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TABLE OF CONTENTS

TOPICS
Defining Marketing for the 21st Centur I!"ortan#e of Marketing S#o"e of Marketing Core Marketing Con#e"ts Co!"an Orientation To$ar%s Market P&a#e Con%u#ting Marketing 'esear#h an% Fore#asting De!an% The Marketing 'esear#h S ste! The Marketing 'esear#h Pro#ess Creating Custo!er (a&ue) Satisfa#tion an% Lo a&t Custo!er 'e&ationshi" Manage!ent Attra#ting an% 'etaining Custo!ers Ana& *ing Consu!er Markets +hat inf&uen#es #onsu!er ,eha-ior. The Bu ing De#ision Pro#ess/ Fi-e Stage Mo%e& I%entif ing Market Seg!ents an% Targets Le-e&s of Market Seg!entation Basis For Seg!enting Consu!er Market Dea&ing +ith Co!"etition Co!"etiti-e For#es I%entif ing Co!"etitors Co!"etiti-e Strategies for Market

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Lea%ers Creating Bran% E0uit +hat is Bran% E0uit . De-ising A Bran%ing Strateg Crafting The Bran% Positioning De-e&o"ing an% Co!!uni#ating a Positioning Strateg Pro%u#t Life C #&e Marketing Strategies Setting Pro%u#t Strateg Pro%u#t Chara#teristi#s an% C&assifi#ations Pa#kaging) La,e&ing) +arrantees an% 1uarantees Designing an% Managing Ser-i#es The Nature of Ser-i#es Managing Ser-i#e 2ua&it De-e&o"ing Pri#ing Strategies an% Progra!s 3n%erstan%ing Pri#ing Setting the Pri#e Designing an% Managing Integrate% Marketing Channe&s Marketing Channe&s an% (a&ue Net$orks 'o&e of Marketing Channe&s Designing an% Managing Integrate% Marketing Co!!uni#ations The 'o&e of Marketing Co!!uni#ations Marketing Co!!uni#ations Mi4 Marketing Co!!uni#ations Effe#ts De-e&o"ing Effe#ti-e Co!!uni#ation Managing Mass Co!!uni#ations/ A%-ertisings) Sa&es Pro!otions) E-ents 5 E4"erien#es) an% Pu,&i# 'e&ations De-e&o"ing an% Managing an A%-ertising Progra! Choosing A!ong Ma6or Me%ia T "es A&ternati-e A%-ertising O"tions

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Intro%u#ing Ne$ Market Offerings Ne$ Pro%u#t O"tions Managing The De-e&o"!ent Pro#ess/ I%eas De-e&o"!ent to Co!!er#ia&i*ation The Consu!er A%o"tion Pro#ess

DEFINING MARKETING FOR THE 21ST CENTURY


Marketing is everywhere. Formally or informally, people and organizations engage in a vast number of activities that we could call marketing. Good marketing has become an increasingly vital ingredient for business success. nd marketing profoundly affect our day!to!day lives. "t is embedded in everything we do, from the clothes we wear, to the websites we click on, to the ads we see. THE IMPORTANCE OF MARKETING

2 Financial success often depends on marketing ability. Finance, operations, accounting and other business functions will not really matter if there isn$t sufficient demand for products and services so the company can make a profit. Making the right decisions about change isn$t always easy. Marketing managers must decide what features to design into a new product, what prices offer to the customers, where to sell products, and how much to spend on advertising, sales or the internet. %hey must also decide on the details such as the e&act wording or color for new packaging. %he companies at greatest risk are those that fail to carefully monitor their customers and competitors and to continuously improve their value offerings. %hey take a short!term view of their business and ultimately they fail to satisfy their stockholders, employees, suppliers and channel partners. 'killful marketing is never!ending pursuit. THE SCOPE OF MARKETING %o prepare to be a marketer, you need to understand what marketing is, how it works, what is marketed, and who does the marketing. What is Marketin ! Marketing is about identifying and meeting human and social needs. (ne of the shortest good definitions of marketing is )meeting needs profitably*. Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and to manage customer relationships in way that benefit the organization and its stakeholders. Marketing management takes place when at least party to a potential e&change thinks about the means of achieving desired responses from other parties. %hus we see marketing management as the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value. +e can distinguish between a social and a managerial definition of marketing. social definition shows the role of marketing plays in a society, for e&ample, one marketer has said that marketing$s role is to )deliver a higher standard of living*. -ere is a social definition that serves our purpose. Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering and freely e&changing products and services of value with others. Managers sometimes think of marketing as )the art of selling products,* but many people are surprised when they hear that selling is not the most important part of marketing/ 'elling is only the tip of the marketing iceberg. 0eter 1rucker, a leading management theorist, puts it this way. %here will always, one can assume, be need for some selling superfluous. %he aim of marketing is to know and understand so well that the product or service fits him and sells itself. "deally, marketing should result in a customer who is ready to buy. ll that should be needed then is to make the product or service available. What is Markete"!

< Marketing people market 13 types of entities. goods, services, events, e&periences, persons, places, properties, organizations, information and ideas. 4et$s take a 5uick look at these categories. G##"s$ 0hysical goods constitute the bulk of most countries production and marketing efforts. 6ach year, "ndian companies$ market cars, trucks, television sets machine tools, machines, industrial chemicals, watches, cosmetics, and various other mainstays of a modern economy. Ser%i&es$ s economies advance, a growing proportion of their activities focuses on the production of services. 'ervices include the work or airlines, hotels, car rental firms, barbers and beauticians, maintenance and repair people, and accountants, bankers, lawyers, engineers, doctors, software programmers and management consultants. Many market offerings consist of a variable mi& of goods and services. t a fast!food restaurant, for e&ample, the customer consumes both a product and a service. E%ents$ Marketers promote time!based events, such as ma7or trade shows, artistic performances, and company anniversaries. Global sporting events such as the (lympics and the +orld 8up are promoted aggressively to both companies and fans. E'(erien&es$ 9y orchestrating several services and goods, a firm can create stage and market e&periences. nd amusement park or a water park represents e&periential marketing customers, by taking different )rides* in the amusement park or the water park, en7oy the thrill provided by these e&periences. 'o does a )theme restaurant* that creates the ambience of a village in :a7asthan or Gu7arat.

Pers#ns$ 8elebrity marketing is a ma7or business. rtists, musicians, 86($s, physicians high profile lawyers and financers and other professional all get help from celebrity marketers. 'ome people have done a masterful 7ob of marketing themselves!think of 1avid 9eckham, (prah +infrey, and the :olling 'tones. 8elebrities such as mitabh 9achchan, 'achin %endulkar, 'hahrukh ;han, ishwarya :ai and 'ourav Ganguli are big brands themselves. Management consultant %om 0eters, himself a master at self! branding, has advised each person to become a )brand.* P)a&es$

D 8ities, states, regions and whole nations compete actively to attract tourists, factories, company head5uarters and residents. 0lace marketers include economic development specialists, real estate agents, commercial banks, local business associations and advertising and public relations agencies. "n the software industry, 9anglore is positioned as the )'ilicon =alley* of "ndia. "n the tourism industry, ;erala is marketed as )God$s own country* and has become one of the hot spots of the tourism. %he Govt. of "ndia is marketing "ndia as tourist destination through the )"ncredible "ndia* advertisement campaign. Pr#(erties$ 0roperties are intangible rights of ownership or either real property >real estate? or financial property >stocks and bonds?. 0roperties are bought and sold and these e&changes re5uire marketing. :eal estate agents work for property owners or sellers or they buy and sell residential or commercial real estate. "nvestment companies and banks market securities to both institutional and individual investors. Or ani*ati#ns$ (rganizations actively work to build a strong, favorable, and uni5ue image in the minds of their target publics. "n the @nited ;ingdom, %esco$s )every little helps* marketing program reflects the blood marketer$s attention to detail every thing it does, within as well as outside the store in the community and the environment. %he campaign has vaulted %esco to the top of the @; supermarket chain industry. @niversities, museums, performing arts organizations, and non!profits all use marketing to boost their public images and to compete for audience and funds. 8orporate identity campaigns are the result of intensive market research programs. %his is certainly the case with 0hilips )'ense and 'implicity* campaigns. In+#r,ati#n$ "nformation is essentially what books, schools and universities produce, market, and distribute at a price to parents, students, and communities. %he production, packaging and distribution of information are some of our society$s ma7or industries. 6ven companies that sell physical products attempt to add value through the use of information. %he 86( of 'iemens Medical 'ystems, %om Mc8ausland, says,*Aour productB is not necessarily an C!ray or an M:", but information. (ur business is really health care information technology and our end product is really and electronic patient record. information on lab tests, pathology and drugs as well as voice dictation. I"eas$ 6very market offering includes a basic idea. 8harles :evson of :evlon once observed. )"n the factory, we make cosmetics, in the store we sell hope*. 0roducts and services are platforms for delivering some idea or benefit. 'ocial marketers are busy promoting such ideas by creating awareness about "1', encouraging family planning, and discouraging smoking, which fall in the realm of social marketing. Wh# Markets! Marketers an" Pr#s(e&ts

F Marketers are indeed skilled at stimulating demand for their company$s products but that$s too limited a view of the tasks they perform. Eust as production and logistics professionals are responsible for supply management, marketers are responsible for demand management. Marketing managers seek to influence the level, timing and composition of demand to meet the organizations ob7ectives. 6ight demand states are possible. 1. NEGATI-E DEMAND 8onsumers dislike the product and may even pay a price to avoid it. 2. NON.E/ISTENT DEMAND 8onsumers may be unaware of or uninterested in the product. #. 0ATENT DEMAND 8onsumers may share a strong need that cannot be satisfied by an e&isting product. 2. DEC0INING DEMAND 8onsumers begin to buy the product less fre5uently or not at all. <. IRREGUA0R DEMAND 8onsumers purchases vary on a seasonal, monthly, weekly, daily or even hourly basis. D. FU00 DEMAND 8onsumers are ade5uately buying all products put into the market place. F. O-ERFU00 DEMAND More consumers would like to buy the product than can be satisfied. G. UNWHO0ESOME DEMAND 8onsumers may be attracted to the products that have undesirable social conse5uences. "n each case, marketers must identify the underlying causes of the demand state and then determine a plan of action to shift the demand to a more desired state. Marketin in Pra&ti&e -ow is marketing doneH "ncreasingly, marketing is not done only by the marketing department. Marketing needs to affect every aspect of the customer e&perience, meaning that marketers must properly manage all possible touch points I store layouts, package designs, product functions, employee training, and shipping and logistics methods. Marketing must also be heavily involved in key general management activities, such as product innovation and new!business development. %o create a strong marketing organization, marketers must think like e&ecutives in other departments, and e&ecutives in other departments must think more like marketers. 8ompanies know that every employee has an impact on the consumer and must see the customer as the source of the company$s prosperity. 'o they are beginning to emphasize interdepartmental team work to manage key processes. %hey$re also placing more emphasis on the smooth management of core business processes, such as new!product realization, customer ac5uisition and retention and order fulfillment. "n practice, marketing follows a logical process. %he marketing planning process consists of analyzing marketing opportunities, selecting target markets, designing marketing strategies, developing marketing programs, and managing the marketing effort. "n highly

G competitive market places, however, marketing planning is more fluid and is continually refreshed. 8ompanies must always be moving forward with marketing programs, innovating products and services, staying in touch with customer needs, and seeking new advantages rather than relying on past strengths. %he changing new marketing environment is putting considerable demands on marketing e&ecutives. Marketers must have diverse 5uantitative and 5ualitative skills, an entrepreneurial attitude and a keen understanding of how marketing can create value within their organization. %hey must work in harmony with the sales function. %here are five key functions for a 8M( in leading marketing within the organization. 1. 'trengthening the brands 2. Measuring marketing effectiveness #. 1riving new product development based on customer needs 2. Gathering meaningful customer insights <. @tilizing new marketing technology. CORE MARKETING CONCEPTS %o understand the marketing function, we need to understand the following core set of concepts. Nee"s1 Wants an" De,an"s Jeeds are the basic human re5uirements. 0eople need air, food, water, clothing, and shelter to survive. 0eople also have strong needs for recreation, education and entertainment. %hese needs become wants when they are directed to specific ob7ects that might satisfy the need. consumer in @nited 'tates needs food but may want a hamburger, French fries, and a soft drink. person in "ndia needs food but may want chapattis, rice, curry and yogurt. +ants are shaped by our society. 1emands are wants for specific products backed by an ability to pay. Many people want a Mercedes, only a few are willing and able to buy one. 8ompanies must measure not only how many people want their products, but also how many would actually be willing and able to buy it. %hese distinctions shed light on the fre5uent criticism that )marketers create needs* or pree&ist marketers. Marketers, along with other social factors, influence wants. Marketers might promote the idea that a Mercedes would satisfy a person$s need for social status. %hey do not, however, create a need for social status. @nderstanding customer needs and wants are not always simple. 'ome customers have needs of which they are not fully conscious, or they cannot articulate these needs, or they use words that re5uire some interpretation. +hat does it mean when a customer asks for a )powerful* lawnmower, a )fast* lathe, an )attractive* bathing suit, or a )restful* hotelH %he marketer must probe further. +e can distinguish among five types of needs. 1. 'tated Jeeds. the customer wants an ine&pensive care. 2. :eal Jeeds. %he customer wants a car whose operating cost, not its initial price, is low. #. @nstated Jeeds. %he customer e&pects good service from the dealer.

L 2. 1elighted Jeeds. the customer would like the dealer to include an onboard navigation system. <. 'ecret Jeeds. %he customer wants friends to see him as a savvy consumer. :esponding only to the stated need may short change the customer. Many consumers do not know what they want in a product. 8onsumers did not know much about the cellular phones when they were first introduced, and Jokia and 6ricsson fought to shape consumer perceptions of them. 'imply giving customers what they want isn$t enough anymore I to gain an edge companies must help customers learn what they want. COMPANY ORIENTATION TOWARDS MARKET P0ACE Giving these marketing realities, what philosophy should guide a company$s marketing effortsH "ncreasingly, marketers operate consistent with a holistic marketing concept. 4et$s review the evaluation of earlier marketing ideas. The Pr#"2&ti#n C#n&e(t %he production concept is one of the oldest in business. "t holds that consumers will prefer products that are widely available and are ine&pensive. Managers of production oriented businesses concentrate on achieving high production efficiency, low costs and mass distribution. %his orientation makes sense in developing countries such as 8hina, where the largest 08 manufacturer, 4enovo, and domestic appliances giant -aier take advantage of the country$s huge and ine&pensive labor pool to dominate the market. Marketers also use the production concept when a company wants to e&pand the market. The Pr#"2&t C#n&e(t %he product concept proposes that consumer favor products that offer the most 5uality, performance and innovative features. Managers in these organizations focus on making superior products and improving them over time. -owever, these managers are sometimes caught up in a love affair with their products. %hey might commit the )better! mousetrap* fallacy, believing that a better mousetrap will lead people to beat a path to their door. new or improved product will not necessarily be successful unless it$s priced, distributed, advertised, and sold properly.

The Se))in C#n&e(t %he selling concept holds that consumers and businesses, if left alone, won$t buy enough of the organization$s products. %he organization must, therefore, undertake an aggressive selling and promotion effort. %he selling concept is e&pressed in thinking of 'ergio Kyman, 8oca!8ola$s former vice president of marketing, who said. )the purpose of marketing is to sell more stuff to more people more than for more money in order to make more profit*.

13 %he selling concept is practiced most aggressively with unsought goods, goods that buyers normally do not think of buying, such as insurance and encyclopedias. Most firms also practice the selling concept when they have overcapacity. %heir aim is to sell what they make, rather than make what the market wants. -owever, marketing based on hard selling carries high risks. "t assumes that customers who are coa&ed into buying a product will like it, and that if they don$t, they not only won$t return or bad!mouth it or complain to consumer organizations, but they might even buy it again. The Marketin C#n&e(t %he marketing concept emerged in the mid 1L<3s. "nstead of a product!centered, )make and sell* philosophy, business shifted to a customer centered, )sense and respond* philosophy. %he 7ob is not to find the right customers for your products, but to find the right products for your customers. 1ell 8omputer doesn$t prepare a perfect computer for its target market. :ather, it provides product platforms on which each person customizes the features he desires in the computer. %he marketing concept holds that the key to achieving organizational goals is being more effective than competitors in creating, delivering and communicating superior customer value to your chosen target markets. %heodore 4evitt of -arward drew a perceptive contrast between the selling and marketing concepts. )'elling focuses on the needs of the seller, marketing on the needs of the buyer. 'elling is preoccupied with the seller$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 whole cluster of things associated with creating, delivering and finally consuming it.* 'everal scholars have found that companies that embrace the marketing concept achieve superior performance. %his was first demonstrated by companies practicing a reactive market orientation I understanding and meeting customers$ e&pressed needs. 'ome critics say this means company develop only very basic innovations. Jever and his colleagues argue that more advanced, high level innovation is possible if the focus is on latent customers$ needs. Jarver calls this a proactive marketing orientation. 8ompanies such as #M, -ewlett 0ackard and Motorola have made a practice of researching latent needs through a )probe and learn* process. 8ompanies that practice both a reactive and proactive marketing orientation are implementing a total marketing orientation and are likely to be the most successful.

CONDUCTING MARKETING RESEARCH AND FORECASTING DEMAND


Good marketers want insights to help them interpret past performance as well as plan future activities. %hey need timely, accurate and actionable information about consumers, competition and their brands. %hey also need to make the best possible tactical decisions in the short run and strategic decisions in the long run. 1iscovering a consumer insight

11 and understanding its marketing implications can often lead to a successful product launch or spur the growth of a brand. THE MARKETING RESEARCH SYSTEM Marketing managers often commission formal marketing studies of specific problems and opportunities. %hey may re5uest a market survey, a product preference test, a sales forecast by region, or and advertising evaluation. "t$s the 7ob of the marketing researcher to produce insight into the customer$s attitudes and buying behavior. Marketing insights provide diagnostic information about how and why we observe certain effects in the market place and what that means to marketers. +e define marketing research as the systematic design, collection, analysis and reporting of data and findings relevant to a specific marketing situation facing the company. THE MARKETING RESEARCH PROCESS Ste( 1$ "e+ine the (r#3)e,1 the "e&isi#n a)ternati%es1 an" the resear&h #34e&ti%es5 0roblems should not be defined either too broadly or too narrowly. very broad or vague definition leads to e&cessive wastage of resources. %oo narrow a definition leads to inade5uate data or information re5uired to take an effective decision. 8larity on the following helps define the problem appropriately. 1. +hat is to be researched >the content, the scope?H 2. +hy is it to be researched >the decisions that are to be made?H +orking backwards from the decisions can be a good way of defining problems because the purpose of research is to generate meaningful information, which will help in taking effective decisions. %he end product of this e&ercise has to be a clear definition of the problem and the research ob7ectives.

Ste( 2$ De%e)#( the Resear&h P)an %he second stage of marketing research re5uires developing the most efficient plan for gathering the re5uired information. %his involves decisions on the data sources, research approaches, research instruments, sampling plan, and contact methods. Data S#2r&es %he researcher can gather secondary data, primary data, or both. 'econdary data are data that were collected for another purpose and already e&ist

12 somewhere. 0rimary data are freshly gathered data for a specific purpose or for a specific research pro7ect. :esearchers usually start their investigation by e&amining secondary data to see whether the problem can partly or wholly solved without collecting costly primary data. +hen the re5uired data do not e&ist or are dated, inaccurate, incomplete, or unreliable, the researcher will have to collect primary data. Most marketing research pro7ects involve a certain amount of primary data collection using various research approaches. Resear&h instr2,ents Marketing researchers have a choice of three main research instruments in collecting primary data. 5uestionnaires, 5ualitative measures and technological devices. 62esti#nnaires 5uestionnaire consists of a set of 5uestions presented to respondents. 9ecause of its fle&ibility, its is by far the most common instrument used to collect primary data. :esearchers need to carefully develop, test and debug 5uestionnaires before administering them on a large scale. %he form, wording and the se5uence of the 5uestions can all influence the response. 8losed!end 5uestions specify all the possible answers and provide answers that are easier to interpret and tabulate. (pen!end 5uestions allow respondents to answer in their own words and often reveal more about how people think. %hey especially useful in e&ploratory research, where the researcher is looking for insight into how people think rather than measuring how many people think a certain way. lso see 5uestionnaire 7D#s an" D#n8ts95

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QUESTIONNAIRE DOS AND DONTS 1. Ensure that questions are without bias. Dont lead the respondent into an answer. 2. Make the questions as simple as possible. Questions that include multiple ideas or two questions in one will confuse respondents. 3. Make the questions specific. Sometimes its ad isable to add memor! cues. "or e#ample$ be specific with time periods. %. & oid 'ar(on or short hand. & oid trade 'ar(ons$ acron!ms and initials not in e er!da! use. ). Steer clear of sophisticated or uncommon words. *nl! use words in common speech. +. & oid ambi(uous words. ,ords such as -usuall!. or -frequentl!. ha e no specific meanin(. /. & oid questions with a ne(ati e in them. 0t is better to sa!$ -Do !ou e er12. 3. & oid h!pothetical questions. 0ts difficult to answer about ima(inar! situations. &nswers arent necessaril! reliable. 4. Do not use the words that could be misheard. 5his especiall! important when administerin( the inter iew o er the telephone. -,hat is !our opinion of sects2. could !ield interestin( but not necessaril! rele ant answers. 16. Desensiti7e questions b! usin( response bands. 5o ask people their a(e or ask companies about emplo!ee turno er rates$ offer a ran(e of response bands instead of precise numbers. 11. Ensure that fi#ed responses do not o erlap. 8ate(ories used in fi#ed response questions should be distinct and not o erlap. 12. &llow for -other. in fi#ed9response questions. :recoded answers should alwa!s allow for a response other than those listed.

12 Sa,()in P)an fter deciding on the research approach and instruments, the marketing researcher must design a sampling plan. %his calls for two decisions. Sa,()in Unit$ Wh# sh#2)" :e s2r%e;! "n the ir "ndia survey, should the sampling unit consist only of first!class business travelers, first!class vacation travelers, or bothH 'hould it include travelers under age 1GH 9oth husbands and wivesH (nce they have determined the sampling unit, marketers must develop a sampling frame so that everyone in the target population has an e5ual or known chance of being sampled. Sa,()e Si*e$ H#: ,an; (e#()e sh#2)" :e s2r%e;! 4arge samples give more reliable results, but it$s not necessary to sample the entire target population to achieve reliable results. 'amples of less than 1M of a population can often provide good reliability, with a credible sampling procedure. C#nta&t Meth#"s$ Jow the marketing researcher must decide how to contact the sub7ects. by mail, by telephone, in person, or online. Mai) 62esti#nnaire. %he mail 5uestionnaire is the best way to reach people who would not give personal interviews or whose responses might be biased or distorted by the interviews. Mail 5uestionnaires re5uire simple and clearly worded 5uestions. @nfortunately, the response rate is usually low or slow. Te)e(h#ne Inter%ie:$ %elephone interviewing is the best method for gathering information 5uickly, the interviewer is also able to clarify 5uestions if respondents do not understand them. %he response rate is typically higher than in the case of mailed 5uestionnaires. %he main drawback is that the interviews have to be short and not too personal. Pers#na) Inter%ie:$ 0ersonal interviewing is the most versatile method. %he interviewer can ask more 5uestions and record additional observations about the respondent, such as dress and body language. t the same time, however, personal interviewing is the most effective method, is sub7ect to interviewer bias, and re5uire more administrative planning and supervision. 0ersonal interviewing takes two forms. "n arranged interviews, marketers contact respondent for an appointment an often offer a small payment or incentive. "n intercept interviews, researchers stop people at shopping mall or busy street corner and re5uest an interview on the spot. "ntercept interviews must be 5uick, and they run the risk of including non!probability samples.

