Marketing Management

MARKETING MANAGEMENT
Introduction
Welcome to the wonderful world of marketing! Marketing is not a new word but evokes
feelings of freshness each time it is used. For there is so much happening in this field that
even the oldies have something new to learn every day. In your class itself, I am sure that
there are quite a few students opting for marketing than any other discipline. Surely, there
must be something in this word marketing, that everyone feels attracted to it.
Marketing is ancient art. The first marketing trans- action can be perhaps attributed to Adam and
Eve. Its emergence as a management discipline is of relatively recent origin. And within this
relatively short period, it has gained a great deal of importance. In fact today marketing is
regarded as most important of all management functions of business.
Some definitions of Marketing –

• Much of marketing is concerned with the problem of profitably disposing of what is
produced.
• Marketing is the economic process by which goods and services are exchanged
between the producer and the consumer and their values determined in terms of
money prices.
• Marketing originates with the recognition of a need on the part of a consumer and
terminates with the satisfaction of that need by the delivery of a usable product at
the right time, at the right place and at an acceptable price.
• Marketing is so basic that it cannot be considered a separate function. It is really
the whole business seen from the point of view of the final result, i.e., from the point of
view of the customer.
• Marketing is a viewpoint, which looks at the entire business process as a highly
integrated effort to discover, create, arouse and satisfy consumer needs.
• Marketing is the delivery of a standard of living to society.
American Marketing Association –

“It is the process of planning & executing the conception, pricing, promotion & distribution of
ideas, goods
& services to create exchange that satisfy individual & organisational goals”
The Chartered Institute of Marketing defines Marketing as

“Marketing is the management process for identifying, anticipating & satisfying
customer requirements profitably.”
Peter Drucker
There will always, one can as- sume, be need for some selling. But the aim of marketing is
to make selling superfluous. The aim is to know and understand the customers well that the
product or service fits him and sells itself. Ideally, marketing should result in a customer who
is ready to buy. All that should be needed then is to make the product or service available
Core Marketing Concepts – Needs, Wants And Demands:
Marketing thinking starts with the fact of human needs and wants. We all have some needs
residing in ourselves. These needs exist. Remember that needs can never be created.
Needs:
Needs are the basic human requirements. People need food, air, water, clothing & shelter to
survive. People also have needs for recreation, education and entertainment. Eg: Hunger food.
According to Abraham Maslow’s need hierarchy, all the human needs can be categorized
as shown in the diagram.
Human need is a state of felt deprivation of some basic satisfaction. Wants are desires for
specific satisfiers of these deeper needs. Demands are wants for specific products that
are bagged by an ability and willingness to buy them.
Marketers do not create the needs. They can influence the demand by making the product
appropriate, attractive, affordable and easily available to target customers.
Products:
Anything that can be offered to satisfy a need or a want,
Persons : Singer
Places : Goa
Activities : Sing in karaoke lounge.
Organizations : Health club
Ideas : Osho ashram
Other terms
can be : Offerings, satisfiers or resources.
Eg: A woman is not buying ‘lipstick’, she is buying ‘.hope’.
She is confident that she will definitely look good after using that lipstick. And this hope brings
her to the shop.
A physical object is a means of packaging a service. The marketers’ job is to sell the benefit
or services built in to physical products rather than just describe their physical features.
Marketing Myopia
Sellers who concentrate their thinking on the physical product instead of the customers
need are said to suffer from ‘marketing myopia’.
Wants:
The needs become wants they are directed to specific objects that might satisfy the needs.
“Needs Pre-exists” (can’t be created)
Demands:
Demands are wants for specific products that are bagged by an ability and willingness to
buy them.
Concepts of Marketing Management
The philosophy of marketing which has evolved as marketing management has passed
through distinct stages. The orientation of the companies have been changing from
production to societal through product, sales, marketing. In this lesson we are going to
discuss production and product orientations. There are various concepts of marketing that
we as marketers have been following. There were times when the focus was on the
production of the commodities, then the focus shifted on to the sales and distribution of the
products and finally the focus moved to the real NEEDS of the consumers!
Changing Role Of Marketing

Simple Trade Era Prior to 1920’s Sell Surplus
Production Era 1920 – 1930 Increase Supply
Sales Era 1930 – 1950 Beat
Competition
Marketing Dept. Era 1950 – 1960 Coordinate & Control
Marketing Company Era began 1960’s Long – run customer satisfaction
Consumer Focused Era 1990’s…………….??????????
Company Orientations Towards the Market place
Production Concept Consumers prefer products that are widely available and inexpensive
Product Concept Consumers favor products that offer the most quality,
performance, or innovative features
Selling Concept Consumers will buy products only if the company aggressively
promotes or sells these products
Marketing Concept Focuses on needs/wants of target markets & delivering value
better than competitors
Societal Marketing Focuses on needs/ wants of target Concept markets &
delivering value better than competitors that preserves the
consumer’s and society’s well-being.
Selling
1. Emphasis is on the product
2. Company Manufactures the product first
3. Management is sales volume oriented
4. Planning is short-run-oriented in terms of today’s products and markets
5. Stresses needs of seller
6. Views business as a good producing process
7. Emphasis on staying with existing technology and reducing costs

8. Different departments work as in a highly separate water tight compartments
9. Cost determines Price
10. Selling views customer as a last link in business
Marketing
1. Emphasis on consumer needs wants
2. Company first determines customers needs and wants and then decides out how to
deliver a product to satisfy these wants
3. Management is profit oriented
4. Planning is long-run-oriented in today’s products and terms of new products,
tomorrow’s markets and future growth
5. Stresses needs and wants of buyers
6. Views business as consumer producing process satisfying process
7. Emphasis on innovation on every existing technology and reducing every sphere, on
providing better costs value to the customer by adopting a superior technology
8. All departments of the business integrated manner, the sole purpose being generation of
consumer satisfaction
9. Consumer determine price, price determines cost
10. Marketing views the customer last link in business as the very purpose of the business
Defining Customer Value and Satisfaction:

Customer perceived value (CPV) is the difference b etween the pros p e c t i v e
c u s t o m e r ’ s evaluation of all the benefits and all the costs of an offering and the
perceived alternatives.
Total customer value is the perceived monetary value of the bundle or economic, functional,
and psychological benefits customers expect from a given market offering.
Total customer cost is the bundle of costs customers expect to incur in evaluating,
obtaining , using, and disposing of the given marketing officering.
Customer Expectation:
It is formed on the basis of past buying experiences, advice, and advertisements. . If
marketers raise expectations too high, the buyer is likely to be disappointed. However, if the
company sets expectations too low, it won’t attract enough buyers ( although it will satisfy
those who do buy)
If marketers raise expectations too high, the buyer is likely to be disappointed. However, if
the company sets expectations too low, it won’t attract enough buyers ( although it will
satisfy those who do buy)
Delivering High Customer Value

The key to generating high customer loyalty is to deliver high customer value. According
to Michael Lanning, in his Delivering profitable value, a company must design a
competitively superior value proposition aimed at a specific market segment, backed by a
superior value-delivery system.11
The value proposition consists of the whole cluster of benefits the company promises to
deliver; it is more than the core positioning of the offering. For example, Volvo’s core
positioning is“safety,” but the buyer is promised more than just a safe car; other benefits
include a long-lasting car, good service, and long warranty period.
The value-delivery system includes all the experiences the customer will have on the way to
obtaining and using the offering.
Measuring Satisfaction
There are no meters to measure it; like thermometer for temperature. It is a subjective
exercise but very important for marketer’s point of view. Although the customer-centered
firm seeks to create high customer satisfaction, that is not its main goal. If the company
increases customer satisfaction by lowering its price or increasing its services , the results
may be lower profits.
What is the 7-S Framework?
Description
The 7-S Framework of McKinsey is a management model that describes 7 factors to
organize a company in an holistic and effective way. Together these factors determine the
way in which a corporation operates. Managers take into account all seven of these factors,
to be sure of successful implementation of a strategy. Large or small.
Origin of the 7-S Framework. History

The 7-S Framework was first mentioned in "The Art Of Japanese Management" by Richard
Pascale and Anthony Athos in 1981. They had been investigating how Japanese industry
had been so successful. At around the same time that Tom Peters and Robert Waterman
were exploring what made a company excellent. The Seven S model was born at a meeting
of these four authors in 1978. It appeared also in "In Search of Excellence" by Peters and
Waterman, and was taken up as a basic tool by the global management consultancy
company McKinsey. Since then it is known as their 7-S model.
The meaning of the 7 S
1. Shared Values (also called Superordinate Goals).

The interconnecting center of McKinsey's model is: Shared Values. What does the
organization stands for and what it believes in. Central beliefs and attitudes. Compare:
Strategic Intent
2. Strategy
Plans for the allocation of a firms scarce resources, over time, to reach identified goals.
Environment, competition, customers.
3. Structure
The way in which the organization's units relate to each other: centralized, functional
divisions (top-down); decentralized; a matrix, a network, a holding, etc.
4. Systems
The procedures, processes and routines that characterize how the work should be done:
financial systems; recruiting, promotion and performance appraisal systems; information
systems.
5. Staff
Numbers and types of personnel within the organization.
6. Style
Cultural style of the organization and how key managers behave in achieving the
organization's goals. Compare: Management Styles.
7. Skills
Distinctive capabilities of personnel or of the organization as a whole.
Strengths of the 7-S Model. Benefits
• Diagnostic tool for understanding organizations that are ineffective.

• Guides organizational change.
• Combines rational and hard elements with emotional and soft elements.
• Managers must act on all Ss in parallel and all Ss are interrelated.
Value Chain
Michael Porter of Harvard proposed the value chain as a tool for identifying ways to create
more customer value. The Value Chain framework of Michael Porter is a model that helps to
analyze specific activities through which firms can create value and competitive advantage.
The activities of the Value Chain
Primary activities (line function)
1. Inbound Logistics. Includes receiving, storing, inventory control, transportation

planning.
• Operations. Includes machining, packaging, assembly, equipment

maintenance, testing and all other value-creating activities that transform the
inputs into the final product.
2. Outbound Logistics. The activities required to get the finished product at the
customers: warehousing, order fulfillment, transportation, distribution management.
• Marketing and Sales. The activities associated with getting buyers to purchase the
product, including: channel selection, advertising, promotion, selling, pricing, retail
management, etc.
• Service. The activities that maintain and enhance the product's value, including:
customer support, repair services, installation, training, spare parts management,
upgrading, etc.
3. Support activities (Staff functions, overhead)
• Procurement. Procurement of raw materials, servicing, spare parts, buildings,

machines, etc.
• Technology Development. Includes technology development to support the value

chain activities. Such as: Research and Development, Process automation, design,
redesign.
• Human Resource Management. The activities associated with recruiting,

development (education), retention and compensation of employees and managers.
• Firm Infrastructure. Includes general management, planning management, legal,

finance, accounting, public affairs, quality management, etc
Firm
Infrastructure
Human
Resource
Management
Technology
Development
Procurement
Inbound Operations Outbound Marketing Service
Logistics Logistics and Sales
.
Creating a cost advantage based on the value chain
A firm may create a cost advantage

• by reducing the cost of individual value chain activities, or
• by reconfiguring the value chain.
A cost advantage can be created by reducing the costs of the primary activities, but also by
reducing the costs of the support activities. Recently there have been many companies that
achieved a cost advantage by the clever use of Information Technology.
Once the value chain has been defined, a cost analysis can be performed by assigning costs
to the value chain activities. Porter identified 10 cost drivers related to value chain activities:
1. Economies of scale.
2. Learning.
3. Capacity utilization.
4. Linkages among activities.
5. Interrelationships among business units.
6. Degree of vertical integration.
7. Timing of market entry.
8. Firm's policy of cost or differentiation.
9. Geographic location.
10. Institutional factors (regulation, union activity, taxes, etc.).
A firm develops a cost advantage by controlling these drivers better than its competitors do.
A cost advantage also can be pursued by "Reconfiguring" the value chain.
"Reconfiguration" means structural changes such as: a new production process, new
distribution channels, or a different sales approach.
Customer Relationship Management
The aim of customer relationship management (CRM) is to produce high customer equity.
Customer equity is the total of the discounted lifetime values of all of the firm’s customers.
Clearly, the more loyal the customers, the higher the customer equity.
Dfferent levels of customers who have strong profit potential.

1. Basic marketing: The salesperson simply sells the product.
2. Reactive marketing: The salesperson sells the product and encourages the
customer to call if the or the has questions, comments, or complains.
3. Accountable marketing: The salesperson phones the customer to check

whether the product is meeting expectations. The salesperson also asks the
customer for any product – or service – improvement suggestions and any specific
disappointments.
4. Proactive marketing: The company works continuously with its large customers to
help improve their performance. ( General Electric, for example, has stationed
engineers at large utilities to help them produce more power.
Strategic Planning
A strategic business plan describes the overall direction an organization will pursue
within its environment and also guides the allocation of resources. It provides the logic that
integrates the perspectives of functional departments and operating units, and points them
all in the same direction.
A strategic marketing plan outlines the actions necessary, which is responsible, when and
where they will be completed, and how they will be coordinated. A marketing plan is carried
out within the context of a firm’s broader strategic business plan.
In most large corporations, strategic planning takes place at four levels.

• The Corporate Level- corporate headquarters is responsible for designing a
corporate strategic plan to guide the whole enterprise; it makes decisions on the
amount of resources to be allocated to each division, as well as on which businesses to
start or eliminate.
• The Division Level- each division establishes a division plan covering the allocation of
funds to each business unit within the division. For example the marketing division
would formulate strategies as to how the various units within it would work.
• The Business Level- each business unit develops a strategic plan to carry that
business unit into a profitable future. Eg. The units in the marketing division would
be Sales, Advertising, Promotions, Public Relations, Market Intelligence, etc.
• The Product Level- each product line, brand within the business unit develops a
marketing plan for achieving its objectives in its product market.
BOSTON CONSULTING GROUP MODEL
The BCG Matrix method is the most well-known portfolio management tool. It is based on
product life cycle theory. It was developed in the early 70s by the Boston Consulting
Group. The BCG Matrix can be used to determine what priorities should be given in the
product portfolio of a business unit. To ensure long-term value creation, a company should
have a portfolio of products that contains both high-growth products in need of cash inputs
and low-growth products that generate a lot of cash. The Boston Consulting Group Matrix
has 2 dimensions: market share and market growth. The basic idea behind it is: if a product
has a bigger market share, or if the product's market grows faster, it is better for the
company.
The four segments of the BCG Matrix

Placing products in the BCG matrix provides 4 categories in a portfolio of a company:
Stars (high growth, high market share)

• Stars are using large amounts of cash. Stars are leaders in the business. Therefore
they should also generate large amounts of cash.
• Stars are frequently roughly in balance on net cash flow. However if needed any
attempt should be made to hold your market share in Stars, because the rewards will
be Cash Cows if market share is kept.
Cash Cows (low growth, high market share)

• Profits and cash generation should be high. Because of the low growth, investments
which are needed should be low.
• Cash Cows are often the stars of yesterday and they are the foundation of a company.
Dogs (low growth, low market share)

• Avoid and minimize the number of Dogs in a company.
• Watch out for expensive ‘rescue plans’.
• Dogs must deliver cash, otherwise they must be liquidated.
Question Marks (high growth, low market share)

• Question Marks have the worst cash characteristics of all, because they have high
cash demands and generate low returns, because of their low market share.
• If the market share remains unchanged, Question Marks will simply absorb great
amounts of cash.
• Either invest heavily, or sell off, or invest nothing and generate any cash that you
can. Increase market share or deliver cash.
The BCG Matrix and one size fits all strategies
The BCG Matrix method can help to understand a frequently made strategy mistake: having
a one size fits all strategy approach, such as a generic growth target (9 percent per year) or a
generic return on capital of say 9,5% for an entire corporation.
In such a scenario:
• Cash Cows Business Units will reach their profit target easily. Their management
have an easy job. The executives are often praised anyhow. Even worse, they are
often allowed to reinvest substantial cash amounts in their mature businesses.
• Dogs Business Units are fighting an impossible battle and, even worse, now and then
investments are made. These are hopeless attempts to "turn the business around".
• As a result all Question Marks and Stars receive only mediocre investment funds. In
this way they can never become Cash Cows. These inadequate invested sums of
money are a waste of money. Either these SBUs should receive enough investment
funds to enable them to achieve a real market dominance and become Cash Cows (or
Stars), or otherwise companies are advised to disinvest. They can then try to get any
possible cash from the Question Marks that were not selected.
Other uses and benefits of the BCG Matrix

• If a company is able to use the experience curve to its advantage, it should be able to
manufacture and sell new products at a price that is low enough to get early market
share leadership. Once it becomes a star, it is destined to be profitable.
• BCG model is helpful for managers to evaluate balance in the firm’s current
portfolio of Stars, Cash Cows, Question Marks and Dogs.
• BCG method is applicable to large companies that seek volume and experience
effects.
• The model is simple and easy to understand.
• It provides a base for management to decide and prepare for future actions.
Limitations of the BCG Matrix

Some limitations of the Boston Consulting Group Matrix include:
• It neglects the effects of synergy between business units.

