efficient
cars.

-3-

The marketing task is to measure the size of the potential market and develop goods and services
to satisfy the demand.
4) Declining demand: Every organization, sooner or later, faces declining demand for one or
more of its products. Churches have seen membership decline; private colleges have seen
applications fall. The marketer must analyze the causes of the decline and determine whether
demand can be re stimulated by new target markets, by changing product features, or by
more effective communication. The marketing task is to reverse declining demand through
creative remarketing.
The marketing task is to reverse declining demand through creative remarketing.
5) Irregular demand: Many organizations face demand that varies on a seasonal, daily, or even
hourly basis, causing problems of idle or overworked capacity. Museums are under visited on
weekdays and overcrowded on weekends.
The marketing task, called synchromarketing, is to find ways to alter the partner of demand
through flexible pricing, promotion, and other incentives.
6) Full demand: Organizations face full demand when they are pleased with their volume of
business.
The marketing task is to maintain the current level of demand in the face of changing consumer
preferences and increasing competition. The organization must maintain or improve its quality
and continually measure consumer satisfaction.
7) Overfull demand: Some organizations face a demand level that is higher than they can or
want to handle.
The marketing task, called demarcating, requires finding ways to reduce demand temporarily o
permanently. General demarcating seeks to discourage overall demand and takes such steps as
raising prices and reducing promotion and service. Selective demarcating consists of trying to
reduce demand from those parts of the market that are less profitable of les in need of the
product.

-4-

8) Unwholesome demand: unwholesome products will attract organized efforts to discourage


their consumption. Unsealing campaigns have been conducted against cigarettes, alcohol,
hard drugs, and handguns The marketing task is to get people who like something to give it
up, using such tools as fear messages, price hikes, and reduced availability.

Marketing Philosophy or Concept (Marketing Orientation to the Marketing


Place)
We describe marketing management as carrying out tasks to build profitable relationships with
target consumers. What philosophy should guide these marketing efforts?
What weight should be given to the interests of the organization, customers and society? Very
often these interests conflict.
There are six alternative concepts under which organizations conduct their marketing activities:
1. Production Concept
2. Selling Concept
3. Product Concept
4. Marketing Concept
5. Social Concept
6. Customer Concept

Marketing Functions
Functions:
1. Analysis of Marketing Environment and research
2. Analysis of consumer
3. Product Planning
4. Price Planning
5. Distribution Planning
6. Promotion Planning
7. Social Responsibility
8. Marketing Management

-5-

BUILDING CUSTOMER SATISFACTION


VALUE AND RETENTION:
Customer Delivered Value:

Customer delivered value is the difference between total customer value and total customer
cost.

Total customer value is the bundle of benefits customers expect from a given product or
service.

Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining,
using, and disposing of the product or service.
Customer delivered value

Total customer value

Total customer cost

Product value

Monetary cost

Services value

Time cost

Personal value

Energy cost

Image value

Psychic cost

The marketer can increase the value of the customer offering in several ways:

Raise benefits

Reduce costs

Raise benefits and reduce costs

Raise benefits by more than the rise in costs

Lower benefits by less than the reduction in costs.

-6-

The customer who is choosing between two value offerings, v1 and v2, will examine the ratio v1/
v2. she will favor v1 if the ratio is larger than one; she will favor v 2 if the ratio is smaller than one;
and she will be indifferent if the ratio equals one.

Customer Satisfactions
Satisfaction is a persons feeling of pleasure or disappointment resulting from comparing a
products perceived performance (or out come) in relation to his or her expectations. If the
performance falls short of expectations, the customer is dissatisfied. If the performance matches
the expectations, the customer is satisfied. If the performance exceeds expectations, the customer
is highly satisfied or delighted.
Tools for Tracking and Measuring Customer Satisfaction.

Complaint and suggestion systems

Customer satisfaction surveys

Ghost shopping

Lost customer analysis

Delivering customer value and Satisfactions.


The Generic
Value chain
Firm infrastructure
Human resource management
Technology development
Procurement

Support
Activities
Inbound
Logistics

Operations

Out bound
Logistics

Marketing
and Sales

Service

Primary Activities
Attracting and Retaining Customers
Todays customer are harder to please, they are smarter, more price conscious, more demanding,
less forgiving, and approached by more competitors with equal or better offers.

-7-

Attracting Customers
Company seeking to grow their profits and sales have to spend considerable time and
resources searching for new customers.
Customer acquisition requires substantial skills in lead generation, lead qualification, and
account conversion.

Computing the cost of lost Customers

The company needs to figure out how much it would cost to reduce the defection rate. As
long as the cost is less than the lost profit, the company should spend that amount to reduce
the defection rate.

The need for customer retention


The key to customer retention is customer satisfaction. A highly satisfied customer :

Stays loyal longer.


Buys more as the company introduces new products and upgrades existing products.
Talks favorably about the company and its products.
Pays less attention to competing brands and advertising and is less sensitive to price.
Offers product or service idea to the company.
Costs less to serve than new customers because transactions are rutinized

To improve retention of customers, a company would be wise to measure customer satisfaction


regularly. The company could phone recent buyers and inquire how many are very satisfied,
indifferent, dissatisfied and very dissatisfied.

Relationship Marketing : The key


We need to distinguish five different levels of investment in customer relationship building
i.

Basic Marketing

ii.

Reactive Marketing

iii.

Accountable marketing

iv.

Proactive marketing

v.

Partnership Marketing

-8-

What is Marketing Environment?


A Companys Marketing Environment consists of the actors and forces outside marketing that
affect marketing managements ability to build and maintain successful relationships with target
customers. The marketing environment offers both opportunities and threats. Successful
companies know the vital importance of constantly watching and adapting to the changing
environment.
The marketing environment is made up of a Microenvironment and Macro environment.
1.

Microenvironment:
The microenvironment consists of the actors close to the company that affect its ability to

serve its customers.


Actors in the microenvironment
The Company

Suppliers

Marketing Intermediaries

Customers

Competitors

Publics

Affected
Marketing
Ability

The Company: Marketing managers work closely with other company departments. The
departments are Research and Development (R&D), purchasing accountings,
operations or production. All these interrelated groups form the internal
environment. Top management sets the companys mission, objectives, broad
strategies and plaices. Marketing managers make decision within the strategies
and policies made by top management. The interrelationship of these
departments headed by top management affects the marketing ability.

-9-

Suppliers:

Suppliers form an important link in the companys overall customer value


delivery system. Supply shortages or delays, labor strikes and other events can
cost sales in the long run. Supply costs may force price increases that can harm
the companys sales volume. Most marketing today treat their supplies as
partners in creating and delivering customer value.

Marketing Intermediaries:
Marketing intermediaries help the company to promote, sell and distribute its goods to final
buyers. They include.
(a)

Resellers:

Resellers are distribution firms that help the company find customers or

make sales to them. They are wholesalers and retailers.


(b)

Physical Distribution
These firms help the company to stock and move goods from their production points to
their destinations. These firms are warehouses transportations.

(c)

Marketing Services agencies:


Marketing services agencies are the marketing research firms advertising agencies, media
firms and marketing consulting firms that help the company target and promote its
products to the target markets.

(d)

Financial Intermediaries:
These intermediaries include banks, credit companies, insurance companies and other
business that help finance transactions and insure against the risks associated with the
buying and selling of goods.

Customers:

Customers needs and wants and his changing attitude and belief seriously affect
the management ability. There are five types of customers markets. They are:

- 10 -

i.

Consumer markets

individuals & households

ii.

Business markets

Producers

iii.

Reseller markets

Wholesalers, Retailers

iv.

Government markets -

Government agencies

v.

International markets -

buyers in other countries


including consumers, produce
resellers and government.

Competitors: The marketing concept states that to be successful, a company must provide
greater customer value and satisfaction than its competitors do competitive attacks
affect the marketing management ability.
Publics:

A public is any group that has and actual potential interest in or impact on an
organizations ability to achieve its objectives. There are seven types of publics.

(a)

Financial publics:
These publics the companys ability to obtain funds, Banks Investment Houses, and
Stockholders are the major financial publics.

(b)

Media Publics:
These include newspapers, magazines and radio and television stations that carry news
features and additional opinion.

(c)

Government publics:
Management must take government developments into account. Marketing must often
consult the companys lawyers on issues of product safety truth in advertising and other
matters.
- 11 -

(d)

Citizen action publics:


A company marketing decisions may be questioned by consumer organizations,
environmental groups, minority groups and others, Its public relations department can
help it stay in touch with consumer and citizen groups.

(e)

Local publics:
These include neighborhood residents and community organizations. Large companies
usually appoint a community relations officer to deal with the community attends
meetings answer questions and contribute to worthwhile causes.

(f)

General Publics:
A company needs to be concerned about the general publics attitude toward it products
and activities. The public image of the companys affects its buying.

(g)

Internal publics:
These include workers, managers, volunteers and the board of directory. Large companies
use newsletters and other means to inform and motivate the internal publics. When
employees feel good about their company, this positives attitude spills over to external
publics.

