MARKETING MANAGEMENT

(FOR PRIVATE CIRCULATION ONLY)

2017
PROGRAMME COORDINATOR
- - -- - - - - -
Mr. Sudecr Limayc PREFACE

COURSE DESIGN AND REVIEW COMMITTEE · \ qucsti<lll that is of'lcn lhe'subject ol' much debate is ·'s in ce the world ha s chan ged so radically, why
Dr. Jyoti Agarwal Mr. Ajay Nagarc does11 · 1 111arkcti11 g changc'1" There arc, af'lcr alf; a number oi' new clements in the marketplace. The
Dr. Mr. Rajesh Panda Internet has multiplied the mp11bcr of ways consumers buy and companies sell their products and
Prof. Anita Patankar
·:i . carry on their businesses. Cellu\ar phones, internet biogs and chat rooms have revolwionised the way
Dr. Rashm i Hcbbalkar Dr. Narcndra Purs\-iure custorpcrs communicate with 'each other and with companies. Companies face competition from a
Dr. Shubhangi P Walvekar Prof. Pradeep Datar growing number of countries, who offer lower prices and equal qua! ity for their products and services.
All industr-ies are facing hyper-competition and the .power is increasingly shifting to consumers who
Dr. Suhas B Joshi Abhijeet Ranade
are telling companies what features they want, what communication they will tolerate, what incentives
Prof. Safia Farooqui they need and what price they will pay. And as markets change, so must marketing.
However, the old adage "the more things change, the more they remain the same" has never been
. more accurate. Sure, the business environment has ~dically changed, but superior marketing is and
COURSE WRITER ··has always been built around four pillars: An_alysing your customers and the business environment;
Ms. Nandila Dalal identifyirig key opportunities to heller and more profitably meet customer needs, figuring out how to
act on those opportunities and then finally implementing your plan.
Theodore Levitt, legendary Professor of Marketing at Harvard Business School wrote the article
EDITOR "Marketing Myopia," first published in Harvard Business Review (HBR) in 1960 in which he argued
Ms. Barnalce Handique that companies and entire industries declined because management defined their businesses too
narrowly. More than 40 years later, more than 8,50,000 reprints have been sold, making the article
· one of the best-selling articles of all time. The article written 40 years back has never been more
relevant than it is today.
The basic concepts of Marketing dci not need to change; what changes though is the way we apply
them . What has also changed and will continue to change is the context in which we apply these
concepts. Marketing, as an activity, is no longer restricted to the marketing department alone; entire
organisations must practice marketing. It must drive the vision, mission and the company's entire
strategic planning exercise; only then can organisations survive the hyper-competitive era.
Published by Symbiosis Centre for Distance Learning (SCDL), Pune
As managers, you must learn to adapt to the changing environment and learn, unlearn and then
20~1 (Revision 04, 2015) relearn the old lessons·. This SLM is intended to give you a foundation course in the basic concepts
of Marketing, cast in a·more contemporary mould of today's business environment. I owe gratitude
to a number of authors, esp·ecially Philip Kotler, Lamb, Hair, McDaniel, Schiffman, Kanuk for their
wonderfully simple diagrams compiled in this SLM. I leave you with a quote from Ted Levitt to
whom I respectfully dedicate our learning of Marketing: "T_he future belongs to people who see
possibilities before they become obvious."

Copyright© 2017 Symbiosis Open Education Society Ms. Nandita Dalal

All rights reserved. No part of this book may be reproduced, transmitted or utilised in any form or by any • .. ) :

means, electronic or mechanical, including 'photocopying, recording or by any information storage or retrieval
system without written permission from the publisher.

Acknowledgement
Every attempt has been made to trace the copyright holders of materials reproduced in this book. Should any'
infringement have occurred, SCDL apologises for the same and will be pleased to make necessary corrections
in future editions of this book.
 ABOUT Tl-IE AUTHOR CONTENTS

Ms. Nandita Dalal is a cn 111111 i:rce gradu ate and a postgraduate in rvlarkctin g all(f Hi·ancl Manage ment
with over 15 years or industry experience in Mark eting in diverse serv ice and produ ct organi sations.
r Unit No.
I
TITLE
Basic C oncept s of M ark eting
_4 Page
1-22
No.
1.1 Introduction
She has been a visiting faculty in Marketing and Brand Managc1:nent al the Symbiosis In stitute of
International Business for the past 5 year:;. ' 1.2 Mean iqg and Definition of Marketing
1.3 Philosophies guiding a Company's Marketing Efforts
1.3.1 The Production Concept
1.3.2 The Product Concept
1.3.3 The Selling Concept
I :3.4 The Marketing Concept
1.3 .5 The Customer Concept
1.3.6 The Social Marketing Concept .
1.4 Customer Value and Customer Satisfaction
1.4.1 Customer Value
1.4.2 Customer Satisfaction
1.5 Misconceptions about Marketing •
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
2 The Marketing Environment 23-48
2.1 Introduction
2.2 Understanding the External Environment
2.3 Identifying Major Macro Environment Forces
2.3.1 Socio-Cultural Factors
2.3 .2 Demographic Factors
2.3.3 Technological Factors
2.3 .4 Political and Legal Factors
2.3.5 Economic Factors
2.3.6 Natural Environment Factors
2.4 Changes in Business and Marketing
2.4.l E-commerce
. 2.:4.2 Web Sites
2.5 Macro Environmental Changes and the New Indian Consumer ·
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
l/n it No. TITLE
- - - -
Page No. I l/nit No . TITLE Page No.
] Market Oriented Strategic Planning -!9- R, 5 Market Research and Demand Forecasting I 19- 146
J 3.1 I 11Lroducliu11 :i I l11tru<.lu cliu11
J.2
5.:2 Market Research: Meanin g and l)cfinition
The Nature. ul' Slralcgi c Pla1111i11g
5.3 The Market Research Process
3.3 Step I: Business Mission Slatcment 5.3. l Step I: Problem Definition
3.4 . Step 11: Strategic Analysis - 5:3.2 Step 2: Development of an Approach to the Problem
3.5 Step III: SWOT Analysis 5.3.3 Step 3: Research Design Formulation
5.3.4 Step 4: Fieldwork or Data Collection
3.6 Step IV: Strategy Identification and Selection 5.3.5 Step 5: Data Preparation and Analysis
3.7 Step V: Prepare Operating Plans for each Functional Area 5.3.6 Step 6: Report Preparation and Presentation
3.8 Step VI: Implementation, Evaluation and Control ·of the Plan 5.4 Marketing Decision Support Systems
5.5 Forecasting and Demand Measurement
Summary 5.5.1 Market Demand, Market Potential and Market Penetration
Keywords ) 5.5.2 Company Demand, Sales Forecast and Sales Potential
Self-Assessment Questions " 5.5.3 Estimating Current Demand
' 5.5.4 Estimating Future Demand
Answersto·Check your Progress Summary
Suggested Reading Keywords
Appendix . Self-Assessment Questions
Answers to Check your Progress
4 Competition and Competitive Strategy 83-118 Suggested Reading
4.1 Introduction 6 Consumer Behaviour 147-176
4.2 Identifying Competitors
6. l · Introduction
4.2.1 Customer Perspective 6.2 Simplifi ed Model of Consum er Decision-Making
4.2.2 Industry Perspective 6. 3 Consumer as an Individual
4.3 Structural Analysis of th e Industry 6.3. l Motivation
6.3.2 Perceplion
4.4 Competitor Analysis 6.3.3 Leaming
4.5 Setting up a Competitive Intelligence System 6.3.4 Personality
4.6 Generic Competitive Strategies 6.3.5 Personal Factors
6.4 Consumers in their Socio-Cultural Settings
.. 4.6.1 Cost Leadership 6.4.1 Culture
4.6.2 Differentiation 6.4.2 Subculture
4.6.3 Focus 6.4.~ Reference Groups
6.5 Types of Decisions and Buyer Behaviour
4.7 Designing Competitive Strategies 6.5.1 Buying Roles
4. 7 .1 Market Leader 6.5.2 Types of Decisions
4.7.2 Market Challenger 6.5.3 The Level of Involvement
6.5.4 Differences between Brands
4.7.3 Market Follower
6.5.5 Types of Buying Behaviour
4.7.4 Markel Nicher 6.6 The Decision-Making Process
4.8 Balancing Customer and Competitor Orientations 6.6.1 Need Recognition
Summary 6.6.2 Pre-Purchase Search
6.6.3 Evaluation of Alternatives
Keywords 6.7 The Purchase Decision
Self-Assessment Questions 6.8 Relationship Marketing and Brand Loyalty
Answers to Check your Progress Summary
Keywords
Suggested Reading Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
T
..
Unit No. TrTLE ·Page No. Unit No. -TITLE
---- --- - - - -- e----- ------- Page No.
3 Market -Oriented Strategic Plannini.: --
49-tQ 5 Market Research and Demand Forecasting 1I 9- 146
3. 1 Introduction 5 ..1 Introducti on
' 1
-'•-. The Nature or Strateg ic Planning 5.2 Market Resea rch: Meanin g and Dcnniti on
3.3 Step I: Business Mission Statement 5.3 The Market Rescaroh Process
5.3.1 Step I : Problem Definition
3.4 Step II: Strategic Analysis . 5.3.2 Step 2: Development of an Approach to the Problem
3.5 Step III: SWOT Ana lysis 5.3.3 Step 3: Research Design Formulation ·
3.6 Step IV: Strategy Identification and Selection 5.3.4 Step 4: Fieldwork or Data Collection
5.3.5 Step 5: Data Preparation and Analysi s
3.7 Step V: Prepare Operating Plans for each Functional Area 5.3.6 Step 6: Report Preparation and Presentation
3.8 Step VI: Implementation, Evaluation and Control of the Plan 5.4 Marketing Decision Support Systems
Summary 5.5 Forecasting and Demand Measurement .
5.5.1 Market Demand, Market Potential and Market Penetration
Keywords ..
5.5.2 Company D'i_mand, Sales Forecast and Sales Potential
Self-Assessment Questions .. 5.5.3 Estimating Olment Demand
•.

Answers to Check your Progress .. 5.5.4 Estimating fouture Demand

Summary ........
Suggested Reading Keywords·
Appendix Se lf-Assessment Questions
4 Competition and Competitive Strategy 83-118
Answers to Check your Progress
Suggested Reading
.
4 .1 Introduction
6 Consumer Behaviour 147- 176
4.2 Identifying Competitors
6.1 Introduction
4.2.1 Customer Perspective
6 .2 Simplified Model of Consumer Decision-Making
4.2 .2 Industry Perspective 6.3 Consumer as an Individual
4.3 Structural Analysis of the Industry 6.3 .1 Motivation
4.4 Competitor Analysis 6.3.2 Perception
6.3.3 Learning
4.5 Setting up a Competitive Intelligence System 6.3.4 Personality
4.6 Generic Competitive Strategies 6.3.5 Personal Factors
4.6.1 Cost Leadership 6.4 Consumers in their Socio-Cultural Settings
6.4. 1 Culture
4.6.2 Differentiation 6.4.2 Subculture
4.6.3 Focus .. 6.4.3 Reference Groups
4.7 Designing Competitive Strategies 6.5 Types of Decisions and Buyer Behaviour
6 ..5.1 Buying Roles
4.7.1 Market Leader 6.5.2 Types of Decisions
4.7.2 Market Challenger 6.5.3 The Level of.Involvement
4.7.3 Market Follower 6.5.4 Differences between Brands···
6.5.5 Types of Buying Behaviour
4.7.4 Market Nicher 6.6 The Decision-Making Process
4.8 Balancing Customer and Competito r Ori entations 6.<i. l Need Recognition
Summary 6.6.2 Pre-Purchase Search
Keywords· 6.6.3 Evaluation of Alternatives
6.7 The Purchase Decision
Self-Assessment Questions '. .. 6.8 Relationship Marketing and Brand Loyalty
Answer.s to Check your Progress Summary
Suggested R~ading Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading
Unit No. TITLE
--- - -
Page No. -
Unit No. TITLE
-- - ·----- Page No. ·
7 Market Segmentation and Selecting Target Markets 177 -204 9 Product ( 'oncept~ 227 -2 74
7. 1 lntrndu ction , 9. 1 lntmdu c·t 1,, n
7.2 Market Scg111cntatio11 9 .2 Pmclu ct I )i 1rcrcnt i,11io11
7.2.1 Scg111cntation-Targcting-Positioni11g 9. 2.1 l)i fkrc11Liation Tools
7 .2.2 Facts about Market Segmentation 9.3 Product Classification s
7.2 .3 Niche Marketing 9.3. 1 Product Mix and Product Lines
. 7.2.4 Market Segmentation in Different Industries
9.4 Brand Decis ions
7.3 Bases for Segmentation
· 9.4.1 Brand
7.3.1 Geographic Segmentation
9.4 .2 Brand Eq uity
7.3.2 Demographic Segmentation
7.3.3 Psychological Segmentation 9.4.3 Branding Decisions
7.3 .4 Psychographic Segmentation 9.5 Product Innovation
7.3.5 Socio-Cultural Segmentation ) 9.5 .1 Organising for New Product Development
7 .3 .6 Use-related Segmentation 9.5.2 The Consumer Adoption Process
7 .3. 7 Usage Situation Segrnentatjon 9.6 The Product Life Cyc le (PLC) Concept
7.3.8 Dencf1t Segmentation • 9.6. 1 PLC Stages and Strategies in Different Phases
7.1.9 Hybrid Segmentation Sumnrn1 y
7.4 Criteria for Effective Market Segmentation Keywords
7.5 The Market Segmentation Process
Se lf-Assessment Questions
7.6 Market Targeting
Answers to C heck your Progress
Summary
Suggested Reading
Keywords
Self-Assessment Questions 10 Distribution Channels and Marketing of Services 275-312
Answers to Check your Progress 10.1 Introduction
Suggested Reading 10.2 Role of Marketing Channels
8 Positioning 205-226 10.3 Channe l Structure
8.1 Introduction 10.4 Channel Design
8.2 Pos itioning 10.5 Managing Channel Relationships
8.2.1 Definition of Positioning 10.6 Channel and Distribution Decisions for Services
8.2.2 Importance of Positioning 10.7 Service Marketing
8.3 The Positioning Co~cept · 10.8 Marketing Mix for Service Firms
8.3.1 The A-The Target Audience 10,9 Managing Service Quality
8.3.2 The B -The Benefit
I 0.10 Role of Self-Service Technologies
8.3.3 The C - The Compelling Reason
10.11 Differentiation of Services
8.4 The Process of deve_loping a Position
8.5 . Positioning Strategies 10.12 Managing Product Support Services
8.6 Repositioning Summary
Surninary Keywords
Keywords Self-Assessment Questions
Self-Assessment Questions Answers to Check your Progress
Answers to Check your Progress Suggested Reading
Suggested Reading
I Unit~; ---
TITl,E
---
! --
Page No.
I , 11-.15 4
.
Basic Concepts of Marketing
II Strategi\: !' r icing UNIT
11. I lntrnd uc:lion
11.2 Cn, t,. l111pact on !'ricing
I
I Struct nrc: ,. : .,.

11.3 Custo111er Value and Price Sensitivity 1.1 Introduction

11.3 . 1 Nag le and I [olden 's Nine Factors that influence Price
Sens itivity
.!,
1.2 Meaning and Definition of M·arketing
11.3 .2 Markel Segmentation using Price-Value Perceptions 1.3 Philosophies guiding a Company's Marketing Efforts
11.3.3 Effect of the Internet on Pric_e Sensitivity
11.4 Pricing Strategy and the Procluct·Life Cycle . 1.J. I The Production Concept
11.5 Understanding the Pricing Game 1.3.2 The Product Concept
t°l.5.1 Price Competitiveness
1.3 .3 The Selling Concept
11.5.2 Reacting to Competition with Price
11.6 Pricing: Key Tool of a Company's Growth Strategy 1.3.4 The Marketing Concept
11.6. I Role of the Distribution Channel in Selling Prices 1.3.5 The Customer Concept
11.6.2 Product Line Pricing
11.6.3 Pricing Tactics 1.3 .6 The Social Marketing Concept·
11.6.4 The Pricing Process
Summary
- 1.4 Customer Value and Customer Satisfaction
1.4.1 Customer Value
Keywords
Self-Assessment Questions I .4.2 Customer Satisfaction
Answers to Check your Prngress 1.5 Misc'.onccpt_ions about Marketing
Suggested Reading
Summary
12 Integrated Marketing Communications (IMC) 355-390
12.1 Introduction Keywords
12.2 Concept ofTMC Self-Assessment Questions
12.3 The Communications Process
Answers to Check your Progress
12.3. 1 The AIDA Concept
12.4 The Commun ications Mix Suggested Reading
12.4.1 Advertising
12.4.2 Sales Promotion
12.4.3 Public Relations and Publicity
12.4.4 Personal Selling
12.4.5 Direct Marketing
12.4.6 Internet as a Communication Tool
12.5 Factors affecting the Communications Mix
12.6 The Media Mix
12.6.1 Factors affecting Media Selection
1_2.6.2 Characteristics of Different Media
12.7 Plartning Communications Campaign
12.8 Budgeting for Marketing Communications
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress .
Suggested Reading

13asic Concepts of Marketing

I
'j
 1
Notes 1\11 organi sation ex ists because a customer's need ex ists. The nex t step is
• Notes
Objecti ves tu creat~ so 1ncth1ng nl \:du e tn meet that nccd , li1 r \1 hi ch th c customer is willing
10 pd). rh1 , rc, ul h 111 an e., c hangL' b ct\\CL' l l the· u1g.ini"1lion and it s customer..
Afler going through Lhi s uni t.) ( HI II ill bc :ihk t()_:
. In sati sfyin g: th e CListom er needs rn1d creatin g exc han ges, an organi sation
• Explain \\hat is rnarkd ing. must sal1 sly its 0\\'n goals. The goal ol' all bu sin ess organi sation s is to deli ver
• Describe essential _philosophies guiding a company's marketing . return to its shareholders. Unless this objecti ve is achieved , the organisation
efforts Docs .this mean . that marketing is relevant only to. commercial
• Discuss the concepts of customer satisfaction, customer loyalty and organisations? What aboutthe- numerous non-profit organisations?
customer value . . Marketing is equally relevan.t to them. The only difference here is that
• Elaborate on the core concepts of marketing organisational goals are not defined in terms of return to shareholders. Sue!~
social organisations exist to create awareness and to change behaviour 011 social
• Clarify misconceptions that exist about market_ing and health related issues. An organisation that works towards creating awareness
about AIDS also aims _to b'.·ing about _a change in behaviour of individuals. A)l
· the 1nd1v1duals wo1dd ll1 this case be its customers and the organisational goals
would be measured 111 terms of awareness created or behavioural change...
Marketing is the business function that identifies unfulfilled needs and·
wants, defines and measures their magnitude, determines which target market 2. Ideas, goods and services ."
the organisation can best serve, decides on the appropriate products, pricing and It is not only physical products that satisfy customer needs. As per Phillip
promotion and distribution programs to serve these markets to develop a market Kotler, marketmg people are involved in marketing ten types of entities:
orientation. From a societal point of view, marketing is the link between a
society's material requirements and its economic patterns ofresponse. Marketing Goods - (motorcycle, ice-cream)
sati sfy these needs and wants through exchan ge processes and building long- Services - (beauti_eian, lawyer, education)
term relationships. It is the process of communicating the value of a product
Experiences - (amusement parks, trekking expedition to Ladakh)
or service through positioning to customers. Marketing can be looked at as
an organisational function and a set of processes for creating, delivering and Events - (a cricket match, Olympics)
~ommunicating value to customers, and managing customer relationships in Persons.- (all celebrities need marketing)
ways that benefit the organisation and its shareholdci-s. Marketing is the science
of choosing target markets through market analysis and market segmentation, Places - (marketing Kerala as a holiday destination, marketing Tamil
as well as understanding consumer buying behavior and providing superior Nadu as an ideal location to set up a new industry)
customer value. Pi-op)':1iies - ·both moveable (mutual funds·, equities, bonds) and
immoveable (real estate) . ·
Organisations - ( the companies themselves, UNICEF, <;RY)
The American Marketing Association (AMA) offers a very comprehensive Information - (news magazines, wt::bsites etc.)
definition of marketing as "Marketing is the process of planning and executing Ideas - (Political parties need to market their id_eologies).
the conception, pricing, promotion, and distribution of ideas, goods and services
3. "Planning and executing the concepti!ui;. pricing, promotion and
to create exchanges that satisfy individual and organisational goals".
distribution of ideas, goods and services."
To fully understand this definition, we must break it up into its key
. No exchange can be created between an organisation and a customer unless
components:
a product (whether tangible or intangible) is creat~d to satisfy the customer
1. "Create exchanges that satisfy incliYidual and organisational goals." need. The product has to be priced, communicated to the customer and made
The individual here is the cus.tomcr. The custome1 can be either an avail::Jble to him. All this requires careful analysis, planning and excci.1tion of
individual .or a group of individuals or another business enterprise. (For the sake programs ..
of simplicity, \Ve will refer to all these entiti~s as "the customer" throughout thi s .
book.)

Marketing Management Dasie Concepts or Marketing

 1.~~ ,:J)Hl(iOSQ.PHlE§ ~UlDlNPACOMPANY'S. fantast ic J)roducts that oi'l'n 11u r,-.il ut iIi tI Lo custurncr, . Such ,>rga ni sations Notes
,11ic11 become in wa rd luoki11g, Iii\\ 111 lll1..: ll 1th their prnduct s and !'ail to look at
r! ·. · MA.Rl{),(!OCtiN;q )l'!FFQgTS
1.J .J 'l)1c.Sclling Con cqil
-A\ I marketing activities have lo be carried out umkr II di ·th ought <>lit
business philosophies. There arc csscnliall y six phil osnph1 cs. 11 In ch l:u1dc the Co 111pa11ics that arc gu ided hy th1s.c·u11-:c:pt bc:\ 1c1 c that:
company's marketing activities: Customers if left alone, exhib it buying inertia.
The Production Concept Customers have to be coaxed and cajoled into buying prodt1cts.
The Product Concept Companies must invest heavily in aggressive selling and promotion.
------------ ·--------- The Selling Concept Often the ·selling concept, production or even product concepts co-exist in
The Marketing Concept organisations. Companies that have built up huge capacities to derive economies
of scale, face over-capacities when the markets slow down. To continue selling
The· Customer Concept the huge volumes they produce, they have resort to selling concept. Likewise,
The Societal Marketing Concept companies that follow the pro~..1ct concept, invest heavily in their highly
These philosophies have ev.olved over time. The prod~iction cm1ccpt sophisticated products. When they tmd a no takers for such products, they ofien
have to resort to ha1:d sclli;1g iactics.
and product concepts were prevalent and relevant during the early to rntd 20th
ccnluty. Towards the later part of the 20th century, orga 111 sal1on s adopted the Marketing Myopia
marketing concept. Tht: customer concept and soc1ctal marketmg are prevailing The term marketing myopia means biased or prejudiced mind or narrow
philosophies of doing business today. mindelness.
1.3.1 The Production Concept Theodore Levitt (the legendary professor of Marketing at Harvard) stated
This is the earliest philosophy of doing business. This con~ept stales that in his- landmark research paper, that companies that follow the production
customers want basic products that are mass produced, widely available and at concept, product concept and selling concept inevitably become myopic or
the lowest price. The belief is that "one size fits all". shortsighted and end up losing their businesses altogethe,:
Companies that follow this philosophy believe that: tiis research was based on several industries, which, at that time ( I960's),
Companies must create standard products, which· can be mass-produced. were facing bankruptcy. The Railroads were facing intense competition from
other industries such as airline travel , cars and buses. Hollywood barely escaped
Comp.anies need to emphasise production effic iency and achieving being totally ravaged by television, although many studios simp ly disappeared.
economies of scale.
In this landmaik research paper, which holds great value especially today, ·
Mass distribution of products is the key to success. Ted Levitt stated that myopia can acquire several forms and manifests itself in
This philosophy, though not popular today, would still be relevant ~or organisations through the following symptoms:
very basic commodities such as salt, pu~lic ut!liti~s su~h as water ~nd electn~1ty Narrow Definition of Business
and mass urban transportation. This onentat10n 1s still relevant m_ developmg
economies, where standard of living is lower, and large popula~10n are first Companies define their businesses in temis ·of products rathe~ than in
tirrie consumers of even basic products like soaps, toothpaste etc. The vast rural
1 tenns of customer needs, because ofwhich _they_become either product or
selling oriented.
econo~y in India would be one such market.
Levitt stated: "customers buy ¼" holes and IJ~I,~." drill bits",
·1.3.2 The Product Concept
------------------- What this means is that customers primarily buy· a drill ·bit as it serves the
. Companie; guided by this philosophy believe that:
___ ., _______________ L __ . .
need to make a hole. Hence, the customer.need is to make a¼" hole in the
Customers favo~r p~oducts that are highly engineei:od. wall, and not the drill bit. Further analysis wo·ul'd reveal that the cu~tomer
Customers fa vour products that are of the highest quality. probably wants to make a hole in the wall, as he desires to either hang or
fi x something on the wall. So the real need is not even to make the hole,
Customers arc interested in innovative products.
but to hang or fix something on the wall. Now, if a bette r solution comes ·
Whilst on the face of it, there appears to be nothing amiss with this along, Which would serve the need of hanging or fix ing something on
philosophy, companies solely guided by this philosophy may end up creat ing

Marketing Management Basic Concepls of Marketing

 the wall in a better \I a) . the customer ll'ould switch to buying the better (her optimism about grnwing markets
· Notes
alternati ve. Fo1· in stance . a very strong adhcsi\ e capabl c or handling great . \ gro\1·i11 g L'Cu 11 011J) :111d gr(111 ing market s :1rL' .i s,1u1-ce ,,!" upti111i"11 for
load s ma y elimin ate the necess ity In C\Cll 111akc a hol e in the wall , yc t all c·rn11p,111i cs. I .c·\ ill e;,, pl :1i11s tlrnt thi s can .result i11 n 1111placc11cy and a
serve the custmrn:r's need in a l'. 1r more com·e11ie11t w,Ly. 1:il sc scnSL' 01· , c~udt y. ··Thnc :m; 011ly groll'lh cu111p.ini es. 110 growth
· Companies must understand the real needs or custon11.:rs that they arc illlluslrics" hc st:1Lcs. 0 11I ) those compani es th.ii can In crage l(l'll\\·th
attempting to satisfy, and must define their businesses in terms of those opporlunilics through proper strategic planning a11cl cxcc~tio:1 will
needs. Cinema producers must define their businesses as that of providing experience growth. And these companies can grow their top-lines even
entertainment and not just in terms of makiJJg movies. Custon-iers have when markets experience a slowdown. In India, there is much euphoria
several entertainment options such as sitting at home and watching his about the growth of the Information Technology (IT) and Business Process
favorite serial on Television, going out for a meal with friends or going to Outsourcing (BPO) sectors. A m1mber of .JT companies both large and
the movies etc. Hence, in a sense the movie industry is actually competing small arc competing to participate in this success story. However if you
with all forms of enle1iainment. look closely, you will realise, it is only those companies, whether large
or small , that have appropriate business and revenue models and proper
Bharat Petroleum, a leading petroleum cqmpany, now defines its business
growth strategies in place, that arc succcssf~. The growth of the industry
as that of providing energy and fuel solutions to its customers. As fossil
or economy by itself is not a guarantee of success for organisations.
fuels are increasingly replaced by other greener energy and fuel options
over this century, customer will switch from petrol and diesel to these To avoid being "myopic", co1~1panics ·mtis·t [Jcrioclically ask themselves,
newer energy solutions. The company provides its corporate clients entire during their strategic planning exercises:
fuel management systems, energy audits and technical consultation. What business arc we in?
Bharti Televenturcs does not define its business as that selling cellular or
landline services, but as that of marketing communication technologies. Do we understand the nature of our business?

I Pre-occupation with Product or Technology What customer needs docs our product satisfy and how arc those needs
-- - ---- ------- -- . - changing?
Companies become product features or technology oriented rather
solution oriented. Which products a1·c we really competing with to sati sfy our customer
needs?
Companies that become excessively obsessed with their products or
technologies, fail to realise that both products and technologies are the How can and must we adapt to the changing business environment?
means to an end: Customers do not buy the technology per se, what . As Charles Batchelor once said, "Businesses which take marketing
they buy is a better solution to their problems, which is a result of that seriously often face painful choices. They may have to give up a cherished
.technology. If a technology fails to provide a better solution to problems, product to move into a more promising area. But the alternative to making what
customers will reject it. your customers want, would be making and selling nothing at all."
The belief that a product is forever and has no substitute · 1.3A The Marketing C_oncept
Companies believe in the unchallenged superiority of their product, The marketing concept states that .only those companies, which are more
1
and, that there can be no effective substitute for it. Po·st and Telegraph effective than competitors· in creating, delivering and communicating superior
utilities were for long considered as one of those "forever products". Yet customer value to its chosen target markets, will be successful in n1~eting their
P&T organi;ations, all over the world, have lost their business to e-mail
Theodore Levitt·. explains the contrast between the selling and
and telephone. The Indian P&T department is currently undergoing a niil,rketing concepts as follows: ·
transformation so as to survive in an era dominated by e-mail.
. "Selling focuses on the needs of the seller; marketing on the needs of the
OverObsession with·Mass Production
buyer. Selling is preoccupied with the seller's need to convert his produc·t inlo
Companies that become over obsessed with mass production lose sight of cash; marketing with idea of satisfying .the needs of the customer by means
changing customer needs, and end up being selling oriented. This concept of the product and the whole cluster of things associated with creating and
may hold well in industries, which supply the basic essentials ofliving or delivenng and finally consuming it."
· for developing, subsis1ence economies. ·

◄
I

Marketing Management Basic Concepts of Marketing

 St.trllllg point

S1.;I r~,\([Uil l1sal11ll I

Facto1 y l' rod ucts Sdl1n g and Prolits throu gh (Sci f-lilifi lln1cnt)
promotin g sales volume - - - - - ·- - - --- ----------
(a) · ·1~1tc selling conccpl Ego Needs
(Presti ge, Stratus, Sel f-esteem)

··•· Socia l Needs

(Affection, Friendship, Belonging)
Targe t Customer Integrated Profit th ro ugh
market needs marketing customer satisfaction

Safety.and Security Needs

(h~ The mar~cting concept (Protection, Order, Stability)

Fig. 1.1: Selling and Marketing Concept Phys iological NeecjJ;

(Food, Water, Ai r, Shelter, Sex)
The marketing concept of doing business rests on five pillars:
a) Target markets
Fig. 1.2: Maslow's hierarchy of Needs
b) Und.erstanding customer needs
c) Creating products to satisfy those needs b) Understanding Customer Needs

d) Integrated marketing to deliver those products to customers Marketers try to understand not only customer needs and wants but also
whether the customers have the purchas ing power and willingness to pay for
e) Profitability through customer satisfaction their wants.
These concepts will be briefly introduced in this unit and will be explained Understanding customers' needs and wants is not a simple task. Other
in detail later in the SLM. than the most obvious needs of hunger and thirst, there are several needs that
a). Target Markets the consume1 may not be fully aware of, or that he may not be able to express
those needs. This is because eve,y need that a customers experiences has a
A company can rarely satisfy everyone in the market. Not everyone likes
functional, emotional and social dimension to it.
the same car, two wheeler, soap, shampoo, mobilephoqe and movies. Even those
companies that practice the production concept_(mass production therefore mass Consider a customer wl\o is a first time buyer Df an accommodation.
marketing) are able to truly satisfy only a small part of their markets. Marketers ' At a functional level: He is trying to satisfy his security needs of a
must begin by di vi ding the markets into smaller groups of customers by looking permanent place of dwelling.
for people who share homogenous needs. T{l.ese groups are then identified using
variables such as age, income, gender, education, lifestyle, values and attitudes · .. , . '.fhe emotional .ditl).ensic;m: Since he is a first time buyer, he wants
to name a few. This process is known as market segmen'tation. (This concept is :~s~istance in transac;ti,on, as he is \lnlikely to be aware about the various
dealt with in detail in further unit). The marketer than decides which segment formalities involved in the transaction. He is anxious about the purchase and

i. presents ·greater opportunity and the chosen segment then becomes the target ·~i~o
' .,;s ! 'seeks
. ·,
reassurance
.
in making the deal.
. ·.- -
.
market. The social dimension: IIc wants to be seen a savvy consumer by his friends
----- ------------· ---- and family. He is also making a statement about his social status and financia l
independence through this purchase.
In this case, the customer would only be able to · articu late the need at
the functional level - of wanting to buy a flat. Responding only to the stated

Marketing Management Basic Concepts ofMarkc(ing

 or f'u11t:1io11a\ needs, leaves the rnstomcr- l'ec \i11 g shni-t chan gcd and thcrd<Jrc 1.cnlnusly practice both external and internal marketing. _l:Ortemul 1\lorketi11g
diss:itisli ed Successful 111,1rk ctcrs allcrnpt to un,·m c1 th,· other unst,1tcd is din.:r t.:d t<lll ,mi s .:usto1ncrs and other stakeholders outside the organ1sat1on.
climc11s inns to the needs a11d to n,·.1te products th,11 hilfoil these· needs. /(1(<'/'/llll .\lorl,L'linp. elTort s arc directed towards all the employees o l the

( ·01npanies use I arious q11;111ti1ati1 c and quali1ati1·,· 1cch11 iqucs to unco ver organ is, 1ti'on . Com pani es toda y hire empl oyees not just l,ir their job skd ls,
ncc.d s ,ind 11a11 ts and estimate dc111a11d (ll11it)). qualifi cat ion s or ex perience They uitically look for people who have the nght
attitudes and want to serve customers. \~!Torts arc then made to prm 1dc th e ri ght
c) Creating products to satisfy needs training motivation .lo e11oble and e111po1ver these employees to pcrlorm their
Creating a good product is 'the key clement or the marketing concept. roles.
According to Peter Drucker, "Physical products arc what companies produce in (a) Tradi-tional orga nization chart (b) Modem customer-oriented organization chart
factories, solutions are what customers buy".
Let us take the example of a refrigerator: Customers
Top
The physical clements· of the product would be the steel, plastic, Freon manage
Front-line people
gas, design, internal storage space, etc. These elements would only provide the mcnt
fL>ictional solution of cooling, storage and retaining the freshness of food for a
__________ .. ..... ICln_gc r period. These elements alone do not constitute the product.
Middle m~nagemcnt
l The customer wants timel y and convenient availability of the product,
assistance - both advice and fina11cial assistance - in purchase of the product.
Delivery, installation, after sales ,crvicc, assurance of perfor1'lance, aesthetic Fro111-li11~ people

t
appeal, color choices, adjustable storage space are just some of the facto1s
Custo mers
which arc a part of the total solution that a customer is buying. Ultimately, what
the customer is also buying is peace of mind and pride of ownership. All these
tangible and intangible elements are a part of the product or the value proposition
Fig. 1.3: Organisational Charts
that customer buys. This concept of a product applies to every product, be it
an industrial product, packaged goods, financial services, education or even e) Profitability through customer satisfaction
entertainment. The ultimate purpose of any business entity is to earn returns for its
Market leaders do not just satisfy customer needs ; rather they surprise shareholders. In the case of non-profit or social organisations, return coulc\ be
and delight their customers. Customer delight is a strategy of continually and viewed as the ability to attract funds to run their programs and achievement of
cu11siste11tly exc<?eding c11s/nmer expectations. the targets set in terms of the mission of the organisation.
d) Integrated Marketing to deliver those products to customers : Tt is well-established fact the world over, that companies that have
embraced the marketing concept have achieved higher returns than their peers.
When the company's various departments work together to serve customer
. ·-------------------- needs, the result is integrated marketing.
Indian companies like Mahindra & Mahindra, Bajaj Auto, Maruli Udyog, Jct
Aitways are just some examples.
Integrated marketing works at two levels:
Companies the world over have realised, that to remain competitive in a
One, at the level of the marketing function itself- vanous marketing globalised world, and India is fast becoming a pait of that world; they will have
activates like market research, brand management, sales and distribution and to embrace the marketing concept. ·
marketing communications must work together to achieve common goals.
1.3.5 The Customer Concept
Two, at the level of the entire organisations, wherein the marketing
Today many companies are moving beyond the market(ng concept to the.
concept is imbibed by the entire. organisation. The focus of every function of
customer concept. The customer concept, which is essentially a·refinement of
every depattment is to serve customer needs in a ·better way. Managers are
the market concept, additionally recognises the following changes that have
trained to "wear the customer hat" and to th ink in terms of how their activities
occurred in many parts of the developed world.
affect the customer. Donald Peterson, former chairman of the Ford Motor Co.,
once remarked, "Ifwe are not customer driven, ou, cars won 't be either" Knowledgeable on<l sophisticated customers today lwye high I y
indiv idualised wants and want customised solutions.
To foster customer orientation within their organisations, compan ies

Marketing Management Basic Concepts of Marketing

f

Wide pene trati on or broadband co nn ccti\' ity and access lo th e intern et

throu gh a va ri ety o f' handh cld devices .
Adven t of e lec tronic payment mec hani sms tu support th e linanc ial
fl C heck your Progress 1

transac tion s. Multiple Choice Single Response

The Internet and CRM technologies hav<? ,enab led compan ies to cap ture _ _ _ _ _ states that customers want bas ic products that arc ma ss
real time data abo ut individual customers and t_o track their preferences, produced, wide ly ava ilable and at the lowest price. The belief is that
purchases and usage patterns over time. "one size fits all". ·

In an attempt to build customer loyalty) and recognising the power of 1. The Production Concept
customer lifetime va lue, c·ompanies are now· pl'acticing mass customisation or 11. . The Product Concept
"marketing to the segment of one". (Mass Cl!Stqmisation is explained in greater
iii . The Marketing Concept
detail in Unit 7 on Marketing Segmentation).
1v. The Selling Concept
1.3.6 The Social Marketing Concept
0

2. What do you understand by Marketing Concept?

As per th e Mclnscy Quarterly, "Th e role of and behavior of big
- - . . ----- -------- businesses will come under increasingly sharp ·scrutiny. As companies expand 1. This concept states that only those companies, which are
their global reach, and as the economic demands on the environment intensify, more effective than competitors in creating, delivering and
the level of societal suspicion abo ut big business is likely to increase. The tenets communicating superior customer value to its chosen target
of current global business ideology- for example, shareholder value, free trade, markets, will be successful in meeting their organisational
intellectual property rights and profit repatriation arc not understood, let a lone 11. This concept states that customers want basic products that arc
accepted, in._many parts of the world." mass produced, widely available and at the lowest price. The
Big companies, especially Multinational Corporations will never be loved. belief is that "one size fits all".
But they ·can be more appreciated if they demonstrate purposefully that they iit. Co1ripan ies that practice this concept take their Corporate Socia l
have a conscience. They must balance and juggle conflicting interests of what Responsibility very seriously to prove their good corporate
is good for their customers and shareho lders with what is ethical and in public citizenship. The result is a vast reservoir of goodwill.
.• interest. Corporations like Sony and Microsoft, leaders in gaming industry,
have come under severe criticism, as it is believed that their vc1y popular games iv. Companies that are gu ided by this concept believe that:
glorify and promote violence. Customers if left alone, exhibit buying inertia; Customers have
to be coaxed and cajoled into buying products; & Compan ies
Companies that practice th e societal marketing concept take their must invest heavily in aggressive selling and promotion.
· Corporate Social Responsibility very seriously to prove their good corporate
citizenship. The result is a vast reservoir of goodwill.

I. Can y-0u identify examples of companies practicing the production

concept, product concept and selling concept of marketing?
2. Visit the websites of Bharat Petroleum and Bharti Televentures. The
·--------------------- corporate mission statements of these organisations will tell you how
---------------------- these companies define their businesses. Note how the products they
offer their customers are guided by these philosophies.

In this extremely competitive world, companies must have and maintain

focus on customer if they want to be the winner. The importance of customer

Marketing Management Basic Concepts of Marketing

''Notes '. .,I Ialt1 L' and c· ustn111n , at isl'aL· ti ()II rn ust be' u11d crs1ood rn1d then processes slinuld ,·cry essential to the performance of'lh c product. but they must be viewed ''":'

be buil t ,m1u11d them. ,\ sati sfied cus1u111 c:1· pro1·es a loyal cus10111 er. ,1s the means to the end. Unl ess 1hcsc impro vement s result in enhanced .. No,te,s ,
I
1.-1.1 ( 'ustomcr\aluc performance, customers will not clcri1-c , alue. The •'intended purpose" of
I ( ·ustorncr \i,1lue is dcli 11c·d ,1, th e r,11i o bet11·ccn 1iic hcnelil s th e custo111 cr
thc product is a very important part of'lhi s_quality clcfjnition. It is itnporlai)t·
10 understand the buyer's e.~pcctation s in 1er111s of product performance,
recei ves and the costs he: has to incur in ordcr to acquirc the bcnclits. as customer value quality only in relation to their expectations.
Value = l:'unetional Benefits I Emotional Benefits
2. Add. Attributes or Features that enhance Performarice: Customers
Costs = Monetary+ Time + Energ'y I· Psychic value only those product . features that e11hance performance. All other·
Value is derived by the customer when the ratio or benefits to costs is product features are viewed as distracters or irritants and only add to the
higher: cost of the product without adding any value to the eustomers.
Costs In the HBR article "Discovers your product's Hidden Potential" the
Monetary costs include the purchase cost or price paid to acquire authors, identified ways in which company's can find a better fit between their
something as well the operating and maintenance costs of using the product or products and customer needs, thereby creating value for the customer.
service. Customers also have to invest considerable time and energy to acquire The first step is to observe how customer buy, use and dispose of.the
certain benefits. There is considerable emotional and social risk that customers product. This is a very simple yet very important rule of marketing. Then map·
perceive in making any decision, referred (_o as Psychic Costs. All these costs the entire process-to uncover salient attributes that are important to customers.
together arc referred to as total perceived costs. Marketers must consider the Companies can uncover these attributes in four ways.
total ptrccivcd costs that a customer incurs in evaluating, obtaining, using and
even disposing off the product, the emotional and social risk perceived and Identify parallel needs: Usually numerous needs are being satisfied in
tradeoffs that a customer makes. parallel to the most obvious one. For a person who just wants a cup of coffe_e
at home, the taste, aroma and temperature would be sufficient attributes to
Benefits create value. However, the same person, ordering coffee at a coffee shop
As explained earli~r, custorncrs seek not just functional performance, but is also trying to satisfy parallel needs of socialising and entertainment.
certain emotional and psychological benefits as well. Marketers must consider The value derived in both cases is different and consequently so will the
the Total Perceived Benefits that a customer seeks. price that the customer is willing to pay.
Value is better undcrstoocf·ir it is defined as 'A value proposition is total Identify purchase patterns: Observe quantity and pack sizes preferred
perceived benefits.' by customers. Observe also the time and occasion of use. Aerated beverage
companies initially offered their products in glass bottles in standard sizes
Total Perceived Costs
of 250 ml. They observed that most customers were unable to consume
Customers are "value maximisers", ·within the boundaries of limited entire 250 ml on a single occasion, and because of the glass packaging,
knowledge, time, money and mobility. All ma1:keting efforts are therefore were not able to store for later use. This resulted in substantial wastage,
directed towards enhancing value lo the customer. which "pinched" the customer and often resulted in postponement of
How can companies increase value to the customer? purchase. The companies responded by offering larger quantities as
"multiple serve pack" in Plastic PET bottles, so the beverage could be
The most obvious answer that comes to mind is to reduce prices. Whilst
consumeq at will and at the same timy offered a "single serve pack" in a
this is certainly a very compelling way of creating value, it is often not glass bottle at Rs. 5.00.
sustainable, most easily imitated .a nd has a very short-term effect. Companies
are continually looking for more sustainable ways of creating long-term value Observe how customers actually use the product: Marico Industries
for the customer in ways, which are profitable for the organisations as well. gained· valuable insight from simply observing customers use the
product. In the winter months, coconut hair oil solidifies, making it very
The different sources of value could be:
cun:i.bersome to use. For their .Parachute hair oil brand, they created wide,
I. Quality Improvements: Customers define quality in fundamentally open mouth tin cans, as opposed to the glass and plastic bottles in which
different way from the way companies view quality. To the customer hair oil is traditionally sold. This made the product easily usable in the
qua lity is better performance in relation lo the inlcnch:d purpose. To · ~vinter tnonlhs, creating tremendous value to the customer.' ·
companies· quality _is defects per million, specifications and tolerances
of the various components and materials. Not all these, no doubt, arc

Marketing Management Basic Concepts of Marketing

Notes ldenlif~ euslomns' pern·1itio11, of ri,k I he· L'lht, t111e-r p1, >Iii tL·11ds Ill illcr•:asc cl\ L'J'.l he' I1k,11· th e· rc1;1111cd cuslcHll CI.
Notes ·
( ·ustumc: rs· pc: rcc: pli o11 , ul r1 ,k c\pl1e·11h .itld re·ss 11 ;1ys tP rcd UL'I' the ri sk / \,,,m, /-n·c/i'!d l-n·i,/1/1,·ld f'lll' !111ulr1· /:ffi,c'I. Ill/\ l'r,·s, / 1/66/
CUS tlllllc rs pcrcc i\'I' in purcii,hl ll g ;1 prndu,·t ~)CL'O lll CS :Ill i1nport,lllt \\':JI' oi'
\ l":i,il cus1pt11 cr 1101 ulll) bu), pmduct il\c'1"> 11111c. but bu ys 111 0n: as th<:
nc,11ing \'a luc .
cu1 1111,1111c :-; intrud ucc 11c11 product s and product upgr;1dcs. I k Lnlks lii1·orab ly
Companies can reduce th e bu yn ·s c1isls and 1·i sks by: aboul the compan y and its products, thus spreadin g pnsitivc word of mouth.
Redu cing tlic opcrati1ig and maintcn;rncc costs Customer Loyalty is not jtist the result of producing good products, but
Redu cing cost of installation al so a 1iiatter or building and maintaining a long-term relationship with the
customer. Companies that both understand and value customer loyalty practice
Arranging financing Assistance and · Cuslo·m er Relationship Marketing (CRM).
advice in product purchase especially for high encl durables
CRM is essentially the marketing concept or doing business with an
3. Reduce risk of product failure additional emphasis on the following customer strategies:
Buyers operate under several constraints. Companies must understand Redu ce th e rate of customer defection )
these constraints; hence, the co nce pt nf' customer perce ived value is a very Increase the -Iongcl' ily or th e custo111er relationship
useful framework that applies to almosl all product categories and situations·. ·
Companies must ass1.:ss lhi; lolal cu,to111cr bcncfits·and 1.:ustomer costs associated Fnhance th e growth potential nfeach customer, through "s hare of wallet",
with product offe r. This defines lhc total value proposition . Fina lly, look at the cross se lling and upgrading.
different ways in which the customer 's total experience of using the product can Making low profit customers profitable or even terminating them.
be enhanct::d.
[Sou,-ce: Peppers and Rogers: One-to-One Future]
1.4.2 Customer Satisfaction
Companies that practice CRM invest heavily in Identifying and knowing
Customer satisfaction is defined as "A person s feelings o/pleas11re ur their customer, capturing vast amounts of infot'mation and data at every customer
disappointment resulting .fi·om comparing a product's perceived pe1forma11ce contact poinl. The data captured is collected and stored in a data warehouse.
in relation to his expectatio11s .fi'0/11 that product". If performance falls short Through data mining, th e statisti cians sift tht·ough the data to identify purchasing
of expectations, customers are dissatisfied and may switch to competitors. If pallcrns and market segments. Developing value propositions for specific
performance matches expectations, customers are sati sfi ed . 1f performance customer groups closely tailored to their needs.
exceeds expectations, customers are deli ghted. ·
It is generally bclicwd that satisfied customers will be loyal to the company.
However, that is not true because the link between customer satisfaction and
1
i: Check your Progress 2

customer loyalty is not proportional. Even satisfied customers may switch to a !Vhlltiplc Choice Single Response
competitor, simply because the competitor is able lo exceed their expectations. I. - - - - - - ~ - is defined as the .ratio between the benefits the
Thus, companies have learnt that in competitive environments, Customer customer receives and the costs he has lo inc.u r iff order to acquire the
loyalty can only be gained by consistently delivering product performance that
1. -Customer Value
exceeds expectations. A customer's decision lo be loyal or to switch is based on
the enlire experience with the product and the comp~ny. ii. Value
----------- -- ---------
But. why is Customer Loyalty the focus of all companies today? iii. Costs
Here are some interesting facts bearing on the need to b~tild customer loyalty: iv. Customer Satisfaction
Acquiring new customers can cost companies five times more than the
cosls involved in satisfying and retaining current customers.
An average company loses al least 10% of its customers eve1y year. In
some_industries this "customer churn" rate rnaybe _even higher.
A 5% reduction in the customer defection rate can increase profits by 25%
to 85% dependin g on the induslrY: ·

Markcting Management IJasic Conccpls of !l'larkc1111g

Notes l Notes
/\dr,1,\·J Activity 2 Check your Progress 3
1
I Im c yo u cn ;r cx pcri c11ccd ··c ustu111cr Deli ght ". 11 hc 11 :1 pruduct or i\lultiple Choice i\lultiplc Rl'SJHlll_sc
,en ice perfo rmance e.,cecdccl yo ur ex pec tati on<.' \\'h:11 11 a, ) ,, ur initi al I. \\'h:11 arc th e 111 isct111 L·cp1iu11 s :1buut 111:1rkc1i11g·.' ( 'lwusc Ilic correct
reaction? Docs the product continue to live up to your expectation s or were option s from the choi ces given below.
you- di sappointed with future purchases? Examine the reasons.
1. Markcti11 g is considered synonymous with advertising and
promotion
·~,. ;rr- "'is·c_·o ~·
~~-.~-.lt,,
~l\.Co<;;f/,~ ,',.,;,;,
· 1tr0Nstts·
.,~ .
,'-''<~;
·"tr t%JJ\,
.,,. RKE1::1Nc
·· :i
-··.,~··J>?a",_,{l.,,:,,i[; ,,;o •, ,, l
ii. Marketing is only for consumer product companies

.There arc several misconceptions that people have about the marketing
Ill. Marketing is a cost, not an investment
function. We will clarify the more important ones. IV. Marketing is only a concept and not effective in real world
Marketing is considered synonymous with advertising and promotion.
------- -) --- --- -------
Every organisation, be it a tractor manufaclu1 c1, a soap manufacturer, an
lT.company or even a hospital , needs to communicate with its customers.
I lowcvcr, every organisation docs not nee.cl to adverti se Advertising is Marketing is selling or selling is marketing. What do you think? Is .it the
just one tool or method of communication, appropriate for certain type \..same? (Remember the difference between selling and marketing.)
./
of messages lo be communi cated Similarly, just because a company
advertises heavily, it docs not therefore imply that it is marketing its
products well. We have seen earlier, in the marketing concept of business,
that marketing in fact involves a number of other activities. lntegrated
The ultimate goal of all markct(ngactivity is to facilitate mutually satisfying
Communications is just one of them. Can you recall the others?
exchanges between parties. The activities incluclc the conception, pricing,
2. Marketing is only for consumer product companies. promotion and distribution of ideas, goods and services.
An organisation exists because customers ex ist. Every organi sation, be it The role of marketing and character of marketing activities within an
an industri:oil chemicals manufacturer or an auto components man ufactu re, organisation arc strongly influenced and guided by the organisations
whose customers woulcl be other organisations, needs to m·arket its philosophy and orientation. There are six philosophies under which
products and services. This misconception exists because marketing companies carry out marketing activities.
activities of such organisations are not visible .to individuals; hence, it is
The Production, ,product and selling concepts of doing bi.isiness are 110
believed that such organisations do not need the marketing.
longer considered relevant (with exceptions of course), as they fail to
3. Markeffni: is a cost, not an investment. focus on customer needs.
If an organisation is spending money on marketing at rnndom, without a Companies that Jo nol define their businesses in terms of customer ~ccds
clear objective or strategy in place, then it is probably an expense and not suffer from Marketing Myopia and may end up losing their markets
generating any returns. Well-conceived and well-executed milrketing plans
The marketing concept of business is the most relevant philosophy today.
generate long-term returns, which can be quantified. Many organisations
This philosophy rests on five key pillars of identifying'-target markets,
make the mistake of emulating a strategy just because it was successful
understanding customer needs, creating products to satisfy those needs,
for another company and then expect similar results and returns.
integrated marketing to deliver products and services and that long-term
profitability can only be earned thro1.1gh customer satisfaction.
The cus'ti:ll,nt:r concept and societal marketing concept are refinements of
the markcti'ng concept of doing business . These concepts recognise the
importance of customer li fetime value and that organisations should be
responsible and good citizens of the co1.1 ntries they operate in.

Marketing Management Basic Concepts of Marketing

Notes Customer Loya ll ) is a key i,sm: in most orga ni sa ti on, . C'omp:111i cs must What do ymr understand by Marke ting Conce pt "
Notes
balance new customer acqui sition ll' ith customer· r·c:te ntin n. ( ·usto111 c-r
1. l'hi s co nce pt sta1 es 1h:1t onl y those cor11pa111es, which arc rno n:
Loyalt y can onl y be crea ted hy consistent I) dL·li, crin g rnl ue to th e·
cffcc ti ,·c than com pc t itors in ere al ing. tlcli1·cri11 g and cornrnuni c: 11in!.'.
customer in excess or hi s .ex pectations.
superior c11 s10111cr 1·,rluc lo its chose n targe t markets. ll'ill 11:-
There arc scvcral sources or valuc to a custom er. prr cc bc i11 g onl y one or succcss ful i11 meetin g their urgani s;Jtional go:rl s.
them. Companies must look at the several ways in whi ch it can create and Check your Progress 2
consistently deliver long-term sustainable value to its customers.
Multiple Choice Single Response
I. _ _ _______ is defined as the ratio between the benefits the
ctistomcr-receives· and the costs he has to incur in order to acquire the ·
Customer Value: It is defined as the difference between what a customer benefits.
gets from a product and what he or she has to give in order to get it
I. Customer Value
Customer Satisfaction: The degree of satisraction provided by the goods
Check your Progress 3 )
or services of a company as measured by the number of r_epcat customers
Multiple Choice l\~11ltiple Response
I. Whal are the mi~conccption s about marketing? Choose the correct options
from the choices given below.
I. Discuss the differences between the sales and m::irketiJ1g orientations. I. Marketing is considered synonyrnous with advertising an<l
2 Answer the questions below for each of the products mentioned: a search promotion
engine (e.g. Google, A9 etc.), packaged tea, an automobile. II. Marketing is only Cor consumer product companies
a. State the core benefit or solution. 111. · · Marketing is a cost, not an investment
b. State the basic product and what are the buyer 's minimal expectations
today.
· c. Find out how some companies have found ways of augmenting the
product for different target markets. I, Dillon, William R., Thom::is J. Madden and Neil H. Firtle. Marketing
Research in a Marketing Environ111ent. St Louis: Time Mirror/Mosby
d. What are the potential products that companies are working on?
College Publishing.
How is the product likely to be in future?
. 2. Ramaswamy, Y.S . and S. Namakumari 2002. Marketing Management -
3 Explain why reducing price is not the only way or creating value. What
Planning, Implementation and Control (Global PerJpective). New Delhi:
are the different sources of value to a customer? What are the ways in
. Macmillan India Ltd.
which company's can create value? Give some examples of your own.
4 Why is customer loyalty so important to companies today? Explain why
it makes business sense to make efforts to retain customers.

Check your Progress 1

Multiple Choice Single Response
I. _______ states that customers want basic products that are mass
produced, widely available and at the lowest price. The belief is that "one
size •fits all". ·
The Production Concept

Marketing Management Basic Concepts of Marketing

Notes
The Marl~cting Environment
UNIT
Structure: '
:J,J
·

2. 1

2.2
l111rod uc1io 11
Understanding Lhc Ex lernal Enviro nm ent
2
2.3 Identi fy ing Maj or Macro Enviro nmcnl Forces
2.3.1 Socio-Cultura l fac tors
2.3 .2 Demographic Factors
2.3.3 Technological Factors
2.3.4 Poli tica l and lega l Factors )
2.3.5 Econom ic Factors
2.3 .6 Nat ura l Environment Factors
2.4 Changes in Business and Marketing
2.4. 1 E-Commerce
2.4.2 Web Sites

2.5 Mac ro Environ menta l Changes and the New Indi an Consumer
Sum ma ry
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Marketing Management
The Marketing Environment
 until 11 h tno l,1tc. 011:an 1s;llmn, as 111i gh1 , ;1s ( ,c11cni l \ lot<1 r, and lll i\1 ha ,·c
r~"
Notes
t i')1
OhjectivPs
passc·d 1lirl1Ugh tlH>ugh tin1c, hcTa11sc· ih c·) \\ c·1\· , l, 1,1 ,., 1·c·,1H>1HI to major
c· 11 1 i11111111c·11t.i l , hil't ,
'Notes

.\lh;r "ninn -thro~1 uh 1hi s uni 1. .vn1111 i-11 be :1{111.'·w:

~ ~ ~
The 111 acro en, imnmcnt n rnsists <11· liircc's that () ri ~inal L· outs ide or an
• [ xplain the i111pnrtancc ol'scanning the cxtcrnal cnvirnn1nc11t orga11isa1irn1 and ge nerall y ca nnot be altered by action s ul' 1hc organisation .
In other words, a firm is inllucnced by changes within this clement of its
Spccii'y the macro environmental forces that afiect industries and
cnvirorimcnt, but cannot itself inllucncc the environment. Figure I indicates the ·
organi sation ~
indirect influence of the environment on the organisation.
• Identify macro-environment elements

• Assess how business and marketing have changed ov·er the years

• Explain the macro environmental changes in India post de-regulation

and its impact on the Indian consumer

There arc many variables that operate within an organisations environment

that have a direct or indirect influence on its strategy. A successful organisation
is one which understands and can anticipate and take advantage of changes
within their environment.
An organisations operating environment can be analyzed by looking at:
External forces (those/actors that a/1 organisati0!1 has no contrul over), Fig. 2.1: Indirect lnflucnc~ of the Environment on the Organisation ··

lnternal forces Uactors that an organisat1011 has direct control 01•er) Elements of the Macro environment

An organisation's macro environ111e;1t consists of external factors in the There are lots of little changes taking place in our environment and one of
organisation 's surroundi ngs that have the potential to affect the organisation's the most difficult tasks is to ascertain their impact. Each change, when viewed
strategics. Unless marketing managers understand the external environment, in isolation , could easily be rejected as insignificant. But over a period, when
the firm cannot intelligently plan for the future . Many organisations put together taken together can result in a paradigm shifi in an industry.
teams of specialists to continuously put collect and evaluate information, When Napster first launched free music downloads on the net, there was a
a process kriown as environmental scanni.ng. This task usually falls upon huge hue and cry the world over and they were hailed as "music pirates", by
marketers, as, more. than any other group within the organisation; marketing the entire music industry. H?wever the "Napster movement" has significantly
managers need to be able to track trends and opportuni_ties. :changed forever th~ '\Vay pe?ple :,vii\ .buy and listen tQ music in future. A1J1ongst :
't110s~ coinpanies ~h§ ~~fA~i{"a~•,~•~:ga opportui:iiti was Apple: ·Coniputer~/
~ho haye now ~ii-W~llhtr~i~'f#,e\.(digital mii'sib' indtstry with th" :!'iGn'c)11
.of tJ1~i.r.4iJ ety .sii~ts~fui']:i(''" ''" ,-;,"·~1.Pod {c<{mpac:t'dii1tal rtiusi~'''''iiiyb1/
Macro environmental variables inclu·de socio-cultural, technological, ?16& ·irti?~i~(i·h~~1ifl~gYfu~i. . . .. rl~\~'\t&~n~~Bt6"clif;;lge"t1'ititfitl! f
political-legal, economic, and ecological factors. The goal of environmental ''; ·w
.:enterf~in~e,·_·1. 1 t. iri.d1..·.1~'i_ry . '.•.·r.ffi~.i.t.s.'"'.'~.- I .. eo' iPocl.' . ',l.··.·.. ·.. ,. ' ,,, . . • i.,.•,.¢£1~. :,.:.r,}~;.~.·~
, J, i1 ;,:, ..,.,,, 01'1' ,.;.,:11; • ••+;._~-l:>t1U.J• Ii:, ,,.;f ),, ~.,' ~,. ,f: ''~\; · i.f ',' ,,· ,,;,.;,1:~.·.:J·~ •tt!fl'.i
scanning is to better understand the threats and opportunities created by the
variables and how strategic plans need to be .adjusted so the firm can obtain and Phillip Kotler identifies three types of changes in the macro environment:
------------- --------· retain competitive advantage. Many, once successful businesses have ceased fads·, ·trends and mega trend~. A fad is an unpredictable, short lived change that
to exist today, simply because they failed to monitor changes in their external has no social, economic or political significance. Pokemon and Beyblades are
environment and to adapt their business models to the new realities of the recent examples of fads and although they represented commercial success for
markets . their companies, it was more a matter of good luck and timing than anything else.
ri•s ~11 old adage that "the only thing constant is change", and yet many Fads represent short term commercial success and are extremely unpredictable;
·com.panics fai l to sec change as an opportunity;· they ignore or resist change hence companies need io be very prudent about investments being made in such
opportunities.

Marketing Management The Marketing Environment

 Notes !1t'l/d, 011 1/1, · 01!,;,,. /,,,;,d ,11,· 11Iu1<' /'1t·di<'f,i/,/,· <11 1d d11ru!,/,· !'!1011.~e.,. ,1s l<irccasts ln:nds in banking to produce a unique insight inll> the competitive Notes ·
1/Jei· n'1·,,0 / 1/1<' ,/1(1/1<' o/ 1/J,, /1111m · ( ,H np.1 11 1,·, 11,·,·d I" r,-cognhc ihL·si.: trcnds l<m;cs that " ill li1cl· hankers in the ne:-s t IO yi.:a1 s. The stud) al s\l spoil ights the
and assc,s 1hc1r impact ,111 their 111d11str1L·,. I h,_· pnp1il.11 i1, ,l!' , p1ritu,liit , as an emergin g bu sin ess and technology in11ma li ons and suc icl,il trends that will
anchor ·m suppurt ltir th e l\1s·t pa,·cd 111, ldL· rn Ii l~:s t, ks c., 1llai11 s the popularil y' propel and shap.,; lhc industry's 1ransltir111atiu11.
o!' ,\rt o!' I.I\ i11g progra1ns ;111d I'\ L'h,1111 1L·I, l1ki.: \;1st ha : thi.: kmk11,·, 1t1r ollkr
The survey by ll3i\ll 's market resea rch unit , The lnstilule lti r lh1sincss V,llu.,;,
pcppl e to act and feel youngcr than thcir ;i g,\ has ·cn.:a tcd ' lucrati,c markets
comes al Lime or rapid change fuelled by new information technology, global
for products like hair color, anti age ing cosmetics and cosm<.:tic surgery. Trends
--- regulations and emerging markets in Asia, Eastern Europe and South America.
-------;- merit close attenlion as marketers need lo adapt their products and marketing
Worldwide, total financial services revenue is forecast lo experience compound
program s Lo these trends, r~tl1cr ti1an ignoring them. Nol all trend s represent
annual growth of 7.1 percent between 2000 and 2015, from US $2 trillion to
business oppoitunitics, even though it may be technically feasible Lo leverage
US $5.6 trillion. In the Asia-Pacific region, ·IBM predicts a growth rat_e of
the opportunities. In depth market resea rch is essentia l to determine the
about 7.6 percent.
commercia l potential or each trend .
JBM found five key trends will determine market success in 2015 :
John Naisbill, in hi s book ' Mega trend s 2000' identifi ed mega trm d v as
socio-eco110111ic, political and technological cha11ges that are slo\\' lo form, but ) I) The powerful customer. Customers will be smart, informed and
once in place, the inf/11e11ce lasts jiJr o long 1i111e. Naisb itl identified Globa l savvy users of financial serv ices. They will only be interested in service
Lifestyles and Cultural Nationalism as so me of these mega trends. ~incc t'ii'eita .. providers that can meet their very specific individual needs.
trends have far reaching 1111pacl on every aspect of Iheir businesses, marketers 2) Specialised niche competitors. Markel conso lidati on will continue,
need to pay close attention lo how these mega trends wi ll unfold and their making the mega banks even bigger. .]3ut they will face swarms
impact on business. of nimble competitors including community banks, industry specialists
One mega trend or the last sevcial yea rs has been globalisation - the and non-bank banks thar specialise in providing specific se·rviccs:
exponentia l growth or trul y global organisations. The key benefit or global Partner- competitor relationships will arise.
organisations is the ability -to exploit regional differen ces in needs .(custo111crs) 3) A new workforce. The need for productivity and efficiency_will create
and production capab ilities (worker expert ise, costs, govern111cnt aid, etc.). In new sources labor and work practices. But there will al so be intense
addition, the 111arkcts in man y countries ha ve become. largely saturated for many competition to attract and retain talent.
products. lncrcased globalisation has had a number of effects. In combination
with changing demographics, globa li sation is causing a rapid increase in 4) Regulated transparency. The need to comply with global ly enforced
diversity in both the marketplace and the workplace. More than ever, people standards of transparency and accountability will force the adoption by
have to interact with and coordinate with people from diverse economic banks of integrated, enterprise-wide systems and processes .
backgrounds and cultures. This in turn has meant tha\ emp loyee~ need new 5) Sharply focused· technology. The enabler of all this change will be
relation al skills to succeed. technology that supports rapid, accurate decision making and greater
Another effect of globalisation is increased competition. Back when operational flexibility and efficiency. The successfuJ-spccialists will be
national borders effectively scaled off national economics, the major competitors those who can track and analyze specific customer needs and speedily
for any given company were usually local. For example, in the car industry, meet the1~1 with profi.table, reliable pruuucts.
each industrialised country might have 3 or 4 major auto makers, of which one IBM's General Manager for Global .Banking, Mark Greene, says the
was usually dominant. Splitting up a market among 3 or 4 players, some of study shows what banks mus~ do ·now in order to stay competitive ov,er the
whom c~uld be quite weak, was often a less than. challenging affair; but once . ; n.t;it tei:i yeai's'.,'.'By2015, wewii(live in'·an intensely customer-centric market')
globalisation made it possible for companies all over the world to compete, "th1~ is d~minated by global mega banks and dt;n.sely populated by speda!ist ;
the number of players went up radically, and mme importantly, the number of finafici1:1I ,;j er\ipe~ ., provjders. · Fif!rce , cpmp~titio111· global regulation ,and !
really. good competitors (the top players in each nati•onal market) went up as ; technology will _reshape bank and non-bank structures. . . .. •:. :l'1
well 1
"Technology will ;lso driv~ fundame1~tai ·changes in wor~force r
iBM released a landmark study revea ling the key trends and innovations disposition, which will have su·bstantial follow;bn effects for producti\Yfty,'
that will defin e !he _global banking indµ stry in 201 5. efficiency and profitability," Gree~e says. "These trends are already
The s·tudy "Banking 2015: Defining the Future of Banking" evident but, as they beco1i1c entrenched, there will be profound changes to the
(availabic ~t www.ibm.com/services/us/index.wss/ibvstudy/imc/al 022912) competitive drivers of global banking."

1\1arkcting Management The Marl,,cting Enl'iro11111enl

 l"IH:sc ditm: ns ions include:
Notes I ~ Check your Progress I Notes
/'//11,·1 .!1.,11111n· lhc dcgn:c oi" inequality arnong pco pk II hr ch thc
, t Multiple Choice Multiple Response
,,I"
po pul at io11 a co u111t-:, co11 sidcrs 1101rnal.
/11di1·id11uli1111 1•1 n1//edi1·i1·111 · the deg rees tn whi ch pl'npk i11 a u, 1111 t1v
I. Whal arc the ·c1t:1nc11ts of 111acru c111 iru11111c111·.> prc kr Lo act as individual s or as members or a group. ·
1. Economical Elcmcn_ts
!vfasculinitv vs.-femininity- thc degree lo which values like assertiveness
11. lcchnological Elements performance, success, and competitiveness arc used to guide deci sion~
111. Ecological Elements versus values like the quality of Ii fc, warm personal rclationsh ips, service,
1v, Micro Elements and solidarity. ·
Uncertainty avoidance- the degree to which citizens of' a country
prefer structured over unstructured situations, rigidity of procedures, or
willingness to accept risk and potential failure.
Like some of the ?ends indicated above, can you name some other trends Time orientation- the extents lo which decisions arc based on long-
______________________
, that have had -a-similar impact? _,,., term orientation versus short-term orientation, past versus present versus
future, and punclua•lity.
This worldwide study conducted by Geerl Hofslede, has irnportanl
implication s for the way companies will conduct business in different markets.
The external environment of an organisation can be analyzed by In this study Indian society scores very high on power distance and uncertainty
conducting a P.E.S.T analysis (also referred to as STEP analysis). Thi s is a avo idance, but low on time orientation. The US was found to be a highly
simple analysis of the Political, Economical, Social and Technological factors. individualistic society as opposed to Japan which scores very high 011 collective
In recent times the PEST analysis has expanded to include various other !'actors style of functioning and decision making.
like ecological and even international factors within the macro environment 2.3 .2 Demographic Factors
which are important for a particular industry. The influence of these factors wi II
greatly va1y from industry to industry. Demography is a study of the country or regions population statistics such
as size, growth rate, age distribution, geographical distribution , ethnic mix ,
2.3. J Socio-Cultural Factors educational levels, household patterns, regional characteristics amongst others.
The socio-cultural dimensions of the environment consist of attitudes, 1. Population age mix
customs, lifestyles, and values that characterise the society in which the fi,m
operates. Sociocultural factors include anything within the context of society A change in the age mix of the population has many potential consequences
that has the potential to affect an organisation. Social changes are the most Tor organisations. As the age mi~ changes, the demand for products and services
aifficull external variables in tenns of truly understanding their impact on also changes. For instance, The US, Japan and many countries of Europe
society. are seen as ageing countries because the sharp decline in the birtlu·ate and
improvement in health care have contributed to an increase in the aycrage age
Norms (standard accepted forins of behavior) and values (attitudes of the population in the United States.
toward right and wrong), differ across time and between geographical areas. . -- -- -- ------ ---
Lifestyles differ as well among different ethnic groups. Between different It is estimated that by 2015 more than 35% of the population of these
countries, sometimes even within a country, there are substantial differences in · countries will be over 65 years of age. India, Brazil, Mexico in contrast are
attitudes, beliefs, motivation, morality, superstition, and perception, as well as 'Young" countries: A third of India's population was below 15 years of age in•
other characteristics. · 2000. In 2020, the average Indian will be only 29 years old, compared with 37
in China and the United States, 45 in Western Europe, and 48 in Japan .
Gecrt Bofstede, a renowned Dutch sociologist, developed a model
in which worldw ide difTercnccs in culture are categorised according to five Many firms that traditionally targeted their products toward _youth ·
dimensions. arc developing product lines that appeal to an older market. Clothing from
. Levi Strauss & Co. was traditionally popular among young ·adults. While iis ·
popularity in this market has waned, the firm has been able to develop a strong
following in the adult market with its Dockers label. ·

Marketing Ma11ag<:111c11t The Marketing Environment

Notes j· . Othc·r· firn1 s rm: de1·c l0pi11 g str:1tcgi es th,1t II ill all(111 thrn1 In capilnlisc on firm . or industr·y. Tcc htH llPt! ic,11 intHll ,1tions i;orllinuc to lllO\'C at an increasin gly_ ,
Notes
the ag in g population. Finn s in th e health -cm.: indu slr> arc n 11c·c tc•d to do 11 cll . rapid rat<: .
g11e11 the in creasing age ol'thc l J. S. pupulation . The) arc pn ij c·c· tcd as a gnl\\th
Tec lrnolog) r,111 l·l1;11 1~c th e I1!'es t) k and buying patterns of consum er,.
segment or l !.S . industry si111pl ) hc'cau sc ol'thc population dc·1 11ographics.
l{ cccnl dt.:1·clop111cnt s i11 the field P 1'111 icrocornpplcrs ha, c drarnat icall y t.:xpandcd
1
Eclucatio11 Lc,·cls the potrntial custo11H: r h,1sc· and cn.:,1tc:d in11unli.:rabl c opportunit ics !'o r busint.:sse,.
Rising cduc.ational levels have a major impact on mganisatiqns. 1lighcr to engage in business I ia l11tcrnct. Whcrt.:as computers were traditionally used
educational levels allow people to earn higher incomes · than would have only by large organisations to handle data processing needs, pci:sonal computers
been possible otherwise. The increase in income has created opportunities lo are commonly used by smaller firms and individuals for uses not even imagined
purchase additional goods and _services, and to raise the overall standard of fifteen years ago. Similarly, new developments in technology led to a reduction
living of a large sc·gmcnt of the population. Educational levels of the target in prices for computers and _cxpai1ded the potential market.
markets directly determine their knowledge and awareness of products . Technology also changes production processes. The introc1!1ction of
When Washing machines were first introduced to the Indian markets, products based on new technology often requires new production techniques.
companies had to educate thejustomcrs about the utility of the prod:1,ct as there New production technology may alter production processes. Robotics represents
was limited awareness . One manufacturer advcrttsed the benefits as 1t washes, one of the most visible cha! lcnges to existing production methods. Robots may
rinses and even dries your-clothes; in just a few minutes you arc ready for the be used in positions considered hazardous for people or that require repetitive,
show." detailed activities.

Increased educational level has also led to increased expectations of In some industr·ics, use of robots during the early 2000s increased
employees, and has increased job mobility. Employees arc less accepting of • production and efficiency but restilted in significant numbers of job losses.
undesirable working conditions than were employees a generation ago. Better llowevcr, techno logical innovation can also result in increased job growth. For
working conditions, stable employment, and opportunities for training and example, Ford Motor Company's $375-million technology update to its Norfolk
development are a few of the demands businesses confront more frequently as assembly plant resulted in tlie ability to build more models on its assembly line
the result of a ti1ore educated workforce. and consequently created about 270 new jobs. •

3, Ethnic markets and subcultures There is little doubt that technology represents both potential threats
and potential opportunities for established products. Products with relatively
Countries and regions vary in their ethnic characteristics. The United complex or new technology are often introduced while the technology is being
States is considered a multicultural society, where people come from virtually refined, making it hard for firms to assess their market potential. When ballpoint
all nations. Although initially The US was considered as a large 'melting pot' pens were first introduced, they leaked, skipped, and left large blotches of
in which the different national identities would blend and assume one national ink on the writing surface. Fountain pen manufacturers believed that the new
_identity; this did not happen as people of different nationalities retained their technology was not a threat to existing products and did not attempt to produce
.cult,irat roots. The US is now considered a 'salad bowl society', with different ball-point pens until substantial market share had been lost.
nationalities retaining their strong ethnic roots.
Another technology, the electric razor, has yet to totally replace the blade
· India is another interesting case of no single Pan Indian identity. for shaving purposes . This could be because manufacturers of blades have
Different subcultures and languages make up the 1.2 billion population and innovated by adding new features to retain customers. Manufacturers of fountain
each subculture has very distinct attitudes an:d lifestyles. This has enormous pens did not attempt to innovate until the ballpoint pen was well established.
implications for marketing programs. In India, it is not -uncommon to find
ma·rketing communications created specifically for regions. It is quite difficult to predict the impact of a new technology on an existing
·product. Still, the need to monitor the environment for new technological
2.3.3 Technological Factors developments is obvious.
Every new technology is a force for."Creat\vc Destru.ction". Companies . Attention must also be.given to developments in industries that are not
that fail to embrace newer technologies will inevitably see their ,businesses direct competitors, since new technology developed in one industry may impact
decline. companies and organ isati ons in others.
Changing technology may affect the demand for a firm's products and 2.3.4 Political and Legal Factors
services, its production processes, and raw materials. Technological changes
may create new opportunities for the firm, or threaten the surviva l of a product, The lega l environment facing organisations is becoming more complex
and affecting busi11csses more directly. It has become increasingly difficult

Markcling Management The Marketing En\'ironrncnt

Notes l11r hus illL'SSL'' tll lake :1l'ti,111 11 i1!1<n1t e11 L·uu11tni11 g ;1 l:111 . 1·c·~ul ;lli ll 11 . m leg;il Lt5 Economic Factor~
prnh l,_· 111 Notes
l·cu11 0111 ic 1\ictnr, re ler tn th L· 11aturL· ;11HI hL·,ilth DI' th L· L'l' n110111 ic svstcm 1
\lli tudcs towards husincs, 11 itl1111 11·hi ch lhL' !inn upn:11 ,-, IT u110111i c l;!L'lllr:; in clude the state t~I' the
!'lie pnli1i cal -lcg;1l di111 c11 siu11 01· the gc11cral c11 , ir,ll11llL'II I a lsu alkcts hu si11t:ss cyck. lhL· distr1hut1n11 nt' i11 L·1>1llL' \\' ithin the pnp11 l,1l1 011 1nlL'rcst rates ,
business activity. The philoso phy of the pL1liti ca l p,1rti cs 111 power s;11 in gs, debt and credit ,11ailahil1ly and gm·crn111e1lla l 111unctary anti fisca l
inllucnccs busi11css practices and cklcnni11cs the ri sks 0 1· doin g business polil:il:s. The impact ul' thcsl: cco no111i c foctors wi ll di Ile r bdwcen industries .
'in a parti cular country or reg ion. Political stabilit y is :i key factor in I_ Business Cycle
determining attractiveness or markets and for setting up or businesses.
The business cyck directl y inllucnccs constimcr spending. ·Purchases
The legal environment serves to define what organisations can and cannot
_of many durable goods (appliances, furniture, and au tomobiles) ·can be
do al a particular point i11 time. A pro-business attitude· on ·the part of
postpo1:cd during periods of recess ion and depressio n, as can purchases -··-··----••·•--- ····- - -------
government enables firms lo enter into arrangements that would not be
of new equipment and plant expansions. Economic downturns result in
all owed under :-i more anti -busmess philosophy
lo wct profits, reducti ons in hirin g, increased borrowing, nnd decreased
2. Legislation regulating business productivity for firm s adversely affec ted by the recess ion. Positive
Regulations concerning man y business practices di ITcr betwee n slates. consequences or recess ions may include reductions in waste, more
Tax rates vary widely, with multiple levels of taxation. Loca l governments realistic perceptions of wo rkin g conditions, exit of margina-111/ efficient
have the potential lo a!Tecl business practices significantly. Some local firms, and a more cflicicnt sys tem.
governments may be willini,:: to pro vide incenti ves to attract business to 2. lncome growth and distribution
the area by build industrial parks, servi ce roads, ta x holida ys. connectivity
to ports, railheads and airports to encourage a desirable business to mo ve The di stribution of income may differ between countri es. Two countries
into the community. with the same mean (per cap ita) income levels may have dramatically
di fforcntdi stributions of inco me. Many developing countries have citizens
Regulatory measures such as building codl:s and zo ning rl:quirements {vho an: either extremely wealthy or extremely poor; only a few persons
differ significantly ·between commun1t1cs. - l11frastructurc such as would qualify as middl e class. The presence o[a very strong and growing
electricity, tclccommunicalions, educational l'acilities, and sewage numbers of middle class consumers makes for attractive markets.
treatment capabililics may not be able lo accomrnodalc lhe increased
demand associated with certain industries. making that loca le unsuitable 250 million middle class consumers in India, equal to the entire population
for establishing some businesses . of the United States, and the fact that it is growing, is what makes India
an attractive market for many multinationals today On the other markets
3. Special Interest groups
arc not growing in many countries, due to saturation of markets, leveling
Most companies are now come under increased public scruliny Consumer off of incomes and shifting of jobs to lower cost economies.
activism is on lhe rise, due to the growth of a number of special interest
3. Savings, debt and Credit Availability
groups, fighting for the right of consumers. In response, Companies have
realised the need to adopt a more sensitive stand towards these issues and Consumer expenditures are affected by the savings debt and credit
have established special consumer affairs cells to help formulate policies availability. The Housing, Automobile and Consumer Durables boom
and respond to complaints. Customer issues are not taken lightly, as even in India over the past decade has been fueled largely by the availability
a very "small" issue can, if not responded to, can snowball into a major of credit at attractive rates of interest The savings as a proportion of
controversy and damage the company's reputation. · income impacts the interest rates at which Banks will lend money to its
In 2004, a customer reported worms in one of Cadburys chocolate customers. A liquidity crunch will lead to spiraling interest rates which
bars. The local food authorities immediately swung into action and the media are ultimately passed on to-the customers. Lower Interest rates also help
immediately picked up _the story, However Cadbury's officials were extremely corporate expand faster. _
proactive in taking corrective action even though it was later ·proved that the The impact of interest.rates and credit availability is direct in the financial
problem had occurred at the retai lers end and not during the manufacturing services industiy. However for manufacturing or consumer goods, ·the .
process. The company launched a huge communication campaign to educate the impact is more on the cost of goods sold. .
customer and even redesigned the packaging to ensure that such problems would
not recur. The resu lt was a substantial increase in Cadbury's market share, as
the customer 's faith in the brand was restored.

1\larl; etin g Management The Marketing Environment

Notes 2.3.6 Natural Environment Factors
The dcLcrioraLin11 or th e nalu ra l en, irn11111e11L 1s a 111a1or u 111eern glol>,iil ). @ Check your Progress 2
(Jo vcrnmcnt s arc under increased pressu1 c r1 um ··\\ alchdog" groups to )\:gisl,1Lc·
the gro\\'Lh and f'u11 ctio11i11 g or industri es \\'hi ch are sec11 as 111ajor co11tributu1·s i\ I ultiplc Coicr Siuglc Rcsponsr
to Lhc clclcrioratio11 or the 1rnLural e11,·1ronmc11t. I. \\'h ,11 docs l'l ·.. S. I'. :1nal ys is stand s ltlr'.'
. Of particular concern arc the emission ol'"grcenhousc gases", clcplclio11 or I. Political_, l2nvironmcntal, Standard and 'lcchnological
fossil fuel resources, and contamination or grou11d waler with hazardous waste
II. Political , Economical, Social and Teehnulogical
and growing shortages of water. Organisations need to be aware of the threats
and opportunities associated with four key factors of the natural environn)cnt: Ill. Power, Education, Savings and Time
shortage of natural raw materials espe.cially water; increased cost of e11crgy, IV.. Population, Ethics, Special interest groups and Time
pollution levels and role of governments.
· Raw materials can be classified as renewable resources such as tiinber
or food and nonrenewable resources sud1 as oil, coal, natural gas and _iron
ore. Organisations dependant on renewable resources need to be conscious of
replenishing the natural resources. The Paper and furniture industry for instance I. Can you identify some political and legal factors that have affoc\ed
have developed alternative raw materials to reduce their dependence on these foreign direct investment in India? Which industry sectors have been
natural resources. particularly impacted?
Inclustrit:s which arc dependent ~n nonrenewabl e resources face more 2. Can you name some special interest groups? Which industries have
serious problems in terms of rising input costs clue to shortages of these natural they been active in?
\
resources. Depletion of fossil fuels is of serious concern to the automobile
industry. Auto majors such as Toyota, Honda and Ford , have developed
hydrogen fuel cars as a product of the near future.
The rising prices of oil and Hydro Electric Power have been a major Major macro environmental forces such as technological advances,
concern for most industries·, which are now looking for practical and cheaper deregulation and globalisation have created a "new economy" . Traditional
1::uergy allernativcs. Solar Energy, Nuclear Power and Wind farming are business and marketing practices are being challenged by this new economy.
attracting majo1 . investments worldwide. The global demanct for wind energy Thomas Freidman in his book The World is F.lat identified the fo ur different
is growing at 45%, much of it led by the US, China and India and the share revolutions that have shaped this new economy.
of wind energy in the total power generated globally is likely to increase from
What is this New Economy?
0.2%(2002) to 3% by 2030.
This is a major opportunity for companies such as \estas (Danish company Carly Fiorina, former CEO of Hewlett Packard, very aptly described the
and world's largest wind turbine producer) and Suzlon (India). The Kyoto new economy as "Digital, Mobile, Virtual and Personal". The digital revolution ·
Protocol is also forcing firms to invest in cleaner sources of energy especially means that all analog content, be it data, music, pictures; words can be digitised
and transmitted at high speeds through satellites or fiber optic cables. Anyone,
in markets like Australia, The EU and South Korea.
through any device, anywhere in the world can access any information on
Industrial activity inevitably damages the natural environment clue to anything and even more so manage processes and content virtually. This digital
the disposal of chemical pollutants and hazardous waste as well as littering revolution, which many industry experts say ·has just set in, has unleashed
of the environment with bottles, plastics and other packaging materials. Many several forces of change.
governments are now forced to play an active role in regulating this pollution by
forcing industry to treat effluents before disposal, as well as to adopt recyclable The Knowledge or lnfonnation -Revolution is a direct result. "The
packaging. Some countries such as Germany are very active in ·pursuit of diffusion of personal computers, fax machines, Windows, and dial up modems
its environmental policy; products exported to Germany mus t be packed in connected to a global telephone riet\vork all came together in the late80's and
recyclable packaging or else are denied entry. A market survey revealed that 90 's to crea te the basic platform that slat Led the global information revolution"
42% of US co_ns um·crs are wi lling to pay higher prices for "green" products. says .Craig Mund i, Chief Technology Officer, M icrosoft. The res ul t: customers
have i111preccclented and vast amo unts of know ledge of every product and
process .

