Marketing Notes

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UNIT- I
INTRODUCTION TO MARKETING 1-33
Y.HARINI PRASHANTH RAO

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INTRODUCTION TO MARKETING
Good marketing is a result of careful planning and execution. Marketing excellence is
rare and difficult to achieve. Marketing is both an “art” and a “science”.
Many companies have now created a chief marketing officer, or CMO position to put
marketing on a more equal footing with other C-level executives such as the chief
executive officer (CFO) and chief financial officer(CFO).
But marketing the right decisions is not always easy. Marketing Managers must make
major decisions such as what features to design into a new product ,what price to offer
customers , where to sell product and how much to spend on advertising or sales.
They must also make more detailed decisions. Such as the exact wording or color for
new packing .the companies at great risk are those that fail to carefully monitor their
customers and competitors and to continuously improve their value offering.
Example: corporate advertisement of Nirma .The Company has been using the same
tune in its advertisement consistently over the years, making the tune an integral part
of the brand. Today, Nirma is a well recognized brand in India and is one of the
leaders in detergent market. The success of nirma is one of the most remarkable
stories in India’s modern business history, and Karsanbhai Patel, who started it all,
has inspired many entrepreneurs of the country
Market is the target segment to which you want to market your product to. Market is
a set of actual and potential buyers of a product. These buyers share a particular need
or want. Although we think that marketing is carried on by sellers, buyers also carry
on marketing.

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There are 5 basic markets like

CONSUMER MARKETS- Companies selling mass consumer goods and services such as
soft drinks, cosmetics, air travel and equipment spend a great deal of time trying to establish a
superior brand image.
BUSINESS MARKETS- Business buyers buy goods in order to make or resell a product to
others at a profit. Business marketers must demonstrate how there products will help these
buyers achieve higher revenue or lower costs. Advertising can play a role, but a stronger role
may be played by the sales force, price and the company’s reputation for reliability and
quality.
GLOBAL MARKETS- Companies selling goods and services in the global marketplace face
additional decisions and challenges. They must decide which countries to enter, how to enter
each country, how to price their products in different countries & how to adopt their culture
Eg-Thump’s up, coco cola
NON-PROFIT AND GOVERNMENTAL MARKETS- companies selling their goods to
nonprofit organizations such as churches, universities, charitable organizations or
government agencies need to price carefully because these organizations have limited
purchasing power. Much government purchasing calls for bids, with the lowest bid being
favored in the absence of extenuating factors
Marketing is the activities you do to promote, inform, create awareness and cultivate a culture
to attract people to buy, use and promote your product hopefully in a viral like way.
Marketing is the process by which companies determine what products or services may be of
interest to customers, and the strategy to use in sales, communications and business
development. It is an integrated process through which companies create value for customers
and build strong customer relationships in order to capture value from customers in return.
Marketing management is –the art and science of choosing target markets and getting,
keeping, and growing customers through creating, delivering, and communicating superior
customer value
Marketing management tasks
Developing marketing strategies and plans
Capturing marketing insights

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Connecting with customers
Building strong brands
Shaping the market offering
Delivering value
Communicating value
Creating long-term growth
FUNDAMENTAL MARKETING CONCEPTS
Core Marketing Concepts: Needs, Wants and Demands
Needs are the basic human requirements. People need air, food, water, clothing and
shelter to survive. They also have strong needs for recreation, education and
entertainment.
These needs become wants when directed to specific objects that might satisfy the
need. An American may need food, but may want a hamburger, French fries and a
soft drink. An Indian also may need food, but may want idly, dose, Wada, chapattis,
rice, curry and curd
Demands are wants (desire) for specific products backed by an ability and willingness
to pay. Even if some have the ability, they are not willing to part with their money and
buy it.
Marketers do not create needs; needs pre-exist marketers. Marketers along with other
societal factors, influence wants. Marketers might promote the idea such as ‘Mercedes

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is a status symbol’, but they do not create the need for social status. Some customers
have needs of which they are not fully conscious, or they cannot articulate their needs
For example, a customer may ask for a powerful lawn mover, a fast ‘lathe’, an
attractive ‘bathing suit’ or a ‘restful hotel’?
Stated needs (customer wants an inexpensive car).
Real needs (customer wants a car whose operating cost is low)
Unstated needs (expecting good service from the dealer).
Delight needs (customer would like the dealer to include an on-board
navigation system).
Secret needs (the customer wants to be seen as a savvy consumer).
According to Philip Kotler, “a product is anything that can be offered to satisfy

a need or want”.
According to W.J. Stanton, “ A Product is a set of tangible and intangible

attributes, including packaging, color, price, manufacturer’s prestige, retailer’s
prestige and manufacturer’s and retailer’s services”.
Exchange is a process of, giving and taking the goods and services in return
between two parties or persons who are agreed to act upon the certain terms
and conditions for the benefit of the both. The ‘Exchange’ is further called
“Transaction”
Transactions are of two types
Monetary transaction: In return of products and services the buyer offers cash
to the seller. Barter system: Instead of cash transaction, there will be products
and services exchange in between the two parties.
Target market segmentation

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Not everyone likes the same cereals, hotel room, restaurant, automobile, college or
movie. Therefore, marketers start by dividing the market into segments. They identify and
profile distinct groups of buyers who might prefer or require varying product and service
mixes by examining demographic, psychographic and behavioral differences among buyers.
Positioning:
After identifying the segments, he chooses those segments (target segments) which present
the greatest opportunity. For each segment, the firm develops an offering that it positions in the
minds of the target buyers as delivering some central benefits.
Example: Volvo develops its cars for buyers to whom safety is a major concern and positions
its car as the safest a customer can buy, Scorpio (a sports utility vehicle – SUV) launched by
Mahindra & Mahindra in 2002, is designed for people who prefer a sturdy vehicle Offering
luxury and comfort. Scorpio thus is positioned as a vehicle that offers the luxury of a car and
the thrill of a SUV. In ads it is referred as a car – though designed as a SUV.
Value and Satisfaction
Value reflects the sum of the perceived tangible and intangible benefits and
costs to customers. It is a combination of (customer value triad - qsp) quality, service
and price. Generally, Value increases with quality and service and decreases with
price – although other factors can also play an important role in our perception of

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value. Value being a central marketing concept, we can think of marketing as

identification, communication, delivery and monitoring of customer value.
Satisfaction represents a person’s judgment of a product’s perceived
performance (or outcome) with regard to expectation. The customer •is disappointed if
the performance falls short of expectations; is satisfied if it matches the expectations
and is delighted if it exceeds expectations.
Company Orientation toward the Market Place

Marketing activities should be carried out under a well-thought-out philosophy
of efficient, effective, and socially responsible marketing. In fact, there are five
competing concepts under which organizations conduct marketing activities:
Production Concept, Product Concept, Selling Concept, Marketing Concept,
and Societal Marketing Concept.
The Production Concept

The production concept, one of the oldest in business, holds that consumers
prefer products that are widely available and inexpensive. In simple it assumes that
goods are produced because consumers will need them in their near future.
Managers of production-oriented businesses concentrate on achieving high production
efficiency, low costs, and mass distribution. This orientation makes sense in developing
countries, where consumers are more interested in obtaining the product than in its features. It
is also used when a company wants to expand the market.
This orientation makes sense in developing countries such as China.

Example one –Texas Instruments of USA, a firm engaged in the manufacturing of calculators
gained sufficient economies of scale that those to bring down prices of their product ranges it
resulted to win major share of the American Calculator market.
The Product Concept
Product concept, which holds that consumers favor those products that offer the most
quality, performance, or innovative features. Managers in these organizations focus on
making superior products and improving them over time, assuming that buyers can appraise
quality and performance. A new or improved product will not necessarily be successful
unless it’s priced, distributed, advertised and sold properly.

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Product-oriented companies often design their products with little or no customer

input, trusting that their engineers can design exceptional products. A General Motors
executive said years ago: “How can the public know what kind of car they want until they see
what is available?” GM today asks customers what they value in a car and includes marketing
people in the very beginning stages of design.
Eg –Colleges ,department stores, and the post office all assume that they are offering
the public the right product and wonder why their sales slip. These organizations too often are
looking into a mirror when they should be looking out of the window
Service Concept
Marketing offers are not limited to physical products. They also include services,
activities or benefits offered for sale that are essentially intangible and do not result in the
ownership of anything.
E.g.-Banking, airlines, hotel & home repairs services.
Experience Concept
Smart marketers look beyond the attributes of the products and services they sell. By
orchestrating several services and products, they create brand experiences for consumers.
E.g.-Disney world is an experience, Horse race, Car race

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Selling concept
This concept holds, the consumers will not buy enough of the organizations products unless it
undertakes a large selling and promotional effort.
The selling concept is practiced most aggressively with unsought goods—goods that buyers
normally do not think of buying, such as insurance and funeral plots. The selling concept is also
practiced in the nonprofit area by fund-raisers, college admissions offices, and political parties.
Most firms practice the selling concept when they have overcapacity. Their aim is to sell what
they make rather than make what the market wants. It focuses on creating sales transactions rather
than on building long-term, profitable relationships with customers. This can sometimes leads to long
term impact on sales because dissatisfied customers do not buy again. Worse yet, while the average
satisfied customer tells three others about good experiences, the average dissatisfied customer tells ten
others about his or her bad experience.
The Marketing Concept

The marketing concept holds that the key to achieving organizational goals consists of the
company being more effective than its competitors in creating, delivering, and communicating
customer value to its chosen target markets.
Theodore Leavitt of Harvard drew a perceptive contrast between the selling and marketing
concepts: “Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is
preoccupied with the seller’s need to convert his product into cash; marketing with the idea of
satisfying the needs of the customer by means of the product and the whole cluster of things
associated with creating, delivering and finally consuming it.
The marketing concept rests on four pillars: target market, customer needs, integrated
marketing, and profitability. The selling concept takes an inside-out perspective. It starts with the
factory, focuses on existing products, and calls for heavy selling and promoting to produce profitable
sales. The marketing concept takes an outside-in perspective. It starts with a well-defined market,
focuses on customer needs, coordinates activities that affect customers, and produces profits by
satisfying customers
.Eg –3M, Motorola have made a practice of researching latent needs and developed the products.
LIMITATIONS OF MARKETING CONCEPT

 Proper attention is not there for employees and suppliers.
 It gives priority to customer satisfaction secondary how to compete, how to perform
marketing activities.
 By too much concentration on the one sector of consumers’ satisfaction, firms may
loose the other sector consumers
 By too much concentration on the one segment market, the firm my cause harm to
other segment or to the society as a whole
 The firm cannot change its products as fast as consumer’s taste and preferences
Change

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 The comforts and desires of consumers may not be good and healthy for the society
and not be good and healthy for the society and organization
Efficiency vs. Effectiveness

Efficiency:
Efficient means having internal and external processes that lead to the desired end result.
Efficiency refers to having the means to produce the desired effects.
For example, a sales team may have a weekly sales goal and it is met 90% of the
time. The team is considered to be efficient in that the desired amount of sales is produced
with the least amount of waste or overtime.
Effectiveness in an organization is doing the right things which leads to an adaptable

environment capable of competing in the future. An effective sales team does not just meet
sales goals without question. An effective sales team will manage relationships with people
and organizations that can prove to be the foundation for new business in the future. The
effective sales team can create a viable customer base that includes high rates of retention and
customer satisfaction.
Instead of just focusing on making sales efficiently, the sales team should also be
constantly evaluating each of its actions and procedures looking for ways the organization
can be more adaptable, cost efficient, productive, innovative and customer oriented.
Effectiveness:
Effectiveness in an organization is doing the right things which leads to an adaptable
environment capable of competing in the future.
An effective sales team does not just meet sales goals without question. An effective
sales team will manage relationships with people and organizations that can prove to be the
foundation for new business in the future. The effective sales team can create a viable
customer base that includes high rates of retention and customer satisfaction
Efficiency and effectiveness are applicable to all organizational functions including

management or leadership, team building and employee performance, sales, production,
innovation, and all internal processes including those in the business office.

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For example, an efficient accounts payable department pays company bills on time.
An effective accounts payable department has a system in place which enables the company
to take advantage of discounts for early payment and is able to integrate payment information
with purchasing data in order to insure the least cost is incurred at all times. It is accounts
payable that often becomes the information source for trending prices.
There is another way to look at efficiency and effectiveness. An efficient organization

or process will perform as expected and operates in the short term. An effective organization
asks if the performance meets the mission of the organization and contributes to long term
success and sustainability. An efficient organization spends the expected amount of money to
produce results. An effective organization measures whether the money spent improved its
ability to meet future goals.
An efficient organization can produce immediate results by relying on "safety" in the

words of Maslow. The facts and figures supporting the efficient production of output are safe.
The effective organization looks beyond the facts and figures and builds a quality
organization that is prepared for future growth. An organization should be both efficient and
effective, but if there had to be a choice made between the two...effectiveness is more
important.
In short efficiency is about doing things right, whereas effectiveness is about doing the right
things.
Green Marketing
Green marketing can be defined as the marketing of products which are

environmentally sound. The notion of green marketing is a comparatively new one
within general marketing thought, as it has chiefly grown in acceptance since the

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1990s. Nonetheless, as a contemporary branch of marketing thought, it can be seen as

one of the fastest growing areas of marketing principles.
The rationale for the devising and emergence of green marketing is thus:
A higher quantity of persons willing and able to buy green products.
Heightened awareness among consumers,concerning the potentially negative

aspects of global climate change.
Green marketers thus target persons who are more environmentally conscious. The
segmentation and market research processes of numerous firms denote that the target
market for green products has grown widely in numerous years. Accordingly, green
marketers are willing to supply what persons are willing and able to buy.
It can also be stated that green products are often more expensive than "non-green"
products, due perhaps to higher production costs. Nevertheless, green
Consumers are typically willing to pay higher prices, as a means of doing their part
to safeguard the environment of the planet Earth.
Some drawbacks of green marketing are thus:
o The perception of "green washing".
o Disputes and contention surrounding the exact meaning of a green

product.

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Green washing pertains to when a firm misleadingly produces a product, with

ostensible green characteristics, which is not actually environmentally sound. In
addition to evident ethical issues concerning deceit, such conduct can undermine an
organization’s drive to be deemed a "green" company. Accordingly, a firm must be
sincere in its efforts to be environmentally sound, regarding its environmental
practices and policies.
Moreover, the extent and nature of a green product can be a moot point. To
some, a product must be wholly green to be viewed as green. To others, a product may
only possess a reduction in environmentally harmful inputs to be worthy of being
labeled green. Nonetheless, a firm can enhance its green marketing efforts if it
persuades consumers that the purchase of green products can enhance environmental
protection.
MARKETING ORIENTATION AND BUSINESS PERFORMANCE
Market orientation has been created to develop the different business trends (1)
Market-orientation culture is a group culture designed to create higher customer value
by executing the required actions with the most efficient and effective means
available. There by maintaining a high level of firm performance.
Market-oriented firms seek ways to provide added value to customers while

simultaneously lowering the cost of the said product or service (2) Market-oriented
culture composed of customer orientation, competitor orientation and inter-department
collaboration was viewed as a group culture aimed at maintaining a high level of firm
performance by effectively and efficiently executing actions required gaining
customer value (3). The clean room industry was chosen for study in this research. By

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definition, "the clean room is a room with one or some region(s) controlling the
particles suspended in the environment".
Today, the most important challenge for the consuming industries which move
according to universally accepted standards is to inform from the latest achievements
and technical knowledge in order to offer customer-intended products with suitable
quality in difficult conditions.
A prominent marketer, E. Jerome McCarthy, proposed a 4 P classification in

1960, Elements of the marketing mix are often referred to as 'the four Ps':
Product - A tangible object or an intangible service that is mass produced or

manufactured on a large scale with a specific volume of units. Intangible products are
service based like the tourism industry & the hotel industry , a mass produced tangible
object are the motor car and the disposable razor. A less obvious but ubiquitous mass
produced service is a computer operating system.
Price – The price is the amount a customer pays for the product. It is determined
by a number of factors including market share, competition, material costs, product
identity and the customer's perceived value of the product. The business may increase
or decrease the price of product if other stores have the same product.
Place – Place represents the location where a product can be purchased. It is often
referred to as the distribution channel. It can include any physical store as well as
virtual stores on the Internet.
Promotion represents all of the communications that a marketer may use in the
marketplace. Promotion has four distinct elements -advertising, public relations, word
of mouth and point of sale. A certain amount of crossover occurs when promotion
uses the four principal elements together, which is common in film promotion.

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Advertising covers any communication that is paid for, from cinema commercials,
radio and Internet adverts through print media and billboards. Public relations are
where the communication is not directly paid for and includes press releases,
sponsorship deals, exhibitions, conferences, seminars or trade fairs and events. Word
of mouth is any apparently informal communication about the product by ordinary
individuals, satisfied customers or people specifically engaged to create word of
mouth momentum. Sales staff often plays an important role in word of mouth and
Public Relations
Packaging also needs to be taken into consideration. Broadly defined, optimizing
the marketing mix is the primary responsibility of marketing. By offering the product
with the right combination of the four Ps marketers can improve their results and
marketing effectiveness. Making small changes in the marketing mix is typically
considered to be a tactical change. Parm Bains says making large changes in any of
the four Ps can be considered strategic. For example, a large change in the price, say
from $19.00 to $39.00 would be considered a strategic change in the position of the
product. However a change of $130 to $129.99 would be considered a tactical change,
potentially related to a promotional offer.
The Four Cs: Consumer, Cost, Convenience and Communication, can be
compared to the Four Ps. The Four Cs model is more consumer-oriented and attempts
to better fit the movement from mass marketing to niche marketing. Robert F.
Lauterborn proposed a four Cs classification in 1993.
Product Consumer
Price Cost
Place Convenience
Promotion Communication
The Product part of the Four Ps model is replaced by Consumer or Consumer

Models, shifting the focus to satisfying the consumer needs. Another C replacement
for Product is Capable.
Pricing is replaced by Cost reflecting the total cost of ownership. Many factors
affect Cost, including the customer's cost to change or implement the new product or
service and the customer's cost for not selecting a competitor's product or service.

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Placement is replaced by Convenience. With the rise of internet and hybrid

models of purchasing, Place is becoming less relevant. Convenience takes into
account the ease of buying the product, finding the product, finding information about
the product, and several other factors.
Finally, the Promotions feature is replaced by Communication which

represents a broader focus than simply Promotions. Communications can
include advertising, public relations, personal selling, viral advertising, and any form
of communication between the firm and the consumer.
MARKETING STRATEGIES AND PLANS

A strategy is a theory about how to gain competitive advantages. A good strategy is a strategy
that actually generates such advantages.
Strategic management is the process of specifying organizations objectives, developing

policies and plans to achieve these objectives, and allocating resources so as to implement the
plans.
Strategic Goals and Plans
Strategic Goals
• Where the organization wants to be in the future .Pertain to the organization as a

whole
Strategic Plans
• Action Steps used to attain strategic goals. Blueprint that defines the organizational
activities and resource allocations .Tends to be long term
Levels of a Marketing Plan
Strategic
• Target marketing decisions

• Value proposition
• Analysis of marketing opportunities tactical
• Product features
• Promotion
• Merchandising
• Pricing
• Sales channels
• Service

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Developing Marketing Strategies and Plans
Part 1: Marketing Value and Customer Value
1) The value delivery process

2) The value chain
3) Core competencies
4) A holistic marketing orientation and customer value
5) The central role of strategic planning
Part 2: Corporate and Division Strategic Planning
1) Defining the corporate mission

2) Defining the business
3) Assessing growth opportunities
4) Organization and organizational culture.
Part 3: Business Unit Strategic Planning
1) The business Mission

2) SWOT analysis
3) Goal Formulation
4) Strategic Formulation
5) Program Formulation and Implementation
6) Feedback and Control
Part 4: Product Planning: the Nature and Contents of a Marketing Plan
Part 1:
Marketing Value and Customer Value
Marketing involves satisfying consumers' needs and wants. The task of any business is to
deliver customer value at a profit. In a hypercompetitive economy with increasingly rational
buyers faced with abundant choices, a company can win only by fine-tuning the value
delivery process and choosing, providing, and communicating superior value. The traditional
view of marketing is that the firm makes something and then sells it. In this view, marketing
takes place in the second half of the process. The company knows what to make and the
market will buy enough units to produce profits. Companies that subscribe to this view have
the best chance of succeeding in economies marked by goods shortages where consumers are
not fussy about quality, features, or style—for example, with basic staple goods in developing
markets.
1. The value delivery process
The traditional view of the business process, however, will not work in economies where people face
abundant choices. The smart competitor must design and deliver offerings for well-defined target
markets. This belief is at the core of the new view of business processes, which places marketing at
the beginning of planning.

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The value delivery process
The value creation and delivery process consist of three parts. The first phase, choosing the value.
The marketing staff must segment the market, select the appropriate target, and develop the offerings
value positioning. The second phase is providing the value. Marketing must determine specific
product features, price, and distribution. The phase is communicating the value by utilizing the sales
force, sales promotion, advertising, and other communication tools to announce and promote the
product.
The Japanese have further refined this view with the following concepts:
The value creation and delivery process consist of three parts. The first phase, choosing the
value. The marketing staff must segment the market, select the appropriate target, and develop the
offerings value positioning. The second phase is providing the value. Marketing must determine
specific product features, price, and distribution. The phase is communicating the value by utilizing
the sales force, sales promotion, advertising, and other communication tools to announce and promote
the product.
The Japanese have further refined this view with the following concepts:
• Zero customer feedback time. Customer feedback should be collected continuously after
purchase to learn how to improve the product and its marketing.
• Zero product improvement time. The company should evaluate all improvement ideas and
introduce the most valued and feasible improvements as soon as possible.
• Zero purchasing time. The company should receive the required parts and supplies
continuously through just-in-time arrangements with suppliers. By lowering its inventories,
the company can reduce its costs.
• Zero setup time. The company should be able to manufacture any of its products as soon as
they are ordered, without facing high setup time or costs.
• Zero defects. The products should be of high quality and free of flaws.
•
2. The Value Chain
Michael Porter of Harvard has proposed the value chain as a tool for identifying ways to create more
customer value. According to this model, every firm has combination of activities performed to
design, produce, and market, deliver, and support its product.
The value chain identifies nine strategically relevant activities that create value and cost in a specific
business. These nine value-creating activities consist of five primary activities and four support
activities
The primary activities cover the sequence of:

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1) Bringing materials into the business (inbound logistics),
2) Converting them into final products (operations),
3) Shipping out final products (outbound logistics),
4) Marketing them (marketing and sales), and
5) Servicing them (service).
The support activities:
1) Technology development,
2) Human resource management,
3) Firm infrastructure—are handled in certain specialized departments, as well as elsewhere.
4) Procurement and hiring
Core Business Processes Include:

1) The market sensing process. All the activities involved in gathering market intelligence,
disseminating it within the organization, and acting on the information.
2) The new offering realization process. All the activities involved in researching, developing,
and launching new high-quality offerings quickly and within budget.
3) The customer acquisition process. All the activities involved in defining target markets and
prospecting for new customers.
4) The customer relationship management process. All the activities involved in building deeper
understanding, relationships, and offerings to individual customers.
5) The fulfillment management process. All the activities involved in receiving and approving
orders, shipping the goods on time, and collecting payment.

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3) Core Competencies
To carry out its core business processes, a company needs resources—labor power, materials,
machines, information, and energy. Traditionally, companies owned and controlled most of the
resources that entered their businesses, but this situation is changing. Many companies today
outsource less critical resources if they can be obtained at better quality or lower cost. Frequently,
outsourced resources include cleaning services, landscaping, and auto fleet management. Kodak even
turned over the management of its data processing department to IBM.
4) Holistic Marketing
Holistic marketing sees itself as integrating the value exploration, value creation, and value delivery
activities with the purpose of building long-term, mutually satisfying relationships and co prosperity
among key stakeholders.
The holistic marketing framework is designed to address three key management questions:
1. Value exploration - How can a company identify new value opportunities?
2. Value creation- flow can a company efficiently create more promising new value offerings?
3. Value delivery- How can a company use its capabilities and infrastructure to deliver the new value
offerings more efficiently?
VALUE EXPLORATION Because value flows within and across markets that are themselves
dynamic and competitive, companies need a well-defined strategy for value exploration. Developing
such a strategy requires an understanding of the relationships and interactions among three spaces:
(1) The customer's cognitive space;
(2) The company's competence space; and
(3) The collaborator's resource space.
The customer's cognitive space reflects existing and latent needs and includes dimensions such as the
need for participation, stability, freedom, and change. ) The company's competence space can be
described in terms of breadth-Physical versus knowledge-based capabilities. The collaborator's
resource space involves horizontal parternrships, where companies choose partners based on their
ability to exploit related market opportunities, and vertical partnership, where companies choose
partners based on their ability to serve their value creation.
VALUE CREATION To exploit a value opportunity, the company needs value-creation skills.
Marketers need to: identify new customer benefits from the customer's view; utilize core
competencies from its business domain; select and manage business partners from its collaborative
networks. To craft new customer benefits, marketers must understand what the customer thinks about,
wants, does, and worries about. Marketers must also observe who customers admire, who they
interact with, and who influences them.
VALUE DELIVERY Delivering value often means substantial investment in infrastructure and
capabilities. The company must become proficient at customer relationship management, internal

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resource management, and business partnership management. Customer relationship management

fallows the company to discover who its customers are, how they behave, and what they need or want.
It also enables the company to respond appropriately, coherently, and quickly to different customer
opportunities. To respond effectively, the company requires Internal resource management to
integrate major business processes with in a single family of software modules. Business partnership
management allows the company to handle complex relationships with its trading partners to source,
process, and deliver product.
A Holistic Marketing Orientation And Customer Value.
87n
5) The Central Role of Strategic Planning
Companies should have the capabilities to: understanding customer value, creating customer
value, delivering customer value, capturing customer value, and sustaining customer value.
Only a handful of companies stand out as master marketers: Procter & Gamble, Southwest Airlines,
Nike, Disney, Nordstrom, Wal-Mart, McDonald's, Marriott Hotels, and several Japanese (Sony,
Toyota, Canon) and European (IKEA, Club Med, Bang & Olufsen, Electrolux, Nokia, Lego, Tesco)
companies
These companies focus on the customer and are: Organized to respond effectively to changing
customer needs. have well-staffed marketing departments, and all their other departments—
manufacturing, finance, research and development, personnel, purchasing—also accept the concept
that the customer is king.
Strategic Planning
 It is the managerial process that helps to develop a strategic and viable fit between the firm’s
objectives, skills, resources with the market opportunities available.

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 It helps the firm deliver its targeted profits and growth through its businesses and products.
Strategic Planning calls for Action in three key areas
1. Managing a company's businesses as an investment portfolio.

2. Assessing each business's strength by considering the market's growth rate and the company's
position and fit in that market.
3. Establishing a strategy for each business.
Planning, Implementation, And Control Cycle
To understand marketing management, we must understand strategic planning.

Most large companies consist of four organizational levels: the corporate level, the division level, the
business unit level, and the product level. Corporate headquarters is responsible for designing a
corporate strategic plan to guide the whole enterprise; it makes decisions on the amount of resources
to allocate to each division, as well as on which businesses to start or eliminate. Each division
establishes a plan covering the allocation of funds to each business unit within the division. Each
business unit develops a strategic plan to carry that business unit into a profitable future. Finally, each
product level (product line, brand) within a business unit develops a marketing plan for achieving its
objectives in its product market.
A marketing plan is the central instrument for directing and coordinating the marketing effort. It
operates at a strategic and tactical level.
Part 2: Corporate and Division Strategic Planning

1) Defining the corporate mission
2) Defining the business
3) Assessing growth opportunities
4) Organization and organizational culture
5)

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Corporate Mission-
This seeks to embody the entire goals of the organization and the objective of its existence. It
seeks to provide a sense of purpose, direction and opportunity.
According to Peter Drucker, it is time to ask some fundamental questions. What is our
business? Who is the customer? What is of value to the Customer? What will our business be?
What should our business be? Successful companies continuously raise these questions and
answer them thoughtfully and thoroughly.
Organizations develop mission statements to share with managers, employees, and (in many
cases) customers. A clear, thoughtful mission statement provides employees with a shared sense
of purpose, direction, and opportunity. The statement guides geographically dispersed employees
to work independently and yet collectively toward realizing the organization's goals.
Mission statements are at their best when they reflect a vision, an almost "impossible dream"
that provides a direction for the company for the next 10 to 20 years. First they focuses on a
limited number of goals. The statement, "We want to produce the highest-quality products, offer
the most service, achieve the widest distribution, and sell at the lowest prices" claims too much.
Stress the company's major policies and values. Define the major competitive spheres within
which the company will operate.
Major Competitive Spheres
• Industry-The range of industries in which the company will operate.

• Products-The range of products and applications a company will supply.
• Competence- The range of technological and other core competencies that a company will
master and leverage.
• Market segment-The type of market or customers a company will serve.
• Vertical channels (Ford-The number of channel levels from raw materials to final product and
distribution in which a company will participate.
• Geographic-The range of regions, countries, or country groups in which a company will
operate.
Defining the Business-
Companies often define their businesses in terms of products:
They are in the "auto business" or the "clothing business." A business must be viewed as a
customer-satisfying process, not a goods-producing process.
Products are transient; basic needs and customer groups endure forever. Transportation is a
need: the horse and carriage, the automobile, the railroad, the airline, and the truck are
products that meet that need.

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Product Orientation vs. Market Orientation
Company Product Market
Missouri-Pacific We run a We are a people-

Railroad railroad and-goods
mover
Xerox We make We improve

copying office
equipment productivity
Standard Oil We sell gasoline We supply

energy
Columbia We make We entertain

Pictures movies people
There are three Dimensions that Define a Business: Customer groups, Customer needs,
Technology. Large companies normally manage different businesses; each requires its own
strategy. Strategic Business Units an SBU has three characteristics
1. It is a single business or collection of related businesses that can be planned separately

from the rest of the company.
2. It has its own set of competitors.
3. It has a manager who is responsible for strategic planning and profit performance and
who controls most of the factors affecting profit.
The purpose of identifying the company's strategic business units is to develop separate
strategies and assign appropriate funding
Assessing Growth Opportunities
1. Planning new businesses, downsizing, or Terminating older businesses.

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1. Intensive Growth-Corporate management’s first course of action should be a review

of opportunities or improving existing businesses.
2. Integrative Growth-Sales and profits of a business can be increased through
backward, forward or horizontal integration with in its industry.
3. Diversification Growth-Diversification makes when a company finds a highly
attractive new industry where it can leverage its strengths.
Organization and organizational culture
An organization (or organization — see spelling differences) is a social arrangement

which pursues collective goals, controls its own performance, and has a boundary separating
it from its environment. Organizational culture is an idea in the field of Organizational
studies and management which describes the psychology, attitudes, experiences, beliefs and
values (personal and cultural values) of an organization.
Organizational culture is not the same as corporate culture. It is wider and deeper
concepts, something that an organization 'is' rather than what it 'has' Corporate culture is the
total sum of the values, customs, traditions and meanings that make a company unique.
Corporate culture is often called "the character of an organization" since it embodies the
vision of the company’s founders. The values of a corporate culture influence the ethical
standards within a corporation, as well as managerial behavior.

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PART-3 Business Unit Strategic Planning

The business mission
SWOT analysis
Goal Formulation
Strategy formulation
Program formulation
Implementation
Feedback and control
Strategic planning: Developing a strategic fit between organizational goals and

capabilities, and changing marketing opportunities:
BUSINESS MISSION-
Each business unit need to define its specific mission with in the boarder company mission.
SWOT ANALYSIS is a strategic planning method used to evaluate
the Strengths, Weaknesses, Opportunities, and Threats involved in a projector in
a business venture.
Strengths: attributes of the person or company that is helpful to achieving the objective(s).
Weaknesses: attributes of the person or company that is harmful to achieving the objective(s).

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Opportunities: external conditions that is helpful to achieving the objective(s).
Threats: external conditions which could do damage to the objective(s).
The aim of any SWOT analysis is to identify the key internal and external factors that are
important to achieving the objective. These come from within the company's unique value
chain. SWOT analysis groups key pieces of information into two main categories:
 Internal factors – The strengths and weaknesses internal to the organization.

 External factors – The opportunities and threats presented by the external
environment to the organization. - Use a PEST or PESTLE analysis to help identify
factors
The internal factors may be viewed as strengths or weaknesses depending upon their impact
on the organization's objectives. What may represent strengths with respect to one objective
may be weaknesses for another objective. The factors may include all of the 4P's; as well as
personnel, finance, manufacturing capabilities, and so on. The external factors may include
macroeconomic matters, technological change, legislation, and socio-cultural changes, as
well as changes in the marketplace or competitive position. The results are often presented in
the form of a matrix.
Strengths Weaknesses Opportunities Threats
Reputation in Shortage of consultants Well established Large consultancies

marketplace at operating level rather position with a well operating at a minor
than partner level defined market niche level
Goal Formulation
Once the company has performed a SWOT analysis, it can proceed to develop specific goals for
the planning period.
• Unit’s objectives must be hierarchical

• Objectives should be quantitative
• Goals should be realistic
• Objectives must be consistent

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Gathering Information and scanning the Environment

Many business firms are not sophisticated about gathering Information companies with
superior information enjoy a competitive advantage The Company can choose its markets
better, develop better offerings and execute better marketing planning
Every firm must organize and distributes a continuous flow of information to its marketing
managers. Companies study their manager’s information needs and design marketing
information systems (MIS) to meet there needs. A marketing information system (MIS)
consists of people equipment, and procedures to gather. Sort, analyze, evaluate and
distribution needed, timely and accurate information to marketing decision makes. A
marketing information system is developed from internal company records, marketing
intelligence activities, and marketing research.
INTERNAL RECORDS AND MARKETING INTELLIGENCE
Marketing managers really on internal reports on orders, sales, prices, costs, inventory,
receivables, payables etc By analyzing this can spot important opportunities and problems.
a) The order-to-payment cycle: The heart of the internal records systems is the order to
payment cycle. Sales representatives, dealers of customers send orders invoices and
transmits copies to various departments. Out of store items are back ordered.
To day companies need to perform there steps quickly and accurately. An increasing
number of companies are using the internet &extranet to improve the speed, accuracy
and efficiency to the order to payment cycle.
b) Sales information systems: Marketing managers need timely and accurate reports on
current sales modern, organized; large-smart retails in India follow systematic to manage
supply chain inventories.
Companies must carefully interpret the sales data so as not to set the wrong signals
technological gadgets are revolutionizing sales information system and allowing
representatives to have up-to-the-second information many companies in India provide
laptops, mobile phones and internet communication facilities to keep track of sales
collection, inventory levels, and order positions these help companies have up-to-date
information, of improve the productivity of its sales staff.
c) Data bases, data warehouses and data mining; Today companies organizing their
information in data base example the customer database will contain every customers
name, address, transactions etc.,
Companies ware house their data & make them easily accessible to decision makers. To
manage all the different data bases efficiently and effectively more firms are using
business interaction software.
THE MARKETING INTELLIGENT SYSTEM: -

The internal records system supplies results data but the marketing intelligent system
supplies happenings data. A marketing intelligence system (MIS) is a set of procedures and

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sources managers use to obtain everyday information about developments in the

marketing environment marketing managers collect marketing intelligence by reading books,
news papers & trade publications, talking to customers, supplies and distributors & meeting
with other company managers
 A company can train & motivate the sales force to spot & report new
development.- .-Some companies in India encourages their field force to provide
inputs on improvements needed in the company’s current market offers as well as on
new products opportunities. The field force obtains inputs for useful suggestions by
observing competitors activities by listening to customers and suggestions, and by
interacting with distributors and retailers.
 A company can motivate distributors, retailers & other intermediaries to pass

along important intelligence.-Many companies hire specialists to gather marketing
intelligence. Service providers often send mystery shoppers to their stores to assess
how employers treat customers. Retailers also use mystery shoppers. The market
research agency systematically collected data from different sections of the shop by
deploying trained field researchers as mystery shoppers.
 A company can network externally.-It can purchase competitors products; attend

open houses and trade shows; read competitors published reports; attend stock holders
meetings; talk to employees ,dealers, distributors, suppliers and freight agents; collect
competitors ads; and look up news stories about competitors which must be done
legally and ethically.
 A company can set up a customer advisory panel Members might include

representative customers or the companies largest customers or it’s most outspoken or
sophisticated customers.
 A company can take advantage of government data resources.- .-Companies also

use census data for their planning purposes. The National sample survey organization
periodically publishes reports on a wide range of topic based onseveral surveys such
as the annual surveys, and follows up survey of economic census. The department of
agriculture and cooperation. Government of India, provides comprehensive data
relating to agriculture. Like The Indian Agricultural Statistic Research Institute
provides useful data and publishes research documents relating to field of agriculture.
 A company can purchase information from outside the suppliers.-Syndicated

research data is available in India. Retail audit, consumer panel data and doctor’s
prescription data are supplied by market research agencies on a subscription basis.
Some companies have set up their own consumers panels for tracking sales and brand
share movements.
 A company can use online customer feedback systems to collect competitive

intelligence.-Online customer feedback facilitates collection and dissemination of
information on a global scale, usually at low cost. Through online customer review
boards, or forms, one customer’s evaluation of a product or a supplier can be
disturbed to a large number of other potential buyers and the marketers seeking
information on the competition.