The Companys Macro environment


The company and all of the actors operate in a larger microenvironment of forces that shape
opportunities and pose threats to the company. In this context, we examine these forces and show
how they affect marketing plans.
- 12 -

The major forces in the companys microenvironment are:


1. Demographic Forces
2. Economic Forces
3.

Natural Forces

4. Technological Forces
5. Political Forces
6. Cultural Forces
Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, gender,
race, occupation, and other statistics. The demographic environment is of major interest to
marketers because it involves people, and people make up markets. The worlds large and highly
diverse population poses both opportunities and challenges.
The most important demographic trends are:
1. Changing Age Structure of the Population

The Baby Boomers

Generation X

Generation Y

2. The Changing Family Life


3. Geographic Shifts in Population
4. Educated Population
1. Increasing Diversity
Economic Environment
Marketers require buying power as well as people. The economic environment consists of factors
that affect consumer purchasing power and spending patterns. The major economic trends are:

- 13 -

1. Changes in Income
2. Changing Consumer spending Patterns.
Natural Environment
The natural environment involves the natural resources that are needed as inputs by marketers
that are affected by marketing activities.
Marketers should be aware of several trends in the natural environment. The main trends are:
1. Shortages of Raw Materials
2. Increased Pollution
3. Increased Government Intervention in Natural Resource Management.
Technological Environment
The technological environment is perhaps the most dramatic force now shaping our destiny. The
technological environment changes rapidly. New technologies create new markets and
opportunities, every new technology replaces on older technology. Marketers should watch the
technological environment closely and adopt the changing technology to win competitive
advantage.
Political Environment
Marketing decisions are strongly affected by developments in the political environment. The
political environment consists of laws. Government agencies and pressure groups that influence
or limit various organizations and individuals in a given society. The major trends of political
environment are:
1. Legislation Regulating Business increasing legislation, changing government agency
enforcement.
2. Increased Emphasis on Ethics and Socially Responsible Actions
Cultural Environment
The cultural environment is made up of institutions and other forces that affect a societys basic
values, perceptions preferences, and behaviors. People grow up on a particular society that
shapes their basic beliefs and values. The following cultural characteristics can affect marketing
decision-making.
1. Persistence of cultural Values
2. Shifts in Secondary Cultural Values

- 14 -

The major cultural values of a society are expressed in peoples views of themselves and others,
as well as in their views of organizations, society, nature, and the universe.
Marketing Mix: Marketers use numerous tools to elicit desired responses from their target
markets. These tools constitute a marketing mix. Marketing mix is the set of marketing tools that
the firm uses to pursue its marketing objectives in the target market.
Marketing Mix

Place
Channels
Coverage
Assortments
Locations
Inventory
Transport

Product
Product variety
Quality
Design
Features
Brand name
Packaging
Sizes
Services
Warranties
Returns

Price
List price
Discounts
Allowances
Payment
period
Credit terms

Promotion
Sales promotion
Advertising
Sales force
Public relations
Direct marketing

- 15 -

WHAT IS MARKET SEGMENT ?


A market segment consists of a group of customers who share a similar set of wants.
Levels of market segmentation

Segment marketing
Niche marketing
Local marketing
Individual customer marketing

There is no single way to segment a market .A marketer has to try different segmentation
variables, alone and in combination, to find the best way to view the market structure, There are
four major segment variables.
MAJOR SEGMENTATION VARIABLS FOR CONSUMER MARKETS
GEOGRAPHIC:
World region or country: North America, Western Europe, Middle East, Pacific China, Mexico.
Country region: Pacific, Mountain, West North Central, West South central, East North central,
East South Central, South Atlantic, New England.
City or metro size: 5000-20000, 20000-50000, 50000-100000
Density

: Urban, Suburban, rural.

Climate

: Northern, southern.

DEMOGRAPHIC:
Age

Under 6, 6-11, 12-19, 20-34, 35-49, 50

Gender

Male, female

Family life

Young, single; young, married, no children; young married with children;


older, married with children; older, married, no children under 18; older,
single,

Family size

1-2, 3-4, 5 +

Income

Under $10000; $10000-$20000, $ 20000-30000, $30000-50000

Occupation

Professional and technical; managers. Officials, and proprietors; clerical;


sales, craftspeople; supervisors; operatives; farmers; retired, students
homemakers

Education

Grade school or less; high school, graduate; college, university


- 16 -

Religion

Catholic, protestant, Jewish Muslim, Hindu , Other

Generation

Baby boomer, Generation X Generation Y

Nationality

North American, South American, British, French,.

Social class

Lower lowers, upper lowers, working class, middle class, upper middles,
lower uppers, upper uppers

PSYCHOGRAPHICS:
Life style

: Achievers, strivers, strugglers

Personality

: Compulsive, gregarious, authoritarian, ambitious

BEHAVIORAL :
Occasions

Regular occasions special occasion.

Benefits

Quality, service, economy, convenience, speed.

User status

Nonuser, ex-user, potential user, first- time user, regular user.

User rates

Light user, medium user, heavy user.

Loyalty status

None, medium, strong, absolute.

Readiness stage: Unaware, aware, informed, interested, desirous, intending to buy.


Attitude toward product: Enthusiastic, positive, indifferent negative, hostile,

Requirements for effective segmentation: There are many ways to segment a market,
but not all segmentations are effective. To be useful market segments must be:

Measurable: The size, purchasing power, and profits of the segments can be
measured.

Accessible: The market segments can be effectively reached and served.

Substantial: The market segments are large or profitable enough to serve.

Differentiable: The segments are conceptually distinguishable and respond


differently to different marketing mix elements and programs.

Actionable: Effective programs can be designed for attracting and serving the
segments.

SELECTING THE MARKET SEGMENTS

- 17 -

Having evaluated different segments, the company can consider five patterns of target market
selection shown in following figure :
Single Segment Concentration
M1

M2

M3

P1
P2
P3
Selective Specialization
M1

M2

M3

M1

M2

M3

P1
P2
P3
Product Specialization

P1
P2
P3

- 18 -

Market Specialization
M1

M2

M3

M1

M2

M3

P1
P2
P3
Full Market Coverage

P1
P2
P3

- 19 -

TARGET MARKETING
1.

Evaluating Marketing Segments : In evaluating different market segments, a firm must look at
three factors :

2.

Segment size and growth.

Segment structural attractiveness.

Company objectives and resources.


Selecting Target Market Segments : After evaluating different segments, the company must

now decides which and how many segments it will target.


A target market consists of a set of buyers. Who share common needs on characteristics that the
company decides to serve.
3.

Target Marketing Strategies :

(i)
Undifferentiated
(mass) Marketing

(ii)
Differentiated
(Segmented)
Marketing

Targeting broadly

(iii)
Concentrated
(Niche)
Marketing

(iv)
Micro-marketing
(Local or individual)

Marketing

Targeting narrowly

i) Undifferentiated (Mass) Marketing : A market-Coverage strategy in which a firm decides to


ignore market segment differences and go after the whole market with one offer.

ii) Differentiated (Segmented) Marketing : A market-coverage strategy in which a firm decides to


target several market segments and designs separate offers for each.

iii) Concentrated (Niche) Marketing : A market-coverage strategy in which a firm goes after a large
share of one or a few segments or niches.

iv) Micro-marketing : The practice of tailoring products and marketing programs to the needs and
wants of specific individuals and local customer groups includes local marketing and individual
marketing.

- 20 -

Local marketing : tailoring brands and promotions to the needs and wants of local customer
groups, cities, neighborhoods and even specific stores.

Individual marketing : Tailoring products and marketing programs to the needs and
preferences of individual customers-also labeled Markets of one marketing, customized
marketing and one-to-one marketing.

4. Choosing a target Marketing Strategy :


The best choosing a target marketing strategy depends on company resources. When the firms
resources are limited, concentrated marketing makes the most sense. The best strategy also depends
on the degree of product variability.

POSITIONING FOR COMPETITIVE ADVANTAGE

Product position : The way the product is defined by consumers on

important attributes the place the product occupies in consumers minds relative to
competing products.
Choosing a Positioning Strategy :

1.

Identifying Possible competitive Advantages : An advantage over competitors


gained by offering consumers greater value, either through lower prices or by providing
more benefits that justify higher prices. A company or market offer can be differentiated
along the lines of product, services, channels, people, or image.

2.

Choosing the Right Competitive Advantages : Company must decide how


many differences to promote and which ones.

How many differences to promote ?

Which Differences to promote ?

Company must carefully selects the differences that it satisfies the following criteria.
(i)

Important;

- 21 -

(ii)

Distinctive;

(iii)

Superior;

(iv)

Communicable;

(v)

Preemptive;

(vi)

Affordable;

(vii)

Profitable;

3.

Selecting on Overall Positioning Strategy : The full positioning of a brand is


called the brands value proposition the full mix of benefits upon which the brand is
positioned.

Product Benefits/Quality

There are five winning value propositions.

More

Price
The same
2. More for the

More
1. More for
more

Same

same

Same for

same for same

more
Less

Less
3. More for
less
4. The same
for less

Less for more

Less for the same

5. Less for
much less

Possible value propositions


4.

Developing a Positioning Statement : A statement that summarizes company or


brand positioning it takes this form : to (target segment and need) our (brand) is
(concept) that (Point-of-difference)

5.

Communicating and Delivering the chosen Position : Once it has chosen a


positions, the company must take strong steps to deliver and communicate the desired
position to target consumers.

- 22 -

PRODUCT : CONCEPT & CLASSIFICATION


1. What is a Product ?
We define a product as anything that can be offered to a market for attention, acquisition, use, or
consumption and that might satisfy a want or need.
Products include more than just tangible goods. Broadly defined, products include physical
objects, services, events, persons, places, organizations, ideas or mixes of these entities.
2. What is Services ?
Services are a form of product that consists of activities, benefits, or satisfactions offered for
sale that are essentially intangible and do not result in the ownership of anything. Examples
are banking, hotel, airline, and home repair services.
Figure : Three levels of product.
Augmented
Product
Actual Product
Delivery
Credit

Brands
and
name

Features

After
Sales service

Core benefit
Quality level

Installation

Design

Packaging

Warranty

Product Classifications
1.

Consumer Products and services bought by final consumer for personal consumption.
Consumer product include

- 23 -

a)

Convenience products

b)

Shopping products

c)

Specialty products

d)

Unsought products

b) Convenience products are consumer products and services that the customer usually buys
frequently, immediately, and with a minimum of comparison and buying effort.
c) Shopping products are less-frequently purchased consumer products and services that
customers compare carefully on suitability, quality, price and style.
d) Specialty products are consumer products and services with unique characteristics or
brand identification for which a significant group of buyers is willing to make a special
purchase effort.
e) Unsought products are consumer products that the consumer either does not know about
or knows about but does not normally thing of buying.
2. Industrial products are those purchased for further processing or for use in conducting a
business.
a)

Materials and parts

b)

Capital items

c)

Suppliers and services.

Organizations often carry out activities to Sell the organizations itself.

Person marketing consists of activities undertaken to create, maintain or change attitudes


or behavior towards particular people.

Place marketing involves activities undertaken to create, maintain or change attitudes or


behavior toward particular places.

Ideas : Idea can also be Marketed. In one sense, all marketing is the marketing of an idea,
whether it be the general idea of brushing your teeth or the specific idea that create tooth
pastes Create smiles everyday.