1< On)ine Inter%ie:s$ %here are so many ways to use internet to do research. company can embed a 5uestionnaire on its web site in different ways and offer an incentive to answer it, or it can place a banner on a fre5uently visited site such as Nahoo/, inviting people to answer some 5uestions and possibly win a prize. Marketers can also sponsor a chat room or bulletin board and introduce 5uestions from time to time or host a real time consumer panel or virtual focus group. %he company can learn about individuals who visit its site by tracking how they clickstream through the web site and move to other sites. "t can post different prices, use different headlines, and use different product features on different web sites or at different time to learn the relative effectiveness of its offerings. (nline product testing, in which companies float trial balloons for new products, is also growing and providing information much faster than traditional new!product marketing techni5ues. Ste( <$ C#))e&t the In+#r,ati#n %he data collection phase of marketing research is generally the most e&pensive and the most prone to error. Four ma7or problems arise in surveys. 'ome respondents will not be at home and must be contacted again or replaced. (ther respondents will refuse to cooperate. 'till others will give biased or dishonest answers. Finally, some interviewers will be biased or dishonest. 1ata collection methods are rapidly improving thanks to computers and telecommunications. 'ome telephone research firms interview for a central location, using professional interviewers to read a set of 5uestions from a monitor and type the respondent$s answers into a computer. %his procedure eliminates editing and encoding, reduces errors, saves time and produces all the re5uired statistics. (ther research firms have to set up interactive terminals at shopping centers, where respondents sit at a terminal, read 5uestions from the monitor and type in their answers. (ne of the biggest obstacles to collecting information internationally is the need to achieve consistency. Ste( =$ Ana);*e the In+#r,ati#n %he ne&t!to!last step in the process is to e&tract findings by tabulating the data and developing fre5uency distributions. %he researchers now compute averages and measures of dispersion for the ma7or variables and apply some advanced statistical techni5ues and decision models in the hope of discovering additional findings. %hey may test different hypotheses and theories, applying sensitivity analysis to test assumptions and the strength of the conclusions. Ste( >$ Present the Fin"in s s the last step, the researcher presents findings relevant to the ma7or marketing decisions facing management. :esearchers increasingly are being asked to play a more proactive, consulting role in translating data and information into insights and recommendations. %hey are also considering ways to present research findings in as understandable and compelling a fashion as possible.

1D Ste( ?$ Make the De&isi#n :esearch findings only provide additional information and insight to the managers. 1epending on their confidence in the findings, managers decide to use it, discard it, or carry out more research. O%er&#,in @arriers t# the Use #+ Marketin Resear&h "n spite of the rapid growth of marketing research, many companies still fail to use it sufficiently or correctly for several reasons. A narr#: &#n&e(ti#n #+ the resear&h5 Many managers see marketing research as a fact!finding operation. %hey e&pect the researcher to design a 5uestionnaire, choose a sample, conduct interviews, and report results, often without their providing a careful definition of the problem. +hen fact!finding fails to be useful, management$s idea of the limited usefulness of marketing research is reinforced. Une%en &a)i3er #+ resear&hers5 'ome managers view market research as little more than a clarity activity and treat it as such. %hey hire less!competent marketing researchers, whose weak training and low creativity leads to unimpressive results. %he disappointing results reinforce the management$s pre7udice against marketing research, and low salaries perpetuate the basic problem. P##r +ar,in #+ the (r#3)e,5 %he famous of Jew 8oke was largely due to a failure to set up research problem correctly, from a marketing perspective. %he real issue was how consumers felt about 8oca!8ola as a brand, not how they felt about its taste in isolation. 0ate an" #&&asi#na)); err#ne#2s +in"in s5 Managers want results that are accurate and conclusive. %hey may want the results tomorrow. Net good marketing research takes time and money. Managers are disappointed when marketing research costs too much or takes too much time. Pers#na)it; an" (resentati#na) "i++eren&es5 1ifferences between the styles of line managers and marketing researchers often get in the way of productive relationships. %o a manager who wants concreteness, simplicity and certainty, a marketing researcher report may seem abstract, complicated and tentative. Net in the more progressive companies, marketing researchers are being included as member of the product management team, and their influence on marketing strategy is growing.

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C2st#,er Re)ati#nshi( Mana e,ent 8ustomer relationship management is the process of carefully managing detailed information about individual customers and all customers )touch!points* to ma&imize customer loyalty. customer touch point is any occasion on which a customer encounters the brand and product I from actual e&perience to personal or mass communications to casual observations. For a hotel, the touch points include reservations, check!in and checkout, fre5uent!stay programmes, room service, business services, e&ercise facilities, laundry service, restaurants and bars. For instance, four seasons rely on personal touches, such as a staff that always addresses guests by name, high powered employees who understand needs of sophisticated business travels and at least one best in region facility, such as premier restaurant or spa. 8:M enables companies to provide e&cellent real!time customer service through the effective use of individuals account information. 9ased on what they know about each valued customer, companies can customize market offerings, services, programmes, messages and media. 8:M is important because a ma7or driver of company profitability is the aggregate value of the company$s customer base. One.t#.#ne Marketin 'ome of the groundwork for 8:M was laid by 1on 0eppers and Martha :ogers. 0eppers and :ogers outline a four step frame!work for one to one marketing that can be adopted to 8:M marketing as follows. 1. I"enti+; ;#2r (r#s(e&ts an" &2st#,ers A 1on$t go after every one. 9uild, maintain and mine a rich customer database with information derived from all the channels and customer touch points. 2. Di++erentiate &2st#,ers in ter,s #+ B1C their nee"s an" B2C their %a)2e t# ;#2r &#,(an; A 'pend proportionality more effort for the most valuable customers. pply 98 and calculate 84=. 6stimate net present value of all future profits coming from purchases, margin levels and referrals, less customer specific servicing costs. #. Intera&t :ith in"i%i"2a) &2st#,ers t# i,(r#%e ;#2r kn#:)e" e a3#2t their in"i%i"2a) nee"s an" t# 32i)" str#n er re)ati#nshi(s A Formulate customized offerings that you can communicate in a personalized way. 2. C2st#,i*e (r#"2&ts1 ser%i&es an" ,essa es t# ea&h &2st#,er A Facilitate customer company interaction through the company contact center and website. %he practice of one to one marketing, however, is not for every company. the re5uired investment in information collection, hardware and software may e&ceed the payout. "t works best for the companies that formally collect a great deal of individual customer information, carry a lot of products that can be cross sold, carry products that need periodic replacement or upgrading and sell products of high value.

1G In&reasin -a)2e #+ the C2st#,er @ase key driver for shareholder value is the aggregate value of the customer base. +inning companies improve the value of their customer base by e&celling at strategies such as following. Re"2&in the rate #+ &2st#,er "e+e&ti#n5 'electing and training employees to be knowledgeable and friendly increases the likelihood that the inevitable shopping 5uestions from the customers will be answered satisfactorily. In&reasin the )#n e%it; #+ the &2st#,er re)ati#nshi(5 %he more involved a customer is with the company, the more likely he is to stick around. 'ome companies treat their customers as partners I especially in business!to!business markets I soliciting their help in the design of new products or improving their customer service. Enhan&in the r#:th (#tentia) #+ ea&h &2st#,er thr#2 h 7share.#+.:a))et9 &r#ss se))in an" 2(.se))in 5 Jew offerings and opportunities increase sales from e&isting customers. Makin )#: (r#+it &2st#,ers ,#re (r#+ita3)e #r ter,inatin the,5 %o avoid a direct need for termination, marketers can encourage unprofitable customers to buy more or in larger 5uantities, forgo certain features or services, or pay higher amounts or fees. F#&2sin "is(r#(#rti#nate e++#rt #n hi h %a)2e &2st#,ers5 %he M=8s can be treated in a special way. %houghtful gestures such as birthday greetings, small gifts, or invitations to special sports or arts events can send a strong positive signal to the customer. Attra&tin an" Retainin C2st#,ers 8ompanies seeking to e&pand their profits and sales must spend considerable time and resources searching for new customers. %o generate leads, they develop ads and place them in media that will reach new prospects, send direct mail and make phone calls to possible new prospects, send their sales people to participate in tradeshows where they might find new leads, purchases names from list brokers, and so on. Re"2&in De+e&ti#n "t is not enough, however, to new customers, the company must keep them and increase their business. %oo many companies suffer from high customer churn or defection. dding customers here is like adding water to a leaking bucket. 8ellular carriers and cable %= operators, for e&ample, are plagued with )spinners*, customers who switch carriers at least three times a year looking for the best deal. Many lose 1< to 23M of their subscribers each year, at an estimated cost of O2 and O2 billion. %o reduce the defection rate, the company must. 1. 1efine and measure its retention rate. For a magazine, subscription renewal rate is a good measure of retention. For a college, it could be first to second year retention rate or the class graduation rate. 2. 1istinguish the causes of customer attrition and identify those that can be managed better. Jot much can be done about customers who leave the region or go out of business, but much can be done about those who leave because of poor service, shoddy products, or high prices.

1L #. 8ompare the lost profit e5ual to the 84= from the lost customer to the costs to reduce the defection rate. s long as the cost to discourage defection is lower than the lost profit, the company should spend the money to try to retain the customer. Retenti#n D;na,i&s %he starting point is everyone who might conceivably buy the product or service. %hese potentials are people or organizations who might conceivably have an interest in buying the company$s product or service, but may not have the means or intention to buy. %he ne&t task is to identify which potentials are really good prospects I people with the motivation, ability and opportunity to make a purchase, by interviewing them, checking on their financial standing and so on. Market efforts can then concentrate on converting the prospects into first!time customers, and then into repeat customers, and then into clients I people to whom company gives very special and knowledgeable treatment. %he ne&t challenge is to turn clients into members by starting a membership program that offers benefit customers who 7oin, and then turning members into advocates, customers enthusiastically recommended the company and its products and services to others. %he ultimate challenge is to turn advocates into partners. @nfortunately, much marketing theory and practice centers on the art of attracting new customers, rather than on retaining and cultivating the e&isting ones. %he emphasis traditionally has been on making sales rather than on building relationships, on pre! selling and selling rather than on carrying for the customer afterward. More companies now recognize of importance of satisfying and retaining customers. 'atisfied customers constitute the company$s customer relationship capital. "f the company were to be sold, the ac5uiring company would pay not only for the plant and e5uipment and the brand name, but also for the delivered customer base, the number and the value of the customers who would do business with the new firm. -ere are some interesting facts that bear on customer retention. c5uiring new customers can cost five times more than satisfying and retaining current customers. "t re5uires a great deal of effort to induce satisfied customers to switch away from their current suppliers. %he average company loses 13M of its customers each year. five percent reduction in the customer defection rate can increase profits by 2<M to G<M depending on the industry. %he customer profit rate tends to increase over the life of the retained customer due to increased purchases, referrals and price premiums and reduce operating costs to service.

23

ANA0YDING CONSUMER MARKETS


WHAT INF0UENCES CONSUMER @EHA-IOR! 8onsumer behavior is the study of how individuals, groups and organizations, select, buy, use and dispose of goods, services, ideas or e&periences to satisfy their needs and wants. Marketers must fully understand both the theory and reality of consumer behavior. consumer$s buying behavior is influenced by cultural, social and personal factors. 8ultural factors e&ert the broadest and deepest influence. C2)t2ra) Fa&t#rs 8ulture, subculture and social class are particularly important influences on consumer buying behavior. 8ulture is the fundamental determinant of a person$s wants and behavior. %he growing child ac5uires a set of values, perceptions, preferences and behaviors through his or her family and other key institutions. child growing up in the @nited 'tates is e&posed to the following values. achievement and success, activity, efficiency and practicality, progress, material comfort, individualism, freedom, e&ternal comfort, humanitarianism, and youthfulness. child growing up in "ndia is e&posed to the following values. respect and care for elders, honesty and integrity, hard work, achievement and success, humanitarianism and sacrifice. 6ach culture consists of smaller subcultures that provide more specific identifications and socialization for their members. 'ubcultures include nationalities, religions, racial groups and geographic regions. +hen subcultures grow large affluent enough, companies often design specialized marketing programs to serve them. Multicultural marketing grew out of careful marketing research, which revealed that different ethnic and demographic niches did not always respond favorably to mass market advertising. 8ompanies have capitalized on well!thought!out multicultural marketing strategies in recent years. S#&ia) Fa&t#rs "n addition to cultural factors, social factors such as reference groups, family and social roles and statuses affect our buying behavior. Re+eren&e Gr#2(s$ person$s reference groups are all the groups that have a direct >face!to!face? or indirect influence on their attitudes or behavior. Groups having a direct influence are called membership groups. 'ome of these are primary groups with whom the person interacts fairly continuously and informally, such family, friends, neighbors and coworkers. 0eople also belong to secondary groups, such as religious professional and trade!unions groups, which tend to be more formal and re5uire less continuous interaction. :eference groups influence members in at least three ways. %hey e&pose an individual to new behaviors and lifestyles, they influence attitude and self!concept, and they create pressures for conformity that may affect product and brand choices. 0eople are also influenced by groups to which they do not belong.

21 +here reference group influence is strong, marketers must determine how to reach and influence to group$s opinion leaders. n opinion leader is the person who offers informal advice or information about a specific product or product category, such as which of several brands is best or how a particular product may be used. (pinion leaders are often highly confident, socially active, and involved with the category. Marketers try to reach opinion leaders by identifying their demographic and psychographic characteristics, identifying the media they read, and directing messages at them. Fa,i); %he family is most important consumer buying organization in society, and family members constitute the most influential primary reference groups. +e can distinguish between two families in the buyer$s life. %he family of orientation consists of parents and siblings. Form parents a person ac5uire an orientation toward religion, politics and economics and a sense of personal ambition, self!worth, and love. 6ven if the buyer no longer interacts very much with his or her parents, their influence on behavior can be significant. "n countries where parents live with grown children, their influence can be substantial. more direct influence on every day buying behavior is the family of procreation!namely, one$s spouse and children. Family members influence buying decisions. "n traditional 7oint families, the influence of grand parents on ma7or purchase decisions, and to some e&tent on the lifestyles of the younger generations, is still intact, though diminishing. +estern researchers on family decision making have focused more on husband, wife and child dominance in different situations and have found evidence, where one of these dominate or there is 7oint decision making. Pers#na) Fa&t#rs buyer$s decisions are also influenced by personal characteristics these includes the buyer$s age, and stage in the life cycle, occupation and economic circumstances, personality and self!concept and lifestyle and values. 9ecause many of these characteristics have a very direct impact on consumer behavior, it is important for marketers to follow them closely. A e an" Sta e in the 0i+e C;&)e 0eople buy different goods and services over a life time. %aste in food, clothes, furniture and recreation is often age related consumption is shaped by the family lifecycle. %rends like delayed marriages, children migrating to distant cities or abroad for work leaving parents behind, tendency of professionalsPworking couple to ac5uire assets such as house or an automobile in the early stages of carrier, has resulted in different opportunities for marketers at different stages in the consumer lifecycle. Marketers should also consider critical life events or transitions Imarriage, child birth, illness, relocation, divorce, carrier change, widow hood!as giving rise to new needs. %hese should alert service providers!banks, lawyers and marriage, employment and bereavement counselors!to ways they can help.

22 O&&2(ati#n an" E&#n#,i& Cir&2,stan&es (ccupation also influences consumption patterns. blue collar worker will buy work clothes, work shoes and lunch bo&es. company president dress suits, and country club memberships. Marketers try to identify the occupational groups that have above a average interest in their products and services and even tailored products for certain occupational groups. computer software companies, for e&ample, design different products for brand managers, engineers, lawyers and physicians. 0roduct choice is greatly affected by economic circumstances. spend able income, debts, borrowing power and attitude towards spending and saving. 4u&ury goods makers, such as Gucci, 0rada, and 9urberry, candy vulnerable to an economic downturn. "f economy indicators point to a recession, marketers can take steps to redesign, reposition, and re!price their products or introduce or increase the emphasis on discount brands so they can continue to offer value to target customers. THE @UYING DECISION PROCESS$ THE FI-E.STAGE MODE0 %hese basic psychological processes play an important role in understanding how consumers actually make their buying decisions. %able D.F provides a list of some key consumers behavior 5uestions in terms of )who, what, when. +here, how and whyH* 'mall companies try to fully understand the customer$s buying!decision!process, all their e&periences in learning, choosing, using, and even disposing off a product. Marketing scholars have developed a )stage model* of the buying decision process. %he consumer passes through five stages. problem recognition, information search, evaluation of alternatives, purchase decision, and post purchase behavior. 8learly, the buying process starts long before the actual purchase and has conse5uences long afterward. 8onsumers don$t always pass through all five stages in buying a product. %hey may skip or reverse some. +hen you buy your regular brand of toothpaste, you go directly from the need for toothpaste to the purchase decision, skipping information search and evaluation. %he model in Figure provides a good frame of reference, however, because it captures the full range of considerations that arise when a consumer faces a highly involving new purchase.

2#

Fi%e.Sta e M#"e) #+ The C#ns2,er @2;in Pr#&ess


Pr#3)e, Re&# niti#n

In+#r,ati#n Sear&h

E%a)2ati#n #+ A)ternati%es

P2r&hase De&isi#n

P#st P2r&hase @eha%i#r

Pr#3)e, Re&# niti#n %he buying process starts when the buyer recognizes a problem or need triggered by internal or e&ternal stimuli. +ith an internal stimulus, one of the person$s normal needs!hunger, thirst, se&!rise to threshold level and becomes a drive, or a need can be aroused by an e&ternal stimulus. person may admire a neighbor$s new car or see a television and for a -awaiian vacation, which triggers thoughts about the possibility of making a purchase. Marketers need to identify the circumstances that trigger a particular need by gathering trigger consumer interest. 0articularly for discretionary purchases such as lu&ury goods, vacation packages, and entertainment options, marketers may need to increase consumer motivation so a potential purchase gets serious consideration.

22 Ta3)e +ho buys our product or serviceH +ho makes the decision to buy the productH +ho influences the decision to buy the productH -ow is the purchase decision madeH +ho assumes what roleH +hat does the consumer buyH +hat needs must be satisfiedH +hy do customers buy a particular brandH +here do they go or look to buy the product or serviceH +hen do they buyH ny seasonality factorsH -ow is our product perceived by customersH +hat are customers$ attitudes toward our productH +hat social factors might influence the purchase decisionH 1o customers$ lifestyles influence their decisionsH -ow do personal or demographic factors influence the purchase decisionH

In+#r,ati#n Sear&h 'urprisingly, consumers often search for limited amount of information. 'urveys have shown that for durables, half of all consumers look at one store, and only #3M look more than one brand of appliances. +e can distinguish between two levels of involvement with search. %he milder search state is called heightened attention. t this level a person simply becomes more receptive to information about a product. t the ne&t level, the person may enter an active information search. looking for reading material, phoning friends, going online, and visiting stores to learn about the product. In+#r,ati#n S#2r&es Ma7or information sources to which consumers will turn fall into four groups. Pers#na)5 Family, friends, neighbors, ac5uaintances C#,,er&ia). dvertising, web sites, salespersons, dealers, packaging, displays P23)i&5 Mass media, consumer!rating organization E'(erientia)5 -andling, e&amining and using the product. %he relative amount and influence of these sources vary with the product category and the buyer$s characteristics. Generally speaking, the consumer receives the most information about a product form commercial ! marketer!dominated I sources. -owever, the most effective information often comes from personal sources or public sources that are independent authorities. 6ach information source performs a different function in influencing the buying decision. 8ommercial sources normally perform an information function, whereas personal sources perform a legitimizing or evaluation function. For e&ample, physicians often learn of new drugs from commercial sources but turn to other doctors for evaluations.

2<

T#ta) Set pple 1ell -ewlett!0ackard %oshiba 8ompa5 J68 . .

A:areness Set pple 1ell -ewlett! 0ackard %oshiba 8ompa5 J68

C#nsi"erati#n pple 1ell %oshiba

Set Ch#i&e Set pple 1ell

De&isi#n

FIG

Sear&h D;na,i&s %hrough gathering information, the consumer learns about compacting brands and their features. %he first bo& in Figure D.< shows the total set of brands available to the consumer. %he individual consumer will come to know only a subset of these brands, the awareness set. 'ome brands, the consideration set, will meet initial buying criteria. s the consumer gathers more information, only a few, the choice set, will remain strong contenders. %he consumer makes a final choice from this set. Marketers need to identify the hierarchy of attributes that guide consumer decision making in order to understand different competitive forces and how these various sets get formed. %his process of identifying the hierarchy is called Market 0artitioning. %he hierarchy of attributes can also reveal customer segments. 9uyers who first decide on price are price dominant, those who first decide on the type of car are type dominant, those who first decide on the car brand are brand dominant. %ypePpricePbrand! dominant consumers make up a segment, 5ualityPservicePtype buyers make up another. 6ach segment may have distinct demographics, psychographics, and media graphics and different awareness, consideration, and choice sets. %he company must also identify the other brands in the consumer$s choice set so that it can plan the appropriate competitive appeals. "n addition, the company should identify the consumer$s information sources and evaluate their relative importance. sking consumers how they first heard about the brand, what information came later, and the relative importance of the different sources will help the company prepare effective communications for the target market.

2D E%a)2ati#n #+ A)ternati%es -ow does the consumer process competitive brand information and make a final value 7udgmentH Jo single process is used by all consumers, or by one consumer in all buying situations. %here are several processes, and the most current models see the consumer forming 7udgments largely on a conscious and rational basis. 'ome basic concepts will help us understand consumer evaluation processes. First, the consumer is trying to satisfy a need. 'econd, the consumer is looking for certain benefits from the product solution. %hird, the consumer sees each product as a bundle of attributes with varying abilities for delivering the benefits sought to satisfy this need. %he attributes of interest to buyers vary by product!for e&ample. 1. H#te)s$ 4ocation, cleanliness, atmosphere, price 2. M#2th:ash$ 8olor, effectiveness, germ!killing capacity, tastePflavor, price #. Tires$ 'afety, tread life, ride 5uality, price P2r&hase De&isi#n "n the evaluation stage, the consumer forms preferences among the brands in the choice set. %he consumer may also form an intention to buy the most preferred brand. "n e&ecuting a purchase intention, the consumer may make up to five sub!decisions. brand, dealer, 5uantity, timing, and payment method. Inter%enin Fa&t#rs$ 6ven if consumers form brand evaluations, two general factors can intervene between the purchase intention and the purchase decision >Figure D.D?. %he first is the attitude of others. %he e&tent to which another person$s attitude reduces our preference for an alternative depends on two things. 1. the intensity of the other person$s negative attitude toward our preferred alternative, 2. our motivation to comply with the other person$s wishes. %he more intense the other person negativism and the closer the other person is to us, the more we will ad7ust our purchase intention. %he converse is also true. :elated to the attitudes of others is the role played by infomediaries who use various media channels to disseminate their evaluations. 6&amples include product! testing reports published in consumer magazines such as "nsights, reviews of books, movies, music 1=1s and 81s, letters to editors, and discussions in e!forums and various chat rooms. 8onsumers are undoubtedly influenced by these evaluations. %he second factor is unanticipated situational factors that may erupt to change the purchase intention. 4inda might lose her 7ob, some other purchase might become more urgent, or a store salesperson may turn her off. 0references and even purchase intentions are not completely reliable predictors of purchase behavior.