• High market share is not the only success factor.
• Market growth is not the only indicator for attractiveness of a market.
• Sometimes Dogs can earn even more cash as Cash Cows.
• The problems of getting data on the market share and market growth.
• There is no clear definition of what constitutes a "market".
• A high market share does not necessarily lead to profitability all the time.
• The model uses only two dimensions – market share and growth rate. This may
tempt management to emphasize a particular product, or to divest prematurely.
• A business with a low market share can be profitable too.
• The model neglects small competitors that have fast growing market shares
THE GENERAL ELECTRIC MODEL
An SBU’s appropriate objective cannot be determined solely by its position in the
growth-share matrix. If additional factors are considered, the growth-share matrix can be
seen as a special case of a multifactor portfolio matrix such as that pioneered by General
Electric. The model is based on the company’s seven businesses. It holds that a company
can appropriately rate its different businesses for the purpose of strategic planning on the
basis of two main parameters – Market Attractiveness and Business Strength.
The above two factors make excellent marketing sense for rating a business. Companies
are successful to the extent that they enter attractive markets and possess the required
business strengths to succeed in those markets. If one of these factors is missing, the business
will not produce outstanding results. Neither a strong company operating in an unattractive
market nor a weak company operating in an attractive market will do very well.
General Electric Approach

The model to analyze the SBUs has been give by General Electric and it is even known as
Market attractiveness and Company strength matrix. Both axes are divided into three
segments, yielding nine cells. The nine cells are grouped into three zones:
The block with the Lateral Zone consists of the three cells in the upper left corner. If
the enterprise falls in this zone the business is in a favorable position with relatively attractive
growth opportunities. This indicates a “green light” to invest in this product/service.
The blocks with plain Zone consists of the three diagonal cells from the lower left to
the upper right. A position in the yellow zone is viewed as having medium attractiveness.
Organisation must therefore exercise caution when making additional investments in this
product/service. The suggested strategy is to seek to maintain share rather than growing
or reducing share.
The blocks with a Diagonal Zone consists of the three cells in the lower right corner. A
position in the red zone is not attractive. The suggested strategy is that management should
begin to make plans to exit the industry.
FACTORS UNDERLYING MARKET ATTRACTIVENESS AND BUSINESS

STRENGTH IN GE MULTIFACTOR PORTFOLIO MODEL
1 . MARKET ATTRACTIVENESS
• Overall market size
• Annual market growth rate
• Historical profit margin
• Competitive intensity
• Technological requirements
• Inflationary vulnerability
• Energy requirements
• Environmental impact
• Socioal-political legal
2 . BUSINESS STRENGTH
• Market share
• Share growth
• Product quality
• Brand reputation
• Distribution network
• Promotional effectiveness
• Productive capacity
• Productive efficiency
• Unit costs
• Material supplies
• R & D performance
• Mangerial personnel
STRATEGIES
The GE matrix is divided into nine cells. The three cells in the upper left corner indicate
strong SBUs in which the company should invest or grow. The diagonal cells stretching
from the lower left to the upper right indicate SBUs that are medium in overall attractiveness.
The three cells in the lower-right corner indicate SBUs that are low in overall
attractiveness.
Management should also forecast each SBU’s expected position in the next three to five
years given the current strategy. Making this determination involves analyzing where each
product is in its product life cycle as well as expected competitor strategies, new
technologies, economic events, etc. the company’s objective is not always to build sales
in each SBU. Rather, the objective might be to maintain the existing demand with fewer
marketing dollars or to take cash out of the business and allow demand to fall. Thus, the
task of marketing management is to manage demand or revenue to the target level
negotiated with corporate management. Marketing contributes to assessing each SBU’s
sales and profit potential, but once the SBU’s objective and budget are set, marketing’job is
to carry out the plan efficiently and profitably.
Evaluation of Strategic Planning Approaches

Many firms assess alternative market opportunities; know which products are stars, cash
cows, question marks, and dogs; recognize what factors affect performance; understand
their industries; and realize they can target broad or narrow customer bases.
The major strengths of the approaches are that they allow a firm to do the following:
• Analyze each of its SBUs and products.
• Study various strategy effects.
• Learn the opportunities to pursue and which threats to avoid.
• Compute marketing and other resources needs.
• Focus on meaningful differential advantages.
• Compare performance with designated goals.
• Discover principles for improving performance.
• Study competitors’ actions and trends.
The approaches have these weaknesses:
• They may be difficult to implement.
• They may be too simplistic and omit key factors.
• They are arbitrary in defining SBUs and evaluative criteria.
• They may not be applicable to all firms and situations.
• They may not adequately consider environmental factors.
• They may overvalue market share.
• They are often used by staff planners rather than line managers.
• These techniques only aid planning. They do not replace the need for managers to
engage in hands-on decisions by studying each situation and basing marketing
strategies on the unique aspects of their industry, firm, and SBUs.
The Product/Market Opportunity Matrix

The product/market opportunity matrix identifies four alternative marketing strategies to
maintain and/or increase sales of business units and products: market penetration, market
development, product development, and diversification. See accompanying figure.
Current New
Products Products
Current Markets
New Markets
• In market penetration, a firm seeks to expand the sales of its present products in
its present markets through more intensive distribution, aggressive promotion, and
competitive pricing.
• In market development, a firm seeks greater sales of present products from new
markets or new product uses. It can enter new markets, appeal to segments it is not
yet satisfying, reposition products, and use new distribution methods.
• In product development, a firm develops new or modified products to appeal to present

markets. It emphasizes new models, better quality, and other minor innovations and
markets them to loyal consumers.
• In diversification, a firm becomes involved with new products aimed at new

markets. The products may be new to the industry or to the company. Distribution
and promotion orientations are different from those traditionally used by the firm.
While the corporations are faced with ever increasing strategic planning gap, three
strategies have been formulated to overcome this gap.
1. INTENSIVE GROWTH- corporate management’s first course of action should be a

review of whether any opportunities exist for improving its existing businesses’
performance. Ansoff model propounded by Igor Ansoff is a useful framework for
detecting new intensive growth opportunities called a “Product-Market Expansion Grid”.
The company first considers whether it could gain more market with its current products
in their current markets(market penetration strategy). This can be done by either increasing
the usage among the existing customers or switching of competitor’s customers or by
adding non consumers in the consumer list. Next it considers whether it can find or
develop new markets for its current products (market-development strategy). This can be
either based on demographic or geographic or psycho- graphic factors. Then it considers
whether it can develop new products of potential interest to its current markets(product-
development strategy). They can be either completely new products or existing product
extensions. Later it will also review opportunities to develop new products for new
markets(diversification strategy). But here the company should take care as this involves
high risk and the firm might loose focus.
By examining these three intensive growth strategies, management may discover several
ways to grow. Still, that growth may not be enough. In that case, management must also
examine integrative growth opportunities.
2. INTEGRATIVE GROWTH – Often a business’s sales and profits can be increased

through backward, forward or horizontal integration within the industry. A company may
acquire one or more of its suppliers to gain more control or generate more profits which
would be called as backward integration. It might acquire some wholesalers or
retailers, especially if they are highly profitable(forward integration). Finally if the
company decides to acquire one or more competitors, provided that the government does
not bar this move(horizontal integration). However, these new sources may still not
deliver the desired sales volume. In that case company must consider diversification.
3. DIVERSIFICATION GROWTH – When good opportunities which are highly attractive

are found to be outside the present business and the company has a mix of business
strengths to be successful in them, the company goes for diversification. This is possible in
three kinds:
• Concentric Diversification Strategy-The company could seek new products that have
technological or marketing synergies with existing product lines, even though the
new product themselves may appeal to a different group of customers.
• Horizontal Diversification Strategy- the company might search for new products that
could appeal to current customers even though the new products are technologically
unrelated to its current product line.
• Conglomerate Diversification Strategy – the company might seek new businesses
that have no relationship to its current technology, products or markets.
4. DOWNSIZING OLDER BUSINESSES- companies must not only develop new

businesses, but must also carefully prune, harvest or divest tired old businesses in order to
release needed resources and reduce costs. Managers should focus on growth
opportunities, not fritter away energy and resources trying to salvage hemorrhaging
businesses.
The Porter Generic Strategy Model

The Porter generic strategy model identifies two key planning concepts and the alternatives
available for each:
• Competitive scope (broad or narrow target).
• Competitive advantage (lower cost or differentiation).
The following three basic strategies are identified (see Figure):
1. Cost leadership—broad market and low cost position.
2. Differentiation—large market and unique strategy.
3. Focus—narrow target segment and either low cost position or a unique

strategy.
Cost leadership and differentiation strategies are alternatives for large firms; a focus
strategy is available to smaller firms.
Cost Leadership strategy: This generic strategy calls for being the low cost producer
in an industry for a given level of quality. The firm sells its products either at average
industry prices to earn a profit higher than that of rivals or below the average industry
prices to gain market share. The cost leadership strategy usually targets a broad market.
Some of the ways by which firms acquire cost advantages are by improving process
efficiencies, gaining unique access to large source of lower cost materials, making optimal
outsourcing and vertical integration decisions or avoiding some costs altogether. If
competing firms are unable to lower their costs by a similar amount, the firm may be able to
sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths:
• Access to the capital required to make a significant investment in production assets;
this investment represents a barrier to entry that many firms may not overcome.
• Skill in designing products for efficient manufacturing.
• High level of expertise in manufacturing process engineering.

• Efficient distribution channel.
• Each generic strategy has its risks, even the low cost strategy. For example, other
firms may be able to lower their costs as well. As technology improves, the
competition may be able to leapfrog the production capabilities, thus eliminating the
competitive advantage. Additionally, several firms following a focus strategy and
targeting various narrow markets may be able to achieve an even lower cost within
their segments and as a group gain significant market share.
iDifferentiation Strategy : This strategy calls for the development of a product or

service that offers a unique attributes that are valued by the customers and customers
perceive to be better than or different from the products of the competition. The value
added by the uniqueness of the product may allow the firm to charge a premium price for
it. The firm hopes that the higher price will more than cover the extra costs incurred in
offering the unique product.
Firms that succeed in differntiation strategy often have the following internal strengths:
• Access to leading scientific research.
• Highly skilled and creative product development team.

• Strong sales team with the ability to successfully communicate the perceives
strengths of the product.
• Corporate reputation for quality and innovation.

• The risks associated with differentiation strategy include imitation by competitors
and changes in customer tastes. Additionally various firms pursuing focus
strategies may be able to achieve even greater differntiation in their market
segments.
Focus Strategy : This strategy focus on narrow segment and within that segment
attempts to achieve either a cost advantage or differentiation. The premise is that the needs
of the group can be better serviced by focusing entirely on it. A firm using a focus strategy
often enjoys a high degree of customer loyalty and this entrenched loyalty discourages other
firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower volumes
and thus less bargaining power with their suppliers. However, firms pursuing a
differentiation-focused strategy may be able to pass higher costs on to customers since
close substitutes do not exist.
Firms that succeed in a focus strategy are able to tailor a broad range of product
development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategy include imitation and changes in the target segment.
Furthermore, it may be fairly easy for a broad-market cost leader to adapte its product in
order to compete directly. Finally, other focusers may be able to carve out sub-segments
that they can serve even better.
MARKETING INFORMATION SYSTEM
A marketing information system (MIS) is a set of procedures and methods designed to

generate, analyze, disseminate, and store anticipated marketing decision information on a
regular, continuous basis.
Information should not be approached in an infrequent manner. If research is done this
way, a firm could face these risks:
1. Opportunities may be missed.
2. There may be a lack of awareness of environmental changes and competitors’ actions.
3. Data collection may be difficult to analyze over several time periods.
4. Marketing plans and decisions may not be properly reviewed.
5. Data collection may be disjointed.
6. Previous studies may not be stored in an easy to use format.
7. Time lags may result if a new study is required.
8. Actions may be reactionary rather than anticipatory.
A marketing information system (MIS) is a set of procedures and methods designed to
generate, analyze, disseminate, and store anticipated marketing decision information on a
regular, continuous basis.An information system can be used operationally, managerially,
and strategically for several aspects of marketing.
An information system can be used operationally, managerially, and strategically for several
aspects of marketing.
The total information needs of the marketing department can be specified and satisfied via a
marketing intelligence network, which contains three components.
1. Continuous monitoring is the procedure by which the changing environment is regularly
viewed.
2. Marketing research is used to obtain information on particular marketing issues.
3. Data warehousing involves the retention of all types of relevant company records, as
well as the information collected through continuous monitoring and marketing
research that is kept by the organization.
An MIS offers many advantages:

1. Organized data collection.
2. A broad perspective.
3. The storage of important data.
4. An avoidance of crises.
5. Coordinated marketing plans.
6. Speed in obtaining sufficient information to make decisions.
7. Data amassed and kept over several time periods.
8. The ability to do a cost-benefit analysis.
MARKET RESEARCH
Marketing research is the systematic gathering, recording, and analyzing of information

about specific issues related to the marketing of goods, services, organizations, people,
places, and ideas. An outside party or the firm itself may undertake such research.
Several points about marketing research need to be emphasized.

1. It must not be haphazard.
2. It involves a sequence of tasks: data gathering, recording, and analysis.
3. Data may be available from different sources: the firm itself, an impartial agency, or a
research specialist working for the firm.
4. It may be applied to any aspect of marketing that requires information to aid decision-
making.
5. Research findings and their implications must be communicated to the appropriate
decision maker(s) in the firm.
A firm’s decision to use marketing research does not mean it must engage in expensive
projects (test marketing, consumer attitude surveys). It may get enough data by analyzing
internal reports or from informal meetings with customer service personnel.
Market research and marketing research are often confused. ‘Market’ research is
simply research into a specific market. It is a very narrow concept. ‘Marketing’ research
is much broader. It not only includes ‘market’ research, but also areas such as research into
new products, or modes of distribution such as via the Internet. Here are a couple of
definitions:
Marketing research is the function that links the consumer, customer, and public to the
marketer through information - information used to identify and define marketing
opportunities and problems; generate, refine, and evaluate marketing actions; monitor
marketing performance; and improve understanding of marketing as a process.
Marketing research specifies the information required to address these issues, designs
the methods for collecting information, manages and implements the data collection
process, analyzes, and communicates the findings and their implications.
Obviously, this is a very long and involved definition of marketing research.
Marketing research is about researching the whole of a company’s marketing process

This explanation is far more straightforward i.e. marketing research into the elements of the
marketing mix, competitors, markets, and everything to do with the customers.
Sources of Data - Primary and Secondary

There are two main sources of data - primary and secondary. Primary research is
conducted from
scratch. It is original and collected to solve the problem in hand.. Secondary research, also
known as desk research, already exists since it has been collected for other purposes.
Primary Research
There are many was to conduct primary research. We consider some of them:
1. Interviews
2. Mystery shopping
3. Focus groups
4. Projective techniques
5. Product tests
6. Diaries
7. Omnibus Studies
1. Interviews
This is the technique most associated with marketing research. Interviews can be telephone,
face-to- face, or over the Internet.
• Telephone Interviews
Telephone ownership is very common in developed countries. It is ideal for collecting data
from a geographically dispersed sample. The interviews tend to be very structured and tend
to lack depth. Telephone interviews are cheaper to conduct than face-to-face interviews (on
a per person basis).
Advantages of telephone interviews

• Can be geographically spread
• Can be set up and conducted relatively cheaply
• Random samples can be selected
• Cheaper than face-to-face interviews
Disadvantages of telephone interviews
• Respondents can simply hang up Interviews tend to be a lot shorter
• Visual aids cannot be used
• Researchers cannot behavior or body language
• Face-to-face Interviews
Face-to face interviews are conducted between a market researcher and a respondent.
Data is collected on a survey. Some surveys are very rigid or ‘structured’ and use closed
questions. Data is easily compared. Other face-to-face interviews are more ‘in depth,’ and
depend upon more open forms of questioning. The research will probe and develop points
of interest.
Advantages of face-to-face interviews

• They allow more ‘depth’
• Physical prompts such as products and pictures can be used
• Body language can emphasize responses
• Respondents can be ‘observed’ at the same time
Disadvantages of face-to-face interviews

• Interviews can be expensive
• It can take a long period of time to arrange and conduct.
• Some respondents will give biased responses when face-to-face with a researcher.
• The Internet
The Internet can be used in a number of ways to collect primary data. Visitors to sites can
be asked to complete electronic questionnaires. However responses will increase if an
incentive is offered such as a free newsletter, or free membership. Other important data is
collected when visitors sign up for membership.
Advantages of the Internet

• Relatively inexpensive
• Uses graphics and visual aids
• Random samples can be selected
• Visitors tend to be loyal to particular sites and are willing to give up time to complete
the forms
Disadvantages of the Internet

• Only surveys current, not potential customers.
• Needs knowledge of software to set up questionnaires and methods of processing
data
• May deter visitors from your website.
• Mail Survey
In many countries, the mail survey is the most appropriate way to gather primary data.
Lists are collated, or purchased, and a pre-designed questionnaire is mailed to a sample of
respondents. Mail surveys do not tend to generate more than a 5-10% response rate.
However, a second mailing to prompt or remind respondents tends to improve response
rates. Mail surveys are less popular with the advent of technologies, such as the Internet
and telephones, especially call centers.
2 Mystery Shopping
Companies will set up mystery shopping campaigns on an organizations behalf. Often used
in banking, retailing, travel, cafes and restaurants, and many other customer focused
organizations, mystery shoppers will enter, posing as real customers. They collect data on
customer service and the customer experience. Findings are reported back to the
commissioning organization. There are many issues surrounding the ethics of such an
approach to research.
3 Focus Groups
Focus groups are made up from a number of selected respondents based together in the same
room. Highly experienced researchers work with the focus group to gather in depth
qualitative feedback. Groups tend to be made up from 10 to 18 participants. Discussion,
opinion, and beliefs are encouraged, and the research will probe into specific areas that are
of interest to the company commission in the research.
Advantages of focus groups

• Commissioning marketers often observe the group from behind a one-way screen
• Visual aids and tangible products can be circulated and opinions taken
• All participants and the research interact
• Areas of specific interest can be covered in greater depth
Disadvantages of focus groups

• Highly experienced researchers are needed.
They are rare. Complex to organize.
• Can be very expensive in comparison to other methods
4. Projective techniques
Projective techniques are borrowed from the field of psychology. They will generate highly
subjective qualitative data. There are many examples of such approaches including: Inkblot
tests - look for images in a series of inkblots Cartoons - complete the ‘bubbles’ on a cartoon
series Sentence or story completion Word association - depends on very quick
(subconscious) responses to words Psycho- drama - Imagine that you are a product and
describe what it is like to be operated, warn, or used.
5 Product tests
Product tests are often completed as part of the ‘test’ marketing process. Products are
displayed in a mall of shopping center. Potential customers are asked to visit the store and their
purchase behavior is observed. Observers will contemplate how the product is handled, how
the packing is read, how much time the consumer spends with the product, and so on.
6 Diaries
Diaries are used by a number of specially recruited consumers. They are asked to complete
a diary that lists and records their purchasing behavior of a period of time (weeks,
months, or years). It demands a substantial commitment on the part of the respondent.
However, by collecting a series of diaries with a number of entries, the researcher has a
reasonable picture of purchasing behavior.
7 Omnibus Studies
An omnibus study is where an organization purchases a single or a few questions on a
‘hybrid’ interview (either face-to-face or by telephone). The organization will be one of
many that simply want to a straightforward answer to a simple question. An omnibus
survey could include questions from companies in sectors as diverse as heath care and
tobacco. The research is far cheaper, and commits less time and effort than conducting
your own research.
Secondary Research
Secondary (or desk) research uses data that has been collected for other objectives than
your own i.e. it already exists. There are a number of such sources available to the
marketer, and the following list is by no means conclusive:
• Trade associations
• National and local press Industry magazines
• National/ international governments
• Web sites
• Informal contacts
• Trade directories
• Published company accounts
• Business libraries
• Professional institutes and organizations
• Omnibus surveys
• Previously gathered marketing research
• Census data
• Public records
Managers need information in order to introduce products and services that create value in
the mind of the customer. But the perception of value is a subjective one, and what
customers value this year may be quite different from what they value next year. As
such, the attributes that create value cannot simply be deduced from common
knowledge. Rather, data must be collected and analyzed. The goal of marketing research is
to provide the facts and direction that managers need to make their more important
marketing decisions.
THE MARKETING RESEARCH PROCESS

The marketing research process consists of a series of activities: defining the issue or
problem to be studied, examining secondary data, generating primary data (if necessary),
analyzing information, making recommendations, and implementing findings.
Figure below that presents the complete process. Each step is completed in order. For
example, secondary data are not examined until a firm states the issue or problem to be
studied, and primary data are not generated until secondary data are thoroughly reviewed.
1. ISSUE (PROBLEM) DEFINITION
A. Issue (problem) definition is a statement of the topic to be looked into.
B. Exploratory research is undertaken when the researcher is uncertain about the precise
topic to investigate or wants to informally study an issue. It is also called qualitative
research and may involve in-depth probing, small group discussions, and understanding
underlying trends.
C. Conclusive research, also called quantitative research, is used after the problem
definition is clarified. It is the structured collection and analysis of data pertaining
to a specific issue or problem.
The decision problem faced by management must be translated into a market research
problem in the form of questions that define the information that is required to make the
decision and how this information can be obtained. Thus, the decision problem is
translated into a research problem. For example, a decision problem may be whether to
launch a new product. The corresponding research problem might be to assess whether the
market would accept the new product .The objective of the research should be defined
clearly. To ensure that the true decision problem is addressed, it is useful for the researcher
to outline possible scenarios of the research results and then for the decision maker to
formulate plans of action under each scenario. The use of such scenarios can ensure that
the purpose of the research is agreed upon before it commences.
2. EXAMINATION OF SECONDARY DATA

A. Secondary data are those that have been gathered for purposes other than solving the
current problem under investigation.
B. These data should always be reviewed before primary data collection.
Advantages and Disadvantages

A. Secondary data have these general advantages:
1. Low costs.
2. Speed.
3. Diverse sources.
4. Access to hard-to-obtain data.
5. Source credibility.
6. Helpful for exploratory research.
B. Secondary data have these general disadvantages:

1. Lack of suitability.
2. Obsolescence.
3. Unknown methodology.
4. Undisclosed findings.
5. Conflicting results.
6. Unknown reliability.
Sources
A. Internal secondary data are available within the company. They include budgets, sales
figures, profit-and-loss statements, customer billings, inventory records, prior research
reports, and written reports.
B. External secondary data are available from sources outside the company. They may be
obtained
from government and non-government sources.
1. There are three sources of non-government secondary data:
a. Regular publications can be broad in scope (such as Business Week) or more
specialized (such as the Journal of Advertising).
b. Books, monographs, and other non-regular publications deal with special topics in
depth and are compiled on the basis of interest by a target audience.
c. Commercial research houses (such as A.C. Nielsen, IMS Health, and Burke
Marketing Re- search) conduct periodic and ongoing studies and make results
available to many clients for a fee.
3. GENERATION OF PRIMARY DATA

A. Primary data consist of information gathered to address a specific issue or problem
at hand.
B. They are necessary if secondary data are insufficient for a proper marketing
decision to be made.
Advantages and Disadvantages

A. Primary data have these general advantages:
1. Precision.
2. Currency.
3. Controlled and known methodology.
4. Secrecy.
5. No conflicting data.
6. Reliability determined.
7. Only way to acquire information in some cases.
B. Primary data have these general disadvantages:

1. Time consuming.
2. High costs.
3. Inability to gather certain types of information.
4. Limited perspective.
5. Company limitations.
Research Design
A. A research design outlines the procedures for collecting and analyzing data. B. It
consists of these eight steps:
1. Who collects the data? Data can be collected by the firm itself or by an outside
company.
2. What information should be collected? It can be exploratory or conclusive in nature.
3. Who or what should be studied? This is defined as the population. The way in
which people or objects are selected must be decided.
a. For large and/or dispersed populations, sampling is usually employed. Sampling
enables the firm to analyze selected people or objects. With a probability sample, every
member of the designated population has an equal or known chance of being
selected. With a non-probability sample, members of the population are chosen on
the basis of convenience or judgment.
4. What technique of data collection should be used?
a. A survey gathers information from respondents by communicating with them. It
can be
conducted in person, or by phone or mail. It can be disguised or non disguised.
The semantic differential is a list of bipolar (opposite) adjective scales that provides an
overall
profile
b. Observation is a research method whereby present behavior or the
results of past behavior are observed and noted. It may be human or mechanical.
c. An experiment is a type of research in which one or more factors are manipulated
under controlled conditions. Just the factor under study is varied; all others remain
constant.
d. Simulation is a computer-based method to test the potential effects of various
marketing factors via a software program rather than real-world applications.
e. Table 4-2 shows the best uses for each kind of primary data collection.
5. How much will the study cost? Costs may include executive time, researcher time,
support staff time, pre-testing, computer usage, respondents’ incentives (if any),
interviewers, supplies, printing, postage or phone expenses, special equipment, and
marketing expenses (such as ads). Benefits and costs must be compared.
6. How will the data be collected? Data collection can be administered by research
personnel or be self-administered. With administered questionnaires, interviewers
record answers. With self- administered questionnaires, respondents write their
answers.
7. How long will the data-collection period be? The total time frame is specified.
8. When and where should information be collected? The day and time must be set. In
addition, the location of data collection must be outlined.
Data Collection
A. Data are collected.
B. Those engaged in data collection must be properly supervised and follow
directions exactly.
C. Responses or observations must be entered correctly.
4. ANALYSIS OF DATA
A. Data analysis consists of the following:
1. Coding—the process by which each completed data form is numbered and response
categories are labeled.
2. Tabulation—the calculation of summary data for each response category.
2. Analysis—the evaluation of responses as they pertain to the specific issue or
problem under investigation.
5. RECOMMENDATIONS
A. Recommendations are suggestions for a firm’s future actions, based on
marketing research findings.
B. The report must be written for the audience that reads it.
C. Figure 4-11 shows recommendations flowing from completed research.
D. Once the recommendations are passed on to the proper decision makers, the
research report should be warehoused in the marketing intelligence network.
6. IMPLEMENTATION OF FINDINGS
A. The research report represents feedback to marketing managers, who are
responsible for using findings.
B. Marketing managers are most likely to implement research findings under these
conditions:
1. They have input into the research design.
2. They have broad control over marketing decisions.
3. They have confidence that results are accurate.
Summary of the Marketing research Process –
Marketing research is gathered using a systematic approach. An example of one

follows:
1. Define the problem. Never conduct research for things that you would ‘like’ to know.
Make sure that you really ‘need’ to know something. The problem then becomes the
focus of the research. For example, why are sales falling in New Zealand?
2. How will you collect the data that you will analyze to solve your problem? Do we
conduct a telephone survey, or do we arrange a focus group? The methods of data
collection will be discussed in more detail later.
3. Select a sampling method. Do we us a random sample, stratified sample, or cluster
sample?
4. How will we analyze any data collected? What software will we use? What degree
of accuracy is required?
5. Decide upon a budget and a timeframe.
6. Go back and speak to the managers or clients requesting the research. Make sure
that you agree on the problem! If you gain approval, then move on to step seven. 7.
Go ahead and collect the data.
8. Conduct the analysis of the data.
9. Check for errors. It is not uncommon to find errors in sampling, data collection method,
or analytic mistakes.
10.Write your final report. This will contain charts, tables, and diagrams that will
communicate the results of the research, and hopefully lead to a solution to your
problem. Watch out for errors in interpretation.
Scope of marketing research

A. Companies spend about $12 billion worldwide (40 percent in the United States) for
data gathered by marketing research firms. The top 25-research firms (nearly half
of which are U.S.-based) account for $8 billion in yearly revenues, with more than
1,000 firms accounting for the rest. This is in addition to government- and institution-
sponsored research, as well as efforts of the companies themselves.
B. According to the American Marketing Association, the topical areas in which

companies are most likely to engage in or sponsor research efforts are
industry/market characteristics and trends, product satisfaction, market-share
analyses, segmentation studies, brand awareness and preference, purchase
intentions, and concept development and testing. On average, companies tend to
spend about 1 percent of revenue on marketing research.
C. Five marketing research trends are the rapid increase in customer satisfaction
studies, the use of the Internet, and the application of single-source data collection,
ethical considerations, and the complexities of international marketing research.
1. Customer satisfaction research is being sponsored much more than

ever before. The extent of such research has more than doubled in recent years,
with many firms doing their own studies and others hiring outside specialists.
2. Over the last few years, spending for online marketing research has grown from $3.5
million in 1996 to $255 million in 2000. Here are examples of how the research is
being
used.
a. Many businesspeople start their research by checking out competitors’ Web sites,
using search engines, and accessing online annual reports and trade publications.
b. Marketing Info offers The Marketplace, an easy-to-use exchange for purchasers and
providers of market research and related marketing services.
c. Planet Feedback enables consumers to send their feedback to companies quickly
and effortlessly.
B. Due to technological advances, single-source data collection—whereby research

firms track the activities of individual consumer households from the programs they
watch on TV to the products they purchase at stores—is now possible.
C. Due to unethical practices of some firms, many potential respondents are “turned off”
to participating in marketing research projects. In fact, a lot of Americans will not
answer a survey. To turn the situation around, these practices need to be avoided:
1. Unrealized promises of anonymity.
2. False sponsor identification.
3. Selling or fund raising under the guise of research.
4. Misrepresenting research projects.
5. Observational studies without informed consent.
6. Asking overly personal questions.
7. Selling consumer demographic information for database use without consent.
8. Misportraying research findings in ads and other communications.
F. With more and more firms striving to expand their foreign endeavors, international
marketing research is taking on greater importance.
G. Firms deciding how to market to the hundreds of millions of consumers in Eastern

Europe and Central Asia increasingly do market research there. Yet, designing and
conducting research is hard.
1. Many times, people have never been surveyed before.

2. Communications systems, especially phone services, may be below Western
standards.
3. Secondary data from government agencies and trade associations may be lacking.
4 Kodak is provided as an example of a company that had difficulty conducting market
research in nine former Soviet republics.
Consumer Behavior
Factors affecting consumer behavior
Each of these factors is discussed in more detail in the following sections on buyer behavior.
Cultural factors: Cultural factors have a significant impact on customer behavior.

Culture is the most basic cause of a person’s wants and behavior. Growing up, children
learn basic values, perception and wants from the family and other important groups.
Marketers are always trying to spot “cultural shifts” which might point to new products that
might be wanted by customers or to increased demand. For example, the cultural shift
towards greater concern about health and fitness has created opportunities (and now
industries) servicing customers who wish to buy:
• Low calorie foods
• Health club memberships
• Exercise equipment
• Activity or health-related holidays etc.
Similarly the increased desire for “leisure time” has resulted in increased demand for
convenience products and services such as microwave ovens, ready meals and direct
marketing service businesses such as telephone banking and insurance.
Each culture contains “sub-cultures” – groups of people with share values. Sub-cultures
can include nationalities, religions, racial groups, or groups of people sharing the same
geographical location. Sometimes a sub-culture will create a substantial and distinctive
market segment of its own. For example, the “youth culture” or “club culture” has quite
distinct values and buying characteristics from the much older “gray generation”
Similarly, differences in social class can create customer groups. In fact, the official
six social classes in the UK are widely used to profile and predict different customer
behavior. In the UK’s socioeconomic classification scheme, social class is not just
determined by income. It is measured as a combination of occupation, income, education,
wealth and other variables
Social factors: A customer’s buying behavior is also influenced by social factors,

such as the groups to which the customer belongs and social status.
In a group, several individuals may interact to influence the purchase decision. The typical
roles in such a group decision can be summarized as follows:
Reference groups
As a consumer, the decision to purchase and use certain products and services, is
influenced not only by psychological factors, personality and lifestyle, but also by the people
around the customer with whom he interact and the various social groups to which you
belong. The groups with whom he interact directly or indirectly influence your purchase
decisions and thus their study is of great importance to marketer to understand are:
I) Primary and secondary groups: a primary group is one with which an individual
interacts on a regular basis and whose opinion is of importance to him, family,
neighbors, close friends, colleagues and co- workers are examples of primary
groups. Secondary groups are those with which an individual interacts only
occasionally and does not consider their opinion very important.
II) Formal and informal groups: Rotary, lions, Jaycees are some of the well –
known social groups in our society. Labor unions, social clubs and societies are other
types of formal groups to which individuals may belong. A formal group has a highly
defined structure, specific roles and authority positions and specific goals.
In contrast, an informal group is loosely defined and may have no specified roles
and goals. Meeting your neighbors over lunch once a month for friendly exchange of
news is an instance of an informal group.
III) Membership and symbolic groups: A membership group is one to which a person
belongs or qualifies for membership. All workers in a factory qualify for membership
to the labor union. A symbolic group is one which an individual aspires to belong to, but
is not likely to be received as a member. A head clerk in an office may act as if he
belongs to the top membership and symbolic groups influence consumer behaviors but
membership groups have a more direct influence. Primary, informal and small groups
exert the maximum influence on consumers and are of great interest for marketers.
Any of these groups can sever as a reference group for a consumer if it serves as a
point of reference or comparison ion the formation of the values, attitudes and
behavior. Different kinds of groups, whether small or large, formal or reference group is a
very wide one and includes both direct and indirect or group influences.
Indirect reference groups comprise those individuals or groups with whom an individual
dews not have any direct face to face contact, such as film stars, TV stars, sportsman,
politicians. Reference groups are used in advertising to appeal to different market
segments, group situation with which potential customers can identify are used to promote
products and services. Hidden in this appeal is the subtle inducement to the customer to
identify himself with the user the product in question. The three types of reference groups
appeals most commonly used are:
a) Celebrities,
b) Experts,
c) The ‘common man’
Celebrities are well known people (in their specific field of activity) who are admired and
their fans aspire to emulate their behavior. Film stars and sports heroes are the most
popular celebrities. Soft drink (Thums up), shaving cream (Palmolive), toilet soaps (Lux)
, textiles ( Dinesh , Graviera) are advertised using celebrities from the sports and film
fields. Experts such as doctors, lawyer, accountants and authors are used for establishing
the benefits of the product. Colgate and Forhans tooth- pastes are examples of products,
which use the expert reference groups appeal for promotion.
Another reference group appeal is that which uses the testimonials of a satisfied customer. It
demonstrates to the prospective customer that demonstrates just like him uses and is
satisfied with the product.
Direct reference groups, which exert a significant influence on consumer’s, purchase

decisions and behavior can be classified into six categories. There are
i) The family
ii) Friendship groups,
iii) Formal social groups,
iv) Formal shopping groups,
v) Consumer action groups,
vi) Work groups.
Family: The family is the most important of all these groups and we shall discuss it in
detail. The family, as a unit, is an important of all these groups and we shall discuss it in
detail. The family, as I unit, is an important consumer for many products which are purchased
for consumption by all family members. It is a source of major influence on the
individual members’ buying behavior. We can identify two families which shape an
individual’s consumption behavior .one is the family of orientation that is the family in
which you are born and consists of your parents, brothers and sisters. It is from parents
that we imbibe most of our values, attitudes, beliefs and purchase behavior patterns.
Long after an individual has ceased to live with his parents, their influence of the sub –
conscious mind still continues to be great. In our country, where children continue to live with
parents even after attain adulthood, the latter’s influence is extremely important.
The second type of family is the family of procreation consisting of the consumer’s
spouse and children. Within the family, different member play different roles. Marketers are
interested in finding out exactly the role played by individual members so that they can
appropriately design their promotion strategy to suit these differing roles. Traditionally, it
has been the wife’s role to purchase food, clothing and other household sundries, while the
husband played a dominant role in the purchased of automobiles and life insurance. But
with the emergence of the working-women, these lines of traditional role demarcation
have been getting increasingly blurred. Husbands now have to shoulder a greater part of
the household duties while women are asserting themselves in areas so far treated as the
husband’s domain. Thus, the same decision, in different families may be made either by
the husband or wife, or both may have an equal voice. Children are also beginning to exert
their influence on the family’s purchase decisions. This is especially true in case of
products such as television, stereo music systems, records, personal computers, etc.
where the children are likely to have more updated information about various brands and
product attributes.
Roles: An individual may participate in many groups. His position within each group can be
defined in terms of the activities he is expected to perform. You are probably a manager,
and when in your work situation you play that role. However, at home you play the role of
spouse and parent. Thus in different social positions you play different roles. Each of these
roles influences your purchase decisions.
Status: Each role that a person plays has status, which is the relative prestige accorded by
society. Status is often measured by the degree of influence an individual exerts in the
behavior and attitude of others.People buy and use products that reflect their status. The
managing director of a company may drive a Mercedes to communicate his status in
society. He may go to Europe or U.S.A. for a holiday, rather than going to Mussoorie or
Ooty.
Group norms: Are the norms of a group are the implicit rules of conduct and behavior
that are expected of its member. For instance, in certain multinational companies in India, the
norm for office wear includes a full – sleeved shirt and tie, not with standing the terrible heat
condition. If marketers can identify the various groups to which potential consumers
belong, they can successfully market those products and services whose consumption is
dictated by the group norms.
Personal Factors:
Age and Life cycle Stage:Like the social class the human life cycle can have a significant
impact on consumer behaviour. The life cycle is an orderly series of stages in which
consumer attitude and behavioural tendencies evolve and occur because of developing
maturity, experience, income, and status. Marketers often define their target market in
terms of the consumers present lifecycle stage. The concept of lifecycle as applied to
marketing will be discussed in more details.
Occupation And Income: Today people are very concerned about their image and the
status in the society which is a direct outcome of their material prosperity. The
profession or the occupation a person is in again has an impact on the products they
consume. The status of a person is projected through various symbols like the dress,
accessories and possessions.
Life Style: Our life styles are reflected in our personalities and self-concepts, same is the
case with any consumer. We need to know what a life-style is made of. It is a person’s
mode of living as identified by his or her activities, interest and opinions. There is a method
of measuring a consumer’s lifestyle. This method is called as the psychographics-which is
the analysis technique used to measure consumer lifestyles- peoples activities, interests
and opinions. Then based upon the combina tions of these dimensions, consumers are
classified. Unlike personality typologies, which are difficult to describe measure lifestyle
analysis has proven valuable in segmenting and targeting consumers according to their
lifestyle classification. I would like to cite one example which I have come across was the a
company had organized this study to identify the market segments of their place for the
television sets.
Personality: personality is the sum total of an individual’s enduring internal psychological

traits that make him or her unique. Self-confidence, dominance, autonomy, sociability,
defensiveness, adaptability, and emotional stability are selected personality traits.
Motivation: Motivation involves the positive or negative needs, goals, and desires that impel a
person to or away from certain actions. By appealing to motives (reasons for behavior),
a marketer can generate motivation. Economic and emotional motives are possible. Each
person has distinct motives for purchases; these change by situation and over time.
MASLOW’S HIERACHY OF NEEDS
The Hierarchy of Needs model of Abraham Maslow
1. Hierarchy of Needs - Physiological needs

These are the very basic needs such as air, water, food, sleep, sex, etc. When these are not
satisfied we may feel sickness, irritation, pain, discomfort, etc. These feelings motivate us to
alleviate them as soon as possible to establish homeostasis. Once they are alleviated, we
may think about other things.
2. Hierarchy of Needs - Safety needs

These are dealing with achieving of stability and of consistency in a chaotic world. These
needs are mostly psychological in nature. We need the safety of a home and family.
However, if a family is dysfunctional caused by for example an abusive husband, the wife
cannot move to the next level. Because she is constantly concerned for her safety. Love and
belongingness have to wait until she is no longer in fear. Many in our society cry out for law
and order because they do not feel safe enough to go for a walk in their neighborhood.
3. Hierarchy of Needs - Love and belongingness needs
These are next on the ladder. Humans have a desire to belong to groups: clubs, work groups,
religious groups, family, gangs, etc. We want to feel loved (non-sexual) by others, to be
accepted by others. Performing artists are appreciating applause. We need to be needed.
4. Hierarchy of Needs - Self-Esteem needs

There are two types of esteem needs. The first is the self-esteem which is the result from
competence or mastery of a task. Second, there's the attention and recognition that comes
from others. This is similar to the belongingness level, however, wanting admiration is
related to the need for power.
5. Hierarchy of Needs - The need for self-actualization

This is "the desire to become more and more what one is, to become everything that one is
capable of becoming." People who have everything can maximize their potential. They can
seek knowledge, peace, esthetic experiences, self-fulfillment, oneness with God, etc.
Limitations of the Hierarchy of Needs model. Disadvantages

• Care should be taken not to stick too rigidly to this hierarchy:
• In reality, people don't work necessarily one by one through these levels. They are
much less structured in the way they satisfy their needs. (Graves)
• Different people with different cultural backgrounds and in different situations may
have different hierarchies of need. (Hofstede, Early)
• Other researchers claim that other needs are also significant or even more significant.
See McClelland, who identified needs for achievement, affiliation and power.
• In 1968, Maslow has himself added additional layers in his book: "Toward a
Psychology of Being"
The Two Factors Theory
According to the Two Factor Theory of Frederick Herzberg people are influenced by two
factors. Satisfaction and psychological growth was a factor of motivation factors.
Dissatisfaction was a result of hygiene factors. Herzberg developed this motivation theory
during his investigation of 200 accountants and engineers in the USA.
The two Factors in the Theory