Marketing Management The Marketing Environment

 Notes Du1 in J.t th e do1 crni1 boom , 1clccrnn comp,1ni cs 111 'th e \Vcs le' J'II \\,, 1·ld
co111rnc rcc ai1d service opportu 11iti cs ·a s sig11ificant as those resulti1i'g
, i11\ cs led clo~e 10 $ I lri 11 iu11 la y in g undersea libero pt ic c,1bk a11d ll'iri 11g I he 11 (,rid . Notes
from the wired Web. "
These massi, c ill\ cS1111rnt s i11 conn cc ti, ii ) arnund th e \\'orld , 1:tllin g pri ce', Pl.
crnnpulcrs, cx plosio11 ol' suft11 an; and search e11 gin es and proprielary so1'111·11rc • Tagging lhc world (RFII)): ll y 20Q8. ,11 lea st $90 billion w,or\h
that can chop up an y piecc 01· 11·ork and send i1 i'nr de, clop111cnl anywhere 111 the· of business- to-con sumer (B 2t) purcliasc decision s - and $350 billion
world, created the platform for the Global outsourcing revolution. worth of business-to-business (02 13) purchase dcci sions--will be based
on " tags," (RFID technplogy) which contain information and opinions
Most of the leading business companies of the world are adopting 13PO as
· about the item being boug!;it. "The flood of information, products, and
a strat(lgic business solution. The BPO industry is very diverse, with several sub-
services available to today's consumers· and businesses is spurring a
segments, ca.ch displaying its own unique characteristics. According to Gartner,
focus onorganisingand l(lbclingchoiccs iti'a waythatsupportsaperson 's - ·· - -··- -----------·-
· a market research firm, the size of the global BPO market by 2007 would be
ability to find , prioritise, and select items,". "The·tagging industry will
$ l 73bn, of which $24.23bn would be outsourced to offshore contractors . or
modify consumer buying behavior and drive new industries focused on
this, India has the potential to generate $13.Sbn in revenue. advisory and market research services."
The technology revolution and the amount of time that people now spend Source :: Gartner Research
with digital devices ha s changed the way people communicate, work and even
form n.:lalionships. More than 12% of all newlywed s in the US met onlinc. One
Changes- in technology and the rise of 1icw econ.o my have created a new
billion searches .per day by people looking for just about anything long .lost --··------ ········· ···· ··---·--
set of bcl 1ers and business practices. We wil I take a look here at some or the key
-- - y- - -- - - - -· - -- - .. - --- - family members. to lost pets to the latest techniques in eye surgery, arc being changes in business practice that have occurred over the years and explore them·
conducted on Google every day. History or Geography is no longer a constraint in greater detail throughout this book as we go along.
for any social or economic activity. This can best be described perhaps as a
Some of the important changes that have occurred over the last decade arc
Lifestyle Revolution.
the exponential growth or e-commerce and the emergence of the website as an
Gartner's "Fo~r key emerging technol<igy trends for the next decade." important communication tool.

• Customer Self Service: By 2005, more than 70 percentofcustomerservice 2.4.1 E-Commercc

interaction for information and remote transactions will be automated. Globally e-commerce takes place over four major internet domains :
"A range of technologies are improving customers' ability to complete B2C (business to consumer)
increasingly complex informational and service-based transactions
B2B (business to business) ·
without the need for human assistance." "The non-technology factors·
driving this increased automation include strong return on investment, C2C (consumers to consumers)
better customer reach, and improved service quality. This will ultimately C2B (consumers to business)
result in i,;creas~d competitiveness, and in savings that can be passed on Each of these domains is significa11t to the growth of e-commerce. ·
.,to the customer," 1. B2C (business to Consumer)
, ~,, ;,,f~eb ~~ryices:By_ pack~9i);lg,b_~~iness proce~~~s:.e;~•~,0.,~\Y~.:e~,?mp~nc_nts, According to AC Nielsen's research, more than 627 million people
f4T · · · b .} scrvices ·,y,i!L. ., dri;ve /cmuch \ of. _Jhe t st1ll~t9~]Je~!,levclopcd have. shopped onlinc. The most popular items purchased on the Internet
;· ,. ;s•,j<:'':-· s§l~ndscI''e"'l1w6b·~ t~%~~'tvill fatiii"''"' { , ,'8h:fas'ier'feoftware
1
'"-'-"t'tfil'lf}: . . 'hiy:~11:i :ai .tt'' i.~i~se~ .Jo · are Books (34%), followed by Videos/ DVDs/Games (22%), Airline
Tickets/Reservations (21 %) and Clothing/Accessories/Shoes (20% ). Not
"·· ,,r '.(,"!, ;_'._!.'_:_t
_: :·w; .' ' surprisingly, Europe· and North America display the highest ioddence of
......~ ' , ;, .. :··,,/.l';f
,ft~~-~:~. ·; on line shoppers, with Germany, Austria and the UK topping the list, with
i:iuthfg :a!1d , at least 95 percent oflntcrnet users having purchased onlinc.
jP,t%, "{,',j\
"' _1 esprea .., . • . . ,, . , . . ,... 111
~tt: }.
or9plltl~g /;
In Asia Pacific, South Korea and Taiwan rank highest, with at least 90
percent of respondents claiming to have ever made a purchase online, at
f ,,.,,tlJ?ilvidc constantly connected employees' and consumed f ith access Jo least six in 10 of whom have done so within the last month. While there

-- -------- ---·-
5
·:~ 1 l com.m&rtities, 'info'nµatiori ,':'i iu(bt11~r ~prvices. as they}g9 abo!,1t ·their is growth in nea rly all global markets, the lesser developed m arkets arc
maturing fa ster than many of the ir m ore developed counterpa11s. " It w ill
. !',; ', .business ·in the real ,wodd ..,The prevalence of ' "Yearablcs' will h,ad to
•~r~. .' 'f;'~;i-,'~"•::,,\ ~- 1: j ;"••' ~t ,; ., .i ·. .' " : . I '
not be long befo re we have a nearl y level playing fi eld across the globe ."
!,..., •. '
India's on line popu lation is st ill a ·srnall proportion of its popu lation, PC

Marketing Management The Marketing Environment

Notes pcnctratinn is still 7.2 per 1ho1is,11HI I\ itll I (1 .(1 million intern et 11 sc'1·s: but it hill inn pa ge 1·il'll'S pcr 111011th . This i_s considerabl y hi gher than other Lop
• ' Notes
rep rese nts a sc i or a l'llucnt cu11 s11111crs. 11 i11 ing to ado pl 1<.:ch11lll ug,· l':istcr. 1111<.: rncl br;111d s. I he cllay rn 1111m1111ty 1s 111adc up ol' i11di 1 idu;1I huvcrs
\ ccording ,. \l' Nielsen n.:sc,m·l1. " \,\iith the additin11,tl at1rih11t c or ,111d s.: llcrs ll'ho rn111c Ill the sill' to do 1110n; thanju st bu ,· nr Sl' ll -thcv 1:a v~
l'i111 , shop around, ;111d gc t to k11011 eac h other, fo1· c., a111pk, h1 cl;atting
11 illin gness tll shop nn linc tlk y ll'i ll inncasi11gly be loo temptin g to
011 !he l'13<i y disc't1 ss io11 lrn;1i'ds. Tlmiu gl1 the disc;1ssi\111 ho:irds ,- 111.:111be,;
ig11n re"
meet and get to knm1· eac h other, discuss tnpics or 111utual int eres t, and
Online shopping. in India is poised !or greater acceleration as more help each other to lea rn all about eBay. These discuss ion boards arc
manufacturers and providers integrat e the internet into their sa les model. public foiums that encourage op~n c_ommunication between users. eBay
As PC and internet penetration grows, the key lo increasing online
-- ··----------------
has become a part or members' lifestyles. Many members have created
purchases will remain in the hands of marketers by instituting onlinc second businesses, or left day jobs altogether, by selling items on eBay.
mechanisms.for sales and service a1id giving ·incentives to consumers by For hundreds or thousands 6f others, eBay is the place to share a passion
passing on the benefits of lower transaction costs to thc:rn". for items that arc special.
2. 8 28 (Business to Business) . 4. C2B (Consumer to Business)
1328 is defined as ·exchanging or structured messages with other business C28 is a rather peculiar Internet phenomenon. An example or C2B
partners over private networks or Internet to create and transform business e-commerce could be the following. A studei1t wants to fly from Mumbai
relationships. 1:328 e,commerce is companies buying from and selling to to New York, bu( lias only Rs. 30,000 in the bank to pay for this round trip .
each other online. Today 828 has evolved to encompass supply chain He puts up an ad in an Internet C28 site, seeking airlines that are willing
man(lgcmcnt as more companies outsource parls of their supply chain to to olTer the transatlantic round trip for Rs. 30,000 or less. The Internet
their trading partners. D28 applications aim at improving and simplifying brings together a large number or customers lo crea te a marketplace that a
the va.rious business processes within a company and increasing efficiency number of airlines (that will have to otherwise fly with empty seats) will
of transactions among companies that have business relations. The be interested in.
companies use 828 in order to achieve faster rrnd error-free transactions,
5. Other domains
control and maintain limited inventory, efficient prodLfct reorders.
Consumer-to-government (C2G) e-com merce, Business-to-government
While business-to-business e-commerce takes place all over the globe,
(820) e-commerce and m-Cornmerce (Mobile commerce) arc other
the North American market currently dominates. The $700 billion North
options that are gaining importance today.
American market is twice the size of 828 e-commerce in the rest of
the world combined ($330 billion) . One-fourth of all US business-to- 2.4.2 Web Sites
business purchasing will be done onlinc by the year 2003, according to The company's web site is not only support e-commerce but is regarded
a study by tl1c Boston Consulting Group (BCG). The research estimates as an important tool of direct communit:alion wilh all of the company's
that between I 998 a·nd 2003, US business-to-business e-commerce will stakeholders. A website allows for a hvo way communication between the
grow by 33 percent each year and reach $2.8 trillion in transaction value. company and its stakeholders, something which was almost impossible wilh
3. C2C (Consumer to Consumer) other communication tools other than personal selling. Both. customers and
companies are benefiting enormously from this direct dialogue.
C2C is the Internet equivalent of the traditional classified advertising ·
market. You put up an ad on the Internet for other consumers to respond For consumer product companies this is especially important. Large
to (similar to a newspaper classified ad). The Internet makes the process cons umer markets have long distribution channels and as there is great al
of placing an ad cheaper, faster and easiei: There is considerable C2C distance between the company and its customer. Hitherto there was virtually qo· ·.
communication on the web on a range of subjects. direct contact between the company and its customers. Cori.1panies got sporadic
feed back through market research, as and when such studies were conducted.
C2C is commonly used by people to sell or auction items when
Today companies are able to get direct and continuous feedback on an ongoing
they don't ·w~nt to involve another group to broker the transactiqn._ A
popular example is eBay (www.ebay.com), an onlinc auction site which
of
basis. The key characteristics the web and its communication tools are dealt
with in detail in further units . ·
has grown to sell just about anything imaginable and permissible. In
C2C e-commerce, online transactions occur between two consumc1's ..
Sites, such as the auction based eBay, bring buyers and sellers together,
and cam commissions from their transactions. E-Oay gets nearly ·five

t>.larkcting Management The Marketing Em ironrncnt

 !°h e· -l-1h la,ii-::s_t cGnnom y in term s of Purchasin g. Power Parit y (PPP) .
~- Check your Progress 3
Se·co11d li1stc sl g m11 in g ccll1H1111 y, prnjcctcd lo he· 7 15'!., l,1rgc r than
.l.ip,lll ·s hy 20 I 0
Multipl<' Choice Sing)c Response
\ stnrn g ag riculture sccto,· accounting l'or 2 1.2°., o r (,1)1~ \\' ith se ll'
I. 111 l:-Co1111m:rcc, what docs 8 2( ' stand s lor°'
sul'licicnc y in all i111porla11t crops except (1il sccds
1. Business to Consumer
A strong and diverse sector industrial , at 27% of GDP and growing at
11. Consumer to Business 7.7% annually. Self reliance in all core industries and a wide range of
111. Business to Commodity engineering products.

IV. Business to Capital A robust services sector accounting for 51.8% of GDP and growing at.
8.9% annually
Mature financial sector and capital market with over 9000 Iistcd corripanies
and market capitalisation equivalent tols. 29.11 trillion (Rs. 29, 11,000
crore March 2006) with the Banking an<!Finance sector growing by 7.5%
I. List the popular B2C e-commerce sites in Inqia. Find out how their
(Sow'ce: Mvrld Bank, 2004)
sales turnover has grown over the years. Find out the most popular
categories on these sites. The Changing Fncc of the Economy
2. eBay has taken over bazee.com to get a presence in India. Compare (Source: NCAER, Business HfJr/d Marketing White book and Mc Kinsey)
the working of el:lay with bazee .com. t. Income growth
3. What are the popular C2B sites in India? According to NCAER, between 1996-97 and 2000-0 I, per capita income
011 an aggregate b~sis grew by an annual rate of3.2%. Higher Income households
grew much faster, by about 20% each year between 95 and '_99.Thcse numbers
however do not reveal the complete story.
By putting the economy on the growth track, the reforms process has
Independent India's·economic development program was based ori the unlocked the trcniendous untapped potential of the Indian market. According
objectives of self-reliance and social equity. Till the eighties, India's industrial to Mck111scy, lndm 's growing market for consumer goods (Already in the top
policy created India's industrial base under a system of licensing, strict foreign ten) could reach $400 billion, making it one of the five largest in the world.
exchange.controls and excessive protection from imports, which protected even Whilst there arc opportunities aplenty in almost all industries, marketers need to
inefficient and internationally non-competitive enterprises. · understand the diverse nature of the markets and develop appropriate produc.ts.
.A detailed macrq environmental analysis is the first step in developing a strategic
In 1991 the Central Government embarked on a program of economic
plan.
liberalisation. This included, among others removal o [ governmental
control, rationalisation of regulation and attracting Foreign Investment. The Let us take a look at some of the important changes that have taken place
government identified the infrastructure sector (Power, Telecommunications, in the country.
and Transportation) afl a k~y target fo r deregu lation and took steps to attract
investments in the area. The reforms process which has continued since has
resulted in dramati~ growth over the last decade. Since 1991, India's economy
has grown on an average by 6%_ per year. Prior to 1990, the economy grew at
3% considered as the "Hindu rate of growth".
_India's p~esent economic status reveals the following profile:-
A Gross Domestic Product (nominal terms) of$ 692 billion

Marketing Manage ment The Marketin g En vironment

 I lnuschold Rea l annual Scg 111t 11t S itL' ( 'omnwn peopl e in the lower incn lll L' gn,up. typi ca l ol' under deve loped economics, ha s Notes
llll'Ot\lC lH11t'il'lll1hl I million ( kcupations gil'cn \\rt)' to ,1 nc" ··1ri,1n t,!lc;. "i1h a "bul ge" i11 !he 111iddlc. It is !his segment
d.i -.Sl'S lllL'OlllL' h1llhL'liuld-.; I
(il\L' l ,lgL' '.\1/l' 11·hich is dri,·i11g 1hc cu11 su111ptio11 gr<)\,\ th i11 1hc economy today. Expcrls say
t) i' hnLhL'hnld tl)at for an y ccnnorny tn grnw, th.: presence ol' ,1 slrnng 1i1idllk class is ,·ital.
;; I i
Rural India , "ith rc·duccd dependence on agric_ul1ure, has crcaicd a
·U lnlxd India ' • $ 10 ,000 I 1.2 • Business p~opk • 1- 2 bedroom hou se
different kind of rural mark et toda y. lt is estimated that by 2007, 4.6 million
in small to mid • Co lour TV, rn ob ik
s ize enterprises phone, re fri gerator, high income household s and 13 million middle income households -will _.be
Growing@) 20% p.a. • Corporate/govt. washing machine adde.d. Given the growing media exposure of the higher end of rural society
employees • Cai'\vort h th.rough· television, these markets are beginning to resemble urban markets in
• Rich farmers $ 5,0QQ, I 0,000
their mindset and consumption patterns. This has alrea_dy happened in the more
· 'Aspiring India ' $ 4,000-$10,000 ■ 40 • Salari ed employees • Co lour TV,
• New Services • Refri gerator,
developed higher income states of Punjab, Haryana, Gujarat, Maharashtra,
(cg. IT, Media) Te lepho ne Karnataka and Kenda.
• Shopkee per • Scoote r, Motor Cycle,
Expected to be 65 nrn by 20 l 0
Sma ll car ,vorth
India has more working women than any other country in the world. This
< $4,000 includes female workers at all skill levels- from the sur~on and the airline pilot
'Struggling $ 1,500-$ 4,000 - 110 • Shopkee pers • R icyc lc · ·to-bus conductors and menial labourers. Today approximately 23% of Indian
India ' • Service workers • Radio 131ac k househulds'have working wives (the proportiori-·ie'di.ic·es as incomes increase).
(cg. dri vers, maids) white T V India has the world's largest number of professionally qualified women , more
• Farmers
female doctors, surgeu1ts, scientists and professors than the United States. These
'Destitute
India '
< $ 1,500
• 40 • Subsistence farmers• Watch
• Fann workers
dual incomes have increased purchasing power uf households further fuelling
the consumption boom.
Source: NCAER (iii' 2004). 3. Population Demographics

Fig. 2.2: The Range of Spending Power India's population atl.l billion and growing at an average of 1.6% over
the past 5 years, is still the fastest growing population in the world. Median age
A McKinsey study (Fig. 2.2) reveals: "There arc severa l India's each of the population being 24.4 yea rs makes India a "young" country. Today, it
moving at a different pace". The real drivers of the fast growing consumer goods has some 485 million people in its working-age population and almost as many
market arc these 40 million middle class households (250 million consumers). -463 million - under the age of 20. By 2020, the young people will have moved
This "aspiring India, growing by about I0% per year, is expected to comprise into the workforce, but only about 160 million of the working-age Indians will
of 65 million households by year 2010. The growing purchasin g power of this have retired . That means the number of potential workers will have increased
consuming class is signaled by the growth of passenger car sales which crossed by 300 million which is roughly the population of America and more. Literacy
the I million mark in 2005. rate has gone up to 59.'i¾ ofthl: population; however gender wise literacy rates
There are more than 50,000 families in India with a net worth of US$ I still show a wide gap; 70.2%.for men and 48.3% for women. Urban population
million or more and their numbers are rising. In just one year, 2003, assets under as a% of total population now sta"nds at 29%.
management jumped 14.3 percent- to US$30.3 billion - over the previous year.
4. Change in Consumption Patterns
However, only about 30 percent of this market has been tapped by international
or private banks. The way consumers are spending their money on various items has ·
changed dramatically over"the last few years.
On the other hand, 150 million households at the "bottom of the pyramid"
tell a different story, still struggling to make ends meet. Out of these 40 million The average Indian spent Rs. 5,745.18 (92-93); by '02-03 this figure had
households cannot even afford the basic oecessities. Whilst these markets have reacheo Rs. 15,082 - a CAGR at current prices of 10%.
huge untapped potential, ·tapping these markets has meant that companies have The share being spent by urban India on basics (food and beverages) has
had to develop completely different products, price points, and pay1,ient and fallen from 54.07 % (92-93) to 44.8 % (02-03). On the other hand, medical and
distribution options for these markets. healthcare spending has increased from 3.50% to 8.06% of total expenditure
2. Income distribution - over the same; periods. Spending on transport and communication has grown
at 13.2%. -
The typical bottom heavy tri angle of income di stributiqn, witli most

Marketing Management The Marketing Environment

Notes 5. .\ftitlhks t<marcls Consumption up to US$77 billi on b~ 200X. accordin g lo anal ~, i, h, the IHl\1 Institute li1r Notes
Bu siness V,1lu..: .
i'vlosl rccc·nl studies ha\ L' cunclu si, cl) prm cd 1ha1 ( rn1 s11n1cr India is
spendin g 111on.; on " lil'c qualit y imp1:m cmcnt '' products a1 1d sc r) IL'_Cs. I he three fh c picture is much 1111: sa me for ,-chi cle finan cin g: as th.: <.: t:OIHllll )
lop prioriti es ;frc education : healthcare ,ind transport ,1li on ,111d ,·,,1111rn111ica tion . gro\\'s. transport becomes e,er more vital. lndced. ve hi ck: sal es gro\\'th is
I lousing, apparel and e111cr1ai11111c11t arc next in nrder ol' priu1·i1 ). · outstripping alread y positi ve forecasts. For cxa111pk, car sales wcr..: fon:casi
in 2003 by ICICI Sccuritics to rise from 570,000 in 200 I to over 950,000 by
Most Indian consumers, whether rich or poor want Lo gel ahead in a hun:y.
2007. In fact; by October 2004, annual sales passed the one million mark. (An
From being "destiny" driven and resigned to their fotcs, they arc striving harder
estimated US$440 billion will be spent on Indian infrastructure development
than before to grasp the opportunities ·to make a better life for themselves. The
between 2005 and 20 I0.)
mindset'or this class of consumers, labeled as "Global" India and "aspiring"
India by McKii1scy, has changed from that o(dcmanding social justice to that· Indian consumers are taking loans for highcr ·cducation, other consumer
of grabbing economic opportunity. durables, holidays abroad and even personal loans to invest in equity markets.
However India's total consumer borrowing represents just 2 percent of total
It is no surprise that Indian consumers give the highest priority to giving
household income in 2002, according to the Reserve Bank. It is considered
· their children the education and skills considered as the passport to success.
) as one of the most under penetrated retail lending markets in the Asia-Pacific.
300,000 students appeared foi· ·11TsJEE in April 2006, competing for a mere
The comparable figures for other Asian Tiger economics provide evidence of
4000·odd scats. Indian families are spending 1mich more money and effort on
the room for growth: in Singapore, consumer borrowing was l 76 percent of
securing the right schools and educational institutions, tutoring for the; various
household wealth in 2002; in Malaysia, 75 percent; and in Thailand , 39 percent.
competitive exams, investment in nutrition, computers and books.
7. Effects of Deregulation
Preventive healthcare is ai1 area of priority, because ill health adversely
impacts earning ability. At the "bottom or the pyramid " the opportunity Privatisation has sparked growth in many sectors. The telccom, airline and
is especially greater in terms of providing nutrition and health building at life insurance industries all boomed after being unshackled from government
affordable prices, lo prevent ill hea\th. · control.
Although there has been a huge consumption rush, Indian consumers are Life Insurance which was de-regulated in 1999 saw 13 new players enter
still pragmatic in their approach. Household budgets are still modest as close the market. The indusl!y has since grown at an exponential rate: premium
to 48% is still being spent on the basics, and although this percentage is falling collected in 00-0 I: Rs. 34,898 crore grew to Rs. 66,287 crore in 03-04, which
every year it is still high ·enough to make the Indian consumer price sensitive. is nearly double the industry size in just three years. The number of telephones
Indian consumers are extremely conscious ·of value for money and arc not in the country increased tenfold in the decade after the tclccom industry was
beguiled by brands which are high on image and low on runctionality. deregulated.
6. Availability of ~red it and Indian c_onsumers' attitude towards Credit Something similar transpired in the airline indust1y. In 1992, Indian
Airlines, the country's domestic national carrier, flew 8 million p3ssengers.
Prior to 1990's the average Indian was extremely credit averse; taking a
Two years later, a private carrier called Jet Airways started operating. Today,
loan for purchase of any assets was even considered irresporisiblc, and the only
it's considered the ·best airline in the country and, some people would say,
sources of personal credit were small time money lenders or pei·sonal sources.
the world. And the Indian airline industry as a whole now carries 20 million
The availability of credit at attractive rates of interest, fuelled by aspirations
domestic -passengers and is expected to grow to 50 million over the next 5 years
to improve one's standard of living has changed dramatically, the consumers'
attitude towards credit. ·
Indian consumers today want better houses, new cars, access to credit
cards and consumer loans - and they are increasingly prefer to borrow now Successful companies realise that any strategic planning exercise must be
rather than save and buy. Between 1999 and 2004, the total Inclian retail lending preceded by a tnaero environmental scanning exercise.
market has hc!Q a CAGR of30.5 percent, from US$9. 7 billion to US$36.7 billion, The firms' macro environment presents a never ending series of
according to Men-ill Lynch. That increase includes CAGR of 35.1 percent for opportunities and threats. Many opportunities are found by identifying
mortgages, 33.4 percent for credit cards, 21.9 percent for automobile loans and trends and mega trends that are likely to have a deep impact on consumers
27.4 percent for other·consumer loans. and industry.
IQ 1995, Just _2.6 iui ll ion urban houschoids in India could afford.a housing. With a rapidly changing global economy, companies must monitor six .
mortgage. The market is expected to grow by 30-45 percent to a total value of major environmental fo rces: Political-legal, Economic, Socio-cultural ,

I\ lark.cling Management The: Marketing Environment

Notes· ,,-·, ·1
·•. p Dc:mo g: rnphi c. 'Jcc h11olo[!.1c,1I a11cl 1:coloµi cal. Thi s is nlso rL'l,·1n·cl to ns J J;11·c Lh c:sc: 111,1c1u J'a ctn1 s .had an impac t on the attitudes and va lues of
th e' opa11dcd /'/,.~ / ;111:11\ sis. I ml i,111 c,rnsu111crs'.'
\\ 11hi11 l'<1J1t1 c:a l-kg:;il c111 irn11111c111, cu111p:1 11i cs 11 ccd tu 1·u1h t11llk rst:111d
the pulitic:il c li111,11 c ot' thc co11111 ry and th e· 1111pact ol'h111s n.:!.!.ula1111µ the ir Answers to Check your Pro.gress
indu stri es.
Check you r Progress I
~co 11 0111i c factors whi ch marketers need to_ foc us 011 arc income
Multiple Choice Multiple Response
di stribution , in come gro,vth , ic::'vc ls of s,ivi11gs and cred it avai lab ility.
The socio-cu ltural dimensions of the environ ment consist or altitudes, I. What arc the elements of macro env ironment?
customs, lifestyles, and values that characterise the soc iety in which the i.. Ernnomical Elements
firm operates . 11. Tcchnolo_g ical Elements
Demographic characteri sti cs of the population such as Age mix, Income iii. Eco logicitl Elernenls
distribution , ed ucation leve ls, and ethnic markets and subcultures arc
particular;, important. Check your Progress 2

Tccl1_1~<ll_o_gy is force fo r "creative destruction". Changing techno log ies Multiple Choice Single Response
affect lifesty les and buying pallerns of customers and consequentl y I. What docs P.E.S.T. analysi s stands for?
the demand fo r a firm's products . Technology also impacts production
11. Political, Economica l, Soc ial and Technological
processes and raw materials.
Check y(lur Progress 3
The Ecologica l or Natura l Environment is a major global concern as
governments get active in regulating businesses . Companies need to be Multiple Choice Single _R esponse
conscious of ri sing energy costs, pollution levels as well as raw material I. In E-Commcrce, what docs 82C stands for?·
shortages as a result of the heightened consciousness of the natural
env ironment. 1. Business to Consumer
• Technol ogical adva nces, deregulation and globali sation ha ve created
a "new globa l economy". Thi s new economy 1s dcscnbcd as " Digital ,
Mobile, Virtual and Personal ".
I. Dillon , William R., Thomas J. Madden and Neil H. Firtle. Marketing
Research in a Marketing Environment. St Louis: Time Mirror/Mosby
Co llege Publishing. ·
Demography: The stud y of the characteristics of human populations, 2. Ramaswamy, VS. and S. Namakumari 2002. Marketing Management -
such as size, growth, density, di stribution and vital statistics Planning, lmplementatio•n and Control (Global Perspective). New l)elhi:
Macmillan India Ltd.
E-commerce: The buying and selling of goods and services on the
Internet especially the World Wide Web

L Why is environmental scanning important?

2. Which macro factors must an orginisation monitor? List the .factors and
for each factor elaborate its impact on the organisation.
3. How has e-commerce changed the way companies do business?
4. Summarise the key macro environmental changes in the Indian Economy
post deregulation?

Marketing Management The Marketin g En vironment

 Market-Oriented Strategic Planning
UNIT
Structure: .,..,,.

3. 1 Introduction
3.2 The Nature or Strategic Planning
3.3 Step I: Business Mission Statement
3.4 Step 11: Strategic Analysis
3.5 Step III: SWOT Analysis
3.6 Step IV: Strategy Identification and Selection
)
3.7 Step V: Prepare Operating Plans for each Functional Area
3.8 Step VI: Implementation, Evaluation and Control of the Plan
Summary
Keywords
Selt: Assessment (_)uest1ons
Answers to Check your Progress
Suggested Reading
Appendix

Marketing Management Market-Oricnt<:d Strategic Planning

 :'i. 1\ lloealing resomccs ove r several husi11 css units
Notes Ile·\ ,·lopin g sy nergies hcl\\·ce n the dilfcrcnl business u11it s
Objectives ( ·ompani e·s :ire· 111:1ki11g h1111d1·cds of dcci sio11 s at \·a1·ious le- \ e·l s of th e
/\ ft er go i11 g throu gh thi s unit, yo u \\ ill he ab le hi cr:ire· h) e'\c rvda\ , whi cli \\'ill i11 some wa y impact pmfitahilit y. 13ut we cannot
•
I ll :

l{ccog11i sc Lhc obj cc li \ cs and nature nf strategic plannin g and gain an

1c-r111 th ese a, hus111ess strat egy decision s. h1r instance, a dec ision lo offer a
sales proinot1011 ofli.:1· 011 a pa1"licular product, or the decision 10 introduce a
overview of the pla1111i11g process
new pack vanant or CVCll a decision lo appoint.a new distributor for a· certain
• Explain the components of external and internal a11alysi s and idcnlif'y lerntory, will in some ways impact the profitability of the organisation. ·
sources of competitive advantage
_ _ . But these dccisio11s are operali;1wl decisions , ~hich will not have a
• identify .strategic alternatives. and . describe tools used to select s1gn1ficanl impact on the long run profitability or growth of the coi~pan
alternatives Ra~hcrthesc decisions arc directed at achieving the current business objccti~et
• Describe the clements of the marketing mix and understand their role This difference between Strategic decisions and Operating decisions must be
clearly understood. ·
in the strategic plan
Di scuss the bas ic outline of a m;irkcting plan An overview of the planning process
•
Use techniques anrl tools that make strategic planning effective Fi gure 3.1 gives an overview of the planning process, wlrich is expla in ed below
• step by step.
External c11 viro11mcnt
(opporttm1ty & threat
onnlysis)

The fortunes of all companies, dcpci1ds in a large measure on their ability Program
Implementation
formul ation
to analyse their environmental and competitive context and make sound strategic
deci sions. This book is intended to provide you with the concepts, methods and lmcmal crwiromnctll
(s1rcngths/wcakncsses
procedures by which the quality ofstr11tcgic decision-making can be improved; analysis)

this unit introduces you to many o[ Lhesc concepts, which you will understand
better as you progress through the book.
Fig. 3.l: The Business Strategic-Planning Process

Check your Progress 1

Strategic Planning and business Strategy
Strategic Planning is the managerial process of creating a business Multiple Choice Single Response
strategy to obtain a fit between the organisations resources and objectives and I. What is the correct order of Business Strategic Planning Process?
evolving market opportunities. ·
i. Business Mission ➔ SWOT Analysis ➔ Feedback and Control
The goal of all business strategy is to achieve:
➔ Goa1 ·_Formulation ➔ Strategy Formulation ➔ Program
I. Long term profitability Formulat10n ➔ Implementation
2. Sustainable growth for the organisation
11. Business Mission ➔ SWOT Analysis ➔ Goal Formulation
Before discussing the process of developing sound business strategies, it ➔ Strategy Formulation ➔ Program Formulation
might be pe11inent to ask what a business strategy is in the first place. Business ➔ Implementation ➔ Feedback and Control
strategy, alternatively referred to as competitive strategy or just strategy, refers
iii. Business Mission ➔- Strategy Formulation ➔ SWOTAnalysis
to taking decisions on the six key areas:
➔ .Feedback and Control ➔ Goal Formulation ➔ Program
1. The product markets in which the business is to compete Formulat1011 ➔ lmp lementation .. . . .
2. The level of investment
iv. . Busine~~ - Mission ➔ SWOT Analysis ➔ Feedback and
3. Functional strategies required to compete in the selected product-markets Control ➔ Strategy Formulation ➔ Program Formulation ➔
4. Developing suitable and sustain able competitive advantages lmpLcmentation ➔ Goal Formulation

Marketing Management Markel-Oriented Strategic Planning

Notes 3.3. STEPI: BUSINESS
. .MlSSION-STATEMENT ·3:4··$TEPII:·SfRATEGJC ANALYSIS
Notes
1\ 11 org,111 isation 's mi ss ion stak1nc11t :111 S1n:rs the 1·umla1 11c11t:il qu c·st io11 : Strategic i\11alyscs " ;1 1c1·1 detail ed ;i n:il ) scs liicuscd on idcntif)' ing
What hu si11 css arc we in , where arc \\ C goin g and llLl w do 11c ;1;111t to gc· t th crl''.' pppurtu111l!CS, threat s, t1y 11ds. st_l'~I L'g 1,· u11 cc rt :1i11ti cs or an y k1 ctor whi ch has the
The mi ss io11 ,;tatc111 cn1 , proli1u11dl y al'lc:cts th c.organi s,1 ti p11 s lll11g tcrn1 rcs\l urcc' potcnl i:il to a trcc t husi11css s11·atcg:-, 1'11c· slra tcg i,· :111 alyscs have tll'o distinct
allocation , profitability and survival. The last part oCth e mi ss ion statement al so parts: lix ternal Anal ys is of' th e finn 's ex ternal c11 viro11111cnl and an Internal
· has a bearing on the values and culture that will direct the achievement ol' its Analysis. of the organisation's performance, assets, resources and capabilities.
goals. A strategic analysis can be a very lengthy and endless exercise, at considerable
- ----- ·- ----- --- ·- - --··
The mission statement must focu s on customer needs, which the c~penditurc. Hence, companies lllL1st take a deci sion on the scope and depth of
organisation wants to serve rather than on products and services. Thi s we the external analyses that they want to pur~ue .
. have understood in Unit I, when we learnt the concept of 111arketi11g myopia. The l:,xternal Analysis is divided into four components:
· Sometimes organisations stale their mission statements too broadly as "To
1. Customer Analysis - Needs, motivations and market segments.
provide products of superior quality and value, with the best customer service,
·so as to improve the lives of our ci.1stomers and to make profits for the company" . 2. Competitor Analysis - Sti"atcgic groups, objectives, strategies, culture, ___ ) ___________ ______ _
Such a mission statement is meaningless , as it says nothing about: cost structure, strengths a.nd weaknesses. ·
1.'. The business the company is in Industry and Market Analysis - Size, projected growth, profitability, entry
2. . The customer needs the company wants to serve barncrs, cost structures , distribution systems and critical success factors.
3. How it intends to serve those needs 4. Macro envi1vnmental Analysis - Political-legal, Socio-cultural,
A clearly defined mission statement is essential as it lays the foundation Demographic, Econo1rnc, Technological and Ecoloo-ical
0
factors of the
for a company's business strategy and operating plans. firm's external environment.

For large companies aiid conglomerates, which arc diversified into several Note: Marketing people arc involved in a significant way in each area of
businesses, a mission statement fo;· each such Strategic Business Unit (SBU) external analyses, since it directly impacts the marketing plan. We ~ill explore -- ' ... ---- ··-------- --- --
would be essential. each area of analyses 111 depth 111 the upcoming units.
Companies go through major strategic planning exerci se at prcdctcnnincd Internal Analysis aims lo provide a detailed · understanding of the
time intervals - say two years - more or less depending on the dynamics or the strategically unportai1t aspects of the organisation and . covers performance
industry they arc in. However, the mission statement does not change every analyses, strengths, weaknesses, competitive advantages and core competencies
time; it is however reviewed and may be appropriately modified, in case of and assets, which may be significant.
major changes in the finn's external environment. Pe1for111ance Analysis is an evaluation of the past stra.tegies of the firm,
/
the post mortem of successes and failures. It would also include a detailed
operational review of each functional area. ·
A number of financial and no~-financial perfon~a~~e m·etrics need to
I. Collect the following information for_an organisation of your choice: be considered to give a measure of the health of the busiiiess. Some of these
a. Find out the mission statement. Is it stated in terms of customer metrics are:
needs? I. ~eturn o~ Inve~tment (ROI) as compared to the cost of capital, to indicate
b. What has been the firm's growth p~th in the past 5 years? tfthe busmess ts adding value to its owners (shareholders)
C. What new products or markets has the film entered? .. 2. Customer Satisfaction Measures
d. What major strategic moves has the_cotnpany made in the past 5 3. Brand Equity/Brand Health measures - loyalty, assodations, image etc.
years? 4. Cost Structure relative to competitors
e. Arc these congruent with their mission statement? 5. New Products _pipeline - are there sufficient new products in different
. . . . ..
2. Can you cite · some real examples of inadequately framed mi ss ion stages of development? ·
statements? What do you think is lacking? ..

Marketing Management Markel-Oriented Strategic Planning

 ., I (, Product Portfolio a1wl ys is inark..:t pcrlcmnancc 1n.,;,1sun.:s as we ll as
Notes I
lt>r p1 i, illl' scc tor .lirms. 11 hich had the nH1ncl:II') a11d 1n:111agc ri:d rc:;ourcc:; Jo
strc11 gth 01· the entire port 1·0 1ill Notes
lc1c·1;1 gc· thi s <>p1i., r1 u11it ). l·., istin g pub li c scr to r 11 111h "111 thi s :1s 1hrca1 ,·:1, it
\ l:mpo11cr c:1pabli1t1 ..:s :111tl pcrlimnam:,.:
1 ii , IIL' II il s c· n1pl oyrc attrition 111c:1111 ih L· c11d <> i'tl1 l·i1 p1 l1lcL1n l n1tllh> pl> l1cs.
raics S \V()' J :L11,il y, i, Cilll he 1ny sub_jecti1 c· , t11 0 pc·o plc r:1rc·I ) co111c·-u1r11 ith
8. 1:inam:ial resources arni la blc cost or l'unds as 11cl l fi11ai1 cial rnnslra in ts. the' sa111c l'LT,ion 01· :1 S \\ () T anal )S " c1c1111hrn g11c11 1l1 c sdnt c i11for111.1tio11
abo ut lh e sa me business and its ..:nviron1rn.:nl. 1\cc(mli11gl y, SWOT ana lys is is
'/he BCG matrix and <JE 111a1rix (J\nncxurc A) arc strategic to ols used lo
best used as a guide and not a prescription. /\clcling and w..: igh·ing criteria lo each
conduct a performance ana lys is of product lines or strategic business units. factor in crease~ the va lidity of the anal ys is.
Areas to Consider
Check your Progress 2
Strengths
Multiple Choice Multi11lc Response
Technical Sk ill s, Strong brands, di stribution chann els, customer loyalty,
I. What are the components o f Strategic Extcrna l.J\nalys is? hi gh customer retenti on, sca le, organisation work culture, employee sati sfaction
1. Customer Analysis and retention. - .. - - ------ - - .. - - - -,- -- -

ii. Competitor Analysis \.Yeaknesses

111. [ndustry and Market Analysis Absence of skill s criti ca l lo the industry, weak brands, weak access lo
distribution channels, lo w customer retention arc just some of them.
iv. PerformanceAnalysis
We have listed just some of the arca·s as an exa mpl e. AS WOT analyses
exercise is very organ isati on spec ific exerc ise and must be ·clone in detail.
TakC' a loo k :i 11h e followin g factors :
A detailed performance analyses sets the sta·gc for conductin g a SWOT I. Changing customer tastes
analys is. SWOT is an abbreviation for Strengths, Weak nesses, Opportunities
and Threats . SWOT analysis is an important tool for auditing the overall 2. Markel/ Industry de-regulation
strategic position of a business and its env ironment. Once key strategic issue_s 3. 1cdmological advancement
ha ve been identified, they feed into business objectives, parti cularly marketing.
objectives. SWOT analysis can be used in conjunction with other too ls for audit 4. Lower indirect taxes
and analysis, such as PEST analysis (Unit 2) and Porter's Five-Force analysis 5. Advent of new distribution channels
(Unit 5).
These factors could represent opportunities fora firm that has the strengths
Strengths and weaknesses are internal factors. For example, strength lo use these changes to their advantage. The same could pose threats. to .firms,
could be a firm's specialist marketing expertise. A weakness could be the lack which have inherent weaknesses that prevent them from taking advaritage of
of a new product. the changed situation.
Opportunities and threats arc external factors. For exampl~, an SWOT Atrnly'sis :Apple , .. •,, • 'A,;;· ,·,
oppo11unily could be a developing distribution channel such as the Internet, or.
changing consumer lifestyles that potentially increase demand for a company's ;ii:,~!fi~\l;;;:t;:}?'l: ,:·i1.'•i z:,:,i:,: ;;;,i:;•~:;.:t;i,:;~:J,;;];,:,/'.~· . ,
1
products. A threat could be a new competitor in an important existing market or 1·:; ~)f\pp1e':i.s"a ·: ,
~ .':'l ··-t.ij~
·1'·:•·'.:~~- .,.· ,, ,,.l~i~t f/1
1
, .,.1lc~d~stur'"
,·.,.,.-:·'··
"' .. s ::rhe' ipod;T"
+'·,~, 'f1,. , vWf'.:.·'.--· ,,. . . ,_.. ,
a technological change that makes existing products potentially obsolete. 1
,,,;, ·' ) i:ffian' 42 )nillibri.'i1n1ts;"h. " t~iis\!d the'Apple bran .:.
-~\<•··-:r~--;,:,. :(;:-.,··,,•1 /,:·<-:--. , :~ /"-~:•;~p; .::,;;._ /.,~.. ,,;.,.".
1
·:· :•:
~- -,1;;_ ~--. ·'•·¥:.>
Tlic external environment; be it the macro environment, customer or ·• 1%brn1td })ereept1on'• liatl "also · increased .'sales :of,l'.1acmto ·
1 1
,(f! 1rhi~1PZ'"d''i.;~s'1i;,/ 20'; :- '\{'1\t~~~bsftlii«illMe ~e'1

competitor groups; is constantly in a state of flux. A change by itself is neither

an opportunity nor a threat. It only becomes so, in relation lo an organisations . ?< '-th~t b~1y it~to ·~t1;'er. p~~''hl.\11/tppl~ b1:;;1{ci'. S~les •b _l s ,no e 00
pr6qucts are also very strong, and represent lm_ge .contribution to ; a
:rl s1

strengths or weaknesses. What may represent an oppo11unity for. a ·particular

· firm , may in fact pose a serious threat to the survival of yet another firm in the income for Apple. · · i<t
industry. For instance, deregul at ion of the tclccom industry was ai1 opportunity

Marketing Management Market-Oriented Strategic Planning

 .. ..... .... .. .
Notes • Apple is one or the most established and health y almost ''ctilt" IT • There is also a hi gh produ ct substitution elfcct in the innO\'ative and Notes
brands in the world , and has a very loyal scl or enthusiastic customers fast mo\ ing IT consumables market. So il'od and MP, rule today, but
that advocalc the brand. Such a powerful loyalty helps acquire new nnl y ycstercb y it was CD and· cassel.les. lomorrow 's technology
eustomc'rs as wel l as ret:iins th em i.e. ihcy come back f'or mo,·e produ"cts 111i g11t he completely di fTcrcnl. Wireless technologi es could replace the
and services from App le. need for a physical music player.
Weak1,csscs • In 2005 Apple won a legal case that forced Bloggcrs lo name _the sources
• Quality has been a concern with Apple products from the very beginning, of information that prc-emptecl the lau.nch of new Apple p~·oducts. lt was ------ -- --- ------ ---·
as they require frequent repai1: It is ieported that the Apple iPod Nano · suspect that Apple's own empfoyees had leaked confidential information
may have a faulty screen. The company° has commented that a batch about their new Asteroid product. The three individuals prosecuted,
of its product has screens that break under impact, and the company is all owned Apple tdbute sites, and were big fans of the corhpany's
replacing all faulty items. This is in addition to problems with early products. The biogs had appeared on their sites, and they were foi-ced to
iPods that had faulty batteries, whereby the company offered customers reveal their source. The ruling saw commercial confide11tlality as n1oi·e ··
free battery cases important as the right to speeih of individuals. Apple are vulnerable to
• There i~ pressure on Apple to increase the price of its music dowulQ~d leak~ that could cost them prcllits.
flle, from the music industry itself.. Many of these companies mal<e
more money from iTuncs (i.e. downloadable music files) than from their The result or detailed strengths, weakness and constraints analysis would
orig111al CIJ sales. App le has sold about 22 million iPod digital music rc\'eal the marker opportunities lh:it a firm is ab le to leverage because of its
players and more than 500 million songs though its iTunes music.store. strengths: or environmental factors which may pose a serious threat because
lt accounts for 82% of all legally downloaded music in the US. or its inherent weaknesses. More importantly, a SWOT analyses, allows a
• Early in 2005 Apple announced that it was to end its long-standing co111pany lo idcnli [y its competitive adva,llages.
relationship with IBM as a chip supplier, and that it was about to Mic/we/ Poue,; renowned Harvard Prol'cssor and an authority on
S\vitch to Intel. Some industry specialists commented that the swap could co111pelitive slralcgy suggested that companies need to adopt one of four
confuse Apple's consumers. · "generic" business strategies in order to gain competitive advantage. The four
-~-. --- ----- ---- ------
Opportunities strategics relate to the extent to which the scope of businesses' activities are
• Apple has thcopporlun ily to develop its iTunes and music play~rtechnology narrow versus broad and the extent to which a business seeks to differentiate its
into a mobile ·phone format. Sony already has a successful walkman products: These generic strategics arc explained in-detai l in Un it 4.
phone as does Nokia and almost all other mobile phone manufacturers. A · competitive advantage (CA) or sustainab le competitive advantage
A version of Apple's iTunes music store has been developed for the (SCA) as it is referred to very often, is essentia lly a position of superiority
phone so t!sers can manage tl.1e trac~s they store 01i it.. Downloads are that a· firrn."enJoys, 111 · some function, process or activiLy, in relation to its
available via) USB cable, and softwar_e on the handset pauses music if . competitors. A company can be said to have a competitive advantage if it
a phope ca\!:<;ti~es in. New technologi•es °arid strategi9 alliances •6!f~r,: possesses ·a tecl1nology, assets or a functional excellence, which its competitors
. . .. . li4.~i:?'•il'?X:t(\}t,t,:''~1,f~: '1 do not enjoy. A competitive advantage gives a company a very strong base on
which to compete and is hence a very critical clement in a company's business
strategy. Building a CA is a conscious choice that a tfrin makes, at a substantial
investment' over a long term. To keep it sustaii1able also requires considerable
.effort and· resources.
A competitive advantage can only be considered so if it is:
I. Substantial enough to make a difference: A modest edge over a competitor
may not provide a substantial advantage in the market place. Nqkia,
• , .. · . ;;-'' -;, ' ;,. ~ . . ':•-1",Yl~~,_, .-;;·-,,J_~ '· ,~ .. 1 . ; . . _,·(. ·/.,~-.,~ i. ~·, ,-!j the world 's leading mobile handset manufacturer, possesses a CA in
lev1;:l of competition in the technology marl<:.ets and shoh lifecycle§ '6f , developing new product technologies, which results in a continuous stream
~•tec~ologi~s. B,iJng successf't1l ~ttr~~~ compe~itio~, ~~d 'A;pp)e Y'.,61ks j of innovative, superior quality handsets using the latest technologies. In
very hard. on research and dev~lopmeht anq mar~etmg m ordd- t9 re_tain ' th is case, _an ability ·to produce a marginally superior mobile handset, on
,.-'-its ·competifrve position. _: f• _;... . • ' •:-::· . ,.' ' "· .• . ·- ·•· 'j
one parti cular model cannot be tem1cd as a CA.

Marketing Management Market-Oriented Strategic Planning

 ')
IEi/11<:d hy the cus10111e r: The(' ;\ 111us1 c1ilrnncc the pr<1ducls ,·,1luc 10 the The Core Compl'll'ncc of a C orporation
cusl<llnc1· ;111d the con1p;111 y. This gives th e c,ll11 p;111: g1-..:;1l k, crag<.: in Notes
l'hrnu ~h Ilic x11 ·,. \I ,irld 1'<.:110\\ 11cd 111;111agc111c11t 1hi11ks:rs ( ' /\ . l'ru /1u/c1,I
prici11 g its pr,,ducl s. c·it hcr by \\',l)' oi'price prcrniu111 s <l\ cT c·o111pc lil <> l·s. or
:111d ( ,,11T //,1111, / stud i~·d a 11t1111bcr \11· , llL'l'css i'u I ~.l oha I cmpnral ion, Ii kc ( ;111011 .
hy ";iy oi' 111;1inla i11 i11 g p1·icc pnrity \\' itl1 co 111pc1 i[()J' S but ;1ch ic,·ing grc,11 er
product sale s · · · · l lo11d;1. J 1\ I. :111d Soil)•. 111c;c cu111pa11ics ,ee 111<.:d lo preside over hi gh Iyd i,·crs ilied
businesses, umcl.11cd in tcr111 s 01· cuslorrn: r needs. distribut ion channs:ls and
3. S11stai11ahle in the !'ace oi' cnvironmcnla l changes and competitor actions: com111unicatio11 s. The key reason lor th e success of these companies was 1101
In some markets where technology lifccycles arc very sf10rl or where the that they i,vc rc diversified, as that would be an over simplification. U11dcrlying
technology can be easi ly replicated, possess ing a certain technology ilst:lf tliese seemingly di sparate businesses was a very clear "Core Competency" ----·-------- - -· -- - -· .
wou ld nol be a susta inable Cl\ . In. the computer s·crvcrs markets, major which see med lo drive the long-term sustainable growth and competiti ve ness
players have sought lo build CA's other than product technology, Which of these corporations.
has eroded as the products have become more co111111oditised.
In lhc 1990 article in Harvard Business Review, "Core Competence of a
4. Leveraged: When possible into visible attributes or the organisation, that Corporation", I lamcl and Prahalad defined this core competence as "an area
wi ll influence customers. · of specia li sed expertise that is the result of harmoni sing complex streams of
Sources of competitive advantage could be several, as the examples below technology and work activity". )
will clarify. . As an exa mpl e, they gave Handed expertise in engines and power trains,
I. Lowest cost of inputs: HDFC bank's SCA is that it has the lowest cost which gives the company a distinct advantage in all the businesses that Honda
of funds in the banking and financial services, wh ich is why the bank participates in. Honda was able lo exp loit this core competency to develop a
rates very high on profitability, amongst a hosl of other factors. (So11rce: variety of quality products from lawn mowers, generators, snow blowers to
Business Today survey on the best Banks in India) marine motors and engines, trucks and automobi les.
2. Lowest Cost Producer: Reliance is the lowest cost producer or Polyester Simil arly 3M.~ vast research and knowled ge of substrates, coatings and
Filament Y:1m in the world. Bajaj is the lo west cost scooter 111anufacturcr adhesives and the knowledge of combin ing them in various ways has resulted
in lhc world. in an extremely diversified portfolio of businesses as diverse as "Post it" notes,
"-. -----··- 3. Production Systems: Toshiba 's flexible manufacturing systems- va ri ety, magnetic tapes, fabric coatings, photographic film , coated abrasives, pressure
speed and quicker response to market demand- allows the company to sensitive tapes to na1'nc a few.
· make profits on short volume runs. The critical issue fac ing most companies today is to create unbeatable
4. Supply C~ain Expertise: The e-choupal project of ITC Foods allows products with irresistible functionality. One constantly hears the refrain that
the firm to source agricultural commodities at lower costs, with timely companies need lo be innovative and create products that customer need but
supplies and consistent quality. This CA has placed the company in a have not yet imagined. But this is a deceptively simple task.
market leadership position in the packaged foods industry. According t9 Haine! and Prahalad, companies can create world class,
5. Quality of Manpower Resources: In the knowledge-based industry, such unbeatable, irresistible. products only if they view themselves as "a portfolio of
as the iT software services industry, the abi lity to attract, train and retain competencies rather than as·a portfolio of businesses".
the best talent is a very critical CA.
In the short run, a company's competitiveness derives from the price/
Important note for students performance attributes of its current products. In the long run, competitiveness
A CA is a criticai element of a film's competitive strategy; product derives from an ability to build, at lower cost and more speedily than competitors,
differentiation and product positioning strategy. You must study this concept .the core competencies that a spawn unanticipated products:.The real sources of
carefully as we will be referring to this concept throughout this course. advantages are to be found in management's ability to consolidate "corporate
wide technologies and production skills into competencies that empower
An important distinction needs to be made between a ·c A and other individuals businesses· to adapt quickly to changing opportunities." it is ·to this
strengths that a!l . organisation enjoys. All organisational strengths do not
ability, the success of Sony, Canon, Matsushita, Komatsu and now Samsung,
automatically translate into a firm 's competitive advantages. Only a itrength that
can be attributed to.
is superior, sustainable and di?tinctive relative to competition can be considered
as a CA and is a result of a susla111ed eITort 011 part of lhe organisation . Strengti1s Core competenc ies arc the collective learning in the organisation, on how
and weaknesses arc usually based on assets such as a brai1d name, organisation to co-ordinal<: diverse production ski lls and integrate multiple streams of
culture. · · technologies.

Marketing Manage ment Market-Oriented Strategic Planning

Notes ( '() re co111 pclc'1Kc i, ·,//), ;i 1cc li11 olog1 .i r:11\ .111 (1\c' ri.1 I. 1-.:sourcc ,1r
Notes •
i't1llL' li u11 al C.\ cc lk11cc It 1s an ,1 rg.ini s.11i o11:il ;1hili1 , '" lia r111 ()11i sc dilferent Activity 2
, trL',1111' () f tcclrn ol()gy. skill s :111 d kn m1 ledge . It 1s :111:1hil i1, lo mga11 1sL' 1c-:1111 s
lll. di vcr, c 1ndi,·idual s Ill apJ~l y th eir c,illL:c ti, c kmrn ktl gc in 1wn- 1rad11ion:il 11· you :ire p1·L'Sc 111l y 11 urkin g in an organi sa1iu11 . yuu could allclllpl a S \\ ( >I
" .i y, . I here has Ill he ,I sh.ired u1 Hkrsla 11 di11g u1· c11s101n cr need, :111 d ()/° :11rnl ys i, lli' ) our c,111 111;111). /\ ltcmati, cl:, c· hus c :in ) one cun 1pa11 ) :111d , 1.11'1
technological poss ibilities. Devel oping a con.; co111pclcncc is al so about by pulling do wn the firm s' mi ssion sl,lle111en1 firsl. You can do this c;.c n.: isc
coinmunication , involvement, and a deep commitment to working across for a competitor in tlJc sanic indust1-y, and compare opportunities and threats.
organisational boundaries. What this concept also implies is the need lo build
an organi sational culture where ki10wlcclge and capabiliti es arc shared across
structures, departments and hierarchies,
Core competence docs not diminish with use. Unlike physical assets,
which deteriorate over time, competencies arc enhanced as they arc applied and A) Identifying Strategic Alternatives
shared. But competenci es need to be nurtured and protected ; knowl edge fades The purpose or external and internal analysis is to help ge nerate
if it is not used )
strategy alternatives and to provide the criteria for selecting among them.
Developing a Core Coi11pctcncc requires sustained efforts over decades. Strategics alternatives can be generated in many difTcrcnl wa ys 1"01
ft will not result from merely outspending rivals on research and dcvcloprncnl. difTercnt companies ::incl essentially depend on three critical key factors
lt is also not about sharing costs, as in when two or more s su·s use a common
fac ility or share a common component. I. Resources available for invcstmenl in growtb.

How do companies identify if they possess a cor·c competency? 2. Skills, Core Competencies and Assets that can be leveraged.

Firstl y, a core competence provides potential ac'cess to a wide vari ety or 3. "Appetite" for growth.
product-markets. Competence in computer peripherals and an understanding These three factors together determine _the first level or strategic al_tcrnati vcs
or how customers work, play and interact with th eir computers has enabled for a firm to consider.
Logitech to develop a wide variety of products.
I. Intensive Growth - growth within the same industry
Second, a core competence should make a si gnificant contribution lo the
Organic route - means achieving growth of revenues in existing products
perceived customer benefits of the encl product. I londa's expertise with engines
and product lines or adding new product I ines.
significantly improves the performance of the end products.
Inorganic route - acquire brands or competitor companies within exi sting
Finally, a core competence should be difficult to imitate. And it is difficult
b11sinesscs. JctAirways proposed acquisition ofAir Sahara is the inorganic
to imitate 1:iec~use it is a-complex _harmonisation of inclivi'dual technologies and
route to strengthening its position in the airline industry.
production skills. A rival can acquire some of the ll:chnologics that cornp11sc the
core competence, but will find .it more difficult to duplicate the comprehensive 2. Diversification growth - look al growth outside the present business/
pattern of intc rnHl coordination anrl learning. · industry
'·. -,,•J,,'", ,.;, ,1,:••, •(; '· • -v J.:,;: ' ' 'f • J '·,, '

i;)Jlac.'ff an<{ D~cker s co1:e tedmqlogicaJ

1 ··t:· t ..,,, ' .. ( _·, • . ,,'-_ /,,. ·)~,- ,,,
coinpetency is.in 200 ..•to 600W electric .' . Companies could consider getting into new businesses or product areas,
, ••" ',,; -,,_ . ' ,_,·
\t~
1
t, ·- '

which may be related to, or unrelated to present businesses. Company's

~~%~~t4tt\,the,~}_,P}~PU,ft~~fe m~9ipca~i?1lt ?f!h is basi~, ~':~?110 l~~Y,, ( th_e ·
1,e · te1ry.,:pdc,b,i::q ,:,:lasl) l\ghts battery chargmg sys,t~ms,.to:i.ster choosing to diversify their businesses may adopt the organic route by
. IJ;:~' ov·''}.,1,:+.r~;r1.:••;/ i-,:/·.•·,. . • ,,. . - .. .. .. , ,:J,..,:/\,}:~); ,._f;l
~-o ereo , ,., ,,.,,, ..,,., .,,.
l.
setting up the business themselves and growing it; or Lake the inorganic
~1$: -., .. ,.
~i->~·-~3
;•.
route of making acquisitions of other companies within the industry they
-:. '?::-~bJ:·;Jr• 'i:f -·._... :t·•.:_':t.. :t . <·i hav_e·cJ)os~n to diversify into.
8i~,?1}9;t ~.;;r, i1~ig"!c\1?,,P,dfg9JlC() ; 3. lntegralive growth -tlu·ough vertical integration
, •·•, , , :·''{,t"\1\i< ,/!', 'f.hi\rJ\&Jt1rii~\f!'1ft#f~ , ,~~~y}[}9J?:,:,1'.1~°:·1· 1~~~ttJ~~ , 5J:.t;f~,;,j This means performing or having control over the pcrfonnance of many
• ,. · The home cleaning , and maintenance market - smaU electric motors
~< :, ~re used to pro~h.ice dust busters, et~. ' .
more activities re lated to an ex istine prod uct, in-house.
In the Petroleum business,. Re liance Petro leum is . into th e refining,
' , \ The i itd ~~n applia~c~ rt1~rke( .fs1ha11 electri c motors an; useo to'pi-oduce
marketing and retai ling of petroleum prod ucts. Gettin g in to oil exploi'ati on and
,.., .
f ., ' ' can openers, fooci processors; ble~ders, bread makers, a11d fans.

Marketing Management Markel-Oriented Strategic Planning

Notes drilli11gas \\L' ii 111 ,1k L'S it th e (1111\' Pther I n ti c: ill y intq !1·:11cd l'Pn1p:111y (the ,11her Mai nt ain or i11crca,c ih L· 111:11-k ct sha1·c Pi' cu1-rc11t prnd11L'ls:
Notes
being O N (,() i11 thi s i11dt1 slr). 111 ,· nll1 L'1 clll 111:1_jp1·s ,m : i111n 1·c li11i11 g 111:1rk..:ti11 g
:\ co111p:1 11 y rn 11 i11crL':tsc· 1h 111:1rh·1 sh:trL' b1.
and 1Hn1 1ct:1il111 g
I. ( (\\l\Crli11g prclSj1LT l11 L' 1\c\11 ll SL'l 'S tu u, n s.
111 till' lc' ., lik, hu s111L'<, . i{ c: 11:in cc: 1101 P llh 111 :111ui:1clt1rcs '11i ~ 1',> hL'S lcr
Fila111c11t 'i\1rn, but a lsu the kc) r:111 111:11L'r1:1is :111d i\1bric :111d retail s it thrnugh l 011 1·crt the ncc,is,u11 :il usc1· lu ,I 1·cguL1r user.
Vi111al and I lnmwnr outlets. 3. 1nducc competito1·s · customers to sw ilch by using aggressi vc pri cing
co111mL111ication s aml sa l.cs promoti on.
Integrati ve gro wth ·is not onl y ai111ed at grow ing the top lines (sa les
reven~cs), but grow ing bottom lines (bcttei margins and profitability) as we ll. To maintain and increase market share compani es need to build a big brand
presence, through extensive comm unication and aggressive di stribution.
Companies that have a large "appetite'' or ambition for growth , the access
to resources to fund growth as well as the skills and competencies lo manage the Secure dominance of grow th markets by developing full product lines
growth, will naturally look al all the three growth directions. More conservative that cater lo all the different usage segments in existing markets.
organisations, which possess the resources and skill s but lack the appetite, ma y b) Restructure a mature rnarkcl by driving out competitors; thi s would
map out a di ffcrent grow th route .. )
require a much more aggress ive promotional campa ign, supported by a
pricing strategy designed to make the market unattractive for competitors
·Havin g determined a certain growth direction , companies need to chart
out more specifi c growth sltalcgies. The Anso ff !1 md11ct Market Gro1l'th _Alfat6x c) Increase usage by existing customers - by developing new or multiple
(also known as product - market expansion grid , orjustAnsoff's matri x) provides occasions of usage, dc veluping new variants or recommending a greater
yet another pcr~pccti vc on deve lopi ng strategic alt rrrn11i ves . AnsofT's matri x usage quantity per occas ion of use. This strategy is•morc appropriate to .
suggests that an organisation ca n pursue growth or its business in essentially consumer products.
four different ways depending on whether it mark ets 11e1r or existing p1vd11ct.1· Am11l used thi s grow th strategy effectively for severa l products like
in new or existing 111a,-kets. butler and cheese. For quite awhile, the company's efforts were directed
Products at increas ing market penetration or the prodi,ct and creating a national
Present New footprint for the brand, by entering new geographic ten·itories. But then
the sa les of butter stagnated fo r quite aw hil e and the reason was that until
then eating butter was still large ly associated with eating bread, a largely
Market Product western concept. At the sa me time, Indian families were used to eating
Present
Penetration Development homemade butter with a variety of other foods.
Amul use<l this cuslon1er knowledge lo communicate that Amul butter
could be eaten with a variety of Indian foods , such as Pav Bhaji, Dosas
and Parathas. The growth strategy paid off as not only did the sales of the
category go up, butAmul's market share too increased substantially.
Market d) Drive Replacement Demand or get customer to trade up to higher value
New Diversification
Development products or to trade- in to the latest models. For categories such as
consumer durable products, marketers try to drive replacement demand,
by facilitating the consumers' trade-in of the old product for a newer
rriodel or upgrade.
Fig. 3.2: TheAnsoff Product Market Growth Matrix
Marutis "1hte_ Tfilue" service assists customers in disposal of their
1. Market Pen el ration "pre -owned" cars ·at a fair price, enabling purchase of newer models.
Thi s is th.e growth strategy where the business focuses on selling more of Leasing schemes and exchange offers have reduced the time gap between
the existing products into existing markets. Market penetration seeks to achieve purchases of most durable products.
fo ur main obj ectives : 2. Market development
Market development is the growth sfrategy where the business seeks to
sell its existing products into new markets.

Marketing Management Market-Oriented Strategic Planning

 Notes 111 i11:11-kc1111i~ 111.itWL!.ClllClll, the kt 111 ··111.1rkl'ts .. 1s used 11 , ,k,nihc· 111:1rk c·1 ,·pn, ickr CIK\r ll\ pc·di :i-;. inic'rn ct rcs() u1·cc·s and ('I) RO\!s as all pan of the
scg1m:11ts ci s ,, cl I :1, gcng;·:1phic m:1rk cts <ll"1,·rr11ur1 c·s . I lc11c, th e· 111:111 , pu,, ihlc •.. 1111c· c 1t cgl\r: . :h the, :ill s:111 , h 1he s:111H.: ncl'll. Notes
,,ays pr ,1ppnlachi11g thi s strnlCf:'.y . 11 uuld 111clud c··
( ()tllp,111i c·, lrnd 10 c:11c·_l!()Jbc' pmducts by ph) si cal lorrn . 111<111uln cturi11g
:1) Nl' \I gcogr:1phinil 1m1rkch: 1·l,1· c'"lllll' k c'\ pu1·1i11g th e• 1m1du ct tu :1 11 1.: ,1 11n H"L"SS 1\1 · hv di strihulil\n ch:11111c·I , and li1il th detect grn11·th opportuni1ic~ 111
country. or cntcrin g into a 1H.:w n;gio11 wi thin the cou ntry. l\ 1l"I{ lt1od ~ (,ffering ,1 1·,lllgc or solutions. I he (;i//ette ( ·0111;h111y (nm, a part of P&G) at"
ha ve round a-very lucrati ve mmkct or NR I diasporns all over L11 c wo rld , first de,_ eloped a range ur sha vin i:; prnduc ts for men. For severa l yea rs, product
homes ick for Indian food , to whom it markets a varicty·or ready to cat innova ti ons and upgrades drove the sales iapidly. ll owevcr the realisation that
lncli a11 mea ls. the rea l need that they sati sfy is groo ming, or which shav ing is just a part, led
b) Enter new market segments ·currentl y not targeted. The recent introducti on lo the expansion thei r shav ing pmducts line to include a number of grooming
or fairness crea ms for men has hel ped co mpanies like Emami and HLL products like, deodorants, ge ls, rifler sha ve lotions ancl bathing prodLicts. ·
enter a large and profitable market segment. Logilec/i, one of the world's leadin g companies in computer peripherals
for yea rs, no w offers ::t range of peripherals for all types of communications and
c) New product dimen sion~ or packaging: for exa mple, almost all products
entertainment devices. Their latest product otforin g is a set of iPod and other
·-·-·,. -- - - ------ -- - -- - - - from shampoos to shoe poli sh arc marketed 111 sachet smglc serve packs.
MP3 accessories. New Product development for ex isting markets has been at
This new pack size-format has helped com pani es enter new un-pcnctratcd
the forefront or the company's growth strategy, even as the company has entered
markets. m:w ma rlu:t ~cgmcnt,.
d) New di stribution channels: co mpanies use innovati ve distribution From th e above exam ples, 1l would also be evident that companies do not
channels to tap new market segment opportunities. impul se products pu1 sue a single gro,vth direction onl y, durin g a given plan period. /\s much as it
like beverages and ca ndies ha ve benefited enormously from the vending makes efforts to increase market penetration in a given market, a company also
machines, as a majority or the consumption happens outside home. Vending has to make inroads into new markets, as well as seize opportunities to develop
machines have opened new sa les opportuniti es for these categori es. In products for its existing markets. Howcvet~ prioritisation of growth strategics
ru ra l Indi a: HLL through its Project Shakti initi ati ve se ll s conveni ence is essential for pi·opcr allocation of resources and for balancing sho11- term and
products through unemployed wome n thereby securing their finan cial long-term growth. As such, Mark ct Penetration, Market Development and New
independence and at the time givi ng the compan y access to unreachabl e Product Development arc related growth strateg ics.
markets.
4. Diversification
Market development implies that when a company enters a new market,
Diversification is the growth strategy where a business markets entirely
it has to "develop" the market first through customer education about the utility
new products (ne w to the company) in new markets. Diversification can be
ljnd u~age of the product. Market development lime varies accordin g the stage related or unrelated di ve rsification.
of development of the market, and can lake decades of sustained efforts.
Related diversification means an entry into product markets, where there
J. ·. Pro.duct development arc synergies with existing businesses sl1ch as distribution channels or raw
· Product development is growth strategy where a business aims to introduce material s. Over the years Amul has ·diversified into products which are milk
new products into existing markets. This strategy may require the development based, milk being the most important ingredient, leveraging the vast cold chain
of rie.w competencies and requires the business to develop products, which can di stribution network that they had set as well as the distribution points set up.
ap·peal to its existing markets. "New" products, in this case, does not only imply
Unrelated diversification would be represented by a move into a product
products, which are new to the world or new product inventions, but could also
market, which has no synergy with existing businesses. T-he recent setting up
be product categories which are new to the compan(s product portfolio only.
of agribusiness and retail ventures by the Reliance and Bha;·ti group could be
In this growth strategy, companies get.into product areas, which are related an example of an unrelated diversification. An unrelated diversification is an -------- .--------- .---
to or complementary to existing product areas, to offer the customera range of · ambitious move and would be under taken by cash rich aggressive business .
solutions. The way customers view product categories, is fond amentally from houses, with management competencies to handle diverse projects. For a . . .. -- -- - --- - -- -- - --
the way, companies tend to categorise products. For the customer, a product business to adopt a diversification strategy, therefore, it must have a clear idea
category is a range of solutions to a give n problem or need, irrespecti ve of its about what it expects lo gain from the strategy and an honest assessment of the
physical form or m·anufacturing process or distribution channels. For instance, risks. · · . -
----------------------
a custo1,.;cr seek ing informati on on "The Indus ¼llcy Civilisation" would
ThcAn so·IT 's Matri x isa very important concept in Marketing Management.

Marketing Management Market-Oriented Strategic Planning

· Notes It is ad vised that.you carcl'till y studv thi s matri, :111d be ,1blc lo recall Ilic· ,rn,tri ., dcri,·c esse ntial I\' fro111 the growth strategics ol'thc lin11 . as staled in thc/\nsoff's
,IIall ti111 cs du1·i11g thi s course' . 111.it1·i \ .
h) Selecting St ratcgic Altcrnath cs. Sin ce business strat egy esse ntial)) re, oil cs .ll'()Ulld a c<i111pa11 y's proclucl s,
th .: .\lw-keti11g l'/011 is th.: 111ost critical to achi..:1 ing th e ctrn111.1n) 's strategic
1\ su11111iary of' the crilc'ri i111 scl\1 I 1·m sc kcting al1c:mati1 cs:
g,><d,. l'h<.: 11wrk..:1i11g plan dL·sc ribcs the marketin g strnkg) 11 cccssary to achic1 c
I. ldcnti ly l'uture scenarios by looking al strategic t111cc1·taintics and the businesses' strategic objectives.
environmental threats and opportunities. The strategic options '!lllst be
A general . outline of a Marketing . plan is given in Annexure. B. Do
evaluated in the context of the future scenarios of the industry.
remember that it is almosl impossible to prescribe a template, which can be
2. Whether the strategy leverages an Existing SCA. Unless the business unit used by every organisation. The stiucture of the plan would vary considerably
has or can clevel'op a real competitive advantage that is sustainable over a from ·011e induslly and organisation-to another. Some elements however are
long term in the face of competitor reaction, it is uni ikely that the business constant, which arc highlighted as follows,
strategy will pay-olT.
Elements of the Marketing Plan
3. Be consistent with organisation 's,ision.
J. Marketing Objectives
4. Be feasible - should be within the resources of the organisation and
The growth strategies that a firm has decided upon more or less become
interna lly consistent with the structure, systems. people and culture.
the marketing objectives for the firm, since marketing has the lead role in
achieving those growth objectives. The marketing Plan must begin with a
Check your Progress 3 d11tailcd stalcmcnt ur the growth objectives for the plan period .

Fill in the blanks. 2. Market Segmentation and Targeting

1. ;\nsoff 's matrix suggests that an organisation can pursue growth of A market segment is a group or individual s or organisations that primarily
its business in cs~cntially four different ways, which arc_ _ _ , share a homogeneous need as well as other common characteristics such
- - -, _ _ _ and _ __ as age, gende,; incorne lifestyles or values. These common variables call'
run into hundreds and because of shared needs and characteristics, it
likely that such individuals will have relatively similar product needs.
A marketing plan begins by identifying the various market segments
in a given market. The next step is to conduct a segment attractiveness
1. Go· through recent news reports of inorganic and integrative growth. analysis depending on the size, sales potential and competitive factors .
Try to identity the reasons for these growth strategies. The firm now decides selects one or more segments that it chooses to
2. Di·aw-Ansoff's matrix. Select any company from any industry and target with its marketing strategy. A fundamental rule of marketing is that
ob_tain information on the past growth strategics of that company. Do "//you are not thinking ofyour marketing in terrns of target markets, you
they fit in to gro_wth directions stated in the matrix? ., are thinking nothing". ·
' The concept of consumer behavior, market segmentation and selecting
target markets is examined in detail in Units 6 and 7.
3. The Marketing Mix
The selected target markets are targeted with a marketing mix which
Once the business growth strategy have been selected and finalised,
is a unique blend of product, pricing, distribution and communication
operating plans and strategies for each functional area i.e. ma~keting, finance,
strategies, created to produce mutually satisfying exchanges with a
Human resources, administration and so on_ must now be prepared:
target market. Distribution is refoJTed to as place and communication as
.· .. .
Whi lst explaining the Ans.oiT's matrix, we stated a number of marketing promotion, thus giving us the four P's of Marketing of lhe marketing mix:
actions that helped achieve the desired growth strategy. These marketing actions product, place, price, promotion. Over the years several more P's have
. are the marketing strategies, which are necessa1y to achieve a firm's growth been added to the marketing mix such as Positioning, Packaging, People
objectives. A firm's marketing plan or for that matter, the HR or financial plans and Process.- · ·

Marketing Management Market-Oriented Strategic Planning

 Notes TIH: strategics lt)r c,1ch ,ll. th e·se· cll1np,l11e111 s cdn1101 he' dec id ed upon organi sati on\ prud11cls Th ere' scn: ral \\ ;1ys " " L'U llll1111ni cating with
imkpcndrntl y. The strategics mu st c,l111pk111rnt c,1ch uth c1· ,11HI hk 11d I e' I)' 11 ell targe t m,1rkcts using dil"li.: rrnt medi a opti u11 s. ·1hL' dilli.: rc11l e' il'llle' nh Note.s .,.
for the 1rnirkc1 ing plan lo bc succe·s, 1·u1 . 1"11c he~I prn111 otill11 , 11 ,1kg; a11 d lu11 esl or con1111u11i c,1tiu11 lik e· ath crli si11g, ,ak, Jll tli11u ti (l n, puhli L' rcla1i,l11s.
pri ce cannot sa , c a bad pnldu ct Sll al s(). th e best produ ct II ill 1ml se ll unl ess publi cil; and personal se lling 11111st be con1·dinatcd to<> clher to cre,llc
th ere is an appropriate di strilrnl11ll1 and con1111unicaliun slr,1l q!,~ i11 pl ,1e·e. a11 clfceti, C COllllllUni catiun strategy. rl1e·se int cgr,Il cd ~0 11111111ni c;1tin11s
a) Product Strategics strategics arc clcsl!ribcd al Unil 14. Adclailccl lonnal of"a Marketing Plan
is inJ\nnexurc 8.
The product strategics arc the heart of the marketing strategy ancl include
aspects such as quality, product features and attributes, performance
Check your Progress 4
variabk;s, physical appearance and· aesthetics, brand name, brand in1agc,
product variants and many other factors. Products are a coinbiirntion of
Multiple Choice. Single Response
tangible and intangible factors. Everything that has lo be marketed: be it
medical care, a holiday or even a trip to the moon: has to be thought of in 1. The selected target markets are targeted with a _______
) terms ofa "product". Product decisions are covered in Units 9 and 10_. which is a unique blend of product,· pricing, distribution and - -- ··-- ------ -- -- --- -·· -
communication strategies, created to produce mutually s~tisfying
b) Place (Distribution) Strategics
exchanges with a target market.
Di stribution strategics are concerned with making the product available I. Marketing Objectives
when and where customers want thl! p1uduct. The "right" pl,1cc and l1111e
varies from product to product a1td depends entirely on how the target ii. Market Segmentation --- ---- - --··-- -- -- - -----
customers shop for the product. Frequently boughl pcoducts require Ill. Markel T:.1rgeting
extensive and intensive distribution networks. The distribution decisions
IV. Markcli11g Mix
include the type of channels, stock and replenishment levels, shelf space '-
and visibility at the retail outlet and ::ire dependant C)llircly on the target
markets shopping style and habits.
Distribution strategies also involve other business activities concerned
with transportation, storage, inventory control, commonly rel-erred to as
logistics. The goal of logistics and distribution management is to ensure lmplcmcntation
that the products arrive at their destination in the right condition and at the Implementation is the process that tunis marketing plans into action
right time. Distribution strategics are covered in Unit 11.
- -- ------- -- --- --- - - - -
plans and ensures that the plans are executed in the way that accomplishes the
c) Pricing Strategies objectives. Jmplcmcntation activities involve creating detailed job assignments, - - .. -- -- ---- -----------
activity and process descriptions, timelines, budgets and extensive internal
Price is a very visible and critical clement of the marketing mix. Pricing
communications within the organisation. Although implementation of plans
strategies are very critical as they directly affect the company's top line
sounds very simple, many organisations fail to implement plans effectively. -- - - ---- -- ---- - ---- -- -
and bottom line, Pricing decisions are also very complex as they have to
-- -- - - - - ---- -- ----- -·-.- The best marketing plans are doomed to fail if not properly executed. To ensure
factor in a number of factors such as target customer 'ability and propensity
effective implementation, regular reviews and evaluation is necessary. - - - -- -- - -- ----- --- --- -
10 pay, competitors prices, margins for distribution channel members,
taxes, transportation costs, profit margins for the company amongst a Evaluation and Control
host of other factors. Price is also the prime weapon in an organisations' Eval_uation of the plan is done by conducting reviews at regular intervals
competitive strategy, Because of the complex and critical nature of the to evaluate the extent to which .the marketing objectives are being met in the
-pricing decision, it is actively involves several other functions namely the specified time. The most common reasons why plans fail arc:
finance function . Pricing issues relevant to marketing are covered in Unit .
I. Unrealistic objectives
13andl4,
Prnmotion (Communication) Stratcgit's
2. Lack of resources or inefficient use ofresourccs
d)
3. . Jn_appropriatc marketing stra~egies
The goal of a firm's promotional strategy is to inform , educate, inform,
persuade and remind the target customers about the benefits of the 4. Poor implementation

Marketing Management Market-Oriented Strategic Planning

 Notes ~ Failure to acl:1111 to chan ges in th e L'lll in,11111 c· 111
@ Keywords
Som.: lirins c· 1nploy c,\l crnal agc 11 cic·s 1,, L'( H1du c1 ,1 .\lurk l'r i11,!.!. l 11d11.
11 hi ch 11111ch lik e th <.: linanci:il audit. is a 1h, ,1·ough. s;s tcrnati c lli' 1lw g,1:1b. Strakgk pla1111ing: \1 1 organis.1tin11·, prnccs, ol' t!e/i11i11,l! it s , tratc gy or
strateg ics, structu1·c :1ml pcrform:rn cc or th e 111:1rk L· ti11 g orga11i satio11 . di1\'l' li on :111 d 111:1k ing dec ision s ,,n ,il lnca tin g it s _rc:sourccs to pursue thi s
strat cg1
, \_,,..,~r,,>1 , Su,nimary , Mission Statement: /\ summary or the aims and values or a company,
·~ - . . •' . ,,> :
organisation or individual'
Strategic Planning is the managerial process of creating a business
strategy to obtain a fit between the organisations resources and objectives Strategic analysis: The process of developing strategy for a business by
I
and evolving market opportunities. ,
·1 researching the businc.ss and the environment in which it operates
The first step in developing a strategic plan is defining the business
mission . The mission statement must focus on customer needs, which the ®~lf;,As,se~si~11t,,<lti~siiRP(·:~
organisation wants to serve rather than on products and services.
--------- -- >- - --- The next step is to conduct strateg1c analyses to identify facto1 s, whi ch
I. What is business strategy and what are its main goals?

have the potential to affect business strategy. A strategic analysis has two 2. Whal is the difference between business stralcgy tk:cisiuns and operational
distinct parts: External analysis and internal analysis. decisions? Can you cite some examples?
3. Why is the Mission Statement important to sirategic planning'> Whal
External analysis consists of customer, competitor, industry and market
analysis and a macro environmental analysis. points should be kept in mind while drafting a mission statement?

Internal analysis is an analysis of the firm's performance, strengths and 4. What is an internal analysis? Why should a company conduct an internal
analysis?
weaknesses.
5. Describe a SWGT analysis. Explain how opportunities for one company
A competitive advantage is essentiall,y a position of superiority that a firm
enjoys, in some function , process or activity, in relation to its competitors. may be threats for another company.
6. What is a competitive advantage? !·low is it different from other strengths
A company's core competence is its ability to consolidate corporate wide
technologies and production skills and to adapt that knowledge to create that a company may possess?
a variety of products across industries. 7. Whal is meant by core competence of a firm? What is the difference
Ansoff's matrix suggests that an organisation can pursue growth of between a competitive advantage and a company's core competence?
its business in essentially four dilforcnt ways depending on whetlit:1 il S. Expl::iin the following terrninnlngy·
markets new or existing products in new or existing markets. a) Intensive Growth
The four broad alternatives that emerge from this are Market Penetration,
b) Diversification Growth
Market Development, New Product Development and Related or
Unrelated Diversification. c) Integrative Growth
· · ..A Marketing Plan is a written document that details all marketing activity d) Organic vs. Inorganic Growth
that a firm will carry out in the planning period to achieve the business 9. Explain Ansoffs Matrix. Cite two examples for eac~ quadrant.
objectives.
10. State the different ways in which a company can increase market
The key elements of a marketing plan are marketing objecti ves, target penetration of its products.
markets, .product strategies, pricing strategics, distribution strategies and
11. What key factors determine the selection of strategic growth alternatives?
communication strategies.
12, What is a marketing plan? What are· the key elements of a marketing
Some firms employ external agencies to conduct a Marketing Audit,
plan?
which much like the financial audit is a thorough, systematic of the goals,
generally conducted by an external agency. 13 . The best· m~de plans can.go amiss because of fla\ved e~ecution. Explain
this statement.

Marketing Manage ment

I Market-Oriented Stralt:gic Planning
 APPENDIX l Notes '
Check vour Prot,:ress I Portfolio i\latril'l's
i\lultiplc ( 'hoicl' Single Response I)

I. Whal i, thl: i.:01Tl:l:t onll:r or Business Strategic Planning Process''

~ltlll
11. 13usincss Mission· ➔. SWOT Analys is ➔ Goal Formulation ➔
Strategy Formulation ➔ Program Formulation ➔ lmplementation
.➔ Feedback and Control
Check your Progress 2
Multiple Choice Multiple Response
I. What arc the components of Strategic External Analysis?
1. Customer Analysis
11. Competitor Analysis
111. Industry and Market Analysis
Check yoiir Progress 3
Fill in the blanks.
1. Ansoff's matrix suggests that an organisation can pursue growth of its
The \,l:rtical Axis represents the Market Growth r~te.
b11siness in essentially four dilferent ways, which are Market penetration,
~ ...... - - - --- - -- - --- - - - - -- Market development, Product development and Diversification. The Horizontal axis represents the firm's market share relative to its
competitors.
Check your Progress 4
Hence, I Ox represents that firms share is IO times that of its nearest
Multiple Choice Single Response
competitor; 0 . 1x relative market share means that the firms share is I 0%
I. The selected target markets are targeted with a - - -- - - - - ~ of that of the largest competitoi:
which is a unique blend ofproduet, pricing, distribution and communication .
Size or the circle represents the absolute revenues generated . Hence,
strategics, created to produce mutually satisfying exchanges with a target
larger circles represent larger revenues.
market.
Characteristics of each quadrant
iv. Marketing Mix
1. Stars
Market Leaders in high growth markets
Yield profits but not necessarily positive cash flows, because
I. Dillon, William R., Thomas J. Madden and Neil H. Fitile. Mar-keting
investment is greater than.revenues.
Research in a Marketing Environment. St Louis: Time Mirror/Mosby
College Publishing. Require a lot of investment to build or even maintain market share
and to ward off competitor attack
2. Ramaswamy, V.S. and S. Namakumari 2002. Marketing Management -
Planning, Iniplementation and Contml (Global Perspective). New Delhi, Critical to the company's portfolio, hence companies will invest in
Macmillan India Ltd. growth
Strategy: Protect Market Share - Build Market Share - Invest Heavi ly.
Companies need stars in th e ir product portfol ios

Ma1·ketin g Manage ment Market-Oriented Strategic Plannin g

'Notes Cash Co"'
Stars an: necessary /ill" the 111<1rh:t leadership ol'l he orga 11isa1 ion but too
I !old d,,111i n: 1111111:t rk,·t , h:tl l'' in 111:trk L'IS where the grn11111 1:11e hc1 , ma 11y star, 11 ill create a s1ra i1 1,111 the cash n::sourl'CS ol'tlw co111p,1ny
, ·~ "'.'. Notes '
,b : l111 cd.
Ca~h Cows ge11 era1 e l',tsh 1·L·s,111rL·cs ,llld i'und in n·, t1m·11h 111 oilier
I \11 sinl·s,;c•, 11 h ic h II c'1\: ,111Cl' , 1:1rs lian: thL' potent iaI lo hel'o111 e cash · bu sinesses but loo 111an y t:ash L"O\\ s· and the /'ulL11'c oi' tf1 c co111pa ny is
cow s when the market gro11 Lh rate dec lines, il'lhe business has been · under threat. Companies need s11 l°licie 111 p1·escncc in i'utu,-..: grnwth markets
able to retain markcL ,slwrc and need to reduce presence in loll' growth or stagnanL markets. ---- ---- ----- ---- ----
Cash Cows yield profits and positive cash fl ows Problem children arc al so a presence in a hi gh gro wth market. Businesses. ------·- -·- -
·- --- --- -----
Compan ies need to protect ma rket share of cash cows and protect that arc relatively new and ha-vc yel lo build market share are lik()ly to be
· market i'caderslrip · problem child ren. With good management and a SCA have the potential
to become future stars.
Maintenance support is usually in terms of product impr6verncnts, ------ --------------- --
product re-engineering to reduce costs, reminder communication to Critique of the bCg matrix
maintain brand recall and strong distribution support. Companies The matrix clocs nut laki,; into acco unt a number of other market realities
will use competitive weapons to ward off competitor attack, but like competitive pressures, role of th e business in the portfolio, and can lead to
maintaining margin s is key the neglect of some businesses . Market Growth rate is not tl~c only factor to be
Strategy: I !old and selectivel y in vest in strong cash cows, Harvest weaker cash cons_idcred lo determine the future growth potential of the business.
COWS 2) GE Multifactor Portfolio Matrix
3. Problem Child/Question Marks GE pioneered the multifactor portfolio matrix, to include several other
Low mark et share businesses in high growth markets factors not previously considered by the BCG matrix.