2F consumer$s decision to modify, postpone, or avoid a purchase decision is heavily influenced by perceived risk. 8onsumers may perceive many types of risk in buying and consuming a product. 1. F2n&ti#na) risk$ %he product does not perform up to e&pectations. 2. Ph;si&a) risk$ %he product poses a threat to the physical well!being or health of the user or others. #. Finan&ia) risk$ %he product is not worth the price paid. 2. S#&ia) risk$ %he product results in embarrassment from others. <. Ps;&h#)# i&a) risk$ %he product affects the mental well!being of the user. D. Ti,e risk$ %he failure of a product results in an opportunity cost of finding another satisfactory product.

P2r&hase De&isi#n

Attit2"es #+ Others

Unanti&i(ate" Sit2ati#na) Fa&t#rs

P2r&hase Intenti#n

E%a)2ati#n #+ A)ternati%es

2G %he amount of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty, and the amount of consumer self!confidence. 8onsumers develop routines for reducing the uncertainty and negative conse5uences of risk, such as decision avoidance, information gathering from friends, and preferences for national brand names and warranties. Marketers must understand the factors that provoke a feeling of risk in consumers and provide information and support to reduce perceived risk. P#st(2r&hase @eha%i#r fter the purchase, the consumer might e&perience dissonance that stems from noticing certain dis5uieting features or hearing favorable things about other brands and will be alert to information that supports his or her decision. Marketing communications should supply beliefs and evaluations that reinforce the consumer$s choice and help him feel good about the brand. %he marketer$s 7ob therefore doesn$t end with the purchase. Marketers must monitor postpurchase satisfaction, postpurchase actions, and postpurchase product uses. P#st(2r&hase Satis+a&ti#n 'atisfaction is a function of the closeness between e&pectations and the product$s perceived performance. "f performance falls short of e&pectations, the consumer is disappointed, if it meets e&pectations, the consumer is satisfied, if it e&ceeds e&pectations, the consumer is delighted. %hese feelings make a difference in whether the customer buys the product again and talks favorably or unfavorably about it to others. %he larger the gap between e&pectations and performance, the greater the dissatisfaction. -ere the consumer$s coping style comes into play. 'ome consumers magnify the gap when the product isn$t perfect and are highly dissatisfied, others minimize it and are less dissatisfied. P#st(2r&hase A&ti#ns "f the consumer is satisfied, she is more likely to purchase the product again. %he satisfied customer will also tend to say good things about the brand to others. (n the other hand, dissatisfied consumers may abandon or return the product. %hey may seek information that confirms its high value. %hey may take public action by complaining to the company, going to a lawyer, or complaining to other groups. 0rivate actions include deciding to stop buying the product or warning friends. P#st(2r&hase Use an" Dis(#sa) Marketers should also monitor how buyers use and dispose of the product. key driver of sales fre5uency is product consumption rate, the more 5uickly buyers consume a product, the sooner they may be back in the market to repurchase it. (ne opportunity to increase fre5uency of product use occurs when consumers$ perceptions of their usage differ from reality. 8onsumers may fail to replace products with relatively short life spans soon enough because they overestimate its product life. (ne strategy to speed up replacement is to tie the act of replacing the product to a certain holiday, even, or time of year.

2L "f consumers throw the product away, the marketer needs to know how they dispose of it, especially if, like batteries, beverage containers, electronic e5uipment and disposable diapers, it can damage the environment.

#3

IDENTIFYING MARKET SEGMENTS AND TARGETS


0E-E0S OF MARKET SEGMENTATION %he starting point for discussing market segmentation is mass marketing. "n mass marketing, the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers. -enry Ford epitomized this strategy when he offered the Model!% Ford in one color, black. 8oca!8ola also practiced mass marketing when it sold only one kind of 8oke in a D.<!ounce bottle. %he argument for mass marketing is that it creates the largest potential market, which leads the lowest costs, which in turn can lead to lower prices or higher margins. -owever, many critics point to the increasing splintering of the market, and the proliferation of advertising media and distribution channels, which are making it difficult and increasingly e&pensive to reach a mass audience. 'ome claim that mass marketing is dying. Most companies are turning into micromarketing at one of four levels. segments, niches, local areas and individuals. Se ,ent Marketin market segment consists of a group of customers who share a similar set of needs and wants. :ather than creating the segments, the marketer$s task is to identify them and decide which one to target. 'egment marketing offers key benefits over mass marketing. %he company can often better design, price, disclose and deliver the product or service and also can fine tune the marketing program and activities to better reflect competitors$ marketing. fle&ible market offering consists of two parts. a naked solution containing the product and service elements that all segment members value, and discretionary options that some segment members value. 6ach option might carry an additional charge. For e&ample, automobile companies in "ndia offers different versions of the same model with different features. %he base model of the vehicle may not have an air!conditioner or power steering or power windows. 9ut for the models that have these features, the buyer has to pay higher price. 'imilarly, domestic airlines in "ndia offer economy class and business or e&ecutive class for travelers, and the prices of these two options differ significantly. %he e&ecutive or business class passengers get e&tra facilities, such as more comfortable seats, better menu for food, and greater preference while checking in and boarding the aircraft. Ni&he Marketin niche is more narrowly defined customer group seeking a distinctive mi& of benefits. Marketers usually identify niches by dividing a segment into sub segments. +hat does and an attractive niche look likeH %he customer have a distinctive set of needs, they will pay a premium to the firm that best satisfies them, the niche is fairly small but has size, profit, and growth potential and is unlikely to attract many other competitors, and the nicher gains certain economies through specialization.

11

#1 0#&a) Marketin %arget market is leading to marketing programs tailored to the needs and wants of local customer groups in trading areas, neighborhoods, even individual stores. In"i%i"2a) Marketin %he ultimate level of segmentation leads to )segments of one* )customized marketing* or )one!to!one marketing*. %oday customers are taking more individual initiative in determining what and how to buy. 8ustomization is certainly not for every company. "t may be very difficult to implement for comple& products such as automobiles. 8ustomization can also raise the cost of goods by more than the customer is willing to pay. 'ome customers don$t know what they have started to work on the product. %he product may be hard to repair and have little sales value. @ASES FOR SEGMENTING CONSUMER MARKETS +e use too broad group of variables to segment consumer markets. 'ome researchers try to define segments by looking at descriptive characteristics. geographic, demographic, and psychographic. %hen they e&amine whether these customer segments e&hibit different needs or product responses. For e&ample, they might e&amine the differing attitudes or )professionals*, )blue collars* and other groups toward say, )safety* as a car benefit. (ther researchers try to define segments by looking at behavioral considerations, such as consumer responses to benefits, use occasions or brands. %he researcher then sees whether different characteristics are associated with each consumer response segment. :egardless of which type of segmentation scheme we use, the key is ad7usting the marketing program to recognize consumer differences. %he ma7or segmentation variables, geographic, demographic, psychographic and behavioral segmentation. Ge# ra(hi& Se ,entati#n Geographic segmentation calls for division of the market into different geographical units such as nations, states, regions, countries, cities or neighborhoods. (ne of the ma7or geographical segmentation variables relevant for marketers in 'outh sia is the division of markets into rural and urban areas. :ural and urban markets differ on a number of important parameters such as literacy level, income, spending power and availability of infrastructure such as electricity, telephone network, and roads, as well as social and cultural orientations of people that affect the market potential and buying patterns and habits. %hese differences including market potential, have ma7or implications of marketers.

#2 De,# ra(hi& Se ,entati#n "n demographic segmentation, we divide the market into the groups on the basis of variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality and social class. (ne reason demographic variables are so popular with marketers is that they are often associated with consumer needs and wants. nother is that they are easy to measure. 6ven when we describe the target market in non!demographic terms, we may need the link back to demographic characteristics in order to estimate the size of the market and the media we should use to reach it efficiently. A e an" 0i+e C;&)e Sta e 8onsumers want and abilities change with age. %herefore, age and life cycle stages are more important variables to define segments. 0i+e Sta e 0ersons in the same part of the life cycle may differ in their life stage. 4ife stage defines a person$s ma7or concern, such as getting married, deciding to buy a home, sending a child to the school, taking care of older family members, marrying off their children, planning for retirement, and so on. %hese life stages present opportunities to the marketers who can help people cope with their ma7or concerns. +hen a person gets married and starts hisPher family a host of products and services such as furniture, kitchen appliances, and cooking gas connection become necessary. Many marketers target customers who are at this stage of their life by developing appropriate sales promotion schemes and advertisements. Gen"er Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization. In&#,e "ncome segmentation is a long standing practice in a variety of products and services. "ncome determines the ability of consumers to participate in the market e&change and hence this is a basic segmentation variable. -owever, income does not always predict the best consumers for a given product. 6ven if two consumers have similar income levels, each may own different types and brands of products based on a host of factors such as lifestyle, attitudes and values. S#&ia) C)ass 'ocial class has a strong influence of preferences in cars, clothing, home furnishings, leisure activities, reading habits and retailers, and many companies design products or services for specific social classes. %he concept of social class in "ndia is influenced by the caste system. %his is a very uni5ue system peculiar to "ndia. %he caste system prevalent in "ndia sometime even transcends the income level. s a conse5uence, market segmentation schemes become a very comple& process.

## Ps;&h# ra(hi& Se ,entati#n 0sychographics is a science of using psychology and demographics to better understand consumers. "n psychographic segmentation, buyers are divided into different groups on the basis of psychological Ppersonality traits, lifestyle or values. 0eople within the same demographic group can e&hibit very different psychographic profiles. =alues and lifestyle significantly affect product and brand choice of consumers. :eligion has a significant influence on values and lifestyles. %he strict norms that consumers follow with respect to food habits or even dress codes are representative e&amples in this regard. @eha%i#ra) Se ,entati#n "n behavioral segmentation, marketers divide buyers into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. De&isi#n R#)es 0eople play five roles in a buying decision. initiator, influencer, decider, buyer and user. :ecognition of the different buying roles and specification of the people who play these roles for specific products and services are vital for marketers. %his is especially useful for designing the communication strategy. -owever, the role of mass media advertisements, salespeople, shopkeepers, friends, children, relatives and friends vary for different products. %his is especially so with respects to products where the perceived risk of buying is high. +omen, for e&ample, play a significant influencing and deciding role for kitchen appliances.

#2

Ta3)e De,# ra(hi& 1. "ndustry. +hich industries should we serveH 2. 8ompany 'ize. +hat size companies should we serveH #. 4ocation. +hat geographical areas should we serveH O(eratin -aria3)es 2. %echnology. what customer technologies should we focus onH <. @ser or Jonuser 'tatus. 'hould we serve heavy users, medium users, light users, or non!usersH D. 8ustomer 8apabilities. should we serve customers needing many of few servicesH P2r&hasin A((r#a&hes F. 0urchasing Function (rganization. should we serve companies with highly centralized or decentralized purchasing organizationH G. 0ower 'tructure. should we serve companies that are engineering dominated, financially dominated, and so onH L. Jature of 6&isting :elationship. should we serve companies with which we have strong relationship or simply go after the most desirable companiesH 13. General 0urchasing 0olicies. should we serve companies that prefer leasingH 'ervice contractH 'ystems purchasesH 'ealed biddingH 11. 0urchasing 8riteria. should we serve companies that are seeking 5ualityH 'erviceH 0riceH Sit2ati#na) Fa&t#rs 12. @rgency. should we serve companies that need 5uick and sudden delivery of serviceH 1#. 'pecific pplication. should we focus on certain application of our product rather than all applicationsH 12. 'ize or (rder. should we focus on large or small ordersH Pers#na) Chara&teristi&s 1<. 9uyer!'eller 'imilarity. should we serve companies whose people and value are similar to oursH 1D. ttitude toward risk. should we serve risk taking or risk avoiding customersH 1F. 4oyalty. should we serve companies that show high loyalty to their suppliersH

#<

DEA0ING WITH COMPETITION


9uilding strong brands re5uire a keen understanding of competitors and competition grows more intense every year. Jew competition is coming from all directions, from global competitors eager to grow sales in new markets, from online competitors seeking cost efficient ways to e&pand distribution, from private label and store brands designed to provide low!price alternatives, and from brand e&tensions from strong mega brands leveraging their strengths to move into new categories. (ne good way to start to deal with competition is through creatively designed and well!e&ecuted marketing programs. COMPETITI-E FORCES Michael 0orter has identified five forces that determine the intrinsic long!run attractiveness of a market or market segment. industrial competitors, potential entrants, substitutes, buyers and suppliers. %he threats these forces pose are as follows. 15 Threat #+ intense se ,ent ri%a)r; segment is unattractive if it already contains numerous, strong or aggressive competitors. "t$s even more unattractive if it$s stable or declining, if plant capacity must be added in large increments, if fi&ed costs or e&it barriers are high, or if competitors have high stakes in staying in the segment. %hese conditions will lead to fre5uent price wars, advertising battles, and new product introductions and will make it e&pensive to compete. %he cellular phone market has seen fierce competition due to segment rivalry. 25 Threat #+ ne: entrants %he most attractive segment is one in which entry barriers are high and e&it barriers are low. Few new firms can enter the industry, and poorly performing firms can easily e&it. +hen both entry and e&it barriers are high, profit potential is high, but firms face more risk because poor performing firms stay!in and fight it out. +hen both entry and e&it barriers are low, firms easily enter and leave the industry and the returns are stable and low. %he worst case is when entry barriers are low and e&it barriers are high, here firms enter during good times but find it hard to leave during bad times. %he result is chronic overcapacity and depressed earnings for all. %he air line industry has low entry barriers but high e&it barriers, leaving all carriers struggling during economic downturns. <5 Threat #+ s23stit2te (r#"2&ts segment is unattractive when there are actual or potential substitutes for the product. 'ubstitute place a limit on prices and on profits. "f technology advances and competition increases in these substitute industries, prices and profits are likely to fall.

#D =5 Threat #+ 32;ers8 r#:in 3ar ainin (#:er segment is unattractive if buyers possess strong or growing bargaining power. %he rise of retail giants such as +al!Mart has led some analysts to conclude that the potential probability of packaged goods companies will become curtailed. 9uyers$ bargaining power grows when they become more concentrated or organized, when the product represents the significant fraction of the buyers$ costs, when the product is undifferentiated, when buyers$ switching costs are low, when buyers$ are price sensitive because of low profits, or when they can integrate upstream. %o protect themselves, sellers might select buyers who have the least power to negotiate or switch suppliers. better defense consists of developing superior offers that strong buyers cannot refuse. >5 Threat #+ s2(()iers8 r#:in 3ar ainin (#:er segment is unattractive if the company$s suppliers are able to raise prices or reduce 5uantity supplied. (il companies such as 6&&on Mobil, 'hell, 90 and 8hevron!%e&aco are at the mercy of the limited amount of oil reserves and the actions of oil supplying cartel such as (068. 'uppliers tend to be powerful when they are concentrated or organized, when there are few substitutes, when the supplied product is an important input, when costs of switching suppliers are high, and when the suppliers can integrate downstream. %he best defenses are to build win!win relationships with suppliers or use multiple supply sources. IDENTIFYING COMPETITORS "t would seem a simple task for the company to identify its competitors. 0epsi 8o knows that 8oca!8ola$s 1asani is the ma7or bottled!water competitor for its 5uafina 9rand, 8itigroup knows that 9ank of merica is a ma7or banking competitor and petsmart.com knows that a ma7or online competitor for pet food and supplies is 0etco.com. -owever, the range of a company$s actual and potential competitors can be much broader than the obvious. nd a company is more likely to be hurt by emerging competitors or new technologies than by current competitors. "n recent years, for instance, a number of new )emerging giants* have arisen from developing countries, and these nimble competitors are not only competing with multinationals on their home turf but also becoming global forces in their own right. %hey have gained competitive advantage by e&ploiting their knowledge about local factors of production, capital and talent, and supply chains in order to build world!class businesses.

#F Se)e&tin C#,(etit#rs fter the company has conducted customer value analysis and e&amined its competitors carefully, it can focus its attack on one of the following classes of competitors. strong, versus, weak, close versus distant, and good versus bad. Str#n %ers2s Weak5 Most companies aim their shots at weak competitors, because this re5uires fewer resources per share point gained. Net, the firm should also compete with strong competitors to keep up with the best. 6ven strong competitors have some weaknesses. C)#se %ers2s Distant5 Most companies compete with the competitors that resemble them the most. 8hevrolet competes with Ford, not with Ferrari. Net, companies should also identify distant competitors. 8oca!8ola recognizes that its number!one competitor is tap water, not 0epsi. Museums now worry about theme parks and malls. G##" %ers2s @a"5 6very industry contains good and bad competitors. Good competitors play by the industry$s rules, they set prices in the reasonable relationship to costs, and they favor a healthy industry. 9ad competitors try to buy share rather than earn it, they take large risks, they invest in overcapacity, and they upset industrial e5uilibrium. company may find it necessary to attack its bad competitors to reduce or end their dysfunctional practices. COMPETITI-E STRATEGIES FOR MARKET 0EADERS +e can gain further insight by classifying firms by the roles they play in the target market. leader, challenger, follower, or nicher. 'uppose a market is occupied by the firms shown in figure L.<. Forty percent of the market is in the hands of a market leader, another #3M is in the hands of a market challenger, another 23M is in the hands of a market follower, a firm that is willing to maintain its market share and not rock the boat. %he remaining 13M in the hands of the market nicher, firms that serve small market segments not being served by larger firms.

#G =EF Market 0ea"er

<EF Market Cha))en er

2EF Market F#))#:er


1EF Market NI&hers

E'(an"in the T#ta) Market "f "ndian consumers increase their consumption of ketchup, the ;issan brand of -industan @nilever limited, as the market leader will be the biggest gainer. %o further increase sales, it can convince more to people to use ketchup, or to use ketchup on more occasions, or to use more of ketchup per occasion. Ne: C2st#,ers 6very product class has the potential to attract buyers who are unaware of the product or who are resisting it because of price or lack of certain features. company can search for the new users among three groups. those who might use it but do not >market penetration strategy?, those who have never used it >new market segment strategy?, or those who live elsewhere >geographical!e&pansion strategy?. M#re Usa e Marketers can try to increase the amount, level or fre5uency of consumption. %he amount of consumption can sometimes be increased through packaging or product redesign. 4arge package sizes have been shown to increase the amount of product that consumers use at one time. %he usage of impulse consumption products such as soft drinks and snacks increases when the product is made more available.

#L "ncreasing fre5uency of consumption, on the other hand, re5uires either >1? identifying additional opportunities to use the brand in the same basic way or >2? identifying completely new and different ways to use the brand. 8onsumers may see the product as useful only in certain places and at certain times, especially if it has strong associations to particular usage situations or user types. %o generate additional opportunities to use the brand in the same basic way, a marketing program can communicate the appropriateness and advantages of using the brand more fre5uently in new or e&isting situations or remind consumers to actually use the brand as close as possible to those situations. nother opportunity arises when consumers$ perceptions of their usage differ from the reality. 8onsumers may fail to replace a short!lived product when they should, because they overestimate how long it stays fresh. De+en"in Market Share +hile trying to e&pand total market size, the dominant firm must continuously and actively defend its current business. 9oeing against irbus, 'taples against (ffice 1epot, and Google against Nahoo/ and Microsoft. +hat can the market leader do to defend its terrainH %he most constructive response is continuous innovation. %he leader should lead the industry in developing new products and customer services, distribution effectiveness, and cost cutting. "t keeps increasing its competitive strength and value to customers by providing comprehensive solutions. "n satisfying customer needs, we can draw a distinction between responsive marketing, anticipative marketing, and creative marketing. responsive marketer finds a stated need and fills it. n anticipative marketer looks ahead into what needs customers may have in the near future. creative marketer discovers and produces solutions customers did not ask for but to which they enthusiastically respond. 8reative marketers are market driving firms, not 7ust market driven. 6ven when it does not launch offensives, the market leader must not leave any ma7or flanks e&posed. "t must consider carefully which terrains are important to defend, even at a loss, and which can be surrendered. %he aim of defensive strategy is to reduce the probability of attack, divert attacks to less threatening areas, and lessen their intensity. %he defender$s speed of response can make an important difference in the profit conse5uences. P#siti#n De+ense 0osition defense involves building superior brand power, and making the brand almost impregnable. Jescafe, for e&ample, has defended its position against several attacking brands using this strategy. F)ank De+ense lthough position defense is important, the market leader should also erect outposts to protect a weak front or possibly serve as an invasion base for counterattack.

23 Pree,(ti%e De+ense more aggressive maneuver is to attack before the enemy starts its offense. company can launch a preemptive defense in several ways. "t can wage guerrilla action across the market, hitting one competitor here, another there, and keep every one off balance, or it can try to achieve grand market envelopment. Marketers can introduce a stream of new products, making sure to precede them with preannouncements, deliberate communications regarding future actions. 0reannouncements can signal to competitors that they will need to fight to gain market share. C#2nter#++ensi%e De+ense +hen attacked, most market leaders will respond with a counter attack. "n a counteroffensive, the leader can meet the attacker frontally or hit its flank or launch a pincer movement. n effective counterattack is to invade the attacker$s main territory so that it will have to deploy resources to defend it. nother common form of counteroffensive is the e&ercise of economic or political clout. %he leader may try to crush a competitor by subsidizing lower prices for the vulnerable product with revenue from its more profitable products, or the leader may prematurely announce that a product upgrade will be available, to prevent customers from buying the competitor$s product. (r the leader may lobby legislators to take political action to inhibit the competition. M#3i)e De+ense "n mobile defense, the leader stretches its domain over new territories that can serve as future centers for defense and offense through market broadening and market diversification. Market broadening shifts focus from the current product to the underlying generic need. Market diversification involves shifting into unrelated industries. C#ntra&ti#n De+ense 4arge companies sometimes must recognize that they can no longer defend all their territory. %he best course of action then appears to be planned contraction >also called strategic withdrawal? giving up weaker territories and reassigning resources to stronger territories. Ch##sin A Genera) Atta&k Strate ; Given clear opponents and ob7ectives, what attack options are availableH +e can distinguish about five attack strategies. frontal, flank, and encirclement, bypass, and guerilla attacks. Fr#nta) Atta&k "n a pure frontal attack, the attacker matches its opponent$s product, advertising, price and distribution. %he principle of force says that the side with the greater resources will win. modified frontal attack, such as cutting price, can work if the market leader doesn$t retaliate, and if the competitor convinces the market that its product is e5ual to the leader$s.