Managing Product Lines and Brands


The Product and the Product Mix
The Product : A product is anything that can be offered to a market to satisfy a want or need
products that are marketed include physical goods, services, experiences, events, persons, places,
properties, organizations, information, and ideas.
Product levels : In planning companys offerings, the marketer needs to think through five levels
of the product.
- 24 -

Five product levels

Core
benefit

i)

Core benefit : The fundamental service or benefit that the customer is really buying.

ii)

Basic product : The marketer has to turn the core benefit into a basic product.

iii)

Expected product : A set of attributes and conditions buyers normally expect when
they purchase a product.

iv)

Augmented product : The marketer prepares an augmented product that exceeds


customer expectations.

v)

Potential Product : Companies search for new ways to satisfy customers and
distinguish their offer. Successful companies add benefits to their offering that not only
satisfy customers but also surprise and delight them. Delighting customers is a smaller of
exceeding expectations.

Product hierarchy : Each product is related to certain other products. The product hierarchy
stretches from basic needs to particular items that satisfy those needs. We can identify six levels
of the product hierarchy.
i.
ii.

Need family : The core need that underlies the existence of a product family.
Product family : All the product classes that can satisfy a core need with reasonable
effectiveness.

- 25 -

iii.

Product class : A group of products within the product family recognized as having a
certain functional coherence.

iv.

Product line : A group of products within a product class that are closely related
because they perform a similar function, are sold to the same customer groups, are
marketed through the same channels, or fall within given price ranges.

v.

Product type : A group of items within a product line that share. One of several
possible forms of the product.

vi.

Item : A distinct unit within a brand or product line distinguishable by size, price,
appearance, or some other attribute.

vii.

Brand : the name, associated with one or more items in the product line, that is used
to identify the source or character of the items.

Product Mix : A product mix (also called product assortment) is the set of all products and items
that a particular seller offers for sale.
Product Line decisions
A product mix consists of various product lines. In offerings a product line, companies normally
develop a basic platform and modules that can be added to reed different customer requirements.

Product Line Analysis : Product line managers need to know the sales and profits of each
item in their line in order to determine which items to build, maintain, harvest, or divest. They
also need to understand each product lines market profile.
i) Sales and profits :
Product-Item contributions to a product lines total sales and profits.

- 26 -

Parcentage Contribution
to sales and profit

60
50
40
Sales
Profits

30
20
10
0
1

Product item
The figure shows a sales and profit report for a five item product line.
ii) Market Profile : The product line manager must review how the line is positioned against
competitors line. The product map is useful for designing product-line marketing strategy. It
shows which competitors items are competing against company items.
After performing a product-line analysis, the product-line manager has to consider decisions
on product line length, line modernization, line featuring, and line pruning.
Product Line Length : Product-line managers are concerned with length. A product line is too
short if profits can be increased by adding items; the line is too long if profits can be increased
by dropping items.
A company lengthens its product line in two ways : by line stretching and line filling.
i) Line Stretching : Every companys product line covers certain part of the total possible range.
Line stretching occurs when a company lengthens its product line beyond its current range. The
company can stretch its line down-market; up-market, or both ways.
Down market stretch : A company positioned in the middle market may want to introduce a
lower price line for any of three reasons :
- 27 -

i.

The company may notice strong growth opportunities in the down market as mass
retailers.

ii.

The company may wish to tie up lower-end competitors who might otherwise try to
move up market.

iii.

The company may find that the middle market is stagnating or declining.

Up market Stretch : Companies may wish to enter the high end of the market for more growth,
higher margins, or simply to position themselves as full-line manufacturers.
Two-way Stretch : Companies serving the middle market might decide to stretch their line in
both directions.
Line filling : A product line can also be lengthened by adding more items within the present
range. There are several motives for line filling, reaching for increment profits, training to satisfy
dealers who complain about lost sales because of missing items in the line, trying to utilize
excess capacity trying to be the leading full-line company and trying to plug holes to keep out
competitors.

High

High

High

Price

New
product

Price

Low
Quality

Existing
product

Quality

High

Existing
Product

Price
New
product

Low
Low
High

New
Product

New
product

Existing
product

Low

Low
Quality

High

Low

Line Modernization : Product lines need to be modernized. In rapidly changing product


markets, modernization is carried on continuously.
Companies plan improvements to encourage customer migration to higher valued, higher-priced
items.

- 28 -

Line featuring and line pruning : The product-line manager typically selects one or a few
items in the line to feature. Sometimes a company finds one end of its line selling well and the
other end selling poorly. The company may try to boost demand for the slower sellers especially
if they are produced in a factory idled by lack of demand.
Product line manager must periodically review the line for pruning.

- 29 -

PRODUCT MIX AND INDIVIDUAL PRODUCT DECISIONS


A product mix (also called product assortment) is the set of all products and items that a
particular seller offers for sale.

Product line length

Product Mix with


Philips T.V.
Model No. 1102
Model No. 1103
Model No. 1104
Model No. 1105
Model No. 1106

Philips Radio
Model No. 2201
Model No. 2202
Model No. 2203
Model No. 2204

Philips Camera

Philips bulb

Model No. 3001


Model No. 3002
Model No. 3003

200 WT
100 WT
60 WT
40 WT
0 WT

A companys product mix has a certain width length, depth and consistency.

Width : The width of a product mix refers to how many different product lines the company
carries.

Length : The length of a product mix refers to the total number of items in the mix.

Depth : the depth of a product mix refers to how many variants are offered of each product
in the line.

Consistency : The consistency of the product mix refers to how closely related the various
product lines are in end use, production requirements, distribution channels, or some other
way.

These four product mix dimensions permits the company to expand its business in four ways :

It can add new product lines, thus widening its product mix.

It can lengthen each product line.

It can add more product variants to each product and deepen its product mix.

Finally, a company can pursue more product-line consistency.

- 30 -

Individual Product decisions


Developing a product or service involves defining the benefits that it will offer. These benefits
are communicated and delivered by product attributes such as quality, features, and style and
design.
1.

Product Quality : The ability of a product to perform its functions; it includes the
products overall durability, reliability, precision, case of operation and repair, and other
valued attributes.
Product quality is one of the marketers major positioning tools. quality has a direct impact
on product or service performance; thus, it is closely linked to customer value and
satisfaction.
In the narrowest sense, quality, can be defined as freedom from defects. But most customer
centered companies go beyond this narrow definition. Instead, they define quality in terms of
customer satisfaction.
The American Society for quality defines quality as the characteristics of a product or service
that bear on its ability to satisfy stated or implied customer needs.
These customer focused definitions suggest that quality begins with customer needs and ends
with customer satisfaction.

Total quality management (TQM) is a approach in which all the companys people are
involved in constantly improving the quality of products, services, and business
processes.

Product quality has two dimensions level and consistency.

- 31 -

i.

Quality level : In developing a product, the marketer must first choose a


quality level that will support the products position in the target market. Here
product quality means performance quality.

ii.

Quality consistency : Beyond quality level, high quality also can mean
high levels of quality consistency. Here, product quality means conformance quality
freedom from defects and consistency in delivering a targeted level of performance.
All companies should strive for high levels of conformance quality.

Many companies today have turned customer driven quality into a potent strategic
weapon. They create customer satisfaction and value by consistently and profitably
meeting customers needs and performances for quality.

2.

Product features : A product can be offered with varying features. A stripped down
model, one without any extras, is the starting point. The company can create higher level
models by adding more features. Features are a competitive tool for differentiating. The
companys product from competitors products, Being the first producer to introduce a
needed and valued new feature is one of the most effective ways to compete.
For the identification of new features and decide which ones to add to its products, company
should periodically survey buyers who have used the product and ask these question :

How do you like the product ?

Which specific features of the product do you like most ?

Which features could we add to improve the product ?

The answers provide the company with a rich list of feature ideas. The company can then
assess each features value to customers versus its cost to the company, features that
customers value little in relation to costs should be dropped; those that customers value
highly in relation to costs should be added.

- 32 -

3. Product Style and Design : Another way to add customer value is through distinctive
product style and design. Design is a larger concept than style. Style simply describes the
appearance of a product. Styles can be eye catching or yawn producing. A sensational style
may grab attention and produce pleasing aesthetics, but it does not necessarily make the
product perform better. Unlike style, design is more then a skin deep it goes to the very
heart of a product. Good design contributes to a products usefulness as well as to its looks.
Good style and design can attract attention, improve product performance, cut production
costs, and give the product a strong competitive advantage in the target market.
DEVELOPING NEW MARKET OFFERINGS
A company can add new products through acquisition or development. The acquisition route can
take three forms.
i. The company can buy other companies,
ii. It can acquire patents from other companies,
iii. It can by a license or franchise from another company.
The development route can take two forms.
i. The company can development new products in its own laboratories.
ii. It can contract with independent researchers or new product development firms to
develop specific new products.
There are six categories of new products :
i.

New-to-the-world products

ii. New product lines


iii. Additions to existing product lines
iv. Improvements and revisions of existing products
v. Repositioning
vi. Cost reductions
Challenges in new Product Development :

- 33 -

Companies that fail to develop new products are putting themselves at great risk. Their existing
products are vulnerable to changing customer needs and tastes, new technologies, shortened
product life cycles, and increased domestic and foreign competition. New technologies are
especially threatening. Most established companies focus on incremental innovation. Newer
companies create disruptive technologies that are cheaper and more likely to alter the
competitive space.
New product development is risky. It continue to fail at a disturbing rate. Recent studies put the
failure rate of new consumer products at 95 percent in the united states and 90 percent in Europe.
Why does new product fail?

A high-level executive pushes a favorite idea through in spite of negative


market research findings.

The idea is good, but the market size is overestimated.

The product is not well designed.

The product is incorrectly positioned in the market, not advertised


effectively, or overpriced.

The product fails to gain sufficient distribution coverage or support.

Development costs are higher than expected.

Competitors fight back harder than expected.

Several factors tend to hinder new product development:

Shortage of important ideas in certain areas

Fragmented markets

Social and governmental constraints

Cost of development

Capital shortages

- 34 -

Faster required development time

Shorter product like cycle

Marketing challenges arising at each of the eight stages of the new-product development process
Yes
Yes
1. Idea
Generation

2. Idea
Screening

Is the idea worth


considering?

Is the product
idea compatible
with company
objectives.
Strategies, and
resources ?

Yes

Yes

Yes

development and
testing

4. Marketing
strategy
development

Can we find a
good concept for
the product that
consumer say
they would try ?

Can we find a
cost effective
affordable
marketing
strategy ?

3. Concept

5. Business

Yes

analysis

Will this product


meet our profit
goal ?

Yes

Yes

6. Product
development

7. Market
testing

Have we
developed a
technically and
commercially
sound product ?