Could be ex- stars that have lost market share -or may be new The vertical axis represe nts market attractiveness and hori zo ntal axis
busi,;csscs that have ycl Lo build market share represents business strength. The circles represent the different SBU"S and the
size of the SBU represents the sa les revenues. ·
Quesliun marks do not yield profitability nor rnsl1 flows
The premise of this matrix is that any h11sincss is successfu l to the ex tent
Co mpani es need lo se lectively take a call on persisting with these that the company enters attractive markets and possesses the business strengths
businesses: Those with some potential to become future stars or to succeed. Market growth rate, thou gh key, is not the only factor that determines
those bu sinesses where there is an SCA that can be built or leveraged the long-term attractiveness of a market.
- lnvcsl and build market share Those that do not have any future
potential of SCA - Divest Companies may sometimes retain a. Market attractiveness is determin ed by additional factors such as market
question mark in the portfolio, as it plays a tactical role other than size, competitive intensity, government legislati"on, technological requirements,
that of generating profits . vulnerability to economic cycles, raw material avaflabilily among othe1: factors.
Business Strengths would include core competencies, competitive advantages,
4. Dogs market share and share growth, product quality, brand reputation, distribution
Low market share businesses in low growth markets · networks, production capacities and efficiencies, R&D, Managerial personnel
amongst others.
Dogs are usually ex cash cows that have lost market share or even
question mark businesses that a company may have persisted with Managers first have to assign weights. to each in accordance with its
and where market growth rates have declined :relative importance. Hence, in the table attached, managers have assigned 20%
weight age to overall market size and competitive intensity, which reflects that
Yield nothing and have no future
mangers considered these most important. The next step is to rate each business
Companies have to take a call on whether there is any other reason or product area on each factor, ranging from l(least attractive) to 5 (very
to hold on to these businesses. attractive).The ratings are then multiplied by the weights to arrive at the values
Strategy: Usually divest the business. Companies need a ba lance of Stars, fo r each di vision. The value indicates the po in.t at which the SBU is placed on the
Cash Cows and even Probl em Children . .. matrix, whis;h is a graphical representati on of the attractiveness of each business.
The matri x is divided into 9 cell s, which in turn fa ll into 3 zones .

Marketing Manage ment

Market-Oriented Strategic Planning
 Zone I: 111 ihcsc thrc:c cell s. th e co111pany's h11 si11css s11·c 11)l lh and 111 arkc· t Nqtes
allracti vc ncss 1·a11 gc's l'roin 1ncdi111n Lo hi gh. Husill(:sscs that liill i11l \l 1hcsc' cc:ll s
nced lo be prntc:ckd and tkli:ndcd aml require r..:sourcc ,ill oca li llll to bui ld "larkcting Plan Outline
sel ecti ve ly. I. Bu s ine ss Mission
Zone 2 : For the 3 cells in thi s zone, il'onc fo ctor is weak the uth..:r 1s 1cry What is the mission or the lirrn '1 What bus111css 1s 1t ·111·1 I low wc:11 is its
strong. mi ssion understood throughout Lhc org(ln 1sat1011·! Five years from now,
Zone 3: For the 3 cel ls both business strcnglh and market attractiveness what business does it wish to be in?
range from medium to low. Businesses that fall ;,,,ithin these cclls"nc_cd selective
1 · Does the firm define its business its terms of benefits its customers want
investments, to ri1aintain current earnings. I rather than 111 terms of goods and services?
f•I Cl~nfffoa1io• lb)Str,>1ogiu 2. Objectives
H":nl"i~,IIJUI IUU£i~.!llll,m
ls the firm 's mission statement able to be translate into operational terms
hg
regarding the firm 's objectives'/

-- ........,.,...
ltlrr.ll'l!Alll W.1!:U) lil.t J.Wi91 8Pi1]1'
....,...p,. t-l~\l_.,.1,1 i4~,.""
" 4k,,lil~t.- I WW~ · · . What arc the stated objectives of the organisation? Are they formally
.. (tl'JIIIIIWl &rt .. ~ f~W ~l'I \VW'0"1C
◄ Wom>f\lGIIC"IC.; . ~ · ~
i• ~a .hi1...._..i1 written · clown? Do they lead logically to · ·clearly stated marketing
. IUJlllrah,.,,
r nlo,i.nl, objectives? Are objectives based 911 sales, profits or customers?
. ~ I ---·
f #.(l !Ail.Fl'llf
•twr,a.,,;,111n-,
)t((Wf"l/1!1#1€·1
htOO.•~'I Ij t.111..lUHJ.!•X!tUIU
Wn!J . Are the organisation's marketing objectives stated in hierarchical order?
t; : :::::
taM°c:ni-- lil ltfllllll,.,.,.
- ~~~ ~ tlpl!
........,..s,,
.
A re they specific so that progress towards achievement can be measured?
·~"~
~~~
, . . , . .. f'l""IA1
!toba~~
I l'lf,ZIIJlal ..~11
,wrd!/#1
Are the objectives reasonable in light of the organisation's resources? Are
r,u1;=1Allt->.V. ~~1,1"117, J\l',1 the objectives ambiguous'.) Do the objectives specify a time frame?
I - ~ Ito-Ii«...
~""' l,,• ~~-.
.•i,.J,i~: .j•.:r.w,,i••
.- ~ ~ h . fl,,;.J ( ~ " "" '- ..
,="fL.i
~~ ls tbc firm's main goal lo maximise .customer satisfaction or to get as
I
_j .
rn l.ll 100
.~.....
•(..,~•,:t.-llfwt
-
111 r,W~H~
,'· ·~ ·~ _:' . ..,..._WO: •~"'
., ______, ___ many customers as possible?
3. Situation Analysis (SwOT Analysis)
Ilas one or more competitive advantages been identified in the SWOT
A Critiq uc of the GE model analysis? Are these advantages sustainable against the competition?
Although the GE model considers several market realities, its biggest A. Internal Strengths and weaknesses
drawback is that the wcightages and ratings are assigned by managers and may • a) What is the history of the firm, including sales, profits and
not always be very objective. organisational philosophies?
b) What is the nature o°fthe·firm:s current situation?
c) What resources does the firm have (financial, human, time,
experience, asset, skill)?
cl) What policies inhibit the achievement of the finn's objectives with
respect to organis.ation, resource allocation, operations,. hiring,
training, and so on?
B . .· External Opport.unitics and Threats
a) Social: What major social and lifestyle trends will have an impact
on the firm? What action has the finn been taking in response to
these trends?
b) Demographics: What impact will forecastcd trends in the size, age,
profile and distribution of population have on the firm? How will
the changing nature of the family, the increase in the proportion of

Marketing Managcmcnt Market-Oriented Strategic Planning

 \\•om en in th L' \1nrkll11·cc and clwngcs i11 the ethni c co mposition nl" b the fir111 posit ioning itsc· lfw ith a uniqu e product'> Is Lhc procluc: t
the popul:11in11 :il'kcl the firni'.' What ac tion h:1s the firn1 ta kt: 11 in ncetkd'.'
n:spnns..: to th L·sc d.:\ c· lop111C11IS and t1 c11ds'.' I las th t: fir1111·c\·alu:1ted
I ltl\1 11111L·h ol lill' lir111\ b11si11c·ss is 1-..:pca1 \e rsu, Ile\\ business'.>
it s tracliti on,il product~ ,111d .c,pandccl th e 1·a 11 gc or sJJ<;C iali sed
. Whal pcrcc1lla t'.c ur 1hc pul>ii c·can ht: cl,1"i fi ed ,is 11 011usc rs, li ght
oi"l"crings lo re~ pond to these ch,1ngcs'.'
users or lie a\ y use rs'.'
c) Economic: What major trends in taxation and inco1111: sourn:s I low do current ta1·gct market s rate the flr111 and its competitors with
will have an impact OJi the firm ? What action has the firm taken in respect to rcpCrtation , quality and pri ce? What is the firm's image
response to these trends? with ll)e speci fi c market segments it seeks to serve?
d) Political, Legal and Financial: What laws are now being proposed Docs the firm try lo direct its products only lo specific gro ups or
at international , f'cdcral , state and local levels that could affect people or to everybody? · ·
marketing strategy and tactics? What recent changes in regulations
Who buys the firm's products? I low docs a potential customer find
and court dec is ions a tTect the firm ? What political changes arc
out about the organisation? When and how docs a person become a
taking place al each government level? What action .bas the firm
taken in response to these lega l and political changes? customer? _ . . _ . )
•· · ... What arc the maJ or obJ cct1ons given by potential customers as to
e) Compe1ition: Which organisations arc competing with -the firm \vhy they do not buy Lhc firm 's products?
directly by offering a similar product? Which organisations are
competing with the firm indirectly by securing its prime prospect 's How do customers find out about an·d decide to purchase the
product? When and where?
time, money, energy or co111111it111enl? What new compelilivc trends
seem likely to emerge? I low effecti ve is the competition? What Should the firm seek to expand, contract or change Lhe emphasis of
benefits do competitors ofTer that the firm docs not? ls it appropriate its se lected target markets? If so, in which target markets and how
for the firm to compete'? vigorously?
f) Technological: What major technological changes arc occurring . Could the firm more usefully withdraw from some areas where
that may affect the firm' 1 there arc alternative suppliers and use its resources lo serve new,
customer groups?
g) Ecological: What is the outlook for the cost and availability of
Whal publics olhcrlhan target markets (financial , media, government,
natural resources and energy ueeded by the firm? Are the firm 's
citizen, loca l, general ailcl internal) represent opportunities or
products, services and operations environmentally friendly?
problems for the firm?
4. Marketing Strategy
8. Marketing Mix
A. 'forget Market Strategy
Docs the tirm seek to achieve its goal chiefly through cuurclinatcd
Are the members of each market homogeneous or heterogeneous use of marketing activities (product, distribution, promotion and
with respect to geographic, sociodemographic and behavioral pricing) or only through· intensive pro!11otion?
characteristics?
Are the objectives and roles of each element of the marketing mix
What are the size, growth rate and national and regional trends in clearly specified?
each of the organisation's market segments? .
1. Product
Is the size of each market segment sufficiently large or important to
warrant a unique markct_ing mix? I. What are the major product/service offering of the firm? Do they ·
Are market segments measurable and.accessible to distribution and. complement each other, or is there unnecessary duplication?
communicatior) efforts? II. What are the features and benefits of each product offering?
Whi ch are the high~·o·dow-opporlunity segments? iii. Wl1ere are the firm and each major product in the life cycle?
What are the evolving needs and satisfactions being sought by
iv. What are the pressures among various target markets to increase or
target markets?.
decrease the range and quality of products?
What benefits docs the organisation offer to each segment? flow do
these benefits comp;i1'e with benefits offered by competitors? ·

Marketing Management Markct-Oricr_llcd Strategic Planning

 Notes \. What an: tlic 111a1llr " c·akm.:ssc:, i11 ~,1c· h prudu cl ,11·c·,1·• \ re th e· d,1 t,.', :111d ti111 cs the .ids \\ ill :1ppl·:1r lhL' 111os1 ;1pprnpri:1tc'.' Notes
\ I. Wha t arc the majo r cp 11 1pl ,1i11 t<' \\ hat [.'llCs " rnn ~• nmsl ol"tc-11 '.' I h1 , th e· l1rn1 prc·p,ircd sc, cr:tl n;rsion s 01· its ath c·rl iscmc111 s·1
, 11. Is _the prod11c,:1 11 ,1111 c· c·a~) t,, 11ro11,H111rc·.1 Spell'.' Rcl'all'.' ,Is -it 1lllc's th e· 01·g:1nisati o11 use ;111 uul sidc ,1,h crti si11 g :1gc11c1•' 1 \V hal
ckscripti, c. and dllc', it l'll 111111111 1ica1c th ,· hc-11 c li h th e prndu ct ,11'1L·rs'.' i'u 11ct101is doc·, the :1d agc1ic:, pnfonn i'Pr the orga 11i ~:1li,lli'.'
Docs the name di stin gui sh the lirn1 or product from all others''
What system is used lo handl e customer inquiri es res ultin g from
v111. Whal waiTanlics arc· otl'crcd with the product? Arc there other ways advertis ing and promotions? \\'hat follow -up is don e')
to ~uaranlcc customer sa ti sfaction'!
h. Public Relations
1x. Does the pwducl offer good customer value?
.ls there a we ll -conceived public relations and publi c ity program?
x. !low is cuslonicr service handled? llow is servi ce quality assessed? Docs the program have the abil"ity lo respond to baci" publicity?
2. Place/ Distribution J low is publi c relations. normally handled by the firm? By whom?
1. Should the firm try lo deliver its offerings directly to customers or can I lave those responsible nurtured working relationships with media
it better deliver selected offerings by involving other organisations? ) outlets?
What channcl(s) should be used in .di stributing product ofTcrings? ls the firm using all avai lable public relations avenues? Is an effort
11. What phys ical d1 stnbut1on facilities should be used? Where should made to understand each o[ the publicity outlet's needs and to
they be located'' What should be their lllajor charac teri stics? provide each with story types th at will appea l to its audience in
111. Arc members or the target market willing and able lo travel some readil y usable forms?
distance to buy the product9 What docs the annual report say about the firm and its products?
1v. How good is access tci fa c iliti es? Can access be improved?.Which Who is being cfTcctively reac hed by this ve hi cle? Docs the benefit
facilities need priority attenti on in these areas? or the pub I icat ion justify the cost?
v. How are fa cility locations chosen? ls the site accessible to the target c. Personal Selling
markets? ls it visible to the target markets 9 I-low much of a typical salesperson's time is spent so liciting new
v1. What are the location and atmosphere of retail establishments? Do customers as compared to serving existing customers?
these retail ers sa tisfy customers?
I low docs the sa les force dete1mine which prospect will be ca lled
v11. When arc products made avai Iable lo users (season of year, day of on and by whom? How is the frequency of contact determined?
week, time of day)') Arc these times most appropriate?
How is i-l1c sa les force compensated? Arc there in centives for
3. Promotion encouraging more business?
I. How docs a typical customer find out about the firm 's products? I lu w is the sales force organised and managed?
ii. Does the message the firm delivers gain the attention of the inteo<lc<l· Has the sales force prepared an approach tailored to each prospect?
target audience? Does it address the wants and needs of the target
market, and does it suggest benefits or a means for satisfying these Has the firm . matched sales personnel with the target market
characteristics·?
wants? ls the message appropriately positioned? ·
iii . Does. the promotion effort effectively inform, persuade educate, and Is there appropriate follow-up to the initial personal selling effort?
remind customers about the firm's products? Are customers made to feel appreciated?

-------~---------· ~--- IV. Does the firm establish budgets and measure effectiveness of Can database or direct marketing be used lo replace or supplement
promotional efforts? the sales force? · ·

n. Advertising d. Sales Promotion

Which med ia arc currently being used? Has the firm chosen the What is the specific purpose of each sales promotion activity? Why ----------------- -----
·types ofmedi_a that will reach its target markets? is it offered? What does it try to achieve?
Arc the types ofmedia used the most cost-effective, and do they What categories of sales promotion are being used? Is sales
contribute posili\'cly to the firm's image? promotion directed lo the trade, the final consumer or both?

Marketing Management Market-Oriented Strategic Planning

 Is the effort di1·cctecl al all th e fim1 'sh:y publi cs or rcst1·ictccl to only. Competition and Competitive Strategy
potential customers'.' UNIT
4. Price
Structure: ...,:·,.;
1. What le;-c ls of pricing and spec ifi c prices should he: used''
4.1 lntrocluction
11. What mechanisms docs the lir111 have to ensure that the prices
charged are acceptable to customers? 4.2. Identifying Competitors.
· iii. How price sensitive arc cust~mers? 4.2. 1 Customer Perspective
IV. If a price change is put into effect, how will the number or rnstomers . 4.2.2 Industry Perspective
change? Will total revenue increase or decrease? · 4.3 Structural Analysis of the Industry
v. Which method is used for establishing a price: going rate, demand 4.4 Competitor Analysis
oriented or cost based?
v1. What discounts an; offered, and witb what rationale?
4.5 Setting f a Competitive Intelligence System
4.6 Generic Competitive Strategics
v11. Has the·firm considered the psychological dimensions of price?
4.6.fC::ost Leadership
v111. Have price increases kept pace with cost increases, inflation or
competitive levels? 4.6.2 Differentiation
1x. How arc price promotions used? 4.6.3 Focus

X. Do interested prospects have opportunities to sample products at an 4.7 Designing Competitive Strategies
introductory price? 4.7.1 Market Leader
x1. What methods of payment arc accepted? Is it in the firm's best 4.7.2 Market Challenger
interest to use these various payment methods?
4.7. 3 Market Follower
5. Implementation, Evaluation and Control
4.7.4 Market Nicher
a) ls _the marketing organisation· structured appropriately to implement
the marketing plan? 4.8 Balancing Customer and Competitor Orientations
Summary
b) What specific activities must take place? Who is responsible for
these activilie~? Keywords
c) What is the implementation timetable? Self-Assessment Questions
cl) What other marketing research is necessary? Answers to Check your Progress
e) What will be the financial impact of this plan on a one-year Suggested Reading
projected income statement? How does projected income compare
with expected revenue if the plan is not implemented? ·
f) What are the performance standards?
g) What monitoring procedures (audits) will take place and when?
h) Does the fim1 seem to be trying to do too much or not enough? ·
i) Are the core marketing strategics for achieving objectives sound?
j) Are the objectives being met, and are the objectives appropriate?
k) Are enoµgh rcs·ources (or too many resources) budgeted to
accomplish the marketing objectives?

Marketing Management Competit ion and Competitive Strategy

 hL:ncc. T\' 111a111il:1clmcr~ crnnpctcd II ith other TV 111anu(\1clmcrs. 'foday the
pcrso11,il n1111p11ter is :1s 111uch ;1 lw1nL· c: 1n c1·t;1i11111c11t device; hence, a tclc:,·ision Notes
Object i ,·cs
111anul:1ctun:r is ,il so cn111 pct i11g ll'ith Clllllpanic.s l'nrn1 other industri c:s.
/\llu going lhrottgh this uniL, you,, ill he ;1bk t,l:
The h11si11L'SS 1rnldcls in most industries ha ve undergo ne a rapid change as
• ldcntil'y competi tors from the cus10 1nc1· ;111d 111d11str) po1111 01 · , ic,, cus10111c1· priorities change. 1\ strateg ic challenge l;1ci ng 111any lirrns is 10 detect,
• Conduct an industry, market and compct ito1· analyse~ understand and participate in the new competitive forms as they emerge. TV
networks like Star, Sony and Zee compete not just ,;vith each either, but also with
• Describe the importance of a competitive intelli gence system the internet, the Xbox or Sony Play Slation, DVD rentals and shopping malls
• Choose a generic strategy for your company for the lei sure time of viewers. ·
• Design competitive strategics based· on the generic strategy Corripan.ic~ need to be' sensitive to nc,v bu~iness forms as they emerge
and conduct depth analyses to understand whether·thcy represent a threat or an
• Balance both customer and competitor orientations
opportunity. A correct identification of a firm's coi11pctitors is the first critical
step in devising an appropriate competitive strateg}'.,
)
4.2.1 Customer Perspective
The fundamental purpost; of a 'i:i'tisi,i'ess u11it is to create value for From the customer's perspective, all pmd11cts that satisfy the same need
its custunu:rs and capture value.fur it.1 u11•11ers. A firm's understanding of the are seen as cn11111cting 1rith car·h other. It is ve ry in1portant for manage ts to
structure of an indust/y and the competition within will reflect in its business consider this pci;spcctivc, as this fundamentally affects customer choices and
strategies. Competitive forces within the industry dctcrn1i11c tliL: app1opriatcness the comparison of value that a L.USlo111e1 111c1kc:~. l knee, cornµetitiun includes
of a firm's strategics and its ability to capture value for itse lf as competitive all the actual and potential ri va l offcri'ngs and substitutes that a buyer might
strategy is essentially a search for a viable position in the industry. Many consider. ·
companies fail to establish a viable position , simply because they fail to truly
At Level I is Brand co111petiJio11, which consists of brands that directly
understand the competition within their industries and performance factors compete for the same market segments.
critical to sueces~, in a given industry. Consequently, their competitive strategy
is inadequate to achieving their strategic goa ls. · At level 2 is lndus/JJ 1 comµe tition , which consists of all firms in a
given industry. Although customers would not consider all offerings
in an industry, when making a choice, industry competition has a very
important bearing on the value perception of customet: Prices of the
For a manager a starting point for any exercise in dev ising a competitive different offerings act as 'signposts' of price/value expectations from the
strategy would be to·ask himself,.who are uur cumµetiturs? offerings under consideration. It is not that customers carry exact prices
in their heads; it is the general price information that acts as a benchmark
For most companies it would seem a simple task to identify its competitors,
or comparison point for value.
· and it would include all the key companies within that industry. However,
·the range of a company's aciual and potential competitors is much broader. At Level 3 is Generic competition or all products, which satisfy the same
Moreover, the way customers would define competition for .a product would need. Generic Competitors, also known as substitutes could be products
be very different from the way the company would approach such an exercise. in vastly different physical fo1ms and cuts across industry boundaries.
Companies need to._use both the approaches in identifyi~g its competitors. Cmnpanies often underestimate generic competition, since it does not
directly appear as a customer choice.
This task has become even more complex due to the convergence of
industries. There was a time wh.en industry boundaries were clearly known: Encyclopedia Britannica faced devastating competition not from other
banks competed w_ith other banks, and a mobile handset man,ufacturcr competed encyclopedia but from the CD ROM and the Internet (a giant storehouse
with another handset manufacturer. Today banks arc competing with mutual ofknowledge). A company is more likely to.be hurt by generic competitors
fund s, for mobilisation of funds as a customer makes a choice between a bank and newer technologies, as the impact is not entirely predictable.
deposit and investing In a mutual fund. Banks arc compcli11g with non-banking Substitutes also influence the customer's perceptions of value, as customer
finance companies for extending various loan products to their customers; make tradcoffs amongst substitutes.
competing with financial advisors fat offering investment advises to their.clients.
The only home entertainineni device in the recent times was the television;

Marketing Management Competition and Competitive Stratcg)

Notes 1\t Le ve l 4 is Sha,,, u( 110//et rnmpctition , which cn11 sist s ol' all product criti cal. Oil , Steel. C'rn1 c11t , I.ill.' In surance. i\irlin<.:s arc exampl es
uffe rin gs that compete ·1 c1r the customers ··rupee··. Thne ,m.: c1 \\'ide variety Notes
()/' uli gupnli sti c ind11 stri L·s .\ qri,1tinn nl' ,lll oli gopol y is a
n l' produ cts and s..: n ·iL'L'S rnrnpetin g for a li111ited inC(l1m:. ( '11 sto111 ers have d11o;">ii'. ll'hne th L· 111 ,1rk ..: t i, di, itk d h..: t,, ee 11 I \\ o large playe rs,
to mak e tradeolfs and pri1.1rities !'or purchase. Sh:i1·e til. \V,likt cn1npctition \\ hu dl1111i11at L' th e c· 111irc 11wrke1.
hccu111 cs parti cul,1rh i111port ,111t durin g.,ucccss ionar:- cyc le
J\Jr}////fJOlistic co111petitio11 : Is sec 11 i11 industri es " ·here there arc
Yet another perspective is to monitor ' 'share o/lllind" and s/1(11 -C o/heart. " a large number ul' players \\'ith dilfcrrntiatcd product offerings.
The most commonly used metric to determine a company 's position Companies J'ocus on. market segments, whore they can meet
in an industry is market share. "Share of Mind" is a measure of brand customcrnceds in a superior way and olfcrbcttcrvalue. Monopolistic
recall, when a potential use situation arises. Customers arc more likely to competition is seen in industries such as f-MCG categories.
consider for purchase, the brands that they recall -very easily. "Share of
Heart" is a measure of the customer's affinity to or likeability ofa brand. Pure Co111petitio11: ls seen in industries .where there are a large
number of firms, with competitors offering the same product and
Although market share is the most commonly used measure of a brand's · service. Because there is limited scope for differentiation, prices
success, it is not truly indicative of the health of a business. A particular brand charged arc more or less similar. Commodities markets are
may have dominant market share at a point in time, )ut if its scores on mind examples of pure competition. An industry's competitive structure
·share and heart share are low, shows that a company has probably used very changes over time mainly due to macro environmental changes.
short-term tactics to gain market share. On the 6thei'liarid, ifa brand scores high
2. Cost Structure
on mind share and heart share, but.currently low on market share, reveals that
a firm is in a good position to regain market share, but may have neglected some Each industry has its own unique cost structure that shapes its business
current issues. strategy. Steel making involves heavy manufacturing and raw material
4.2.2 Industry Perspective costs; on the other hand, beverages industry involves heavy distribution
and marketing costs. Companies try to reduce their l.argest costs, to
An industty is a group of firms that ofTcr similar products and can be become more efficient and get a greater advantage over other competitors.
·classified according to number of sellet's; degree of product differentiation; entry, - - - - .. - -· - -- ~ - .. - - - - - - - -
3. Degree of Vertical Integration
mobility and exit barriers; cost structure; degree of vertical integration ; strategic
groups and degree of globalisation. In certain industries, companies find it advantageous to integrate
I. Number of sellers and degree of product differentiation backwards or forward (vertical integration). \trtical integration often
gives a firm a cost advantage and a larger share of the value-added
A starting point for defining the industry structure is to specify the stream. However, specialist activities, which can be done in a better way
number of sellers and the extent to which the product is homogenous at a lower cost by other firms, may be outsourced. Outsourcing is not the
or differentiated. There are four basic types of industry structures: opposite of vertical integration as is commonly believed. Even vertically
Pure Monopoly: Only one firm provides the product or service integrated firms may outsource activities such as customer call centre
or
in a country . region. Monopolies exist only in regulated or operations to specialist firms. ·
protected industries.' In the absence of competition, monopolists 4. Degree of Globalisation
charge high pdce. and offer minimal service. If substit11tes offer
some competition, a monopolist may invest in service and In some industries competition is highly localised such as Pest Control;
technology. Government owned or public sector monopolies others are highly globalised (aircraft manufacture, aircraft engines
may not charge a high price in public interest, but offer minimal automobile manufacture). In globalised industries, companies need to
products. Today monopolistic structure is seen in public utilities compete on a global level and keep up with latest advances in technology
(public transportation, water supply) or industries, which crucial to worldwide.
nationai security (defense, police). 5. Strategic groups
Oligopoly: A small number of very large firms producing The concept of a strategic group provides a very different approach
either highly differentiated products (differentiated oligopoly) towards understanding the competitive structure of an industry. Strategic
or standardised products (pure oligopoly.) Oligopolistic structure Groups is a group of firms that
is seen in industries where capital investment required to set up
'farget the same markets and pursue similar competitive strategies
a firm is extremely high or where large capacities or scale is

Marketing Manage ment Competition and Competiti ve Strategy

 I hl\T similar ch ,1rndcristics (i ,~. si1e , 111arkct reach) Cu111 incing ,our custu1rn:rs that th e need you arc rulfllling is an
'Notes · .,,, i111porla11t llll C.
I Ia n: similar assL:ts and competenci es.
( · 0111 pct it ion within a strategic group is immediate and direct. Check your Progress I
6. L<'.ntry, Mobility and U:xit barriers - - - - - · - - - - - - - - ----l
Entry Bai:ricrs arc. those factors, which make _it difficult. for a fit:m to . Mnltiplc Choice Single Response
enter an industry. Major entry barriers include high capital requll'cmcnts, I. f-rorn the customer's perspective, all products that satisfy the same
economics of scale, licensing and other government regulations and scarce need arc seen as competing with each other. For managers to consider
resources. this perspective, as this fundamentally affects customer choices and
Mobility barriers arc those that prevent a firm mov_ing from one s~gmcnt the compar'ison of vaiuc that a customer makes, what comes at level I?
to other attractive segments. Some mobility barriers are Brand image, 1. Generic competition
distribution networks and technology and service levels. 11. Industry competition
) Exit barriers prevent a firm from leaving an indust1y. Government 111. Brand competition
regulations, obligations to customers, low asset salvage value arc so1hc 1v. Share of Wallet
examples of cntty barriers. 2. What do you mean by Pure Competition?
7. Potential Competitors I. On ly one firm provides the product or service in a countiy or
Jn addition to current competitors, it is important t; consider organisations region.
who pose a substantial long-term threat or new market entrants. Potential II. A small number of very large firms producing either highly
competition in future can from organisations that arc: differentiated products or standardised products
\k:rtically integrating into the present_industry Ill. Is seen in industries where there arc a large number of players
with differentiated prodi1ct offerings.
Jncrcasing economics of scale
IV. ls seen in industries where there are a large number of firms, with
Increasing their reach and control over their distribution channels competitors offering the same product and service.
l ncreasing control over suppliers
/
Making high capital investment commitments
Increasing their R&D spends in related categories and substitutes
Global firms entering the count1y I. For the following product categories, identify the various levels of
competition as you have studied: (a) Calculators b) Greeting Cards
Companies extending their product range
2. For any industry of your choice, try to find out infonnation on the
Cash rich companies, looking to deploy their-cash resources or assets
fo llowing: Basic ind11st1y structure (monopoly etc.), the companies
and competencies that are vertically integrated, the different strategic groups within the
· We have looked at several ways of identifying and defining competition, industry, entty barriers and potential new competitors.
both from an industry's perspective as weU as the customer's perspective.
Companies have to guard against defining too broad or too narrow a
competitive set.
Monitoring different levels of competition also creates multiple marketing
In addition to competitors, whether present \)['_ potential, immediate or
tasks such as: indirect, there are several competitive forces that determine a company's search
Convincing your customers that 'your brand delivers the best for a favorab le competitive position in an indust1y: In the book, "Competitive
solution, amongst brand and industry competitors. Strategy", Michael Porter wrote that two central qt1estions underlie the choice
Convincing your customers that your product offers better value of competitive strategy:
vis-a-vis substitute competitors.

Marketing Management Competition and Competitive Strategy

Notes TIH' lirst is the attral'tivenc~s of industries for long-term profitahility PotL'nt i:il
ancl the factor, that determine it. ~n tra nt s (I h rt\ 11
of mohilit~ J
He ilk11tili cd ·· 1 i, c· I urcc·s" as th e li ,c litctu1 , th at dclcrn1i11 c til l'
pmfitabi\it:, :1ttracti 1 c11 css Pi" an indu stry. Th ese li l'c l"nrcc, ~re ex plain ed
i
Suppl icr:- IIH.lustr~ com
in the .. Fi,c 1:orccs .. 1nodcl. Hu~l..'rs
(Suppli cr pcl1tnrs (:-ieg1nc11t
(Buyer
The second ~en tr.al question in competitive strategy is the determinants power) rivalry)
pow ~r)
- -- . - - - -· ··- - - --- - --- - -
-~
of relative competitive position within an industry. ~ ----------- -----------
In most industries, regardless of what the average profitability or an
industry is, some firms arc simply more profitable than qthers. A firm in a very
t
Subs1itu1cs
attractive industry may still not earn attractive profits, if it has chosen a poor (Thrcal of
subslilul~)
competitive position. According to Porter, a firm can choose a competitive by
following one or the three generic competitive strategies: Cost Leadership,
Fig. 4.1: Five Forces Model
Dtferentiation and Focus. These generic strategics help a finn achieve a
competitive advantage in an industry. Fig. 4.1 highlights all the elements of industry structure that may drive
competition in an industry. In any particular industry, not all the five forces will
Neither factor by itself is sufficient to guide the choice of competitive
be equally i_mportant. Every industry is unique and has its own unique structure.
strategy. Both questions arc dy nam ic, as industry attractiveness and competitive
positions change. Industries can become more ore less attractivc,Jlnd competitive The collective strength of these forces determines the ability of firms in an
position reflects an unending battle among competitors. Ultimate ly it is a depth industry to earn, on an average, rates of return on investment in excess of cost of
understanding of the industry structure and the abi lily to influence the structure capital. The strength of the five forces varies from industry to industry, and can
that determines success or failure in an industry. change as an industry evolves. The result is that not all industries are alike in
terms of inherent profitability. In industries where the five forces arc favorable,
FIVE FORCES MOclEL
many competitors earn attractive returns. But industries where pressure from
(Adaptedji-0111 Michael Porters 'Competitive Strategy', The Free Press, one or more of the forces is intense, few firms are able to command attractive
1980) returns. The five forces determine industry profitability because they influence
Five Forces Model the prices, costs, and required investment of firms in an industry, the elements
of ROI.
(Adapted from Michael Porter's 'Competitive Strategy', The Free Press,
1980) In any industry, the rules of competition arc embodied in the five This seems to be contradictory to what we have been learning, as it seems
competitive forces: to suggest that no matter what efforts the management puts in; the ROl will
depend on the strength of the five competitive forces. Not true, because the real
The Threat of New Entrants utility of Porters model is the learning that a firm is not a prisoner of the industry
The Threat of Substitutes structure or the five forces. Companies can and should shape the structure and
can fundamentally change an industry's attractiveness for better or for worse.
The Baigaining Power of Buyers
Only those finns that understand the competitive structure of their industries
The Bargaining Power of Sellers intuitively can shape their future through appropriate business strategies.
Internal Rivalty between firms in the industty Each of the five forces and their impact on industry profitability is
explained hereunder.
A) Intensity of Rivalry between firms
'Intensity of rivalry between finns can be characterised as cutthroat,
intense, moderate, weak or stable. The intensity of rivalry depends on several
factors:
I. Concentration ratio orp·crcenta1;c of market share 1·1elcl:'ln oligopolistic
industries, the concentration ratio 1s high, because of the presence or a
few firms , each holding a sizeable market share. Competition in such

Marketing Management Competition and Competitive Strategy

 industry is mon.: st,1hlc . hence, in te nsity ol' ri , air) is less. Can you st,il c 8. Strategic impo rtance of bu sin ess or nrnrkct: Th e more -slra tcgieall Notes·
Netes
why ri valry \\ oul d hc 111mc stab le'' im portant the bu siness or marke t is to lhc co mpa ni es ,, ithin the indw,t ry,
th e grea ter will be the need lo ga in ma rket shan.: and p1·utect ex isting
In industries \\' hcrc 1hnc ,i re a large num ber 0 1· crn npcti tms. none \\' ith
share.. Intensity or ri valry ,, 1thin ~uch ptH.:k~t:, 0 1· the industry is· more
signi fica nt ma 1-kc1sharc (a lso knom 1as fragml! nted 1rn1rke ts) co111pcliti o11
in tense .
is more intense or c, en cut throat as each hrm tri es lo improw its rnarket
share. . . . . . . 9. S witchin g Costs: Switching Costs arc clcsc ribccl as costs that lock in
a customer to a parlicular ·brand of the product. ·s witching costs can
2. Market growth Rates: When market growth rates arc high, all firm s in
be psychological where a customer_perceives a hi gh 'risk in switching
the industry can grow without having to fi ght for market share. The rate of
to a rival brand. Switching costs can be financial where a customer is
growth for _each firm will of course necessaril y depend on the_ir respecti ve
locked into a payment plan for a fi xed period and will lose financially
business strategics: · · ·
if he switches to a rival brand. Switching costs can also be physical, as
When market growth rates slow: clown, a large part of the firm's growth customers are locked into the asset bought, until they decide to upgrade
now comes from taking market share away from rivals. Hence s /0 111 or replace it.
market growth rates increases intensity of rival, y
In industries where switching costs are low, customers can switch brands
3. Overcapacity: When th e industry is experiencing growth , most firms arc relatively easily, and therefore ri valry petween firm s to retain c~1;;tumers
adding production capacity to meet the increased demand expectations. is higher. Industries where switching costs are high for all the reasons stated
When rlcmnncl weakens, firms' struggle with excess capacity puts greater ea rli er, ri valry is likely to he less intense .
• pressure on margins, which in tun1 leads to a greater fi ght for market
It important to note that, no single factor can be used to d1arncterise the
share and consequent_!y increases intensity of rivalty.
intensity of rivalry in an industry. All the factors are co-dependant and must be
4. higher Fixed Costs: Industries that have a high fi xed cost structure understood holistically.
which puts a pressure on the firm -to pursue a sa les volum~s strategy.
How does intensity of rivalry affect business strategy?
With all firm s pursuing volume, ri valry is likely to be more intc1)sc .
Also, industri es, which ha ve experienced a slowdown and consequent Intensity of rivalry can affect business strategy in several ways:
overcapacity, feel the burden of higher fi xed costs, which in turn increases Greater rivaliy puts downward pressure on prices and company margins.
rivalry. Finns are compelled to provide greater value to customers at better prices
5. Perishable Products: Product peri shability is also seen to increase ri va lry at the same time protecting their own margins. ·
betwecn·firms. A seat on an airline or a hotel room are both ' perishable' In an industry, firms arc not just competing with each other for customers
products, hence rivalry to fill scats on a particular route or to sell room only, but for resources as well, such as ma\)power, raw materials
nights is very intense. and plant locations, funds from money markets and i.nstitutiorYal fundin g,
6. Low levels of Product differentiation: In the industry structure, we Competition is also for retail shelf space, media space and retail locations.
learnt earlier that pure competition exist~ in industries where there are Intensity of rivalty affects a firm's ability to gain access to resources as
large number of firms, producing products and services with little or no well as raises the cost of competing.
product differentiation. In such a case, the intensity of rivalty is also likely B) Threat of Substitutes
to be very high.
In general, the more the substitutes there are for a particular product
7. Diversity of Rivals : A large number of companies each pursuing their class, the greater the threat of substitutes. A~ more substitutes become available,
own goals and coming from different backgrounds bring in diversity into demand becomes more elastic. For instance, retreading of tyres is a substitute for
the industry. This diversity can sometimes increase rivalry as competitors buying a new tyre; electronic surveillance syste111s are substitutes for manned
with differing goals run into each other. The courier service industJy has a surveillance; aluminium and plastic have substituted glass packaging in many
very diverse set of companies ·participating in the industry and can be ~aid industries and online reservations for airline, railway and hotel reservations
to have 3 or 4 strategic groups; from local courier operators, to national have substituted the role of travel agents. · · ·
courier companies, international courier companies and to companies
that provide a variety of logistics support services in ac\d(tion to courier The threat of subs~itutes depends 011 :
services.· I. C ustomer's awareness and ability !o compare substitutes : the more .

Marketing Management Competition and Competitive Strategy

1
"' , • •Notes
,111 ·:irc th ,.; custo mer is and the l'a<il·r it is for hi111 to co 111pa1-c. th e gn;alcr D) ~argaining Power of Suppliers I• Notes
is th e 1h1·ea t oi' substitutes. :\ li ri n dea ls ll' ilh :1 11un1bcr 0 1· suppli ers lt)r ra \\' 111alerial s, sen ice,
2. Switching Costs: I he cas ic: r it 1, lt11·- cus1u111crs to s11 itch lo a riva l co111po ne11t s. logis ti cs, Cl'c n 11rn11powcr t\:so urccs ca n be C011sidc r,.;d ,is
subslillllC. the greater th e Lhrcal. suppli e rs ol's kilL~. 1
.•
How docs the threat of substitutes affect husincss strategy'! Suppliers arc powerful if:

As we have learnt earlier, customer choices arc not so much between. -1. Suppliers arc concentrated ii. Switching costs arc high
rival brands but more between substitute products. Customer choices will iii. Supplier's product is an important input to the company's final prnduct.
therefore depend on the relative price vs. performance or the perceived value iv. Suppliers present a credible forward integrati"on threat. Pharmaceutical
of the various substitutes. The threat of subst_itutcs affects the pricing strategy of · companies such as Wockhardt and Ranbaxy are entering th~ healthcare
firms' products, as a firm tries to offer better value than competing substitutes. industry and Himalaya is forward integrating into retailing.
C) Bargaining Power of Buyers Firms improve their bargaining power vis-a-vis suppliers through vertical
All firm s market their products to a "C hain of Buyers", the customer being integration or by diversifying supplies.
the last buyer in the chain. The various buyers in the clrnin include all ty_pes' of How does supplier power affect business strategy?
dealers, agents, distributors and retailers. A firm 's markct111g efforts are directed
as much to all participants in the chain, as they arc to·_cncl customers. Barga1n111g Suppliers' commercial terms directly aITcci a company's margins and
power of buyers refers to the barga ining power o I' no_Ljust encl customers, but to pricing stratcgy.-Firms try to maintain a balance of power with buyers and
that of the bargaining power of each .participant in the chain. suppliers . If the firm 's position is weak vis-a-vis both, the profit margins
of the company will be under severe pressure.
Buyer power is Greater if:
Suppliers also affect product quality as the quality of their output directly
I. Buyers are concentrated: defense purchases or OEM customers. a!Tccts product performance and quality.
II. Buyers purchase a significant proportion of ~utpul and therefore enjoy Logistics suppliers affect product availability or distribution .
greater price leverage: Large retail chains.
Suppliers like labor unions affect the firm's production capacities.
111. Buyers pose a significant backward integration threat: many retail chains
such as Shoppers Stop, Spencer's, Big Bazaar and Pantaloons have E) Threat ofNcw Entrants
introduced their own brand of products. New entrants to an indLis_try are a threat because they bring to the industi-y, new
Buyer power is weaker if: capacity, an ambition and desire to gain share as well as substantial resources
and skills. Companies that enter an industry, by acquiring an incumbent firm ,
1. Buyers are fragmented: many and diverse will inevitably use their resources to cause a shake up in the industry.
2. The products are critical or significant to the buyers: medical equipment, The threat of new entrants depends on the Entry Barriers to an Industry as well
semiconductors, aircraft engines and software. In si.1ch cases, the power as the reaction of existing players. If entry barriers are high, then new entrants
shifts to the firms supplying the products. do not pose a significant threat. Conversely, when entry barriers are low, new
3. Products are not standardised and buyers cannot switch to other suppliers entrants pose a significant threat.
easily. The various entry barriers to an -Industry arc:
How docs buyer power affect business strategy? L Capital requiremerits: capital investments, long gestation periods, staii up
Buyers will use their bargaining power to push down pric~s: improve losses ·
their own margins and services available to them. The barga111111g power 2. Economies of scale in .all functions
of buyers directly influences a firm's pricing and margin l~verage and in 3. Government licensing and regulations
many cases dictates virtually the kind of products and services that a firm 4. Paten.ts· and proprietary product technology
will manufacture. ·
5. fncuinbent firm's favorable access to raw materials
Buyer Power affects product availability at the retail end as well as the · 6. Importance of product differentiation to the in_dustry
merchandising space avai lable within retail outlets.
7. Access _to distribution channels

Marketing Management Competition and Competitive Strategy

 Certain important aspect of entry harrier~ are that:
Notes
('I1cc I, your I•rogrcss 2
Notes· r·
Entry b3arri ers change ovcr t i111 c: f\ Iu lt111 ,11iu11 ,il phannaccut 1cal cn111pan1 es ,:s_-9
1.n_....
!iiccd con siderabl e entry barriers 111 the l11dia11 phannaccuti c:il industry
i11 the fo rm oC 110 r<.:cog111t1 011 ur tl1 L· i1 p1udu LI p,1t c: nt s. th e dru g pri ct: ·
control ordcr, the FER A act al11011 gst nthcrs. 1'11c situation changt:d when
I. Accurdi11 g to Porter, a firin t:an choost: a competitive by following
India became a signatory to the Doha agreement , which enforced the
. one or the three generic competitive strategies: Cost Leadership,
recognition of product patents from ·January 2005. Over the years, the
Differentiation and Focus.
Drug Price Contro l order as well as the FERA act have bGen dismantled
or modified. Multiple Choice IViuttipic Response

A new entrant can overcome entry barriers: Distribution arrangements and I. In context of Bargaining·Powcr of Buyers, the buyer power is greater·
networks in the U.S computer hardware industry were tightly controlled if:
by the major players. Dell computers rt:alised _that these distnbution 1. Ouycrs arc concentrated.
channels were not really adding value to the customers, but were instead
pushing prices up due to the margin play. Dell created an alternative 11. Buyers purchase a significant proportion of output and thercfo)e
direct to the customer channel of distribution , which allowed customers to_ en_j"oy greater price leverage.
customise hardware requirements as per their own needs at the same time 111. Buyers are fragme11ted.
getting better va lue for money. Dell was able to successfully overcome a
iv. The products are critical or significant to tl1e buyers.
substantial entry barrier.
The threat of entry barriers depends as much on the reaction from existing
firms.
How do entry barriers affect business strategy'?
I. State two cxa·mples of perishable products other than food products.
Entry baniers have an indirect impact on the intensity of rivalry within
the industry. 2 ran ynu identify twn indu~tries that :.re fa cing the si gnifi cant threat
of new entrants? What are some of the entry barriers to that industry?
The five forces model allows managers to sec through the complexity
How do you think the new entrants will affect the existing companies?
of the industry and pinpoint those factors that arc c1·itica l lo competition in an \
industry as well as to identify strategic moves that wi ll help a company gain a
favorable competitive position in an industry and attain profitability higher than
the industry average. -~.4 .~OMPE1:IT9.¥.~ifX~~ ~
Industry Structure and Customer Needs The next level of analysis that a company needs to conduct is a detailed
competitor analysis to · understand competitor;,, th~ir goals, strengths and
At this point in your study of marketing, a question that probably has to
weaknesses and reaction patterns.
come to you mind is that" If satisfying buyers, need~ is at the core o_f marketing
strategy, then how does a structural industry analysis relate to marketing in any Firstly, an understanding of the current strengths and weaknesses of
way?" competitors can reveal threats and opportunities that merit action from a
Recall our earlier definition of marketing - "Meeting Needs Profitably". company. Secondly, it leads to an understanding of the goals and reaction
This definition explains that a firm must not_ only create value for its buyers patterns of competitor firms, which directly determine the outcome of a
for also for its owners (shareholders). The val_ue that is _created for its buyers company's strategic moves. No business strategy is by itself either a success
or failure. It is the reaction and retaliation or the absence of a reaction, which
must also be captured by the firm for itseif. The industry ·structure determines
. determines the outcome of a firm's business strategy.
whether a firm is able to sufficiently capture the value created or if that value
is competed away. The industry structure determines who captures value. Co1npctitor analys is can be conducted using the following framework:
A detailed understanding of the dynam.ics of each h1dust1y is a prerequisite to I. Size; Growth a nd Profitability
successful and-profitable ma·rketing:
The size of a company and growth of sales and market share provides
indicators of the . health of the business. The maintenance of a strong market

Marketing Management Competition and Competitive Strategy

 position or ih e ae hieve111ent of rapid growt h u~uall y refl ec ts :1 strong cornpelilo r. 4. Current and Pasf Sfratcgics
In contrast, a deteriorating market position ca n signa l fi11an ci:1I and organ isa tiona I
constraints, so that the nnns take immediate action. . The compelitmspast :111d rnrrcnt strat eg ics 111ust he.studied in dcplh. In
part1cu l:n, pasl strategics that t1a1 c litilcd should he carerully noted, because
The si;.:c of' a competitor by itse lf' is not indicaLi\l.: or the vitality or _such ex periences noto1_1l y SC JY_c.as lc:1ming but also indi ca t.c tLiat the competi tor
competitors business, as newe r entrants ycl to achi cll.: scak , but pursuin g ,s unlik ely lo try s1111ilar strategics .
growth aggressively may be a larger threat than an ex isting large firm, not
· proaet.ively growing its business. . Knowledge or a co mpetitor 's present strategy indicates future growth
directions.
After size and growth, cons ider profitability. A profitable business .w ill --------- -------------
5. Organisation and Culture
· have access to capital, both internally and _externally, for investment in future
growth . A firm that has lost money over an extended period of time or has K110wledge about the background. and experience of the competitor's
· experienced a sharp erosion of its margins and profitability, will find it difficult top management and key personnel provides insights into future actions.· The
· to fund future growth. organisation structure, values, systems and people have a profound influence on
-2. Image
strategy. A loosely structured flat organisation that emphasises risk taking may
have difficulty pursumg a cost i"cduction program. On the other hand, a highly
A key strength of a company is the associations and image that customers structured organisation that.relics on tight controls will find it very difficult to
--, -------------------
carry about the organisation and its products. Whilst analyzing a competitors · become innovative or market ot'ientcd. ......
image, one must consider not only product related attributes and quality but even
6. Cost Structure
factors such as innovation, social consciousness, personality of the organisation,
relationships with stakeholders. Weaknesses of competitors on any o[ these .. A competitor's cost s_tructure is a key indicator of the company's likely
elements can present opportunities for a firm to develop an advantage. On the pnctng strategy. Detailed information on all cost elements can be obtained from
other hand, strengths of competitors on key dimensions represent challenges, the financial statements . An analysis of the cost structures will reveal the margin
wl1ich a firm decides to either exceed or flank. pressures, volume pressures and the strategic leverage that a competitor would
have with its pricing
Analysing a competitor's image requires extensive market research with
customers, the "cha in" of buyers, as well as other stakeholders. The research 7. Exit barriers
approach is to use qualitative methods to find out what the company and its
Exit barriers are crucial to a firm's ability to withdraw from: a business
brands mean to its customers. Consider also the competitors' mind share and area and are an indic;ation of commitment.
heart share with customers, as these metrics would be strong. indicators of the
gains made by a competitor. Exit barriers would include:

3. Competitor Objectives and Commitment Specialised Assets: Plant, equipment or any others, which are
difficult to transform or adapt.
KJ10wledge ofa competitor' objectives help predict whether a competitor's
Cust~mer Commit111e11ts:• Long term co~tracts to customers for
present.performance is satisfactoty or not or whether major changes are likely.
services, parts, product upgrades, training and _maintenance.
The financial objectives of the firm indicate the company's willingness to invest
in a business. It is also important to know what the competitors objectives are Relationships with other business units: Synergies or shared facilities
with respect to market share, sales growth and profitability. Other non-financial like distribution channels, sales force or any other.
objectives are also important. Does the firm want to be a technological leader? Government Barriers: Commitment to labor force, social
Or wants to become a service leader? Or does it want to be an Innovation leader? development of the region.
These objectives provide a good indication of ~he con~petitor 's possible future Strategic importance of the business and ·emotional attachment to
strategy. the business
The objectives of the competitor's parent company (if applicable) are 8. Competitive Advantages
equally relevant. What are the performance levels a11d objectives of the parent?
Afii:m's competitive advantages will be the foundation of a firm's business
What is the role of the business unit in the parent's business portfolio is a key strategy. A ·detailed competitor analysis must culminate in a detailed Strengths
question. and Weaknesses analysis of key competitors. The SW analysis completes the
-competitor analysis and provides insights on the competitors.

Marketing Management Competition and Competitive Strategy

 Notes AbiliLy to pursue variou s sli-i1tegics Strat eg ic goal s c1nd pbn ~
Slratcg ic alternatives bein g considered l•: ntreprcncurial drn c
Reaction patt ern s Planning and i>pci ,1tion ,ystc ms
A strength and weakness analysis provides a lir111 i11p11ts 1,1 1dc111il) and <..)ualily oi'str,1tcg1c dcc 1, 1011 making
--------------··-------
. . develop strategic alternatives. Generally, firms would develop a slratcgy that
c) Markc_ting
would pit their own strengths against a com·petitor's weakness. Converse ly,
knowledge of a compctitor's._strength is imporlanl to byp;1ss o_r flank the Product quality and performance reputation
competitor. Product attributes/di ITcrcntiation
Given below is a checklist of factors to consider while analyzing stt'cngths Brand Equity
and weaknesses. This list is only indicative; firms must consider additional
factors, which may be important in an industty's context. Breadth and deplh of product lines

Checklist for strengths· and weaknesses analysis Customer orientation

' )
a) Innovation Scgmentat1on

Technical product or service superiority Distribtitloi1 ·

New product capability Relationship with entities in distribution channel

R&D Advertising/communication skills

Technologies Sales force - quality and motivation

Patents Customer service and support

b) Manufacturing f) Customer base

Cost S true tu re Size, loyalty, attrition rates ·

Flexible Production operations Market share

Equipment, plant, assets Growth of target markets served

Access to raw materials Note: To make the SW analysis more manageable, companies usually group
~ompetitors into strategic groups.
Labour skill sets, relations with labour unions
A strategic group is a group of firms that:
Manufacturing or operational capacity
Pursue a similar strategy.
c) Finance: Access to Capital
Have similar characteristics.
From operations
Have similar assets and competencies.
From financial institutions
Grouping competitors into strategic groups also makes sense because
From equity markets these films are similarly affected :by .macro environmental changes and will
Parent company's financial backing more or less follow the same future direction.
d) Management
· Quality of top and middle ma_nagement personnel
HR policies, motivation, loyalty and attrition rates
Knowl edge of business
Culture

Marketin g Mana gement Competition and Competiti ve Strategy

Notes 4.6 GENERIC COMPETLTIVE STRATEG\ES
~ Check ~·our Progress 3
(,\daptcd from f\ li cl@:l l'ort<.:r ·, ·( ·, ,111pcli1i1 c St rat t:gy' . The Free l're~s.
1980 ) 1·hc seco nd cen tral quest ion i11 de, duping a con1pctitin: strategy is the
i\lultiplc Choke Single Rt-s ponsc
!inn\ co111pctiti1·c position in Ili c· imlu str,. The co 1i1peli ti 1·e positi on
I. Whi ch is the correct checkli st !'or strength s and weaknesses anal) sis
that a firm assumes will cletcr111i11 c ll' hcth cr iis profitability is below or
from the ones given below?
above industry average. A firm may ha ve several strengths and weaknesses
1. Innovation , Size, loya lty, attrition rates, Markel share, Growth vis-a-vis its competitors but these arc not enough to maintain an above average -- --- ---- -- . ____ ·-----
of target markets served performance in the long run . The fund amental basis for a firm's above average
-------- ------ ·---··----
11. Product quality, pcrformai,cc reputation, Product attributes, profitability is a sustainable co111pelitil'e advantage (explained in Unit 3), which
Brand Equity is the heart of any strategy that is sustainabl e and profitable.

Ill. Customer orientation, Segmentation, Distribution , Advertising, A firm has lo make a conscious choice to :attain a competitive advantage;
communication skills, Custl)ncr servi ce and support it must also make a choice about the type of competitive advantage it wants to
attain and the _scope within which it will want to attain it. According Michael
iv. Innovation, Manufacluri_n_g_,_ . Pinancc: Access to Ca pital, Porter, there arc three different routes lo obtaining a competitive advantage.
Managc-mcnl, Marketing and Customer Base These three different routes arc known as the three generic competitive
strategies, which are:
Cost Li:adcrship
Di lli.:1cntiation
Focus (Focus strategy has two va riants: Cost-focu s and Differentiation
Competitor analysis is an extensive analysis that needs to be carried out
_focus)
in depth and on a regular ongoing basis. Companies set up fom1al systems to
gather intelligence on competitors. The benefits of setting up a formal system Each of these generic strategics is now explained in detail.
are timeliness and regularity of information collection and depth of analysis . A firm must make a choice of generic strategy if it has to obtain a SCA and
Step 1: Setting up the system: The first step calls for identifying the attain a favorable competitive position in the industry and earn above average
different parameters and identifying the best sources of this information . The returns. Not hav ing a clear strategy and being "a ll things to all people" is a sure
next step is to assign formal responsibility to executives. Usuall y such recipe for mediocrity and below par performance, because it means that a firm
responsibil_ity resides with the marketing fun ction within the company. has no competitive advantages at all.
Step· 2: Collecting the data: Companies must use both formal and 4.6.1 Cost Leadership
informal sources. Data is collected on a continuous basis from the field: By adopting a cost leadership strategy, a firm sets oµt to become the lowest-
customers, sales force, ·channels, suppliers, market research firms and trade cost producer or operator in its industry. The sources of this cost advantage
associations. Published data from annual reports, trade magazines, chambers are varied and depend on the type and structure of the indust1y. These sources
of commerce, industry associations, media interviews . are rich sources of include:
information .. The Internet offers a wealth of information on every aspect of the
competitors business. Biogs posted by individuals are a very powerful source of Efficient Scale Facilities
information Proprietary technology
Step 3: Evaluating and analyzing the data: All the data collected must Preferential Access to Raw Materials
be checked for validity and reliability. The information collected tlicn needs to
¼lue Engineering Products
be interpreted .
Re-engineering production or operating processes
Step 4: Disseminating information within the organisation: A formal
· information dissemination system is required to ensure that decision makers A firm pursuing cost leadership must find and exploit all avenues of
within the organisation receive timely information. cost advantage. From the above sources of cost advantage, it would pecome
apparent to you that there is great deal of innovation at the heart of this strategy.

Marketing Management Compditio11 and Competitive Strategy

 l~ c-cnrdnecrin g ,1 product pj· process· is a ve ry cricat ivc and innovati ve J)ilfcr,·11ti,1tiu11 c 111 be based 011 the product itscli'. the deli1·ery systems, product
·Notes
slralcgy. i\11 ..:;e ly purs~1ing rnsl red uct i\)\l Sm keeping a Li ght conlrol 011 m•erhcads tcch 1l(llog), the h1·,111d image ,111d a broad ran ge or li1ctors. ( Rang<.: or l\1ctnrs for
\.I ill nol yield cost leadersh ip : it 111a y al best give a fir111 a lcrnporai:y advantage diffcrc·1 1ti,11ion is c·, pl :1incd in tkt:1il in Unit 9.
m·cr·its conrpctilors. cost lealkrship is a 1o1ig- term sustainable strat egy. \ firm 111usl chose v:iriabl es in II hi ch to dilkrcntiatc itsclr. that are
The cost lcadcrship strategy is nol lo be eonruscd with a ·'·low price diffcn.:111 fro111 it s ri val s. Ii' there is more than !inn diffe1·e111iati11g 011 the same
strategy". A cost leader may command prices at or near industry average prices . atlributc, there will be intense rivalry between th e respecti ve players and can
However, at equivalent prices, a cost leader commands higher returns than its completely erode the advantages to both the· firm, unless one firm backs down ·
rivals. or looks for other attributes for differentiation.
Acost leader must maintain parity on product value-additions, performance A firm that can achieve and su~tain differentiation will be an above average
and quality with its co~pctitors, even though it relies· on its cost leadership performer in its industry, as its premium price exceeds its cost of differentiating
for its competitive advantage. If its products are not seen as comparable or the products. A differentiator must therefore seek ways of differentiating that
acceptable by buyers, a cost leader will be forced to discount its prices well lead lo a price premium greater than the cost of differentiation. This· docs not
below its c~mpetitors_ to gain sales. This will completely erode aid nullify the mean that a differentiator can afford to ignore costs; this would be disastrous. A
benefits of1t_s compet1t1ve advantage. differentiator aims at cost parity relative to its competitors, by reducing costs in
all areas that do not affect diffe rentiation .
This strategy usually requires that the firm be "the"cost leader, and not
one of the many vying for the position. When therc"is more than aspiring cost A firm that pursues a diJTerentiation strategy directs its product ofi'erings
leader in the indust1y, rivalry is usually fierce. Unless one firm can gain the lead to specific target markets that would desire the differentiation and would be
and "persuade" others to back clown, the consequences can be disastrous for all. willing lo pay a premium for it. This builds brand loyalty within the ·target
market segment. A diJTerentiation strategy is often incompatible with high
Implementing the cost leadership strategy requires upfront capital
market share or a volume strategy.
investment especially if the sourc·e of competitive advantage is scale.
Investments are also required in process and product re-engineering. The pay- How docs _a differentiation s!rategy help a firm cope with the "five forces''?
offs of this strategy are long term ; firms may have to bear the "cost" associated Brand Loya lty is insulation against competitive rivalry.
with pursuing a cost leadershi·p strategy in the short term. ·
It also acts as an entry barrier to the particular market segment.
How does this strategy help a firm in dealing with the "five forces"?
Due to the unique product offering, buyer power is miti gated.
Cost Leadership gives a firm much greater pricing flexibility than
its competitors, without eroding its margins. This is a very fonnidablc Lack of comparable alternatives, makes such product ofTcrings better
defense against rival firms in an induslly. positioned against substitutes.

The Balance of bargaining power vis-a-vis suppliers and buyers tilts The uniqueness of the product, as well as better margins also mitigates
towards a firm, which has the· absolute cost advantage in the industry. supplier power.

Cost Leadership is itself a powerful -entry barrier, which deters new 4.6.3 Focus
entrants. This strategy is quit<;:. different from the other strategies because it rests
Places a firm favorably vis-a-vis price performance of substitutes, relative on the choice of a very narrow competitive role within the industry. The firm
to its-competitors. selecting a focus selects a_segment or group of segments within the industry and
chooses to serve these segments to the exclusion of the others. The firm chooses
4.6.2 Differentiation to build a competitive advantage to serve the chosen segment only.
In a differentiation strategy, a firm seeks to be unique along dimensions . In the retailing industry, Metro AG focuses only on the wholesale
---------------~----- - that· are valued by customers. A firm ·may select one or more attributes that and institutional customer segment. Customer organisations have to become
buyers in an industry perceive as important, and uniquely positions itself lo mefi:b~~s of the metro club, and have to buy their supplies in bulk.
meet those needs. The firm is rewarded for its uniqueness with a premium price,
yieldi ng above average retu rns for a firm. The focus strategy has two variants; cost foc us and diffe rentiation foc us.
In cost foc us, a firm seeks cost leadership within the chosen segment, while
The sources of differe ntiation are several and unique to an induslly. _in differenti ation foc us a firm seeks di ffe rentiation in the target segment. The
focus strategy wo rks where a particular target segment has vastly di fferent and

Marketing Management Competition and Competitive Strategy

 Notes unusual 11L·cds rrrnn " thcr scgrncnt s i11 the mark et. li'thc focuse r's target segment Inadequat e attenti on give n to product and mark eting changes due to fi.)cus
1, nut, ,1\ dilrcrcnt i'ru111 nthcr mark et scg111 ents . thi s str:1kgy 11·ill 1H1t "'"rk . lln ach ic , i ng cost :iclrnntag.:-s
1\ liirnsc r ac l11c1cs :1 cornpctiti 1L' al h ,1111:ige b, dedi cating 1tse lr tn the.
lnllat1 on 11 1 L' tlsls that nann11 th..: linn 's abilit:'., to niaintai11 enough or a
scgmc11 ts c,c lu sill: h . by creating speciali sed products or speciali sed product io11 pri ce dilfe rcntial In offset compe:titor \ brand images or other approa ches
and dclin:ry sys tem s that best serve the t:1rget scgrn ..: 111. Ir a lirn1 c.1n achic, c to dilfcrcntiation
sustainable cost leadership (cost focus) or dilTcrcntiation locus in its segment
and· the segment is s truct.urally allractivc, then the focu ser will be an above . A~ example of the ris)<s of cost_ leadership as a _sole focus is provided by Sharp
average performer in its industry. The segment must be structurally attractive, in consumer electronics. Sharp, which has long followed a cost leadership
because some segments arc much less profitable tlian others. strategy, has been forced to begin an aggressive campaign to develop brand
recognition. Its ability to sufficiently undercut Sony's and Panasonic 's prices
Stuck in the Middle. was eroded by cost increases and U.S. antidumping legislation, and its strategic
A firm that engages in a generic strategy but fail s to achieve any of them position deteriorated through sole concentration on cost leadership.
is "stuck in the middle", as it possesses no competitive advantage. A firm that Risks of Differentiation
is stuck in the middle will clearly be at a disadvantage vis-a-vis the cost leader,
-- -- --·· -- ____ ) __ --- - -- Differentiation also involves a series of risks:
di fTcrentiator or focuser who will be better positioned to compete in the market.
Firms th::it arc stuck in the middle arc sometimes able to gel by or survive The cost differential between low-cost competitors and the differentiated
profitably in the industry beca use all other firms are also stuck in the middle. firm becomes too gn.:at for difforcntiation to hold brand loyalty. Buyers
Again , in industries where there is strong tlcmand growth and favorable market thus sacrifice some or the fc::itun.:s, services, or image possessed by the
conditions, the buoyant conditions lend lo lift the performance of cvc11 average difTerentiatcd firm for large cost savings;
companies; and hence firms that arc stuck in the middle get by as average The di !Tercntiating factor becomes a minimum expectation of the
performers in the short term. Industry maturity tends to widen the performance customer. This can occur as buyers become more sophisticated;
dilTerenccs between firms with a clear generic strategy and those that arc stuck
Imitation by cd'lnpctitors narrows perceived differentiation , a common
in the middle, because it exposes the ill ~conccived strategics that have been
occurrence as industries rnalurc .
carried along by rapid growth.
The first risk is of utmost importance and underlines the need for a firm
Risks in pursuing the generic strategies
that follows a differentiated strategy, to maintain a tight control on its costs. If
No strategic alternative is fail proof; managers must be aware of the risks a di ffcrentiatcd firm gets too far behind in cost due to a technological change or
attached with each strategic alternative to take more meaningful decisions. simply inattention, the low cost firm may be in position to make maJor inroads.
The risks in pursuing the generic strategics arc two: firnt, failing lo attain or
For example, Kawasaki and other Japanese motorcycle producers have
sustain the strategy; second, the value of the strategic advantage provided by
been able to successfully allack differentiated producers such as Harley-
the strategy erodes as the industry structure evolves.
Davidson and Triumph in large motorcycles by offering major cost savings to
Risks of Overall Cost Leadership buyers. These cost savings were significant enough to cause a major shift in the
Cost leadership imposes severe burdens on the firm to keep up its position, value perception of the customer.
which means reinvesting in modem equipment, ruthlessly scrapping obsolete The second risk emphasises that firms · following the differentiated
assets, re-examining operating processes, avoiding prnduct line proliferation strategy, have to continuously invest in gaining and maintaining differentiators.
and being alert for technological improvements. Cost declines with cumulative value additions made by companies soon become· min~mum expectations of
volume are not automatic; neither can economies of scale be achieved without ·buyers, as all firms in the industry try to provide the same value additions. This
significant attention and investment. concept is further explained in Unit 9.
The risks a·re: · Risks of Focus
Technological change that nullifi es past in vestme nts or learning Focus involves yet another set ofrisks:
Low-cost learning by industry newcomers or followers, through imitation The cost differential between broad-range competitors and the focused
·or through their ability to invest in state of the art facilities fim1 widens to eliminate the cost _advantages of serving a narrow target o r .
to offset tlie· diITerentiation achieved by focus. ·. · -
---· ------- -------- ·~
Marketing ti fa11:igc111cnt Competition and Competitive Stratcg}
Notes I lie dil fc r.; ncc:s i11 d-:s·ircd prnducts lll . sc r1·iccs hc111ce:11 Ilic ,11·a1c).!iL· dec li11e 01er lhe years. C,c:n cral Motors is ·, till lhc 1rn rld 's largest aLilnrnobil c· Notes
1arge' l ,111d tli <.: 1nark<.: I ;1s ;1 11 lwk 11a1To11·s. company (market sharc). 11 ith acc u1nul :11ed losses ni' '5. 1.X billi on.
( ·p111pc:l·i101·s lind sub-niark cts 11 i1hi11 ihc strakgic targe· t ,111d lllll h1ui,; the· The real und erstandin g o i' th <: PIM S stud ) 1, that whil st there is a co-
!t,c usc: r. relation bctwecri'rnarkc:t shlm.: and prnli1abili1y:ti1i s docs 1101 impl y that rnai'kct
share auto111aticall y causes prolitability. In other words, a co-relationship docs
Check your Progress 4 not necessarily i111ply a causal relationship.
A more plausible cxplanatio11 for the co-relation between share and
Match the following, p·rofitability is tha1 both arc caused by an underlying sustainable competitive
1. · Cost- Leadership a. A firm seeks lo be unique alo,ig dimen sions advantage. When a company has a competitive advantage, it can cam higher
that arc valued by customers. margins due to a price premium· or a lower cost of production.

11. Differentiation b. A firm sets out to become the lowest-cost Market share is not so much the key to profitability, as it is a symptom ofa
producer or operator in its industry. fundamentally well run company. This is not to say that firms should not aim for
A firm chooses to build a competitive dominant for market share, but that market share unjustified by an underlying -- -- --- - -- --- - ____ )_ __
111. Focus e.
competitive advantage, will inevitably redtice the company 's profitability, erode
advantage to serve the chosen segment only.
shareholder valttc and even destabilise an industry. Hence 1'ather than merely
dominant market share, companies aim for optimal market share, one that yields
·,, maximum profitability. The PIMS study reveals above all that profitability leads
-rr M,tivil'J ._~, Activity 3
and not follows market share.

Can you cite some examples of firms that have chosen to focu s on a Firms must therefore choose a leadership pos1t1on in an industry,
consistent with their competitive advantages. An industry could have a Product
specific segment only in a given industry?
Innovation leader, Technology leader, Cost L~acler or Service leader; each of
these leadership position s is a very viable and profitable position. Market Share
ff7'):>ESlGNll~'G ~OMPETITJ,VE STRATEGIES is today one of (and not the only) leadership positions in the market, as many
industries do not have a clear market share leader (duopolistic markets).
The aim of all business and competitive strategies is to be significa11t and Remaining a market leader or a·dominant firm, calls for three key strategic
powerful player _in an industry and to be able to dominate markets. To be able to actions: expand the total market, defend market share and increase sales even
achieve market status, companies have to assume competitive positions, which when market size remains constant.
can be as a market leader, market challenger, market follower or market nicher.
Finns assume positions in an industry depending on their strengths, weaknesses, (You would find many ·of the following strategies consistent with ·the
assets and competencies, a1)d their business goals. These positions are not static Ansoff's matrix. Recall the matri~ and try to co-relate these strategies with the
and do change over time as the industry conditions change and firm's business relevant quadrants.) ·
goals as well as strengths and weaknesses change. Key Strategic Actions:
4,7.1 Market Leader 1. Expand the total market
The market leader is the dominant firm in its industry. Market Leadership Market expansion is th~ primary task of the market leader and it usually
has traditionally been defined as the firm, which leads in market share, by gains the most when the total market expands. ·
volume and or value. For years, it has been believed that a dominant market
A firm can expand the market by finding:
share is the most profitable strategy for the firm as this was corroborated by the
PIMS (Profit Impact of Market Share) study. · New users of the product: by following market penetration strategy, new
market segment strategy and geographical market expansion strategy.
The PIMS database is an annual study conducted since 1970 on <liitabase a New uses of the p·roduct
of ove1 3000 companies in the U.S and amongst other things rcvcn ls a co-
relation between market share and profitability. This learning led lo a· number of More usage on each use occasion
organisations, over the years, blindly fo ll~\~ing the strategy ofacquiri11g market More occasions of usage
share; onl y to sec their profitability and consequently shareholder value s teadily Generate replacement demand

Mark <.: ling Management Competition and Competiti ve Strategy

 Notes · 2. Defend Shan• ... Mobill' defence: Markel is under lhrca l clu e to macro environm ental '":':T Notes ·.,
Remaining a 111a rkct leader ca ll s lor :1ct ion u11 sc1-cral frnnt s. It is an uld changes. I· irrns chu,c w brnadl.!11 tin: sc ope of aL"t ivili c~ hy rk vc loping
11c11 ca pabiliti es and di l'e rsii"ying into .it her areas .
ada ge that ··A goud k:1dcr is one 11· hn is continuous!> attac_ki ng hi msc li"."
Acco rdin g lo Sun T/tl. 1.\i·t ol'\Va 1·) ·'One docs ncit re h oi1 the cne111 1· not Co ntraction defence: Herc a firm cll()oses lo enti rely ex it a market by
attacking, but 011 the !"act tlrnt he hi111se ll' is unassa ilable"'. divesting th l! business.
-- -----. ----- -----··- . -
A good leader attacks itself by: 3. Increase Sales when market size is constant
Continuous product innovl:ltion: A thumb rul e· that companies follow in This is the most challenging task for any firm. "A iising tide raises all the
many industries is the "525 ".rule. This rule states, "25% of yo ur sales ships in the harbor". In growth markets, all co mpanies will experience growth;
should come from products introduced in the last 5 years, else you are in however, to a greater or lesser extent dependant on their strengths and
. trouble". weaknesses. It is when market growth and demand slows down that the reai
weaknesses are exposed, usually leading to a shakeout in the industry. It
Improve customer service.
is clearly survival of the fittest; only those firms that have a competitive
Product performance and quality upgradation advantage will survive Jrofitably. Under such conditions, dominant firms must
Improve distribution e!Tccti_vcness improve sales and market share and yet maintain profitability.
Improve productivity and reduce costs The _strategic ·options are entirely dependent on the firm's competitive
advm1tagc. Cost leaders, ma y use pricing tactics to undercut rivals to gain
Continuous innovation in the 'value Chain
share. This however is a suicidal strategic option if then: is no cost advantage
A good leader must not leave major flanks exposed or weak: or if the rival can match the price cut, which can lead to an all out price war.
Typical examples of flanks exposed arc: DilTerentiator firms must use product value addition options to provide better-
pen;ei ved value to their customers.
Geographical areas, which arc neglected
Market share gains can also be made by improving distribution
Inefficient operation s - cost structure effectiveness, higher and more effective communication spends and produ~t
Distribution channel unhappy with service levels innovations. These strategies are dealt with in detail in Unit 9.
Customers unhappy with product performance . 4.7.2 Market Challenger

·After-sales service is neglected A market challenge r is a firn-i in a strong, but not dominant position
'I that is following an aggressive strategy of tryin g to gain market share. It
At times, defending all market segments and geographical terrains can be
typically targets the industry leader (for example, Pepsi targets Coke), but it
a drain on the firm's resources without yielcli"ng _significant gains. Firms must ! · could also target smaller, more vulnerable competitors.
carefully analyze which markets are important to protect at any cost and which !-
can be surrendered. Clearly, markets (segments and territories) which are The fundamental principles involved here are:
profitable and future growth markets would he defended. Assess the strength of the target competit01: Consider the amount of
Firms use a combination of defense strategies to protect market share: support that the target might muster from allies.
Position (Fortress) defence: Involves building SUJ)erior brand power, Choose only one target at a time.
·strong brand portfolios. Find a weakness in the target's position.Attack at this point and concentrate
Flank defence: Protect weak fronts and strengthen weak areas. all the resources at this poirit. Consider how long it will take for the target
to realign their resources so as to reinf(!rce this weak spot.
Coinpanies launch flanker or fighterbrands, to protect flagship brands in
case of competitor attack or price :war. Launch the attack on as narrow a front as possible. Whereas a defender
must defend all their borders, an attacker has the advantage of being able
Pre-emptive defence: Pre-empt" an · attack by attack ing first. Dominant
to concentrate their forces at one place .
firms with resources may chose to entice an opponent into costly wars to
wear down the opponent. . · Launch the attack quickly, and then .consolidate.
Counter offensive: Wait for the invasion and then launch a counter attack.

Competition and Competitive Strategy . ,;'? •I ll

Marketing Management
·1 Some of the strategic options 01Jc11 to a 111 ,11-kl'I challe11g er an•. 1'11 crc· ,Ire· 1·nu! hrn,1d strateg ic apprn,1d 1c·s to a foll owe1-- strategy: Note1
l'ri cc di scounts 01· pri ce-c uttin g l \ H11 11c: rk 1lc:1. t 1,,11..: 1·. l111it,1lor and 1\dap tcr.
l.111 .:: c., tensions \ Pt 1111c:1k 1tc:r duplicates Ili c leaders' brand nanrc. product and packaging
lntrnducc 11c: 11 prtlducts an d sc· II , it tP the· hlad n1 ark ct m through di sn:putahlc dea lers. i\ counterfe iter
Rationali se product quality stra1 cgy is clearl y an illt.:gal and unethi cal strateg1, and one lliat can cause
serit,us harm to consumers and companies alike. A countcrfci_ter strategy is
Increase pt·oduct quality
clearly different from the other follower strategics. · ·
Improve service
Cloner emulates the leader's product and packaging, with slight variations.
Change distribution
Although the brandname is dilTcrent, the products look deceptively similar.
Cost reductions Anchor toothpaste cloned Colgate Denta l ·crcaii1. A cloner strategy is a short-
Intensify promotional activity term strategy at best; and firm that adopts this route to entry, must move up the
General attack strategies that a market challenger would use arc: value chain and fol low other strategic routes if it is to make a viable competitive
position for itscl fin the industry.
Frontal attack: Match your opponent 3: I on all f~nts
Imitator may copy the ma rket leader, but maintains some differentiation
Flank attack: Concentration or strengths against an opponent's weakness. in pricing, communication and pricing. Many Korean and Japanese brands
A na nk atlack would be on areas/markets where the opponent is under entered con sumer electroni cs markets in the cmly days, imitating the market
performing leader's products.
Encirclement attacks: Surround your opponent and launch an olTcnsive Adapter learns from the market leader and adapts and improves the
on all fronts leader's products. Adaptors are dynamic followers as they leapfrog the leader's
products with superior product performance, technology, customer service and
Bypass attack: Is an indirect assault strategy in which a firm bypasses
beat the market_ leader on value withOL(t necessarily challenging the leader.
the other firms and attacks easier markets not served by an y of the larger
Adapters may in fact become market challengers in future. The Japanese and
companies
Korean firms entered markets as imitators but very soon became adapters and
Guerilla warfare: Waging small intermittent attacks to harass and have gone on to challenge established market leaders in the automobiles and
demoralise the opponent consumer electronics industries.
4.7.3 Market Follower 4.7.4 Market Nicher
A market follower is a firm in a strong, but not dominant position that is An alternative to being a leader in large market segment is to be a leader
content to stay at that position·. The i:ationale is that by developing strategies in a small market. In a nicher strategy, same as the focus strategy, a firm
that are p_arallel to those of the market leader, they will gain much of the market concentrates on a select few target markets. The nicher should be large enough
froni the leader while being exposed to very little risk. Theodore Levitt wrote to be profitable, but small enough to be ignored by the major industry players.
in his article "Innovative Imitation" that a strategy of product imitation can Profit margins are emphasised rather than revenue or market share. The fi rm
be as profitable as the strategy of product innovation. The innov1:1tor bears typically looks to gain a competitive advantage through effectiveness rather
the expenses of developing .the product, educating the market and bea,i-s the than efficiency. It is most suitable for relatively small fin11S and has much in
risk of product failure. The reward for a pioneer or firs.t mover is usually common with guerrilla marketing warfare strategies.
market leadership. The firmthat follows the pioneers may learn . from the
· The most successful nichers tend to have the following characteristics:
pioneer's mistakes and improve the product. Although it may not get market
leadership, it may still occupy a profitable competitive in the industry. They tend to be in high value added industries and are able to obtain high
margins.
Many firms prefer to follow the leader, as they lack the resources, assets,
skills and competencies to challenge the incumbent firms . A follower strategy is . They tend._to be highly focused on a specific market segment.
also a viable entry strategy for a new firm entering an industry. This is not to They tend to market high encl proJucb or service~, and are able to use a
say that a follower lacks strategy; a follower must bring a distinctive advantage premium pricing strategy.
to the market. Followers that lack strategy will be unable to occupy any viable ·---------------------
competitive position in the market and will end up being stuck in the midd le.

Marketing Management Competition and Compctili1·c Strategy

 111a y warn mana ge rs if t\11.:v arc neglecting any of th ese areas; but there arc no
rnodcl s or structures to cn,urc that compa ni -:s arc always ab le to balance th ese
Check your Progress 5
orientations. Manage rs shuuld trv to de ve lop thi s mind set.

Match the following.

Frontal attack a. Surrounding the opponent and launch

an offensive on all fronts Competitive.forces within the industry determine the appropriateness of a
firm's strategics and its ability to capture value for itself. ·
11. Flank attack b. ls an indirect assault strategy in which
a firm bypasses the other · firms and Companies must co nduct a detailed competitor and industly anltiysis to
attacks easier markets not served by understand the dynamics of the ir industries.
any of the larger companies Customers' perspective of competition is very different from the industry
iii. Encirclement attacks c. Waging small intermittent attacks to perspective. Companies must use both approaches to define their
harass and demoralise the opponent competitors.
-_) ----- --- --- ---- - --- 1v. Bypass attack d. M_atch your opponent 3: I on all fronts
From the customer's perspective, all products that satisfy the same need
v. Guelilla warfare e. Concentration of strengths against an are seen as competing with each other. lt is vety important for ma".agers to
opponent's weakness consider this perspective, as this fundamentally affects customer choices
and the compariso n of value that a customer makes .
An industry is a group of firms that offer similar products and can be
classified according to number of sellers; degree of product differentiation;
entry, mobility and exit barriers; cost structure; degree of vertical
In this t1nit, we have emphasised the impo1tance of a detailed structural integration; strategic groups, degree of globalisation and potential
analysis of an industry and c·ompetitors, so that a firin may position itself competitors.
competitively in an industry and earn higher than average profits. In all this, Firms must conduct a structural ana lysis of an industry to understand the
we must not however forget the fundamental purpose of a bus iness enterprise, other competitive forces that determine and the company's search for a
which is "Create value (for customers ) and Capture value (for its owners)". A favorable competitive position in an_industry.
successful business enterprise is one that achieves both purposes, yo u ca nnot
have one withourthe other. Michael Porter identified " Five Forces" as the five factors that determine
the profitability attractiveness of an industry. The five forces are threat of
The firm's customer orientation will determine how much value it is new entrants, threat of substitutes, bargaining power of buyers, bargaining
able to create for the customer: A customer-centered company will be in power of sellers and the intensity of rivalry within the industry.
good position to identify new opportunities, be more innovative and serve the
emerging needs of its customers in better ways. But it may not be able to sustain The next level of analysis that a company needs to conduct is a detailed
this performance if not enough attention is paid to the industry structure and its competitor analysis to understand competitors, their goals, strengths and
own ability to capture the value created. weaknesses and reaction patterns.

The finn's competitive position in the industry will. determine ~hether Competitor analysis can be conducted using the following framework: size,
it is able to capture or compete away the value that it creates. In industries, growth and profitability, image," competitor objectives and commitment,
especially where there is fierce internal rivalry, companies tend to develop a current and past strategies, organisations and culture, cost structure, exit
. competitor obsession, carefully watching every move made by competitors, barriers and competitive advantages .
analyzing its impact on the company. This forces a company to become too According to Porter, a finn can choose a competitive position by following ·
reactive· to competitors, forsaking consistency of strategy. Such companies tend one of the three Generi~ Competitive strategies: Cost Leadership,
to lose s ight of customers and the impact of competition on customers. Differentiation and Fo~us.· These generic strategies help a finn achieve ·a .
Typically, firms tend to achieve one at the cost of the other, which in the competitive advantagc·in an industry.
long run becomes self-defeating. Hence finns have to balance all the fronts, i.e. Companies · have to assum·e · competitive· positions, which ·can be as a
customer, competitor and shareholder orientation. Internal checks and balances market leader, market challenger, market follower or market niche_r.

Markt:ting Management Competition and Competitive Strategy

 A success ful bu siness enterpri se is one ll'hich achi L'l'c'S is :1hlc t() nc:i tc Answers to "Check youi Progress,
l'a luc !'or it s cust()mers as 11cll as ca pture 1aluc· lt>r 1h "" ll c'rs l·ir111s 11111 st
guard against being 100 obsessed w 1lli t: iLh c:1 cu,tll 111 c1, u1 Lu1npctitur, Check your Progrt \\ I
and must balance both co1npclitur and custo111n ori.;111at iun ,. Multiple Choice Single Response
I. Fro111 the custo111 L:r 's pcrspcL:livc, u/1 prnc/11e1s 1h01 sa1i.~/j 1 rhe sw11e need
are seen as co111peting 1\lith each other. r-or managers to consider
this perspective, as thi s fundamentally affects custoincr choices and the
Perspective: A view or vista; a mental view or outlook
comparison of value .that a customer.makes, what comes· at level 1?
Structural Analysis: Examination of the different components or
111. Brand competition
ele1~1ents that make up · an· organisation or system, to discover their.
interrelationships and relative importance in the realisation of its goals or • 2. What do you mean by Pure Competition?
purpose 1v. Ts sce.n in industries where there are a large number of firms, with
Orientation: The determination of the relative position of something competitors offering the same product and service.
or someone (esp. oneself); the relative physical position or direction of Check your Progress 2
something
State True or False.
I. True
Multiple Choice Multiple Response
I. What is the difference between the customer and industry approach to
defining competition? Which approach must companies use and why? I. In context of Bargaining Power of Buyers, the buyer power is greater if:

2. What are the five forces that determine· thL: profit attractiveness "Of an I. Buyers are concentrated.
industry? Explain each of the five forces in detail and its impact on a ii. Buyers purchase a significant proportion of output and therefore
-- ~-- ------------------ firm's strategy. enjoy greater price leverage.
3. What is a strength and weakness analysis? Why is it necessary and what Check your Progress 3
factors must be considered whilst conducting a SW analysis?
Multiple Choice Single Response
4. What is a competitive intelligence system? Why is it necessary? What arc
I. Which is the correct checklist for strengths and weaknesses analysis from
the different sources of information about competitors?
the ones given below?
5. Write short notes:
IV. Innovation, Manufacturing, Finance: Access to Capital;
a. Cost Leadership Management, Marketing and Customer Base
b. Differentiation Strategy Check your Progress 4
c. Stuck in the middle Match the following.
d. Market Follower i-b
e. Market Nicher .ii - a
iii - C

Marketing Management Competition and Competitive Strategy

 .
, .,,·. 'Notes, Check your Progress 5 Market Research and Demand Forecasting
Match the following . DNIT
I d
Structure: .,.,.,
II C

---------------------- 111 - a 5.1 Introduction

5.2 · Market Research: Meaning and Definition
iv - b
5.3 The Market Research Process
v- c
5.3. l Step I. P1oblem Definition
5.3.2 Step 2: Development of an Approach to the Problem
5.3.3 Step 3: Research Design Formulation
I. Dillon, William R., Thomas J. Madden am! Neil IL Pirtle. Marketing
Research in a Marketing Environment. St Louis: Time Mi1rnr/Mosby 5.3.4 Step 4: Fieldwork or Data Collection
College Publishing. 5.3.5 Step 5: Data Preparation and Analysis
2. Ramaswamy, VS. and S. Namakumari 2002. Marketing Management - 5.3.6 Step 6: Report Preparation and Presentation·
Planning, Implementation and Control (Global Perspective). New Delhi:
Macmillan India ~td. 5.4 Marketing Decision Support Systems
5.5 Forecasting and Demand Measurement
5.5.1 Market Demand, Market Potential and Market Penetration
5.5.2 Company Demand, Sales Forecast and Sales Potential
5.5.3 Estimating Current Demand
5.5.4 Estimating Future Demand
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Marketing Management Market Research and Demand Forecasting l9

 Secondl y, MR is obj ec ti ve as it att empt s to provi_dc uecuratc. impartial and
Ob_jcctives 1111hiascd infonnatiun that rcnccts the true state or affairs. Research moti vated
by perso nal ur politi ca l gain is a breac h of prol'ess ional standards and ethics.
After going through thi s unit, you will be able to :
· l' inall y. MR· i11 rn lvcs the identifi cati on. L·o llcet idn , i111alys is. di ssemination
• Explain the con cept s or marketing research and use 01· i11\c)rrnatio11 .
.. Discuss the importance of formal market-research Organisations engage i11 MR for two primary reasons:
• Describe the process by which market research is to be carried_ out I) To identify problems
• Assess the marketing ~ecision support system 2) To solve marketing problems
• Evaluate the technique~ for measuring demand and forecasting sales Marketing Research

Problem Identification Problem-Solving ) ------- -------- ----- --

Research Research
The emphasis in marketing is on the identification and satisfaction of
customer needs. In order to determine customer needs and to implement
marketing strategies and programs aimed at satisfying those needs, marketing • Market Potential Research • Segmentation Research
managers need information. They need information about customers, • Market Share Research • Product Research
competitors and other forces in the market place. In the recent years, many • Image Research • Pricing Research
factors have increased the need for more detailed information. • Market Characteristics Research • Promotion Research
As firm s have become national and international in scope, the need for • Sales Analysis Research • Distribution Research
information on larger and more distant markets has increased. As consumers • Forecasting Research
have become more sophisticated and knowledgeable, managers need better • Business Trends Research
information on how consumers will respond to pi'oducts and their marketing
programs. As competition becomes more intense, managers need information Fig. 5.1: Market Research
on the effective11ess of their marketing tools. Problem identification research is undertaken to help identify problems
The task of market research is to ass.ess the information needs and provide that are _perhaps not apparent on the surface and yet exist or are likely to arise
management with relevant, accurate, reliable valid and current information. in future . Research ·of this type provides information about the marketing
Today's competitive marketing environment and ever increasing costs attributed . environment and helps diagnose _a problem. For example, a problem exists if the
to poor decision making, require that marketing research provide sound market potential is increasirig and the firm is losing market share. The firm must
infom1ation. Sound decisions are not based on gut feeling, intuition or even then pinpoint the exact causes for loss of market share. Similarly, a~y changes
pure judgment; they are based facts and sound information. in consumer behaviour may point to underlying problems or opportunities.
Once the problem or opportunity has been identified, problem-solving
research -is undertaken to arrive at a solution. The findings of this type of
· research are used in decision making to solve specific marketing problems. ---- . -----------
Market Research is the systematic and objective identification, collection, Table 5.1 shows the different types of problem solving research.
analysis, dissemination and use of informat_ion for the purpose of decision-
making and identification and solution to problems.
This definition has several noteworthy.aspects .
First that market research is systematic, 'therefore systematic planning is
required at all stages of the MR process. MR .uses scientific methods for data
collection and analysis to test prior notions or hypotheses.

