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BCG Matrix or BCG analysis

BCG Growth Share Matrix The BCG growth share matrix was developed by Henderson of the BCG group in 1970’s. The matrix classifies businesses / SBUs by 1) Relative Market Share The market share of the business / SBU / Product in the market as compared to its competitors and overall product / category. 2) Market growth rate The growth rate of the industry as a whole is taken into consideration from which the growth rate of the product is extrapolated. This growth rate is then pitched on the graph. Thus by having 2 basic but at the same time very important factors on X axis and Y axis, the BCG matrix makes sure that the classifications are concrete. Calculating the Market growth rate comprises of both

industry growth and product growth rate thereby giving a fair knowledge of where the product / SBU stands in comparison to the Industry. The market share on the other hand comprises of the competition and the product potential in the market. Thus when we consider growth rate and market share together, it automatically gives us an overview of the competition and the industry standards as well as an idea of what the future might bring for the product. Once the businesses have been classified, they are placed into four different quadrants of the matrix. The quadrants of the matrix are divided into 1) Cash Cows High market share but low growth rate (most profitable). 2) Stars High market share and High growth rate (high competition) 3) Question marks Low market share and high growth rate (uncertainty) 4) Dogs Low market share and low growth rate (less profitable or may even be negative profitability) On the basis of this classification, strategies are decided for each SBU / Product. Lets discuss the characteristics and strategies of each quadrant in detail. 1) Cash Cows in the BCG MATRIX

The cornerstone of any multi product business, cash cows are products which are having a high market share in a low growing market. As the market is not growing, that cash cow gains the maximum advantage by generating maximum revenue due to its high market share. Thus for any company, the cash cows are the ones which require least investment but at the same time give higher returns. These higher returns enhance the overall profitability of the firm because this excess revenue can be used in other businesses which are Stars, Dogs or Question marks.

Strategies for cash cow The cash cows are the most stable for any business and hence the strategy generally includes retention of the market share. As the market is not growing, acquisition is less and customer retention is high. Thus customer satisfaction programs, loyalty programs and other such promotional methods form the core of the marketing plan for a cash cow product / SBU. 2) Stars in the BCG Matrix

The best product which comes in mind when thinking of Stars is the telecom products. If you look at any top 5 telecom company, the market share is good but the growth rate too is good. Thus because these two factors are high, the telecom companies are always in competitive mode and they have to juggle between investment and harvesting vis investing money and taking out money time to time. Unlike cash cows, Stars cannot be complacent when they are top on because they can immediately be overtaken by another company which capitalizes on the market growth rate. However, if the strategies are successful, a Star can

become a cash cow in the long run. Strategies for Stars All types of marketing, sales promotion and advertising strategies are used for Stars. This is because in cash cow, already these strategies have been used and they have resulted in the formation of a cash cow. Similarly in Stars, because of the high competition and rising market share, the concentration and investment needs to be high in marketing activities so as to increase and retain market share.

3) Question Marks in the BCG Matrix Several times, a company might come up with an innovative product which immediately gains good growth rate. However the market share of such a product is unknown. The product might lose customer interest and might not be bought anymore in which case it will not gain market share, the growth rate will go down and it will ultimately become a Dog. On the other hand, the product might increase customer interest and more and more people might buy the product thus making the product a high market share product. From here the product can move on to be a Cash Cow as it has lower competition and high market share. Thus Question marks are products which

may give high returns but at the same time may also flop and may have to be taken out of the market. This uncertainty gives the quadrant the name “Question Mark”. The major problem associated with having Question marks is the amount of investment which it might need and whether the investment will give returns in the end or whether it will be completely wasted. Strategies for Question marks As they are new entry products with high growth rate, the growth rate needs to be capitalized in such a manner that question marks turn into high market share products. New Customer acquisition strategies are the best strategies for converting Question marks to Stars or Cash cows. Furthermore, time to time market research also helps in determining consumer psychology for the product as well as the possible future of the product and a hard decision might have to be taken if the product goes into negative profitability.

4) Dogs in the BCG matrix

Products are classified as dogs when they have low market share and low growth rate. Thus these products neither generate high amount of cash nor require higher investments. However, they are considered as negative profitability products mainly because the money already invested in the product can be used somewhere else. Thus over here businesses have to take a decision whether they should divest these products or they can revamp them and thereby make them saleable again which will subsequently increase the market share of the product. Strategies for Dogs Depending on the amount of cash which is already invested in this quadrant, the company can either divest the product altogether or it can revamp the product through rebranding / innovation / adding features etc. However, moving a dog towards a star or a cash cow is very difficult. It can be moved only to the question mark region where again the future of the product is unknown. Thus in cases of Dog products, divestment strategy is used.

Sequences in BCG Matrix

boost to the companies profits and growth. The success sequence unlike the disaster sequence is entirely dependent on the righ t decision making . Disaster sequence in BCG Matrix – Disaster sequence of BCG matrix happens when a product which is a cash cow, due to competitive pressure might be moved to a star. It fails out from the competition and it is moved to a question mark and finally it may have to be divested because of its low market share and low growth rate. Thus the disaster sequence might happen because of wron g decision making . This sequence affects the company as a lot of investments are lost to the divested product. Along with this the money coming in from the cash cow which is used for other products too is lost. Strategies based on the BCG Matrix. There are four strategies possible for any product / SBU and these are the strategies which are used after the BCG analysis. These strategies are 1) Build – By increasing investment, the product is given an impetus such that the product increases its market share. Example – Pushing a Question mark into a Star and finally a cash cow (Success sequence) 2) Hold – The company cannot invest or it has other investment commitments due to which it holds the product in the same quadrant. Example – Holding a star there itself as higher investment to move a star into cash cow is currently not possible. " id="pdf-obj-3-4" src="pdf-obj-3-4.jpg">

Success Sequence in BCG Matrix The Success sequence of BCG matrix happens when a question mark becomes a Star and finally it becomes a cash cow. This is the best sequence which really give a boost to the companies profits and growth. The success sequence unlike the disaster sequence is entirely dependent on the right decision making. Disaster sequence in BCG Matrix Disaster sequence of BCG matrix happens when a product which is a cash cow, due to competitive pressure might be moved to a star. It fails out from the competition and it is moved to a question mark and finally it may have to be divested because of its low market share and low growth rate. Thus the disaster sequence might happen because of wrong decision making. This sequence affects the company as a lot of investments are lost to the divested product. Along with this the money coming in from the cash cow which is used for other products too is lost.

Strategies based on the BCG Matrix.

There are four strategies possible for any product / SBU and these are the strategies which are used after the BCG analysis. These strategies are 1) Build By increasing investment, the product is given an impetus such that the product increases its market share. Example Pushing a Question mark into a Star and finally a cash cow (Success sequence) 2) Hold The company cannot invest or it has other investment commitments due to which it holds the product in the same quadrant. Example Holding a star there itself as higher investment to move a star into cash cow is currently not possible.

3) Harvest Best observed in the Cash cow scenario, wherein the company reduces the amount of investment and tries to take out maximum cash flow from the said product which increases the overall profitability. 4) Divest Best observed in case of Dog quadrant products which are generally divested to release the amount of money already stuck in the business. Thus the BCG matrix is the best way for a business portfolio analysis. The strategies recommended after BCG analysis help the firm decide on the right line of action and help them implement the same.

Ansoff Matrix The growth share Matrix of Ansoff By Hitesh Bhasin December 3, 2016 For any decision to be taken at corporate level, you need the right strategic tools. Ansoff matrix is one of them. Ansoff matrix helps a firm decide their market growth as well as product growth strategies. The 2 questions which the Ansoff Matrix can answer is “How can we grow in the existing marketsand “What amends can be made in the product portfolio to have better growth”. From the above two questions, it is clear that Ansoff matrix deals with the companies external market scenario as well as the product portfolio which the firm has. The matrix is divided in two quadrants The product quadrant and the market quadrant. The Product quadrant on the X axisis further divided into Existing products and New products. The market scenario on the Y axis is divided into existing markets and new markets. Thus the Ansoff matrix divides a firm on the basis of the products it has existing products or new products, as well as the markets it is in existing markets or new markets. ANSOFF MATRIX

marketing strategy is decided. These marketing strategy are as follows. 1) Market Penetration in Ansoff Matrix – In the Ansoff matrix, market penetration is adopted as a strategy when the firm has an existing product and needs a growth strategy for an existing market. The best example of such a scenario is the telecom industry. Most telecom products are existing in the market and they have the same market to cater to. Thus in such cases the competition is higher and you might have to go out of the way to cater to your market or to increase your firms market share. Several things have to be considered when adopting the Market penetration strategy. By using market penetration, you are ensuring that only the existing resources of the firm are used and no extra costs need to be incurred in setting up a new unit for . At the same time, your current group of employees are the best people to notice any growth opportunities in the existing market. Thus they need to be used optimally by providing them the right information at the right time. There needs to be a combination of marketing and sales promotions if you have to grow in an existing market with an existing product. On the other hand, market penetration might not be the strategy you are looking for. What if the market becomes too saturated? Fighting for a higher market share in a saturated market accounts for higher expenses and lower profitability . Thus the market analysis needs to be spot on and the market penetration strategy should be adopted only if there is scope for increasing market share in an existing market. 2) Market Development in Ansoff Matrix – Market development is the second market growth strategy which can be adopted as per the Ansoff matrix. The market development strategy is used when the firm targets a new market with existing products. There are several examples of the market development " id="pdf-obj-5-2" src="pdf-obj-5-2.jpg">

Depending on the characteristic of each, the marketing strategy is decided. These marketing strategy are as follows. 1) Market Penetration in Ansoff Matrix In the Ansoff matrix, market penetration is adopted as a strategy when the firm has an existing product and needs a growth strategy for an existing market. The best example of such a scenario is the telecom industry. Most telecom products are existing in the market and they have the same market to cater to. Thus in such cases the competition is higher and you might have to go out of the way to cater to your market or to increase your firms market share. Several things have to be considered when adopting the Market penetration strategy. By using market penetration, you are ensuring that only the existing resources of the firm are used and no extra costs need to be incurred in setting up a new unit for . At the same time, your current group of employees are the best people to notice any growth opportunities in the existing market. Thus they need to be used optimally by providing them the right information at the right time. There needs to be a combination of marketing and sales promotions if you have to grow in an existing market with an existing product. On the other hand, market penetration might not be the strategy you are looking for. What if the market becomes too saturated? Fighting for a higher market share in a saturated market accounts for higher expenses and lower profitability. Thus the market analysis needs to be spot on and the market penetration strategy should be adopted only if there is scope for increasing market share in an existing market. 2) Market Development in Ansoff Matrix Market development is the second market growth strategy which can be adopted as per the Ansoff matrix. The market development strategy is used when the firm targets a new market with existing products. There are several examples of the market development

strategy including

footwear

firms

like Adidas, Nike and Reebok which

have

started

the market for your existing product has reached saturation. Thus you cannot apply the market penetration strategy. You can therefore opt for a new productdevelopment strategy which caters to your existing market. Lets take an example Why do firms like P&G and HUL keep on introducing new products in different categories? This is because both of these top FMCG firms are already present in the market. They are only leveraging their strength in the existing market by introducing new products. Imagine if HUL today introduces a soap. It is already selling its shampoos and soaps in all grocery stores across a city. Thus it will start selling this new product in the same distribution channel and achieve new product launch as well as an improvement in profitability just by using its current market. The product development strategy, like the market development strategy is risky. This is because product development involves investing in developing a completely new product. The product will also need further investments for distribution, marketing and manpower. Furthermore, by introducing a wrong product which does not gain acceptance in the market, you might be affecting your brand equity. Thus plotting your firm in the right quadrant on the Ansoff matrix becomes critical. 4) Diversification strategy in Ansoff Matrix Diversification is a strategy used in the Ansoff matrix when the product is completely new and is being introduced in a new market. The best example for Diversification can be big groups like Tata or Reliance which initially started with one product but have expanded into

completely unrelated segments by introducing new or their own products. Tata for example has presence in steel, motors and now in retail. However, Diversification should be taken as a last option and should be adopted only when the company is very strong financially. As seen in the above two strategies, if the product or the market changes, the company has to do some heavy investments to be successful. In case of Diversification, both product and market are new and hence the amount of investment required would be high thereby considerably increasing the risk factor. Therefore we see larger groups with deep pockets and multiple SBUs actually using the process of diversification. Thus depending on your product and your existing customer base, you can decide which quadrant you fall under in the Ansoff matrix. Once you know your position, the Ansoff matrix also outlines the right kind of strategy to adopt. The Ansoff matrix is especially useful for multi product organizations or organizations which are planning to increase market share.

The GE McKinsey matrix The GE McKinsey matrix is a product portfolio analysis matrix. When you have a complex product portfolio, then it is difficult for you to take decisions. This is because each product will have its own demands and requirements. But you yourself have limited resources in the company. Thus, what you as a business manager have to look at is to ensure that the firm grows at the optimum rate. For this, you will have to support some products by investing money in them, hold some products by letting them be as they are, and prune other products which are not working as well as you thought. This decision making, on products, is done by the GE Mckinsey matrix.

