National Institute of Business Management

Chennai - 020
FIRST SEMESTER EMBA/ MBA
Subject : Marketing Management
Attend any 4 questions. Each question carries 25 marks
(Each answer should be of minimum 2 pages / of 300 words )

1. Write an essay on "Marketing is based on the concept that the customer is the most
important person to the company".

2. Explain why purchasing is regarded as a very important management function in many

organizations.

3. Explain the use of marketing models that has been used in the study of consumer
behaviour.

4. What is the importance of Pricing in a company? Explain.

5. What are the unique characteristics of Service Marketing? Explain.
6. Explain the techniques and methods for designing organisation structure.

25 x 4=100 marks

4. What is the importance of Pricing in a company? Explain.

Definition:
Price is the value that is put to a product or service and is the result of a complex set of
calculations, research and understanding and risk taking ability. A pricing strategy takes into
account segments, ability to pay, market conditions, competitor actions, trade margins and input
costs, amongst others. It is targeted at the defined customers and against competitors.

Description:
There are several pricing strategies:
Premium pricing: high price is used as a defining criterion. Such pricing strategies work in
segments and industries where a strong competitive advantage exists for the company. Example:
Porche in cars and Gillette in blades.
Penetration pricing: price is set artificially low to gain market share quickly. This is done when
a new product is being launched. It is understood that prices will be raised once the promotion
period is over and market share objectives are achieved. Example: Mobile phone rates in India;
housing loans etc.
Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and
advertising costs are very low. Targets the mass market and high market share. Example:
Friendly wash detergents; Norma; local tea producers.
Skimming strategy: high price is charged for a product till such time as competitors allow after
which prices can be dropped. The idea is to recover maximum money before the product or
segment attracts more competitors who will lower profits for all concerned. Example: the earliest
prices for mobile phones, VCRs and other electronic items where a few players ruled attracted
lower cost Asian players.

Importance of Pricing in a company

Profit Margins
The price you set affects your profit margin per unit sold, with higher prices giving you a higher
profit per item if you dont lose sales. However, higher prices that lead to lower sales volumes
can decrease, or wipe out, your profits, because your overhead costs per unit increase as you sell
fewer units.

 Sales Volumes
One of the most obvious affects pricing will have on your business is an increase or decrease in
sales volume. Economists study price elasticity, or the response of consumer purchasing to a
price change. Increasing your prices might lower your sales volume only slightly, helping you
make up for decreased volume with higher total profits generated by higher margins. Lowering
your prices can increase your profits if your sales jump significantly, decreasing your overhead
expense per unit. Test the markets response to price increases by changing prices in targeted
areas before instituting an across-the-board price increase.

Position
The price you set sends a message to some consumers about your business, product or service,
creating a perceived value. This affects your brand, image or position in the marketplace. For
example, higher prices tell some consumers that you have higher quality, or you wouldnt be able
to charge those prices. Other consumers look for low-priced products and services, believing
theyll get the quality they need at a low price. Offering sales, discounts, rebates and closeouts
can send the message you cant sell your products or services at your regular price, or tell buyers
they have a short-term opportunity to get a bargain.

Market Share
The price you set makes you more or less competitive in the marketplace, affecting your share of
the markets volume. Some businesses lower prices temporarily to gain market share from
competitors, who cant respond to and meet a price decrease. After consumers have had time to
try your product and develop a brand preference or loyalty, you can raise your prices again to a
level that wont cause them to leave you. Predatory pricing is the practice of selling a product or
service below cost for the specific purpose of taking market share away from a competitor or
closing it down, then raising prices on consumers when they have fewer, or no options after that
competitor is gone. This is illegal.

Loss Leaders
Some businesses price products or services at or below cost to get customers into their
businesses, who then spend more money elsewhere. For example, big-box retailers might buy
large quantities of tennis balls, selling them at or below cost to entice affluent tennis players who
use many cans of balls during the year into their stores. By placing the low-cost balls at the back
of the store, they hope to generate impulse buys as the shopper walks to the sports area and back
to the front. Restaurants offer low-margin specials to offer a change-of-pace to regular diners to
keep their normal business, or to let regulars bring friends who want upscale dishes at a
moderately priced eatery.

Importance of Pricing in Marketing Strategy

1. Price is the Pivot of an Economy:
In the economic system, price is the mechanism for allocating resources and reflecting the
degrees of both risk and competition. In an economy particularly free market economy and to a
less extent in controlled economy, the resources can be allocated and reallocated by the process
of price reduction and price increase.Price policy is a weapon to realize the goals of planned
economy where resources can be allocated as per planned priorities.Price is the prime mover of
the wheels of the economy namely, production, consumption, distribution and exchange. As price
is a sacrifice of purchasing power, it affects the living standards of the society; it regulates
business profits and, hence, allocates the resources for the optimum output and distribution.
Thus, it acts as powerful agent of sustained economic development.