21 F)ank Atta&k n enemy$s weak spots are natural targets. flank attack can be directed along two strategic dimensions, geographic and segmental. "n a geographic attack, the challenger spots areas where the opponent is underperforming. %he other flanking strategy is to serve uncovered market needs. En&ir&)e,ent Atta&k %he encirclement maneuver is an attempt to capture a wide slice of the enemy$s territory through a blitz. "t means launching a grand offensive on several fronts. 6ncirclement makes sense when the challenger commands superior resources and believes a swift encirclement will break the opponent$s will. @;(ass Atta&k %he most indirect assault strategy is bypassing the enemy altogether and attacking easier markets to broaden the firm$s resource base. %his strategy offers three lines of approach. diversifying into unrelated products, diversifying into new geographical markets, and leapfrogging into new technologies to supplant e&isting products. "n the past decade, 0epsi has used a bypass strategy against 8oke by. >1? aggressively rolling out 5uafina bottled water nationally in 1LLF before 8oke launched its 1asani brand, >2? purchasing orange 7uice giant %ropicana for O#.# billion in 1LLG, which owned almost twice the market share of 8oca!8ola$s Minute Maid, and >#? purchasing the Quaker (ats 8ompany, owner of market leader Gatorade sports drink, for O12 billion in 2333. G2erri))a War+are Guerrilla warfare consists of waging small, intermittent attacks to harass and demoralize the opponent and eventually secure permanent footholds. %he guerrilla challenger uses both conventional and unconventional means of attack. %hese include selective price cuts, intense promotional blitzes, and occasional legal action. guerrilla campaign can be e&pensive, although less than a frontal, encirclement or flank attack. Guerilla warfare is more a preparation for war than a war itself. @ltimately, it must be backed by a stronger attack if the challenger hopes to beat the opponent. Guerilla marketing must, however, not cross lines of legality or morality.

22

CEATING @RAND E6UITY


t the heart of a successful brand is a great product or service backed by careful planning, a great deal of long term commitment, and creatively designed and e&ecuted marketing. strong brand commands intense consumer loyalty. WHAT IS @RAND E6UITY! 0erhaps the most distinctive skill of professional marketers is their ability to create, maintain, enhance and protect brands. 'tarbucks, 'ony, and Jike brands command a price premium and elicit deep customer loyalty. Jewer brands such as Google, :ed 9ull, and Eet 9lue capture the imagination of consumers and financial community alike. %he merican Marketing ssociation defined a brand as ) a name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors*. brand is thus a product or service whose dimensions differentiate it in someway from other products or services designed to satisfy the same need. %hese differences may be functional, rational, or tangible, related to product performance of the brand. %hey may also be more symbolic, emotional or intangible, related to what the brand represents. The R#)e #+ @ran"s 9rands identify the source or maker of a product and allow consumers, either individuals or organizations, to assign responsibility for its performance to a particular manufacturer or distributor. 8onsumers may evaluate the identical product differently depending on how it is branded. %hey learn about brands through past e&periences with the product and its marketing program, finding out which brands satisfy their needs and which do not. s consumers$ lives become more complicated, rushed, and time starved, the ability of a brand to simplify decision making and reduce risk is invaluable. 9rands signal a certain level of 5uality so that satisfied buyers can easily choose the product again. 9rand loyalty provides predictability and security and demand for the firm, and it creates barriers to entry that make it difficult for other firms to enter the market. 4oyalty also can translate into customer willingness to pay a higher price, often 23M to 2<M more than competing brands. lthough competitors may duplicate manufacturing processes and product designs, they cannot easily match lasting impressions left in the minds of individuals and organizations by years of product e&perience and marketing activity. "n this sense, branding can be a powerful means to secure a competitive advantage.

2# The S&#(e #+ @ran"in -ow do you )brand* a productH lthough firms provide the impetus to brand creation through marketing programs and other activities, ultimately a brand resides in the mind of consumers. "t is a perceptual entity rooted in reality but reflecting the perceptions and idiosyncrasies of consumers. 9randing is endowing products and services with the power of a brand. "t$s all about creating differences between products. Marketers need to teach consumers )who* the product is I by giving it a name and other brand elements to identify it, as well as what the product does and why consumers should care. 9randing creates mental structures that help consumers organize their knowledge about products and services in a way that clarifies their decision making and in the process, provides value to the firm. For branding strategies to be successful and brand value to be created, consumers must be convinced there are meaningful differences among brands in the product or service category. 9rand differences are often related to attributes or benefits of the product itself. Gucci, 8hanel, 4ouis =uitton, and other have become leaders in their product categories by understanding consumer motivations and desires and creating relevant and appealing images around their products. Marketers can apply branding virtually anywhere a consumer has choice. De+inin @ran" EG2it; 9rand e5uity is the added value endowed on products and services. "t may be reflected in the way consumers think, feel, and act with respect to the brand, as well as in the prices, market share, and profitability the brand commands for the firm. 8ustomer based brand e5uity is the differential effect that brand knowledge has on consumer response to the marketing of that brand. brand has positive customer!based brand e5uity when consumers react more favorably to a product and the way it is marketed when the brand is identified, than when it is not identified. brand has negative customer!based brand e5uity if consumers react less favorably to marketing activity for the brand under the same circumstances. %here are three key ingredients of customer! based brand e5uity. First, brand e5uity arises from differences in consumer response. "f no differences occur, then the brand name product is essentially a commodity or generic version of the product. 8ompetition will probably be based on price. 'econd, differences in response are a result of consumer$s knowledge about the brand. %hird, the differential response by consumers that makes up brand e5uity is reflected in perception, preferences, and behavior related to all aspects of the marketing of a brand. 'tronger brands lead to greater revenue. Ch##sin @ran" E)e,ents 9rand elements are those trademark able devices that identify and differentiate the brand. Marketers should choose brand elements to build as mush brand e5uity as possible. %he test of the brand building ability of these elements is what consumers would think or feel about the product if the brand element were all they knew. brand element that provides a positive contribution to brand e5uity, for e&ample, conveys certain valued associations or responses. 9ased on its name alone, a consumer might e&pect 8olor 'tay lipsticks to be long lasting and 'nack +ell to be healthful snack foods.

22 @ran" E)e,ent Ch#i&e Criteria %here are main si& criteria for choosing brand elements. %he first three! memorable, meaningful, and likable!are )brand building*. %he latter three!transferable, adaptable, and protectable!are )defensive* and deal with how to leverage and preserve the e5uity in a brand element in the face of opportunities and constraints. 1. Me,#ra3)e5 -ow easily is the brand element recalled and recognizedH "s this true at both purchase and consumptionH 'hort brand names such as 4u&, 4G and %a7 are memorable brand elements. 2. Meanin +2)5 "s the brand element credible and suggestive of the corresponding categoryH 1oes it suggest something about a product ingredient or the type of person who might use the brandH 8onsider the inherent meaning in names such as Fair R 4ovely fairness cream, 8lose!@p toothpaste, and Mother$s :ecipe 0ickles. #. 0ika3)e5 -ow aesthetically appealing is the brand elementH "s it likable visually, verbally, and in other waysH 8oncrete brand names such as 'corpio, 'plendor and Mahara7a evoke much imagery. 2. Trans+era3)e5 8an the brand element be used to introduce new products in the same or different categoriesH 1oes it add to brand e5uity across geographic boundaries and market segmentsH lthough initially an online book seller, mazon.com was smart enough not to call itself )9ooks S:$ @s.* %he mazon is famous as world$s biggest river and the name suggests the wide variety of goods that could be shipped, an important descriptor of the diverse range of products the company now sells. <. Pr#te&ti3)e5 -ow legally protectible is the brand elementH -ow competitively protectibleH James that become synonymous with product categories!such ;leene&, ;itty 4itter, Eell!(, 'cotch %ape, Cero&, and Fiberglass I should retain their trademark rights and not become generic. DE-ISING A @RANDING STRATEGY firm$s strategy reflects the number and nature of both common and distinctive brand elements it applies to the products it sells. 1eciding how to brand new products is especially critical. +hen a firm introduces a new product, it has three main choices. 1. "t can develop new brand elements for the new product. 2. "t can apply some of its e&isting brand elements. #. "t can use a combination of new and e&isting brand elements. +hen a firm uses an established brand to introduce a new product, the product is called a 3ran" e'tensi#n5 9rand e&tensions fall into two general categories. "n a line e&tension, the parent brand covers a new product within a product category it currently serves, such as with new flavors, forms, colors, ingredients, and package sizes. 4ifebuoy soap from -industan @nilever has many line e&tensions and each one is identified by specific names following the parent brand name such as 4ifebuoy 8are, 4ifebuoy 1eofresh, 4ifebuoy Jature and 4ifebuoy %otal, in addition to the 4ifebuoy li5uid soap. "n a category e&tension, the parent brand is used to enter a different product category from the one it currently serves, such as 'wiss rmy watches.

2<

CRAFTING THE @RAND POSITIONING


DE-E0OPING AND COMMUNICATING A POSITIONING STRATEGY 0ositioning is the act of designing the company$s offering and image to occupy a distinctive place in the minds of the target market. %he goal is to locate the brand in the minds of consumers to ma&imize the potential benefit to the firm. good brand positioning helps guide marketing strategy by clarifying the brand$s essence, what goals it helps the consumer achieve, and how it does so in a uni5ue way. 6veryone in the organization should understand the brand positioning and use it as conte&t for making decisions. %he result of positioning is the successful creation of a customer!focused value proposition, a cogent reason why the target market should buy the product. P#ints #+ Di++eren&e an" P#ints #+ Parit; (nce marketers have fi&ed the competitive frame of reference for positioning by defining the customer target market and the nature of the competition, they can define the appropriate points of difference and points of parity associations. P#ints.#+.Di++eren&e 0oints of difference are attributes or benefits consumers strongly associate with a brand, positively evaluate, and believe they could not find to the same e&tent with a competitive brand. ssociations that make up points of difference may be based on virtually any type of attribute or benefit. 6&amples are pple >design?, Jike >performance?, and 4e&us >5uality?. 8reating strong, favorable and uni5ue associations is a real challenge, but essential in terms of competitive brand positioning. P#ints.#+.Parit; 0oints of parity, on the other hand, are associations that are not necessarily uni5ue to the brand but may in fact be shared with other brands. %hese types of associations come in two basic forms. category and competitive. 8ategory points of parity are associations$ consumers view as essential to a legitimate and credible offering within a certain product or service category. "n other words they represent necessary but not sufficient, conditions for brand choice. 8onsumers might not consider a travel agency truly a travel agency unless it is able to make air and hotel reservations, provide advice about leisure packages, and offer various ticket payment and delivery options. 8ategory points of parity may change over time due to technological advances, legal developments or consumer trends, but they are the )greens fees* to play the marketing game. 8ompetitive points of parity are associations designed to negate competitors$ point of difference. "f, in the eyes of consumers, a brand can )break even* in those areas where the competitors are trying to find an advantage and achieve advantages in other areas, the brand should be in a strong, and perhaps unbeatable, competitive position. 8onsider the situation of 'avlon when it entered the antiseptic lotion market in "ndia dominated by 1ettol.

2D PRODUCT 0IFE CYC0E MARKETING STRATEGIES company$s positioning and differentiation strategy must change as the product, market, and competitors change over the product life cycle. %o say that a product has a life cycle is to assert four things. 1. 0roducts have a limited life. 2. 0roduct sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller. #. 0rofits rise and fall at different stages of the product life cycle. 2. 0roducts re5uire different marketing, financial, manufacturing, purchasing and human resource strategies in each life cycle stage.

2F Pr#"2&t 0i+e C;&)es Most product life cycle curves are portrayed as bell!shaped. %his curve is typically divided into four stages. introduction, growth, maturity and decline. 1. Intr#"2&ti#n5 period of slow sales growth as the product is introduced in the market. 0rofits are non!e&istent because of the heavy e&penses of the product introduction. 2. Gr#:th5 period of rapid market acceptance and substantial profit improvements. #. Mat2rit;5 slowdown in sales growth because the product has achieved acceptance by most potential buyers. 0rofits stabilize or decline because of increased competition. 2. De&)ine5 'ales show a downward drift and profits erode.

+e can use the 048 concept to analyze a product category >fabric washing product?, a product form >washing detergent?, a product >li5uid detergent? or a brand >Godre7 6zee?. Jot all products e&hibit a bell!shaped 048. "n a growth slump maturity pattern, often characteristics of small kitchen appliances such as handled mi&ers and bread makers. 'ales grow rapidly when the product is first introduced and then fall to a )petrified* level that is sustained by late adopters buying the product for the first time and early adopters replacing it. %he cycle!recycle pattern often describes the sales of new drugs. %he pharmaceutical company aggressively promotes its new drug, and this produces the first cycle. 4ater, sales start declining and the company gives the drug another promotion push, which produces a second cycle >usually of smaller magnitude and duration?. nother common pattern is the scalloped 048. -ere sales pass through a succession of life cycles based on the discovery of new product characteristics, uses or users. %he sales of nylon, for e&ample, show a scalloped pattern because of the many new uses, parachutes, hosiery, shirts, carpeting, boat sails, automobile tires, that continue to be discovered over time.

2G St;)e1 Fashi#n an" Fa" 0i+e C;&)es +e need to distinguish three special categories of product life cycles, styles, fashions, and fads. style is a basic and distinctive mode of e&pression appearing in a field of human endeavor. 'tyles appear in homes, clothing and art. style can last for generations and go in and out of vogue. fashion is a currently accepted or a popular style in a given field. Fashions pass through four stages. distinctiveness, emulation, mass fashion, and decline. %he length of a fashion cycle is hard to predict. (ne point of view is that fashions end because they represent a purchase compromise and customers start looking for the missing attributes. Fads are fashions that come 5uickly in the public view, are adopted with great zeal, peak early, and decline very fast. %heir acceptance cycle is short, and they tend to attract only a limited following who are searching for e&citement or want to distinguish themselves from others. Fads fail to survive because they don$t normally satisfy a strong need. %he marketing winners are those who recognize fads early and leverage them into products with staying power. -ere$s success story of a company that managed to e&tend a fad$s life span.

2L Marketin Strate ies$ Intr#"2&ti#n Sta e an" the Pi#neer A"%anta e 9ecause it takes time to roll out a new product, work out the technical problems, fill dealer pipelines, and gain consumers acceptance, sales growth tends to be slow in the introduction stage. 0rofits are negative or low, and promotional e&penditures are at their highest ratio to sales because of the need to >1? inform potential consumers >2? induce product trial, and >#? secure distribution in retail outlets. Firms focus on those buyers who are the most ready to buy, usually in higher!income groups. 0rices tend to be high because costs are high. 8ompanies that plan to introduce a new product must decide when to enter the market. %o be first can be rewarding, but risky and e&pensive. %o come in later makes sense if the firm can bring superior technology, 5uality or brand strength. 'peeding up innovation time is essential in an age of shortening product life cycles. 9eing early has been shown to pay. (ne prior study found that products that came out si& months late, but on budget, earned in an average of ##M less profit in their first five years, products that came out on time but <3M over budget cut their profits by only 2M. Most studies indicate that the market pioneer gains the greatest advantage. 8ompanies such as 8ampbell, 8oca!8ola, -allmark and mazon.com developed sustained market dominance. 8arpenter and Jakamoto found that 1Lof 2< companies that were market leaders in 1L2# were still the market leaders in 1LG#, D3 years later. :obinson and Min found that in a sample of industrial good businesses, DDM of pioneers survived at least 13 years, versus 2GM of the early followers. +hat are the sources of the pioneer$s advantageH 6arly users will recall the pioneer$s brand name if the product satisfies them. %he pioneer$s brand also establishes the attributes the product class should possess. %he pioneer$s brand normally aims at the middle of the market and so captures more users. 8ustomer inertia also plays a role and there are producer advantages, economies of scale, technological leadership, patents, ownership of scarce assets, and other barriers to entry. 0ioneers can have more effective marketing spending and en7oy higher rates of consumer repeat purchases. n alert pioneer can maintain its leadership indefinitely by pursuing various strategies.

<3 Marketin Strate ies$ Gr#:th Sta e %he growth stage is marked by a rapid climb in sales. 6arly adopters like the product, and additional consumers start buying it. Jew competitors enter, attracted by the opportunities. %hey introduce new product features and e&pand distribution. 0rices remain where they are or fall slightly, depending on how fast demand increases. 8ompanies maintain their promotional e&penditures at the same or at the slightly increased level to meet competition and to continue to educate the market. 'ales rise much faster than promotional e&penditures, causing a welcome decline in the promotion! sales ratio. 0rofits 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 must watch for a change from an accelerating to decelerating rate of growth in order to prepare new strategies. %he men$s cosmetic market in 'outh sia in general and men$s fairness cream market in "ndia in particular is at this stage of product life cycle. 1uring the growth stage, the firm uses several strategies to sustain rapid market growth. "t improves product 5uality and adds new product features and improved styling. "t adds new models and flanker products "t enters new market segments. "t increases its distribution coverage and enters new distribution channels. "t shifts from product awareness advertising to product preference advertising. "t lowers prices to attract the ne&t layer of price sensitive buyers.

Marketin Strate ies$ Mat2rit; Sta e t some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity. %his stage usually lasts longer than the previous stages and poses big challenges to the marketing management. Most products are in the maturity stage of the life cycle. %he maturity stage divides into three phases. growth, stable and decaying maturity. "n the first phase, the sales growth rate starts to decline. %here are now distribution channels to fill. Jew competitive forces emerge. "n 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. "n third phase, decaying maturity, the absolute level of sales starts to decline, and the customers begin switching to other products. %he third phase of maturity poses the most challenges. %he sales slowdown creates overcapacity in the industry, which leads to intensified competition. 8ompetitors scramble to find niches. %hey engage in fre5uent markdowns. %hey increase advertising and trade and consumer promotion. %hey increase :R1 budgets to develop product improvements and line e&tensions. %hey make deals to supply private brands. shakeout begins, and weaker competitors withdraw. %he industry eventually consists of well! entrenched competitors whose basic drive is to gain or maintain market share. 1ominating the industry are a few giant firms, perhaps a 5uality leader, a service leader, and a cost leader, that serve the whole market and make their profits mainly through high volume and lower costs. 'urrounding these dominant firms is a multitude of market nichers, including market specialists, product specialists and customizing firms.

<1 Marketin Strate ies$ De&)ine Sta e 'ales decline for a number of reasons, including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. ll can lead to overcapacity, increased price cutting, and profit erosion. %he decline might be slow, as in the case of sewing machines, or rapid, as in the case of <.2< floppy disks. 'ales may plunge to zero, or they may petrify at a low level. s sales and profits decline, some firms withdraw from the market. %hose remaining may reduce the number of products they offer. %hey may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budgets and reduce prices further. @nfortunately, most companies have not developed a policy for handling aging products. @nless strong reasons for retention e&ist, carrying a weak product is very costly to the firm, and not 7ust by the amount of uncovered overhead and profit. %here are many hidden costs. +eak products often consume a disproportionate amount of management$s time, re5uire many fre5uent inventory and price ad7ustments, incur e&pensive setup for short production runs, draw both advertising and sales force attention that might be better used to make healthy products more profitable, and cast a shadow on the company$s image. %he biggest cost might well lie in the future. Failing to eliminate the weak products delays the aggressive search for replacement of products. %he weak products create a lopsided product mi&, long on yesterday$s breadwinners and short on tomorrow$s. "n handling aging products, a company faces a large number of tasks and decisions. %he first task is to establish a system for identifying weak products. Many companies appoint a product review committee with representatives from marketing, :R1, manufacturing and finance, who based on all available information, make a recommendation for each product, leave it alone, modify its marketing strategy, or drop it. 'ome firms abandon declining markets earlier than others. Much depends on the height of e&it barriers in the industry. %he lower the e&it 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.

<2 Intr#"2&ti#n Chara&teristi&s 'ales 4ow sales 8osts 0rofits 8ustomers 8ompetitors -igh costs per customer Jegative "nnovators Few Gr#:th :apidly rising sales verage cost per customer :ising profits 6arly adopters Growing number Mat2rit; 0eak sales 4ow cost per customer -igh profits Middle ma7ority 'table number beginning to decline De&)ine 1eclining sales 4ow cost per customer 1eclining profits 4aggards 1eclining number

Marketin O34e&ti%es 8reate product awareness and trial Strate ies 0roduct (ffer a basic product 8harge cost plus 9uild selective distribution 9uild product awareness among early adopters and dealers @se heavy sales promotion to entice trial Ma&imize market share (ffer product e&tensions, service warranty 0rice to penetrate market 9uild intensive distribution 9uild awareness and interest in the mass market :educe to take advantage of heavy consumer demand Ma&imize profit while defending market share 1iversity brands and items models 0rice to match or best competitors$ 9uild more intensive distribution 'tress brand differences and benefits :educe e&penditure and milk the brand 0hase out weak products 8ut price Go selective. phase out unprofitable outlets :educe to level needed to retain hard!core loyal

0rice 1istribution

dvertising

'ales 0romotion

"ncreasing to :educe to encourage minimal level brand switching

<#

E'(an" the N2,3er #+ @ran" Users 8onvert non!users. %he key to the growth of air freight service is the constant search for new users to whom air carriers can demonstrate the benefits of using airfreight rather than ground transport. %he significant growth of the shampoo market in "ndia is attributable to small sachet packing that attracted many nonusers to this category. 'mall packaging at low price points is now spurring the growth of many product categories in "ndia by attracting nonusers. 6nter new market segments. Eohnson and Eohnson successfully promoted its baby shampoo to adult users. 0ears soap has introduced a pink soap specifically targeted at children. ttract competitor$s customers. Marketers of the surf detergent powder are always wooing rial customers. In&rease the Usa e Rates a,#n Users -ave consumers use the product on more occasions. @se of sweetened condensed milk brand such as milkmaid or Mithaimate for marketing a variety of dessert preparations at home. 'erve Monaco biscuits with different toppings as snack food. %ake ;odak pictures of your pets. -ave consumers used more the product on each occasion. 1rink a larger glass of orange 7uice. -ave consumers use the product in new ways. @se aspirin daily as a medicine for reducing chances of a stroke.