• Hygiene factors are needed to ensure that an employee does not become dissatisfied.
They do not cause higher levels of motivation, but without them there is
dissatisfaction.
• Motivation factors are needed in order to motivate an employee into higher
performance. These factors result from internal generators in employees.
Typical Hygiene Factors
• Working conditions
• Quality of supervision
• Salary
• Status
• Safety
• Company
• Job
• Company policies and administration
• Interpersonal relations
Typical Motivation Factors
• Achievement
• Recognition for achievement
• Responsibility for task
• Interesting job
• Advancement to higher level tasks
• Growth
Combining the hygiene and motivation factors results in four scenario's
• High Hygiene + High Motivation: The ideal situation where employees are highly
motivated and have few complaints.
• High Hygiene + Low Motivation: Employees have few complaints but are not highly
motivated. The job is perceived as a paycheck.
• Low Hygiene + High Motivation: Employees are motivated but have a lot of
complaints. A situation where the job is exciting and challenging. However the
salaries and work conditions are not OK.
• Low Hygiene + Low Motivation: The worst situation. Employees are not motivated
and have lots of complaints.
Herzberg suggests that often work can be arranged and should be arranged in the following
ways:
• job enlargement
• job rotation, and/or
• job enrichment.
Perception
The second major psychological factor that influences consumer behavior is perception.
Perception can be described as “how we see the world around us”. All the time we are
receding messages through our five organs viz.., eyes, ears, nose, mouth and skin. The
different sights, sounds, smells, tastes and sensations that we feel are known as stimuli.
Each person recognizes, selects, organizes and interprets thes3e stimuli in his own
individual manner based in his needs, values and expectations and this is known as
perception. Since each individual’s needs, motive and expectations are unique therefore each
individual’s perception is unique.
Perception helps to explain the phenomenon of why different individuals respond

differently to the same stimulus under the same condition. As a marketing manager, you are
providing stimulus to your consumers through the physical shape, color, size, fragrance,
feel, taste of your product, its package, advertisement and commercials. Your interest is to
the stimuli so that you can highlight that particular stimulus of combination of stimuli,
which evokes the most favorable perception in the maximum number of consumers. For
example, generally consumers tend to perceive the quality of performs on the basis of
package, brand name, price and manufacture’s image.
There are three aspects of perception, which are of immediate interest to the marketer.
These are selective exposure, selective distortion and selective retention.
Selective exposure: you must have noticed that when you are on the look out for
purchasing a specific product, be it camera, refrigerator, television or any other high value
product or services, you suddenly seem to notice more than the usual number of
advertisements pertaining to that specific product. This is because of your selective
exposures. People are more likely to notice stimuli, which relate to their immediate needs.
For the marketer, the implication is that he has to carefully and accurately identifies his
potential customers since other customers are not at all likely to notice the stimuli. Having
identified the potential customers, the marketer has to ensure that the stimuli are
interesting enough to attract and hold their attention..
Selective Distortion: let us suppose you have decided to purchase a specific brand “A” of
pressure cooker. Since you have already made your decision you would seek only that
information which reinforces the correctness of your decision.
If you hear some positive remarks made about brands ‘B’ you would tend to find some
shortcoming or flaw in that brand so that you so not feel that you have made a wrong decision
by buying brand ‘A’ when you attempt to fit information to suit your join ideas or personal
meaning, the process is known as selective distortion. Thus, a marketer may find that his
message is often not received in the intended manner but different consumers twist it in
different ways.
Selective retention: people forget much of the stimuli which they receive3 and only
retain that information which reinforces their clause and decision. You are more likely to
remember the positive feature of brand ‘A’ pressure cooker since they help reassure you
that the decision, which you have made, was correct.
Learning
Learning refers to the skill and knowledge gained from past experience that we apply to
evaluate future decisions and situations. A marketer can build up demand for his brand by
associating it with strong motives, using the appropriate stimuli and cues and providing
positive reinforcement. Thus making the consumer ‘learn ‘ that the brand is good and
worth patronizing.
A newborn infant’s sucking at the feeding bottle is instinctive behavior, but a five year old
clamoring for chocolate or chewing gum is the result of learned behavior. Much of an
adult’s human behavior sis leaned behaviors.
This is a very significant factor marketer, because it implies that consumers can be made to
learn the desired behaviors through in interplay of motives, stimuli, cues, responses and
reinforcements. A housewife has the need is strong enough to propel her to take action it
becomes a motive. The motive is directed towards the stimulus object – a pressure cooker.
The stimuli are the various advertisements about the product, which she sees and hears.
Cues are minor stimuli that determine when, where and how the housewife responds.
Positive feedback about pressure cooker from a friend, seeing it on display in a show-
window, a special introductory price offer are all examples of cues which influence a
housewife’s response to the motive for buying a pressure cooker. Suppose the housewife
buys the pressure cooker and is satisfied with its performance, and then the changes are
that she would like to use it as often as possible, and in the future may buy another
one. The housewife’s response to pressure cookers has been reinforced.
Beliefs & Attitudes

Attitudes or opinions are positive, neutral, or negative feelings about goods, services,
firms, people, issues, and/or institutions. Success cannot normally be attained without posi-
tive consumer attitudes. A belief is a descriptive thought that a person has about
something. A person may believe that a certain coking oil ‘X’ has the lowest fat content and
is best for health. This belief may be based on some real facts or it may merely be a notion
or opinion that the person has. The beliefs constitute the brand image about the brand.
The marketer must ensure that consumers have relevant and correct information about
the brand to facilitate formation of a positive brand image.
Attitude is a person’s enduring feeling, evaluation and tendency towards a particular idea
or object. Starting from childhood, attitude develops over the time with each fresh knowledge
input, experience and influence. Attitudes get settled into specific patterns and are
difficult to change. It is easier to market product that fits in well with the existing patterns
of attitudes rather than change the attitudes to fit a new product concept.
STEPS IN CONSUMER DECISION MAKING PROCESS
The final consumer’s decision process is the way in which people gather and assess
information and make choices among alternative goods, services, organizations, people,
places, and ideas. It consists of the process itself and factors affecting the process.
The decision process consists of six basic stages (the next six sections). Factors affecting
the process are a consumer’s demographic, social, and psychological characteristics.
Sometimes, all six stages in the process are used; other times, only a few steps are utilized
At any point in the process, it may be ended.
STIMULUS: A stimulus is a cue or drive meant to motivate a person to act.

A stimulus can be any of the following:
• Social.
• Commercial.
• Noncommercial.
• Physical.
A prospective consumer may be exposed to any or all of these types of stimuli. If a

person is sufficiently stimulated, he or she will go on to the next step in the decision
process.
PROBLEM AWARENESS: During problem awareness, the consumer recognizes that

the good, service, organization, person, place, or idea may solve a problem of shortage or
unfulfilled desire. Many consumers are hesitant to react to unfulfilled desires because
there are risks and the benefits may be hard to judge.
INFORMATION SEARCH: Information search involves listing alternatives that will solve the
problem at hand and a determination of the characteristics of each. Search can be internal
and/or external .As risk increases; the amount of information sought also increases.
Once the information search is completed, it must be determined whether the shortage or
unfulfilled desire can be satisfied by any alternative.
The Internet has become a major source for consumer shopping information. Seven useful
sources are provided.
EVALUATION OF ALTERNATIVES: The alternatives are evaluated on the basis of the

consumer’s criteria and the relative importance of these criteria. They are then ranked and
a choice made.
PURCHASE - The purchase act involves the exchange of money or a promise to pay for a
product, or support in return of ownership of a specific good, the performance of a specific
service, and so on. Purchase decisions remaining at this stage center on the place of
purchase, terms, availability.
If the above elements are acceptable, a consumer will make a purchase.

POST-PURCHASE BEHAVIOR: Frequently, the consumer engages in post-purchase
behavior. Buying one item may lead to the purchase of another. Re-evaluation of the
purchase occurs when the consumer rates the alternative selected against performance
standards. Cognitive dissonance, doubt that a correct purchase decision has been made,
can be reduced by follow-up calls, extended warranties, and post-purchase
advertisements.
MARKETING SEGMENTATION
It is widely thought in marketing that than segmentation is an art, not a science. The key task is
to find the variable, or variables that split the market into actionable segments
There are two types of segmentation variables:
(1) Needs (2) Profilers

The basic criteria for segmenting a market are customer needs. To find the needs of
customers in a market, it is necessary to undertake market research. Profilers are the
descriptive, measurable customer characteristics (such as location, age, nationality,
gender, income) that can be used to inform a segmentation exercise.
The most common profilers used in customer segmentation include the following:
Profiler Examples
A Demographic
„ Age, sex, family size
„ Income, occupation, education
„ Religion, race, nationality
B Geographic
„ Region of the country
„ Urban or rural
C Behavioral
„ Product usage - e.g. light, medium, heavy users
„ Brand loyalty: none, medium, high
„ Type of user (e.g. with meals, special occasions)
D Psycho graphic
„ Social class
„ Lifestyle type
„ Personality type
Market segmentation process

There are several important reasons why businesses should attempt to segment their
markets carefully. These are summarized below.
Better matching of customer needs - Customer needs differ. Creating separate offers for
each segment makes sense and provides customers with a better solution
Enhanced profits for business - Customers have different disposable income. They
are, therefore, different in how sensitive they are to price. By segmenting markets,
businesses can raise average prices and subsequently enhance profits
Better opportunities for growth - Market segmentation can build sales. For example,
customers can be encouraged to “trade-up” after being introduced to a particular product
with an introductory, lower-priced product
Retain more customers - Customer circumstances change, for example they grow
older, form families, change jobs or get promoted, change their buying patterns. By
marketing products that appeal to customers at different stages of their life (“life-cycle”),
a business can retain customers who might otherwise switch to competing products and
brands
Target marketing communications - Businesses need to deliver their marketing

message to a relevant customer audience. If the target market is too broad, there is a
strong risk that (1) the key customers are missed and (2) the cost of communicating to
customers becomes too high / un profitable. By segmenting markets, the target customer
can be reached more often and at lower cost
Gain share of the market segment - Unless a business has a strong or leading share of a
market, it is unlikely to be maximizing its profitability. Minor brands suffer from lack of
scale economies in production and marketing, pressures from distributors and limited
space on the shelves. Through careful segmentation and targeting, businesses can often
achieve competitive production and marketing costs and become the preferred choice of
customers and distributors. In other words, segmentation offers the opportunity for smaller
firms to compete with bigger ones.
BABSES OF SEGMENTATION
Demographic segmentation
It consists of dividing the market into groups based on variables such as age; gender family
size, income, occupation, education, religion, race and nationality.
demographic segmentation variables are amongst the most popular bases for segmenting
customer groups.
This is partly because customer wants are closely linked to variables such as income and
age. Also, for practical reasons, there is often much more data available to help with the
demographic segmentation process. The main demographic segmentation variables are
summarized below:
Age: Consumer needs and wants change with age although they may still wish to
consumer the same types of product. So Marketers design, package and promote products
differently to meet the wants of different age groups. Good examples include the
marketing of toothpaste (contrast the branding of toothpaste for children and adults) and
toys (with many age-based segments).
Life-cycle stage A consumer stage in the life cycle is also an important variable.
Young child: Leo toys, Barbie dolls (Again these can be segmented by gender basis for
small girls and boys)
Adolescent: Trendy products and services like Jeans, T-shirts, and Coffee shops
Young Adults: Mobikes, music systems, mobile phones
Old people: Investment instruments, health packages for old
Gender: Gender segmentation is widely used in consumer marketing. The best examples
include clothing, hairdressing, magazines and toiletries and cosmetics. You have footwear
exclusively for males, females and kids. For example, you have ‘Action’ School shoes
exclusively for school-going children. Soft perfumes for women and deodorants for men.
Kinetic scooters are targeted more at women. Magazines dedicated to women like
Femina.
Income: You might have noticed that income is another popular basis for segmentation.
Many companies target affluent consumers with luxury goods and convenience services.
Good examples include Mercedes, Pizza Hut Pizzas, Ebony and Parker pen. By contrast,
many companies focus on marketing products that appeal directly to consumers with
relatively low incomes. Examples include Nirma, and Reliance phones besides others.
Market segmentation - geographic segmentation

Geographic segmentation tries to divide markets into different geographical units. These
units include, Regions: e.g. in India, you can talk of North India, West India, as regions or
zones and Delhi, Mumbai, Chennai as metropolitan cities and Jaipur, Lucknow and
Baroda as smaller cities. Countries: perhaps categorized by size, development or
membership of geographic region City / Town size: e.g. population within ranges or above a
certain level Population density: e.g. urban, suburban, rural, and semi-rural Climate: e.g.
Northern, Southern
Geographic segmentation is an important process - particularly for multi-national and

global businesses and brands. Many such companies have regional and national
marketing programmes that alter their products, advertising and promotion to meet the
individual needs of geographic units.
Market segmentation - behavioral segmentation

Behavioral segmentation divides customers into groups based on the way they respond
to, use or know of a product. Behavioral segments can group consumers in terms of:
Occasions: When a product is consumed or purchased. For example, cereals have

traditionally been marketed as a breakfast-related product. Kelloggs have always
encouraged consumers to eat breakfast cereals on the “occasion” of getting up. More
recently, they have tried to extend the consumption of cereals by promoting the product as
an ideal, anytime snack food.
In India, lots of home shopping takes place on the occasion of ‘Divali’. TV sets sales goes
up during world cup cricket.
Usage: Some markets can be segmented into light, medium and heavy user groups
Loyalty: Loyal consumers - those who buy one brand all or most of the time - are valuable
customers. Many companies try to segment their markets into those where loyal
customers can be found and retained compared with segments where customers rarely
display any product loyalty. The holiday market is an excellent example of this. The
“mass-market” overseas tour operators such as SOTC, Thomson, JMC and First Choice
have very low levels of customer loyalty - which means that customers need to be recruited
again every year. Compare this with specialist, niche operators such as those specializing
for Bangkok and Singapore only; customers who have traveled with the brand in each of
the last 15-20 years.
Benefits Sought: You may note that this is a different and an important form of behavioral
segmentation. Benefit segmentation requires Marketers to understand and find the main
benefits customers look for in a product. An excellent example is the toothpaste market
where research has found four main “benefit segments” - economic; medicinal, cosmetic
and taste.
Market segmentation – Psycho graphic segmentation

Lifestyle: Marketers are increasingly interested in the effect of consumer “lifestyles” on
demand. Unfortunately, there are many different lifestyle categorization systems, many of
them designed by advertising and marketing agencies as a way of winning new marketing
clients and campaigns!
A. Lifestyles are the ways in which people live and spend time and money.
B. You can target final consumers by segmenting by social class and stage in the family
cycle.
C. A heavy-usage segment is a consumer group that accounts for a large proportion of
an item’s sales relative to the segment’s size.
D. Benefit segmentation groups consumers into markets on the basis of different benefits
sought from a product.
some example here:

• Citibank International Gold card is for the ‘affluent’ people who travel abroad
frequently
• Five Star Hotels are for the foreigners, top business and corporate class to whom
comfort and convenience are the parameters of ‘value’
• Black and White TV still sells in upcountry areas, small hotels and small shops to
lower middle class
TARGETING THE MARKET
IDENTIFYING POTENTIAL MARKET SEGMENT :

A firm develops consumer profiles after establishing bases of segmentation .These
profiles identify potential market segments by aggregating consumers with similar
characteristics and needs, and separating them from consumers with different
characteristics and needs. You can understand from the following sections how a
variety of firms could identify potential market segments and develop consumer
profiles.
Undifferentiated Marketing (Mass Marketing)

A. An undifferentiated marketing approach aims at a large, broad consumer market
through one basic marketing plan.
B. Use of this approach has declined in recent years due to the following:
1. Growth of competition.
2. Stimulated demand by appealing to specific segments.
3. Improved marketing research that pinpoints desires of different segments.
4. A reduction in total production and marketing costs because of segmentation.
C. A major objective of undifferentiated marketing is to maximize sales.
D. For successful pure mass marketing, a large group of consumers must have a desire
for the same product attributes or consumer demand must be so diffused that it would not
be worthwhile for a firm to aim marketing plans at specific segments.
1. A firm sells items through all possible outlets.
2. Both total and long run profits should be considered.
Concentrated Marketing
A. A concentrated marketing approach aims at a narrow, specific consumer group
through one specialized marketing plan catering to the needs of that segment.
B. Concentrated marketing is popular for small firms for these reasons:

1. Mass production, mass distribution, and mass advertising are not necessary.
2. It can succeed with limited resources and abilities by concentrating efforts.
C. If concentrated marketing is used, it is essential for a firm to do a better job than

competitors in several areas.
1. The company needs to tailor its marketing program for its segment better than
competitors.
2. Competitors’ strengths should be avoided and weaknesses exploited.
D. The majority fallacy, appealing to a large segment that is laden with competition,
should be avoided.
E. A potentially profitable segment may be one ignored by other firms.
F. Per unit profits can be maximized through market segmentation. Total profits are not
maximized, because only one segment is sought.
G. A distinct niche can be carved out for a particular brand.
Differentiated Marketing (Multiple Segmentation)

A. Differentiated marketing combines the best attributes of undifferentiated marketing and
concen trated marketing. It appeals to two or more distinct market segments, with a
different marketing plan for each.
1. Firms such as Maruti-Suzuki use differentiated marketing to attract all segments.
Others, such as Hyundai, and Microsoft appeal to two or more segments, but not all
segments.
2. Some companies, such as Time Inc., use both undifferentiated marketing and
concentrated marketing approaches in their multiple-segmentation strategy. They have
one or more major brands for the mass market and secondary brands geared toward
specific segments.
B. Company resources and abilities must be able to produce and market two or more
different sizes, brands, or products. Costs vary, depending on modifications needed.
C. Differentiated marketing should enable the firm to achieve several objectives:
1. Sales maximization.
2. Recognition as a specialist.
3. Diversification.
D. Differentiated marketing can be achieved without involvement in the majority fallacy.
E. Two or more sizable and distinct consumer groups are necessary. The more clusters
facing the firm, the greater the opportunity for differentiated marketing.
F. Wholesalers and retailers usually find differentiated marketing to be desirable, because it

enables them to reach different consumers, offers a degree of exclusivity, allows
orders to be concentrated, and encourages private labels.
G. Total profits should rise as the number of segments serviced increases.
H. A firm must balance revenues obtained from selling to multiple segments against the
costs.
I. A company must be careful to maintain product distinctiveness in each consumer segment

and to guard its image.
POSITIONING AND DIFFERENTIATION
Positioning is defined as the act of designing the company’s offering and image to occupy
distinctive place in the target market’s mind
The main points that to be rememberd are:

• Positioning is the final part of the SEGMENT - TARGET - POSTION process
• Positioning is undoubtedly one of the simplest and most useful tools to marketers.
• Positioning is all about ‘perception’. As perception differs from person to person,
so do the results of the positioning map e.g. what you perceive as quality, value
for money in terms of worth, etc, is different to my perception. However, there will
be similarities in certain cases.
• After segmenting a market and then targeting a consumer, next step will be to position
a product within that market. It refers to a place that the product offering occupies in
• consumers’ minds on important attributes, relative to competing offerings. How new
and current items in the product mix are perceived, in the minds of the consumer,
therefore re-emphasizing the importance of perception!! New Product—need to
communicate benefits
POSITIONING ERRORS
POSITIONING TYPES- APPROACHES
Positioning by attribute, feature, or customer benefit.
For this strategy, emphasis is placed on the benefits of the particular features or attributes
of the destination. For example, Thailand promotes the friendliness of its people with the
statement “The world meets in the land of smiles.”
Positioning by Price Value

International destinations are not usually positioned on the basis of price because lower
prices may be perceived as connoting lower quality. However, value offered
to visitors can be effectively utilized as exemplified by Malaysia which claims “Malaysia
gives more natural value.” With this positioning statement Malaysia is appealing not only
to the sense of value (more for the money) but also to its natural attractions.
Positioning with respect to use or application

Here a destination is positioned based on the reasons for visiting it. Bermuda positions
itself to the American meetings market with “Sometimes you have to leave the country
to get any work done” which promises productive meetings in a relaxed environment.
Cancun, Mexico is positioned as “The meeting place for sun worshipers.”
Positioning according to the users or class of users