SBU s actually using the process of diversification. Thus depending on your product and your existing customer base, you can decide which quadrant you fall under in the Ansoff matrix. Once you know your position, the Ansoff matrix also outlines the right kind of strategy to adopt. The Ansoff matrix is especially useful for multi product organizations or organizations which are planning to increase market share. The GE McKinsey matrix The GE McKinsey matrix is a product portfolio analysis matrix. When you have a complex product portfolio, then it is difficult for you to take decisions. This is because each product will have its own demands and requirements. But you yourself have limited resources in the company. Thus, what you as a business manager have to look at is to ensure that the firm grows at the optimum rate. For this, you will have to support some products by investing money in them, hold some products by letting them be as they are, and prune other products which are not working as well as you thought. This decision making , on products, is done by the GE Mckinsey matrix. The GE Mckinsey matrix has two main variables which are plotted on the X and Y axis of the matrix. These variables are the “Market attractiveness” and the “Business unit strength”. Once each product is given a value for its market attractiveness as well as the business unit’s strength, than it is plotted in its right place in the graph. The GE Mckinsey matrix is also known as the nine box matrix, because in the graph, there are nine boxes where the product can be plotted. Once the product is in its place, you can decide the strategy for the product. There are 3 main strategies in the GE McKinsey matrix which are grow, hold and harvest. " id="pdf-obj-7-25" src="pdf-obj-7-25.jpg">

The GE Mckinsey matrix has two main variables which are plotted on the X and Y axis of the matrix. These variables are the “Market attractiveness” and the “Business unit strength”. Once each product is given a value for its market attractiveness as well as the business unit’s strength, than it is plotted in its right place

in the graph. The GE Mckinsey matrix is also known as the nine box matrix, because in the graph, there are nine boxes where the product can be plotted. Once the product is in its place, you can decide the strategy for the product. There are 3 main strategies in the GE McKinsey matrix which are grow, hold and harvest.

Challenges for the GE McKinsey matrix

Like any other strategy, the GE McKinsey matrix has its own challenges. Some of them are mentioned

below. 1) Determining market attractiveness

is

a

especially looking at the fast paced market

environment. During the dotcom bust, the online market was least attractive. But look where the online

market

is

now.

2) Similarly, determining the strength of the business unit and weighing it against the attractiveness is difficult. Thus, if the variables are not matched properly, you might grow a business which is supposed to

be held back and waste unnecessary resources on this business. This might happen if the top management

does

not

know

the core

the

units.

3) Companies will be limited by resources even if the business unit falls in the growth criteria. Thus, out of

50 products, if 25 fall in growth criteria, what does the management do when it has limited resources? Taking decisions again becomes difficult. Overall, the GE McKinsey matrix is an improvement over the BCG matrix. Where the BCG matrix only has 4 quadrants with focus on business unit and market share, the McKinsey matrix is a finer example of plotting the actual market conditions against the firms potential to stand up in the current market. Thus, business decisions taken via the GE McKinsey matrix are likely to be spot on.

Michael Porter’s Five forces model for industry analysis

BCG matrix . Where the BCG matrix only has 4 quadrants with focus on business unit and market share, the McKinsey matrix is a finer example of plotting the actual market conditions against the firms potential to stand up in the current market. Thus, business decisions taken via the GE McKinsey matrix are likely to be spot on. Michael Porter’s Five forces model for industry analysis Click for large size image " id="pdf-obj-9-9" src="pdf-obj-9-9.jpg">

The Michael Porter’s Five forces analysis framework is used to analyse an industry and more specifically, the external business environment of the industry. This five forces framework tells us whether or not we should enter an industry, and also if we enter it, then what can be the challenges faced by us. The basis of the Five forces analysis model is competition. This model is used when we are entering an

industry where already there is a lot of competition. Anytime we enter an industry, it is understood that there will be other players who might hold their own aces up their sleeves.

The concept of Attractiveness in Porter’s five forces model.

The key driving force behind Porter’s five forces model is to determine attractiveness of the industry. An

industry is said to be attractive if the five forces are arranged in such a manner that they drive profitability. On the other hand, the industry is said to be unattractive if all the five forces are interconnected in such a manner that they cause the profitability of the company to drop. Thus, the net result is that you should avoid entering an industry which is unattractive or at least take the precautions while entering such an industry, where profitability is low. The concept of attractiveness can be clearly understood in the consumer durable business. As we know, in consumer durable, the toughest competition is between companies which have a good customer base (dealer network). And if the dealer network has high bargaining power, this means that the dealers are cash rich and hence entering such a segment is difficult for your company. Furthermore, there are a lot of substitutes in the consumer durable industry with chinese brands mass manufacturing alternative products. Thus, the overall profitability is low in the industry and the threats of substitutes, the competition and the

bargaining power of customers has to be taken into consideration before establishing yourself in the consumer durable industry. Thus, using above examples, you can analyse the attractiveness of any industry with the Porter’s five forces analysis model. Now lets study the model in-depth. The Porter’s five forces analysis model

environment of the industry. This five forces framework tells us whether or not we should enter an industry, and also if we enter it, then what can be the challenges faced by us. The basis of the Five forces analysis model is competition. This model is used when we are entering an industry where already there is a lot of competition. Anytime we enter an industry, it is understood that there will be other players who might hold their own aces up their sleeves. The concept of Attractiveness in Porter’s five forces model. The key driving force behind Porter’s five forces model is to determine attractiveness of the industry. An industry is said to be attractive if the five forces are arranged in such a manner that they drive profitability . On the other hand, the industry is said to be unattractive if all the five forces are interconnected in such a manner that they cause the profitability of the company to drop. Thus, the net result is that you should avoid entering an industry which is unattractive or at least take the precautions while entering such an industry, where profitability is low. The concept of attractiveness can be clearly understood in the consumer durable business. As we know, in consumer durable, the toughest competition is between companies which have a good customer base (dealer network). And if the dealer network has high bargaining power, this means that the dealers are cash rich and hence entering such a segment is difficult for your company. Furthermore, there are a lot of substitutes in the consumer durable industry with chinese brands mass manufacturing alternative products . Thus, the overall profitability is low in the industry and the threats of substitutes, the competition and the bargaining power of customers has to be taken into consideration before establishing yourself in the consumer durable industry. Thus, using above examples, you can analyse the attractiveness of any industry with the Porter’s five forces analysis model. Now lets study the model in -depth. The Porter’s five forces analysis model Above is a simplified image of the model of Porter’s five force analysis. As the name suggests, there are five different forces which play a role in the industry. And these five forces affect each of the competitors present within that industry. Each individual force of the external business environment is discussed below. Porter’s Five forces 1 – Threat of new entrants " id="pdf-obj-10-30" src="pdf-obj-10-30.jpg">

Above is a simplified image of the model of Porter’s five force analysis. As the name suggests, there are five different forces which play a role in the industry. And these five forces affect each of the competitors present within that industry. Each individual force of the external business environment is discussed below. Porter’s Five forces 1 – Threat of new entrants

Do you know why the dotcom industry went bust in 2000? Because anyone, absolutely anyone, was starting a website and attracting investors. The dotcom industry was expected to reap huge profits, but what we had was a lot of new entrants with failed business models attracting a lot of money. This was all because it is very easy to enter the dotcom market, but very tough to establish yourself in it. This is the threat of new entrants. And this threat exists in all industries. Even telecommunications brands, which have been shouting out to the government to stop giving more licenses, find this fear in their mind. That a new entrant will come who will try to win market share in an already intense industry. The industry attractiveness increases when there are barriers to entry. For example in the import export business, a lot of barriers exist with regards to government policy. Thus, an established player will see new entrants as a lesser challenge as compared to an existing competitor. To avoid new entrants, and to keep the industry profitable, the industry needs several entry barriers in place.

Porter’s five forces 2 – Threat of substitute products Do you know why China is one of the fastest growing nations in the world? Because of its manufacturing capability, and because of its smart strategy of making substitute products in millions, such that the original loses some of its value. However, what do you do when the threat of substitute products are too high? For example, whenever you consider spare parts of an automobile or even consumer durable, you will find a lot of substitute spare parts available. In fact, many consumers prefer the use of substitutes over the original because of the low price and almost equivalent value added. These substitutes affect the prices of the company, its demand pattern and therefore its profitability. Imagine this, you forecasted that there will be a requirement of 1000 membrane filters in your territory for the next month. But the market bought substitutes of 400 units. You are left with 400 units in your stock. Now, you will drop prices so that the 400 units sell quickly. And this is how, your profitability drops. In an industry with high threat of substitute products, it is highly likely that you will worry more about the substitutes eating your business, and then you will worry about the competition present in the industry itself.

Porter’s Five forces 3 – Bargaining power of Customers / buyers Do you know why modern retail is taking away the business from small retail outlets? It is because these modern retail companies have huge bargaining power due to bulk buying. Hence they are crushing the small retailers. Consider this, the company is selling products to both, the small retailer as well as the modern retailer. However, the small retail is buying from a distributor who in turn is buying from a carrying and forwarding agent. Thus, the chain is huge and profits are lost in the chain. But in the modern retail scenario, there is at most 2-3 modern retail chains who are buying by truckloads, selling huge quantities and also don’t require a channel. Thus, these modern retailers will have huge bargaining power due to which a small retailer can consider them as a huge problem when establishing his own business. Similarly, there are different ways in which a customer or a buyer can have high bargaining power over the supplier. In such cases, the industry tends to be unprofitable because you have to overcome the challenge of having the buying power over suppliers. Here are a few factors which give bargaining power to customers. (Image of customers bargaining power)

channel . Thus, these modern retailers will have huge bargaining power due to which a small retailer can consider them as a huge problem when establishing his own business. Similarly, there are different ways in which a customer or a buyer can have high bargaining power over the supplier. In such cases, the industry tends to be unprofitable because you have to overcome the challenge of having the buying power over suppliers. Here are a few factors which give bargaining power to customers. (Image of customers bargaining power) Porter’s Five forces 4 – Bargaining power of suppliers Parachute is one of the top brand in hair cosmetics and it is known for its coconut oil. What if tomorrow, the coconut vendors were to go upto Parachute, and tell them that the union has decided, from tomorrow rates will go up by 20%? Will Parachute be able to do anything? There are only few places in the whole country which can provide them with the raw material. Parachute will have no other option but to say yes. Or on the other hand, Parachute can negotiate with the vendors, find out their problems and try to solve the problems so that the rate goes down. What Parachute did when vendors asked them to raise prices was, they made depots in each small village so that the villagers could drop their raw material there. And this was collected by the company. This brought down costs of collection by a huge margin and Parachute was able to avoid the price hike proposed by coconut farmers. But other companies might not be lucky when they are dealing with suppliers who have a high bargaining power. And a successful company has to deal with a lot of suppliers. A restaurant has to deal with vegetable " id="pdf-obj-12-10" src="pdf-obj-12-10.jpg">

Porter’s Five forces 4 – Bargaining power of suppliers Parachute is one of the top brand in hair cosmetics and it is known for its coconut oil. What if tomorrow, the coconut vendors were to go upto Parachute, and tell them that the union has decided, from tomorrow rates will go up by 20%? Will Parachute be able to do anything? There are only few places in the whole country which can provide them with the raw material. Parachute will have no other option but to say yes. Or on the other hand, Parachute can negotiate with the vendors, find out their problems and try to solve the problems so that the rate goes down. What Parachute did when vendors asked them to raise prices was, they made depots in each small village so that the villagers could drop their raw material there. And this was collected by the company. This brought down costs of collection by a huge margin and Parachute was able to avoid the price hike proposed by coconut farmers. But other companies might not be lucky when they are dealing with suppliers who have a high bargaining power. And a successful company has to deal with a lot of suppliers. A restaurant has to deal with vegetable

vendors, a company has to deal with raw material supplies, the manufacturers have to deal with transporters and distributors. Any industry with low bargaining power of supplers, can be profitable. For example in the above spare parts, there is no bargaining power with the supplier. If he does not give spare parts, there are 100 others who will give the customer spare parts. Thus, an industry which does not have bargaining power with suppliers can be tension free from that end. On the other hand, if supply is limited, then the company has the threat of the supply running dry, ruining the company’s business. Here are various points which offer a threat due to bargaining power of suppliers.

supply is limited, then the company has the threat of the supply running dry, ruining the company’s business. Here are various points which offer a threat due to bargaining power of suppliers. Porter’s Five forces 5 – Intensity of rivalry Now comes the final point which is the base of the Porter’s 5 force analysis model – The intensity of rivalry between competitors who are already existing in the industry. If the rivalry is too intense, and if there are bad fishes in the market, it is natural that the firm’s profitability will drop. Such industries will have high barriers of entry and hence establishing in such industries will be difficult. At the same time, if the rivalry is healthy and there are far fewer competitors, then there is a good possibility that margins will be fair enough and you can establish yourself securely in the industry before the killer competition starts. However, we have to remember that rivalry may not be because there are a lot of competitors. For example – if there are only 4 players in an industry, but the industry growth rate is dropping drastically. The naturally the rivalry between all 4 of the players will increase. This will cause the competitors to work in a haphazard manner ultimately causing loss of margins and drop in profitability for the industry. A competitive industry is highly dynamic in nature. Any change can happen anytime. One of the competitor might drop prices the same day that another competitor introduces a new product in his portfolio . Which " id="pdf-obj-13-10" src="pdf-obj-13-10.jpg">

Porter’s Five forces 5 – Intensity of rivalry Now comes the final point which is the base of the Porter’s 5 force analysis model – The intensity of rivalry between competitors who are already existing in the industry. If the rivalry is too intense, and if there are

bad fishes in the market, it is natural that the firm’s profitability will drop. Such industries will have high

barriers of entry and hence establishing in such industries will be difficult. At the same time, if the rivalry is healthy and there are far fewer competitors, then there is a good possibility that margins will be fair enough and you can establish yourself securely in the industry before the killer competition starts. However, we have to remember that rivalry may not be because there are a lot of competitors. For example if there are only 4 players in an industry, but the industry growth rate is dropping drastically. The naturally the rivalry between all 4 of the players will increase. This will cause the competitors to work in a haphazard manner ultimately causing loss of margins and drop in profitability for the industry.

supply is limited, then the company has the threat of the supply running dry, ruining the company’s business. Here are various points which offer a threat due to bargaining power of suppliers. Porter’s Five forces 5 – Intensity of rivalry Now comes the final point which is the base of the Porter’s 5 force analysis model – The intensity of rivalry between competitors who are already existing in the industry. If the rivalry is too intense, and if there are bad fishes in the market, it is natural that the firm’s profitability will drop. Such industries will have high barriers of entry and hence establishing in such industries will be difficult. At the same time, if the rivalry is healthy and there are far fewer competitors, then there is a good possibility that margins will be fair enough and you can establish yourself securely in the industry before the killer competition starts. However, we have to remember that rivalry may not be because there are a lot of competitors. For example – if there are only 4 players in an industry, but the industry growth rate is dropping drastically. The naturally the rivalry between all 4 of the players will increase. This will cause the competitors to work in a haphazard manner ultimately causing loss of margins and drop in profitability for the industry. A competitive industry is highly dynamic in nature. Any change can happen anytime. One of the competitor might drop prices the same day that another competitor introduces a new product in his portfolio . Which " id="pdf-obj-13-23" src="pdf-obj-13-23.jpg">

A competitive industry is highly dynamic in nature. Any change can happen anytime. One of the competitor might drop prices the same day that another competitor introduces a new product in his portfolio. Which

change do you react to? And what effect will it have on your business model? If you don’t react, then you risk being left far behind. The best example of problems faced due to intensive competition in the Porter’s five force analysis concept is from Quick Mba article. And I highly recommend that you read the same. Here is an insight into what the site mentions about problems with intense rivalry. Large number of firms Too many firms increase the competition in the industry causing profitability to drop Slow market growth Even if there are limited players, and the market growth rate is slow, then too there will be high levels of competition in the market.