<2

SETTING PRODUCT STRATEGY


t the heart of a great brand is a great product. 0roduct is a key element in the market offering. Market leaders generally offer products and services of superior 5uality that provide unsurpassed customer value. PRODUCT CHARACTERISTICS AND C0ASSIFICATIONS Many people think a product is a tangible offering, but it can be more than that. 9roadly, a product is anything that can be offered to a market to satisfy a want or need, including physical goods, services, e&periences, events, persons, places, properties, organizations, information and ideas. Pr#"2&t 0e%e)s$ The C2st#,er.-a)2e Hierar&h; "n planning its market offering, the marketer needs to address five product levels. 6ach level adds more customer value, and the five constitute a customer!value hierarchy. %he fundamental level is the core benefit. the service or benefit the customer is really buying. hotel guest is buying )rest and sleep*. %he purchaser of a drill is buying )holes*. Marketers must see themselves as benefit providers. t the second level, the marketer must turn the core benefit into a basic product. %hus, a hotel room includes a bed, bathroom, towels, desk, dresser and closet. t the third level, the marketer prepares an e&pected product, a set of attributes and conditions buyers normally e&pect when they purchase this product. -otel guests e&pect a clean bed, fresh towels, working lamps and a relative degree of 5uiet. t the forth level, the marketer prepares an augmented product that e&ceeds customer e&pectations. "n developed countries, brand positioning and competition take place at this level. "n developing and emerging markets such as "ndia and 9razil, however, competition takes place mostly at the e&pected product level. t the fifth level stands the potential product, which encompasses all the possible augmentations and transformations the product or offering might undergo in the future. -ere is where companies search for new ways to satisfy customers and distinguish their offering. 1ifferentiation arises and competition increasingly occurs on the basis of product augmentation, which also leads the marketer to look at the user$s total consumption system. the way the user performs the tasks of getting and using the products and related services. 6ach augmentation adds cost, however, and augmented benefits soon become e&pected benefits and necessary points of parity. %oday$s hotel guests e&pect cable or satellite television with a remote control and high speed internet access or two phone lines. %his means competitors must search for still other features and benefits. s some companies raise the price of their augmented product, others offer a )stripped down* version at a much lower price.

<< Pr#"2&t C)assi+i&ati#ns Marketers have traditionally classified products on the basis of durability, tangibility and use. 6ach product type has an appropriate marketing!mi& strategy. D2ra3i)it; an" Tan i3i)it; Marketers classify products into three groups according to durability and tangibility. 1. N#n"2ra3)e ##"s are tangible goods normally consumed in one or a few uses, such as soft drinks and soap. 9ecause these goods are purchased fre5uently, the appropriate strategy is to make them available in many locations, charge only a small markup, and advertise heavily to induce trial and build preferences. 2. D2ra3)e ##"s are tangible goods that normally re5uire more personal selling machine tools, and clothing. 1urable products normally re5uire more personal selling and service, command a higher margin and re5uire more seller guarantees. #. Ser%i&es are intangible, inseparable, variable and perishable products. s a result, they normally re5uire more 5uality control, supplier credibility, and adaptability. 6&amples include haircuts, legal advice, and appliance repairs. Pr#"2&t Di++erentiati#n F#r, Many products can be differentiated in form I the size, shape or physical structure of a product. 8onsider the many possible forms taken by products such as aspirin. lthough aspirin is essentially a commodity, it can be differentiated by dosage size, shape, color, coatings or action time. Feat2res Most products can be offered with varying features that supplement their basic function. company can identify and select appropriate new features by surveying recent buyers and then calculating customer calculate versus company cost for each potential feature. %he company should also consider how many people want each feature, how long it would take to introduce it, and whether competitors could easily copy it. %o avoid )feature fatigue,* the company also must be careful to prioritize those features that are included and find unobtrusive ways to provide information about how consumers can use and benefit from the feature. 8ompanies must also think in terms of feature bundles or packages. C2st#,i*ati#n Marketers can differentiate products by making them customized to an individual. s companies have grown proficient at gathering information about individual customers and business partners >suppliers, distributors, retailers?, and as their factories are being designed more fle&ibly, they have increased their ability to individualize market offerings, messages and media. Mass customization is the ability of a company to meet each customer$s re5uirements, to prepare on a mass basis individually designed products, services, programs and communications.

<D Per+#r,an&e 62a)it; Most products are established at one of four performance levels. low, average, high, or superior. 0erformance 5uality is the level at which the product$s primary characteristics operate. Quality is becoming an increasingly important dimension for differentiation as companies adopt a value model and provide higher 5uality for less money. Firms however, should not necessarily design the highest performance level possible. %he manufacturer must design a performance level appropriate to the target market and competitors$ performance levels. company must also manage performance 5uality through time. 8ontinuously improving the product can produce high returns and market share, failing to do so can have negative conse5uences. C#n+#r,an&e 62a)it; 9uyers e&pect products to have a high conformance 5uality, which is the degree to which all the produced units are identical and meet the promised specifications. 'uppose a 0orsche L11 is designed to accelerate to D3 miles per hour within 13 seconds. "f every 0orsche L11 coming off the assembly line does this, the model is said to have high conformance 5uality. %he problem with low conformance 5uality is that the product will disappoint some buyers. D2ra3i)it; 1urability, a measure of the product$s e&pected operating life under natural or stressful conditions, is a valued attribute for certain products. 1uracell advertises itself as a long lasting battery and the brand commands a premium price. Jokia phones are also known for their durability. 9uyers will generally pay more for vehicles and kitchen appliances that have a reputation for being long lasting. -owever, this rule is sub7ect to some 5ualifications. %he e&tra price must not be e&cessive. Ser%i&es Di++erentiati#n +hen the physical cannot easily be differentiated, the key to competitive success may lie in adding valued services and improving their 5uality. :olls!:oyce 048 has ensured its aircraft engines are in high demand by continuously monitoring the health of its #333 engines for 2< airlines through live satellite feeds. @nder its %otal 8are 0rogram, airlines pay :olls a fee for every hour an engine is in flight, and :olls assumes the risks and costs of downtime and repairs in return. %he main service differentiators are ordering ease, delivering, installation, customer training, customer consulting and maintenance and repair. Or"erin Ease (rdering ease refers to how easy it is for the customer to place an order with the company. 9a&ter -ealthcare has eased the ordering process by supplying hospitals with computer terminals through which they send orders directly to 9a&ter. Many financial service institutions offer secure online sites to help customers get information and do transactions more efficiently.

<F De)i%er; 1elivery refers to how well the product or service is brought to the customer. "t includes speed, accuracy and care throughout the process. %oday$s customers have grown to e&pect delivery speed. pizza delivered in one half hour, film developed in one hour, eyeglasses made in one hour, cars lubricated in 1< minutes. Insta))ati#n "nstallation refers to the work done to make a product operational in its planned location. 9uyers of heavy e5uipment e&pect good installation service. 1ifferentiating at this point in the consumption chain is particularly important for companies with comple& products. 6ase of installation becomes a true selling point, especially when the target market is technology novices. Marketers of air conditioners, refrigerators and washing machines install the products in the customers$ premises and e&plain the working of the products to the users. %his is a valuable service in 'outh sia as some of the customers may be first!time buyers. C2st#,er Trainin 8ustomer training refers to training the customer$s employees to use the vendor$s e5uipment properly and efficiently. General 6lectronic not only sells and installs e&pensive C!ray e5uipment in hospitals, it also gives e&tensive training to users of this e5uipment. Mc1onald$s re5uires its new franchisees to attend -amburger @niversity in (ak 9rook, "llinois, for two weeks, to learn how to manage the franchise properly. C2st#,er C#ns2)tin 8ustomer consulting refers to data, information systems, and advice services that the seller offers to buyers. Maintenan&e an" Re(air Maintenance and repair describes the service program for helping customers keep purchased products in good working order. -ewlett!0ackard offers online technical support or )e!support* for its customers. "n the event of a service problem, customers can use various online tools to find a solution. %hose aware of the specific problem can search an online database for fi&es, those unaware can use diagnostic software that finds a problem and searches the online database for an automatic fi&. 8ustomers can also seek online help from a technician. Ret2rns lthough product returns are undoubtedly a nuisance to customers, manufacturers, retailers, and distributors alike, they are also an unavoidable reality of doing business, especially with online purchases.

<G PACKAGING1 0A@E0ING1 WARRANTIES AND GUARANEES Most physical products must be packaged and labeled. 'ome packages such as the 8oke bottle are world famous. Many marketers have called packaging a fifth 0, along with price, product, place and promotion. Most marketers, however, treat packaging and labeling as an element of product strategy. +arranties and guarantees can also be an important part of the product strategy, which often appear on the package. Pa&ka in +e define packaging as all the activities of designing and producing the container for a product. 0ackages might include upto three levels of material. 8ool water cologne comes in a bottle >primary package? in a card board bo& >secondary package? in a corrugated bo& >shipping package? containing si& dozen bo&es. +ell designed packages can build brand e5uity and drive sales. %he package is the buyer$s first encounter with the product and is capable of turning the buyer on or off. 0ackaging also affects consumers$ later product e&periences. =arious factors have contributed to the growing use of packaging as a marketing tool. Se)+.ser%i&e5 n increasing number of products are sold on a self service basis. "n an average super market, which stocks 1<333 items the typical shopper passes by some #33 items per minute. Given that <3M to F3M of all purchases are made in the store, the effective package must perform many of the sales tasks. attract attention, describe the product features, create consumer confidence and make a favorable overall impression. C#ns2,er A++)2en&e5 :ising consumer affluence means consumers are willing to pay a little more for the convenience, appearance, dependability and prestige of better packages. C#,(an; an" 3ran" i,a e5 0ackages contribute to instant recognition of the company or brand. "n the store, packages for a brand can create a visible billboard effect. Inn#%ati#n #((#rt2nit;5 "nnovative packaging can bring large benefits to consumers and profits to producers. 8ompanies are incorporating uni5ue materials and features such as resealable spouts and openings.

<L

From the perspective of both the firm and consumers, packaging must achieve a number of ob7ectives. 1. "dentify the brand 2. 8onvey descriptive and persuasive information #. Facilitate product transportation and protection 2. ssist at home storage <. id product consumption %o achieve the marketing ob7ectives for a brand and satisfy the desires of consumers, marketers must choose the aesthetic and functional components of packaging correctly. esthetic considerations relate to a package$s size and shape, material, color, te&t and graphics. %he meaning and interpretation of color, however, is influenced to a significant e&tent by culture. "n "ndia, the color green tends to be associated with )freshness* and saffron with divinity. From a functional point of view, the structural design of packaging is critical. For e&ample, poor packaging design causes high wastage and loss while transporting and storing fruits and vegetables in many countries. "nnovative packaging solutions, through better structural designs and usage of appropriate materials, are needed to reduce damages and wastages and to ensure the longevity of fruits and vegetables. %he packaging elements must harmonize with each other and with pricing, advertising and other parts of the marketing program. -ere is an e&ample of a company that introduced a brand of premium, ready to eat, "ndian food, on the strength of the product and packaging. 0ackaging changes can have immediate impact on sales. good e&ample is the book publishing industry where customers often 5uite literally choose a book by its cover. %he number one classic publisher, 0enguin books 4td., repackaged most of its titles and spent O<33,333 to promote them under the banner, )8lassic 9ooks, Fresh 4ooks*. 'ales increased 233M for 1orothy 0arker$s 8omplete 'tories, <3M for a new translation of 1on Qui&ote, and 2#M for 0ride and 0re7udice.

D3

DESIGNING AND MANAGING SER-ICES


s product companies find it harder and harder to differentiate their physical products, they turn to service differentiation. Many in fact find significant profitability in delivering superior service, whether that means on time delivery, better and faster answering of in5uiries, or 5uicker resolution of complaints. 'ervice providers know these advantages well. %he mayo clinic has set new standards in the health care industry by considering all aspects of the patient e&perience. THE NATURE OF SER-ICES "n 2332, the share of the service sector in the G10 of "ndia and 9angladesh, 0akistan and 'ri 4anka was <2M, <#M and <<M respectively. Ser%i&e In"2stries are E%er;:here %he 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. %he private nonprofit sector, with its museums, charities churches, colleges, foundations and hospitals is in the service business. 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. "n fact, they make up a )service factory* providing services to the )good factory*. nd those in retail sectors such as cashiers, clerks, salespeople and customer services representatives, are also providing a service. Cate #r; #+ Ser%i&e Mi' %he service component can be a minor or ma7or part of the total offering. +e distinguish five categories of offerings. 1. P2re Tan i3)e G##"s5 %he offering consists primarily of a tangible good such as soap, toothpaste or salt. Jo services accompany the product. 2. Tan i3)e ##" :ith a&&#,(an;in ser%i&es5 %he offering consists of the tangible good accompanied by one or more services. %ypically, the more technologically advanced the product, the greater the need for a broad range of high 5uality supporting services. 'ervices are often crucial for cars, computers of cell phones. #. H;3ri"5 %he offering consists of e5ual parts goods and services. For e&ample, people, patronize restaurants for both the food and its preparation. 2. Ma4#r Ser%i&e :ith a&&#,(an;in ,in#r ##"s an" ser%i&es5 %he offering consists of ma7or service along with additional services or supporting goods. For e&ample, through the trip includes few tangibles, such as snacks and drinks, what airline passengers buy is transportation. %his service re5uires a capital intensive good, an airplane for its realization, but the primary item is the service. <. P2re Ser%i&e5 %he offering consists primarily of a service. 6&amples include baby sitting, psychotherapy and massage.

D1 %he range of service offerings makes it difficult to generalize without a few further distinctions. 'ervice varies as to whether they are e5uipment based or people based. 0eople based services vary by whether unskilled, skilled or professional workers provide them. 'ervice companies can choose among different processes to deliver their service. :estaurants have developed cafeteria style, fast!food, buffet, and candlelight service formats. 'ome services need the client$s presence. 9rain surgery re5uires the client$s presence, a car repair does not. "f a client must be present, the service provider must be considerate of his or her needs. %hus beauty salon operators will invest in dTcor, play background music, and engage in light conversation with the client. 'ervices may meet a personal need or a business need. 'ervice providers typically develop different marketing programs for personal and business markets. 'ervice providers differ in their ob7ectives and ownership. %hese two characteristics, when crossed, produce for 5uite different types of organizations. %he marketing program of a private investor hospital will differ from those of a private charity hospital or a veteran$s administration hospital.

8ustomers cannot 7udge the technical 5uality of some services even after they have received them. Distin&ti%e Chara&teristi&s #+ Ser%i&es 'ervices have four distinctive characteristics that greatly affect the design of marketing programs. intangibility, inseparability, variability and perishability. Intan i3i)it; @nlike physical products, services cannot be seen, tasted, felt, heard or smelled before they are bought. person getting cosmetic surgery cannot see the results before the purchase, and the patient in the psychiatrist$s office cannot know the e&act outcome of the treatment. %o reduce uncertainty, buyers will look for evidence of 5uality by drawing interferences from the place, people, e5uipment, communication material, symbols and price. %herefore, the service provider$s task is to )manage the evidence* to tangibilize the intangible. 'ervice companies can try to demonstrate their service 5uality throughout physical evidence and presentation. hotel will develop a look and a style of dealing with customers that realizes its intended customer value proposition, whether its cleanliness, speed or some other benefits. 'uppose a bank wants to position itself as the )fast* bank. "t could make this positioning strategy tangible through any number of marketing tools. 1. P)a&e A %he e&terior and interior should have clean lines. %he layout of the desks and the traffic should be planned carefully. +aiting lines should not get overly long. 2. Pe#()e A 0ersonnel should be busy, but there should be a sufficient number of employees to manage the work load.

D2 #. EG2i(,ent A 8omputers, copying machines, and desks should be and look like )state of the art*. 2. C#,,2ni&ati#n Materia) A 0rinted materials I te&t and photos I should suggest efficiency and speed. <. S;,3#)s A %he name and symbol could suggest fast service. D. Pri&e A %he bank could advertise that it will deposit :s.<3 in the account of any customer who waits in line for more than five minutes. Inse(ara3i)it; +here physical goods are manufactured, put into inventory, distributed through multiple resellers, and consumed later, services are typically produced and consumed simultaneously. 9arber cannot give a hair cut without being present. "f a person renders the service, then the provider is the part of the service. 9ecause the client is also often present as the service is produced, provider!client interaction is a special feature of services marketing. "n the case of entertainment and professional services, buyers are interested in the specific provider of the service. +hen clients have strong provider preferences, the price is raised, both to ration the preferred provider$s limited time, and also to shield himPher from over e&posure. -aria3i)it; 9ecause the 5uality of services depends on who provides them, when and where, and to whom, services are highly variable. 'ome doctors have an e&cellent bedside manner, others are less emphatic. 'ervice buyers are aware of this variability and often talk to others before selecting a service provider. %o reassure customers, some firms offer service guarantees that may reduce consumer perceptions of risk. -ere are three steps service firms can take to increase 5uality control. 1. In%est in ##" hirin an" trainin (r#&e"2res5 :ecruiting the right employees and providing them with e&cellent training is crucial, regardless of whether employees are highly skilled professionals or low!skilled workers. 9etter trained personnel e&hibit si& characteristics. competence. they possess the re5uired skill and knowledge. courtesy. they friendly, respectful and considerate, credibility. they are trustworthy, reliability. they perform the service consistently and accurately, responsiveness. they respond 5uickly to customers$ re5uests and problems, and communication. they make an effort to understand the customer and communicate clearly. 2. Stan"ar"i*e the ser%i&e (er+#r,an&e (r#&ess thr#2 h#2t the #r ani*ati#n5 service blueprint can simultaneously map out the service process, the points of customer contact and the evidence, or service from the customer$s point of view. service blueprint for a guest spending a night at a hotel. %he guest$s e&perience includes a series of steps he or she must enact before even getting to sleep. 9ehind he scenes, the hotel must skillfully help the guest move from one step to the ne&t. 'ervice blueprints can be helpful in developing new service, supporting a )zero defects* culture, and devising service recovery strategies.

D# #. M#nit#r &2st#,er satis+a&ti#n5 6mploy suggestion and complaint systems, customer surveys and comparison shopping. General 6lectric sends F33333 response cards a year asking households to rate its service people$s performance. 8itibank checks continuously on measures of :% >accuracy, responsiveness and timeliness?. :ecognizing how customer needs may vary in different geographical areas can allow firms to develop region specific programs to improve total customer satisfaction. Firms can also develop customer information databases and system to permit more personalized, customized service, especially online. 2. Perisha3i)it;5 'ervices cannot be stored, so their perishability can be a problem when demand fluctuates. For e&ample, public transportation companies must own much more e5uipment because of rush!hour demand than if demand were even throughout the day. 'ome doctors charge patients for missed appointments because the service value e&its only at the time of the appointment. 1emand or yield management is critical, the right services must be available to the right customers at the right places at the right times and right prices to ma&imize profitability. 'everal strategies can produce a better match between demand and supply in a service business. H#)isti& Marketin F#r Ser%i&es %he service outcome, and whether the people will remain loyal to service provider, is influenced by a host of variables. (ne study identified more than G33 critical behaviors that cause customers to switch services. %hese behaviors fall into eight categories. -olistic marketing for services re5uires e&ternal, internal and interactive marketing. 6&ternal marketing describes he normal work or preparing, pricing, distributing and promoting the service to customers. "nternal marketing describes training and motivating employees to serve customers well. %he most important contribution the marketing department can make is arguably to be )e&ceptionally clever in getting everyone else in the organization to practice marketing*. "nteractive marketing describes the employees$ skill in serving the client. 8lients 7udge service not only by its technical 5uality, but also by its functional 5uality. %eam work is often key and delegating authority to frontline employees can allow for greater fle&ibility and adoptability in service delivery through better problem solving, closer employees cooperation, and more efficient knowledge transfer. %echnology also has great power to make service workers more productive. Many physicians and nurses now carry wireless laptop like devices in their coat pockets from e&am room to e&am room. %hese devices contain all relevant patient information and charts, e!mail correspondence, suggested treatments for certain diagnoses, and billing information. %hey also allow the physicians to write prescriptions, and they store and automatically process all information entered during the patient visit. %he internet lets firms improve their service offerings and strengthen their relationships with customers by allowing for true interactivity, customer specific and situation personalization, and real time ad7ustments of the firm$s offerings. 9ut as companies collect, store and use more information about customers, concerns have arisen about security and privacy. 8ompanies must incorporate the proper safe guards and reassure customers about their efforts.

D2

Pri&in -igh 0rice 0rice increase @nfair pricing 1eceptive pricing In&#n%enient 4ocationPhours +ait for appointment +ait for service C#re Ser%i&e Fai)2re 'ervice mistakes 9illing errors 'ervice catastrophe Ser%i&e En&#2nter Fai)2res @ncaring "mpolite @nresponsive unknowledgeable Res(#nse t# Ser%i&e Fai)2re Jegative response Jo response :eluctant response C#,(etiti#n Found better service Ethi&a) Pr#3)e,s 8heat -ard sell @nsafe 8onflict of interest In%#)2ntar; S:it&hin 8ustomer moved 0rovider closed

D<

MANAGING SER-ICE 6UA0ITY %he service 5uality of a firm is tested at the each service encounter. "f service personnel are bored, cannot answer simple 5uestions or are visiting with each other while customers are waiting, customers will think twice about doing business again with that seller. C2st#,er E'(e&tati#ns 8ustomers form service e&pectation form many sources, such as past e&periences, word of mouth, and advertising. "n general, customers compare the perceived service with the e&pected service. "f the perceived service falls below the e&pected service, customers are disappointed. 'uccessful companies add benefits to their offering that not only satisfy customers but surprise and delight them. 1elighting customers is a matter of e&ceeding e&pectations. 1. Ga( 3et:een &#ns2,er e'(e&tati#n an" ,ana e,ent (er&e(ti#n5 Management does not always correctly perceive what customers want. -ospital administrators may think patients want better food, but patients may be more concerned with nurse responsiveness. 2. Ga( 3et:een ,ana e,ent (er&e(ti#n an" ser%i&e G2a)it; s(e&i+i&ati#n5 Management might correctly perceive customers$ wants but not set a performance standard. -ospital administrators may tell the nurse to give )fast* service without specifying it in minutes. #. Ga( 3et:een ser%i&e G2a)it; s(e&i+i&ati#ns an" ser%i&e "e)i%er;5 0ersonnel might be poorly trained, or incapable of or unwilling to meet the standard, or they may be held to conflicting standards, such as taking time to listen to customers and serving them fast. 2. Ga( 3et:een ser%i&e "e)i%er; an" e'terna) &#,,2ni&ati#ns5 8onsumer e&pectations are affected by statements made by company representatives and ads. "f a hospital brochure shows a beautiful room, but the patient arrives and finds the room to be cheap and tacky looking, e&ternal communications have distorted the customer$s e&pectations. <. Ga( 3et:een (er&ei%e" ser%i&e an" e'(e&te" ser%i&e5 %his gap occurs then the consumer misperceives the service 5uality. %he physician may keep visiting the patient to show care, but the patient may interrupt this as an indication that something really is wrong.

DD

9ased on this service 5uality model, researchers identified the following five determinants of service 5uality, in order of importance. 1. Re)ia3i)it;5 %he ability to perform the promised service dependably and accurately. 2. Res(#nsi%eness5 %he willingness to help customers and to provide prompt service. #. Ass2ran&e5 %he knowledge and courtesy of employees and their ability to convey trust and confidence. 2. E,(ath;5 %he provision of caring, individualized attention to customers. <. Tan i3)es5 %he appearance of physical facilities, e5uipment, personnel and communication materials.