Have product
sales met
expectation ?

8.
Commerci
alization
Are product
sales meeting
expectation?

No Yes
Should we send

No

No

No

No

No

No

Yes he idea back for


product
development?

No

DROP

Managing the development process : Ideas


1. Idea generation : The systematic search for new-product ideas.

Interacting with others : Ideas for new products can come from
i.

Customers

ii.

Scientists

iii.

Competitors

iv.

Employees

v.

Channel members

vi.

Top management

- 35 -

Would it
help to
modify the
product or
marketing
program?

No

Creativity techniques : Here is a sampling of techniques for stimulating creativity in individuals


and groups.
i.

Attribute listing

ii. Forced relationships


iii. Morphological analysis
iv. Reverse assumption analysis
v. New contexts
vi. Mind-mapping
2. Idea screening : Screening new product ideas in order to spot good ideas and drop poor ones
as soon as possible.
A company should motivate its employees through rewards to submit their new ideas to an
idea manager whose name and phone number are widely circulated. Ideas should be written
down and reviewed each week by an idea committee. The company then sorts the proposed
ideas into three groups :

Promising ideas

Marginal ideas

Reject ideas

Each promising idea is researched by a committee member, who reports back to the
committee. The serving ideas then move into a full-scale screening process. In screening
ideas, the company must avoid two types of errors :

Drop-error : A drop error occurs when the company dismisses an otherwise good
idea.

- 36 -

GO-error occurs : GO error occurs when the company permits a poor idea to move
into development and commercialization.

Most companies require new-product ideas to be described on a standard form that can 6
reviewed by a new product committee. The descriptions states :

The product idea

The target market

The competition

Roughly estimated market size

Product price

Development time and costs

Manufacturing costs

Rate of return

The executive committee then reviews each idea against a set of criteria.

Does the product meet a need ?

Would it offer superior value ?

Can it be distinctively advertised ?

Does the company have the necessary know how and capital ?

Will the new product deliver the expected sales volume, sales growth and profit ?

The surviving ideas can be rated using a weighted index method like that in the following
table :
Product-Idea Rating Device
Product Success Requirements

Relative weight

Product Score

Product

(a)
.40
.30
.20

(b)
.8
.6
.7

Rating
{C = a b}
.32
.18
.14

Unique of Superior product


High performance to cost ratio
High marketing dollar support
- 37 -

Lack of strong competition

.10

.5

.05
.69
As the idea moves through development, the company will constantly need to revise its
estimate of the products overall probability of success, using the following formula:

Overall
Probability of
success

Probability of
=

technical

Probability of

completion

commercialization

Probability of

economic success

given technical

given

completion

commercialization

For example, if the three probabilities are estimated as .50, .65, and .74, respectively, the
overall probability of success is .24. The company then has to judge whether this probability
is high enough to warrant continued development.

3. Managing the development process : (concept to strategy) concept development and


testing.

Concept development :

Attractive ideas must be refined into testable product concepts. A product idea is a possible
product the company might offer to the market. A product concept is an elaborated version of
the idea expressed in meaningful consumer terms.
A product idea can be turned into several concepts. A few questions are necessary to build
some concepts.

Who will use the product ?

What primary benefit should this product provide ?

Why will use or consumer the product ?

When will people consume the product ?

By answering these questions, a company can form, several concepts. Letter companies have
to create a product positioning map in a competitive market. Next, the product concept has to
be turned into a brand concept.

- 38 -

Concept testing : Concept testing involves presenting the product concept to appropriate
target consumers and getting their reactions. The concepts can be presented symbolically or
physically.
Company has to ask some questions testing :
1. Communicability and believability : Are the benefits clear to you and believable? If the
scores are low the concept must be refined or revised.
2. Need level : Do you see this product solving a problem or filling a need for you ? The
stronger the need, the higher the expected consumer interest.
3. Gap level : Do other products currently meet this need and satisfy you ? The greater the
gap, the higher the expected consumer interest. A high need-gap score means that the
consumer sees the product as filling a strong need that is not satisfied by available
alternatives.
4. Perceived value : Is the price reasonable in relation to the value ? The higher the
perceived value, the higher the expected consumer interest.
5. Purchase intention : would you (definitely, probably, probably not, definitely not) by the
product ? This would be high for consumers who answered the previous three questions
positively.
6. User targets, purchase occasions, purchasing frequency, who would use this products,
and when and how often will the product be used ?

Conjoint analysis : Consumer preferences for alternative product concepts can be measured
through conjoint analysis, a method for deriving the utility values that consumers attach to
varying levels of a products attributes. Respondents are shown different hypothetical offers
formed by combining varying levels of the attributes.

4. Marketing Strategy : Designing an initial marketing strategy for a new product based on the
product concept.
- 39 -

The marketing strategy statement consists of three parts :


(i) The first part describes

the target market;

the planned product positioning;

the sales;

market share; and

profit goals for the first few years,

(ii) The second part of the marketing strategy statement outlines the products

Planned price,

Distribution

Marketing budget for the first year.

(iii)Third part of the marketing strategy statement describes

the planned long-rum sales, profit;

profit goals,

marketing mix strategy

5. Business Analysis :
A review of sales, costs and profit projections for a new product to find out whether these
factors satisfy the companys objectives.
After management develops the product concept and marketing strategy, it can evaluate the
proposals business attractiveness.

Estimating total sales : Total estimated sales are the sum of estimated first-time sales,
replacement sales, and repeat sales.
See figures :

- 40 -

(a) One time purchased product

(c) Frequently purchased product


Repeat purchase
sales

Sales

Sales

Time

Time

(b) Infrequently purchased product

Replacement sales

Time

Estimating costs and profits : Costs are estimated by the R & D, manufacturing,
marketing and finance departments.
Companies use other financial measures to evaluate the merit of a new-product proposal.
The simplest is break-even analysis, in which management estimates how many units of
the product the company would have to sell to break even with the given price and cost
structure.

Managing the development process : Development to commercialization


6. Product development :
Developing the product concept into a physical product in order to ensure that the product
idea can be turned into a workable product.

- 41 -

Up to now, the product has existed only as a word description, a drawing, or a prototype.
This step involves a large jump in investment that dwarfs. The costs incurred in the earlier
stages. At this stage the company will determine whether the product idea can be triangulated
into a technically and commercially feasible product.
R & D department will develop one or more physical various of the product concept. Its goal
is to find a prototype that embodies the key attributes described in the product concept.
Statement, that performs safely under normal use and conditions, and that can be produced
within the budgeted manufacturing costs. When the prototypes are ready. They must be put
through rigorous functional tests and customer tests.
7. Market Testing :
The stage of new product development in which the product and marketing program are
tested in more realistic market settings.
After management is satisfied with functional and psychological performance, the product is
ready to be dressed up with a brand name and packaging, and put into a market test. The new
product is introduced into an authentic setting to learn how large the market is and how
consumers and dealers react to handling using, and repurchasing the product.

Consumer = Good Market Testing : In testing consumer products, the company seeks
to estimate four variables : trail, first repeat, adoption and purchase frequency. The
company hopes to find all these variables at high levels.

There are four major methods of consumer-goods market testing :


i.

Sales-wave Research

ii.

Simulated test Marketing

iii. Controlled test Marketing :


iv. Test Markets :
- 42 -

8.

Commercialization : Introducing a new product into the market. When the company

goes ahead with commercialization introducing the new product into the market it will
face high costs. The company will have to build or rent a manufacturing facility. And it may
have to spend, in the case of new consumer packaged good, a large amount for advertising,
sales promotion, and other marketing, efforts in the first year.
Where ? The company must decide where to launch the new product in a single location, a
region, the national market, or the international market. Few companies have the confidence,
capital, and capacity to lunch new products into full national or international distribution. They
will develop a planned market rollout over time. In particular, small companies may enter
attractive cities or regions one at a time. Larger companies, however, may quickly introduce new
models into several regions or into the full national market.
When ? (Timing) : Favorable environment should essential for introducing a new product.
An example, if the economy is down, the company may wait until the following changed
economy. If a new product replaces an older product, the company might delay the
introduction until the old products stock is drawn down. If the product is seasonal, it might
be delayed until the right season arrives,
to Whom ? (Target-Market prospects) : Within the rollout markets, the company must
target its initial distributions and promotion to the best prospect groups. Presumably, the
company has already profiled the prime prospects. Who would ideally have the following
characteristics : the would be early adopters, heavy users, and opinion leaders, and they
could be reached at a low cost. The company should rate the various prospect groups on
these characteristics and target the best group.
How ? (Introductory market strategy) : The company must develop an action plan for
introducing the new product into the rollout markets. To coordinate the many activities
involved in launching a new product, management can use network-planning techniques such
as critical path scheduling. Critical path scheduling (CPS) calls for developing a master chart
showing the simultaneous and sequential activities that must take place to launch the product.
By estimating how much time each activity takes, the planners estimate completion time for
the entire project. Any delay in any activity on the critical path will cause the project to be
delayed. If the launch must be completed earlier, the planner searches for ways to reduce
time along the critical path.
- 43 -

PRODUCT LIFE-CYCLE MARKETING STRATEGY


The course of a products sales and profits over its life time. It involves five distinct stages;
product development, introduction, growth, maturity, and decline.
To say that a product has a life cycle is to assert four things :
1. Products have a limited life
2. Product sales pass through distinct stages, each posing different challenges, opportunities
and problems to the seller.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial manufacturing, purchasing and human
resource strategies in each life-cycle stage.

The product life-cycle has five distinct stages :


1. Product development begins when the company finds and develops a new-product idea.
During product development, sales are zero and the companys investment costs mount.
2. Introduction is a period of slow sales growth as the product is introduced in the market.
Profits are nonexistent in this stage because of the heavy expenses of product
introduction.
3. Growth is a period of rapid market acceptance and increasing profits.
4. Maturity is a period of slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits level off or decline because of increased
marketing outlays to defend the product against competition.
5. Decline is the period when sales fall off and profits drop.
Sales and
Profits

- 44 -

Sales

Time
Product development stage

Introduction

Losses

Growth

Investment

Sales and profit life-cycles


Maturity

Style, Fashion, and Fad life cycle

Decline

Style : A basic and distinctive mode of expression.