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Scanning the environment: -
Environment scanning is a constant and important activity of successful companies.

These processes include gathering filtering & analyzing information related to the marketing
environment such analysis helps to spot opportunities and threats in the environment.
Marketing research and marketing intelligence system are the methods are used by companies
for environment scanning & gathering vital information about changes. The marketing
environment provides both opportunities & threats. Through its scanning.
The marketing environment is composed of a micro environment & a macro environment.
Micro environment: -
Marketing success will require working closely with other departments of the
company, suppliers, marketing intermediaries, customers, competitors and various publics.
The company: - In the company marketing managers, formulating plans, must take into
account the other groups such as top management, finance, R&D, Purchasing, manufacturing
& accounting, all those groups constitute a companies micro environment for the planners.
They should think about the consumer and work in harmony to provide customer value and
satisfaction.
Suppliers: - Suppliers provide the resources needed by the company to produce its goals &
services. Developments in the supplier environment can have a substantial effect on the
company’s marketing operations. Price changes, supply shortages, labor strikes, and other
events can interfere with the fulfillment of delivery promises to customer & lose sales in the
short run and damage customer relationship in the long run.
Marketing intermediaries: - Marketing intermediaries help the company to promote, sell &
distribute its goods to final buyers. They include resellers, physical distributor firms,
marketing services agencies and financial intermediaries.

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Customers: - The Company needs to study 5 types of customer markets closely. Consumer
markets individuals & households buy goods & services for further processing resell at a
profit. Govt markets buy goods and services to produce public services.
Competitors: - Competitors have to be identified, monitored and maintain customer’s

loyalty. Development of marketing plans and strategy is based on knowledge about
competitor’s activities. Competitive advantage building also depends on understanding the
status, strength and weakness of competitors in the market.
The public: - The Company must acknowledge a large group of publics that take an interest,
whether welcome or not, in its methods of doing business. Every company is surrounded by 7
types of publics-
Financial – Banks, Financial institutions
Media – News papers, Magazines, Radio, T.V
Govt. – Govt. departments
Citizen – action – consumer organization, environment groups.
Local – Residents, community groups
General – General public, public opinion, public image
Internal – Workers, officers, board of directors.
Analyzing the environment: -

Enterprising individual & company’s mange to create solutions to unmet customer
needs. By offering low prizes, their companies are drawing new customers as well as
increasing the usage rate. These companies are addressing the need for cheap there are some
distinctions among fads, trends & mega trends.
Fad and Trends
Needs
Trend
Mega trend

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Enterprising individual and companies manage to create solution to unmet customer needs.
By offering low prices these companies drawing new customer as well as increasing the
usage date these companies is addressing the need for cheap.
There are some distinctions among fads, trends and mega trends
Fad is unpredictable, short lived, and without social, Economic Political significance a
company can cash in on a Fad such as Barbie dolls etc, which is more a matter of luck and
good timing.
A trend is direction or sequence of events that has some momentum and durability.
Trends are more predictable and durable than fads. A Trend relies the shape of the future and
provide many opportunities Ex: The percentage of people who value Physical fitness has
risen steadily over the years especially under 30 years group and these are more health
conscious marketers of health food and exercise Equipment cater to this trend with
appropriate products and communications.
Mega Trends have been described as large social economic, Political and
Technological changes that are slow to found, and once in place they influence us for some
time between 7 to 10 years or longer.
MAJOR MACROECONAMICS
Macro environmental scanning involves analyzing:
1. Demographic Environment:
The first macro Environment that marketers monitor is global and domestic
population and trends in it. The parameters they look for are world wide population growth,
population age mix, and geographical shifts in population, house hold patterns, Educational
groups and ethnic groups etc.
2. Economic Environment:
An exchange market requires purchasing power for transactions to take place along
with people who want goods. The available purchasing power in an economy depends on

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parameters like current income; price, savings current debt levels and credit availability
marketers have to identify major trends in income and spending patterns.
3. Social/cultural Environment:
Culture denotes the ways of life of people of a society according to sociology. There
is high persistence of core culture values of societies. There are sub cultures in every society
there are shifts in secondary cultural values through time marketers have to be alert to such
changes and analyze marketing implication of such changes.
4. Natural Environment:
Marketers need to consider the threats and opportunities associated with four trends in
the natural environment the shortage of raw material the increased cost of energy, the
increased levels of pollution, and the changing role of government.

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UNIT –II
MARKETING RESEARCH 34-56

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MARKETING RESEARCH is the systematic gathering, recording, and analysis of

data about issues relating to marketing products and services. Marketing research involves conducting
research to support marketing activities, and the statistical interpretation of data into information. The
task of marketing research is to provide management with relevant, accurate, reliable, valid, and
current information.
A distinction should be made between marketing research and market research.

Market research pertains to research in a given market. As an example, a firm may conduct
research in a target market, after selecting a suitable market segment. In contrast, marketing
research relates to all research conducted within marketing. Thus, market research is a subset
of marketing research.
Types of marketing research

Market research is the process of finding information about your competitors, current market
trends or your customers. Most companies invest in market research when they release a new
product, improve on an existing product or if they plan on introducing a particular product in
a new market. Market research can be conducted by two methods, primary research or
secondary research.
Primary research
Primary research refers to information that is directly collected from the source. Another
simple method of primary research would be to directly talk to your customers and get their
feedback. Primary research can be both qualitative and quantitative.
1. Qualitative primary research

Qualitative primary research involves gathering information from interviews or focus groups.
Open-ended interviews include questions that cannot be answered with a yes or no. You can
get a lot of information from such interviews and also find out about the dislikes, likes,
requirements, trends and emotional motivators of your primary market

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. Quantitative primary research

Quantitative primary research involves the collection of numerical information from surveys.
This information is then analyzed.
Surveys can provide with the information require if the survey has meaningful questions.
More people would be willing to take a survey as it takes less time. The cheapest and easiest
way of conducting a survey is through the telephone and on the place where your product is
being sold
Secondary market research

Secondary research is more economical and easier to do when compared to primary research.
By investing in secondary market research can analyze target markets, evaluate competitors
and assess political, social and economic factors. The internet has a large number of
secondary data sources and most resources, magazines and press releases are now available
online.
There also exist additional modes of marketing research, which are:
• Exploratory research, pertaining to research that investigates an assumption.

• Descriptive research, which as the label suggests, describes "what is".
• Predictive research, meaning research conducted to predict a future occurrence.
• Conclusive research, for the purpose of deriving a conclusion via a research process.

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MARKETING RESEARCH PROCESS
Step 1: Problem Definition
The first step in any marketing research project is to define the problem. In defining the
problem, the researcher should take into account the purpose of the study, the relevant
background information, what information is needed, and how it will be used in decision
making. Problem definition involves discussion with the decision makers, interviews with
industry experts, analysis of secondary data, and, perhaps, some qualitative research, such as
focus groups. Once the problem has been precisely defined, the research can be designed and
conducted properly.[2]
Step 2: Develop the research plan
The second stage of marketing research requires developing the most efficient plan for
gathering the needed information. Designing a research plan calls for decisions on the data
sources, research approaches, research instruments, sampling plan, and contact methods.
DATA SOURCES-The researcher can gather secondary data, primary data, or both.
Secondary data are data that were collected for another purpose and already exist somewhere.
Primary data are data freshly gathered for a specific purpose or for a specific research
project.
RESEARCH APPROACHES- Primary data can be collected in five main ways: through
observation, focus groups, surveys, behavioral data, and experiments.
Observational Research
Focus Group Research
Survey Research
Behavioral Data
Experimental Research
RESEARCH INSTRUMENTS- Marketing researchers have a choice of three main

researches
Questionnaires
Qualitative Measures
Mechanical Devices

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SAMPLING PLAN- After deciding on the research approach and instruments, the marketing
researcher must design a sampling plan. This calls for three decisions:
1. Sampling unit: Who is to be surveyed?
2. Sample size: How many people should be surveyed?
3. Sampling procedure: How should the respondents is chosen?
CONTACT METHODS. Once the sampling plan has been determined, the marketing
researcher must decide how the subject should be contacted: mail, telephone, personal, or
online interview.
Mail Questionnaire The
Telephone Interview
Personal Interview
Online Interview
Step 3: Collect the Information
The data collection of surveys, four major problems arise. Some respondents will not be at
home and must be contacted again or replaced. Other respondents will refuse to cooperate.
Still others will give dishonest answers. Getting the right respondents is critical.
Step 4: Analyze the Information
The next-to-last step in the process is to extract findings from the collected data. The
researcher tabulates the data and develops frequency distributions. Averages and measures of
dispersion are computed for the major variables. The researcher will also apply some
advanced statistical techniques and decision models in the hope of discovering additional
findings.
Step 5: Present the Findings
The researcher should present findings that are relevant to the major marketing decisions
facing management.
Step 6: Make the Decision
A growing number of organizations are using a marketing decision support system to help
their marketing managers make better decisions. MIT's John Little defines a marketing
decision support system (MDSS) as a coordinated collection of data, systems, tools, and
techniques with supporting software and hardware by which an organization gathers and
interprets relevant information from business and environment and turns it into a basis for
marketing action.17
MARKETING ENVIRONMENT
The term marketing environment relates to all of the factors (whether internal, external, direct
or indirect) that affects a firm's marketing decision-making or planning and is subject of the
marketing research. A firm's marketing environment consists of two main areas, which are:

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Macro environment
On the macro environment a firm holds only little control. It consists of a variety of
external factors that manifest on a large (or macro) scale. These are typically
economic, social, political or technological phenomena. A common method of
assessing a firm's macro-environment is via a PESTLE (Political, Economic, Social,
Technological, Legal, and Ecological) analysis. Within a PESTLE analysis, a firm
would analyze national political issues, culture and climate, key macroeconomic
conditions such as economic growth, inflation, unemployment, etc, social
trends/attitudes, and the nature of technology's impact on its society and the business
processes within the society.
Micro environment
A firm holds a greater amount (though not necessarily total) control of the micro
environment. It comprises factors pertinent to the firm itself, or stakeholders closely
connected with the firm or company. A firm's micro environment typically spans:
• Customers/consumers
• Employees
• Suppliers
• The Media
By the macro environment, an organization holds a greater degree of control over

these factors.
CUSTOMER VALUE PROPOSITION
Many of the elements that are included in a customer value proposition are designed
to attract customers by offering them something that is not readily available from the
competition. Often, these added values are little extras that are hard to obtain with that
particular product or service. For example, the offering may include a customer service value
that involves access to customer support personnel seven days a week, twenty-four hours a
day. If the competition only offers access to customer support during limited hours five days
a week, this is highly likely to catch the attention of prospective clients, as well as entice
existing clients to not stray from the fold.
The exact composition of a customer value proposition will vary, depending on the
industry in question, and what the competition offers as a matter of course. This means that
the proposition will help a customer confirm that the vendor offers everything that is
available from the competition, plus a few benefits that are highly unlikely to be found
elsewhere. Often, these value added services are extended at no additional cost to
the customer, which serves to make them even more attractive.
Value Proposition
Setting up an effective customer service department is one way of establishing a

value proposition for new and existing clients. All other factors being equal, the presence of

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effective client support can make the difference between a high level of customer satisfaction
that keeps clients coming back for more, and a company that quickly becomes yesterday’s
news. Staffing to eliminate long hold times and delays in responding to customer emails will
go a long way in building customer loyalty and distinguishing the company in the minds of
the general public.
Functionality of a product or service can also make a big impact when it comes to
value proposition. For example, one company may offer a cell phone that offers an expanded
address book at no extra charge, whereas another company may have the same phone for
sale, but without the expanded address book. For customers who like to get the most for their
money, chances are people will buy from Company One, rather than pay the same prices for
Company Two’s smaller address book offering.
Another method of enhancing the value proposition of goods and services is to provide some
options that help the product to be more appealing to each individual customer. This can be
something as simple as providing a variety of colored shells for a line of cell phones, or
providing the ability to record a personalized greeting for attendees entering a conference
call. The value proposition in this case has to do with allowing the customer to begin to own
the good or service, and not just a consumer. The more the client owns the good or service,
the stronger he or she will identify with the company. This helps to
strengthen customer loyalty, as well as enhance the chances for good word of mouth
recommendations.
Non Segment markets:
Non –segmented market is the one which is not differentiated by the marketed fore the
promotion of their products. It is a single market which uses the single marketing mix for the
entire market. It is also called undifferentiated market this marketing assumes every one is
the same and aims a particular products at every one all it consists of single pricing strategy
,single promotional program aimed at every body and single type of product with little /no
variation distributed in the entire market i.e. single distribution channel .
All consumers have similar needs fore a specific kind of products.
Ex: Staple food-sugar and salt and form produce .coca cola offered only one
product version to the whole market. Hundred offers roohfza based on this strategy
Segmentation and Market Entry Strategy

A market entry strategy is the planned method of delivering goods or services to a target
market and distributing them there. When importing or exporting services, it refers to
establishing and managing contracts in a foreign country.
Many companies successfully operate in a niche market without ever expanding into
new markets. Some businesses achieve increased sales, brand awareness and business
stability by entering a new market .Developing a market entry strategy involves a thorough

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analysis of potential competitors and possible customers. Some of the relevant factors that are
important in deciding the viability of entry into a particular market include Trade barriers,
localized knowledge, price localization, Competition, and export subsidies.
Segmentation
Market segmentation can be defined in terms of the STP acronym, meaning Segment,
Target and Position.
Market segmentation is the selection of groups of people who will be most receptive
to a product. The most common method of segmenting includes demographic variables such
as age, race, sex, income, occupation, education, geographic location, household status etc.
Much of the segmentation will involve a combination of these variables and no matter how
the segments are defined they are characterized by considerable change over time.
PURPOSE OF SEGMENTATION
The main purpose of segmenting a market is to allow a market or sales program to focus on
the prospects that are most likely to purchase the products or services on offer. If it is done
properly it ensures that the best return for the marketing expense is outlaid. There are definite
differences and these depend on whether you are selling to individual consumers or to
business customers. Market segmentation is the identification of portions of the market that
are different from one another. Segmentation allows the firm to better satisfy the needs of its
potential customers.
Consumer markets can be segmented on the following customer characteristics.
Geographic
Demographic
Psychographic
Behavioralistic

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Geographic Segmentation
The following are some examples of geographic variables often used in segmentation.
• Region: by continent, country, state, or even neighborhood

• Size of metropolitan area: segmented according to size of population
• Population density: often classified as urban, suburban, or rural
• Climate: according to weather patterns common to certain geographic regions
Geographic segmentation is an important process - particularly for multi-national and global

businesses and brands. Many such companies have regional and national marketing
programmers which alter their products, advertising and promotion to meet the individual
needs of geographic units.
Climate: according to weather patterns common to certain geographic regions.
Demographic Segmentation
Demographic segmentation consists of dividing the market into groups based on variables
such as age, gender family size, income, occupation, education, religion, race and nationality.
As you might expect, demographic segmentation variables are amongst the most popular
bases for segmenting customer groups. This is partly because customer wants are closely
linked to variables such as income and age. Also, for practical reasons, there is often much
more data available to help with the demographic segmentation process.
The main demographic segmentation variables are summarized below:
Age
Consumer needs and wants change with age although they may still wish to consumer the
same types of product. So Marketers design, package and promote products differently to
meet the wants of different age groups. Good examples include the marketing of toothpaste
(contrast the branding of toothpaste for children and adults) and toys (with many age-based
segments).
Life-cycle stage
A consumer stage in the life-cycle is an important variable - particularly in markets such as

leisure and tourism. For example, contrast the product and promotional approach of Club 18-
30 holidays with the slightly more refined and sedate approach adopted by Saga Holidays.
Gender
Gender segmentation is widely used in consumer marketing. The best examples include
clothing, hairdressing, magazines and toiletries and cosmetics.

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Income
Another popular basis for segmentation. Many companies target affluent consumers with
luxury goods and convenience services. Good examples include Coutts bank; Moet &
Chandon champagne and Elegant Resorts - an up-market travel company. By contrast, many
companies focus on marketing products that appeal directly to consumers with relatively low
incomes. Examples include Aldi (a discount food retailer), Air tours holidays, and discount
clothing retailers such as TK Maxx.
Social class
Many Marketers believe that a consumers "perceived" social class influences their
preferences for cars, clothes, home furnishings, leisure activities and other products &
services. There is a clear link here with income-based segmentation.
Lifestyle
Marketers are increasingly interested in the effect of consumer "lifestyles" on demand.

Unfortunately, there are many different lifestyle categorization systems, many of them
designed by advertising and marketing agencies as a way of winning new marketing clients
and campaigns.
Some demographic segmentation variables also include:

Family size
Generation: baby-boomers, Generation X, etc.
Occupation
Education
Ethnicity
Nationality
Religion
Psychographic Segmentation

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Psychographic segmentation groups customers according to their lifestyle. Activities,

interests, and opinions (AIO) surveys are one tool for measuring lifestyle. Some
psychographic variables include:
Activities
Interests
Opinions
Attitudes
Values
Psychographic segmentation is sometimes also referred to as behavioral segmentation. This

type of segmentation divides the market into groups according to customers’ lifestyles.
It considers a number of potential influences on buying behavior, including the attitudes,

expectations and activities of consumers. If these are known, then products and marketing
campaigns can be customized so that they appeal more specifically to customer motivations.
The main types of psychographic segmentation are:
Lifestyle – different people have different lifestyle patterns and our behavior may change as
we pass through different stages of life. For example, a family with young children is likely
to have a different lifestyle to a much older couple whose children have left home, and there
are, therefore, likely to be significant differences in consumption patterns between the two
groups. One of the most well-known lifestyle models, the “sagacity lifestyle model”,
identifies four main stages in a typical lifestyle:
Dependent (e.g., children still living at home with parents);
Pre-family (with their own households but no children);
Family (parents with at least one dependent child); and
Late (parents with children who have left home, or older childless couples).Each group is
then further subdivided according to income and occupation
Opinions, interests and hobbies – this covers a huge area and includes consumers’ political
opinions, views on the environment, sporting and recreational activities and arts and cultural
issues. The opinions that consumers hold and the activities they engage in will have a huge
impact on the products they buy and marketers need to be aware of any changes. Good

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recent examples include the growth of demand for organic foods or products that are (or are
“perceived” to be) environmentally friendly
Degree of loyalty – customers who buy one brand either all or most of the time are valuable
to firms. By segmenting markets in this way, firms can adapt their marketing in order to
retain loyal customers, rather than having to focus constantly on recruiting new customers. It
is often said that it is ten times more profitable selling to existing customers than trying to
find new ones. So the moral is – work hard at keeping your customers.
Occasions – this segments on the basis of when a product is purchased or consumed. For
example, some consumers may only purchase flowers, wine or boxes of chocolates for
celebrating birthdays or Christmas, whereas other consumers may buy these products on a
weekly basis. Marketers often try to change customer perception of the best time to
consumer a product by promoting alternative uses for a product. For example, recently
Kellogg’s has attempted to change the image of cereals to that of an ‘any time’ snack, rather
than simply a breakfast meal.
Benefits sought – this requires marketers to identify and understand the main benefits
consumers look for in a product. Toothpaste, for example, is not only bought to maintain
healthy teeth and gums, but also because of its taste and in order to help combat bad breath!
Usage – some markets can be segmented into light, medium and heavy user groups.
BEHAVIORALISTIC SEGMENTATION
Behavioral segmentation is based on actual customer behavior toward products. Some
behavioralistic variables include:
a. Occasions: buyers can be distinguished according to the occasions they develop a need,
purchase a product, or use a product and occasions segmentation can help firms expend
product usage. Eg. Orange juice is usually consumed at breakfast. A orange juice consumer
can try to promote drinking orange juice unable occasions level, dinner, midday
b. Benefits: buyer can be clarified according to the benefits they seek Eg. Haley reported
true benefit segmentation of the toothpaste market. He found four benefits segments;
economy medicinal, cosmetic
c. User states: markets can be segmented in to consumers, Eg. user potential user, first time
user, and regular uses of a product.
d. loyal states: consumers have buying degree of loyalty to specific brands, stores and other
entity.

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e. Buyer readiness stage: a market consists of people in different stages of

readiness to buy a product. Some all universe of the product, some all avails, some all
informed and some derive the product.
f. Attitude: five attitude groups can be ford in a market enthusiastic, positive, indifferent,
negative and Positive.
TARGET MARKETING
Target Marketing involves breaking a market into segments and then concentrating your
marketing efforts on one or a few key segments. Target marketing can be the key to a small
business’s success. Target marketing is that it makes the promotion, pricing and distribution
of products and/or services easier and more cost-effective. Target marketing provides a focus
to all of marketing activities.
TARGET MARKET STRATGIES

There are several different target-market strategies that may be followed. Targeting strategies
usually can be categorized as one of the following:
• Single-segment strategy - also known as a concentrated strategy. One market segment

(not the entire market) is served with one marketing mix. A single-segment approach
often is the strategy of choice for smaller companies with limited resources.
• Selective specialization- this is a multiple-segment strategy, also known as a
differentiated strategy. Different marketing mixes are offered to different segments.
The product itself may or may not be different - in many cases only the promotional
message or distribution channels vary.
• Product specialization- the firm specializes in a particular product and tailors it to
different market segments.
• Market specialization- the firm specializes in serving a particular market segment
and offers that segment an array of different products.

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• Full market coverage - the firm attempts to serve the entire market. This coverage
can be achieved by means of either a mass market strategy in which a single
undifferentiated marketing mix is offered to the entire market, or by a differentiated
strategy in which a separate marketing mix is offered to each segment.
The following diagrams show examples of the five market selection patterns given three
market segments S1, S2, and S3, and three products P1, P2, and P3.
Single Selective Product Market Full Market

Segment Specialization Specialization Specialization Coverage
S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3
P P P P P
1 1 1 1 1
P P P P P
2 2 2 2 2
P P P P P
3 3 3 3 3
A firm that is seeking to enter a market and grow should first target the most attractive
segment that matches its capabilities. Once it gains a foothold, it can expand by pursuing a
product specialization strategy, tailoring the product for different segments, or by pursuing a
market specialization strategy and offering new products to its existing market segment.
POSITIONING
When the list of target markets is made, a company might want to start on deciding on a good
marketing mix directly. But an important step before developing the marketing mix is
deciding on how to create an identity or image of the product in the mind of the customer.
Every segment is different from the others, so different customers with different ideas of
what they expect from the product. In the process of positioning the company:
1. Identifies the differential advantages in each segment
2. Decides on a different positioning concept for each of these segments.
Analyzing Business Markets
Organizational buying is the decision-making process by which formal organizations

establish the need for purchased products and services and identify, evaluate, and choose
among alternative brands and suppliers.
Business Buying Situations

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Business buyers in companies, institutions, and government organizations face many

decisions in the course of making a purchase. The number of decisions depends on the type
of buying situation.
·Straight rebuy: The straight rebuy is a buying situation in which the purchasing
department reorders on a routine basis (e.g. office supplies, bulk chemicals). The buyer
chooses from suppliers on an “approved list.” These suppliers make an effort to maintain
product and service quality.
·Modified rebuy: The modified rebuy is a situation in which the buyer wants to
modify product specifications, prices, delivery requirements, or other terms. The modified
rebuy usually involves additional decision participants on both sides.
·New task: The new task is a buying situation in which a purchaser buys a product or
service for the first time (e.g., office building, new security system). The greater the cost or
risk, the larger the number of decision participants and the greater their information gathering
and therefore the longer the time to decision completion.
Roles and responsibilities of Business Buying
Webster and Wind call the decision-making unit of a buying organization the buying
center. The buying center is composed of “all those individuals and groups who participate in
the purchasing decision-making process. They are
·Initiators: People who request that something be purchased, including users or others.

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·Users: Those who will use the product or service; often, users initiate the buying proposal
and help define product requirements.
·Influencers: People who influence the buying decision, including technical personnel. They
often help define specifications and also provide information for evaluating alternatives.
·Deciders: Those who decide on product requirements or on suppliers.
·Approvers: People who authorize the proposed actions of deciders or buyers.
·Buyers: People who have formal authority to select the supplier and arrange the purchase
terms, including high-level managers. Buyers may help shape product specifications, but their
major role is selecting vendors and negotiating.
·Gatekeepers: People who have the power to prevent sellers or information from reaching
members of the buying center; examples are purchasing agents, receptionists, and telephone
operators.
Major Influences on Business Buying
Business buyers respond to four main influences: environmental, organizational,

interpersonal and individual.
Environmental Factors
Within the macro environment, business buyers pay close attention to numerous economic
factors, including interest rates and levels of production, investment, and consumer spending.
Business buyers also actively monitor technological, political-regulatory, and competitive
developments.
For example, environmental concerns can cause changes in business buyer behavior. A
printing firm might favor suppliers that carry recycled papers or use environmentally safe ink.
Organizational Factors
Every organization has specific purchasing objectives, policies, procedures, organizational

structures and systems. Questions such as these arise how many people are involved in the
buying decision,
Who are they?
What are their evaluative criteria?
What are the companies’ policies?
Interpersonal Factors
Buying centers usually include several participants with differing interests, authority, status
and empathy. Therefore, successful firms strive to find out as much as possible about

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individual buying center participants and their interaction and train sales personnel and others
from the marketing organization to be more attuned to the influence of interpersonal factors.
Individual Factors
Each buyer carries personal motivations, perceptions, and preferences, as influenced by the
buyer’s age, income, education, job position, personality, attitudes toward risk, and culture .
Eg- Young and traditional buyers
Cultural Factors
Savvy marketers carefully study the culture and customs of each country or region where
they want to sell their products, to better understand the cultural factors that can affect buyers
and the buying organization.
Analyzing Consumer Markets
“Consumer behavior is the study of how individuals, groups and organizations select, but, use
and dispose goods services, ideas or experiences to satisfy their needs and wants” .A
marketer must fully understand both theory and reality of consumer behavior. Consumers
make many buying decisions every day. Most large companies research consumer buying
decisions in great detail to answer questions about what consumers buy, where they buy, how
and how much they buy, when they buy and why they buy. A consumer buyer’s behavior is
influenced by cultural, social and personal factors. Cultural factors exert the broadest and
deepest influence. The general question for marketer is, how do consumers respond to
various marketing efforts the company might use?
Characteristics affecting consumer behavior

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Cultural Factors
Cultural factors exert a broad and deep influence on consumer behavior. The marketers need
to understand the role played by the buyer’s culture, sub culture and social class.
CULTURE – A set of basic valves, Perception, wants and behaviors learned by a number of
society from family and other important institutions.
E.g. In U.S.A. a child is normally learns or is exposed to the following values – achievement
and success, activity and involvement, efficiency and practicality, progress ,maternal
comfort, individuals etc.
Every group/society has a culture and cultural influences on buyer behavior may vary greatly
from country to country. Failure to adjust to these differences can result in ineffective
Marketing or mistakes. Marketers are always trying to spot cultural shifts in order to discover
new products that might be wanted.
E.g. The cultural shift towards greater concern about health and fitness has created a huge
industry for health and fitness services. (Exercise equipments and clothing, natural food
SUB CULTURE – A group of people with shared value systems based on common life
experiences and situations.
Sub culture includes nationalities, religions, geographic region etc. Many sub cultures make
up important market segments and marketers often design products and marketing programs
tailored to their needs.
E.g. Hispanic consumer
African/American
Asian American
Nature consumer
SOCIAL CLASS – Relatively permanent and ordered divisions in a society whose members
share similar values, interests and behaviors. Social Classing not determined by a single

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factor, such as income, but is measured as a combination of occupation, income, education,

wealth and other variables.
Social factors
A consumer behavior also influenced by social factors such as the consumer’s small groups,
family and social roles and status.
·Groups – A person’s behavior is influenced by many small groups;
E.g. Reference group
·Family – The family is the most important consumer buying organization in society
and it has been researched extensively. Marketers are interested in the roles and
influence of the husband, wife and children on the purchase of different products
and services.
·Role and status – A person belongs to many groups such as family, clubs, organizations. The
person’s positions in each group can be defined in terms of both role and status. People
usually chose products appropriate to their role and status.
E.g. - Lower Class - Working class -Middle class -Upper Class
Personal factors
A buyer’s decisions also are influenced by personal characteristics such as the buyer’s age
and life cycle stage, occupation, economic situation, life style and personality.
AGE AND LIFE CYCLE STAGE
Consumer buying is shaped by the stage of the family life cycle. Traditional family life cycle
stages include young, singles and married couple with children. But today marketers are
increasingly catering to new stages – such as
·Unmarried couples
·Singles marrying later in life
·Childless couples
·Single parents
·Extended parents (those with young and adult children)
OCCUPATION
A person’s occupation affects the goods and services bought. Marketers try to identify the
occupational groups that have an above average interest in their products and services.

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ECONOMIC SITUATION
A personal economic situation will affect product choice. Marketers of income sensitive
goods watch trends in personal income, savings and interest rates. If economic indicators
point to a recession, marketers can take steps to redesign, reposition and re-price the products
closely.
E.g. Rolex watches – High price
Timex More affordable watches
LIFESTYLE
A person’s pattern of living as expressed in his/her activities, interest and opinions.
PERSONALITY AND SELF CONCEPT
Each person’s personality influences his/her buying behavior. Personality usually describes
items of trails such as self-confidence, dominance, sociability, adaptability and
aggressiveness.
E.g. Coffee makers have discovered that heavy coffee drinkers tend to be high sociability.
Thus to attract customers coffee bars, create environment in which people relax and socialize
over a cup of coffee.
Psychological Factors
A person’s buying choices are further influenced by four major psychological factors such as
motivation, perception, learning and beliefs and attitude.
MOTIVATION
A motive is a need that is sufficiently pressing to direct the person to seek satisfaction.
Psychologists have developed theories of human motivation.
a) Sigmund Freud
b) Abraham Maslow
Abraham Maslow
Maslow’s hierarchy of needs is most often displayed as a pyramid. The lowest levels of the
pyramid are made up of the most basic needs, while the more complex needs are located at
the top of the pyramid. Needs at the bottom of the pyramid are basic physical requirements
including the need for food, water, sleep and warmth. Once these lower-level needs have
been met, people can move on to the next level of needs, which are for safety and security.

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There are five different levels in Maslow’s hierarchy of needs:
Physiological Needs
These include the most basic needs that are vital to survival, such as the need for water, air,
food and sleep. Maslow believed that these needs are the most basic and instinctive needs in
the hierarchy because all needs become secondary until these physiological needs are met.
Security Needs
These include needs for safety and security. Security needs are important for survival, but
they are not as demanding as the physiological needs. Examples of security needs include a
desire for steady employment, health insurance, safe neighborhoods and shelter from the
environment.
Social Needs
These include needs for belonging, love and affection. Maslow considered these needs to be
less basic than physiological and security needs. Relationships such as friendships, romantic
attachments and families help fulfill this need for companionship and acceptance, as does
involvement in social, community or religious groups.
Esteem Needs
After the first three needs have been satisfied, esteem needs becomes increasingly important.
These include the need for things that reflect on self-esteem, personal worth, social
recognition and accomplishment.
Self-actualizing Needs
This is the highest level of Maslow’s hierarchy of needs. Self-actualizing people are self-
aware, concerned with personal growth, less concerned with the opinions of others and
interested fulfilling their potential.

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PERCEPTION
A motivated person is ready to act. How the person acts is influenced by his/her own
perception of the situation. Perception is the process by which people select, organize
and interpret information to form a meaningful picture of the world. There are three
perceptual processes:
1. Selective attention
2. Selective distortion
3. Selective retention
Selective attention – The tendency for people to screen out most of the information to
which they are exposed to.
E.g. – If people expose to 5000 ads per day it is impossible for a person to pay
attention to all these. So marketers should work hard to attract consumer’s attention.
Selection distortion – The tendency of people to interpret information in a way that will
support what they already believe.
E.g. – If a consumer distrusts a company he might perceive even honest ads from the
company as questionable.
Selective retention – Consumers are likely to remember good points to make about a brand
they favor and to forget good points made about competing brands.
LEARNING
When people act, they learn. Learning describes charges in an individual’s behavior arising
from experience.
E.g. – If a consumer buys a digital camera, if the experience is rewarding, the

consumer will probably use the cam era more and more.
BELIEFS AND ATTITUDES
A belief is a descriptive thought that a person has about something. Belief may be based on
real knowledge, opinion or faith and may or may not carry on emotional charge.
Attitude – A person’s consistently favorable or unfavorable evaluations, feelings and

tendencies toward an object or idea.
THE BUYER DECISION PROCESS

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Need recognition – This is the first stage of the buyer decision process in which the
Consumers recognize a problem or need. The need can be triggered by internal stimuli when
one of the person’s norm al needs rises to a level of high enough to become drive.
E.g. an advertisement/discussion with friend might get you thin king about buying a newcar.
Information search – The stage of the buyer decision process in which the consumer is search
for more information, the consumer may simply have attention or may go into active
information search.
E.g. If a customer decides to buy a new car, at the least he will probably pay more attention
on car ads, cars owned by friends etc. (or read/talk). They can get info from several sources.
Personal source (family, friend, neighbor etc.)Commercial sources (advertising, sales people
and dealers)Public sources (mass media)Experimental sources (handling, examining)
Evaluation or alternatives – The stage of the buyer decision process in which the consumer
uses information to evaluate alternative brands in the choice set.
E.g. It can be price, quality, reputation etc.
Marketers should study buyers to find out how they actually evaluate brand alternatives. If
they have what evaluative processes go on, marketers can take steps to influence the buyers
decision.
Purchase decision -The buyers decision about which brand to purchase. In the evaluation
stage consumer ranks brand and forms purchase intentions. In the evaluation stage, the
consumer forms preferences among the brands in the choice set. The consumer may also
form an intention to buy the most preferred brand. In executing a purchase intention, the
consumer may make up to five subdivisions: brand (brand A), dealer (dealer 2), quantity (one
computer) timing (weekend), and payment method (Credit card).
Post purchase Behavior -The marketer’s job therefore doesn’t end with the purchase.
Marketers must monitor post puchase satisfaction, post purchase actions and post purchase
product uses.
Post purchase satisfaction - Satisfaction is a function of the closeness between Expectations

and the product’s perceived performance. If performance falls short of expectations, the
consumer is disappointed; if it meets expectations, the consumer is satisfied; if it exceeds
expectations, the consumer is delighted. These feelings make a difference in whether the
customer buys the product again and talks favorably or unfavorably about it to others. Post
purchase Actions
If the consumer is satisfied, she is more likely to purchase the product again.