Re)ia3i)it; 0roviding service as promised 1ependability in handling customers$ service problems 0erforming services right the first time 0roviding services at the promised time Maintaining error free records 6mployees who have the knowledge to answer customer 5uestions Res(#nsi%eness ;eeping customer informed as to when services will be performed 0rompt service to customers +illingness to help customers :eadiness to respond to customers$ re5uests Ass2ran&e 6mployees who instill confidence in customers Making customers feel safe in their transactions 6mployees who are consistently courteous E,(ath; Giving customers individual attention 6mployees who deal with customers in a caring fashion -aving the customer$s best interest at heart 6mployees who understand the needs of their customers 8onvenient business hours Tan i3)es Modern e5uipment =isually appearing facilities 6mployees who have a neat, professional appearance =isually appearing materials associated with the service

DF

DE-E0OPING PRICING STRATEGIES AND PROGRAMS


UNDERSTANDING PRICING 0rice is not 7ust a number on a tag. 0rice comes in many forms and performs many functions. :ent, tuition, fare, fees, rates, tolls, retainers, wages and commissions all may in some way be the price you pay for some good or service. "t$s also made up of many components. "f you but a new car, the sticker price may be ad7usted by rebates and dealer incentives. %raditionally, price has been the ma7or determinant of a buyer$s choice. nd this is still the case with large segments of buyers across the globe. lthough non price factors have become 5uite important in the last few decades, price still remains an important factor in determining sales and profitability. 8ompetitive pressures together with consumer and middlemen behavior, and short!term orientation of the companies have resulted in a market place that is characterized by heavy discounting and sales promotion. H#: C#,(anies Pri&e 8ompanies do their pricing in a variety of ways. "n small companies, prices are often set by the boss. "n large companies, pricing is handled by division and product line managers. 6ven here, top management sets general pricing ob7ectives and policies and

DG often approves the prices proposed by the lower levels of management. "n industries where pricing is a key factor, companies will often establish a pricing department to set or assist others in determining appropriate prices. %his department reports to the marketing department, finance department or top management. (thers who e&ert an influence on pricing include sales managers, production managers, finance managers and accountants. C#ns2,er Ps;&h#)# ; an" Pri&in Many economists assume that consumers are )price takers* and e&cept prices at )face value* or as given. Marketers recognize that consumers often actively process price information, interpreting prices in terms or their knowledge from prior purchasing e&perience, formal communications, informal communications, point of purchase or online resources, or other factors. 0urchase decisions are based on how consumers perceive prices and what they consider the actual price to be I not the marketers$ stated price. 8ustomers may have a lower price threshold below which prices signal inferior or unacceptable 5uality, as well as an upper price threshold about which prices are prohibitive and seem as not worth the money.

Pri&e 62a)it; In+eren&es Many customers use price as an indicator of 5uality, image pricing is especially effective with ego!sensitive products such as perfumes and e&pensive cars. bottle of perfume priced at :s.<333 might contain :s.<33 worth of scent, but gift givers pay :s.<333 to communicate their high regard for the receiver. 0rice and 5uality perceptions of cars interact. -igher priced cars are perceived to possess high 5uality. -igher 5uality cars are likewise perceived to be higher priced then they actually are. 'ome brands adopt e&clusivity and scarcity as a means to signify uni5ueness and 7ustify premium pricing. 4u&ury!goods makers of watches, 7ewelry, perfumes, and other products often emphasis e&clusivity in their communication messages and channels strategies. SETTING THE PRICE firm must set a price for the first time 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. %he firm must decide where to position its product on 5uality and price. Se)e&tin the Pri&in O34e&ti%e

DL %he company first decides where it wants to position its market offering. %he clearer a firm$s ob7ectives, the easier it is to set price. Five ma7or ob7ectives are. survival, ma&imum current profit, ma&imum market share, ma&imum market skimming, and product 5uality leadership. S2r%i%a) 8ompanies pursue survival as their ma7or ob7ective if they are plagued with over capacity, intense competition, or changing consumer wants. s long as prices cover variable costs and some fi&ed costs, the company stays in business. 'urvival is a short run ob7ective, in the long run, the firm must learn how to add value or face e&tinction. Ma'i,2, C2rrent Pr#+it Many companies try to set a price that will ma&imize the current profits. %hey estimate the demand and costs associated with alternative prices and choose the price that produces ma&imum current profit, cash flow, or rate of return on investment. %his strategy assumes that the firm has knowledge of its demand and cost functions, in reality, these are difficult to estimate. "n emphasizing current performance, the company may sacrifice long! run performance by ignoring the effects of other marketing mi& variables, competitors$ reactions, and legal restraints on price.

Ma'i,2, Market Share 'ome companies want to ma&imize their market share. %hey believe that a higher sales volume will lead to lower unit costs and higher long run profit. %hey set a lowest price, assuming the market is price sensitive. %e&as instruments practiced this market penetration prices for years. %" would build a large plant, set its price as low as possible, win a large market share, e&perience falling costs, and cut its price further as costs fell. %he following conditions favor adopting a market penetration pricing strategy. 1. the market is highly price sensitive and a low price stimulates the market growth. 2. production and distribution costs fall with accumulated production e&perience. and #. a low price discourages actual and potential competition. Ma'i,2, Market Ski,,in 8ompanies unveiling a new technology favor setting high prices to ma&imize market skimming. 'ony is a fre5uent practitioner of market skimming pricing, in which prices start highly and slowly drop over time. %his strategy can be fatal, however, if a worthy competitor decides to price low. Market skimming makes sense under the following conditions. 1. sufficient number of buyers have a high current demand 2. %he unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear #. %he high initial price does not attract more competitors to the market

F3 2. %he high price communicates the image of a superior product. STEP 2$ DETERMINING DEMAND 6ach price will lead to a different level of demand and will therefore have a different impact on a company$s marketing ob7ectives. %he relationship between price and demand is captured in a demand curve. "n the normal case, the two are inversely related. the higher the price, the lower the demand. "n the case of prestige goods, the demand curve sometimes slopes upwards. (ne perfume company raised its price and sold more perfume rather than less/ 'ome consumers take the higher price to signify a better product. -owever, if the price is too high, the level of demand may fall. Pri&e Sensiti%it; %he demand curve shows the market$s probable purchase 5uantity at alternative prices. "t sums the reactions of many individuals who have different price sensitivities. %he first step is estimating demand is to understand what affects price sensitivity. Generally speaking, customers are less price sensitive to low cost items or items they buy in fre5uently. %hey are also less price sensitive when 1. there are few or no substitutes or competitors, 2. they do not readily notice the higher price, #. they are slow to change their buying habits, 2. they think the higher prices are 7ustified, and <. price is only a small part of the total cost of obtaining, operating, and servicing the product over its lifetime.

seller can charge a higher price than competitors and still get the business if it can convince the customer that it offers the lowest total cost of ownership. Marketers often do not realize the value they actually provide but think only in terms of product features. %hey treat the service elements in a product offering as sales incentives rather than as value enhancing augmentations for which they can charge. "n fact, pricing e&pert %om Jagle believes the most common mistakes manufacturers have made in recent years has been to offer all sorts of services to differentiate without charging for them in anyway. (f course, companies prefer customers who are less price sensitive. (n the other hand the internet has potential to increase price sensitivity. :esearch has found that in some established, fairly big ticket categories such as auto!retailing and term insurance, consumers pay lower prices as a result of the internet. 8ar buyers use the internet to gather information and to use the negotiating clout of an online buying service. 9ut customers must visit multiple sites to realize these savings, and they don$t always do so. %argeting only price sensitive consumers may in fact be )leaving money on the table*.

F1

Esti,atin De,an" C2r%es Most companies make some attempt to measure their demand curves using several different methods. S2r%e;s 8an e&plore how many units consumers would by at different proposed prices, although there is always the chance they might understate their purchase intentions at higher prices to discourage the company from setting higher prices. Pri&e e'(eri,ents 8an vary the prices of different products in a store or charge different prices for the same product in similar territories to see how the change effects sales. n other approach is to use the internet. n e!business could test the impact of a <M price increase by 5uoting a higher price to every 23th visitor to compare the purchase response. -owever, it must do this carefully and not alienate customers. Statisti&a) ana);sis (f past prices, 5uantities sold, and other factors can reveal their relationships. %he data can be longitudinal or cross!sectional. 9uilding the appropriate model and fitting the data with the proper statistical techni5ues calls for considerable skill. STEP <$ ANAY0YDING COMPETITORS8 COSTS1 PRICES AND OFFERS +ith the race of possible prices determined by marketing demand and company costs, the firm must take competitors$ costs, prices and possible price reactions into

F2 account. %he firms should first consider the nearest competitor$s price. "f the firm$s offer contains features not offered by the nearest competitor, it should evaluate their worth to the customer and add that value to the competitor$s price. "f competitor$s offer contains some features not offered by the firm, the firm should subtract their value form its own price. Jow the firm can decide whether it can charge more, the same, or less than the competitors. %he introduction of any price or the change of any e&isting price can provoke a response from customers, competitors, distributors, suppliers, and even government. 8ompetitors are most likely to react when the number of firms are few, the product is homogeneous and buyers are highly informed. 8ompetitor reactions can be a special problem when these firms have a strong value proposition. -ow can a firm anticipate a competitor$s reactionH (ne way is to assume the competitor$s reacts in the standard way to a price being set or changed. nother is to assume that the competitors treats each price difference or change as a fresh challenge and reacts according to self interest at the time. Jow the company will need to research the competitor$s current financial situations, recent sales, customer loyalty and corporate ob7ectives. "f the competitor has a market share ob7ective, it is likely to match price differences or changes. "f it has a profit ma&imization ob7ective, it may react by increasing the advertising budget or improving product 5uality. %he problem is complicated because the competitor can put different interpretations on lowered prices or a price cut. that the company is trying to steal the market, that the company is doing poorly and trying to boost its sales, or that the company wants the whole industry to reduce prices to stimulate total demand.

STEP =$ SE0E0CTING PRICING METHOD Mark2( Pri&in %he most elementary pricing method is to add a standard markup to the product$s cost. 8onstruction companies submit 7ob bides by estimating the total pro7ect cost and adding a standard markup for profit. 4awyers and accountants typically price by adding a standard mark up on their time and costs. Tar et Ret2rn Pri&in "n target return pricing, the firm determines the price would yield its target rate of :(". General Motors has priced its auto mobiles to achieve a 1<M to 23M :(". 0ublic utilities, which need to make a fair, can also use this method. Per&ei%e" -a)2e Pri&in n increasing number of companies now base their price on the customer$s perceived value. 0erceived value is made up of several elements, such as the buyer$s image of the product performance, the channel deliverables, the warranty 5uality, customer support, and softer attributes such as the supplier$s reputation, trustworthiness, and esteem. 8ompanies must deliver promised by their value proposition, and the customer must perceive this value. Firms use the other marketing mi& elements, such as

F# advertising and sales force, to communicate and enhance perceived value in buyers$ minds. -a)2e Pri&in "n recent years, several companies have adopted value pricing. they win loyal customers by charging a fairly low price for a high 5uality offering. =alue pricing is thus not a matter of simply setting lower prices, it is a matter of reengineering the company$s operation to become a low cost producers without sacrificing 5uality, to attract a large number of value conscious customers. G#in Rate Pri&in "n going rate pricing, the firm bases its price largely on competitors$ prices, charging the same, more, or less than the ma7or competitors. %he smaller firms )followed the leader* , changing their prices when the market leaders prices change rather then when their own demand or costs change. Going rate pricing is 5uite popular. +here costs are difficult to measure or competitive response is uncertain, firms feel the going price is the good solution because it is thought to reflect the industry$s collective wisdom. A2&ti#n T;(e Pri&in uction type pricing is growing more popular, especially with the growth of the internet. (ne ma7or purpose of auctions is to dispose of e&cess inventories or used goods. 8ompanies need to be aware of the three ma7or types of auctions and their separate pricing procedures.

DESIGNING AND MANAGING INTEGRATED MARKETING CHANNE0S


MARKETING CHANNE0S AND -A0UE 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. %hey are set of pathways a product or service follows a production, culminating in purchase and use by the final end user. 'ome intermediaries such as wholesalers and retailers, buy, take title to, and resell the merchandise, they are called merchants. (thers, brokers, manufacturers$ representatives, sales agents, search for customer and may negotiate on the producer$s behalf but do not take title to the goods, they are called agents. 'till others, transportation companies, independent warehouses, banks, advertising agencies assist in the distribution process but neither take title to the goods or negotiate purchases or sales, they are called facilitators. The I,(#rtan&e #+ Channe)s

F2 marketing channel is the particular set of marketing channels a firm employs, and decisions about it are among the most critical ones management faces. (ne of the chief roles of the marketing channels is to convert potential buyers into profitable customers. Marketing channels must not 7ust serve markets, they must also make markets. "n managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing. push strategy uses the manufacturer$s sales force, trade promotion money, or other means to induce intermediaries to carry, promote and sell the product to end users. 0ush strategy is appropriate where there is low brand loyalty in the category, brand choice is made in the store, the product is an impulse item and product benefits are well understood. "n a pull strategy, manufacturer uses advertising, promotion and other forms of communications to persuade consumers to demand the product from intermediaries, thus inducing the intermediaries to order it. 0ull strategy is appropriate, when there is high brand loyalty and high involvement in the category, when consumers are able to perceive differences between brands, and when they choose the brand before they go to the store.

THE RO0E OF MARKETING CHANNE0S +hy would a producer delegate some of the selling 7ob to intermediariesH 1elegation means relin5uishing some control over how and to whom the products are sold. 9ut producers can often in effectiveness and deficiency by using intermediaries. %hrough their contacts, e&perience, specialization and scale of operation, intermediaries make goods widely available and accessible to target markets, usually offering the firm more than it can achieve on its own. Many producers lack the financial resources and e&pertise to sell directly on their own. %he +illiam +rigley Er. 8ompany would not find it practical to establish small retail gum shops throughout the world or to sell gum by mail order. "t would need to sell gum along with many other small products and would end up in the drugstore and grocery store business. +rigley finds it easier to work through the e&tensive network of privately owned distribution organizations. 6ven General Motors would be hard!pressed to replace all the tasks done by its G,333 dealer outlets in the @nited 'tates. Channe) F2n&ti#ns an" F)#:s marketing channel performs the work of moving goods from producers to consumers. "t overcomes the time, place and possession gaps that separate goods and services from those who need or want them. Members of the marketing channel perform a number of key functions.

F< 'ome 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. 'till others >information, negotiation, finance and risk taking? occur in both directions.

DESIGNING AND MANAGING INTEGRATED MARKETING COMMUNICATIONS


Modern marketing calls for more than developing a good product, pricing it attractively, and making it accessible. 8ompanies must also communicate with present and potential stakeholders and the general public. For most, therefore, the 5uestion is not whether to communicate but rather what to say, how and when to say it, to whom, and how often. 9ut communications get harder and harder as more and more companies clamor to grab an increasingly empowered consumer$s divided attention. 8onsumers themselves are taking a more active role in the communication process and deciding what communications they want to receive and how they want to communicate to others about the products and services they use. %o effectively reach and influence target markets, holistic marketers are creatively employing multiple forms of communications. THE RO0E OF MARKETING COMMUNICATIONS Marketing communications are the means by which the firms attempt to inform, persuade and remind consumers, directly or indirectly, about the products and brands they sell. "n a sense, marketing communications represent the )voice* of the company

FD and its brands and are a means by which it can establish a dialogue and build relationships with consumers. Marketing communications also perform many functions for consumers. %hey can tell or show consumers how and why a product is used, by what kind of person, and where and when. 8onsumers can learn about who makes the product and what the company and brand stand for, and they can get an incentive or reward for trial or usage. Marketing communications allow companies to link their brands to other people, places, events, brands, e&periences, feelings, and things. %hey can contribute to brand e5uity, by establishing the brand in memory and creating a brand image, as well as drive sales and even affect shareholder value. Marketin C#,,2ni&ati#ns Mi' %he marketing communications mi& consists of eight ma7or modes of communication. 1. A"%ertisin $ ny paid form of non personal presentation and promotion of ideas, goods or services by an identified sponsor. 2. Sa)es Pr#,#ti#n$ variety of short term incentives to encourage trial or purchase of a product or service. #. E%ents an" E'(erien&es 8ompany sponsored activities and programs designed to create daily or special brand related interactions. 2. P23)i& Re)ati#ns an" P23)i&it; variety of programs designed to promote or protect a company$s image or its individual products. <. Dire&t Marketin @se of mail, telephone, fa&, e!mail, or internet to communicate directly with or solicit response or dialogue from specific customers and prospects. D. Intera&ti%e Marketin (nline activities and programs designed to engage customers or prospects and directly or indirectly raise awareness, improve image, or elicit sales of products and services. F. W#r".#+.,#2th Marketin 0eople to people, oral written, or electronic communications that relate to the merits or e&periences of purchasing or using products or services. G. Pers#na) Se))in Face!to!face interaction with one or more prospective purchasers for the purpose of making presentations, answering 5uestions and procuring orders 8ompany communications goes beyond those specific platforms. %he product$s styling and price, the shape and color of the package, the salesperson$s manner and dress, the store dTcor, the company$s stationery, all communicate something to buyers. 6very brand contact delivers an impression that can strengthen or weaken a customer$s view of company. Marketing communications activities contribute to brand e5uity and drives sales in many ways. by creating awareness of the brand linking the right associations to the brand image in consumer$s memory, eliciting positive brand 7udgments or feelings, andPor facilitating a stronger consumer brand connection. Marketin C#,,2ni&ati#ns E++e&ts

FF %he manners in which brands associations are formed does not matter. "n other words, if a consumer has an e5ually strong, favorable and uni5ue brand association of %ata 'umo with the concepts of )rugged* and )outdoors* because of the %= ad that shows the vehicle driving over rugged terrain, or because of the fact that the brand sponsors active adventures sports, the impact in terms of brand e5uity should be identical. 9ut these marketing communications activities must be integrated to deliver a consistent message and achieve the strategic positioning. %he starting point in planning marketing communications is an audit of all the potential interactions that the customers in the target market may have with the company and all its products and services. For e&ample, someone interested in purchasing a new laptop computer might talk to others, see television ads, read articles, look for information on the internet, and look at laptops in a store. Marketers need to assess which e&periences and impressions will have the most influence at each stage of the buying process. %his understanding will help them allocate communications budget more efficiently and design and implement the right communications programs. rmed with these insights, marketers can 7udge marketing communications according to its ability to affect e&periences and impressions, build brand e5uity, and drive brand sales.

A"%ertisin 0rint and broadcast ads 0ackaging outer 0ackaging inserts Motion pictures 9rochures R booklets 0oster R 4eaflets 1irectories

Sa)es Pr#,#ti#n 8ontests, games, sweepstakes, lotteries 0remium and gifts 'ampling Fair and trade shows 6&hibits

E%ents H E'(erien&es 'ports

P23)i& Re)ati#ns H P23)i&it; 0ress kits

Dire&t H Intera&ti%e Marketin 8atalogues

W#r".#+. M#2th Marketin 0erson!to! person

Pers#na) Se))in 'ales presentations 'ales meetings "ncentive programs 'amples Fair and trade shows

6ntertainment 'peeches Festivals rts 8auses 'eminars nnual reports 8haritable donations 0ublications 8ommunity

mailing

8hat rooms %elemarketing bolgs 6lectronic shopping %= shopping Fa& Mail e!mail

1emonstrations Factory tours 8oupons 8ompany

FG museums 'treet activities relations 4obbying "dentify media 8ompany magazine

:eprints of ds 9illboards 1isplay signs 0oint of purchase displays udiovisual material 'ymbols and 4ogos =ideotapes

:ebates 4ow!interest facing 6ntertainment %rade in allowances 8ontinuity programs %ie!ins

=oice mail 9logs +eb sites

DE-E0OPING EFFECTI-E COMMUNICATIONS +e begin with the basics. identify the target audience, determining the ob7ectives, designing the communications, selecting the channels, establishing the budget.

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I"enti+; the Tar et A2"ien&e %he process must start with a clear target audience in the mind. potential buyers of the company$s products, current users, deciders or influencers, individuals, groups,

G3 particular publics, or the general public. %he target audience is a critical influence on the communicator$s decisions about what to say, how, when, where, and to whom. "s the target new to the category or the current userH "s the target loyal to the brand, loyal to a competitor, or someone who switches between brandsH "f a brand user, is he or she a heavy or light userH 8ommunication strategy will differ depending on the answer. +e can also conduct image analysis to provide further insight, by profiling the target audience in terms of brand knowledge. Deter,ine the C#,,2ni&ati#ns O34e&ti%es s we showed with the e&ample of a new brand to remove the problem of cracked heals, marketers can set communications ob7ectives at any level of the hierarchy of effects model. :ossiter and 0ercy identify four possible ob7ectives, as follows. 1. Cate #r; nee" 6stablishing a product or service category as necessary to remove or satisfy a perceived discrepancy between a current motivational state and a desired emotional state. new to the world product such as electric cars would always begin with a communications ob7ective of establishing category need. 2. @ran" a:areness bility to identify the brand within the category, insufficient detail to make a purchase. :ecognition is easier to achieve than recall consumers are more likely to recognize distinctive red and white packages of 8olgate 1ental 8ream than recall the brand if asked to think of a brand of toothpaste. 9rand recall is important outside the store, brand recognition is an important insight the store. 9rand awareness provides a foundation for brand e5uity. #. @ran" attit2"e 6valuating the brand with respect to its perceived ability to meet a currently relevant need. :elevant brand needs may be negatively oriented or positively oriented. -ousehold cleaning products often use problem solution, food products, on the other hand, often used sensory oriented ads emphasizing appetite appeal. 2. @ran" (2r&hase Intenti#n 'elf instructions to purchase the brand or to take purchase related actions. 0romotional offers in the form of coupons or two for one deals encourage consumers to make a mental commitment to buy a product. 9ut many consumers do not have an e&pressed category need and may not be in the market when e&posed to an ad, so they are unlikely to form by intentions. For e&ample, in any given week only about twenty percent of adults may be planning to buy detergent, only 2M may be planning to buy a carpet cleaner, and only 3.2<M may be planning to buy a car.

Desi n the C#,,2ni&ati#ns Formulating the communications to achieve the desired response will re5uire solving three problems. what to say, how to say it, and how should say it.

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Messa e Strate ; "n 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. 'ome of these may be related directly to product or service performance, whereas others may relate to more e&trinsic considerations. Creati%e Strate ; 8ommunications effectiveness depends on how a message is being e&pressed, as well as on the content of the message itself. "f a communication is ineffective, it may mean the wrong message was used, or the right one was 7ust poorly e&pressed. 8reative strategies are the way marketers translate their messages into a specific communication. +e can broadly classify them as either informational or transformational appeals. %hese two general categories each encompass several different specific creative approaches. INFORMATIONA0 APPEA0S n informational appeal elaborates on product or service attributes or benefits. "nformational appeals assume very rational processing of the communication on the part of the consumer. 4ogic and reason rule. TRANSFORMATIONA0 APPEA0S transformational appeal elaborates on a non product related benefit or image. "t might depict what kind of person uses a brand or what kind of e&perience results from using the brand. %ransformational appeals often attempt to stir up emotions that will motivate purchase. 8ommunicators use negative appeals such as fear, guilt, and shame to get people to do things or stop doing things. Fear appeals works best when they are not too strong, when source credibility is high, and when the communication promises to relieve, in a believable and efficient way, the fear it arouses. Messages are most persuasive when they are moderately discrepant with what the audience believes. 'tating only what the audience already believes at best only reinforces beliefs, and if the messages are too discrepant audiences will counter argue and disbelieve them. 8ommunicators also use positive emotional appeals such as humor, love, pride and 7oy. -umor is often used to high light a particular benefit of a brand by e&aggerating it.