Marketing Management Market Research and Demand Forecasting

•.· · · Notes • • T:1blc 5.1 Problem Solving Research
Segmentation . Determine scg111entation I ariablcs (9 1 C heck your Progress I
Research . !'. stablish market potential and responsive ness !"or
various segment s Fill iu the blanks.
. Sck:ct target markets
. Profile market scg111cnts in terms of 111cdia view ing
I. _____ is th..: systematic and objecti ve identification , collection ,
analysis, dissemination and use or information for the purpose of
habits, lifestyles, demography etc:
decision-making an_d idcntificat_ion and solution to problems.
· Product Research . Testing of product concepts
. Determine optimal product design
2. Organisations engage in MR for two primary reasons: (a) ____
. Packaging test
and (b) _ _ _ __

. Product modifications 3. _ _ _ _ _ _ research is undertaken to help identify problems

. Brand positioning and repositioning that are perhaps not apparent on the surface and yet exist or arc likely
. Test marketing to arise in future.
. Control Store Tests 4. Once the problem or opportunity has been identified, _ _ _ _ __
Pricing Research . Importance of price in brand selection
. ~esearch is undertaken to ari-ivc al a solution.
. Pricing policies
. Product line pricing
. Price elasticity of demand
. Responses to price changes
l. Look through recent issues of business magazines and identify three
Promqtional . Optimal promotional budget examples each of problem identification research and problem solving
Research . Sales promotio11 effectiveness research undertaken by comp<!nics.
. Optimal promotional mix
. Copy testing
2. Using the Internet, identify the top five market research firms in India.
. Media decisions Make a list of specialised services offered by these compai1ies.
. Creative testing
\.

. Evaluation of campaign effectiveness

Distribution . Determine type of distribution
. Attitudes of channel members
Research
. Intensity of wholesale and _retail coverage
The MR process is a set _of six steps, which define the tasks to be

. Channel margins
accomplished in conducting a MR study. These include problem definition,

. Location ofretail outlets

developing an approach to the problem, research design formu_lation, fieldwork
and data collection, data preparation and analysis and report preparation .and
. Consumer response to POP effectiveness presentation. Each of these six steps is now explained in further detail.

Marketing Management Market Research and Demand Forecasting

 lntervie\1 s with Industry Ex perts: l Jnstructurecl personal interviews
Il)cfinl.'. tht: problc111 .uid rc~l·.in: h ,1h_i 1..'l'li\ 1."S I with industry experts knowledgeable about the firm and indu stry he lp ~
i formu late 1he resea rch prnl;,lenJ.
I lk vc lnp the cc:-.c,11 d 1 plan .
I Scc~ndary Data /\na lysis: Secondary data arc data Cllilcl'lcd for so me
i other problem other than the one at hand. Primary dat:1. on the o th er
I Collect the information
I hand arc collected by the researcher for the specific resea rch problem .
Secondary data include information from ·commercial government
l
I Analyze the information
I sources, commercial databases. Secondary are an economical and quick
source of background information and hence essential to accurate problem
i definiti011.
I Present the findings
I 4. Qualitative Research: Unstructured and exploratory qualitative research
l
using focus group interviews, depth interviews or pilot surveys on small
I Make th e decision
I samples. )

Fig. 5.2: The ~R Process 5.3.2 Step 2: Development of an Approach to the Problem

5.3.1 Step 1: Problem Definition Devclopmen.t of aii ·appi:oach to the problem includes formulating an
obj ective or -theoretical framework, analytical models, resea rch questions,
The first step in any marketing research project is to define the problem.
hypotheses and identifying characteristics or factors that can influence the
Problem definition involves stating the ge neral marketing research problem and
research des ign
identifying its specific components. Of al I the tasks in MR, none is more vital to
the project than a proper definition of the resea rch problem. Researchers make . In general, any research should be based on objective evidence and
two common errors in problem definition. The first arises when the research guided by theory. The theory guides the researcher on which variables should
problem is defined too broadly; for instance improving the competitive position be investigated, -how they should be operationalised and measured and how
of the company, increasing market share for the brand or improving brand the research design and sample should be selected. The theory also serves as a
image is too broad a definition of the problem. The second error is the opposite foundation on which the researcher can organise and interpret the findings.
i.e. too narrow a definition of the problem . Analytical models, which depict a set of variables and their inter-
Too nanow a focus may preclude consideration of some courses of relationships, can be verbal, graphical or mathematical. They he lp the researcher
action, particulai-Iy those that are innovative or not too obvious. The likelihood by depicting the research problem in different ways and conceptualising an
of committing either error can be reduced by first stating the problem in broad approach to the problem
terms and then identifying its specific components. Research questions are refined statements of the specific components of
:•, ,,
the problem. Each component of the problem, when broken down into research
. !, ' { questfons help the researcher identify specific infom1ation required with respect
/_' .
to each component.
'.,,·- . ,,. ',. ' ' . ·"
A hypothesis is an unproven statement or proposition about a factor or
phenomenon that is of interest to the researcher. Hypotheses go beyond research
qt1estions because they arc statements of relationships or propositions rather
· than merely questions to which answers are sought. Unfortunately, it may not
be possible to develop hypotheses in all situations, as sufficient information
may n:ot be available. ·
. . In order to d_efine the MR problem properly, researchers undertake s~v~~a-1
The key question to now ask is given the problem definition, research
tasks to obtain information on the environmental ~ontcxt of the problc·m and
help define !he problem. The tasks are: · · questions and hypothe ses, what additional characteristics or factors should be
identified so that a questionnaire can be constructed. The answer to this question
I . · ··Discussion with the decision makers: Researchers ·need to understand the will result in the identification of relevant characteristics.
nature of the decision, the managcl)1ent problem and what they hope to .
Considering all the above the researcher can now de termine what
learn from the research.

Marketing Management Market Research and Demand Forecasting

 information should be obtained and racilitalcs the formulation or an appropriate · the
resca1-cl1 des ign . . issue .and· skilled
. in. grnup dynamic, · 1'11c ill')C
, ici·ato
, 1. encourages a ·'
I rec and I rank cl1 sc uss1011 sn that group i111cr-iction w I I . I - " ·:, Nojes· .? " :-
. . ' ou l I cvca c1ccp-
5.3.J Step J: Rcse,u-ch Design Formulation rootecI thought s and k cl1n -l!s. The .discuss ion is· r•'coi·dccl
~
, cl
an stuc11cc -
1
subscqucntl
. y·to understand . consumer
. beliefs •
·' '1ttitLiclcs a I b I ·
, nc e ia v1our.
/\ research design is a blu eprinl ror concluding the 111ai-kct n:searcli° pro_j eci.
With the dc1'clop111cnt ol th e internet co1111nmics 110 \1, oi·g · 1·
It detail s the procedures necessary for obtaining the required infixmation and its . . . . ' · anise on 111e
focus groups or par11c1patc 111 chat rooms as surrogates Foe .
purpose is to design a study that will test the hypotheses o[ interest, determine ' . us g1 oups are
useful exploratory research and marketers must avoid g· c . 1· ·· h
possible answers to the research qucstioi1s and provide· the information needed . r . . . neia tsmg t e
,ce 1mgs of the focus group part1c1pants to the whole tnarket
for decision-making. Formulating the research-design involves decisions on· · I , as samp 1e
si zes t iat can be covered by focus groups arc too small.
d;lta sources, designing the research instruments,· measurement. and scaling
procedures, sampling plan and sample size and contact methods. -3. Survey research: ls best· suited for ·descriptive conclusive research.
Compamcs undertake surve_ys to_ learn about people's knowledge and
Research design can be broadly classified as explorato1y or conclusive. The
beliefs, preferences and satisfaction and to measure these m·agnitudes
basic objective of cxploratoty research is to provide insights and understanding.
111 the g~neral populat1011. Survey research can be carried out on lar e
It is used in cases when one needs to define the problem precisely, identify sample sizes. ) g
relevant courses of action or gain aclclitional insights before an approach can be.
developed. The information needed is loosely defined and the research process · 4. Behavioural Data: The customers.purchasing history is captured b the
acloptccl is flexible.and unstructured. The sample size selected is small and non- ~tore da_tabases a11d cre<l1t card btllmg. Much information can be obt:ined
rcpresentative. Given all these characteristics, the findings or results are at best from this data, as actual purchases tdlect preferences and often are more
tentative. rcl1ablc than statements made by customers. --
- -- - -- ·· -- - - --- -- ,.:.-

Conclusive research on the other hand is more formal and structured. It 5. Experimental Research is the most scientifically valid research th
. I · , epurpose
is based on large, representative samples and the data obtained are subject to o f wh tc 1.1s to capture cause and affect relationships, by eliminating the
quantitative analyses. \e1y often, the insights gained from exploratory research competmg explanat10ns of observed findings. Experimental research is
might be verified by conclusive research, as the objective of conclusive rescarcfi used to test responses to particular price points, pack sizes or a service.
is to test specific hypotheses and examine specific relationships. C) Resear~h Instruments
A) Data Sources Market researchers have choices of three main research inst rumens
t 111
·
. .
The researcher can gather seconcla1y data, primary data· or both. co II ectmg pnmary data. They are questionnaires, psychological t00 1 cl
Researchers usually start their investigation by examining secondary data to see mechanical devices. s an __ _______ ______ ,.
whether the problem can be partly or wholly solved without the costly primary I. Questionnaires: is a set of questions presented to respondent B
data. Seconda1y data provides the starting point for the research activity .and · • n ·b·1· .. s. ecause
o f its i::xt 11ty, the quest101111aire_ is by far the most common instrument
offers the advantages of low cost at;d ready availability. If the neeaed data does used to collect primary data. Pilot questionnaires are <level d d
. . ·c1 ope an
___ ____ ____ ______ _ .. --
not exist, or is inaccurate or incomplete, researchers will have to gather primary ad m1111stere. on . small samples to rectify errors , befiore th eycane b
data. Most MR projects involve some primary data collection. ..
d
a m1111stered on a large scal_e. In preparing a questionnaire, the researcher
B) ResearchApproaches carefully chooses the questions, their wording and sequence as th fi
. . fl .. , e orm
Primary d~ta can be collected in five ways: through observation, focus
o ftl1e quest10n 111 uences t11e resp~nses. There are two types of questions, ---------------------
open en~ed and close-ended que~ttons: Close-ended questions specify all
groups, surveys, behavioural data, and experiments. ·
the p~ss1bie answers that are easier to 111terpret and tabulate. Open-ended
I. Observational research involves data gathering by observing the customers quest10ns allow respondents to answer in their own words and often reveal
iri. unobtrusive ways. This type of exploratory research to observe how more than that meets the eye._ Such _questi~ns are useful tn· explpratory
cir
customers shop for use the product can yield useful hypotheses about research, where the_ researcher ts look111g for insight into how people think
· how. customers feel about different brands. · :ather than mea_surmg how many people think in a certain way. Table 5,2
illustrates the different types of close and open-ended questions.
------------ ---- - -... --
2. Focus group research : A focus group is a gathering of six to ten people
invited to spend a few hours with a skilled moderator to discuss·a product, 2. Psychological can probe the buyer's deeper tiee1mgs
· ------- - -------- -- ---
_____ . --------- ----- - . . . tools: researchers
.
servic~; ~rganisation or any other issue related to product usage and product and
. beliefs
. usmg psycholog1cal tools such as laddering techniq ues, dep th
preferences. The moderator needs to be objective and knowledgeable on ,i 111terv1ews and Rorschach tests. Laddering techniques involves asking
----- - ---- - -- -- - - - - --
Marl.;cting Management Market Research and Demand Forecasting
 seve ral qi1 es li1.i ns. eac h qu es ti on probing Ilic anS\1 er· lo Lhc pre v ious
h. Open l~ndcd Qucst'ions
question unt il th e researc he r arri1'l.:s al the real und e r·ly in g reaso n and
( 'o mpl ctc ly Unslru ctlll'cd 1\ question that res pondents ca n answer in almost
n10Livalion for pmchasc. l)e pth inte rview in g similarl y i11 1·o lvcs go in g
Word Associa tion unli111ikd number of'ways.
dee pl y- into tnc Lhou ght s that an indi vidLfal ·may ha ve about a product
Se nt ence Com pleti on
o r se rv ice. There arc sci c ral psyc hologica l too ls like c rea tin g co llages. Word s an: pr·ese nl cd, o ne at a tim e, and rcspon-
us ing me taphors etc to delve into th e dee per fee lings Lhat co nsumers have Story Co mpl etion dents mention whatever co mes to mind connected
about products. Picture Comp(etion · with the given clue.
---------------- 3. Mechanical devices arc al so occasionally used in MR. Galvanometers An incomplete sentence is presented and the
measure the interest or emotions aroused by exposure to a specific ad respondents complete the sentence
or picture. The tachistoscbpe fla shes an ad to a subject with an exposure An incomplete story is presented and the respon°
interval ranging from one hundredth of second to several seconds. After dents have to complete the sto1y.
each exposure, the respondent describes everything he or she recalls. Eye
--- - -- - --- -- -- ----- --- cameras study the respondent's eye movements to sec where their eyes
A picture of two characters is presented, with one
character making a statement. Respondents are
- ---- -- - --- - - - - ---- - -- land first.and how long they linger on a giveil item. Meters attac!ld to asked to identify with the other character and fill
television sets -in participating homes to record what programs peop le in the other character's response.
watch, thus generating data on TRP ratings for differcn~ prog i·ainii. ....
Thematic Appreciation Test (TAT): A picture is presented and respondents are
4. Innovative qualitative tools: Some researchers n'iay innovate qualitative asked to make up a story about what they think is happening or may happen in
tools for gauging consumer opinions because responses to questionnaires the picture. Or they may simply give their i!'!terpretation of the picture.
- - - - - - -- - ---- -- --- -- -- do not always match actions. Documentary style videos of contest, reality
D) Sampling Plan
television style programniing and filming consumers at home using
- -- - ---- - ----- ------ --
the product are some of the techniques used for informal information After deciding on the research approach and instrnments, the researcher
----- --- -------------- gathering. must develop a sampling plan. The ~ampling design process jncludes the five
steps listed below. These steps are closely interrelated to all aspects of
--------- --------- -- -- Table 5.2: Types of_questions
the marketing research project; hence, sampling decisions should be integrated
A. <:;lose ended questions with other decisions in the reseaich project.
bichotorhous A question with rwo possible answers- Yes/No A 1. Define the popu lation
Multiple choice · questi'on with tlu·ee or more answers 2. Determine the sampling frame.
Likert Scale A statement with which the respondent shows the 3. Select sampling teclmiques.
Sema.ntic Differential amount of agt'eement or disagreement: strongly
---- -- ------ ---------- disagree, disagree, neither agree nor disagree, 4. Determine he sample size.
Importance scale agree and strongly agree A scale connecting two 5. Execute the sampling process.
Rating Scale bipolar words. The respondent selects the point
Sampling design begins by defining the target population for the research.
---------- ------------ Intention-to-buy scale
that represents his or ber opinion.
.Suppose Park Avenue wants to assess consumer response to a new line of
---------------------- A scale that rates the importance of some attri- men's cologne launched, who should be included in the target population? All
bute. Respondents rate the attribute as extremely · men or only those who have used cologne in the last month? Men of which
---------------------- important, ve1y important, somewhat important, age group? Also, because women sometimes buy cologne for their husbands,
not very important and not at all important. sho~ld they too be included? All these questions must be resolved before the
--------------------- . target population can be appropriately defined.
A scale that rates the attribute from "poor" to
------- ---------------·. "excellent". A sampling frame is a representation of the elements of the · target
A scale that describes the respondents intention population. It consists of a list or a set of directions for identifying the target
to buy as definitely buy, probably buy, not sure, population. Examples of a sampling fra me include a telephone directory, an
probably not buy and definitely no t buy. association directory, a inailing list or a m ap.
Selecting a sampling technique or method of selecti on of the respondents,
is the next decision the researcher must take. The two approaches to sampling

Marketing Management Market Research and Demand Forecasting

 techniques arc probabilit y and· non-probabilit y snmpling techniques. Table 5.3 E) Contact Methods
summari ses the diffcn:111 types or probability and non -probability techniques Once the s,11nplinµ plan ha s been deLcr1 11i11cd. th e resean.:her must dec id e
Each method has its merits and appli ca bilit). 13rnadly, probability samplin g ho w th e subj ec ts arc to be contacted: mail . tclcplwn<.:, pc,·sonal l'r online
· techniques allow for rnleulati-<i'n or co11fid<.:11Le limits lu, ~anipling error. When int erview.
the cost or time in vo lved in probability sampling is too hi gh, market researchers The mail questionnaire is the bes t 11·ay to reac h people who would not
take non-probability samples. Many researchers feel that non-probability give personal interviews or whose responses might be biased or distorted by the
sampling is moi•e useful , although it docs not allow for sampling errors to be interviewers. However; the response rates for this method are rather low and
measured. responses require follow up.
Table 5.3 Sampling Techniques Telephone interviewing is the best method for gathering information
A. Probability Sample quickly; the interviewer is· also able to clarify the questions if rcs.pondents do
Simple Random Every member of the population has an equal chance not understand them. The response rate for telephone interviews is much higher
. -------------- of selection. thau mad mterviews, but the main drawback is that the interview has to be
Sample
short and not too personal. Telephone interviewing is difficult also because
Stratified Random The population is divided into mutually exclusive
respondents are suspicious of such methods.
Sample grolips (age groups) and random samples are drawn
from each. Personal interviewing is the most versatile method, as the interviewer can
Cluster (area) The population is divided into mutually exclusive ask more questions and can observe additional factors about the respondents
Sample groups (housing societies), and the researcher draws a such as body language. Personal interviewing is the most expensive method
sai11ple of the groups to interview. and requires more administrative planning and supervision than the other
methods. Personal interviewing can be done in two ways: arranged interviews
B. Non-Probability Sample where the researcher takes a prior appointment or intercept interviews where
Convenience Sample The researcher selects the most accessible population the researcher contacts respon·dents at shopping malls (mall intercept) or other
members. such public places and requests an interview.
-:.--_._ - - --- -- --- ------ -- Judgement Sample The researcher selects population members who arc Online methods of contacting respondents are becoming increasingly
good prospects fo r accurate infomrntion. popular these days and expected to grow much faster than traditional contact
Quota Sample The researcher finds and interviews a prescribed methods.
number of people in each of several categories. Companies often include questionnaire on their websites and offer an
incentive to respondents. Alternatively, companies can place banner ad on
Sample size refers to how many people should be surveyed. Determining frequently visited sites such as Yahoo and invite people to participate in the
the sample size .is complex and involves several qualitative and quantitative
questionnaire and possibly win a prize. Companies can also enter chat rooms
considerations. Important qualitative factors include the importance of the
and seek volunteers for a survey or sponsor a chat room and introduce questions
decision, the nature of the research, the number of·variable.s, the nature of
from time to time. Companies also learn about individuals who visit its site
analysis, sample sizes used in similar studies amongst others.
by following how they 'clickstream' through the website and move to other
Quantitative factors include statistical approaches to sample size sites. Computers contain cookies that capture this data and by analysing all this
detennination based on confidence intervals. In general,. for more in~portant infonnation, companies gain access to valuable information about consumer
decisions, more information is necessary and the information should be obtained behaviour.
precisely. This calls for larger sarriples, but as the sample size increases, each
But not everyone has access to the internet, which is why companies
unit of information is obtained at a greater cost. The nature of research also has
need to combine numerous contact methods, both online and off-line to contact
an impact on sample size. For exploratory research, the _sample size is typically respondents. ·
small; for conclusive research,,such as descriptive surveys, larger samples are
required. Finally, the sample size decision should be guided by a consideration 5.3.4 Step 4: Fieldwork or Data Collection
of the· resource constraints. The data collection phase of the market research is generally the most
Finally, tlie execution of the sanipling process requires a detailed expensive and most prone to error. During this phase, field workers make
specificaiion of ho.w the sampling design decisions are to be implemented. contact with respo.ndents, administer the questionnaires or observation forms,
record the data and submit the completed forms for processing. All fie ldwork

Marketing Management Market Research and Demand Forecasting

 requires the proper seketiu11 . training and super1·1sio1 1_ 01· perso ns_ who ,m; to 5.3.5 Step 5: Data Preparation and Anal~·sis
co llect the data. V,ilidation or the licldwork and c, alu:it1011 or the l1eld ,,·orkcr, Data prcpmati\ln is the process or con,·cning the raw data contaill(;d in
.i s also :i part or th is p1, ircss. th L~ q11 L'S ti n111wir<.: s i11tn ;1 lr1r111 s11ilahl<.: lii r atl) type or c111;liysis. The quality or
Researchers mu st de, clop job spcciticatiu1 1, takin g intn acco unt the rnmk the stati stica l ana lys is depends 011 the ca re exercised during the data preparati on
of data collection, decide the characteristics that li cld workcrs must lw vc and phase. Data preparation bcgins with a prcli111irn1ry check ol' all questionnaires
recruit appropriate individuals . The interv.iewers' backgr0t1nd charactcnst1cs,_ for completeness and interview quality, followed by a thorough editing.
opinions, perceptions, attitudes and body language can _affect the quality of Editing consists of screening questionnaires to identify illegible; incomplete,
:. _---- --- --- ---- -- ---- responses. Training of fieldworkers is critical to the quality of data collected . inconsistent or ambiguous responses. Such responses can be handled by
Training ensures that _all interviewers administer the quest10nnall'e Ill the same returning questionnaires to_the files, assigning missing values or discarding the
manner so as to ensure uniform data collection. The tratnmg covers all aspects unsatisfactory respondents.
of the fi~ldwork such as making the initial contact, asking the questions, probing, The next step is coding. A numeric or alphanumeric code is assigned
rec~r<ling the answers and terminating the interview. to represent a speciflc response to a specific question, along with the column-
Supervision of Ocie! workers means ensuring ~hat they arc. f?llowin g the position it will occupy. It is often helpful to prepare a codebook containing
procedures and techniques in which they wcr~ trained. Supc1v1s1011 mvolvcs the coding instructions and the necessary information about the variables in
several aspects--·such ·as quality control, samplmg contrnl, control of cheating the data set. The coded data are then transcribed onto CD's or entered into
and central office control. Quality control means checkmg to see 1f the field computers through keypunching.
procedures are being properly implemented and_ to c_icte_ct poss_ible problem Cleaning the data requires consistency checks and treatment of missing
areas in administering the questionnaires, and to 1dent1fy 1f_add1t1onal tra1nmg responses that occur because the answers were not properly recorded. Missing
is required. An important aspect of supervision is sampling control, which responses pose a problem especially if the proportion is more than 10%.
attempts to ensure that the interviewers are stnctly followmg the sampbng Options available for treating missing responses arc substituting a neutral
plan rather than selecting sampling units based on conven_1ence or acc_ess1bil1ty. value, typically the mean response to the variable, or spbstituting an imputed
Interviewers tend to avoid respondents that they perceive to be d1fficulL or response. The respondents' pattern of responses to other ques.tions is used to
undesirable. impute or calculate a suitable to the missing questions .
Cheating involves falsifying a part of the question or the entire The next step is data analysis, the purpose of which is to produce
questionnaire. An interviewer may falsify part of an a~swer to make 1t a_cceptable information that will help address the problem at hand. Researchers must select
or may fake answers. Interviewers can also falsify entl!'e quest10nna1res, a data analysis strategy, considering all the earlier steps in the market research
by filling in the responses without meetmg respondents. Cheatmg can be process . Once the data has been prepared for analysis, the researcher shou ld
minimised through p10per training, supervision and validat1on of fieldwork. conduct some basic analysis including frequency distribution, cross tabulation
------ ------- ---.---~ ~ Field supervisors provide regular updates to the head offices on the total progress and hypotheses testing. various statistical techniques are used for data analysis
of the fieldwork as well as on quality and cost control. - _ (summarised in Table 5.4). Researchers must select the appropriate statistical
· . validation of fieldwork becomes necessary to ensure that field workers technique, taking into account the· properties of the technique, the purpose
are submitting authentic interviews. To validate the interviews, supervisors call and underlying assumption. The insights gained from basic analysis arc also
up at random 15 to 20% of the respon_dents to_inquire whcthe~ the fiel<l workers invaluable in interpreting the results obtained from more sophisticated statistical
actually conducted the interview. The supervisor~ make deta1!ed checks ab?ut techniques.
the length and quality of the interview, demographic data submitted and react10n Table 5.4 Statistical Tools
to the interviewer.
Multiple Regression A statistical technique used for estimating a "best
Finally, it is important to evaluate. field ':orker~ a~d to provide them · fitting" equation, showing how the value o( a
the feedback on their perfom1ance. The ev·a1uat10_n cntena should be clearly dependent variable varies with the chang- _ing
communicated to the field workers during their training. The valuatiori should values in a number of independent vari- ables, ..
be based on the criteria of cost and time, response rates, quality of interviewing Example: A company can ·estimate how unit sales
and quality of data. Market researchers aim to build teams of_high qual ity fi eld are influenced by changing values of advertising
workers committed to their jobs. · expenditures, price and so on. ·

Marketing Management Market Research and Demand Forecasting

•I
I'
 Discriminant Analysis A stati stical 1<:ch11iq uc· for class i!'yin g an object a. Titl<' Pal!l'
nr persons 111t n 111 u u1 11w1'l.: categori es . l~xam- b. I ,e ttl'1· ofTransmiltal: Ik li1 er, lhc report lo th e authoriti es co11 1111iss ioni11g
pl c: compaa1es c,111 dc·tcrllli nc the I arn1bles that
the n:scarch ,lllcl st11111n arisc:~ the researcher 's ovc rall cx pem: ncc II ith th e
discriminate hcl11 ec· n succcss l'ul and unsucccss- J'ul project ll'i thout 1nc111ioning the findin gs.
store location s.
Factor Analysis A technique used tu determine the few underly- ing c. Letter of Authorisation: I11 case a MR agency is conducting the research,
dimensions of a larger set of ihtercorelatep variables. a letter or authorisation is written by the_client to the researcher before the
proj cclbcgins.
For example, a television channel can reduce the -·----------------
large number of television programs down to a few cl. 'fable of Contents
basic types·.
e. · Executive-Summary: This is an extremely importaµt part of the report and
Cluster Analysis A statistical techniqLic for separating objects into is often the only portion of the report that executives read. The sum1:1ary
specified number of mutually exclusive groups, should concisely describe the problem, approach and research design that
such that the groups are relatively ho- mogenous . was adopted. A summary section should be devoted to the major results,
- ---------·-·--- ----·-- -- For exalnple, classification of cities into different conclusions and recommendations. The executive summary is written
categories. idler the rest of the report.
Conjoint Analysis . A technique by which respondents ' ranked_
preferences for different offers are decom- posed to f. Problem Definition: This section gives the background lo the problem,
determine the person has inferred util- ity function highlights the discussions with decision makers and industry experts,
for each attribute and the relative impotiance of • secondary data analysis. lt should contain a clear statement of the
each attribute. Example: An air- line can determine management decisio1_1 problem and the marketing research problem.
the utility of different the utility of different g. Approach to the Problem: This s_ection discusses the broad approach
combinations of passenger services. adopted in addressing the problem. This section should also contain
a description of the theoretical foundations that guided th~ resel!rch,
A variety of techniques for producing percep- tual
analytical models formulated , research questions, hypotheses and the
maps of competitive products or brands . Brands
factors that inf! uenced the research design.
are represented as points in a multidi- mensional
space of attributes where their dis- tance from each h. Research design: The section on research design should specify the
other is a measure of dissimilarity. details of how the research was conducted. This would include the nature
of the research design adopted , information needed, data collection,
5.3.6 Step 6: Report Preparation and Presentation scaling techniques, questionnaire development and pre testing, sampling
techniques and fieldwork.
. Report preparation and presentation constitutes_the_sixth and _final step in
the market research process. The report and presentat10n 1s the tangible product i. data Analysis: This section describes _the plan of data analysis and
of the resea;ch effort. After the project is complete and the management has strategy and techniques used.
made the •decisions, there is little documentary evidence of the .project other
j. Results: This section is normally the longest part of the report and
than the written report. Management decisions are guided by the r,eport and
may comprise several chapters. The presentation of the results should
presentation. If the first five steps in the project are carefully condticte~, b~t
synchronise with the components of the market research problem and the
inadequate attention is paid to the final sixth step, th~ value of the pro~e~t 1s
information need identified. The details should be presented in tables and
greatly diminished. The involvement of many marke_tmg manage~s 1s h~1t~d graphs with the main findings discussed in the text.
to the written report and presentation. Hence, the quality of the entire proJect ts
evaluated based upon the quality of the report i!nd presentation .. k. Limitations and Caveats: All marketing research projects have _____ . ______ . ---------
limitations caused by time, budget and other organisational constraints.
Instead of merely summarising the statistical results, the researcher
should present the findings in such a way that they can be used directly as input Furthermore, the research design adopted may be limited by various types
into decision-making. Wherever appropriate, conclusions should be drawn and of errors. This section has to be written carefully, balancing a realistic
recommendations made. Although researchers differ in the way they prepare a perspective without eroding the confidence of the management.
research report, there are staridard guidelines on the format of the report. It must
contain the elements listed below._

Marketing Management Market Research and Demand Forecasting

 I. Conclusions and Recommendations: The researcher should interpret ·'
.1. tM,r,!
the results in light or the problem being addressed to arrive at major 1.ucatc an int cTn c1 sun·c) or mail survey; (Olten in cluded as an
conclusions. 13ased on the results and conclu sions the researcher may :1nncxun: in 111aga1.incs) cx,1111inc the contents or the quc:stionnaire.
make suggest ion s and recommendations to the decision makers. Ir What a1c th e 1cla11 vc ad vantages and disadvantages or ad1111n1 q c11ng
recommendations arc made, they should be actionable, practi cal , rcasiblc the sa111c sur, C) using a rnnl I-intercept intcrvicw' 1 ·

and directly usable as inputs to managerial decision making .

• ) Check your Progress 2

A Marketing D_ecision Support System (DSS) is defined as a coordinated
Match the sequence of steps in. Market Re~earch Process.· collection of data, systems, tools and techniques with supporting software and
Fieldwork or Data Collection hardware by which an organisation gathers and interprets relevant information
I. Step I a.
from business and environment and used as a basis for marketing action.
ii. Step 2 b. Development of an approach to the problem
) So far, we have looked at market research to gather information, whether
iii. Step 3 C. Data Preparation and Analysis
on a periodic or ongoing basis. The research contributes research data to the
iv. Step 4 d. Problem Definition
database. DSS helps analyse this data with the help of mathematical modeling
V. Step 5 e. Report Preparation and Presentation and statistical analytical techniques enabling managers obtain information by
VI. Step 6 f. Researst1 Design Formulation sorting, regrouping and manipulating the data to conduct "what i[" analysis.
Multiple Choice Single Response The characteristics of a dSS arc:
I. Problem definition involves: I. Interactivity: Managers give simple instructions and sec immediate
1. Stating the general marketing research problem and identifying results without waiting for scheduled reports.
its specific co'mponents. 2. FlcxibiJity: A DSS can sort, regroup, total, average and manipulate the
ii. Formulating an objective or theoretical framework, analytical data in various ways to suit the requirements of the decision make!'.
models,· research questions, hypotheses and identifying 3. discovery oriented: Managers can probe for trends, isolate problems
characteristics or factors that can influence the research design. and ask "what if' questions.
iii. Representation of the elements of the target population. It 4. Accessible: To all levels of decisio1\ makers
consists or a list or a set of directions for identifying the target
Today all large organisations use some sort of DSS for improved decision-
population.
making. One of the fastest growing uses of DSS's is for database marketing,
iv. Statistical approaches to sample size determination based on which is the creation of a large computerised file of customers' and potential
confidence intervals. In general, for more important decisions, · customers' profiles and purchase patterns.
more information is necessary and the information should be
Federal Express (FedEx) has developed a reputation for being a reliable
obtained precisely.
express courier servic_e worldwide. It has become a technology leader in a
r highly competitive market. A major ingredient in the success has been the use
$'
1
Activity 2 · of advanc_ed DSS that provide informatioµ on ~ustomers and detailed aspects -of .
every shipment including ordering, billing, tracking and tracing. One example
of the use of DSS is its highly sophisticated "segment management marketing,
I. A leading mutual fund organisation has hired you to identify why sales by \Vhich the company has developed a "valµe quotient" formula that allow_s
of its products in your area are low and to suggest w~ys in which it marketers to analyse individ~al customers on a case by case analysis. This
can ·increase sales for its products. How would.you define th_e problem value quotient includes wdghts for the strategic competitive value of.custome_r .
in more specific terms? What kind of background information would and profitabil ity through a survey of thirty questions. The company has defined
you c91lect in order to define the problem more specifica lly? . 14 highly specific c ustomer segments b ased on consumer attitudes towards,
2. For the problem defined above, what kind of resea rch approaches and pricing, reliability, urgency, content safe ty, tracking and proof of delivery. The
research inslrnmcnts would you recommend to 'your client? SMM classifications have been expanded over the years to include other fac tors,
'- to help the companx further understand the customers they serve.

Marketing Management t Markel Research and Demand Forecasting

 •· Notes Compani es compare 1111,,-kct 11c11en ·otio11 il gu1 c, (adual number or current
Activity 3 use rs or a cat egory) with mark et pote nti a l to create a ,,w,-ket penetmtiun index .
A lo w market penetration incle:-- indi ca tes a large r opportunit y and growth
potential for all compani es. Compani es must also compare th eir current mark et
l/ s i1 H! tli c l11 tc rnd , ickntil\ , three c ,a111plc s nr dec ision supp ort sys te ms
sl~arcs w ith th e ir potenti al 111a1·kct shares. Low shah' 11e11etm tio11 index indicates ·
bein; used by organi satio1{s lor impro ved clccisio11 -111akin g. 11011 do you
problem areas or dcficicneics in th e marketing program .
think the DSS 's have helped the respective organisations?
Lastly, it is -important to remember that market demand function is not
the market demand over time, but rather the market demand given different
levels of marketing expenditures and environmental conditions. The phrase ·
"given environmental .conditions" is important, as during a recessionary,
One major· reason for market ·rcse~rch is for a compa1iy to · identify
market potential will remain suppressed irrespective or the levels of marketing
marketing.opportunities. Following the completion of research, companies must.
expenditure. ln such cases where market demand is strongly influenced by
measure and forecast the size, growth potential and business potential of each
environmental factors, companies will tty to influence their share of the demand
) opportunity. Sales Forecasts are used company-wide for production scheduling
by deciding on their levels of marketin g expenditure.
and planning and allocation of reso urces.
5.5.2 Company Demand, Sales Forecast and Sales Potential
Demand and Sales forecasting are a marketing activity. Inaccurate sales
forecasts can lead to either excess inventory or inventory shortfall, neither of Company demand is the company's estimated share of the market ·
which is good for the organisation. Before we.look at forecasting methodologies, demand, at differing level s of marketing efforts· in a given time period. The
it is important to understand some te rminology first. company's share of demand will depend on how its products, services, prices and
communications are perceived relative to competitors. Other things being equal,
5.5.1 Market Demand, Market Potential and Market Penetration
the size and effectiveness of a company's marketing expenditures relative to its
Market Demand for a product is the total volume that would be bought competitors will determine the company 's market share . Several mathematical
by a defined customer group, in a given territory, time period a11d under cc1tain sales response niodcls have been created to measure how a company's sales
environmental conditions and as a result of a given marketing program . This will be affected by size of marketing spend, marketing mix and effectiveness of
implies that market demand is not in fact a fixed number, but a rather a function marketing programs.
of a number of variables, being the target groups, the companies marketing
Once the level of company demand has been estimated, marketers have
actions and environmental conditions. Given a change in any of the variables, to chose the level of marketin g effort that they will make in a given time period.
the demand estimate would also change. This chosen level will result will result in a certain level of expected sales.
Market Demand is often referred to as market demand fimction and its The company sales fore cast is the expected level of company sales based on a
levels would vary between the market minimum and market potential. Market chosen marketing plan in a given marketing environment.
minimum is the base level of sales that would take place without any specific Hence, the company sales forecast follows the marketing plan. However
marketing program in place. Creating specific marketing programs lo stimulate much too often one hears of managers developing marketing plans 'based' on
demand, would increase the sales to higher levels; the initial increases happening a certain sales forecasts, which is incorrect since the sales forecast is the result
. at _an increasing rate and then beyond a level at a decreasing rate. of a given marketing plan. The only exceptions to this would be the case of a
Beyond a point, increasing marketing expenditures will not lead to any non-expansible market.
increase in sales as the market has reached saturation point. This upper limit The company sales potential is the sales hmit approached by the company
to the market demand is known as market potential. Between the two levels of demand, as the company's marketing effort increases relative to its competitors.
market minimum and market potential exists the oppo1tunity for the company Theoretically, the uppermost limit of_ course is the market potential; but in most ·
to stf mu late the market demand. However not all markets respond to demand cases company sales potential will be less than the market potential.
stimulating n1arketing programs; · expansible markets, such as the market- for
In relation to company sales forecasts, companies set sales targets and
beverages are affected by the total industry wide marketing spends.
create sales budgets. Sales budgets ate· realistic, conservative estimates of the
Non-expansible markets such as the market for home security systems expected volume of sales and are used mainly for resource planning, productions
are not much affected by the level of marketing expenditures, as the potential and purchasing scheduling and cash flo~ planning. Sales targets on the other
market for the product catego1y itself is rather limited. ln such cases, companies hand are goals set for managers, product lines and divisions and used mainly
r direct their efforts more towards winning larger market shares for their products
and stimulating selective demand for their brards.
as motivational tools to stretch the m::\nagerial effort. Sales targets are usually .
higher estimates of sales forcq1sts.

Marketing Management Market Research and Demand Forecasting

 5.5.3 tstimating C urrent Demif11d and estimat ing their sa les. Indu stry assoc iatLons co ll ect and publish total
Markcting c:xcc uti vcs first need tn cs linrntc th e total market pnte111ial. are,1 industry sa les. Co mpani es also buy reports from marki.;t rcsca1-c h agencies that
mark et potential. t"otal industry sa les and rn ,1rk et share,. audit total sa les and brand sa les data. AC' Nielse n audits 1·ctail sales in va ri ous
product ca tegories an~I se ll s this_inli.mnation_to intcr~stcd compa nies.
'liJtal i\la rket Potential is th e 111ax i111u111 amou111 or sale:,_ ,1, ai lablc:
to all firm s in an industry durin g a given time period, 111arketing e ffort and 5.5.4 Estimating Future Demand
environmental conditions. A common way to estimate the total market potential \cry few products or-services lcnd themselves to easy forec_asting; only
is to estimate the total number of potential buyers (x) average quantity per in categories where demand is fairly, conJpctition is nonexistent or oligopolies
buyer (x) price. However, the problem with this method is th at it is an is forecasting a relatively straight forward exercise. Companies use both "top
oversimplification, as· it worh with averages. For instance if one were to use clown" and "bottom up" approaches to prepare a sales forecast. The top down
this method to e~timate the market potential for nonfiction books, one would approach would be clone in three stages.
have to consider a number of other factors to get a more accurate assessment of
The first stage is a macro-eco nomic forecast, which calls for projecting
market potential.
inflation, interest rates, consumer spending, increases in per capita and
The chain ratio ·method would involve multiplying the base popul ation di sposable income and other economic variables. The impact of these factors
figure with a number of percentages. Total population (x) perce ntage of on the industry sales and past data is used to arrive at sales forecast for the total ----------------------)
population that regularly buys books (x) personal discretionary income per industry. The third step is to develop a company sales forecast, which is usually
capita (x) average percentage discretionary income spent on books (x) average based on a company's es It mates of the market share that it will retain or gain in
percentage of amount spent on books, which would be spent on a nonfiction a particular plan period.
book. This method would result in a more realistic estimation of market
Additionally companies would use a "bottom-up" approach employing
potential. ·
methods such survey's of buyer intentions, composite of sales force opinions,
Area Market Potential: Companies need lo assess the market potential expe1t opinions and statistical analysis of past data to arrive at accurate estimates
of different territories, for optimal allocation of·resourees to the different of future sales.
territories. Two major methods available are the market bttildup method (used
Survey of buyers' intentions: Companies comm1sst0n research
primarily by industrial or business marketers) and multiple factor index method
organisations to conduct periodic surveys of consumer buying intentions.
(used mainly by consumer marketers).
Composite of Sales Force: Sales representatives in different territories
The market build up method calls for identifying all potential buyers in
develop estimates of how much each current and prospective customer will
each market and estimating their potential purchases. This method produces
buy of the company's products. The figures estimated are usually adjusted for
results if one has a list of potential buyers and a good estimate of what each
the company's marketing plans in a given territory that could influence sales.
one will buy. Unfortunately, this information is not so easy to gather. Morcove1·,
Since sales reps have better knowle·dge of the pqtential of their territories, such
. additional information about each 1narket such as extent of market saturation,
forecasts can be helpful in developing inore accurate esti1Tiates of sales. ·
number of competitors, market growth rates and average age of existing
equipment would also need to be consider~d. Expert Opinions from industry associations and surveys of dealers, ·.
distributors and suppliers are regularly used to forecast short-term demand . .
Companies use existing databases from industry associations, to generate
Surveys of dealers, distributors and retailers have their strengths and weaknesses,
a list of prospective companies. Consumer marketers use the multip~e factor
but can yield rich infonnation on short-term demand within territories.
index method to estimate area potential. Since the nuqiber of customers is
too numerous to be listed, a straightforward index method is used to calculate Statistical Analysis of Past Sales Analysis:
market potential. The factors affecting pu~chase of the product, sue!~ as per· Time series Analysis consists of breaking down past time series into
capita income, category awareness and so on would be listed and each factor four components (trend, cycle, seasonal, and erratic) and projecting these
would be assign_ed.a weight based on its influence on the purchase dccisiort., , ·components into the future. ·
Thus a multiple factor index is developed, which would :;,erve·,"a:s· ·an Exponential smoothing ·consists of projecting the next period's sales by
indicator of the potential of a particular territory. combining an average of past sales a nd th e most recent sales g iving most weight
Industry Sales and Market Shares:. Besides estimating the . total to the latter.
population and area potenti al, the company also needs information on actual
industry ~a les taki ng place in its market. This means identifyi ng its competitors

Marketing Management Market Research and Demand Forecasting

 Stati stica l Dc: 111:111d 1\n :1l ys is consists of' measurin g Lile impacl leve l of Report preparation and presentation co nstitutes the sixth and final step in
each of a set or ca us:il l\1ctors ( inco me, marketing expenditures and price) on the market rcsca 1·ch process.
the sa les leve l.
/\ Marketing Decision Support System (l)SS) is defined as a coo rdinated
Finall y, Econon1ctric analvsis cons ists of buildin g sets of equation s that co llection of data, systems, tool s and techniques with stipporting so ftware
describe a system and prnccecling Lo fit the parameters statisticall y. and hardware by which an organisation gathers and interprets relevant
information from business and environment and used as a basis for
.) Check your Progress ·3 marketing action.

The characteristics of· a DSS are interactivity, flexibility, discovery

Fill in the blanks. oriented, and access ibility.-
1. _______ for a product is the total volume thilt would be
Following the completion of research, companies must measure
bought by a defined customer group, in a given territo1y, time period
and forecast the size, growth potential and business potential of each
and under certain environmental conditions, and as a result of a given
opportunity.
marketing program. ·
2. is the company's estimated share of the market
demand, at differing levels of marketing efforts in a given time period.
3. is the maximum amount of sales available to all Research design: The plan for collecting and utilising data so that desired
firms in an industry during a given time period, marketing effort and information can be obtained
environmental conditions.
Fieldwork: Practical work conducted by a researcher 111 the natural
environment, rather than in a laboratory or office
Data analysis: The process of evaluating data using analytical and logical -- --- ----- ·--------- --
--- -- -- ---- ----------- reasoning to examine each component of the data provided
Market Research is the systematic and objective identification, collection,
analysis, dissemination and use of information for the purpose of decision-
making and identification and solution to problems.
The MR process is a set of six steps, which define the tasks to be L Define market research and explain the important aspects of the definition.
accomplished in conducting a MR study. These include problem definition, Why do organisations engage in market research?
developing an approach to -the problem, research design formulation,
2. Briefly explain the market research pro~ess.
fieldwork and data collection, data preparation and analysis and report
preparation and presentation. · 3. What does the sampling design process involve? Explain the different
A research design is a blueprint for conducting the market research project. steps.

It details the procedures necessary for obtaining the required in~ormation. 4. Why is the data collection phase the most expensive and the most prone
to error? What steps can researchers take to minimise the errors? Why
After deciding on the research approach and instruments, the researcher
does the data need to be "prepared'.'? What does data preparation involve?
must develop a sampling plan.
•. The data collection phase of the market research is generally the most 5. Briefly explain the contents of the Market Research Report. Which aspects
expensive and most prone to error. must researchers pay attention to?
6. What is a Marketing Decision Support System? What are its ~haracteristics?
Data preparation is the process of converting the raw data contained in the ...
questionnaires into a form suitable for any type of analysis.
The next step is data analysis, the purpo~e of which is to produce
information that will help address the problem al hand.

~ ~:;tf,J Marketing Management Market Research and Demand Forecasting

i
 3. -~Ola! Market Potential is ·the maximum amount of sa les available to all
l1n11s 111 an industry during a give n lime period, marketing effort and
Check your Progress I c11 v1ron111cntal co nditions.
Fill in the blanks.
I. Market Research is the sys tematic and objective identification , collection,
--: ---- - - --- -- --------- analysis, dissemination and use of information for the purpose of decision-
making and identification and solution to problems. · I. Dillon, WiHiam R., Thomas J. Madden and Neil H. Firtle. Marketing
Research in a Marketing Envimnment. St Louis: Time Mirror/Mosby ----------- -----------
2. Organisations engage in MR for two primary reasons : (a) to identify
College Publishing.
· problems and (b) to solve marketing problems.
2. Ramaswamy, VS. and S. Namakumat:i 2002. Marketing Management •
3. ·Problemidentification research is undertaken to help identify problems
that are perhaps not apparent.on the surface and yet exist or are likely to Planm_ng, Implementation and Control (Global Perspective). New Delhi:
Macm1llan India Ltd.
arise in future.
)
4. Once the problem or opportunity has been identified, problem-solving
research is undertaken to arrive at a solution.
Check your Progress 2

Match the sequence of steps in Market Research Process.

i- d
ii-b
iii - f
iv - ,u
v- c
VI - e

Multiple Choice Single Response .

I. Problem definition involves:

i, Stating the general marketing research problem and identifying its - -- - --- ------- ---- .. ---
specific components.
----------------------
---------- ----- ----- -- Check your Progress 3
--- --- ----- ---- ---- -- -
Fill in the blanks.

I. Market demand for a product.i_s the total volume that would. be bought
by a defined customer group, in a given territory, time period a~d under
certain environmental conditions, and as a result of a given marketing
program.
2. Company demand is the company's estimated share of the market demand, ·
at differing levels of marketing efforts in a given time ·period.

Marketing Management Market Research and Demand Forecasting

 Consumer Behaviour
UNIT

__ .__, ___ ______ ·-------- 6.1 lnlrm.luct1 011

6.2 S implif-icd Mode l ·of Consumer Dee i8ion-Making
6.3 Consuine r as an Individual
------- ----- ----- -----
6.3 .1 Motivation
---------------------- 6.3.2 Perception
-------------------- 6.3.3 Learning
. 6.3.4 Personality )
6.J:5 Personal Factors
6.4 Consumers in their Socio-Cultural Settings·
------- -- ----------- --
6.4. l Culture
----------------------
6.4.2 Subculture
----------- ----------- 6.4.3 Reference Groups
---------------------- 6.5 Types of Decisions and Buyer Behaviour

-- ---------------- --- - 6.5.1 Buying Roles

6.5 .2 Types of Decisions
-------- ------ --------
6.5.3 The Level oflnvolvement
------- -------- ------ -
6.5.4 Differences between Brands
6.5 .5 1ypes of Buying Behaviour
---------------------- 6.6 The Decision-Making Process

------------------- 6.6. I Need Recognition

6.6 .2 Pre-Purchase Search
6.6.3 Evaluation of Alternatives
----------------------
6. 7 The Purchase Decision
---------------------- 6.8 Relationship Marketing arid Brand Loyalty
Summary
Keywords
Sci f-Assessment Q uestions
--------------------
· . Answers to Check your Progress
-- --------------------
Suggested Reading
------------------ ----

Marketing Management Consumer Behaviour

 F, tcrn~ I l111luc11 ccs

Objectives
r -------------- -- ---- - - 7
j I 11111·-. iv\;11J..d111~ l"lforb , - - -- -- -- - - - /
/ Sl)Cuh.:u ll11r;1I Em Ll"tlllnh..·nt
After go in g through thi s unit, ybu will ·b·c ab le to : J. Pr1iduc1 I
/ 1'1<>111ot1,>11 I. Fn1111l y I
• Describe key factors that influence consumer behaviour Input I J. !'nee.: -· lntlinnal sourci.::- I
I 4. C hann cls o r di slrihution J. Ot her non-c0111 1nl.!rc1al suurci:s
• Explain the characteristics of a consun1er as an individual and their
: ~--------_J .: ~:~::::cc~:~,: S11bculturc :
soi::,io-cultural settings
L__________ I
•
._
Compare the types 9fbuying behaviour that consumers exhibit
Analyse the stagCs of the buying process
r Consumer Decision Making __ l_____ ~ _- -- _J

• Assess the role of marketing in influencing behaviour at various I - ------7

stages of decision-making I Need Recognition Psychol ogica l Field I
I I M~~oo I
f --- 2. Perception I
I 3. Learnin g J

Process Prcpurchasc Sea rch 4. Personality I -· -- ------- -- ---------

I 5. Allitudi..:s
The aim of marketing is to meet the needs of target markets profitably. I ----,r-----' I
Consumer behaviour studies how consumers search for, purchase, use, evaluate I I
and dispose of products and services that they expect will satisfy their needs. Eva luation of Altcmalivcs
·l r----'---
Expcric11cc l I

Consumer behaviour focuses on how individuals make decisions to spend :L__________ - I

_ _ _ _ _ _ _ _j
available resources (time, money and effort) on consumption related products
and services .
Understanding consumers and "knowing why consumers. do what they r
~~c~o_:_B~a_:o: _ 1----
----7

do"is very complex. Customers may say one thing and mean another. They may I Purcha se I
not be aware of their own deepest motivations and may respond to influences I I. Triul I
in very impul sive ways. To understand consumers, marketing theorists have
I 2. Repeat purchase I
borrowed concepts from other scientific disciplines such as psychology (study Output I ~-------1 I
of an individual), sociology (study of groups), social psychology (study of 1.-- - - - - - I
how an individual operat<ls in groups), anthrnpology (influence of society on I Postpurchasc Evaluation l I

groups) and economics to form a new marketing discipline known as consumer I I I

L ____________ _j

behaviour.
The field of consumer research has emerged as an important area of Fig. 6.1: Stages in Consumer decisio_n-Making
marketing research, to enable marketers to predict how consumers will react . The input st~ge influences the consumer's recognition of a need and
to messages and to understand why they make the purchase decisions they do. consist~ of two maJor _sources of information: the firms' marketing efforts and
!he socto-cultural environment within the consumer resides. The cumulative
impact of all these factors are all inputs_that are likely to ·impa<;:t what consumers
purchase and how they use what they buy.
The proc~ss stage oft~e model focuses on how c~nsumers make decisions.
The process-of consumer decision-making can be viewed in three.distinct !he,psycholog1c~I factors mherent in_each individual" affect how the external
but interrelated_ stages: the input stage, the process stage, and the output stage. mputs -fro~1 the m~ut stage influence the customer's recognition of a need
These stages are depicted in Figure 6.1. search for mformatlon and evaluation of alternatives. The experience gained in
!urn affects the ~sychological attributes. This stage of the consumer behaviour
1s a very dynamtc and compl_ex because of the continuous interplay of several
factors .

Marketing Management Consumer Behaviour

 1'11e output sla g·,, con sists ur two important and rcln!L'.d post-decision Needs
acti viti es: purchase beha viour and posl-pun:hase ,'1 alu:111 ,111. II he or
she is sali sfi ed, it is likcl J Lo result in rcpc;il purchase. ,\ u l11su 111er gains l!1·cry indi 1idual has ncnls- su m,· arc 11111al c. nthcrs :ire :1 cquirccl . Innate
experience throu gh post purchase evaluaLion , wl\ieh in turn on ce again all ee,ls - needs arc biogcnic and 1nc ludL' thc needs l(l r l(1ocl , water. ,1ir, c lothing, shelter.
/\ s these needs arc es,rnti :il l(> r sur l' irnl a11cl to sustain biological lilc, they
hi s i11l\mnatio11 proecss ing stage.
arc of'ten relc1n:d to :i s p1·i 111:ff) needs. Acquired needs arc needs that needs
The sections Lhal follow will delve inLo each area depicted in Lhe model that we learn in response to our culture or environment. These include sclr-
in grcalcr d·etai I. csteem, prestige, power, alTcction , social acceptance. These arc referred to as
psychogenic or secondary needs. · ------ ------------
f,) Check your Progre~s 1 All humans seek sheltc1: Thus, finding a place lo live fulfills the biogenic ----------------------
need. But the kind of place that a person rents or buys will be the. result·of his
_________ __·____ .___ .__
Fill in the blanks. secondary needs. The place that an individual finally selects will be the one that
fulfills both biogenic and psychogenic. needs.
1. The process of . can be viewed in three
distii1ct but interrelated stages: the input stage, the process stage, and Severfl psychologists have developed theories of human motivation. The
the output stage. three best kifown are Sigmund Freud,Abraham Maslow and Frederick Herzberg, -------------------- --
2. The · stage of the model focuses on how consumers make each ..wi.th tjif:fcrent imp Iications for consumer analysis and marketing strategy.
--·----- ------ ··--- -- -- -
decisions. Freud's theory states that the psychological forces shaping a person's
3. The._ __ _ _ stage of the model focuses on how consumers make behaviour arc largely unconscious, and that a person cannot fully understand ----------··- ------ --- -
stage consists of two important and related post-decision activities. his or her own motivations. Ile used the Laddering technique to undlvcr a
person's deepest motivations. Market researchers use laddering and projective
··----- -----~----- -----
Purchase behaviour and post purchase evaluation.
techniques to uncover the deepest motivations.
4. The_ _ _ __ stage influences the consumer's recognition of a
need and consists of two major sources of information: the firms' Maslow's theory explains why people are driven by particular needs at
marketing efforts and the socio-cultural environment within_ the · particular times. Why docs one person spend considerable time and energy
consumer resides. on obtaining best value for groceries and another on pursuing what others
think of him . Maslow's explanation was that human needs ·are arranged in a
hierarchy, from the most pressing to the least pressing. In order of importance,
.· "'i"'1;i,,11;:tr,~"'"""'"'
\'iinuA:tJ:ii,,. they are: physiological needs, safety needs, social needs, esteem needs and self
actualisation needs . People try to satisfy their most pressing needs first and then
Consumer needs are the essence of the marketing concept of doing the next most important one. Maslow's theory helps marketers understand how
business. The key to a company's·survival, growth and profitability in a highly different products fit into _the plans goals and lives of different consumers.
competitive marketplace is its ability to identify ancl satisfy unfulfilled consumer
needs better and sooner than competition. · · Herzberg developed a two-factor theory that distinguishes dissatisficrs
(factors that cause dissatisfaction) and satisfiers (factors that cause satisfaction).
Marketers do not create needs, contrary to what is commonly believed. The absence of dissatisfiers is not enough; satisfiers must be actively present
Marketers can only make consumers aware of deeply felt latent nee~s that_they to motivate a purchase. For. example, the lack of after-sales service would be a
are unaware of. We have learnt before that firms must define the1r business key dissatisfier with purchase of a laptop. Yet the presence of after-sales service
mission in terms of the needs they aim to satisfy, rather than in terms of products. would by itself not act as a satisfier or motivator ofpurchase,._because it is not
6.3.1 Motivation the key source of satisfaction with the laptop. Ease of use or lightweight may be
----.-- -- · -------- .__ more important satisfiers.
Motivation is the driving force within individuals that impels them to
a
action. This driving force. is produced by state of"tensio~" which exists bec~use The implication of.this theo1y is·formarketers to first understand whether
of an unfulfilled need. Individuals strive at both consctous and subconsc10us a particular product attribute is a satisfier or dissatisfier. Whilst firm's must do ---------------------.
levels to reduce this tension, through actions which they believe will fulfill their their best to avoid dissatisficrs, they must provide the key satisfiers to motivate
needs and thi.1s reduce them of this stress. The specific goals.they select and the a purchase. Companies must differentiate their products on the key satisfiers as
patterns of action they undertake to achieve their goals arc results of individual these wilf determine which brand the customer will buy.
thinking and lcan,ing. · · ·

Marketing Management Consumer Behaviour

 Dynamics of Motivation thi s conccpl ni" pcrc•:p1io11 In dc·tc r1ni11c· ll'hal li1 clors i11fluencc consum ers
1nhu 1.
J. Motivation can be positive or negative in dirccHon: Con sum e rs ma y
!'eel a driving force towards a particular object or a drivin g forc e away Pnceplion is dclincd ,1, lh c process b) whi ch an indi vidual seiGch,
J'rom a particular object. Psychologists refer lo positi ve dri ves as needs, t> rg,111i ~cs and i111 cqm:1s , limuli i111 0 ,1 1nca11i11 gi'ul ,111cl cohcrcnt picture of th e
wants or desires; and to negative drives as fears or aversions. world. 111 s imple Lcrn1s, ii is how 11 c sec the 11·orld around us. lwo people,
· These positive or negative drives result in how consumers form go~ls. exposed to the same stimuli under the same conditi_ons, will interpret and
A person may include organic foods in his diet as it is healthier way of respond in unique ways based on their needs, values and e·xpcctations. ·
eating, as his goal is a healthier life (positive goal). Another person may Dynamics of Perception
include the same product in· his diet to avoid disease, as the person may
1. Selective perception: Human l)cings are constantly borr1barded with
fear ill health (avoidance of a negative goal). This has implications for the
billions of stimuli during every minute of the day. A stimulus is any unit
way marketing messages must be coded.
of input to any of the senses (eyes, ears, nose, mouth and skin). Examples
2. Needs are never fully satisfied: Mqst human needs are never fully or of stimuli include products, packaging, brand names, marketing
permanently satisfied. For example, ~t regular intervals thr?u~hout the communications and rctai I stores. Every element of the marketing mix is
day individuals experience hunge_r_ needs that must be satisfied. Mo~t a stimulus.
people regularly seek companionship and approval from others to sat1s1-y
Consumers subconsciously exercise a great deal of selectivity as to which
their social needs.· Even more complex psychological needs arc rarely
stimuli to receive. A person walking into a ret'ail outlet may be exposed to
fully satisfied. Individuals continuously strive harder to satisfy their needs
20,0001')roducts of different colors, sizes shapes and smell; I 00 people co
more fully.
s hoppers or re tail staff; differept sme lls (people, di s infectants, perfumes,
3. Multiplicity of needs: Consumers try to fulfill more than one need at the fruit); sounds within the shop (coi1versations, air conditioners, cash
same time; recall the earlier example of the house fulfilling both safety registers, staff at work; sounds outside the store (traffic, honking cars,
as well a~· esteem needs. Usually, however, there is one overriding or s_creeching tyres, car door~ slamming and so 0·11 .
prcpotent need that triggers behaviour. ---- -------- --------- -
Yet humans manage to complete the task on hand within a reasonable
4. Needs and goals vary among individuals: One cannot accurately infer a period of time without losing their sanity. This is possible because a -- -- -- --- ---- ---------
person's real motives from his purchase behaviour. People with differ~nt person exercises selective perception (selective attention). People tend to
needs may seek fulfillment through selection of the ·s ame goal; people with be more attentive to stimuli 'about things relevant to their needs or wants.
same need may seek fulfillment through different goals. Five different At the same time a stimuli may awaken a latent need, in which case the
people decide to run the "Mumbai Marathon", each for a different 1:eason. consumer's attention is immediately drawn to such stimuli .
~---------· -------- - -
.. The vaTiety of reasons could be: a test offitness and stamina, to part1c1pate
2. Selective distortion: People "see" what they expect to "see" and this is
in high profile social event, for a social cause, peer pressure, to name a
usually based on familiarity, experience, and mind set. In the marketing
few.
context, people perceive marketing stimuli according to their own
Hence, fiv~ differe~t people may be driven by the same need to seek expectations and interpret the info1mation in a way that will into their
fulfillment in five different ways. For example, individuals satisfy their esteem · preconceptions. Subconsciously they screen out stimuli that they find
needs either through objects, participation in a political organisation, or social threatening to their values and beliefs.
organisatio11s such as clubs or even by working for a cause.
Individuals are subject to a number of influences that tend to distort their
'fhese differences between individuals has · extremely important perceptions. People tend to attribute qualities they associate with certain
implications fo1: market segmentation. people to other who resemble them, whether or not they consciously
6.3.2 Perception recognise the similarity. For this reason proper selection of models for an
advertisement can be a key clement in persuasiveness. Advertisers must
Individu;ls act and react on the basis of their perceptions, not on the basis · ensure that there is a rational match between the product advertised and
of objective reality. For each person reality is a total personal_phenomenon, the attributes of the mode l used to promote it.
bases on that person's needs, wants, values and personal expencnces. Hence, ------------------ .-
i to the marketer consumers' perceptions are much more important than their 3. Selective retention: Due to the overwhelming amount of stimuli that ..
'
i
I knowledge of objective reality. Individuals take decisions and actions based on people are exposed to, they forget much of what they would hav~ iearnt. ----------------------
what they perceive to be their reality; it is important for marketers to understand As a mechanism of coping arid perceptually managing all the information,
..;

Marketing Management j, • Consumer Dchaviour

 people: tend lo 1·l·111c11ihl·1· ll'h:11 th e) like .11HI what lits in 11 ilh 1·alucs and nodes. When a p,ll"licul a1·11odc is ,1cti1·a!l'd . th e inlc1r111ation is recalled and
bc: li cls and ilirgct 11 h,ll th ey di slik e or 11 hat is contrnry !o their bcli t: ls. further associated inl'orrnation is rcc·alkd thrnugh the link s. Marketers
Understanding con st1n1tr behaviour is essentiall y about undcrstandi11 g stud y 111c1n nry nelworks ol' diffcrc11t cu 11 su1n c_1·s regarding a particular
.incl 111anagin g perception s. Con sumer pcrccplio1\s impact all aspect s of brand and map the main associations lh;i1 arc tri ggc1·cd and their relati ve
marketing: products , product positioning, brand image, service levels, strength and 1·rcqucncy.
prices, communications, quality, retail stores amongst others. A .more 2. Altitudes arc as important as beliefs. An auitudc is a learned predisposition
detailed explanation of each impact will be covered in the relevant units to behave in a favorable or"unfavorablc way with respect to 11 given object.
as we progress in our study of marketing.
People have attitudes towards almost everything, be it clothes, religion,
The·important thing to know·is that perceptions do change over time. The music, social issues_and food. Attitudes lc<c1d people to behave in consistent
change at an individual's level has more to do with ageing, accumulation ways towards objects. Since attitudes are learnt, they-can ·be changed or molded.
of experience, exposure to new or different stimuli. Perceptions can thus Marketers must first understand consumer altitudes and either fit products into
also be molded or influenced by marketers through repetitive exposure. existing attitudes or alter attitudes.
6.3.3 Learning ·) 6.3.4 Personality
Learning is the process by which individuals ·acquire the purchase and Personality is defined as the inner psycholog1cal characteristics of an
consumption knowledge and experience that they apply to future related individual that both determine and reflect how a person responds to his or her
behaviour. There are several important points in this definition to be noted. own environment. It is important lo note that personality is an inner characteristic
First that consumer learning is a process; that is, it continually evolves and that distinguishes ono-individual from another. Although two or more people
changes as a result of newly acquired knowledge (which may be gained from
reading, discussions, observation or from thinking) or from actual experience.
may share common traits, the personality of
each individual is unique to him
or he1: An individual personality undergoes a change as a process of gradual
Both newly acquired knowledge and personal experience serve as feedback to maturing or may be accelerated by life altering events such as death of a loved
the individual and provide the basis for future behaviour in similar situations. one or divorce.
Most human behaviour is learnt. Learning is a complex interplay of According to Freudian psychoanalytic theory, human drives arc largely
drives, stimuli, cues, responses and reinforcements. unconscious and that consumers arc primarily unaware of their true reasons for
A drive is a strong internal stimulus compelling action. buying what they buy. According to this theory, consumer purchases are largely
a reflection and an extension o( the consumers own personality. Personality
A cue is an external stimulus that directs consumer drives towards
traits arc studied to gauge parameters such as consumer innovativeness, need
specific products, when they are consistent with consumer expectations. How
for uniqueness and response to different types of promotional messages.
indiyiduals react lo a Gue or a drive-how they behave-constitutes their response.
Learning takes place eveti when responses are not overt. For example, it is found that consumers who rely on their inner values
(inner-directed people) i11 evaluating products arc mo re likely to be product
Reinforcement increases.the likelihood that a specific response will occur
innovators and respond better to marketing commm1 ications that stress product
in the future as a result of particular cues or stimuli.
features and personal benefits. Whereas, people who rely more on others
There are a number of behavioural learning theories e~pl~ining how for direction, (other-directed) are less likely to be innovators. They respond
learning takes place; however, not all are in agreemen_t with each other. How better to communications that feature an approving social environment or
co_nsumers learn about products has very immediate implication for marketing social acceptances of a particular purchase. Consumers also attribute various
communications. descriptive· personality-like traits or human characteristics to different brands
Delicfs nnd Attitudes in a wide variety of product categories. These "brand personalities" strongly
shape consumer responses, preferences and loyalties towards brands.
Through learning· and doing people acquire attitudes and beliefs which in r.!~,
turn influence buying behaviour.
--------------------. -
' . ~ ------- I. A belief is a descriptive thought that a person holds about something.
Marketers are interested in beliefs, as it influences a person's buying cl the
decisions. Beliefs about products and brands exist in a person's memory. t,,f ' f-'• , ..... : •.

Memory is a network o( nodes and connecting links. The nodes rcpre;ent ~.~-: -'.-, ·.:)

.,
I
the stored infonnation and the links represcrit the connection between

Marketing Management Consumer Behaviour

 "Speed" has, righl fi·orn its launch, aspired to touch an emolional 2. Occupation and economic circurnst-a nccs: Co 11 su111pti on behav iour is
chord with ils target segment. That probably explains the nature of some ot greatl y affected by occupation, as nia n1 nccupa1 io11s arc associated with
its unconventional as well as innovative brand associations - marketing ve ry speci fic personalit y tra its.
tie-up with ' the release of " Di e another day" (James Bond), sponsoring Marketers arc interested in spec ific cco11 0111 ic va riab les such as disposabl e
the telecast of the Grand Prix Formula I races, owning the "S peed Gun" income, sav ings and assets, debts, borrnwi ng powe r and attitudes towards
propertr in 9!'icket telecasts, organising the Speed Run (the quarter mile drag . saving and spending. These variabl es inffocnce a customer 's price
race) i;ind .the association with t!1e )K Tyre National G.o-KartingChampionship sensitivity and perception of value. ·
, a.~d $Jreet_Rac(9-$ ?e~ides. its. ass?ci~~-Qn ~i,tts~r ma\11ufacturers,!i~e General
;'Motor~ (oi: _·'its rally. and
Optra mileage iiclvantageI,,,_,, Maruti• for its Motor cross. 3. Lifestyle: A person 's cultural and social setting and occupation detennine
F · I-._ . ._f :•, •
;.i., \ • 1 •
< "• ~,' • , , · · . .-1_ "..
lifestyle.
' the philosophy 'clearly is to t'ap into i:lie passions of the '.target audience, in' a
·..¢\mner: whith is in congrueric~,to Jhe brand j5ersonality of "Speed" _: stylish, Lifestyle is defined as a patt~rn of living expressed in activities, interests
,e'~ci~ing,-cont~rnp6dty, and c~61 and.at,the;same time?highly reliable,' "' and opinions (AIO variable). Lifestyle portrays the "whole person" and its
;\J/•);1•'\~: /II.'~- ;';- • :; ''. -· . I .• , ', •, '- ·, ·1:-•1 ~·;.I'. .ji; '
,-Spurc'e:.bharatpetroleum. com ,,, . ·. ·· · · . impact on consumption behaviour is difficult to separate from · the impact of
) ~i ·:, ,.;,J ·'_.\I- t ,, :r. -~:, ~~
...\' ,_ 'i '
other factors such as personality traits and beliefs and attitudes.
,. , Emarn·i, the personal and healthcare major, has set an ambitious target
--------------------
. . -- ''of making'Navratna a 200-cr brand b.y Dec.emboi· 2,006 . Navratna Oil today
' e'°njoys the leadership position as an ayurv~dic cool ~il, -which provioes reiief
0 Check your Progress 2 -------. -- --- ---- ·---
frorri stress and its associated symptoms ' like sleeplessness and headaches,
' and is popular for its baseline "Thanda Tha11'da·dot~ool".. ' . ' . ·· · Multiple Choice Single Response.
' . ,· ·:+#.1"'1'•\.¼-'?. .,, . . . ' .. :.., ·.. . .
,, . : Tµe c:01upany has recently )auqched Navratna Cool Talc - India's · I. ______ is defined as the process by which an individual
fi~st ev¢r'(::a_dl Talc. Navfatna Coof ial'c .will b6"enqoised by Bollyw'i:Jod star, selects, organises and interprets stimuli into a meaningful and
SJuih Riil<ll'Kha'n. He joins hands with m~gasfa'i-s Ainitabh Bachchan and coherent picture of £he world.
'Ohirailjeevi,as_an endorser of Brand Navratna. The company feels· that I. Perception
'Shahrukh Khan
is -the right choice as bl'and ambassador because he has
ii. Motivation
alwiiys beep. kno~n for his cool and calri1 personality. The new ad campaign
conimunicates the super cooling properties of Navratna Cool Talc and how iii, Needs
it Iiv~s-up.to its daim of being the smallestAC in the world. So there is great iv. Personality
,syne'~gy b~iw"e~l.1:'th(: brand person~lity and that of Mr. Khan.
•,-...,. ·. ··,·r . J•II ·')~:'--!<('• ,,.• ,.__ ;: • r.: <1':,·' ;_, Ci ;
2. ______ is the driving force within individuals that impels
-~ourr;~: ag~ncyfaq1com them to action.
Marketers are interested to understand in-depth personality traits as these I. Reinforcement
are important market segmentation variables. Furthermore, personal ity traits
will guide product positioning and marketing con1111unications. ii. Beliefs and Attitudes

6.3.5 Personal Factors iii. Motivation

There are other personal factors such as age, stage of family l'ife cycle, iv. Drive
\.
economic circumstances, occupation and lifestyle, 'which also influence
consumption behaviour.
1. Age and s~age of family cycle: People need different goods and services
over a lifetime. Researchers in the. US found nine distinct stages of
a personal life cycle which include: bachelor stage (living away from
family home), newly married couples, full nest with infa nt chi ldren,
full nest with young children, full nest with older financially dependant
children, empty nest and solita_ry survi vor. These stages of fa mily li fe
cycle arc very culture specific. In India where the joint. famil y sys\em
predominates, stages of fa mil y life cycles wou ld be very different; even - ---------------- -- - .: _
between metro cities and class I towns .
Marketing Management Consumer 13ehaviour
 '!. ol' 1.:l1ild1t:n, g<.:1tdc1 111k.s, indi vidual 1'1ccdorn, Qnd ntlitud cs tnwards ch:irity,
,, AchV•lY • Activity 1 altitudt:s towards 111u1H:y, l1u111a11itari sm and ·almost all oth t: r aspects 01· life.
Marketers nwsl understand in dt:ptli , th i: , ,ilu t:s . lan guage, ritual s
I. Whal arc the clif'fcrcnl. needs that tht: lolloll'ing product s sati sf'y'l
and symbol s or ]he cullu1·t:. of' their target rnar~C{s. I here arc vast difforcnct:~
(Rt:rn t: mbcr the multipli city ol' nt:cd s.)
bctw t:c n dill'c renl cultures ,ind 11rnrkt:Li11g progr,11ns 11 ct:d lo be lailort:d Lo the
1. A cup of coffee with friends at a restaurant cultures of' the clilfort:11L markets. Gcerl Hofstede, 1·cnowncd sociologist, has
11. · Buying trendy clothing done rcsc.arched national differences between cultures. Some of these were
111. Drinking a cold aerated beverage explained in Unit 3.
- .
iv. Gym membership An important aspect of' a culture study is also to understand how people,
C~uld there be different 1~1otivatio1~s for different people for the when they are transported . from one culture to another, adapt to their new
above products? List the different motivations tnat you can think of cultural environments. These studies are especially important as people become
and observe the list. Could these differen t motivations be used to group more geographically mobile to pursue their personal goals and ambitions.
consumers into a market segment? for instance, Indian migr:111ts to the US have adapted to the American "way

2. Examine the impact of personal factors on the demand for the following
of life" and yet retained their cultural identities; values, rituals and customs.
They maintain a strong connection to their· land of birth . Even within these
- - --- - - - --- ---- -- - -,- -
products: communities, there arc differences between first-generation migrants and
I. Milk in tetra packs second-generation migrants.
11. Ready-to-eat meals 6.4.2 Subculture
iii. Online payment of utility bills through your bank account Subculture is defined as a distinct cultural group that exists as an
identifiable sub-set within a larger more complex society. Within the broader
aspects of Indian society, several regional subcultures exist and exert a very
dominant influence on its people.
There arc different types of subcultures within a society. Regional,racial,
religious, and geographical and age subcultures do exist. Even gender related
· Most individuals interact with other people: family, colleagues, friends,
subcultures do exist, which influc11ce ~ttitudcs in important ways. for instance,
neighbou rs, co-workers and other social groups. In a larger cont1.:xt, pcop_le live
a number of studies have divided the urban female population into the following
within a communi ty which has its own charactct; values, norms and attitudes.
categories; stay-at-home housewives, plan-to-work housewives, just-a-job
These reference groups and their values have a very profound influence on a working women and career-oriented working women.
person's values, attitudes, behaviour, customs, rituals, and language and food
habits. An understanding of subcultures is important because subcultures aie
natural market segments that exist. Product characteristics, distribution p·atterns,
The various socio-c.ultural factors that marketers must understand are:
marketing communications must be tailored to these subcultural groups. ·
culture, sub-culture, social class, influence of reference groups a1)d influence
of family.
6.4.1 Culture
Culture is the essential character of a society that distinguishes it from
other cultural groups. Culture is defined as the sum total of learned b_eliefs,
values and customs that serve to direct the consumer behaviour of members of
a particular society. .
Cultural values and beliefs arc so ingrained in individuals that it affects
almost everything they do. Culture provides standards and rules about what
to eat, how to eat, when to eat, how to dress, and how to speak to . elders. ·
,.., k,:;If' .··
Culture is also associated with what people consider to be a necessity and th t1oqr.'$i~U4r y,'. jpp .
wh~t is considered as a luxury. Culture dictates norms of marriage, t:tpbringing ri .irways';)n'J~p~~~~o.pof.l\avfith&f:l! 11~i;nbe,rs 4 'or 9. ·If thyif~f~\ ~i!t{ipef(l
'~/ ;I< .f.c,, I . ' · • - •• . . ., ,,_: • ·. ' •• • • · • I", '•