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The satisfied customer will also tend to say good things about the brand to others. On the
other hand, dissatisfied consumers may abandon or return the product. The may seek
information that confirms its high value. They may take public action by complaining to the
company, going to a lawyer, or complaining to other groups (such as business, Private, or
government agencies). Private actions include deciding to stop buying the Product (exit
option) or warning friends (voice option).
UNIT III

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CUSTOMER VALUE, SATISFACTION,

&LOYALTY
57 -92
Managers who believe the customer is the company's only true "profit center" consider the
traditional organization chart in a pyramid with the president at the top, management in the

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middle, and front-line people and customers at the bottom—obsolete. Successful marketing
companies invert the chart. At the top are customers; next in importance are front-line people
who meet, serve, and satisfy customers; under them are the middle managers, whose job is to
support the front-line people so they can serve customers well; and at the base is top
management, whose job is to hire and support good middle managers.
Organizational Charts
Customer perceived value
Customer perceived value (CPV) is the difference between the prospective customer's
evaluation of all the benefits and all the costs of an offering and the perceived alternatives.
Total customer value is the perceived monetary value of the bundle of economic, functional,
and psychological benefits customers expect from a given market offering. Total customer
cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, and
disposing of the given market offering, including monetary, time, energy, and psychic costs.
Total customer satisfaction
Satisfaction is a person's feelings of pleasure or disappointment resulting from comparing a

product's perceived performance (or outcome) 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.
Product and Service Quality
Satisfaction will also depend on product and service quality. Quality is the totality of features
and characteristics of a product or service that bear on its ability to satisfy stated or implied
needs. The seller has delivered quality whenever the seller's product or service meets or
exceeds the customers' expectations. A company that satisfies most of its customers' needs
most of the time is called a quality company.

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Total Quality Management

Total Quality Management (or TQM) is a management concept coined by W. Edwards
Deming. The basis of TQM is to reduce the errors produced during the manufacturing or
service process, increase customer satisfaction, streamline supply chain management, aim for
modernization of equipment and ensure workers have the highest level of training. One of the
principal aims of TQM is to limit errors to 1 per 1 million units produced.
The application of TQM can vary tremendously from business to business, even
across the same industry.TQM is the management process used to make continuous
improvements to all functions.TQM represents an ongoing, continuous commitment to
improvement. The foundation of total quality is a management philosophy that supports
meeting customer requirements through continuous improvement
Customer Relationship Management (CRM)
Many companies are intent on developing stronger bonds with their customers—called
customer relationship management (CRM). This is the process of managing detailed
information about individual customers and carefully managing all customer "touch points"
to maximize customer loyalty. A customer touch point is any occasion on which a customer
encounters the brand and product—from actual experience to personal or mass
communications to casual observation.
Customer relationship management enables companies to provide excellent real-time
customer service through the effective use of individual account information. Based on what
they know about each valued customer, companies can customize market offerings, services,
programs, messages, and media.
CUSTOMER LOYALTY

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A customer loyalty grid is constructed which explains the customers expectations,

satisfaction and delight are interrelated to customer loyalty.
This grid is divided into four zones, as depicted in the diagram below:-
Zone 1: Unstated/Expected...The Zone of Indifference
Literally, this includes all those customer needs and wants that are basic to fulfilling the
contract between you and them. For example, customers expect to be treated with courtesy
and respect, and would probably be puzzled (and maybe even insulted) if you asked them if
this was a need. It of course is, and if you don't meet this need, you will cause
DISSATISFACTION. If you meet this basic and obvious need, the best you can hope for is
INDIFFERENCE.
Zone 2: Stated/Expected...The Zone of Satisfaction
This is where your customer actually TELLS you what is important to them. Listen carefully
here, as this is a key stepping stone to customer loyalty. Meeting a customer's needs here will
cause SATISFACTION, whereas not meeting them will cause DISSATISFACTION. For
example, a customer might expect a volume discount on a purchase, but knows that they have
to specifically ask (or negotiate) for it. It is an expectation, simply because other
organizations that the customer deals with provide this benefit.
Zone 3: Stated/Unexpected...The Zone of Delight
This is where your customer HOPES for something, ASKS for it, but really does not expect
you to provide it. This is your opportunity to provide something beyond their expectations
and by so doing will create DELIGHT. For example, a customer might ask for something that
is usually available only in a premium priced product. Not providing it will unlikely cause
dissatisfaction. Therefore this is an area for particular attention in building a LOYAL
customer base.
Zone 4: Unstated/Unexpected...The Zone of Loyalty

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This is an area where your expertise in whatever product or service you provide and the
customer's lack of expertise can really pay off! Providing benefits above and beyond what the
customer is even aware of can create a LOYAL customer. This requires you to be really
proactive in suggesting to customers new innovations that they can really benefit from. Many
customers will be even willing to pay extra for this. For example, airbags in automobiles
when first introduced were an innovation that saved lives, but customers had no way of
asking for this innovation, or expecting it, before it became known to them.
All Zones are equally important
To get to the Zone of Loyalty, you must first conquer the other zones...there are no short-cuts.
If your organization is really good at innovations (the key factor in creating Loyalty), but
struggles at reliability (the key factor in creating Satisfaction), then it will end up struggling
in all four zones.
Loyalty creating innovations are time limited
What was once an unstated/unexpected innovation will eventually become
unstated/expected...would you now purchase a car without a CD player? Would you even ask
the salesperson if it is installed? So maintaining a rate of innovation that matches or exceeds
what the market demands is crucial to maintaining customer loyalty.
The Grid in practice
You may be working on a project team that is charged with the goal of achieving
breakthroughs in program, product or service design. So how would you use the grid in such
a situation? What design process would you use?
A typical process might involve the following steps: \
1. Targeting Customers
2. Interviewing Customers
3. Summarizing the Voice of the Customer (Zones 2 and 3)
4. Adding the Voice of the Expert (Zones 1 and 4)
5. Translating into Product or Service Requirements
6. Validating the Requirements
7. Translating into Product or Service Designs
8. Producing, Implementing and Evaluating the Product/Service
What to look for

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There was a time when there was a clear delineation between product based organizations
and service organizations. Manufacturing organizations know that they can gain an edge by
providing superior service, and service organizations know that their 'product' is a human
performance, and that they need to excel at it. Each knows that 'performance excellence' is
achieved by design and not by default.
In any attempt to design or redesign a product/service, in exploring each of the zones, it is

useful to have some framework, some standardized way to categorize performance
dimensions. The following dimensions have been adapted from the work of Parasuraman et
al, in their work on the Serv Qual model, conveniently remembered by the acronym
'RATER':
Reliability-
Keeping your promise, doing what you said you will do. Doing things right the first time.
Assurance-
Making the customer feel safe in their dealings with you, being thoroughly professional and
ethical.
Tangibles-
How the product/service looks to the client, the appearance of personnel and equipment, etc.
Empathy-
The degree to which the organization and service personnel understand the individual client
and their needs, the ability to adapt the service to each client, the willingness to 'go the extra'
for the client.
Responsiveness-
The availability, accessibility and timeliness of the service. The ability to respond to
enquiries and complaints in a timely fashion.
All parts of your organization are involved in creating loyal customers...those who produce
and deliver your products or services, reliably day in and day out, as well as those who create
and bring to market new offerings that delight the customer. Treat them all as members of the
same team...the Customer Loyalty Team...and you will reap the benefits well into the future.
Product management
Product management is an organizational lifecycle function within a company dealing with

the planning or forecasting or marketing of a product or products at all stages of the product
lifecycle. Depending on the company size and history, product management has a variety of
functions and roles. Sometimes there is a product manager, and sometimes the role of product
manager is held by others. Frequently there is Profit and Loss (P&L) responsibility as a key
metric for evaluating product manager performance. In some companies, the product
management function is the hub of many other activities around the product. In others, it is
one of many things that need to happen to bring a product to market.

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Product (business)
In marketing, a product is anything that can be offered to a market that might satisfy a want
or need. In retailing, products are called merchandise. In manufacturing, products are
purchased as raw materials and sold as finished goods. Commodities are usually raw
materials such as metals and agricultural products, but a commodity can also be anything
widely available in the open market. In project management, products are the formal
definition of the project deliverables that make up or contribute to delivering the objectives of
the project.
In general usage, product may refer to a single item or unit, a group of equivalent products, a
grouping of goods or services, or an industrial classification for the goods or services.
Consumer Products
Consumer good can be classified on the basis of their shopping habbits.They are grouped as
convenience goods, shopping goods, specialty goods and unsought goods. Consumer goods
are targeted for consumption of either individuals or family member.
Convenience Goods : These are goods frequently purchased by consumers. They often buy
them in frequent consumption situations and they are purchased immeadetly and with
minimum efforts. Examples include toiletries, soaps, cigarettes and news papers. These
goods can be further classified as:
Staple Goods: Consumer purchases on regular basis. There is a high level of

routinized.Response behavior for this kind of products. Toothpastes and soaps fall under this
category.
Impulse Goods: Consumer purchases without any planning or search effort. Purchase of a
magazine or a chocolate candy is examples of situations in which consumers buy on impulse
Emergence Goods: Consumer purchases on urgent need. There is no previous decision to buy
them but consumer is forced to buy due to the emerging situation. These included purchase of
umbrella, antiseptic creams like Burnol or knife to cut down trees during the rainy season.
Shopping Goods : These are goods that the customer purchase by undergoing a comparative
process of selection and purchase on such base as price, psychological fitment, suitability,
style and quality. Examples include furniture, electrical appliances, home furnishings and
clothing. Shopping goods can be classified as:
Homogeneous shopping Goods which are the goods that are similar in quantity but differ in
price levels, justifying a pricing comparison by the buyer.
Heterogeneous Shopping Goods which are the goods, which differ in product features, and
services and these differences, are more important than price for a decision.

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Specialty Goods: These are goods with unique characteristics or brand identification for
which the buyers need to make a special purchasing effort. Examples include music systems,
televisions, cars and men’s clothing. There is hardly any comparison in specialty gods as each
brand is unique and different than others. The buyers is ready to spend more time and effort
while making a purchase decision for this kind of goods.
Unsought Goods: These are goods the consumer does not know about or does not normally
think of buying. These goods need advertising and more of personal selling efforts for
making a sale. These include life insurance products, coffins and fire alarms.
Commodity product
A commodity is some good for which there is demand, but which is supplied
without qualitative differentiation across a market. It is fungible, i.e. the same no matter who
produces it. Examples are petroleum, notebook paper, milk or copper. The price of copper is
universal, and fluctuates daily based on global supply and demand. Stereo systems, on the
other hand, have many aspects of product differentiation, such as the brand, the user
interface, the perceived quality etc. And, the more valuable a stereo is perceived to be, the
more it will cost.
In contrast, one of the characteristics of a commodity good is that its price is determined as a
function of its market as a whole. Well-established physical commodities have actively
traded spot and derivative markets. Generally, these are basic resources and agricultural
products
suchas ironore, crudeoil, coal, ethanol, salt, sugar, coffeebeans, soybeans, aluminum, copper,
rice, wheat, gold, silver, palladium, and platinum. Soft commodities are goods that are grown,
while hard commodities are the ones that are extracted through mining.
There is another important class of energy commodities which includes electricity, gas, coal
and oil. Electricity has the particular characteristic that it is either impossible or
uneconomical to store; hence, electricity must be consumed as soon as it is produced.
Technology Products
Technology products includes all your laptops, personal computers, modems,

computer parts, printers, mobile phones, I-pads etc. They are the products that are technology
based and they change as and when any new technology arrives.
Customized Products :
Customers with heterogeneous needs are given the opportunity to get exactly what
they want,. Recent empirical work in the field of mass customization has revealed that

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customers designing their own products with design toolkits might be willing to pay premium
prices there is increased emphasis on mass customization of products because of the different
needs of the customers. This has been relevant in the automobile sector. Companies like
BMW offer customized products to the customers at an extra price. In India, Maruthi also
started the same. Customization is not a choice but a integral part of services. Since, some
services by default. But that doesn’t mean that it always satisfies the consumer. A customized
product is a choice of the consumer but in services it can be choice or just by default Products
that are increasingly getting customized are computers, electronics, and automobiles apparels.
PRODUCT MIX ,PRODUCT LINE AND BRANDS
A product is anything that can be offered to a market to satisfy a want or need.
Products include physical goods, services, experiences, events, persons, places, properties,
organizations, information, and ideas. The customer will judge the offering by three basic
elements: product features and quality, services mix and quality, and price appropriateness
(Figure 10.1). As a result, marketers must carefully think through the level at which they set
each product’s features, benefits, and quality.
PRODUCT LEVELS
Marketers plan their market offering at five levels, as shown in Figure 10.2.1 each level adds
more customer value, and together the five levels constitute a customer value hierarchy. The
most fundamental level is the core benefit: the fundamental service or benefit that the
customer is really buying. A hotel guest is buying “rest and sleep”; the purchaser of a drill is
buying “holes.” Effective marketers therefore see themselves as Providers of product
benefits, not merely product features.
At the second level, the marketer has to turn the core benefit into a basic product. Thus, a
hotel room includes a bed, bathroom, towels, and closet.
At the third level, the marketer prepares an expected product, a set of attributes and
conditions that buyers normally expect when they buy the product. Hotel guests expect a
clean bed, fresh towels, and so on. Because most hotels can meet this minimum expectation,
the traveler normally will settle for whichever hotel is most convenient or least expensive.

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At the fourth level, the marketer prepares an augmented product that exceeds customer
expectations. A hotel might include a remote-control television set, fresh flowers, and express
check-in and checkout. Today’s competition essentially takes place at the product-
augmentation level. Product augmentation leads the marketer to look at the user’s total
consumption system: the way the user performs the tasks of getting, using, fixing, and
disposing of the product.
Product augmentation adds cost, so the marketer must determine whether customers will pay
enough to cover the extra cost (of remote-control television in a hotel room, for example).
Thus, the hotel industry has seen the growth of fine hotels offering augmented products (Four
Seasons, Ritz Carlton) as well as lower-cost lodgings offering basic products (Motel Six,
Comfort Inn).
At the fifth level stands the potential product, which encompasses all of the possible
augmentations and transformations the product might undergo in the future. Here, a company
searches for entirely new ways to satisfy its customers and distinguish its offer. As one
example, Marriott’s Town Place Suites all-suite hotels represent an innovative transformation
of the traditional hotel product.
PRODUCT CLASSIFICATIONS
In addition to understanding a product the marketer also must understand to classify the
product on the basis of three characteristics: durability, tangibility, and consumer or industrial
use. Each product classification is associated with a different marketing-mix strategy.
➤Durability and Tangibility.-Products can b classified into three groups, accoding to

durability and tangibility.

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Nondurable goods are tangible goods that are normally consumed in one or a few uses (such
as beer and soap). Because these goods are consumed quickly and purchased frequently, the
appropriate strategy is to make them available in many locations, charge only a small
markup, and advertise heavily to induce trial and build preference.
Durable goods are tangible goods that normally survive many uses (such as refrigerators).
These products normally require more personal selling and service, and require more seller
guarantees.
➤ Consumer goods classification-. Classified according to consumer shopping habits, these

products include:
Convenience goods that are usually purchased frequently, immediately, and with a minimum
of effort, such as newspapers;
Shopping goods that the customer, in the process of selection and purchase, characteristically
compares on the basis of suitability, quality, price, and style, such as furniture;
Specialty goods with unique characteristics or brand identification, such as cars, for
which a sufficient number of buyers are willing to make a special purchasing effort;
Unsought goods that consumers do not know about or do not normally think of
buying, such as smoke detectors.
➤ Industrial-goods classification. Materials and parts are goods that enter the
manufacturer’s product completely.
Raw materials can be either farm products (e.g., wheat) or natural products (e.g., lumber).
Farm products are sold through intermediaries; natural products are generally sold through
long-term supply contracts, for which price and delivery reliability are key purchase factors.
Manufactured materials and parts fall into two categories: component materials (iron) and
component parts (small motors); again, price and supplier reliability are important
considerations.
Capital items are long-lasting goods that facilitate developing or managing the finished
product. They include two groups: (such as factories) and equipment (such as trucks and
computers), both sold through personal selling.
Supplies and business services are short-lasting goods and services that facilitate developing
or managing the finished product.
Product Differentiation
FORM Many products can be differentiated in form—the size, shape, or physical structure of
a product

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FEATURES Most products can be offered with varying features that supplement its basic
function. A company can identify and select appropriate new features by surveying recent
buyers and then calculating customer value versus company cost for each potential feature
PERFORMANCE QUALITY Most products are established at one of four performance

levels: low, average, high, or superior. Performance quality is the level at which the product's
primary characteristics operate.
CONFORMANCI QUALITY Buyers expect products to have a high conformance quality,

which is the degree to which all the produced units are identical and meet the promised
specifications.
DURABILITY, a measure of the product's expected operating life under natural or stressful
conditions, is a valued attribute for certain products.
RELIABILITY Buyers normally will pay a premium for more reliable products. Reliability
is a measure of the probability that a product will not malfunction or fail within a specified
time period.
REPAIRABILITY Repair ability is a measure of the ease of fixing a product when it

malfunctions or fails. Ideal repairability would exist if users could fix the product themselves
with little cost in money or time.
STYLE describes the product's look and feel to the buyer. Car buyers pay a premium for
Jaguars because of their extraordinary look.
Product Mix
A product mix (also called product assortment) is the set of all products and items that a
particular marketer offers for sale. At Kodak, the product mix consists of two strong product
lines: information products and image products. The product mix of an individual company
can be described in terms of width, length, depth, and consistency. The width refers to how
many different product lines the company carries. The length refers to the total number of
items in the mix. The depth of a product mix refers to how many variants of each product are
offered. 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 permit the company to expand its business by
(1) adding new product lines, thus widening its product mix;
(2) lengthening each product line;
(3) deepening the product mix by adding more variants; and
(4) pursuing more product-line consistency.

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PRODUCT LINE LENGTH
PRODUCT – MIX WIDTH
Personal Laundry Skin Hair Oral care Deodorants Colour

wash care care cosmetic
Lux Surf Exel Fair & Sunsilk President Axe Lakme

Lovely Natural
Lifebuoy Rin Ponds Clinic Close up Rexona
Plus
Rexona
Hamam
Breeze
Dove
PRODUCT-LINE DECISIONS
Especially in large companies the product mix consists of a variety of product lines. In
offering a product line, the company normally develops a basic platform and modules that
can then be expanded to meet different customer requirements. As one example, many home
builders show a model home to which additional features can be added, enabling the builders
to offer variety while lowering their production costs. Regardless of the type of products
being offered, successful marketers do not make product-line decisions without rigorous
analysis.
Product-Line Analysis
To support decisions about which items to build, maintain, harvest, or divest, product line
managers need to analyze the sales and profits as well as the market profile of
each item:
➤ Sales and profits. The manager must calculate the percentage contribution of each item to
total sales and profits. A high concentration of sales in a few items means line vulnerability.

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On the other hand, the firm may consider eliminating items that deliver a low percentage of
sales and profits—unless these exhibit strong growth potential.
➤ Market profile. The manager must review how the line is positioned against competitors’
lines. A useful tool here is a product map showing which competitive products compete
against the company’s products on specific features or benefits. This helps management
identify different market segments and determine how well the firm is positioned to serve the
needs of each. After performing these two analyses, the product-line manager is ready to
consider decisions on product-line length, line modernization, line featuring, and line
pruning.
Product-Line Length
Companies seeking high market share and market growth will carry longer lines; companies
emphasizing high profitability will carry shorter lines of carefully chosen items.
Line stretching occurs when a firm lengthens its product line.
With a down-market stretch, a firm introduces a lower price line. However, moving down-
market can be risky
With an up market stretch, a company enters the high end of the market for more growth,
higher margins, or to position itself as a full-line manufacturer. All of the leading Japanese
automakers have launched an upscale automobile: Toyota launched Lexus; Nissan launched
Infinity; and Honda launched Acura. (Note that these marketers invented entirely new names
rather than using their own names.) Companies that serve the middle market can stretch their
product lines in both
directions, as the Marriott Hotel group did. Alongside its medium-price hotels, it added the
Marriott Marquis to serve the upper end of the market, the Courtyard to serve a lower
segment, and Fairfield Inns to serve the low-to-moderate segment. The major risk of this two-
way stretch is that some travelers will trade down after finding the lower-price hotels have
most of what they want. But it is still better for Marriott to capture customers who move
downward than to lose them to competitors.
A product line can also be lengthened by adding more items within the present range. There
are several motives for line filling: reaching for incremental profits, trying 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.
Line Featuring and Line Pruning

The product-line manager typically selects one or a few items in the line to feature; this is a
way of attracting customers, lending prestige, or achieving other goals. If one end of its line
is selling well and the other end is selling poorly, the company may use featuring to boost
demand for the slower sellers, especially if those items are produced in a factory that is idled

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by lack of demand. In addition, managers must periodically review the entire product line for
pruning, identifying weak items through sales and cost analysis. They may also prune when
the company is short of production capacity or demand is slow.
PRODUCT LIFE CYCLE (PLC)

The product life cycle is an important concept in marketing that provides insights into a
product’s competitive dynamics. 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 to the
seller.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing, and purchasing and
personnel strategies in each stage of their life cycle.
The PLC is typically divided into four stages introduction growth maturity and decline
INTRODUCTION: 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.
GROWTH: A period of rapid market acceptance and substantial profit improvement.
MATURITY: A period of a slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits stabilize or decline because of increased
marketing outlays to defend the product against competition.
DECLINE: The period when sales show a downward drift and profits erode.

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The PLC concept can be used to analyze a product category (fabric washing product), a
product form (washing detergent), a product (liquid detergent), or a brand (godrej ezee).
Product Follow either the standard PLC or one of several variant shapes. Branded Products
can have a short or long PLC. Although many new brands die an early death some brand
names-such as Coca-Cola, Kao, and Yamaha-often have a very long PLC and are used to
name and launch new products. There are three special categories of product life cycles that
should be distinguished-those pertaining to styles, fashions, and fads.
Style is a basic and distinctive mode of expression appearing in a field of human endeavor.
For example styles appear in clothing (formal, casual, funky); and art (realistic, surrealistic,
abstract). Once a style is invented, it can last for generations, going in and out of vogue. A
style exhibits a cycle showing several periods of renewed interest.
Fashion is a currently accepted or popular style in a given field. For example, jeans are a
fashion in today’s popular music. Fashions tend to grow slowly, remain popular for a while,
and decline slowly. The length of a fashion cycle is hard to predict.
Fads are fashions that come quickly into the public eye, are adopted with great zeal, peak
early, and decline very fast. Their acceptance cycle is short, and they tend to attract only a
limited following.
INTRODUCTION STAGE-
Sales growth tends to be slow at this stage, Cost per customer is high, Negative profits,
Competitors are few, and the marketing objective is to create product awareness.
Profits are negative or low in the introduction stage. Promotional expenditures are at
their highest ratio to sales because of the need to (1) inform potential consumers, (2) induce
product trial, and (3) secure distribution in retail outlets.Firms focus on those buyers who are
the most ready to buy, usually higher-income groups. Prices tend to be high because costs are
high. Companies that plan to introduce a new product must decide when to enter the market.
To be first can be rewarding, but risky and expensive.
Marketing Strategies (Introduction Stage)

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Product - one or few products, relatively undifferentiated
Price – use cost plus basis to set a price
Distribution - Distribution is selective and scattered as the firm commences implementation

of the distribution plan.
Promotion - Promotion is aimed at building brand awareness. Samples or trial incentives may
be directed toward the customers. The introductory promotion also is intended to convince
potential resellers to carry the product.
Advertising –Advertising is aimed to be high to build product awareness
Example-Pepsi Tropicana, Clear Shampoo
GROWTH STAGE –
Rapidly rising sales, Unit manufacturing cost declines, rising profits, the marketing objective
is to maximize market share
The growth stage is marked by a rapid climb in sales. Early adopters like the product, and
additional consumers start buying it. New competitors enter, attracted by the opportunities.
They introduce new product features and expand distribution.
Prices remain where they are or fall slightly, depending on how fast demand increases.
Companies maintain their promotional expenditures at the same or at a slightly increased
level to meet competition and to continue to educate the market. Sales rise much faster than
promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits
increase during this stage as promotion costs are spread over a larger volume and unit
manufacturing costs fall faster than price declines owing to the producer learning effect.
Firms have to watch for a change from an accelerating to a decelerating rate of growth in
order to prepare new strategies.

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During this stage, the firm uses several strategies to sustain rapid market growth:
It improves product quality and adds new product features and improved styling.
It adds new models and flanker products (i.e., products of different sizes, flavors, and
so forth that protect the main product).
It enters new market segments.
It increases its distribution coverage and enters new distribution channels.
It shifts from product-awareness advertising to product-preference advertising.
It lowers prices to attract the next layer of price-sensitive buyers.
Marketing strategies (Growth stage)
Product - New product features and packaging options; improvement of product quality.
Price – Price to penetrate the market
Distribution - Distribution becomes more intensive.
Promotion- Reduce to take advantage of heavy consumer demand.
Advertising- Build brand awareness in the mass market

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Example -Mountain dew, Lays

MATURITY STAGE-
Sales are at peak, Cost per customer low, Profits are high; the marketing objective is to
maintain or extend the market share.
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 big
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: growth, stable, and decaying maturity. In
the first phase, the sales growth rate starts to decline. There are no new distribution channels
to fill. In the second phase, 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. In the third phase, decaying maturity, the absolute level of
sales starts to decline, and customers begin switching to other products. Bajaj scooter is an
example of managing a product and a brand in a mature market.
Market Modification-. The company might try to expand the market for its mature brand by
increasing the number of users and/or the usage rate.
-convert non-users
-enter new market segments
-win competitors’ customers
-more frequent use
-more usage per occasion
-new and more varied uses
Marketing-Mix Modification-
-prices
-distribution
-advertising
-sales promotion
-personal selling & services

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Product Modification-. Managers also try to stimulate sales by improving the product’s
quality, features, or style.
-quality improvement
-feature improvement
-style improvement.
Marketing strategies (maturity stage) :
Product –Either modifying the product or diversify the brand.
Price - Possible price reductions in response to competition while avoiding a price war.
Distribution –Build more intensive distribution.
Promotion - Incentives to get competitors' customers to switch.
Example-Head & shoulder, Lux, Pepsi
DECLINE STAGE-

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Sales started declining, Cost per customer still at low, Profits is at decline, and the marketing
objective is to reduce the expenditure.
Sales decline for a number of reasons, including technological advances, shifts in

consumer tastes, and increased domestic and foreign competition. All lead to overcapacity,
increased price-cutting, and profit erosion.
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 promotion budgets and reduce prices
further. Unfortunately, most companies have not developed a policy for handling aging
products.
Some firms abandon declining markets earlier than others. Much depends on the presence
and height of exit barriers in the industry. The lower the exit barriers, the easier it is for firms
to leave the industry, and the more tempting it is for the remaining firms to stay and attract
the withdrawing firms' customers. For example, Procter & Gamble stayed in the declining
liquid-soap business and improved its profits as others withdrew.
According to one study of company strategies in declining industries, five strategies are
available to the firm:
1. Increasing the firm's investment (to dominate the market or strengthen its competitive
position).
2. Maintaining the firm's investment level until the uncertainties about the industry are
resolved.
3. Decreasing the firm's investment level selectively, by dropping unprofitable customer

groups, while simultaneously strengthening the firm's investment in lucrative niches.
4. Harvesting ("milking") the firm's investment to recover cash quickly.
5. Divesting the business quickly by disposing of its assets as advantageously as possible
Marketing strategies (Decline stage)

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Product - The number of products in the product line may be reduced.
Price - Prices may be lowered to liquidate inventory of discontinued products.
Distribution - Distribution becomes more selective. Channels that no longer are profitable are
phased out.
Promotion - Expenditures are lower and aimed at reinforcing the brand image for continued
products.
Example-Pepsi Twist, Yummy Ice Cream

PRODUCT-MIX PRICING
Price-setting logic must be modified when the product is part of a product mix. In this case,
the firm searches for a set of prices that maximizes profits on the total mix. Pricing is difficult
because the various products have demand and cost interrelationships and are subject to
different degrees of competition. There six situations involving product-mix pricing:
product-line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-
product pricing, and product-bundling pricing.
PRODUCT-LINE PRICING Companies normally develop product lines rather than single
products and introduce price steps.
In many lines of trade, sellers use well-established price points for the products in
their line. A men's clothing store might carry men's suits at three price levels: $200, $400,
and $600. Customers will associate low-, average-, and high-quality suits with the three price
points. The seller's task is to establish perceived quality differences that justify the price
differences.
OPTIONAL-FEATURE PRICING Many companies offer optional products, features, and

services along with their main product. Pricing is a sticky problem, because companies must
decide which items to include in the standard price and which to offer as options.
Restaurants face a similar pricing problem. Customers can often order liquor in addition to
the meal. Many restaurants price their liquor high and their food low. The food revenue
covers costs, and the liquor produces the profit. This explains why servers often press hard to
get customers to order drinks. Other restaurants price their liquor low and food high to draw
in a drinking crowd.

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CAPTIVE-PRODUCT PRICING Some products require the use of ancillary, or captive,

products. Manufacturers of razors, digital phones, and cameras often price them low and set
high markups on razor blades and film, respectively.
TWO-PART PRICING Service firms often engage in two-part pricing, consisting of a fixed fee
plus a variable usage fee. Telephone users pay a minimum monthly fee plus charges for calls
beyond a certain area. Amusement parks charge an admission fee plus fees for rides over a
certain minimum. The service firm faces a problem similar to captive-product pricing—
namely, how much to charge for the basic service and how much for the variable usage. The
fixed fee should be low enough to induce purchase of the service; the profit can then be made
on the usage fees.
BY-PRODUCT PRICING The production of certain goods—meats, petroleum products,

and other chemicals—often results in by-products. If the by-products have value to a
customer group, they should be priced on their value. Any income earned on the by-products
will make it easier for the company to charge a lower price on its main product if competition
forces it to do so.
PRODUCT-BUNDLING PRICING Sellers often bundle products and features. Pure

bundling
occurs when a firm only offers its products as a bundle. Tour packages offered by many tour
operators in India charge prices that include travel costs, sight seeking costs, and stay and
food expenses for 7-ora14-days tour to “exotic” locations in foreign countries. This is form of
tied-in-sales. In mixed bundling, the seller offers goods both individually and in bundles.
When offering a mixed bundle, the seller normally charges less for the bundle than if the
items were purchased separately. An auto manufacturer might offer an option package at less
than the cost of buying all the options separately. A theater company will price a season
subscription at less than the cost of buying all the performances separately. Because
customers may not have planned to buy all the components, the savings on the price bundle
must be substantial enough to induce them to buy the bundle.
Perhaps the most distinctive skill of professional marketers is their ability to create, maintain, protect,
and enhance brands.
The American Marketing Association defines a brand as a name, term, sign, symbol, or design, or a
combination of these, intended to identify the goods or services of one seller or group of sellers and to
differentiate them from those of competitors.

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A brand identifies the seller or maker. Whether it is a name, trademark, logo, or another symbol, a
brand is essentially a seller’s promise to deliver a specific set of features, benefits, and services
consistently to the buyers. The best brands convey a warranty of quality.
Brand Equity
Brand equity is the added value endowed to products and services. This value may be reflected in how
consumers think, feel, and act with respect to the brand, as well as the prices, market share, and
profitability that the brand commands for the firm. Brand equity is an important intangible asset that
has psychological and financial value to the firm.
Brands vary in the amount of power and value they have in the marketplace. At one extreme are
brands that are not known by most buyers. Then there are brands for which buyers have a fairly high
degree of brand awareness. Beyond this are brands with a high degree of brand acceptability. Next
are brands that enjoy a high degree of brand preference. Finally there are brands that command a high
degree of brand loyalty. Aaker distinguished five levels of customer attitude toward a brand:
1. Customer will change brands, especially for price reasons. No brand loyalty.
2. Customer is satisfied. No reason to change the brand.
3. Customer is satisfied and would incur costs by changing brand.
4. Customer values the brand and sees it as a friend.
5. Customer is devoted to the brand.
To Brand or Not to Brand?

The first decision is whether the company should develop a brand name for its product.
Branding is such a strong force today that hardly anything goes unbranded, including salt, oranges,
nuts and bolts, and a growing number of fresh food products such as chicken and turkey.
In some cases, there has been a return to “no branding” of certain staple consumer goods and
pharmaceuticals. Generics are unbranded, plainly packaged, less expensive versions of common
products such as spaghetti or paper towels.
Sellers brand their products, despite the costs, because they gain a number of advantages: The brand
makes it easier for the seller to process orders; the seller’s brand name and trademark legally protect
unique product features; branding allows sellers to attract loyal, profitable customers and offers some
protection from competition; branding helps the seller segment markets by offering different brands
with different features for different benefit-seeking segments; and strong brands help build the
corporate image, easing the way for new brands and wider acceptance by distributors and customers.
Distributors and retailers want brands because they make the product easier to handle, indicate certain
quality standards, strengthen buyer preferences, and make it easier to identify suppliers. For their part,
customers find that brand names help them distinguish quality differences and shop more efficiently.
Co-Branding and Ingredient Branding

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CO-BRANDING Products are often combined with products from other companies in various ways. A
rising phenomenon is the emergence of co-branding—also called dual branding or brand bundling—
in which two or more well-known existing brands are combined into a joint product and/or marketed
together in some fashion.One form of co-branding is same-company co-branding, as when General
Mills advertises Trix and Yoplait yogurt. Still another form is joint-venture co-branding, as in the
case of General Electric and Hitachi light bulbs in Japan and the Citibank Advantage credit card.
There is multiple-sponsor co-branding, as in the case of Taligent, a technological alliance of Apple,
IBM, and Motorola.Finally, there is retail co-branding where two retail establishments, such as fast-
food restaurants, use the same location as a way to optimize both space and profits:
The potential disadvantages of co-branding are the risks and lack of control from becoming aligned
with another brand in the minds of consumers. Consumer expectations about the level of involvement
and commitment with co-brands are likely to be high, so unsatisfactory performance could have
negative repercussions for the brands involved.
PACKAGING, LABELING WARRANTIES AND GUARANTEES
Most physical products have to be packaged and labeled. Some packages—such as the Coke bottle—
are world famous. Many marketers have called packaging a fifth P, along with price, product, place,
and promotion; however, packaging and labeling are usually treated as an element of product strategy.
PACKAGING
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 material. Old Spice
aftershave lotion is in a bottle (primary package) that is in a cardboard box (secondary package) that
is in a corrugated box (shipping package) containing six dozen boxes of Old Spice. The following
factors have contributed to packaging’s growing use as a potent marketing tool:
➤ Self-service: The typical supermarket shopper passes by some 300 items per minute. Given that 53
percent of all purchases are made on impulse, an effective package attracts attention, describes
features, creates confidence, and makes a favorable impression.
➤ Consumer affluence: Rising consumer affluence means consumers are willing to pay a little more
for the convenience, appearance, dependability, and prestige of better packages.
➤ Company and brand image: Packages contribute to instant recognition of the company or brand.
Campbell Soup estimates that the average shopper sees its red and white can 76 times a year, the
equivalent of $26 million worth of advertising.
➤ Innovation opportunity: Innovative packaging can bring benefits to consumers and profits to
producers. Toothpaste pump dispensers, for example, have captured 12 percent of the toothpaste
market because they are more convenient and less messy.
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. Then decisions must be made on additional elements—size, shape, materials, color, text, and
brand mark, plus the use of any “tamperproof” devices. All packaging elements must be in harmony
and, in turn, must harmonize with the product’s pricing, advertising, and other marketing elements.