In this case, positioning features the people who should visit the destination. Hong Kong
appeals to the incentive travel market with the statement ‘When they’ve reached the
top, send them to the peak,” referring to Victoria Peak, a major tourist site in Hong Kong:
Fisher Island, a luxury residen- tial development in Florida, positions itself as the place
“where people who run things can stop running.”
Positioning with respect to a product class

This technique is often used to associate a destination with experiences that are
extraordinary and/ or unique. For example, the Principality of Monaco is positioned as
“The fairy tale that does not end at midnight,” or holding a convention in Thailand is
“Smooth as silk where the sky’s the limit, or “If your looking for an ideal meeting place,
here’s one that’s close to heaven” for Israel.
Positioning vis-à-vis the competition

This approach is used when it is necessary to meet the competition head-on; to bring out
differences between destinations. This approach is not used frequently in international
tourism destination marketing since it may involve negative statements about another
country or region. However, it is regularly employed in product and services marketing.
For example, Visa credit cards compete with American Express by showing examples of
places from around the world that do not accept American Express and only Visa cards are
accepted. Ritz-Carlton Hotels is a little more subtle when they say, ‘After a day of
competition, you deserve a hotel that has none.”
What is Differentiation?
The task of positioning is to deliver a central idea about a company or an offering to the
target market. Positioning simplifies what one is thinking of the entity. Differentiation
goes beyond positioning to spin a complex web of differences characterizing that entity.
Differentiation is the process of adding a set of meaningful and valued differences to
distinguish the company offering from competitors offerings.
TYPES OF DIFFERENTIATION
Product differentiation
In this the marketing mix variable are used to make unique product offer that stands out from
the competitors. This strategy is aggressive; in this the company is focusing on besting the
competition and at the same time they are satisfying the consumers and gaining higher
profits. The tools that are used to differentiate products include branding, quality, image,
product features, packaging, location, promotion, innovation and different service levels.
Consumers who perceive that a product is unique in servicing their needs often become
brand loyal and are more willing to pay a premium price in order to gain the product
benefits. Marketers have identified that the products are capable of higher differentiation
than services such as automobile and furniture.
Form: Companies can differentiate products on the basis of form- that is the physical
structure, the size, and the shape of the product. Example of any product, which can be
in many forms like Disprin. As Disprin is essentially a commodity, it can be
differentiated by the dosage size, shape, coating and action time.
Features: they are the characteristics, which are very important they are basically there to
support the basic functions of the product. Marketers starts by asking recent buyers about
additional features that would improve satisfaction, then determining which would be
profitable to add, given the potential market, cost and price.
Performance quality: is the level, which the product’s primary characteristics operate.
The strategic planning institute found a significantly positive correlation between relative
product quality and return on investment. Yet there are diminishing return to higher
performance quality so marketers must choose a level suited to the target market and rival
performance levels.
Conformance quality: C onformance for quality, which is in terms of degree to which

all of the produced units are identical and are able to meet the promised specification. The
problem with low conformance quality is that the product will disappoint some buyers.
Durability: D urability in the product me a n s expecting the product to be operating

under natural or stressful conditions. It is important for products such as vehicles and
kitchen appliances to be durable. However the extra price must not be excessive and the
product must not be subjected to rapid technological obsolescence.
Reliability: on reliability basis one is normally ready to pay a premium, it is basically a

measure of the probability that a product will not malfunction or fail within a specified
time period. May tag, which manufacturers major home appliances, have an outstanding
reputation for creating reliable appliances?
Reparability: buyers prefer products that are easy to repair. Reparability is a measure of
the ease of fixing a product when it malfunctions or fails. An automobile made with standard
parts that are easily replaced has highly reparability. Ideal reparability would exist if users
could fix the product themselves with little cost or time.
Style: Style is look and feel of the product to the customer.. Most of the time, cuistomers are
normally willing to pay a premium for products that are attractively styled. Aesthetics have
played a key role in such brands as Absolute vodka, Apple computers, Godiva chocolate
and Harley- Davidson motorcycle. Style has the advantage of creating distinctiveness
that is difficult to copy. However, strong style does not always means high performance.
Design: as competition intensifies, design offers a potent way to differentiate and position a
company’s products and services. Design is the integrating force that incorporates all of the
qualities; this means the designer has to figure out how much to invest in form, feature
development, performance, conformance, durability, reliability, reparability and style. For a
company a well-designed product is one that is easy to manufacture and distribute. To the
company, a well-designed product is one that is pleasant to look at and easy to open,
install, use, repair and dispose of. The designer has to take all of these factors into account
Service differentiation:
When the physical product cannot be differentiated easily, the key to competitive success
may lie in adding valued services and improving their quality.
The main service differentiators are:

Ordering ease: refers to how easy it is for cusotmer to place an order with the
company. Baxter Healthcare has eased the ordering process by supplying hospitals with
computer through which they send orders directly to Baxter; consumers can now order
and receive groceries without going to the supermarket business web-based service such
as peapod and net grocer.
Delivery: it is related to how well the product or service is delivered to the customer,
covering speed, accuracy and customer care. Deluxe check printer, inc., has built an
impressive reputation for shipping out its checks one day after receiving an order- without
being late once in 18 years.
Installation: refers to the work done to make a product operational in its planned
location. Buyers of heavy equipment expect good installation service. Differentiation by
installation is particularly important for companies that offer complex products such as
computers.
Customer training refers to how the customer’s employees are trained to use the
vendor’s equipment properly and efficiently. General Electric not only sells installs expensive
X-rays equipment in hospitals, but also gives extensive training to users of this equipment.
Customer consulting refers to data, information system and advising services that the
seller offers to buyers. For example, the Rite aid drugstore chain’s communications program,
called the Vitamin Institute, provide customers with research so they can make more
educated judgments and fell comfortable asking for help. On the Web, Rite Aid has
teamed with drugstore.com to offer even more health-related information.
Maintenance and repair: describes the service program for helping customers keep
purchasing products in good working order, an important consideration for many products.
Personnel differentiation
Companies can gain a strong competitive advantage through having better-trained people.
Singapore Airlines enjoys an excellent reputation in large part because of its fight
attendants. The McDonald’s people are courteous, the IBM people are professional and the
Disney people are upbeat. The sales forces of such companies as General Electric, Cisco,
Frito-Lay, and Northwestern Mutual life enjoy an excellent reputation. Well- trained
personnel exhibit six characteristics: competence, courtesy, credibility, reliability,
responsiveness and communication.
Channel differentiation
Companies can achieve competitive advantage through the way they design their
distribution channels’ coverage, expertise and performance. Caterpillar’s success in the
construction –equipment industry is based partly on superior channel development. Its
dealers are found in more locations, are better trained and performance more reliability
than competitors dealers. Dell computers has also distinguished itself by developing and
managing superior direct-marketing channels using telephone and internet sales.
Image differentiation
Customer will response differently to company and brand image. Identity comprises the
ways that a company aims to identify or position itself or its product, whereas image is the
way the public perceives the company or its products. Image is affected by many factors
beyond the company’s control. For example, Nike mainstream popularity turns off 12-to-
24-years-olds, who prefers Airwalk and other alternative brands that convey amore
extreme sports image. An effective image establishes the product’s character and value
proposition, it conveys this character in a distinctive way and it delivers emotional power
beyond a mental image. For the image to work, it must be conveyed through every available
communication vehicle and brand contact, including logos, media and special events.
PRICING
Price is the amount of money charged for a product or service. More broadly, price is the
sum of all the values that consumers exchange for the benefits of having or using the
product or service.
PRICE- The amt of money charged for a product or service, or the sum of the values that
consumers exchange for the benefits of having or using the product or service.
“One can define price as that which people have to forego in order to acquire a product or
service.” What does a buyer think? To a buyer, price is the value placed on what is
exchanged. Something of value -usually purchasing power - is exchanged for satisfaction or
utility. Purchasing power depends on a buyer’s income, credit, and wealth.
Setting the Price- Pricing Policy:
A firm must set a price for the first time when it develops a new product, when it
introduces its regular product into a new distribution channel or geographical area, and
when it enter bids on new contract work.
According to Kotler an organization goes through the following steps in setting its pricing
policy: -
Selecting the pricing Objective -
The company first decides where it wants to position its marketing offering. The clearer a
firm’s objectives, the easier it is to set price. A company can pursue any of five major
objectives through pricing: survival, maximum current profit, maximum market share,
maximum market skimming, or product-quality leadership.
Companies pursue survival, as their major objective if they are plagued with overcapacity
intense competition, or changing consumer wants. As long as prices cover variable costs
and some fixed costs, the company stays in business. Survival is a short-run objective: in the
long run, the firm must learn how to add value or face extinction.
Many companies try to set a price that will maximize current profits. They estimate the
demand and costs associated with alternative prices and choose the price that produces
maximum current profit, cash flow or rate of return on investment. This strategy assumes
that the firm has knowledge of its demand and cost functions; in reality these are difficult to
estimate.
Some companies want to maximize their market share. They believe that a higher sales
volume will lead to lower unit costs and higher long-run profit. They set the lowest price,
assuming the market is price sensitive. The following conditions favor setting a low price
The market is highly price sensitive, and a low price stimulates market growth.
Production and distribution costs fall with accumulated production experience; a low price
discourages actual and potential competition Companies unveiling a new technology favor
setting high prices to “skim” the market. Sony is a frequent practitioner of market skimming
pricing.
2. Determining the demand - Following the identification of objectives, the firm needs
to determine demand. Each price will lead to a different level of demand and therefore
have a different impact on a company’s marketing objectives. In the normal case, demand
and price are inversely related: the higher the price, the lower the demand .In the case of
prestige goods, the demand curve sometimes slopes upward. E.g. Perfume Company
raised its price and sold more perfume rather than less! Some consumers take the higher
price to signify a better product. However if the price is too high, the level of demand may
fall.
Customers are most price-sensitive to products that cost a lot or are bought frequently?
They are less price-sensitive to low –cost items or items they buy infrequently. They are
also less price-sensitive when price is only a small part of the total cost of obtaining,
operating and servicing the product over its lifetime. A seller can charge a higher price
than competitors and still get the business if the company can convince the customer that it
offers the lowest total cost of ownership (TCO).
The process of estimating demand therefore leads to

i. Estimating Price sensitivity of market
ii. Estimating and analyzing demand curve
iii. Determining price elasticity of demand.
3. Estimating Costs - Demand sets a ceiling on the price the company can charge for its
product.
There are different costs of organization. These c o s t s r e l a t e with pricing. A

company’s cost take two forms, fixed and variable. Fixed costs (also known as overhead)
are costs that do not vary with production or sales revenue. A company must pay bills
each month for rent heat, interest, salaries and so on. , Regardless of output. Variable costs
vary directly with the level of production. These costs tend to be constant per unit
produced. They are called variable because their total varies with the number of units
produced. Total and variable costs for any given level of production. Average cost is the
cost per unit at the level of production; it is equal to total costs divided by production.
To price intelligently, management needs to know how its costs vary with different levels of
produc tion.
TARGET COSTING - Costs change as a result of a concentrated effort by designers,

engineers and purchasing agents to reduce them. The Japanese use a method called target
costing. They use market research to establish a new product’s desired functions. Then
they determine the price at which the product will sell, given its appeal and competitor’s
prices. They deduct the desired profit margin from this price, and this leaves the target cost they
must achieve.
4. Analyzing competitor ’s costs, prices and offers A nalyzing competitor’s costs,

prices and offers is also important factor in setting prices .
Within the range of possible prices determined by market demand and company costs, the firm
must take the competitor’s costs, prices and possible price reactions into account.
While demand sets a ceiling and costs set a floor to pricing, competitors’ prices provide an
in between point you must consider in setting prices. Learn the price and quality of each
competitor’s product or service by sending out comparison shoppers to price and compare.
Acquire competitors’ price lists and buy competitors’ products and analyze them. Also ask
customers how they perceive the price and quality of each competitor’s product or service.
If your product or service is similar to a major competitor’s product or service, then you
will have to price close to the competitor or lose sales. If your product or service is inferior,
you will not be able to charge as much as the competitor. Company should also be aware
that competitors might even change their prices in response to your price.
5. Selecting a pricing method -

There are three pricing methods that can be employed by a firm:
1. Cost Oriented Pricing
2. Competitor Oriented Pricing
3. Marketing Oriented Pricing
Cost Oriented Pricing - Companies often use cost oriented pricing methods when setting
prices. Two methods are normally used
Full cost pricing - Here the firm determines the direct and fixed costs for each unit of
product. The first problem with Full-cost pricing is that it leads to an increase in price as
sales fall. The process is illogical also because to arrive at a cost per unit the firm must
anticipate how many products they are going to sell. The is an almost impossible prediction.
This method focuses upon the internal costs of the firm as opposed to the prospective
customers’ willingness to pay.
Direct (or marginal) Cost Pricing - This involves the calculation of only those costs,
which are likely to increase as output increases. Indirect or fixed costs (plant, machinery
etc) will remain unaffected whether one unit or one thousand units are produced. Like
full cost pricing, this method will include a profit margin in the final price. Direct cost approach
is useful when pricing services for example. Consider aircraft seats; if they are unused on a
flight then the revenue is lost. These remaining seats may be offered at a discount so that
some contribution is made to the flight expenses. The risk here is that other customers who
paid the full price may find out about the discounted offer and complain. Direct costs then,
indicate the lowest price at which it is sensible to take business if the alternative is to let
machinery, aircraft seats or hotel rooms lie idle.
Competition-based approach - Going-Rate Pricing

In going-rate pricing, the firm bases its price largely on competitors’ prices, with less attention
paid to its own costs or to demand. The firm might charge the same, more, or less than its
major competitors. Where the products offered by firms in a certain industry are very
similar the public often finds difficulty in perceiving which firm meets there needs best. In
cases like this (for example in financial services and delivery services) the firm may attempt
to differentiate on delivery or service quality in an attempt to justify a higher selling price.
Competitive Bidding - Many contracts are won or lost on the basis of competitive
bidding. The most usual process is the drawing up of detailed specifications for a product
and putting the contract out for tender. Potential suppliers quote a price, which is confidential
to themselves and the buyer. In sealed-bid pricing (i.e. only known to client and not to the
other parties tendering for the service), firms bid for jobs, with the firms basing the price on
what it thinks other firms will be bidding rather than on its own costs or demand. All other
things being equal the buyer will select the supplier that offers the lowest price.
Marketing Oriented Pricing - The price of a product should be set in line with the
marketing strategy. The danger is that if price is viewed in isolation (as would be the case
with full cost pricing) with no reference to other marketing decisions such as positioning,
strategic objectives, promotion, distribution and product benefits. The way around this
problem is to recognize that the pricing decision is dependent on other earlier decisions in
the marketing planning process. For new products, price will depend upon positioning,
strategy, and for existing products price will be affected by strategic objectives.
6. Selecting the final Price - Pricing methods narrow the range from which the
company must select its final price. In selecting that price, the company must consider
additional factors, including psychological pricing, gain and risk pricing, the influence of
other marketing –mix elements on price, company –pricing policies, and the impact of price
on other parties.
DIFFERENT PRICING STRATEGIES
1. Geographical pricing (cash. Counter trade. Barter) - Geographical pricing

involves the’ company in deciding how to price its products to different. Customers
in different locations and countries. For example, should the company charge higher
prices to distant customers to cover the higher shipping costs or a lower price to win
additional business? Another issue is how to get paid. This issue is critical when
buyers lack sufficient hard currency to pay for their purchases. Many buyers want to
offer other items in payment, a practice known as counter trade. American compa nies
are often forced _o engage in counter trade if they want the business. Counter
trade may account for 15 to 25 percent of world trade and takes several forms:
barter, compensation deals, buyback agreements, and offset.
Barter: The direct exchange of goods, with no money and no third party involved
Compensation deal: The seller receives some percentage of the payment in cash and
the rest in products. A British aircraft manufacturer sold planes to Brazil for 70 percent cash
and the rest in coffee.
Buyback arrangement: The seller sells a plant, equipment, or technology to another

country and agrees 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.
2. 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.
Clearly the role of discounts will vary from one type of business to another and not all of
the comments above will apply to you. In part your ability to minimize discounts, or
eliminate them altogether, will depend on the non-price benefits of your product. But,
whatever business you are in, you should always ask yourself what your discounts are
supposed to achieve, whether they are effective, and how long they are expected to last.
In general, keep standard discounts low to retain maximum flexibility and ensure that
they are consistent with your overall marketing and pricing strategy.
3. Promotional Pricing - 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
additional 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
Encour- age 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.
4. Discriminatory pricing - 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 discrimination, 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
proportionately 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 bottle
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 disliked 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 seat- ing 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 capture as
much revenue as possible.
Computer technology is making it easier for sellers to practice discriminatory pricing. For
instance, they can use software that monitors customers’ movements over the Web and
allows them to cus- tomize offers and prices. New software applications, how-ever, are also
allowing buyers to discrimi- nate between sellers by comparing prices instantaneously.
5. 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 single
products and introduce price steps. In many lines of trade, sellers use well-established price
points for the products in their line. A men’s clothing store might carry men’s suits at three
price levels: 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. Manu- facturers 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 products, and other
chemicals—often results in by-products. If the by-products have value to a customer
group, they should be priced on their value. Any income earned on the by-products will
make it easier for the company to charge a lower price on its main product if competition
forces it to do so.
Product-Bundling pricing - Sellers often bundle products and features. Pure bundling
occurs when a firm only offers its products as a bundle. 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 separately. Because customers may not have planned to buy
all the components, the savings on the price bundle must be substantial enough to induce
them to buy the bundle.
PRICE CHANGES
Companies often face situations where they may need to cut or raise prices. The key
issues associated with initiating price changes are the circumstances that may lead a
company to raise or lower prices, the tactics that can be used, and estimating competitor
reactions.
The options available to the organization for making changes in prices would generally
include the following: -
Initiating price cuts

Either the company starts with lower costs than its competitors or it initiates price cuts in the
hope of gaining market share and lower costs.
Initiating price increases

Like price cuts , a firm can also initiate to increase the price. A successful price increase
can raise profits considerably. For example, if the company’s profit margin is 3% of sales,
a 1% increase will increase profits by 33% if sales volume is unaffected. The circumstances
provoking price increases are generally as follows: -
Cost inflation: A major circumstance provoking price increases is cost inflation. Rising
costs un- matched by productivity gains squeeze profit margins and lead companies to
regular rounds of price increases. Companies often raise their prices by more than cost
increase, in anticipation of further inflation and govt. price controls, in a practice called
anticipatory pricing.
Over demand: when a company cannot supply all of its customers, it can raise its prices,
ration supplies to its customers, or both. The price can be increased in the following ways:
Methods of dealing with over demand:
Delayed quotation pricing: The company does not set a final price until the product is
finished or delivered. This pricing is prevalent in industries with long production lead
times, such as industrial construction and heavy equipment.
Escalator clauses: The company requires paying today’s price and all or part of any
inflation increase that takes place before delivery. An escalator clause bases price
increases on some specified price index. Escalator clauses are found in contracts for major
industrial projects, like aircraft construction and bridge building.
Unbundling: The Company maintains its price but removes or prices separately one or
more elements that were part of the former offer, such as free delivery or installation.
Reduction of discounts: The company instructs its sales force not to offer its normal
cash and quantity discounts.
DISTRIBUTION
Distribution as follows :-
A channel of distribution comprises a set of institutions which perform all of the
activities utilised to move a product and its title from production to consumption.
We define a value network as follows:
A value network is a system of partnerships and alliances that a firm creates to source,
augment, and deliver its offerings
Marketing channels are sets of interdependent organizations involved in the process of

making a product or service available for use or consumption!
Marketing-channel decisions are among the most critical decisions facing management. The
channels chosen intimately affect all the other marketing decisions. The company’s pricing
depends on whether it uses mass-merchandisers or high- quality boutiques. The firm’s sales
force and advertising decisions depend on how much training and motivation dealers need.
In addition, the company’s channel decisions involve relatively long-term commitments to
other firms. When an automaker signs up independent dealers to sell its automobiles, the
automaker cannot buy them out the next day and replace them with. Company -owned
outlets.
Distribution Channel Function:

All channel functions have three things in common:
• They use up scarce resources;
• They can often be performed better through specialization;
• They can be shifted among channel members.
DITRIBUTION CHANNEL FUCTION DAIGRAM
CHANNEL DESIGN DECISIONS:
Following four steps help design a channel system :-

1. Analyzing customer needs
2. Establishing channel objectives
3. Identifying major channel alternatives
4. Evaluating major channel alternatives
1. Analyze Customers’ Desired Service Output Levels

It is imperative to understand that in designing the marketing channel, the marketer
must understand the service output levels desired by target customers. Channels produce
five service outputs
Lot size : The number of units the channel permits a typical customer to purchase on one
occasion, customers normally prefer fast delivery channels.
Waiting time : The average time customers of that channel wait for receipt of the goods.
Spatial convenience : The degree to which the marketing channel makes it easy for
customers to purchase the product
Product variety: The assortment breadth provided by the-marketing channel. Normally,
customers prefer a greater assortment because more choices increase the chance of finding
what they need.
Service backup: The add-on services (credit, delivery, installation, repairs) provided by the
channel. The greater the service backup, the greater the work provided by the channel.
2. Establish Objectives and Constraints

Channel objectives should be stated in terms of targeted service output levels under
competitive conditions, channel institutions should arrange their functional tasks to
minimize total channel costs with respect to desired levels of service outputs Usually,
several market segments that desire differing service output levels can be identified.
Effective planning requires determining which market segments to serve and the best
channels to use in each case.
Channel objectives vary with product characteristics. Perishable products require more
direct marketing. Bulky products, such as building materials, require channels that minimize
the shipping distance and the amount of handling. Non standardized products, such as
custom-built machinery and specialized business forms, are sold directly by company sales
representatives. Products requiring installation or maintenance services,
3. Identify Major Channel Alternatives

Companies can choose from a wide variety of channels for reaching customers-from
sales forces to agents, distributors, dealers, direct mail, telemarketing, and the Internet. Each
channel has unique strengths as well as weaknesses. Sales forces can handle complex
products and trans- actions, but they are expensive. The Internet is much less expensive,
but it cannot handle complex products. Distributors can create sales, but the company loses
direct contact with customers.
The problem is further complicated by the fact that most companies now use a mix of
channels. Each channel hopefully reaches a different segment of buyers and delivers the
right products to each at the least cost. When this does not hap- pen, there is usually
channel conflict and excessive cost.
A channel alternative is described by three elements

• The types of available business intermediaries,
• the number of intermediaries needed, and

1. Exclusive distribution
2. Exclusive dealing
3. Selective distribution
4. Intensive distribution
the terms and responsibilities of each channel member.