  High fixed costs  Low switching costs  High exit barriers

Many other factors All of the factors above can cause high competition in the industry which is not good for a new business to be established. The dynamic nature of Porter’s five force of competitive analysis All of the above five factors are highly dynamic in nature and all of them affect each other in such a manner, that a change in one will cause a change in the other. Example If the bargaining power of suppliers goes up, then the cost of one firm will go up causing it to raise prices and therefore offer more value at less price. This will cause a cascading effect where all the other firms will now have to drop prices or offer more value. At this time, if substitutes are introduced then the challenge increases. And finally, if the market growth slows down, then this becomes the worst situation with so many competitors in the market trying to get the larger pie of the market share. Thus, this dynamic nature of all five forces causes the firm (which is the newest entrant), to either wind up their business, or take drastic steps. These drastic steps too affect all the other firms in the industry. Overall, these five forces are always interacting with each other and the profitability rises or drops likewise.

Gap analysis

Gap analysis is an excellent strategic tool used by management to identify where the company is going and what is the expectation or the potential of the company. In essence, Gap analysis compares the actual achievement with the potential achievement to find the gap in the existing strategy. This gap then needs to be filled such that the company meets its own potential. There can be many reasons that gaps exist within a companies strategy. Most of these reasons are because of a changing business environment. In the last decade itself, we have many changes in the business environment. Retail market has come in leaps and bounds, internet is taking over retail and now mobiles

and smart phones are utilizing internet to get the customers what they need at their doorstep. That is a lot of changes in a decade.

website , not do you want a mobile app. Slowly but surely, your newspaper will lose popularity. This is because you are letting go of a majority of potential readers – The online readers as well as the mobile readers. Thus, at the end if the newspaper company looks at its downfall, it will realize that there was a gap in the technology p resent in the market and the technology that the company used. Due to the absence of technology usage, the company has failed in attracting new readers. Thus, gap analysis analyses where the company stands currently, what is the current business environment? And where the company needs to go and subsequently what the company needs to do to reach its potential. Gap analysis can also suggest strategies which optimizes the utilization of resources to give the best results possible. Another aspect of gap analysis is expectations. These expectations may be from vendors, employees or customers. If the expectations are not met, there is a gap between the expectations and the actuals. For example – vendors expect timely payment, but the payments are always delayed. Thus, due to this gap in communication, the company might be losing vendors. Meeting expectations is another objective of Gap analysis. " id="pdf-obj-15-4" src="pdf-obj-15-4.jpg">

Imagine that you are a very old newspaper company and you only want to continue with traditional paper distribution. You neither want to have a website, not do you want a mobile app. Slowly but surely, your newspaper will lose popularity. This is because you are letting go of a majority of potential readers The online readers as well as the mobile readers. Thus, at the end if the newspaper company looks at its downfall, it will realize that there was a gap in the technologypresent in the market and the technology that the company used. Due to the absence of technology usage, the company has failed in attracting new readers. Thus, gap analysis analyses where the company stands currently, what is the current business environment? And where the company needs to go and subsequently what the company needs to do to reach its potential. Gap analysis can also suggest strategies which optimizes the utilization of resources to give the best results possible. Another aspect of gap analysis is expectations. These expectations may be from vendors, employees or customers. If the expectations are not met, there is a gap between the expectations and the actuals. For example vendors expect timely payment, but the payments are always delayed. Thus, due to this gap in communication, the company might be losing vendors. Meeting expectations is another objective of Gap analysis.

Product market expansion grid

The product market expansion grid was specified by the Ansoffs matrix. The product market expansion grid is used for planning by a company when the company is looking to increase the sale of its products either by expanding product range or entering new markets. Thus, there are various strategies that the company can develop when it compares the product with the current market. The product market expansion grid considers two main factors. The product and the market. The product can either be a current product or a new product. And the market can either be a current market or a new market. Thus, a grid is made, keeping in mind the two forms of products and the two forms of markets. This grid is the product market expansion grid. With the help of the grid, the proper market expansion strategy is decided. There are 4 main strategies of the product market expansion grid. These are mentioned below.

product market expansion grid was specified by the Ansoff s matrix. The product market expansion grid is used for planning by a company when the company is looking to increase the sale of its products either by expanding product range or entering new markets . Thus, there are various strategies that the company can develop when it compares the product with the current market. The product market expansion grid considers two main factors. The product and the market. The product can either be a current product or a new product . And the market can either be a current market or a new market. Thus, a grid is made, keeping in mind the two forms of products and the two forms of markets. This grid is the product market expansion grid. With the help of the grid, the proper market expansion strategy is decided. There are 4 main strategies of the product market expansion grid. These are mentioned below. Market penetration strategy – Market penetration strategy is decided when the product is a current product in an existing market. It falls in quadrant 1. Thus, in such a case, the customers are aware about the product and due to one reason or another are not using the product. There are three main tactics which a company can implement to increase market penetration. Market development strategy – The market development strategy is used when the product is an existing product but the market is new. This strategy falls in quadrant 2 of the grid. A company might decide to increase its territorial reach and therefore enter a new market. The new market may have tough competitors, or it may happen that the new company may be received very positively. In either of the cases, there are three main tactics which the company can use for market development. Product development strategy – Product development is used when there is a new product which has to be introduced in an existing market. It falls in quadrant 3 of the matrix. This may be done because the companies products are not selling anymore or that the company has identified new segments which it had missed before and wants to introduce new product to increase product sales. There are majorly three tactics which the company can use for Product development. Diversification strategy – Diversification strategy is used when a company enters new markets with new products. In such a scenario, the demands of the new market might be different from the current markets where the company exists. Thus, the company has to bring new products in new markets and hence the " id="pdf-obj-16-26" src="pdf-obj-16-26.jpg">

Market penetration strategy Market penetration strategy is decided when the product is a current product in an existing market. It falls in quadrant 1. Thus, in such a case, the customers are aware about the product and due to one reason or another are not using the product. There are three main tactics which a company can implement to increase market penetration. Market development strategy The market development strategy is used when the product is an existing product but the market is new. This strategy falls in quadrant 2 of the grid. A company might decide to increase its territorial reach and therefore enter a new market. The new market may have tough competitors, or it may happen that the new company may be received very positively. In either of the cases, there are three main tactics which the company can use for market development. Product development strategy Product development is used when there is a new product which has to be introduced in an existing market. It falls in quadrant 3 of the matrix. This may be done because the companies products are not selling anymore or that the company has identified new segments which it had missed before and wants to introduce new product to increase product sales. There are majorly three tactics which the company can use for Product development. Diversification strategy Diversification strategy is used when a company enters new markets with new products. In such a scenario, the demands of the new market might be different from the current markets where the company exists. Thus, the company has to bring new products in new markets and hence the

complication rises. In such a case, there are 3 different tactics which a company has to use to establish a diversification strategy. Thus, there are many tactics and 4 different strategies for market expansion. In today’s world, the most commonly used strategy is Market penetration, because the market is slowly becoming a crowded place with products being introduced daily in existing segments. However, for market leadership, companies like apple and Samsung have demonstrated that either market development or product development is needed if you want to permanently get ahead of your competition.

Porter’s Value Chain – Value Chain of Porter Michael Porter’s Value chain concept is one of the most valued concept in today’s market because the Value chain tells us how we can differentiate our products by analyzing the chain of events which occur within our company. As differentiation is very important in today’s saturated market, naturally Porter’s Value chain is being referred in a lot of management studies. What is the Porter’s value chain? The Porter’s value chain concept says that there is a chain of events which occur in a company right from the procurement of raw materials to the delivery of goods as well as the post sales service. This chain is made up of 9 steps and the process can be changed in any of the nine steps to add further value to the final product. The Porter’s value chain can be a reference model for Holistic marketing. If a company wants to add customer value in all the processes that it does, it has to refer to the Value Chain.

apple and Samsung have demonstrated that either market development or product development is needed if you want to permanently get ahead of your competition. Porter’s Value Chain – Value Chain of Porter Michael Porter’s Value chain concept is one of the most valued concept in today’s market because the Value chain tells us how we can differentiate our products by analyzing the chain of events which occur within our company. As differentiation is very import ant in today’s saturated market, naturally Porter’s Value chain is being referred in a lot of management studies. What is the Porter’s value chain? The Porter’s value chain concept says that there is a chain of events which occur in a company right from the procurement of raw materials to the delivery of goods as well as the post sales service. This chain is made up of 9 steps and the process can be changed in any of the nine steps to add further value to the final product . The Porter’s value chain can be a reference model for Holistic marketing. If a company wants to add customer value in all the processes that it does, it has to refer to the Value Chain. The Value chain of porter comprises of total 9 steps The first 5 are the primary activities which are the basics in any company and are the activities which provide strength and sustainability to the company. The remaining 4 are the support activities or also known as the secondary activities and these are used by the company for differentiation as well as maintenance of the organization. Both, the primary as well as the secondary activities are necessary for the firm to survive. " id="pdf-obj-17-38" src="pdf-obj-17-38.jpg">

The Value chain of porter comprises of total 9 steps The first 5 are the primary activities which are the basics in any company and are the activities which provide strength and sustainability to the company. The remaining 4 are the support activities or also known as the secondary activities and these are used by the company for differentiation as well as maintenance of the organization. Both, the primary as well as the secondary activities are necessary for the firm to survive.

The 9 steps of the Value Chain are explained in detail in the following article. Overall, we will discuss the primary activities and the secondary activities in relation to each other.

Primary activities of Porter’s value chain are as follows

1) Inbound logistics

Bring raw material from source to the company. The value chain can be enhanced in this step by improving the quality of raw material as well as optimizing the cost of inbound logistics.

2) Operations Converting the raw material to finished goods is the job of Operations. The customer value is increased

majorly in this step if the operations are up to mark and the product is manufactured in the right manner and meets quality standards. You can take example of Television or Air conditioners to understand the importance of Operations and manufacturing in the Value chain.

3) Outbound logistics

Sending finished goods from manufacturing point to distributors and retailers. The value chain receives a boost if the out bound logistic activities are carried out in time with optimal costs and the product is delivered to end customers with minimum affect to the quality of the product. Food products can be an example of how value can be added during outbound logistics by delivering product on time with best quality.

Product Life Cycle

A product is like a human being. It is born, grows up fast, matures and then finally passes away. The product life cycle discusses the stages which a product has to go through since the day of its birth to the day it is taken away from the market. (Image courtesy arundelstreet.com) However, the basic difference in case of human beings and products is that a product has to be killed by someone. Either the company (to bring better products) or by competition (too much external competition). There are several products in the market which have lived on since ages (Light Bulbs, Tubelights), whereas there are others which were immediately taken off the shelf (HD DVD).

needs market awareness, it may take time to launch. Characteristics of Introductory stages of Product life cycle 1. Higher investment, lesser profits 2. Minimal Competition 3. Company tries to Induce acceptance and gain initial distribution 4. Company needs Promotions targeted towards customers to increase awareness and demand for product 5. Company needs Promotions targeted towards channel to increase confidence in the product Stage 2 of Product Life Cycle – Growth of the product Once the introductory phases are over, the product starts showing better returns on investment. Your customers and channels begin responding. There is better demand in the market and slowly the product starts showing profits. This is a stage where competition may step in to squash the product before it has completely launched. Any marketing mistakes done at this stage affect the product considerably as the product is being exposed " id="pdf-obj-19-2" src="pdf-obj-19-2.jpg">

Thus the Product life cycle deals with four stages of a products life. Stage 1 of Product life cycle Introduction of the product. The stage 1 is where the product is launched. A product launch is always risky. You never know how the market will receive the product. There have been numerous failures in the past to make marketers nervous during the launch of the product. The length of the introduction stage varies according to the product. If the product is technological and receives acceptance in the market, it may come out of the introductory phase as soon as it is launched. Whereas if the product is of a different category altogether and needs market awareness, it may take time to launch. Characteristics of Introductory stages of Product life cycle

• 1. Higher investment, lesser profits

• 2. Minimal Competition

• 3. Company tries to Induce acceptance and gain initial distribution

• 4. Company needs Promotions targeted towards customers to increase awareness and demand for

product

• 5. Company needs Promotions targeted towards channel to increase confidence in the product

Stage 2 of Product Life Cycle Growth of the product Once the introductory phases are over, the product starts showing better returns on investment. Your customers and channels begin responding. There is better demand in the market and slowly the product starts showing profits. This is a stage where competition may step in to squash the product before it has completely launched. Any marketing mistakes done at this stage affect the product considerably as the product is being exposed

to the market and bad news travels fast. Thus special care has to be taken in this stage to ensure competition or bad decisions do not affect the growth stage of the product. Characteristics of Growth stage of Product life cycle

• 1. Product is successfully launched

• 2. Demand increases

• 3. Distribution increases

• 4. Competition intensifies

• 5. Company might introduce secondary products or support services.