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LABELING
Every physical product must carry a label, which may be a simple tag attached to the product or an
elaborately designed graphic that is part of the package. Labels perform several functions. First, the
label identifies the product or brand—for instance, the name Sunkist stamped on oranges. The label
might also grade the product, the way canned peaches are grade labeled A, B, and C. The label might
describe the product: who made it, where it was made, when it was made, what it contains, how it is
to be used, and how to use it safely. Finally, the label might promote the product through attractive
graphics.
Labels eventually become outmoded and need freshening up. The label on Ivory soap has been redone
18 times since the 1890s, with gradual changes in the size and design of the letters. The label on
Orange Crush soft drink was substantially changed when competitors’ labels began to picture fresh
fruits, thereby pulling in more sales. In response, Orange Crush developed a label with new symbols
to suggest freshness and with much stronger and deeper colors.
Legal concerns about labels and packaging stretch back to the early 1900s and continue today. The
Food and Drug Administration (FDA) recently took action against the potentially misleading use of
such descriptions as “light,” “high fiber,” and “low fat.” Meanwhile, consumerists are lobbying for
additional labeling laws to require Open dating (to describe product freshness), unit pricing (to state
the product cost in standard measurement units), grade labeling (to rate the quality level), and
percentage labeling (to show the percentage of each important ingredient).
Some tangible products that incorporate packaging and labels also involve some service component,
such as delivery or installation. Therefore, marketers must be skillful not only in managing product
lines and brands, but also in designing and managing services—the subject of the next chapter.
WARRANTIES AND GUARANTEES

All sellers are legally responsible for fulfilling a buyer's normal or reasonable expectations.
Warranties are formal statements of expected product performance by the manufacturer. Products
under warranty can be returned to the manufacturer or designated repair center for repair,
replacement, or refund. Warranties, whether expressed or implied, are legally enforceable.
Many sellers offer either general guarantees or specific guarantees. A company such as Procter &
Gamble promises general or complete satisfaction without being more specific— "If you are not
satisfied for any reason, return for replacement, exchange, or refund."
PRICING STRATEGY
Price: It is the monetary value of a product.
Pricing: A strategically correct value attached to a product/service corresponding to what it delivers.
How Companies Price
Companies do their pricing in a variety of ways. In small companies, prices are often set by
the boss. In large companies, pricing is handled by division and product-line managers. In
industries where pricing is a key factor (aerospace, railroads, oil companies), companies will

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often establish a pricing department to set or assist others in determining appropriate prices.
This department reports to the marketing department, finance department, or top
management. Others who exert an influence on pricing include sales managers, production
managers, finance managers, and accountants.
Consumer Psychology and Pricing
Many economists assume that consumers are "price takers" and accept prices at "face value"
or as given. Purchase decisions are based on how consumers perceive prices and what they
consider to be the current actual price—not the marketer's stated price. They may have a
lower price threshold below which prices may signal inferior or unacceptable qualities, as
well as an upper price threshold above which prices are prohibitive and seen as not worth the
money.
Here consider the three types of pricing—reference prices, price-quality inferences, and price
cues.
Reference Prices- Prior research has shown that although consumers may have fairly good
knowledge of the range of prices involved, surprisingly few can recall specific prices of
products accurately. When examining products, however, consumers often employ reference
prices.
Sellers often attempt to manipulate reference prices. For example, a seller can situate its
product among expensive products to imply that it belongs in the same class. Department
stores will display women's apparel in separate departments differentiated by price; dresses
found in the more expensive department are assumed to be of better quality.
Reference-price thinking is also encouraged by stating a high manufacturer's suggested price,

or by indicating that the product was priced much higher originally, or by pointing to a
competitor's high price
Price-Quality Inferences -Many consumers use price as an indicator of quality. Image

pricing is especially effective with ego-sensitive products such as perfumes and expensive
cars. A 5000 bottle of perfume might contain 500 worth of scent, but gift givers pay 5000 to
communicate their high regard for the receiver.
Price and quality perceptions of cars interact. Higher-priced cars are perceived to possess high
quality. Higher-quality cars are likewise perceived to be higher priced than they actually are.
Price Cues -Consumer perceptions of prices are also affected by alternative pricing
strategies. Many sellers believe that prices should end in an odd number. Many customers see
a stereo amplifier priced at 2999 instead of 3000 as a price in the 2000 range rather than 3000
range. Research has shown that consumers tend to process prices in a "left-to-right" manner
rather than by rounding. Price encoding in this fashion is important if there is a mental price
break at the higher, rounded price. Another explanation for "9" endings is that they convey
the notion of a discount or bargain, suggesting that if a company wants a high-price image, it
should avoid the odd-ending tactic.
Prices that end with "0" and "5" are also common in the marketplace as they are thought to be
easier for consumers to process and retrieve from memory.

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SETTING THE PRICE

A firm must set a price for the first time when it develops a new product, when it introduces
its regular product into a new distribution channel or geographical area, and when it enters
bids on new contract work. The firm must decide where to position its product on quality and
price.
The firm has to consider many factors in setting its pricing policy.26 We will describe a six-
step procedure: (1) selecting the pricing objective; (2) determining demand; (3) estimating
costs; (4) analyzing competitors' costs, prices, and offers; (5) selecting a pricing method; and
(6) selecting the final price.
Step 1: Selecting the Pricing Objective

The company first decides where it wants to position its market offering. The clearer a firm's
objectives, the easier it is to set price. A company can pursue any of five major objectives through
pricing: survival, maximum current profit, maximum market share, maximum market skimming, or
product-quality leadership.
SURVIVAL- Companies pursue survival as their major objective if they are plagued with
overcapacity, intense competition, or changing consumer wants.
MAXIMUM CURRENT PROFIT- Many companies try to set a price that will maximize
current profits
MAXIMUM MARKET SHARE -Some companies want to maximize their market share.
They believe that a higher sales volume will lead to lower unit costs and higher long-run
profit.
MAXIMUM MARKET SKIMMING- Companies unveil a new technology favor setting high
prices to maximize market skimming. Sony is a frequent practitioner of market-skimming
pricing,
PODUCT-QUALITY LEADERSHIP -A company might aim to be the product-quality

leader in the market.

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Step 2: Determining Demand

Each price will lead to a different level of demand and therefore have a different impact on a
company's marketing objectives. The higher the price, the lower the demand. In the case of
prestige goods, the demand curve sometimes slopes upward. A perfume company raised its
price and sold more perfume rather than less! Some consumers take the higher price to
signify a better product. However, if the price is too high, the level of demand may fall.
PRICE SENSITIVITY -The first step in estimating demand is to understand what affects
price sensitivity. Generally speaking, customers are most price sensitive to products that cost
a lot or are bought frequently. They are less price sensitive to low-cost items or items they
buy infrequently. They are also less price sensitive when price is only a small part of the total
cost of obtaining, operating, and servicing the product over its lifetime. A seller can charge a
higher price than competitors and still get the business if the company can convince the
customer that it offers the lowest total cost of ownership (TCO).
ESTIMATING DEMAND CURVES- Most companies make some attempt to measure their
demand curves using several different methods.
Statistical analysis of past prices, quantities sold, and other factors can reveal their
relationships.
Price experiments can be conducted

Surveys can explore how many units consumers would buy at different proposed prices,
although there is always the chance that they might understate their purchase intentions at
higher prices to discourage the company from setting higher prices
PRICE ELASTICITY OF DEMAND -Marketers need to know how responsive, or elastic,

demand would be to a change in price. If demand hardly changes with a small change in
price, we say the demand is inelastic. If demand changes considerably, demand is elastic. The
higher the elasticity, the greater the volume growth resulting from a 1 percent price reduction.
Demand is likely to be less elastic under the following conditions: (1) There are few or no
substitutes or competitors; (2) buyers do not readily notice the higher price; (3) buyers are
slow to change their buying habits; (4) buyers think the higher prices are justified.
Step 3: Estimating Costs
The company wants to charge a price that covers its cost of producing, distributing, and
selling the product, including a fair return for its effort and risk. Yet, when companies price
products to cover full costs, the net result is not always profitability.
TYPES OF COSTS AND LEVELS OF PRODUCTION- A company's costs take two forms,
fixed and variable. Fixed costs (also known as overhead) are costs that do not vary with
production or sales revenue. A company must pay bills each month for rent, heat, interest,
salaries, and so on, regardless of output.
Variable costs vary directly with the level of production. For example, each hand calculator
produced by Texas Instruments involves the cost of plastic, microprocessor chips, packaging,

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and the like. These costs tend to be constant per unit produced. They are called variable
because their total varies with the number of units produced.
Total costs consist of the sum of the fixed and variable costs for any given level of
production. Average cost is the cost per unit at that level of production; it is equal to total
costs divided by production. Management wants to charge a price that will at least cover the
total production costs at a given level of production
ACTIVITY-BASED COST ACCOUNTING -Today's companies try lo adapt their offers and
terms to different buyers. A manufacturer, for example, will negotiate different terms with
different retail chains. One retailer may want daily delivery (to keep inventory lower) while
another may accept twice-a-week delivery in order to get a lower price.
The manufacturer's costs will differ with each chain, and so will its profits. To estimate the
real profitability of dealing with different retailers, the manufacturer needs to use activity-
based cost (ABC) accounting instead of standard cost accounting.
TARGET C OSTING- Costs change with production scale and experience. They can also
change as a result of a concentrated effort by designers, engineers, and purchasing agents to
reduce them through target costing.
Step 4: Analyzing Competitors' Costs, Prices, and Offers

Within the range of possible prices determined by market demand and company costs, the
firm must take competitors' costs, prices, and possible price reactions into account. The firm
should first consider the nearest competitor's price. If the firm's offer contains features not
offered by the nearest competitor, their worth to the customer should be evaluated and added
to the competitor's price. If the competitor's offer contains some features not offered by the
firm, their worth to the customer should be evaluated and subtracted from the firm's price.
Now the firm can decide whether it can charge more, the same, or less than the competitor.
But competitors can change their prices in reaction to the price set by the firm.
Step 5: Selecting a Pricing Method
Given the three Cs—the customers' demand schedule, the cost function, and competitors'
prices—the company is now ready to select a price. Costs set a floor to the price.
Competitors' prices and the price of substitutes provide an orienting point. There are
six price-setting methods: markup pricing, target-return pricing, perceived-value pricing,
value pricing, going-rate pricing, and auction-type pricing.
MARKUP PRICING- The most elementary pricing method is to add a standard markup to
the product's cost. Construction companies submit job bids by estimating the total project
cost and adding a standard markup for profit.
Markups are generally higher on seasonal items (to cover the risk of not selling), specialty
items, slower-moving items, items with high storage and handling costs, and demand-
inelastic items, such as prescription drugs.

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TARGET-RETURN PRICING -In target-return pricing, the firm determines the price that
would yield its target rate of return on investment (ROI). Target pricing is used by General
Motors, which prices its automobiles to achieve a 15 to 20 percent ROI. This method is also
used by public utilities, which need to make a fair return on investment.
PERCEIVED-VALUE PRICING -An increasing number of companies now base their price
on the customer's perceived value. They must deliver the value promised by their value
proposition, and the customer must perceive this value. They use the other marketing-mix
elements, such as advertising and sales force, to communicate and enhance perceived value in
buyers' minds.
VALUE PRICING -In recent years, several companies have adopted value pricing: They win
loyal customers by charging a fairly low price for a high-quality offering. Among the best
practitioners of value pricing globally are Wal-mart, IKES, and Southwest Airlines. In India
Big Bazaar, Bata and Peter England Etc.
Value pricing is not a matter of simply setting lower prices; it is a matter of reengineering the
company's operations to become a low-cost producer without sacrificing quality, and
lowering prices significantly to attract a large number of value-conscious customers.
GOING-RATE PRICING -In going-rate pricing, the firm bases its price largely on
competitors' prices. The firm might charge the same, more, or less than major competitor(s).
Going-rate pricing is quite popular. Where costs are difficult to measure or competitive
response is uncertain, firms feel that the going price is a good solution because it is thought to
reflect the industry's collective wisdom
AUCTION-TYPE PRICING -Auction-type pricing is growing more popular, especially with

the growth of the Internet. There are over 2,000 electronic marketplaces selling everything
from pigs to used vehicles to cargo to chemicals. One major purpose of auctions is to dispose
of excess inventories or used goods.
OTHER PRICING METHODS
SKIMMING PRICING-Selling a product at a high price, sacrificing high sales to gain a high
profit, therefore ‘skimming’ the market.
LIMIT PRICING-A limit price is the price set by a monopolist to discourage economic entry
into a market, and is illegal in many countries.
MARKET_ORIENTED PRICING- Setting a price based upon analysis and research

compiled from the targeted market. Also with the cost price.
PENTRATION PRICING-The price is deliberately set at low level to gain customer's interest
and establishing a foot-hold in the market.
PREMIUM PRICING-Premium pricing is the practice of keeping the price of a product or
service artificially high in order to encourage favorable perceptions among buyers, based
solely on the price.

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PRICE DISCRIMINATION-Setting a different price for the same product in different

segments to the market.
Step 6: Selecting the Final Price

In selecting the final price, the company must consider additional factors, including the
impact of other marketing activities, company pricing policies, gain-and-risk-sharing pricing,
and the impact of price on other parties.
IMPACT OF OTHER MARKETING ACTIVITIES -The final price must take into account
the brand's quality and advertising relative to the competition.
 Brands with average relative quality but high relative advertising budgets were able to
charge premium prices. Consumers apparently were willing to pay higher prices for known
products than for unknown products.
 Brands with high relative quality and high relative advertising obtained the highest
prices. Conversely, brands with low quality and low advertising charged the lowest
prices.
These findings suggest that price is not as important as quality and other benefits in the
market offering. Only 19 percent cared about price; far more cared about customer support
(65 percent), on-time delivery (58 percent), and product shipping and handling (49 percent).
COMPANY PRICING POLICIES The price must be consistent with company pricing
policies. At the same time, companies are not averse to establishing pricing penalties under
certain circumstances.
Airlines charge $150 to those who change their reservations on discount tickets. Banks
charge fees for too many withdrawals in a month or for early withdrawal of a certificate of
deposit. Car rental companies charge $50 to $100 penalties for no-shows for specialty
vehicles. Although these policies are often justifiable, they must be used judiciously so as not
to unnecessarily alienate customers.
Many companies set up a pricing department to develop policies and establish or approve
decisions. The aim is to ensure that salespeople quote prices that are reasonable to customers
and profitable to the company. Dell Computer has developed innovative pricing techniques.
GAIN-AND-RISK-SHARING PRICING- Buyers may resist accepting a seller's proposal

because of a high perceived level of risk. The seller has the option of offering to absorb part
or all of the risk if it does not deliver the full promised value.
IMPACT OF PRICE ON OTHER PARTIES -Management must also consider the reactions
of other parties to the contemplated price. How will distributors and dealers feel about it? If
they do not make enough profit, they may not choose to bring the product to market. Will the
sales force be willing to sell at that price? How will competitors react? Will suppliers raise
their prices when they see the company's price? Will the government intervene and prevent
this price from being charged?

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Marketers need to know the laws regulating pricing. Some industries such as petroleum still
have government control in fixing prices.Others, such as telecom and insurance, are guided
by their respective regulatory authorities. Deceptive pricing and price discrimination without
specific reason s illegal.
PRICE WAR
Price war is a term used in economic sector to indicate a state of intense competitive rivalry
accompanied by a multi-lateral series of price reduction. One competitor will lower its price,
then others will lower their prices to match. If one of them reduces their price again, a new
round of reductions starts. In the short-term, price wars are good for consumers, who can take
advantage of lower prices. Often they are not good for the companies involved. The lower
prices reduce profit margins and can threaten their survival.
The main reasons that price wars occur are:
• Product differentiation: Some products are, or at least are seen as, commodities.
Because there is little to choose between brands, price is the main competing factor.
• Penetration pricing: If a merchant is trying to enter an established market, it may offer
lower prices than existing brands.
• Oligopoly: If the industry structure is oligopolistic (that is, has few competitors), the
players will closely monitor each others' prices and be prepared to respond to any
price cuts.
• Process optimization: merchants may incline to lower prices rather than shut down or
reduce output if they wish to maintain the economy of scale. Similarly, new processes
may make it cheaper to make the same product.
• Bankruptcy: Companies near bankruptcy may be forced to reduce their prices to
increase sales volume and thereby provide enough liquidity to survive.
• Predatory pricing: A merchant with a healthy bank balance may deliberate price new
or existing products in an attempt to topple existing merchants in that market.
• Competitors: A competitor might target a product and attempt to gain market share by
selling its alternative at a lower price. Some argue that it is better to introduce a new
rival brand instead of trying to match the prices of those already in the market.
Product Recall
A product recall is a request to return to the maker a batch or an entire production run of a
product, usually due to the discovery of safety issues. The recall is an effort to limit liability
for corporate negligence (which can cause costly legal penalties) and to improve or avoid
damage to publicity. Recalls are costly to a company because they often entail replacing the
recalled product or paying for damage caused by use, although possibly less costly than the
consequential costs caused by damage to brand name and reduced trust in the manufacturer.
A country's consumer protection laws will have specific requirements in regard to product
recalls. Such regulations may include how much of the cost the maker will have to bear,
situations in which a recall is compulsory (usually because the risk is big enough), or
penalties for failure to recall. The firm may also initiate a recall voluntarily, perhaps subject
to the same regulations as if the recall were compulsory.
STEPS TO PRODUCT RECALL

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A product recall usually involves the following steps, which may differ according to local
laws:
Maker or dealer notifies the authorities responsible of their intention to recall a product.
Consumer hotlines or other communication channels are established. The scope of the
recall, that is, which serial numbers or batch numbers etc. are recalled, is often specified.
Product recall announcements are released on the respective government
agency's website (if applicable), as well as in paid notices in the metropolitan
daily newspapers. In some circumstances, heightened publicity will also result in news
television reports advising of the recall.
When a consumer group learns of a recall it will also notify the public by various means.
Typically, the consumer is advised to return the goods, regardless of condition, to the
seller for a full refund or modification.
Avenues for possible consumer compensation will vary depending on the specific laws
governing consumer trade protection and the cause of recall.
Factors Affecting Pricing Decision

The final price for a product may be influenced by many factors which can be categorized
into two main groups:
Internal Factors - When setting price, marketers must take into consideration several factors
which are the result of company decisions and actions. To a large extent these factors are
controllable by the company and, if necessary, can be altered. However, while the
organization may have control over these factors making a quick change is not always
realistic. For instance, product pricing may depend heavily on the productivity of a
manufacturing facility (e.g., how much can be produced within a certain period of time). The
marketer knows that increasing productivity can reduce the cost of producing each product
and thus allow the marketer to potentially lower the product’s price. But increasing
productivity may require major changes at the manufacturing facility that will take time (not
to mention be costly) and will not translate into lower price products for a considerable
period of time.
External Factors - There are a number of influencing factors which are not controlled by the
company but will impact pricing decisions. Understanding these factors requires the marketer
conduct research to monitor what is happening in each market the company serves since the
effect of these factors can vary by market.
Price Sensitivity and Consumption

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Tendency of the demand for a product or service to vary according to variations in price.
Some goods are more price sensitive than others, depending upon other factors that impact
demand, such as need for the products (medicine vs. Cosmetics), the availability of
substitutes (salt vs. Bread), and the relative size of the variation in price. Marketers of price-
sensitive goods should test new prices before implementing them, to evaluate the impact on
demand.
With on improvement in incomes, the average consumer becomes quality –conscious. An
improvement may, therefore, lead to an increase in demand. If this is so, a time may come
when a rise in price results in an increase in demand. This extreme situation may arise if price
in increasingly affluent societies comes to serve merely as on indicator of quality.
Consumers may be persuaded to pay more for heavily advertised goods consumers perceive a
firm’s size, financial power and age as measures of quality. Well-known firm’s very often
assert that by virtue of their reputation they are able to charge 5 to 10 percent higher than
other firm’s.
Whether the price considered bargain or not would depend up on the average market price of
the item, the gender of the potential consumer, and the value of the item to the purchaser.
Price reduction tend to be perceived absolutely rather than relatively.
In a comprehensive survey of consumer consciousness, it was revealed that the basic

postulate of the demand theory. Initiating and Responding to Price Changes
Companies often face situations where they may need to cut or raise prices.
Initiating Price Cuts
Several circumstances might lead a firm to cut prices. Companies sometimes initiate price
cuts in a drive to dominate the market through lower costs. Either the company starts with
lower costs than its competitors or it initiates price cuts in the hope of gaining market share
and lower costs. A price-cutting strategy involves possible traps:
Low-quality trap. Consumers will assume that the quality is low.
Fragile-market-share trap. A low price buys market share but not market loyalty. The same
customers will shift to any lower-priced firm that comes along.
Shallow-pockets trap. The higher-priced competitors may cut their prices and may have
longer staying power because of deeper cash reserves.
Initiating Price Increases

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A successful price increase can raise profits considerably. For example, if the company's
profit margin is 3 percent of sales, a 1 percent price increase will increase profits by 33
percent if sales volume is unaffected.
Companies often raise their prices by more than the cost increase, in anticipation of further
inflation or government price controls, in a practice called anticipatory pricing
Another factor leading to price increases is over demand. When a company cannot supply all
of its customers, it can raise its prices, ration supplies to customers, or both. The price can be
increased in the following ways. Each has a different impact on buyers.
Delayed quotation pricing. The company does not set a final price until the product is
finished or delivered. This pricing is prevalent in industries with long production lead times,
such as industrial construction and heavy equipment.
Escalator clauses. The company requires the customer to pay today's price and all or part of
any inflation increase that takes place before delivery. An escalator clause bases price
increases on some specified price index. Escalator clauses are found in contracts for major
industrial projects, like aircraft construction and bridge building.
Unbundling. The company maintains its price but removes or prices separately one or more
elements that were part of the former offer, such as free delivery or installation. Car
companies sometimes add antilock brakes and passenger-side airbags as supplementary
extras to their vehicles.
Reduction of discounts. The company instructs its sales force not to offer its normal cash
and quantity discounts.
A company needs to decide whether to raise its price sharply on a one-time basis or to raise it
by small amounts several times. Generally, consumers prefer small price increases on a
regular basis to sudden, sharp increases.
REACTIONS TO PRICE CHANGES

Any price change can provoke a response from customers, competitors, distributors,
suppliers, and even government.
Customer Reactions. A price cut can be interpreted in different ways: The item is about to be
replaced by a new model; the item is faulty and is not selling well; the firm is in financial
trouble; the price will come down even further; the quality has been reduced.
Competitor Reactions. Competitors are most likely to react when the number of firms are
few, the product is homogeneous, and buyers are highly informed. Competitor reactions can
be a special problem when they have a strong value proposition.
Responding to Competitors' Price Changes

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In markets characterized by high product homogeneity, the firm should search for ways to
enhance its augmented product. If it cannot find any, it will have to meet the price reduction.
If the competitor raises its price in a homogeneous product market, other firms might not
match it unless the increase will benefit the industry as a whole.

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UNIT- IV
DESINGING AND MANGEING SRVICES

93-123

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DESINGING AND MANGEING SRVICES

The service sector account for more than 50% of Indian GDP. It is growing at a much faster
rate than the other two sectors, namely, manufacturing and agriculture. It is highly
competitive, rapidly globalizing environment, the designing and managing of services is
going to be challenging task. Companies seek to develop a reputation for superior
performance in delivery, a better and faster response to queries and a quicker resolution of
complaints.
SERVICE INDUSTRIES ARE EVERYWHERE
The government sector, with its courts, employment services, hospitals, loan agencies,
military services, police and fire departments, postal service, regulatory agencies, and
schools, is in the service business. The private nonprofit sector, with its museums, charities,
churches, colleges, foundations, and hospitals, is in the service business. A good part of the
business sector, with its airlines, banks, hotels, insurance companies, law firms, management
consulting firms, medical practices, motion picture companies, plumbing repair companies,
and real estate firms, is in the service business. Many workers in the manufacturing sector,
such as computer operators, accountants, and legal staff, are really service providers. In fact,
they make up a "service factory" providing services to the "goods factory." And those in the
retail sector, such as cashiers, clerks, salespeople, and customer service representatives, are
also providing a service.
A service is any act or performance that one party can offer to another that is essentially
intangible and does not result in the ownership of anything. Its production may or may not be
tied to a physical product.
Manufacturers, distributors, and retailers can provide value-added services or simply
excellent customer service to differentiate themselves.

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SERVICE MIX
A company's offerings often include some services. A company's offerings often include
some services. The service component can be a minor or a major part of the total offering.
Five categories of offerings can be distinguished:
1. Pure tangible good -The offering consists primarily of a tangible good such as soap,
toothpaste, or salt. No services accompany the product.
2. Tangible good with accompanying services - The offering consists of a tangible good
accompanied by one or more services. Levitt observes that "the more technologically
sophisticated the generic product (e.g., cars and computers), the more dependent are its
sales on the quality and availability of its accompanying customer services (e.g., display
rooms, delivery, repairs and maintenance, application aids, operator training, installation
advice, warranty fulfillment).
3. Hybrid -The offering consists of equal parts of goods and services. For example,
people patronize restaurants for both food and service.
4. Major Service with accompanying minor goods and services - The offering consists of a
major service along with additional services or supporting goods. For example, airline
passengers buy transportation.
5. Pure service -The offering consists primarily of a service. Examples include baby-
sitting, psychotherapy, and massage.
Because of this varying goods-to-service mix, it is difficult to generalize about services

without further distinctions. Here are some additional distinctions that can be helpful:
Services vary as to whether they are equipment-based (automated car washes,

vending machines) or people-based (window washing, accounting services). People-based
services vary by whether they are provided by unskilled, skilled, or professional workers.
Service companies can choose among different processes to deliver their service.
Restaurants have developed such different formats as cafeteria-style, fast-food, buffet, and
candlelight service.
Some services require the client's presence and some do not. Brain surgery involves
the client's presence, a car repair does not. If the client must be present, the service provider
has to be considerate of his or her needs.
Services differ as to whether they meet a personal need (personal services) or a

business need (business services). Service providers typically develop different marketing
programs for personal and business markets.

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CHARACTERISTICS OF SERVICES-
Services have four distinctive characteristics that greatly affect the design of marketing
programs: intangibility, inseparability, variability, and perishability
INTANGIBILITY Unlike physical products, services cannot be seen, tasted, felt, heard, or
smelled before they are bought. The person getting a face-lift cannot see the results before
the purchase,
To reduce uncertainty, buyers will look for evidence of quality. They will draw inferences
about quality from the place, people, equipment, communication material, symbols, and price
that they see. Therefore, the service provider's task is to "manage the evidence," to
"tangibilize the intangible."11 Whereas product marketers are challenged to add abstract ideas,
service marketers are challenged to add physical evidence and imagery to abstract offers.
Service companies can try to demonstrate their service quality through physical evidence and
presentation. A hotel will develop a look and a style of dealing with customers that realizes
its intended customer value proposition, whether it is cleanliness, speed, or some other
benefit.
INSEPARABILITY Services are typically produced and consumed simultaneously. This is

not true of physical goods, which are manufactured, put into inventory, distributed through
multiple resellers, and consumed later. If a person renders the service, then the provider is
part of the service. In the case of entertainment and professional services, buyers are very
interested in the specific provider.
VARIABILITY because services depend on who provides them and when and where they are
provided, they are highly variable. Some doctor’s surgeons are very successful in performing
a certain operation; others are not. Service buyers are aware of this variability and often talk
to others before selecting a service provider. Here are three steps service firms can take to
increase quality control.
1. Invest in good hiring and training procedures employees should exhibit competence, a
caring attitude, responsiveness, initiative, problem-solving ability, and goodwill.
2. Standardize the service-performance process throughout the organization. This is done by

preparing a service blueprint that depicts events and processes in a flowchart, with the
objective of recognizing potential fail points.
3. Monitor customer satisfaction. Employ suggestion and complaint systems, customer

surveys, and comparison shopping. Firms can also develop customer information databases
and systems to permit more personalized, customized service.
PERISHABILITY Services cannot be stored. Perishability is not a problem when demand is
steady. When demand fluctuates, service firms have problems. For example, public
transportation companies have to own much more equipment because of rush-hour demand
than if demand were even throughout the day.
Several strategies can produce a better match between demand and supply in a service
business. On the demand side:

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Differential pricing will shift some demand from peak to off-peak periods. Examples
include low early evening movie prices and weekend discount prices for car rentals.
Nonpeak demand can be cultivated. McDonald's pushes breakfast service, and hotels
promote mini-vacation weekends.
Complementary services can be developed to provide alternatives to waiting customers, such

as cocktail lounges in restaurants and automatic teller machines in banks.
Reservation systems are a way to manage the demand level. Airlines, hotels, and physicians
employ them extensively.
On the supply side:

Part-time employees can be hired to serve peak demand. Colleges add part-time teachers
when enrollment goes up, and restaurants call in part-time servers when needed.
Peak-time efficiency routines can be introduced. Employees perform only essential tasks
during peak periods. Paramedics assist physicians during busy periods.
Increased consumer participation can be encouraged. Consumers fill out their own medical
records or bag their own groceries.
Shared services can be developed. Several hospitals can share medical-equipment purchases.
Facilities for future expansion can be developed. An amusement park buys surrounding land
for later development.
MARKETING STRATEGIES FOR SERVICE FIRMS

A shopper uses the automatic express checkout to pay for and bag purchases herself. These
computerized checkout systems allow the shopper to pay with a credit card, a debit card, or
cash.
At one time, service firms lagged behind manufacturing firms in their use of marketing
because they were small, or they were professional businesses that did not use marketing, or
they faced large demand or little competition.
Customer Relationship
Not all companies, however, have invested in providing superior service, at least not to all
customers.
Companies that provide differentiated levels of service, however, must be careful about
claiming superior service—the customers who receive poor treatment will bad-mouth the
company and injure its reputation. Delivering services that maximize both customer
satisfaction and company profitability can be challenging. Example: kingfisher airlines.

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There are also shifts that favor the customer in the client relationship. Customers are
becoming more sophisticated about buying product support services and are pressing for
"services unbundling." They want separate prices for each service element and the right to
select the elements they want. Customers also increasingly dislike having to deal with a
multitude of service providers handling different types of equipment. Some third-party
service organizations now service a greater range of equipment.
MARKETING CHANNELS AND VALUE NETWORKS
Most producers do not sell their goods directly to the final users; between them stands a set of
intermediaries performing a variety of functions. These intermediaries constitute a marketing
channel (also called a trade channel or distribution channel). Formally, marketing channels
are sets of interdependent organizations involved in the process of making a product or
service available for use or consumption.
Some intermediaries—such as wholesalers and retailers—buy, take title to, and resell the
merchandise; they are called merchants. Others—brokers, manufacturers' representatives,
sales agents—search for customers and may negotiate on the producer's behalf but do not
take title to the goods; they are called agents. Still others—transportation companies,
independent warehouses, banks, advertising agencies—assist in the distribution process but
neither take title to goods nor negotiate purchases or sales; they are called facilitators.
The Importance of Channels

A marketing channel system is the particular set of marketing channels employed by a
firm. One of the chief roles of marketing channels is to convert potential buyers into
profitable orders. Marketing channels must not just serve markets, they must also make
markets.The firm's sales force and advertising decisions depend on how much training and
motivation dealers need.

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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
persuade consumers to ask intermediaries for the product, thus inducing the intermediaries to
order it. 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. Top marketing companies such as Nike, Intel, and Coca-
Cola skillfully employ both push and pull strategies.
Channel Development
Deciding on the best channels might not be a problem; the problem might be to convince the
available intermediaries to handle the firm's line.
If the firm is successful, it might branch into new markets and use different channels in
different markets. In smaller markets, the firm might sell directly to retailers; in larger
markets, it might sell through distributors. In rural areas, it might work with general-goods
merchants; in urban areas, with limited-line merchants. In one part of the country, it might
grant exclusive franchises; in another, it might sell through all outlets willing to handle the
merchandise. In one country it might use international sales agents; in another, it might
partner with a local firm.6 In short, the channel system evolves in response to local
opportunities and conditions.
Value Networks
A value network—a system of partnerships and alliances that a firm creates to source,
augment, and deliver its offerings. A value network includes a firm's suppliers and its
suppliers' suppliers, and its immediate customers and their end customers. The value network
includes valued relations with others such as university researchers and government approval
agencies.
Managing the value network require companies to make increasing investments in

information technology (IT) and software. They have invited such software firms as SAP and
Oracle to design comprehensive enterprise resource planning (ERP) systems to manage cash
flow, manufacturing, human resources, purchasing, and other major functions within a
unified framework.
THE ROLE OF MARKETING CHANNELS
Why a producer delegate some of the selling job to intermediaries?. Producers do gain
several advantages by using intermediaries:
Intermediaries normally achieve superior efficiency in making goods widely available and
accessible to target markets. Through their contacts, experience, specialization, and scale of
operation, intermediaries usually offer the firm more than it can achieve on its own.

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Channel Functions and Flows

A marketing channel performs the work of moving goods from producers to consumers. It
overcomes the time, place, and possession gaps that separate goods and services from those
who need or want them.
Some functions (physical, title, promotion) constitute a forward flow of activity from the
company to the customer; other functions (ordering and payment) constitute a backward flow
from customers to the company. Still others (information, negotiation, finance, and risk
taking) occur in both directions. A manufacturer selling a physical product and services
might require three channels: a sales channel, a delivery channel, and a service channel.
The question is not whether various channel functions need to be performed—they must be—
but rather, who is to perform them.
Channel Levels
The producer and the final customer are part of every channel. There are the numbers of
intermediary levels to designate the length of a channel.
A zero-level channel (also called a direct-marketing channel) consists of a manufacturer

selling directly to the final customer. The major examples are door-to-door sales, home
parties, mail order, telemarketing, TV selling, Internet selling, and manufacturer-owned
stores. Avon sales representatives sell cosmetics door-to-door; Tupperware representatives
sell kitchen goods through home parties; Franklin Mint sells collectibles through mail order;
AT&T uses the telephone to prospect for new customers or to sell enhanced services to
existing customers; Time-Life sells music and video collections through TV commercials or
longer "infomercials"; Red Envelope sells gifts online; and Gateway sells computers and
other consumer electronics through its own stores.
A one-level channel contains one selling intermediary, such as a retailer. A two-level

channel contains two intermediaries. In consumer markets, these are typically a wholesaler
and a retailer. A three-level channel contains three intermediaries. In the meatpacking
industry, wholesalers sell to jobbers, who sell to small retailers. In Japan, food distribution
may involve as many as six levels. From the producer's point of view, obtaining information
about end users and exercising control becomes more difficult as the number of channel
levels increases.
Channels normally describe a forward movement of products from source to user. One can
also talk about reverse-flow channels. They are important in the following cases: (1) to reuse
products or containers (such as refillable chemical-carrying drums); (2) to refurbish products
(such as circuit boards or computers) for resale; (3) to recycle products (such as paper); and
(4) to dispose of products and packaging (waste products). Several intermediaries play a role
in reverse-flow channels, including manufacturers' redemption centers, community groups,

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traditional intermediaries such as soft-drink intermediaries, trash-collection specialists,

recycling centers, trash-recycling brokers, and central-processing warehousing.
Service Sector Channels
Marketing channels are not limited to the distribution of physical goods. Producers of
services and ideas also face the problem of making their output available and accessible to
target populations. Schools develop "educational-dissemination systems" and hospitals
develop "health-delivery systems."
CHANNEL-DESIGN DECISIONS
Designing a marketing channel system involves analyzing customer needs, establishing
channel objectives, identifying major channel alternatives, and evaluating major channel
alternatives.
Analyzing Customers' Desired Service Output Levels
Channels produce five service outputs:
Lot size- The number of units the channel permits a typical customer to purchase on one
occasion.