Marketing Management Consumer Behaviour

 Notes with m:gali ve connolalio11s abro:1d, pn:sl'nting or packaging products in those
numbers when advertising should be avoided.lt11ages nrc also culturally While Bachchan leads the mind-share of all key demographic
eonsumcr segments (age, gender, occupation, city type or rogion ), Dhirubbai
sensitive. Whereas il JS common lo sec pictu res_ of women in bikinis on
advertising posters on Lhe strccls or London, sul:h images would cause outrage ~rnba111.1s the number two formostconsume.rsel5ments, with some cxc.eptions.
inthe Middle East.
For women and housewives, it is ~hahrukh Ithan: for teehagers,' ft is the
father; and among respondents from the sou~hcrn region, it is President Ka lam.
~~~rce: side~ad.com . Source: agencyfaqs -: ,,.
6.4.3 Reference Groups
Reference groups.arc all the fon11al and informal groups that have a direct
and indirect inl1ucncc on a person's behaviour. Refcre.ncc grou1:is arc subsets Check your Progress 3
of our subcultures and have closer refationship with our own set of values and
beliefs. Primary groups such as family, friends, neighbours and co-workers Match the _following.
exert_a direct influence on a person. -Secondary groups such as religious or
professional groups have more indirect inl1ucnce on a person's behaviour as the 1. Culture a. All formal and informal groups that have
interaction is more formal and not continuous. A new type of reference group a direct and indirect influence on .a person's
that has emerged in today 's digital environment is the virtual group which behav-ioui: They are subsets of our subcultures
bruigs together people from diverse cult\ircs, bul who share a common passion and have closer relationship with our own set
or ideology. As the time that people spend in this digital environment increases, of values and beliefs. --··- - - ----- ---- ------·-
the closer they arc gctt111g to these virtual g1oups and probably moving further II. Reference Group b. It is defined as a distinct cultura\ group that
away from their primary groups. exists as an identifiable sub-set within a larger
more complex society.
A person's at(\tudc, behaviour, lifestyle and self-concept .arc strongly ...
111. Subculture
--- --- ------ - - ------ -
- -
influenced by their reference groups. These groups also create pressures for
conformity which may affect actual brand choices.
c. It is defined as the sum total of learned beliefs
values and customs that serve to direct th;
consumer behaviour of members of a particular
The concept of consumer reference groups has been broadened now to society.
include groups that have no direct face-to-face contact with the person and yet can Virtual Group
JV. d. It,.is a new type of reference group that has
influence the person's behaviour. Celebrities, experts, successful businessmen,
emerged in today's digital environment which
political figures can all serve as role models or icons for a particular group of
brings together people from diverse cultures,
people and influence their attitudc~ and opinions iu important ways.
but who share a common passion or ideology.
. Actors and industrialists s~cm t~ be the hot favourite role models with
/
f~?i~n· pr~an,9,,~11~r~1hers. ~s pc~Jndicus Cons.:u~dTra~)cer's i~test 9~1aite1}y '\
1
,(December-January) survey of over 28,000 urbah'Inpian cb,nsumers on .theii1
foi.;J1:R,<l~ ,\'.~.1.t. s.:Us:.p._css,rye.~,e~i~ ..ac..~o..r.,AwifahJ·1·ij·;a~~hc,ha.n ,co.r}ti~~~s "to·-?~. - ---------· _. --- .-- --
inhe. a11, ·t,r,)~~,:d~&e.!\~tmt"-.?.lde,~;:A1e w
,. , 1[0 '~P,ot. ,),3is,l1e.~.
. P.',.a.1~hcq,
fShahr'ukH J(ha1J;',B , .. . ., 1. Visit Geert llofstcde's website to learn mon: about culture and its
impact on people.
' m<ithe(~~!"Jl.Ya.
tt'\d8ia -s: ano ·
6~ 2. M_uch has been written about _the problems at Euro Disney, the Walt
·r~·
. '-!¾,.tt·,,,tr!..
··fo1. D1s~cy Co's tl~eme park in France. The difficulties were largely ·
ariguly,")aya attnbl!ted to Disney's lack of understanding of the French culture
'iJS:iust<Mli't1 and the company's failure to modify its theme park concept to fit the
~mst,~tot!f"iin customs of European visitors. Search. the Net and find out:
. , , .. .. . . ... . . . . .a'tivirijsti~i~ tµ~ir c)ioice o succespcQn~. __ t e~ What were these cultural differe~c~s that the company did not
,th:;m the_ir ?Wll m.nthet~,no woman showed up in tbetr tist qf t~p Jp c9~frn$t, . 10
, ,.':'·ll·/,,"-fl:"t -,z£:'!i!"~.fy-1,'..·,·'·'.··J~,_'.t_•-};.,-+~•,·i;\::.,,;/-·1~ . · . ) . -• • · '·· '-' . . ,, · -_· -, 1 ··'•-''

consider at first?
ci.ii an, aver~ge, seyeg men ·and three women form the top'' lQ for women~
-.;\' ::: ~ _,i I J ... ,...__ 'to ~••'l I',. >, , ii.
How arc theme parks "in India different from those in Western
countries?
\.~---------------------------------------------------✓--

Marketing Management Consumer Behaviour

 hir in stan ce. _Ili c. dec ision about i11 s1a111 sna ck fond for children is made
by holh the mother and the child. The dcc isio11 -n1akcr and buye r may be the
l:vcryda y each ol' us 111akcs numerous <.kci, ions concernin g Cl'c ry aspect
1nother. but the influencer and use r is the child. Th e 111,1l hcr is concerned about
or our dail y li ves. Some deci sions WC make in a V\!ry ruut1nc_111anncr w1t!1out
the nutrition aspect.,as .wcll .i s case or 111aki11g. Th e child is conce rned with the
stoppin g t(; think about how we mak e those deci sions. Other dcc 1s1ons rcqu1rl'
taste. Mark eters need to ,1dd n.:ss alI lhesc co nce rns thro11gh appropriate fcaturl's
a great amount or effort and thinking and even perhaps some d1scomforl. and marketing eo111rnu11i ea1io11 s.
·Marketers need to go beyond the various influences on consumers and develop
an understanding of: 6.5.2 Types of Decisions

. Who makes these decisions Not all consu111er deci sion-making situations require the same degree
of effort. On a continuum of effort ranging from very high to very low, we
Where these decisions are made
can distinguish three specific levels of consun1er decision-making: extensive
The different types of buying decisions problem solving, limited problem solving and routinised response behaviour. ---------------------
All three aspects are extremely important for developing and targeting I. Extensive problem solving: This is observed when consumers have
marketing communications and the type and role of distribution channels. .
-- ------------- ---- -
no criteria for evaluating a product ~tegory or specific brands in that
6.5.1 Buying Roles category or have not been able to na1'row down the brands to a small ---------- -----
manageable subset, their dccisionamaking efforts can be classified as
For some product categories it is simple lo identify the decision-maker.
extensive problem solving. Typically, in product categories that are 'new',
Men will choose their shaving equipment and women will chose their personal
consumer exhibit extensive problem solving. At his level consumers -- -··-------- ---··--- ---
hygiene products. However, there are many other decisions where, who makes
need extensive education and assistance i11 recognising their own needs,
the decision is not always so clear; and there arc several people involved 111 the
establishing criteria as well the evaluation of brands. ----- ------------ -----
deci sion, each playing a different role.
2. Limited problem solving: At this level of problem solving, consumers
Through extensive consumer research, marketers must identify the ----------------------
decision- maker, the people involved in the decision and ~heir respective roles. have established their basic criteria for evaluating the product criteria
and the various brands in the catego,y. However, as they have not as yet
We can find five different roles people play in a buying decision: established brand preferences, their search for additional information is
Initiator: The person who initiates the idea of a product or service like "fine tuning" their decision. The search is more for brand infom1ation
(rather than category infqrmation) to discriminate among the various
lnftuen~ers: The -persons or person who influence/s the decision·. brands.
Lnfluencc can range from "pester power" to serious advice. Marketers
3. Routinised response behaviour: At this level customers have experience
-- ------ ---- -------- --
need to identify the "type of influence".
with the product catcgo1y and have established the basic criteria to evaluate
Decision-maker: The person who decides on any component of the brands. In sonic si(uations they may make some effo1t to evaluate some
decision . Every buying decision has four different components: whether additional if\formation that may have come their way or to review what
to buy, which brand to buy, how to buy (payn~ent mechanis1:1) and ~ here they already-know,
to buy. It is not uncommon to find different md1v1duals ~cmg dec1s10n-
makers for the different components. Paint manufacturers discovered that Henry Assael explored these different decision levels in greater detail and
the women of the house took decisions on brands and colours; whereas found that consumers exhibit different types of buyer behaviour because of
men took the decisions on whether to paint the house and the payment · two key criteria; Level of involvement and the degree of differences between
mechanism. Through consumer research, marketers need to identify the brands. Based oi:r.these criteria he distinguished four types of buyer behavior:
de.cision·makers and the decision component. complex buyi;1g behaviour, dissonance-reducing behaviour, variety seeking
behaviour and habitual buying behaviour.
Buyer: The individual who makes the physical effort of the actual
purchase. 6.5.3 The Level-of Involvement

User: The person/persons who will consume or use the product. The level of involvement is the time, energy and effort that is expended
on a purchase decision. Decisions where a large amount of time, energy and
· Fr~m the above.list it would be clear that several different individuals may
effort is expended are high involvement decisions; conversely pecisions where
be involved in a decision, e;ich individually or together, playing different roles.
minimal energy, effort and time are expended are low involvement decisions.
Each individual's role in the decision mirrors his br her concerns: Marketers
This now begs the question, what causes consumers to spend more time, energy
need to address these concerns through their communications.

Marketing Management Consumer Behaviour

 'Notes and elTnrt on some dec isions and less on oth ers'.' J"hc· .1 11 S\1 cT 11 is the perce ived· .\ . Com pk\ B11yi11 g Beha, io111·
ri sk that a con sum er !'e el s ll'hich causes hi111 10 he c· itli er mrnc i11 1uh c·d ,1r k ss
Crnnplc , hu, 111'-' hc· li:i 1 lll lll" 1111 011c·, ihrcl' stages: the lirst st,1gc· 11 hc·11
in volved in dec isions.
. . . . the buyer dl:1 d ops hc l1c Is ahl 1ut the prodLH·t. ,econd II hen he de: , clop, :1lti Lu dc:s
Percei, cd 1·isk is "the un ce naint y that cu nsu1 11c·r, li1cc· 11 hen the·, ca111Hll and third II hen he 111:1kc·s :1 tliought!"ul choice· ( ·1,nsum crs exhibit co1nplc , hu vin u
foresee the con seq ucnces or a purchase decision. " behaviour 11·hc·11 :
The difTerent types of uncertainties that consumers race arc product 1. They perceive grc_ater . r·isk and hence. arc more involved in the
performance un<;~rtainties, physical harm in case of products, which arc purchase.
internally consumed, financial risk of having "lost money" on the purchase or 11 . They arc "aware" of the difforcnces between brands.
of being "cheated" or social risks i"n terms of loss of face or self-image.
The· decision-making process under -these conditions is fairly lengthy
Tile degree of risk that a consumer per<:eives depends on:
and complex. Marketers need to understand the consumers' information
His knowledge of the product category/technology gathering, evaluation and dccisio1H11aking framework. They must develop
Whether the consumer has established criteria for evaluation strategies to help buyers " learn" about brand attributes and at the same time
"reassurc"~ustomcrs.
The tangibility of the product category - intangibles like service arc
difficult to evaluate · B. · --Dissonance-Reducing Behaviour
Sometimes the buyer is:
Individual's own personality traits SL1ch as anxiety levels
Shopping situation - online shopping·incrcascs the risk, as the products
I. Highly involved in a purchase but
cannot be physically examined. ii. "Sees" Ii ttlc differences between brands
Higher perceived risk causes consumers to be more involved in the pu1:chasc The high involvement is on account of high perceived risk. In this case
decision and lower perceived risk causes less involvement in the purchase the consumer will "browse" to learn what is available, but because there are
decision. The important thing to understand is that the level of perceived risk no real differences or he docs not understand the differences between brands,
is not constant; it changes as the consumer's knowledge about categories_and he may simply buy on price or convenience. In this case he may settle for a
bnmds increases. Hence, decisions once categori sed as high involvement can brand with a higher price, as he perceives the price to be a signal of better
become low involvement decisions . Conversely low involvement decisions can quality. After the purchase, he m11-y experience dissonance due to unfavourable
also become h_igher involvement decisions if there is a significant change in the performance or hearing favourable things about other brands. I Ic will be alert
product category due to technological changes or any other factors . to information that supports his decision. In this case the consumer first acted,
6.5.4 Differences between Brands and then developed beliefs and then attitudes towards brands.

This concept needs to be understood at two levels: Marketing strategies must help consumers develop beliefs and attitudes
that support his brand choice .
1. Actual differences between brands: Whether the brands in the catcgo1y ·
C. Habitual Buying Behaviour
are extremely similar or highly differentiated from each other. ·
2. Perceived differences between brands: Whether consumers perceive or Many products are _bo_ught under condition of low involvement because
understand the differences. Consumers may not _be able to discri_minate the risk perceived is low or has become low over a period of time and with
between brands because of his lack of knowledge, even though actual experience. Salt is the most common example of such a categoty, as buyers go
differences exist. to the store and reach out for the same brand out of habit and· not out of loyalty.
The consumer finds it safer to go with the habit as there are few differences
6.5.5 Types of Buying Behaviour between brands and he sees note.al reason to break his habit.
High Involvement Low Involvement Because this is a low involvement decision, consumers do not pass through
Significant Differences Complex buying ¼riety-seeking buying the sequence of belief, attitude and behaviour arid do not search extensively for
between brands behaviour behaviour infomiation; they are passive recipients of marketing communication about the
products. The repetition of communication helps to develop a brand familiarity
Few difference·s Dissonance-reducing Habilual buying
baying behaviour behaviour · which leads to a habit being formed.
between brands
cl Fig. 6.2: lypes of buying behaviour

~ Marketing Management Consumer Behaviour

 ------
\?l
-
, ;·· Notes ,, · Sal es prn111uliu11 s and pri L·c di scu t11ils arc 1:1 irl y ra111pa1-1! in such ca lcg,, ri L·s
iflhcrc arc a large nutnbcr ul cu111pc1111g br,1\llls. l(a 111pa11l prnrnolions ,lll d priL·c· C heck your Progress 4
offs lend lo degrad e brands 111 lh c lo11g tcrtn and o lfe r llll ··rca l rn luc" lo lhc·
consumer. ivhtrkclers lh cre fon.: exp lure opponu11ili cs lo roake a IQw i11, oh cn1c1tl Fjll in the blanks.
purchase inlo a hi gh in vuh crnc111 purchase and can do sob): I. On a continuum of clTmt ra nging 1·rn111 , cry hi gh 10 1·cry low, we ca n
1. Link the product lo an in vol vin g_ issuc cl1st111gu1sh three specific le vels or con sumer deci sion -making:
ii. Link the product to an involving personal real ~ifc situation ______ _ _ and _ _ __
111. Tapping into the real needs-and emotions related lo the product .purchase 2. We can find five different roles people play in a bL;ying decision:
. . 1v. Adel an important feature to enhance p<::rformancc.
------------------- --- _ _ and _ _ __
D. Variety Seeking Behaviour 3. There are four types ~fbuying behaviour:
and - -- -
Some situations are characterised by low involvement but significant
differences between brands .. Tr there arc a large number of brands, consumers
do a lot of brand switching; not because of dissatisfaction but more fo1 the sake
of variety.
The market leaders and market cha! lengcrs wi 11 follow different strategies
in such situations. Market leaders wi II encourage habitual behaviour by Children ·feature in commercials even for insurance and savings plans,
introducing variety within their own product lines, by dominating shelf space, mobile services and automobiles. Why do you think this i,!l so?
by frequent reminder advert·ising and appealing packaging Jcsign changes.
Market challengers on the other hand will offer inducements lo switch
such as promotional offers, introducing variants not present in the market
leaders product line, advertising that presents reasons for trying something new.
Many a times a purchase decision is taken at point of purchase, even
th.ough the need has been recognised much earlier, the decision about brands,
Infonnation search
pack size may be taken at point of purchase. The poi1_1t where the actual decision
is taken is irQportant for marketers as they try to influence consumers at that Cultural, social,
moment. Most low involvement categories rely very heavily on point of sale individual, and r-------------1-e Evaluation of alternatives
merchandising and shelf space, to influence the consumer's final dec ision about psychological
factors affect all
brand and pack size. On the other hand, high iqvolvement decisions are more
Purchase
premeditated and not taken at the point of sale. The point-of-sale merchandising
and assistance given to the consumer serves to help the consumers evaluate
brands and "influence" the decision. Postpurchase behaviour

Fig. 6.3: Consumer Decision-Making Process

The decision-making process of this model is concerned with how
·· consumers make decisions. The process consists of three stages: need
recognition, prepurchase search and evaluation of alternatives.
·6.6.1 Need Recognition
Th~ recognition occurs when a consumer is faced with a 'problem'. Th~re
are two different need recognition styles:
. An actual state, when the consumer perceives a problem either because he
1s out of stock of a product (daily necessities) or because a product has foiled or
not p·erformed satisfactorily. ·

Marketing Management Consumer Behaviour 'J67

 '
,;.
J-i,
t•l
'
~; ,\ de,in.:d sL,it c, \\' hc11 th e desire lor somethin g triggers a latent need and product category There arc al so cert ,1i11 othc1· l:1ctors ll'hi ch in crease th e time
an aspiratiu11 tu ,1equire th e product. St.:11'- exprcssive or i1nag..: produ cts lik e and e ffort spe nt on se,1rching. Con sider th e l:1ctor~ he Ill\\ "
personal acc..:ssori cs. c lothin g, hi gh-rnd ce ll phont.:s ,mcl _oth er such gad gets
1. 1:requ ..:11t changes in prnduct stvl i11 g
trigger the des ired state ol' 11t.:tcl ·rceog11itio11.
11. 1:requ cnt pri ce ch<111 gcs
Not al I " problem s" arc clearly defined or even understood by the consum er.
111. Lon g interval between purcha ses
Marketers must make considerable efforts in "educating" the consumer. When
Nike first introduced their range of fitness· shoes, they had to exhort pote11tial iv.• Major technologica l changes_
customers to adopt a lifestyle that focused on staying fit and healthy. For years, v. Purchase is a gift
Nike's communication educated the customers about the dangers of obesity and v1. Product is self-expressive, image product
a sedentary lifestyle. Once the fitness culture had gained· ground, market grew vii. Major sources of conflicting information ·
rapidly. But these initial market development efforts took time.
v111. Family members disagree on the evaluation of alternatives
The marketing tasks related to the need recognition stage vary from 1x. Unsatisfactory past experience
market development and cus_tomer education to provicl,ing st_imuli to trigger the
------ - ------ --- - - ---- .. need. Advertising, product displays, product design, pfckagmg, store locations Sources of information for prepurchase search are internal and external.
a.rid attractive store windows all marketers controlled .sources of stimuli that Internal sources are, as we have seen earlier, stored information 'i'ri the
trigge1 a nce~l recognition in the consumer. psychological field. External sources of information can be personal or
impcrsonnl. Personal sources would include ftiend s, colleagues, nei ghbors,
6.6.2 Pre-Purchase Search relatives, co-workers, dealers and company sales peop le. lmpe1:sonal sources of
The pre-purchase search begins when the consumer perceives a need information include press artic les, consumer reports, advertisements, brochures
that might be satisfied by the purchase and consumption of a product. When and web sites. Any or all oft.hese sources may be-used as apart of the consumer's
the consumer has some experience with the product, he searches his memory search.
(psychological field of the _d iagram), before seeking any external sources of The marketing tasks at th is stage are to provide relevant information to
information. On the other hand, if he has no past experience with the product, the customer abo~t the products. Marketers to assist in prepurchase search by
he has to engage in extensive external search for information. Past experience is providing information through their websites, advertisements, brochures, retail
considered as an internal source of information; the greater the past experience outlets, sales people, product displays and press articles.
with the product, the less is the external search. Most decisions arc a combination
of internal and external search. High involvement decisions will involve greater Testimonials of past customers also help customers in their prepurchase
search.
external search due to the high perceived risks. In low involvement decisions
consumers may rely much m~re on the internal sources of information. 6.6.3 Evaluation of Alternatives
"Shopping around;' is an important way of collecting external infonnation. When evaluating alternatives, consumers tend to use two types of
According to several st~die~ the amount of time spent on shopping depends on information : ·
the customer' knowledge of the·proquct category and the importance of the
1. Potential list of brands being considered
product purchase. The less the knowledge and the more important the product
purchase, the more time will be invested in shopping. Several consumer 2. The criteria to be used for evaluation
studies also reveal major differences between genders in their attitud~ towards The Evoked Set or Consideration Set consists of those brands that the
shopping. Most men do not .like to shop; whereas for women. shopping is a customer now . considers for further evaluation. Customer's usually narrow
relaxing, enjoyable leisure time activity.There are differences even in the way down to a list of brands to be considered, from a larger list of brands that they
men and women shop a nd collect information. are aware of. They exclude brands they consider inferior or about which they
The Internet has had a ·great impact on prepurchase search for information. may have heard a negative report about.
Web- sites provide a wealth of easily accessible information about brands, There could be other brands that a consumer may be neutral or indifferent
prudud categories; some sites even assist you with evaluation and deci sion- towards, simply because he has not enough information about these brands to
making criteria. fo1m an image. Such brauds also do not make it to the consiclernl ion set.
The duration of prepurchase search is dependant primarily on he perceived The. evoked set essentially co1)sists of brands that the consumer is familiar
ri sk, differences between brands and the consumers past experience with the with and finds acceptable.

Waw®(Ml
I ,
Marketing Management Consumer Behaviour
 The criteria used for evaluating brands arc usually expressed in terms of
be co11sidercd a trial. Trial purchases arc exploratory purchases ,is consumers
prnducl :i"llribut cs. 1'1·in: is also a p:1r1 or th c cri1c1·i:1 usi.:d. h,l\li.:1 i.:r cuslomers
alll"1np1 1u evaluate a producl through direct use.
do not 11,c ;111 cxacl pri ce' li g11n: ;1 s ;1 cr11c1·i:1 : rnlhn the) use' a price range as
bud get 1·llr the purchasi.:. Product allrihut<.:s liir c,ilor inkj <.: l printers could be Repeat purchase bcha, iour can result li-0111 brand loya lt, ur ma y be clue
nutpu! speed: ;rn111bcr or ink col(lurs. rcs~1l1i'tion . length or 11<11Tanty and US13 to a habit or inertia to t1·y a cli!Tcrcnt brand. Marketers need to be careful to
capabilit y. di stingui, h what is really d1·il'ing a repeal purchase. Con sumers iu-c loyal to
a brand when they believe it is scores the best on their evaluation criteria and
Dilkrenl targcl segments will use different criteria for evaluating brands.
when they develop a trust and liking for the brand. Brand loyalty is a measure
Through consumer research marketers und;:rstand the attributes more in terms of the h~art share of the consumer. ·
of benefits sought, and their relative importance. This is critical as consumers
may use several criteria; but clearl y some would be more important than others. Trial purchases are not always feasib le. For example for durable goods
consumers go directly from evaluation to long-term commitment, without an
Marketing tasks at this stage are about helping customers make the
opportunity for trial. Marketers use product demonstra.tions, test drives for . -------- .-----
evaluation by communicating the product attributes in terms of benefits and by
automobiles, money- back guarantees to help customers in their decision-
clearly and credibly stating their brand's point of differentiation. This not only making for purchases that are long-term commitments.
helps custome.rs make a choice, but even acts as reassurance to thejustomer.
Customers first form a purchase intention about a brand before actually
Durfog· the eva luation process, customers come across new evaluation
taking the purchase decision. Exogenous factors can change the purchase
criteria, which can at times increase anxiety leve ls for cusloii'ici's: Marketers
intention about a brand. For instance, a bad report about the brand from a
need to be address ing these "new questions" as they come up, through their
customer or negative publicity in the press can change the purchase inte1;tion,
communications.
and customer goes back to cvalua~ng alternatives. Out of the two factors,
At times, customers find it difficult to take a decision on evaluation negative word of mouth has a very powerful impact on the purchase decisions,
criteria and what they really want from their products. This is fairly common as it is the result of direct experience. A consumer may also decide to modify or
with "technology products", as consuniers may not understand the benefits that postpone the purchase, due to several reasons. A change in one's own economic
result form the technology. This can be a daunting task for the consumer, and circumstances or news of the launch of newer and better products or because
very often consumers develop a tcchno phobia. Apple computers demystified the customer expects a "bette·r deal" by postponing the purchase, are some of
computers with simple, straight forward marketing communications, when they the reasons why consumers may modify their decisions.
first launched the Macintosh. The language in the advertising copy was not
In making a purcha.se decisili)n, there are other related decisions to be made
"computer-speak", but the kind of language that consumers would use.
espec ially for long-term commitment purchases; the timing of the purchase, the
payment method and the retail outlet.
Marketers need to at this stage:
I. Allow trial.
Recall a recent lo_w involvement and high involvement decision you made.
For each of the -decision, can you recall the decision-making process? 2. Understand the reasons for the gap between intenti on and sale.
How did you evaluate the different options? What sources of information 3. Provide for different payment mechanisms.
were most credible? What kind of post-purchase evaluation did you do? Post-purchase Evaluation
' ~
When consumers use the product, they evaluate its performance in light
. of their own expectations. There are three possible outcomes that can result
from this:
The output portion of the consumer decision-making model concerns I. Actual performance matches expectations (neutral).
two post decision·activities: the purch_ase behaviour or decision itself and post-
2 .. Performance falls below expectations (dissonance or dissatisfaction) .
purchase evaluation.
Purchase Behaviour 3. Performance exceeds expectations (ranging from satisfaction to delight).
Consumers make. three types of purchases: trial purchases, repeat As a part of the post-purchase analyses, consumers usually try to reassure
· purchases and long-term commitment purchases. When a consumer purchases themselves that their choice was the right one. They tend to be receptive to
a product for the first time and buys a small quantity, this purchase would ipfonnation that corroborates their choice and tend to . block out information
that causes them to question their choice.
Marketing Management Consumer Behaviour
 i\larketing tasks here arc: l .l lti111a lel y a rl'lati o1ishi p ma rketi ng program is lo the co111pa11 > \ a,h antagc
as it 1s ,1 more prolitabk marketin g strategy. ~
I. fVlarkcLcrs 111ust 111011ilor post -pu1·L·li,i,;c usage ,111d satisli1c1iun. T he
Intern et ha s made it possible I'm 111:irkctcrs tu intera ct II ith ,111d keep in
touch \\ ith custo111crs.
2. 1-Tclp customers on product usa ge, throu g h product manual s, usage Marketers do not create need s. They on ly make consumers aware ol' th e ir
instructions. --- ------ . - ------- --- -
needs; whethe1' felt needs or latent needs.
3. Reassure customers by emphasis in g product performance. S_c vcral psychologists have developed theories of human motivation. The ·----- -- ----- ---------
. 4. Nevc'r overstate product claims . three best known arc Sigmund Freud, Abraham Mas low and Frederick
· llerzbcrg, each with different implications for consumer analysis and
5. Allow for easy and quick rcdressal of complaints before they get out of hand. marketing strategy.
Perception is defined as the process by which an individual selects,
organisc;s and interprets stimuli into a meaningful and coherent picture of
.... .. The; marketing concept followed by companii;:s tod ay emphasises on the world .
retaining customers as opposed to transaction marketing which focused only on Se lective attention, selective retention and selective distortion exp lain
acqui1i ng customers. We have see n in ea rli er uni ls wh y it is eco nomica lly more how consumers interpret stimuli
feasible to retain customers than to acquire new customers. Compan~s have to
balance both approaches i.e customer acquisition and customer retention. Much Learning is the process by which individuals acquire the purchase and
of a company 's customer acquisition activities arc affected by its customer consumption knowledge and experience that they apply to future related
rdention activities. Loyal customers become advocates of th e brand and are beha viour. Lea rnin g is a complex interplay of driv e~, stimuli , cues ,
responses and reinfo rcements.
powerful influencers.
Relationship marketing programmes must have three key clements: A belief is a descriptive thought that i perso9 holds about something.
I. An ongoing communication with customers. An attitude is a learned predisposition to behave in a favourable or
unfavourable way with respect to a given object.
2. Encouraging loyalty by building in extras like upgrades or other perks.
According to Freudian psyehoanalytic tbeoty, consumer purchases are
3. Create a sense of belonging by creating a community to which customers largely a reflection and an extension of the consumer's own personal ity..
can belong.
Personality is defined as the inner psychologica l characteristics of an
A relationship marketing programme uses database marketing tactics; bul individual .that both determine and reflect how a person responds to his or
it is much more than that. A real relationship prog ramme leaves the customer . h1.:r own e nvironment.
with the feeling that he or she ha s received something positive for being a
Reference groups are all the formal and informal g roups that have a direct
participant in the relationshi p.
and indi rect influence on a person's behavioui: Primary groups such as
Companies have found the internet to be an efficient, interactive and family, friends, neighbours and co-workers exert a direct influence on a
inexpensive way to extend their customer services. This has resulted in a new person. Secondary groups such as religious or professional groups have
phrase "permission marketing" which is the art of asking consumers if they more indirect influence.
would like to receive a targeted e-mail ad, promotion or message before it
appears in their inbox. The opposite is to send ·unsolicited e-mails or spam and ·• Decisions can ·be categorised as_ extensive problem solving, limited
problem solving or routinised response behaviour.
offering the option of"click here to opt out". This is not permission marketing
and greatly annoys c·ustomers. The.prepurchase search b egins when the consumer perceives a need that
Relati onship marketing has become so important because of the erosion of niight be satisfied by the purchase and consumption of a p~·oduct. Sources
brand loyalty. Research has shown that there are six key reaso ns why consumers of information for prepurchase search are internal and external.
I
·i
have become less brand loyal: (i) abundance of choice, (ii) easy ava il abi lity of T he output portion ot the consumer decision-making model concern s
infonn ation, (ii i) consumers expect mo re fro m the compani es th ey interact w ith, two pos t-decision activities: the purchase behaviour or dccisio.ri .itself and
(iv) commoditisation or lack of rea l meaningful differentiation, (v) insec urity, post- purchase evaluation.
and (vi) time scarcity.

Marketing Management Consumer Behaviour

 Consum ers ma~..: thrc:c types ol'purchascs: trial purcha ses, repeat purchases 6. Write short notes on :
and long-term co111111itrncnt purchases . Whcn consumers use the product,
they ..:valuate its pcrlorrnan ce in li ght or their ow n cx pcc tati ons. a) Brand pc1so nality
b) Brand loyalt y
There arc three poss ibl e outcomes that ca n result from post-purchase
analyses: actual performance matches expectations (neutral) , performance
. falls below expectations (dissonance or dissatisfaction), and performance
exceeds expectations (ranging from satisfaetion to delight).
Check your Progress I
Fill in the blanks.

1. The process of consumer decision-making.can be viewed in three distinct

---- ------ ---- --------
Motivation: The driving force within individuals that impels them to but interrelated stages: the input stage, the proces!i stage, and the output
action. stage.
Perceptiqµ: The process by which an individual selects, organises and 2. The process sta_ge of the model focuses on how consumers make decisions.
interprets stimuli into a meaningful and coherent picture of the world.
3. The fil!!P-ut stage consists of two important and related post-decision
Lc~;~in·g;· The process by which individuals acquire the purchase and activities. Purchase behaviour and post purchase evaluation.
consumption knowledge and experience that they apply to futu re related
behaviour. 4. The input stage influcnct:s the consumer 's recognition of a need and
consists of two major sources of information: the finns' marketing efforts
Personality: The inner psychological characteristics of an individual and the socio-cultural environment within the consumer resides.
that both determine and reflect how a person responds to his or her own
Check your Progress 2
environment.
Multiple Choice Single Response.
Culture: The sum total of learned beliefs, values and customs that serve
to direct the consumer behaviour of members of a particular society. I. _______ is defined as the process by whicl'l an individual selects,
Subculture: A distinct cultural group that exists as an identifiable subset organises and interprets stimuli into a meaningful and coherent picture of ----------- -- ------ ---
the world.
within a larger more complex society.
I. Perception
Reference groups: The formal and informal groups that have a direct and
indirect influence on a person 's behaviour: 2. ______ is the driving force within individuals that impels them
to action.
111. Motivation·

------------------ --- - . I. Check your Progress 3

What is the importance of Freud's, Maslow 's and !Ierzberg's theories in
understanding consumer motivations? Match the following.
2. What is the difference be~een beliefs and attitudes? Can marketers alter i. - c. --------------·-------
beliefs and attitudes? Give some examples of how beliefs and attitudes 11.-a.
might be altered. ----------------------
. iii. - b.
3. Explain the importance of culture in consumer behaviour. Give some
examples of how the same brand is communicated differently in different iv. -d.
countries because of cultural differences.
4. Explain the difference between complex buying behaviour and dissonance-
reducing behaviour.
5. What is relationship marketing and why has it gained somuch importance?
Give some examples of how companies have made efforts to build long-
term relationships with customers.

Marketing Management Consumer Behaviour

Check ~·our Progress .i
Mar~et Segmentation and Selecting Target Markets
Fill in the blanks . ---- UNIT
I. On ,1 co ntinuum ul' effort rnn gin g from I cry hi gh lo very low. we can
Structure: ,. : ..,
distingui sh three specific levels or cunsumcr dccision -niakin g: extensive
problem solving, limited problem solving and routinised response 7. I Introduction
behaviour.
7. 2 Market Segmentation
2. We can distinguish five different roles people play in a buying decision:
initiator, influencer, decision-maker, buyer and_user. .7.2.1 Segmentation-Targeting-·Positioning

3. There are four types of buying beh~vio~1r: complex buying behaviour, 7.2.2 Facts about Market Segmentation
dissonance-reducing behaviour, habitual buying behaviour, variety- 7.2.3 Niche Marketing
seeking behaviour.
7.2.4 Market Segmentation in Different Industries
7.3 Bases for Segmentation
7.3.1 Geographic Segmentation
I. Di llon, William R., Thomas J. Madden and Neil H. Firtle. Marketing
Research i"' a Marketing E11vi1vnrnent . St Louis: Time Min-or/Mosby
7.3.2 Demogrnpliic Segmentation
College Publishing. 7.J .3 Psychological Segmentation
2. Ramaswamy, VS. and S. Namakumari 2002. Marketing Management - 7.3.4 Psychographic Segmentation
Planning, Jmple111entatiun and Cont,vl (Global Persp ective). New Delhi:
7.3.5 Socio-Cultural Segmentation
Macmillan India Ltd.
7.3.6 Use-related Segrnentation
7.3.7 Usage Situation Segmentation
7.3 .8 Benefit Segmentation
7.3.9 Hybrid Segmentation''
7.4 Criteria for Effective Market Segmentation
7.5 The Market Segmentation Process
7.6 Market Targeting
Summary
Keywords
Self-Assessment Questions
Answers to Check y~ur Progress
· Suggested _Reading

Marketing Management I Market Segmentation and Selecting Target Markets

.Notes ·, Before the widcsp1·cad acceptance or market scg1nc11tatio1J , tlie prevailing . ·,
wa y 01· doing business with co11su111crs ll'a S through mnss 1nark-:ti11g offering
Objectives
the sa111c produ ct :ind 111arkcti11g 111ix lo all consumers. This was, or course,
-------~----------- ~ - - - -
After going through this unit , you will be able to: bcfon; the ath cnl or the marketing com:cpt. The marketing concept gained
acceptance as co1npa11ics realised that rna1-kcting was all ·about loct'1sing on
• Discuss the benefit or market segmentation f'or co111panies and
consumer needs and that because consumers were very diverse, their needs
consumers
_ and con!>umption goals, loo, were very diverse. Thus was born the conccpt _of
• Identify the bases for segmenting markets market segmentation .
----------- ----------··
• Evaluate criteria for effective market scgme11tation If all consumers were alike - sainc needs, wains, backgrounds,
- --------------
personalities,-culturcs mass (undifferentiated) marketing would be a very viable
• Select market coverage strategies
and successful strategy. Its primary advantage is that it costs less: one standard - --- -----------------
• Specify target markets prodtict, one advertisement campaign and only one distribution or packaging
strategy. But most marketers see a drawback in this shotgun approach, because -- ------- -------------
in trying to satisfy everyone with one standard undifferentiated product, they
end up satisfying, most customers only partially and none fully. -- ------ --------------
One of the earliest proponents of market segmentation was Alfred P
Sloan, President and chairman of General Motors. He inherited a company that A hot water heater of a standard 20-litre size may be too·big for a bachelor -- ------- -· -----------
was built through takeov.ers of small car companies and hcncc_produced many living by himse lf or a family of two and too small for a fami ly of five. Both
ill-sorted models unguided by clear business objectives. Sloan re-orga111sed the sets of customers would be "making do", which is vastly different from being
satisfied.
company and in 1924, articulated the companis product strategy as "a car for
every purse and purpose". This not to say that mass marketing is dead; it still has its relevance in
In the meanwhile, Ford continued to produce the Model T until 1927, as certain markets. Underdeveloped economies, where consumers are concerned
the market contin~ed to grow through mass production and mass marketing, • only with satisfying basic biogenic needs; developing economies, where
guided by Henry Ford's philosophy, "consumers can buy any colour, so long consu·mers are moving towards higher level needs and just becoming aware
as it is black". GM, on the other hand, offered a variety of affordable mass of different consumption goals and want more than generic products ; certain
pr;duced models from the autocratic Cadillac to the prolet~rian Chevrolet product categories like agricultural commodities or basic manufactured goods .
and took over a large part of Ford's market share. Long before the birth of Even in such markets, marketers_j)ractice a modified version of mass marketing
the marketing.concept, Alfred Sloan realised that all customers arc not created by focusing on customer needs and adapting products to evolving needs.
equal and are therefore not alike. The strategy of segmentation allows fim1s to avoid head-on competition in
It is said that the forces of globalisation will make· the world one the market place, by differentiating offerings on product attributes, styling, -pack
large market place with homogenous consumers. While the first ~art ~f the sizes, emotional appeals, ·services and method of distribution amongst others. ----------- --- .---- - --
statement is certainly true, consumers can never be homogenous. D1vers1ty of Marketers have found that the costs of following a rifle apprqach (segmented
consumers is a reality (as we have seen in the previous unit) and this diversity strategy); extensive consumer research, shorter production runs, differentiated
has become even more apparent today. Market segmentation and diversity are promotional campaigns; are more than offset by increased sales and greater
complementary concepts; without a diverse market pla_ce, composed of people consumer satisfaction. In most cases, consumers are willing to pay that much more
of different backgrounds, cultures, needs, wants, perceptions, attitudes, there for a product that closely satisfies their specific needs and consumption goals.
would be little reason to segment markets. Diversity in the market place makes · 7.2.1 Segmentation-Targeting-Positioning
market segmentation an attractive, viable and highly profitable strategy.
Segmentation-Targeting-Positioning (STP) is the logical strategic outcome
of following a market segmentation -strategy. After segmenting the market
into homogenous clusters, the marketer must select one or more segments to - ·-------------- ------
target. To accomplisidhis he must decide on a specific marketing rriix.- that is
Market Segmentation can be defined as the process of dividing
specific product, price, channel (place) and promotional appeal for each distinct
(partitioning) a market into distinct subsets ~f consumers with common needs,
segment. The third step. is positioning_the product in the consumers mind, so ·
goals, characteristics, with the goal of selechng one or more segments to target
that it is perceived by the customer as satisfying his needs better than other
with a distinct marketing mix. competitive offerings.-

Marketing Management Market Segmentation and Sekcting Target Markets

 The STP. strategy benefits both consu1rn:rs and ClllllJlanics alike and is
purchasing power. who ha ve unique needs and a stro ng motiv11tion to fulfill their
widely practiced in numerous industries . Consumer goods cump:mics ha n:
needs; hence arc will1n g_ lo pay a premi um for i1 uniqu e so lution 1ha1 s~ti~ fk s
· for Jong been practitioners or STP; but or late c,·cn finan cial sL:1 vices. bank s.
their needs. _l_lai-!ey l)a v1dso11 targe ts bikers ,,·ho s hare a "'pnssion" lor biking
educationa I inst ifut ions, reta i lc rs, hospila Ii ty industry, phar111acc ut1 ca I Ind us try, aqd whose l1_f esty les rcvuJve aroynd their passio n.
hospitals, media, nonprofit organisations have all adopted a market scg mcntati011
approach .. Even companies operating in a 828 market place arc segmcntmg Bose audio sys tems, a worldwide pionee r or hi g h performance audio
markets. · · · systems_ targe ts the ni che market of consumers who s hare a pass ion for music
and want to "experience" music. Today the cM1pany has developed prodi.icts
Segmentation studies are designed to discover the needs and wa nts of
fo\severa l sectors, suc h as business a1~d reta il soluti ons, stage performances,
specific groups of consumers so that specialised goods and services can be av1at1on and m1lttary applications.
developed to satisfy· their needs. Many new products have been developed to ----------- -----------
fill gaps in the market place revealed by segmentation research. Later oh, in this unit, as you learn about the criteria for effecti~e market
segmentation, you will understand that any small market cannot be termed as a ---------- ----- - ----- -
Jn addition to filling product gaps or need gaps, segmentation studies are mche, unless it satisfies the other criteria. Small market segments are not viable
used to identify the most appropriate media in which .to place the advertisements. for a_ny compirny as they do ~ot justify the investments and may not respond to
The media industry uses segmentation research to provide detailed profiles specific marketmg mixes. Niche markets on the other hand are very profitable
of their audiences and share their findings with advertisers seeking a similar ma;kct segments, despite their ·size, as customers place a high value on the
-- ---11-- --------------
audience. sat1sfact10n of their unique needs.
Segmentation studies are also used to redesign or reposition a product or 7.2.4 Market Segmentation in different Industries
even add a new market segment. I.
-- ---------------· -
Mutual Funds: Different investor groups have different investment
7.2.2 Facts about Market Segmentation goals b~cause of age, financial responsibilities, earning capabilities and
· An important distinction Reeds to be made at this stage between a segment .nsk takmg capa_bilities. Mutual funds have segmented markets based on
---------- --- -- - ---
and a sector The automobile industry-in India is divided into A, B, C segment mvestment goals and target these markets with a variety of products like
hatch back sedans, SU V's and so on. These descnptions do not describe consumer ~ure equity fun_ds, balance 6f debt and equity funds, tax savings plans, gilt ------- --- --- --- --
needs, as much as they describe the physical attributes of the automobiles. SUV tunds, young c1t1zens funds and so on .
customers are nol a homogcnous group, as customers within the group will 2.
Life Insuranc~: The market is segmented according to ·various life stages
differ in terms of attributes they consider important. These divisions therefore of buyers and mc ludes products such as investment policies, endowment --- ----------- -- ---
represent sectors and not market segments. Sectors exist because partitioning an schemes, term policies, savings or child specific solutions and retirement
industry into sectors only makes the segmentation exercise more manageable. schemes. The rural market is a vast uninsured market in [ndia; companies - ------------------
Companies like Mahindra and Mahindra have segmented the SUV_markct and have launched different schemes for these markets.
developed specific products like Scorpio, Bolero, Maxx (all w1thm the SUV - --------------- - -
category) for the different market segments. Birla Sun ~ite Insuran~e has launched "Bima Kavach Yojana" a unique
affordable msuran~e product for the rural market to provide a security -- --- -- --- - -- -- - ----.. -
The second important point to note is that marketers do not create market ~et for the popul~tton below the poverty line, who has n_everexpi;rienced
segments simply because marketers do not create needs._The ~arketers task ----------------
msurance and to mcrease the awareness about life insurance amongst the
is to identify the segments (identify needs) and to decide wluch ,onc(_s) ~o rural masses. Tata-AIG has launched "project micro insurance" for the -------------- ---
target. Even within market segments, the conc_e~t of perfect ~~~ogene1ty ts landless, daily wagers in rural Al).dhra Pradesh. ,. . . .
a myth, as no two people can be identical. Ind1v1dual cu~tom1sat10n may not - - ----------. ------
be economically feasible for marketers and custqmers !!hke, marketers try to 3. Credit Cards: Market segmentation is done as pe; ·income levels and
meet an _individual's needs, by offering a basic naked solution cont11ining the usage patterns. As per a . recent market research study, the motivations ----------------------
product elements that all customers within the segment value, with a verity of to own __ a credit card vary as per the income group. The Very Rich want
c_on_vemence ~nd wide acceptability, level of service ·and higher credit ----------------------
discretionary options that would vary in customer pteferences. .
hm1t-fron_i their cards as card usage is very high. · ·
7.2.3 Niche Marketing ----------------------
Interesting ly, on the other hand, the "C limbers" are moti vated to own·
A niche is a narrow ly defined group o f ~usto·mers seeking .a highly a card, as it g ives_ them prestige; other factors do not seem to m atter as ----------------------
distincti ve and unique solution. N iche segments consist of buyers with high much simply because card usage is very low. Credit card issuers have also ----------------- -----
· created a variety of affinity or co-brand ed cards to target different types
of usage. Those customers who extensively use their cards for travel are ----- ---------- - ------
Marketing Management Market Segmentation and Selecting Target Markets
 offered co-branded cards with airlines and hotels. Likewise, those who 7.3. 1 Gt•ographic Scgmcntatio11
use their card cxtcns1vc ly l<ll shoppi ng. cu11 d10 sc co branded c;1rrls of
( ,c" gr.1phi c I ariablcs di , idc th e 111arkcl:; by l1ll·;1lin11 °: ( icoµ1.ipliic I a1 iahb:
retai lers.
co ns ider the fol loll' i11 g li1rlors:

Check your Progress l • l{cg i·o11

Multiple Choice Single Response • Populaliori density

_ _ _ __ __ can be defined as th e process of dividing a market • C limatic conditions
into distinct subsets of consumers . with common needs, goals,
The concept is that people living in the same area will have s imilar needs
characteristics, with the goal cif selecting one or more segments to
and wants and that these· wants differ from people iiving in other areas. The
target with a distinct marketing mix.
factors g iven above can affect product choice in certain categories like clothing
1. Market Segmentation (type of clothing related to the climate), food (predominance of a regional taste),
ii. Market Strategy and trai1sporlalion (population density and infrastructure). Food is one product
category where geographic variables hay_e a very dominant effect.
- --- -- -- - -- -,--------
111. Positioning
For ·e xample, there arc very predominant regional prefe rences in the way
iv. Partitioning people drink tea. People in the northeast prefer the aromatic Assam leaf t~a:
2. A _ _ _ _ _ _ is a narrowly defined group of customers seeking the southern regions arc predominantly coffee drinking states and the tea that
a highly distinctive and unique solution. is consumed here is dust tea. C limatic conditions affect food choices greatly, as
people develop tastes for what is cultivated locally. Coffee drinking was very
1. :Niche
uncommon in the northern states, until the companies' marketed .coffee as a
ii. Segment cold rather than a hot beverage .
111. Consumer Marketers have observed di vergent product preferences among metro,
- "'.:.~-- - .. -- - - -- .. - - - --- - - -
iv. Individual other urban cities, semi urban and rural areas. In the metro cities, population
density is hi gh and homes are smaller; consequently, products, which are
compact, e.g. modular or space.saving furniture, convertible sofas and compact
appliances are prcforrecl. Such products have nol found much of a market in
other areas, where space is not so much at a premium.
Visit the websites: hose.com and Asian Paints .com, Geographic variables are important for media selection because geographic
segments can be reached tJ-irough local media like newspapers, radio; outdoor
a. Make a no~e of the different sectors that these companies operate in.
and regional editions of magazines. There are strong regional ·and language
b. . Within each sector, read about the different segments they operate preferences in terms of what people read or watch on television. · ·.
in .
7.3.2 Demographic Segmentation
Demography refers to the vital and measurable statistics of the population
and help to locate a target market. Demographic information is most popularly
used, as it is accessible, measurable and cost-effective. ·
The first step in developing a segmentation strategy is t~ select the
most appropriate bases(s) or variables to segment the market. Nine majo{ Demographic trends can reveal opportunities such as shifts in age, gender
categories of consumer characteristics provide the most popular bases or · and income distribution. The dem_ographic vadables most commonly used are:
variables for segmentation. They are geographic factors, demographic factors,
• Age and stage of.life cycle
psychological factors, psychographic (lifestyle) factors, socio-cultural, use
related characteristics, use-situation related characteristics, benefits sought and • Gender
forms of hybrid segmentation. • Marital status
Each of the nine bases is discussed in detail below.
• Income

Marketing Management Market Segmentation and Select ing Target Markets

 .Notes l'. du c,1Lin11 these prnducl s . .1\lthou gh sa les as such wnc ll<ll p,1rli rn larl y a lTcc tcd, ii
(krnpat io11 did prese nt :1n1ajor probkm for th e brand , wh ich lt1 11nd ilsc ll' 111<.: reas ingly
:ilicnated l'ru111 th e prc,cnl 1cc na gc1·s and l\1 c11 ty-so111c1hi11 gs. 11 ho rejected
a) Age and stage of lifccydc th e rmdu ct because ii ll'as "so 111c1hing th eir l:1th crs 11·orl., ..
Product needs and interests du I ary ll'i th age and stage 0 1· famil y cyc le. h) Ge nder
The co mbined effect of' these variabl es _is more important for market
·segmentation; a 26-year-o ld · bac helor male and a 26-ycar-o ld married Gend er is very frcqu cnll y used as a segmentation va riabl e; wome11 have
male will have different res pons ibilities, which will affect needs, wants. traditionall y been buye rs or users of groceri es, hair color ai1d· cos metics;
-··----··----------
and product choices. Because of age motivated differences in consumption men ha ve been main users of shaving preparations and buyers of
goals, marketers find this to be a us eful segmentation variable; companies automobile~. But over the years,gender roles have blurred ma inly because
have successfully targeted particular age segments. of the impact of dual -inco111e house holds. It is increas ing ly common
to see commercials that depict men and women in roles traditionally
occupied by the opposite sex. Many ads show th e man taking more
interest in categories like detergents and playing a more child-nurturing
role. Women are taking activ~ interest in traditionally male dom ains like
investments and retirem(:11t_planning.
atkcl' 6,pporfo Whil st gender rol es may have blurred, there are clear differences between
the ge nd e rs in the way they think an<l approach tasks. Recent research has
n shown that men and women differ in the way they use the internet. Men
'· tend to click on a website because they are "information hun gry", whereas
;n8B(fr(,Ma · . women click because they expect to be "entertained and educated". Search
· ' , •. · . ·. ,·; -a,: :·'T'?i1,W :if,,~ ".'ll
categories al_so vastly differ between the genders .
iif,lwre \lre clqf~ to ,!rngfl!ll, )qn,f:e~;P.:~,i:u_ !f~i~,!o _. ·. _ _. _ _
ifqr' ~p\hP_~ni~_(isi!:~,~1/ef, 1,~-nul\[?~:,,"fh,6 ltv~~l\ t~e large~,c1t1~s a , c) Marital Status
---- ··- . ~-------------- ~tb \'ii'e 'hi~her -~OCI!_? 'tCOnOft\lC ;-classes:\ T~e growth1~f]!-µ~lear;fam:
:"°'" ~~_.,, · ."'. -·_· _J ~- . ~ • • '>, \,' ~~ r -,,, • _ •/."N Oil>, , , •'y OJ->.; , ~ . Traditionally, the family has been the focus of most marketing efforts; for
£o~Je i~c:oaj~f~~li~li~~~at,P:1:cl~~t}A? ~o,,, ~e_wY_?/.:;._<, .._, ..-i many products and services, the household continues to be the relevant
~~£~~:~.?f · W\gg}~g~~?t~ 1p__p~rhe~ 1¥, ~p ~~"'.~4~1~~ co nsuming unit. Marketers· are interestecl in the number and kind of
house holds that buy or own certain products. They are also interested in
the buying roles of the different members of the household to develop
appropriate marketing strategies .
. Marketers have di scovered the benefits of targeting specific marital status
groupings such as singles living away from home, divorced individuals,
single parents, and dual-income no kids (DINK'S) households, as the
numbers of such households is on the rise.
d) Income, Education and Occupation
Demographers have drawn an important distinction between age effects . For long, income has been the key variable for distinguishing between
(preferences due to chronological age) and cohort effects (preferenc·es market segments, because it is a strong indicator of the ability or inability
due to growing up during a specific period). Examples of age effect is the to pay for a product and hence a strong indicator of demand.
heightened increase in leisure travel in the late fifties and early sixties age
. .. group. Travel companies have created special tours and arrangements for However, income when combined with education and occupation gives a more
thi s age group as it represents a business opportunity. accurate picture of the "buying power" of a market segment. Purchasing ~ower
(b uying power) is a fun ction of inco me, ed ucation and occ upation . Education
Cohort ·effects states that peop le ho ld on to interests that they grew up and occ upation determine the stability of present earn ings as well as future
. to appreciate: This effect is seen particularly in categories li ke, music, growth potential in ea rnings. P urchasing power is also closely co-related with
movies and clothes. Levis fo und that the ''baby boomer" generation, the level of aspirations, ievel of materialism, optimism about life, j ob, economy
today in their fifti es, co ntinues to pre fer Levis jeans, as they grew up with etc. and age.

Marketing Management Markel Segmentation and Selecting Target Markets

i:
 Buyin g power is an important variable !or determinin g market potcntial !'or
di scretionary product ca1cgnrics like ent crtai11111 c111. gi/. mo, lik e di gital ca111eras Prestige buyers are motivated by a need for prestige·, .indulge self, ahd
and hi gh-cnd mobile phones. holi tb ys . purclwsc or s..:cond homes amon gst ex6lJJsivity; They aie lea~t pJice sensitive and desirol.Js' of.latest/ futi.1tistip
others. fe1:1tw·es in car:s.

7.3.3 l'sycholoi::ical Segmentation '.A,.dve11tt1re 'lrnyers seek fun ·& adventi.irc and to increase popularity; SUV
Recall the previous unit where we learnt how the intrinsic qualities or an :fi'tids" .r.ef~rence for these 'P'll . e $ ho.relate.to theil' cars as'fover. ' •
1 .i,

individual i.e. 111otivations, personality, perceptions, learning and attitudes :~ ,;ers·~~n't' fo, s,li
! '. , . _11)1, ~-, ·~ ','. ,tjt :.·•· . . ,
determine consumption goals; and that there are di ffercnces between individuals
based on these intrinsic qualities. Very naturally, these qualities will be become
important bases for segmenting markets.
,t· .·' .. , .' . . : :>'.· l ·' . ..... .' .•
ufomol:i~Ie .ritar.tctLt
• -~· 't.fj' '](•f :· ., ·. ~ -) . ; > I

• I, ., • • " • • !
' -{L ~1!<" :j._;. -_ 1\1

·~Hvlreeler '
. info,rinatio'nt:,
1
!41, apco®t .f◊t1o'~r ·
•·
} ., '. : ,.,.. w,,. "" ( """"'" e~Jhi follo'YJ1ig"'s~; '1ee~,;S
otive 'tiiatk.et-:ti. .., . .,,.. t "· . ' . ""· . . ,, ;
,. '_,.·, .. _};'-l·' ·.\/:-,_. ;'f\ ;~~t. ' )~'i:~t·,::.,:~·' .• \'' ~.~. _ · _;!
.. d fl1e ·1belief'that pi:¢stig~"ari,q sf.a'.~$ ~ee1s Jret,p
·yer.f ·of 'hign,er;e1'.d1~elt!ca1~~:rthe ·§'tudy-$Je.arly,,~~Ye.
j;&,vt111ple,syg111ekt~.:WhjI }p1;11~ti_g ;)iio,;122t2rc~/' l, 7.3.4 Psychographic Segmentation
9ti ~ato,i;~ ,fo~~f ~ il,u~~'b.u~~rs, 1 \~f.S%!1efd$;,ix~~flqt This form of market segmentation , commonly referred to as 'lifestyle
,t11e E~e~per
su111.U111nsed below: · , · · ,,
smair11r.~J
_ei;s fof!t:1f~~l}~7f
'·•·., \F · -". :"11
Y
_· ·,Sn segmentation', has identified promising market segments responsive to specific
.~t-•.~:,".,. l'JI" -~J·'J1~~-,k ..\ ' . ..,,'' ~ i~. /:y;/ Tt::Mf>l?
' .-:~· :}; ;.}/·-,•..• I•, marketing messages. The psychographic profile of the consumer reveals how
~Y~rs., are>n';l.otiya,t edliy a,;he,e.d to attract 9ppo.site consumers allocate their time, energy and money to activities and their interests
qmdJihage of tr~nay,~n(;f ihnovafive agp~lii tg'tb.t
Ji :~- "t; : :1t~ ff.?t' ·<'f ~ ~r·~ -:· ~~-·,~; .:.1 ~~1,,.t,/' ~~~:--·'· .~-:~•·'~t: ,4,?•-·;( and opinions about various issues,·Lifcstyle analysis, as it is commonly referred
1

l'.S~~-~}:a 11,~ed fi 1)~~!~ tr~h~P.R~~t1ov; im1,s%r~, to, very important reveals aspects ofa person's personality, real buying motives,
)P'•?i·e,;the ..l,\e!1~fit/l,~P.aJ,JJJ,y,~.t :9.i:\¥,. interests, altitudes, be! icfs and va lues; aspects which are otherwise difficult to
:. ~~-:~>t1~rJ,:H'f'~il .t·· *'":/ ~~~-::lstt;; uncover.
-------------· ------ -- Some of the uses to which Values and Lifestyles segmentation has been put are:
• To identify whom to target and find niche markets much more. easily.
• To locate where concentrations of your target group lives .
• To gain insight into why the target group acts the way it does.
• To improve and introduce products that speak to customers' values .

• To target marketing and advertising campaigns much more effectively

and much more accurately.
• To position products much more accurately in the marketplace

Marketing Management Markel Segmentation and Select ing Target Markets

 VALS Studies They 11re expressive. Progressive people in tune with the times, these
VALS is an acrqpym for values, Attitudes and Lifestyles. VALS is a w~ll consumers are not averse to em9racing the western cu1t.ure.
'¥known syndicated m~rket research study pione~recl by SRI International, a 24¾ dfthf J:>Opulation lies in this grollp. A majority of the people lie in the age
Management Consulting firm in Cal-iforhia. . gi;oups 1_8-?4 & 25- 34 and 42 % of the ,people are P.?~.t graduates,which goes
. . . . . . .. . ; ~ix lifestyle .c
; '', ,,·,.,.•\: ,''
< •
~~>(·., ~) ' ,

. ·oos an'd if
~.ctife~g:~t
· '\1.itio'ti
·rthiR,g~J
ith~ir,i-
in, the.·,:, l.i q;,:;,. _;.ii ...

cjaI and
',A'' ' i
htheWfiri:li
·i"'•:
.. f.•.·,. ·,:,.-''I'·'''

~~WilYJi.~~ei!, •., .. ,,. _:,fl'h\'.Y,W1l;_C)1. ly . ,,

'. ,, . , r,t?t;e,n ,to•~1~~1 · pop ..}b-e.s~%;. ... , f9Ple ~ho :¥.1.o~}i b~_,:ec_ypJ!,Xe.,.
:t,91i#vert1s~m,ehts 'a_!xed ,durmg ·c9r:gmero\al_.b{eak:s .o f Hin~! ·rnqyte~, o_eforr
!"m1fatt'%r ~indi w..civ(erola:fog p~p~aifim"\~1~d-~:ven coµun~rc{als appeafmgJt\
i ~Mi :·n'lovfos,,l)fewspape1\:do :n'.oJUnJJup49e_4heir behay,iout; ,f.(heyj~RJise
l :eo"' fe',~}!( ~~~~er so.~i~ c~cl~~:··~11j, ~re1~0,11tant!y tryi1:g_to '~iiulate ;(!1e~,
~f~o[!ty:endors~m~n;ts .?J~-s,oquct~afpeal to them:As con~}ll]Jer;they ; nlhS'p\1.rcha
•'. ~•1f L_. J.;
. tant to be extravagant att'd do:tiotmdulgethemselves, They;are not ;,itJi:ey ge11~.~~l
' •'iyf to disdbunts',a'n,d ''s~Ie's 'and do"ntt jndµlge in excessive buying ?' ',~,-i~ g,~t!:
··.a'.~d
-.tt ~.
tfeHery
d~rJng tl;i_e:feitiye s~~son.
~ rt~X~ ·.·~)~.
,"."i:-..~· ..... ...? ~.;!:i•,-Jf ·,f ~ i. ,,.
,, . ''·!' ,,...;_),{
-f- ,. ·,•: ,:;, · ): t ~~-~-. 12%bfs:Eci
:'tr,,.-:.:·---,·~:_Y·;••
pulation of SH ' .. sip th.is group.90 % 9ft tion
, ~,. , .· ..., , . .. . .. . . he'

i
l,
,t
J
f
l,
I'

Marketing Management Market Segmentation and Selecting Target Markets

 '8.tl'l focused qn
;,;eeting their needs and it is .these ends that matter more
. , , ... , " . . I
' om ~3!1ll~e f~l: m,0 My1;pc1 Jet }re quality conscious, They ·!!:PP,teciit $
. "· ... ,,. . '
JJ;
1:te means to arrive there,
'r ,·,. I' ' •
, '
,.,, 1
v1:1lue of edu,callon, <;:pimuercjals generally do not appeal to '1:hem. R~~iQJ,t
ci, ofthe population belongs to this categbry, The enthusi&stic natur~ of still of ti}levance ro th"eni. , ,
,1 ,·· . •:; ' ' . ~ . : ,.. ··- . . ·, ' . ,;; . ' ( '.. _-~ -~ J'. ·
·could bi'attt'ibJ;1ted,to th,e fact that 50% 6f the people-are in the age · R.eptesen'tini l4';1'% of {he population, this group is evenly spfead •acio~s .!ill
-------- -·--------··-··- · ke :tlP 50,% qf this grdup.
it v,", ;{(~ ' ~~~ !i1't., ,
,.._, _:.A ,:4,.it3..,, ~ .,
'.1

7.3.5 Socio-Cultural Segmentation

Consumer markets have been successfully subdivided into segments on
the basis of social class, cultui-al values and subcultures ,
Social Class implies that peopie in the same social strata, have the
same set of values, product preferences, beliefs and attitudes and buying and
consumption habits. People are more influenced by peers of their own social
strata than by people from other strata of the society, Social class membership
is not fixed as individual can move either up or down from the class position
held ·b y their parents, In India Social classes have been traditionally defined as
affluent, middle class, lower middle class, lower class and destitute; but these
parameters were found to too general for a meaningful classification.
The Market research society of India, in 1987-88 redefined social classes
as Socio-economic classes (SEC), where social strata , education and income
were. combined to create a new .variable which was discriminatory enough and
more accurate in determining buying behavioral patterns. SEC classifications
(SEC A I, A2 and so on till SEC E) have since been used by all marketers in
India as the defining parameter or starting point for market segmentation,
The 90's post liberalisation·decade saw a huge upward mobility in socio-
economic status of a large number of Indians, especially from SE.C B to SEC
A and SEC C to SEC B categories; consequently, there was a shift in buying
patterns as well. Spurt in literacy and pursuit of higher.education, exposure
to the outside world tlu·ough media, availability of credit created a new set
of consumers whose buying behaviour was being fuelled by aspirations rather
than by socio-economic status alone.
The SEC classification is now being reviewed by the MRSI, NCAER and
the Planning Commission, to create a more accurate system of classification
and is expected to be ready by end 2006.
Culture and Sub-culture
People of the same culture and sub-culture share the same values, beliefs
and customs, food habits and ways of dress ing. Marketers have to look out
for the emergence of new subcultures, like the "youth brigade", "rretizens";
· emerging subcultures create a new set of values, thiT]king, lifestyles, language
and dress codes. · · ··
Cultural segmentation is of pa11icular importance to. international
marketing and multinational companies; marketers .need to be sensitive to
cultures, especially when designing their communicat'ion programs or benefit
appea ls,

Marketing Management Market Segmentation and Selecting Target Markets

 7.3.6 Usc-rdalcd Scg111cn1atio11 pi.: 1·so11 s such li1mil y. pcc: rs Pr fr ii.: 11ds. People behave difTcret\ll y when
Use related scg rn cnlal 1un . is a n: ry i.: lfi.:c ti , c t,mn ,,t" si.:g1ncn1 ;1tion that " 1th li11nil y a11d II ith fric:nd s: lh is naturall y a lTcc ls bu yin g moti ves.
categorises cunsurnc rs 111 l<.!rn1 s 01· us;1g,c ch:1raclcri sti cs. all'arc'ni.:ss le , e ls a11d Us age s ituati ons :ll'c i111porlan1 , ariablcs tha1 dctc rmin c prnducl altributcs,
deg ree or brand loya lt :,. cornmuni cation appeal and 111cssJ gc:, pac kag ing, di stribution pattern s, the
• Usage characteristics differentiate ainong hea vy uscrs, medium users, light \'aluc lhal th e co1isu111 cr alla chcs to Lh e usage, hen ce pricing.
users, regular users, irregular users and first time users. This characteristic 7.3.8 Benefit Segmentation
has been used very effectively by product categories like alcoholic
Benefit or specific end use, is used at Lhe primary level to broadly -- - ---· - ---- -- ------- -
beverages, non-alcoholic beverages, shampoos, internet usage, telccom
categori se markets. For example, the batteries market is a very large market;
_service providers (m,obile and landlines) air travel amon~st others.
hence, first level of categorisation would be in terms of automotive batteries,
• Awareness levels include the consumers ' awareness of the product, batteries for ~pplianccs, industrial batteries, batteries for inverters. However,
interest in the product, readiness to buy the product or whether substantial these by themselves do not constitute segrnents. Automotive batteries can be
product education is required. further categorised as passenger car batteries, two wheeler batteries and so on.
) This level of categorisation is necessary to proceed with market segmentation,
• Degree of brand loyalty is sometimes as a segmentation parameter.
but must not be confused as market segmentation itself.
Marketers need to create loyalty programs for loyal users, and other
promotional appeals for the "brand switchers" . Marketers constantly attempt to identify the one most importa·nt benefit,
which will meaningful to the customer. A homogenous group of customers, who
7.3.7 Usage Situation Segment!tion
consider a particu lar benefit as most important, could then be said to constitute
Marketers have recognised that the use situation or occa_sion is in some product a market segment.
categories the prime variable that determines what the consumer will purchase
For example in the soaps category, personal hygiene is the generic benefit
or consume.
offered by all the brands; in addition to this, some benefits are more important
• Time: Leisure, at w.ork, formal, informal rush hour, morning, night etc. to individual~ such as protection from germs, hygiene, freshness, fragrance and
For example, cold medications usually contain substances that induce beauty. Dettol soap is targeted at individuals seeking protection from germs and
-. --- ----- -- ---- sleep. Marketers have created products targeted for cold relief during contamination; Dove is targeted at women that seek a soap with moisturising
the day (hence non-sleep inducing) and for relief al night, which may properties; Liril is targeted at individuals who seek freshness and fragrance.
induce a good night's sleep. Vicks Vaporub specifically targeted a rub for
Changing lifestyles also pl'ay a major role in determining the product
children at night, for adults as rub for monsoon colds. benefits that are important to consumers and provide marketers with opportunities
• Occasion: Where usage is linked to a special or specific occasion. for new products and services. The microwave oven was the perfect solution
Consumer research showed that a substantial number of Indian.families for the needs of dual income households, offering the benefit of cooking in
consider painting their homes when there is special occasions in the family seconds. In India however, meals are more elaborate and require longer cooking
like a marriage or a festival. Asian Paints created a brand called Utsav, time, hence this benefit of instant cooking was not valued by Indian households;
targeted specifically to this market segment; the colour choices, marketing the benefit that instead appealed to them more was that food could be instantly
communications very strongly resonated the festivity associated with heated in seconds and tasted as though freshly prepared. Marketers stress
usage occasion. Titan watches also very effective used this variable to . freshness and taste to women who are "taste conscious", and the benefit of
carve out several occasion related usage segments in the market. They instant cooking to those women who. are "time poor".
created watches .· for office wear, which were simple, formal yet classy, _7.3.9 Hybrid Segmentation
watches for casual wear and dress watches for formal occasions.
All the variables studied . earlier are single segmentation bases. As
----------------~---r- • The success of both tliese cases points specifically to . the fact that customers become "more in tune" with their. needs, they fine-tune their own
these companies challenged the existing preconceptions about market expectations from products. This has led to further segmentation of market~
segmentation within the industry and, through in-depth research and into micro-segments. Marketers have learnt that they m:ed to combine several
consumer insight, were able to uncover and satisfy unmet needs. variables rather than rely on a single variable, for a more accurate definition·
• Objective: Personal use, gifting, celebration, etc. . of market segments. As consumers evolve and become more in tune with their
needs, marketers also n·ecd to continuous ly review market segments .
• Location of use: In holl}e or outside h·omc consumption, at work and so on.
• Context: private consumption for self or used in the context of other

Marketing Management Market Segmentation and Selecting Target Markets

 Notes ll has become common marketing practi ce to combine diverse con surn..:r ,.,... ... :,Notes
clwrac1cri sti cs-dc111ngraphi cs, lifestyles, attitud es. psyc hographi cs, and if ) Check your Progress 2
mnli vntinn s - with different anal ytical tcclrniques lo find the most 111ea11ingl"ul
ll'ay ol' identifying and understandin g different custo1ncr groups. Thi s 1rn1 y· Match the following,
reveal ni che market opportunities, but equall y, it may sho11 that it is poss ible 10
combine small customer groups into larger and more profitable segments. 1. Use- rclatc:d segmentation ·11 di vides th e market s by locations.
;1.
ii. Psychological Segmentation b. Jt refers lo the vital and measurable
There could \)e a 11umber of hybrid segmentation approaches such as
statistics of the population.
Psychographic-demographic segmentation , Geo-demographic Segmentation iii. Socio-cultural segmentation c. It divides the market on the. basis of
and Socio-cultural - Psychographic segmentation. Hybrid approaches are very
intrinsic qualities of an individual.
specific to product ca_tegories and extensive consumer research is often the best iv. 1lybrid Segmentation d. This form of market segmentation
guide to the appropriate variables for the category.
is commonly referred to as ' lifestyle
Market ·Segmentation is not a one-time exercise; marketers have to segmentation.
continuously review segments, segmentation varia~les and adapt their marketing v. Usage situation segmentation e. Consumer markets have been
-·· -- - ··- -- --- -) - - ··----- mix to the evolving needs. Ongoing consumer research helps to track evolving successfully subdivided into segments ·
consumer needs nnd is the critical input to any segmentation exercise. on the basis of social class, cultural
values and subcultures
vi. Benefit Segmentation f. It is a very- effective form of
segmentation that categorises
consumers in terms of usage
characteristics, awareness levels and
degree of brand loyalty.
vii. Geographic Segmentation g. Marketers have recognised that the
use situation or occasion is in some
--- -------····-- -- ------- product categories the prime variable
that determines what the consumer
will purchase or consume.
viii.Demographic Segmentation h, Benefit or specific end use, is used
here for market segmentation.
ix, Psychographic Segmentation 1. This has led to further segmentation
of markets into micro-segments,

L For the next 3 days, make a detailed note of all the advertising that
you watch, Try to identify the profile of the oonsumer to whom those
advertisements were possibly targeted. What segmentation variables
would the companies have used?
2. Can you cite some examples of newer sub cultures that have emerged?
How are these groups distinctive from other groups? Which companies
target these subcultures? · · ··

:I

Marketing Management Market Segmentation and Selecting Target Markets

 ···t , Notes ·•.4GRITl}l{IAFti>REFFECTIV:E MARKET SEGMENTATION clat n pro vided by the ccnsu~ clcpa1·t111cnt , NC' i\ F, R, N RS surveys and SEC'
cl:iss ilications, or und ertak e a probability surl'cy 11·hose findin gs ca n be·
The poknti al benefits or a segmented bu sin ess strat egy (benclit s in terms ex trapolated to the to tal 111arkct.
of marketing clfecti vcness, crfi cicncy and co mpetiti l'e ad rn ntagc) can be
ac hi c, eel ir th e segmentation sa ti sfies three key tests nl' va lidit y:
• Jt is based on real and substantive differences between customer groups
\? C heck your Progress 3

(e.g. in what they wai1t). Multiple Choice Single Response ·

• These differences have significant implications for market behaviour (e.g . I. For a market-segment to be an effective target, a market segment
different segments display different buying patterns). should be , which means that the marketers must be able to reach the
• ·As a ·way ofunderstanding the structure ~fthe market, the segmentation market segments they want to target through media arid distribution
is predictive (e.g. what it implies about brand preferences are confirmed channels in an economical way.
by research data).
i. Substantial
Segmenting a· market is not simply a case of 'slicing and dicing' and Accessible
partitioning it into smaller niches. A more sophisticated approach looks for
------------- -- ----·- -)
opportunities to fulfill unmet needs and to re-define a market by questioning the 111. Diffcre11tiablc
industry's preconceptions on the segmentation variables. A fruitful segmentation iv. Actionable
exercise is one, which takes a fresh look at fundamental issues such as:
• What business is the company really in?
• What is the psychological basis of the needs/wants that customers express?
In the previous sections, we have learnt the variables used to define market
• How is the structure of the market evolving? segments and the criteria for effective market seg~entation. In this section,. we
• How could the market be re-shaped by new technology or new products? will learn about the process of market segmentation. The process is continuous
-~. -- ----- --- ---- ----- -
and follows four different stages: Survey, Analysis of findings, Seg1nent
• What competitive threats and opportunities arc emerging?
Profiling and Feasibility. These stages need not necessarily be sequential and
For a market segment to be an effective target, a market segment shotild will at times overlap. ,·
be Substantial, Accessible, Differentiable, Actionable and Measurable.
1. Survey: The survey stage consists of extensive consumer research, as
1. Substantial: For a market segment to be a worthwhile target, it must marketers try to gather extensive quantitative and qualitative information
consist of a sufficient number of people to warrant a marketing mix to about consumer buying motivators, consumption goals and buying
satisfy the specific needs or interests of the group. patterns. At this stage, marketers use ihe segmentation variables· we
2. Accessihle: Marketers inust be able to reach the market segments they studied earlier to gain an understanding of consumer behaviour. Various
ij want to target through media and distribution channels in an economical research methodologies arc used (Unit 5) to gain extensive infonnation·
'iI way. Marketers are constantly on the lookout for newer. accessibility on consumer behavior. ·
i
i; points; but it must be worthwhile or the segment must be large enough to 2. Analysis of Findings: The data gathered has to be collated in a meaningful
justify the effort. way and analysed. The aim of the analysis is to identify need gaps in the-
3. differentiable: Segments should be _distinguishable and respond market, emergeQce of new buying patterns, shift in_consumer perceptions,
differently to different marketing mix programs. If married and unmarried attitudes, values and any other changes, which may represent opportunities.
men respond similarly to the launch of a new brand of shirts, then th~y arc Effective analysis will provide a rich understanding of .consumer needs,
not different market segments. whether present unmet needs, latent needs or newer needs as they emerge:
4. Actionable : A fourth requirement for effective segmentation is that 3. Segment Profiling: .As. most companies use a hybrid segmentati9n
f effecti ve marketing programs can be created for serving the market. approach, segment profiling becomes a part of the earl ier stages. At this
5. Measurable: Lastly, the market seg.mcnt should be measurable in tcm1s stage, market may try to fi nd additional informat ion abo ut the observed
'l: ·of size, purchasi ng po\\'.cr and other cha racteristics. To estimate th_e size segments, such as medi a habits, ownership of du rables, spending patterns
on other related categories to gain a detailed understanding of the segment.
,,~:-~--------------------- and characteristics of each segment marketers often us~ demographic

Marketing Management Market Segmentation and Selecting Target Ma1lcts

 l'rnfiling is an i111por1ant input the designing the marketing mix , especially There are five different patterns or targc1..111arkct selection.
1hc corn111uni ca1io11 and di stribution program.
-t h al11ati11g Segment At tr;1ctivcncss: The las1 sta ge n l' th ..: segme nlation
process. be fore th e 111;1rk c1crs dec ide on segrnent(s) to targe t. is a detail ed
kasibilit y stud y ul' illL' different market segments. The first step is to
use the five criteria, we learnt earlier, to dctcnninc attractiveness. The l'1tll iat11rli.tt Sfl·edlldl11Mi611
segment may pass the first test, but marketers need to look -at long-term [\,II MJ .M3
profit attractiveness of a segment as well.
Additional criteria for segment attrac;tivencss are:

• Expected market growth· rat~. Unstable growth. rates do· not make for
Sd,din 1pe<:iull<ail<0t
long-term attractiveness of the:segment.
• Competitive intensi ty and other competitive forces. A "five forces"
analys is can be done on market segments as well to determine profit
· attracti vencss.
• Segment Development Costs; emerging market segments would require
market development efforts. Marketers must account for these costs to
• determine the feasibility of targeting a segment.
• Availability of reso_urces
• Leveraging of existing competitive advantage and skills and competencies .
• Impact of either environmental forces on the market segment Fig. 7.1: Different Patterns of Market Selection
• Tm pact on other market segments presently being targeted by the company. 1. Single Segment Concentration
-.... -··-----
All the factors that we learnt in the earlier units are used to evaluate the Also known as the "be a big fish in a small pond" strategy is, as you
attractiveness of a potential market segment. Sometimes attractive segments might recall, based on the g~neric competitive strategy - focus. Through
may not mesh with the companies long-run objectives or the company may lack concentrated marketing, a firm gains a strong knowledge of the segment's
a competitive advantage and necessary competencies to offer superior value to needs, develops competitive advantages to achieve a strong presence in
the customers the given segment. Through segment leadership, it captures a high return
on investment.
2. Selective Specialisation
Once a finn has identified feasible market segment opportunities, it has The company may decide to target several segments, but may be selective
to decide how many and which ones to target. The targeting approach revolves about the segments to target. This multi segment strategy has the advantage
around two key decisions: · of diversifying a firm's risk and gives it larger presence in an industry.
• How many segments to target? 3. .Product Specialisation
• Which segments to target? A firin specialises in a certain product and Sells it to several segments. A
firm may specialise in water purifiers and may decide to target homes,
The detailed internal and external strategic analysis conducted by the company institutions, commercial research labs and government establishments. For
(Unit3) aids the targeting decision.
each ma.rket segment it targets the company would have to appropriately
modify several elements of the marketing mix, but what it achieves
is a strong reputation in a specifi c product area. The downside of this
strategy is a technological revolution that may threaten the business of the
company: But this would be true only for those organisations that have
not monitored the changes in ·the technological environment and have
been unable to adapt their business appropriately."

Marketing Management Markel Segmentation and Selecting Target Markets

r.1

4. Market Specialisation
• Co mpetiti \"l:: Adva ntage •
A firm co nce ntrates on serv ing th e man y needs of a parti cu lar· customer • Skill s. assets. co rnpct cnc ies
gro up. J\11 exa mple wo uld be an online se ller o r books, w ho hav in g built
• Access to linanc ia l rc,,01,irccs.
up a la rge customer base. diversifies into se lling oth er prod\.rcts lik e niusic,
ca meras and other such asso rtm ents to th e customer group. The firm gains
a strong reputation in serving this customer group and becomes a channel tfii Check your Progress 4
for additional products that the customer segment can use. The downside
of this strategy is major shift in the attractiveness of the.given market Muitiple _Choice Single Response -- - -- --- - ---- --- ---
segment, would tlu-eaten the entire business of the company. Again, as
I. What is Selective Specialisation?
ea.rlier, such factors are a threat to those companies that have not seen it
coming and have not been able to adapt successfully. I. Al~o known as the ,;be a big fish in· a small pond"
5. Full market coverage 11. The company may decide to target several segments, but may
be selective about the segments to target. ---~------------------
The company attempts to cover all market segments with their products.
Very large corporations like Maruti, Hyundai, Coke and Hindustan Lever Ill. A firm specialises i~ a certain product and>sells it to several
can undertake a full market coverage strategy. Companies can cover segments.
the market in two broad ways: through undifferentiated marketing or iv. A firm concentrates on serving the many needs of a particular
differentiated marketing.
customer group.
In undifferentiated marketing, the firm practices mass marketing by
going after the entire market with one marketing mix. It designs a product
and marketing program that appeals to the broadest number of buyers
and relies on mass distribution and .mass advertising. It relies on mass
production and standardisation of the product to achieve economies of
• Market segmentation exists because consumer diversity exists. Market
segmentation focuses first on homogenous needs and then groups
. - - --- ------------ ---- scale and profitability. Presently such an approach is possible only in highly customers that have tlwse needs into a market segment.
regulated markets, where a single firm enjoys a monopoly status, due to
regulatory protection; or in Ul).derdeveloped markets, with consumers at • A segmented approach to business strategy is win-win situation for both
the very basic level ofbiogenic·needs. A slightly varied "Undifferentiated consumers and companie~ consumers benefit as companies try to fulfill
marketing" approach, may work successfully for companies that have their needs in better ways; companies benefit due to higher customer
achieved cost leadership and are able to maintain differentiation parity satisfaction and profitability.
with other key competitors. Such firms chose to target the largest segment ·• Market segmentation .is the-first step in the three phase marketing strategy
in the market (often confused with a mass-marketing approach) and earn of segmentation, targeting and positioning.
returns higher than industry average q~e to their cost advantages.
• A niche is a narrowly 'defin~d group of customers seeking a highly
In differentiated Marketing, the firm operates in several markets, but distinctive and unique solution. Niche segments consist of buyers with
designs a specific marketing mix for each market segment,' that it selects high purchasing power, who have unique needs and a strong .motivation
to target. Full market cov.erage with, differentiated marketing_is highly to fulfill their needs. · ··
appropriate for companies with a strong competitive advantage and the
financial resources; without a competitive advantage,' the strategy is • Market Segmentation · ~s · not a onetime exercise; marketers have to
continuously review segments, segmentation variables and adapt their
-- ------------------- - highly unlikely fo be successful in today's intensely competitive market
marketing mix to the evolving needs. . · ·
place. Profitability is achieved only·by the firm's ability to influehce the
---------------------- competitive forces .al).d by having a clear generic business strategy in
place.
• ..· be
Fo; a market segment, -to be an effective target, a market segme1?,t should
Substantial, Accessible, Differentiable, Actionable and Measurable. ----- · ----------------
W hich approach .a con1pany should take will depend on a company's: • The process of market segmentation is continuous and follows four
di fferent stages: Survey, Analys is of fi ndings, Segment Profiling and
• Obj ectives in' a market p lace ---------------~------
Feasibility. These stages need not necessarily be sequential and will at
• Generic competitive strategy times overlap.

Marketing Management Markel Segmentation and Selecting Target Markets

 iv
0
V.
• Segmentation: Di1 is1011 into seg111 e1 11.1· "
VI. h
• Niche:/\ place or posi.t io11 suitable o,.-a ppropriatc for a pcrso11 or tlii11g. a
vii. a
distinct segment of' a market
viii. - b
---------------------- ix. . - d - - . - --- - -- - -- --- - ---- -
I. Check your Progress 3
What is the difference between mass marketing and segmented marketing?
Give one example of each. Between the two, which is the more profitable Multiple Choice Single Response
marketing approach and why?
1. For a market segment to be an effective target, a market segment should
2. Driefly explain the segmentation, targeting and positioning approach . be ___ ______ , which means that the marketers must be
What is the difference between sector and segment? Give some examples. able to reach the market segments they want to target through media and
3. distribµtion channels in an economical way. )
Explain the statement " Market Segmentation is about consumer nee_d~ and
not just consumers". Explain the nine commonly used bases for market v1. Accessible
segmentation. For each variable, find out one example from industry. Check your Progress 4
4. Write short notes:
Multiple Choice Single Response
a. Niche segment
What is Selective Specialisation?
b. _Psychological variables Vs. Psychographic variables ii. The company may decide to target several segments, but may be
C. Hybrid segmentation selective about the segments to target. ·
--- ____ _____ ___ _______ _
._

d. SEC system of classification

I. · Dillon , William R., Thom&s J. Madden anc.l Neil II. Firtle. Marketing
Check your Pi·ogress I Research in a Marketing J:,,'nvironment. St Louis : Time Mirror/Mosby
College Publishing.
Multiple Choice Single Response
I. 2. Ramaswamy,VS . and S. Na1nakumari 2002. Marketing Managem ent -
can be defined as the process of dividing a market into Planning, Implementation and Control (Global Per:,pective). New Delhi:
distinct subsets of consumers with common needs, goals, characteristics,
Macmillan India Ltd.
with the goal of selecting one or more segments to target with a distinct
marketing mix.
i. ·Market Segmentation
2 A _____ is a narrowly defined group of customers seeking a highly
distinctive and unique solution.
1. Niche
Check your Progress 2
Match the following.
i. .- f
II. . - C

---------------------- 111. - c

Marketing Managc rncnt Market Segmentati on and Selecting Target Markets

 Positioning
UNIT
Structure: I., Z..,

8. 1 Introduction
8.2 Positioning
8.2.1 Definition of Positioning
8.2.2 .Importance of Positioning
8.3 The Positioning Concept
8.3.1 The A - The Target Audience
8.3.2 )he B - The Benefit
8.3,3.TJ1e C - The Compelling Reason
· 8.4 The Process of developing a Position
8.5 Positioning Strategies
8.6 Repositioning
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

~---------------------

~------------- ---------

Marketing Management Positioning

 Thus pos iuon1n g in vo lves findin g th e p1uper " locati on" in th e mind s uf
Objectives ~ group o r custo mers or ma rk et seg ment so th at th ey think ab out th e product
in th e ri ght way. No t onl y brands, produ cts and companies, but al so eve rythin g
After go ing throu gh thi s unit , yo u wili l;; ~tbl e lo: ~ occupi es a pos ition ·in our 1111nds. Peo pl e, incidents, experi e nces , co untri es all
occ upy a place in o ur minds, acco mpani ed by ce rtain assoc iati ons, e motion s,
• Di scuss positioning
altitudes and beliefs. Thal place alon g with lhc accompaniments is Lhe pos ition.
• Explain why a brand should be positioned
· A clear brand positioning guides marketi1~g strategy and creation of the
• Evaluate important positioning concepts
appropriate marketing mix to achieve the desired position. Positioning is thus
• Describe tfie process of developing positioning . the art of placing the entire marketing mix in the mind of the customer and
• Assess positioning strategies · creating the relevant associations, emotions, attitudes and beliefs, so as to s_tand
apat1 from competitive offerings. It is important ·10 understand that ti1e entire
marketing mix is placed in the customer$ mind and nol just the product. To
the customer the entire marketing mix is the product. He does not separate the
different elemeits of the marketing mix and instead takes a holistic view of the
product. To the customer the product is a sum total of his experiences with the
The i_d ea of 'pos!tioning' a product or service· emerged in the early 1970s
product, the -value he has derived, the way the company might have treated him,
when Al Ries and Jack Trout, advertising executives, wrote a·series of articles
the communication he saw, the associations that he has with the pruduct and
called 'The Positioning Era' for AdvertisingAge. rn their 198 J book, "Positioning:
everything else. It is only marketing people who separate the different clements
The Battle _for _y our Mind", Ries and Trout describe how positioning is used as
of the 'product' and term it the marketing mix , so as to be able to manage evt!ry
a commu111cat1011 tool to reach target customers· in a crowded market place.
element of the customer's experience.
Not_ (on~ thereafter, the adve11ising industry the world over began to develop
pos1t10111~g slog~ns for their clients and ve1y soon 'positioning ' became a key 8.2.2 Importance of Positioning
aspect of marketmg communications. ·.
Before we elaborate the concept of positioning, it is imp~rtant to
"Positionin_g: !he Battle for your Mind" (recommended reading), has understand, why positioning is such an important concept.
become a classic 111 th_e field of marketing. The concept of positionirig . In a free society, a consumer is faced with innumerable choices and is
has evolved from ~c111g Just a communication tool to being a ve1y important therefore constantly making dcci~ions as to which products are most suitable for
marketmg concept 111 an era of hyper competition.
him. We live in an over communicated society, where our minds arc constantly
being bombarded with information about everything from eve1ybody. In Unit
6, we learnt how humans are selectively attentive to marketing communications
and selectively re lai n information.
Brand positionirlg is at the heart of marketing strategy. A position is· a
place that a product, brand or company occupies in the consumers' mind relati~e Because our mind's ability to cope with information is limited, this is
to competing offerings. · the customers' coping mechanism with the overload of information. Contrary
'to popular belief, too much choice actually causes stress and anxiety to the
8.2.1 Definition of Positioning
customer, and makes his decision making that much more difficult. He has so
Position or positioning has been defined in innumerable ways by'different · many alternatives to compare arid may not have the time to or even the ability
sources; K?tler defines brand positioning as "the act of designing the company's·. · to compare the alternatives. Whilst it is obvious that customers will select the
offer and image so that. it occupies a distinct and valued place in the target · ·· "best" alternative, the factors used to judge better are numerous, vary from
------ ·------· -------- customer's minds." person to person and many a times not even completely known to the customer.
"Al Ries and Jack Trout defined it as follows: Positioning a brand actually, in·a sense simplifies the decision making for
" . '_'A _p osi_tiori of a brand is _it's perception among its target customer;", the customer, by placing the brand ·in the appropriate "slot" in the customers'
Pos1~10n111g 1s not what you do to a product. Positioning is what you do to mind, so that when the need is felt, the relevant brand simply "pops up" in his
the mmds of the prospect. That is, you position the product in the mind of the mind, without any great effort on the customer's part. This is reassuring for the
prospect." · customer as it relieves him of a lot of decision-making stress and anxiety every

Marketing Management Positioning

 time he is faced with a consumption clwi cc. The most powerful positions arc brand ends up being nothing lo nobody. The "mass market" approach
the ones where the brand's promi se ca n be di st ilkd down to a wmd or just a li.;w 11 orks in the absence or con1pctiti on. but in a competitive environment, the
words. See these examples: seg mentati on, targeting and positi(1nin g is_ the most bcncli cial marketing
• Dcttol - Best germ protection strategy. It is poss ible to position the sa 111e brand in the n_1inds or two
diffe rent target markets differently. but it requires appropriate marketing
• Disney - Magical family entertainment mi x modification.
• Hutch - The network follows you wherever you go For example, Hajmola is positioned as a tangy candy ii1 the minds of kids,
--------·-------------
• Coca Cola - Refreshingly cool and as a digestive in the minds or adults. The marketing mix for each
target segment is different - in the kids ·segment, the product formulation
• .Coca Cola - Thanda matl-ab Coca Cola (p;uticularly in India)
is a candy in different flavours, with .a pillow packaging, pricing on par .
Not surprisingly, if you look at the market share of these brands in their with other candies and communicated as a fun, tangy product. To the
relevant target markets, you will find that these brands are the market leaders in adult market segment, the product formulation is like tablets, packed in
their target markets. a glass bottle, sold through grocers and chemists, pricing on par with
Thus, a clear and distinct position not on!~ simplifies the consumers' life; other similar digestive formulations and communicated as a formulation
it rewards marketers with market share,.mind share and heart share; all three to relieve digestive stress.
being very important elements of -a brand's position. Those brands that make In this example, even though the brand name is the same, several elements
a ve1y powerful emotional connect with the target market arc rewarded with a of the marketing mix have changed. Hence, technically no brand can
long lasting position. have two different positions in the minds of two different target markets,
because some element of the marketing mix will have to be modified.