Messa e S#2r&e Many communications do not use a source beyond the company itself. (thers use known or unknown people. Messages delivered by attractive or popular sources can

G2 achieve higher attention and recall, which is why advertisers often use celebrities as spokespeople. +hat is important is the spokesperson$s credibility. +hat factors underlie source credibilityH %he three most often identified are e&pertise, trustworthiness, and like ability. 6&pertise is the specialized knowledge the communicator processes to back the claim. %rustworthiness is related to how ob7ective and honest the source is perceived to be. Friends are trusted more than strangers or salespeople, and people who are not paid to the endorse a product are viewed as more trustworthy than people who are paid. 4ike ability describes the source$s attractiveness. Qualities such as candor, humor, naturalness make a source more likable. 9usiness to business marketers ccenture found all these 5ualities and more in golf pro %iger +oods. A&&ent2re %he most highly credible source would score high on all three dimensions e&pertise trustworthiness, and likeability. Se)e&t The C#,,2ni&ati#ns Channe)s 'electing efficient means to carry the message becomes more difficult as channels of communications become more fragmented and cluttered. %hink of the challenges in the pharmaceutical industry. a large number of medical representatives )detail* doctors everyday but only a small proportion of calls result in setting the doctor, and then for an average of only two minutes or less, which makes sales calling e&tremely e&pensive. %he industry has had to e&pand its battery of communications channels to include ads in medical 7ournals, direct mail, free samples, and even telemarketing. 0harmaceutical companies sponsor clinical conferences at which they pay physicians to spend a weekend listening to leading colleagues e&tol certain drugs in the morning, followed by sightseeing, variety!entertainment programs and dinner. 0harmaceuticals use all these channels in the hope of building physicians preferences for their branded therapeutic agent. %hey are also using new technologies to reach doctors through handled devices, online services, and video conferencing e5uipment. 8ommunications channel may personal or non personal. +ithin each are many sub!channels.

Pers#na) C#,,2ni&ati#ns Channe)s 0ersonal communications channels let two or more persons communicate face!to! face, person!to!audience, over the telephone, or through e!mail. "nstant messaging and

G# independent sites to collect consumer reviews is another channel, one of growing importance in recent years. 0ersonal communication channels derive their effectiveness through individualized presentation and feedback. +e can drew a further distinction between advocate, e&pert and social communications channels. dvocate channels consists of company salespeople contacting buyers in the target market. 6&pert channels consist of independent e&perts making statements to target buyers. 'ocial channels consist of neighbors, friends, family members and associates talking to target buyers. N#n.(ers#na) C#,,2ni&ati#ns Channe)s Jon!personal channels are communications directed to more than one person and include media, sales promotions, events and e&periences and public relations. Me"ia A 8onsist of print media, broadcast media, network media, electronic media and display media. Sa)es Pr#,#ti#ns A 8onsist of consumer promotions, trade promotions and business and sales force promotions. E%ents an" E'(erien&es A "nclude sports, arts, entertainment and cause evens as well as less formal activities that create novel brand interactions with consumers. P23)i& Re)ati#ns I "nclude communications directed internally to employees of the company or e&ternally to consumers, other firms, the government and media. Esta3)ishin the T#ta) Marketin C#,,2ni&ati#ns @2" et (ne of the most difficult marketing decisions is determining how much to spend on marketing communications or promotion. Eohn +anamaker, the department store magnate, once said, )" know that half of my advertising is wasted, but " don$t know which half*. "ndustries and companies vary considerably in how much they spend on marketing communications or promotion. 6&penditures might be 23M to 2<M of sales in the cosmetics industry and <M to 13M in the industrial e5uipment industry. +ithin a given industry, there are low and high spending companies. -ow do companies decide on the promotion budgetH +e will describe four common methods. the affordable method, the percentage of sales method, the competitive parity method, and the ob7ective and task method. A++#r"a3)e Meth#" Many companies set the promotion budget at what they think the company can afford. %he affordable method completely ignores the role of promotion as an investment and the immediate impact on sales volume. "t leads to an uncertain annual budget, which makes long range planning difficult.

Per&enta e #+ Sa)es Meth#" Many companies set promotion e&penditures at a specified percentage of sales >either current or anticipated? or of the sales price. utomobiles companies typically

G2 budget a fi&ed percentage of promotion based on the planned car price. (il companies set the appropriation at a fraction of a cent for each gallon of gasoline sold under their own label. 'upporters of the percentage of sales method see a number of advantages. First, promotion e&penditures will vary with what the company can afford, this satisfies financial managers, who believe e&penses should be closely related to the movement of the corporate sales over the business cycle. 'econd, it encourages management to think of the relationship among the promotion cost, selling price and profit per unit. %hird, it encourages the stability when competing firms spend appro&imately the same percentage of their sales on promotion. "n spite of these advantages, the percentage of sales method has little to 7ustify it. "t views sales as determiner of promotion rather than as the result. "t leads to a budget set by the availability of funds rather than by marketing opportunities. "t discourages e&perimentation with countercyclical promotion or aggressive spending. 1ependence on year!to!year sales fluctuation interferes with long range planning. %here is no logical basis for choosing the specific percentage, e&cept what has been done in the past or what competitors are doing. Finally, it does not encourage building the promotion budget by determining what each product and territory deserves. C#,(etiti%e Parit; Meth#" 'ome companies set their promotion budget to achieve share of voice parity with competitors. %here are two supporting arguments. (ne is that competitors$ e&penditures represent the collective wisdom of the industry. %he other is that maintaining competitive parity prevents promotion wars. Jeither argument is valid. %here are no grounds for believing that competitors know better. 8ompany reputations, resources, opportunities and ob7ectives differ so much that promotion budgets are hardly a guide. nd there is no evidence that budgets based on competitive parity discourage promotion wars.

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MANAGING MASS COMMUNICATIONS$ AD-ERTISINGS SA0ES PROMOTIONS1 E-ENTS AND E/PERIENCES1 AND PU@0IC RE0ATIONS
DE-E0OPING AND MANAGING AN AD-ERTISING PROGRAM dvertising is any paid form of non!personal presentation and promotions of ideas, goods or services by an identified sponsor. ds can be a cost!effective way to disseminate messages, whether to build a brand preference or to educate people. 6ven in today$s challenging media environment, good ads can pay off. "n developing an advertising program, marketing managers must always start by identifying the target market and buyer motives. %hen they can make five ma7or decisions known as )the five M'*. Mission. what are our advertising ob7ectivesH Money. how much can we spendH Messages. what message should we sendH Media. what media should we useH Measurement. how should we evaluate the resultsH Settin the #34e&ti%es %he advertising ob7ectives must flow from prior decisions on target market, brand positioning and the marketing program. nd advertising goal is a specific communications task and achievement level to be accomplished with a specific audience in a specific period of time. dvertising ob7ectives can be classified according to whether their aim is to inform, persuade, remind or reinforce. In+#r,ati%e A"%ertisin $ aims to create brand awareness and knowledge of new products or new features of e&isting products. Pers2asi%e A"%ertisin $ aims to create liking, preference, conviction and purchase of a product or service. 'ome persuasive advertising uses comparative advertising, which makes an e&plicit comparison of the attributes of two or more brands. 8omparative advertising works best when it is elicit cognitive and affective motivations simultaneously, and when the consumers are processing advertising in a detailed, analytical mode. Re,in"er A"%ertisin $ aims to stimulate repeat purchase of products and services. 6&pensive, four color 8oca!8ola ads in magazines are intended to remind people to purchase 8oca!8ola. Rein+#r&e,ent A"%ertisin $ aims to convince current purchasers that they made the right choice. uto!mobile ads often depict satisfied customers en7oying special features of their new car. %he advertising ob7ective must emerge from a thorough analysis of current marketing situation. "f the product class is mature, the company is the market leader, and brand usage is low, the ob7ective is to stimulate more usage. "f the product class is new, the company is not the market leader, but the brand is superior to the leader, then the ob7ective is to convince the market of the brand superiority.

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De&i"in On the A"%ertisin @2" et -ow does the company know it$s spending the right amountH 'ome critics charge that large consumer packaged goods firms overspend on advertising as a form of insurance against not spending enough, and industrial companies underestimate the power of company and product image building and under spend. lthough advertising is treated as a current e&pense, part of it is really an investment in building brand e5uity and customer loyalty. +hen a company spends :s.<3 million on capital e5uipment, it may treat the e5uipment as a five year depreciable asset and write off only one fifth of the cost in the first year. +hen it spends :s.<3333 on advertising to launch a new product, it must write off the entire cost in the first year, reducing its reported profit. Fa&t#rs A++e&tin @2" et De&isi#ns -ere are five specific factors to consider when setting the advertising budget. 1. Sta e in the (r#"2&t )i+e &;&)e A Jew products typically merit large advertising budget to build awareness and to gain consumer trial. 6stablished brands usually are supported with lower advertising budgets, measured as a ratio to sales. 2. Market Share an" C#ns2,er 3ase A -igh market share brands usually re5uire less advertising e&penditure as a percentage of sales to maintain share. %o build share by increasing market size re5uires large e&penditures. #. C#,(etiti#n an" C)2tter A "n a market with a large number of competitors and high advertising spending, a brand must advertise more heavily to be heard. 6ven simple clutter form advertisements not directly competitive to the brand creates a need for heavier advertising. 2. A"%ertisin FreG2en&; A %he number of repetitions needed put across the brand$s message to consumers have an obvious impact on the advertising budget. <. Pr#"2&t S23stit2ta3i)it; A 9rands in less well differentiated or commodity like product classes re5uire heavy adverting to establish a differential image. "n one study of budget allocation, 4ow and Mohr found that managers allocate less to advertising as brands move to the more mature phase of product life cycle, when a brand is well differentiated from the competition, when managers are rewarded on short!term results, as retailers gain more power, and when managers have less e&perience with the company. De%e)#(in the A"%ertisin Ca,(ai n "n designing and evaluating an ad campaign, marketers employ both art and science to develop the message strategy or positioning of an ad I what the add attempts to convey about the brand I and its creative strategy I how the ad e&presses the brand claims. dvertisers go through three steps. message generation and evaluation, creative development and e&ecution, and social responsibility review.

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Messa e Generati#n an" E%a)2ati#n Many of today$s automobile ads have sameness about them I a car drives at high speed on a curved mountain road or across a desert. %he result is that only a weak link form between the brand and the message. dvertisers always seeking )the big idea* that connects with consumers rationally and emotionally, sharply distinguishes the brand from competitors, and is broad and fle&ible enough to translate to different media, markets and time periods. Fresh insights are important for avoiding using the same appeals and position as others. good ad normally focuses on one or two core selling propositions. s part of refining the brand positioning, the advertiser should conduct market research to determine which appeal works best with its target audience and then prepare a creative brief typically covering one or two pages. %his is an elaboration of the positioning statement and includes. key message, target audience, communications ob7ectives, key brand benefits, supports for the brand promise and media. Creati%e De%e)#(,ent an" E'e&2ti#n %he ad$s impact depends not only on what it says, but often more important, how it says it. 6&ecution can be decisive. 6very advertising medium has advantages and disadvantages. -ere, we review television, print and radio advertising media.

MARKETING MEMO

Print A" E%a)2ati#n Criteria "n 7udging the effectiveness of print ad, in addition to considering the communication strategy >target market, communications ob7ectives, and message and creative strategy?, marketers should be able to answer yes to the following 5uestions about the e&ecutional elements. 1. "s the message clear at a glanceH 8an you 5uickly tell what the advertisement is all aboutH 2. "s the benefit in the headlineH #. 1oes the illustration support the headlineH 2. 1oes the first line of the copy support or e&plain the headline and illustrationH <. "s the ad easy to read and followH D. "s the product easily identifiedH F. "s the brand or sponsor clearly identifiedH

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TE0E-ISION ADS %elevision is generally acknowledged as the most powerful advertising medium and reaches a broad spectrum of consumers. %= advertising has two particularly important strengths. First, it can be an effective means of vividly demonstrating product attributes and persuasively e&plaining their corresponding consumer benefits. 'econd, it can dramatically portray users and usage imagery, brand personality and other intangibles. 9ecause of he fleeting nature of ad, however, and the distracting creative elements often fount in it, product related messages and the brand itself can be overlooked. Moreover, the high volume of ads and non!programming material on television creates clutter that makes it easy for customers to ignore or to forget ads. nd although production and placement are e&pensive, the fragmentation of the channels affects the number of people viewing the specific programs of each channel. 9y any number of measures, the defectiveness of any one advertisement on average has diminished. Jevertheless, properly designed and e&ecuted %= ads can improve brand e5uity and affects sales and profits. (ne of the most consistently successful %= advertisers has been pple. PRINT ADS 0rint media offer a stark contrast to broadcast media. 9ecause readers consume them at their own pace, magazines and newspapers can provide detailed product information and effectively communicate user and usage imagery. t the same time, the static nature of the visual images in print media makes dynamic presentations or demonstrations difficult, and print media can be fairly passive. %he two main print media, magazines and newspapers, share many advantages and disadvantages. lthough newspapers are timely and pervasive, magazines are typically more effective at building user and usage imagery. Jewspapers are popular for local I especially retailer I advertising. lthough advertisers have some fle&ibility in designing and placing newspaper ads, poor reproduction 5uality and short shelf life can diminish the ads$ impact. Format elements such as ad size, color, and illustration also affect the print ad$s impact. 4arger ads gain more attention, though not necessarily by as much as their difference in cost. Four color illustrations increase ad effectiveness and ad cost. Jew electronic aye movement studies show that the consumers can be led through an ad by strategic placement of dominant elements. :esearchers studying print advertisements report that the picture, headline and copy mater in that order. %he picture must be strong enough to draw attention. %he headline must reinforce the picture and lead the person to read he copy. %he copy must be engaging and the brand$s name sufficiently prominent. RADIO ADS 0erhaps radio$s main advantage is fle&ibility I stations are very targeted, ads are relatively ine&pensive to produce and place, and short closing allow for 5uick response. :adio is particularly effective medium in the morning, it can also let companies achieve a balance between broad and localized market coverage. :adio is popular medium for entertainment and news in the rural areas of 'outh sia. "n the @rban areas, on the other hand, due to the popularity of the television, the number of people listening to the radio for entertainment has declined over the last several years. -owever, radio listening habits

L3 have undergone a perceptible change in the last three or four years, particularly in the urban areas. %he obvious disadvantages of radio are the lack of visual images and the relatively passive nature of the consumer processing that results. Jevertheless, radio ads can be e&tremely creative. 'ome see the lack of visual images as plus because they feel the clever use of music, sound and other creative devices can tap into the listener$s imagination to create powerfully relevant and liked images. Ch##sin A,#n Ma4#r Me"ia T;(es %he media planner must know the capacity of the ma7or advertising media types to deliver reach, fre5uency and impact. Media planners make their choices by considering the following variables. o Tar et a2"ien&e ,e"ia ha3its5 :adio and television are the most effective media for reaching teens. o Pr#"2&t &hara&teristi&s5 Media types have different potential for demonstration, visualization, e&planation, believability and color. +omen$s dresses are best shown in color magazines, but high tech products ac5uiring dynamic presentation such as digital cameras, printers or cell phones are best demonstrated on television. o Messa e &hara&teristi&s5 %imeliness and information content will influence media choice. message announcing a ma7or sale tomorrow will re5uire radio, %=, or newspaper. message containing a great deal of technical data might re5uire specialized magazines or mailings. o C#st5 %elevision is very e&pensive, whereas newspaper advertising is relatively ine&pensive. +hat counts is the cost per thousand e&posures. Given the abundance of media, the planner must first decide how to allocate the budget to the ma7or media types. 8onsumers are easily time starved. ttention is a scarce currency, and advertisers need strong devices to capture people$s attention. A)ternati%e A"%ertisin O(ti#ns "n recent years, researchers have noticed reduced effectiveness for television due to increased commercial clutter, increased )zipping and zapping* of commercials and lower viewing owing to the growth in cable and satellite %= and 1=1P=8:s. Furthermore, television advertising costs have risen faster than other media costs. Many marketers are looking for alternative media. P)a&e A"%ertisin 0lace advertising, or out of home advertising, is a broad category including many creative and une&pected forms to grab consumers$ attention. %he rationale is that marketers are better off reaching people where they work, play and of course shop. 'ome of the options include billboards, public spaces, product placement, and point of purchase. @I00@OARDS 9illboards have been transformed and now use colorful, digitally produced graphics, digitally produced graphics, back lighting, sounds, movement and unusual I even three

L1 dimensional I images. 9illboards I hoardings, as they are referred to in 'outh sia, at traffic 7unctions and high ways are an important reminder medium.

INTRODUCING NEW MARKET OFFERINGS


NEW PRODUCT OPTIONS %here are a variety of types of new products and ways to create them. Make #r @2; company can add new products through ac5uisition or development. %he ac5uisition route can take three forms. %he company can buy other companies, it can ac5uire patterns from other companies, or it can buy a license or franchise from another company. 9ut it can successfully make only so many ac5uisitions. t some point, there becomes a pressing need for organic growth I the development of new products from within the company. For product development, the company can create new products in its own laboratories, or it can contract with independent researchers or new product development firms to develop specific new products or provide new technology. T;(es #+ Ne: Pr#"2&ts Jew products range from new to the world products that create an entirely new market at one end, to monitor improvements or revisions of e&isting product at the other. Most new products activity is devoted to improving e&isting products. MANAGING THE DE-E0OPMENT PROCESS$ IDEAS I"ea Generati#n %he new product development process starts with the search for ideas. 'ome marketing e&perts believe the greatest opportunities and highest leverage with new products are found by uncovering the best possible set of unmet customer needs or technological innovation. Jew product ideas can come from interacting with various groups and using creativity generating techni5ues. Intera&tin With Others 6ncouraged by the open innovation movement, many firms are increasingly going outside the company to tap e&ternal sources of new ideas, including customers, employees, scientists, engineers, channel members, marketing agencies, top management and even competitors. 8ustomer needs and wants are a logical place to start the search. (ne on one interviews and focus group discussions can e&plore product needs and reactions. I"ea S&reenin "n screening ideas, the company must avoid two types of errors. 1:(0!error occurs when the company dismisses a good idea. "t is e&tremely easy to find fault with other people$s ideas. 'ome companies shudder when they look back at ideas they dismissed or breathe sighs of relief when they realize how close they came to dropping what eventually became a huge success. %he purpose of screening is to drop poor ideas as early as possible. %he rationale is that product development costs rise substantially with each successive development stage. Most companies re5uire new product idea to be described on a standard form for a new product committee$s review. %he description states the product idea, the target

L2 market, and the competition and roughly estimates market size, product price, development time and costs, manufacturing costs and rate of return. MARKETING MEMO Se%en :a;s t# "ra: ne: i"eas +r#, ;#2r &2st#,ers 15 O3ser%e h#: ;#2r &2st#,ers are 2sin ;#2r (r#"2&t5 Medtronic, a medical device company, has salespeople and market researchers regularly observe spine surgeons who use their product and competitive products, to learn how they can be improved. 'imilarly, G6 has gathered ideas for improving 8 % scanners by observing their use by skilled medical personnel. 25 Ask ;#2r &2st#,ers a3#2t their (r#3)e,s :ith ;#2r (r#"2&ts5 ;omatsu heavy e5uipment sent a group of engineers and designers to the @nited 'tates for mi& months to ride with e5uipment drivers to learn how to make products better. 0rocter and Gamble, recognizing consumers were frustrated that potato chips would break and were difficult to save after opening the bag, designed 0ringles to be uniform in size and encased in a tennis ball type can so consumers would open the can, consume a few unbroken chips and close it again. #. Ask ;#2r &2st#,ers a3#2t their "rea, (r#"2&ts5 sk your customers what they want your product to do, even if the ideal sounds impossible. (ne F3 years old camera user told Minolta he would like the camera to make his sub7ects look better and not show their wrinkles and aging. "n response, Minolta produced a camera with two lenses, one of which was rendering softer images of the sub7ect. 2. Use a &2st#,er a"%is#r; 3#ar" t# &#,,ent #n ;#2r &#,(an;8s i"eas5 4evi 'trauss uses youth panels to discuss lifestyles, habits, values and brand engagements, 8isco runs 8ustomer Forums to improve its offering, and -arley 1avidson solicits product ideas from its one million -.(.G. >-arley (wner Group? members. <. Use :e3 sites +#r ne: i"eas5 8ompanies can use specialized search engines such as %echnorati and 1ay 0op to find blogs and postings relevant to their businesses. 0RG$s site has +e$re 4istening and 'hare Nour %houghts sections and dvisory Feedback sessions to gain advice and feedback from customers. D. F#r, a 3ran" &#,,2nit; #+ enth2siasts :h# "is&2ss ;#2r (r#"2&t5 -arley 1avidson and pple have strong brand enthusiasts and advocates, 'ony engaged in collaborative dialogues with consumers to codevelop 'ony$s 0laystation 2. 46G( draws on kids and influential adult enthusiasts for feedback on new product concepts in early stages of development. F. En&#2ra e #r &ha))en e ;#2r &2st#,ers t# &han e #r i,(r#%e ;#2r (r#"2&t5 'alesforce.com wants its users to develop and share new software applications using simple programming tools. "nternational Flavors and Fragrances gives a tool kit to its customers to modify specific flavors, which "FF then manufactures, 4'" 4ogic 8orporation also provide customers with do it yourself toolkits so that customers can design their own specialized chips, and 9M+ posted a toolkit on its web site to let customers develop ideas using telematics and in!car online services.