Style

Sales
Time
Fashion : A currently accepted or popular style in a given field.
Fashion

Sales
0
Time

- 45 -

Fad : A fashion that enters quickly is adopted with great zeal, peaks early, and declines very
quickly.
Fad

Sales
Time
Marketing Strategies : Introduction stage
The product life-cycle stage in which the new product is first distributed and made available for
purchase. Because it takes time to roll out a new product and fill dealer pipelines, sales growth
tends to be slow at this stage. Profits are negative or low in the introduction stage because of low
sales and heavy distribution and promotion expenses. Much money is needed to attract
distributors. Promotional expenditures are at their highest ratio to sales because of the need to i)

Informed potential consumers

ii)

Induce product trial

iii)

Secure distribution in retail outlets.

In launching a new product, marketing management can set a high or a low level for each
marketing variable (Price, promotion, distribution product quality). Considering only price and
promotion, management can pursue one of four strategies.

High

Price

Promotion
High
1.

Rapid skimming

Low
2.

Slow Skimming

4.

Slow Penetration

Low
3.

Rapid
Penetration

- 46 -

1. Rapid Skimming : Launching the new product at a high price and a high promotions
level. This strategy makes sense when a large part of the potential market is unaware of
the product; those who become aware of the product are eager to have it and can pay the
asking price; and the firm faces potential competition and wants to build brand
preference.
2. Slow Skimming : Launching the new product at a high price and low promotion. This
strategy makes sense when the market is limited in size; most of the market is aware of
the product; buyers are willing to pay a high price; and potential competition is not
imminent.
3. Rapid penetration : Launching the product at a low price and spending heavily on
promotion. This strategy makes sense when the market is large, the market is unaware of
the product, most buyers are price sensitive, there is strong potential competition, and the
unit manufacturing costs fall with the companys scale of production and accumulated
manufacturing experience.
4. Slow penetration : Launching the new product at a low price and low level of aware of
the product is price sensitive, and there is some potential competition.

Marketing Strategies : Growth stage

If the new product satisfies the market, it will enter a growth stage, in which sales will start
climbing quickly. The early adopters will continue to buy, and later buyers will start following
their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for
profit, new competitors will enter the market. They will introduce new product features, and the
market will expand.
During this stage, the firm uses several strategies to sustain rapid market growth as long as
possible.
i)

It improves product quality and adds new product features and improved styling.

ii) It adds new models and flanker products i.e. products of different sizes, flavors and so
forth that protect the main product.
- 47 -

iii) It enters new market segments.


iv) It increases its distribution coverage and enters new distribution channels.
v) It shifts from product-awareness advertising to product-preference advertising.
vi) It lowers prices to attract the next layer of price-sensitive buyers.

Marketing Strategies : Maturity Stage

At some point, the rate of sales growth will slow, and the product will enter a stage of relative
maturity. This stage normally lasts longer than the previous stages, and poses formidable
challenges to marketing management. Most products are in the maturity stage of the life cycle
and most marketing managers cope with the problem of marketing the mature product.
The maturity stage divides into three phases :
1. Growth : In this phase, the sales growth rate, starts to decline. There are no distribution
channels to fill.
2. Stable : Sales flatten on a per capita basis because of market saturation. Most potential
consumers have tried the product, and future sales are governed by population growth
and replacement demand.
3. Decaying maturity : The absolute level of sales starts to decline, and customers begin
switching to other products and substitutes.

A company can follow three strategies at this stage :

Market Modification : The company might try to expand the market for its
mature brand by working with the two factors that make up sales volume.
Volume = number of brand users usage rate per the company can try to expand the number
of brand users in three ways :

- 48 -

i)

Convert nonusers : The key to the growth of air freight service is the constant search
for new users to whom air carriers can demonstrate the benefits of using air freight
rather than ground transportation.

ii) Enter new market segments : Johnson & Johnson successfully promoted its baby
shampoo to adult users.
iii) Win competitors customers : Pepsi-Cole is constantly tempting Coca-Cola users to
switch.
Volume can also be increased by convincing current brand users to increase their usage of the
brand. There are three strategies :
i)

The company can try to get customers to use the product more frequently.

ii) The company can try to interest users in using more of the product on each occasion : A
shampoo manufacturer might indicate that the shampoo is more effective with two
applications than one.
iii) The company can try to discover new product uses and convince people to use the
product in more varied ways;
Product Modification :
Manager also try to stimulate sales by modifying the products characteristics through quality
improvement, feature improvement, or style improvement.
i)

Quality improvement aims at increasing the products functional performance its


durability, reliability, speed, taste. A manufacturer can often overtake its competition by
launching a new and improved product.

ii) Feature improvement aims at adding new features (for example, size, weight, materials
additives, accessories) that expand the products versatility, safety or convenience.
iii) Style improvement aims at increasing the products aesthetic appeal.

Marketing-Mix Modification :

- 49 -

Product managers might also try to stimulate sales by modifying other marketing mix elements.
They should ask the following questions :
Prices : Would a price cut attract new buyers ?
Distributors : Can the company obtain more product support and display in existing
outlets ?
Advertising : Should advertising expenditures be increased ?
Sales promotion : Should the company step up sales promotion trade deals, cents off
coupons rebates, warranties, gifts and contests ?
Personal selling : Should the number or quality of sales people be increased ?
Should the basis for sales force specialization be changed ? Should sales territories be
revised should sales force incentives be revised ? Should sales force incentives be revised
? Can sales-call planning be improved ?
Services : Can the company speedup delivery ?

Can it extend more technical assistance to customer ? Can it extend more credit ?

Marketing Strategies : Decline stage


The sales of most product forms and brands eventually decline. might be slow, sales may plunge
to zero, or they may petrify at a low level.
Sales decline for a number of reasons, including technological advances shits in consumer tastes,
and increased domestic and foreign competition.
As sales and profits decline, some firms withdraw from the market. Those remaining may reduce
the number of products they offer. They may withdraw from smaller market segments and
weaker trade channels and they may cut their promotions budget and reduce their prices further.
Unfortunately, most companies have not developed a well thought-out policy for handling their
aging products. Sentiment often plays a role:

- 50 -

Logic may also play a role, Management believes that product sales will improve when the
economy improves, or when the marketing strategy is revised, or when the product is improved.
Or the weak product may be retained because of its alleged contribution to the sales of the
companys other products. Or its revenue may cover out of pocket costs, even if it is not turning
a profit.
In handling its aging products, a company faces a number of tasks and decisions.
i) To establish a system for identifying weak products. Many companies appoint a productreview committee for identifying weak products. The product review committee makes a
recommendation for each dubious product-leave it alone, modifies its marketing strategy, or
drops it.
ii) Management may decides to maintain its brand without change in the hope that competitors
will leave the industry. Or management may decide to reposition or reformulate the brand in
hopes of moving it back into the growth stage of the product life cycle.
iii) Management may decide to harvest the product, which means reducing various costs (plant
and equipment maintenance, R & Dc advertising, sales force) and hoping that sales hold up.
If successful, harvesting will increase the companys profits in the short run.
iv) Management may decide to drop the product from the line. It can sell it to another firm or
simply liquidate it at salvage value.

PACKAGING AND LABELING


Many companies have called packaging a fifth P. along with pricing product, place and
promotion. Most marketers, however, treat packaging and labeling as an element of product
strategy.
Packaging : We define packaging as follows :

- 51 -

Packaging includes the activities of designing and producing the container for a product.
The container is called the package, and it might include up to three levels of materials.
i.

Primary package

ii.

Secondary package

iii.

Shipping package

Packaging has become a potent marketing tool well designed packages can create convenience
and promotional value. various factors have contributed to packaging growing use as a marketing
tool.
i.

Self-service

ii.

Consumer affluence

iii.

Company and brand image

iv.

Innovation opportunity

Developing an effective package for a new product.


Developing an effective package for a new product requires several decisions.
The first task is to establish the packaging concept.

Defining what the package should basically be or do for the particular product.

Decisions must now be made on additional elements size, shape, materials, color, text, and
brand mark.

Decisions must be made on the amount of text, on cellophane or other transparent films, on a
plastic or a laminate tray, and so on.

Decisions must be made on tamperproof devices. The various packaging elements must be
harmonized. The packaging elements must also be harmonized with decisions on pricing,
advertising, and other marketing elements.

After the packaging is designed, it must be tested.

Engineering tests

Visual tests

- 52 -

Dealer tests

Consumer tests
LEVELING

Labels may range from simple tags attached to products to complex graphics that are part of the
package.
Labels perform several functions.

The label identifies the product or brands.

The label might also describe several things about the product who made it, where it was
made,
When it was made,
Its contents,
How it is to be used and how to use it safely.
The label might promote the product through attractive graphics.
Label shows the rules and regulation act.

The Nutritional labeling and Educational Act of 1990 requires sellers to provide detailed
nutritional information on food products and recent sweeping actions by the food and Drug
Administration regulate the use of health related terms such as low fat, light, and high-fiber,
sellers must ensure that their contain all the required information.
PRICING CONSIDERATION
AND PRICING STRATEGIES
What is Price ?
The amount of money charged for a product or service, or the sum of the values that consumers
exchange for the benefits of having or using the product or service.
FACTORS TO CONSIDER WHEN SETTING PRICES
Internal Factors Affecting Pricing Decisions
- 53 -

Marketing Objectives

Survival

Current profit maximization

Market share leadership

Product quality leadership

Marketing Mix Strategy

Costs
Type of costs
i)
ii)
iii)
iv)

Fixed costs
Variable costs
Costs at different levels of production
Costs as a function of production experience
Organizational Considerations

External Factors Affecting Pricing Decisions

The Market and Demand


o Pricing in different types of markets
o Consumer Perceptions of price and value
o Analyzing the price demand relationship
o Price elasticity of demand

Competitors Costs, Prices and Offers


Other External Factors

GENERAL PRICING APPROACHES


1. Costs-Based Pricing

- 54 -

The simplest pricing method is cost plus pricing-adding a standard markup


to the cost of the product.
Major considerations in setting price
Product
costs

Competitors prices
and offer

Consumer
perceptions of
value

Price floor

Internal & external


factors

Price celling

No profits below this


price

No-demand
above this price

To illustrate markup pricing, suppose a toaster manufacturer had the following costs and
expected sales :
Variable cost
Fixed costs
Expected unit sales

Tk. 10
Tk. 300,000
Tk. 50,000

Then the manufacturers cost per toaster is given by :


Fixed Cost

Unit Cost = Variable Cost+ Unit Sales Tk.10

Tk.300,000
Tk.16
50,000

Now suppose the manufacturer wants to earn a 20 percent markup on sales. The manufacturers
markup price is given by :
Mark up Price =

Unit Cost
Tk.16

Tk.20
1 Desired return on sales
1 .2

The manufacturer would charge dealers Tk. 20 a toaster and make profit of Tk. 4 per unit. If
dealers want to earn 50 percent on sales price they will marks up the toaster to Tk. 40 (Tk. 20 +
50% of Tk. 40).