1. Price policy
2. Conditions of sale
3. Distributors’ territorial rights
4. Evaluate the Major Alternatives
(time, cost, image parameters particularly)

Economic criteria—sales versus costs
Control and adaptive criteria—degree of intermediary commitment
Channel Management Decision:
Channel management calls for selecting particular middlemen and motivating them with a
cost- effective trade relations mix. The aim is to build a “partnership” feeling and joint
distribution programming.
1. Selecting Channel Members

2. Training Channel Members
3. Motivating Channel Members
4. Evaluating Channel Members
5. Modifying Channel Arrangements
1. Selecting Channel Members
Companies need to select their channel members carefully. To customers, the channels are
the company. Consider the negative impression you would get of McDonald’s, , or Hyundai
if one or more of their outlets or dealers consistently appeared dirty, inefficient, or
unpleasant. Selecting channel members would therefore involve
evaluate experience,
number of lines carried,
growth and profit record
solvency, cooperativeness, and reputation
2. Training channel members

Companies need to plan and implement careful training programs for their intermediaries,
because they will be viewed as the company by end users .
They prepare the channel member employees to perform more effectively and efficiently The
company should provide training programs, market research programs, and other
capability-building programs to improve intermediaries’ performance.
3. Motivating channel members A. Company needs to view its intermediaries in the

same way it views its end users. It needs-to determine intermediaries’ needs and construct
a channel positioning such that its, channel offering is tailored to provide superior value to
these intermediaries
Producers vary in their ability to attract intermediaries . They can exercise the following
types of power
Coercive power
Reward power
Legitimate power
Expert power
Referent power
More sophisticated companies try to form partnerships and can evolve into long-term
distribution programming.
3. Evaluating channel members Producers must periodically evaluate intermediaries’

performance against such standards as sales-quota attainment, average inventory levels,
customer delivery time treatment of damaged and lost goods, and cooperation in promotional
and training programs. A producer will occasionally discover that it is paying too much to
particular intermediaries for what they are actually doing. One manufacturer that was
compensating a distributor for holding inventories found that the inventories were actual
held in a public warehouse at its expense. Producers should set up functional discounts in
which they pay specified amounts for the trade channel’s performance of each agreed-upon
service. Under performers need to be counseled, retrained, re motivated, or terminated.
They are evaluated on the following parameters
sales quota attainment,
average inventory levels,
customer delivery time,
treatment of damaged and lost goods,
cooperation in promotional and training programs
4. Modifying channel arrangements A producer must periodically review and modify its
channel arrangement. Modification becomes necessary when the
„ distribution channel is not working as planned,

„ consumer buying patterns change, the market expands
„ new competition arises,
„ innovative distribution channels emerge,
„ and the product moves into later stage in the product life cycle.
Therefore the system will require periodic modification to meet new conditions in the
marketplace .
Channel Dynamics:
A. Conventional Marketing System

A channel consisting of one or more independent producers, wholesalers, and retailers each a
separate business seeking to maximize its own profits even at the expense of profits for the
system as a whole .
B. Vertical Marketing System

A distribution channel structure in which producers, wholesalers, and retailers act as a
unified system. One channel member owns the others, has contracts with them, or has so
much power that they all cooperate.
VMS s arose as. result of strong channel members’ attempts to control channel behavior
and eliminate the conflict that results when independent members pursue their own
objectives. VMS achieve economies through size, bargaining power, and elimination of
duplicated ser-vices.
A. Vertical marketing system comprises of

1. Corporate VMS
2. Administered VMS
3. Contractual VMS
i. Corporate VMS
A vertical marketing system that combines successive stages of production and distribution
under single ownership—channel leadership is established through common ownership.
ii. Administered VMS

A vertical marketing system that coordinates successive stages of production and distribution,
not through common ownership or contractual ties, but through the size and power of one of
the parties.
iii. Contractual VMS

A vertical marketing system in which independent firms at different levels of production
and distribution join together through contracts to obtain more economies or sales impact
than they could achieve alone.
Contractual VMS could have the following forms a Wholesaler-sponsored voluntary chains
b. Retailer cooperatives
c. Franchise organizations
d. Manufacturer-sponsored retailer franchise or manufacturer-sponsored wholesaler
franchise
C. Horizontal Marketing Systems

A channel arrangement in which two or more companies at one level join together to
follow a new marketing opportunity.
i. Two or more unrelated firms put together resources or programs.
ii. Each firm lacks the capital, technology, marketing resources or other variables to take
on the venture alone
iii. Can be permanent or temporary
D. Multi channel Marketing Systems A distribution system in which a single firm sets up
two or more marketing channels to reach one or more customer segments.
i. Multi channel marketing—single firm uses two or more marketing channels to reach one
or more customer segments—advantages: increased coverage, lower cost, customized
selling
ii. Planning channel architecture (companies thinking through their channel architecture—
which are efficient and not, and developing new means)
iii. Roles of individual firms in a multi channel system: (insiders, strivers, complementers,
transients, outside innovators)
What is Retailing?
Retailing includes all the activities involved in selling goods or services directly to final
consumers for personal, non business use. A retailer or retail store is any business enterprise
whose sales volume comes primarily from retailing.
Types of Retailing.
1. Amount of service
2. Product lines
3. Relative prices
4. Organizational approach
1. Amount of service
A Self-service retailers
Customers are willing to self-serve to save money
B Discount stores
Limited-service retailers
Most department stores
C Full-service retailers
Salespeople assist customers in every aspect of shopping experience
High-end department stores
Specialty stores
3. Product lines
A Specialty stores
Narrow product lines with deep assortments
B Department stores
Wide variety of product lines
C. Supermarkets
D. Convenience stores
Limited line
E. Superstores
Food, nonfood, and services
F. Category killers
Giant specialty stores
3. Relative prices
A Discount stores
Low margins are offset by high volume
B Off-price retailers
C Independent off-price retailers
D Factory outlets
E Warehouse clubs
4. Organizational approach
A Corporate chain stores
Commonly owned / controlled
B Voluntary chains
Wholesaler-sponsored groups of independent retailers
C Retailer cooperatives
Groups of independent retailers who buy in bulk
D Franchise organizations
Based on something unique
E Merchandising conglomerates Diversified retailing lines and forms under central

ownership
Retail Marketing decisions
Various marketing decisions affecting the retail business :-
Target marketing and positioning
Product assortment,
Service mix, store’s atmosphere
Price
Promotion
Place (location)
1. Target Marketing and Positioning

Like other marketing activities, retailing too is concerned with defining its target market.
Until the target market is defined and profiled , the retailer cannot make consistent
decisions on product assortment , store décor, advertising messages and media, price, and
service levels.
2. Product assortment,
The retailer’s product assortment must match the target market’s shopping expectations.
The retailer has to decide on product assortment- breadth and depth . The challenge is to
develop a product-different ion strategy.
The store can adopt the following options :-

Feature exclusive national brands that are not available at competing retailers
Feature blockbuster distinctive merchandise events
Feature surprise or ever-changing merchandise
Feature the latest or newest merchandise first
Offer merchandise customizing services
Offer a highly targeted assortment
3. Service mix and Store’s atmosphere

The retailers must also decide on the service mix to offer customers
Pre-purchase services- accepting telephone and mail orders, advertising, window and
interior display , fitting rooms , shopping hours, fashion shows, trade ins.
Post purchase include – shipping and delivery ,gift wrapping , adjustments and
returns, alterations and tailoring ,installations, engraving.
Ancillary services –general information , check cashing , parking , restaurants ,
repairs etc.
4. Price
Prices are a key positioning factor and must be decided in relation to the target market, the
product and service assortment mix and competition. All retailers would like to achieve high
volumes and high gross margins. Retailers must also pay attention to pricing tactics. Most
retailers will put low prices on some items to serve as traffic builders or loss leaders. They will
run storewide sales. They will plan marks down on slower –moving merchandise .
5. Promotion
Retailers use a wide range of promotion tools to generate traffic and purchases.
Promotion methods include :-
Ads
Special sales
Money saving coupons
Sample distribution etc.
6. Place
Location is often described as the most successful strategy for retailing. Retailers can
locate their stores in the
central business district,
a regional shopping center ,
a community shopping center
TRENDS IN RETAILING
the trends in retail business and the main developments retailers and manufacturers need to
take into account in planning competitive strategies
1. New retail forms and combinations
2 . Growth of intertype competition.
3 . Growth of giant retail
4 . Growing investment in technology
5 . Global presence of major retailers
6. Selling an experience, not just goods
Retailing in India: Are you game for it!!!!!

They say ‘If you aren’t in IT or entertainment, you ought to be in retailing. Or you’re
missing the boom times altogether.’
In India, the retail sector is the second largest employer after agriculture. The retailing
sector in India is highly fragmented and predominantly consists of small independent,
owner-managed shops. There are some 12 million retail outlets in India. Besides, the country
is also dotted with low-cost kiosks and pushcarts. In 2001, organised retail trade in India was
worth Rs11,228.7 billion.
There has been a boom in retail trade in India owing to a gradual increase in the
disposable incomes of the middle class households. More and more players are coming into
the retail business in India to introduce new formats like malls, supermarkets, discount
stores, department stores and even changing the traditional looks of book- stores, chemist
shops, and furnishing stores. There are no hypermarkets in the country as yet.
More so, a billion people in overall population leads to very large numbers. While the middle
class may not be as big as expected, it could still add up to say the sizeable number.
Food sales constitute a high proportion of total retail sales. The share was 62.7% in 2001,
worth approximately Rs7,039.2 billion in 2001 while non- food sales were worth Rs4189.5
billion. How- ever, the non-food retailing sector registered faster year-on-year growth than
food sales.
Retail Infrastructure
In 2001, there were an estimated 11.2 million retail outlets in the country. The concept of
retailing chain stores is at a very nascent stage in India. Organized retailing represent a
small fraction of the Indian retail market. However, these modern formats are showing
robust growth as several retail chains have established a base in metropolitan cities,
especially in south India, and are spreading all over India at a rapid pace.
Total retail sales area in India was estimated at 328 million sq m in 2001, with an average
selling space of 29.4 sq m per outlet. This trend towards larger outlets is leading to a rise in
average retail space. However, space and rentals are proving to be the largest constraints to
development of large formats in metropolitan cities, since retailers are aiming the prime
locations.
The mid 1990s marked the arrival of new, well- endowed malls and shopping centres, which
are spacious, airy and equipped with modern amenities. They have big label stores as well
as in- house eateries and entertainment zones. Each mall typically has an anchor, which
occupies a sizeable percentage of the total usable area. The anchor is expected to attract a
variety of consumers and hence is the key to increasing foot traffic.
The number of large mega-malls is expected to increase significantly as India is now

experiencing a “mall boom”. Shopping malls is set to one of the most visible faces of the
Indian retail scene by the end of 2002. According to estimates apart from the metropolitan and
larger cities, as many as 50 new malls will be coming up by 2005 in the smaller cities as well.
Key Developments in Retailing

100% foreign direct investment (FDI) in the retailing sector is not permitted yet, in order to
protect the interests of the small retailers. There is a strong lobby of small traders that has been
vocal on the issue of not permitting FDI into retail. The lobby is based on the premise that
modern retail will impact the livelihood of millions of small family-run businesses.
The trend to market private labels by a specific retail chain is catching on in India as it
helps to improve margins. The turnover from private labels by major retail chains was
estimated at around Rs 1200 million in 2001.
In urban India, families are experiencing growth in income and dearth of time. More and
more women are also turning to corporate jobs, which is adding to the family income
but making lifestyles extremely busy. Rising incomes has led to increasing demand for better
quality products while lack of time has led a demand for convenience and service. The
demand for frozen, in- stant, ready-to-cook, ready-to-eat food has been on the rise, especially
in the metropolitan and large cities in India. There is also a strong trend in favour of one-
stop shops like supermarkets and department stores.
Competitive Environment
Bata India Ltd is one of the largest retailer, with 1600 footwear stores spread across the
country, and a retail turnover of Rs6 billion in 2001. With almost a monopolistic presence in
the organised footwear market until the 1980s, Bata is synony- mous with footwear in middle-
class India. The stores retail mainly Bata products, with a marketing arrangement with
Lotto and Nike as well.
Spencer & Co Ltd another large retail group in the country, with interests in supermarkets,
music stores and the beauty and health chain, Health & Glow. However, each retail business
at the time of writing was run as a separate entity. Foodworld is operated by Foodworld
Supermar- kets Ltd, while Health & Glow by RPG Group.
The K Raheja-run department store chain, Shoppers Stop, is the second largest fascia in the
country with retail sales of Rs2.7 billion in 2001. The real estate development group has
converted its retailing operation into an Indian success story. It has also acquired the
Crossword chain of book- stores.
Another strong retailer is Subhiksha, whose discounters and chemists/druggist chain is very
popular in South India.
Retail Forecasts
The retail business is expected to reach Rs19,069.3 billion by 2006, with further
growth of organised retailing, in both food and non-food segments. The proportion of
sales through organised retailing is estimated to increase to around 6% by 2010.
There is already a strong trend in favour of large format retail outlets, in both food and non-
food sectors, as people are showing preference for one-stop shops. Customers are also
looking for ambience and convenience in shopping. This would continue more strongly in
the forecast period. In the future, with more dual income families, the consumer ability to
spend will increase, but at the same time, it is predicted that the time available for shopping
will go down. In such a scenario, the retailers will have to increasingly develop shopping
as an experience and at the same time, the more successful ones will be those that provide
faster service.
What is Wholesaling?
Wholesaling includes all the activities involved in selling goods or services to those who are
buying for the purpose of resale or for business use.
Following are the functions performed by wholesalers,

Selling and promoting
Buying and assortment building
Bulk breaking
Warehousing
Transportation
Financing
Risk bearing
Market information
Management services and counseling
Types of Wholesaling.
1. Merchant Wholesalers:
Independently owned businesses that take title to the merchandise they handle.
They are called jobbers, distributors, or mill supply houses and fall into two categories: full
service and limited service.
Full-Service Wholesalers:
Carry stock, maintain a sales force, offer credit, make deliveries, and provide
management assistance.
There are two types of full-service wholesalers
(1) Wholesale merchants sell primarily to retailers and provide a full range of service
- General-merchandise wholesalers carry several merchandise lines.
- General-line wholesalers carry one or two lines.
- Specialty wholesalers carry only part of a line
(2) Industrial distributors sell to manufacturers rather than to retailers and provide several
services—carrying stock, offering credit, and providing delivery.
Wholesaler Marketing Decisions

Wholesalers also must make decisions on their target market, product assortment and
services, pricing, promotion, and place. Wholesalers who fail to carry adequate assortments
and inventory and provide satisfactory service are likely to be bypassed by manufacturers.
Progressive wholesalers, on the other hand, adapt marketing concepts and streamline their
costs of doing business.
Target Market
Product Assortment and Services
Price Decision
Promotion Decision
Place Decision
Types of Channel Intermediaries And Their Functions

There are many types of intermediaries such as wholesalers, agents, retailers, the Internet,
overseas distributors, direct marketing (from manufacturer to user without an
intermediary), and many others. The main modes of distribution will be looked at in more
detail.
1. Channel Intermediaries - Wholesalers

They break down ‘bulk’ into smaller packages for resale by a retailer.
They buy from producers and resell to retailers. They take ownership or ‘title’ to
goods whereas agents do not (see below).
They provide storage facilities. For example, cheese manufacturers seldom wait for
their product to mature. They sell on to a wholesaler that will store it and eventually
resell to a retailer.
Wholesalers offer reduce the physical contact cost between the producer and
consumer e.g. customer service costs, or sales force costs.
A wholesaler will often take on the some of the marketing responsibilities. Many
produce their own brochures and use their own telesales operations.
2. Channel Intermediaries - Agents

Agents are mainly used in international markets.
An agent will typically secure an order for a producer and will take a commission.
They do not tend to take title to the goods. This means that capital is not tied up
in goods. However, a ‘stockist agent’ will hold consignment stock (i.e. will store
the stock, but the title will remain with the producer. This approach is used where
goods need to get into a market soon after the order is placed e.g. foodstuffs).
Agents can be very expensive to train. They are difficult to keep control of due to the
physical distances involved. They are difficult to motivate.
3. Channel Intermediaries - Retailers

Retailers will have a much stronger personal relationship with the consumer.
The retailer will hold several other brands and products. A consumer will expect to be
ex- osed to many products.
Retailers will often offer credit to the customer e.g. electrical wholesalers, or
travel agents.
Products and services are promoted and merchandised by the retailer.
The retailer will give the final selling price to the product.
Retailers often have a strong ‘brand’ themselves e.g. Ross and Wall-Mart in the
USA, and Alisuper, Modelo, and Jumbo in Portugal.
4. Channel Intermediaries - Internet

The Internet has a geographically disperse market.
The main benefit of the Internet is that niche products reach a wider audience e.g.
Scottish Salmon direct from an Inverness fishery.
There are low barriers low barriers to entry as set up costs are low.
There is a paradigm shift in commerce and consumption which benefits distribution
via the Internet.
PROMOTION- INTEGRATED MARKETING COMMUNICATION
Marketing communications which is one of the four major elements of the company’s
marketing mix.
Promotion’s role is to communicate with individuals, groups, or organisations
to directly or indirectly facilitate exchanges by in- forming and persuading one or
more of the audiences to accept an organisation’s products.
Definition: Promotion is communication about an organization and its products that is
intended to inform, persuade, or remind target market members.
A promotion mix (sometimes called a marketing communications mix) is the particular

combination of promotional methods a firm uses to reach a target market.
THE COMMUNICATION PROCESS:
The whole marketing mix must be integrated to deliver a consistent message and strategic
positioning.
The starting point is an audit of all the potential interactions target customers may have
with the product and the company. For example, some- one interested in purchasing a
new computer would talk to others, see television ads, read articles, look for information on
the Internet, and observe computers in a store. Marketers need to assess which experiences
and impressions will have the most influence at each stage of the buying process. This
understanding will help them allocate communications dollars more efficiently.
Marketers also need to understand the fundamental elements of effective communications.