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Wailing and delivery time - The average time customers of that channel wait for receipt of
the goods. Customers increasingly prefer faster and faster delivery channels.
Spatial convenience -The degree to which the marketing channel makes it easy for customers
to purchase the product.
Product variety -The assortment breadth provided by the marketing channel. Normally,
customers prefer a greater assortment because more choices increase the chance of finding
what
they need.
Service backup -The add-on services (credit, delivery, installation, repairs) provided by the
channel. The greater the service backup, the greater the work provided by the channel.
The success of discount stores indicates that many consumers are willing to accept
smaller service outputs if they can save money.
Establishing Objectives and Constraints
Channel objectives should be stated in terms of targeted service output levels. Under
competitive conditions, channel institutions should arrange their functional tasks to minimize
total channel costs and still provide desired levels of service outputs.
Channel objectives vary with product characteristics. Perishable products require more direct
marketing. Bulky products, such as building materials, require channels that minimize the
shipping distance and the amount of handling. Nonstandard products, such as custom-built
machinery and specialized business forms, are sold directly by company sales
representatives. Products requiring installation or maintenance services, such as heating and
cooling systems, are usually sold and maintained by the company or by franchised dealers.
Iligh-unit-value products such as generators and turbines are often sold through a company
sales force rather than intermediaries.
Identifying Major Channel Alternatives
Companies can choose from a wide variety of channels for reaching customers—from sales
forces to agents, distributors, dealers, direct mail, telemarketing, and the Internet. Each
channel has unique strengths as well as weaknesses. Sales forces can handle complex
products and transactions, but they are expensive. The Internet is much less expensive, but it
cannot handle complex products. Distributors can create sales, but the company loses direct
contact with customers.
Most companies now use a mix of channels. Each channel hopefully reaches a different
segment of buyers and delivers the right products to each at the least cost.
A channel alternative is described by three elements: the types of available business
intermediaries, the number of intermediaries needed, and the terms and responsibilities of
each channel member.
TYPES OF INTERMEDIARIES A firm needs to identify the types of intermediaries

available to carry on its channel work. Companies should search for innovative marketing

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channels. Initially, for reaching subsidized food grains to remote villages some state
governments used mobile vans for direct distribution.
Sometimes a company chooses an unconventional channel because of the difficulty or cost of
working with the dominant channel.
NUMBER OF INTERMEDIARIES Companies have to decide on the number of

intermediaries to use at each channel level. Three strategies are available: exclusive
distribution, selective distribution, and intensive distribution.
Exclusive distribution means severely limiting the number of intermediaries. It is used when
the producer wants to maintain control over the service level and outputs offered by the
resellers. Often it involves exclusive dealing arrangements. By granting exclusive
distribution, the producer hopes to obtain more dedicated and knowledgeable selling.
Selective distribution involves the use of more than a few but less than all of the
intermediaries who are willing to carry a particular product. It is used by established
companies and by new companies seeking distributors. The company does not have to worry
about too many outlets; it can gain adequate market coverage with more control and less cost
than intensive distribution.
Intensive distribution consists of the manufacturer placing the goods or services in as many
outlets as possible. This strategy is generally used for items such as tobacco products, soap,
snack foods, and gum, products for which the consumer requires a great deal of location
convenience.
TERMS AND RESPONSIBILITIES OF CHANNEL MEMBERS The producer must

determine the rights and responsibilities of participating channel members. Each channel
member must be treated respectfully and given the opportunity to be profitable.25 The main
elements in the "trade-relations mix" are price policies, conditions of sale, territorial rights,
and specific services to be performed by each party.
Evaluating the Major Alternatives

Each channel alternative needs to be evaluated against economic, control, and adaptive
criteria
.
Economic Criteria Each channel alternative will produce a different level of sales and costs.
When sellers discover a convenient lower-cost channel, they try to get their customers to use
it. The company may reward customers for switching. Companies that are successful in
switching their customers to lower-cost channels, assuming no loss of sales or deterioration in
service quality, will gain a channel advantage.
The first step is to determine whether a company sales force or a sales agency will produce
more sales. Most marketing managers believe that a company sales force will sell more. They
concentrate on the company's products; they are better trained to sell those products; they are
more aggressive because their future depends on the company's success; and they are more
successful because many customers prefer to deal directly with the company.

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The next step is to estimate the costs of selling different volumes through each channel.The
fixed costs of engaging a sales agency are lower than those of establishing a company sales
office, but costs rise faster through an agency because sales agents get a larger commission
than company salespeople. The final step is comparing sales and costs.
CHANNEL-MANAGEMENT DECISIONS
After a company has chosen a channel alternative, individual intermediaries must be selected,
trained, motivated, and evaluated.
Selecting Channel Members
Companies need to select their channel members carefully as they represent the company to
the customers. while companies like Titan.ITC,are careful in the selection of their channel
partners, the desire to grow rapidly makes many companies compromise on this aspects.
If the intermediaries are sales agents, producers should evaluate the number and character of
other lines carried and the size and quality of the sales force. If the intermediaries are
department stores that want exclusive distribution, the producer should evaluate locations,
future growth potential, and type of clientele.
Training Channel Members
Companies need to plan and implement careful training programs for their intermediaries.
Microsoft requires third-party service engineers to complete a set of courses and take
certification exams. Those who pass are formally recognized as Microsoft Certified
Professionals, and they can use this designation to promote business. Others use customer
surveys rather than exams.
Motivating Channel Members
The company should provide training programs, market research programs, and other
capability-building programs to improve intermediaries' performance. The company must
constantly communicate its view that the intermediaries are partners in a joint effort to satisfy
end users of the product.
Channel power can be defined as the ability to alter channel members' behavior so that they
take actions they would not have taken otherwise.29 Manufacturers can draw on the following
types of power to elicit cooperation:
Coercive power. A manufacturer threatens to withdraw a resource or terminate a relationship

if intermediaries fail to cooperate.
Reward power. The manufacturer offers intermediaries an extra benefit for performing
specific acts or functions.
Legitimate power. The manufacturer requests a behavior that is warranted under the contract.

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Expert power. The manufacturer has special knowledge that the intermediaries value. Once
the expertise is passed on to the intermediaries, however, this power weakens.
Referent power. The manufacturer is so highly respected that intermediaries are proud to be
associated with it. Companies such as IBM, Caterpillar, and Hewlett-Packard have high
referent power.
Evaluating Channel Members
Producers must periodically evaluate intermediaries' performance against such standards as

sales-quota attainment, average inventory levels, customer delivery time, treatment of
damaged and lost goods, and cooperation in promotional and training programs. Producers
should set up functional discounts in which they pay specified amounts for the trade channel's
performance of each agreed-upon service. Underperformers need to be counseled, retrained,
motivated, or terminated.
CHANNEL INTEGRATION AND SYSTEMS

New wholesaling and retailing institutions emerge, and new channel systems evolve. The
recent growth of vertical, horizontal, and multichannel marketing systems; the next section
examines how these systems cooperate, conflict, and compete.
Vertical Marketing Systems
A vertical marketing system (VMS), by contrast, comprises the producer, wholesaler(s),

and retailer(s) acting as a unified system. The channel captain can be the producer, the
wholesaler, or the retailer. Notable producer channel captains are Coca-Cola with soft drinks,
Gillette with shaving products, and Procter & Gamble with detergents.
VMSs arose as a result of strong channel members' attempts to control channel behavior and
eliminate the conflict that results when independent members pursue their own objectives.
VMSs achieve economies through size, bargaining power, and elimination of duplicated
services.
CORPORATE VMS A corporate VMS combines successive stages of production and

distribution under single ownership.
ADMINISTERED VMS An administered VMS coordinates successive stages of production

and distribution through the size and power of one of the members. Manufacturers of a
dominant brand are able to secure strong trade cooperation and support from resellers. Thus
Kodak, Gillette, and HLL
CONTRACTUAL VMS A contractual VMS consists of independent firms at different levels

of production and distribution integrating their programs on a contractual basis to obtain
more economies or sales impact than they could achieve alone.
THE NEW COMPETITION IN RETAILING Many independent retailers that have not
joined VMSs has developed specialty stores that serve special market segments.

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Horizontal Marketing Systems
Another channel development is the horizontal marketing system, in which two or more
unrelated companies put together resources or programs to exploit an emerging marketing
opportunity.
Multichannel Marketing Systems
Multichannel marketing occurs when a single firm uses two or more marketing channels to
reach one or more customer segments.
By adding more channels, companies can gain three important benefits. The first is
increased market coverage. The second is lower channel cost—selling by phone rather than
personal visits to small customers. The third is more customized selling—adding a technical
sales force to sell more complex equipment.
CONFLICT COOPERATION, AND COMPETITION
Channel conflict is generated when one channel member's actions prevent the channel from
achieving its goal. Channel coordination occurs when channel members are brought
together to advance the goals of the channel, as opposed to their own potentially incompatible
goals.
Types of Conflict and Competition
Suppose a manufacturer sets up a vertical channel consisting of wholesalers and retailers.

The manufacturer hopes for channel cooperation that will produce greater profits for each
channel member. Yet vertical, horizontal, and multichannel conflict can occur.

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Vertical channel conflict means conflict between different levels within the same
channel.HLL came in conflict with its distributors in kerela on the issue of commission.
Horizontal channel conflict involves conflict between members at the same level within the
channel. Dealers frequently get into conflicts with each other for the transgression of
operation and under cutting.
Multichannel conflict exists when the manufacturer has established two or more channels
that sell to the same market.
Causes of Channel Conflict
It is important to identify the causes of channel conflict. Some are easy to resolve, others are
not.
One major cause is goal incompatibility. For example, the manufacturer may want to achieve
rapid market penetration through a low-price policy. Dealers, in contrast, may prefer to work
with high margins and pursue short-run profitability. Sometimes conflict arises from unclear
roles and rights. HP may sell personal computers to large accounts through its own sales
force, but its licensed dealers may also be trying to sell to large accounts.
Conflict can also stem from differences in perception .Conflict might also arise because of
the intermediaries' dependence on the manufacturer. The fortunes of exclusive dealers, such
as auto dealers, are profoundly affected by the manufacturer's product and pricing decisions.
This situation creates a high potential for conflict.
Managing Channel Conflict
As companies add channels to grow sales, they run the risk of creating channel conflict
.Some channel conflict can be constructive and lead to better adaptation to a changing
environment,
There are several mechanisms for effective conflict management. One is the adoption of
subordinate goals. Channel members come to an agreement on the fundamental goal they are
jointly seeking, whether it is survival, market share, high quality, or customer satisfaction.
They usually do this when the channel faces an outside threat, such as a more efficient
competing channel, an adverse piece of legislation, or a shift in consumer desires.
A useful step is to exchange persons between two or more channel levels. Co-optation is an
effort by one organization to win the support of the leaders of another organization by
including them in advisory councils, boards of directors, and the like.
Legal and Ethical Issues in Channel Relations
For the most part, companies are legally free to develop whatever channel arrangements suit
them. Many producers like to develop exclusive channels for their products. A strategy in
which the seller allows only certain outlets to carry its products is called exclusive
distribution. When the seller requires that these dealers not handle competitors' products, this
is called exclusive dealing. Exclusive dealing often includes exclusive territorial agreements.

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The producer may agree not to sell to other dealers in a given area, or the buyer may agree to
sell only in its own territory.
Producers of a strong brand sometimes sell it to dealers only if they will take some or all of
the rest of the line. This practice is called full-line forcing. Such tying agreements are not
necessarily illegal, but they do violate law if they tend to lessen competition substantially.
Producers are free to select their dealers, but their right to terminate dealers is somewhat
restricted.
E-Commerce Marketing
E-business describes the use of electronic means and platforms to conduct a company's
business. E-commerce means that the company or site offers to transact or facilitate the
selling of products and services online. E-commerce has given rise in turn to e-purchasing
and e-marketing. E-purchasing means companies decide to purchase goods, services, and
information from various online suppliers. Smart e-purchasing has already saved companies
millions of dollars. E-marketing describes company efforts to inform buyers, communicate,
promote, and sell its products and services over the Internet. The e term is also used in terms
such as e-finance, e-learning, and e-service.
There are pure-click companies, those that have launched a Web site without any previous
existence as a firm, and brick-and-click companies, existing companies that have added an
online site for information and/or e-commerce.
Pure-Click Companies
There are several kinds of pure-click companies: Search engines, Internet Service Providers
(ISPs), commerce sites, transaction sites, content sites, and enabler sites. Commerce sites sell
all types of products and services, notably books, music, toys, insurance, stocks, clothes,
financial services, and so on. Among the most prominent commerce sites are Amazon, eBay,
and India times.
Brick-and-Click Companies
Many companies moved quickly to open Web sites describing their businesses but resisted
adding e-commerce to their sites. They felt that selling their products or services online
would produce channel conflict—they would be competing with their offline retailers, agents,

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or their own stores. Most companies brand their online ventures under their existing brand
names. It is difficult to launch a new brand successfully.
RETAILING
Retailing includes all the activities involved in selling goods or services directly to final
consumers for personal, nonbusiness use. A retailer or retail store is any business enterprise
whose sales volume comes primarily from retailing.
Any organization selling to final consumers—whether it is a manufacturer, wholesaler, or

retailer—is doing retailing. It does not matter how the goods or services are sold (by person,
mail, telephone, vending machine, or Internet) or where they are sold (in a store, on the street,
or in the consumer's home).
Types of Retailers
Consumers today can shop for goods and services in a wide variety of retail organizations.
There are store retailers, non store retailers, and retail organizations. Perhaps the best-known
type of retailer is the department store. The most important retail-store types are-
LEVELS OF SERVICE-Conventional retail stores typically increase their services and raise
their prices to cover the costs. These higher costs provide an opportunity for new store forms
to offer lower prices and less service. New store types meet widely different consumer
preferences for service levels and specific services.
Retailers can position themselves as offering one of four levels of service:
Self-service - Self-service is the cornerstone of all discount operations. Many customers are
willing to carry out their own locate-compare-select process to save money.
Self-selection - Customers find their own goods, although they can ask for assistance.
Limited service - These retailers carry more shopping goods, and customers need more
information and assistance
Full service - Salespeople are ready to assist in every phase of the locate-compare-select
process.
Retaling can be divided into two catogeries.store and non-store retalling Nonstore retailing
falls into four major categories: direct selling, direct marketing (which includes telemarketing
and Internet selling), automatic vending, and buying services:
Direct selling (also called multilevel selling, network marketing)followed by companies like
amway, eureka forbes, ,tupperware.
Direct marketing includes telemarketing, television direct-response marketing (Home

Shopping Network, ), and electronic shopping (Amazon.com,).

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Automatic vending is used for a variety of merchandise, including impulse goods like
cigarettes, soft drinks, coffee, candy, newspapers, magazines, and dispence money ATMS
Buying service is a storeless retailer serving a specific clientele—usually employees of large

organizations—who are entitled to buy from a list of retailers that have agreed to give
discounts in return for membership.
CORPORATE RETAILING Although many retail stores are independently owned, an

increasing number are part of some form of corporate retailing. Corporate retail organizations
achieve economies of scale, greater purchasing power, wider brand recognition, and better-
trained employees. The major types of corporate retailing operating in india are corporate
chain stores (shoppers stop, foodworlds);retailers cooperative (national egg co-ordination
committee); consumer cooperative (super bazaar); franchise organizations (mcdonald’s, time
zone, raymond’s shops, and vimal shops). Franchising is described in detail in “marketing
insight: franchise fever”.
Marketing Decisions
We will examine retailers' marketing decisions in the areas of target market, product
assortment and procurement, services and store atmosphere, price, communication, and
location.
TARGET MARKET A retailer's most important decision concerns the target market. Until
the target market is defined and profiled, the retailer cannot make consistent decisions on
product assortment, store decor, advertising messages and media, price, and service levels.
PRODUCT ASSORTMENT retailer's decide on their product assortment keeping in mind

the requirements of their target market's . The retailer has to decide on product-assortment
breadt(number of categories product lines) and depth(items in each catogire/product line)the
next challenge for store is to develop a product differentiation strategy.
PROCUREMENT After deciding on the product-assortment strategy, the retailer must

establish merchandise sources, policies, and practices. In the corporate headquarters of a
supermarket chain, specialist buyers (sometimes called merchandise managers) are
responsible for developing brand assortments and listening to salespersons' presentations.
SERVICES AND STORE ATMOSPHERE The services mix is a key tool for
differentiating one store from another. Retailers must decide on the services mix to offer
customers:
Prepurchase services include accepting telephone and mail orders, advertising, window and
interior display, fitting rooms, shopping hours, fashion shows, trade-ins.
Post purchase services include shipping and delivery, gift wrapping, adjustments and
returns, alterations and tailoring, installations, engraving.
• Ancillary services include general information; check cashing, parking, restaurants, repairs,
interior decorating, credit, rest rooms, and baby-attendant service..

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STORE ACTIVITIES AND EXPERIENCES-providing a memorable shopping experance

has become a strong motivation for store activities EXAMPLE-Kemp’s fort in Bangalore
offers an old fort like appearance, Bookstores have coffee shops where one can browse
through a new book while sipping coffee.
PRICE DECISION Prices are a key positioning factor and must be decided in relation to the
target market, the product-and-service assortment mix, and the competition. All retailers
would like to achieve high volumes and high gross margins. They would like high Turns x
Earns, but the two usually do not go together. Most retailers fall into the high-markup, lower-
volume group (fine specialty stores) or the low-markup, higher-volume group (mass
merchandisers and discount stores).
COMMUNICATION DECISION Retailers use a wide range of communication tools to

generate traffic and purchases. They place ads, run special sales, issue money-saving
coupons, and run frequent shopper-reward programs, in-store food sampling, and coupons on
shelves or at checkout points. Each retailer must use communications that support and
reinforce its image positioning.
LOCATION DECISION Retailers are accustomed to saying that the three keys to success
are "location, location, and location." Department store chains, oil companies, and fast-food
franchisers exercise great care in selecting locations. The problem breaks down into selecting
regions of the country in which to open outlets, then particular cities, and then particular sites.
TRENDS IN RETAILING
Retailers and manufacturers need to take into account in planning competitive strategies.
New Retail Forms and Combinations. Some supermarkets include bank branches/ATMs.
Bookstores feature coffee shops. Petrol pumps have ATMs and grocery stores and food
plazas.
Growth o flntertype Competition. Different types of stores—discount stores, catalog

showrooms, department stores—,discount stores, competing for the same customers with
similar assortment.
A growing trend and major marketing decision for retailers concerns private labels. A private
label brand (also called reseller, store, house, or distributor brand) is one retailer and
wholesalers develop. Retailers such as Big Bazar,and Shoppers stop offer large portion of
garments under their own or other private labels.
WHOLESALING
Wholesaling includes all the activities involved in selling goods or services to those who buy
for resale or business use. Wholesaling excludes manufacturers and farmers because they are

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engaged primarily in production, and it excludes retailers. Wholesalers (also called

distributors) differ from retailers in a number of ways. First, wholesalers pay less attention to
promotion, atmosphere, and location because they are dealing with business customers rather
than final consumers. Second, wholesale transactions are usually larger than retail
transactions, and wholesalers usually cover a larger trade area than retailers. Third, the
government deals with wholesalers and retailers differently in terms of legal regulations and
taxes.
Wholesalers are used when they are more efficient in performing one or more of the
following functions:
Selling and promoting. Wholesalers' sales forces help manufacturers reach many small
business customers at a relatively low cost. Wholesalers have more contacts, and often
buyers trust wholesalers more than they trust a distant manufacturer.
Buying and assortment building. Wholesalers are able to select items and build the
assortments their customers need, saving the customers considerable work.
Bulk breaking. Wholesalers achieve savings for their customers through buying in large
carload lots and breaking the bulk into smaller units.
Warehousing. Wholesalers hold inventories, thereby reducing inventory costs and risks
to suppliers and customers.
Transportation. Wholesalers can often provide quicker delivery to buyers because they
are closer to the buyers.
Financing. Wholesalers finance customers by granting credit, and finance suppliers by

ordering early and paying bills on time.
Risk bearing. Wholesalers absorb some risk by taking title and bearing the cost of theft,
damage, spoilage, and obsolesce.
Market information. Wholesalers supply information to suppliers and customers

regarding competitors' activities, new products, price developments, and so on.
Management services and counseling. Wholesalers often help retailers improve their
operations by training sales clerks, helping with store layouts and displays, and setting up
accounting and inventory-control systems. They may help industrial customers by offering
training and technical services.
The Growth and Types of Wholesaling
The major types of wholesaler’s arc described as
Merchant wholesalers: Independently owned businesses that take title to the merchandise
they handle. They are full-service and limited-service jobbers, distributors, mill supply
houses.

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Full-service wholesalers: Carry stock, maintain a sales force, offer credit, make deliveries,
provide management assistance. Wholesale merchants sell primarily to retailers: Some carry
several merchandise lines, some carry one or two lines, others carry only part of a line.
Industrial distributors sell to manufacturers and also provide services like credit and
delivery.
Limited-service wholesalers: Cash and carry wholesalers sell a limited line of fast-moving
goods to small retailers for cash. Truck wholesalers sell and deliver a limited line of
semiperishable goods to supermarkets, grocery stores, hospitals, restaurants, hotels. Drop
shippers serve bulk industries such as coal, lumber, heavy equipment. They assume title and
risk from the time an order is accepted to its delivery. Rack jobbers serve grocery retailers in
nonfood items. Delivery people set up displays, price goods, keep inventory records; they
retain title to goods and bill retailers only for goods sold to end of year. Producers'
cooperatives assemble farm produce to sell in local markets. Mail-order wholesalers send
catalogs to retail, industrial, and institutional customers; orders are filled and sent by mail,
rail, plane, or truck.
Brokers and agents: Facilitate buying and selling, on commission of 2 to 6 percent of the
selling price; limited functions; generally specialize by product line or customer type.
Brokers bring buyers and sellers together and assist in negotiation; paid by the party hiring
them. Food brokers, real estate brokers, insurance brokers. Agents represent buyers or sellers
on a more permanent basis. Most manufacturers' agents are small businesses, with a few
skilled salespeople: Selling agents have contractual authority to sell a manufacturer's entire
output; purchasing agents make purchases for buyers and often receive, inspect, warehouse,
and ship merchandise; commission merchants take physical possession of products and
negotiate sales.
Manufacturers' and retailers' branches and offices: Wholesaling operations conducted by

sellers or buyers themselves rather than through independent wholesalers. Separate branches
and offices are dedicated to sales or purchasing. Many retailers set up purchasing offices in
major market centers.
Specialized wholesalers: Agricultural assemblers (buy the agricultural output of many

farms), petroleum bulk plants and terminals (consolidate the output of many wells), and
auction companies (auction cars, equipment, etc., to dealers and other businesses).
Wholesaler Marketing Decisions
Wholesaler-distributors have faced mounting pressures in recent years from new sources of
competition, demanding customers, new technologies, and more direct-buying programs by
large industrial, institutional, and retail buyers. They have had to develop appropriate
strategic responses.
TARGET MARKET Wholesalers need to define their target markets. They can choose a
target group of customers by size (only large retailers), type of customer (convenience food
stores only), need for service (customers who need credit), or other criteria. Within the target
group, they can identify the most profitable customers and design stronger offers to build
better relationships with them.

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PRODUCT ASSORTMENT AND! SERVICES The wholesalers' "product" is their

assortment. Wholesalers are under great pressure to carry a full line and maintain sufficient
stock for immediate delivery, but the costs of carrying huge inventories can kill profits.
Wholesalers today are reexamining how many lines to carry and are choosing to carry only
the more profitable ones. They are also examining which services count most in building
strong customer relationships and which ones should be dropped or charged for.
PRICE DECISION Wholesalers usually mark up the cost of goods by a conventional

percentage, say 20 percent, to cover their expenses. Expenses may run 17 percent of the gross
margin, leaving a profit margin of approximately 3 percent. In grocery wholesaling, the
average profit margin is often less than 2 percent. Wholesalers are beginning to experiment
with new approaches to pricing. They might cut their margin on some lines in order to win
important new customers.
PROMOTION DECISION Wholesalers rely primarily on their sales force to achieve

promotional objectives. Even here, most wholesalers see selling as a single salesperson
talking to a single customer, instead of a team effort to sell, build, and service major
accounts. Wholesalers would benefit from adopting some of the image-making techniques
used by retailers. They need to develop an overall promotion strategy involving trade
advertising, sales promotion, and publicity. They also need to make greater use of supplier
promotion materials and programs.
PLACE DECISION In the past, wholesalers were typically located in low-rent, low-tax
areas and put little money into their physical setting and offices. Often the materials-handling
systems and order-processing systems lagged behind the available technologies. Today,
progressive wholesalers have been improving materials-handling procedures and costs by
developing automated warehouses and improving their supply capabilities through advanced
information systems.
Trends in Wholesaling
Manufacturers always have the option of bypassing wholesalers or replacing inefficient

wholesalers with better ones. Manufacturers' major complaints against wholesalers are as
follows: They do not aggressively promote the manufacturer's product line, and act more like
order takers; they do not carry enough inventory and therefore fail to fill customers' order fast
enough; they do not supply the manufacturer with up-to-date market, customer, and
competitive information; they do not attract high-caliber managers and bring down their own
costs; and they charge too much for their services.
MARKET LOGISTICS
Physical distribution starts at the factory. Managers choose a set of warehouses (stocking
points) and transportation carriers that will deliver the goods to final destinations in the
desired time or at the lowest total cost. Physical distribution has now been expanded into the
broader concept of supply chain management (SCM). Supply chain management starts before
physical distribution: It involves procuring the right inputs (raw materials, components, and
capital equipment); converting them efficiently into finished products; and dispatching them
to the final destinations.

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Market logistics involves planning the infrastructure to meet demand, then

implementing and controlling the physical flows of materials and final goods from points of
origin to points of use, to meet customer requirements at a profit.
Integrated Logistics Systems
The market logistics task calls for integrated logistics systems (ILS), involving
materials management, material flow systems, and physical distribution, abetted by
information technology (IT). Third-party suppliers, such as FedEx Logistics Services, blue
dart, offer such support to many clients
Information systems play a critical role in managing market logistics, especially
computers, point-of-sale terminals, uniform product bar codes, satellite tracking, electronic
data interchange (EDI), and electronic funds transfer (EFT). These developments have
shortened the order-cycle time, reduced clerical labor, reduced the error rate in documents,
and provided improved control of operations.
Market-Logistics Decisions
Four major decisions must be made with regard to market logistics: (1) How should
orders be handled? (order processing); (2) Where should stocks be located? (warehousing);
(3) I low much stock should be held? (inventory); and (4) Mow should goods be shipped?
(transportation).
ORDER PROCESSING Most companies today is trying to shorten the order-to-payment

cycle—that is, the elapsed time between an order's receipt, delivery, and payment. This cycle
involves many steps, including order transmission by the salesperson, order entry and
customer credit check, inventory and production scheduling, order and invoice shipment, and
receipt of payment. The longer this cycle takes, the lower the customer's satisfaction and the
lower the company's profits.
WAREHOUSING Every company has to store finished goods until they are sold, because
production and consumption cycles rarely match. The storage function helps to smooth
discrepancies between production and quantities desired by the market. The company must
decide on the number of inventory stocking locations. Consumer-packaged-goods companies
have been reducing their number of stocking locations from 10-15 to about 5-7; and
pharmaceutical and medical distributors have cut their stocking locations from 90 to about
45. On the one hand, more stocking locations means that goods can be delivered to customers
more quickly, but it also means higher warehousing and inventory costs. To reduce
warehousing and inventory duplication costs, the company might centralize its inventory in
one place and use fast transportation to fulfill orders.
INVENTORY levels represent a major cost. Salespeople would like their companies to carry
enough stock to fill all customer orders immediately. Inventory decision making involves
knowing when to order and how much to order. As inventory draws down, management must
know at what stock level to place a new order. This stock level is called the order (reorder)
point. Order-processing costs must be compared with inventory-carrying costs. The larger the
average stock carried, the higher the inventory-carrying costs. These carrying costs include
storage charges, cost of capital, taxes and insurance, and depreciation and obsolescence.

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DESIGNING AND MANAGING INTEGRATED MARKETING

COMMUNICATIONS
THE ROLE OF MARKETING COMMUNICATIONS
Marketing communications are the means by which firms attempt to inform, persuade, and
remind consumers—directly or indirectly—about the products and brands that they sell. In a
sense, marketing communications represent the "voice" of the brand and are a means by
which it can establish a dialogue and build relationships with consumers.
Marketing Communications and Brand Equity
Although advertising is often a central element of a marketing communications program, it is

usually not the only one—or even the most important one—in terms of building brand equity.
The marketing communications mix consists of six major modes of communication:
1. Advertising -Any paid form of nonpersonal presentation and promotion of

ideas, goods, or services by an identified sponsor.
2. Sales promotion - A variety of short-term incentives to encourage trial or purchase of a

product or service.
3. Events and experiences - Company-sponsored activities and programs designed to create

daily or special brand-related interactions.
4. Public relations and publicity-A variety of programs designed to promote or protect a

company's image or its individual products.
5. Direct marketing - Use of mail, telephone, fax, e-mail, or Internet to communicate

directly with or solicit response or dialogue from specific customers and prospects.
6. Personal selling- Face-to-face interaction with one or more prospective purchasers for the
purpose of making presentations, answering questions, and procuring orders.
Every brand contact delivers an impression that can strengthen or weaken a customer's view
of the company. marketing communications activities contribute to brand equity in many
ways: by creating awareness of the brand; linking the right associations to the brand image in
consumers' memory; eliciting positive brand judgments or feelings; and/or facilitating a
stronger consumer-brand connection.
From the perspective of building brand equity, marketers should evaluate all the different
possible communication options according to effectiveness criteria (how well does it work) as
well as efficiency considerations (how much does it cost). This broad view of brand-building

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activities is especially relevant when marketers are considering strategies to improve brand
awareness.
THE COMMUNICATIONS PROCESS MODELS

Marketers should understand the fundamental elements of effective communications. Two
models are useful: a macro model and a micro model.
MACROMODEL OF THE COMMUNICATIONS PROCESS Figure shows a

communications macro model with nine elements. Two represent the major parties in a
communication— sender and receiver. Two represent the major communication tools—
message and media, Four represent major communication functions—encoding, decoding,
response, and feedback. The last element in the system is noise (random and competing
messages that may interfere with the intended communication)
Senders must know what audiences they want to reach and what responses they want to get.
They must encode their messages so that the target audience can decode them. They must
transmit the message through media that reach the target audience and develop feedback
channels to monitor the responses.
MICROMODEL OF CONSUMER RESPONSES Micro models of marketing

communications concentrate on consumers' specific responses to communications.
All these models assume that the buyer passes through a cognitive, affective, and behavioral
stage, in that order. This "learn-feel-do" sequence is appropriate when the audience has high
involvement with a product category perceived to have high differentiation, as in purchasing
an automobile or house. An alternative sequence, "do-feel-learn," is relevant when the
audience has high involvement but perceives little or no differentiation within the product
category, as in purchasing an airline ticket or personal computer. A third sequence, "learn-do-

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feel," is relevant when the audience has low involvement and perceives little differentiation
within the product category, as in purchasing salt or batteries. By choosing the right
sequence, the marketer can do a better job of planning communications.
DEVELOPING EFFECTIVE COMMUNICATIONS

Figure 17.4 shows the eight steps in developing effective communications. We begin with
the basics: identifying the target audience, determining the objectives, designing the
communications, selecting the channels, and establishing the budget
Identify the Target Audience
The process must start with a clear target audience in mind: potential buyers of the company's
products, current users, deciders, or influencers; individuals, groups, particular publics, or the
general public. The target audience is a critical influence on the communicator's decisions on
what to say, how to say it, when to say it, where to say it, and to whom to say it.
Determine the Communications Objectives
Communications objectives can be set at any level of the hierarchy-of-effects model. Rossiter
and Percy identify four possible objectives, as follows:
\
1. Category Need - Establishing a product or service category as necessary to remove or

satisfy a perceived discrepancy between a current motivational state and a desired emotional
state. A new-to-the-world product such as electric cars would always begin with a
communications objective of establishing category need.
2. Brand Awareness -Ability to identify (recognize or recall) the brand within the category,
in sufficient detail to make a purchase.
3. Brand Attitude - Evaluation of the brand with respect to its perceived ability to meet a
currently relevant need.
4. Brand Purchase Intention - Self-instructions to purchase the brand or to take purchase-

related action. Promotional offers in the form of coupons or two-for-one deals encourage
consumers to make a mental commitment to buy a product.

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Design the Communications
Formulating the communications to achieve the desired response will require solving three
problems: what to say (message strategy), how to say it (creative strategy), and who should
say it (message source).
MESSAGE STRATEY In determining message strategy, management searches for appeals,

themes, or ideas that will tie into the brand positioning and help to establish points-of-parity
or points-of-difference. Some of these may be related directly to product or service
performance (the quality, economy, or value of the brand) whereas others may relate to more
extrinsic considerations (the brand as being contemporary, popular, or traditional).
CREATIVE STRATEGY Communications effectiveness depends on how a message is

being expressed as well as the content of the message itself. Creative strategies are how
marketers translate their messages into a specific communication. Creative strategies can be
broadly classified as involving either "informational" or "transformational" appeals.13 These
two general categories each encompass several different specific creative approaches.
Select the Communications Channels
Selecting efficient channels to carry the message becomes more difficult as channels of
communication become more fragmented and cluttered. Communications channels may be
personal and non personal. Within each are many sub channels.
PERSONAL COMMUNICATIONS CHANNELS Personal communications channels

involve two or more persons communicating directly face-to-face, person-to-audience, over
the telephone, or through e-mail.
NONPERSONAL COMMUNICATIONS CHANNELS Non personal channels are

communications directed to more than one person and include media, sales promotions,
events, and publicity.
Establish the Total Marketing Communications Budget
One of the most difficult marketing decisions is determining how much to spend on
promotion.
Industries and companies vary considerably in how much they spend on promotion.
Expenditures might be 30 to 50 percent of sales in the cosmetics industry and 5 to 10 percent
in the industrial-equipment industry. Within a given industry, there are low- and high-
spending companies.
Companies decide on the promotion budget by describing four common methods: the
affordable method, percentage-of-sales method, competitive-parity method, and objective-
and-task method.
AFFORDABLE METHOD Many companies set the promotion budget at what they think
the company can afford.

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PERCENTAGE-OF-SALES METHOD Many companies set promotion expenditures at a

specified percentage of sales (either current or anticipated) or of the sales price.
COMPETITIVE-PARITY METHOD Some companies set their promotion budget to

achieve share-of-voice parity with competitors. Two arguments are made in support of the
competitive-parity method. One is that competitors' expenditures represent the collective
wisdom of the industry. The other is that maintaining competitive parity prevents promotion
wars.
OBJECTIVE-AND-TASK METHOD The objective-and-task method calls upon marketers

to develop promotion budgets by defining specific objectives, determining the tasks that
must be performed to achieve these objectives, and estimating the costs of performing these
tasks. The sum of these costs is the proposed promotion budget.
Deciding on the Marketing Communications Mix
Companies must allocate the marketing communications budget over the six major modes of
communication—advertising, sales promotion, public relations and publicity, events and
experiences, sales force, and direct marketing.
CHARACTERISTICS OF THE MARKETING

COMMUNICATIONS MIX
Each communication tool has its own unique characteristics and costs.
ADVERTISING can be used to build up a long-term image for a product (Coca-Cola ads) or
trigger quick sales (a Sears ad for a weekend sale). Advertising can efficiently reach
geographically dispersed buyers. Certain forms of advertising (TV) can require a large
budget, whereas other forms (newspaper) do not. Just the presence of advertising might have
an effect on sales: Consumers might believe that a heavily advertised brand must offer "good
value." the following qualities are uses of advertising.
1. Pervasiveness - Advertising permits the seller to repeat a message many times. It also
allows the buyer to receive and compare the messages of various competitors. Large-scale
advertising says something positive about the seller's size, power, and success.
2. Amplified expressiveness -Advertising provides opportunities for dramatizing the

company and its products through the artful use of print, sound, and color.
3. Impersonality -The audience does not feel obligated to pay attention or respond to
advertising. Advertising is a monologue in front of, not a dialogue with, the audience.
SALES PROMOTION Companies use sales promotion tools—coupons, contests, premiums,

and the like—to draw a stronger and quicker buyer response. Sales promotion can be used
for short-run effects such as to highlight product offers and boost sagging sales. Sales
promotion tools offer three distinctive benefits:

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1. Communication -They gain attention and may lead the consumer to the product.
2. Incentive -They incorporate some concession, inducement, or contribution that gives

value to the consumer.
3. Invitation -They include a distinct invitation to engage in the transaction now.
PUBLIC RELATIONS AND PUBLICITY Marketers tend to underuse public relations, yet a
well-thought-out program coordinated with the other communications-mix elements can be
extremely effective. The appeal of public relations and publicity is based on three distinctive
qualities:
1. High credibility - News stories and features are more authentic and credible to readers than
ads.
2. Ability to catch buyers off guard- Public relations can reach prospects who prefer to avoid
salespeople and advertisements.
3. Dramatization - Public relations has the potential for dramatizing a company or product.
EVENTS AND EXPERIENCES There are many advantages to events and experiences:
1. Relevant- A well-chosen event or experience can be seen as highly relevant as the

consumer gets personally involved.
2. Involving - Given their live, real-time quality, consumers can find events and experiences
more actively engaging.
3. Implicit - Events are more of an indirect "soft-sell."
DIRECT MARKETING The many forms of direct marketing—direct mail, telemarketing,

Internet marketing—share three distinctive characteristics. Direct marketing is:
1. Customized -The message can be prepared to appeal to the addressed individual.
2. Up-to-date-A message can be prepared very quickly.
3. Interactive - The message can be changed depending on the person's response.
PERSONAL SELLING Personal selling is the most effective tool at later stages of the
buying process, particularly in building up buyer preference, conviction, and action. Personal
selling has three distinctive qualities:
1. Personal interaction - Personal selling involves an immediate and interactive relationship

between two or more persons. Each party is able to observe the other's reactions.
2. Cultivation - Personal selling permits all kinds of relationships to spring up, ranging from
a matter-of-fact selling relationship to a deep personal friendship.