• 6. Better revenue generation and ROI

Stage 3 of Product Life Cycle Maturity stage of the product

One of the problems associated with maturity stages in a technologically advanced environment is the problem of duplication. Not only is the product available in duplicate markets, but also there are several competing products which arise with the same features and capabilities. As a result, the USPs of the product become less attrative. Along with competition, Penetration pricing becomes a weapon for competitors. Competitors sell products with the same features at lesser prices thereby trying to penetrate in the market. Nonetheless, The sales of a product (especially sales from return customers) is at its peak point during the maturity stages. The growth of sales may be lesser, but the sales revenue of the organization is maximum during the maturity stage of product life cycle. Characteristics of Maturity stages of Product life cycle

• 1. Competition is high

• 2. Product is established and promotion expenditures are less

• 3. Little growth potential for the product

• 4. Penetration pricing, and lower profit margins

• 5. The major focus is towards extending the life cycle and maintaining market share

• 6. Converting customers product to your own is a major challenge in maturity stage

Stage 4 of Product Life Cycle Stage of decline 1 product, 10 competitors, minimum profits, huge amount of manpower and resources in use A typical scenario which a product might face in its last stage. In this stage the expenditures begin to equal the profits or worse, expenses are more than profits. Thus it becomes a typical scenario for the product to exit the market. It also becomes advantageous for the company as the company can use resources it was spending on the declining product on an altogether different project.

Characteristics of Decline stages of Product life cycle

• 1. Market is saturated

3.

Company becomes cost conscious

• 4. A lot of resources are blocked in rejuvenating the dead product.

• 5. There are only three options left with the company

Re positioning or Rebranding of the product to extend product life cycle Maintain the product as it is and reduce costs to get maximum profits till the product can produce profitsTake the product off the market.

Pricing Strategies

The only time when price setting is not a problem is when you are a “price-taker” and have to set prices at the going rate, or else sell nothing at all. This normally only occurs under near-perfect market conditions, where products are almost identical. More usually, pricing decisions are among the most difficult that a business has to make. In considering these decisions it is important to distinguish between pricing strategy and tactics. Strategy is concerned with setting prices for the first time, either for a new product or for an existing product in a new market; tactics are about changing prices. Changes can be either self-initiated (to improve profitability or as a means of promotion) or in response to outside change (i.e. in costs or the prices of a competitor). Pricing strategy should be an integral part of the market- positioning decision, which in turn depends, to a great extent, on your overall business development strategy and marketing plans. Companies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demandand costs, market-segment requirements, purchase timing, order levels, delivery frequency, guarantees, service contracts, and other factors As a result of discounts, allowances, and promotional support, a company rarely real-izes the same profit from each unit of a product that it sells. Here we will examine sev-eral price-adaptation strategies: geographical pricing, price discounts and allowances, promotional pricing, discriminatory pricing, and product-mix pricing.

positioning or Rebranding of the product to extend product life cycle Maintain the product as it is and reduce costs to get maximum profits till the product can produce profitsTake the product off the market. Pricing Strategies The only time when price setting is not a problem is when you are a “price - taker” and have to set prices at the going rate, or else sell nothing at all. This normally only occurs under near-perfect market conditions, where products are almost identical. More usually, pricing decisions are among the most difficult that a business has to make. In considering these decisions it is important to distinguish between pricing strategy and tactics. Strategy is concerned with setting prices for the first time, either for a new product or for an existing product in a new market; tactics are about changing prices. Changes can be either self-initiated (to improve profitability or as a means of promotion) or in response to outside change (i.e. in costs or the prices of a competitor). Pricing strategy should be an integral part of the market- positioning decision, which in turn depends, to a great extent, on your overall business development strategy and marketing plans. Companies usually do not set a single price, but rather a pricing structure that reflects variations in geographical demand and costs, market -segment requirements, purchase timing, order levels, delivery frequency , guarantees, service contracts, and other factors As a result of discounts, allowances, and promotional support, a company rarely real-izes the same profit from each unit of a product that it sells. Here we will examine sev-eral price-adaptation strategies: geographical pricing, price discounts and allowances, promotional pricing, discriminatory pricing, and product-mix pricing. " id="pdf-obj-21-42" src="pdf-obj-21-42.jpg">

to accept as partial payment products manufactured with the supplied equipment. A US. Chemical company built a plant for an Indian company and accepted partial payment in cash and the remainder in chemicals manufactured at the plant. Offset The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period. For example, PepsiCo sells its cola syrup to Russia for rubles and agrees to buy Russian vodka at a certain rate for sale in the United States.

Price discounts and allowances

The role of discount Offering discounts can be a useful tactic in response to aggressive competition by a competitor. However, discounting can be dangerous unless carefully controlled and conceived as part of your overall marketing strategy. Discounting is common in many industries in some it is so endemic as to render normal price lists practically meaningless. This is not to say that there is anything particularly wrong with price discounting provided that you are getting something specific that you want in return. The trouble is that, all too often, companies get themselves embroiled in a complex structure of cash, quantity and other discounts, whilst getting absolutely nothing in return except a lower profit margin. Let us look briefly at the main types of discounts common today Cash and settlement discounts These are intended to bring payments in faster. However, since such discounts need to be at least 2,5% per month to have any real effect, this means paying your customer an annual rate of interest of 30% just to get in money which is due to you anyway. What is more, customers frequently take all the discounts on offer and still do not pay promptly, so that you lose both ways. Much better, we believe, is either to eliminate these discounts altogether and introduce an efficient credit control system, or change your terms of business so that you can impose a surcharge on overdue accounts instead. Whilst you may lose some business by doing this, these will probably be the worst payers anyway. If some customers will not pay you for months you are probably better off trying to win others who will.

Quantity discounts The trouble with these is that, when formalized on a published price list, they become an established part of your pricing structure and as a result their impact can be lost. If you are not very careful, although they may have helped you win the business to start with, in the long run the only effect they have is to spoil your profit margin. As a general rule, only publish the very minimum of quantity discounts your very largest customers will probably try to negotiate something extra anyway. Also keep quantity discounts small, so that you hold something in reserve for when your customers do something extra for you, such as offering you sole supply, or as part of a special promotion. Promotional discounts These are the best kind of discounts because they enable you to retain the power

to be flexible. There may be times when you want to give an extra boost to sales to shift an old product before launching an updated one for example. At times like these special offers or promotional discounts can be useful. But try to think of unusual offers – a larger pack size for the same price or a ” five for the p [rice of four ” can often stimulate more interest than a straight percentage discount. They also make sure that the end user gets at least some of the benefit, which doesn’t always happen with other types of

Promotional Pricing strategies Companies can use several pricing techniques to stimulate early purchase:

Loss-leader pricing Supermarkets and department stores often drop the price on well Known brands to stimulate additional store traffic. This pays if the revenue on the addi-tional sales compensates for the lower margins on the) boss-leader items. Manufacturers of loss-leader brands typically object because this practice can dilute the brand image and bring complaints from retailers who charge the list price. Manufacturers have tried to restrain intermediaries from loss leader pricing through lobbying for retail-price -maintenance laws, but these laws have been revoked. Special-event pricing Sellers will establish special prices in certain seasons to draw in more customers Cash rebates Auto companies and other consumer-goods companies offer cash rebates to Encourage purchase of the manufacturers’ products within a specified time period. Rebates can help clear inventories

without cutting the stated list price.

Low-interest financing Instead of cutting its price, the company can offer customers low- interest financing. Automakers have even announced no-interest financing to attract Customers. Longer payment terms Sellers, especially mortgage banks and auto companies, stretch loans over longer periods and thus lower the monthly payments. Consumers often worry less about the cost (i.e., the interest rate) of a loan and more about whether they can afford the monthly payment. Warranties and service contracts Companies can promote sales by adding a free or low- cost warranty or service contract. Psychological discounting This strategy involves setting an artificially high price and then offering the product at substantial savings

Promotional-pricing strategies are often a zero-sum game. If they work, competitors Copy them and they lose their effectiveness. If they do not work, they waste money that could have been put into other marketing tools, such as building up product quality and service or strengthening product image through advertising. Discriminatory pricing strategies

Companies often adjust their basic price to accommodate differences in customers, products, locations, and so on. Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. In first-degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her demand. In second-degree price discrim-ination, the seller charges less to buyers who buy a larger volume. In third-degree price discrimination, the seller charges different amounts to different classes of buyers, as in the following cases:

Customer-segment pricing Different customer groups are charged different prices for the same product

or service. For example, museums often charge a lower admission fee to students and senior citizens. Product-form pricing Different versions of the product ‘are priced differently but not pro-portionately to their respective costs Image pricing Some companies price the same product two different levels based on image differences at. A perfume manufacturer can put the perfume in one bottle, give it a name and image, and price it at Rest. 50. It can put the same perfume in another bot-tle with a different name and image and price it at

Rs.200.

Channel pricing Coca-Cola carries a different price depending on whether it is purchased ill a fine restaurant, a fast-food restaurant, or a vending machine. Location pricing The same product is priced differently at different locations even though the cost of offering at each location is the same. A theater varies its seat prices according to audience preferences for different locations. Time pricing Prices are varied by season, day, or hour. Public utilities vary energy rates to commercial users by time of day and weekend versus weekday. Restaurants charge less to “early bird” customers. Hotels charge less’ on weekends. Hotels and airlines use yield pricing, by which they offer lower rates on

unsold inventory just before it expires. Coca-Cola considered raising its vending machine soda prices on

hot days using wireless technology, and lowering the price on cold days. However, customers so dis-liked the idea that Coke abandoned it. For price discrimination to work, certain conditions must exist. First, the market must be segment able and the segments must show different intensities of demand. Second, members in the lower-price segment. Must not be able to resell the product to the higher-price segment. Third, competitors must not be able to undersell the firm in the higher-price segment. Fourth, the cost of segmenting and policing the market must not exceed the extra revenue derived from price discrimination. Fifth, the practice must not breed customer resentment and ill will. Sixth, the particular form of price discrimination must not be illegal. As a result of deregulation in several industries, competitors have increased their use of discriminatory

pricing. Airlines charge different fares to passengers on the same flight, depending on the seating class; the time of day (morning or night coach); the day of the week (workday or weekend); the season; the

person’s company, past business, Of status (youth, military, senior citizen); and so on. Airlines are using

yield pricing to cap-ture as much revenue as possible. Computer technology is making it easier for sellers to practice discriminatory pric-ing. For instance, they

can use software that monitors customers’ movements over the Web and allows them to customize offers

and prices. New software applications, how-ever, are also allowing buyers to discrimi-nate between sellers by comparing prices instantaneously.

Product-mix pricing

Price-setting logic must be modified when, the product is part of a product mix. In this case, the firm searches for a set of prices that maximizes profits on the total mix. Pricing is difficult because the various products have demand and cost interrelationships and are subject to different degrees of competition. We can distinguish six situations involving product-mix pricing: product-line pricing, optional-feature pricing, captive-product pricing, two-part pricing, by-product pricing, and product-bundling pricing. Product line Pricing Companies normally develop product lines rather than sin-gle products and introduce price steps. In many lines of trade, sellers use well-established price points for the products in their line. A men’s clothing store might carry men’s suits at three price levels: Rs800, Rs.1500, and Rs.4500. Customers will associate low-, average-, and high-quality suits with the three price points. The seller’s task is to establish perceived-quality differences that justify the price differences. Optional-feature pricing Many companies offer optional products, features, and services along with their main product. The automobile buyer can order electric window controls, defoggers, light dimmers, and an extended warranty. Pricing is a sticky problem; automobiles companies must decide which items to include in the price and which to offer as options. Restaurants face a similar pricing problem. Customers can often order liquor in addition to the meal. Many restaurants price their liquor high and their food low. The food revenue covers costs, and the liquor produces the profit. This explains why servers often press hard to get customers to order drinks. Other restaurants price their liquor low and food high to draw in a drinking crowd.