Check your Progress 1 Even the smallest modification is tantamount to creating and managing
yet another marketing mix.
Multiple Choice Single Response 3. A fundamental concept in positioning is understanding the "slot" or
1. It is the art of placing the entire marketing mix in the mind of the category where the marketing mix is to be placed. Understanding the
customer and creating the relevant associations, emotions, attitudes slot means understanding how customers define categories, which is very
and beliefs, so as to stand apart from competitive offerings. different from the way companies define categories. In the earlier units,
we have stated this diffcrenfc and it is important to recall the differences.
Marketing
Customers define a catego1y as a group of products, irrespective of physical
It. Branding form , that satisfy the same need. Marketers and companies very often
Posfrioniilg make the mistake of defining a category as group of products with similar
physical forms, manufacturing process, raw materials or even distribution
IV. Selling.
channels. Developing a customer centric category perspective is vital to
the positioning exercise
4. Kevin Keller in his September 2002 HBR article "Three questions you
need to ask about your brand" further emphasised the importance of
The concept cif positioning has several elements, which we will examine categories from the customer perspective as a frame of reference or
· as the ABC of positioning. Point of Parity in the consumer's mind. The frame of reference signals to
.8.3.1 The A- The Target Audience consumers the goal they can expect to achieve by using a product and thus
includes all substitutes that satisfy the same need. Establishing a frame of
1. Effective pos.itioning begins with effective market segmentation and reference becomes particularly critical whe·n the product concept itself is
selection of target markets; positiqning after all is done in the mind of a very new.
target customer. If market segmentation is ineffective, or target market
selection is incorrect, the position too will be ineffective.
2. Selecting a target m_arket in whose mind the marketing mi x is _to be
positioned. No brand can be everything to everybody; because· then the

Marketing Management Positioning

 M~torola l;:l't1;1chect•itR Personal Digit~! Assistant, Envoy in 1994. Tliy ;lt:n:yo·y . 5. Understanding th e mind ui' the target mark et implies understandin g all
received messages w.irelessly likeJ1 P~B@l\ but no one viewed it as,, a page,r1 the prrcc ptinn , a1tit11dcs, bc li c ls, v:tl11cs surrounding the need and its
pecau~e' it was t90 large (the s,ize,of <1 VHS,t~pe) and to9 expensive 05p0$) to importance . In -depth and ins igh1i'ul con sumer re search is the foundation
~ pager. 'El}YOY sent,ym · ·, d faxes li~i; a 1~ptop computer, btjt•i.~c6uldn't ' of the mark et segmentation and positioning excrci'sc. Figure 8.1 shows a
· · oatd and s~1fficient sfo,r perceptual map: pcrce ptu:tl 111apping is a nwrk et re search technique ·used
' •~ • ' . . ' ! J ' , . l I

to map the customer ·s 111 ind.

8.3.2 The B - The Bendit
I. The benefit is the solution that the brand offers lo its target customers,
in fulfilling a particular need . The benefit is· primarily the functional
capabilities of a brand . Identification of the benefit to be offered begins
with the market segmentation exercise when marketers are looking for --· ------------- ---- --
unfulfilled, unmet needs, or needs that are not being met effectively by
any of the current product offerings. In many ways, positioning actually
mirrors the market segmentation; segmentation and positioning can be ---------- ------------
viewed as two sides of the same coin.
2. The benefit could he related lo type of usage or time of usage or any of the
other variables that we use to segment the market. In our ffrst unit, we have
learnt that every need has several dimensions. A physical need like hunger
too has an emotional and self-concept dimen,sion. So the benefit that a brand
seeks to provide will also have a functionat', emotional and self-expressive
dimension to it. ln positioning the brand, marketers must' add ress all the
dimensions tq the need for which they ~re providing the solution.
-~ -- ---------- Addressing the need for its different dimensions is also known as
developing a ¼lue Proposition. For example, Colgate whitening
toothpaste offers the clear functional benefit of whitening teeth that have
become discolored. Discoloration of teeth like bad breath is not just a
functional problem, but a social and emotional one as well as it affects
the appearance, confidence and self-esteem of the person who has this
problem. A brand must address all the dimensions of the need or problem
that the target customer is hying to fulfill. ·
3. Marketers very often try to "pack their brands with features" as a way of
differentiating their brand from their competitors. This is clearly contrary
to the concept of positioning, as it only ends up confusing the target
customer. Remember what we lea rnt earlier of the dangers of a brand
trying to be everything and ending up being nothing- "A jack of all trades
and master of none". Such brands occupy no clear distinct slot in the
consumers mind.
4. Sometimes product attributes or benefits are negatively co-related; for
instance customer's believe that if a product low .priced, then they cannot
expect high q uality; or if an antiseptic is mild then it is not effective.
Other examples of negatively correlated attributes are taste vs. calories,
, nutritious vs. good tasting, powerful vs. safe, heritage vs. contemporary
and strong vs. refined .

Marketing Management Positioning

 Nm, co11su111crs dc~ in.: lo 111a xi111isc both ol' the ncga li1Tly co- rclated 111caninglcss unless supported by credibl e and ro111pclling evidence. Points of
attributcs, bul find ii dil'ficull to believe that it co uld bc poss ible . Markt:ters di lfcrcntiation support ed by a Sustainabl e C01i-1pditivc ,id va nta ge arc the most
first nccd lo understand through consumer resea rch such 1u:ga1i,·c/1 co- related cn;c/ iblc points or differentiati on.
cli111c11sions. rcdefim; lhc rc:lation ship and then cstabli sh that lhc product
The I limalaya brand renowned for its ayurvcdic pharniaceutical and
pcrltmns ll'C /1 nn both the dimensions. When Dul' nnl introduced "Go n:-Tcx"
cosmetic formulation s can make the claim of' bcing most effecti ve products, as
a unique waterproof fabric, which was extremely "breathable", their marketing
the company has a very strong and reputed R&D facility. Extensive research
communications·clemonstrat~d the· performance of the fabric on both negatively
co-related dimensions. an.cl clinical'trials provide the credibility to their products and have given the
brand the reputation of being amongst the best ayurvedic formulations, in Incli.a ··-- - ··-- -- - ··-----·------
and now even internationally.
Swedish furnih1rc retailer Ikea took a luxury product - home furnishings
and furniture-and made it a reasonabty priced alternative for the large market
segment of middle class families. Ikea supports its low prices py having
customers serve, deliver and assemble the products themselves.
-- -- - - -- --- ---- - --- __ )
As companies increase the nlllnber of claimed benefits for their brands,
they _risk disbelief and a loss of a clear positioning. According to Kotler, in
general a company must avoid four major positioning errors:
• · Under positioning: Buyers have a very vague idea of what brand is or
does.
• _Over positioning: Buyers have too narrow an image of the brand .
______ . _ . ------------- • · ·confused Positioning: Bl►yers have a confused image of the brand because
8.3.3 The C -The Compelling Reason the company either has made too many claims or has frequently changed
the positioning.
A key aspect of positioning is dealing with Competitors and making your
bra_nd start apart from the competitors, in the customers mind . Remembe1; by • Doubtful positioning: Buyers find it hard to believe the claims made b
competition here we refer to all solutions competing to fulfill the same need. the brand due to credibility issues.
This means el)dowing your brand with a point of differentiation, which is
distinctive and delivers worthwhile benefits to the customei: • Check your Progress 2
According to Keller, "The poi nt of differentiation (POD) is a strong
favorable and umque brand association that sets your brand apart from the Multiple Choice Single Response
competitors. The POD could be a service, benefit, ingredient, program that no l. Wh'at is the ABC of Positioning?
competitor offers; or it could be a superior performance on any of the existing
benefits or services that no competitor is able to match." (Product differentiation i. A - The Target Audience, B - The Benefit, C.- The Compelling
is dealt with iri detail in Unit 9 product Concepts I) Reason

The concept of a POD is similar to the very popular marketing concept of A - The Target Audience, B - The Brand, C • The Complex
unique selling proposition or USP, a term coined by Rosser Reeves of the Ted Reason
Bates advertising agency in the early l 950's. The original idea behind USP was iii. A - The Whole Audience, B - The Brand, C.- The Company
that advertising should give consumers a compelling reason to buy the product,
IV. A - The Whole Audience, B - The Brand, C - The Compelling
wliich competitors could not match. But over time, the emphasis shifted much
Reason
towards comrriuhicating the difference, at times even compromising on the
credibility and actual delivery of the ·difference.
Marketers have learnt, that the point of difference must be real and Credible
to the customer. Claims like 'faster', 'better', 'longer lasting' , and 'sturdier'are .

Marketing Mm1agcmc11t Positioning

 ·-Notes, t. Makes ex tra
,:" p.,c;llVII~ , Activit ~, I whi te
). I )dl.!rg..: nt powder:-:
• Robin Li qui d
I. Mi lklc1od la1111 chcd fl avo ured Yogurt w ith hu ge media spend and fanfare
•
I kh..: rg,: 11 l bars
_in the Gari ) I 99 0 's . Initiall y th e produc t was a success, du e to the hu ge
"pull effect" and curiosity generated by the advertising; but failed to •
generate repeal sales. Had th~ product been positioned differently it
could have been successful. Find out why Milkfood yogurt failed: • Laundry soaps
Could it be because the company failed to establish a correct frame of Cleans
dirt
reference? Or was it because it had no point of difference vis-a-vis other
,:u:,-11pants a f thP. C'.lltegory? .
2. Find out more examples-of:
) a) Negatively co-related attributes in different categories.
b) Brands that have ended up being "jack of all trades" and have
consequently lost market share.
c) Over promising and under delivering dilutes the position of
brands. Give some examples of brands that have suff~d because
of this.
Fig. 8.1: An Example of a Perceptual Map
3. Visit the website oflkea; find out information about how the company
Brands that are positioned close to each other are seen as similar on the
has created a unique marketing mix to support its position of affordable
relevant dimei1sions by the consumer; ihey are close competitors and form a
furniture. .,, competitive grouping. A company considering the introduction of a new model
will look for an area on the map free from competitors. Some perceptual maps
use different size circles to indicate the sales volume or market share of the
various competing products. ~
The positioning process really begins at the stage of consumer research Displaying consumers' perceptions of related products is only half the
for market segmentation. These research studies attempt to understand the story. Many perceptual maps also display consumers'' ideal points'. These points
consumers mind space. Consumer studies attempt to uncover unmet needs, or reflect ideal combinations of the two dimensions (most important benefits) as
needs not being satisfactorily met by competitors. seen by a corisume1: Perceptual maps depict where the brands lie with respect
Positioning is facilitated by a graphical technique called perceptual to the ideal point. .
-. . --------- -- mapping, based on various survey and statistical techniques like multi Strategy decisions that follow from perceptual mapping are essentially
dimensional scaling, factor analysis, and conjoint analysis (Unit 5 Market
these:
Research). ·
Perceptual mapping is a graphical technique used by marketers that • Bring your brand closer to the 'ideal point', supported by credible
evidence.
attempts to visually display the positions of brands relative to competitors in
the mind space of customers or potential customers. Typically, the position of a • Deposition the competitor, by looking for a weakness in the competitor's
product, product line, brand pr company is displayed relative to their competition. position. This strategy is recommended only for a strong market challenger
with a competitive advantage that can make a credible superior claim.
Perceptual maps can have any number of dimensions but the most
common is two dimensions . The dimensions are the benefits that the target market • Change the ideal point. Many a times, customers are u.nl!-ble to articulate
considers as most important in a product category. Any more is a challenge to benefits that are important to them and could be completely missing in a
draw and confusing to interpret. product class. ·

Marketing Management Positioning

 . 3 Collect information from a sample of' customers about their perception s
Nycil vs. dermicool ·' ,., o r each product on the relevant attributes.
"4tni, ~h~~itage of OV<}f -34 year~,),Jy?il l\af,tj~~~J.,11S ,~1~ ij1t;,gerte1'ic to the
i,ncR!y 4~i!l-powder (P}fP) catr;igory w,1tb a 65'){o,gi;:ir.ket:shar~ aµd w·as easily"
Dctcr111i11c each product 's share o r mind .
Dckr111inc each product 's current 'tocati on 111 the prodLict space by
ost recognised
constructing the perceptual map.
--------------
6. Determine the target market's preferred cori.1bination of attributes.
--- --- ----- - ---- - --- Examine the fit between the position of your product and the ideal point.
7.
8. Strategy decisions on positioning

As we have seen all along, a product's positioning strategy has three

major components:

• The target market

• The benefit to be communicated

• Point of differentiation vis-a-vis competitors

Having defined the target markets, the marketer has to decide specifically
on the positioning or "benefit" strategy for the product. The most common
bases for constructing a product positioning or benefit strategy are:
Positioning on specific product features: The "coolest" refrigerator,
-.::.- -- ----- -- the most spacious refrigerator; the power saver compressor, "keeps food
fresh for a longer period" are examples of specific features or benefits
used for positioning refrigerators.
2. Positioning on specific benefits, needs or solutions: The strategy must
focus on the emotional and self-image dimensions of the need as well.

3. Claiming to be the "best in class" on a given bene.fit: As Porsche can .

claim in the sports car category or when Mac Donald's claims operational
excellence in the fast foods industry.
4. · Claiming "pioneer" status or first to offer a benefit: Ries and Trout
reasoned that in an "over advertised society", the mind often knows
· brands in the form of product ladders. Their argument goes like this:
. Acompany considering i~troducing a new product will look for areas with people remember the first mountaineers to scale Mount Everest; although
a_ high de~sit_y of ideal points. They will also look for areas without competitive thousands of dimbers have scaled the mountain later, nobody remembers
nvals. This 1s best done by placing both the ideal points and the •competing who the second to scale Mt. Everest were. They believed that positioning
products on the same map. ·· · ·
success was because the company was the ·first in the product category,
The positioning process can be summarised as follows: . _and that it is best to be first and establish leadership. ·
1. Define the market in which the product or brand will compete (the target Ifa company is not going to be first, the_n it must find an unoccupied
market). position-in which it can be first. At a time when larger cars were popular,
\blkswagen introduced the Beetle_ with the slogan· 'Think Small".
2. Identify the attributes (also called dimensions) that define'thc product
\blkswagen was not the first to introduce small cars; but they were the
'space', through consomcr research.
first to claim that position in the mind ~f the consumer.

Marketing Management Positioning

5. Positioning on specific usagr •~·pl' : The hair oil market ca n broadl y be Positioning "fools
dil'idcd into two benefit ca1cµ;<ll· 1cs. hair 11ourishn1c111 and hai1· gruu 1ni11g.
llrand s must h.11 c ,1consiste11l pus iti oning, through c1·e1-:, pnint n!' co ntact
hir .1 ln11g ti111 c, there 11·c1c nu , pc·c ifi_L' prndu cts cuil'.1ing to th e hair
with their cuslu111c1. Fi, e rno11ih s af't cr arnving al I lcwlctt l',1ckdl'd in Jul y
grnolllin g scg1ncnt, as custo 1111.: rs u> 11Li11ued to use the ex isting products.
1999 . company p1·cs i,lcnt Ca rl y Fiorina , showed _200 top n~anagc rs a _v_ideo
Consumer resea rch showed that 11 hil st custon1crs bcliel'cd that a hair oil ol' customers talking about ho11· incoherent IIP had beco 111c. Sa le smen from a
was the most desired hair grooming product but they wanted a hair oil dozen business units sometimes called on a single customer account. From that
which was non sticky and more appropriate for grooming. They were · · moment on, she vowed that HP had to present "one face to the consumer". ·
unhappy with the current products, which gave them the "oily look".
A positioning program should address many I))Orc issues that go·beyond
(Stickiness is considered an importai1t benefit by the customer desiring
a good logo and a great campaign with hauntmg music. It rs the culm111at1on
nourishment). Keo Karpin detected an. opportunity and launched a hair
of everything you do that plants an image of who you are 111 the mmds of your
product for this specific usage type. Today h_air-grooming oils are a large
customer and that sets you apart. Presenting a "single coherent face" or a clear
category with several segments.
consistent positioning through all points of contact with the customer 1s cnt1cal
6. Positioning on specific usage occasions: Allen Solly positioned its to the concept of positionii1g.
brand to the target market of young corporate executives in the metros,
Ask yourself this question " How many times have you been convinced .
as a "Friday Dressing" brand. Friday symbolises the day when executives
and impressed by the claims made in an ad, only _t9 go to the retail outlet and
are more relaxed al the end of a week and like-to "dress down" in sma11
find a completely different picture"? Such contradictory experi~nccs completely
casuals. At the time of product launch, smart casuals were a new category,
render a brands position ineffective, and it is only a matter of time that a strong
which Allen Solly saw an opportunity to create.·
competitor will leverage this weakness.
7. Positioning against another . competitor by claiming superior
Marketers today recognise numerous "contact points" with customers,
performance: Avis acknowledged its second position to Hertz in the
which are " moments of truth" for the brand: Retail ambience and experie'.1ce,
rental car business market and famously claimed: "because we are second, •
interaction with sales people and dealers, merchandising at the outlet, ava1lab1hty
we·try harder."
at the outlet, packaging, press coverage, web sites, after sales service, call centre
8. Positioning through product class dissociation - the UnCola strategy: complaint redressal systems are just some of these contact points.
7Up used this strategy very effectively. They found a market segment of
The concept of Integrated Marketing Communications employs all
consumers wanting non-cola beverages; however, most aerated beverages
communication tools to present a"consistcnt and clear image to the con~umer.
were seen as colas. 7Up communicated itself as "the UnCola", creating "'' . ';'

a distance from the colas and creating a new frame of reference in the
consumers' mind.
9. Positioning by cultural symbols : Certai n · product categories are
associated with countries or cultures. For instance, G~rman engineering,
Russian \odka, Prem:h wine, perfumes, cheese and so on. Brands have
successfully used these cultural symbols authentically to claim beller
performance. Seagram's 100 Pipers, a premium scotch wh'isky uses its
Scottish heritage to position its product.
10. Positioning by price or "lowest Cost": This strategy is feasible and a
powerful positioning strategy only for those companies which either are
cost leaders in an industry or have an absolute cost advantage over their
competitors. Southwest Airlines has used this positioning strategy over
the yea rs, due to their absolute cost advantage in the airline industry. ___ . ------------------
None of the other airlines have able to match Southwest fares, profitably;
southwest has the unique distinction of being the only low cost carrier
with a consistent track record of profitability for nearly three decades ..

Marketing Management Positioning

 Note's ·
... ;Repositiou.ing <:;astrol
it)i Check your Progress 3 A. BRAND new po~itioning, a , new logo and a 360-degree c01nmuJ1icatioo
strategy : Lubricant mijor Castrol lndia is in for an itnagc makeover..
• •- • ., I i
Multiple Choice Single Response Talking about tl1e new positioning, 'Castro! - Tt's more than just oil..lfs'.'Ciquid
I. A product 's positioning straiegy has three major compo nents: Eri:gineerin;g', Mr. Naveen Kshatri a Managing Pirecto1; Castro\ ltj.d:i,a sar<1
i. The_target ':1arket, the benefit fo be communicated and the point that th~ .f<>c,Q~ now w~u.W,1~~ . . . .

of ddTercntiat10n vis-a-vis competitors. Iub1'i<;:Mt,8tands .taJk,ii,1,out

&'*1gt8 taift.apou,t'~cf''.'sa
.. P mere' · 'e',K·,
ii. Define the market, Identify the attributes, & Collect information tJ:i:'t
a, ,..,ti_e\· .. •.· . a;s. , ~11 .• ,..
from a sample of customers.
mes~a~e,a,~Jp~~
111. Determine each product's share of mind, determine each
product's current location and determine the target market.
~'!tJs·~~~rlI ~~i.
keep~ co JJtessJo
iv. Identify the dimensions, collect information and determine the'.'fqous i)!'diqf '. . .
each product. po.sitioging -.yquJd toJ.1forn,p~rrn
·1ts:·existing c\'.jstomers but also\w .. , . .. .. . . . . . .. . . . ,....
Multiple Choice Multiple Response la1·gcst'motor cycle market witb ;1,o: milliqr(:P\):(e {)\1/ners, irtid .J.s t1k<c{fn
I. Marketers today recognise numerous "contact points" with customers _g~fwin,g car m_a rket, :mdia sqlrj <:1J1e mi!J(q11 caryjn 2024:" i . : :;;
which are "moments of truth" for the brand. They arc: ' The brand re-laun~11":ha~ alslbeJn a&c'b ' I; aniefflwith, tbe iaunch .of:te
jprqduqts$~t h ~~- qasi~l ~agil\ri.l~i'.
1
1. Interaction with sales people and dealers is •r)p&rtl~1ta~t~ ~ht~
:end product ll}eant for those pal,SJOn.a . who want the Best'for th
11. Merc~andising at the outlet
[cats: ·n h~~als~fa.u~9hectpro<i1.foll1~Welifs';Ac6ve 4T ahd CastrolPo~er;i.· 1n!
iii. After sales service '.1he 11,1ot_o~cycle ~_eg1ii~!W~l{? o~~c~re .•i~ tn,_tlr111.!ic~ ot~_T,V c~tt;Pi~,:.G.?;f.il.\~Jts~
iv. Adve1tisements propos1t10n of hqutd engmeenng and a hO$t,pfbelow-the-lme act1V1hes.iti,, 1
Sou~e: Hindu' Bi/si~~s~ Line ,•,, -~
~- . ~ 'ii
', \~ ..
,.s,
,J.. · .l
l
'
Repositioning Lqufs ·Phillipe
;.- ' ' . ·t· ,. -_
: · :
,.
:• "'.
,~ - t·..;it
..
,-
. ~'
'FRO~(being a.fonna'l menswear'.;bral)d, 1J\.faciurii {iannents' L9µi's ~hil~ppo 1
I. Moov, a brand from Paras Pharmaceuticals, successfu lly challenged the 1is now.position · · .. · · · · ·
. .,•,y.
market leader Iodex and redefined the pain balm category. Find out h
. . d' OW
l ~•,

M oov pos1t10ne itself against Iodex.

2. From commercials in newspapers, magazines and television, identify
one example of each of the above positioning strategies.

----------------------
T?~ two case stu?ies given below have one thing in common: ----------------------
competitive forces often dictate shifts in positioning strategy over time.
. ------------ ----------
-----··--- -------------
----------------------
------------------ ---

Marketing Management Positioning

 veh pe1, cent of its (otal ·· · "· r on card acceptances beca me .uni ve rsa l for almost all ca rd s and Visa had to
. c/hadha said tmat . d~ augment their produ~t wi th 1wwcr se rvice s. tis pos rtio;1in g since 1998
'hieh would be f1 has been Visa Power. 1n th e prese nt circum stances, credit cards arc und er
· ·ieJ,tyre: bra . threa t as "v irtual ca rd s" and on Iinc shopping ga ins ground. Visa -no w has
to co'mpctc not 01il y w ith' ei th er ca rd s but al so with a l1osi of other "v irtual
payment mec hanisms".
2. Increasing . occasions fo1: use: Sometirnes the market segment chosen
becomes too narrow or unviable, hence positioning becomes too narrow.
Such a small customer franchise makes the marketing program unviable.
One of the methods is to increase usage rate, which can be done by
increasing the number of usage occasions. Monaco biscuits were initially
positioned as perfect salted biscuits. To increase usage the brand was
pitched as "excellent plain, terrific with toppings". An earlier plain salted
biscuits was turned into an anytime snack, consumed with toppings,
increasing occasion&of usage.
- -,- - - - - - --- - -- -- - - --
. B:·ands have to update t~eir POD's over time vis-a-vis newer and stronger · 3. Search for a more viable position: 'Complan' has at various time~...
competitors. Product categones themselves are undergoing· a change due to positioned itself as the "food for the convalescing", "against Hor licks, "for
"convergence" and brands have to continuously establish new points of the family", "for the child who is a fussy eater, "for the "busy executive
parity with these categories as well as new points of differentiation. A lacking nourishment'.' and so on. These several repositionings were
brand's position has to be continuously fine-tuned, as consumers and categories necessitated as the brand searched for more viable positions. Complan is
evolve. Sometimes the direction and magnitude of the change may necessitate currently positioned as the "complete· food for growing children".
a ni.ore drastic action like re-positioning the brand. Repositioning could also be 4. Making the brand "serious": Saffola was initially positioned as the "edible
necessitated due to an earlier faulty positioning strategy. oil good for the heati". l'o create a greater impact, ·the brand adopted the
Repositioning a brand involves either: positioning" The heart is not safe without Saffola" and currently as "the
heart ofa healthy family". This has put the brand.in a different league as
• Selecting a new target market it has now become synony111ous with "health consciousness"
. .
• Communicating a different benefit 5. Falling Sales: The Ambassador was positioned for years positioned
• Communicating a new point of differentiation as the 'rugged road master" an ideal car for Indian roads and Indian
families. But as sleeker, fuel-efficient cars made an entry into the market,
• Under certain circumstances, .all three
Ambassador's ruggedness lost its relevance. Falling sales have forced
It !s not often that brands need to be repositioned, but when they do, several repositionings in the consumer market, ~ut without much success.
several elements of the marketing mix will necessarily undergo a change. 6. Bringing in new customers: Ray Ban became very popu1!1r because of its
t YLR Moorthi has identified nine different circumstances for reposjtioning: aviator sunglasses, initially launched for men ·and popularised by Tom

t. 1. Increasing relevance to the consumer: Sometimes brands, which have been

Cruise in the movie Top Gun. However as 'aviators' became very popular
even with women, Ray Ban went on to launch a range of sunglasses for
-----------------~---
in the market for long, lose touch with their customefl. because consumer
women.
needs have evolve?. Thus, a brand, which is otherwise ·fundamentally
strong, may not be m0 sync with the custom<,r's cu~rent concerns. 7. Making the brand contemporary: for decades, ·Honey has been used in
India as a base for herbal medicines and the nourishing and medicinal
Visa card had to change its positioning to make Hselfrelevant to customers properties of the product are well known. Over timi, this actually became
under changed circumstances. In 1981, when the card was launched a handicap as customers associated honey as "medicinal and something
I the concept of credit cards was very new tc(lridia, so Visa used the ta~
line ."Pay the way the world does". By the · 1990's when the concept of
my-grandmother recommends". To give the product a more contemporary
· Jook, Dabur launched its Honey as" a nourishing food to be consumed --------------------
!! credit cards had.been established and several competitors had entered the with parathas,_ toast or as an additive to milk".
--------------------
m~rket, Visa positioned itself as the "the world's most prefer~ed card",
__ ·___________ _ 8. Differentiate from a newer set of competitors: Companies from completely

-
with the largest number of establishments accepting the card. By 1998,
different ca·tegories are now competing with each other. Google not only
I
.
Marketing Management Positioning
h .• · Positioning conce pts ca n be summari sed as four di stinct question s that a
competes with Yahoo, but now Microso ft ;:111d /\m,1/.0n as well. Nokia
must now co ntend w ith Apple launching its iPnd phon e . as much as it docs brand mu st pro vide ans\\ crs to. to its target custom .:rs:
with Sa111,1111g m Sony. Repositioning in such a ca~;e m ea ns es tabli shing a Who am 1·. 1
a.
ncwe1 point ur Jiffcrcn_tiation , wit_h different target 1mv'kcts. '
b. Whal am I'.'
9. C hanged 111arket conditions: As th e product move s throu g h its liCecycle,
the brand may require to be repositioned especially at the maturity stage of c. For whom am I?
the lifecycle. Repositioning clue to changed market conditions at different cl. Why me?
stages o_f the product lit~. cycle will be examined in detail in tl;ie next unit. The positioning process begins with understanding the consumers mind
' One must remember that brands cannot frequently consider repositioning
•
}_' space.
_.1,
as an answer to all their problems. Frequent'repositioning causes confusion as Brands must have a consistent positioning, through every point of contact
~ustomers are unable to develop a clear mental picture of the brand . Repositioning • with their customer.
mvolves modification of several elements of the marketing mix, and it used only
The concept of lntegrated Marketing Communications. employs all
when market conditions and competitive dynamic,s have unalterably changed. • communication t◊tls to present a consistent and clear image to the

Gl Check your Progress 4

•
consumer.
Brantls have to update their POD's over time vis-a-vis newer and stronger
·competitors. Sometimes the direction and magnitude of the change may
Multiple Choice Multiple Response
necessitate a more drastic action like Re-positioning the brand.
1. Repositioning a brand involves:
i. Selecting a new target market
11. communi cating a different benefit
I.
• co·mpel: To force or drive, especially to a course of action
n1. Communicating a new point of differentiation ·
I
: • Reposition: Place in a different position; adjust or alter the position of;
1v. None of the above change the imagt: of (a company, product, etc.) to target a new or wider
market. ,

For some of the examples given above, find out the marketing mix changes
· I. Explain the statement: "Positioning is what you do to the mind of
that the company had to make due to the repositioning of the braricl . From
the prospect and not the product." Why is positioning important to the
the internet, review how the marketing communications has changed for
'- the different brands over the years. Cl!stomer and company?
2. Customers define categories very differently from marketers. What is the
difference? Why is this difference important for positioning?
3. Explain what is meant by "Brands that try to be everythirtg to their
customers end up being nothing". Can you cite some exumples of Such
• Brand positionin~ is al the heart of ~arketing strategy. A p~sition is a
brands, giving reasons for their failure?
place that a product, brand or company occupies in the consumers' mind
----------------------
re)~tive to competing offerings. · 4. What is meant by point of differentiation? With respect to whom do
brands have to establish a point of differentiation? ----------------------
• Kotler defines brand positioning _as "the act of designing the co~pany's
offer and in'Jage so that it occupies a distinct and valued place in the target 5. What is m eant by re-positioning? Under what conditions is repositioning ----------------------
customer 's minds". necessitated? G ive one example of a repositioning of a brand. Explain the
- --------~ - -- - -- ----:. :: change_s that had to b e made in the marketing mi x due to therepositioning . ---------- --- --- --- -- -
• Positioning is important _to customers as it ·simplifies their decision-
m aking; and to compani es_ as brands with a clear distinct position are 6. · Brands should not continuously shift their positions. Do you agree with
rewarded with market share, mind share and heart share. this statement? WJ1y or why not?

Marketing Management Positioning

 product Concepts
Check your Progress 1
UNIT
Multiple Choice Single Response
Structu-n: \• I .iJ
I. It is the art or placing the entire marketing mi x in the mind of'thc customer
9. I Introduction
and creating the relevant associations, emotions, attitudes and beliefs, so
as to stand apart from competitive offerings.'' · 9.2 Product Differentiation ,; ;·
111. Positioning 9.2. l Differentiation Tools
Check your Progress 2 9 .3 Product Classifications
----------------------
Multiple Choice Single Response 9 .3. I Product Mix and Product Lines
I. What is the ABC of positioning? 9.4 Brand Decisions
1. A The Target Audience, B - The Benefit, C - The Compelling 9.4.1 Brand
Reason
9.4.2 Brand Equity
Check your Progress 3
9.4.3 Branding Decisions
Multiple Choice Single Response
9.5 Product Innovation
I. A product's positioning strategy has three major components: 9.5.1 Organising for New Product Development
I. The target market, the benefit to be communicated and the point of _9.5.2 The Consumer Adoption Process
differentiation vis-a-vis competitors.
--~--------- -- ---- -- -- 9.6 The Product Life Cycle (PLC) Concept
Multiple Choice Multiple Response
-.......- - - - ----- - --- ----- - - - 9.6.1 PLC St~ges and Strategies in Different Phases
I. Marketers today recognise numerous "contact points" with customers,
which are "moments of truth" for the brand. They are: Smi1mary

1. - Interaction with sales people and dealers Keywords

II. Merchandising at the outlet Self-Assessment Questions

m. After sales service Answers to Check your Progress

Check your Progress 4 Suggested Reading

Multiple Choice Multiple Response

---------------------- I. _ Repositioning a brand involves:

1. Selecting a new target market
ii, Communicating a different benefit
------------------ ---- iii. Communicating a new point of differentiation

··1.-- Dillon, William R. , Thomas J. Madden ·imd .Neil H. Firtle. Marketing

Research in a Marketing Environment. St Louis: Time Mirror/Mosby
_College Publishing.
2. Ramaswamy, VS . and S. Namakumari 2002. Marketing Management - ·
Planning, Implementation and Conirol (Globa!Per;pective). New Delhi:
Macmillan India Ltd .

Marketing Management Product Concepts

 ha ve. If° the concepts of' positionin g and product differentiation appear to be the
Objectives si11ne, it is so because th ey arc in fa ct two s id es or th e sam e coin.
i.AAftft:;:c;:-r;go~u1~g~tihh:::ro;-;-L~1g~,Jh1-;illi1::-:i:S-:l~
ll1-:i-:-t,-:y-:o-u-,-1'-::i➔-;--I;-:l1_e _a-;-h-;-1t:-, t_o_:_ _ _ _ _,__ .: K(\ tl er delincs product dillcrentiation as '·th e process o r addm g a set ur
rneanin g l'til and valu ed dilkrcnccs tn di stin gui sh th e compan) ·~ offe rin gs from
• Discuss thc clif'forcnt ways in which companies clifTcrc11ti· t, ti ,· .
products d e 1c11 the competitors offe ring".
Differentiation is meaningful if it satisfies the following criteria:
• Evaluate
.
the
.
impact of product classification~
,
on the marketi11g .
ITIIX • ¼lued: Must deliver a highly valued benefit to a sufficient nui11ber of
----- ----------- ---- -- • Describe the basic concepts of product line management
buyers.
• :1-nalyse the in1portance of product innovations·and diffi. t. .
mnovation eren types of • Distinctive: Something not cun·ently offered by competitors.
• Profitable: It must be viable and profitable for the company.
• Identify the consumers' adoption process of new products
• Sustainable: Not easily imitable by competitors .
------ -- ------- ---- • . _Evaluate_ the produ_ct life cycle concept ·a11d marketi,it;
~'- strategies
a:ppr.opnate at different stages of the life cycle • Companies can create differentiation in three ways:

• Provide the same solution/benefits, in better ways .

• Provide the same solution in a better way and at a better price.
• Provide a unique solution thaW!obody else provides . Michael Porter.stales
We have learnt so far that marketing strategy is built on the , , . that there are two "kinds" of companies:
----------- -----------
segmentation - targeting - positioning A co d' . concept of I. Those that achieve operatwnal effectiveness, which means they perform
. h · mpany 1scovers different d
mt e m~r-~etpl_a ce, targets those neecis that it can satisfy in a su erior nee s similar tasks but perform them better than their competitors.
then po_s1twns its offering so that the target marke·t recognises ~he co:ay an~
2. Those that aim at strategic positioning, which means they perform similar
d1st111ct1ve offenng as most appropriate to satisfy its needs. pany s
tasks differently or do very different things from their rivals .
, Once a company has carefully segmented the market cl . He states that companies that aim for operational effectiveness alone are
customers, identified their needs and determined its mark;t 10s_~n I~s target
seldom able to achieve sustainable product differentiation. lt is only companies
~ompan~ is in a. better position to develop a product. Marketer[o~~ iontg, the
m plannmg and developing new products and working with R&t a _ey role
at every_ stage of development. epa1 tments
J that aim to achieve a strategic position in the industry that can create sustainable
product differentiation.
Sustainable product differentiation is created when a company develops
Every company must _develo~ new products, as new products sha e th distinctive capabilities, a competitive advantage or a core competency and then
future of the company. Contmuous improvements and replacements of pd e
aims for a strategic position in the industry. ·
must be done to ensure future revenue sfreams. Boston Co I , pro ucts
---------- ----------- recently _surveyed 940 senior managers in- the US; increasing ton~~ tmg Group An important distinction needs to be made between product differentiation and
through m_n ovattons was rated as the key managerial challenge. p me revenues products being different from rival products. A company's products can be different
from their rivals either by way of features, packaging, aggressive advertising or in
any other way; however, if that difference provides po value to the customer it is a
completely meaningless difference and cannot be tenned as product·differentiation.
"~ositioni?g of a product means designing the .c ompany's o ffer a d . . Tl1~ customer will not be willing to pay more for such differences. ------------~--------·
::c~h:~:: i~~~::~:sa;a~s;:~: :i!;;\~!do~=r~:1~,~he target customei\ ::~~:
· :; . . Product differentiation is when, the unique products or unique ways
of providing products· to customers, are valued by the customer enough for ---------------------
Product differentiation is the strategy of creating those d'ffi . .. him to be ~illing to pay a premium for the differentiation. Remember product
differentiation must create value for the customer and the company, only then
---------------------
make_a product stand ap_a rt from competitive offerings to ive it! er~n_ces that
. valued P)a~e in the customers' mind. The most profitable s!ate ie: ~1stmc_t and ca_n it be termed as product differentiation . --------------------·
·d1fferent1ahon; offering customers something, they value that c!mpet:;o~:~:~~
---- -- --------------·

Marketing Management Product Concepts

Not!<~ .. ,... ,i'...,1 The number of' di ll'c rcntiatinn opportunities_ varies with type of industry.
of installment payments against the purchase of the PC. The "Ruggedised"
The Boston Consulting Crnup has di stin gu ished four types of industri es PCs would be manufactured by original equipment manufacturers (OEMs)
based on the numlx:r or al'a ilah k cn111pctit iI c advantages and their size. _ like HCL Infosystems and Wipro.
I. Volume indw;try: One in ll'hich cn111pa111es can ga in only a lcw but rather Source: Hindu BusinessLine --·---- -~ -----------
large compctitil'e ad1·,1n1agcs. For in stan ce, in the construction equipment
2. Product Features: Most products can be dincrcntiated with features
industry, a company can strive f'or the low cost position or the highly ·--- ·----- -- --- ----- --
that enhance the product performance or enhance the overall product
differentiated position and make gains on either basis. Profitability experience. --- - ------ - - -------
becomes co-rel11ted_ with company size and market share.
2. Stalemated industry: An industry in which, there are few opportunities to
Samsung Home Appliances · ' - , ''- "''·t
achieve competitive advantages and each is small. In the steel or"cement . , Sa~~~og India FrolFre;; fo1e.- odef~geraibr?~q-~r featiJfe~ ·:u~~)9,d~1Q.
industry, opportunities to differentiate are fewer. 1. Pa,ck' w~}f.h mai1taill~-~he freeztei· terr:peri;,fi~,e ,Fe~ _i_n c~se"'if P9"',f~1:[ia1lM~\
'_ framed fougheneg glass · shelves _thatcan :eye~ _):,ear ' 15,0,:"kgs_, '19ad/' ifflgb'. t
3. Fragmented industry: One in which companies face many opportunities
for differentiation, but each opportunity for competitive advan,ge is ~ ~rsa~ility,_ Go'iri~~~sbfthat' c"ft'h ~perate'_1t"~b~!i~~lia~ fo~zias'tt;s,s;i ~fj
small. dpg~ ~!1~ 2-90¥_:eh1;1\n1!-µig _the '?1eed ;f~; ~tap_1~t§~~l ,'fy,)_n, ~H),, ~~~ta _ ?:~~·
, havmg separate compartments for ·stonng_fnuts ·and vegetables and pecial·;
4. Specialised industry: · One in which companies can . face·
many Base \egetible Box to collect excess water/moi~ture droplets. ., ·,' '' · .
differentiation opportunities and each can have a ve1y· high payoff
,_ Saifisung Mi~rcivliive ovens have B'i~ cJr~riiic"Eriari-lel coating inside the
Yet even in stalemated and "commodity-type" industries, some Microwave oven wh,ich produces less oxida)ioii, ~e1pci retain essen?al ,\tami!1s '.!
differentiation is possible. We will now examine the different dimensions along , 'and leads to,faster cooking of food and the inn,o:vati',(e Steam Cleariing featiµ-e, '
which a company can _differentiate its offering. · . whi~J:i coupled with the ceramic enariiel coatiJgfens,utes that the b!icierifal1si1
9.2.1 Differentiation Tools . food' particl~s cari -be'wiped away easi\y, Ie'a°virt~ 'the oven hygienically'd~~~nJ
0 .'\, • ,• •, ;,"1 •" ''. .j • • •:, •c,/'4

Companies can differentiate their market offerings along the five

Source; S'!ir(sung ' :,,;, ·
dimensions of product, services, personnel, channel and image. 3. Performance Quality: It is the level at which the products' primary
A. Product characteristics operate. Performance quality does not necessarily imply
highest quality; companies must design a performance level appropriate
Physical products vary in their potentiai for differentiation; some product to the target market and competitors' performance levels, as is stated in
categories offer numerous opportunities to differentiate the physical the Intel and Samsung examples above. Companies must also manage
product such as in:
performance quality through time by maintaining product quality and at
1. .Product Forms: The size, shape or physical structure of the product, the same time improving performance quality.
which make the product more convenient to use or consume. For instance 4. Conformance Quality: It is the degree to which all the units of a particular
tea has been differentiated in the form of a variety of flavours, tea bags'. product are identical, have a consistent quality and meet the promised
which facilitate convenient consumption, iced tea and instanttea through specifications. This is trne for all categories, but even more so for frequently
vending machines. Even a commodity like.milk is availabl~ in low-fat, bought products. Imagine buying a particular brand and flavour of frnit
skimmed, fortified with vitamins and flavoured versions~ \ juice, only to experience a different taste and consistency each time.

Marketing Management Product Concepts

 Bisleri positions its product on the purity and hygiene platform, with prevent a bike from tipping. SHIFT provides more balance at lower speeds
its breakaway seal as an assurance of purity. Market research conduct.ed by when stability is most critical (starting and stopping). As the child builds
Bisleri revealed that 76 % of mineral water consumption happens in transit, forward momentum, the bike 's dual rear wheels shift inward, thus causing the
when the overriding concern for this set of buyers is the tampering of the seal balance to gradually shift from the.bicycle to the child. Designers also wanted
and the·rcnse of bottles. Many have witnessed used bottles being refilled at the bike 's appearance to help build self-confidence. The look evokes nothing
railway stations. So when a consumer buys mineral water, he would like to be , of the generally perceived childish training wheels . .
,assured that:the wate~· has not been.tampered w,ith. \ . ·
· :So~~e: lfindu ]Jusi~ess Line , · ,, . · ·'~' ·
The Jeep hurricane
:C d't Cl 1 r1 . '.,, , .. .,,
:·:~''·:•;\./~t ''."!;\;',,,'· \
'-11 /,,-:,jjs.,,
,,:. ,' .-.~,:.~lf•'< . "t; ~;i;;
,;,~)t''~.. al•• *·~' ,._, · ~; ,·,;, ,,,,.i/fr;,,~ iti~t,
~~, , re t : 1rys er uroup ,. · .. · · • · · ;.! ••
5. Durability: Jt is a measure of the products ' expected operating life under
. . .

natural or stressful conditions and is a valued attrrbute for certain products.

The purpose· · of 'ihe 'I{Jf~i~rie
j;ojeoLw•~s
maneuverable, most capable, andm1ost ·p,o.Werful 4x4 ·ev~r. Jbe exploration
to
desigi{·•, ith; ~d~f
Nokia has developed a special line .of rugged phones for "Rural India" resulted in a twin- engine .fuJiy: functiQ.nal't' ''•t~ 't:vehicle -With •tl:/;ii~illtyJb'
which has dust resistant covers and anti-slip grip for humid conditions . turn on its o~n axis. Addi~ff9 it .. e1J.f .
vet~bility)~;)t~~~i{{&it~:1
6. Reliabilit: It has different connotations for different people. It could mean crab steer (all fo~J
w4e~Kc;uj ,,.,~,ll~)5t;,;'j ?gryes ig t~~ ,~ii:rn<;i~~££¼9~r
tha_t_il..gi\l<:n product will perform consistently and will not malfunction or alfowing the vehicle to literally
~-:
mov~
. I'·
sideways)."Hurricane's
. ~ ·•:-· .
raw and honest'.
,· -,

fail. Reliability is also an image of consistent performance quality or of a appear;mce helps communi~at~.th,~ y e~}cI1,'s1x,~eme capability. An ex,.posed '!
product living up to the performance commitments made by the company. carbon frame, brushed• and polished :,aluminum components and ~HE.Ml ~
orange engine blocks and iriterio/atd~iJ.ts 0
·~thrue to the -materials Used'.:;j
7. Reparability/Serviceability: Despite claims that companies would maT<e Designers succeeded in creatii'i~:~•:V 6hi,t'i'e thiit(hli's ~~wfrated enthi1~1a~ib
~It}
about performance quality, durability or reliability, consumers prefer buzz fodhe-Jeep brand..c..:'.as seeh·,m'' tb.e-p6sit{~e'inedfo coverage arid '.ftl:any~
products that are repairable if they malfunction or fail. Easy reparability awaras a:nd accolades. ,.,,.,,,, "'· 1 ;, . •:,."•" ;.;'•i'·"'; ··• :· i,,: .,, . .,. :
and access to service centres are key aspects on which companies can
differentiate their product offerings. Soufrie : IDSA

8. Style/Design/Aesthetics: It is not surprising that styling, aesthetics and B. Services

design are key product differentiation elements. We have learnt in the Some product categories offer very limited opportunities for differentiation
-previous units that almost every human need has a social dimension to it; in the product elements, for example,. share broking services. Providing value-
people use products to convey their self concept, personality and image to added services are an excellent opportunity for differentiation. The main
. the world around them, irrespective of age, gender or social strata. Design service di ITt:renliators an: ordering ease, delivery, installation, cuslomer training,
and styling do not contribute only to the pleasant looks of a product, but customer consulting and maintenance and repair. But in competitive categories
also to a product's perfo1mance and efficiency. many of these differentiators have become the minimum expectations, and
When people talked about innovation in the '90s, they invariably meant · companies are looking at newer value-added services with a focus on "end-to-
technology; when people speak about innovation today, it is more than likely end solutions" to differentiate their product offerings.
they mean design. Consumers look at design as the new differentiator; in a sea Sharekhan, an on line trading portal, offers its customers complete trading
of look-alike products and services, design creates the "Wow!" factor. Product solutions through its trading accounts, customer education, technical analysis,
design has evolved from a simple way of giving fonn and colour to prpducts portfolio management and even a knowledge centre for beginners and° advanced
into a powerful product differentiation tool. Design methods get managers close investing.
to their customers, design research helps top executives visualise the future and
design strategies help companies inno~atc.

Marketing Management Product Concepts

 expertise and the resources to i111cgratc their hardware and software. They Rcliabilil)' l'crl'orn1 lhe se rv ice co11s iste11tl y and acc urat e ly.
wanted solutions lo their problems, hul wen: hampered by the shortage ofIT Respon sive ness 1-: 111 p,1lhcti l' tn cu sto111c1· iss ues ;111d res pons ive.
professional~ and the rapid-rate of1echnological change. 11\! fell fBM 's future Singapore Airlines
1ay in delivering vertically integrated products and services lo tho customer,
and he chan·ge"cl·rnM 's .focus from selling l)ardwarc products lo bundling Singapore Airlines decided on · a fully branded product/servi ce
hardware with software and service into a total technology solution. differentiation strategy from the beginning. Innovation, best technology,
g,enui?e quality and exce\l.;nt customer service have become the major drivers
IGS (IBM Global Services) was form~d to deliver-custo~er solutions by of the br;1nd. , ·· · " .. •.' ·
cpnnecting and improving information flow among different buii_ine~ses. IGS
,_ ].lS~s 'tha vast pool of engineering and mathematical talent avaiiable\n hous~ , 1
••
'

.;;
I; ;{.f

Xt has pioneered many in-flight experiential ent~rtaini1ient ·;~d

' fo 'geitver solutions tcf its 'customers. For the Post.al Services' lGS' helped ,.: ·us •,!%19'¥.at/ons, _and str_iv_ed to· be best in,~lass. ~IA was U~e fir~\,to i\1;tt~ 4~!-le:hot ,
ifovelop a new mail processing an~ distribution system for its 400 .l)lus facilities · , me~ls, free alcohohc and non-alcoholic beverages, hot towels .w.i,l:h_a µniqu¢ ,
and P,atel}led ~cent, persoi:ial en tertiiinment _~ystems, and v,ide-◊~ini:demap.d 1
., ri1tjo'nwide. usin~ adv~n,ced algqrithms to select the right transportati'b'n - air, ·
,Jo") . ' t, '
. . ·- .. ,•J.-,,_ ~J. . . _ '{•.
'· o ' . . .
,.;·.,-...•
J~r~?f'!rt1qksJor each ,[ht(ln:iert. IGS h~s/~b_uilt th~ electrotiichtdl~lf ~yst~n'i ;
' ·l . ,t.
?,i,1. ~n•
cab,ins. The company keeps driying innovation as aa lmp6rtant part 0
~¥1
, fo~,,the New York Stolk Exchange, ~nd 1 has even developed new handhcld a •• the l?-fJmd, !Ind the cabin ambience and combined expede~~e ~re"key fact'brs ~
ofifs success'. ·., ' . e '·" "'Il '·'~• _ ·II •
devices for floor bro)<ers that allow them to make and track ti-ades.
' o'•p V ••.,. , , •• •
·· · . ' :
.i; ,1:'- . '\

· ; For Dun & Brads·treet, IGS has put together credit information on 63 · .}, " '· On the technology side, Singapore Airlines still maintain~ the youngest
mil!'10n companies and also bandies customer support, telemark~ting, and
of
· fleet aircraft among all major air catTiers, and keeps to the stringent ~~!icy
.of replacing older aircrafts for newe1; better models. It has ·always _been first
electronic credit report distribution. IGS has a ten year allian~e with B?~ing
to .c reate technologies for "network-centric" warfare, where all brnhches ,of · , 4i't~e_to fitk~ delivery of new aircraft types like Boeing 747 ju°mgoje_t~, Boeing
the us''military and intelligence se~vices are linked via a network thafol(~ws ·, i J77i and 1tw1l1,become the first airline fo fly the Airbus superjnthbo'A.a380.in .
, ,.,,)_l_•.,r.:-,,~· .;....-,._ · , ..- ,,,-{ -· ,

th~m to share informat~on anq make crucial decisions "o~ the 'fiy'.::4Gs · ,;:' 2p06. Even the aircrafts are sul;)-brand~d like ?47~Megat6p ·•·a nd ·
is tqday. working leading Fortutie, 500 companies, like Proctor~-Ganible, , 77,ntJbile~ to further distinguish SIA and its bdnd \ ::orripetitors. from
Nestle, Mayo Clinic, Virgin Group aq10ng others. · -.. ·,>1 Singapore Airli~es also flew Concorde between Singapore and:Loi)clon i'n
the late seventtes in collaboration with British Airways (BA). The. st(ategy
In 2002 IGS reported revenues of 36.4 billion $ (IBM;s ·total ~everiiie
?
· 'V.a~ L3 b_n $); in 2005, IGS expects revenues of 50 billion $, with healthy ,:
behind the technology program was enhances cost efficiency to ~se !~test the·
aircrafts and at the same time, uses these events for marketing p~rposes .
.. qp~ra,tingJ11a.r.gins of 20%. By te<lefining the business in tenns <;>f dciivering
solutions, lBM has been ':freed from the conunoditised hardware ·business ! . .Singapore Airlmes recognises that each innovation ha,s a r~latively 1
short
.which was growing at'jusf 6%. . , . _ . ;;• · :i . ,... 'l life span. Once other airlines ndopt it, it is no longer considered "innoyative."
. Thfr~f.9.re 1 SIA continues to invest heavily in R&D, i1movation aria te9hnology
. <iil~r:e: Busin~ss ifeek, April 2005 ,Aa.''Mark~ting as Strai~'di'" by 'Nirfn~id){ 1\l.s.:,,. ap, int~grated part of the btisiness strategy to fuiiher differentiate'Itself. ' ,
.!fum9r., ' i• ,. ' •• ' i •'.,; ·,,;,'.JlL .'i)
., .• ' •.. 1r~--·-· . "· _.. - •· ,•.•. f:•,. -~. ,~ r.· -:.,,~ ~; ; - .i,. ,,
t Tl.!e''Sl .. G' I J '}1 ·,~ . ' ,.
1 . 11 . • ng~pore 1r ., .• . ·•·.c".,J. ., ..
C. · P.ersonnel ! (~< • <! ' \ I •• ••a 7~ '1 :.,_) • ,'-l' ,,-'./,

.;Jwr,sonalisation , of the _Singapor ''

Companies can gain a strong competitive advantage through having better
trained service employees. Companies like Singapore Airlines,, Disney,
t~·-!r~rr!a'
·w·t J1~·a~l
t~\il ~r\tr·'. }.~x••r
·ei ti~·'l!'.<t\err

IBM and GE have become market leaders in their•industries because of .,: ·~tatt;~'23tMt;;>!,.?
~~j.\
service excellence made possible only because of their service persohnel. Q,

7-2., Be
,·

p-,..,-~..•lf· ·. -.;
Service personnel must be carefully recruited and trained to exhibit the
following characteristics:
Competence - Required skill and knowledge to perform.the job. Courtesy
- Friendly, respectful and considerate.
Credibility - Trustworthiness.
:,' ·

Marketing Management Product Concepts

 Singapore Airlines also runs one of the most eomprehens(ve and every point of contact ll'it h the brand, as \\'el l as throu gh won! of mouth. Sn ,
Notes
rigorous training programs for cabin and fli ght crew in the industry lo make every mark eter will ll") 10 crea te th e desired brand image, and try 10 prnject a
sure the SI~ brand experience is folly and consistently de! ivered. consistent brand image thruug h c1·cry contact point.
Source: Brandchanne/. com
D. Channel
lfl1 Check your Progress t

Companies can achieve competitive advantage ti1rough the · way they Fill in the blanks,
design their distribution channels, coverage, services offered at retail end and
1. Differentiation is meaningful ifit satisfies value, distihctive, profitable
expertise in channel management. The Nok_ia case below illustrates how a
and · criteria.
company can achieve· differentiation through its channei coverage, expertise
and management. Customers prefer the company's product offering as it offers 2.. Sustainable product differentiation is created when a company
them a superior buying experience, simplifying their prodtict purchase. develops distinctive capabi lities, a _ _ _ or a _ _ _ _ and then
aims for a strategic positio·n in the industry.
w~~ia\9i~tf~~Uti9~'i~•!ntli; .', , ,,:•;-~:: ,, "' . I

,. ,. Nokia, the world's largest . handset' manufacturer, . has . the largest '
;_11.hd mo$~ comprehensivf distribution ~e(y,ork in the cou,1try mak.ing' it th~
' undisputed market leader. Its distribut\on network modeled on the li1ies 1
~of lMC,G , ~i,strib.t1tio~ ~~t~orks_is .the far~est organised ,ch,ain_a!11ongst , I. Pick any one commodity categoty (cement, automobile fuels, steel) .
1han4set,manufac~rers 1in !:n<Jia. ~okiaFnopty Dealers present in _more than Find out which companies have leading market shares. Visit their
f~Iii 9j!ie~ and to_wns, offe_r the ~onsumer a _s)iperiorbuying experience. For websites and collect information on their products. Make a list of the
its ·high end phones, the company has created two concept-stores at Delhi
different ways in which the compan ies are trying to differentiate their
'ilnd'Bangalore as a destination for the "evolved replacement customer". 'Tpe
products.
,_ concept stores offer the customer a comp(ete product experience, live usages .
0
·and application downloads. . . 2. Visit the websites of Intel and Samsung. Study their products in detail.
---- -- ----- --- -- -
Make a li st of other ways in wh ich these companies differentiate their
. In smaller rural tpwns, The ·Company estab li shed a "Nokia \ans
products from their competitors. What are the different ways in which
;:ie,f~ork" a special netw~rk or'°showroonis on wheels, operational across the
their competitors differentiate their products?
. cq~ntiy: The~~_mqbile showrooi;n~ showcase the full range of products and
gi,ve liv.e demonstrations and product education to prospective customers and 3. For any brand of your choice, make a collage of its packaging,
i~~ve ?.Y~n aql,e to establi~h m.~re than·half a,m.illion contacts. . •. symbols, slogans, logos, print commercials or any other visuals of the
product. Do all visuals present a clear consistent image? What iinage
[?~!ri;;,~~~h; '.i~iti~lly ,~ r~t}:~fi] ti~j~~-'~\th. HC½ ' lnfo~~stem~. !ndia;~ : does the brand project? You can test the collage with your friends and
pren,ue mformatt~n enablm~ .,eompapy.itHC:L mfosysteI¥,s 1s ;~ ,o.n~-st9p-)
family.
' ' rqgucts i11d s.~~iee~ Jn .thf .~~{~s _'o f ~ompu tern,' Laptops, s~n:er§, 1
:tal"ss
''.ierpt ise 11ety.>o~~J~qpit >i.l.' .,,, projectors anc!'conuii\iiii '
fo a "!lirect'''rl "· '-"·•)•?·'
7
onl
*e\:J
-- ... ----------- --- _.,,,,. .. ,. . . i·-r,,~,1:t•-'·· _..,..,,.
,,i ;qoo'?~h·· _ i'i1 ]
. s ,-NokiaJt ·." ·. <t,;1·: Product classifications are important conceptual tools, as each product
~ft;~!,:~· /.~ft·. '~-. ~~:: -class has an appropriate marketing mix strategy.
1:..·· :'.;,},: :,--~~~; ,·
E. Image Products can be classified into three broad groups :
. . . -----
Market · segments respond differently to company and brand· images. 1. Durability and tangibility
A"company or brand image is the holistic way in which the customers perceive 2. Consumer Goods
the company and its products. People retain information about products and
3. Industrial Goods
services in the form of associations, which put together forms a complete
mental picture of the brand or brand image. Brand image is created not only
by the conscious efforts of the marketer, but by the customer's experience at

Marketing Management Product Concepts

 A. Durability and 'langibility Marketing .co111111uni ca tions pla y a ve ry i111portant role in low
Produ cts can be c lassilicd in(() three gro ups :1ccordi 11 g I() durabilit y and involvement categories in keeping th e brand on top of' 111ind and
tan g ibilit y: constantly remindin g and persuad ing th e co nsumer.

• Non-durnblc: goods arc tan gibl e goods but co nsumed in a sin gle or Extent of post-purchase di sso nan ce : S ince these arc low i1wolvement,
severa l uses; examples would be beer and toothpasw. products, the amount o i' time spe nt in evaluating products post
purchase is minimal ; the extent of post dissonance is minimal.
• . Durable goods are tangible . goods and survi vc usage over a
long period of time; examples would be all appliances, shoes and Role of technology: It is limited insofar as the products themselves
. ----------
watches. are concerned. However, because the vast distribution -uetworks,
logistics _and supply chain management are critical to these
• Services are intangibl"e, variable and perishable pro.ducts. c·ategories, information technology has an important role to play in·
B. Consumer Goods Classification supply chain management.
The vast arrays of consumer goods available are classified mainly on Nature of competition: Convenience product markets are very large
>--------- ------------- the basis of shopping habits or the way consume1's buy these products. It is heterogeneous markets; the competitive structure of such markets is
usually monopolistic competition.
important to understand this classification , as it dictates the marketing mix
strategy. Marketers need to understand the following factors with respect to Market leadership is determined by the extent of product
each classification: differentiation or cost advantages and distribution muscle, which
• Buyer behaviour is why the larger firms with clear competitive advantages become
dominant players. The smaller regional players occupy market
• Extent of post-purchase dissonance
segments unattractive to the larger players. These categories,
• Role of technology depending on the market growth rates are marked by intense rivalry
• Nature of comI?etition amongst players
Qt1ality dimensions: The dimensions relevant in these categories
• Quality dimensions
are perfor111ance quality, conformance quality and aesthetics of the
• Extent of differentiation packaging.
• Key challenges Extent of differentiation: It is with respect to the product features
We will examine each classification with respect to the above factors and performance, image and cliannel.
and understand its impact on the marketing mix. Key challenges: In today 's markets, the key challenges are the
I. Convenience goods: These arc those goods that consumers purchase intense competition and lack of sustainability of differentiation, as
frequently, immediately and with minimum effort. products very easily get commoditised and consequently there is
low brand loyalty. Marketers need to focus on increasing market
Convenience goods can be further classified as staples or daily necessities
penetration, increasing usage of products and building brand loyalty
such as groceries and toiletries; impulse goo.els, which are. purchased
in such intensely competitive markets.
without planning or search effort such as candies, snacks an,d even
beverages at times; and emergency goods such as those bought in a hurry 2. Shopping goods ·
or a crises with no time for thinking or evaluation. They are those goods that consumers buy infrequently. These are
Buyer behaviour: Convenience products arc essentially usually preplanned purchases and consumers make some comparison
low involvement products, where consumers exhibit either on features, styling, prices ·and quality. Clothing, footwear, cosmetics,
variety seeking behaviour or habitual behaviour (lcpending on personal accessories like-watches and home appliances like televisions,·
the differences between brands. For low involvement products, refrigerators and wasliii:ig machines and automobiles (4-whcclers or
distribution coverage, distribution intensity, shelf space and point 2-whcelers) arc examples of shopping goods.
of sale merchandising are key to sales. If products are not available Buyer behaviour: It is relatively higher involvement as perceived
or visible, consumers will switch brands, but will not postpone risk 1s higher. Wide · ~aricty as well as purchase a~sistance and_
product purchase. Point of sale nierchandising is particularly critical product merchandising at point of sale are critical to these categories.
for impulse products.

Marketing Management Product Concepts

 Markct;rs look not so much for extensive distribution covi.:rngl: as and spcci::illy product ; automobiles that o ffer th e primary _benefit of
mu ch as stron g brand rrcsrncc in mult i-brand specia lty stores that tran sportation arc shoppin g goods, but aulornobiles which arc pe rforman ce
offer the co nsumer va riet y. 8rands that ha ve suffi cient vari i.: ty within rrodu cts like sport s ca rs or ILL\LIJ')- car~ wou ld be tc rm..:d as specia lty
th e ir proch1ct lines ca n support even a !cw single brand outh.:ts, suc h products. The di fTcrcnce is. in thi.: way co nsumers bu y th ese pHlducts and
as the kind that Titan, Levi s, Raymonds and Metro Shoes ha ve. what they va lue more.
Extent of post-purchase dissonance: It is very high especially as Also remember that what may be a speciality product for one target
many of these products are also "image products". Marketers must market ( customer) may_be a shopping product foi- another.
address the reasons for post-purchase dissonance through marketing
Buyer behaviour: There is very high involvement as perceived risk
communications as well as customer contact points like service
is very high. Buyers are affluent and well aware of the product and
centres.
their compa.risons. Product experience· and buying experience are
Role of technology: The role of technology in the product itself is ve1y important in these categories. Distribution is very exclusive
important to product performance and product features. Due to the with a Jot of emphasis on brand experience at the retail end.
product variety, inventory management.at the retail end and supply
Extent of post-purchase dissonance: It is ve1y high in these image
chain management are critical, so infonnation technology is critical -- --- -- - -- _)- - -- -- - - - -
categories. Companies ·are very protective and careful about their
. to inventory management as well as for sales forecasting. brand image. ·
----···············---------
· Nature of competition: Shopping goods markets arc not st1ch large,
. ------ --·· ------------- · but still very heterogeneous markets, due to differences in tastes
Role of technology: It is vc1y important in all aspects of the proquct ·
performance and product features. Product and technological
and preferences. The competitive structure of these markets is innovations are very critical to these categories. Only companies
monopolistic competition. Market leade r~hip is determined by the that have strong technological competitive advantages can become
:extent of product differentiation and market coverage strategy, Firms market leaders.
· have an option of either differentiated full market coverage strategy
or to become a dominant player· in a niche segment. Consumers in Nature of competition: Tl1esc are very small markets with few
these markets are relatively brand loyal. competitors, each following a niche market strategy. Competitive ·
intensity is very low or moderate.
Quality dimensions: Quality dimensions of product performance,
Quality dimensions: All aspects of the quality, be it performance,
features, reliability and especially sty ling, design and aesthetics
reliability, features, styling, desi gn, aesthetics arc important.
are . all important in these categories. Serviceability is especially
important to automobiles and home appl iances categories. Extent of differentiation: Differentiation is possib!(; along all the
dimensions but image differentiation is especially critical.
Extent of differentiation: Differentiation is possible as far as the
product, channel and image are concerned; but image differentiation Key cha llenges: Technologi cal and design innovalion and .
is particularly important for these categories. m;,iintaining brand image are the critical factors in these categories.

Key challenges: Although competitors are fewer in number, 4. Unsought goods

competitive intensity is still high depending on the market growth They are all those products that customers although aware of, usually
rate. Product parity or commoditisation is very rapid especially in postpone buying as they are not priority enough or because they cause
the home appliances market; marketers need to constantly ~ddress some discomfort. A medical checkup, a vaccination, medical insurance,
the issue of how to gen_erate 'replacement demand'. home security ·and safety systems, helmets and car seat belts are some
3. Specialty goods examples. Marketing such products becomes especially challenging
because although customers arc "convinced" about the importance of
They are very "high-end" lifestyle or luxury products or products_related these products, they "avoid" such purchases and may even pay a price to .
to a consumer's hobby or area of interest for which -the consumer is "avoid" such pmchases.
willing to make special purchasing efforts. Examples include high-en<l
cars or performance bikes, specialised music equipment _or photographic Marketers try. to increase the risk perception of avoiding such products
equipment. . through large scale ·awareness programs through mass media and
personal selling. Marketers also try to pr.ovide a comfortable and pleasant
An important distinction needs to be made between specialty goods product buying and usage experience, such as making "helmets a fashion
and shopping goods. An automobile can be both a shopping product statement".

Marketing Management Product Concepts

C. Industrial Goods Classification • Depth or a product mix refers to how many variants arc offered for e~ch
product 111 the line. Vc1 riant s arc difTercnt"pa cks izcs, fla\'Ours , formulation s
Industrial goods arc class ifi ed in terms of how they enter th e production colour variants and so on. · '
process -and their relati ve va lue. The three broad c lass ifications arc ra w
mate rial s and parts, capital items and supplies, co nsumables and serv ices .. • C'o ns ist_cncy_ refers to. how closc1¥ relate? - or th e sy nergies between
lhc \'arious product lines in the encl use, produ cti on requirements nncl
I. Raw material s can rurther be classified as nati1ral products,
di stribution requirements or in any other way.
which are either mined or grown and manufactured parts such as
comp;nent materials or component parts. Most raw materials are A product line consists of similar products or products within a certain
. sold directly to industrial users. Service, quality and price are the category.. For insta~ce'. The India Today Group,. which .is a highly diversified
important variables in these transactions .. media with presence 111 magazine publications television radio music art
education and printing, has organised itself into ;arious product lin,es . ' '
2. Capital items are long-lasting goods, which facilitate the
manufacturing of finished product. Capital items can be further One such product line, the Business Group, consists of all the business
classified as installations such as factories and offices and publications that it publishes and distributes such as Business Today, Time and
F~rt~ne an~ . so on. India Today, which is a news weekly is a separate line;
equipment, which is essentially plant and machinery for the
manufacturing. Capital items are major purchases with long lead w1thm the !me are the various language editions of the magazine, such as the -- - - - - - --- - --- --- -- --,
times and negotiation processes. Product customisation, personal H111d1, Malyalam, T~legu, Tamil and international editions.
selling apd installation and se rvice are the key factors in these. A product line is a subset of a SBU and of a product mix or product
transactions. portfol10. An SBU 1s a subset of a product mix or product portfolio - . -----------------
· 3. Supplies, consumables and services are frequently bought products A product line has length, depth and consistency as well.
required to facilitate the manufacturing and plant administration
process. Supplies and consumables are like convenience goods • Length of a product line refers to the number of products in the line .
purchased with a minimum effort and normally marketed through • Depth of a product line refers to the variants of each product in the line.
intermediaries because of the geographical-dispersion of customers.
Price and service are key considerations in these transactions as
• Consistency of a product line refers to the synergies between the products
in the line.
the items are standardised and brand preferences are not critical.
Services would include maintenance services, legal, advertising, With respect to the product mix and product line, a company can:
busin,ess advisory services . These are highly customised services. I. Add new lines - widen the mix: Why would a company want to widen the
Organisations today are outsourcing many of their in-house mix?
activities to concentrate on their core processes.
For the India Today Group,_ which is aiming to be a media powerhouse, it
9.3.1 Product Mix and Product Lines 1s important to have a presence in all the current media as well as newer·
Most companies today offer an assortment of products and services to upcoming media. Hence, over _ the years they have entered new area~,
different market segments over wide geographies. A Product Mix, also known thereby adding product Iines or widening the product mix. · . ··
as a Product Portfolio, is the set of all products and services that a company 2. Lengthen the product mix or lengthen the product line: This is one and th~
offers to its various markets. same t~ing, as each time you add a product to the mix you add a product
To effectively manage product portfolios or the product mix, companies to the !me as well and vice versa. Adding length to a line is also referred
structure their product mix into product lines. For some companies the number to as Line Filling.
of product areas that they are into may be so vast and diverse that t~e company Why do companies add products to the line?
may create mini business units called Strategic Business Units (SDUs). ·Each
i', A product line is set of.product offerings within a certain category or .a
business unit .wiU have its own product mix or product portfolio which is
set o_f very closely related products within the category. Each product
organised into product lines.
offermg caters to a _different market segment. So, India Today 's TV Today
A product mix has a certain width, length and depth and consistency, Network product hne has Aaj Tak, a Hindi news channel and Headlines
• Width of a product mix refers lo .the number of product lines that the Today, whi~h is an English news channel; each of these product offerings
company carries within the product mix. cater to a different market segment. .

• Length of a product mix refers to the number of produ<:ts in the mix .

Marketing Management Product Concepts

 Th e length or a co mpan y's produ t.:l line is dri ve n by its market eovei-age St1 111c ll I" th e illlj}()rtirnt ones arc:
sirategy. Co mpani es th at a im for l"ull marke t cm·cragc w ith a cl1 fferenliatecl
( ·ompos iti o n o r produ ct Iin es. I low many mark et scglll cnt s to ta p'1 Whi ch
a pp roac h will have full produ ct lin es , cat erin g lo all th e via bl e mark et
lllarkc t seg ment s to target'1
segments. C'o.n vc rsc ly, compani es that a i 111· for Ii 111ited market coverage 0 1·
full market coverage with an undiffe rentiated approac h w il I have sparse !\ ll ocat io n or
lllarketin g n:so urces between prod uct lin es as we ll as
product lines. w ithin product lines; resources are essentiall y finan cial as well as human
resources . A company's products are competin g .w ith each other for ·
3. Adel depth to the product mix or product line: Again thi s (s Qlle and the ·
resources; this competition should not become self-defeating. Reso~rces
same thing, as each time you add a variant"to th e product 1111c, you add a ·
need to b e allocated depending on the rol e of the product in the product
variant to the product mix.
;-------- ~------------ line as well as the marketing object_ive s for each product offering.
Why do companies add more variants or increase th e depth of mix and 3. Promotional decisions for each product offering. Which product offerings
line?
to be activel y communicated depending on the marketing objectives of
As we have learnt earlier, a market -segment is group of people with . each product offering.
homogeneous needs . However, even within market _seg n~ents, absolute 4. Pos itioning of each product offerinJCompanies need to ensure that there
homogeneity is a myth, as no two pcop_lf\ can have 1dent1ca l needs an_d .
is no positioning overlap between products; otherwi se, products end up
wants; there.are bound to be differences in tastes and preferences, even if
" cannibalising" each othei:
they are minor.
5. Product line appraisal is a regular audit of each SKU in the company's
In very competitive markets, companies t1y to fulfill the needs _and -- ---- - --· .. - - --------- -
portfolio. Appraisal is done to review the SKU's perfo1mance vis-a-vis
wants and even the minor differences in tastes and preferences of their
the objectives . Is the SKU ju~tified? Does it have an important role - - -- ··--- --------------
customers, to the extent it is fea sible. Adding colour, flavour or pack size
to play? Companies regularly apprai se product lines to identify SKUs,
variants enables companies to "micro segment" their markets and aun for
which are not contributing to either profits or marketing objectives.
greater customer satisfaction. Adding depth to the prod_uct line _gives the
Profitabiiity is not always the only reasons for review, as sometimes non-
customer a greater variety within the product l111e, thus d1scourag111g brand
profitable items may be retained for tactical or competitive reasons.. Some
switching especially in low involvement categories, where customers
decis ions followin g product line appraisal are Line Pruning (where SKUs
continuously seek variety and novelty.
are deleted) or line fillin g (addition of new items to product lines).
Long and deep-product lines g ive a company "shelfprescncc''at the r~tail 6. Product line modernisation and improvements need s to be carried out on
encl, which is again particularly important in low involvement categones.
a regular basis. Compan ies introduce value added , advanced vers ions to
¼ria~ts are not limited to FMCG products alone; almost all categories mig rate customers to higher valued items.
of products have variants. For instance, Maruti 800 has-several colour 7. Demand arid sales forecasting of each SKU.
variants as well as AC and non-AC versions.
8. Cost aq;ounting, margin analysis and pricing of each SKU. Products
Product Portfolio and Product Line Management
within lines arid their variants will have different margins; companies
Adding length or depth to product lines is not simply a matter of need to take decisions on pricing of each SKU, keeping in mind the target
execution or number crunching. If there are obvious advantage~.' there are · segments, marketing objectives as well as margins.
downsid~s as well. Each time a company adds any ''. unit" to its product 9. A brand name decision for the different product offerings. The following
mix or product line it adds a Stock-Keeping Un it (SKU), which needs to
section explains the branding decisions in more detail.
· be aocounted for, managed and marketed. Each of these -activities adds
"costs"; hence, companies need to continuously review each SK?_ for
its reason for existence, viability and sales off take. Market cond1t10ns
~re· continuously changing ; an SKU may no longer j_ustify its existence,
· altho ugh at some time it mi ght have been very successful.
M anaging ~roduct lines involves ·several decis io ns and _operational
activities.

Marketing Managcmerit Product Concepts

 ' iii · Check your Progress 2
term, sign, symbol , or (lcs ign, or combination or them, intended to identify, the
goods and services or one s"cl ler or gro up or se ll ers, and to differentiate them
from cornpetili on... 1·1iu,, the brand identifi es the se ll er and under the trademark
Fill in the blanks. laws, the se ll er is guarnnteed exelusi1·e rights to the use or the brand name and
logo in perpetuit y.
1. _____ arc Lhose goods Lhal consumers purchase frequentl y,
immediately and with minimum effort. So, techni ca ll y, when a marketer ha s created an identification consisting
of the name, symbol , logo and slogan, he has created a brand. However, that is
2. _ _ _ _ are long-lasting goods, which facilitate the manufacturin& not what brands are really about; brands have several levels of meaning~.
of finished product.
· At the first level , a brand is a badge of origin, as it identifies the sellet; as
3. _ _ _ of a product mix refers to how many variants are offered for given in.the definition above.
each product in the line. ·
Next, it is a set of attributes that must translate into valued benefits for its
4. Product line appraisal is a regular audit of each _ _ _ in the target customers. A brand is a promise of performance that is unique, of value
company's portfolio. to the customer and sets it apart from its competitors.

/
The next level is the brand essence, w~ich represents the deeper
motivations and goals that the customer is.Jrying _to satisfy. These goals and
motivations as we have learnt earlier.are abstract or intangible. These goals are
expressed through the emoti onal and ex pressive benefits that brands provide
1. Visit any grocery or convenience store. Make a list of at least 5 types their customer.
of staples, impulse and emergency goods. Make a special note of their
product display and list your observations. How are product displays Finally, the brand is set of beliefs and values of the company or seller, the
culture in which the brand is rooted and its unique personality.
different for the three categories? Why do you think it is so?
Make a list of at least 3 other examples of unsought goods. What type If you visualise the above, brands seem exactly like humans. Powerful,
·-~ ... - - - -- -- ------- ---- - - of marketing tactics are companies using to convince customers to
I.ong- lasting brands are ·created when a marketer can tap into all the different
levels and dimensions of the brand and not merely by naming a product. Strong
purchase?
brands are those that create competitive advantage through product performance
3. Visit the website of any company of your choice. First map out th~ and non- product related means. '
product portfolio of the company, indicating the product lines, details
Ultimately, a brand is something that resides in the minds of consumers.
of products in the product line, the variants and pack sizes offered.
To complete this information, you may need to visit a retail store or Brands versus Products
company outlet as well. This chart will help you identify and ·exP.lain It is important to µnderstand the real difference between a brand and a
the company's reasons for lengthening, widening and deepening of _product.
product lines. Find out the changes the company may have made over
the years. Why were those changes necessary? A product represents the physical or functional solution offered to a set
of target customer. This fur;i.ctional solution would consist of several levels we
have learnt earlier: the core benefit, the generic level, expected product level,
augmented level and potential levels.
And with time; products evolve through these various levels.
Brand decisions are a major part of product strategy. Companies aim to
create strong brands· as they cm:nmand price premiums. The most important A brand is all of this and more; it is an implicit promise to the customer of
skill of a marketer·is the ability to create, maintain and enhance brands. a certain performance. A brand also represents how consumers feel about the&e
product attributes and ·their performance; but more importantly it is about what
In a sense,' therefore, marketing is all about bra nding anq hr.an.ding is all makes them feel about using the brand.
about marketing; the two are inextricably linked.
Physical elements of the product have a finite life, which we will learn
9.4.1 Brand about in the product life cycle cqncept. The black and white camera ·gave way
The American Marketing Association (AMA) define:; a brand as «a name, to the ·colour camera. Film-based cameras are giving way to digital cameras,

Marketing Management Product Concepts

 i~1 hich in Lurn ma y gi1c 11.i); Lu ;1 11 all-in-on e ha1iclhcld .dc\'i ce. But brand s, if a brand irrcspccti l'c 0 1· the product category. Consumers lace choice today
we ll managed , can li ve infinit ely. Brand 11a1m:s like Kodak , l anon and Minolta in l' irtuall y c1 cry cat L'gory; hea lth care, public util1t1 cs, cducat1011al services
ea11 li ve 011 i11J-i11itL: ly 111cspcct1 vc nt what lt::11.:I th e pl1 ys ical p1 odu<.:t is ,lt a <: J1tcrta1nmc11t t" 1w111,· a few: h1 anding has gained importan ce in :ill thcs~
give n ti,m:. categories. In thi s bu1>K, 11e have li sted out IO types ol entiti es that can he
A brand can cm:ompass several phys ical products; 'litta, GE and Godrcj marketed; it tltu , gm: , 11 itltout saying that all thcsc entiti es can bc branded.
brands arc embodied in several products over a variety or categories . . 9.4.2 Brand Equity
' ' '

Importance of Brands Brands vary in the amount of power and value they have in the marketplace.
Brands perform important functions, which are advantageous to both At one extreme arc brands that are unknown to most buyers and at the other
consumers and companies. extreme arc brands that have become an invaluable part of the customers' life, ·
such that he is devoted to the brand.
I. For a consumer, a brand serves as an identification of a product. If
consumers recognise the brand and have some prior knowledge of it, then David Aaker, world renowned brand expert, distinguishes five <liffcrcnt
they do not have to engage in a lot of additional thought and information levels of consumer attitudes towards brands from the lowest to the highest. i.
processing to make a purchase decision . Tt reduces the customers' search ) Customer will switch brands; no brand loyalty.
effort and time, thus simplifying his decision-making. 11. Customer is sati sfied, but may consider switching.brands with inducements.
Brands serve to reduce the risks in product decisions . Consumers 111. Customer is satisfied, ca nnot be induced to switch brands.
perceive several risks such as financial risk, physical· risk, functional
1v. Customer values the brand and considers it as a "friend".
risk, social and psychological risks. Although consumers have several
different ways of handling these risks, one way in which they cope is v. Customer is devule<l to the brand and cannot do without the brand . ·
to buy known brands, especially those with which they have favourable Brand equity is the value of the customer's mind share and heart share; ·
past experiences. Brands are an important risk-reduction device even in the greater the number of customers in categories iii. lo iv., the greater the brand
business-to-business settings. · equity. Brand equity is not just a measure .of the consumer's loyalty; it is a
Because of what brands stand for, they can form deep relationships and measure of the brand's perceived quality, strength of emotional associations,
bonds with the customer. Consumers offer their trust and loyalty to such degree of brand recognition and other assets such as patents, trademarks and
brands with the understanding that the brand will behave in a certain way channel relationships.
and will provide value to them through consistent product performance, 9.4J Branding Decisions
and appropriate pricing, promotion and distribution programs.
Product line management is about creating brands and managing and
Brands also act as symbolic devices, allowing cus\omers to project their enhancing the brand's equity through the entire gamut of marketing activities.
self- image. This i's an important function perfurmed by the brand. Certain The goal is maintaining brand awareness, improving perceived quality and
brands are associated with being used by certain types of people and thus product functionality and maintaining positive brand associations.
reflect different values or traits. Consuming such brands is a means by
which consumers convey to others the type of person they are or would All the product line decisions we listed earlier are taken with respect to
like to be. · · brands; but the additional brand decisions companies need to take are:

2. For the company, brands provide a legal protection for all the investment 1. .N.umber of brands they will support: For multi-product companies,
and efforts made by the company in creating qnique .features, associations with numerous and diverse product .Jines, this is a crucial decision. At one
and differentiation. Brands are enormously valuable legal assets; the only extreme, a company creates a hraild for every product; but this -requires
asset that appreciates with time, which can be bought and sold. Large huge investments in creating, protecting and managing so many brands.
•T--------------- ------ e·amings multiples have been paid for valuable brands. At the other extreme, companies use a single brand name for every single
product offering. This can create c9nfusion for the customers, as the brand
· ·strong branJs generate price premiums and are the source of profitability may not represent any clear value proposition.
for -the company.
2. The branding strategy to be used: There are broadly four branding
Can anything be.branded'? strategies available today.
Whe ncv~r and wherever a consumer is in a situation where he has to i. Individual brand nanies: Policy fairly common in FMCG markets,
make choice between competing offerings, there is an opportunity to create fo llowed in part by Hindustan Lever, Proctor & Gamble and Marico

Marketing Management Product Concepts

 lndw,trics: Tide, Pampers , Rin and Parachute arc individual and
indcpcnclc nt brand na1;1cs.
6. Cost reductions: Generic \'c:rsions or existing products.
Less than I0% of' all new products arc new- to-the-wo rld product s. Most
ii. Range brand names: Individual brand names, 11·hich c:x lc:nd to
n(;!w product introductions in the market belong to the third and fourth category.
inc lude a range of closc l;i• related products, become 4-ai1gc brand
Innovati ve products involve the greatest ri sks and costs as the y arc new to the
names. Sunlcast (bi sc uit s and pasta s), Ponds, SurL I lorli cks and
111<1rkct and the compan y, and failure rate is ve ry hi gh.
Maggi have all become range brands today.
Most companies rarely innovate, whilst some innovate on a continuous
iiL Umbrella b'rand names: The brand which earlier may have been a
basis. In the last category are orga11isations like Apple, 3M, Microsoft, Sony and
range brand now includes a larg~r family of products such as Amul
.and Britannia. Nokia. These companies have made innovations the very essence of their being,
and it is no wonder that these organisations are market leaders in every sense
iv, Corporate name combined with'a individual product name:'The of the word. They know that in a global economy of ri;ipid .change, continµous
company name is used as the brand name for all the products like innovations are the key to the future.
Toyota, Honda, Nissan and Sony. In such cases, especially for much . _·•:_I~:,e, _-_ ~'·.''la«.·Ji.:. ,,;,.,,
diversified companies with large portfolios, individual products
~-'trim
(.- {'c
·''lf.: !iq;i:..'_.'\µii .m
om~~ntes :~9f.., . .t"1"'\t.·1P!;,,11_ ·!1,~t,11¥
. .;...Jp . '\, .1,,,&;; .
~, , · -~:%~ , -~ • ti~i;_ ~~ ~\~~t'.~~{' .,. . , \-~~ ,· ~ -t'-: 'Wr p•··~--: ·;,. ?-+,,.~
I '·,,r., . .~e:11ior eJ~putrv_es••tn .,§8 , cbun.tpes, ,9;1,/ts,o . ~
need names for identification; hence, the corporate name and an
~c .. .,,.,nolJ.'.Pf,,940
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f.l.t_
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.d' ' . .1.,,_ .... ,, ..-.--~11,,Yt,_ 1_·'•a···•t'":fi-,,,w,(~b"·' .,,\v, ,If,,_,. ~,!:!;i,' .. , , . l
individual sub-brand natne is used like Sony Viao, Sony Walkman :,; ,,.?rs.u ;, . 1 ·. <<;>~ art: ./~~\ . es,e ma?agc,t~ }Ii O ,pay a 91,fpue PQ~~~~t.e~!S •:
and Sony Trinitron. · · ~reproduc~,<,l b,e\ow: (Only th.e top 8 are reproduced h~re) t . ,_, .,..
' ,, "1·,. I~~.: " .{~.\·, : :,"·', ~· 11
~
.. , , ' /: .... ~ ( { .....,~· ,1;. ::- JY,r \>' ,r..
In practice, companies follow their own unique model of branding, . · ApJi!~\ J21,84'!-'6 ):_' ;,/DeJivc:rs
great •c.onsurner expe~ien<;e~ ,~ witli
which would be based in part on the above four strategies. ' oµtst~nqi~g ~~~~gn;.~teady _fl;ow of net )q~a~ Jaat_i·e~~~!le oJcJ c~tegori~s,
such as mqs1c players; contmual evolution o!busmess mod~ and brand. '· ,1
Companies take a decision on the branding models depending ·. !·, _·✓·: -~·1.:.:,. ·,::), ·•\. i1
.... ~ - ;•i_,.·i •1. ·r-. ,.. • \_~;: :,.,1.-'$_ -~, l 1
;:-·

on the _number of brands they can support, the product categories ,, . F-,~3M ,(U.7.7%): ).-'. 'Strong jutenwl culture of creativity with formal ,
they intend to get into and the suitability of those categories with .i~cen!i~;~}~ jT~Y~tfl{espJ~~ i~ high,s;i~c;is.;,rat~ jn,tulriing icl~~.s 1~ health ·
the brand's promise. Stre"tching a brand into too mai1y categories care, mdustnal components ·and other areas .ip.to profitableproduc_ts.' 1
• (.1~:7•,,✓.1-.,/. ' :, ... ,;-?, ',,. :·• ' ~),~,:;,.;/, ·'"·' ·,· •",'"', :·~ 1,;_ '-•··
weakens or dilutes the promise of the brand; at the same time · .. 't,Mforosoft~' rcs.53%) .. "Sti'orig m:anageinent i plishes continuous
creating too many brands can be a severe strain o~· the company's ''impr~~ements ,of pfoau~ts, expansions into new markets and rapid strategy
resources, as ea~h brand needs adequate support.
;, changes ,y.:he1,1 n~9..~ssary.'! .. . " ;, . 'i,. ,,i ·C ' ' '
•/ ·•. ' , . ~, . - ~1:);t,.~, ····:'. ,.t.~ :).::,_:_,'!,,:,::~1-• ··,,;,.l' ·'.f;.4 ~·_;;_~ ,,... '',:··
. . ·.?~,(~{1~f;Yo),,~r~a.g~mei}t;rracJic;s, tB~Ui.re,'.~Jte.~d <l ~omti~ition,
1
along with,, l?trong "tra1rung, ·are allowmg CEO' Irumelt ·to remv~nuGE's ..
_.<, . _i~ ;,•. <•. ;•_ ):,,'nj,; . : • '._,. , •. _ , ': ' I;

Boaz, Allen and Haniiltgn identified six categories of new products: , QU$iness ID,Qdela~q culture'to promote innoyation.",,, ,,, . , ,· •, . '.,'
.}.l . ·_•r'.·••.~. -i'}t:~•: ·•__....... ·~.;. i~·-tt ~~t»t. -~~·•;. ,·_ - ,,;_'1 ., • r.'.!... , . ., ("' '.' •l:'1 ~ •~~-' ;:f. •· ·~:,'° ~··, I ! ';;'.~\-0:· .:~

1. New to the world: \fay innovative products that create entirely new ¢7 ~7~~4~1/ •,i;v, · i) ,, , .,, . 1tt#1tt~i impo~n~~ ·2t\ m.: ?i~: c 9!':'~l~e~1e;1
' creates ·
;,i-,~~;fit:~6ff_: ,;': ~~"•'ft~:,;u •·:~1;i:~t!ts\': ?
ectromc..P.toducts·i1t\great design: ,.i ,J.-.\...,.,, -~
markets and categories. ·· ,~ ·'- 1

2. New product lines: New products that enable companies t9 enter an

1};; .:it i,t;::
established market for the first time. These are new product offerings in
existing categories.
3. Addition to existing product lines: variants, pack sizes, flavours and ·so
on.
I
.·! . 4. Improvements and revisions of existing products: New products th~t
provide improved performance or greater perceived vafue and replace
existing products.
5. Repositioning: Exi_sting products that are targeted to new market 'Iypes of Innovations
segments.
An innovation is defined as any change, alteration or renewal of an
existing product or process, which signifi_cantly improves product perfomrnnce _
a_nd perceived value.
Marketing Management
Product Concepts
 ·A,; innorntion is very different l'rorn ,111 invention. An i11 vc11tiu11 is a have potent ial. P&G's st rrn glh ,IS an organisation has been the ability lo - ., ·•Notes
creation ol' something new to the world and 1101 based on an improvement or spot the "unmet, unarticulated needs" ur customers and crea te meaningful
deve lopment 01· an existing product or process. For instance, the first elec tri c products nu t or li censed. technologies or bought out innovat ions. The
bulb,' tc.lcphonc or te lev ision were in ve ntion s when first introduced to the Sp in Brush , a money-sp inner product for tl_1c com pan y was a bought out
world. Over the years several inno vations, big and small , IHI\ c vas tl y changed innovation.
the product form, functionality and value of these products.
9.5.1 Organising for New Product Development
Innova.tions occur at two levels:
Companies handle the organisational aspect of new product development
I. Incremental or continuous innovations are gradual improvements in several different ways unique lo their industries. Earlier new product
or modifications of pro.ducts through a series of variants: For instance, development .used to be purely an_ R&D function with inputs from marketing.
continuous innovations oflhe cell phone with inbuil tcameras, downloadable executives. Technolo°gies used t o be developed in labs and m·arketing had to
ringer tones, SMS and MMS facilities, FM stereo ·capabilities, games and "find a market" for the products. But clearly that approach did not wurk for
colour displays have over the years vastly improved the functionality of long. Today companies are creating ·special high level, cross-functional teams of
the product as a commul)ication device. managers with specific responsibilities. These teams have major responsibilities
Incremental innovations are more readily accepted by the market as they ranging from developing consumer insights, developing or scouting for new
do not hav~ a disitip.tive ·influence on consumer usage habits; they do not ideas, working with R&D departments in giving shape to these ideas, testing
require consumers to learn new skills to use or understand the product. the ideas and concepts right through to commercialisation o[ products.
These innovations occur more commonly and are a critical element of a • These teams of "entrepreneurs" .are relieved of other ·duties and given a
company's market leadership strategy. budget, timeframc and a "skunkworks" setting to achieve their objectives.
2. Breakthrough or discontinuous innovations are significant changes in The Mistakes
the product usually driven by technology, design or by incorporating
They vary from industry to industry, but the most common i1movation
· . an invention . For instance, the cell phone was itself a breakthrough
failures come from companies that confuse R&D with innovation . Hiking
innovation of the landline telephone. Breakthrough innovations have a
R&D spending doesn't automatically raise innovation success. Cutting internal
disruptive influence on markets as they require consumers to unlearn old
R&D spending and seeking new ideas from around the globe can often be more
usage habits and learn new skills for usage. Other examples include home ·
productive.
computers, medical self-test kits and Internet. A discontinuous innovation . .
is of a greater magnitude and occurs rarely. Consumer _marketing,- with consumer understanding
How do companies innovate? Marketing 'has. few -tools for feneting out the,: unarti~ulated qeeds .of
CO)lSUmefS. . . . , ,, . ' ' '·< >:.
There are three innovation models or strategies that companies can follow: ', I• >-~.~. t ~!/:. ....,:, ~: ;:_t'. ·,; ' i-;; ,; ; "; . i,'~I' ··1(:___,♦·U'-f.
, ., :-D.esig~.Jiit)l design sfrategy . ,, _, ,, ./f . ~, ,, " . ,,:,
I. Integrator model: Here the company assumes responsibility for the entire
·_innovati9n process in-house as well as manufacturing and marketing of the
J;;,'.}:::'.r'il';;;_r;•'.,i.:,:, « -,;:. '.,, .i ._. ))tyle ~nd c' . -;;;. . ' . r. -' · '.....
innovation from start to finish. This approach involves huge investments,
greatest costs and risks. Intel follows this .model. ·
2. . ·Orchestrato_r model: Key functions such as the de$ign may be in-house,
but manufacturing and marketing may be handed over to other companies
with the required expertise. For instance, when Porsche could not handle
the over-demand for its popular Boxster model.( 1997), it co-opted another
· manufacturer rather than create additional investinehts. The same was the
case with the BMW X-5. There are potential risks even with this strategy
especially in the areas of quality control.
3. Licensor/licensee model: The innovator company licenses its tccQnology
or innovation to another company for marketing and distribution. Proctor
& Gamble, a marketing powerhouse, has licens·ed several innovations
and hires teams of outside designers who scout for innovations, which

Marketing Management Product Concepts

 Managing the product development process The second part of the plan will describe _in detail the entire marketing
As we have learnt earlier that co mpanies follow different innovation 1111 x, 1. c., the product and brand strategy, pricing strategy, di stribution and

models to generate new products. /\ttrac_tivc_ ideas must be refin ed into testable communication strategy. This parl will prese nt in detail a spec ific launch
product concepts. A product concept is an elaboration or a product idea plan and market in g budget spec ifically for the launch.