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3. Response - Personal selling makes the buyer feel under some obligation for having
listened to the sales talk.
MANAGING THE INTEGRATED MARKETING

COMMUNICATIONS PROCESS
As defined by the American Association of Advertising Agencies, integrated marketing

communications (IMC) is a concept of marketing communications planning that recognizes
the added value of a comprehensive plan. Such a plan evaluates the strategic roles of a variety
of communications disciplines—for example, general advertising, direct response, sales
promotion and public relations—and combines these disciplines to provide clarity,
consistency, and maximum impact through the seamless integration of messages.
COORDINATING MEDIA
Media coordination can occur across and within media types. Personal and nonpersonal
communications channels should be combined to achieve maximum impact. Imagine a
marketer using a single tool in a "one-shot" effort to reach and sell a prospect. An example of
a single-vehicle, single-stage campaign is a one-time mailing offering a cookware item. A
single-vehicle, multiple-stage campaign would involve successive mailings to the same
prospect.
IMPLEMENTING IMC
Integrated marketing communications has been slow to take hold for several reasons. Large
companies often employ several communications specialists to work with their brand
managers who may know comparatively little about the other communication tools. Further
complicating matters is that many global companies use a large number of ad agencies
located in different countries and serving different divisions, resulting in uncoordinated
communications and image diffusion.
Today, however, a few large agencies have substantially improved their integrated
offerings. To facilitate one-stop shopping, major ad agencies have acquired promotion
agencies, public relations firms, package-design consultancies, Web site developers, and
direct-mail houses. Many international clients have opted to put a substantial portion of their
communications work through one agency. An example is IBM turning all of its advertising
over to Ogilvy to attain uniform branding. The result is integrated and more effective
marketing communications and a much lower total communications cost.
Integrated marketing communications can produce stronger message consistency and

greater sales impact. It forces management to think about every way the customer comes in
contact with the company, how the company communicates its positioning, the relative
importance of each vehicle, and timing issues. It gives someone the responsibility—where
none existed before—to unify the company's brand images and messages as they come
through thousands of company activities. IMC should improve the company's ability to reach
the right customers with the right messages at the right time and in the right place.

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Companies such as Motorola, Xerox, and Hewlett-Packard are bringing together advertising,
direct marketing, public relations, and employee communications experts into "super
councils" that meet a few times each year for training and improved communications among
them. Procter & Gamble recently revised its communications planning by requiring that each
new program be formulated jointly, with its ad agency sitting together with P&G's public
relations agencies, direct-marketing units, promotion-merchandising firms, and Internet
operations.
UNIT V

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DIRECT MARKETING & PERSONAL

SELLING 123-152
WORD OF MOUTH
Word of mouth is a reference to the passing of information from person to person. Originally
the term referred specifically to oral communication (literally words from the mouth), but
now includes any type of human communication, such as face to face, telephone, email, and
text messaging.
Word of mouth marketing

To promote and manage word-of-mouth communications, marketers use publicity techniques
as well as viral marketing methods to achieve desired behavioral response. Influencer
marketing is increasingly used to seed WOMM by targeting key individuals that have
authority and a high number of personal connections. The relatively new practice of word of
mouth marketing attempts to inject positive "buzz" into conversations directly.
DIRECT MARKETING
Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods
and services to customers without using marketing middlemen. These channels include direct
mail, catalogs, telemarketing, interactive TV, kiosks, Web sites, and mobile devices.
Direct marketing is one of the fastest-growing avenues for serving customers. More and more
business marketers have turned to direct mail and telemarketing in response to the high and
increasing costs of reaching business markets through a sales force.
The Benefits of Direct Marketing
Direct marketing benefits customers in many ways. Home shopping can be fun, convenient,
and hassle-free. It saves time and introduces consumers to a larger selection of merchandise.
They can do comparative shopping by browsing through mail catalogs and online shopping
services
Direct marketers can buy a mailing list containing the names and address of almost any
group doctors, engineers, architects, accountants, chief executives of foreign companies joint
venture companies, human resource managers of major companies and high net worth
individuals.
Direct marketing can be timed to reach prospects at the right moment and receive higher
readership because it is sent to more interested prospects.

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Direct marketers can use a number of channels to reach individual prospects and customers:
direct mail, catalog marketing, telemarketing, TV and other direct-response media, kiosk
marketing, and e-marketing.
Direct Mail
Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a

person. Using highly selective mailing lists, direct marketers send out millions of mail pieces
each year—letters, flyers, foldouts, and other "salespeople with wings." Some direct
marketers mail audiotapes, videotapes, CDs, and computer diskettes to prospects and
customers.
Direct mail may be paper-based and handled by the U.S. Postal Service, telegraphic
services, or for-profit mail carriers such as FedEx, DHL, or Airborne Express.
Alternatively, marketers may employ fax mail, e-mail, or voice mail to sell direct.
Direct-mail marketing has passed through a number of stages:
"Carpet bombing." Direct mailers gather or buy as many names as possible and send out a
mass mailing. Usually the response rate is very low.
• Database marketing. Direct marketers mine the database to identify prospects who would
have the most interest in an offer.
Interactive marketing. Direct marketers include a telephone number and Web address, and
offer to print coupons from the Web site. Recipients can contact the company with
questions. The company uses the interaction as an opportunity to up-sell, cross-sell, and
deepen the relationship.
Real-time personalized marketing. Direct marketers know enough about each customer to
customize and personalize the offer and message.
Lifetime value marketing. Direct marketers develop a plan for lifetime marketing to each
valuable customer, based on knowledge of life events and transitions.
One company long recognized for its strong, beneficial focus on customers is Maine's
L.L. Bean, Inc., which sells outdoor/casual clothing and equipment through mail order,
online catalogs, and retail stores and factory outlets. To maximize customer satisfaction,
the company has an unequivocal, 100 percent guarantee for all purchases. Founder L.L.
Bean placed a notice on the wall of the Freeport store in 1916, which proclaimed, "I do not
consider a sale complete until goods are worn out and customer still satisfied." Bean even
once refunded the money on a pair of two-year-old shoes because the customer said the
pair did not wear as well as expected!
In constructing an effective direct-mail campaign, direct marketers must decide on their

objectives, target markets, and prospects; offer elements, means of testing the campaign, and
measures of campaign success.

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OBJECTIVES Most direct marketers aim to receive an order from prospects. A campaign's
success is judged by the response rate.
TARGET MARKETS AND PROSPECTS Direct marketers need to identify the

characteristics of prospects and customers who are most able, willing, and ready to buy. Most
direct marketers apply the R-F-M formula [regency, frequency, monetary amount) for rating
and selecting customers. For any proposed offering, the company selects customers according
to how much time has passed since their last purchase, how many times they have purchased,
and how much they have spent since becoming a customer.
Prospects can also be identified on the basis of such variables as age, sex, income, education,
and previous mail-order purchases. Occasions provide a good departure point for
segmentation. New parents will be in the market for baby clothes and baby toys; college
freshmen will buy computers and small television sets; newlyweds will be looking for
housing, furniture, appliances, and bank loans.
OFFER ELEMENTS
The direct-mail marketer has to decide on five components of the mailing itself: the outside
envelope, sales letter, circular, reply form, and reply envelope.
Envelopes are more effective when they contain a colorful commemorative stamp, when the
address is hand-typed or handwritten, and when the envelope differs in size or shape from
standard envelopes. A colorful circular accompanying the letter will increase the response
rate by more than its cost.
Direct mailers should feature a toll-free number and also send recipients to their Web site.
Coupons should be printed out at the Web site. The inclusion of a postage-free reply envelope
will dramatically increase the response rate.
TESTING ELEMENTS One of the great advantages of direct marketing is the ability to
test, under real marketplace conditions, different elements of an offer strategy, such as
products, product features, copy platform, mailer type, envelope, prices, or mailing lists.
Direct marketers must remember that response rates typically understate a campaign's long-
term impact.
MEASURING CAMPAIGN SUCCESS: LIFETIME VALUE By adding up the planned

campaign costs, the direct marketer can figure out in advance the needed break-even response
rate.
By carefully analyzing past campaigns, direct marketers can steadily improve performance.
A customer's ultimate value is not revealed by a purchase response to a particular mailing.

Rather, it is the expected profit made on all future purchases net of customer acquisition and
maintenance costs. For an average customer, one would calculate the average customer
longevity, average customer annual expenditure, and average gross margin, minus the
average cost of customer acquisition and maintenance (properly discounted for the
opportunity cost of money).
Catalog Marketing

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In catalog marketing, companies may send full-line merchandise catalogs, specialty consumer
catalogs, and business catalogs, usually in print form but also sometimes as CDs, videos, or
online. many direct marketers have found that combining catloge and web stes can be an
effective way to sell.
Some companies distinguish their catalogs by adding literary or information features, sending
swatches of materials, operating a special hot line to answer questions, sending gifts to their
best customers, and donating a percentage of the profits to good causes.
Telemarketing
Telemarketing is the use of the telephone and call centers to attract prospects, sell to existing
customers, and provide service by taking orders and answering questions. Telemarketing
helps companies increase revenue, reduce selling costs, and improve customer satisfaction.
Companies use call centers for inbound telemarketing (receiving calls from customers) and
outbound telemarketing (initiating calls to prospects and customers). companies carry out
four types of telemarketing:
a Telesales. Taking orders from catalogs or ads and also doing outbound calling. They can
cross-sell the company's other products, upgrade orders, introduce new products, open new
accounts, and reactivate former account Telecoverage. Calling customers to maintain and
nurture key account relationships and give more attention to neglected accounts. A
Teleprospecting. Generating and qualifying new leads for closure by another sales channel.
Customer service and technical support. Answering service and technical questions.
Telemarketing is increasingly used in business as well as consumer marketing
Effective telemarketing depends on choosing the right telemarketers, training them well, and
providing performance incentives.
Other Media for Direct-Response Marketing
Direct marketers use all the major media to make offers to potential buyers. Newspapers and
magazines carry abundant print ads offering books, articles of clothing, appliances, vacations,
and other goods and services that individuals can order by dialing a toll-free number. Radio
ads present offers to listeners 24 hours a day.
TELEVISION Television is used by direct marketers in several ways:

1. Direct-response advertising -Some companies prepare 30- and 60-minute
infomercials that attempt to combine the sell of commercials with the draw of
educational information and entertainment.
2. At-home shopping channels - Some television channels are dedicated to selling goods
and services. On Home Shopping Network (HSN), which broadcasts 24 hours a day,
the program's hosts offer bargain prices on such products as clothing, jewelry, lamps,
collectible dolls, and power tools. Viewers call in orders on a toll-free number and
receive delivery within 48 hours. Millions of adults watch home shopping programs,
and close to half of them buy merchandise.
3. Videotext and interactive TV- The consumer's TV set is linked with a seller's catalog
by cable or telephone lines. Consumers can place orders via a special keyboard device

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connected to the system. Much research is now going on to combine TV, telephones,
and computers into interactive TV
KIOSK MARKETING A kiosk is a small building or structure that might house a selling or
information unit. The name describes newsstands, refreshment stands, and free-standing carts
whose vendors sell watches, costume jewelry, and other items. The carts appear in bus and
rail stations and along aisles in a mall. The term also covers computer-linked vending
machines and "customer-order-placing machines" in stores, airports, and other locations. All
of these are direct-selling tools. Some marketers have adapted the self-service feature of
kiosks to their businesses.
DESIGNING THE SALES FORCE
The original and oldest form of direct marketing is the field sales call. Today most industrial
companies rely heavily on a professional sales force to locate prospects, develop them into
customers, and grow the business; or they hire manufacturers' representatives and agents to
carry out the direct-selling task.
Sales personnel serve as the company's personal link to the customers. It is the sales rep who
brings back much-needed information about the customer. Therefore, the company needs to
carefully consider issues in sales force design—namely, the development of sales force
objectives, strategy, structure, size, and compensation.
Sales Force Objectives and Strategy
Sales reps need to know how to diagnose a customer's problem and propose a solution.
Salespeople show a customer-prospect how their company can help a customer improve
profitability.
The specific allocation scheme depends on the kind of products and customers, but
regardless of the selling context, salespeople will have one or more of the following specific
tasks to perform:
Prospecting. Searching for prospects, or leads.
Targeting. Deciding how to allocate their time among prospects and customers.
Communicating. Communicating information about the company's products and services.
Selling. Approaching, presenting, answering questions, overcoming objections, and closing

sales.

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Servicing. Providing various services to the customers—consulting on problems, rendering

technical assistance, arranging financing, expediting delivery.
Information gathering. Conducting market research and doing intelligence work.
Allocating. Deciding which customers will get scarce products during product shortages.
Because of the expense, most companies are moving to the concept of a leveraged sales
force. A sales force focuses on selling the company's more complex and customized products
to large accounts, while low-end selling is done by inside salespeople and through Web
ordering.
Companies must deploy sales forces strategically so that they call on the right customers at
the right time and in the right way. Today's sales representatives act as "account managers"
who arrange fruitful contact between various people in the buying and selling organizations.
Selling increasingly calls for teamwork requiring the support of other personnel, such as top
management, especially when national accounts or major sales are at stake; technical people,
who supply technical information and service to the customer before, during, or after product
purchase; customer service representatives, who provide installation, maintenance, and other
services; and an office staff, consisting of sales analysts, order expediters, and assistants.
Sales Force Structure
The sales force strategy has implications for the sales force structure. A company that sells
one product line to one end-using industry with customers in many locations would use a
territorial structure. A company that sells many products to many types of customers might
need a product or market structure. Some companies need a more complex structure.
Motorola, for example, manages four types of sales forces: (1) a strategic market sales force
composed of technical, applications, and quality engineers and service personnel assigned to
major accounts; (2) a geographic sales force calling on thousands of customers in different
territories; (3) a distributor sales force calling on and coaching Motorola distributors; and (4)
an inside sales force doing telemarketing and taking orders via phone and fax.
Sales Force Size
Once the company clarifies its strategy and structure, it is ready to consider sales force size.
Sales representatives are one of the company's most productive and expensive assets.
Increasing their number will increase both sales and costs.
Once the company establishes the number of customers it wants to reach, it can use a
workload approach to establish sales force size. This method consists of the following five
steps:
1. Customers are grouped into size classes according to annual sales volume.
2. Desirable call frequencies (number of calls on an account per year) are established for each
class.

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3. The number of accounts in each size class is multiplied by the corresponding call
frequency to arrive at the total workload for the country, in sales calls per year.
4. The average number of calls a sales representative can make per year is determined.
5. The number of sales representatives needed is determined by dividing the total annual calls
required by the average annual calls made by a sales representative.
Sales Force Compensation
To attract top-quality sales reps, the company has to develop an attractive compensation
package. Sales reps want income regularity, extra reward for above-average performance, and
fair payment for experience and longevity.
The company must determine the four components of sales force compensation—a fixed
amount, a variable amount, expense allowances, and benefits. The fixed amount, a salary, is
intended to satisfy the need for income stability. The variable amount, which might be
commissions, bonus, or profit sharing, is intended to stimulate and reward effort. Expense
allowances enable sales reps to meet the expenses involved in travel and entertaining.
Benefits, such as paid vacations, sickness or accident benefits, pensions, and life insurance,
are intended to provide security and job satisfaction.
Fixed and variable compensation give rise to three basic types of compensation plans—
straight salary, straight commission, and combination salary and commission.
CHALLENGES IN NEW-PRODUCT DEVELOPMENT
TATA tea increased their presence in the international markets through the acquisition of the
Tetley brand. Many India companies operating in diverse sectors such as pharmaceuticals,
metals ,food and breverages,engineering it and it enabled servies are growing in international
market by acquiring companies in different countries.
The development route can take two forms. The company can develop new products in its
own laboratories, or it can contract with independent researchers or new-product
development firms to develop specific new products. We can identify six categories of new
products:
1. New-to-the-iuorld products - New products that create an entirely new market.
2. New product lines - New products that allow a company to enter an established market for
the first time.
3. Additions to existing product lines - New products that supplement established product
lines (package sizes, flavors, and so on).
4. Improvements and revisions of existing products - New products that provide improved
performance or greater perceived value and replace existing products.
5. Repositionings - Existing products that are targeted to new markets or market segments.

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6. Cost reductions - New products that provide similar performance at lower cost.
Most new-product activity is devoted to improving existing products. At Sony, over 80

percent of new-product activity is actually devoted to modifying and improving existing
products. Gillette frequently updates its razor systems: It launched the new M3Power wet
shaver for men.Maruthi Suzuki recently launched their new model, swift, in the Indian
market
Launching new products as brand extensions into related product categories is one means of
broadening the brand meaning. Nike started as a running-shoe manufacturer but now
competes in the sports market with all types of athletic shoes, clothing, and equipment.
Armstrong World Industries moved from selling floor coverings to ceilings to total interior
surface decoration. Product innovation and effective marketing programs have allowed these
firms to expand their "market footprint."
Companies that fail to develop new products are putting themselves at 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.
At the same time, new-product development can be quite risky.New products continue to fail
at a disturbing rate.
Several factors also tend to hinder new-product development:
Shortage of important ideas in certain areas. There may be few ways left to improve some
basic products (such as steel or detergents).
Fragmented markets. Companies have to aim their new products at smaller market segments,
and this can mean lower sales and profits for each product.
Social and governmental constraints. New products have to satisfy consumer safety and
environmental concerns.
Cost of development. A company typically has to generate many ideas to find just one
worthy of development, and often faces high R&D, manufacturing, and marketing costs.

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Capital shortages. Some companies with good ideas cannot raise the funds needed to
research and launch them.
Faster required development time. Companies must learn how to compress development
time by using new techniques, strategic partners, early concept tests, and advanced marketing
planning.
Shorter product life cycles. When a new product is successful, rivals are quick to copy it.
Sony used to enjoy a three-year lead on its new products. Now Matsushita will copy the
product within six months, leaving hardly enough time for Sony to recoup its investment.
Managing the Development Process: Development to Commercialization
At this stage the company will determine whether the product idea can be translated into a
technically and commercially feasible product.
Product Development
The job of translating target customer requirements into a working prototype is helped by a
set of methods known as quality function deployment (QFD). The methodology takes the list
of desired customer attributes (CAs) generated by market research and turns them into a list
of engineering attributes (EAs) that the engineers can use. For example, customers of a
proposed truck may want a certain acceleration rate (CA). Engineers can turn this into the
required horsepower and other engineering equivalents (EAs). The methodology permits the
measuring of the trade-offs and costs of providing the customer requirements. A major
contribution of QFD is that it improves communication between marketers, engineers, and
the manufacturing people.
PHYSICAL PROTOTYPE-The R&D department will develop one or more physical

versions of the product concept.
CUSTOMER TESTS When the prototypes are ready, they must be put through rigorous
functional tests and customer tests. Alpha testing, beta testing.
Market Testing
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.
The amount of market testing is influenced by the investment cost and risk on the one
hand, and the time pressure and research cost on the other. High investment-high risk
products, where the chance of failure is high, must be market tested; the cost of the market
tests will be an insignificant percentage of the total project cost. High-risk products—those
that create new-product categories (first instant breakfast drink) or have novel features (first

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gum-strengthening toothpaste)—warrant more market testing than modified products

(another toothpaste brand).
The amount of market testing may be severely reduced if the company is under great time
pressure because the season is just starting or because competitors are about to launch their
brands. The company may therefore prefer the risk of a product failure to the risk of losing
distribution or market penetration on a highly successful product.
CONSUMER GOODS MARKET TESTING In testing consumer products, the company

seeks to estimate four variables: trial, first repeat, adoption, and purchase frequency. The
company hopes to find all these variables at high levels. It will find that many consumers
trying the product but few rebuying it; or it might find high permanent adoption but low
purchase frequency (as with gourmet frozen foods).
BUSINESS GOODS MARKET TESTING Business goods can also benefit from market
testing. Expensive industrial goods and new technologies will normally undergo alpha testing
(within the company) and beta testing (with outside customers).
A second common test method for business goods is to introduce the new product at trade
shows. The vendor can observe how much interest buyers show in the new product, how they
react to various features and terms, and how many express purchase intentions or place
orders.
Commercialization
The company will have to contract for manufacture or build or rent a full-scale
manufacturing facility. Plant size will be a critical decision. When Quaker Oats launched its
100 Percent Natural breakfast cereal, it built a smaller plant than called for by the sales
forecast. The demand so exceeded the forecast that for about a year it could not supply
enough product to stores. Although Quaker Oats was gratified with the response, the low
forecast cost it a considerable amount of profit.
Another major cost is marketing. To introduce a major new consumer packaged good into the
national market, the company may have to spend from $25 million to as much as $100
million in advertising, promotion, and other communications in the first year. In the
introduction of new food products, marketing expenditures typically represent 57 percent of
sales during the first year. Most new-product campaigns rely on a sequenced mix of market
communication tools.
WHEN (TIMING) In commercializing a new product, market-entry timing is critical.
WHWRE (GEOGRARAPHIC STRATEGY) The company must decide whether to launch

the new product in a single locality, a region, several regions, the national market, or the
international market.
TO WHOM (TARGET-MARKET PROSPECTS) Within the rollout markets, the

company must target its initial distribution and promotion to the best prospect groups.

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HOW (INTRODUCTORY MARKET STRATEGY) The company must develop an action

plan for introducing the new product into the rollout markets.
The Consumer-Adoption Process

Adoption is an individual's decision to become a regular user of a product. How do potential
customers learn about new products, try them, and adopt or reject them? The consumer-
adoption process is later followed by the consumer-loyalty process, which is the concern of
the established producer. Years ago, new-product marketers used a mass-market approach to
launch products. This approach had two main drawbacks: It called for heavy marketing
expenditures, and it involved many wasted exposures. These drawbacks led to a second
approach, heavy-user target marketing. This approach makes sense, provided that heavy
users are identifiable and are early adopters. However, even within the heavy-user group,
many heavy users are loyal to existing brands. New-product marketers now aim at consumers
who are early adopters.
Stages in the Adoption Process
An innovation is any good, service, or idea that is perceived by someone as new. The idea
may have a long history, but it is an innovation to the person who sees it as new. Innovations
take time to spread through the social system. Rogers defines the innovation diffusion
process as "the spread of a new idea from its source of invention or creation to its ultimate
users or adopters."
Adopters of new products have been observed to move through five stages:
1. Awareness -The consumer becomes aware of the innovation but lacks information about it.
2. Interest-The consumer is stimulated to seek information about the innovation.
3. Evaluation -The consumer considers whether to try the innovation.
4. Trial-The consumer tries the innovation to improve his or her estimate of its value.
5. Adoption -The consumer decides to make full and regular use of the innovation.
The new-product marketer should facilitate movement through these stages. A portable
electric-dishwasher manufacturer might discover that many consumers are stuck in the
interest stage; they do not buy because of their uncertainty and the large investment cost. But
these same consumers would be willing to use an electric dishwasher on a trial basis for a
small monthly fee. The manufacturer should consider offering a trial-use plan with option to
buy.
Factors Influencing the Adoption Process

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Marketers recognize the following characteristics of the adoption process: differences in

individual readiness to try new products; the effect of personal influence; differing rates of
adoption; and differences in organizations' readiness to try new products.
READINESS TO TRY NEW PRODUCTS AND PERSONAL INFLUENCE Everett

Rogers defines a person's level of innovativeness as "the degree to which an individual is
relatively earlier in adopting new ideas than the other members of his social system." In each
product area, there are pioneers and early adopters. Some people are the first to adopt new
clothing fashions or new appliances; some doctors are the first to prescribe new medicines;
and some farmers are the first to adopt new farming methods. After a slow start, an increasing
number of people adopt the innovation, the number reaches a peak, and then it diminishes as
fewer non-adopters remain. The five adopter groups differ in their value orientations and their
motives for adopting or resisting the new product.
Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with new
products and mastering their intricacies.
.
Early adopters are opinion leaders who carefully search for new technologies that might
give them a dramatic competitive advantage. They are less price sensitive and willing to
adopt the product if given personalized solutions and good service support.
Early majority are deliberate pragmatists who adopt the new technology when its benefits are
proven and a lot of adoption has already taken place.
Late majority are skeptical conservatives who are risk averse, technology shy, and price
sensitive.
Laggards are tradition-bound and resist the innovation until they find that the status quo is no
longer defensible.
Each of the five groups must be approached with a different type of marketing if the firm
wants to move its innovation through the full product life cycle.
Personal influence is the effect one person has on another's attitude or purchase probability.
Although personal influence is an important factor, its significance is greater in some
situations and for some individuals than for others. Personal influence is more important in
the evaluation stage of the adoption process than in the other stages. It has more influence on
late adopters than early adopters. It also is more important in risky situations.
CHARACTERISTICS OF THE INNOVATION Some products catch on immediately

(rollerblades), whereas others take a long time to gain acceptance (diesel engine autos). Five
characteristics influence the rate of adoption of an innovation.
The first is relative advantage—the degree to which the innovation appears superior to
existing products. The greater the perceived relative advantage of using a PVR, say, for easily
recording favorite shows, pausing live TV or skipping commercials, the more quickly it will
be
adopted. The second is compatibility—the degree to which the innovation matches the values
and experiences of the individuals. PVRs, for example, are highly compatible with avid
television watchers. Third is complexity—the degree to which the innovation is relatively

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difficult to understand or use. PVRs are somewhat complex and will therefore take a slightly
longer time to penetrate into home use. Fourth is divisibility—the degree to which the
innovation can be tried on a limited basis. This provides a sizable challenge for PVRs—
sampling can only occur in a retail store or perhaps a friend's house. Fifth is communicability
—the degree to which the beneficial results of use are observable or describable to others.
The fact that personal computers lend themselves to easy demonstration and description helps
them defuse faster in the social system.
Other characteristics that influence the rate of adoption are cost, risk and uncertainty,
scientific credibility, and social approval.
ORGANIZATIONS' READINESS TO ADOPT INNOVATIONS The creator of a new

teaching method would want to identify innovative schools. The producer of a new piece of
medical equipment would want to identify innovative hospitals. Adoption is associated with
variables in the organization's environment (community progressiveness, community
income), the organization itself (size, profits, pressure to change), and the administrators
(education level, age, sophistication). Other forces come into play in trying to get a product
adopted into organizations that receive the bulk of their funding from the government, such
as public schools. A controversial or innovative product can be squelched by negative public
opinion .
TAPPING GOBAL BASIS
Competing on a Global Basis
Many companies have conducted international marketing for decades—Nestle, Shell, Bayer,
and Toshiba are familiar to consumers around the world.
A global industry is an industry in which the strategic positions of competitors in major

geographic or national markets are fundamentally affected by their overall global positions. 4
A global firm is a firm that operates in more than one country and captures R&D,
production, logistical, marketing, and financial advantages in its costs and reputation that are
not available to purely domestic competitors.
A company need not be large, however, to sell globally. Small and medium-sized firms can
practice global nichemanship. For a company of any size to go global, it must make a series
of decisions.
Deciding Whether to Go Abroad

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Most companies would prefer to remain domestic if their domestic market were large enough.
Managers would not need to learn other languages and laws, deal with volatile currencies,
face political and legal uncertainties, or redesign their products to suit different customer
needs and expectations.
Yet several factors are drawing more and more companies into the international arena:
The company discovers that some foreign markets present higher profit opportunities than
the domestic market.
The company needs a larger customer base to achieve economies of scale.
The company wants to reduce its dependence on any one market.
Global firms offering better products or lower prices can attack the company's domestic
market. The company might want to counterattack these competitors in their home markets.
The company's customers are going abroad and require international servicing.
Before making a decision to go abroad, the company must weigh several risks:
The company might not understand foreign customer preferences and fail to offer a
competitively attractive product.
The company might not understand the foreign country's business culture or know how to
deal effectively with foreign nationals.
The company might underestimate foreign regulations and incur unexpected costs.
The company might realize that it lacks managers with international experience.
The foreign country might change its commercial laws, devalue its currency, or undergo a
political revolution and expropriate foreign property.
Because of the conflicting advantages and risks, companies often do not act until some event
thrusts them into the international arena.
These countries are trying to encourage their domestic companies to grow domestically and
expand globally. Many countries sponsor aggressive export-promotion programs to get their
companies to export. These programs require a deep understanding of how companies
become internationalized.
The internationalization process has four stages:
1. No regular export activities.

2. Export via independent representatives (agents).
3. Establishment of one or more sales subsidiaries.
4. Establishment of production facilities abroad.

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The first task is to get companies to move from stage 1 to stage 2. This move is helped by
studying how firms make their first export decisions.9 Most firms work with an independent
agent and enter a nearby or similar country. A company then engages further agents to enter
additional countries. Later, it establishes an export department to manage its agent
relationships. Still later, the company replaces its agents with its own sales subsidiaries in its
larger export markets. This increases the company's investment and risk, but also its earning
potential.
To manage these subsidiaries, the company replaces the export department with an
international department. If certain markets continue to be large and stable, or if the host
country insists on local production, the company takes the next step of locating production
facilities in those markets. This means a still larger commitment and still larger potential
earnings. By this time, the company is operating as a multinational and is engaged in
optimizing its global sourcing, financing, manufacturing, and marketing.
Deciding Which Markets to Enter

In deciding to go abroad, the company needs to define its marketing objectives and policies.
What proportion of foreign to total sales will it seek? Most companies start small when they
venture abroad. Some plan to stay small; others have bigger plans. Ayal and Zif have argued
that a company should enter fewer countries when:
a Market entry and market control costs are high.
£3 Product and communication adaptation costs are high.
H Population and income size and growth are high in the initial countries chosen.
n Dominant foreign firms can establish high barriers to entry.
How Many Markets to Enter
The company must decide how many countries to enter and how fast to expand. Consider
Amway's experience:
A company's entry strategy typically follows one of two possible approaches: a waterfall
approach, in which countries are gradually entered sequentially; or a sprinkler approach, in
which many countries are entered simultaneously within a limited period of time.
Increasingly, especially with technology-intensive firms, they are born global and market to
the entire world right from the outset.
Deciding How to Enter the Market

Once a company decides to target a particular country, it has to determine the best mode of
entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and
direct investment. These five market-entry strategies are shown in Figure 21.2. Each
succeeding strategy involves more commitment, risk, control, and profit potential

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Indirect and Direct Export The normal way to get involved in an international market is
through export. Occasional exportingis a passive level of involvement in which the company
exports from time to time, either on its own initiative or in response to unsolicited orders
from abroad. Active exporting takes place when the company makes a commitment to expand
into a particular market. In either case, the company produces its goods in the home country
and might or might not adapt them to the international market
.
Companies typically start with indirect exporting—that is, they work through independent
intermediaries. Domestic-based export merchantsbuy the manufacturer's products and then
sell them abroad. Domestic-based export agents seek and negotiate foreign purchases and are
paid a commission. Included in this group are trading companies. Cooperative organizations
carry on exporting activities on behalf of several producers and are partly under their
administrative control. They are often used by producers of primary products such as fruits or
nuts. Export-management companies agree to manage a company's export activities for a fee.
Indirect export has two advantages. First, it involves less investment: The firm does not have
to develop an export department, an overseas sales force, or a set of international contacts.
Second, it involves less risk:
Licensing
Licensing is a simple way to become involved in international marketing. The licensor issues
a license to a foreign company to use a manufacturing process, trademark, patent, trade
secret, or other item of value for a fee or royalty. The licensor gains entry at little risk; the
licensee gains production expertise or a well-known product or brand name.
There are several variations on a licensing arrangement. sell management contracts to owners
of foreign hotels to manage these businesses for a fee. The management firm may even be
given the option to purchase some share in the managed company within a stated period.
In contract manufacturing, the firm hires local manufacturers to produce the product.
Finally, a company can enter a foreign market through franchising, which is a more complete
form of licensing. The franchiser offers a complete brand concept and operating system. In
return, the franchisee invests in and pays certain fees to the franchiser. McDonald's, KFC,
and Avis have entered scores of countries by franchising their retail concepts and making
sure their marketing is culturally relevant.

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Joint Ventures
Foreign investors may join with local investors to create a joint venture company in which
they share ownership and control. For instance:
Coca-Cola and Nestle joined forces to develop the international market for "ready-to-drink"
tea and coffee, which currently they sell in significant amounts in Japan.
Procter & Gamble formed a joint venture with its Italian archrival Fater to cover babies'
bottoms in the United Kingdom and Italy.
A joint venture may be necessary or desirable for economic or political reasons. The foreign
firm might lack the financial, physical, or managerial resources to undertake the venture
alone; or the foreign government might require joint ownership as a condition for entry.
Direct Investment
The ultimate form of foreign involvement is direct ownership of foreign-based assembly or
manufacturing facilities. The foreign company can buy part or full interest in a local
company or build its own facilities. General Motors has invested billions of dollars in auto
manufacturers around the world, such as Shangai GM, Fiat Auto Holdings, Isuzu, Daewoo,
Suzuki, Saab, Fuji Heavy Industries, Jinbei GM Automotive Co., and Avto VAZ.
If the market appears large enough, foreign production facilities offer distinct advantages.
First, the firm secures cost economies in the form of cheaper labor or raw materials, foreign-
government investment incentives, and freight savings. Second, the firm strengthens its
image in the host country because it creates jobs. Third, the firm develops a deeper
relationship with government, customers, local suppliers, and distributors, enabling it to adapt
its products better to the local environment. Fourth, the firm retains full control over its
investment and therefore can develop manufacturing and marketing policies that serve its
long-term international objectives. Fifth, the firm assures itself access to the market in case
the host country starts insisting that locally purchased goods have domestic content.
Deciding on the Marketing Program

International companies must decide how much to adapt their marketing strategy to local
conditions. At one extreme are companies that use a globally standardized marketing mix
worldwide. Standardization of the product, communication, and distribution channels
promises the lowest costs. At the other extreme is an adapted marketing mix, where the
producer adjusts the marketing program to each target market.
Between the two extremes, many possibilities exist. Most brands are adapted to some extent
to reflect significant differences in consumer behavior, brand development, competitive
forces, and the legal or political environment. Satisfying different consumer needs and wants
can require different marketing programs. Cultural differences can often be pronounced
across countries.
Deciding on the Marketing Organization

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Companies manage their international marketing activities in three ways: through export
departments, international divisions, or a global organization.
Export Department
A firm normally gets into international marketing by simply shipping out its goods. If its
international sales expand, the company organizes an export department consisting of a
sales manager and a few assistants. As sales increase, the export department is expanded
to include various marketing services so that the company can go after business more
aggressively. If the firm moves into joint ventures or direct investment, the export
department will no longer be adequate to manage international operations.
International Division
Many companies become involved in several international markets and ventures. Sooner or
later they will create international divisions to handle all their international activity.
The international division's corporate staff consists of functional specialists who provide
services to various operating units. Operating units can be organized in several ways. First,
they can be geographical organizations. The operating units may be world product groups,
each with an international vice president responsible for worldwide sales of each product
group. The vice presidents may draw on corporate-staff area specialists for expertise on
different geographical areas. Finally, operating units may be international subsidiaries, each
headed by a president. The various subsidiary presidents report to the president of the
international division.
Global Organization
Several firms have become truly global organizations. Their top corporate management and
staff plan worldwide manufacturing facilities, marketing policies, financial flows, and
logistical systems. The global operating units report directly to the chief executive or
executive committee, not to the head of an international division. Executives are trained in
worldwide operations. Management is recruited from many countries; components and
supplies are purchased where they can be obtained at the least cost; and investments are made
where the anticipated returns are greatest.
Internet marketing

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Internet marketing, also referred to as I-marketing, web-marketing, online-marketing,

Search Engine Marketing (SEM) or e-Marketing, is the marketing of products or services
over the Internet.
The Internet has brought media to a global audience. The interactive nature of Internet
marketing in terms of providing instant response .Internet marketing is sometimes considered
to have a broader scope because it not only refers to the Internet, e-mail, and wireless media,
but it includes management of digital customer data and electronic customer relationship
management (ECRM) systems.
Internet marketing ties together creative and technical aspects of the Internet, including:
design, development, advertising, and sales.
Business models
Internet marketing is associated with several business models:
• e-commerce — this is where goods are sold directly to consumers (B2C) or

businesses (B2B)
• Publishing — this is the sale of advertising
• lead-based websites — this is an organization that generates value by
acquiring sales leads from its website
• affiliate marketing — this is the process in which a product or service
developed by one person is sold by other active sellers for a share of
profits. The owner of the product normally provides some marketing
material (sales letter, affiliate link, tracking facility).
• local internet marketing - this is the process of a locally based company
traditionally selling belly to belly and utilizing the Internet to find and
nurture relationships, later to take those relationships offline.
• blackhat marketing - this is a form of internet marketing which employs
deceptive, abusive, or less than truthful methods to drive web traffic to a
website or affiliate marketing offer. This method sometimes includes
spam, cloaking within search engine result pages, or routing users to
pages they didn't initially request.
There are many other business models based on the specific needs of each person or the
business that launches an Internet marketing campaign.
Advantages
Internet marketing is relatively inexpensive when compared to the ratio of cost against the
reach of the target audience. Companies can reach a wide audience for a small fraction of
traditional advertising budgets. The nature of the medium allows consumers to research and
purchase products and services at their own convenience. Therefore, businesses have the
advantage of appealing to consumers in a medium that can bring results quickly. The strategy
and overall effectiveness of marketing campaigns depend on business goals and cost-volume-
profit (CVP) analysis.
Internet marketers also have the advantage of measuring statistics easily and inexpensively.
Nearly all aspects of an Internet marketing campaign can be traced, measured, and tested.