Captive-product pricing Some products requires the use of ancillary, or captive, products. Manufacturers of razors and cameras often price them low and set high markups on razor blades and film, respectively. A cellular service operator may give a cellular phone free if the person commits to buying two years of phone service. Two-part pricing Service firms often engage in two-part pricing, consisting of a fixed fee plus a variable usage fee. Telephone users pay a minimum monthly fee plus charges for calls beyond the minimum number. Amusement parks charge an admission fee plus fees for rides over a certain minimum. The service firm faces a problem sin1ilar to captive -product pricing-namely, how much to charge for the basic service and how much for the variable usage. The fixed fee should be low enough to induce purchase of the ser- vice; the profit can then be made on the usage fees. By-product pricing The production of certain goods- meats, petroleum prod-ucts, and other chemicals- often results in by-products. If the by-products have value to a customer group, they should be priced on their value. Any income earned on the by-products will make it easier for the company to charge a lower price on its main product if competition forces it to do so. Product-Bundling pricing Sellers often bundle products and features. Pure bundling occurs when a firm only offers its products as a bundle. In mixed bundling, the seller offers goods both individually and in bun- dles. When offering a mixed bundle, the seller normally charges less for the bundle than if the items were purchased separately. An auto manufacturer might offer an option package at less than the cost of buying all the options separately. A theater company will price a season subscription at less than the cost of buying all the performances sepa-rately. Because customers may not have planned to buy all the components, the savings on the price bundle must be substantial enough to induce them to buy the bundle.

New Product Development

New product development is a task taken by the company to introduce newer products in the market. Regularly there will arise a need in the business for new product development. Your existing products may be technologically outdated, you have different segments to target or you want to cannibalize an existing product. In such cases, New product development is the answer for the company. There are 7 stages of new product development and they are as follows.

product development is a task taken by the company to introduce newer products in the market. Regularly there will arise a need in the business for new product development . Your existing products may be technologically outdated, you have different segments to target or you want to cannibalize an existing product. In such cases, New product development is the answer for the company. There are 7 stages of new product development and they are as follows. " id="pdf-obj-26-31" src="pdf-obj-26-31.jpg">

1) Idea generation in this you are basically involved in the systematic search for new product Ideas. A company has to generate many ideas in order to find one that is worth pursuing. The Major sources of new product ideas include internal sources, customers, competitors, distributors and suppliers. Almost 55% of all new product ideas come from internal sources according to one study. Companies like 3M and Toyota have put in special incentive programs or their employees to come up with workable ideas. Almost 28% of new product ideas come from watching and listening to customers. Customers: even create new products on their own, and companies can benefit by finding these products and putting them on the market. Example Pillsbury gets promising new products from its annual Bake-off. One of Pillsbury’s four cake mix lines and several variations of another came directly from Bake-Off winners’ recipes. 2) Idea Screening

The second step in New product development is Idea screening. The purpose of idea generation is to create a large pool of ideas. The purpose of this stage is to pare these down to those that are genuinely worth pursuing. Companies have different methods for doing this from product review committees to formal market research. It, is helpful at this stage to have a checklist that can be used to rate each idea based on the factors required for successfully launching the product in the marketplace and their relative importance. Against these, management can assess how well the idea fits with the company’s marketing skills and experience and other capabilities. Finally, the management can obtain an overall rating of the company’s

ability to launch the product successfully. 3) Concept Development and Testing The third step in New product development is Concept Development and Testing. An attractive idea has to be developed into a Product concept. As opposed to a product idea that is an idea for a product that the company can see itself marketing to customers, a product concept is a detailed version of the idea stated in meaningful consumer terms. This is different again from a product image, which is the consumers’ perception of an actual or potential product. Once the concepts are developed, these need to be tested with consumers either symbolically or physically. For some concept tests, a word or a picture may be sufficient, however, a physical presentation will increase the reliability of the concept test. After being exposed to the concept, consumers are asked to respond to it by answering a set of questions designed to help the company decide which concept has the strongest appeal. The company can then project these findings to the full market to estimate sales volume.

4) Marketing Strategy Development This is the next step in new product development. The strategy statement consists of three parts: the first part describes the target market, the planned product positioning and the sales, market share and profit goals for the first few years. The second part outlines the product’s planned price, distribution, and marketing budget for the first year. The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and the marketing mix strategy. Business Analysis Once the management has decided on the marketing strategy, it can evaluate the attractiveness of the business proposal. Business analysis involves the review of projected sales, costs and profits to find out whether they satisfy a company’s objectives. If they do, the product can move to the product development stage. 5) Product Development Here, R&D or engineering develops the product concept into a physical product. This step calls for a large investment. It will show whether the product idea can be developed into a full- fledged workable product. First, R&D will develop prototypes that will satisfy and excite customers and that can be produced quickly and at budgeted costs. When the prototypes are ready, they must be tested. Functional tests are then conducted under laboratory and field conditions to ascertain whether the product performs safely and effectively. 6) Test Marketing If the product passes the functional tests, the next step is test marketing: the stage at which the product

and the marketing program are introduced to a more realistic market settings. Test marketing gives the marketer an opportunity to tweak the marketing mix before the going into the expense of a product launch. The amount of test marketing varies with the type of product. Costs of test marketing can be enormous and it can also allow competitors to launch a “me-too” product or even sabotage the testing so that the marketer gets skewed results. Hence, at times, management may decide to do away with this stage and proceed straight to the next one:

7) Commercialization The final step in new product development is Commercialization. Introducing the product to the market it will face high costs for manufacturing and advertising and promotion. The company will have to decide on the timing of the launch (seasonality) and the location (whether regional, national or international). This depends a lot on the ability of the company to bear risk and the reach of its distribution network. Today, in order to increase speed to market, many companies are dropping this sequential approach to development and are adopting the faster, more flexible, simultaneous development approach. Under this approach, many company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness. Above was the complete process of New product development. You can also read this related article on why new product development is necessary for survival

Situation Analysis

In real life, or in corporate life, Situation analysis helps you define where you are standing currently, and what should be your actions to progress further. Situation analysis also means forecasting the results if a decision is taken in any direction. The fast changing environment and people lifestyles are demanding regular analysis to provide you with a snapshot of where your company is placed in the business environment, and to present you with the opportunities to develop and enhance growth.

forecasting the results if a decision is taken in any direction. The fast changing environment and people lifestyles are demanding regular analysis to provide you with a snapshot of where your company is placed in the business environment, and to present you with the opportunities to develop and enhance growth. No matter if you are planning to introduce a new service / product in the market, or if you are in the need of finding which are your strengths and weaknesses regarding your own company, a micro as well as macro environmental factor analysis can indicate the strategies which you should follow. This is the purpose of the Situation Analysis . Involving several methods of analysis, this concept guides businesses on how to communicate the benefits of their products to the needs of the potential customers. Being based on both the internal and external environment, the situation analysis tells you what is your organization’s and product’s position and the options that you have to develop it further. It ca n be said to be a very complex type of analysis and generally speaking, every business plan, depending on its purpose, is going to include the situational analysis concept. In this respect, you need to take a look at your current product, target market , distributor network, competitors, financial analysis and external forces. As you have probably guessed, the way to look into and evaluate those factors can be through different models. These models will offer you a structural way of thinking, in order to avoid confusion . The situation analysis, similar to the market analysis is a concept, comprising different theories such as: the 5C’s, SWOT analysis, Porter’s Five Forces and PEST Analysis . Some marketers affirm that general " id="pdf-obj-29-12" src="pdf-obj-29-12.jpg">

No matter if you are planning to introduce a new service/product in the market, or if you are in the need of finding which are your strengths and weaknesses regarding your own company, a micro as well as macro environmental factor analysis can indicate the strategies which you should follow. This is the purpose of the Situation Analysis. Involving several methods of analysis, this concept guides businesses on how to communicate the benefits of their products to the needs of the potential customers. Being based on both the internal and external environment, the situation analysis tells you what is your organization’s and product’s position and the options that you have to develop it further. It can be said to be a very complex type of analysis and generally speaking, every business plan, depending on its purpose, is going to include the situational analysis concept. In this respect, you need to take a look at your current product, target market, distributor network, competitors, financial analysis and external forces. As you have probably guessed, the way to look into and evaluate those factors can be through different models. These models will offer you a structural way of thinking, in order to avoid confusion. The situation analysis, similar to the market analysis is a concept, comprising different theories such as:

the 5C’s, SWOT analysis, Porter’s Five Forces and PEST Analysis. Some marketers affirm that general

do

well

in

but

are

not

yet

competing?

Threats Look both inside and outside of your company for things that could damage your business.

Internally, do you have financial, development, or other problems? Externally, are your competitors becoming stronger, are there emerging trends that amplify one of your weaknesses, or do you see other threats to your company’s success?

A more in-depth SWOT analysis can help you better understand your company’s competitive situation. One way to improve upon the basic SWOT is to include more detailed competitor information in the analysis. You can note the internet-related activities such as trade organization participation, search engine inclusion, and outside links to the sites. This will better help you spot opportunities for and threats to your company. You can also take a closer look at the business environment. Often, opportunities arise as a result of a changing business environment. Some examples are:

A new trend develops for which demand outstrips the supply of quality options. For example, early on, the trend toward healthy eating coupled with an insistence on good tasting food produced a shortage of acceptable natural food alternatives. Tetra pack fruit juices like Real and Onus captured on a nutritional drink opportunity. A customer segment is becoming more predominant, but their specific needs are not being fully met by

your competitors. The Indian rural markets have been experiencing this phenomenon in the recent years for many product categories. A customer, competitor, or supplier goes out of business or merges with another company. With the demise of many pure-play dot-coms, examples of this abound. As each went out of business, opportunities arise to gain the defunct business customers. Customers of bpl.net were ready customers for a company called Data Access which was operating under the NOW brand.

You can also enhance a SWOT analysis through surveys. You can learn more about your own as well as

 competitor sites and businesses. Areas you can research include 1) Customer awareness, interest, trial, and usage levels 2) Brand, site, and/or company image 3) Importance of different site or product attributes to your customers 4) Product and/or site performance.

Whether using a basic or more advanced approach to SWOT analysis, you are sure to come away with

newfound insights. Use these to increase your company’s effectiveness and as input into your business or marketing plan.

Marketing Mix – The 4 p’s of marketing The Marketing mix is a set of four decisions which needs to be taken before launching any new product. These variables are also known as the 4 P’s of marketing. These four variables help the firm in making strategic decisions necessary for the smooth running of any product / organization. If you ask What is the marketing mix? Then in summary these 4 variables comprise the Marketing mix.

• 1. Product What the company is manufacturing?

• 2. Price What is the pricing strategy used by the company?

• 3. Place Where is the company selling?

• 4. Promotions How is the company promoting the product?

What are the two types of Marketing mix? 1) Product marketing mix Comprised of Product, price, place and promotions. This marketing mix is mainly used in case of Tangible goods. 2) Service marketing mix The service marketing mix has three further variables included which are people, physical evidence and process. They are discussed in detail in the article on service marketing mix.

performance . Whether using a basic or more advanced approach to SWOT analysis, you are sure to come away with newfound insights. Use these to increase your company’s effectiveness and as input into your business or marketing plan . Marketing Mix – The 4 p’s of marketing The Marketing mix is a set of four decisions which needs to be taken before launching any new product . These variables are also known as the 4 P’s of marketing . These four variables help the firm in making strategic decisions necessary for the smooth running of any product / organization. If you ask What is the marketing mix? Then in summary these 4 variables comprise the Marketing mix. 1. Product – What the company is manufacturing? 2. Price – What is the pricing strategy used by the company? 3. Place – Where is the company selling? 4. Promotions – How is the company promoting the product? What are the two types of Marketing mix? 1) Product marketing mix – Comprised of Product, price, place and promotions. This marketing mix is mainly used in case of Tangible goods . 2) Service marketing mix – The service marketing mix has three further variables included which are people , physical evidence and process. They are discussed in detail in the article o n service marketing mix . " id="pdf-obj-32-122" src="pdf-obj-32-122.jpg">

The term marketing mix was first coined by Neil H Borden back in 1964 in his article “The concept of marketing mix”. Several strategic analysts over the years believe that the marketing mix can make or break the firm. Having the right marketing mix at the start of the marketing plan is absolutely essential. Over time the concept of marketing mix has provided a steady platform for the launch of a new product or business. As mentioned before, the marketing mix is characterized by four different but equally important variables. These variables are never constant and may be changed over time. However, a change in one of the variables may cause a change in all the other variables as well.

The Variables of Marketing mix are as follows

1) Product in the Marketing mix The first thing you need, if you want to start a business, is a product. Therefore Product is also the first variable in the marketing mix. Product decisions are the first decisions you need to take before making any marketing plan. A product can be divided into three parts. The core product, the augmented product and the tertiary product. Before deciding on the product component there are some questions which you need to ask yourself.