- 55 -

BREAK-EVEN ANALYSIS AND


TARGET PROFIT PRICING
Target return price =Unit Cost +

Desired return X invested capital


unit sales

.20 X Tk.1000
Tk.20
50,000

= Tk.16

Break-even Volume =

fixed cost
Tk.300,000

30,000
(Price - Variable Cost) (Tk.20 - Tk.10)

Break-even chart for determining target price

Cost

in

1200

target revenue

1000

target profit
(Tk. 200,000)
total cost

800

Taka
(thousand)

600
Fixed cost
400
200
0
10

20

30

40

50

Sales volume in units (thousands)


2. Value Based Pricing
Value-based pricing uses buyers perceptions of value not the sellers cost, as the key to
pricing.
3. Competition-Based Pricing
Competition-based pricing is going rate pricing in which a firm bases its price largely on
competitors price, with less attention paid to its won costs or to demand.

- 56 -

Nine Price Quality Strategies


High
1. Premium Strategy

High
Product
quality

Medium
Low
1.

4. Over changing
Strategy
7. Rip off Strategy

Price
Medium
2. High Value
Strategy
5. Medium Value
Strategy
8. False economy
Strategy

Low
3. Super Value
Strategy
6. Good Value
Strategy
9. Economy Strategy

New Product Pricing Strategies


Market Skimming Pricing : Setting a high for a new product to skim maximum revenues
layer by layer from the segments willing to pay the high price; the company makes fewer but
more profitable sales.
Market Penetration Pricing : Setting a law pricing for a new product in order to attract a
large number of buyers and a large market share.
2. Product Mix Pricing Strategies
o

Product Line Pricing : Setting the price steps between various products in a
product line based on cost differences between the products, customer evaluations of
different features, and competitors prices.

Optional Product Pricing : The pricing of optional or accessory products along


with a main product.

Captive Product Pricing : Setting a price for products that must be used along
with a main product, such as blades for a razor and film for a camera.

By Product Pricing : Setting a price for by products in order to make the main
products price more competitive.

Product Bundle Pricing : Combining several products and offering the bundle at
a reduced price.

- 57 -

2.

Price Adjustment Strategies


Discount and Allowance Pricing : A straight reduction in price on purchases during a stated
period of time.
i) Cash Discount
ii) Quantity Discount
iii) Functional Discount
iv) Seasonal Discount
v) Allowance
Segment Pricing : Selling a product or service at two or more prices, where the difference in
prices not based on differences in costs.

4.

Psychological Pricing
A pricing approach that considers the psychology of prices and not simply the economics; the
price is used to say something about the product.

Reference Price : Prices that buyers carry in their minds and refer to when they look at a
given product.
5.

Psychological Pricing
Temporarily pricing products below the list price, and sometimes even below cost, to
increase short-run sales.

6.

Geographical Pricing
o

FOB Origin Pricing : A geographical pricing strategy in which goods are placed
free on board a carrier; the customer pays the freight from the factory to the destination.

o Uniform delivered Pricing : A geographical pricing strategy in which the company


charges the same price plus freight to all customers, regardless of their locations.
o Zone Pricing : A geographical pricing strategy in which the company sets up two or
more zones. All Customers within a zone pay the same total price; the more distant the
zone, the higher the price.
- 58 -

o Basing Point Pricing : A geographical pricing strategy in which the seller designates
some city as a basing point and charges all customers the freight cost from that city to the
customer.
o Freight absorption Pricing : A geographical pricing strategy in which the seller absorbs
all or part of the freight charges in order to get the desired business.

5.

International Pricing
Companies that market their products internationally must decide what prices to charge in the
different countries in which they operate.
Price changes : After developing their pricing structures and strategies, companies often
face situations in which they must initiate price charges or respond to price charges by
competitions.
1. Initiating Price Cuts
o
o
o

Excess capacity
Falling market share
To gain market share

2. Initiating Price Increases


o
Rising costs
o
Over demand

Marketing Channels and Supply Chain Management


Marketing channels or distribution channels are sets of interdependent organizations involved in
the process of making a product or service available for use or consumption.
Supply chains : Producing a product or service and making it available to buyers requires
building relationships not just with customers, but also with key suppliers and resellers in the
companys supply chain. This supply chain consists of upstream and downstream partners,
including suppliers, intermediaries, and even intermediarys customers.

- 59 -

Value delivery network : The network made up of the company, suppliers, distributors and
ultimately customers who partner with each other to improve the performance of the entire
system.
The Nature and Importance of Marketing Channels :

A companys channel decisions directly affect every other marketing decision.

The companys pricing depends on whether it works with national discount chains, uses high
quality specialty stores, or sells directly to consumers via the web.

The firms sales force and communications decisions depend on how much persuasion,
training, motivation and support its channel partners need.

Whether a company develops or acquires certain new products may depend on how well
those products fit the capabilities of its channel members.

Many companies have used imaginative distribution systems to gain a competitive


advantage.

How a Marketing Intermediary reduces the number of channel transactions.

1.

Number

of

contacts

without

a 2.

C
Store

Number of contacts with a distributor

distributor P C = 3 3 = 9

P+C=3+3=6

P = Producer, C = Consumer

P = Producer, C = Consumer
Store = Distributor

Channel functions and Marketing channels


- 60 -

Information : Gathering and distributing marketing research and intelligence information


about actors and forces in the marketing environment needed for planning and aiding
exchange.

Promotion : Developing and spreading persuasive communications about an offer.

Contact : finding and communication with prospective buyers.

Matching : Shaping and fitting the offers to the buyers needs, including activities such as
manufacturing, grading, assembling and packaging.

Negotiation : Reaching an agreement on price and other terms of the offer so that ownership
or possession can be transferred.

Other help to fulfill the completed transactions

Physical distribution : Transporting and storing good.

Financing : Acquiring and using funds to cover the costs of the channel work.

Risk taking : Assuming the risk of carrying out the channel work.

Consumer and business marketing channels


Channel-1

Manufacturer

Channel-2

Manufacturer

Channel-3

Manufacturer

Channel-4

Manufacture

Consumer
Retailer

Consumer

Retailer

Consumer

Whole seller
Retailer
A. Consumer Marketing Channels

Consumer

Whole seller

- 61 -

Channel-1

Manufacturer

Industrial
customer

Channel-2

Channel-3

Manufacturer

Manufacturer

Business

Industrial

distributor

customer

Manufacturers

Industrial

representatives

customer

or sales branch
Channel-4

Manufacturers

Business

Industrial

representatives

distributor

Customer

or sales branch
B. Business Marketing Channels

Channel Behavior and Organization


Channel Behavior : A marketing channel consists of firms that have banded together for their
common good. Each channel member depends on the others. The channel will be most effective
when each member is assigned the tasks it can do best. But they often disagree on who should do
what and what rewards. Such disagreements over goals, roles and rewards generate channel
conflict.

Horizontal conflict : Horizontal conflict occurs among firms at the same level of the
channel.

Vertical conflict : Vertical conflict occurs between different levels of the same channel.

- 62 -

Vertical Marketing Systems


Conventional distribution channel : A channel consisting of one or more independent
producers, wholesalers, and retailer, each a separate business seeking to maximize its own
profits, even at the expense of profits for the system as a whole. A conventional marketing
channel comprises an independent producer, wholesaler(s), and retailer(s). Each is a separate
business seeking to maximize its own profits.
A vertical marketing system (VMS) : A distribution channel structure in which producers,
wholesalers, and retailers act as a unified system. One channel member owns the others, has
contracts with them, or has so much power that they all cooperate.
There are three types of VMS :
i)

Corporate VMS : A vertical marketing system that combines successive stages of


production and distribution under single ownership channel leadership is established
through common ownership.

ii)

Contractual VMS : A vertical marketing system in which independent firms at


different levels of production and distribution joint together through contracts to obtain more
economics or sales impact than they could achieve alone. There are three types of contractual
VMS.

Wholesaler sponsored voluntary chains.

Retailer cooperatives.

Franchise organizations : A channel member called a franchisor might link several


successive stages in the production distribution process. Framechising has been the
fastest growing retailing development in recent years. Although the basic idea is an old
one, some forms of franchising are quite new. There are three types of franchise.
i) Manufacture sponsored retailer franchise.
ii) Manufacturer Sponsored wholesaler franchise.
iii) Service firm sponsored retailer franchise.
- 63 -

iii)

Administered VMS : A vertical marketing system that coordinates


successive stages of production and distribution, not through common ownership or
contractual ties, but through the size and power of one of the parties.

A Horizontal Marketing Systems : A channel arrangement in which two or more companies at


one level joint together to follow a new marketing opportunity
A Multi-channel Distribution Systems : A distribution system in which a single firm sets up
two or more marketing channels to reach one or more customer segments.
Catalogues, Telephone, Internet

Detailers

Producer

Distributors

Dealers

Consumer
Segment-1
Consumer
Segment-2

Business
Segment-1

Business
Segment-2
Sales force
Channel Design Decisions
A new firm typically starts as a local operation selling in a limited market, using existing
intermediaries. If the firm is successful, it might branch into new markets. It might have to use
different channels in different markets. In large markets, it might sell through distributors.
In managing its intermediaries, the firm must decide how much effort to devote to push versus
pull marketing.

A push strategy involves the manufacturer using its sales force and trade promotion money
to induce intermediaries to carry, promote, and sell the product to end users.
Push strategy is appropriate where there is low brand loyalty in a category, brand choice is
made in the store, the product is an impulse item and product benefits are well understood.

A pull strategy involves the manufacturer using advertising and promotion to induce
consumers to ask intermediaries for the product, thus inducing the intermediaries to order it.
- 64 -

Pull strategy is appropriate when there is high brand loyalty and high involvement in the
category, when people perceive differences between brands, and when people choose the
brand before they go to the store.
Designing a channel system involves four steps:
1. Analyze customers desired service output levels:
In designing the marketing channel, the marketer must understand the service output levels
desired by target customers. Channels produce five service outputs.