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The advertisers can use a variety of methods: pay per impression, pay per click, pay per play,
or pay per action. Therefore, marketers can determine which messages or offerings are more
appealing to the audience. The results of campaigns can be measured and tracked
immediately because online marketing initiatives usually require users to click on an
advertisement, visit a website, and perform a targeted action. Such measurement cannot be
achieved through billboard advertising, where an individual will at best be interested, then
decide to obtain more information at a later time..
Because exposure, response, and overall efficiency of Internet media are easier to track than
traditional off-line media—through the use of web analytics for instance—Internet marketing
can offer a greater sense of accountability for advertisers. Marketers and their clients are
becoming aware of the need to measure the collaborative effects of marketing (i.e., how the
Internet affects in-store sales) rather than siloing each advertising medium. The effects of
multichannel marketing can be difficult to determine, but are an important part of
ascertaining the value of media campaigns.
Developed versus Developing Markets

The unmet needs of the emerging or developing world represent huge potential markets for
food, clothing, shelter, consumer electronics, appliances, and other goods. Many market
leaders are rushing into Eastern Europe, China, and India. Colgate now draws more personal
and household products business from Latin America than North America.
The developed nations and the prosperous parts of developing nations account for less than
15 percent of the world's population. which has much less purchasing power? Successfully
entering developing markets requires a special set of skills and plans. Consider how the
following companies are pioneering ways to serve these invisible consumers:
Colgate-Palmolive rolls into Indian villages with video vans that show the benefits of tooth
brushing; it expects to earn over half of its Indian revenue from rural areas by 2003.
An Indian-Australian car manufacturer created an affordable rural transport vehicle to

compete with bullock carts rather than cars. The vehicle functions well at low speeds and
carries up to two tons.
A Latin American building-supply retailer offers bags of cement in smaller sizes to

customers building their own homes.
These marketers are able to capitalize on the potential of developing markets by changing
their conventional marketing practices to sell their products and services more effectively.

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Smaller packaging and lower sales prices are often critical in markets where incomes are
limited. Unilever's 4-cent sachets of detergent and shampoo have been a big hit in rural India,
where 70 percent of the country's population still lives. When Coke moved to a smaller, 200
ml bottle in India, selling for 10 to 12 cents in small shops, bus-stop stalls, and roadside
eateries, sales jumped.
Recognizing that its cost structure made it difficult to compete effectively in developing
markets, Procter & Gamble devised cheaper, clever ways to make the right kinds of products
to suit consumer demand. Due to a boom in consumer spending, Russia has been the fastest-
growing market for many major multinationals, including Nestle, L'Oreal, and IKEA. The
challenge is to think creatively about how marketing can fulfill the dreams of most of the
world's population for a better standard of living. Many companies are betting that they can
do that.
MANAGING A HOLISTIC MARKETING ORGANISATION
Organizing the Marketing Department
Modern marketing departments may be organized in a number of different, sometimes

overlapping ways: functionally, geographically, by product or brand, by market, in a matrix,
by corporate/division.
FUNCTIONAL ORGANIZATION The most common form of marketing organization

consists of functional specialists reporting to a marketing vice president, who coordinates
their activities. Figure 22.1 shows five specialists. Additional specialists might include a
customer service manager, a marketing planning manager, a market logistics manager, a
direct marketing manager, and an Internet marketing manager.
The main advantage of a functional marketing organization is its administrative simplicity. It

can be quite a challenge to develop smooth working relations, however, within the marketing
department.10 This form also can lose its effectiveness as products and markets increase. A
functional organization often leads to inadequate planning for specific products.

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and markets. Products that are not favored by anyone are neglected. Then, each functional
group competes with others for budget and status. The marketing vice president constantly
has to weigh the claims of competing functional specialists and faces a difficult coordination
problem
GEOGRAPHIC ORGANIZATION A company selling in a national market often

organizes its sales force (and sometimes other functions, including marketing) along
geographic lines. The national sales manager may supervise regional sales managers, who
each supervise a few zonal managers, supported by sales officers, sales supervisors and sales
persons. Several companies are now adding area market specialists to support the sales
efforts in high –volume markets.
PRODUCT OR BRAND-MANAGEMENT ORGANIZATION Companies producing a

variety of products and brands often establish a product- (or brand-) management
organization. The product-management organization does not replace the functional
organization, but serves as another layer of management. A product manager supervises
product category managers, who in turn supervise specific product and brand managers.
Product and brand management is sometimes characterized as a hub-and-spoke system. Some

of the tasks that product or brand managers may perform include:
Developing a long-range and competitive strategy for the product.
Preparing an annual marketing plan and sales forecast.
Working with advertising and merchandising agencies to develop copy, programs, and
campaigns.
Increasing support of the product among the sales force and distributors.
Gathering continuous intelligence on the product's performance, customer and dealer

attitudes,
and new problems and opportunities.
Initiating product improvements to meet changing market needs.

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MARKET-MANAGEMENT ORGANIZATION Many companies sell their products to

different markets. Canon sells its fax machines to consumer, business, and government
markets. U.S. Steel sells its steel to the railroad, construction, and public utility industries.
When customers fall into different user groups with distinct buying preferences and practices,
a market-management organization is desirable. A market manager supervises several market
managers (also called market-development managers, market specialists, or industry
specialists). The market managers draw on functional services as needed. Market managers
of important markets might even have functional specialists reporting to them.
Many companies are reorganizing along market lines and becoming market-centered
organizations. Xerox has converted from geographic selling to selling by industry, as have
IBM and Hewlett-Packard.
In a customer-management organization, companies can organize themselves to understand

and deal with individual customers rather than with the mass market or even market
segments.
MATRIX-MANAGEMENT ORGANIZATION Companies that produce many products

flowing into many markets may adopt a matrix organization.A matrix organization would
seem desirable in a multiproduct, multimarket company. The rub is that this system is costly
and often creates conflicts. There is the cost of supporting all the managers.
CORPORATE-DIVISIONAL ORGANIZATION As multiproduct, multimarket

companies grow, they often convert their larger product or market groups into separate
divisions. The divisions set up their own departments and services.
SOCIALLY RESPONSIBLE MARKETING
Effective internal marketing must be matched by a strong sense of social responsibility. 23

Companies need to evaluate whether they are truly practicing ethical and socially responsible
marketing. Several forces are driving companies to practice a higher level of corporate social
responsibility: rising customer expectations, changing employee expectations, government
legislation and pressure, investor interest in social criteria, and changing business
procurement practices.
Business practices are often under attack because business situations routinely pose tough
ethical dilemmas. The issues are complicated: It is not easy to draw a clear line between
normal marketing practice and unethical behavior. At the same time, certain business
practices are clearly unethical or illegal. These include bribery or stealing trade secrets; false
and deceptive advertising; exclusive dealing and tying agreements; quality or safety defects;
false warranties; inaccurate labeling; price-fixing or undue discrimination; and barriers to
entry and predatory competition.
CORPORATE SOCIAL RESPONSIBILITY
Raising the level of socially responsible marketing calls for a three-pronged attack that relies
on proper legal, ethical, and social responsibility behavior.
LEGAL BEHAVIOR Society must use the law to define, as clearly as possible, those
practices that are illegal, antisocial, or anticompetitive. Organizations must ensure that every

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employee knows and observes any relevant laws. For example, sales managers can check that
sales representatives know and observe the law, such as the fact that it is illegal for
salespeople to lie to consumers or mislead them about the advantages of buying a product.
ETHICAL BEHAVIOR Companies must adopt and disseminate a written code of ethics,
build a company tradition of ethical behavior, and hold its people fully responsible for
observing ethical and legal guidelines.
SOCIAL RESPONSIBILITY BEHAVIOR Individual marketers must practice a "social

conscience" in specific dealings with customers and stakeholders. Increasingly, people say
that they want information about a company's record on social and environmental
responsibility to help decide which companies to buy from, invest in, and work for.
SOCIAL MARKETING
Social marketing involves marketing of socially desirable ideas. Family planning, the pulse
polio campaign, and the HIV/AIDS campaign are some of the successful social marketing
programs in India.
Social marketing is a global phenomenon that goes back for years. In the 1950s, India started
family planning campaigns. In the 1970s, Sweden started social marketing campaigns to turn
the country into a nation of nonsmokers and nondrinkers. In the 1970s, the Australian
government ran "Wear Your Seat Belt Campaigns." In the late 1970s, the Canadian
government launched campaigns to "Say No to Drugs," "Stop Smoking," and "Exercise for
Health." In the 1980s, the World Bank, World Health Organization, and Centers for Disease
Control and Prevention started to use the term and promote interest in social marketing.
WHAT IS RURAL MARKETING

Developing of the market in the particular area is defined as rural .hence it
could be aptly said that it encompasses the activities such as developing the
process to meet this objective: Right product at the right price to the right
people at the right time.
Potential of Rural Market
 About 285 million reside in urban India as compared to 742 million in rural
India.
 The number of middle income and high-income household in rural India

has grown from 80 million to 111 million while urban India has grown from
46 million to 59 million.

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 53 per cent of all FMCGs and 59 per cent of all consumer durables are sold
in rural India.
 Rural marketing involves addressing around 700 million potential

consumers, over 40 per cent of the Indian middle-class, and about half the
country's disposable income.
 The Indian rural market is almost twice as large as the entire market of
USA or Russia.
 The rural market for FMCG is Rs. 65,000 crore, for durables Rs. 5,000
crore, for tractors and agri-inputs Rs. 45,000 crore and two- and four-
wheelers, Rs. 8,000 crore. In total, a whopping Rs. 1,23,000 crore.
 Rural India buys
 Soft Drinks approx 45% of all soft drinks
 Almost 50% motor cycles
 Approx 55% of cigarettes
 Half the total market for TV, Fans, pressure cooker, bicycles, Washing
soap, tea, blades, salt,
 Toothpowder, Coca Cola is growing over 35% in Rural areas compared to

Over 22 % in Urban
 Consumer durables in Indian Villages risen sharply
 TV Sales up by 200%
 Motorcycle by 77%
 There are 3000 households in rural area that earn > 50 lakhs

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DEVELOPMENTAL MARKETING
Developmental marketing is a process through which
awareness is created
 could be demonstration
 could be presentation
 Free samples
 could be through up eg tie up with Bank, tie up with Petrol/Diesel pumps
(Hyndai did with IOC and PNB and SBI subsidiaries >30% sale of Hyndai
from Rural/Semi Urban areas)
Colgate – program Operation Jagruti Switch from Charcoal to Colgate tooth

powder
HLL - Free samples of Lifebuoy, Cavin Kare – Free sample of Chick Shampoo
RURAL CONSUMER BEHAVIOUR

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Consumer Buyer Behavior refers to the buying behavior of final consumers - individuals and
households who buy goods and services for personal consumption. All of these final
consumers combined makeup the consumer market. The consumer market in this case is
Rural India. About 70% of India's population lives in rural areas. There is more than 600,000
village’s inthe country as against about 300 cities and 4600 towns. Consumers in this huge
segment have displayed vast differences in their purchase decisions and the product use.
Villagers react differently to different products, colors, sizes, etc. in different parts of India.
Thus utmost care in terms of understanding consumer psyche needs to be taken while
marketing products to rural India. Thus, it is important to study the thought process that goes
into making a purchase decision, so that marketers can reach this huge untapped segment.
Factors influencing buying behavior
The various factors that effect buying behavior of in rural India are:
1. Environmental of the consumer - The environment or the surroundings, within which the
consumer lives, has a very strong influence on the buyer behavior, eg. Electrification, water
supply affects demand for durables.
2. Geographic influences - The geographic location in which the rural consumer is located
also speaks about the thought process of the consumer. For instance, villages in South India
accept technology quicker than in other parts of India. Thus, HMT sells more winding
watches in the north while they sell more quartz watches down south.
Influence of occupation – The land owners and service clan buy more of Category II and
Category III durables than agricultural laborers/farmers.
3. Place of purchase (60% prefer HAATS due to better quality, variety & price) Companies
need to assess the influence of retailers on both consumers at village shops and at hats.
4. Creative use of product ex Godrej hair dye being used as a paint to colour horns of oxen,
washing machine being used for churning lassi. The study of product end provides
indicators to the company on the need for education and also for new product
ideas.
7. Brand preference and loyalty (80% of sale is branded items in 16

product categories)
Cultural factors influencing consumer behavior
Cultural factors exert the broadest and deepest influence on consumer behaviour. The
marketer needs to understand the role played by the buyer's culture. Culture is the most basic
element that shapes a person’s wants and behaviour. In India, there are so many different
cultures, which only goes on to make the marketer's job tougher. Some of the few cultural
factors that influence buyer behaviour are:
1. Product (colour, size, design, shape): There are many examples that support this
point.
For example, the Tata Sumo, which was launched in rural India in a white colour, was not
well accepted. But however, when the same Sumo was re-launched as Spacio (a different
name) and in a bright yellow colour, with a larger seating capacity and ability

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to transport good, the acceptance was higher. Another good example would be Philips audio
systems. Urban India looks at technology with the viewpoint of ‘the smaller the
better’. However, in rural India, the viewpoint is totally opposite. That is the main reason for
the large acceptance of big audio systems. Thus Philips makes audio systems, which are big
in size and get accepted in rural India by their sheer size.
2. Social practices : There are so many different cultures, and each culture exhibits different
social practices.
For example, in a few villages they have common bath areas. Villagers used to buy one
Lifebuoy cake and cut it into smaller bars. This helped lifebuoy to introduce smaller 75-gram
soap bars, which could be used individually.
3. Decision-making by male head : The male in Indian culture has always been given the
designation of key decision maker.
For example, the Mukhiya’s opinion (Head of the village), in most cases, is shared with the
rest of the village. Even in a house the male head is the final decision maker. In rural areas,
this trend is very prominent.
4. Changes in saving and investment patterns From gold, land, to
tractors, VCR’s, LCV’s
The Differences in Buyer behaviour
Rural Urban
· Conservative · Innovative
· Values, aspirations, needs -
traditional and based on
culture, social customs,
beliefs
· Follow trends
(including International)
· Eldest Male Member KDM · Varies
· Collective Sanction · Unheard of
Brand Protection in India
This is the latest initiative by the consumer goods industry in India in association with
Federation of Indian Chambers of Commerce and Industry to fight a long standing menace -
that of counterfeits and pass-off products. Be it Soap, shampoo, toothpaste or hair oil, biscuit,
soft-drink or confectionery, batteries or balm - go to any market in India and you will find a
plethora of products that are available in look alike packages under slightly twisted names –
Fair & Lovely could be Pure & Lovely or a Parachute could be Parashudh. The packaging,
color and design of the pass-off product is so similar to the original, that it is impossible to
distinguish between the two if you are not the sort who reads product names before picking
them up. Leave alone the vast uneducated masses that live in this country, hardly any of the
educated informed consumer would also be in a habit of verifying the accuracy of the product
name or manufacturer before buying goods at the local kirana shop. A recent study conducted
by AC Neilson reveals that 80% of consumers realize they have brought a counterfeit or fake
product only after they have consumed it. And there may be a large number of those who
never realize the same even after consumption! While the problem of fakes is witnessed all
across the country, it is more severe in the North. Counterfeiting is rampant in the states of
Delhi, Punjab, Haryana and UP. Procter & Gamble, which has embarke don a major drive
against counterfeits of its popular Vicks Action 500brand, found through a study that 54 strips
in every 100 strips of Action 500 being sold in the market were counterfeits. The company’s
sales growth in this sector has been stated to have been affected by10% due to this menace of

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counterfeits. Counterfeits and pass-off products are reportedly affecting sales of several
brands to the extent of 20-30%. It is estimated that the counterfeit products contribute .
Product Market Selection: While launching product variants for different markets, a
company has to consider two things:-- Reach: the company must ensure that the rural area
they are targeting should be easily reachable by road and should also bewell connected with a
major town nearby. This is important because regular supplies have to be transported to the
village from the major town.- Cost-effectiveness: in order to supply to the village area, a
company must assess their costs and other charges so as tomaximize returns. Only if cost-
effective, must the market be selected and product variants (if any) be launched.
Product Features: this is the most important factor in reinforcing positioning because rural
folk will purchase products only if they have functional benefits and features that appeal.-
The consumer should experience the product benefits. They should be able to use, touch and
feel the product, and benefit from the it, only then will they buy it again. –
Demonstration: an example of this would be Colgate showing video films wrestler with a
weak tooth; highlighting the importance of oral hygiene; and other examples would include
free shampoo washes,
etc. and companies can get very innovative with their demonstrations. –
Product Education: companies need to educate the rural consumers about their products and
their advantages.
E.g. Colgate Palmolive shows video films on oral hygiene to the rural masses. Most of the
companies build their strategy linking consumer perceptions and their product features. –
Size: sizes are altered or increased in accordance with the consumer perceptions which can be
found out by surveys and by in depth interviews with the rural consumer.
E.g. torches and audio systems, Tata Spacio was a bigger rural version of the Tata Sumo. –
Shape: companies have changed product features like wide bodied cookers with handles on
both the sides for ‘chulha’ cooking. - Colour:
An example would that mostly all hair oils are green in colour. Tata launched the Spacio in
a bright yellow colour. - Consistency: Cadbury came out with harder chocolates so as to
delay the melting process. - Taste: the villagers’ tastes and preferences should be
incorporated in food items.
- Technology: companies came out with better technology to enable their products to perform
better under the tough rural circumstances. E.g. Philips eye-fi (to improve satellite reception),
LML scooters with stronger suspension, electronic instruments to
withstand voltage fluctuations and Philips also came out with power free radios.
Packaging: (Sachets, bubble packs) Packaging of the product largely depends on these
factors: - Affordability: companies should consider the fact that rural consumers largely
depend on daily wage. A product should be packaged by keeping this in mind.
E.g. Videocon came out with a washer priced at Rs. 3000. –

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Perceptions: social and cultural perceptions should be taken care of while packaging the
product. Eg. Tata Spacio came out in a bright yellow colour and not in the traditional white
colour because the rural people in some parts of India perceive white as a symbol of death.
- Ability to read: the product should be packaged so that the rural consumer should identify it.
since literacy levels are low symbols, logos and visuals are important associating it with a
symbol.
E.g. lightning picture of Rin. Pricing: pricing should be kept in accordance with the financial
strength of the villagers or the people one aims to target. One should remember that a major
part of the rural consumer base earn a daily wage, so their savings are minimal. A company
should not emphasize on price but on value. It should provide value to the rural consumer for
the least possible price.
The Consumption Basket of the villagers is allocated among different needs among the
villagers and they prioritize and spend their meager earnings. Examples of good pricing
strategies are Philips 14” TV for Rs. 8000 which provides good value for the price and
Videocon washer for Rs. 3000.
The Future of Marketing
Top management has recognized that past marketing has been highly wasteful and is
demanding more accountability from marketing.
Going forward, there are a number of imperatives to achieve marketing excellence.
Marketing must be "holistic" and less departmental. Marketers must achieve larger influence
in the company if they are to be the main architects of business strategy. Marketers must
continuously create new ideas if the company is to prosper in a hypercompetitive economy.
Marketers must strive for customer insight and treat customers differently but appropriately.
Marketers must build their brands through performance, more than through promotion.
Marketers must go electronic and win through building superior information and
communication systems.
In these ways, modern marketing will continue to evolve and confront new challenges and
opportunities. As a result, the coming years will see:
The demise of the marketing department and the rise of holistic marketing.
The demise of free-spending marketing and the rise of ROI marketing.

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CASE STUDIES
153-169

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Case study I
Introduction
The strategic road network in England consists of motorways and major ‘A’ roads. It represents only 3% of all roads in
England yet carries a third of all road traffic and two thirds of all heavy freight. The network is valued in excess of £84
billion and is vital for commerce and industry as well as day-to-day social activities. It connects towns and cities with ports
and airports and is a key part of the transport infrastructure providing access to and from factories, shops, hospitals and
services. The Highways Agency was established in 1994. It is an executive agency of the Department for Transport and has
responsibility for the operation of the strategic road network in England, within the context of the government’s aim of a
sustainable transport system which will support economic growth.
The Agency’s aim is: ‘safe roads, reliable journeys, informed travellers’. Its functions include tackling congestion, providing
accurate information for drivers and improving safety. The task of maintaining and operating the strategic road network is
challenging. Since the first motorway was opened 50 years ago, the volume of traffic has increased massively. Vehicle use
has risen by more than 80% since 1980 and today’s motorways carry more freight and passengers than was ever envisaged
by planners. The Highways Agency operates within a complex external environment.
The government’s transport policy sets the overall agenda, but several other external factors impact on the Agency’s
operations. PEST analysis is a useful tool to analyse these external forces and help inform future strategy and set priorities.
This case study looks at the political, economic, social and technological factors that impact on the Highways Agency.
Political factors
The Highways Agency works in the interests of the public and not for private financial gain – this is the same for all
publicly-funded bodies. Its overall remit is set by Parliament with transport policy the responsibility of the Department for
Transport. Political factors therefore play a key role in shaping its activities and priorities. Ministers are held to account in
Parliament for the performance of the Department and its agencies, including the Highways Agency. The Agency has a duty
to spend money wisely and cost-effectively and through Parliament.
the Agency is ultimately accountable for its work to the public. Taxpayers’ money maintains the road network and taxpayers
have a right to know how their money is spent. The government sets the policy framework for the Highways Agency,
therefore the Agency can be affected by political changes of direction. For instance, a change of government policy could
switch some resources away from roads to rail transport. The Highways Agency implements and informs government policy:
• One key priority is tackling traffic congestion. This affects the part of the Agency’s aim to deliver ‘reliable journeys’ and
is an issue that affects both private road users and the economy as a whole. The Highways Agency is working to increase the
capacity of the existing motorway network. It has tested a system called Active Traffic Management (ATM) on the M42
near Birmingham. ATM uses modern technology to allow motorists to drive on
Highways Agency – PEST analysis
External environment: factors outside the business over which it has little control.
Political factors: changes arising from government initiatives or public opinion.
Traffic congestion: build up of traffic leading to slow moving or stationary vehicles, causing
hold-ups and delays.
the hard shoulder during peak periods. This improves the flow of traffic and increases
capacity when the road is at its busiest. The results have been good and drivers can predict
with more confidence how long their journeys will take. For example, someone commuting
to work every day can be sure they arrive on time. Businesses can improve the productivity
of their commercial vehicle fleets. For example, a national distributor needs to be able to
promise its customers such as major supermarkets, that products will arrive in time. A vehicle
is not being ‘productive’ when it is sitting in a traffic jam. The fact this system has proved
effective has influenced the government to use it on more motorways. Improving road safety
is another priority. The Department for Transport has national targets to reduce the number of
people injured or killed on roads.
Economic factors

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A central aim of government policy is to encourage economic growth. In a growing

economy, businesses produce and sell more goods and services. More jobs are created. The
country becomes more prosperous. The Highways Agency supports economic growth,
because an effective major road network directly helps business and industry. Fact ories need
raw materials, retailers need to keep their shelves well stocked or risk losing business. Even
internet businesses like Amazon need to distribute physical products to customers. To
develop the transport infrastructure, the government is committed to increasing capacity on
some of the busiest roads. Increased capacity means more goods can be carried and people
will experience less congestion. Although this is a short-term cost, it will reap long-term
benefits. The Highways Agency is responsible for spending taxpayers’ money effectively and
efficiently when improving the road network. However, England is a densely populated
country and it is not possible to continue to build more and more new roads as this has
financial, social and environmental impacts. For example, the paths of new roads might have
to pass through countryside or close to housing. The Agency is continuing to deliver
conventional road widening schemes. At the same time, as part of the new National Roads
Programme it is also extending hard shoulder running to more key sections of motorway to
help keep traffic moving. This will provide value for money to the taxpayer and improve the
efficiency of the strategic road network. In 2009 the UK economy went into recession.
Rather than growing, the economy is contracting. People and businesses have cut back their
spending. Many businesses have had to lay off workers. Although this may result in a short
term fall in traffic levels, in the longer term traffic is still forecast to increase. This will put
more pressu e on the motorways so the case for increasing capacity still remains. The
recession has other potential implications for the Highways Agency - by spending money on
road improvements the Highways Agency can have an impact on the business cycle. To
stimulate the economy out of recession, the government needs to encourage people and
businesses to spend. It can try to do this by using a combination of monetary and fiscal
measures. A monetary measure involves altering interest rates; fiscal measures concern levels
of taxation and public spending. Many economists argue that governments should respond to
recessions by increasing public spending. This is known as providing a fiscal stimulus -
building Britain’s
The government is using the Highways Agency to boost public spending and stimulate the
economy by bringing forward £400 million of spending on new and improved roads. Up to
£100 million of this money is being put towards bringing forward the project to upgrade the
A46 in Nottinghamshire to dual carriageway standard and provide bypasses for two villages.
It will now be completed and open to traffic some five years earlier than originally planned.
The Agency will also deliver extra works in order to get motorways ready for more hard
shoulder running schemes and carry out numerous additional smaller road improvement
schemes. By bringing forward spending on roads, contractors will be hired to do the work.
They will buy raw materials from other companies and this will help drive the business cycle.
Economic activity is driven by sales – as order books fill up, firms can grow. They then hire
workers and workers spend wages. This has the eventual effect of increasing consumer
demand.
Social factors
The Highways Agency’s work is directly affected by social factors. People’s
lifestyles,attitudes and opinions have a direct bearing on traffic volumes. As society changes,
the Agency aims to meet the needs of today’s road users by ‘putting our customers first in

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everything we do’. When motorways were first designed in the 1950s, traffic volume was
much lower. Today most households own a motor vehicle and many people choose to drive
rather than use
public transport. Why should it take a long time to travel by car because the roads are so
busy? All of this
leads to greater congestion and increases the need for more road capacity. In addition to
expanding road capacity, the Highways Agency is taking socially acceptable measures to
help road users make their journeys safely, reliably and without unforeseen delay. It is:
• providing motorists with better traffic information – both before and during their journeys –
to help them plan routes and make choices about when to travel
• aiming to influence people’s travel behaviour. It is working with large companies to
encourage their staff to share car journeys to and from work
• patrolling the motorways 24 hours a day working hard to reduce the traffic hold-ups caused
by incidents by clearing them as quickly as possible
• carrying out more roadworks at night when the traffic is quietest and delays can be limited.
It is also responding to another major public concern: the impact of human activity upon the
planet. The Highways Agency adopts an environmentally friendly approach to traffic
management. By keeping the traffic moving, emissions can be reduced as drivers do not have
to constantly accelerate and brake. The Agency also protects wildlife that lives near the road
network such as bats, otters and birds. It often uses recycled materials in its road building
schemes and is one of the biggest tree planters in the country.
Technological factors
Using technology helps the Highways Agency respond to challenges posed by political,
economic and social factors:
• The Agency uses an array of technology to monitor and control road traffic. CCTV is used
to monitor conditions on the road network. Control room staff across the country use sensors
in the road surface and over 1,200 CCTV cameras to quickly identify any emerging
problems. Information is shared with broadcasters such as the BBC to keep
drivers informed. In the event of an incident or breakdown, control room staff can quickly
direct Traffic Officers to the scene.
• Over 1,200 kilo metres of the motorway network are now covered by the Motorway
Incident Detection and Automatic Signalling (MIDAS) system. This consists of sensors in the
road surface, spaced at intervals of around 500 metres, which can detect slow moving or
queuing traffic. The electronic signs on the road then automatically display reduced speed
limits and messages such as ‘QUEUE AHEAD’. The idea is to warn drivers that there may be
slow
moving traffic ahead so that they can slow down and avoid having an accident. On some
motorways this is taken a stage further by setting compulsory variable speed limits. This
system helps to keep motorists driving at a speed which the system has calculated as the best
speed to keep the traffic flowing. In the Active Traffic Management system it is also used to
calculate the best time to open up the hard shoulder as an extra lane to help keep the traffic
moving.
• At the end of March 2009, over 85 busy junctions also now have ramp metering, which uses
traffic lights on entry slip roads to control the flow of vehicles on to the motorway. It lets
vehicles onto the motorway a few at a time to prevent traffic building up. The Agency is
investigating other locations where ramp metering can help to reduce congestion.

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• By giving road users the latest information on traffic conditions they can choose to take
another route, allow extra time and/or delay their journey. The Agency helps by giving
motorists the most up-to-date information where and when they want it: via its own DAB
digital radio station, Traffic Radio, which is also available online, information points at some
motorway service stations and via its Traffic England website or the ‘mobile-friendly’
website.
• On the road itself, the Variable Message Signs (VMS) system displays live messages to
road users telling them how long it will take them to drive to certain key motorway junctions
in the current traffic conditions.
Conclusion
A PEST analysis is a useful technique for reviewing the external forces that impact on an
organisation. The technique offers a structured basis for reviewing the organisation’s strategic
direction and for considering future priorities. In the case of the Highways Agency, as a
government agency, political factors play a key role in shaping its activities and priorities. It
acts in the public interest, has priorities shaped by government targets and is accountable to
Parliament. Economic factors influence its spending decisions, social factors shape the
demand for the Agency’s services and technological developments can offer innovative
solutions to some of the challenges in managing a modern road network. By understanding
these factors in the external environment, the Highways Agency can shape its activities
appropriately. This is reflected in the current programme of ‘managed motorways’ which
brings together many of the innovations to maximise use of the current infrastructure.
Questions
1. Describe the main external factors that a business organisation needs to be aware of.
2. What are the main advantages for the Highways Agency of using a PEST analysis?
3. Analyse the impact of each of the elements in the PEST analysis on a private sector
business (of your choice). What differences (or similarities) might there be compared to the
Highways Agency?
4. In your view, why does a PEST analysis help to shape strategic direction? Does this really
matter in the public sector?

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CASE STUDY II
INTRODUCTION
The Kellogg’s Cornflake Company began in 1906 with the Kellogg brothers who originally
ran a sanatorium in Michigan, USA. They experimented with different ways to cook cereals
without losing the goodness. Their philosophy was ‘improved diet leads to improved health’.
Between 1938 and the present day Kellogg’s opened manufacturing plants in the UK,
Canada, Australia, Latin America and Asia. Kellogg’s is now the world’s leading breakfast
cereal manufacturer. Its products are manufactured in 19 countries and sold in more than 160
countries. It produc es a wide range of cereal products, including the well-known brands of
Kellogg’s Corn Flakes, Rice Krispies, Special K, Fruit n’ Fibre, as well as the Nutri-Grain
cereal bars. Kellogg’s business strategy is clear and focused:
• to grow the cereal business – there are now 40 different cereals
• to expand the snack business – by diversifying into convenience foods
• to engage in specific growth opportunities.
By acting responsibly, businesses win respect and trust from communities, governments,
customers and the public. This enables the business to grow. In the community, Kellogg’s is
known for its approach to Corporate Social Responsibility (CSR). For example, its
programme to promote the benefits of breakfast clubs has provided over one million
breakfasts to schoolchildren throughout the UK. Businesses focus primarily on the creation of
profit but increasingly understand that their social and environmental impacts are important.
Kellogg’s believes in acting responsibly in all sections of the supply chain. This is a better
long-term business model for both the organisation and its customers. Amongst other
activities, it aims to do this by reducing energy and emissions in manufacturing and
distribution and improving packaging. Kellogg’s Global Code of Ethics demonstrates a
commitment to act respectfully and ethically. ‘Our mission is to drive sustainable growth
through the power of our people and brands by better serving the needs of our consumers,
customers and communities.’ This case study shows how Kellogg’s fulfils this mission in the
later parts of the supply chain from manufacturing to shelf.
The supply chain

The industrial supply chain consists of three key sectors:
1. Primary (or extractive) sector - providing raw materials such as oil and coal or food
stocks like wheat and corn. Some raw materials are sold immediately for consumption, such
as coal to power stations. Others are used further up the supply chain to be made into finished
goods.
Supply chain from manufacturing to shelf

2. Secondary (or manufacturing) sector industries make, build and assemble products.
Examples include car manufacturers or bakers who use primary products. For example,
Kellogg’s purchases rice for Rice Krispies and corn for Cornflakes.
3. Tertiary sector industries do not produce goods. They provide services such as in
banking, retailing, leisure industries or transport. From start to finish of the supply chain a
range of agencies or departments are involved.