2. Price regulates demand:

The power of price to produce results in the market place is not equalled by any other component
in the product-mix.It is the greatest and the strongest P of the four Ps of the mix. Marketing
manager can regulate the product demand through this powerful instrument. Price increases or
decreases the demand for the products. To increase the demand, reduce the price and increase the
price to reduce the demand.

3. Price is competitive weapon:

Price as a competitive weapon is of paramount importance. Any company whether it is selling
high or medium or low priced merchandise will have to decide as to whether its prices will be
above or equal to or below its competitors. This is a basic policy issue that affects the entire
marketing planning process. Secondly, price does not stand alone as a device for achieving a
competitive advantage.In fact, indirect and non-price competitive techniques often are more
desirable because, they are more difficult for the competitors to copy. Better results are the
outcome of a fine blend of price and non-price strategies. Thirdly, there is close relationship
between the product life-cycle and such pricing for competition.

There are notable differences in the kinds of pricing strategies that should be used in different
stages. Since the product life span is directly related to the products competitiveness, pricing at
any point in the life-cycle should reflect prevailing competitive conditions.

4. Price is the determinant of profitability:

Price of a product or products determines the profitability of a firm, in the final analysis by
influencing the sales revenue. In the firm, price is the basis for generating profits. Price reflects
corporate objectives and policies and it is an important ingredient of marketing mix. Price is
often used to off-set the weaknesses in other elements of the marketing-mix.
Price changes can be made more quickly than any other changes in the product, channel, and
personal selling and sales-promotion includes advertising. It is because; price change is easily
understood and communicating to the buyer in a precise way. That is why, price changes are used
frequently for defensive and offensive strategies. The impact of price rise or fall is reflected
instantly in the rise or fall of the product profitability, thinking that other variables are
unaffected.

5. Price is a decision input:

In the areas of marketing management, countless and crucial decisions are to be made.
Comparatively marketing decisions are more crucial because, they have bearing on the other
branches of business and more difficult as the decision-maker is to shoot the flying game in the
changing marketing environment.

5. What are the unique characteristics of Service Marketing?

Explain.
Service Marketing;
The American Marketing Association defines services as - Activities, benefits and satisfactions
which are offered for sale or are provided in connection with the sale of goods.

7 Important Characteristics of Services:

Some of the important characteristics of services are as follows:
1. Perishability
2. Fluctuating Demand
3. Intangibility
4. Inseparability
5. Heterogeneity
6. Pricing of Services
7. Service quality is not statistically measurable.
1. Perishability:
Service is highly perishable and time element has great significance in service marketing.
2. Fluctuating Demand:
Service demand has high degree of fluctuations. The changes in demand can be seasonal or by
weeks, days or even hours. Most of the services have peak demand in peak hours, normal
demand and low demand on off-period time.
3. Intangibility:
Unlike product, service cannot be touched or sensed, tested or felt before they are availed. A
service is an abstract phenomenon.
4. Inseparability:
Personal service cannot be separated from the individual and some personalised services are
created and consumed simultaneously.

For example hair cut is not possible without the presence of an individual. A doctor can only treat
when his patient is present.
5. Heterogeneity:
The features of service by a provider cannot be uniform or standardized. A Doctor can charge
much higher fee to a rich client and take much low from a poor patient.
6. Pricing of Services:
Pricing decision about services are influenced by perish ability, fluctuation in demand and
inseparability. Quality of a service cannot be carefully standardized. Pricing of services is
dependent on demand and competition where variable pricing may be used.
7. Service quality is not statistically measurable:
It is defined in form of reliability, responsiveness, empathy and assurance all of which are in
control of employees direction interacting with customers. For service, customers satisfaction
and delight are very important. Employees directly interacting with customers are to be very
special and important. People include internal marketing, external marketing and interactive
marketing.

5 Important Characteristics of Services Marketing:

Perishability
Perhaps of all the suggested special characteristics of service products or classification of
services, this is one of the most difficult to appreciate. Services are highly perishable compared
to physical products. But how could, for example, the services of say, an airline be considered to
be more perishable than, say, fresh food and vegetable products?
The reason is that unlike most physical products, many services cannot be stored. For example, if
an airline does not sell all the seats on a particular flight, then those seats or rather the sales
revenue of filling of them would have carried, has immediately and irreversibly gone.

Intangibility
Physical products in the store are widely displayed for customers to see, feel, touch, weigh or
sniff at before deciding whether or not to buy. Comparing this with the choice of the service of
say, an insurance policy. You cannot touch, see or smell the products before choosing, although
clearly you can make some assessment based on past experience, word of mouth, or even the
location and decor of the insurance office. The intangible nature of most services gives rise to
special problems both for suppliers and consumers.