Lot size

Waiting time

Spatial Convenience

Product variety

Service backup

2.

Establish objectives and constraints :


Companies should state their marketing channel objectives in terms of targeted levels of
customer service. Usually, a company can identify several segments wanting different levels
of service. The company should decide which segments to serve and the best channels to use
in each case, in each segment, the company wants to minimize the total channel cost of
meeting customer service requirements.
The companys channel objectives are also influenced by of

The nature of the company.

The products

Marketing intermediaries

Competitors

- 65 -


3.

The environment
Identify major channel alternatives :

When the company has defined its channel objectives, it should next identify its major
channel alternatives in terms of types of intermediaries, the number of intermediaries, and the
responsibilities of each channel member.
Types of intermediaries:

Company sales force

Manufacturers agency

Industrial distributors

Number of marketing intermediaries:


Companies must also determine the number of channel members to use at each level. Three
strategies are available :

Intensive distribution: Stocking the product in as many outlets as possible.

Exclusive distribution: Giving a limited number of dealers the exclusive right to


distribute the companys products in their territories.

Selective distribution: The use of more than one, but fewer than all, of the
intermediaries who are willing to carry the companys products.

Responsibilities of channel members:


The producer and intermediaries need to agree on the terms and responsibilities of each
channel member. They should agree on price policies, conditions of sale, territorial rights and
specific services to be performed by each party. The producer should establish a list price and

- 66 -

a fair set of discounts for intermediaries. It must define each channel members territory and
it should be careful about where it places new resellers.

4.

Evaluate the major alternatives :


Suppose a company has identified several channel alternatives and wants to select the one
that will best satisfy its long-run objectives. Each alternative should be evaluated against
economic, control, and adoptive criteria.

The value adds versus costs of Different channels

Value add of sales

High
Sales force
Value added
partners
Direct
Sales
channels

Distributors
Retail stores
Telemarketing
Internet
Low

Direct
Marketing
channels
Cost per transaction

- 67 -

Indirect
Marketing
channels

Break-even cost chart for the choice between a company sales force and a manufacturers
sales agency.

Selling costs

Company
sales force

Level of sales
Channel-management decisions
Channel management calls for selecting, managing, and motivating individual channel members
and evaluating their performance over time.
1.

Selecting channel members : When selecting intermediaries, the company should


determine what characteristics distinguish the better ones. It will want to evaluate each
channel members years in business, other lines carried growth and profit record,
cooperativeness and reputation. If the intermediaries are sales agents, the company will
want to evaluate the number and character of other lines carried and the size and quality of
the sales force. If the intermediary is a retail store that wants exclusive or selective
distribution, the company will want to evaluate the stores customers, location and future
growth potential.

2.

Training channel members : Companies need to plan and implement careful training
programs for their intermediaries, because they will be viewed as the company by end
users.

3.

Motivating channel members : Channel members must be continuously managed and


motivated to do their best. Producers very greatly in skill in managing distributors. They
can draw on the following types of power to elicit cooperation.

Coercive Power

Reward Power

Legitimate Power
- 68 -

Expert power

Referent Power

Most producers see the main challenge as gaining intermediaries, cooperation. The often
use positive motivators, such as :

Higher margins

Special deals

Premiums

Cooperative advertising allowances

Display allowances

Sales contests

They will also apply negative sanctions, such as :

2.

Threatening to reduce margins

Slow down delivery

Terminate the relationship

Evaluating channel members : The producer must regularly check channel member
performance against standards such as :

Sales quotas

Average inventory levels

Customer delivery time

Treatment of damaged and lost goods

Cooperation in company promotion and training programs

Services to the customer

The company should recognize and reward intermediaries who are performing well and
adding good value for consumers.

- 69 -

Those who are performing poorly should be assisted or, as a last resort, replaced. A
company may periodically re-qualify its intermediaries and prime the weaker ones.

MARKETING PROMOTION
Promotion has been defined as the coordination of all seller-initiated efforts to set up channels of
information and persuasion to sell goods and services on promote an idea.
The basic tools used to accomplish an organizations communication objectives are often
referred to as the promotional mix.
Elements of the Promotional Mix
The Promotional Mix

Advertising

Direct
Marketing

Interactive/
Internal
Marketing

Sales
Promotion

Publicity /
Public
relations

Personal
Selling

1. Advertising : Advertising is defined as any paid form of non-personal communication about


an organization, product, service, or idea by an identified sponsor.
2.

Direct Marketing : One of the fastest-growing sectors of the U.S. economy is direct
marketing, in which organizations communicate directly with target customers to generate a
response and/or a transaction. Direct marketing is much more than direct mail and mail-order
catalogs. It involves a variety of activities, including database management direct selling
telemarketing and direct-response ads through direct mail, the internet, and various broadcast
and print media. Some companies do not use any other distribution channels, relying on
independent contractors to sell their products directly to consumers.

3. Interactive/Internet Marketing : The Internet is changing the ways companies design and
implement their entire business and marketing strategies, it is also affecting their marketing
communications programs. Thousands of companies, ranging from large multinational

- 70 -

corporations to small local firms, have developed websites to promote their products and
services, by providing current and potential customers with information as well as to
entertain and interact with consumers. Perhaps the most prevalent perspective on the Internet
is that it is an advertising medium, as many marketers advertise their products and services
on the websites of other companies and / or organizations. Actually, the internet is a medium
that can be used to execute all the elements of the promotional mix.
4. Sales Promotion : Sales promotion is generally defined as these marketing activities that
provide extra value or incentives to the sales force, distributors, or the ultimate consumer and
can stimulate immediate sales. Sales promotion is generally broken into two major categories
: Consumer oriented and trade-oriented activities.

Consumer-oriented sales promotion : This type of promotion is targeted to the ultimate


user of a product or service and includes couponing, sampling, premiums, rebates,
contests, sweepstakes, and various point-of-purchase materials. These promotional tools
encourage consumers to make an immediate purchase and thus can stimulate short term
sales.

Trade-oriented Sales promotion :

This promotion is targeted toward marketing

intermediaries such as wholesalers, distributors and retailers. Promotional and


merchandising allowances, price deals, sales contests, and trade shows are some of the
promotional tools used to encourage the trade to stock and promote a companys
products.
5. Publicity /Public Relations :

Publicity : Publicity refers to non-personal communications regarding an organization,


product, service, or idea not directly paid for or run under identified sponsorship. It
usually comes in the form of a news story, editorial, or announcement about an
organization and/or its products and services. Like advertising, publicity involves nonpersonal communication to a mass audience but unlike advertising publicity is not
directly paid for by the company.

Public Relations : It is important to recognize the distinction between publicity and


public relations. When an organization systematically plans and distributes information is

- 71 -

an attempt to control and manage its image and the nature of the publicity it receives, it is
really engaging in a function known as public relations.
Public relations is defined as The management function which evaluates public attitudes,
identifies the policies and procedures of an individual or organization with the public interest,
and executes a program of action to earn public understanding and acceptance. Public
relations generally has a broader objective than publicity, as its purpose is to establish and
maintain a positive image of the company among its various publics.
Public relations uses publicity and a variety of other tools including special publications.
Participation in community activities fund-raising. Sponsorship of special events, and various
public affairs activities to enhance an organizations image.
6. Personal Selling : The final element of an organizations promotional mix is personal
selling, a form of person-to-person communication in which a seller attempts to assist and/or
persuade prospective buyers to purchase the companys product or service or to act on an
idea.
Personal selling also involves more immediate and precise feedback because the impact of
the sales presentation on generally be assessed from the customers reactions. If the feedback
is unfavorable, the salesperson can modify the message. Personal selling efforts can also be
targeted to specific markets and customer types that are the best prospects for the companys
product or service.

- 72 -

MANAGING ADVERTISING
Advertising :
Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or
services by an identified sponsor.
Marketing management must make five important decisions when developing a advertising
program, Known as the five Ms:
Mission : What are the advertising objectives ?
Money : How much can be spent ?
Message : What message should be sent ?
Media : What media should be used ?
Measurement : How should the results be evaluated ?
These decisions are summarized in following figure :

Mission :
Sales goals
Advertising
objectives

Money :
Factors to consider
Stage in PLC
Market share and
consumer base
Competition and
clutter
Advertising
frequency
Product
Substitutability

- 73 -

Message :
Message
generation
Message
evaluation and
Selection
Message
execution
Socialresponsibility
review
Media:
Reach,
frequency,
impact
Major media
types
Specific media
vehicles
Media timing
Geographical
media allocation

Measurement :
Communication
impact
Sales impact

DEALING WITH THE COMPETITORS


Companies must start paying keen attention to their competitors. Successful companies design
and operate systems for gathering continuous intelligence about competitors.
Competitive forces
Michael Porter has identified five forces that determine the intrinsic long run profit attractiveness
of a market or market segment :

Industry competitors (threat of intense segment rivalry)

Potential entrants (threat of new entrance)

Substitutes (threat of substitute products)

Buyers (threat of buyers growing bargaining power)

Suppliers (threat of suppliers growing bargaining power)

His model is shown in below :


Five forces
determining structural
attractiveness
Potential entrants (threat
of mobility)
Industry competitors
Suppliers (Supplier

(Segment rivalry)

power)

Buyers
(Buyers Power)

Substitutes (threat of
substitutes)

- 74 -

Identifying Competitors
Industry Concept of competitions :
A industry is a group of firms that offer a product or class of products that are close substitutes
for each other.
Industries are classified according to number of sellers; degree of product differentiation;
presence or absence of entry, mobility, and exit barriers cost structure; degree of vertical
integration and degree of globalizations.
Number of sellers and degree of differentiation. The starting point for describing an industry is to
specify the number of sellers and whether the product is homogeneous or highly differentiated.
These characteristics give rise to four industry structure types.