expressed in meaningful consu111er ter111 s. The third part of the preliminary marketing plan will Jircsc nt in detail the
I. Concept development and testing: We can illustrate this with the following expected sales, expenditures and profits projection s.
~xarr~ple. A_ pharmaceutical company has innovated a non-injectable The management now has to take a decision on the business attractiveness
of the project and its fit with the firm's overall business strategy. These
------------ ----------
msulm, which can be consumed orally. This is the product idea. But
consumers don't buy ideas they buy concepts. This product idea can be deliberations usually result in revisions and expansions of business plans ------------ ----------
turned into several concepts as a capsule to be marketed as a prescription .as the· case may be. Detailed financial analysis and statements need to be
drug or as a prescription nutritional supplement. Who should this be prepared so that a final management decision can be taken ·on the project.
targeted to; younger patients or older adults? Test marketing: After the management is satisfied with the broad
3.
E~ch of the above concepts represents different category concepts, which functional and psychological performance of the product and the market
wtll detern~me the product 's con\etition, frame of reference, point of potential and business feasibility of the product, the product is ready to be
dtfferentlatton and rnarketit1g _ITii)(._ As a tablet formulation it will be a "dressed up as a brand" and put into a market testing. The market testing
medical prescription. drug, competing with injectibles; as a nutritional at this stage is done in an authentic "shopping environment" and is very
supplement it will compete with a host of other nutritional supplements. different from the consumer testing at the i11itial stage, which was done in
a conlrolled environment.
The key issue in this case would be which product concept is the
consumer likely to percei ve as more ei1ectiv1::? The marketing tas k here a
Test marketing is usually full -scale market launch of the product, but
ts to detenrnne the appropriate product concept and determine the brand in limited cities only. The c·omparty puts on a full -scale promotion and
concept. Will a new brand be created or will they use an existing brand to distribution campaign similar to the one that the company would use in
introduce the product into the market? How will the brand be positioned? national marketing. [t allows firms to test all elements of the marketing
· mix of the product and get distributor, retailer and consumer feedback on
Next_the concept now needs to be tested with appt·opriate target customers all aspects of the product. Test marketing permits testing the impact of
to get their reactions. Concept testing is not to be confused with clinical alternative marketing plans.
trial~ as would be applicable in this case. Clinical trials would certify the
medical efficacy of this drug; concept testing is the testing of how this Not all firms undertake test marketing as not all products are suitable
concept is to be marketed to consumers. for test marketing such as .high priced and high involvement products
like durables, financial products or entertainment products like events
Concepts can _be presented symbolically or as physical prototypes. Today and movies. Test marketing is more commonly used for low involvement
--------· -------- ----- firms use rapid prototyping to design products (such as appliances or consumer products.
smatl toys) on a computer and produce plastic models of each. For such
The amount and time duration of test markeli{lg is influenced by the
products, consumers can view the plastic models and give their reactions.
cost of test marketing, time pressures due to the onset of the season and
Companies_ also use virtual reality to test product concepts. I
competitive pressures if competitors are also ready to launch their brands
Consumers are an important par;t of the concept developmi:,nt of a of a similar product. One of the criticisms of test marketing is that it
product and are being co-opted by companies to be a part of the·concept reveals too much information to competitors and companies may prefer
deve_lopment process. · to face the risk of product failure. The costs of test marketing can also be
very high which is why these days many finns are skipping test marketing
2. Marketing plan and business analysis: .Following a successful concept
and use a modified approach such as a phased launch of the product in
~est, the , new product c_oncept needs a preliminary mar~eting plan for
mtroducmg the product mto the market. · · select regions.
High-end durables such as cars and appliances or business goods are tested
The first part of the marke(ing plan will describe the target market size ·
by companies at trade shows. Companies can assess the interest shown by
structure and behaviour, the product positioning, competition, catego;
prospective consumers in the various features and commercial terms and
sales and expected market share over a period of time.
the purchase intention expressed by. The excitement and "buzz'_' created
or not created by the products allows the company to make appropriate
modifications wherever necessary.

Marketing Management Product Concepts

 --1-. Commerciali sati on: lrrcspcct i,·e llr which lorm or test marketing a firn1 int roduced the rvtach3 razo r, the transition from di sposable or 11 0 11 °
undertakes, the compan y has lo take a final dec ision 0 11 the market disposable razor was eas ier as it did not req uire men to change their wet
readiness of the product .ind whether lo launch the product. The key sha ving rituals. One cannot 1111ag111c 111cn adaptin g just as eas il y to a nc"
commercialisation decision is the market entry timing. The timing depilatory cream designed lo remove facia l hai r, it wo uld be incompalib.lc
deeision is particularl y imponanl when a co 111pelilor is also worki ng on a with their values and habits.
simil ar product and is read y to enter the market.
3. Complexity: The degree to which a new product is difficult to understand
The·company faces three choices; first to maikct, parallel entry or late.ei1try or use affects prod~1ct acceptance. ·The easier a product is to understand
after the competitor. Each decision has it pros and cons, and companies or use, the more likely it is to be accepted. The issue of complexity
need to weigh their options . The timing decision involves additional is especially important for high-tech consumer products. There are four
considerations; where the new ·p1:oduct replaces an older ·product; the predominant types of technological fears that act as barriers to product
company may delay the launch until the stocks of the older product are acceptance: the fear of technical complexity, fear of rapid obsolescence,
drawn down sufficiently. If the product is seasonal, the launch would be fear of social rejection and fear of physical harm . Of the four, technical
deferred until the right season arrives. complexity is the most widespread concern of 1nost consumers.
)
The company must decide on the geographical launch strategy Whether 4 Trialability: It refers to the degree to which a new product is capable of
to launch the product nationally or whether to go for a phased launch being tried on a limited basis. The greater the opportunity to try a new
depends mainly on the company 's size, resources and finali sed distribution product, the easier it is for consumers to evaluate it and ultimately adopt
arrangements. For companies that have the funds and a strong distribution it. In general, household products are inherently most trialablc, as they
network already in place, a nationa1 launch can be considered. can be made available through trial packs or sizes. Computer companies
The commercialisation plan is the final launch plan for the product. offer free trials of their new programs for limited periods to encourage
computer users to try the program and subsequently purchase it. On the
9.5.2 The Consumer Adoption Process
other hand, durable goods cannot be offered on trial. Marketers conduct
How do potential customers learn about new products? What will motivate extensiv; demoqstrations to offer some sort oftrialability to consumers.
them to try a product? Why do some products take a long time to get a foothold 5. Observability: It is the ease with which a product's benefits can be
in the market, whereas others.seem to become instant hits?
observed, imagined or communicated to potential consumers. Products
These are just some of the questions that dog marketers. Not all products that have a high degree of social visibility are more easily diffused than
that arc new have equal potential for consumer acceptance; also some products products that are used in pri~ate. Similarly,_ tangible products are more
take much loriger to gain a foothold in the market. The theories of diffusion easily observable than intangible products.
of innovation and consumer adoption help marketers develop appropriate
strategies for introduction of their innovative products to the market.
Product characteristics that influence diffusion
The uncertainties of product marketing would be reduced if marketers
could anticipate how consumers would react to their products. Al\hough there
are no precise formulas by which marketers can evaluate a product's acceptance,
diffusion researchers have identified five product characteristics that 'seem to
influence consumer acceptance·· of new products. ·
Relative advantage: The degree to which potential customers perceive a
~ew product as superior to existing substitutes is _its relative advantage.
The fax machine and photocopying machine are examples of inl)ovations
that offered a significant relative advantage over existing alternatives.
2. Compatibility: The degree to which potential consumers feel a new
product is consistent with their needs, values and practices is a measure
. of its compatibility. · If the new product does not require consumers to
change usage habits or patterns, it gains faster acceptance. When Gillette

Marketing Management Product Concepts

 The life cyc le curve is portrayed as be ll -s haped curve, representing the
~ l Check your Progress 3 product sales ovc 1 a period or time. The c urve is divided typically into !'our
stages : introduction , growth , maturit y and decline. There arc several exceptions
when the life cyc le ma y not follow thi s path. As show n in the figures, there
State True or False.
arc products that show a sharp growlh and decline, or products that rema in in
I. Com panies can differentiate their market offe rings a long the five indefinite maturity and in fact may ne ver fa{:c a dec line. Fads and fashions ca n
dimensions sales, purchase, after sales, revenue and satisfaction. be grouped in the first category, whereas products in closed and highly protected
2. Brands also ·act as symbolic devices, allowing customers to project markets may fall into the second category. Commodities like steel, cement and
food grains, where demand remains inelastic relative to other products, may
their self- image.
also experience indefinite maturity.
3. Product line management is about creating brands and managing and
enhancing the b~and's equity through 'the entire gamut of marketing. The profit curve, also shown in the figures below, does not follow the
lifecycle curve. Profits never or rnrely appear in the introduction phase. The
activities,.
growth phase brings some profits and by the time the product enters the latter
Fill in the blanks.
--- --- --- ---- - -,- ---- - I. An ________ is defined as any change, alteration or renewal
pa1t of the growth or early maturity, profits peak. As the product moves through
the maturity phase, profits start de~lining.
of an cx1stmg product or process, which significantly improves The PLC concept is used to analyse the life cycle of a product category
product performance and perceived value. .(mobile phones), product form (monoc hrome handsets) or a technology
2. A product concept is an elaboration of a _ _ _ _ _ _ expressed in {CDMA) . The PLC concept cannot be effectively used to analyse a brand 's lifo
meaningful consumer terms. cycle, which is a completely different concept. A product's life cycle curve,
i.e., the sales curve of the product represents the combined sales for the entire
3. In the _ _ _ _ __, the company assumes responsibility for the
category, and not the sales of an individual firm's product. A brand's life cycle,
entire innovation process in-house as well as manufacturing and
.on the other hand, represeqts the sales of a particular brand and may not follow
marketing of the innovation from sta~t to finish. the product category's life cycle c.urve. The brand's sales curve is dependent on
'-
the strategic actions of the individual firm; a brand may have gone into decline
even though the product category is in the growth phase, because of incorrect
strategies employed by the company,

I. Visit the website of Lego and find out the details of their new product,
a robot called "Mindstorm". Make a special note of the involvement of
its customers in the development of this product.
2. From the Internet, collect information on three "new-to-the-world" tI
"O
products launched in the past one to two years. What kind of consumer
ll
resistance did they face? What did the companies do to effectively .
counter consumer resistance?
...ii

l!lroludfoo GtiN!h

All products have a life cycle; the concept of the product life cyc!e has
Fig. 9.1: Product Life Cycle .
been based on·the life cycle of biological organisms, and like the different life
stages of biological organisms, products too have definite life stages. Each stage
of the life cycle poses different challenges and opportunities to the company
because of which products require different marketing, financial, manufacturing
and purchasing.and resource strategies at each stage.

Marketing Management Product Concepts

 Finns use di ffcrcnt generi c- strategics to enter markets, summarised as
rollows:
I. Offensive stratcg~·: Fi1111 s that follow thi s strategy arc pio11cering
compani es ll'ilh i11n0\'ali vc producls. Thi s strategy. would onl y work for
companies that are R&D intensive. although they may lollow th e diffcrrnt
innovation models we have discussed earlici:
DuPont's core competence in chemical technologies and creation bf new
fibres has lead to the successful creation of new produ(:ts like Nylon,
Teflon and Lycra. Over a period of time the company developed several
1w fl'll!
applications of these products, which they licensed to end-product
manufacturers.
Fig. 9.2: Product Life Cycle Patterns
2: Defensive strategy: This strategy is followed by firms lacking any real
le} Sc•ll"l'•4 pa«om core competence to innovate products or by firms that lack the resources

1[2j
required by a pioneering firm. Such companies. use their resources to
. ll instead improve the• existing products using reverse engineering or to
.1
Jii develop incremental innovations or develop competitively priced versions
- - - - - - - - - - - - - -A. - - - - - - ·Jai
of existing products .

r.n, r... RCA developed the first video recorders for professional use, which Sony
Tm,
quickly adapted for home entertainment; but Matsushita's technically
Fig. 9.3: Style, Fashion and Fad Life Cycles inferior but more maiket focused products dominated the sector for a
9.6.1 PLC Stages and Strategies in different Phases long time. Firms that follow this strategy usually enter the markets with
products in the growth stage of the PLC.
Introduction Stage
3. Imitative strategy: This strategy is similar to the defensive strategy in
The introduction stage is when a new product category, product form or many ways, except that it focuses mainly on producing low-cost clones
technology is brought to the market. Anew product is brought to the market through licensing technologies, focusing on low-cost manufacturing and
before there is a proven demand for it and before it has been proven technically. operates in localised markets. Such firms would enter the market at the
How it will take for a product's demand to be created depends on several factors latter part of the growth stage, by which time the market has sufficiently
which have been studied earlier. Despite these conditions, it is almost impossible developed.
to accurately predict how long i product will take to take off the ground. The
fatality rate of new products is extremely high. Samsung's initial growth was through producing low-cost copies of·
Sharp's microwave ovens, which they loaded onto boats and shipped ·
This stage is a period of slow sales growth and may not necessarily them to US. Many firms lacking resources and expertise in markets have ·
be a smooth upward trajectory; some sales ups and downs may be witnessed. · successfully used this strategy-to enter and gain a foothold in industries.
Usually there is only one pioneering firm in the market and profits are non- Samsung today is a world-class organisation and is today pioneering
existent because of the heavy -expenses incurred on gaining product acceptance and innovating semi-conductor, communication and entertainment
with the consumer. This is also a period of learning for the pioneer as product technologies and products.
glitches and teething problems will inevitably Qcctir despite the vast amc,mnt of ·
product testing -carried out earlier. This is why many firms adopt a "wait and . ~ey marketing objectives
watch" policy, as they prefer to learn to at the expense of the pioneer. However, Market development
this "second bite of the apple" strategy also has its r-isks, as pioneer firms are • · .·. · "Sell the product concept'.' and stimulate demand
quickly able to adapt their products and reap the rewards o·f the first _mover
advantage of market dominance. Pioneering companies usually enjoy .higher Getting distribution
perceived quality and these establish the standards that the· product category° Sorting out produ~t performance and ·design issues
should possess.
The marketing strategies, wh ich foHow from the marketing objectives
arc as under:

Marketing Management Product Concepts

1. Product strategy: Pioneerin g Iii ms usua)ly enter the markets with basic Rapid skimming is a stra tegy or usin g hi gh prices backed by a very high
produ cts and \'Cry limited product ve rsions. As the utilit y or the product leve l of' marketing co111munica tio11 s support. Co111pan1cs ·wn ulcl use thi s
is yet to be u11dc1,luud by th e ru slo 111 cr, no 111:irket seg111cnts ex ist. The , 1n1l cgy, when co mpclilivc threa t 1s large and imminent. The pion ee r firm
lo
e111pl1a~IS or th e l"irrn IS COITCCI p1ublems arising wilh des ign, l't:atures will try to rapidl y skim the crcarn olr th e marke t and 1na x11111sc prohts,
and usage a nd quickl y es tabli sh a co mpetiti ve advantage. bc°forc th e co mpetitor enters the 111arkcl. I lowevc r a basic requiiern enl for
Technology pioneers especially would also consider licensing their this strategy to work is that product must be superior bolh lcehnologically
technologies to other manufacturers to -develop products. The advantage and in terms of utility to all other competitive substitutes available.
being, that while the pioneer continues to reap the rewards of their Slow skimming uses high prices but with a slow build up on marketing
innovation, the burde1rn f market development is shared by several players communications. This strategy ioan work when competitive threat is not
in the market. so imminent, because the technology used by .the company is highly
Pioneering firms are also. able to better utilise their resources sophisticated and there is long lead time before competitors can catch up.
for making product or technology improvements, product adaptations This strategy may also work in highly protected and closed markets or
and incremental innovations . Phillips, the innovator of the compact disc where-there are several barriers to entry.
technology, quickly licensed this technology to several manufacturers. The pioneering firm may" instead choose to adopt a market penetration
They continue to make key components of compact discs on which they strategy, which too has two variants: rapid penetration or slow penetration.
enjoy the patents.
Riipid penetration is the strategy of using low prices but with very high
2. Communications strategy: The key task of marketing communications communication support. The strategy is appropriate for products, which
is to first build .awareness of tl1e product and more importantly prove though new and useful are not vastly superior to existing substitutes and
the utility of the product to the consumer and stimulate trial. Therefore, where competitive threat is imminent. The basic difference ·between rapid
companies use media, which will allow the m to demonstrate the product skimming and rapid penetration is the superiority of the product with
and allow the customer to "experience" the utility of the product. respect to competitive substitutes. In rapid penetration, the company tries
Demonstratiuns at retail outlets and trade shows and personal selling arc to rapidly penetrate the market and build market share, sacrificing profits
the very popularly used co mmunica tion media. Deep public relations in the short term, before a competitor enters the market. This strategy may
support, which will ensure that the product is written about by the media, also be used for a product wh ere a competitor has an equally challeng ing
helps customers understand the product. product to bring to the market.
The aim is to create a sufficient "buzz" about the utility of the product and Slow penetration is the strategy of using low prices to penetrate the
companies have used innovative means to achieve this. When Sony first market, but with a slow build up on marketing communications. The
introduced the walkman in the US, it hired hordes of youngsters to wear product conditions being the same as in rapid penetration, this strategy
the walkman and ride the subway in New York. Onlookers were curiously would deliver results when threat from competition is not _imminent.
amused to watch these youngsters enjoy the music on their walkrnans,
4. Distribution strategy: Getting distribution channels to carry the product
and this started huge word-of-mouth publicity for the product as people
is a challenge at this stage as distributors too need to be convinc·e d about . . ._
started walking into the stores inquiring about the Walkman.
the utility and business viability of the product. Established companies
Likewise, when Nokia introduced Ngage, it hired groups of young gamers will already have channels and will therefore find it easier than new
to play games w ith each other on the Ngage at busy street con:icrs and entrants, but even they will have to provide deep sales and margin support
shopping malls. These gamers attracted huge crowds of onlookers all of ·to their channel partners. Companies do not need extensive distribution
whom wanted to experience the product. net~orks at this stage; rather they need to build their networks selectively
Selecting the appropriate media is key to the communications strategy of and in stages.
building primary demand for the product and its utility. So, the distribution strategy is largely selective distribution, whether new
3. Pricing strategy: Pioneering firms use either a market skimming or a or within existing networks, with deep sales support. The distributors are
market penetration strategy depending on the market conditions. expected to demonstrate the product and '.' sell" the product concept. Point
of sale merchandising, allowing the consumer to experience and try the
Marketing skimming strategy is a strategy ofusing a high price relati_ve to
product i_s very essential. Since sales off take will be low, channel partners .
competitive substitutes or other benchmarks. The skimming strategy has
wi ll have to be compensated by the organisation for the additional role
two variants: rapid skimming or slow skimming. played.

Marketing Management Product Concepts

 5. Competitive strategy: The inlrnduclion stage is usuall y ma1'k ccl by the The growt h sta ge is 111arkcd .by · prod uct improve ment s throu gh added
absence ol'co111pdilio11. features , imp roved fun ct ionality and design. /\ firm's product strat egy will
depend 011 its se lect ion or mark et co\'cragc stra tegy. Co mpani es. that a im for
II' the produ ct co ncept is ,1 success, cnmpclition will in evita bl y enter
full mmkcl coverage with a diffcn.: nl!iatcd strategy will build ove r lime dilTc n:nl
the industry allractcd by lhc ·profit opportunities. Potential co rnpcti[ors
prod11 ct offerings fo1· clilforenl market segme nts. That means that over lime
wailing in the ·wings jump into the fray; some enter with carbon copies,
they will add length and depth to th e ir product lines. Companies that aim for
others make design and functional improvements The pioneer now has
full market coverage with an undilTc,entiated approach, will aim at the cost
to prepa re for competition, which means the pioneer must not only sell
rcd uctio11s _rather than improved fun ctionality, and bring to the market a standard
the product concept and its utility but aim at building brand preference as
product. Othei· companies may choose to targe t certain segments only and will
welt.
build products witl1 relevant features , design.and functionality for their markets.
Pioneering firms have to decide at this stage itself, the basis on which they ·
A key aspect of the product strategy especially for pioneering firms is to
are going to compete and build appropriate competitive advantages.
continuously improve the product through incremental innovations, to ensure
Despite pioneering a successful product concept, many pioneering firms
market dominance. Many first movers lose their advantage at this stage, as they
lose their advantage at this stage, only be.cause they- ·haven't prepared
fail to incrementally innovate the product and thus conced~ market share to
for competition with a clear competitive strategy or because they fail to
co1~1pctitors who enter markets with improved functionality and technology.
develop a competitive advantage early on.
t. Pricing st~atcgy: The overall price le';'cls of the product categories
Growth Stage
drop , as all firms aim for market penetration. Price levels also drop as
The growth stage is characterised by a sharp growth in sales, entry of volumes drive down cost of production and firms pass on partially the
competitors and profits. The sharp growth in sales is not only because of the benefits of economies of scale. However, a drop in price levels is not
success of the product, but because of the combined efforts of all firms present to be confused with a firm's pricing strategy, which could be premium
in the market to deve lop and grow the market. As customers get familiar with the pricing or penetrative pricing strategy. A firm 's pricing strategy is
product, different need levels and motivations emerge which is the right time to entirely dependent on its overall business strategy in a particular market.
segment markets. Companies need to plan for the growth stage well in advance. Firms following a differentiated strategy aim for product leadership in a
-~ . __ .- __ ---------------- In a recent study, Tellis and Golder identified five factors as underpinning market; they develop value-added differentiated products based on their
long-term market leadership : vision of a mass market, persistence, relentless competitive advantage with a premium pricing strategy.
i111iovation, financial commifrncnt and asset leverage. The pioneer should
2. Communications strategy: Since the key marketing objective is to
visual ise the various product markets that it can enter, segmenting markets as
build selective demand and brand preference, communications strategy
they develop.
is directed towards establishing brand awareness and brand preference
The growth stage itself needs to be viewed in two parts as early growth· through heavy media use for advertising, sampling and promotion
stage and latter growth stage. This is because although the category continues, progra1ns. Advertisemen~ sperids as a percentage of sales continue to be
the challenges that coinpanies face in the early growth stage are quite different high, but absolute advert(seo1ent spends go up significantly at his .stage.
from the challenges that companies face in the latter part -0f the growth stage. The objective of the marketing communications is not so much to sell the
Companies need to be geared up to face these challenges and shift gears at the concept and now shifts to emphasising the brand's differentiation so as to
appropriate time. build brand preference.
Key marketing objectives (early gro~vth) 3. Distribution strategy: As. the rate of consumer adoption of the product
Marketing strategy's emphasis now gradually shifts from building primary increases, it is generally easier to ex.panel the distribution channels as
demand for the product category to building selective demand for its brand and to the trade channels become convinced about the business viability of the
build market share. The key .marketing objectives can be summarised_as follows: product. The distribution strategy is essentially to increase coverage, enter
newer channels and increase shelf space and product visibility at the .point
Build selective demand of sale through merchandising. Promotional campaigns direct~d towards
Market segmentation channel partners and an increased emphasis on better relationships
with channel_partners become necessary due to increased competitive
Build market share through market penetration
pressures ..
Incremental innovations
Product strategy

-:!Rim
:
Marketing Management Product Concepts
No'tes' Latter Growth Stage The product st ratcgy al this stage aims at "sea Ilopin g the curve" or reviving
the life cycle of the product through either a 111i1jor technological innovation or
During the growth st:1gc "I' the product, as product ,11T take increases
by expanding usage oftht: existing product through new uses and use situation s.
cu1npanics rapidl y expand produ ction ca pac1t1es and continue to do s~
throughout the growth phase. The profit opportunities in the industry iJtlract The old tcdrnology cycle has more gr less headin g lo a dcclillc, hence
newer competitors, who bring additional capacity lo the industry. Th e industry in tcch,;ology intensive categories onl y a technologi cal innovation can once
now moves to a different threshold of competition with a different set of again put the category on a growth trajectory. For instance, the advent or 11at
challenges.• In addition to emphasising product value additions and brand · screen and HDTV technologies has "scalloped the curve" for televisions. These
preference, companies now have to emphasise on cost competitiveness in new .technologies strongly motivate existing television owners to upgrade their
all aspects of their operations, as pricing and margins come under imrifcnse products and buy 11ewer TV sets, which they would not have done so otherwise.
pressure. Companies have to effectively compete on providing value better vis- Aggressive firms will pursue innovations to expand usage of the product
a-vis their competi_tors. by developing products for new use situations or new uses. The cellophane tape,
The capacity additions seen through the growth stage become excess a product innovated by 3M, soon became a household product. Cellophane tape
capacity as soon as the growth rate of the market levels off. A stage of rapid is a very low technology product with extremely limited scope for product,
growth is inevitably followed by a shakeout in most industries· due to the image services or even personnel differentiation. The cellophane tap"-dispenser
excess capacity build up. Weaker companies, those that possess no competitive was an innovation, which bt0ught in some amount of diffcrentinti~n into the
adva ntage or lack a clear business strategy fo1 tl,e market, will be forccd"t6 exit category. However, since tbe product is so easy to duplicate, the.company faced
or sell out. The stronger firms will try to itnprove their competitive positions intense competition from low priced generics offering oqually good products.
through rationalisation of their product lines and .prices and at the same time At that time, 3M innovated a "patterned" cellophane tape, in vibrant
look for newer growth opportunities or market segments lo target. These finns colours with prints, which could be used for a number of different occasions.
will take the category once towards a phase of renewed growth. Newer fim1s For gift-wrapping Christmas presents they created a range of tapes with
may once again be attracted by the renewed opportunities in the industry and Christmas motifs. This simple innovation of printing on cellophane tape
may enter t~e industry at this stage. suddenly expanded the usage of the product, because of the vast number of
In recent times, we have seen shakeouts followed by consolidation and a different occasions it could be used for. Hence, whilst an individual firm's effort
phase of renewed growth in the cellular services and airlines industry in India. to "scallop the curve" will benefit the entire category, the "pioneering" firm
gains greater ground because of its pioneering efforts.
Maturity Stage
· The other aspect of product strategy for most firms at this stage is
The first sign of the advent of the maturity phase is market saturation.
rationalisation of product lines to weed out non-profitable products or
Most prospects own the product; therefore market growth rates, sales and
products that have no clear role or future in the portfolio. Firms also pursue
profits begin to level off. In fact, a decline in profits seems imminent now. Price
design modifications or production process modifications to improve the cost
competition now becomes intense, and with rapid commoditisation of products,
competitiveness of the product a1i°d ease .the margin pressures. Repositioning
all competitive attempts to achieve and hold brand differentiation now involve
of brands into other growth market segments or categories can revive specific
making finer and finer differentiations in the product or customer services,
brands, not the categi:lly though.
image etc. This phase is marked by intense competition, as it see.ms that firms
can now only grow by taking away ·market share from a conipetitor. Price I. Communications strategy: Ironically, when marketing spends and
wars, distribution wars and communications wars become commonplace now. specifically advertisement spends are under greatest pressure, it is
Efficiency and profit generating ability b!!come major concerns for companies. the time when marketers need to communicate with their target markets
The key marketing objectives, emanating from.these challenges are as follows: the most. There is heavy reliapce. on sales promotions and below the
line promotions at this stage. The communication strategy is to optimise
Key marketing objectives
marketing spends through maintenance advertising.
Rationalisation of product lines tci maintain profitability
2. Distribution strategy: Distribution ·channels and processes need to be
Finding new avenues for growth rationalised at this stage. There is fierce competition for shelf space and
Improved efficiency of marketing oper~tions point of sale merchandising. Companies rely heavily on trade promotions
to increase presence at point of sale. Companies can also innovate by
· Product strategy looking for newer channels of distribution or new distribution formats as
opposed to expanding existing channels . .

Marketing Management Product Concepts

 3. Pricing strntegy: The maturity stage is marked by intense price con1pctitioii and tends to draw customers away from the pioneering firm with better prices,
and pressure on margin s, irrcspccLi,c or the pricing strategy that the scr, ice, product l'caturcs, distribution networks and marketin g cn111111u ni cat ion .
compan y f'ollow s. The chalknge is nut lo abandon the existing pricing '[ti com pete _and. rdain market share, a pioneer firm needs to incre,1sc marketing

slralcgy, ~ut lo conl[nue lo provjdl: better value to the customers arfd at expenditure, which puts a downward pressure on prol1tabilit y.
the same time maintaining margins. Some firm s use price competition to On the other hand, the pioneer firm may have to retain pricl: le, els or even
maintain market share; however, this can be a double-edged sword. Only reduce prices to remain competitive. This puts further pressure on the profitability
those firms that' enjoy absolute cost advantages will benefit from using of the firm. Hence, although sales revenue may be rising due to the marketing
pncc as a weapon of competing for market share. Howcve1~ the benefits efforts of the firm, profitability gets eroded due to increased marketing
of this to the firm also maybe short tern'!, as ciistomcr still desire better expenditure and competitive pressure. Another reason is shifting consumer
value, only now at lower prices. preferences arid loyalty. As competition intensifies, better and more .efficient
Decline Stage products become available, thereby shifting customer preferences.
As stated earlier, products can remain in indefinite maturity. The advent of The key lesson from this is that firms have to evolve product strategies
the decline is marked by the introduction of newer technologies or products that and manal?,f for profitability as the product moves through the life cycle.
will replace the old. The decline phase for.an _existing product sets in gradually The firm ltas to start early in product modification and adapting to newer
only when the ne~ver technology or product gni'1is market acceptance. This phase techuologics. Most progressive and market driving firms follow this route.
is marked by falling sales, absolute decline in profits and a shift in consumer Market driving firms anticipate compelitio11, develop competitive advantages
tastes and preferences. When falling sales cannot be reversed or scalloped, and evolve strategies to pre-empt competitive moves.
management focus shifts to milking or divesting the business. Improve
Performance
Key marketing objectives
Exit strategies from the category
Maintain support for existing customers. Improve
Increase Sales Profilabilily
Reduce investment levels
Improve short-run profitability
The decline strategies used at this stage can be summarised as follows:
Expand Increase Increase
I. Exit unprofitable segments and strengthen position only in select segments. Share Price Reduce
Market
Costs
Some products through product modifications can stay on in the market
by occupying a market nich~. For instance, black and white photography
became popular as an artistic expression, so equipment manufacturers
Win
exited consumei segments and c1eated a rn11ge of high-end pt ofessional Convert Increase Promote
Competitor .
equipment for professional photographers and serious hobbyists. non~users usage rate new uses
markets
2. Selectively decrease investment levels in all aspects of marketing. Cut
back on production, advertising and distribution.
Fig. 9.4: Strategic Focus and the l;'roduct Life Cycle
3. Alternatively, companies may choose to divest their b~sinesses well before
the decline phase of the product sets in; this· frees the firm's resources A.Critique of the Product Life Cycle Concept
which it may deploy in other critical areas. In an article written in Harvard Business Review (Jan- Feb 1976) by
Lessons from the Product Life Cycle Concept Nariman Dhalla and Sonia Yuspeh; called "Forget the Product Life Cycle", the
authors argued that the concept was essentially descriptive and if management
The critical concept.of the life cycle is.the management of profits and sales used it as a predictive tool they would commit grievous mistakes. Thei1 key
through the life cycle. A fact that challenges most mnnngers is that the profit criticisms of the concept are summarised as under:
curve does not follow the sales curve. Profits peak before sales mainly because
---~---------------·- competition and mainly the intensity of rivalry between firms brings down
the profitability of the industry. ·Most competition follows the imitatio_n route

Marketing Management Product Concepts

 Products do not have fixed life cycle stages and fixed length or the life
cyc le sta ge unlike bi°ological organisms. / y
ill_ \ Check your Progress 4
Nobody ca n really tell with certaint y what stage or the life cycle the 1------ - - - - . - -· - - - - - - - - - - - - - - -
product is in. , . State True or False:
The PLC co nce pt is essentially a " reac ti ve" co nce pt , whereas firm s need 1. Pt'ofits peak. in the grow th phase.
to be more proactive in their strategic approach. 2. . Defensive strategy is followed by pioneering companies with
In reality, the PLC can be reversed ..Fir~11S can "scallop" the curve, by giving innovative products.
products a fresh lc,isc of life, through infusion of newer technologies. 3. Pioneering firms use either a market skimming or a market penetration
Phillip Kotler, reno,vned m_arketing guru, argues that the. PLC concept s_trategy depending on the market conditions.
focuses too much on what is happeniilg to products. Companies need to look Fill in the blanks.
at how markets are evolving too. A product could be at different stages of the
I. _ _ _ is a strategy of using high prices backed by a ve1y high level
life cycle in different markets. Moreover, firms need to visualise a market's
evolutionary path as it is affected by new needs, competitors, technologies, of marketing communications support.
channels and other developments 2. . ~s the strategy of using low prices but with very high
Like products, markets evolve throu gh four stages: emerging, growth, communication support.
maturity and decline. 3. The first sign of the advent of the maturity phase of the product is _ _ .
1. Emerging markets: Before a market materialises, it exists as a latent
market. When pioneers develop products to ·satisfy latent needs and the
product gains a certain level of market acceptance, latent markets evolve
to become emerging markets . Product differentiation is the strategy of creating differences that make a
2. growth markets: The market growth stage is us hered in when competition product stand apart from competitive offerings, to give it a distioct and
enters the market. valued place in the customers' mind.
3. Market maturity: Eventually competition covers and serves all majo; Physical products vary in their potential for differentiation; some product
market segments and the market ent~rs maturity stage. Market growth categories offer numerous oppo,tunities to differentiate the physical product
slows; competition intensifies as firm s invade each other's territories such as in product f01m, features, performance quality, conformance quality,
to achieve sales growth, reducing everyone's profits in the process. • durability, reliability, serviceability and aesthetic quality.
Firms carve out smaller and smaller market segments hence market Brand image plays a crucial role in the customer's decision-making and
fragmentation occurs. · · especially so in t:atcgories where products and service differentiation has
Market fragmentation is followed by market consolidation. However, a become minimal.
consolidated market condition also will not last as mature markets swing· Mapping the consumption chain can help companies uncover opportunities
between fragmentation and consolidation. The fragmentation is brought to create differentiation that neither they nor their competitors thought
about by competition and consolidation is brought about by i11119vation. possible.
4. decline: Eventually, demand for the present ptoducts will begin to Products can be classified into thre_e broad groups: durability and
decrease and the market will enter decline stage. tangibility, consumer goods and industrial goods.
A product mix also known as product portfolio is the set of all products
The aforementioned concepts ori market evolution are actually very
. and services that a company offe~s to its various markets.
.! similar to the market conditions.thilt change as the product evolves through the
A product line consists of similar products or products within a certain ·
,i' /I different stages of the life cycle.
category.
The criticisms of the PLC <:_oncept are nevertheless valid. Despite its
drawbacks, companies have re·cognised the real utility of the PLC concept and Managing product lines involves several decisions and operational
us_e it as an effective .strategic tool. activities; some of the important ones are composition oflines, allocation
of resources, positioning, and pricing and communication_decisions.

Marketing Management Product Concepts

 /\ brand is a badge cl ori gin , a set ofl1cndits, abstract g.nal s and mnti\ at ions
ol'a custrnncr and a set ol'beliels and ,allll.:s. 1? Self~Assessment Questions
llrand equity is the value of the eusL0111cr 's .m1nd share and heart share. I. What is product differentiation'' I low is product differentiation related to
llrand equit y is nol'just a measure ol'thc co11su111cr 's lllyalt y; it is a measure product positioning' 1 What is the dillcrcncc betwee n product differenti ation
o r thc brand 's pcn.:eivcd quality, strength or c111otio11al associations, and a product being di fl c rcnt from its ri val s'?
degree of brand recognition and other assets such as patents, trademarks
2. llow arc consumer goqds classinccl? What arc. the different factors that
and channel relationships.
marketers need to understand with respect to each classification?
.• An innovation is defined as any change, alteration or renewal ofan existing
product or process, which significantly improves product performance 3. What is the difference between a product mix and a product line? Explain
and perceived value. · the concept of'width, length, depth and consistency with respect to.each.
Why do companies add new product lines? State one recent example.
Concept testing involves consumer responses to believability
and communicability, need level, need gaps, perceived value, purchase 4. Explain what a brand is. Whal is the difference between a product
intention and target markets. and a brand? What functions do brands perform for consumers and for
.
F1ve pro duct c I1aractenst1cs
. . . fl )
111 uencc consumer acceptance of
companies?
new products . They are relative adv.antage,. compatibility, complexity, s. Why do companies need to innovate continuously? Explain the different
trioiability and observability. • innovation strategies that companies can adopt. What are the common
The five stages in the innovation diffusion process arc awareness, interest, innovation failures?
evaluation, trial and adoption. 6. What is the consumer adoption process? What product characteristics affect
All products have a life cycle and each stage of the life cycle poses different the rate of consumer adoption of the product? Explain the different stages
challenges and opportunities to the company because of which products of the consumer adoption process and the marketing tasks at each stage.
require different marketing, .financial, manufacturing, and purchasing and 7. Write short notes on:
resource strategies al each stage.
a) Brand Equity
The life cycle curve is divided typically into four stages: introduction,
growth, maturity and decline. b) · Product Life Cycle c) Innovation
d) Product Development Process

Product differentiation: The . strategy of e11~ating those differences

that make a product stand apart from competitive offerings, to give it a Check your Progress 1
. distinct and valued place in the customers' mind.
Fill in the blanks.
Durability: A mea~ure · of the products' expected operating life under
I. Differentiation is meaningful if it satisfies value, distinctive, profitable
natural or stressful co_nditions.
and sustainable criteria.
Convenience goo.ds: These are those goods that consumers · pt.1rchase
2. 'Sustainable product differentiation is created when a company develops
frequently, immediately and with minimum effort.
.. Specialty goods: They are very "high-end" lifestyle or luxury products or
distinctive capabilities, a competitive advantage or a core competency
and then aims for a strategic position in the industry.
products related to a consumer's hobby or a1:ca of interest for which the
consumer is willing to make special purchasing efforts. Check your Progress 2

Rapid skimming: A strategy of using high prices backed ·by a ve1y high FiH in the blanks.
level of marketing communications support. I. Convenience goods arc those goods that consumers purchase frequently,
immediately and with minimum effort .
2. .Capital items are long-lasting goods, which facilitate the manufacturing ·
of fin ished product.

Marketing Management Product Concepts

 3. Depth of a product mix refers to how many variants are offered for each Distribution Channels and Marketing of Services
·product in the lin e. · UNIT
4. Product lin e ap pra isa l is a reg ul ar audit of each SK_U in th e co mpany's I "'
portfoli o. Structure: [,..,:.
,
.,I.I,
Check your Progress 3 I0.1 Introduction
State 'Jrue or False, I 0.2 Role of Marketing Channels
I. False 10.3 Channel Structure
2. True 10.4 Channel Design
3. True 10.5 Managing Channel Re lationships
Fill in the blanks.
10.6 Channel and Distribution Decisions for Services
I. An innovation is defined as any change, alterati_on or renewal of an existing
10.7 Service Marketing
product or process, which significantly improves J)oduct performance
... and perceived value. 10.8 Marketing Mix for Service Firms
2. A product concept is an elaboration . of a product. idea expressed in 10.9 Managing Service Quality
meaningful consumer terms. 10.10 Role of Self-Service Technologies
3. In the integrator model, the company assumes responsibility for the entire
10.11 Differentiation of Services
innovation process in-house as well as manufacturing and marketing of
the innovation from start to finish . I 0.12 Managing Product Support Services
Check your Progress 4 Summary
State 'Jrue or False. Keywords
I. False Self-Assessment Questions
2. ·False Answers to Check your Progress
-- ---- -- ---------- -- -- 3. True
Suggested Reading
Fill in the blanks.
Rapid skimming is a strategy of using high prices backed by a very high
level of marketing communications support.
--- --- ---- -- --- -- ----- 2. Rapid penetration is the strategy of using low prices but with very high
communication support.
'
3. The first sign of the advent ofthe maturity phase of the product is market
saturation.

1. Dillon, William R., Thomas J. Madden and Neil H. Firtle. Marketing . ·

Research in a Marketing Environment. St Louis: Time Mirror/Mosby
College Publishing.
2. Ramaswamy, VS. and S. Namakumari 2002. Marketing Management -
Planning, Implementation and Control (Global Perspective). New Delhi:
Macmillan India Ltd.

Marketing Management Distribution Channels and Marketing of Services

 dynamics of relations hips between companies and their "channe l partners" (as
tl;cy arc now ref'c rn.:d to) . Multiple 11c11· cha n1H; ls lik<.: <lir<.:cl se lling, e-commerce,
. vcnd ing machines arc now available lo 111ark c1n s, wh ich brings with it newer
Aller go ing throu gh thi s unit , yo u will be able lo: challcng<.:s of' manag ing multipl e chann e ls.
• Describe the role of the marketing channels
Emergence of flexible distribution channels for financial product~ :•
• Recommend decisions companies need to take in cl~signing, -------------------- --
managing and evalu·ating channels for both manufacturing and Technolc5gy -.is enabling banks to .provide the convenience of ~)1'$.ie-~any
service companies whe:~-b,_a *Iiig,f'JBan~~ -,~ren?w'.,'.ree~i1r~b!t~( th~
services can be reached to their customers by.bnngmg ,m ltt.eX1b\h'w.'..
-~~I
'in::: 3/ff ,.;,k(
Jr
• Identify new distribution channel trends
"distrib~~i61{ f hann_e)s''.· ''fre _eat lier ,brick-a:rtd~~rtar ,_ br'an<;4 i~~if . j --- ----- ------ -. ------
---------------------- • Explain how services are different from physical products
su_ffi6ient; techrio1o~y ,i's pow. taking .b~~~ -tp'_the,: h?rp.e·s q1.• o,fti ·
·t · . ~ll_!~ 0
• Describe the key elements of marketing of services and how service a :day, ?,65 1d~y5, a year ,t'1!o,ugh Al',1's{s,-yho11-e :'bankq~g•~fl1.,f G~..~. _ g,•l,'!1~.
firms manage their quality nnancial ·sup£1Y cbai~}s, J,indergojng a fun~a.m:ntal_~~~~~g}f• CR3!1g~[
.jj t&:(
Recommend how service firms can differentiate their offerings 'fr'aditionally, \:onsl!~e~:s .could. do . their b~uking 1,onJi Hy~•coyi,ing;,'1i:i_ !1:bl
bank's b;~nch ..The bri'ck-and-mortar building of the ban'k brani:n'. <lenned the·
periphery ofse~ice de[ive1y ol banking products._ The trend·. ~£,~.?~::1;~ .c}~
-------- -------------- Servi9e Delivery in banking started with the growmg populanty ofel~ctr?n~c
During the past three decades, vast progress has "been made in our payment services. It started with ElcclroniC F~u<ls Trans.fer~ (EfT)., Te~~carrs,
understanding of the design and management of distribution channels. Markets credit' cards· AJMs and smart Ci\rds were next in the evqlufio.na,zy !¾'
have evolved and matured and technological developments have made Gradu;lly· ~ith t.h6 ailvance of comp\.'iting techn'afogy, . elepfiori ,. . J
distribution a strategic competitive tool, as against a mere process of marketing and Com;uter Teie~honylnteg;atiop (CTI) b'ecam~ 'a p~~eifut' in.e~i11m~d(
which was the case in the past. delivering banking serv'ices. The latest product is'Internd banking; wli'.~r(tj1e
In India , distribution channels have evolved in three distinct phases. technology and other issues are still under evolution. · ', .•
' • • .· "''(• , , I

The first phase spanning the 1950s to early I960s was when the These new t<,:chnologies have broken th~ 'paradigm ,of brap.c.h ·':b~,~ ~l'
multinationals and a few Indian companies concentrated their efforts on Customers whether individual consumers or busines s corporates, rio ).oi).ger
reaching out to urban markets. Trade channels performed limited functions have to go,to the bank to do their business; 'It ca~ be done fro~ )'io#ie::,v~.!ng
of merely redistributing the merchandise to retailers. Their own view of their the PC or the telephQne, or at the shopping markets;, using _plas69, ,1:11.lm!r;.
business was limited to that of being merely "resellers". Some banks have now also started c:loor to"·door delivery ·qi s<;:r,vife .,;As
.
a r~su1t,i i't 1s no~.'pq}si~l~ \o ·order ·cash ?r;d~m,¥_nd dra,ftsJ9~
' . . .. ~·
. , ..),}"~-·
Jf~i~liY~~,?
_-. . ~.
The second phase spanning the 70s and 80s saw an improvement in
at -~cin}f:~'1 9?nsu,~ r~ ~ 1~h1~g to _open, a~c~~~}~~;VI!h}1~~~s, ~fJ8:}J
distribution and transpo11ation infrastructure and led to creation of market
d~1ri!bl~ ,loans , · ,up·..Qrrect Sal~s A.ss?c,!at~lt (Q~.~sY Q{ ~an s
savvy wholesalers, stockists and carry forward agents. Companies were able repr~s~n fifo ' , ·.,,,, . ,, · 'he ,ri~2¢ssary ct" ·'· I!, ,, 'a :titht
,.·. ';;!t·y: ; ~,-/',:, !'¼1'W, .
to extend their reach into smaller towns and even villages. Better management .corive ·e
e;,J;'•),,_,..,{;,'~~ 11'-
· ·•
techniques anc;I .the advent of technology improved inventory management, fl.f"•'
---------------------- warehouse management among others. Due to better information. flows,
distribution channels were able to give feedback from the customers to the
------------- -- ------- companies. Companies organised reg·utar meets with channd members as well
as training to improve distribution management practices. This -decade saw an
-------------------~-- expansion in the role of the channel members, with companies now directing
----------- --------- -- their relationship marketing efforts towards the channel members.
In the current scenario, channel dynamics have changed considerably.
Most companies do not sell their goods directly to the end-consumers
The trade channel has become organised, with many of the erstwhile smaller
even in B2B markets. Between the companies and end-consumers are a
players now organised as large professionally run companies. Supermarkets,
set of intermediaries perfo1111ing a variety of functions. 'These intermediaries
hypennarkets and big retai l stores are chang ing the face of distribution at the ·
constitute the marketing channel or trade channel or _distribution channel as
retail end. Larger retailers arc now using their "clout", and this has changed the
they arc alternately known. ·
~a Marketing Management Distribution Channels and Marketing of Services
 In any distribution channel, th ere ai·c three sets of intermediaries: These functions arc not performed by any one i'ndi vidual or distribulion
I, Merchants: They arc retail ers and wholesalers, who buy lhc merchandise, entit y. /\ number of' difTcrcnl channel parlncrs perform lh e~c tas ks. Companies
hence, take title lo lh c mcrclrnndi sc from companies and resell the ha1 c lo lake dec isions on which channel entity will perl Lirn1 whi ch acti vity as
11 cl I as co.-ordinatc lhc f'un ctioning of' numerous chan11<:I partners so that the
merchandise in smaller lots to other channel members or end-customers.
forwa rd and bac kward fl ows happen smoolhly. As co mpanies ex.panel their
····2. Agents : They arc sal es agcnls, caitying and for wa rding agents or n::ac h, th e number or channel entiti es increase, increasing Lhc co mplex ity or
manufacturer's representatives; these agents represent the company, look channel management. All the activities add value lo the products, but they also
for new customers, negotiate on. behalf of the company and help expand add costs to the products as they move through the channel s. Companies have
the reach of the company 's channci. However, they do not take title to the to ensure that there is no overlap of functions, activities and territories, so that
goods. cost of distribution is minimised.
3. Faciiitators: They comprise transportation companies, warehousing
companies, insurance companies and after-sales service facilities. They Check your Progress 1
facilitate the distribution process but do not take title to the goods nor
negotiate purchases or sales.
Fill in the blanks.
In) a general sense, channel members "add value" to a company's
I. In any distribution channel, there are three sets of intermediaries:
pro.ducts .by making the merchandise available at the right time, place and in the
- - - - - ~ agents and facilitators.
right quantity and right condition to the end-customer. To do so, a number of
activities need to be performed. We can broadly classify these activities into 2. add value to a company's products by making the
forward flows, backward flows and point of sale. merchandise available at the right time, place and in the right
quantity and right condition to the end-customer.
The various activities undertaken by channel members are:
Transfer of title or ownership.
Physical movement of goods.
Storage of goods·at various transit points.
, Stocking and inventorying goods. Vi sit the websites of ITC and Hindustan Lever and collect detailed
information on the e-Choupal and Project Shakti initiatives. Draw detailed
Processin? orders from retailers and customers. charts on how the channel functions and the flow of goods and information.
Assuming risk connected with movement of goods. within the channel.
Providing for payment of bills through financial institutions.
Providing credit to buyers.
Negotiating pricing and other terms. The variety of channel participants can be combined in many different
ways to create effective marketing channels. Channel structures are very
Maintaining a sales force to stimulate demand at retail level and to service
unique to countries and regions and as such there defy categorisation. Some
retailers. '
common channel structures or formats are direct, indirect, vertical marketing
Developing and disseminating information to stimulate purchas~~- systems, horizontal marketing systems and multi-channel marketing systems.
Displaying products at retail level through attractive merchandising. Distribution channels do not remain static; channel structures do evolve in,
response to local opportunities and conditions.
Assisting buyers in product demonstrations and product information.
t
1
I
Handling complaints a_nd ~al~s returns.
1. Direct/indirect distribution channel: A company may undertake
to distribute its goods to customers or retailers without involving any
i Providing after~sales assistance in usage and training and servicing intermediaries. This is referred to as direct channels and they are the
breakdowns. shortest channels. Direct mail, catalogue selling and dired ·channels of
Gathering and sharing information with companies about buying patterns Avon, Tupperware, Ori flame and Amway arc examples of direct channels.
of current customers; potential customers, competitors and other factors Direct channels give a firm limited reach or coverage_ and as !i.4Ch may
that impact the business.' be more suited to companies whose target markets are concentrated in
geographic pockets.

Marketing Management Distribution Channels and Marketing of Services

 ;\lt enrnli ve ly, good, 111:l ) 11l' di stributed tlmiugh seve ral intermediaries h) Ad ministered VMS: The co9 rdination of th e system is secured thrOLlgh
such as who lesa lers, age nt s :1 11d stock is ts, reta il ers before they finall y reac h the size and power oi'onc of the members. Manufl1cturers of domin ant
the e nd - customer. Indirect c ha nn e ls arc necessary lo ga in ex tens ive reac h and brands will be able to secure stron g trndc co-o peration from th e channel
cove ra ge. Conve ni ence good ~ typi call y use indirec t chann e ls. intcnncdi ari es in terms of shelf space, displays and support from the
Figure I 0.1 shows indirec t channel sys tems for co ns umer products and sellers. Compani es like l ILL, P&G , Coke arc able to co mmand a hi gh
level of co-operation from their channel intenncdiarics.
industrial products respectivel y.
c) Contractual VMS: A contractual VMS cons ists of independent
firms at different. levels of produc.tion and distribution , integrating
their programmes on a contractual basis to obtain more economies
or sales impact than they would achieve alone, Contractual VMSs
are fast growing and one of the most significant developments in
the economy. There are three types of contractual VMS :
i. Wholesaler sponsored voluntary chains: Wholesalers
organise volunta1y chains of independent retaile rs to help them
compete with large chain organisations. Thewholesalerdevelops
a programme in which independent retailers standardise their
selling practices and achieve buyin g econo1111cs that enable the
group to compele effectively with retail chains.
ii. Retailer cooperatives: Retailers take the initiative and
organise a new business entity to carry on the wholesaling
and possibly some production. Members concentrate their
purchases tl1rough the retailer co-operative and plan their
Fig. IO.I: Indirect Channel Systems for Consumer and Industrial Products advertis ing jointly. Profits are shared by the members in
proportion to their purchases.
2 . .• Vertical marketing systems: In the conventional channels, which
comprise direct or indirect distribution methods, none of the channel iii. . Franchisee organisations : A channel m~mber called
members has complete or even substantial control over other members. a franchisor might link several successive stages in the
Each channel member was a completely independent entity. A \ertical production-distribution process. Franchising has been the
Marketing System (VMS), on the other hand, includes parties like fastest growing retailing development in. recent years.
wholesalers, producers and ·retailers acting as a unified system. A VMS The traditional franchising system is ti1e manufacturer
is a tightly coordinated distribution channel designed specifically to sponsored retailer franchise. Automobile majors, Maruti,
improve operating efficiency and marketing effectiveness. One channel Ford, Hyundai, license dealers to sell their cars. The dealers
member, the channel captain, owns the others or franchises them or has are independent business people who agree to meet the
so· much power that they all cooperate. The channel captain can be the terms and conditions of sales and services. Another is the
producer, wholesaler or retailer. VMSs arose as a result of stroll$ channel manufacturer sponsor.eel wholesaler franchise. Coca Cola, for
members attempts to control the channel behavfour and eliminate the example, ticens_es bottlers {wholesalers) in various markets
---------------------r
conflict that results when mdividual channel members pursue t_heir own who buy its syrup concentrate and then carbonate, bottle ·
objectives. VMSs achieve economies through size, bargaining power and and sell it to retailers fo local markets. A newer system is
elimination of duplicated services. the ·service firm sponsored retailer franchise . A service firm .
There are three types of VMS: organises a whole system for bringing its service efficiently to
its customers. Examples can be found _in the fast food service
a) Corporate VMS: A firm at one level of the channel owns a fi rm
business (McDonalds, Pizza H ut) an d ca r rental (Hertz).
at the next level or at subsequent levels or it may own an entire
channe l. VMS here combines successive stages of pi·oduction and 3. · Multiple channels: Ra rely does a company use just 011e typ e of chann el
I. structure for its distribution system. It u_sual ly empl oys ·several different
distribution under single ownership, giving h igher degree of control
to the manufacturer. · or alternative channels, which include multiple cha1;ncls, non-traditional

Marketing Management Distribution Channels and Marketing of Services

 channe ls and strategic channe l a lliances. When a company sc lcc_ts two or c hannel alliances arc ·prov ing Lo be more success ful for growing
more dilTcicnl channel st ru ctures to di stribute the produc ts to its target · businesses than mergers a1id acqui sit ions. This is espec ia ll y true for
mark ets, thi s arrangement is known as multipk or dual di st ribution . De ll g lobal markets, where c ultural dilTcre nccs, di sta nce a nd ot her barriers
Compute rs made a radical de parture l'rom its direct channel sa les mode ma y pro ve too dauntin g.
by testin g retai l kiosks in sr1oppin g mall s to increase its- market share in 6. I ntcrnct: The I ntern cl allows co nsurncrs to clircctly access rnanu i'ac turcrs
perso nal coi11putcrs. Dell has also tried selling its PCs direc tl y to home and vice ve rsa. As a res ult, channel structures arc· undergo in g a rapid
users through cable shopping channels. Ce llular servi ce providers like change and. in many industries the rol e of channel intermediaries _is
Airtel sell their prepaid cards through FMCG retailers in addition to . rapidly undergoing a change. ln the travel industry, as more a irlines
selling them through their traditional service outlets. offer e-ticketing, the role traditionally performed by the trave l agent is
Usage of multiple channels increases the market coverage and reach for rapidly diminishing. Travel agents are now positioning themselves as
the company and provides greater convenience and better service icvels travel co·nsultants for holidays, as their role as ticketing agents may soon
to "its customers. become redundant.
, - - - - - - - - - - i!U,'5 MAll&fITl!)l(I c;IIAfl!N&l.8--------- The market potential for the Internet is only bounded by the penetration
of the Internet and the number of consumers who a,e
able to _shop online.
,-. - &iii■
o:i(iiojltfo'n "'tt"'<rl .-.!11l•fi - - - ' •
,!~':,
-
lJ"'f'•o\iflf'I
-·
- ""I
I
In an earlier unit, we have discussed how Internet commerce 1s camed out
1'1.Mln' d ~ ~ft'i«<I' "'"'' 1111~• ~.00 .;,...u I Un'll""t!1hi over four major domains: B2B, B2C, C2C and C2B . Internet commerce
"",J,1 ~Oilt.... ' j or e-commerce is growing by leaps- and bounds further fueled by the
~ lJ<1•"'1~ Frt\~~ doJ;1J111t4- 11,....,08\111, - u;~~e;·- ~~~;JJ,.~~ ~·- ~~;,~- f
~ ,citJ11-•m,pciAo ■n.J ic.,e <'..rctm. ft(l,:Nt -M.lltitU I advent of safe electronic payment mechanisms. However, the Internet as a
CtaU'(DC,f r->4• ••d h-<1 iCfl!til.11! distribution channel is particularly suited to certain types of products only.
i;tlWIVII bt<JHI<! nnJ ' 0..V<lop c,.,i,. 1.... •• "" p;;;;,~,._ - Pro~ .. ..• -;;.~-;.:- II
r,a,11 ...t...i,-~ Jaulu11l<1HI i,ro,lo<Lt ,.,o\iio • ..,....~,1 U ....a.a Internet sell ing is likely to be more successful when it offers time saving,
:.. .,1Lo1.iu.-t ..a.•l:h._ .. •!i<I..!"!!li ..Ji~.&•~ .., 11/l high quality service and products that appeal to a more affluent audience.
The Internet would not be su itable to product categories requiring a " high-
Fig. 10.2: hLUs Marketing Channels touch" selling experience with extensive personal service.
4. Non-traditional channels: Often non-traditional channel arrangements
help differentiate a firm's product from competition. For example, a Indians take to shopping on the web .
· company may chose to use a mail-order channel or the Internet to sell
According to a ''.Indian O11line '06" surveY.,,co.nducted by Juxtconsult, the
products instead of going through traditional retailer channels. A non-
number of Ind,ians ~b,opping _online grew by 4_2% over, the previous year. A
traditionalchannel unique to India is the "Paanwallah". FMCG companies
sizeable number 5.9 million consumers, ,representing 28% of the 25 niilhon,
have targeted the "paanwallahs" to sell smaller SKUs of toothpaste,
p~opl~ l9gg't_d on ,th~. ~et, ~P~l}t a.*}~~~j~a,!~~-~~ }5,90 ,t s. 4000 cr9r~s .9~lirie_
chewing gum, candy; even pharma companies have sold OTC products
in the year 2005.'l;'iine flexibility an_d p.griie deFiefy convenience we.re the!'
like Aspirin, Dispirin and Crocin through these outlets. Non- traditional · predo1ninantreasons to buyopJine:' Ticketing ls .fue]jng the raptd growth <?f
channels may limit coverage for a company but they are particularly
useful for companies serving niche markets to gain access to their target
oriJ/ne·s~ip~fg¢:1.\Yit~:)rosf~rthif2i f ,a:IJ ~Jiin?:.b,~y~rs,gtiqg ~ir traint&ck~f~.r
markets without having to establish channel intermediaries. ' 52!/11~i 2~ /4'. ~~t:bi!wfJJ~a ''iri .aii<l 2i J>j ~ii\!!19J~kii~i [~~~f}5:ic~ft!dYt)
0 0

electronfo g o'ds aM I< ' . ' cate·go;{~<:!f'!,l~. ,l\;

. ' ).:.>IB!. _,_.;J_~( .;.·. :~.-~tt·~'.
~~••1 t ;I'(.! .~ \~· ·"..;i· ~\-;,

5. Horizontal ·marketing ~ystems: Companies form strategic channel cards· ancl c

',Fc:-1~'~}~~~i•1<;,t~~ · '·
alliances also known as horizontal marketing systems, which enable -the
companies to use another company's already established channel. For
example, banks·have arrangements with hotels and petrol pumps for their
fXI'Ms. Marica Industries has alliances with several FMCG companies.
For some time, N_okia had a strategic alliance with HCL Infosystems for
distribution of its handsets. Currently HCL has fom1ed a strategic a lliance
with Apple for sales and service for its IPod in India.

Allia.n ces are used most often when the creation of marketing channel
relationships may . be too time consuming and expensive. Strategic

Marketing Management Distribution Channels and Marketing of Scr\'iccs

 J. 1l1rget market-factors: In an earli er uni I, we ha ve sludicd how pn,c\ucts
Activity 2 can be cla ss ifi ed as either consumer goods or industrial goods. Further.
1 consumcr goods can be furth er class ifi ed as per th e shoppin g habit s o l'
. customers into con,vcni encc goods, shoppin g geo~s, specialt y goods ani
I. Visit at least three to four retailers or dillcrenf product categories (say
unsought good s. These c lassific:1tion s become important con sidcrnlio11s
consumer durables, grocery store, pharmacy, etc.) Find out information
when designing a channel strategy.
on the channel intermediaries or middlemen they deal with . You
can also try io find information on tl;e terms on which business· is Convenience goods are those goods that consumers purchase frequently,
conducted with the channel partners. and therefore want to 1o so immediately and with minimum effort.
Convenience goods can be further classified as staples or daily necessities
2. Collect articles from business magazines and the Internet on channel
· such as groceries and toiletries; impulse go9ds which are purchased
alliances re·cently forged by different companies. What were the
without planning or search effort such as candies, snacks and even
reasons for making these alliances? What does each partner stand to
beverages at times; and emergency goods such as pain relievers and
gain?
other OTC products umbrellas and so on. Availability is the key; hence,
distribution channels for such products are intensive with wide coverage,)
Generally, the ~ -icier the coverage, the more will be the number of
intermediaries in the distribution channel. Availability of tl1e appiopi·iaie.
Designing a marketing channel requires several critical decisions. pack sizes and product variants in demand is the other critical clement.
Marketing managers must decide the role of distribution in the overall marketing Hence, inventory control throughout the charmel becomes a key
strategy and must ensure that the channel strategy chosen is consistent with distribution task. For perishable products that need to be refrigerated like
product, promotion and pricing strategies. There arc several factors that will milk, butter, ice cream and chocolates, companies have to create a "cold
influence the choice of channel and what level of distribution intensity will be chain network" that keeps the commodity in a refrigerated condition from
appropriate. factory to custom\:r. For other perishables like bakery products, service
Levels of' distribution Intensity ·levels to retail outlets have to very high with almost daily i-eplcnishment
~-~----- ----- - - --- - ---- of stocks.
Companies have three options for intensity of distribution: intensive distribution,
selective distribution or exclusive distribution. Shopping goods are those goods that consuniers buy infrequently. These
are usually preplanned purch'ases and consumers make some comparison
Intensive distribution is a type of distribution aimed at maximum market
on features, styling, prices and quality. Clothing, footwear, cosmetics,
coverage: The company tries to make the product available in every
personal accessories like watches and home appliances like televisions,
outlet that potential customers might visit. This is because customers are
refrigerators and washing machines and autQI11obiles (4-wheelers or
unwilling to search for it an9 wunt to spend the least time and effort in
2-wheelers) are examples of shoppmg goods.
purchasing such goods (convenience products and office supplies).
Selective distribution is aimed at making the product available to select Distribution channels for such products. :are selective with wide
dealers and retailers in a given territory. This strategy is appropriate for market coverage. Retailers a9d value to the prod.uets ·through product
shopping products where purcha.ses are preplanned. Customers prefer to demonstrations, assistance to customers in decision-making, installation
shop for such products in shopping districts or reputed retail outlets, where and even after-sales service. Hence, companies have to support the retail
they can make comparisons with other brands. -.Selective distribution i_ntermediaries through training of sales force; other factors like inventory
I strategies may also be appropriate for FMCG products, but where the control and service levels to retail outlets are aiso important. Transportation
-company wishes to maintain a superior product image; for instance, high- conditions are a critical -element of the distribution strategy to ensure the
11 end cosmetics anti toiletries are made available only at very select reputed safe transportation of products from factory to end- customer.
retailers. Companies· have to take a decision on whether after-sales service is to be
Exclusive distribution is the most restrictive form of market coverage . _provided tlu·ough the retailer or through a separ~te service channel.
The products are made available through only one or two exclusive retail Specialty goods are "high-end" lifestyle or luxury products or products
outlets in a given area. Tl1is distribution strategy is app_ropriate for high- . related to a consumer's hobby or area of interest for which the ·c onsumer
end shoppi11g products, specialty goo'ds and industrial products. Such is willing to make special purchasing efforts. Examples include high-end
products require a high level of customer service both presale and post cars o;. performance bikes, specialised music equip.mentor photographic
sale, which is possible only through a restricted number of outlets.

Marketing Management Distribution Channels and Marketing of Services

 equipme nt. Distribution intens ity for such products i~ usually very Lodging the brand in th e custom ers' mind space .
exc lu s ive with 1111111.cd 111 ti 1-k cl cove ra ge. Other import ant c leme nt s of 1li ghl y diffcrenti ntccl image produ cts.
th e di stributi o n strategy arc prcsal c and post-sal e custom er se rvice, retail
ambi ence, product demonstrations and product displa ys . 1-1 igh in vo lve ment produ cts.

Un so ught goods arc alf th ose 1;roducts thal customers allhou 0oh aware of An important point to note is lhat co mpani es use a combinati on of push and
usually postpone buying as th ey are not priority enough. Thc distributio 1~ pull strategics rather than just a push or pul I strategy. The combination and propottion
strategy for such products is either direct se.lling throu gh a network of of push and pull needs to be adapted as market and competitive conditions change.
agents (insurance) qr through selective distribution outlets (helmets). In The typical tools for a push strategy arc margins, trade promotions, credit and
the event that the company opts for direct selling, channel management payment policies, slotting allowances and even fixed assets allowances. At the point
would involve various activities such as recruitment of agents, training, when a company chooses to rely more on a push strategy, its distribution strategies
assignment of territories, managing the compensation and motivation of will include greater emphasis on using these tools. ·
sales force. ·
2. Product-related factors: Product positioning is a prime determinant Wl¥ll= ltr
of the type of channel to be used. For insta~cc, packaged fruit juices, if ) ~t)l)N;I);)
..r..il..- mnsta:mc..f•
positioned as a health drink, may be made available through gyms and
fitness clubs in addition to the mainstream. convenience goods channels.
Likewise, cosmetic contact lenses need to be available at specialfy
outlets that have large cosmetic counters in addition to being available at
opticians.
Products that are more complex or customised tend to benefit from shorter . J,b nuf.atlllror Connlmtv IM.!ili..'f Wlic,lo$!llt,r
and more direct distribution channels; such types of products sell better l"Ull)(II~ k• i - - Mui:11.J~ J;>n•l•<I 1- , dc1wmds pm:lut'I I--< dem<mds l"""!oct
(l(l!l£1!-ffltf ii,'{,l(trmllt:i' (1i)lll Ylltct~"t [rr,ft UWliltt..lttlNt
through a direct sales force. The product's life cycle is also an important
---. ------ - factor in choosing a channel. The distribution strategy changes as I , t.►.'11<:-rs Iii• ru.,nurACtufft:r -~ I
the product moves through the life cycle. During the in.troduction stage,
companies may use direct selling or exclusive distribution arrangements. Fig. 10.3: Pu,,sh and Pull Strategies
During the latter stages, distribution coverage is wider; distribution
intensity will depend on the type of product. Perishability of the product
is an important fact01; as also the fragility of the product; as such, products
require special packaging and special handling arrangem~nts during A marketing channel is more than a set of institutions linked by economic
transportation and.display af retail end. ties; social relationships play an important role in building unity among
channel members. A critical aspect of managing distribution channels is
Company-related factors: Push vs Pull strategy to stimuli,ite consumer managing the social relationships among channel members to achieve synergy.
demand for the brand. The basic social dimensions of channels are power, control, leadership, conflict
A pull strategy relies heavily on marketing communications' to stimulate and partnering.
demand and "pull" the _customer into the store. A push strategy relies 1. Channel power, control and leadership: Channel ·power is a channel
heavily on th~ distribution channel to stimulate demand _by "pushing" member's capacity to coqtrol or influence the behaviour of other channel
the .product. Which strategy a company chooses depends on a number of members·. Channel control occurs when one member affects another
factors. member's behavjour. To achieve control, a channel member assumes
A push strategy is relevant for: channel _leadership·and exercises authority and power; this member is
termed the channel leader. In one distribution channel, the manufacturer
Undifferentiated "me too" products.
may be the leader because it contro ls product availability, whereas in
For brands that do not have large communication budgets. another channel the retailer may be the channel leader because it wields
New companies that may initially rely on push. great power and control over the retail price and inventory. Large retailers
like Wal-Mart and Tesco wield great power in pricing and inventories and
A pvll strategy on the other hand is a must for: are channel leaders in convenience goods markets in the US and Europe.

Marketing Management Distribution Channels and Marketing of Services

 !'he c:"xc n.: isc o r c· hrntn c:1 po11 cr. is• routine ck1m:nt 01· 111 ,111: bu sincs, 111stitutio11al sales. Si111ilarl :-. 111a11ufoctun:rs that cx pcri111L: nt with selling
,tcti \ iti es. the uut cu1nc 01· 11 hi ch is ul'tcn 1mm; effici ent 1lpcr.1t io1 is .t11d In custon1crs din::cLI :- o\C I the: lnt c: rnL:t arc crc:aling conlli ct with their
cost sa\ ings. 1111L: 1'111cdiarics. l'rndu cc r, a11d rc:lail crs n1a y al so di sagn:c ov.e1· the terms
. , .
2. · Char'incl conflict: illl:quitablc channel relationships ol_'t,cn lead tu chann el and conditions or doin g bu sinc:ss or somc other aspc:cl or the business
conllict , which is a clash or goals and nH.:thods among Lhc·111cmbcrs or rc: lationship
the distribution channel. Conflicts can arise because a channel member 4. Channel partnering: Regardless ol'the power equation , channel members
refuses to adapt with the times and therefore becomes inefficient. roly heavily on each other. Even the most powerful of companies rely on
Often conflicts arise due to channel pursuing different goals. A multi- their dealers to sell their products and the most powerful ofretailers require
brand home appliances retailer would want to sell as many products as the products supplied by companies. In a sharp contrast to·the adversarial
possible, regardless of brand, to improve his overall sales ai,d profitability. relationships of the past between manufacturers and sellers, contemporary
On the other hand, a particular company would want him to push their channel management emphasises close working partnerships among
products more, as they desire a certain sales volume and market share. channel members. Channel partnering or channel co-operation is the joint
Companies thnt have long and deep product. lines also se,
sales targets effort of all channel members to create a supply chain that serves the
customers and creales a competitive advantage. Dy cooperating retailers,
for the different SKUs and would want channel members to keep their
sales..ih line with these targets; individtrnl channel members would want wholesalers and manufacturers can speed up inventory replenishment,
to push those SKUs which deliver greater profitability, regardless of the improve customer service and reduce Lhe lolal costs of the marketing
targets. channel. Supply chain management emphasises channel alliances and
partnerships as it helps supply.chain managers to create parallel flows of
Conllicts can also arise when channel members fail to fulfill expectations material and information. The rapid growth in cha11nel partnering is due
of other channel members; for instance, if a franchisee does not follow to information technology as well as a common need to lower costs and
the rules set by the franchiser. Alack of communication between company improve operational efficiency. Forced to become more efficient, many
and channel members is also very common cause of conflict. A company companies are now turning towards channel partnering as a "win-win"
may ·change its policy with regards to the ·period of warranty coverage situation.
and fails to communicate the same to the dealel'. The dealer continues to
------------ ------- --- make repairs free of charge to the consumer, expecting to be reimbursed
Check your Progress 2
by the company. Ideological differences and different perceptions of
market realities arc also a source of conflict. Retailer and dealers come
face to face with customers and are more likely to empathise with the Fill in the blanks.
customer and believe that the "customer is always right". They would l. A _ _ _ _ _ __ includes parties like wholesalers, producers and
likL: the company to offer a n1orc l_ibcral relu1n policy. On the other hand, relailers acting as a unified system.
many companies hold the vie.w that customers may "try to get something
2. _______ is a prime determinant of the type of channel to be
for nothing" or don't follow product instructions carefully.
used.
Conflicts can occur at any level within the distribution chain.·A conflict
3. _______ is a channel member's capacity to control or
among channel members at the same level, such as two retailers or stockists,
influence the behaviour of other channel members.
is known as horizontal conflict..This type of conflict is common where
companies practice dual or ml!lfiple distribution strategies. Hoi-izontal 4. A conflict among channel members at the same level, such as two
·conflict can also occur when channel members on the same level feel they retailers or stockists, is known as _______
are being unfairly treated by the manufacturer. Most managers regard State Tl·ue or False.
horizontal conflict as healthy competition, and may allow such a conflict
to play out to their advantage. 1. The basic social dimensions of channels are power, control, le_adership,
conflict and partnering.
A more serious conflict is vc1iical conflict, which .occurs between two
different levels in the distribution chain, such as between a manufacturer 2. A pull strategy relies heavily on the distribution channel to stimulate
and wholesaler or between a manufacturer and retai lei: Manufacturer demand.
versus wholesaler conflict typically arises when a manufacturer bypasses
a wholesaler to deal directly with the ·customer, such as does happen in

Marketing Management Distribution Channels and Marketing or Services

 (1;6: ·culNNEL,AND DISTRI'Btrl'l.ON DE,CISIONS F(>;R' :: 2. Managing service capacity: Service 111a11ul11cturers do not have the
? ·· ~"'$li5RVICES . . lu xur') or ,111 i111 c11tory buffer to 111c.::t inordinate clc111and . II" they don 't
h,11 c th e capacit ~ to meet the demand , they 11111st either turn clown sorne
The services sector is_ the l"astcst grO\\ ing secL9r vr our econom y and prospec ti ,-c custorncrs, let service levels slip, or be abl e to temporaril y
although di stribution cha,inels l"or s.:: rviccs arc hard to visuali se, the. same c.\ p,md capacity Most compani es try lo shili som e or the peak hour
factors and issues apply to designing and managing or ser·v iccs channel s as d.:: mand to oll~p.::ak hours and ofl~scasons, by offering incenti ves or
well. One thing that sets service distribution apart from traditional distribution some additiona l services during non-peak hours and off-season. Another
for manufacture.cl goods is the simultaneous production and consumption of strategy is to add-additional temporary personnel to meet the additional - - - -- -- - -- - -- - -- -- - - --
services. The benefits of a servioc are also relatively intangible and because demand.
service indust~ies arc so customer oriented, dealing with customers is a priority. 3. Improving service delivery mechanisms: Like manufacturing
Services distribution must focus on three priority areas: companies, service companies arc also experimenting with different
1. Minimising waiting time: Minimising the amount of time that customers distribution channels for services. Choosing the right distribution channel
spend in a line to deposit a cheque, meet a cus.tomer service representative, can increase the times the services are available or add to customer
airport check in line, wait for their food at the restaurant or wait in the ) convenience. The airline industry has found that Internet ticket sales
hospital OPD to ·rrre·et.the doctor, is the key area in delivering quality of reduces distribution costs and raises the level of customer service, as
service. When customers have wait in a Iine, as the waiting time incre·ases · making a reservation is instantaneous. The Internet is a very important
so does their anxiety; people then tend to overestimate the ·actual time delivery channel for services.; payment of bills, on line banking, booking
spent waiting in the line, thus reducing their "zone of tolerance". The tickets for an event, planning a vacation, buying mutual funds and payment
actual service they receive is most likely to be perceived as deficient, of insurance premium are just some of the way5' in which companieshave
when waiting time is long. vastly improved service delivery using the Internet.

How can service marketers address this issue? H is unlikely that they can
actually reduce the w_aiting time to nil, even though they can_take steps to
even out the mismatch between demand and supply. The key issue here
is to alleviate the anxiety of the customer while he or she is waiting to 1. · Visit any outlet of service products like a Reliance Web World, Hutch
receive the service. Given below are some of the things that companies Shoppe or a Maruti True \.alue. Collect information on their service
can do : channels and terms ofbusi11ess.
Provide for comfortable waiting areas _with adequate seating and 2. Visit a branch of your local bank on any working day and observe
entertainment and even beverage vending machines. customers as they wait to be served. Make a list of the ways in which
the branch manager can improve customer service.
f'..rovide for orderly movement of the .queue, so that ci.1stomers do
not have to clamor for service. Some banks now give tokens to
their customers to meet service representatives \ike the earlier teller
system.
Fast food service outlets help customers decide their orµer whilst One of the megatrends of recent times has been the phenomenal growth
waiting in the line itself. This not only saves some time in placing of services. In India, services today account for 53% of gross domestic product.
the order, but gives the customer the perception that he is already · The services industries are quite varied and are found in the government
being attended to. · sector (police, fire departments, and public utility), private non-profit sector
Companies reward loyal customers by eliminating th_eir waiting (charities, foundations), business sector (airlines, hotels, Jaw firms, accounting
altogether. · firms, hospitals, iQsnrance, hospitality) and even in the manufacturin.g sector
.. During the waiting time on a telephone line, ctislomers need
(suppo1t services such as legal and administration).

to be additionally reassured that they have not been disconnected. Over the years, as opportunities for differentiation have diminished,
Soothing music and intimation of approximate wait time are some companies have turned towards services to differentiate their products.
of the things that companies do to reduce the anxiety.
Self-service technologies can also reduce the wait time.

Marketing Management Distribution Channels and Marketing of Services

 Characteristics of Scn·iccs Iii tang ibil isc the intangible, co mpani es develop a dctailt.:d "serv ice
hlucprint" that 11·ill gin; a clear picture ol' what the y wn nt th e
/\ se rvice is dcl 111ed ,is all ) act u1 pe1·ltir1 11a 11cc that <li l t.: parl ) can o!Te 1
,·ust,11\1cr, C\ pcri cncc and pcn;cp t1un ul sc r, ice e:--pcricnct: lo be.
to another that is css·cmially 111ta11 g iblc a11d doc s not result in the ownership or
\'11 cy th<.:n dcs ig11 a detail ed set of pcrfonnan c<.: and co ntex t clues to
anything. Its product inn 111a , nr rnay nnt be tied to a ph ys ica l product."
,u ppol'I that ex peri ence.
Services vary from the purel y intangible services such as legal, counseling and
2. I nscparahility: Se rvices arc silllultancously produced and consulllcd.
consulting to hybrid services which include some physical tangible clements.
The intcraclioi1 between the service provider· and customer produces· a
Services have four major characteristics that greatly affect the design of serv ice outcome. Physical goods, on the order hand, are manufactured
their marketing programmes: intangibility, inseparability, variability and first, inventoried, shipped and distributed throu gh several channel partner
· perishability. before they are finally sold to the e1~d-consumer and finaliy consumed
1. Intangibility: Services are intangible products; the product here being later. The illlpl ications of inseparability for the service marketer are:
the experience and outcome of using· a service. Unlike physical products, a) Several "moments of truth": No matter what a service provider
services C\nnot be seen, touched or experie~ced before they are bought. claims to provide, it is the quality of the actual encounter between
The intan~ility of services has several implications: the service employee and customer and wh at transpires between
· .. Risk and uncertainty for the buyer is very high. them that determines the service outcome.

Assessment of service quality is difficult as 1t is highly subjective. b) Service provider employees affect the encounter: The services
business is a highly people-oriented and people-intensive business.
Prescribing detailed quality standards for every service process Ts The quality and performance of service employees is key to outcome
very critical. · of the service.
Services cannot be patented . c) Customers participate in and affect the transaction: The
They cannot be displayed or sampled. customer participation in the service interaction produces the service
outcome. Customers who are unaware of how' to use a service or
Pricing becomes complex.
what to expect from the service, affect the quality of the outcome.
The challenge for the service marketer is to "tangibilise the intangible" to Because of this, the service quality may " fall short" or may appear
the extent possible, to reduce the buyer's uncertainty and risk. Marketers inadequate, although .in reality it is the customer's inability to
try to provide physical evidence of eve1y aspect of the service. participate appropriately in the service interaction which affects the
For instance, the case of a fast food restaurant providing quick sel[- quality of the outcome.
service, the marketer will have to take care of the following : The service marketers' task is to manage the moment of truth
a) Place: The exteriors and interiors of the restaurant should be clean. by service personnel: employing the " right" p1,;upk with a service
The layout should provide fo r several ordering counters so that attitude; and then training and motivating them on an ongoing, so
waiting lines do not get long. that they perform their role in the service encounter e fficiently.

b) Service personnel: Should be efficient and helpful so that .orders Customer training and communication with customers on their role
l .can be processed quickly. There · should be sufficient number of in the service encounter and clearly informing them about what to
~
i employees to handle.the increased workload during peak hours. expect will affect the outcome positively. For instance, for many
l. ·C) Equipment: Kitchens and food service counters should be ·state of
service products, customers have ·to fill up detailed forms to avail

l1 d)
the art and clean and well maintained.
Communication matcrfal: Lil<e menu -car<ls, rnemi displays at the
•of the service. ff the forms are iricon-ectly filled or incomplete,
the service cannot be availed of ·causing delay and frustration for
the customer. If before hand, customers are trained and assisted in

l
i
counters should assist in quick and easy ordering and must suggest
efficiency and speed.
filling up of forms and if they are made aware of the importance
o f fi lli ng the form con-ectly, unnecessary delays in providing the
service ca n be avoided. This results in a happ ier custorrier and
e) Prod ucts: On the menu sh ould only be those that can be "fast foo d"
the organisation is able to handre a. larger number of customers as
and served qui ckly and effi ciently. Products whi ch require elabo rate
unn ecessary delays are avoided.
preparation, although they may be populat~ cannot be offered in a
fast f9od restaurant.

Marketing Management Distribution Channels and Marketing of Se rvices

3. Variability: Every ti Ille a customer uses a serv ice, he Jllay not experience h) Cultivate non -peak demand bv providing additional benefits or Notes . ·'
·th~ identical service outcome as th e prcl' inu s 1:1 1cuunt er: moreover, the l~1cilit ies .
sa1rn; service ava ik:d or in a different location m wi th a different service
employee may crea te a· difforcnl sen·icc encounter. Uni ike phys ica l c) Clw1·ging a pc·nalt > )() r no11-utili sation ur a sc r\ ice as lhc sen ice
'pr~ducts, va riabilit y ol' the service enco unter is a natural outcome of the lll lllllC ll t ca 1111ut he stored.
simultaneous p;.;·duction aml consumption and peopl e intensive aspects On the suppl y si de
of the services.
a) "Temps" or part-lime .employees _a rc hired for the p_ca k demand
To address these issues, marketers must take care of the following: seasons or hours. Thi s is a common practice in the retail industry or
a) Service standards: Need to be clearly defined and communicated call centre industry.
to-all service empl<:>yees. b) Peak time ef!lcicncy roi.1tines can be introduced a_nd employees
b) Systems and processes: Clearly defined systems and processes to perform only essential tasks during peak hours
achieve the service standards need to be laid down . Service delivery c) Self-service technologies and increased customer participation
employees must be trained to follow the systems and processes lo can reduce the pressure on the service infrastructure during peak
ensure homogeneitJ of the service encounter. seasons or hours.
Companies have to be careful that in laying down systems and
proce~ses, thiy. ~ust provide for redrcssal of unique customer Check your Progress 3
issues, othc1wise the organisation will appear too rigid. On the other
hand, the service cannot be "flexible" to accommodate every whim
and fancy of the customer, which in lu111 will affect the quality of
l<m in the blanks.
the service to other customers. Organisations have to draw a fine 1. Services have f0t:;r major characteristics that greatly affect the design
line between being too flexible or too rigid. of their marketin g programmes: ·________ , inseparability,
________ and ________
4. . Perishability: Since services are simultaneously produced and consumed,
they cannot be inventoried and are therefore highly "perishable". If a 2. To tangibil isc the intangible, companies develop a detailed
. hotel is unable to sell a hotel room for a particular day, say IO July, the
· room remains unoccupied for that day. The "room night" for 10 July has
State True or False.
perished as it cannot be inventoried and resold for another day. The same
applies for-almost all services; if the service moment if unsold, unused or 1. Services distribution must focus on three priority areas like minimising
unoccupied, it cannot be inventoried. waiting time, managing service capacity and improving service
delivery mechanisms.
Perishability of services creates a unique challenge for service marketers
and that is the mismatch between demand and supply. If the demand I'
'
. for the service remains absolutely steady over duration of 24 hours and
·through the yea1, then perishabihty 1s not an issue. Iloweve1; that is not
· th~ case for most service industries, as there are peak and non°peak hours
Visit any well-known restaurant or fast food outlet in your locality. Based on
and days and seasons.
the factors stated above, develop a checklist of observations to make. Where
During peak hours, the service infrastructure comes u·nder severe pressure, does the restaurant excel and where is it found lacking? What would you
· causing delays, failed or even missed service. Marketers cannot increase rectify to improve the service experience?
service capacity at short notice and may not find it feasible to increase
service capacity over the long term as well. To overcome these unique
'
·challenges, s_ervice marketers use the following strategies:
On the demand side
The traditional 4 Ps marketing approach works for physical goods. Because
a) Differential pricing will help shift some of the demand from peak of the unique characteristics of services, certain elements require additional
hours_ to non-peak hours or days. Restaurants have "happy hours", attention in service businesses. Booms and Bitner suggested 3. additional Ps-for
airlines and hotels . have "off-season rates" and cellular service service marketing: People, Physical Evidence and Processes.
· providers have different call rates for non-peak hours.

Marketing Management Distribution Channels and Marketing of Services