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C#n&e(t De%e)#(,ent an" Testin C#n&e(t De%e)#(,ent$ let us illustrate concept development with the following situation. large food processing company gets the idea of producing a powder to add to milk to increase its nutritional value and taste. %his is a product idea, but consumers do not buy product ideas, they buy product concepts. product idea can be turned into separate concepts. %he first 5uestion is. who will use this productH %he powder can be aimed at infants, children, teenagers, young or middle aged adults or older adults. 'econd, what primary benefit should this product provideH %aste, Jutrition, :efreshment or 6nergyH %hird, when will people consume this drinkH 9reakfast, mid!morning, lunch, mid!afternoon, dinner or late eveningsH 9y answering those 5uestions, a company can form several concepts. C#n&e(t 15 n instant breakfast drink for adults who want a 5uick nutrition breakfast without preparation. C#n&e(t 25 tasty snack for children to drink as midday refreshment. C#n&e(t <5 health supplement for older adults to drink in the late evening before they go to bed. 6ach concept represents a category concept that defines the product competition. n instant breakfast drink would compete against hot milk, corn flakes with cold milk, bread toast, butter and eggs, and other regular homemade items. C#n&e(t Testin 8oncept testing means presenting the product concept, symbolically or physically, to target consumers and getting their reactions. %he more the tested concepts resemble the final product or e&perience, the more dependable concept testing is. 8oncept testing of prototypes can help avoid costly mistakes, but it may be especially challenging with radically different, new to the world products. "n the past, creating physical prototypes was costly and time consuming, but today firms use rapid prototyping to design products on a computer, and then produce rough models of each to show potential consumers for their reactions. 8oncept testing presents consumers with an elaborated version of the concept. -ere is the elaboration of concept 1 in our milk e&ample. Our product is a powdered mixture added to milk to make an instant breakfast that gives a person all the days needed nutrition along with good taste and high convenience. The product comes in three flavors (chocolate, vanilla and strawberry), and would come in individual packs, ! to a box, at "s. ! a box.

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fter receiving this information, researchers measure product dimensions by having the consumer respond to the following types of 5uestions. 1. C#,,2ni&a3i)it; an" 3e)ie%a3i)it;5 re the benefits clear to you and believableH "f the scores are low, the concept must be revised or refined. 2. Nee" )e%e)5 1o see this product solving a problem or filling a need for youH %he stronger the need, the higher the e&pected consumer interest. #. Ga( )e%e)5 1o other products currently meet this need and satisfy youH %he greater the gap, the higher he e&pected consumer interest. Marketers can multiply the need level by the gap level to produce a need gap score. high score means the consumer sees the product as filling a strong need not satisfied by available alternatives. 2. Per&ei%e" %a)2e5 "s the price reasonable in relationship to valueH %he higher the perceived value, the higher is e&pected consumer interest. <. P2r&hase intenti#n5 +ould you >definitely, probably, probably not, definitely not? buy the productH 8onsumers who answered the first three 5uestions positively should answer )definitely* here. D. User tar ets1 (2r&hase #&&asi#ns1 (2r&hasin #+ +reG2en&;5 +ho would use this product, when and how oftenH :espondents$ answers indicate whether the concept has a broad and strong consumer appeal, what products it competes against, and which consumers are the best targets. %he need gap levels and the purchase intention levels can be checked against norm for the product category to see whether the concept appears to be a winner, a long shot, or a loser. (ne food manufacturer re7ects any concept that draws a definitely would buy score lower than 23M. Marketin Strate ; De%e)#(,ent Following a successful concept test, the new product manager will develop a preliminary three part strategy plan for introducing a new product into the market. %he first part describes the target market$s size, structure and behavior, the planned product positioning, and the sales, market share, and profit goals sought in the first few years. %he target market for the instant breakfast drink is families with children who are receptive to a new, convenient, nutritious and ine&pensive form of breakfast. %he company$s brand will be positioned at the higher price, higher 5uality end of he instant breakfast drink category. "nitially, the company will aim to achieve 13M of the market, with a loss in the first year not e&ceeding :s.<3 million. "n the second year, the company will aim to achieve 12M of the market with a planned profit of :s.113 million.

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%he second part outlines the planned price, distribution strategy and marketing budget for the first year. %he product will be offered in the three flavors vanilla, strawberry and chocolate sold at a retail price of :s.113 a bo&. %here will be 13 bo&es per case, and the case price to distributors will :s.1333, during the first two months, dealers will be offered one free case for every four cases bought, plus given cooperative advertising allowances. Free samples will be distributed door to door. 8oupons that entail price reduction of 13M to the customer will appear in newspapers. %he total sales promotional budget will be :s.1D3 million. n advertising budget of :s.1F< million will be split fifty!fifty between national and locals. %wo thirds of the advertisement budget will go into television and one third into print media. %he advertising e&ecution will emphasize the benefits concepts of nutrition and conveniences. 1uring the first year, budget will be provided for the market research, to buy retail audit data and consumer panel data to monitor the market reaction and for buying rates. %he third part of the marketing strategy plan describes the long run sales and profit goals and marketing mi& strategy over time. %he company intends to win a 2<M market share and realize an after ta& return on investment of 12M. %o achieve this return, product 5uality will start high and be improved over time through technical research. 0rice will initially be set at a high level and lowered gradually to e&pand the market and meet competition. %he total promotion budget will be boosted each year by about 23M, with the advertising sales promotion split evolving to fifty!fifty eventually. %he budget for marketing research will be reduced proportionately after the first year. @2siness Ana);sis fter management develops the product concept and marketing strategy, it can evaluate the proposal$s business attractiveness. Management needs to prepare sales, cost and profit pro7ections to determine whether they satisfy the company$s ob7ectives. "f they do, the concept can move to the development stage. s new information comes in, the business analysis will undergo revision and e&pansion. Esti,atin T#ta) Sa)es %otal estimated sales are the sum of estimated first time sales, replacement sales and repeat sales. 'ales estimation methods depend on whether the product is purchased once, infre5uently or often. For one time products, sales rise at the beginning, peak and approach zero as the number of buyers is e&hausted. "f new buyers keep entering the market, the curve will not go down to zero. "nfre5uently purchased products, such as automobiles, toasters, and industrial e5uipment, e&hibit replacement cycles dictated by physical wear or obsolescence associated with changing styles, features and performance. 'ales forecasting for this product category calls for estimating first time sales and replacement sales separately.

LD Fre5uently purchased products, such as consumer and industrial nondurables, have product life cycle sales resembling. %he number of first time buyers initially increases and then decreases as fewer buyers are left. :epeat purchases occur soon, providing the product satisfies some buyers. %he sales curve eventually falls to a plateau representing a level of steady repeat purchase volume, by this time, the product is no longer a new product. "n estimating sales, the manager$s first task is to estimate first time purchases of the new product in each period. %o estimate replacement sales, management researches the product$s survival age distribution, that is, the number of units that fail in year one, two, three and so on. %he low end of the distribution indicates when the first replacement sales will take place. 9ecause replacement sales are difficult to estimate before the product is in use, some manufacturers base the decision to launch a new product solely, on the estimate of first time sales. For a fre5uently purchased new product, the seller estimates repeat sales as well as first time sales. high rate of repeat purchasing means customers are satisfied, sales are likely to stay high even after all first time purchases take place. %he seller should note the percentage of repeat purchases in each repeat purchase class. those who rebuy once, twice, three times and so on. 'ome products and brands are bought a few times and dropped.

LF MANAGING THE DE-E0OPMENT PROCESS$ DE-E0OPMENT TO COMMERCIA0IDATION @p to now, the product has e&isted only as a word description, a drawing, or a prototype. %he ne&t step represents a 7ump in investment that dwarfs the costs incurred so far. %he company will determine whether the product idea can translate into a technically and commercially feasible product. "f not, the accumulated pro7ect cost will be lost, e&cept for any useful information gained in the process. Pr#"2&t De%e)#(,ent %he 7ob of translating target customer re5uirements into a working prototype is helped by a set of methods known as 5uality function development. %he methodology takes the list of desired customer attributes generated by market research and turns them into a list of engineering attributes that engineers can use. For e&ample, customers of a proposed truck may want a certain acceleration rate. 6ngineers can turn this into the re5uired horsepower and other engineering e5uivalents. %he methodology measures the tradeoffs and costs of meeting customer re5uirements. ma7or contribution of QF1 is improved communication between marketers, engineers and manufacturing people. Ph;si&a) Pr#t#t;(e %he :R1 department will develop one or more physical versions of the product concept. "ts goal is to find a prototype that embodies the key attributes described in the product concept statement, that performs safety under normal use and conditions, and that the firm can produce within budgeted manufacturing costs. "n the past, developing and manufacturing a successful prototype could take days, weeks, months or even years. %he web now permits more rapid prototyping and more fle&ible development processes. 'ophisticated virtual reality technology is also speeding the process. 9y designing and testing product designs through stimulation, for e&ample, companies achieve the fle&ibility to respond to new information and to resolve uncertainties by 5uickly by e&ploring alternatives. 4ab scientists must not only design the product$s functional characteristics, but also communicate its psychological aspects and brand image through physical cues. -ow will consumers react to different colors, sizes, and weightsH "n the case of a mouthwash, historically a yellow color supported an )antiseptic* claim, red color supported a )refreshing* claim and a green or a blue color supported a )cool* claim. Marketers need to supply lab people with information about what attributes consumers seek and how consumers 7udge whether these attributes are present. C2st#,er Tests +hen the prototypes are ready, they must be put through rigorous functional tests before they enter the market place. lpha testing is testing the product within the firm to see how it performs in different applications. fter refining the prototype further, the company moves to beta testing with customers. 8onsumers testing can take several forms, from bringing customers into laboratory to giving them samples to use in their homes.

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Market Testin fter 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. "n an authentic setting marketers can learn how large the market is and how consumers and dealers react to handling, using and repurchasing the product. Jot all companies undertake market testing. %he 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. -igh investment high risk products, where the chance of failure is high, must be market tested, the costs of the market tests will be an insignificant percentage of total pro7ect cost. -igh risk products I those that create new product categories or have novel features I warrant more market testing than modified products. C#ns2,er G##"s Market Testin 8onsumer products tests seek to estimate four variables. trial, first, repeat, adoption and purchase fre5uency. %he company hopes to find all these variables at high levels. Many consumers may try the product but few rebuy it, or it might achieve high permanent adoption but low purchase fre5uency. -ere are four ma7or methods of consumer goods market testing, from least to most costly. SA0ES.WA-E RESEARCH "n sales wave research, consumers who initially try the product at no cost are reoffered it, or a competitor$s product, at slightly reduced prices. %he offer may be made as many as five times, while the company notes how many customers selected the product again and their reported level of satisfaction. 'ales wave research can also e&pose consumers to one or more advertising concepts to measure the impact of that advertising on repeat purchase. 'ales wave research can be implemented 5uickly, conducted with a fair amount of security, and carried out without final packaging and advertising. -owever, it does not indicate trial rates the product would achieve with different sales promotion incentives, because the consumers are pre!selected to try the product, nor does it indicate the brand$s power to gain distribution and favorable shelf position. SIMU0ATED TEST MARKETING 'imulated test marketing calls for finding #3 to 23 5ualified shoppers and 5uestioning them about brand familiarity and preferences in a specific product category. %hese consumers attend a brief screening of both well!known and new %= commercials or print ads. (ne ad advertises the new product but is not singled out for attention. 8onsumers receive a small amount of money and are invited into a store where they may buy any items. %he company notes how many consumers by the new brand and competing brands. %his provides the measure of the ad$s relative effectiveness against competing ads in stimulating trial. 8onsumers are asked the reasons for their purchases or non!purchases. %hose who did not buy the new brand are given a free sample. 'ome weeks later, they are interviewed by phone to determine product attitudes, satisfaction and repurchase intention and are offered an opportunity to repurchase any products.

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%his method gives fairly accurate results on advertising effectiveness and trial rates in a much shorter time and at a fraction of the cost of using real test markets. %he results are incorporated into new product forecasting models to pro7ect ultimate sales levels. Marketing research firms have reported surprisingly accurate prediction of sales levels of products that are subse5uently launched in the market. "n a world where media and channels have become highly fragmented, however, it will become increasingly harder for simulated test marketing to truly simulate market conditions with only traditional approaches. CONTRO00ED TEST MARKETING "n controlled test marketing, a research firm manages a panel of stores that will carry new products for a fee. %he company with the new products specifies the number of stores and geographic locations it wants to test. %he research firm delivers the product to the participating stores and controls shelf position, number of facing, displays and point of purchase promotions, and pricing. 6lectronic scanners measure sales at checkout. %he company can also evaluate the impact of local advertising and promotions. 8ontrolled test marketing allows the company to test the impact of in!store factors and limited advertising on buying behavior. sample of consumers can be interviewed later to give their impressions of the product. %he company does not have to use its own sales force, give trade allowances, or )buy* distribution. -owever, controlled test marketing provides no information on how to sell the trade on carrying the new product. %his techni5ue also e&poses the product and its features to competitors$ scrutiny. TEST MARKETS the ultimate way to test a new consumer product is to put it into full blown test markets. %he company chooses a few representative cities, and the sales force tries to sell the trade on carrying the product and giving it good shelf e&posure. %he company puts on a full advertising and promotion campaign similar to the one it would use in national marketing. %est marketing also measures the impact of alternative marketing plans by varying the marketing program in different cities. the cost of full scale test will depend on the number of test cities, the test duration, and the amount of data the company wants to collect. Management faces several decisions. 1. H#: ,an; test &ities! Most tests use two to si& cities. %he greater the possible loss, the greater the number of contending marketing strategies, the greater the regional differences, and the greater the chance of test marketing interference by the competitors, the more cities management should test. 2. Whi&h &ities! 6ach company must develop the selection criteria such as having good media coverage, cooperative chain stores and average competitive activity. -ow representative the city is of other markets must also be considered. #. 0en th #+ test! Market tests last anywhere from a few months to a year. %he longer the average repurchase period, the longer the test period.

133 2. What in+#r,ati#n t# &#))e&t! +arehouse shipment data will show gross inventory buying but will not indicate weekly sales at the retail level. 'tore audits will show retail sales and competitors$ market shares but will not reveal buyer characteristics. 8onsumer panels will indicate which people are buying which brands and their loyalty and switching rates. 9uyers surveys will yield in depth information about consumer attitudes, usage and satisfaction. <. What a&ti#n t# take! "f the test markets show high trial and repurchase rates, the marketer should launch the product nationally, if a high trial rate and a repurchase rate develop marketing communications to convince more people to try it. "f trial and repurchase rates are both low, abandon the product. Many managers find it difficult to kill a pro7ect that created much effort and attention even if they should, resulting in an unfortunate >and typically unsuccessful? escalation of commitment. "n spite of its benefits, many companies skip test marketing and rely on faster and more economical testing methods. General Mills prefers to launch new products in perhaps 2<M of the country, an area too large for rivals to disrupt. Managers review retail scanner data, which tell them within days how the product is going and what corrective fine! tuning to do. 8olgate!0almolive often launches a new product in a set of small )lead countries* and keeps rolling it out if it proves successful. C#,,er&ia)i*ati#n "f the company goes ahead with commercialization, it will face its largest cost to date. "t will need to contract for manufacture or build or rent a full!scale manufacturing facility. nother ma7or cost is marketing. %o introduce a ma7or new consumer packaged good into the national market in @nited 'tates, for e&ample, can cost from O2< million as much as O133 million in advertising, promotion and other communications in the first year. "n the introduction of new food products, marketing e&penditures typically represent <FM of sales during the first year. Most new product campaigns rely on a se5uenced mi& of market communication tools. When BTi,in C. "n commercializing the new product, market entry timing is critical. 'uppose a company has always completed the development work on its new product and learns that a competitor is nearing the end of its development work. %he company faces three choices. 1. First entr;$ the first firm entering a market usually en7oys the )first mover advantages* of locking up key distributors and customers and gaining leadership. 9ut if the product is rushed the market before it is thoroughly debugged, the first entry can backfire. 2. Para))e) entr;$ %he firm might time its entry to coincide with the competitor$s entry. %he market may pay more attention when two companies are advertising new product. #. 0ate entr;$ the firm might delay its launch until after the competitor has entered. %he competitor will have borne the cost of educating the market, and its product may reveal faults the late entrant can avoid. %he late entrant can also learn the size of the market.

131 %he time decision re5uires additional considerations. "f a new product replaces an older product, the company might delay the introduction until the old product$s stock is drawn down. "f the product is seasonal, it might be delayed until the right season arrives, often a product waits for a )killer application* to occur. 8omplicating new product launches, many companies are encountering competitive )design!around* I rivals are imitating inventions but making their own versions 7ust different enough to avoid patent infringement and the need to pay royalties. Where BGe# ra(hi& Strate ;C$ %he company must decide whether to launch the new product in a single locality, a region, several regions, the national market, or the international market. Most will develop a planned market rollout over time. 8ompany size is an important factor here. 'mall companies will select an attractive city and put on a blitz campaign, entering other cities one at a time. 4arge companies will introduce their product into a whole region and then move to the ne&t region. 8ompanies with national distribution networks, such as auto companies, will launch their new models in the national market. Most companies design new products to sell primarily in the domestic market. "f the product does well, the company considers e&porting to neighboring countries or the world market, redesigning if necessary. "n choosing rollout markets, the ma7or criteria are market potential, the company$s local reputation, the cost of filling the pipeline, the cost of communication media, the influence of the area on other areas, and competitive penetration. T# Wh#, BTar et Market Pr#s(e&tsC$ +ithin the rollout markets, the company must target its initial distribution and promotion to the best prospects groups. %he company will have profiled these, and ideally they should be early adopters, heavy users and opinion leaders who can be reached at low cost. Few groups have all these characteristics. %he company should rate the various prospect groups on these characteristics and target the best group. %he aim is to generate strong sales as soon as possible to attract further prospects. H#: BIntr#"2&t#r; Market Strate ;C$ the company must develop an action plan for introducing the new product into the rollout markets. 9ecause new product launches often take longer and cost more money than e&pected, many potentially successful offerings suffer from understanding. "t$s important to allocate sufficient time and resources I but also not overspend I as the new product gains traction in the market place. master of new product introductions, pple computer staged a massive marketing blitz in 1LLG to launch the iMac, its reentry into the computer 08 business after a hiatus of 12 years. Five years later, pple truck gold again with the launch of the i0od.

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THE CONSUMER.ADOPTION PROCESS doption is an individual$s decision to become a regular user of a product. %he consumer adoption process is followed by the consumer loyalty process, which is the concern of established producer. Nears ago, new product marketers used a mass market approach to launch products, which had two main drawbacks. it called for heavy marketing e&penditures and it wasted many e&posures. %hese drawbacks led to a second approach, heavy user target marketing. %his approach makes sense, provided that heavy users are identifiable and are early adopters. -owever, even within the heavy user group, many heavy users are loyal to e&isting brands. Jew product marketers now aim at early adopters and use the theory of innovation diffusion and consumer adoption to identify them.

Sta es In the A"#(ti#n Pr#&ess n innovation is any good, service or idea that someone perceives as new, no matter how long its history. "nnovations take time to spread. 6verett :ogers 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*. %he consumer adoption process is the mental steps through which an individual passes from first hearing about an innovation to final adoption. dopters of new products move through five stages. 1. A:areness5 %he consumer becomes aware of the innovation but lacks information about it. 2. Interest5 %he consumer is stimulated to seek information about the innovation. #. E%a)2ati#n5 %he consumer considers whether to try the innovation. 2. Tria)5 %he consumer tries the innovation to improve his or her estimate of its value. <. A"#(ti#n5 %he consumer decides to make full and regular use of the innovation.

13# %he new product marketer should facilitate movement through these stages. 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. 9ut these same consumers would be willing to use an electric dishwasher on trial basis for a small monthly fee. %he manufacturer should consider offering a trial use plan with option to buy. Fa&t#rs In+)2en&in the A"#(ti#n Pr#&ess Marketers recognize the following characteristic 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. 'ome researchers are focusing on use diffusion processes as a complement to adoption process models, to see how consumers actually use new products. Rea"iness t# tr; ne: (r#"2&ts an" (ers#na) in+)2en&e 6verett :ogers defines a person$s level of innovativeness as )the degree to which an individual is relatively earlier in adopting new ideas than the other members of his social system*. "n each product area, there are pioneers and early adopters. 'ome people are the first to adopt new clothing fashions or new appliances, some doctors are the first to prescribe new medicines, some farmers are first to adopt new forming methods. fter a slow start, an increasing number of people adopt the innovation, the number reaches a peak, and then it diminishes as fewer non!adopters remain. %he five adopter groups differ in their value orientations and their motives for adopting or resisting the new product. Inn#%at#rs are technology enthusiasts, they are venturesome and en7oy tinkering with new products and mastering their intricacies. "n return for new prices, they are happy to conduct alpha and beta testing and report and early weakness. Ear); a"#(ters are opinion leaders who carefully search for new technologies that might give them a dramatic competitive advantage. %hey are less price! sensitive and willing to adopt the product if given personalized solutions and good service support. Ear); ,a4#rit; are deliberate pragmatists who adopt the new technology when its benefits are proven and a lot of adoption has already taken place. %hey make up the mainstream market. 0ate ,a4#rit; are skeptical conservatives who are risk averse, technology shy, and price sensitive. 0a ar"s are tradition bound resist the innovation until they find that the status 5uo is no longer defensible. 6ach group must be approached with a different type of marketing if the firm wants to move its innovation through the full product lifecycle. 0ersonal influence is the effect one person has another$s attitude or purchase probability. "ts significance is greater in some situations and for some individuals than others, and it is more important in the evaluation stage than the other stages. "t has more influence on late adopters than early adopter is more important in risky situations.

132 8ompanies often target innovators and early adopters with product rollouts. For =espa scooters, 0iaggio hired models to go around cafes and clubs in trendy 4os ngeles areas to talk up the brand. +hen Jike entered the skateboarding market, it recognized an anti!establishment, big company bias from the target market could present a sizable challenge. %o gain )street cred* with teen skaters, it sold e&clusively to independent shops, advertised nowhere but skate magazines and gained sponsorships from well admired pro riders by engaging them in the product design. Chara&teristi&s #+ the Inn#%ati#n

'ome products catch on immediately, whereas others take a long time to gain acceptance. Five characteristics influence the rate of adoption of an innovation. +e will consider them in relation to the adoption of personal computers for home use. %he first characteristic is relative advantage I the degree to which the innovation appear superior to e&isting products. %he greater the relative advantage of using a personal computer, say, for keeping the financial records, the more 5uickly will personal computers be adopted. %he second is compatibility I the degree to which the innovation matches the values and the e&periences of the individuals. 0ersonal computers, for e&ample, are highly compatible with the middle class lifestyle. %hird is comple&ity I the degree to which the innovation is relatively difficult to understand or use. 0ersonal computers are somewhat comple& for a typical household consumer who may not be familiar with technology products, and therefore, take a slightly longer time to penetrate into home use. Forth is divisibility I a degree to which the innovation can be tried on the limited basis. %he availability of computers on rent, or using the friend$s computer increases their rate of adoption. Fifth is communicability I the degree to which the beneficial results of use are observable or describable to others. %he fact that personal computers lend themselves to easy demonstration and description helps them diffuse faster into the social system. (ther characteristics that influence the rate of adoption are cost, risk and uncertainty, scientific credibility and social approval. %he new product marketer must research all these factors and give the key ones ma&imum attention in designing the new product and marketing program. Or ani*ati#n8s Rea"iness t# A"#(t Inn#%ati#ns %he creator of a new teaching method would want to identify innovative schools. %he producer of a new piece of medical e5uipment would want to identify innovative hospitals. doption is associated with variables in the organization$s environment, the organization itself, and the administrators. (ther forces come into play in trying to get the product adopted into organizations that receives the bulk of their funding from the government, such as public schools. controversial or innovative product can be s5uelched by a negative public opinion.
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