  What product are you selling?  What would be the quality of your product?  Which features are different from the market?  What is the USP of the product?  Whether the product will be branded as sub brand or completely new?  What are the secondary products which can be sold along with primary (Warranty,

services) Based on these questions, several product decisions have to be made. These product decisions will in

turn affect the other variables of the mix. For example You plan on launching a car which will have the highest quality. Thus the pricing, promotions and placing would have to be altered accordingly. Thus as long as you dont know your product, you cannot decide any other variable of the marketing mix. However, if the product features are not fitting in the mix, you can alter the product such that it finds a place for itself in the marketing mix. 2) Pricing in the Marketing mix Pricing of a product depends on a lot of different variables and hence it is constantly updated. Major consideration in pricing is the costing of the product, the advertising and marketing expenses, any price fluctuations in the market, distribution costs etc. Many of these factors can change separately. Thus the pricing has to be such that it can bear the brunt of changes for a certain period of time. However, if all these variables change, then the pricing of a product has to be increased and decreased accordingly. Along with the above factors, there are also other things which have to be taken in consideration when deciding on a pricing strategy. Competition can be the best example. Similarly, pricing also affects

the targeting and positioning of a product. Pricing is

used for sales promotions in the form

discounts. Thus based on these factors there are several pricing strategies, one of which is implemented for the marketing mix. 3) Place in the Marketing mix Place refers to the distribution channel of a product. If a product is a consumer product, it needs to be available as far and wide as possible. On the other hand, if the product is a Premium consumer product, it will be available only in select stores. Similarly, if the product is a business product, you need a team which interacts with businesses and makes the product available to them. Thus the place where the product is distributed, depends on the product and pricing decisions, as well as any STP decisions taken by a firm. Distribution has a huge affect on the profitability of a product. Consider a FMCG company which has national distribution for its product. An increase in petrol rates by 10 rs will in fact bring about drastic changes in the profitability of the company. Thus supply chain and logistics decisions are considered as very important costing decisions of the firm. The firm needs to have a full proof logistics and supply chain plan for its distribution. 4) Promotions in the Marketing mix Promotions in the marketing mix includes the complete integrated marketing communicationswhich in turn includes ATL and BTL advertising as well as sales promotions. Promotions are dependent a lot on the product and pricing decision. What is the budget for marketing and advertising? What stage is the product in? If the product is completely new in the market, it needs brand / product awareness promotions, whereas if the product is already existing then it will need brand recall promotions. Promotions also decide the segmentation targeting and positioning of the product. The right kind of promotions affect all the other three variables the product, price and place. If the promotions are effective, you might have to increase distribution points, you might get to increase the price because of the rising brand equity of the product, and the profitability might support you in launching even more products. However, the budget required for extensive promotions is also high. Promotions is considered as marketing expenses and the same needs to be taken in consideration while deciding the costing of the product.

distribution channel of a product. If a product is a consumer product, it needs to be available as far and wide as possible. On the other hand, if the product is a Premium consumer product , it will be available only in select stores. Similarly, if the product is a business product, you need a team which interacts with businesses and makes the product available to them. Thus the place where the product is distributed, depends on the product and pricing decisions, as well as any STP decisions taken by a firm. Distribution has a huge affect on the profitability of a product. Consider a FMCG company which has national distribution for its product. An increase in petrol rates by 10 rs will in fact bring about drastic changes in the profitability of the company. Thus supply chain and logistics decisions are considered as very important costing decisions of the firm. The firm needs to have a full proof logistics and supply chain plan for its distribution. 4) Promotions in the Marketing mix Promotions in the marketing mix includes the complete integrated marketing communications w hich in turn includes ATL and BTL advertising as well as sales promotions. Promotions are dependent a lot on the product and pricing decision . What is the budget for marketing and advertising? What stage is the product in? If the product is completely new in the market, it needs brand / product awareness promotions, whereas if the product is already existing then it will need brand recall promotions. Promotions also decide the segmentation targeting and positioning of the product. The right kind of promotions affect all the other three variables – the product, price and place. If the promotions are effective, you might have to increase distribution points, you might get to increase the price because of the rising brand equity of the product, and the profitability might support you in launching even more products. However, the budget required for extensive promotions is also high. Promotions is considered as marketing expenses and the same needs to be taken in consideration while deciding the costing of the product. " id="pdf-obj-34-44" src="pdf-obj-34-44.jpg">

Thus as we see from the above diagram, all the four variables of marketing mix are inter related and affect each other. By increasing the pricing of the product, demand of the product might lessen, and lesser distribution points might be needed. On the other hand, the product USP can be such that maximum concentration is on creating brand awareness, thereby increasing need of better pricing and more promotions. Finally, the overall marketing mix can result in your customer base asking for some improvement in the product, and the same can be launched as the upgraded product.

The role of Marketing mix in Strategy Marketing mix plays a crucial role while deciding the strategy of an organization. It is the first step even when a marketing plan or a business plan is being made. This is because, your marketing mix decision will also affect segmentation, targeting and positioning decisions. Based on products, segmentation and targeting will be done. Based on the price, positioning can be decided. And these decisions will likely affect the place and promotion decisions. Thus, the marketing mix strategy goes hand in hand with segmentation targeting and positioning. The above four P’s of marketing give you an overall look at the product marketing mix. If your product is a service offering then there are 3 further P’s taken into consideration namely – people, physical evidence and process. For the same, you can refer the Service marketing mix.

Service Marketing Mix – 7 P’s of marketing

The service marketing mix is also known as an extended marketing mix and is an integral part of a service blueprint design. The service marketing mix consists of 7 P’s as compared to the 4 P’s of a product marketing mix. Simply said, the service marketing mix assumes the service as a productitself. However it adds 3 more P’s which are required for optimum service delivery. The product marketing mix consists of the 4 P’s which are Product, Pricing, Promotions and Placement. These are discussed in my article on product marketing mix – the 4 P’s. The extended service marketing mix places 3 further P’s which include People, Process and Physical evidence. All of these factors are necessary for optimum service delivery. Let us discuss the same in further detail.

demand of the product might lessen, and lesser distribution points might be needed. On the other hand, the product USP can be such that maximum concentration is on creating brand awareness , thereby increasing need of better pricing and more promotions. Finally, the overall marketing mix can result in your customer base asking for some improvement in the product, and the same can be launched as the upgraded product. The role of Marketing mix in Strategy Marketing mix plays a crucial role while deciding the strategy of an organization. It is the first step even when a marketing plan or a business plan is being made. This is because, your marketing mix decision will also affect segmentation, targeting and positioning decisions. Based on products, segmentation and targeting will be done. Based on the price, positioning can be decided. And these decisions will likely affect the place and promotion decisions. Thus, the marketing mix strategy goes hand in hand with segmentation targeting and positioning . The above four P’s of marketing give you an overall look at the product marketing mix. If your product is a service offering then there are 3 further P’s taken into consideration namely – people, physical evidence and process. For the same, you can refer the Service marketing mix . Service Marketing Mix – 7 P’s of marketing The service marketing mix is also known as an extended marketing mix and is an integral part of a service blueprint design. The service marketing mix consists of 7 P’s as compared to the 4 P’s of a product marketing mix . Simply said, the service marketing mix assumes the service as a product i tself. However it adds 3 more P’s which are required for optimum service delivery . The product marketing mix consists of the 4 P’s which are Product , Pricing , Promotions and Placement. These are discussed in my article on product marketing mix – the 4 P’s. The extended service marketing mix places 3 further P’s which include People , Process and Physical evidence . All of these factors are necessary for optimum service delivery. Let us discuss the same in further detail. " id="pdf-obj-35-66" src="pdf-obj-35-66.jpg">

1) Product

The product in service marketing mix is intangible in nature. Like physical products such as a soap or a detergent, service products cannot be measured. Tourism industry or the education industry can be an excellent example. At the same time service products are heterogenous, perishable and cannot be owned. The service product thus has to be designed with care. Generally service blue printing is done to define the service product. For example a restaurant blue print will be prepared before establishing a restaurant business. This service blue print defines exactly how the product (in this case the restaurant) is going to be.

2) Place Place in case of services determine where is the service product going to be located. The best place to open up a petrol pump is on the highway or in the city. A place where there is minimum traffic is a wrong location to start a petrol pump. Similarly a software company will be better placed in a business hub with a lot of companies nearby rather than being placed in a town or rural area. Read more about the role of business locations or Place element. 3) Promotion

Promotions have become a critical factor in the service marketing mix. Services are easy to be duplicated and hence it is generally the brand which sets a service apart from its counterpart. You will find a lot of banks and telecom companies promoting themselves rigorously. Why is that? It is because competition in this service sector is generally high and promotions is necessary to survive. Thus banks, IT companies, and dotcoms place themselves above the rest by advertising or promotions.

4) Pricing

Pricing in case of services is rather more difficult than in case of products. If you were a restaurant owner, you can price people only for the food you are serving. But then who will pay for the nice ambiance you have built up for your customers? Who will pay for the band you have for music? Thus these elements have to be taken into consideration while costing. Generally service pricing involves taking into consideration labor, material cost and overhead costs. By adding a profit mark up you get your final service pricing. You can also read about pricing strategies. Here on we start towards the extended service marketing mix.

5) People

People is one of the elements of service marketing mix. People define a service. If you have an IT company, your software engineers define you. If you have a restaurant, your chef and service staff defines you. If you are into banking, employees in your branch and their behavior towards customers defines you. In case of service marketing, people can make or break an organization.

Thus many companies nowadays are involved into specially getting their staff trained in interpersonal skills

and customer service with a focus towards customer satisfaction. In fact many companies have to undergo accreditation to show that their staff is better than the rest. Definitely a USP in case of services. 6) Process

Service process is the way in which a service is delivered to the end customer. Lets take the example of two very good companies Mcdonalds and Fedex. Both the companies thrive on their quick service and the reason they can do that is their confidence on their processes. On top of it, the demand of these services is such that they have to deliver optimally without a loss in quality. Thus the process of a service company in delivering its product is of utmost importance. It is also a critical component in the service blueprint, wherein before establishing the service, the company defines exactly what should be the process of the service product reaching the end customer.

7) Physical Evidence The last element in the service marketing mix is a very important element. As said before, services are intangible in nature. However, to create a better customer experience tangible elements are also delivered with the service. Take an example of a restaurant which has only chairs and tables and good food, or a restaurant which has ambient lighting, nice music along with good seating arrangement and this also serves good food. Which one will you prefer? The one with the nice ambience. That’s physical evidence. Several times, physical evidence is used as a differentiator in service marketing. Imagine a private hospital and a government hospital. A private hospital will have plush offices and well dressed staff. Same cannot be said for a government hospital. Thus physical evidence acts as a differentiator. So next time some one asks what do you mean by service marketing mix or What are the 7 P’s, then you know the answer. This is the service marketing mix (7p) which is also known as the extended marketing mix.

7 steps of competitor analysis

Competitor analysis is absolutely essential if you have to grow in a competitive market. It is becoming increasingly important because of rise in competition in each and every sector. Whether electronics, automobiles or FMCG, each sector today is facing immense competition affecting margins and sales. Thus there are some critical steps to be followed by these organizations to outperform their competition. However, they will be able to stand out only when they KNOW their competition. This is where the step by step competition analysis comes in the picture. Here are the 7 steps for competitor analysis 1) Identify current and future competitors in the market The best way to identify current and future competitors is to analyse your target products. Supposing you are currently selling hair oil. You need to know how many branded and unbranded players are there in the

market. You need to know if any new company is starting to sell Hair oil or if any current company might stop selling the same. Furthermore, you also need to know how many of your customers prefer some other product over Hair oil. Thus by doing this you know your direct and indirect competition. This is the first step in competition analysis.

6) Execute strategies Quite simple. Execute the strategies which you think are the best and make sure of executing them effectively. There is no meaning of going to such an effort to analyse a competition and then fail at the implementation part. At the same time, it is very important to have a contingency plan and to anticipate your competitors reaction. If your competitor reacts too strongly, put the contingency plan in place to avoid any long term affects to the brand / product. This might cause you to lose the advantage of surprise, but it definitely gives you more chances to form even better strategies (To be truthful, very few companies have actually gotten their strategies “spot on” the first time itself). Thus contingency plans while executing strategies is very important. 7) Follow up Statistics are always useful for a firm and help the firm in practical decision making. Thus by following up you are making sure of quantitatively and qualitatively measuring the response to the executed strategy. Ideally, the same should be documented so that future generations of marketers may know the earlier strategies implemented and might be able to revive the same through different angles. At the same time, you might actually execute a strategy which gets excellent response from customers. In these cases too, you need to stick with the same strategy for a longer time and in such cases, it is crucial to have the feedback from your customers so as to know at all times whether the strategies are working effectively. Thus follow up is essential for long term competitor analysis. In the end, whatever strategies you make, your competitor is going to respond. Thus competitor analysis needs implementation and updation from time to time. There are very few industries in which there are only 34 players. In fact, major industries are characterized by as many as 1020 different competitors (branded, unbranded, direct, indirect). Thus competitor analysis helps you in pin pointing your current standing in the market and the future direction

Competitive profile matrix and analysis

In a complete ongoing process of globalization, business is required to keep pace with the fast changing systems. In order to remain competitive, companies need to evaluate their competitive advantages. Various strategic models such as Porter’s generic strategies, SWOT or Porter’s five forces need to be updated to the current factors shaping the business environment. Therefore, big companies such as Microsoft, Lego, Arla Foods, Nestle, Ikea, have been basing their strategies by conducting bench marking. A useful tool that can help in evaluating the strengths and weaknesses of the company is the competitive profile matrix also known as the CPM matrix.

Through the competitive profile matrix, companies can find out which are the areas where they need to be strong in, and which are the ones where they need to improve. They can do this by analyzing their main competitors in the market and asses them based on several success specific factors. These factors, on

which the analysis is made, depend greatly on the industry in which the company is operating. Such factors could be: market share, range of products, brand reputation, etc. Steps in developing a competitive profile matrix

If you want to develop a competitive profile matrix, the first step is to define your competitors. Once you

have finalized the competitors you are going to focus on, you need to decide the most important factors which are needed to be successful in the respective industry. Once these factors are identified, you need to identify the factors in which your competitors are strong or weak. Once you have decided a factor for making the matrix, than for each factor, a weight and a rank is going to be assigned. The weight can range from 0.0(low importance) to 1.0 (high importance) and indicates how important the factor is for succeeding in the industry. The ratings present how well are companies doing in each area and it ranges from 4 to 1, from the highest strength to the highest weakness. Afterwards, the weight is multiplied by the rank, resulting the score. The company with the highest score proves to be stronger than its competitors. This identification and the subsequent classification of the factors will give you a fair reading of your competitive profile in the market as well as the competitive profile of other competitors. This will help you define your exact competitive advantages and tailor your strategy accordingly. Thus, the competitive profile matrix paves the way for you to overtake your competition.