Figure above shows a communication model with nine elements. Two represent the major
parties in a communication – sender and receiver. Two represent the major communication
tools – message and media. Four represent major communication function – encoding,
deconding, response, and feedback. The last element in the system is noise (random
and competing messages that may interfere with the intended communication).
The model emphasizes the key factors in effective communication. Senders must know
what audiences they want to reach and what responses they want to get. They must encode
their messages so that the target audience can decode them. They must transmit the
message through media that reach the target audience and develop feedback channels. To
monitor the responses. The more the sender’s field of experience overlaps with that of the
receiver, the more effective the message is likely to be.
Developing an Effective Communications
1. Identify the target audience -The process must start with a clear target audience in
mind: potential buyers of the company’s products, current users, deciders, or influencers;
individuals, groups, particular publics, or the general public. The target audience is a critical
influence on the communicator’s decisions on what to say, how to say it, when to say it,
where to say it, and to whom to say it.
2. Determine the communication objectives

- The marketer can be seeking a cognitive, affective, or behavioral response. That is,
the marketer might want to put something into the consumer’s mind.
3. Design the message - Having defined the desired response, the communicator moves to
developing an effective message. Ideally, the message should gain attention, Hold interest,
arouse desire, and elicit action Formulating the message will require solving four problems: what to say
( message content,) how to say it logically
( message structure ), how to say it symbolically
( message format), and who should say it
(message source).
Message content: In determining message content, management searches for an
appeal, theme, idea, or unique selling proposition ( USP). There are three types of
appeals: rational, emotional, and moral.
Message structure Effectiveness depends on structure as well as content
Message format The message format needs to be strong. In a print ad, the
communicator has to decide on headline, copy, illustration, and color. For a radio
message, the communicator has to choose words, voice qualities, and vocalizations.
The “sound” of an announcer promoting a used automobile has to be different
from one promoting a new Cadillac. If the message is to be carried on television
or in person, all these elements plus body language ( nonverbal clues) have to be
planned. Presenters have to pay attention to facial expressions, gestures, dress,
posture, and hairstyle, If the message is carried by the product or its packaging,
the communicator has to pay attention to color, texture, scent, size, and shape
Message source Message delivered by attractive or popular sources achieve
higher attention and recall. This is why advertisers often use celebrities .What is
important is the spokesperson’s credibility. Pharmaceutical companies what doctors
to testify about product benefits because doctors have high credibility. Anti drug
crusaders will use ex-drug addicts because they have higher credibility for students
than teachers do.
What factors underlie source credibility? The three most often identified are expertise,
trustworthiness, and likability. attractiveness.
4. Select the communication channels - The communicator must select efficient

channels to carry the message. For example, pharmaceutical company salespeople can
rarely wrest more than five minutes’ time from a busy physician. Their presentation must
be crisp, quick, and convincing. This makes pharmaceutical sales calling extremely expensive.
The industry has had to expand its battery of communication channels. These include placing
ads in medical journals, sending direct mail ( including audio and videotapes ), passing out
free samples, and even telemarketing.
5. Establish the total marketing communication budget - One of the most difficult
marketing decisions is determining how much to spend on promotion. John Wanamaker, the
department- store magnate, once said, “ know that half of my advertising is wasted, but I
don’t know which half.”
6. Deciding on the marketing communications mix - Companies must allocate the

promotion budget over the give promotional tools – advertising, sales promotion, public
relations and publicity, sales force, and direct marketing. Here is how one company touches
several bases.
What Is Integrated Marketing Communications?

A. Integrated marketing communications is the coordination of promotion efforts to ensure
the maximum informational persuasive impact on customers.
B. A major goal of integrated marketing communications is to send a consistent message to

customers.
C. This approach fosters long-term customer relationships and the efficient use of
promotional resources.
D. The concept of integrated marketing communications has been increasingly accepted

for a number of reasons.
Mass media advertising is used less today because of its high costs and less
predictable audience sizes.
Marketers can now take advantage of more precisely targeted promotional tools,
such as cable TV, direct mail, CD ROMS, the Internet, special interest
magazines, and voice broadcasts.
Database marketing is also allowing marketers to be more precise in targeting
individual customers.
Define Advertising
Advertising- Any paid form of non personal presentation and promotion of ideas, goods,
or services by an identified sponsor.
Advertising can be traced back to the very beginnings of recorded history. Archaeologists
working in the countries around the Mediterranean Sea have dug up signs announcing various
events and offers. The Romans painted walls to announce gladiator fights, and the
Phoenicians painted pictures promoting their wares on large rocks along parade routes.
Modern advertising, however, is a far cry from these early efforts.
DEVELOPINGADVERTISEMENT PROGRAM
Marketers must make four important decisions when developing an advertising program.
setting advertising objectives,
setting the advertising budget,
developing advertising strategy (message decisions and media decisions), and
evaluating advertising campaigns.
1. Setting the advertising objectives - The advertising objectives must flow from prior
decisions on target market, market positioning, and marketing mix. Advertising objectives
can be classified according to whether their aim is to inform, persuade, remind, or reinforce.
Informative advertising aims to create awareness and knowledge of new
products or new features of existing products.
Persuasive advertising aims to create liking, preference, conviction, and purchase
of a product or service. Some persuasive advertising uses comparative advertising,
which makes an explicit comparison of the attributes of two or more brands..”
Comparative advertising works best when it elicits cognitive and affective motivations
simultaneously.
Reminder advertising aims to stimulate repeat purchase of products and services.
Ex- pensive, four-color Coca-Cola ads in magazines are intended to remind people
to purchase Coca-Cola
Reinforcement advertising aims to convince current purchasers that they made the
right choice. Automobile ads often depict satisfied customers enjoying special
features of their new car.
2. Deciding on the advertising budget - Some critics charge that large, consumer
packaged-goods firms tend to overspend on advertising as a form of insurance against not
spending enough, and that industrial companies underestimate the power of company and
product image building and tend to under spend There are five specific factors to consider
when setting the advertising budget:
1. Stage in the product life cycle - New products typically receive large advertising
budgets to build awareness and to gain consumer trial. Established brands usually are
supported with lower advertising budgets as a ratio to sales.
2. Market share and consumer base - High- market-share brands usually require less
advertising expenditure as a percentage of sales to maintain share. To build share by
increasing market size requires larger expenditures. On a cost- per-impression basis, it is
less expensive to reach consumers of a widely used brand than to reach consumers of low-
share brands.
3. Competition and cluster - In a market with a large number of competitions and high
advertising spending, a brand must advertise more heavily to be heard. Even simple
cluster from advertisements not directly competitive to the brand creates a need for
heavier advertising.
4. Advertising frequency: The number of repetitions needed to put across the brand’s
message to consumers has an important impact on the advertising budget.
5. Product substitutability: Brands in a commodity class ( cigarettes, beer, soft drinks )

require heavy advertising to establish a differential image. Advertising is also important when
a brand can offer unique physical benefits or features.
3. Choosing the advertising message:
Message generation: advertising people have proposed different theories for creating
an effective message.
Message evaluation and selection a good ad normally focuses on one core
selling proposition. Dik Twedt suggested that messages be rated on desirability,
exclusive- ness, and believability
Message execution The message’s impact depends not only on what is said, but
often more important, on how it is said. Some ads aim for rational positioning and
other for emotional positioning. Message execution can be decisive for highly
similar products, such as detergents, cigarettes, coffee, and vodka.
Social responsibility review advertisers and their agencies must be sure their
“creative” advertising does not overstep social and legal norms. Most marketers
work hard to communicate openly and honestly with consumers. Still, abuses
occur, and public policy makers have developed a substantial body of laws and
regulations to govern advertising.
4. Deciding on media and measuring effectiveness

After choosing the message, the advertiser’s next task is to choose media to carry it. The
steps here are deciding on desired reach, frequency, and impact; choosing among major
media types; selecting specific media vehicles; deciding on media timing; and deciding on
geographical media allocation. Then the results of these decisions need to be evaluated
5. Evaluating advertising effectiveness - Good planning and control of advertising depend

on measures of advertising effectiveness. Yet the amount of fundamental research on
effectiveness is appallingly small.
DIFFERENTADVERTISING MEDIA
The advertising media are the various forms of communication through which advertising
reaches its audience.
Newspapers.
Newspaper advertising accounts for almost one-fourth of all advertising
expenditures.
Newspaper advertising is used extensively by retailers because it is relatively
inexpensive compared to other media.
Because it provides only local coverage, advertising dollars are not wasted in
reaching people who are outside the market area.
It is also timely.
There are some drawbacks to newspaper advertising

It has a short life span.
Color reproduction is usually poor.
Marketers cannot target specific markets through newspaper ads.
Ads are usually read once and then discarded.
II. Magazines. The advertising revenues of magazines have been climbing..

Advertisers can reach very specific market segments through ads in special-interest
magazines.
A number of magazines like Time and Cosmopolitan publish regional editions, which
provide advertisers with geographic flexibility.
Magazine advertising is more prestigious than newspaper advertising, and it provides high-
quality color reproduction.
Magazine advertisements have a longer life span.
The major disadvantages of magazine advertising are high cost and lack of timeliness.
III. Direct Mail. Direct-mail advertising is promotional material mailed directly to

individuals.
Direct mail is the most selective medium: Mailing lists are available (or can be compiled)
to reach almost any target audience.
The effectiveness of direct-mail advertising can be measured because the advertiser has
a record of who received the advertisement and can track who responds.
Some organizations are using direct e-mail.
A direct-mail campaign may fail if the mailing list is outdated and the mailing does not
reach the right people.
IV. Outdoor Advertising. Outdoor advertising consists of short promotional messages

on bill- boards, posters, and signs.
Sign and billboard advertising allow the marketer to focus on a particular geographic
area, and it is fairly inexpensive.
However, because most outdoor advertising is directed at a mobile audience, the
message must be limited to a few words.
The medium is especially suitable for products that lend themselves to pictorial
display.
V. Television. Television ranks number one in total revenue.
Television advertising is the primary medium for larger firms whose objective is to
reach national or regional markets.
A national advertiser may buy network time, which means that its message
usually will be broadcast by hundreds of local affiliated stations.
Both national and local firms may buy local time on a single station that covers a
particular geographic selling area.
Advertisers may sponsor an entire show, or they may buy spot time for a single 10-,
20-, 30-, or 60-second commercial during or between programs.
To an extent, they may select their audience by choosing the day of the week and the
time of day when their ads will be shown.
Infomercial. An infomercial is a program-length (usually a half-hour) televised
commercial message resembling an entertainment or consumer affairs programs.
Television advertising rates are based on the number of people expected to be
watching when a commercial is aired.
Unlike magazine advertising, and perhaps like newspaper ads, television advertising
has a short life.
VI. Radio. Advertisers 8 percent of total expenditures, on radio advertising Like

magazine ad vertising, radio advertising offers selectivity.
Radio can be less expensive than other media.
Actual rates depend on geographic coverage, the number of commercials
contracted for, the time period specified, and whether the station broadcasts on AM,
FM, or both.
Even small retailers are able to afford radio advertisements.
VII. Internet. The Internet is the newest advertising medium and is growing in popularity.
Thereare five types of Internet advertisements.
Banner ads are rectangular graphics appearing at the top of most consumer web
sites.
Button ads are small squarish ads appearing at the bottom of a web page; they
contain only a corporate or brand name.
Sponsorship (or co-branded) ads integrate a company’s brand with editorial comment.
Keyword ads, featured primarily on Internet search engines, link a specific ad to text
or subject matter that an information seeker may enter.
Interstitial ads (in-your-face ads) pop up to display a product ad when viewers click
on a web site.
DECIDING ON MEDIA AND MEASURING EFFECTIVENESS
The steps here are

Deciding on desired reach, frequency, and impact;
Choosing among major media types selecting specific media vehicles;
Deciding on media timing; and
Evaluatiing Effectivness
(i) Deciding on reach, frequency , and impact Media selection is finding the most
cost-effective media to deliver the desired number and type of exposures to the
target audience. Presumably, the advertiser is seeking a specified advertising
objective and response from the target audience – for example, a target level of
product trial. The rate of product trial will depend, among other things, on level
of brand awareness.
The effect of exposures on audience awareness depends on the exposures’ reach,

frequency, and impact:
Reach : The number of different persons or households exposed to a
particular media schedule at least once during a specified time period.
Frequency (F): The number of times within the specified time period that an
average person or household is exposed to the message
Impact (I ): The qualitative value of an exposure through a given medium (thus a
food ad in Good Housekeeping would have a higher impact than in the Police
Gazette).
(ii) Choosing among major media types The media planner has to know the capacity of
the major media types to deliver reach, frequency, and impact.
Media planners make their choice among media categories by considering the following
variables:
Target-audience media habits: For example , radio and television are the most
effective media for reaching teenagers.
Product characteristics: Media types have different potentials for demonstration,
visualization, explanation, believability, and color. Women’s dresses are best
shown in color magazines , and Polaroid cameras are best demonstrated on
television.
Message Characteristics: Timeliness and information content will influence
media choice. A message announcing a major sale tomorrow will require radio,
TV, or newspaper. A message containing a great deal of technical data might
require specialized magazines or mailings.
Cost: Television is very expensive, whereas newspaper advertising is relatively
inexpensive. What counts is the cost-per-thousand exposures.
(iii) Selecting specific vehicles The media planner must search for the most cost-
effective vehicles within each chosen media type. The advertiser who decides to buy 30
seconds of Audience size has several possible measures:
Circulation: The number of physical units carrying the advertising.
Audience: The number of people exposed to the vehicle. (If the vehicle has pass-on
readership, then the audience is larger than circulation)
Effective audience: The number of people with target audience characteristics
exposed to the vehicle.
Effective ad-exposed audience: The number of people with target audience
characteristics who actually saw the ad.
Media planners are increasingly using more sophisticated measures of effectiveness and
employing them in mathematical models to arrive at the best media mix. Many
advertising agencies use a computer program to select the initial media and then make
further improvements based on subjective factors.
(iv) Deciding on media timing- In choosing media, the advertiser faced both a
macroscheduling and a micro scheduling problem involves scheduling the advertising in
relation to seasons and the business cycle. Suppose 70 percent of a product’s sales occur
between June and September. The firm can vary its advertising expenditures to following
the seasonal pattern, to oppose the seasonal pattern, or to be constant throughout the year.
Most firms pursue a seasonal policy. Yet some year ago, a soft- drink manufacturer put
more money into off-season advertising. This resulted in increased non seasonal
consumption of its brand, while not hurting seasonal consumption. Other soft drink
manufactures started to do the same, and the result was a more balanced consumption
patters.
PUBLIC RELATIONS
Another major mass-promotion tool is- public relations.

Simply speaking , public relations would mean - building good relations with the company’s
various publics by obtaining favorable publicity, building up a good corporate image, and
handling or heading off unfavorable rumors, stories, and events. Public relations
departments may perform any or all of the following functions
Public relations
Building good relations with the company’s various publics by obtaining favorable publicity,
building up a good “corporate image,” and handling or heading off unfavorable rumors,
stories, and events.
Not only must the company relate constructively to customers, suppliers, and dealers, but it
must also relate to a large number of interested publics.
A public is any group that has an actual or potential interest in or impact on a

company’s ability to achieve its objectives.
Public relations (PR) involves a variety of programs designed to promote or protect a

company’s image or its individual products.
Public Relations perform the following five functions:
1 . Press relations: Presenting news and information about the organization in the most
positive light.
2 . Product publicity: Sponsoring efforts to publicize specific products.
3 . Corporate communication: Promoting understanding of the organization through
internal and external communications.
4. Lobbying: Dealing with legislators and government officials to promote or defeat
legislation and regulation.
5 . Counseling: Advertising management about public issues and company positions and
image during good times and crises.
PR Tools:
In brief one can summarize the tools as follows :-
• Public relations professionals prepare written materials such as brochures,
newsletters, company magazines, annual reports, and news releases.
• Corporate identity material such as logos, business cards, signs, and stationery are
also public relations tools.
• Event sponsorship is a public relations tool in which a company pays for all or part
of a special event such as a concert, sports competition, festival, or play.
a. Sponsoring special events is an effective way for an organization to increase brand
recognition and receive media coverage with relatively little investment.
b. Public relations personnel sometimes organize events, such as grand openings, to
create news about a company.
• Some public relations tools are associated specifically with publicity. Publicity is
communication in news story form about an organization, its products, or both.
Publicity-based public relations tools include:
a . News release–a typed page of about 300 words provided by an organization to the
media as a form of publicity
b . Feature article–a piece (of up to 3,000 words) prepared by an organization for
inclusion in a particular publication
c. Captioned photograph–a picture accompanied by a brief explanation
d . Press conference–a meeting at which invited media personnel hear important news
announce- ments and receive supplementary textual materials and photographs
• The specific types of public relations tools chosen depend on several factors.
a. Composition of the target audience
b. Response of media personnel
c. Significance of the news item
Sales promotion
Short-term incentives to encourage the purchase or sale of a product or service. You
would agree that more than any other element of the promotional mix, sales promotion
is about “action”. It is about stimulating customers to buy a product. It is not designed to be
informative – a role which advertising is much better suited to.
Sales promotion consists of short-term incentives to encourage purchase or sales of a

product or service., whereas advertising and personal selling offer reasons to buy a
product or service, sales promotion offers reasons to buy now.
Sales promotion is commonly referred to as “Below the Line” promotion.

• Advertising and personal selling Sales promotion can be directed at:
• The ultimate consumer (a “pull strategy” encouraging purchase)
• The distribution channel (a “push strategy” encouraging the channels to
stock the product). This is usually known as “selling into the trade”
Sales Promotion Methods.