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These include research, quality, purchasing, sales, and transport and distribution. As part of
their business strategy, companies need to consider how best to acquire and distribute raw
materials. Businesses such as Kellogg’s recognise the importance of storing and transporting
products effectively. Kellogg’s seeks to organise transportation and storage of materials and
finished products to minimise costs and environmental impact. Increasingly governments are
working to encourage businesses and individuals to reduce their carbon footprint and the
effects of global warming. In the supply chain, there are a number of areas where waste can
be identified. Lean
production is an inventory system enabling the streamlining of processes and elimination of
waste. Kellogg’s regularly evaluates its production methods to ensure that they give the
required outcomes and that waste is reduced. This aids competiveness and profitability by
lowering overheads and unit costs. In the past, businesses thought it was more effective if
they carried out several parts of the supply chain, like manufacturing and transportation,
themselves. To meet requirements and provide
customer satisfaction, this meant deliveries taking place frequently and often without
consideration of impacts on the environment. An urgent order might result in a half-empty
vehicle making the delivery to a waiting customer. If this happened regularly it would be a
waste
of time and fuel. Consumers and governments now look for more environmentally-friendly
methods of production and distribution systems. It is therefore more efficient and cost-
effective
for Kellogg’s to specialise in the area in which it is expert – manufacturing. It does not have
its
own distribution fleet but uses partners for its transport needs.
The supply chain – the secondary sector
Kellogg’s is a secondary sector business. It obtains its raw materials of wheat, corn, cocoa,
rice and sugar from primary suppliers around the world. These materials help make over 40
different breakfast cereals and snacks to sell to customers through the tertiary sector. It is a
large-scale manufacturer and stores sufficient stocks to meet customer orders. As part of its
Research and Development (R&D) programmes, it develops recipes to extend its range of
cereals and snacks.
Large-scale manufacturers like Kellogg’s need to consider many different aspects of their
operations:
• where to locate the business – this could be near to materials’ suppliers. For example, power
stations are often sited near to coal sources to reduce delivery costs. Frozen peas factories
may be near farms to ensure the product is fresh. Kellogg’s ingredients are grown in many
countries. It is more important for its manufacturing sites to be near to distribution channels
and customers so products can reach shelves quickly.
• size and scale– they need large factories with adequate space for equipment and production
processes. They also need to accommodate the frequent delivery of incoming materials and
outgoing finished goods.
• where and how materials and finished goods are to be stored until needed for sale. As part
of Kellogg’s manufacturing process it packages products ready for immediate distribution.
• where its customers are – Kellogg’s does not sell its breakfast cereals directly to consumers.
It uses intermediaries like wholesalers, supermarkets, high street stores and hotels.
Transportation and storage occur between all stages of the supply chain. Kellogg’s largest
UK production plant is at Trafford Park in Manchester. One of its storage depots was 15
miles away at Warrington. Kellogg’s moved this storage to a new warehouse site in Trafford
Park, only one mile away from its production base. This provides specialist energy efficient
warehousing of stock 24 hours a day. To improve its distribution, Kellogg’s collaborates with

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TDG, a logistics specialist. This reduces transport costs considerably and is energy-efficient.
Kellogg’s has reduced both its carbon footprint and costs as a result.
The Food and Drink Federation (FDF) is an umbrella organization for food and drink
manufacturers and has called on its members to improve their environmental performance by
reducing:
1. levels of packaging to consumers

2. use of water during production
3. impact of transportation
4. waste to landfill
5. energy use during production.
Through the FDF, Kellogg’s has signed an agreement with 21 major companies to improve
water efficiency, reduce wastage and cut CO2 emissions. Together these companies aim to
save 140 million litres of water per day. This will reduce their water bills by £60 million each
year. Kellogg’s has also joined with the international company Kimberley Clark, which
makes paper products like tissues, to reduce carbon emissions by sharing delivery services.
Kellogg’s now has targets in these areas and where possible builds these aspects into Service
Level Agreements with partner companies in the primary, secondary and tertiary sectors.
The supply chain – tertiary sector
The final stage in the industrial supply chain is the tertiary sector. The tertiary sector provides
services. It does not manufacture goods. This sector involves:
• retailers like supermarkets that purchase manufactured goods from secondary sector
businesses and sell them to the consumers
• service companies who may deal in, for example, finance, computer systems, warehousing
or transportation.
Storing stock and transporting it are key activities that link all three parts of the supply chain.
Kellogg’s employs specialist transportation and storage companies to be responsible for all
the logistics aspects of its business. One of Kellogg’s partners, TDG, stores and transports
pallets of Kellogg’s cereals. This allows Kellogg’s to concentrate on its specialist area of
manufacturing cereals and other food products. Kellogg’s also shares transportation with
another manufacturer, Kimberley Clark. This has reduced distribution costs, helping keep
Kellogg’s products competitive. The system helps reduce the number of part-full or empty
vehicles on the road. This saves time, road miles and provides additional benefits of reducing
CO2 emissions. Kellogg’s has major relationships in the tertiary sector. These include the
major retail supermarkets such as Tesco and ASDA and some of the wholesale sector such as
Makro. Kellogg’s relies on retailers to help them promote a good relationship between the
consumer and its products. To drive sales, Kellogg’s is involved in initiatives that help add
value for retailers. An example of this is the Shelf Ready Unit that Kellogg’s developed with
Tesco. This displays Kellogg’s products easily and effectively. This means that the
supermarket uses less staff time (and cost) in setting up a display. The display is attractive
and easier for consumers to choose from, increasing turnover for Kellogg’s and Tesco.
Managing the supply chain effectively
Having the right marketing mix ensures businesses have the right product, in the right place,
at the right time. Kellogg’s manufactures the right products based on research into consumer
needs. It manages the distribution channels to place its products in stores. Its focus on cost
effective systems ensures its prices are competitive. It works with retailers to improve
promotion of its products. Retailers want to hold limited stocks of products to reduce
warehousing costs. Kellogg’s uses a system called just-in-time to provide an efficient stock
inventory system.

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Just-in-time means that just enough product is made to fulfil orders and limited stock is kept
Kellogg’s needs to get the balance right at each section of the supply chain. Late deliveries or
inability to deliver due to a lack of products might make retailers buy from competitors.
Through its collaborations with TDG and by relocating some of its warehousing, Kellogg’s
now has a more efficient distribution system. Computerised stock holding systems ensure
shelves are always full and orders are delivered on time. This helps Kellogg’s to keep stocks
to a minimum. It also helps customers like ASDA and Tesco to reduce their stocks too.
This illustrates the effectiveness of Kellogg’s supply chain management (SCM). This was
achieved by a collaboration of industries within the supply chain. Each company works
within their specialist area to provide products and services to consumers.
a) Distribution has improved through the collaboration of Kellogg’s, Kimberley Clark and
TDG.
Storage, in itself, is investment without returns. Every day materials or products are on a
shelf, they are costing money without earning any profit. Retailers do not want a warehouse
that is unnecessarily full and neither do manufacturers. When deliveries are made, lorries
need to be full to minimise unit costs of transportation. This collaboration has helped all of
these aspects. Customers are guaranteed deliveries on time because stocks are monitored
effectively. Deliveries are cost effective as lorry capacity is used effectively. Retailers like
ASDA and Tesco benefit as they are kept stocked without storage costs. Therefore their
advertising yields good returns, as customers are always able to buy Kellogg’s products.
b) The lean production system streamlines processes and eliminates waste. Computerized
warehousing means that products are manufactured efficiently, then transported straight from
the warehouse to retail customers. This avoids delay to customers. TDG keeps the warehouse
costs low through computerized heating and specialist transportation skills. The computerized
stockholding shows immediately when shelves are empty. This then automatically generates
orders to the manufacturing base at Trafford Park to replenish stocks. This minimizes waste
and the lower costs have increased Kellogg’s profits. This also helps the company to keep
prices competitive, which keep customers happy and loyal. The effect on the environment is
good too as heating and fuel costs are minimised.
Conclusion
The three sections of the industrial supply chain need to interact to ensure goods or services
reach consumers. The efficient delivery of the product to the consumer at the right price, in
the right place and at the right time will result in good business for each link of the chain.
This takes strategic planning and effective collaboration with all partners. Specialisation is
more cost-effective for Kellogg’s and partnering with other industry specialists reduces costs
to the business, the customer and the environment. Kellogg’s champions socially responsible
operations. Through effective supply chain management, it benefits itself, the environment
and other businesses.
Questions
1. Name the three sectors of the supply chain. On what occasions could certain sections of
the primary sector operate as retailers?
2. Give three examples of how Kellogg’s demonstrates good supply chain management.
How can Kellogg’s make improvements both for its business and for the environment?
3. Why is it important for Kellogg’s to build good relationships with businesses in the tertiary
sector

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CASE STUDY III

Marketing mix: a series of variable factors such as the four Ps
(product/price/place/promotion) used by an organization to meet customer needs.
Introduction
The NIVEA® brand is one of the most recognized skin and beauty care brands in the world.
NIVEA crème was first introduced in 1911 and the NIVEA brand now extends to 14 product
ranges worldwide from sun care to facial moisturizers, deodorant and shower products. In
1980 when Beiersdorf, the international company that owns NIVEA, launched its NIVEA
FOR MEN® range internationally, it broke new ground with its aftershave balm product. It
was the first balm on the market that did not contain alcohol, which can irritate the skin. It
proved to be very popular with consumers.
In 1993, NIVEA FOR MEN developed a fuller range of male skincare products. This
reflected the growing social acceptance of these products with male consumers. The brand
was able to exploit its knowledge of the skincare market. The company’s research showed
men mainly wanted skincare products that protected the face after shaving. Men were willing
to buy products that helped calm and soothe irritated skin caused by shaving. The NIVEA
FOR MEN brand was launched in the UK in 1998.
At that time total annual sales of men’s skincare products (facial and shaving preparations) in
the UK were only £68 million with the male facial product sector worth only £7.3 million.
Sales of male skincare products have grown steadily since the launch of NIVEA FOR MEN
and the market in 2008 was worth over £117 million with male facial products worth £49
million.
NIVEA FOR MEN wanted to increase its share of the UK male skincare market. This case
study examines how NIVEA re-launched the NIVEA FOR MEN range in 2008. This was
part of its overall plan to develop the range in the UK. It shows how the company developed
a marketing plan for the re launch and organized its marketing activities to achieve its aims
and objectives. The study focuses on how a company can respond to changes in consumer
expectations, external influences and business aims to achieve those objectives.
What is a marketing plan?

A business needs to set its overall direction for the company through a business plan. This
plan sets out how the company is to achieve its aims. The aims and objectives of a business
inform and shape its business plan. A vital part of the overall business plan is the marketing
plan. The relationship between the two plans is shown in the diagram.
Developing a marketing plan
Marketing plan: A plan to identify and then meet consumers’ requirements.
Business plan: describes the future activities of the business, across financial, production,
and resourcing issues.
Marketing involves identifying, anticipating and satisfying customer needs. A marketing plan
takes the stated aims and objectives and then puts in place a series of marketing activities to
ensure those objectives are achieved. Marketing plans can cover any time period, but

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normally set out activities for the next one to five years at either a business or brand level.
The main sections of the plan cover:
• SWOT and competitive analysis – to assess where the business or brand is currently and
what competitors are doing
• objectives – what the plan needs to achieve
• the marketing strategy – how the objectives will be achieved
• sales forecast – by how much sales are likely to increase
• budget – how much the marketing activities will cost and how the plan will be financed
• evaluation – how outcomes will be monitored and measured.
There is no set model for a marketing plan. The structure of the plan – and the amount of
detail – will depend on the size of the brand, the timescale involved and how the market and
economy is behaving. However, NIVEA’s marketing plan for the relaunch of NIVEA FOR
MEN follows closely the outline described here.
Assessing the market

The first step in devising a marketing plan is to conduct an evaluation of the business, its
brands and products. This should include an assessment of the brand’s position and the state
of the market. NIVEA FOR MEN needs to know what its male customers want and what
competitor products exist. As well as targeting the male consumer, women are also an
important target market for NIVEA FOR MEN. This is because women often buy male
grooming products for their partners as well as helping them choose which products to buy.
NIVEA FOR MEN used a SWOT analysis to help it assess the market. This takes a detailed
look at the internal strengths and weaknesses of the business, as well as external opportunities
and threats in the marketplace.
Brand: A name, symbol or design used to identify a specific product and to differentiate it
from its competitors.
• NIVEA FOR MEN was the UK market leading male facial skincare brand which gave it
strong brand recognition.
• The company had a sound financial base, so it had the resources to put together a strong
marketing campaign.
• It also had staff with relevant skills – researchers with the scientific skills to develop
products that men want and marketing staff with the skills to help promote these products
effectively.
One clear opportunity was that
the market was growing
• NIVEA FOR MEN had seen an increase in the sales of male skincare products and it
wanted a greater share of this market.
• The company wanted to take advantage of changing social attitudes. Men were becoming
more open, or certainly less resistant, to facial skincare products.
• Was the product range still relevant for the target audience?
• Did it have the right sales and distribution outlets?
• Was its market research up-to-date?
• Consumers were becoming more knowledgeable and price conscious. They often expect
sales promotions such as discounts and offers.
• The risk of competitors entering the market. NIVEA FOR MEN needed to differentiate its
products in order to ensure that, in an increasingly competitive market, its marketing activity
gave positive return on investment in terms of sales and profits.

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* NIVEA FOR MEN the UK’s leading male skincare brand (IRI Data to 27th Dec 2008).
Setting objectives
A successful marketing plan relies on setting clear and relevant objectives. These must relate
directly to the business’ overall aims and objectives. In other words, the marketing plan must
fit with the overall company strategy that is set out in the business plan. Beiersdorf states its
goal as ‘...to increase our market share through qualitative growth. At the same time we want
to further improve our sound earnings performance so that we can fulfil our consumers’
wishes and needs with innovations today and in the future. This will give us a strong position
within the global competitive environment.’
The marketing team set SMART objectives for the NIVEA FOR MEN re launch. These are
Specific, Measurable, Achievable, Realistic (given the available resources) and Time
constrained (to be achieved by a given date). The marketing team used research data to
forecast market trends over the next three-to-five years. This helped them set specific targets
for increasing sales, growing market share and improving its brand image. Beiersdorf wanted
to increase its UK market share for NIVEA FOR MEN, but also wanted greater market
penetration for male skincare products. In other words, it wanted not just a greater share of
the existing market; it wanted to expand that market. It wanted more men buying skincare
products. One key aim was to move men from just considering skincare products to making
actual purchases. It also aimed to sell more male skincare products to women. Research had
indicated that women were often the initial purchaser of skincare products for men. NIVEA
FOR MEN used this key fact as a way to increase opportunities for sales. Another objective
was to develop the NIVEA FOR MEN brand image. The NIVEA brand has always stood for
good quality products that are reliable, user-friendly and good value for money. The brand’s
core values are security, trust, closeness and credibility. These values would be strengthened
and expanded on with the re-launch, to get more men and women to think of NIVEA as first
choice for skincare.
Marketing strategies
The NIVEA FOR MEN team devised marketing strategies to deliver its objectives. These
strategies set out how the objectives would be achieved within the designated budget set by
the management team. This focus on product development combined with an emphasis on
consumer needs is a key differentiator for NIVEA FOR MEN. It is a major reason why in the
UK the brand is still the market leader in the male facial skincare market*. Another
cornerstone of the UK marketing strategy for the re-launch was promotion. NIVEA sought
to build on and develop the approach it had used in the past. In the 1980s, advertising in
men’s style and fashion magazines along with product sampling was a major promotional
tool. In the 1990s, the company used radio, television and press advertising together with
sampling. Since 2000, there has been a greater emphasis on consumer needs and an
increasing use of experiential activities in the promotional mix. Experiential marketing is
about engaging consumers through two-way communications that bring brand personalities to
life and add value to the target audience. This helps build an emotional connection between
the brand and the consumers.
It is important to get the promotional balance right. NIVEA FOR MEN promoted the new
launches of its products through a mixture of above-the-line and below-the-line promotion.
The use of sport was a key element here. NIVEA FOR MEN supported football events at a
grass-roots level through its partnership with Powerleague to build positive relationships with
men. This helped create stronger brand affinity for NIVEA FOR MEN among men. It also
allowed the brand to build and maintain a consistent dialogue with men, which helps to drive
sales. Above-the-line promotion included television and cinema adverts, which reached a

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wide audience. By using links with sport, NIVEA FOR MEN aimed to build a positive male
image associated with male facial skincare. The brand also benefited from press advertorials
in popular men’s magazines, making the daily usage of their products more acceptable.
Promotions were used to attract new customers. For example, the distribution of free samples
encouraged trial of NIVEA FOR MEN products which drove purchase. These promotions
have helped build up brand awareness and consumer familiarity which reinforce the NIVEA
FOR MEN brand presence. There is a dedicated NIVEA FOR MEN website to support its
products and provide information to educate men on their skincare needs. To enhance the
brand a tool called a ‘Configurator’ was created on the website to help customers specify
their skin type and find the product that best suits their needs.
Conclusion - evaluating the plan
The marketing plan is a cycle that begins and ends with evaluation. The final stage in the
marketing plan is to measure the outcomes of the marketing activities against the original
objectives and targets. Continuous evaluation helps the marketing team to focus on
modifying or introducing new activities to achieve objectives. NIVEA FOR MEN adopted a
range of key performance indicators to assess the success of the NIVEA FOR MEN re-
launch in the UK. It looked at: • market share - Did the re-launch accelerate this growth and
help achieve its market share objectives? NIVEA FOR MEN is market leader in many
countries and is consistently gaining additional market share.
• overall sales - Was this in line with objectives? Internationally, NIVEA FOR MEN skincare
products grew by almost 20%. Its sales in the UK market at retail in 2008 were nearly £30
million and in line with expectations.
• brand image ratings - NIVEA FOR MEN was the Best Skincare Range winner in the FHM
Grooming Award 2008 for the fifth year running. This award was voted for by consumers. It
illustrates that NIVEA FOR MEN has an extremely positive brand image with consumers
compared to other brands.
• product innovation - In response to consumer feedback and following extensive product
innovation and development, the NIVEA FOR MEN range has been expanded and the
existing formulations improved. These results show that, in the UK, the NIVEA FOR MEN
re-launch met its overall targets, which was a significant achievement, considering the
difficult economic climate. The marketing plan for the re-launch used past performance and
forecast data to create a new marketing strategy. This built on the brand and company’s
strengths to take advantage of the
increasing change of male attitudes to using skincare products.
Questions
1. Describe two pieces of data that NIVEA used when preparing its marketing plan to
relaunch NIVEA FOR MEN.
2. Explain why NIVEA used football sponsorship to help increase its sales of
NIVEA FOR MEN products.
3. Using the case study, put together a SWOT analysis of NIVEA’s position just before the
relaunch of NIVEA FOR MEN.
4. Discuss how effective you think the marketing plan for NIVEA FOR MEN has been.

P a g e | 169
CASE STUDY IV
Introduction
Parcelforce Worldwide is part of the Royal Mail Group and is a leading provider of express
parcel deliveries. It provides a range of services including a guaranteed delivery on certain
times or days. Parcelforce Worldwide uses a network of international partners to extend its
reach beyond the UK to 99.6% of the world population. The company’s European delivery
partners include General Logistics Systems (GLS), a commercial parcel carrier and European
Parcels Group (EPG), which is a postal parcels company and is part of the Express Mails
Services (EMS) worldwide network. Parcel force Worldwide delivers around 210,000 parcels
a day and operates in three distinct markets:
• Business-to-Business services (B2B) – the transportation of parcels and supplies from one
company or commercial venture to another. For example, this could be a manufacturer
sending to a wholesaler or a wholesaler sending to a retailer. These are likely to be repeat
orders to re-stock a supply chain.
• Business-to-Consumer services (B2C) – parcels going from businesses to homes. This is
driven
by retailers and ‘etailers’ (online retailers) sending mainly single parcels to consumers.
• Consumer-to-Consumer (C2C) – parcels going from one home address to another. This
could be people sending Christmas or birthday presents or e bay parcels through a Post Office
or ordering a collection on the Parcel force Worldwide website. In the last few years Parcel
force Worldwide has made big changes to improve its business. It has improved its quality of
service by focusing on time-critical products. This reduced the number of parcels handled
(the volume) but increased the value of each delivery. Parcel force Worldwide is now a key
player in the market. In 2007, an analysis of a customer research survey showed Parcel force
Worldwide needed to improve its international services. It also needed to change its
marketing to respond to an increase in competition and changes in the external
environment. This case study explores how this was achieved using the marketing mix or
4Ps. There are different strategies which can be applied for each element depending on
circumstances and aims. Parcelforce Worldwide needed to achieve the right balance of the
marketing mix to achieve its goals.
Product
The product was the key starting point for Parcel force Worldwide. As a service organisation,
it looked at the service range it offered the market. A range may be broadened or a product
strengthened for tactical reasons, such as matching a competitor’s offer. Alternatively, a
product may be re-positioned to make it more acceptable for a new group of customers. An
example of this is Parcelforce Worldwide’s International Data post service.
This covered both the ‘urgent’ (i.e. very fast) and ‘deferred’ (i.e. medium-speed) categories
of its delivery range. Parcel force Worldwide needed to differentiate the product to meet the
needs of the different users. It therefore created two separate products - Global Express for
the urgent category and Global Priority for the deferred or medium speed market. This
enabled customers to clearly pick out which product suited their need. As a market-
orientated organisation, Parcel force Worldwide must understand what its customers want to
meet their needs. Market research helped Parcel force Worldwide decide what it needed to
change to best meet those needs.

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Market research falls in two types:

1. Primary research – this involves gathering information from original sources. Research
maybe either:
• qualitative methods that try to find out how people feel. Samples of customers are
oftenasked to discuss products and services while researchers take notes about what theyhave
to say
• quantitative methods that produce figures or statistics. Questionnaires, telephone and
internet surveys are often used.
2. Secondary research – this involves compiling information from existing or published
sources. Internal sources include Parcel force World wide’s own customer data bases;
external sources include published materials like newspapers, trade publications, industry
reports, and the internet.
Parcel force Worldwide focused on primary research through web interviews to see what
customers thought about its services. It needed to identify the right focus for its approach in
an increasingly competitive market. One key question was to find out what was the main
factor affecting the decision making of customers using the Urgent service. (This is an
example of quota sampling as it selected customers from the Urgent product subset).The
research showed that for most of these customers, speed not price was the primary factor.The
other key issues the research identified were:
• Parcel force World wide’s product portfolio was not aligned to customer needs.
• In the urgent market, customers were mainly interested in speed of delivery; in the‘deferred’
market, customers wanted a balance of speed and price; and lastly, there was also a market
where price was the main purchasing consideration.
• Across all services, customers had a number of factors they required as a minimum.
Theseincluded reliability, high levels of customer service, management reporting and
goodtracking.To meet these needs, Parcelforce Worldwide has created a new set of
international serviceswhich have these factors as attributes and which are then differentiated
by price and speed inline with customers’ needs. It has also created product names (or
brands) that help to
reinforce and clarify for customers what each service offers.
Price
Price is determined by a number of factors. These include market share, competition,
materialcosts or how the customer sees the value of the product. Businesses can use different
pricing strategies for various purposes. Each gives different impacts .Pricing strategies may
be cost based or market-orientated:
• Differential pricing – this gives different prices for different groups or types of customers.
Parcelforce Worldwide is able to negotiate prices with business customers (B2B and
B2C)based on their exact sending profile (for example, volumes, weights, destinations).
• Price leadership – where a market leader sets market price. In the non-urgent market,
Parcelforce Worldwide is looking to achieve some degree of price leadership by finding
lower cost international delivery models and passing some of this cost saving to its
customers.
• Market penetration – pricing may be low in order to gain a foothold in a new market or with
anew product. To take market share with its new Express service, Parcelforce Worldwide
needed to price keenly.
• Competitive pricing – where price matches or undercuts those of competitors. This could,
for example, increase market share with Parcelforce Worldwide’s new Priority service.
Other pricing strategies a business may use include:

P a g e | 171
Parcelforce Worldwide’s market is price sensitive and consumers have a choice.

Newcompetitors affect its choice of pricing strategies. Parcelforce Worldwide has
differentiated itsproducts by offering services that offer a balance and choice between speed
and value formoney. Its express service leads on speed; its non-urgent product leads on price.
This clearlysets Parcelforce Worldwide as the price leader in the non-urgent sector.
Place
Place refers to the channels that are used to reach the marketplace, for example, methods
oftransporting and storing goods. Good distribution is defined as getting the right product to
the right place at the right time. The choice of distribution method depends on both product
and market. Some businesses will sell to wholesalers, who then sell to retailers. Others
willsell directly to retailers or consumers. Place also includes where a business has its points
ofsale. In Parcelforce Worldwide’s case, customers can access its services through:
• depots – Parcelforce Worldwide has 53 depots across the UK where all customers
(B2B,B2C and C2C) can send parcels to both UK and international destinations
• Post Office branches – all customers can also send parcels from Post Offices across the
UK. This tends to be focused more on C2C customers
• direct collection by Parcelforce Worldwide – all business and personal customers can access
services through the Parcelforce Worldwide website (for ordering a collection,printing
barcode labels or accessing the customer address book) or through a call centreto book a
direct collection by Parcelforce Worldwide van from the customer’s premises(business or
home)• international partner networks overseas – where customers send parcels from
overseasback into the UK through a partner company, with the final delivery in the UK
carried outby Parcelforce Worldwide.New technology allows Parcelforce Worldwide to track
parcels. In 2007, a single IT platformwas created which can follow every single event of a
parcel's journey, from dispatch to depotto customer.
Parcelforce Worldwide’s development of key partnerships has played a part in improving

itsservice. Its network partner GLS is an unrivalled road-based European network that deals
with
specific day guaranteed deliveries. It consists of 23 parcel delivery companies coveringfive
million kilometres in 30 countries across Europe. GLS provides Parcelforce Worldwidewith
the broadest delivery network and capability across Europe. Parcelforce Worldwide is also
part of the Psychological point pricing
Impact
Where the business sets a very low price to drive competitors out of business. This is anti-
competitive. Selling a new or premium product at an initially high price to gain a high profit.
Appropriate if the product is unique, has a premium image or incurred huge investment costs.
A marketing practice based on the theory that certain prices have a psychological impact, for
example, £9.99 ismore attractive than £10.
These partnerships have widened Parcelforce Worldwide’s service offerings ramatically,

particularly in the international markets. This has provided the company with a
competitiveedge and expanded its global reach. The main benefits of these partnerships come
from using their existing delivery mechanisms without the need to set up new transportation
methods or services. This reduces both capital and revenue costs.
Promotion
Promotion represents the ways a business informs customers of products and persuades them
to buy. Promotional activity needs clear aims and objectives. For example, the business needs
to understand who it is promoting to, what the messages are, what return on investment it

P a g e | 172
expects to get and when the returns will be seen. Using market research establishes the best
market segments at which to aim a campaign .Before a new campaign, Parcel force
Worldwide looks back at the outcomes of previous promotions. This helps decide which type
of campaigns give the best return on investment. Parcel force Worldwide’s approach to and
style of promotion has changed as market competitiveness has increased. This helps to
maintain its market position.
Promotion can be classified as either:
• Above-the-line – this includes directly paid-for advertising through media such as
television, radio, internet and newspapers. It also includes exhibitions and sponsorship. It is
mainly used to reach consumers, but can also be used in B2B markets. For example, Parcel
force Worldwide runs online banner advertisements to promote the availability of its services
on the website.
• Below-the-line – this includes other forms of promotion where the business has more
control, such as direct mail, e-mail marketing, public relations and sales promotions. For
example, Parcel force Worldwide is using direct mail to tell thousands of UK businesses
about the new services, which will generate responses from potential interested new
customers for the sales teams to follow up. It is also using email to tell all existing Customers
about the new international services.
Conclusion
Parcel force Worldwide’s vision is: ‘To be the UK’s most trusted worldwide express carrier’.
Its
simplified range of products and its focus on customer needs has helped towards achieving
this goal. Parcel force Worldwide’s new international product portfolio will allow it to sell
services which more closely meet customer needs. Through this, it will win more business
and market shareas well as retaining its existing customers. Parcel force Worldwide now
faces the challenge of building on these improvements and operating at sustained levels of
profitability. Developing its partnerships will improve this. By addressing the 4Ps of the
marketing mix, Parcel force Worldwide has been able to establish anew product range,
choose the most effective approach to price, place it so that it is easily accessible and
promote the range to customers. By responding to external changes, it has improved its
market position and can meet potential competition.
Questions
1. Describe the different types of pricing strategies.
2. Explain the difference between primary and secondary research. Why would a business use
both?
3. Explain why the balance of the marketing mix is said to be more important than
theindividual elements.
4. Evaluate the steps that Parcel force Worldwide took to find out what its market wanted.
Decide which you think was most important and explain why you think so.

P a g e | 173
PREVIOUSE QUESTION PAPERS

170-177

P a g e | 174
Code No: 25MBA R5-R7

M.B.A. II Semester Regular Examinations, January 2009
MARKETING MANAGEMENT
----
Time: 3 hours Max Marks: 60

Answer any FIVE Questions
All Questions carry equal marks
?????
1. State the nature of marketing. How does marketing satisfy the wants of people
2. Examine the criteria of a good forecasting method for estimating the demand for TVs
in a developing economy.
3. “Many marketers advocate promoting only one product benefit, thus creating a unique
selling proposition as they position their product” -Comment.
4. Maturity stage is where a company makes the most of the profits from a product.
Discuss the marketing strategies in maturity stage of PLC.
5. What are the merits and limitations of initiating the price cuts?
6. (a) Discuss about the types of retailers with examples.

(b) Which retailers are more successful in India and why?
7. Explain the role of different elements of communication mix in marketing

communication.
8. (a) What is Annual Plan Control?

(b) Explain the procedure with example.

P a g e | 175
NR –R7-
CODE NO: R5-12005/MBA
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD R8
MBA-II Semester Supplementary Examinations February -2010
Time:3hours Max.Marks:60
Answer any Five questions
All questions carry equal marks
---
1. Explain in detail about Indian marketing environment in economic crisis?
2. What is the role of Marketing Information System (MIS) in measuring the demand?
3. (i)Discuss about the requirements for effective segmentation?

(ii) Explain the positioning strategy of Tata Nano car?
4. (i) Discuss about Product Line Decisions?

(ii) Discuss about Product Mix Decisions?
5. Automobile companies use optional-product pricing. In what other product categories do

companies use this pricing strategy?
6. Explain the recent trends in Retailing?
7. Explain the tools of Sales promotion?
8. Explain the Following:

(i) Annual plan control
(ii) Profitability control
(iii) Efficiency control
(iv) Strategic control

P a g e | 176
CODE NO: 28 MBA

NR –R6-
R8
JAWAHARLAL NEHRU TECHNOLOGICAL UNIVERSITY HYDERABAD
MBA II Semester Regular Examinations, August 2009
Time 3Hours Max .marks :60
Answer any five Questions
1. Explain various Marketing Concepts and state the significance of Societal marketing concept
in the modern markets
2. Explain the components of Marketing Information System of a manufacturing company.
3. Write a brief note on Market Segmentation. Explain market segmentation and Marketing
Targeting with a suitable example.
4. As marketing manager what marketing strategies do you follow particularly when a product is
is ‘maturity stage’ in its product life cycle.
5. What are the pricing strategies that are in vogue? Explain with examples.
6. What are the factors that influence the channel decisions for an industrial product?
7. Give a brief note on Communication mix and state the difference between advertising and
sales promotion.
8. Write short notes on any two of the following;
a)Control of marketing performance.

P a g e | 177
b)Communication mix
c)Objectives of pricing
d) New Product development.
All the best

P a g e | 178
Code No:25MBA
NR –R5-
R7
Answer any five Questions
1. “The present day marketing is consumer oriented” Explain its objectives
2. What is demand ? Discuss varicose types of demand ,which a marketing manager should take
into consideration for marketing planning.
3. What should be the suitable bases for marketing segmentation in case of
A)Air conditioners and
b)soft drinks
4. Prepare a list of two products at each of the following stages of the PLC in the Indian market :
A)Introductory stage.
B)Growth Stage
C)maturity stage and
D)Decline stage
5. Discuss the influence of imitation price increases by companies on the market with relevant
examples.
6. Explain the varicose element of physical distribution in the management of distribution.
7.a) Distinguish between public relation and publicity.
b)How publicity can be both boon and bane for the companies.
8. Discuss the limitation and merits of strategic control .

P a g e | 179
Code No:25MBA NR –R5-

R7
1. Identify the main differences between sales concept and marketing concepts and substantiate
your answer with suitable examples.
2. What are the major concepts in demand measurement ? What procedure would recommend to
ascertain the demand for consumer products ?
3. Describe the strategies ,methods and techniques that are involved un the market segmentation
process.
4. Critical examine the prerequisites that are needed to be taken care at the time of launching of
the product .Discuss.
5. Highlight the internal factors as well as external factors that influence the pricing of products
by a company
6. Do you contribute to the statement that various methods used for preparing sales fore cast
include “executive judgment survey time series analysis ,correlation and regression methods
and market tests “Explain.
7. How far it is essential to provide explicit link between advertising goals and advertising
results by clearly spelling out the objectives of each advertising campaign measurable terms?
Discuss.
8. Critically examine the factors that are required to be considered while designing an effective
marketing organization.

P a g e | 180
VAAGESWARI COLLEGE OF ENGINEERING

Beside L.M.D. Police station Ramakrishna colony
KARIM NAGAR -505 481
MBA -1 YEAR ,II SEM II MID EXAMINATIONS, JULY -2008
TIME : 2 Hrs. Max Marks : 40
Answer any FOUR Questions
All Questions Carry equal marks.
1.What are the alternative Pricing Policies and strategies available to marketers ? Explain in details
with suitable examples.
2.Discuss in detail the various sales Techniques for Industrial Goods.
3.What is Marketing Communication Mix ?What ar its characteristics and factors.
4.Wirte short notes on :
a)Public Relations.
b)Direct Marketing
5. What do you mean by management of sales Force? Discuss the various methods to determine the
optimum Sales Force Size.
6. Define the term “Marketing Control” .Discuss in detail the various types of Marketing Control.

P a g e | 181
VAAGESWARI COLLEGE OF ENGINEERING

Beside L.M.D. Police station Ramakrishna colony
KARIM NAGAR 505 481
MBA -1 YEAR ,II SEM I MID EXAMINATIONS, JULY -2008
TIME : 2 Hrs. Max Marks : 40
Answer any FOUR Questions
All Questions Carry equal marks.
1. Discuss the concepts of Marketing Management .
2. What is Segmentation ? Explain the basis of Segmentation .
3. Explain the importance of Demand Fore costing in Marketing.
4. Write short notes on the Following
a)Stages of Product Life Cycle.
b)PLC as a tool of Marketing Strategy.
5. Explain in detail about New Product development with suitable example.
6. Write short notes on the following .
a) Target Market
b)Product Positioning

P a g e | 182
PUBLISHED
BY
SHIVA NARESH
(M.B.A.)
9966463423,9059893959,966663
3823
(VAAGESWARI COLLEGE OF ENGINEERING)

KARIMNAGAR
ADDRESS :
H.NO.8-1-83/5,
OPP: OLD L.I.C OFFICE,
NEAR OLD BUS STAND,HYD ROAD,
SIDDIPET 505 103
MEDAK DIST
EMAIL : SHIVA.NARESH2010@GMAIL.COM

P a g e | 183
**THANK YOU**

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INTRODUCTION TO MARKETING 1-33

Y.HARINI PRASHANTH RAO

Y.HARINI PRASHANTH RAO

There are 5 basic markets like

Developing marketing strategies and plans

Capturing marketing insights

Y.HARINI PRASHANTH RAO

Connecting with customers

Building strong brands

Shaping the market offering

Creating long-term growth

FUNDAMENTAL MARKETING CONCEPTS

Core Marketing Concepts: Needs, Wants and Demands

Y.HARINI PRASHANTH RAO

Stated needs (customer wants an inexpensive car).

Real needs (customer wants a car whose operating cost is low)

Unstated needs (expecting good service from the dealer).

Delight needs (customer would like the dealer to include an on-board

Secret needs (the customer wants to be seen as a savvy consumer).

According to Philip Kotler, “a product is anything that can be offered to satisfy

According to W.J. Stanton, “ A Product is a set of tangible and intangible

Transactions are of two types

Target market segmentation

Y.HARINI PRASHANTH RAO

Value and Satisfaction

Y.HARINI PRASHANTH RAO

value. Value being a central marketing concept, we can think of marketing as

Satisfaction represents a person’s judgment of a product’s perceived

Company Orientation toward the Market Place

The Production Concept

This orientation makes sense in developing countries such as China.

Y.HARINI PRASHANTH RAO

Product-oriented companies often design their products with little or no customer

Y.HARINI PRASHANTH RAO

The Marketing Concept

LIMITATIONS OF MARKETING CONCEPT

Y.HARINI PRASHANTH RAO

Efficiency vs. Effectiveness

Effectiveness in an organization is doing the right things which leads to an adaptable

Efficiency and effectiveness are applicable to all organizational functions including

Y.HARINI PRASHANTH RAO

There is another way to look at efficiency and effectiveness. An efficient organization

An efficient organization can produce immediate results by relying on "safety" in the

Green marketing can be defined as the marketing of products which are

Y.HARINI PRASHANTH RAO

1990s. Nonetheless, as a contemporary branch of marketing thought, it can be seen as

A higher quantity of persons willing and able to buy green products.

Heightened awareness among consumers,concerning the potentially negative

Some drawbacks of green marketing are thus:

o The perception of "green washing".

o Disputes and contention surrounding the exact meaning of a green

Y.HARINI PRASHANTH RAO

Green washing pertains to when a firm misleadingly produces a product, with

MARKETING ORIENTATION AND BUSINESS PERFORMANCE

Market-oriented firms seek ways to provide added value to customers while

Y.HARINI PRASHANTH RAO

A prominent marketer, E. Jerome McCarthy, proposed a 4 P classification in

Product - A tangible object or an intangible service that is mass produced or

Y.HARINI PRASHANTH RAO

The Product part of the Four Ps model is replaced by Consumer or Consumer

Y.HARINI PRASHANTH RAO

Placement is replaced by Convenience. With the rise of internet and hybrid