Let’s take an example of the competitive profile matrix with the company Arla Foods, which is the largest

producer of dairy products in Scandinavia. As the company has been expanding greatly in Scandinavia, holding approximately 85% of the market share in this region, they continued to follow their expansion also in Europe and in Africa. Africa represents a great challenge for them as the way business is conducted on this continent differs greatly when compared to the others. One of their current plans is to approach the East African market through milk powder initially. The thing that they have taken into consideration consists in mapping all the potential direct competitors for the small sachets of milk powder. Following a market research, they have identified that in Tanzania, the primary focus country, there are two main direct competitors: Cowbell (a Swiss manufacturing company) and Moregold (a Tanzanian milk powder company). The research was done with the help of a Competitive profile matrix which is shown below. As you can see, the factors selected for the dairy industry were brand reputation, market share, low cost structure, variety of distribution channels and others. All of these factors were weighted and a score was calculated. This score showed that both Cowbell and MoreGold were very strong competitors in the market for Arla foods.

decision making . However, as many other business models of strategy, the competitive profile matrix it has its own drawbacks. The main drawback consists in the subjectivity of the person conducting the analysis, as the weights and ranks differ on personal interpretation, assumptions values and beliefs. The lack of quantified data is another major disadvantage of this tool, as the disadvantage in one factor can be paid off by an advantage in another one. Lack of information can also create difficulties in this analysis, as gaining access to this kind of private information can prove to be rather difficult. Therefore, the CPM should be used as an orientation tool for getting a bird’s eye view on the point where your company is standing as compared to your competitors. AIDAS theory of selling The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across numerous organizations. AIDAS stands for Attention, Interest, Desire, Action, Satisfaction. The AIDAS theory simply states that a prospect goes through five different stages before finally responding satisfactorily to our product . thus he should be led comfortably through all five stages. " id="pdf-obj-41-2" src="pdf-obj-41-2.jpg">

The competitive profile matrix or CPM matrix is used as a tool in decision making. However, as many other business models of strategy, the competitive profile matrix it has its own drawbacks. The main drawback consists in the subjectivity of the person conducting the analysis, as the weights and ranks differ on personal interpretation, assumptions values and beliefs. The lack of quantified data is another major disadvantage of this tool, as the disadvantage in one factor can be paid off by an advantage in another one. Lack of information can also create difficulties in this analysis, as gaining access to this kind of private information can prove to be rather difficult. Therefore, the CPM should be used as an orientation tool for getting a bird’s eye view on the point where your company is standing as compared to your competitors.

AIDAS theory of selling

The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across numerous organizations. AIDAS stands for Attention, Interest, Desire, Action, Satisfaction. The AIDAS theory simply states that a prospect goes through five different stages before finally responding satisfactorily to our product. thus he should be led comfortably through all five stages.

decision making . However, as many other business models of strategy, the competitive profile matrix it has its own drawbacks. The main drawback consists in the subjectivity of the person conducting the analysis, as the weights and ranks differ on personal interpretation, assumptions values and beliefs. The lack of quantified data is another major disadvantage of this tool, as the disadvantage in one factor can be paid off by an advantage in another one. Lack of information can also create difficulties in this analysis, as gaining access to this kind of private information can prove to be rather difficult. Therefore, the CPM should be used as an orientation tool for getting a bird’s eye view on the point where your company is standing as compared to your competitors. AIDAS theory of selling The AIDAS theory of selling is one of the widest known theories and is the basis for training materials across numerous organizations. AIDAS stands for Attention, Interest, Desire, Action, Satisfaction. The AIDAS theory simply states that a prospect goes through five different stages before finally responding satisfactorily to our product . thus he should be led comfortably through all five stages. " id="pdf-obj-41-22" src="pdf-obj-41-22.jpg">

money and expect good service, he expects the same too. So even after he has bought the product, you

need to reassure the customer that he has made the right decision. The product is good for the customer and you only presented the product. It was his decision and he is right about it. These small cues post the sales process really give confidence to the customer and he then looks forward to your product rather than thinking whether or not he has made the right decision. Learn more about measuring customer satisfaction. Hope you liked the AIDAS theory. Get more satisfied by subscribing to our newsletter or our feeds and

following us daily with new articles on marketing and sales. Trust me. I wont stand up and shout “Fooled ya” :)

PESTLE analysis

PEST analysis is considered a useful scanning tool for identifying the relevant political, economic , social and technological factors from the external environment . These factors can represent threats or opportunities as well as challenges arising from the external environment, which can greatly influence your decision making . To read more on PEST analysis , click here . A more complete version of PEST Analysis is PESTLE analysis. The upgradation of PESTLE analysis involves two new factors: the legislative and the environmental components. Initially, the legislative factors were included in the political and economic environment. However, as society is developing by leaps and bounds, legal factors have a critical role to play in decision making. Similarly, environmental hazards have increased after the industrial revolution. And expanding businesses also have their own effects on the environment. Thus, where environment was considered to be included in the technological section, it began to be treated separately and had its own standing. We have seen that with groups like PETA, WWF, Greenpeace and others in full flow, there is an increasing demand for better environmental conditions with business expansion . These environmental groups cannot be ignored. What exactly do the legal and the environmental factors of PESTLE analysis consist of? For this, let us go through all the various factors in PESTLE " id="pdf-obj-43-4" src="pdf-obj-43-4.jpg">

As we already mentioned in a previous article, the PEST analysis is considered a useful scanning tool for identifying the relevant political, economic, social and technological factors from the external environment. These factors can represent threats or opportunities as well as challenges arising from the external environment, which can greatly influence your decision making. To read more on PEST analysis, click here. A more complete version of PEST Analysis is PESTLE analysis. The upgradation of PESTLE analysis involves two new factors: the legislative and the environmental components. Initially, the legislative factors were included in the political and economic environment. However, as society is developing by leaps and bounds, legal factors have a critical role to play in decision making. Similarly, environmental hazards have increased after the industrial revolution. And expanding businesses also have their own effects on the environment. Thus, where environment was considered to be included in the technological section, it began to be treated separately and had its own standing. We have seen that with groups like PETA, WWF, Greenpeace and others in full flow, there is an increasing demand for better environmental conditions with business expansion. These environmental groups cannot be ignored. What exactly do the legal and the environmental factors of PESTLE analysis consist of? For this, let us go through all the various factors in PESTLE

  STEP  STEEP (where one of the factors is economic and the other one is ethics)

SLEPT STEEPLED(social-technological-environmental-political-legislative-ethical-demographical) LONGPEST (local-national-global factors-PEST) PESTLE analysis also represents a very useful tool in determining your competitive advantage. However, it is not to be forgotten that this is an external analysis tool which helps in strategic planning, being part of situation analysis. But if left alone, the only result you will get is just an overview of the environment of the industry in which your company operates.

SMART Objectives

The SMART objectives are a part of Management by objectives concept introduced by Peter Drucker. The SMART objectives are used regularly by companies to give goals and objectives to their employees. It is important to note that SMART objectives start with the word Specific. Thus the SMART objective helps the manager or the company to give their team as specific an objective as possible. The SMART objectives has a full form which is Specific, measurable, assignable, realistic and Time related. The best way to understand SMART objectives is to look at sales planning. The concept of SMART objectives is explained below by taking an example at sales planning. Let us say that a sales manager has given their team a target of Rs 1 crore to be achieved in the next 1 year. So how do we break down each concept of the SMART objectives?

- ethical - demographical)  LONGPEST (local-national-global factors-PEST) PESTLE analysis also represents a very useful tool in determining your competitive advantage . However, it is not to be forgotten that this is an external analysis tool which helps in strategic planning , being part of situation analysis . But if left alone, the only result you will get is just an overview of the environment of the industry in which your company operates.  SMART Objectives The SMART objectives are a part of Management by objectives concept introduced by Peter Drucker. The SMART objectives are used regularly by companies to give goals and objectives to their employees. It is important to note that SMART objectives start with the word – Specific. Thus the SMART objective helps the manager or the company to give their team as specific an objective as possible. The SMART objectives has a full form which is – Specific, measurable, assignable, realistic and Time related. The best way to understand SMART objectives is to look at sales planning . The concept of SMART objectives is explained below by taking an example at sales planning . Let us say that a sales manager has given their team a target of Rs 1 crore to be achieved in the next 1 year. So how do we break down each concept of the SMART objectives? S – Specific – The Specific in SMART states that the objective should be specific. In the above example of sales planning, the objective given by the sales manager is very specific. He has given a target of 1 crore. Thus the first condition of SMART objective is met. If the sales manager would have said that the team needs to achieve as much sales as possible by them, then the SMART objective setting has failed. " id="pdf-obj-45-41" src="pdf-obj-45-41.jpg">

S Specific The Specific in SMART states that the objective should be specific. In the above example of sales planning, the objective given by the sales manager is very specific. He has given a target of 1 crore. Thus the first condition of SMART objective is met. If the sales manager would have said that the team needs to achieve as much sales as possible by them, then the SMART objective setting has failed.

M Measurable SMART objectives, or for that matter any objective, needs to be measurable. The intent is to know whether the objective is on track or improvement is required. The SMART objective given in the above example is measurable. The team has to achieve 1 crore of target. Thus, if 80 lakhs is achieved, than the team has under achieved with 20% loss. If 1.2 crore is achieved, than the team has over achieved with 20% gain. Thus the SMART objective given is very much measurable. A Assignable The SMART objective needs to be assigned to someone. A business man might target 40% growth this year. However, for the growth, he needs to assign the objectives to someone. It may be his finance team, his sales team or his production team. In the above sales planning example, the sales manager has assigned a specific and measurable target to his sales team. It is the sales team who will help achieve the SMART objectives. R Realistic The SMART objective needs to be realistic. The objective should not be what you want, the objective should be what you can achieve. Thus, in the above example, if last year the total sales of the organization was 40 lakhs, than the demand by the sales manager to achieve 1 crore this year is an unrealistic demand. In this case, there is no use of the SMART objective as the objective is likely to fail. In the unlikely event that the objective is too far fetched, there needs to be a justification as to why these unrealistic figures are kept on the table. Time related Goals are kept only by keeping a time limit. Similarly SMART objectives need to have the element of time involved. In the above case, if the sales manager had said that you need to achieve 1 crore sales but time had not been specified, the sales team can show the 1 crore sales figure in the next 100 years. This is because no time related target has been given. Hence, there would be no urgency in achieving the objective. Similarly, in production if you give a target to the production team but do not mention the time in which products are needed, you are likely to delay the production. Thus, SMART objective needs to clearly specify the time and it needs to be time related. It makes business sense for an organization to regularly use the SMART objectives. Remember that SMART objectives also need feedback. Only after taking feedback can you know whether the SMART objectives have been achieved or not. If you are a manager, the SMART objectives need to be established in several places at once and the feedback taken. Examples for SMART objectives in various organizations are as follows.

 Sales – Achieve the given target in a specified time period. Communications – Ensure that the proper ATL and BTL activities are carried out on timely basis as planned by the management. Logistics SMART objectives – Deliver the goods as per terms and conditions. Ensure that the goods are delivered in proper condition.

Commercial Manage accounts properly on a quarterly or annual basis. Submit the accounts to the

accounting team for analysis on a time basis.

All of the above are SMART objectives followed by various departments in an organization. Thus each of the department is being led through management by objectives for which SMART objectives is a very useful tool.

5 steps in consumer buying behavior

A consumer takes decisions based on many criteria. However, the triggers of consumer purchases happen much before the actual purchase itself. This is where marketing plays its part. Marketing & Advertising look to change or affect the consumer buying behavior, so that the consumer prefers buying the product of a company he is well aware of (and one which has been well marketed). However, if you want to look at the consumer buying behavior of the 21st century, you have to acknowledge that consumerism is playing a major role in their decision making. The consumers are getting used to their regular brands and they hardly shift from these brands. Accordingly, there are three levels of involvement of a consumer towards the purchase of a brand. Depending on these levels of involvement, consumer buying behavior may vary. Step 1 of consumer buying behavior Problem recognition It all starts when a customer realizes a need or a problem. When you are in college, your need is for courses which throw light on specific subjects. This is why the education sector is thriving. There are specific needs of customers some requiring science classes, others math. As you move on from college to a professional life, your needs, wants and demands change. You may want better clothes, a car, a house and all the comfort and amenities that money can provide. When you get married, you will be looking for vacations as well as investment and saving options. So on and so forth, you get the drift. In all stages of life, humans are customers of one company or another. And they keep having more requirements and needs which have to be fulfilled. These requirements may be low involvement ones, or high involvement ones. The first step of consumer buying behavior starts when the customer realizes that he wants or needs something. Step 2 of consumer buying behavior Information search

Let us continue the above example to understand the 2nd step of consumer buying behavior. When you

are in college and you need extra courses, don’t you search for all the alternatives out there? The different

classes and tutorials which teach different subjects? Similarly, don’t get me started on the level of options available for youngsters, bachelors as well as married people. Clothes, cars, shoes, whatever product you may pick, has ample options available for customers, in terms of brand as well as in terms of product differentiation.

products in which the customer gains information for the first time, but after that, because of the low involvement of the purchase, this step is ignored completely. My favorite toothpaste is Colgate . But every time i have to buy toothpaste, i don’t check the advantages of buying Pepsodent or Sensodyne. I buy Colgate. So, the extent of information search depends completely on the level of involvement of customers in the purchase. The major source of information for customers, and the sources which influence consumer buying behavior heavily are – Friends, commercials & advertisements, Public and experience. Step 3 of consumer buying behavior – Evaluation of alternatives The best way to explain the evaluation of alternatives is the image below. As seen in the image, the total brands considered in the start by the customer are 5. Whereas, he has finalized 1 brand in the end. This means, that there are 80% brands which are rejected by customer. Now this is just a simple example. But this is what is happening in the real market. Brands are being rejected by customers based on a number of aspects such as price, features, color, benefits etc. " id="pdf-obj-48-20" src="pdf-obj-48-20.jpg">

As seen in the image, the total brands considered in the start by the customer are 5. Whereas, he has finalized 1 brand in the end. This means, that there are 80% brands which are rejected by customer. Now this is just a simple example. But this is what is happening in the real market. Brands are being rejected by customers based on a number of aspects such as price, features, color, benefits etc.