Pure monopoly

Oligopoly

Monopolistic competitions

Pure competition

Entry, Mobility, Exit Barriers :


Industries differ greatly is case of entry. It is easy to open a new restaurant but difficult to enter
the air craft industry. Major entry barriers include high requirement economics of scale. Patents
and licensing requirements; Scarce locations, raw materials or distributors; and reputation
requirements. Even a firm enters an industry, it might face mobility barriers when it tries to enter
more attractive market segments.
Cost structure :
Each industry has a certain cost burden that shapes much of its strategic conduct.
- 75 -

Degree of vertical Integration :


Companies find it advantageous to integrate backward or forward (vertical integration). Major
oil producers carry on oil exploration, oil drilling, oil refining, chemical manufacture, and
service station operation, vertical integration often lowers costs, and the company gains a larger
share of the value added stream. In addition, vertically integrated firms can manipulate prices
and costs in different parts of the value chain to earn profits where taxes are lowest, vertical
integration earn create certain disadvantages. Such as high costs in certain parts of the value
chain and a certain lock of flexibility.
Degree of Globalizations :
Some industries are highly local (such as learn care). Others are global (such as oil, aircraft
engines, cameras). Companies in global industries need to compete on a global basis it they are
to achieve economics of scale and keep up with the latest avenues in technology consider, for
example how U.S. forklift manufacturers lost their market leadership.
Market concept of competition :
In addition to the industry approach, we earn identify competitors using the market approach;
competitors are companies that satisfy the same customer need. Competitors are companies that
satisfy the same customer need. For examples a customer who buys a word processing package
really wants writing ability a need that can be satisfied by pencils, pens, or typewriters. The
market concept of competition opens up a broader set of actual and potential competitors.

- 76 -

ANALYZING COMPETITORS
Once a company identifies its primary competitors it must ascertain their characteristics,
specifically their strategies, objectives, strengths and weakness, and reaction patterns.
Strategies : A group of firms following the same strategy in a given target market is called a
strategic group.
A company must continuously monitor its competitors; strategies. Resourceful competitors
revise their strategy through time.
Objectives :
Once a company has identified its main competitors and their strategies, it must ask: what is each
competitor seeking in the market place ? What drives each competitors behaviour ?
An alternative assumption is that each competitor pursues some mix of objectives :

Current profitability

Market share growth

Cash flow

Technological leadership

Service leadership

Knowing how a competitor weights each objective will help the company anticipate its
reactions.

Strengths and weakness :

- 77 -

A company needs to gather information on each competitors strengths and weaknesses.


According to the Arthur D. Little consulting firm, a company will occupy one of six competitive
positions in the target market.
i.

Dominant : This firm controls the behavior of other competitors and has a wide choice
of strategic options.

ii. Strong: This firm can table independent action without endangering its long term
position and can maintain its long term position regardless of competitors actions.
iii. Favorable : This firm has an exploitable strength and a more than average opportunity to
improve its position.
iv. Tenable : This firm is performing at a sufficiently satisfactory level to warrant
continuing in business but it exists at the sufferance of the dominant company and has a
less than average opportunity to improve its position.
v. Weak : This firm has unsatisfactory performance but an opportunity exists for
improvement. The firm must change or else exit.
vi. Nonviable : This firm has unsatisfactory performance and no opportunity for
improvement. This assessment helped one company decide whom to attack in the
programmable controls market.
In general, a company should monitor three variables when analyzing competitors.

Share of market

Share of mind

Share of heart

Reaction patterns : Companies react differently to competitive assaults. Some are show to
respond. Others respond only to certain types of attacks, such as price cuts. still others strike
back swiftly and strongly to any assault. Some industries are marked by relative accord among
the competitors, and others by constant fighting.
Most competitors fall into one of four categories :

The laid back competitor

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The selective competitor

The tiger competitor

The stochastic competitor

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Designing the competitive intelligence system :


There are four main steps in designing a competitive intelligence system :

Setting up the system : the first step calls for identifying vital types of competitive
information, identifying the best sources of this information and assigning a person who will
manage the system and its services.

Collecting the sate : The data are collected on a continuous basis from the field (sales force,
channels, suppliers, market research firms, trade associations), from people who do business
with competitors, from observing competitors, and from published data from Internet.

Evaluating and Analyzing the Data: The data are checked for validity and reliability,
interpreted, and organized.

Disseminating Information and Responding : Key information is sent to relevant decision


makers and managers inquires are answered.

Selecting Competitors to Attack and to Avoid


With good competitive intelligence, managers will find it easier to formulate their competitive
strategies.

Customer Value Analysis : Very often, managers conduct a customer value analysis to
reveal the companys strengths and weaknesses relative to various competitors. The major
steps in such an analysis are :
i.

Identify the major attributes customers value

ii. Assess the quantitative importance of the different attributes.


iii. Assess the companys and competitors performances on the different customer values
against their rated importance.
iv. Examine how customer in a specific segment rate the companys performance against a
specific major competitor on an attribute by attribute basis.
v. Monitor customer values over time.

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Classes of Competitors : After the company has conducted its customer value analysis, it
can focus its attack on. One of the following classes of competitors :
i. Strong versus weak competitors
ii. Close versus distant competitors
iii. Good Versus Bad competitors

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DESIGNING COMPETITIVE STRATEGIES

We can classify firms by the role they play in the target market. Leader, challenger, follower, or
nicher. See the following figure.

40%

Market leader

30%

Market challenger

20%

Market follower

10%

Market nichers

Hypothetical Market Structure


1.

Market Leader Strategies :


Many industries contain one firm that is the acknowledged market leader. This firm has the
largest market share in the relevant product market. It usually leads the other firms in price
changes, new-product introductions, distribution coverage, and promotional intensity.
The market leader can apply three strategies:
i.

Expanding the total Market: To expand the total market, the market leader should look
for new users, new uses and more usage of its products.

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New users : Every product class has the potential of attracting buyers who are
unaware of the product or who are resisting it because of price or lack of certain
features. A company can search for new users among three groups :
Those who might use it but do not (Market penetration strategy).
Those who have never used it (new-market segment strategy).
Those who live elsewhere (geographical expansions strategy).

New uses : Markets can be expanded through discovering and promoting new uses
for the product.

More Usage : A third market expansion strategy is to convince people to use more
product per occasion.

2.

Defending Market share : While trying to expand total market size, the dominant firm
must continuously defend its current business against rival attacks.

Defense Strategies
(2) Flank
(3) Preemptive

(1)
Position

ATTACKER
(4) Counteroffensive

(6) Contraction

DEFENDER

(5) Mobile

Position Defense : The basic defense is to build an impregnable fortification around


ones territory.

Flank Defense : The market leader should also erect outposts to protect a weak front or
possibly serve as an invasion base for counterattack.

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Preemptive defense: A more aggressive maneuver is to attack before the enemy starts its
offense.

Counteroffensive Defense : Most market leaders, when attacked, will respond with a
counterattack. The leader cannot remain passive in the face of a competitors price cut,
promotions blitz, product improvement, or sales-territory invasion. In a counteroffensive,
the leader can meet the attacker frontally or hit his flank or lunch a pincer movement.

Mobile Defense: In mobile defense, the leader stretches its domain over new territories
that can serve as future centers for defense and offense. It spreads through market
broadening and market diversification.

Contraction Defense: Large companies sometimes recognize that they can no longer
defend all of their territory. The best course of action then appears to be planned
contraction (also called strategic withdrawal). Planned contraction means giving up
weaker territories a reassigning resources to stronger territories.

Expanding Market Share : A company should consider three factors before pursuing increased
market share :

The first factor is the possibility of provoking antitrust action.

The second factor is economic cost.

The third factor is that companies might pursue the wrong marketing mix strategy in their bid
for higher market share and therefore fall to increase profits.

Companies that win more market share by cutting price are buying, not earning a large share, and
their profits may be lower.

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Market-Challenger Strategies

Defining the Strategic Objectives and Opponent(s) :


A market challenger must first define its strategic objective. Most aim to increase market share.
The challenger must decide whom to attack :

It can attack the market leader

It can attack firms of its own size that are not doing the job and are under financed.

It can attack small local and regional firms.

Choosing a General Attack Strategy :


Given clear opponents and objectives, what attack options are available ? We can distinguish
among five attack strategies shown below (4) Bypass attack
(2) Flank attack
(1) Frontal attack
ATTACKER

DEFENDER
(3) Encirclement attack

(5) Guerrilla attack

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Attack Strategies
i.

In a frontal attack: The attacker matches its opponents product, advertising, price,
and distribution.

ii.

Flank attack : A flank attack can be directed along two strategic dimensions
geographical and segmental. A flanking strategy is another name for identifying shifts in
market segments that are causing gaps to develop, then rushing in to fill the gaps and develop
them into strong segments.

iii.

Encirclement attack : It involves launching a grand offensive on several fronts.


Encirclement makes sense when the challenger commands superior resources and believes a
swift encirclement will break the opponents will.

iv.

Bypass attack : The most indirect assault strategy is the bypass. This strategy offers
three lines of approach.

Diversifying into unrelated products.

Diversifying into new geographical markets, and

Leapfrogging into new technologies to supplant existing products.

v.

Guerrilla attack : Guerrilla warfare consists of waging small, intermittent attacks to


harass and demoralize the opponent and eventually secure permanent footholds. This include
selective price cuts, intense promotional blitzes, and occasional legal actions.

Choosing a Specific Attack Strategy


The challenger must go beyond the five broad strategies and develop more specific strategies.

Price discount.

Cheaper goods.

Prestige goods

Product proliferation

Product innovation

Improved services

Distribution innovation

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Manufacturing cost reduction

Intensive advertising promotion.

Market-Follower Strategies
The follower has to define a growth path, but one that does not invite competitive retaliation.
Four broad strategies can be distinguished :

Counterfeiter : The counterfeiter duplicates the leaders product and package and sells it on
the black market or through disreputable dealers.

Cloner : The cloner emulates the leaders products, name, and packaging, with slight
variations.

Imitator : The imitators copies some things from the leader but maintains differentiation in
terms of packaging, advertising, pricing, and so on. The leader does not mind the imitator as
long as the imitator does not attack the leader aggressively.

Adopter : The adapter takes the leaders products and adopts or improves them. The adapter
may choose to sell to different markets. But often the adapter grows into the future
challenger, as many Japanese firms have done after adopting and improving products
developed elsewhere.

Market Nicher Strategies


An alternative to being a follower in a large market is to be a leader in a small market, or niche.
Smaller firms normally avoid competing with larger firms by targeting small markets of little or
no interest to the larger firms.
The key idea in nichemanship is specialization. The following specialist roles are open to
nichers:

End-user specialist

Vertical-level specialist

Customer size specialist

Specific customer specialist

Geographic specialist

Product or product line specialist

Product feature specialist

Job-shop specialist

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Quality price specialist

Service specialist

Channel specialist

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