Variability
In the production and marketing of physical products, companies have increasingly paid special
attention to ensuring consistency in quality, feature, packaging, and so on. More often than not
all customers can be sure that every bottle of Coke he/she buys, even in a life-time of purchases,
will not vary. The provision of services, however, invariably includes a large measure of the
human element
Indeed, with many services, we are purchasing nothing else but the skills of the suppliers.
Because of this, it is often very difficult for both supplier and consumer to ensure a consistent
product or quality of service.

Inseparability
A key distinguishing feature of service marketing is that the service provision and provider are
inseparable from the service consumption and consumer. For example, we cannot take a hotel
room home for consumption; we must consume this service at the point of provision.
Similarly, the hairdresser needs to be physically present for this service to be consumed.

Non-ownership
The final distinguishing feature of a service is that, unlike a physical product, the consumer does
not secure ownership of the service. Rather the customer pays only to secure access to or use of
the service. Again the hotel room is a good example. Similarly, with banking services, although
the customer may be given a Cheque book, credit cards, etc, they serve only to allow the
customer to make use of what he or she is actually buying, namely, bank services.

6.Explain the techniques and methods for designing

organization structure.
Organization structure:
Organizational structure is a system that consists of explicit and implicit institutional rules and
policies designed to outline how various work roles and responsibilities are delegated, controlled
and coordinated. Organizational structure also determines how information flows from level to
level within the company. For example, in a centralized structure, decisions flow from the top
down, while in a decentralized structure, the decisions are made at various different levels.

Introduction
Any operating organization should have its own structure in order to operate efficiently. For an
organization, the organizational structure is a hierarchy of people and its functions.
The organizational structure of an organization tells you the character of an organization and the
values it believes in. Therefore, when you do business with an organization or getting into a
new job in an organization, it is always a great idea to get to know and understand their
organizational structure.
Depending on the organizational values and the nature of the business, organizations tend to
adopt one of the following structures for management purposes.
Although the organization follows a particular structure, there can be departments and teams
following some other organizational structure in exceptional cases.
Sometimes, some organizations may follow a combination of the following organizational
structures as well.

Organizational Structure Types

Following are the types of organizational structures that can be observed in the modern business
organizations.
Bureaucratic Structures
Bureaucratic structures maintain strict hierarchies when it comes to people management. There
are three types of bureaucratic structures:

1 - Pre-bureaucratic structures
This type of organizations lacks the standards. Usually this type of structure can be observed in
small scale, start-up companies. Usually the structure is centralized and there is only one key
decision maker.

The communication is done in one-on-one conversations. This type of structures is quite helpful
for small organizations due to the fact that the founder has the full control over all the decisions
and operations.

2 - Bureaucratic structures
These structures have a certain degree of standardization. When the organizations grow
complex and large, bureaucratic structures are required for management. These structures are
quite suitable for tall organizations.

3 - Post-bureaucratic Structures
The organizations that follow post-bureaucratic structures still inherit the strict hierarchies, but
open to more modern ideas and methodologies. They follow techniques such as total quality
management (TQM), culture management, etc.
Functional Structure
The organization is divided into segments based on the functions when managing. This allows
the organization to enhance the efficiencies of these functional groups. As an example, take a
software company.
Software engineers will only staff the entire software development department. This way,
management of this functional group becomes easy and effective.
Functional structures appear to be successful in large organization that produces high volumes
of products at low costs. The low cost can be achieved by such companies due to the
efficiencies within functional groups.
In addition to such advantages, there can be disadvantage from an organizational perspective if
the communication between the functional groups is not effective. In this case, organization
may find it difficult to achieve some organizational objectives at the end.

Divisional Structure
These types of organizations divide the functional areas of the organization to divisions. Each
division is equipped with its own resources in order to function independently. There can be
many bases to define divisions.
Divisions can be defined based on the geographical basis, products/services basis, or any other
measurement.
As an example, take a company such as General Electrics. It can have microwave division,
turbine division, etc., and these divisions have their own marketing teams, finance teams, etc. In
that sense, each division can be considered as a micro-company with the main organization.

Matrix Structure
When it comes to matrix structure, the organization places the employees based on the function
and the product.
The matrix structure gives the best of the both worlds of functional and divisional structures.
In this type of an organization, the company uses teams to complete tasks. The teams are
formed based on the functions they belong to (ex: software engineers) and product they are
involved in (ex: Project A).
This way, there are many teams in this organization such as software engineers of project A,
software engineers of project B, QA engineers of project A, etc.