So, when a customer has all the information, he starts considering the alternatives and weighs the factors against each other. This is where many of the E-commerce companies benefited in the long run. A store executive, who was not well informed, was unable to give all the information to consumers. What the E-commerce companies did was allow comparisons between multiple products, thereby allowing consumers to evaluate alternatives while from the comfort of their home or office. Naturally, with such insight into consumer buying behavior, online purchases increased because consumers were able to compare between products, evaluate the alternatives and make purchase decisions accordingly. It is important that i also mention the various factors which influence the evaluation of alternatives as well. For example the above image has only sports shoes brands which the customer is considering. However, if the customer wanted to purchase formal shoes, his consideration of brands would have changed. Thus, customers current needs, his financial standing, psychography and many such things influence the alternatives which the customer will consider. Step 4 of consumer buying behavior Purchase This is the simplest stage of the consumer buying behavior. Or is it? If purchase was so simple, there would not be a line of men in a ladies retail store, sitting idly when women make their decision on which dresses to buy. So the purchase decision is not easy.

Once the consumer has considered the alternatives of each brand in his kitty, he will then have his own internal stuggle as to factors which are important and factors which are not. So, while buying shoes, one customer might think that the looks of the shoes are the most important, whereas other might think that he needs a light shoe, which is light on his feet and hence can help him while jogging or running. This purchase is again influenced by many factors which also played its role in the evaluation of alternatives. For example our dear customer does not have a good financial standing. In that case, he will never consider shoes like Adidas, Reebok or even Lee Cooper. He will consider local made shoes which fit in his budget. Secondly, if the climate changes and the customer is faced with upcoming summers or winters, then again his purchase decisions will change based on the current situation. In essence, the customer considers all the alternatives, chooses which factors are most important to him as per the situation, and then finally makes the purchase decision. The purchase of the product, depends on the values, attitude and lifestyle which defines the customer. Step 5 of consumer buying behavior Post purchase behavior. The whole prospect of customer relationship management software’s as well as the concept in itself, is

based on post purchase behavior. Marketers want their customers to be happy even after the purchase of the product. If the customer is not happy, he is likely to leave the product or bad mouth it. Worse, if there

are issues in the product, the customer can go legal and spoil the name of the brand.

Hence, many companies take proactive steps in keeping customers satisfied or even delighted so that they are happy with the brand and don’t switch. Above is an image of Duracell Ultra which allows customers to check their battery levels while using the battery. Similarly, Oral B, has indicators which indicate when the toothbrush has crossed its expiry date.

These are tactics that ensure that post purchase, the customer remains happy. Many automobilemanufacturers nowadays have their own second hand purchase showrooms. This is because they know that post purchase, customer will like to sell their existing cars after a certain period of time. At the same time, there are other customers who are ready to buy second hand cars. So why not help both by having an authorized resale counter? Hence, the use of CRM is very common to influence consumer buying behavior. I love it when i call Domino’s and they have my address and number saved. I don’t have to repeat it each time. I also love it,

when they remind me of any offers that are currently going on (i am a pizza fan). Overall, these 5 stages of consumer buying behavior are stages each customer goes through when they are purchasing a product. The most vulnerable stage for the customer is the evaluation of alternatives. At this stage, the customer can be influenced the most, and hence most sales people are required to be communicative and charming, so that they can influence customers at this stage. To take the perfect example, a single line at the McDonalds billing counter, “Would you like to have some

fries with it” has given a turnover of millions to the company. Just before buying the burger, the customer is

thinking whether he should buy the french fries or not. A poke by the executive, helps him make his decision (And being the junk food addicts that we are, we mostly say yes)

Vals Values attitude lifestyle

Vals

which

is

also

known

as values

attitude

and

lifestyle is

one

of

the

primary ways to

perform psychographic segmentation. All three terms are intangible in nature and therefore give an idea of the inert nature of the consumer. If you know what your consumer is thinking, you would know what kind of promotions or communications will attract him most. And how do you know what the consumer is thinking? By determining his vals Values, attitudes and lifestyle. VALS is different for different people. Lets take income as an example. If you are a person with high income your lifestyle would probably include habits of the SEC A class such as dining out of home frequently and that too in top class restaurants, wearing only branded clothes and buying the best cars out there. Whereas if you are a middle class income group consumer, you would be more wary of spending money and would rather concentrate on savings. So now how does VALS affect a marketer? Lets say you were a banker. What would you sell someone who had a high income lifestyle? You would sell them investment options and would also dedicate a relationship manager to take care of their needs. In fact, the bankers also have a term for high income individuals known

as HNI high networth individuals. But, if your lifestyle was that of a low income customer, you are more likely to be targeted for savings History of the term VALS VALS is actually a proprietary term of SRI international. The term was developed by Social scientist and futurist Arnold mitchell. Arnold mitchell actually developed the vals framework to determine different classes of people who had varying values, attitudes and lifestyle. These people were determined by the resources they had at their disposal as well as the amount of primary innovation they could accept or create. Thus the people with low resources were low on innovation and the ones with higher resources were higher in innovation. This formed the basis of the VALS framework.

The VALS framework

international . The term was developed by Social scientist and futurist Arnold mitchell. Arnold mitchell actually developed the vals framework to determine different classes of people who had varying values, attitudes and lifestyle. These people were determined by the resources they had at their disposal as well as the amount of primary innovation they could accept or create. Thus the people with low resources were low on innovation and the ones with higher resources were higher in innovation. This formed the basis of the VALS framework. The VALS framework Image source – SRI International As mentioned in the history of VALS, The VALS framework was developed keeping a consumers resources as well as his capacity to accept innovation in mind. The X axis consisted of primary motivation (explained below) and the Y axis consisted of resources such as income, education, confidence etc. Thus these two factors were determined to be critical to define the values attitude and lifestyle of any consumer. " id="pdf-obj-51-16" src="pdf-obj-51-16.jpg">

Image source SRI International As mentioned in the history of VALS, The VALS framework was developed keeping a consumers resources as well as his capacity to accept innovation in mind. The X axis consisted of primary motivation (explained below) and the Y axis consisted of resources such as income, education, confidence etc. Thus these two factors were determined to be critical to define the values attitude and lifestyle of any consumer.

Resources Included resources available to an individual such as income, education, intelligence, emotional support, etc. Primary motivation Which determined what actually drives the individual. Is it knowledge, the desire to achieve something or is it to be social. After researching above 1500 consumers, Arnold mitchell actually divided consumers into 9 different types

based on the amount of resources they had as well as their capacity for primary motivation. These classes of consumers based on their VALS were.

• 1. Innovators The class of consumer at the top of the vals framework. They are characterized by

High income and high resource individuals for whom independence is very important. They have their own individual taste in things and are motivated in achieving the finer things in life.

• 2. Thinkers A well educated professional is an excellent example of Thinkers in the vals

framework. These are the people who have high resources and are motivated by their knowledge. These are the rational decision making consumers and are well informed about their surroundings. These consumers are likely to accept any social change because of their knowledge level.

• 3. Believers The subtle difference between thinkers and believers is that thinkers make their own

decisions whereas believers are more social in nature and hence also believe other consumers. They are characterized by lower resources and are less likely to accept innovation on their own. They are the best class of word of mouth consumers.

• 4. Achievers The achievers are mainly motivated by guess what Achievements. These

individuals want to excel at their job as well in their family. Thus they are more likely to purchase a brand which has shown its success over time. The achievers are said to be high resource consumers but at the same time, if any brand is rising, they are more likely to adopt that brand faster.

• 5. Strivers Low resource consumer group which wants to reach some achievement are known as

strivers. These customers do not have the resources to be an achiever. But as they have values similar to

an achiever, they fall under the striver category. If a striver can gain the necessary resources such as a high income or social status then he can move on to becoming an achiever.

• 6. Experiencers The group of consumers who have high resources but also need a mode of self

expression are known as Experiencers. Mostly characterized by young adults, it consists of people who

want to experience being different. This class of consumers is filled up with early adopters who spend heavily on food, clothing and other youthful products and services.

• 7. Makers These are consumers who also want self expression but they are limited by the number

of resources they have. Thus they would be more focused towards building a better family rather than going out and actually spending higher amount of money. Making themselves into better individuals and families becomes a form of self expression for the Makers.

• 8. Survivors The class of consumers in the Vals framework with the least resources and therefore

the least likely to adopt any innovation. As they are not likely to change their course of action regularly, they

form into brand loyal customers. An example can include old age pension earners living alone for whom the basic necessities are important and they are least likely to concentrate on anything else. Thus the vals framework can be used primarily to classify consumers based on their values, attitudes and lifestyle. Once the classification has been done, you know which types of customers you want to target. Depending on your target customers vals, you can make up your marketing strategy and your promotional message such that it hits your audience at the right spot

Diffusion of Innovation

How do innovations spread in the population? Why do certain innovations fail? What would be the qualities that determine the success of an innovation? And how can companies increase the rate of adoption of the latest innovations? If companies do not act properly, than they are likely to lose the advantage they might have after introducing a new innovation in the market. These and an endless number of questions keep marketers awake when trying to introduce something new to the market. The concept which gives an answer to all these questions is called the diffusion of innovation. Diffusion of innovation is a theory which explains how innovation is adopted by the population, in how much time does the innovation spread, and finally whether the innovation actually succeeds in bringing a change or it fails in the process.

The Diffusion of innovation concept provides us with a deep insight on how innovations are accepted into a population which then brings about a social change. The diffusion of innovation concept also describes the qualities that help innovations spread through either face-to-face communications or mass media. There are five different stages of Diffusion of innovation

  Knowledge – Where the target customer gets to know about the innovation Persuasion – Either internal or external, the customer persuades himself or is persuaded through word of mouth to adopt the innovation. 

Decision After persuasion, the customer takes a decision and actually adopts the product.

Implementation At this stage, the customer is continuously analyzing the innovation while at the same time using it. By using the innovative product, he is getting to know the advantages and disadvantages of the innovative product.

Confirmation At this stage, the customer finally decides to stick with the innovative product. After this stage, the customer himself becomes an influencer and might make other people adopt the innovation. If we were to think what exactly describes an innovation, we should consider any new idea, behavior or even object that is brought to the market. Due to globalization, technological and knowledge revolutions, people have greater expectations and they are in a permanent search for solutions to facilitate their daily lives. Companies which do not respond accordingly risk to loose position on the market and slowly starting to notice a decline in growth. Besides adding value for a company, innovations help it to remain effective and competitive on the market and develop profit maximization.

Let’s take a look into the higher education business. The current model of education consisting in lecturing

and examinations has started to experience a decline in growth for the past couple of years. With rising tuition fees, changes in the lifestyles of people by getting married earlier, having children and jobs, remaining with no time for obtaining a degree, innovation is a must. Therefore, in 2008, a university from Canada has been the first to introduce an online computing course. During the next years, numerous universities from all around the world have started to introduce online courses, providing online degrees also. The innovation proved to be extremely effective. Why? Because it has presented people with an economic advantage in terms of the tuition fees. The tuition fees is considerably lower for the online course as compared to a normal degree. This innovation was convenient, as people could plan their time according to their priorities, and as per their own satisfaction. By taking an online degree from one of the most prestigious universities such as Harvard or Stanford, we could also add the element of social prestige. Thus, this innovation is proving to be simple and easy to use. Online degrees have remained consistent with the perceptions and valuesof people in search for higher education. But at the same time, they have offered them observable results. Once online degrees are introduced, the process of redevelopment of the higher education systems doesn’t stop here. For example, Unopar University in Brazil offers low cost degree courses using online materials and weekly seminars, transmitted via satellite. Thus, it is not that traditional education systems will be lost. But because of the innovation of online courses, it is only a matter of time until things are going to change.

Basically, the degree of adoption of innovations depends on the needs of the user group. As innovation spreads from early adopters to majority audiences, face-to-face communication becomes more essential to the decision to adopt. Techniques like popular opinion leaders or focus groups are some of the essential tools to start focusing on innovation and identify how you can cover the unthought of needs of your customers.

It might sound easy to come up with different kind of innovations. However, many of the new ideas don’t

even get to spread around the market, as they fail to be accepted from the beginning. This might happen because of customers increased fear of change and the risks associated with it. Or it may happen because

the idea was not executed properly. Finding ways to provide credible reassurances, might represent a method to overcome these kind of barriers. Value chain analysis 9 points to create a value chain By Hitesh Bhasin November 30, 2016 A customer nowadays has a lot of options in front of him where products and brands are concerned. What helps the customer decide on a final product, is the value which he derives from that particular product. A customer might be looking for a television or he might be looking to travel abroad. In both the cases, there are processes involved which ensure that the customer gets the best product or service from the company. The customer expects to get a television at the optimum price with the best after sales service OR the customer gets the tickets timely, has a safe travel and enjoys his trip abroad. In both the cases, if the chain of events is right, the customer has gotten the best value after purchasing the product. This is where the Value chain concept of Michael porter sets in.