Most sales promotional methods can be classified as promotion techniques either for
consumer sales or for trade sales.
1. A consumer sales promotion method attracts consumers to particular retail stores
and motivates them to purchase certain new or established products.
2. A trade sales promotion method encourages wholesalers and retailers to stock and
actively promote a manufacturer’s products.
3 . A number of factors enter into marketing decisions about which and how many sales
promotion methods to use.
You must be familiar with many of the following sales promotion methods:-
• Rebates. A rebate is a return of part of the purchase price of a product.
- Usually the rebate is offered by the producer to consumers who send in a coupon
along with a specific proof of purchase.
- Rebating is a relatively low-cost promotional method.
• Coupons. A coupon reduces the retail price of a particular product by a stated
amount at the time of purchase.
- These coupons may be worth anywhere from a few cents to a few dollars.
- They are made available to customers through newspapers, magazines, direct mail, online,
and in shelf dispensers in the store.
- Coupons may also offer free merchandise, either with or without an additional
purchase of the product.
• Samples. A sample is a free product given to customers to encourage trial.
- Samples may be offered via online coupons, direct mail, or in stores.
- Samples are the most expensive sales promotion technique.
• Premiums. A premium is a gift that a producer offers the customer in return for
using its product.
• Frequent-User Incentives. Frequent-user incentives are programs developed
to reward customers who engage in repeat (frequent) purchases.
- Frequent-user incentives build customer loyalty.
- An airline’s frequent-flyer program is one example of a frequent-user incentive.
• Point-of-Purchase Displays. A point-of-purchase display is promotional material
placed within a retail store. It may actually hold merchandise or inform customers
of what the product offers and encourage them to buy it. Most point-of-purchase
displays are prepared and set up by manufacturers and wholesalers.
• Trade Shows. A trade show is an industry wide exhibit at which many sellers
display their products.
- Some trade shows are organized exclusively for dealers–to permit manufacturers and
wholesalers to show their latest lines to retailers.
- Others are promotions designed to stimulate consumer awareness and interest.
• Buying Allowances. A buying allowance is a temporary price reduction to resellers
for purchasing specified quantities of a product. A buying allowance may serve as
an incentive to resellers to handle new products, stimulate purchase of items in
large quantities.
- Buying allowances are simple, straightforward, and easily administered.
- They can easily be copied by competitors.
• Cooperative Advertising. Cooperative advertising is an arrangement whereby a
manufacturer agrees to pay a certain amount of the retailer’s media costs for
advertising the manufacturer’s product.
Direct Marketing
Direct marketing has been defined by the Institute of Direct Marketing as:
The planned recording, analysis and tracking of customer behavior to develop a

relational marketing strategies
Direct marketing Direct connections with carefully targeted individual consumers to both
obtain an immediate response and cultivate lasting customer relationships; Direct
communications with carefully targeted individual consumers to obtain an immediate
response.
Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods
and services to customers without using marketing middlemen.
Direct Marketing in India:

• In India, direct selling is growing at a fast pace. Total sales through direct selling
route in 2002 was Rs.1,723.7 crore.
• India was the fastest growing market in 2000 in terms of revenues from direct selling,
registering a 54% yoy growth. 90% of goods sold by the direct sellers in India are
sourced from goods manufactured within the country.
• Most of the Direct Selling companies operating in India today are in the field of
cosmetics, personal products, household products, cookware and healthfood.
• Amway is the largest player in India with annual sales exceeding Rs5bn
• Other major players are Avon Beauty Products (I) Pvt Ltd, Oriflame India Pvt Ltd,
Tupperware India Pvt Ltd, Lotus Learning Pvt Ltd, LB Publishers and Distributors
Pvt Ltd and DK Family Learning
• The Indian Direct Selling Association is an association of companies engaged in the
business of direct selling in India. All major players in India are affiliated to IDSA.
• Mass-market penetration is now catching up within the Rs 1,800-crore direct selling
industry as well, and direct selling majors such as Amway, Tupperware and Avon
now seem to be following the path charted by FMCG giants such as Hindustan
Lever, Marico, Britannia, Nestle, Dabur, Godrej and Tata Tea.
DIRECT MARKETING BENEFITS

PRODUCT LIFE CYCLE
“The product life cycle (PLC) depicts a products sales history through 4 stages:
(1) Introduction
2) Growth
(3) Maturity and
(4) Decline
One thing should be clear that adjustment and changes must be made in the
product’s marketing mix as it moves through its life cycle because of changes in the
competitive environment, buyer behavior, and the composition of the market.
‘The PLC concept can be applied to a product category (perfumes), to a particular

product form (roll-ons and sprays) or to a particular brand
Introduction Stage
In this stage company is basically launching a new product (from brand or category) that
is the reason that it is called the introductory stage. Introducing new product is always a
risky venture, even for a skillful marketer. Almost every company as had spectacular
failures. A new product category requires a longer introductory period because
primary demand (demand for the product category as opposed to the demand for a
specific brand) must be stimulated. Even a brand that has achieved acceptance in other
markets will require introduction in new markets.
Growth Stage
At a growth stage where the company has successfully launched its product, the sales
have begun to increase rapidly in this stage, as new customers enter the market and old
customers make repeat purchases. At this point of time company need to add new dealers
and distributors; new pack sizes may need to be introduced. This is the stage of peak
profits. As new customers are attracted, the market expands, attracting competitors who
copy and improve on the features of the new product. New product forms and brands enter.
Competition intensifies and industry profits begin to decline at the end of the growth stage,
but total industry sales are still rising. In this phase, the company faces a trade-off between
high market share and high current profit. By spending a lot of money on product development,
promotion, and distribution, the company can capture a dominant position. In doing so h
owever, it gives up current profit and hopes to make it up in the next stage.
Maturity Stage
At this stage company will find greater number of competitors, competitive product
forms, and brands exist in the maturity stage. Rivals copy product features of successful
brands and they become more alike. Thus price competition develops along with heavy
promotions of whatever unique brand features still exist. Industry sales peak and decline
as the size of potential markets begins to shrink and wholesaler and retailer support
dwindles because of declining profit margins. Middlemen often introduce their own brands,
which makes the competition even tougher. company will find decline in industry profits
accelerates further. Most of the times it will find that the sales are repeat sales to earlier
buyers. There is little growth potential for the product. It is during this stage that
marketers are focusing effort on extending the lives of their existing brands. In this stage
you will find that many products may appear unchanged, the most successful ones are
actually evolving to meet changing consumer needs. Product managers has to play a very
important role at this stage infact he should do more to extend the lives of their mature
products rather than allowing it to coast into decline. They should consider modifying the
market, product and marketing mix.
Decline Stage
Now the company reaches to the final stage of the life cycle. Product forms and brands
typically enter into decline; stages while product categories last longer. It is basically
because of Competitions that the product forms and brands enter into the decline stage.
Sales and profits decline rapidly and competitors become more cost conscious. Brands
with strong acceptance by some customer segments may continue to produce profits.
Thus Sanifresh is still a leading toilet cleaner though its powdered form is less popular
than liquids.. There are hidden costs in terms of management time, sales force attention,
frequent inventory re-adjustments, and advertising changes. For these reasons, companies
need to pay attention to their dying products. At times management may decide to
maintain its brand without changes in the hope that some competitors will leave the
market. Or it may decide to ‘re-position the product in the hope of moving it back to the
growth phase in a new avatar
The Adoption & Diffusion Process –
The PLC concept is related to the adoption and diffusion processes. The adoption process
affects the length of a products life cycle.
The adoption process is the series of stages a prospective buyer goes through in deciding to
buy and make regular use of the product.
The five categories of adopters (1) Innovators (2) Early adopters, (3) Early majority (4) Late
majority and (5) Laggards. A new product that has been adopted by innovators and early
adopters still has 84% of its potential customers in the ton-adopter category. But if
innovators and early adopters do not adopt, the product is doomed D failure.
Innovators - well-informed risk-takers who are willing to try an unproven product.

Innovators represent the first 2.5% to adopt the product.
Early adopters - based on the positive response of innovators, early adopters then
begin to purchase the product. Early adopters tend to be educated opinion leaders and
represent about 13.5% of consumers.
Early majority – they are people who are careful consumers who tend to avoid risk,
the early majority adopts the product once it has been proven by the early adopters. They
rely on recommendations from others who have experience with the product. The early
majority represents 34% of consumers.
Late majority - somewhat skeptical consumers who acquire a product only after it has
become commonplace. The late majority represents about 34% of consumers.
Laggards - those who avoid change and may not adopt a new product until traditional
alternatives no longer are available. Laggards represent about 16% of consumers.
New Product Development Process –
Figure will show the complete process of new product development lets discuss them one by
one.
New Product Development starts with idea generation
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 like 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 win- ners’ recipes.
About 30% of new product ideas come from analysis of competitors’ products. The
company can watch competitors’ ads, press releases and write-ups in the press about their
activities. Companies also buy competitors information and pay for industrial espionage.
Resellers and others who are close to the market, can often pass on information about new
developments. Other sources are trade magazines, shows and seminars, market research
firms, government reports, advertising agencies and new product consultants.
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.
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 de-
signed 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.
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.
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.
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:
If the company goes ahead with 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.
Classification of Products
The most common basis for classifying consumer products is based on buyer
behavior. The classification is based on differences in the buying behavior of the
people who buy the products (it is basically how you perceive and buy the
products) not on the differences in the products themselves. The system works
because many consumers behave alike in buying a given type of product. This helps
marketers in making generalizations to guide development of their marketing mixes.
Four classes of consumer products are (1) Convenience products (2) Shop- ping products
(3) Specialty products, and (4) Unsought products. See Figure 10.1. It gives you a brief
description of consumer goods.
They are basically low-priced, nationally advertised items like cigarettes, toffee, or
blades and matchboxes. These are bought frequently but consumers rarely shop
actively for them because they are low value items whose price and quality do not
justify active involvement. They are widely available at many outlets. Three subclasses
are:
1. Staple Products: this includes milk, bread, eggs, butter which are bought routinely
because the family regularly consumes them. The decision to buy these products is
programmed after the first time when the consumer puts them on his list of regular items.
2.Impulse Products: Purchases of Impulse products are absolutely unplanned exposure

to the product triggers the want. The desire to buy staple products may cause the consumer
to go shopping. The desire to buy impulse is a result of the shopping trip. This is why
impulse products are located where they can be easily noticed. Stardust and Savvy
magazines, toffees and chocolates (placed at a child’s eye-level) are examples of impulse
products.
3.Emergency Products: Purchases of emergency products result from urgent and compelling
needs. Often a consumer pays more than if this need had been anticipated. Example of this
would be hotels permit shops vending toothbrushes and shaving blades set up in their lobbies
to cater to travelers who have forgotten theirs at home.
Shopping
Shopping Products
These products involve price and quality comparisons. Shoppers spend more time, cost and
effort to compare because they perceive a higher risk in buying these products. Shopping
products can be homogeneous or heterogeneous.
1.Homogeneous Shopping Products: they are products, which are considered to be

alike. Just suppose you want to buy a colour television, you are aware that most of the
brands are very similar then you will limit your shopping effort to price comparisons.
Thus sellers tend to engage in price competition. But most of the time you will find that
the manufacturers may also stress upon on the differences on the basis of design and try to
distinguish between the physical product and its product related services. One might set up
service centers to differentiate its product from rivals. A retailer might advertise that the
Color TV’s price includes 6 months or free interest financing. Consumers who want to
stretch their disposable incomes are more likely to consider a product as a homogeneous
shopping product than as a convenience product.
2.Heterogeneous Shopping Products they are product that are considered to be unlike
or non- standardized. Consumers shop for the best price quality combination. Price often
is secondary to style and quality when price comparisons are difficult to make. Using
price to compare clothing, jewellery, cars, furniture and apartments is tough because
quality and style vary within each product class. Just suppose a couple is searching for a
flat may spend a lot of time comparing decor, floor plans, distance from stations and so
on. Once they find the right one, price becomes important. If the
rent is reasonable compared to the alternatives, they probably will lease it.
Specialty
Special Products
In this case you as a consumers will make a special effort to buy specialty products.
For these products consumers have strong convictions as to brand, style, or type.
Mitsubishi Lancers, Ray- Ban glasses, Leica Cameras and Johnny Walker Scotch Whisky
are examples. Consumers will go out of their way to locate and buy these products
because they perceive quality and other benefits in owning them. There is no
Comparison Shopping. Doctors, Lawyers and Accountants who enjoy a large following
are selling specialty products. Marketers try to create specialty status for their products with
advertising phrases like “accept no substitutes”, “‘insist on the real thing”, and so on. They
build customer loyalty when consumers consider their brands to be specialty products. But
specialty product can be less intensively distributed than a convenience or shopping
product because buyers will search to find it.
Unsought
Unsought Products
They are products which are present in the market but the potential buyers do not know
that such product exist or there can be a possibility that the buyer don’t want it. There are
two types: regularly unsought products and new unsought products.
Like Life Insurance, a lawyer’s services in contesting a will, a wreath and a doctor’s
services in an emergency are regularly unsought products. These are basically existing
products but the consumers do not want to buy this product now, although they may
eventually purchase them. Marketers face a tough challenge in persuading consumers to
buy their new unsought products. The marketer’s task here is to inform target consumers
of the products existence and stimulate demand for it. Oral polio vaccine was once a new
unsought product. But heavy promotion and acceptance of the product practically
eradicated polio.
PRODUCT AND PRODUCT MIX
Any organization is marketing more than one product then it has a product mix.
„ Product item—a single product
„ Product line—all items of the same type
„ Product mix—total group of products that an organization markets
It is basically a group of products that are related because of customer, marketing

and or production considerations. Rin, Wheel, Rin Solarox, Rin detergent powder, Surf,
and Surf Ultra are part of Lever’s detergents line and Le Sancy, Lux, Rexona, Lifebuoy, are
part of its soaps line. When we are discussing about a typical large multi-product firm’s
product mix includes new, growing, maturing and declining productst.
BRANDING
. A brand is defined: “As a name, term, sign, symbol or special design or some combination
of these elements that is intended to identify the goods or services of one seller or a group of
sellers. A brand differentiates these products from those of competitors” (American
Marketing Association, Chicago).
• Brand name is that part that can be spoken, including letters, words and numbers,
i.e. 7UP. Brand names simplify shopping, guarantee a certain level of quality and
allow for self-expres- sion.
• Brand mark-elements of the brand that cannot not be spoken, i.e.symbol
• Trade Character i.e. Ronald McDonald, Pillsbury Doughboy
• Trade mark-legal designation that the owner has exclusive rights to the brand or
part of a brand.1990, US Patent & Trademark Office had 680,000 trademarks
registered, 56,515 new in that year.
• Trade name-The full legal name of the organization. I.e. Ford, not the name for a
specific product.
Attributes of Brand
Values: The values, which govern a producer, are reflected by the brand, thus Tata
stand for quality, fair price and so on.
Culture: A brand also represents a certain culture, e.g., Coke is an icon of American
culture, while Shilpa Bindis are typically Indian.
Personality: A brand projects a personality. Had the brand been an animal or an

object or a person, what would come to our mind?
Like Videocon suggests a lion, MRF suggests a muscle man and Rin suggests a
lighting flash. Sometimes a brand may take on the personality of an actual person,
e.g., Charlie Chaplin and Cherry Blossom.
User: The brand suggests its own target audience. We know what a Garden Woman is.
We know that Sunny is for teenagers. We expect a Mercedes to be driven by an
executive or a top-class businessman. These users correspond to the values, culture and
personality of the brand. Because of the imagery associated with the brands they
actually have the power to enhance or limit a consumer’s perceived image or self-
image.
SERVICE MAREKTING
A service is an activity which has some element of intangibility associated with it, which
involves some interaction with customer or with property in their possession, and does not
result in a transfer of ownership.
A change in condition may occur and production of the service may or may not be closely
associated with a physical product. It includes a wide variety of services.
There are the business and professional services such as advertising, marketing, research,
banking, insurance, computer-programming, legal and medical advice. Then there are
services which are provided by professionals but consumed for reasons not of business,
rather for leisure, recreation, entertainment and fulfillment of other psychological and
emotional needs such as education, fine arts, etc.
W.J Stanton
“Services as fulfilling certain wants and states that, “services are those separately
identifiable, essentially intangible activities which provide want-satisfaction, and that are
not necessarily tied to the sale of a product or another service.”
Characteristics of services.
1. Intangibility actually presents several marketing challenges: Services cannot be

inventoried, and therefore fluctuations in demand are often difficult to manage.
For example, there is tremendous demand for resort accommodations in XYZ in February,
but little demand in July. Yet resort owners have the same number of rooms to sell Yet-
round.
Services cannot be patented legally, and new service concepts can therefore easily be
copied by competitors. Teaching is an intangible service. Services cannot be felt, tasted,
touched or seen in the same way as goods.
Inseparability - The most basic and universally cited, difference between goods and
services is intangibility. Because services are perform
In most cases services cannot be separated from the person or firm providing it. A
person who possesses a particular skill provides Service. A plumber has to be physically
present to provide the service; the beautician has to be available to perform the massage
Perishability - It basically refers to the fact that services cannot be saved, stored, resold,
or re- turned.
A seat on an airplane or in a restaurant, an hour of a lawyer’s time, or telephone line

capacity not used cannot be reclaimed and used or resold at a later time.
A car mechanic who has no cars to repair today, or spare berths on a train, unsold seats in a
cinema hall represent service capacity, which is lost forever.
Apart from the fact that service is not fully utilised represents a total loss, the other dimension
of this. There is a peak demand time for buses in morning and evening (office hours), certain
train routes are always more heavily booked than others. This is in contrast to goods that
can be stored in inventory or resold another day, or even re-turned if the consumer is
unhappy.

Marketing Management

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Marketing Management

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MARKETING MANAGEMENT

Some definitions of Marketing –

American Marketing Association –

The Chartered Institute of Marketing defines Marketing as

“Needs Pre-exists” (can’t be created)

Changing Role Of Marketing

Marketing Dept. Era 1950 – 1960 Coordinate & Control

Marketing Company Era began 1960’s Long – run customer satisfaction

Consumer Focused Era 1990’s…………….??????????

Company Orientations Towards the Market place

6. Views business as a good producing process

7. Emphasis on staying with existing technology and reducing costs

Defining Customer Value and Satisfaction:

Delivering High Customer Value

What is the 7-S Framework?

Origin of the 7-S Framework. History

1. Shared Values (also called Superordinate Goals).

Strengths of the 7-S Model. Benefits

• Diagnostic tool for understanding organizations that are ineffective.

Primary activities (line function)

1. Inbound Logistics. Includes receiving, storing, inventory control, transportation

• Operations. Includes machining, packaging, assembly, equipment

3. Support activities (Staff functions, overhead)

• Procurement. Procurement of raw materials, servicing, spare parts, buildings,

• Technology Development. Includes technology development to support the value

• Human Resource Management. The activities associated with recruiting,

• Firm Infrastructure. Includes general management, planning management, legal,

A firm may create a cost advantage

Customer Relationship Management

Dfferent levels of customers who have strong profit potential.

3. Accountable marketing: The salesperson phones the customer to check

In most large corporations, strategic planning takes place at four levels.

BOSTON CONSULTING GROUP MODEL

The four segments of the BCG Matrix

Stars (high growth, high market share)

Cash Cows (low growth, high market share)

Dogs (low growth, low market share)

Question Marks (high growth, low market share)

The BCG Matrix and one size fits all strategies

Other uses and benefits of the BCG Matrix

Limitations of the BCG Matrix

• It neglects the effects of synergy between business units.

General Electric Approach

FACTORS UNDERLYING MARKET ATTRACTIVENESS AND BUSINESS

Evaluation of Strategic Planning Approaches

The Product/Market Opportunity Matrix

• In product development, a firm develops new or modified products to appeal to present

• In diversification, a firm becomes involved with new products aimed at new

1. INTENSIVE GROWTH- corporate management’s first course of action should be a

2. INTEGRATIVE GROWTH – Often a business’s sales and profits can be increased

3. DIVERSIFICATION GROWTH – When good opportunities which are highly attractive

4. DOWNSIZING OLDER BUSINESSES- companies must not only develop new

The Porter Generic Strategy Model

• Competitive scope (broad or narrow target).

• Competitive advantage (lower cost or differentiation).

The following three basic strategies are identified (see Figure):

1. Cost leadership—broad market and low cost position.

2. Differentiation—large market and unique strategy.

3. Focus—narrow target segment and either low cost position or a unique

• Skill in designing products for efficient manufacturing.

• High level of expertise in manufacturing process engineering.

iDifferentiation Strategy : This strategy calls for the development of a product or

• Access to leading scientific research.