2.Explain why purchasing is regarded as a very important

management function in many organizations
Purchasing is the function of buying Goods & Services from External Source to
an Organization.

Purchase management is One of the most Crucial Area of the Entire Organization. Thus,
Needs Intensive management.
OVBJECTIVE OF PURCHASING MANAGEMENT:

To purchase the required material at minimum possible price by following the company
policies.
to keep department expenses low.
Development of good & new vendors (suppliers).
Development of good relation with the existing suppliers.
training & development of personal employees in department.
to maintain proper & up to date records of all transactions.
Participating in development of new material and products.
to contribute in product improvement.
to take Economic "MAKE OR BUY" decisions.
to avoid Stock- out situations.
to develop policies & procedure.
to maintain of ROL

Importance of Purchasing:
1. Purchasing function provides materials to the factory without which wheels of machines
cannot move.
2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover.
Efficient buying can achieve this.
3. Purchasing manager is the custodian of his firms is purse as he spends more than 50 per cent
of his companys earnings on purchases.

4. Increasing proportion of ones requirements are now bought instead of being made as was the
practice in the earlier days. Buying, therefore, assumes significance.
5. Purchasing can contribute to import substitution and save foreign exchange.
6. Purchasing is the main factor in timely execution of industrial projects.
7. Materials management organisations that exist now have evolved out or purchasing
departments.
8. Other factors like:

Post-war shortages,

Cyclical swings of surpluses and shortages and the fast rising materials costs,

heavy competition, and

Growing worldwide markets have contributed to the importance of purchasing.

Why Is Purchasing Important?

Historically, purchasing has played a key role in getting the lowest possible price. This
was often at the expense of a positive relationship with the supplier and usually a trade-off with
quality. However, over time, the role of purchasing evolved into a cost-saving function in which
supplier relationships and contracts were developed with cost-savings in mind. These costsavings often came through process improvements, product improvements, or supplier
development efforts.
Today, purchasing is recognized as having an overwhelming impact on the bottom line of the
organization. It has a direct impact on the two forces that drive the bottom line: sales and costs.
Purchasing is becoming a core competency of the firm, finding and developing suppliers and
bringing in expertise that is highly valued by the organization. Purchasing is generally

responsible for spending more than 50 percent of all the revenues the firm receives as income
from sales. More money is often spent for purchases of materials and services than for any other
expense, and the spend in services is rapidly increasing.6 Often, the cost of materials is 2.5 times
the value of all labor and payroll costs and nearly 1.5 times the cost of labor plus all other
expenses of running the business.7 In the area of services, millions of dollars are spent on
marketing and advertising, legal, information technology, logistics, temporary labor, and other
categories. Although the involvement of purchasing in the services area is different than in a
typical purchase of materials, there is significant opportunity for most organizations to save
money by involving purchasing in this area of spend.
Figure 1-1 shows how supply management can drive sales up and costs down. The impact on net
income and return on investment (ROI) have a major influence on shareholder value. The cost
impacts are easily understood because cost reduction is typically considered a purchasing job.
Purchasing works with internal customers to help improve processes and drive down costs.
Purchasing also works with suppliers to improve processes, look at alternative materials, and
look at different locations or transportation modes. Focusing on cost improvement is a core
competency of purchasing professionals.

Figure 1-1 Supply Managements impact on both top and bottom line
However, there are also many opportunities to help drive up market share. For example, strong
relationships with the right suppliers might allow for early supplier involvement in new product
development. Therefore, the supplier is prepared for the actual launch and can also contribute
and make changes if appropriate to facilitate an easier and less costly production launch. In 1998,
for example, suppliers were involved in the product development process and actually helped by
providing inputs into the design of the Honda Accord. These inputs were both material in nature
and process-oriented. This early involvement in the product development stages helped to save
more than 20 percent of the cost of producing the car.8 In the casting industry, it was found that
early involvement of suppliers in product development saved time and cost, and improved the

quality of the parts.9 The request for quote process (RFQ) is reduced significantly in this industry
because suppliers are more aware of what is required, long before it is needed.
As you will begin to understand from the information presented in this book, the supply base is a
source of innovative opportunities and the supply manager is trained to be aware of these supply
market opportunities. Having the appropriate supply base and relationships with the suppliers is
like having thousands of additional people thinking of the next great idea or innovation. There is
a famous and highly publicized quote about suppliers and the supply base by Dave Nelson, who
was an award-winning purchaser who worked at Honda, John Deere, and Delphihe is
considered a guru of supply chain.10Nelson said, If you develop the right relationship with
your supply base, you can have 10,000 additional brains thinking about ways to improve your
product and generate cost-savings.11 There is a lot of power resting in the hands of supply
managers, if they can harness the strength and the capabilities of the supply base.