 People: Since se rvices arc pro vided through people. the se rvi1.:c business co mmuni catt; the pmccdun;s and trainin g sen ice empl oyees to the l'ulltl\\
is a hi ghl y people i11te11si,·e business. l he l'lllllpe tencc and knowlcdg..: se rvice procedures. i\ 1 th e sarnc Lime, !inns have to take care tn cnsur..:
lc,c l ol' se rvices pe rso nn el and th eir attitude" tll directly dctern1ine th e that service procedures dn nnt beco me so ri gid at the ri sk or losing the
se rvice outcome. Co mpani es need to take care ol' the follo\\'ing: empath y or human tou c h. Scrvice empl oyees arc trained to deal with the
va riou s situaLion, 1.h,1t 111i ght ari se whil st delivering a sn vicc.
Select th e ri g ht employees with requi site se rvice skills and se rvice
I'
attitude.
Train the employees to enhance their efficiency. - - - ....... -- ------ ----- ---
Appropriate compensation and rewards to enhance the motivation Read Business Today .\· annual survey on the 10 best companies to
I.
of employees. · ·
work fo1: State its implications for services firms.
The belief is that happy employees make for happy customers. Visit any outlet of a supermarket in your area. Based on all the
2.
People intensive businesses have to invest heavily in people factors learnt so far, rate the outlet's performance. What are the areas
hy recognis ing, rewarding and retaining tal ent. Just as much as
> customers need to acquired and nurtured, companies today have
for improvcmcnl s? What recommendations wou ld you make to the
supermarket manager?
recognised that employees too need to be nurtured. Companies have
formal mnrketing programmes directed to !he internal customer.
Not surprisin g ly th e huruan resources department of services companies
has a very key role to play in the marketing of'services.
Over the years, several researchers have attempted to define service
2. Physical evidence: Companies must tangibilise the intangible aspects of quality and have proposed various attributes that customers use as criteria to
the service by providing physical evidence o[the service quality-outcome. evaluate quality of service. Service quality is particularly hard to define due to
The elements oftl~e physical evidence are: the intangible nature of services. The SERVQUAL instrument developed by
The physical location of the service. researchers Parsuraman, Zeithaml and Berry defines five generic dimensions
along which customers evaluate service quality. These are:
Service layout and ambience. Most service organisations have
standard layout, decor and ambience for all their service locations. Reliability: The ability to perform the promised service accurately and
Maintenance and cleanliness of facilities is very critical. dependably.

Ernployec uniforms and name tags for key service employees. Responsiveness: Willingness to help the customers and provide prompt
service.
A formal and routinised way o[ greeti ng the customer.
Assurance: Knowledge and courtesy of employees and their ability to
Prompt telephone handling. inspire trust and confidence.
Signages within the service locations, so that customers know Empathy: Caring and individualised attention that a firm provides to its
which counters to approach.
i -customers.

I
Comfortable waiting areas which alleviate the distress of ~ustomers Tangibles: The appearance of the physical facilities, equipment, personnel
in case of delays. and communication materials .
External signages that identify the service location should be we11 Customers evaluate service quality on these dimensions vis a-vis their0

maintained. expectations along the same dimensions. Service quality is thus defined as
3. Processes: Processes are the flow of activities through which the service the degree and direction of discrepancy -between the customer 's service
is delivere(i and can be considered as the lifeline of ahy service product. -expectations and his perceptions -of service that he receives. Quality of service
First service standards have to be clearly defined; then the processes by is a co~parison between· e·x pectations and performance. Customers evaftiate.
which the standards will be achieved. Processes need to be defined for not only the outcome butthc process ~y which the service is delivered.
even·the simplest and smallest of tasks to ensure there is homogeneity · · Figure 10.4 gives examples of how customers judge the five dimensions of
in th e service delivery. Many oi'ganisations create detailed service quality.
manuals documenting service-operating procedures. The next step is to

Marketing Management Distribution Channe ls and Marketing of Services

 about customers' expcctMions primaril y because of inadequate market research.
·.;Notes ,. The market research may be too genera l or not specificall y focused on service
quality. Secondly, even if the market resea rch is adequate, ii' the resu lts and
information is not shared organisation -wi de with the key personnel, serv ice ca n
be found deficient.
Lack of interaction between customers and management and insufficient
communication between customer contact employees and managers also
contribute to· the market information· gap. Some service organisations arc
too hierarchical , with too many layers between the top management and the
customer contact employees. A service business is a "hands-on" business ·and
of
requires the "involvement" the top management in day-to-day operations.
Gap 2: The Servict! Standards gap
Tondi,,looot The company's failure to accurately translate customers' service
[:<S"'f'll11111 1l'A1
"""i.~I~
expectations into specifications or guidelines for employees to follow is the ·
"1,,C,,'in<><li:.IIJ! service standards gap. A customer always expects prompt service and this can
be interpreted in many ways by different employees; an employee may _tl}ink
he is providing prompt service if he responds within ½ an hour, however, the
customer may expect service within IO minutes. Companies have to clearly
define service standards by qµantifying and qualifying every dimension in exact
terms, not leaving any room for individual interpretation.
Fig. 10.4: Gaps Model of Service Quality
Achievement of service standards cannot be left to an employee.
According to the authors, customers' service expectations exist at two Processes have to be clearly defined to the standards laid down. The lack of
levels, which they use as compaiison standards: · proper processes or facilities to achieve the standards lead to deficient service.
Desired service: The levels of service representing a blend of what A company may promise prompt query handling through a toll free number. But
customers believe "can be" and "should be" provided. if the numbers of telephone lines are inadequate, it can lead to long delays in
customers being able to get thro11gh to the company. If clear processes are not
Adequate service: The minimum level of service customers arc willing
laid down by which the company's employees_ are to address the queries, this
to accept.
too will lead to service defjciencies.
Separating these two levels is a zone of tolerance that represents the
Sometimes companies _define the service standards from their own
range of performance a customer would consider satisfactory. Within this zone
perceptions and constraints rather than taking into account customer needs.
of tolerance, customers do not notice service deficiencies if any. The zone of
Inadequate management commitment to the setting of service standards and
tolerance can expand or contract depending on the situation.
goals also leads to service deficiencies.
Most organisations are aware of the dimensions along which customers
Gap 3: Service Performance gap
evaluate service quality. However, despite this awareness, customers-regularly
experience deficient service. Parsuraman, Zeithaml and Berry suggested that the This gap occurs where there is a lack of appropriate internal support
deficient service may be due fo four key internal shortfalls or "gaps" represented systems that enable or "empower" employees to deliver the service standards.
in the Gaps model of service quality. Internal support systems like training and technological support empower
employees to do their jobs more effici1,mtly. .
.The gap on the left-hand side of the figure is the service quality gap and
represents the customers' assessment of service quality. The four gaps shown on the Ineffective recruitment by companies, inadequate training or at times role
right side of the figure represent the organisational shortfalls that ultimately lead to ambiguity or role conflict, where _an employee does not have clarity about his
the service quality gap. The internal shortfalls or gaps are explained as follows: job, result in ineffective and frustrated employees, unable to do their job well
enough.
Gap 1: Market Informa tion Gap
·A company's fai lure to smootl1en out the demand-supply mismatches
Th is gap occurs ·because the company has incomplete or inaccurate
puts a lot pressure on the customer contact employees resulting in service -------------- --- -----
knowledge of customers' service expectations. Companies lack knowledge

Distribution Channels and Marketing of Services

Marketing Management
 dcfkicn c ie,. Customers tOli have a role to pla y in the deli very of th e: sc: r\' icc:. Ir Finall y. firm s 111ust es tabli sh processes all(! procedures lo deli ver the service.
they do not adc:quatcl y pc1for111 th eir rol e or arc: unaware or th c ir rnl cs it ll' ill ri ght th e fir st time (reliabilit y). If th e s1.; rvicc is not de li ve red ri ght lhc first tii11 c
res ult in dcfi c i1.;nt sc n ·i1.;c. then pro v ide fo r effec ti ve se rvice; recovery. 1-' irrn s 111ust de\ clop sys tems to
Gap 4: Internal Communication Gap pro vide re liabl e se rvice. llo wcvcr, de spite propc1· sys tems and proccs~cs,
sc rvic:c probl em~ can occur· because o r th e inhe rent complex it y and variabilit y
lnconsistcnc ics between what customers arc told the scivicc will be like of services. When problems do ocu1r, companies must re solve those problems
and the actual. s.crvice .performance is due to. an internal communications gap effectively if they want to win back the trust and goodwi ll of their customers.
between the "promisers" (such as sales people) and the service providers (such
as after-sales service representatives.) Overpromising in advertising, personal In a multi:~ector study involving 3000 cu~tomers from four different
selling or through physical evidence cues, and under-delivering leads to service companies, researchers measured the extent to which 'customers were likely to
deficiencies. Inadequate communication between sales and operations staff or engage in the following types of behaviour in future:
differences in policies and procedures across branches and units leads to service Being loyal to the company (loyalty).
deficiencies.
Being willing to pay a higher price for the company's service (pay more) .
According to the authors, these four key organisational deficienc ies lead to
differences between the customer service expectations and service perceptions,
Being inclined to switch to a competitor (switch). ---- ______ - - ----
,, -,- --
which is the Gap 5: Service Quality Gap experienced by customers. Being inclined to complain to other custoi11crs (complain) . ----- ----~ . . ..... . . .. .
Implications of the gaps Model for Companies The most favourable behavioural intention scores {loyalty and pay more)
The first overall impli1.;ation of' the gaps model is that unless intc;rnal were for customers who had experienced no service problem. This clearly
orga_ni sational gaps are removed, the external service quality gap cannot be demonstrates the importance of reliable servi1.;e. The next sets of favourable
closed. That means that companies wanting to improve their service quality scores were for customers who had experienced service problems, but whose
must first diagnose internal deficiencies and then take corrective action. A mere problems had been satisfactorily resolved. The least favourable scores were for
/'!Xternal focus, i.e.-, being customer oriented"or conducting periodic customer customers who had experienced service problems that.were not resolved.to the
satisfaction surveys is not enough to deliver superior customer service. Managers customer's satisfaction. These findings emphasise the importance of effective
must analyse and correct potential deficiencies within the organisation. service recovery. Many organisations today recognise the need to retain a
customer and arc paying particular attention to resolving customer problems or
Secondly, companies must specifically measure service expectations on
service recovery.
all parameters of service. Yet many companies simply ask their customers to.
rate the firm's performance on a series of attributes, without asking them to
indicate how the performance compares with their expectations. Performance
ratings are not diagnostic and can be misleading.
Thirdly, companies must view service quality improvement as an ongoing
process rather than as an occasional project. Consistently delivering superior
service requires a continuous process for assessing and improving service
quality. Companies must establish a formal service quality information system
i for continuous data collection. Moreover, they must use multiple approaches
I
fi;
for gathering this data, as each source would have its limitations.
Fourthly, service quality improvement cannot occur without insights
r,
from employees, especiaHy customer ·contact employees. Employees are the
"internal -customers" and as such, firms need to understand the expectations and
Ii perception_s of those customers as well. The quality of service that an ·emp-l oyee
expects will have a strong impact on the employees' own ability. and willingness
r:

I
to deliver superior service to the firms' external customer. Since services are
produced and consumed simultaneously, employees in effect become a part o[
the service firm's product and of the ·customer's total experience. Dissatisfied
or µnhappy employees are not likely to perform at their peak and deliver what
customers will consider as superior customer service. ·

Marketing Management Distribution Channels and Marketing of Services

 New, Declining and Lost customer surveys Service Oper.athig Data.Capture
Surveys to determine why customers select the firm, leave the finn ·OI' Systems to retain, categorise, frack,and distribute key service perfo~mance
reducy their.buying. The purpose is to assess the role service quality operating data, The purpo~e is to)\1onitor service performance indicators
plays in customer patronage and loyalty. But the limitations are that and take corrective actiop to improve performance. Relate operating
firms must be able to identify service usage on a per customer basis. data to customer and employee feedback. The limitations of this method
are} h1;:, opera~ing 'data 11'.ar hot be r.ei,ev~11t tci. custoU1er 's percc#tto,tl of
•/t' ·51·,·:,1,
,,>
: piitomJr---~~-.·
,1~visorj, Pan.els 1
. . , •/ .
$~r'i',ipe-/ F~us'is bn what is ,q~cµtrlrr.~ ~9t11ot Why. '· ' ··
1 ·1/·- ~/- ·' •

:' ... .. ' Groups of customers are recrui.t ed l)yriodically to p'rovide the'pntt with ·
' /, • .', ., . ., . · ' · · , ·
J •,)•:',, ~f•,':- t•~?:~cf.:'":.,, ,:~r .?'~• ,,:,//,,,'' •, '>~,-• :~\r:.-'
}Jr,"!, 'J~ld~J ;f\av'a: ,a,.d~~c~; 0~ ' se/vf~~ § ~~{f llJa!}C~ ' other a14 ;f~i~~(:t~t
~,I:P~~,~.,~~/9,?f }!~~ly f<:~4~~s½ .,~4
~,!!;1 Sllg,gesU011s ,~?1.1}'. eXI?,~ti,~i;g;
~~_tql):l~~S,· 'rl'l~ 11~,~~ti?ns ·of tli;s ,111ethod a~e that !r~~ult~ l1jayi,\i,dt t,,e:,
r,p\1;:a i,a~l~ f?,t!1e, Rntirf 9),lStpqlfl'.b,)w,~• '.f,ff,l\eh~t tpay a~Jl-'}Pe,;;t\}\L£9l~ of' One major change that has occurred in recent times is the replacement
~-1;Jg~~~- :1Jn tU}t,tl,a~d, pepome l.~~_s fepre.~.~~9,tive o,f,_thl',. 9,ustomef;PJ~e._ of service employees by selt~service technologies . Self-Service technologies
-r,·;.Jf -;·_. ;,;.pt·•,- .,_:r:,.qv~:-1,. . tU-;.t.'(:i,-,:.1_ tt'f. .~i"' ,: ·- . ·, :: .j,_,j: .. f'if} N-~ 1
•T,_ •• .:,:
1
(SSTs) are technological interfaces that allow customers to produce services
odus (l'totipJntervie,vs ,, '"C::,t:' t. · p<.:c"· '<11 ,,':.,, 0 ,.,
' •. ,'~;"~;·,::{>-:~f':••••f.. .' "/."it'.,, / ' .-\ ., ;~r··'\;_f , \ ,\'.~ ,i 4:. ·;t:{,/) \, /', -.¢flj; ~:,~•,tt~1-I: ,· independent of direct service employees. Automated Teller Machines (ATMs),
D/re.ct~q' ~uesy?ni~g of a smal! .irotip customers (8-12 peopie). , o/ online banking, package -tracking offered by courier services, bev.erage and
:>,. 7 '., \ Que,stionil/-gwciuld focus on a particular topic. The purpose is to provide snack vending machines and even e-commerce are all examples of self-service
:!w,r:;. a forum fo'.r'participants to suggest service improvenie:ri:tideas and offer technologies. Figure l 0.5 shows a comprehensive set of categories and examples
i~f,f,t(:i .fas( aqd informal f¢edback . .Howe~ei- focus grbups serve merely: as of SSTs in use today
briiin~torming sessions. The feedback 'may hot be representative of the
~ cus~o'metpopulation or may not b~ very feasible. · ' ,~ ',: .: f" .. •,,,; T1kpb0Mllm.t1utivt
Jvi·:•~t•·•j:,•·r• _'(-,':';,;~~];~~~:.'!;,

/F\:,, Cp~!!Jmf:r C:otr1plai1_1.t, Cmm?eift ,ind lrfquiry r;aptwf:

ci . ' ,, ·: _'i ;t·,.,, :.~1• I' ,.
'I Ott~
. Rill$j)Olfl.'1'41 o~~ - rnl~mtt tn\H «GtJ;f,e . • ~o.
,,;;: I~ . : , .
.~'t,J.V;}~ {?rm~! syste!ll to '[eta in, ca~egorise,' track and di~tribute cu~tomer
JJ ~\:,Pbmp}ain,1s · and, .other • comriji.mic~tions ,with ·. the1 co~pan/;,'. ~ f1(s
,... ; - · ' ._,. .,,. I
• T~~bAnldf\£
• Ordct
l11J,gt,.1.Wi;,11nllkJ11
•!iUtoo
• P.u!tag.-1rad:illg
• l \ ~ I ~ldOITtlllN)l.1 .• ATM 6
Uokl et1¢ct0t11

.. --.-- --- -- ----------- · ' ., · system helps to identify the most common types of service failurct for p.,y :c1 dti,'.! f(IU!p
, Tele ~ b,)j"tj(il'¢ • ~el~l"~~~\ojg •
Jtiki,~~1:f~ctive,acti~p, r~t qissatisfied_customer~'.f1;eg_ueatl~ do ~61 C~lll~_jai~
·, · ··>dtredlyJp the company, hence 1t offers only a partial picture to·'the
~rlj;ttioo rcfi11iJ. , • flll,Ul(:li!l tmns,i,,:11~
.
• !1C>l~1~bt:cl:oot
C•rfC11ji~J

,-,· .;co~~P~°,Y· h".~1')< .:, , ' · ;,. ·' ;i •itf_ • W~ttv>tloo • !mfflltl ilt*""o.ti«• • fl l«-lp«.=re • 111X

" 1iip,loyee Fi44 Repqrtb1g .,. . . . .·• . ·· p

~ ]ml$ $<:llfffl
• l)it;1~ k ffllmg . lff-«l~
'ic,.iri,;I
J'{C\'llf•~tiro
&>,0.wJrc

}: ./ gim~.1i;d;9~.~{if9,r iafhe;ing,';c~t~&9ri§jng .aJcl ,'Cj_i~ttip, ' ir1fot'll >lltlCft • T~k<'l'l$l()ill

C0-b1$¢;1
4
. . . gehce al:iout;se\::v:i ce';j~sµe~,ii
•· ',~• • ~-·,,~--,:·;~:. · ·'::r.., J : (-1>:
1
/ .;,_
t \he Jiwhati _
P;::, .1{ ···~ · ,~,;·6f"r~; f tz'lllllg
--· ---- --- --- ---------
Fig. 10.5: Categories and Examples of SS'ls in use
SSTs are commonly used in many service industries as they benefit both
the customers (quicker service, more ~onvenieilt and consistent service quality)
;nd company (greater reach and lower service delivery costs per customer}
This fundamental shift in service delivery mechanisms does not mean that
companies can afford to now ignore customer service. On. the contrary, the
growth of self- service technologies calls for a ,greater emphasis on customer
service, which is necessary for ensuri_ng that the customer technology interface
is user-friendly. More importantly, companies need to put into place an excellent
customer service infrastrncture (includi_ng. properly trained and motivated
em.ployees) to assist ~ustomers experiencing problems or difficu,lties with self-
service technologies.

Marketing Management Distribution Channels and Marketing of Services

 Studies co nJuctcd by rescan;hers Bitner. Meuler, Roundtree and others,
published in the Jo11mal of" 1\!r1rkf'ti11g, found that customers ha ve very strong Check your Progress 4
feelings about SSTs; they love them and hate them depending on a lcw key
conditions. · ·
Fill in the blanks.
Customers love SSls when:
I. The ______ instrument was developed by researchers
SSTs bail them out of difficult situations, sucli as being able to withdiaw Parsuraman, Zeitha111l and Berry.
cash for an emergency at 1.00 a.m.
· 2. · Quality of service is a comparison between _ _ _ _ __ and
SSTs are better than the interpersonal alternatives and save the customers
. time, money and psychological costs. The Internet allows customers to
shop at any time and complete transactions more quickly than they would 3. Self-Service technologies (SSTs) · are___ _ _ _ that allow
in person. customers to produce services independent of direct service
employees.
Customers arc impressed when SSTs work when ·they are supposed to.
State nuc or False. )
On the other hand, customers hate SSTs when the followi11g_problems occur:
· 1. The traditional 4 Ps marketing approacl1 ':v.?rks for service marketing.
They fail. The researchers found that 60% of the negative stories
they heard stemmed from failures of SSTs. Broken machines, failed PIN 2. Inadequate management commitment to the setting of service
numbers, websites that are down and goods not shipped as promised standards and goals also leads to service deficiencies.
infuriate customers. 3. Companies must view service quality improvement as an occasional
They are poorly designed. Poorly designed technologies that are difficult project.
'-
to use or understand create hassles for customers, making them feel that
it is not worth using them. Websites that are difficult to maneuver are
particularly troublesome. If customers cannot reach the information that
they need within a few clicks (some say two clicks are all that customers
will tolerate), then customers shun the website. You would have experienced self~service technologies in different service
categories. Did the SSTs facilitate your service interaction? Write down the
The customer messes up. Customers dislike using technologies ways in which you did see the SST improve the service experience?
they feel they cannot handle adequately. Even though they feel partial
responsibility, they will avoid using them in future. A common frustration
is having different user names and passwords for different websites. When
confronted with a screen requiring this information, and not recalling it
accurately, many customers will give up and go elsewhere. .In our previous .unit on product concepts, we have seen how physical
There is no service recovery. When the process or technology f!\ils, SSTs products can be differentiated. ·How can services which are largely intangible
and variable be differentiate<l? ·
rarely provide ways to recover the service on the spot. In such cases,
customers have to call or visit the company, precisely what they_were As with products, service marketers can develop a differentiated service
trying to avoid by using ttie self-service technology. · offering in the following different ways:
Research by Parsuraman shows that customers vary in terms of "technology 1. Product offering can include innovative features. The custonwrs 'minimum
readiness", which n;fers to the customers' propensity to embrace .a11d use new expectations are the core service elements. To this the marketer can offer
technologies for accomplishing goals in home life and at work. Companies optional secondary -service features which enhance the core elements. In
need to be sensitive· to the customers' knowledge and awareness !eve.ls _and help the hotel industry, hotels offer special facilities for business traveiers ·like
customers learn how to effectively use SSTs. fax machi nes, secretarial services and computers. Likewise to passengers
transiting through the city they offer ·check in and check out as per the
arrival and departure schedules of major airlines. Many companies use
the internet to offer value added services as secondary service features.

iidiPtm Marketing Management Distribution Channels and Marketing of Services

2. People ·can beco me an important service diffL:n.: 11tialu1. The f1unlline and in creasi ng. Iv knowledgca blc_customers. Increas ingly companies have
se rvice perso nn e l's und erstanding, responsive ness, willing ness lo assist found tlrnt 1·aluc·-acldcd se rvices ,111d product support se rvi ces ca n pro vide
customers, courtesy and empath y shom1 lo\\'ards customers arc what the product di lfcrcntiat ion . Many co mpani es tod ay oiler th eir cus tomer
differentiate the se rvice offering. Such serv ice orga ni sations put a lot of ·'cpd-to-e nd " solut ions whi c9 1\0uld include physical goods and se rvice
emphasis on hiring the right people, trainin g, motivating arid dcvclop1ng co mponents .
the employees.· such best practices are clini cult to imitate and offer a very These end -to-e ncl solutions arc in lact earning more revenues and pro1its
sustainable point or di !Tcrcntiation. for the companies .
3. Faster service delivery and timeliness of response can be a service Competing based on superior customer service, an intangible, difficult-
differentiator. Howevet; service companie·s have to ens.lire that the to- imitate component of the company's overall market offering, o!Ters a
reliability of the service is not compromised in ensuring faster service. solid foundation on which companies can create an enduring competitive
Speed of service requires an organisation to lay down clear service advantage. Excelling in the increasingly competitive marketplace wil l
standards and quantify the exact parameters of timely service. To achieve require a co nvergence of conventional marketing and customer service.
each standard, detailed processes- and systems have to be put into According to Parsuraman, true marketing excellence cannot occur in the
to help employees achieve the service standa'rds consistently. Dominos absence of a genuine commitment to delivering superiOj customer service.
Pizza differentiates its offering on the basis of tis guaranteed delivery -Many companies fail to apprccrnte this fact, as they look at customer
within 30 minutes or else the customer gets the pi zza free-. To achieve sei-vicc as a .1nere add-on to traditional marketing-resulting in mediocre
this service standard, a lot of thought has to go in to selection of outl et market performance. Such compames -are increasingly compelled to
sites, menu offerings, processes for preparation of the products, training compete on pri ce-offs or sales pro.motions, as they have very little to
of employees, order taking process, the quality of equipment used for offer their customers. Figure 10.6 shows the customer se1-vice - external
preparing the pizza and so on. marketing matrix.
4. Image differentiation through building a reputation as a trusted and Emphasis on Elrtemal Marketmg
• dependable service is a powerful differentiator especially in the service Mo4enite Af,sttsiivc
businesses. Several hospitals have achieved "mega brand" reputation
for being the best in their field such as Manipal Hospital, Escorts Heart 1 2
Optitrtal
Centre or Apollo Hospital. These hospitals could open clinics in other Quality of
·cities and attract patients on the basis of their brand reputation. Customer Serv1c e
4
Infet1or 3 Counter
prodoclive

Have you ever had a negative service experience? Write down what about Fig; 10.6: Customer Service - External Marketing Matrix
the experience infuriated you the most. In light of the gaps model, try to The tern'! external market_ing explains the conventional customer attraction
identify where the organisation was lacking, which resulted in a bad service activiti~s, such as advertising, s11les promotions offers, personal selling
experience. What recommendation would you give to the management? and other such promotional iictivities. Customer service, on the other
hand, focuses 011 creating an enjoyable experience during all customer-
company interactions. Most .companies, accordingly fall into quadrant 4
and practice what is es~entially a counterproductive strategy. Quadrant
So far we have focused on service industries; but customer services are 2 companies, although offering superior customer services, are wasting
just as important in product based industries. In these industries companies resources on "over killing" their customers. Quadrant 1 is the optimal
offer two types of services; quadrant in terms ofmark~ting excellence as well as in terms ofutilisation ·
\aluc-added services to enhance product performance. of resources.

Product support services or after-sales services such as installation, 2. Product support services: In designing their product support services or
training on prod_u ctuse, repairs and majntenance. after-sales services, companies need to keep customer worries specifically
in mind when designing their services. Customers worry about: ·
1. Value-added services: Product differentiation based on features and
performance or technology has got eroded due to accelerating competition Reliability and failure frequency.

Marketing Management Distribution Channels and Marketing of Services

 ·Access ibility or sei·v icc durin g a prnduct brc;1kcln\\1n. · Intensive distribution is ;1 irncd al max imum market cove rage, selective
di stribution is aimed at making the product a\'a ilablc to se lec t dealers
The do wntime duration: this can i111posc a ~crio us burden for
and retai le rs in a g i\en territory and exc lu sive distribution is th e most
incjustri a l c li cn~s . , ·
res tri ctive fo rm ol' market coverage.
Maintenance and re pair costs.
Marketing chann e ls for services arc diffe rent from marketing channels
Anxiety . of dealing with and followin g up with the servi ce for manufa ct\ircd goods because of the simultaneous production and
departments, consumption and the iritangibility of services.
· Companies have been able to improve the quality of after-sales services Services distribution must focus on three key areas; minimising waiting
by: time, managing service capacity and improving. service delivery
mechanisms. · ·
Offering a basic support service with an annual service contract
for which the customer pays extra. During the annual maintenance Services have foui: major characteristics that greatly affect the design
contract, preventive maintenance is carried out by the company of their marketing programs: intangibility, inseparability, variability and
and is initiated by_the company itself. In case of a breakdown, the ) perishability.
customer calls the designated serv ice represt:11lativc and receives The traditional 4 Ps approach does not work for service products. Three
prompt service. additional Ps are suggested for service marketing: People, Physical
More efficient third party call centres, wh ich can handle customer Evidence and Processes.
complaints more expeditiously, rather than having customt:r call up The SERVQUAL instrument developed by rcsca~hers Parsuraman ,
the company or dealer repeatedly. Zeitham l and Berry defines five generic dimensions along which
Outsourcing the service or tying up third party service contractors, customers evaluate service quality. These arc reliability, responsiveness,
who can offer a wider range of services more cost effectively. assurance, empathy and tangibles.

The concepts of services marketing that we have learnt so far app ly equally As with products, service marketers can deve lop a differentiated service
to the management of value-added services as well as the management product through product offering, people, faster service delivery and
of after-sales services. Customers have the same concerns about service image.
quality irrespectivi;: of the category of service. The same organisational In desi gning their product, support services or after-sales services
gaps can lead to deficient service in either category of service. companies need to keep customer worries specifically in mind when
designing their services.

In any distribution channel there are three sets· on intermediaries:

me~chants, agents and facilitators. Dual distribution: When a company selects two or more different channel
A \ertical Marketing System (VMS) includes parties like _whole"salers, structures to distribute the products to its target markets.
producers and retailers acting as a unified system. · Intensive distribution: A type of distribution aimed at maximum market
When a company selects two or more different channel stn.ictures to coverage.
_distribute the products to its target markets, this ar~ange·ment is known as Selective distribution: A type of distribi.1tion aimed at making the product
multipit: ur Jual distribution. available to select dealers and retailers in a given _territory.
Companies form strategic channel alliances also known as horizontal Channel power: A.channel member's capacity to control or influence the
marketing systems, which enable the companies to use another company's behaviour of other channel members.
already°established channel.
Horizontal conflict: A conflict.among channe l members at the same level ,
The Internet allows consumers to directly access manufacturers and vice such as two retailers or stockists.
versa.
Vertical c~nflict: A conflict between two different levels in the distribution
Compa~ies have three options for intensity of distribution: intensive chain, such as between a manufacturer and wholesaler or between a
distribution, selective distribution or exclusive distribution. manufacturer and retailer.

Marketing Management Distribution Channels and Marketing of Services

Notes ,; . Service: /\11 y ,t<;I or pcrl'ormancc lhal one pmty can offer 10 anolhcr lhat. is Answers 'to Gheck your J>rQgress
csscnliall y i11ta11 gibl c and docs not res ult in the ownership or any1hi1ig.
Check your Progress I
Se rvice quality: Th e dcgr<;c and d1rc<;tio11 or di screpan cy
lll:lwc:c:n th e:
customer 's se rvi ce- expeelations and hi s perception s of sc r, ice Llrc11 ·he Fill in Ilic bianks .
receives. I. In an y di stribution cha1111 cl, there arc three sci, or intermedi aries:
merchants, agents and faci Iitators.
2. Channel 1T1<.:_111h<.:_ rs ;i1.ld" value l(i a con1pany's products by making the
merchandi se available al the right time, pince and in the right quantity and
I. Explain marketing channel and the need for intermediaries. Describe the
right condition to the encl-customei: ------------- ---------
different types of channel intermediaries and the role that they play.
· Check your Progress 2
2. Explain the importance of the Internet as a distribution channel. ------- ·--------~-----
li'ill in the blanks.
3. Describe the factors that affect the choice o.f channel strategy. Explain
channel leadership and channel partnering. 1. A vertical marketing system includes parties like wholesalers, producers
anl retailers acting as a unified system.
4. Explai11 the four major characteristics of services that affect the design
of their marketing programmes. For each characteristic, explain the 2. ...... Product positioning is a prime determinant of the type of channel to be
used.
challenges or implications for the managers and how these challenges .
can be overcome. 3. Channel power is a channel member 's capacity to control or influence the
5. Why does the traditional 4 P's approach not work for services? What are behaviour of other channel members.
the additional 3 Ps recommended for marketing? 4. A conflict among channel members at the same level, such as two retailers
6. or stockists, is known as horizontal conflict.
What is tht: gaps model of service quality? Explain each gap and how it
results in deficient service? What are the overall implications of the gaps State True or False
model for companies? 1. True
7. What is the role of Self-Service Technologies in service delivery 2. False
mechanisms today? What are the customers' key concerns regarding
Check your Progress 3
SSTs that companies must address? Ex.plain the different ways in whi ch
services can be differentiated? Fill in the blanks.
8. "Excelling in the increasingly cqmpetitive marketplace will reqtJire a I. Services have four major characteristics that greatly affect the design of
convergence of conventional marketing and customer service." Explain their marketing programmes: intangibility, inseparability, variability and
this statement. What happens when companies focus inordinately on perishability.
"external marketing"? · · ·
2. To tangibilise the intangible, companies develop a detailed service
9. How do the concepts of services marketing apply to the 'management blue rint.
of value-added services and product support services in physic.al goods State True or False.
organisations?
I. True
IO. What is internal marketing? Whom is it directed towards? Why· is it so
Check your Progress 4
important for services organisations?
Fill in the blanks.
I. The SERVOUAL instrument.was developed by researchers Parsuraman,
Zeithaml and Berry.
2. Quality of service is a comparison between expectations and performance.
3. Self-Service technologies (SSTs) arc technological interfaces that allow
customers to produce services independent of direct service employees.

Marketing Management Distribution Channels and Marketing of Services

State True or False. Strategic Pricing
I. 1-'.tl sc UNIT
2. True
Structure: ..,. : .,
3. Fal se
11 . I Introduction
11. 2 Costs: Impact on Pricing
11.3 Customer ¼lue and Price Sensitivity
I. Dillon, William R., Thomas J. Madden and Neil H. Firtle. Marketing
Research in a Marketing Envirom;ent. St -Louis: Time Mirror/Mosby 11.3: I Nagle and'Holden-'s Nine Factors that influence Price Sensitivity
College Publishing. 11.3.2 Market Segmentation using Price-¼lue Perceptions
2. Ramaswamy, V.S. and S. Namakumari 2002. Marketing Management - 11.3.3 Effect of the Internet on Price Sensitivity
Planning, Implementation and COjtrol (Global Perspective). New Delhi:
Macmillan India Ltd. 11.4 Pricing Strategy and the Product Life Cycle
11.5 Understanding the Pricing Game
I 1.5 . 1 Price Competitiveness
11.5~2 Reacting to Competition with Price·
11.6 Pricing: Key Tool of a Company's Growth Strategy
11 .6.1 Role of the Distribution Channel in Setting Prices
11 .6.2 Product Line Pricing
11.6.3 Pricing Tactics
11.6.4 The Pricing Process
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Marketing Management Strategic Pricing

 marketin g strat egy tn ge nerate and capture greater va lue for the compan y. It
Note's
ma y be poss ible !or a co mpan y, using price indi sc rimi11atcl y to w in indi vidual
battl es, and ye t encl up losing th e war.
After goin g through tVi s.unit, yo u \\' ill be able io : Thi s is 1101 to say that pri c in g should not be used as a co mpe titi ve 11capon,
as it ca n be a ,·cry success ful weapon , but the condition s to make it .success ful
• Anal yse wh y approache~ to pri c ing ha ve chan ged ove r the year,
depend on the reactions or customers and competitors. Also price when used
• Assess the impact of customers ' price sensitivity on pricing strategy from a position of strength _can be a very powerful weapon, yielding long-
term growth and profitability. The goal of this unit is to provide guidelines for
• Evaluate the impact of the product life cycle on pricing
understanding the impact of pricing on competitors and vice versa and using
• Describe how competition and distribution channels affect the
this knowledge to_develop profitable pricing .
. pricing decision
Distribution channels play a key role in design and implementation of
• Explain how special pricing tactics are used to fine tune pricing
the pricing decision. The key to managing pricing strategy through a channel
• Discuss product line pricing and pricing process involves seeing the channel as a route to reaching the target customer.
) The channel members add value to the product in different ways and must be
adequately compensated for that role. Price setting now involves creating value
for the customer, profitability for the company and for the channe l members .
Pricing as a management function has undergone a vast revolution over Careful coordination is required in order to ensure that tbc pricing strategy is
the years. What was largely seen as decision taken by finance and accounting, executed as planned throughout the channel, and not subverted by some channel
using rnst-plus pricing procedures because they were seen as financially prudent, members to meet their own objectives to the detriment of the customer and
pricing has assumed a key strategic role today.Attitudes towards pricing ~hanged company. Usage of multiple channels by .m ost organisations makes this task
radically when marketers encountered the challenges of the 1980s and 1990s. particularly complex. The aim of this unit is to provide an understanding of the
Fierce competition, erosion of brand loyalty and pricing power, e-competitors, distribution channel issues to be considered whilst setting prices.
guerilla brands and the shift in the balance of power between manufacturers and
distribution channels brought a new approach to pricing .
.Marketing managers realised that blindly chasing market share and We have learnt that costs should not determine prices, but costs play a
customer satisfaction o.ftcn resulted in margin erosion and ultimately erosion of
critical role in formulating pricing strategy.
shareholder value. Managers were jolted into realising that the ultimate purpose
of a business is to create value for the shareholder or owner of the business Effective pricing decisions first consider the markets they want to serve, the
through the process of creating value for the customer. price that those buyers can be convinced to pay, the quantity that they will sell
at that price and the consequent relevant costs they must. incur at that level of
A new understanding of pricing has now emerged, that pricing is about
sales.
much more than merely setting prices. It is about targeting marketing markets
that can be served profitably; communicating information that justifies price Any changes in cost due to external reasons (such ·as increase in
levels, and managing pricing processes and systems to keep prices aligned with raw material prices, energy prices) will result in price changes not because of
value received. The differei1ce between price setting and strategic pricing is the passing on the increased costs to the. customers, but because it will change the
difference between reacting to marketing conditions and proactively managing quantities the finn can profitably supply and the buyers it can profitably serve.
them. Companies that price profitably make decisions on markets and quantities that
intend to serve based on the changes in costs.
Strategic pricing is the co-ordination ofin:terrelatcd marketing, competitive
and financial decisions to set prices profitably. Strategic pricing requires a new One cannot price effectively without understanding costs. Knowing costs
kind of relationship b.et\veen marketing and finance; it involves achievii1g·a is not merely about possessing the relevant cost accounting data, but more
balance between providing value to the customer and the film's need to cover importantly knowing how the costs will change with the changes in sales that
costs and earn profits. result from pricing decisions.
Strategic pricing is about profitable pricing, which requires that.managers The first step is identifying the relevant costs, i.e., those that will detem1ine
must _consider how each decision wjll affect competitive behaviour and ·the profit impact of the prici_n g decision. Pricing decisions affect whether a ·
profitability. Pricing decisions should a lways be made a part of a longer tenn company will sell less of the product ar a higher price or more of the product at

M,trketing Management Strategic Pricing

 ·' a lowe r price . In either case. so me costs do not change (as a total), hence do not
a ffec t th e pricing decision . O nl y the cos ts th at will ri se or fa ll when th e pri ce ~l Check your Progress I
changes, affect the relati ve profita bility o f'th c difTerent pric ing strategics; these•
1---------------------------------
are co nsidered as incremental cos ts, as th ey represe nt the increment to cos ts that
Fill iii the blanks.
result from th e pricing decis ion.
I. _ _ _ _ _ _ _ _ _ play a key role in des ign and implementation
However, the _mistake that is commonly made is _focu sing on average --------- ---------
of the pricing decision.
costs, as such data is readily available. The manager who focuse s on average
costs would be misled into rejecting a profitable proposal in the mi staken belief 2. _ _ _ _ _ _ _ _ _ is the co-ordination of interrelated marketing,
. that the price would be inadequate to cover t_he average costs. The l)dequacy competitive and financial decisions to set prices profitably.
of the price can only be determined by looking at the incremental cost of sales State lrue or False.
and ignoring those that would be incurred anyway, instead of averaging out all
costs. 1. Companies that price profitably make decisions on markets and
) quantities that intend to serve based on the changes_-in costs.
Incremental costs are very similar to variable costs, as variable costs are
always incremental for pricing. Fixed costs are generally not considered as 2. Contribution margin as a percentage of price has important strategic .
incremental costs which is a mistaken assumption as some fixed costs could be implications.
incremental and must be properly identified. Incremental fixed costs are those
that directly result from implementing a price chinge or from offering a version
of the product at a different price level. Many costs are neither purely variable
nor purely fixed; they are fixed over a range of sales and may go up when An effective pricing strategy requfres a good understanding of the value
the sales move outside the range. These semi-fixed costs such as the cost of of the product to the buyers. ¼lue is the most commonly used, but least
installing additional capacity for production of increased quantities must be understood terminology. In common usage, the tenn value refers to the total
considered as incremental costs when making the pricing decision.· savings or satisfactio~ that t_he customer receives from the product or in other
Managers must consider the contribution margin for each product sold, words the utility gained from the product. This implies that the utility that a
which is essential for making profitable pricing decisions. Contribution margin customer gains from the product is constant on all use occasions; which we
as a· percentage of price has important strategic implications as it is the share know is not true. The utility of a chilled beverage on a hot summer day with
of price that adds to profit or reduces losses; in other words, the added profit or temperatures soaring to 45 degrees centigrade is vastly different from the utility
loss resulting from an additional sale. of the same cold beverage on a chilly winter morning. In the first case, the buyer
may be willing to pay a price premium and yet derive utility; in the second case,
Rupee CM = Price - ¼riable Cost
the buyer may not consume the product even if it is offered free.
% CM = Total CM / Sales Revenue x 100
Marketers are therefore concerned with "economic value" which is
The percentage contribution margin (CM) is a measure of the leverage determined first and foremost by what the customers' alternatives are and the
between a firm's sales volume and its profit. value of whatever differentiates a particular product from its alternatives. The
· Note: Breakeven Sales Analysis, which is covered in th'e course on value is also determined by the context or conditi.ons under which the decision is
financial management, is essentia_l to the understanding of how costs should being made. The economic value is thus defined as the "price of the customer's
affect the pricing decision. This analysis would help a manager determine two best aiternative plus the value of whatever differentiates the offering from the
key issues: alternative". ·
.,
l-,16"". m~ch would the sales volume have to increase to profit from a price However, not all ·customers are fully inf~rmed; they may be unaware of
reduction? · the product and be influenced by its price cir that they m!ly be unsure of the
differentiating attributes and may be unwilling to spend the time and effort in
How much could the sales volume decline before a price increase beco~es learning about the attributes. In case of low involvement products, purchases
unprofitable? may be made on an impulse, without ma)<ing an estimation of economic value.
Hence, economic value and the perceived value that the buyer places on the
product may be ·completely different.·

Marketing Management Strategic Pricing

 b .:onomic value l.!stimati on has its stren gths and weakncssl.!s. The sensiti ve th e hi gl1cr th e products pri ce relati ve to the prices of the buyers
strength is that it e nabl es the lirm lo determine \\ hcthcr a product is se lling percei ved alternati ves.
·poorl y because it is ove rp1;ieecl relati ve to it s 1n1c \\ onh u1· because it is under- The key wo rd here is ··perce ived alternati ves·'. Perceptions of' avail able
communicated and thus '" underva lued" by th e rn arkc t. It al so forces firms substitutes and th eir prices va ry widely amon gs t consumer;; and across
to quantify the ben efits, as in sophi sticated busin ess a nd con sumer markets, purchase situaLi o ns. C ustom ers "'una ware" o l'altcrnati vcs arc likely lo sec
___ ______ __ ___ ___ ____ _ customers demand economic value estimation. The weakness is that economic more value with known and familiar brand names and consequently be
value cannot ihdica·te the price to charge, but probably the maximum that the less s·ensitive to their price. ·
------ --------- ------- target customer would be willing to pay.
Reference price effect has other implications in terms of product .
--------- ------------- !rs~;i>-s~11ii¥.c~r1imic'Vaiu~~s.ti!D~ti~h ~: ~- . ;. · . '· . ..·; . ' .; positioning as well. The category in which a marketer positions the
•,;~~ u ;},~ •,• ," ',J;·i•~' .~, :1f ,:i.-~I _ ,•;, ,, ! J'~·- -_' \~~~• products will determine · the frame of reference of the customer. For
' ., '. Step 1. :·ldentifytlie cost ofth<'h;ompetitive product that the cu~tomers
instance, hair oil can be positioned either ·as hair oil or in the category
. 'IX ;ie Wii's the tiesf ;iffe"rµativt•This' is'the ,products· refereU·ce'val6e, .~ ·. .
of hair grooming products. In the case of hair oil positioning, the frame
---------------.. ------ ) t;~'. . ;S.te~~f ~t~~n1if,kJ1t the\ ~ctoi:s·_th~( diffe~·ent,'.at~ your prod~~t,from the of reference is other hair oil brands and the prices of competin•g brands
-- - --- ---------------- k-c1_,:-,
, '
f . ·cotnp~fat1ve
.
prodqct.'For ex~mple ,, , . . · ·. .~, . · . . · will be the reference points. However, as a hair-grooming product, the
frame of reference has shifted to a different set of alternatives to compare
--------- --------~~~:- .. i: t' ·,1, 1
Superior .Perforni'artce ,.
with. Hence, the perceived value of"hair oil" is very different from " hair
( ?t- i~liabi\ity . • . , ~,. '
grooming products" ; impacting the prices customers would be "willing"
---------------------- :;J:{,, Addkibri'al featti'f~i/ ''\ .;,. 'n:•} '1!.-,•
• to pay.
____________________ ;i,;"'' lf )I,, ·r,::~~- J, . , I , \j' ("( t ·1, •ii
<,t\
J. 1:!: ,, . Lower maintenance costs 1 How 1clailers displuy competing products in store will affect the
f{.}~9!• / ',4;;' ' ·t I /-/',\' t: (. ' .',w.f! comparison amongst perceived alternatives. Generic brands which arc
--- ----- - ---------- - -- :., , .Faster Service
t;.~ ;t,'" ~ ~ .,,, .f' )ow priced, when displaY.ed alongside premium or more value-added
J~~- ,, Step 3: Determine the value to the -customer of these differentiating . brands will make comparison ea~ier for the custome1: However, this has
- l:'t / ·factors. The positjve;~nd negative v~lues associated with the product's been seen to affect higher priced genuinely value-added brands with a
,'·' ·. ,. differeiitiating attributes co'inprise the differentiation value. high differentiation value.
~;f -~- .S-t~p 4: Add the re:ference'value a'.nd differentiation value to determine
Ir •, I • l./.•( • ·•· ;,1,'v . p _t _ -,
A customers' perception of the available substitutes is not necessarily
··· the··total economic value, the value that some one would pay when based on the knowledge of exact price levels of the specific brands. Given
,, ' fulif infci-ined •an,4 economicaliy rational *hen making the purchase the number of categories and brands, it would be impossible for anybody
,\r decisiOn. . tu maintain such vast amounts of information . Consequently, customers
carry in their minds a general price expectation for the category. Different
In the real world, the value that the customer places on the product is only market segments would carry di!Terent price expectations, which are in
partly the economic value, but is largely the perceived value. There are many line with the level ofneed they are expecting to fulfill with the product.
. --------------- -------- reasons for the gap between the buyers' willingness to pay and the "economic
value" of the product and marketers must understand what drives the customers' A buyer's reference price also depends on his or her expectation about
willingness to pay. future prices. Consumers have come to expect deals, discounts and
promotional offers during specific times of the year. Consequently, they
Thomas Nagle and Reed Holden studied nine effects that influence the have learnt to delay purchases for categories where it is possible to do so,
willingness to pay and cause buyers to be more or less sensitive to the difference temporarily affecting price sensitivity during certain times of the year.
between price and value when making purchase decisions. For each factor there
are tactics that marketers _can use to reduce the gap between the value they offer 2. Difficult comparison effect: The concept of-economic value, explained
and the prices they must charge to get the business. earlier, assumes that customers possess fu 11 . knowledge of .all the
alternatives and can accurately and cheaply eva)uate the offers. In reality,
11.3.1 Nagle and Holden's Nine Factors that influence Price Sensitivity buyers are not fu lly aware and find alternatives d1fficult to compare. This
Reference price effect: Economic value is recognised only by customers illustrates the difficult comparison effect, which states that buyers are Jess
who are fully informed about the alternatives. In the real world, even sensitive to the pric~ of a known or more repu_table product, w~en they ----------------------
knowledgeable customers are not entiiely aware and are lost in a sea of have difficulty comparing it with alternatives. Most customers in such
infom1ation. The reference price effect states that buyers arc more price a situation wou ld find the hi gher prices justifiable for the assurance that --------- -------- -

Marketing Management Strategic Pricing

 their regul ar brand oile rs what others do 11ot; the confidence and trust 3. Switching cusf effect : Sw itc/1ing costs arc costs that customer incurs when
hav ing accumulated ll\'er the yea rs. Rath t.:r than attempting to find "good he sw itches hr,lllds nnd suppli ers; sw itching cosls ca n be both monetary
va lue" in sL~ch ,1situati 91_1and ri sk gl!l li11 g pour 1·,1/ue i11 !ht.: pruccss, rnan y and 11011 111011et.i1 ). For exampl e, cost ol' inst,illatinn of' :1 brnadband
buyers prclc r lo sell le w1lh the kn own bri1nd albeit at a hi gher price. . connect ion wi ll have to be. incurred every time one chan,gcs a suppli er
The dil'ficult co mpari son effect causes va lue to be associated with known· (rnonctar) t.:os t) , cha ngi ng the telephon e number every time one changes
brand names in categories where comparison is dif'ficult or is where the servi ce pro vider (non-monetary) . The sw itching cost effect stales that
the perceived risk is very high: Consequently, in hi'gh involvement the greater the added cost of switching suppliers, the less sensitive buyers.
categories, where customers price sensitivity is seen to be lower than in are to the price of a product. The reason for this is that many products
low involvement categories where comparisons are generally easier and require that the buyer make-product-spec ific investments to u·sc them . If
perceived risk is also .Jowe1: The important thing to remember· is that tl~e those investments do not have to be n,peatcd, when switching from one
buyer would see value in paying a price premium in a high inwlvement supplier to another, then price sensitivity will be greater. The greater the
------------- --------- category, only when it is <li,fficult to make comparisons. Once buyers product specific investment that a buyer must make to use a product, the
become familiar, comfortable and knowledgeable about a category, and greater the "inertia" and hence, the less price sensitive the buyer is .
- ---- ---- -- --- - --- - -- - are able to make comparisons with ease, the price sensitivity will change. The product specifw iii vestments range from installation, training, cost of
IBM traditionally enjoyed 20% premiums because of its enviable spares, service add-ons to even personal relationships and·rapport. People
reputation for integrity and se_rvice. The customers found the premiums are generally reluctant to ch·ange their doctors, lawyers and accountants
Justifiable; because of the risk of buying a costly mainframe from a · because of the considerable time invested in developing a rapport, which
relatively unknown competitor was much higher. The premiums declined is significant to the quality of service one receives. Price sensitivity is low
as personal and _ininicomputers replaced mainframes. The risk of the new as switching costs are considerably high.
product from a relative unknown competitor was limited to a smaller Companies have used this knowledge very effectively to reduce price
computing capacity. -
sensitivity and build loyalty towards their brands. Amazon, one of the
Compani~s-. in such categories try to minimise the ;rice sensitivity world 's largest online book retailers, has held on to its do.minant market
-- ------------- and max11111se difficult comparison by actually making their brands
"incomparable", through value added services and benefits. Such
share in a category, which is primarily driven by discounting. It uses
technology very effectively to track and understand each individual
differentiation when based on a competitive advantage that the company customer preferences in subjects and topics. It uses this knowledge
has nu1tured over Lhe years minimises Lhe buyer's price sensilivily towards to custom ise book offers, thus providing a very high level of service
the compa11y's brands. and rapport with its customers. This acts as a switching cost, even as
competitors match or undercut prices
In low. involvement categories, it is difficult to m1111mise the price
sens1ttv1ty and maximise difficult comparison (by making comparisons On the other hand, aspiring suppliers understand the switching costs and
-------------- --- -- - -- will absorb them in part or full by providing free training, "trade-in"
d1fficull). Prod_ucls are often packaged in odd shapes and sizes making
--------. ----------- compansons difficult, which lower priced generics; but this tactic would allowances and so on. But the key is to do this without lowering the price
have a short-tcnn effect. A longer-term tactic would be to make the buyer expectations. ·
---------------------- more quality sensitive and increase the buyers risk perceplion of using · 4. Price-quality effect: Generally, price is nothing more than what a
unknown brands yet to prove their quality. Again product differentiation customer pays to a seller to acquire a product or service. But for a few
--------------------- - based on a solid competitive advantage that the company has will minimise products, price is more than what a customer pays; such products fall into
---------------------- the price sensitivity towards a particular brand . three categories:
Newer, unknown suppliers with untried technologies and products on the Image or prestige products
other hand will try to increase price sensitivity towards existing known
Exclusive products
---------------------- brands .by makin~ comparisons easier. This they do by · imitating the
packagmg shape size and colour of well-known brands and by inducino- Other products without any c;lu~s (IS to their quality
sampling and trials on a large scale. Coupons, free samples and mone;
.In these cases, prices is the signal of value that the customer expects to
back guarantees are all ways of minimising the di fficult comparisons
receive. The price sensitivity is influenced by (he price quality effect,
and increas in_g price sensitivity towards known bra11cis, thereby inducing
brand switching. which states that buyers are less sensitive to a product's price to the extent
that a higher price signals better quality.

Marketing Management Strategic Pricing

 Prestige products offer their target markets an ego gratification and exhibit price sensitivity du e to reaso ns other than expenditure effect.
prestige. They buy these product s not only !or their consumption value In co nsumer markets, thi s pri ce se nsiti vity is furth er co mpounded by th e
or utility but mainl y to te ll th e world th at they can afford th em. A Mont tradeo rl's that co nsu1n crs must mak e bct\\'cen disposable incomes and
Blanc pen is not bought because it w rites better, but because th e customer limited tim e available for C\'a luatin g alternatives. Fig 11 .1 expla in s the
wishes to tell the world that he be longs to an e lite set. A gold credit ca rd effects o!'thesc trndcolTs that co11s un11.: rs must make.
is bought for the exclusive set of pri vileges and prestige that come with it.
A prestige image is only one reason t.hat buyers might find an expensive
purchase more satisfying. The exclusivity that discourages some people
T1111c.Poor
0 1'ocR.idi .®
from buying at a high price, can in addition to the image, actually add
objectively to the_ value. Business flyers pay higher prices to fly business
· class or first class, not ju·st for the image value, but because the number
j Cad, Rit..1, Ca.:sli Rici,

of passengers in the first class is limited and thus offers greater privacy
unlike the "crammed" economy class sections. Many professionals like
doctors, dentists and accountants take on fewer customers to be able to
devote .greater amount of time to each client. The higher fees charged
i
A Tun~ l?bc)r
ClwtP1Jt.-.r
® Tim~ lij(.t,
©
Cdi.P¥J!Of
automatically restrict the number of clients that would approach them.
Then there are other categories where customers seek neither prestige
nor exclusivity and yet use price lo determine the quality of the product.
This nappens wl1en buyers either lack the knowledge to ascertain quality •·Jtich'.
or that they have no prior experience with the product. In such _cases,
consumers will rely somewhat on relative price as a cue to the products
quality, apparently assuming that the higher price is probably justified
. by the corresponding higher value. The more consumers rely on price to Fig.11.1: Expenditure Effect
-- ·-..... ---------------- judge quality, the less price sensitive they will be.
Consumers have to make tradeoffs between limited disposable incomes
TJ1is price- quality effect is another reason why new products, as in .new and limited time, to evaluate a\tcmatives.
product concepts, when first ofTered to the market, use a price skimming
Between A& B, which segment will be more price sensitive?
strategy. The .higher prices signal value and quality.
Between C & D, which segment would be more price sensitive?
5. Expenditure effect: The effort that a consumer will make in evaluating
alterm,tives and making a purchase decision is in a large part dependent on The income rich/time poor customer will exhibit least price sensitivity
the importance of the purchase and the perceived risk. Large expenditures even if the expenditure is large, simply because he does not have time
impose greater risk on the consumer, to reduce .which, the consumer is to spend evaluating the purchase and not because of the size of the.
willing to spend greater time and effort in evaluating alternatives.A buyer's expenditure.
willingness to evaluate alternatives depends on how large the expenditure
The income rich/time rich customer will exhibit greater price sensitivity
is relative to the effort necessary. The expenditure effect states that bµyers
than the income rich but time poor customer, simply because he has
are more price sensitive when the expenditure is larger, either in rupee
the time available to evaluate alternatives. In communicating with such
terms or as a percentage of household income. The larger the expenditure,
customers, marketers must justify the price premiurris charged.
the more the buyer gains by spending greater time in carefully evaluating
the alternatives and attempting to find a: better deal. In business markets The .cash poor/time rich customer will exhibit greatest price sensitivity
the absolute size of the expenditure is the consideration, whereas. in for two reasons:-limited disposable income and the availability of time to
consumer markets it is not just the total size of the expenditure, but the evaluate alternatives.
expenditure as a percentage of total income also is considered. Fi~ally, the time poor/cash poor customer· will ·exhibit lesser price
One must remember here that the expenditure effect cannot be looked at sensitivity than cash poor but time rich customer, because even though
in isolation; difficult comparison effect and price quality effect must also ~he· expenditure is large enough to be important, the customer lacks the
be considered. Even in cases where the expenditure is large the buyer may time to evaluate the alternatives .

Marketing Management Strategic Pricing

End-benefit effect: Ce rtain products , although they lcmn a part or a On-lime de li ve ry in good cond ili ti11 wou ld assume grea ter va lue since
co mpon cnl o r another. arc bought indepe nd entl y from another suppli e r. th e g ilt is an important on e. i'd arketers have used thi s '"e nd benefit" as
So ftware is just one com ponent or a co mputer system, but co ntribut<.:s an importa nt eo mmuni ca li on lnnl to c reate \edu c. Michelin has for y.cars
signifi ca ntl y lo the end benefit clerivcd 1:ro111 the co mputer. Likewise assoc iat ed .the imporu1ncc or the quali'l y ·01· its lyres with th e safety or
car tyres and ca r batteri es and accessories arc used as a parl ol" th e cnd one's famil y, charging a rri ce premium 1<11· its products: Its tag line "B uy
product. The relationship of a purchase to a larger benefit is the bas is Michelin, because so much is ridin g on it", has related the importance of
of the end benefit effect. This effect can be understood in two parts: the the tyres to end benefits to which the customer already attaches a high
derived demand and the price proportion. value.
Derived demand is the relationship between the desired end benefit and 7. Shared cost effect: People purchase many products that are actually
· the buyers' price· sensitivity for one of the products contributing towards paid for in part or whole by someone else. Insu"rance covers the ·darnages
achieving that end benefit. The more sensitive (for all reasons stated to the vehicle from an accident and medical insurance covers the cost
earlier and later) that buyers are to the price of _the end benefit (product), of medication and hospitalisation. The effect of complete or partial
the more sensitive they are to the price of the products that contribute reimbursement on price sensitivity is called the shared cost effect. The
towards that end benefit. less the_buyer pays out of his own pocket, the less price sensitl,e he is
towards the product.
Price proportion cost refers to the percentage of the total cost of the end.
benefit accounted for by the products price. The greater the proportion, 8. Fairness effect: Const1111crs the world over arc united by their quest
the greater will be the price sensitivity. for "fair prices" and companies are frequently accused of not charging
Derived demand is quite obvious in business markets. The more (less) fair pric_es. The question of what is a fair price has dogged marketers for
price sensitive the demand is for a company's own product, the more decades. Buyers are more sensitive to a products price when it is outside the
(less) sensitive that company will be when purchasing supplies: The range of what they perceive as "fair" or reasonable, in a certain purchase
manufacturer knows that he ca"nnot pass on any price increases to his context. The important thing is that the concept of fairness has little to do
customers and he· would therefore be more sensitive to the prices of the with the issue of supply and demand. Whether a price is deemed fair or
components. Tt is essential for sales people in B28 markets to understand not, is very subjective and contextual.
the end benefit that drives a customers' purchase decision in order to An important impact of this effect is with respect to whether the product
understand the importance of price in the purchase decision . The buyer is considered a luxury or a necessity. Products become necessities when
of the end product may be more concerned ~bout on-time deliveries or they are used to maintain a certain standard of living; luxuries on the other
adherence to quality standards and may exhibit less price sensitivity. hand are used to improve one 's' standard of living and to get more out
The price proportion effect states that customers are more price sensitive of life. Since standard of living of different market segments will differ,
whenever the purchase price accounts for a larger proportion of the the concept of what is a luxury and necessity will also differ between
segments.
cost of the end benefit, and less price sensitive for a smaller proportion.
This has enonnous implications for products which are bundled with Charging a high ·price for a necessity is _considered "unfair"; hence,
complementary products. ·Customers may exhibit more price sensitivity customers show greater price sensitivity towards .prices of what they
towards the price of the car, but lesser price sensitivity towards the price consider necessities. People object to the high prices of lifesaving drugs,
of accessories that form a sinaU proportion of the total cost. This creates as they perceive these products to be necessities. But-the same customer
opportunities to charge price premiums for pr:oducts sold to complement would pay a price premium for a luxury which he considers as enhancing
large expenditures, provided the proportion is small. his standard of living.
:s uv~ 0i1iy a monetary concept, but i~ a ~trong
';~11,; .... u.;..! ~,:, ...;,:,!:t ~~~""~ R-esear-ch has shown that the company's reputation has an important effect
psychological phenomenon as welL When the end benefit is an emotionally on "fair" pricing·ofits products. Companies that-ha\Ye buHttq,·reputati6tf · __ .,. _______ ·.--------- -..
important decision, customers find_ it tacky to make choices based on of trust and earned the good wili of its customers, through social
price alone. Imagine if you were to purchase a gift for a very dear fami ly development programmes are generally "rewarded" by the customer, who
member living overseas, for a very impor!ant personal occasion, it is considers their pricing fair. On the other hand, companies with dubious
highly _unlikely that you would ~uddenly become. price sensitive to the reputations will always draw suspicion about their pricing.
prices of courier services, which would deliver the gift.
9. ·. Framing effect: Pricing research has shown that consumers "frame"
purchase decisions in their minds as a bundle of gains and losses. Moreover,

Marketing Management Strategic Pricing

 ~ · 'Notes how they frame the deci sion all cc ts how attractive th ey perce ive the choice An effective anal ys is or price se ns iti vity will reveal multiple market
to be. The framing clTcct states that bu ye rs arc more pri ce se nsitive when seg mc11ts. So me cuslu111c;.s arc ve ry awarc ul' th e i1·· alte rnati ves, others arc
they perceive the price as a loss ratht.:r than as l<m:gont.: ga in and that they not. Some custom ers l'a luc a bra11d's uniqu e clilfcrentiati on; others co nsider it
arc more price se nsiti ve when the;, pay th e pri ce se parat e ly rather than as ,,·o rthl css at best. These dill e rcn ccs in perce ption affect how customers will use·
a part of a bundle. information about·pricc and valu e in making a clec is ioi\. ·
Consider the following example ol' price offers from two petrol pumps, Understanding th ese cli0\.:rcnccs is th e key to deve loping an effective
. equally reputed. pricing and value communication strntegy, A market segmentation based
on the price ~ensitivity factors described reveals more differences among
Station A: Rs 44.00 per litre, but gives Rs 2.00 discount per litre if the
customers, and is therefore extremely useful when devising a pricing and value
buyer pays in cash.
· communicati_on strategy.
----··- · --- -- -- . ______ _ Station B: Rs 42.00 per. litre, but charges Rs 2.00 extra per litre, if the To illt;strate these differences, WC can divide the nine factors influencing price
buyer uses a credit card. · sensitivity into two groups :
All other things (quality of fuel, service, location) being equal, which The first groups of factors are those that affect the perceived "value" of a
offer seems more attractive? Although the economic consequences are product's differences - reference price, difficult comparison, importance)
the same, Station A "seems" like a more attractive offer, simply because of end benefit, switching cost and price-quality effects.
it is stated as a "gain''.; whereas the offer from stalion B "seems" more
The second group of factors ar~ those that affect the perceived "p.iiii-i"..
negative and consequently less attractive. Moreover, losses get magnified
or price - size or the expenditure, the proportion of the cost of the end
disproportionately in the consumers mind, more than an equal size
benefit that the product accounts for, the perceived fairness of the price
fo regone gain,
and the framing of the price as a gain or loss.
The marketing implications of this effect are several. To make prices seem
Price buyers (high pain of price, low value of differentiation) are those
less objectionable, they should be stated as opportunity costs rather than
who seek to buy at the lowest price consistent with some minimum level of
as out-of-pocket cssts. Banks waive fees for savings accounts in return
quality. These buyers cannot be convinced to pay more for unique value-added
for maintaining a minimum balance. Even though the interest foregone by
-- -► ··- ---------------
features, services or suppliers reputation. They rely on their prior experiences
the consumer on maintaining the minimum balance may be more than the
about what they need and what is worth paying .for and do not spend time
c_harges, consumers opt for the minimum balance option rather paying a
considering alternatives and evaluati,ng them .
charge for maintaining the account.
Relationship buyers (low pain of price, high value of differentiation)
When the product is priced differently to different· market segments, are those who already have a very strong preference for a brand based on
marketers quote list prices at the maximum level, giving different the supplier's reputation and their own experience· with the brand. So long as
discounts to different customers. This type of price communication is the price-of their preferred brand docs not exceed reas.onable limits, they will
very common, which proves its efficacy in reducing price sensitivity. purchase 1t without evaluating a'lternatives. Only a serious loss of trust, in their
. Finally, companies that sell products which consist of many individual, present supplier will cause then to evaluate another supplier.
yet complementary products and services, should unbundle the gains, but Price buyers and relationship buyers are two ends ·of the price-quality
bundle the losses. In a bundle, the seller should identify the individual price continuum. Many customers, however, are somewhere in between; they are
of each product separately. But wh(!n making an offer to the cons~mer, sufficiently concerned both about paying more than they need to (price buyer)
he should understand the customers' needs and offer a package price that and getting all that they want (relationship buyer).
meets the needs. \alue meals at ·restaurants, holiday package prices at
Value buyers (high pain of price and high value for differentiation) will
tourist resorts use.this price bundling concept very effect1vely. -Customers
invest-time and energy evaluating differences and making tradeoffs. They will
perceive the offer as a gain and conseqi.1ent1y·a more attr~c.tive offer.
check prices and features of alternatives and buy the brand, whose added
11.3.2 Market Segmentation using Price-Value Perceptions value is worth the-added cost.
¼ry commonly customers get categor"ised· either as price sensitive or · -Convenience buyers (low pain of price, low value for differentiation)
quality sensitive. After studying the various factors that affect price sensitivity, are neither concerned about the differences among brands - any brand will do
you will have realised that this is too much of a generalisation. ~ustomers are - nor too concerned about price to check the price differences between suppliers.
not alike in their sensitivity to price; and the reason for their sensitivity to price evaluation. Such behaviour is common when time is of the essence, as in an
also differs. emergency or if the cost is not worth the effort.

Marketing Management Strategic Pricing

 The chalkn gc in idcntif'ying·th ese different va lue segments is that in most sites that ha\·c und erstood thi s 111o li vat ion hn \'c focused "il creating a 111orc
cases th ese segments arc not necessarily different people, but rather different con\ e11i c11l shoppin g experience rather than just on price deal s. Providing the
catego ri es and purchase occa,il1ns. The same person may be a relation ship custo mer case of navigation, a wide var iety of products, case of' comparison ,
buyer !'or business travel , but a va lue.bu ye r !o r a family vacation. , . a l lo w ing a customer to custo mi se the se rvices to his requ ire me nt, tra ck i11 g
There arc two broad impli ca tions of this va lue segmentation: pre\ ious pt11·clwscs and offe rin g a custo mer produ cts in I in c with hi s prckrcnc..:s,
arc just so me of thin gs that successful on line sites do to build loyalty.
Firstly, companies wishing to serve different market segments must
do so with multiple strategies involving .product adaptations, distribution
netwbrks, service distinctions and price differences:
tfll Check your Progress 2

Secondly, keeping in mind the value.expectations of the buyers, companies Fill in the blanks·.
must appropriately c ommunicate the price. Pricing strategy is as much a
decision about the pricing level as it is about how the price and value is to I. The _ _ __ __ _ _ _ is the price of the customer's best
be communicated. alternative plus the value of whatever differentiates the offering from
the alternati'f.
11.3.3 Effect of the Internet on Price Sensitivity
2. _ _ __ _ __ __ refers to the percentage of the total cost of
Most obviously the Internet has armed customers· with unprecedented
_the endheii.cfi't accounted for by the products price.
amounts of knowledge about every category; searching for and evaluating
alternatives have never been easier. Easier identification of suppliers increases State True or False.
the likelihood of being aware of the best prices and deals, with minimal effort. I. Switching costs are costs that customer incurs when he switches
Mostly it is this factor that people focus on to argue that the Internet has brands and suppliers.
increased price sensitivity, forcing companies to drive down prices.
2. Derived demand is the relationship between the desired end benefi t
The reality is something else: to understand this one must understand the and the buyers' price sensitivity for one of the products contributing
psyche of a consumer when shopping online. · towards achiev ing that end benefit. ·
-- -........, ________________ _
The quality of a product sold on the Internet is less certain than in the 3. Convenience buyers are extremely concerned about the differences
physical space. A consumer can physically examine a product in a shop, which it among brands .
. is not possible to do so online. Moreover, if the product proves unsatisfactory, the
consumer knows he can return the product to the store where he bought from.
Consequently, consumers are less willing to try lower priced unknown brands,
when buying onlinc, than when buy ing in a store.
On the servict: side, when buying frorri an online merchanfthere is greater 1. Collect pncrng info1mution for the postpaid and prepaid plans of
uncertainty regarding whether the vendor is legitimate, whether he will-deliver different cellulat service providers.Are they easily comparable? Make a
the promised product and whether he will keep the credit card information note of your observations.
confidential. Precisely for this reason, the most successful e-commerce sites From cuttings of marketing communications advertising price, observe
2.
have sought to create powerful brands to reduce the consumers' perc~ived risk. how the prices have been franied. What are your key findings? How
The prices they charge are almost always at a premium, which customers are do you think they will impact the consumer's value perception? . ·
willing to pay to deal with reputed merchants. ·
3:· Customer value segmentation is common in many indust1·ies. From·
Web shoppers also have higher incomes, which generally make people · the Internet find out the industries where this is commonly used.
less price sensitive (expenditure effect).Consequently, even if the online shopper
is more price sensitive for the same brand when purchasing on the web, he is 4. Make a list of products ·spld througb retail stores and those on the
likely to have a preference for higher _quality/higher priced brands. Internet. Find out the prices quoted on the Internet. and in the ·stores . .
What · price differences do you notice? In which categories are the
Lastly, research studies conducted in India an<l else where have consistently differences the least and in which categories arc the differences the
· show_n that most people shop online not to get a better price, but to have a
most? .I
more convenient shopping experience and a w ider choice of products. They are
customers who arc cash rich,-but too time poor to evaluate alternatives. Online

Marketing Management Strategic Pricing

 .tes 11.4 PRICING STRAT.£'GYAND THE PRODUCT LIFE CY.CL-£ ..
. . . . . . ~ ), ••·.. . . . . J;_. ~
their versions or th e product. El'cn under such circu111stanccs, co mpanies
generall y set a neutral pricing strategy, where the price would be near th e
In previous unit s, we ha ve studil'd the crn 1cv p1 ol lhc prod uct lik cycle. re lati ve va lue that the 11w1e typical user wuuld ha ve i'u1 1111;; product.
111 eac h or the phases ol' the PLC, the 111ark.:1 has a uniqu e personalit y; cost
()ne or the ways or cdltca(ing buyers about the utilit y and worth or th e
st ruclltrcs change, buye rs' price se nsitivit y changes, the uaturc of compel ition
product is to use pri ce induced samplin g. Skype. an Internet calling
c han ges as docs th e product itse lI'. Accordingly, ,rnc 's pri c ing strategy must
so ftware , which allows ·ca lls to be made over the Internet, is currently
vary 1f 1t 1s to remam appropriate. We will examine in thi s section what would
distributing. its software free over the Internet. The strategy is to distribute
be the appropriate pricing strategics at ead1 stage of the life cycle.
a very basic version of the software free to customers: once the customers
Note to students: To fully appreciate the concepts in this se~tion, a quick get accustomed to the product and begin to see the benefits, the strategy is
recap of the product life cycle concept is recommended. to offer the advanced versions at a price, at which point customers would
1. Pricing the product at the introduction ·stage: A product innovati~n begin· to see the value a1id would therefore be willing to pay for more
requires substan_tial market education before it finds a place in the buyers advanced versions.
lifest~l~ or bus11.1ess. practice. Marketers will . encounter buyer apathy, Wotldspa<.:e Satellite Radio when it was first launched in India gave free
skept1c1sm and mertia despite the fact that the product may have a subscriptions to all Vjrldspace users. Customers only had to buy the
legitimate value. The diffusion of information also goes through a certain satellite radios, and were given access to a limited number of channels
process and recognition oftbis process is vital. · free of cost for .the.. first few years. Once the customers had experienced
·Buyers are completely ignorant about the product; until they learn about the product, Worldspace introduced a large number of stations and started
the product benefits they may not even recognise the need for it. Hence, charging an annual subscription for the service. Price induced can be an
the firms' primary goal is to educate the buyer about- the "worth" or effective strategy where it is possible to be used. ----------------------
"value" of the product and the pricing strategy has a key role to play in Many innovations are durable goods for which price cutting to induce
this buyer education strategy. trial is rarely cost-effective and the seller can hardly afford to give the
~t thi~ ~tage, since buyers are ignorant about the product, !hey are price product away and wait a couple of years for a repeat purchase. Many
such products require buyers to learn new skills and acquire new habits.
----- .-------- - --- - ---- 111sens1ttve towards the innovation. The important thing to remember
though is that this. same price insensitivity bears no relation to the long- In such cases price induced sampling does not effectively establish the
run pnce sens1t1v1ty of the buyer. Prospective buyers tend to use price product's worth in the buyers' mind. Instead market development requires
as an indicator of quality and value. Because tbere are no alternative more direct education of buyers before they make their first purchases ..
brands, they -lack a reference price for determining value and to evaluate Pricing a product also involves setting not just retail prices but setting
what would constitute a fair or bargain price; although prices of close wholesale prices as well. Distribution channel members can play a key
substitutes may be used as referen ce prices .. ro le in the market education and market development of the product,
Given the buyers' ignorance, the firm's primary goal is to educate the for which they must be compensated. Consequently, marketers can use
buyers about the product's utility and set a list price that would establish two different strategics. One way is to set low wholesale prices and
the worth of the product. It is the price that the satisfied buyer would be pr.ovide high margins to the distributors, thus giving them an incentive
willing to pay for a repeat purchase. It gives the buyer a reference from to promote the product with buyer education and service. This may work
which to estimate the product's worth. · when distribution is very exclusive; when distribution is less restricted,
the danger is that the distributors may iimply pass on the extra margins
Ty?.ica(ly, the most preferred pricing strategy at this· stage is the price as discounts to the customer. This can seriously damage the value of the.
~k1m~1~g strategy; the list price would be near the value that the price product as well as the company'~ reputation.
msens1tt~e buyer will place on the product. A market penetration pricing
strategy.ts not r~commended at this stage_, since the low price insensitivity The more preferred strategy is to keep the margins at normal levels, but
of t~e buyer will make the strategy ineffective and may due to price- . pay incentive fees for stocking new products, co-operative advertising,
quahty effect damage the products reputation . in-store displays, premium shelf· space and for ·onsitc service and
demonstration ..
The only ~01~ditions unde~ which a ·market penetration pricing strategy
may.wo~k ts, tfthe product.ts not truly innovative and is merely an upgrade. 2. Pricing the product for the growth stage: Once the product enters
vers10n of an existing product-or if there exists a la.rgc proven market for the growth stage, the pricing problem begins to change. As competition
the product and several compe1itors are waiting in the wings to launch begin to break out in the industry, both the pioneer and later entrants

Marketing Management Strategic Pricing

 begin to ass ume cnlllpclitj ve-positions and prepare Lo ddcncl themselves. Penetration pri cing is al so not alwa ys appropriate wh en the cost lead ership
The ge neri c Clllllpctiti vc strategics arc th e competitil'c positio11s that focu s is narrow. Th e cost advanta ges in these markets arc not dependant
companies ass um e; cost leadership, dilkrc ntiation , _and. fo cus (rns t locus on volumes; co mpetition is more about suppl ying customi sed products,
. • or diffcrcntia!iLHl locus). ,J' hc pricing strategy that a compan y adopt s in quality and reliable deliveries rather than about price. The appropriate
th e growth stage must be in line 11·ith th <.: nimpctiti v\: pos ition or generic pricing strategy is more neutral.
strategy thal the company adopts.
Price
.
level reductions in the growth stage .
Pricing the differentiated product At the growth stage, in addition ·to establishing differentiation, companies
The-role of pricing is to collect the rewards from producing attributes that should also prepare for the maturity phase by i_dentifying more cost-
buyers find uniquely valuable. If_ the differentiated strategy is focused effective ways to do business. Also during the latter part of growth stage,
towards a particular buyer segment or niche segment (differentiation as competition intensifies, the battle.for market share·heats and some firms
focus), the pricing strategy adopted is price skimming directed at that may use price as a weapon for gaining share. In such cases cost efficient
target segment. In contrast, when the differentiated product is industry companies are better placed vis-a-vis their more inefficient competitors .
wide or multi segment, the firms sets neutral an\ earns it profitability Overall price levels during the growth stage, regardless of one's product
through volumes.
strategy, arc lower than those at the product introduction stage. New
· Penetration pricing is also possible for a differentiated product, although competition during the growth stage gives buyers more alternatives from
the pricing is often equal to the prices of less differentiated products. This which to choose and their growing familiarity with the prod~ct puts them
pricing strategy is used to lock in ·a large market share before competitors in a better position to evaluate those alternatives. Both factors increase
imitate and eliminate the products differential advantage. Microsoft used price sensitivity over what it was in the introduction stage. Even if the
this pricing strategy for its Windows operating system so that it would firm enjoys a patent monopoly, reducing overall prices, speeds the product
become the dominant architecture and the default standard for software adoption process and enables the firm to profit from faster market growth.
programs. This pricing is not commonly used for differentiated consumer Pricing the established product in the maturity stage: Products spend
3.
products, since buyers who can afford to cater to their desire for the most of their life in maturity, the phase in which effective pricing is
attributes for differentiated products can afford to buy them without essential for survival. Many firms do not survive the growth and perish in
shopping for bargains.·
the industry shakeout at the latter part of growth stage, because they failed
·· Pricing the cost leader's product to achieve strong competitive positions. Firms that have successfully
executed their growth strategies are usually able to price profitably in
Like the differentiated strategy, the cost leadership strategy can also be
maturity, although not as profitably as at the height of the growth stage.
focused to ·a particular market segment or be directed industry wide.
In the growth stage, the sources of profits were expanding revenues in
It is naturally assumep tha_t the penetration pricing strategy is the most
growing markets. As market growth rates slow down tending towards
appropriate pricing str11tegy for the cost leader; this is a mistaken belief.
stagnation, the source of profitability from expanding sales reyenues
A cost leader may opt for ·penetration pricing strategy, when the company starts drying up. Companies need to fiercely defend market share, as any
is looking for dominant· market ·share in a large market segment loss in market share at this stage will lead to an absolute sales decline.
and when the cost advantage depends on volumes·. Having acquired _the Defending market share also becomes imperative, as firms have made
market share, the firm may maintain the pricing strategy which acts as a production capacity investments to produce a certain level of output; any
competitive deterrent, w~ilst earning its profits through its cost ad;lmtage. loss in sales -.will put tremendous pressures on profitability.
Japanese companies have used this pricing strategy for television and
Competitive and market factors thus reduce a firm's pricing freedom.
other consumer electronics, using extensively redesigned manufacturing
Pricing latitude is further reduced due to the increased price sensitivity
processes, modular assemblies and standardised designs. ·
of buyers and reduced scope for product differentiation. Unless a fim1
If the market is not price sensitive, penetration pricing strategy ~ill not can discover a marketing strategy that renews the products life cycle or
give the fi rm any advantage either in terms o f.m arket share or volumes. In ~chi evc a technological breakth rough that enables it to produce a more
such a case neutral pricing strategy may be more appropriate and can still differentiated p roduct, it must learn to li ve w ith the competiti ve pressures.
be consistent w ith the cost leadership status. The battl e fo r market share -is
Price C()mpeti tion is therefore at its peak; and in such a sce nario the
fought using w eapons such as technological leadership, communications
. company's m aj or objective is profitable surv ival. Effective pricing in the
----------- -- --- ---- - -
. .
or di stribution sales and service:

~ Marketing Management Strategic Pricing

 maturity focuses not on attempts to ''buy" market share, but 011 making
th e most of one's cost advantages. In cmlicr units, we ha ve di sc ussed the Check your Progress 3
revamped product, product line and di stribution strategics that compani es
··-- - - --·······- - -··-·---~
must focus 011 to impro ve profitability and maintain margins, in .i market
State True or False.
environmeiit when 111a1·g ins arc scvcrc!')1 Linder press ure.
I. A market penetration pricin g st rategy is rccn111111 enclcd at the
4. Pricing the product during the decline stage: /\ sustained d01iinward
introduction stage.
trend in demand characterises the market in a decline. The decline may
.be limited (as radial tyres replaced conv_entional tyres) or more extensive 2. If the market is not price sensitive, penetration-pricing strategy- will ---------- -----··-----.-
(as LP records were displaced by cassettes and compact discs). not give the firm any advantage either in terms of market share or
volumes.
A company 's ability. to adapt to this stage of the l_ife cycle depends
largely on whether production capacity can be adapted. If production 3. Competitive and market factors· increase a firm's pridng freedom·.
costs are largely variable (rare scenario of pure services), capacity can 4. Harvesting is a phased withdrawal from an industry.
adjust without any impact on prices. If production costs are sunk costs,
but capacity be adjusted to other products or market segments,,then the
effect may be limited. But when production costs are largely sunk costs,
because it is specialised to a certain market, the effects of.market-decline
are more serious. For the following product categories, collect information on how price
The pricing strategy follows the strategic approach that the company levels have moved as the product passed through the different stages of the
takes to exit the category. A word of caution here is that success with the life cycle. • ·
different strategic approaches depends entirely on the individual firm's Film-based cameras
ability to pursue these strategies.
Black and white cameras
Divesting, means where a company chooses to- divest products/markets,
-- - ~-- ... _______________ _ where the products are in decline, choosing to refocus resources on
Mobile phones
markets where the product is still -in the earlier stages of the life cycle. \
Pagers
(Remember that products are at different stages of the life cycle in different
market segments/geographic markets). Divesting could also mean that
firm chooses ·to sell a part or all of its business in certain markets, using
the resources to refocus on other markets.
Pricing is a game, as defined by game theorists, as success in the game
Harvesting is a phased withdrawal from an industry. It begins like a depends not only on a company 's pricing decisions, but on how customers and
divestment strategy, when a firm begins ·10 withdraw from certain markets. competitors react to those decisions. Unlike competitive sport, which is· a
Howeve1; the ultimate aim is to v;itl)draw profitably from the industry. "positive sum" game, the rules of the pricing game are very different.
The company may therefore use sh91t-term strategies to defend the
In a positive sum game, although one team or individual player will end
competitive position of its "cash cow" prpducts, maintain prices 'and milk
up on the losing side, he would still have gained in terms of experience. Even
these products/markets. Companies will avoid long-term investments in
if the match or tournament were to get prolonged and intense, the participating
any of the market segments, instead using the resources for promising .
te_ams and players still stand to gain in terms of honing their skills and experience.
ventures. ·
In a "negative sum" game, the loser does not benefit from participating
Consolidation means when a firm actually uses its strong financial
in the game; instead he would end up paying a price for having participated in
position, using price cutting to drive out weak competitors and capture
. ·the game. A "negative sum" game is much like the gladiator sports or dueling
their markets for the limited term. The aim of the company is to ultimately
of the olden days, which were used to settle disputes or establish superiority;
exit the business, but to do so in a profitable manner.
the loser in such games often ended up paying with his life. The pricing game
or "price wars" as we would know them are much like that. Participation in such
a game imposes serious costs not only on the loser, but even on the winner as the
victory may come at a huge cost. The longer the war continues, the more likely
it is that even the winner may not co nsider playing the ganie worth the cost.

Marketing Management Strategic Pricing

 For marketers, warfare should be the last resort and even then , the without a compclitivc advantage. Competition drives out profitability except
potential bcncilt s ur using it must be weighed against the long-term costs !'or tltm,c with a co1npcliti1 e advantage that prevents co1npetition from full y
involved. matchin g (heir costs or value proposition.
11.5.1 Price Competitiveness 11.5.2 Reacting to Competition with Price
Price competition is more commonly seen in certain industries and not at A price war is a negative sum game and managers need to be fully aware
. all in some others. There arc certain inh~n:nt characteristics of the industry and or the costs. it imposes. on all the participants in tbe game. It is imperative
buyer base, which indicate the likelihood and nature of competitive response lo that managers think coolly before initiating price competition. However, the
pricing action within the industry. W,:, have learnt all of these characteristics in question still remains of how a company should respond should a competitor
earlier units and it's a good time to summarise them again. The IO factors stated i11itiate price _competition. In this section we will .discuss in step-by-step detail
can be used as checks to understand the price competitiveness of the ii1dustry. how to airnlyse a competitive siti1ation and react to price competition that is not
I. Cost structure: Industries with.a high fixed cost structure is likely to see of your making.
more firms cut prices to chase volumes. The situation is that a competitor has initiated a price cut or a competitively
2. Impilt of sales volume on cost: Increased priced competitiveness occurs priced new product has entered the market.
. _\\/~~n. _sales volume impacts costs through economies of scale. The dilemma is whether to respond with price, when threatened with a
3. Overcapacity: Overcapacity in industries, when supply exceeds demand, loss of sales by a lower priced competitor. In the long run, the company can
build strategic capabilities to overcome such challenges, but in the short nm, ·the
causes firms to compete on prices to drive volumes.
c_apabilities arc fixed . With limited options available, how should the company
4. Barriers to adjusting capacity: If manufacturing capacity cannot be respond.
adjusted downward due to exit or even mobility barriers, it stimulates
Step 1: The first _action is to ask, "Is there is a response that would cost less
price competition.
than the p1evcntablc sales loss?" ls the cost of responding less than the sales
5. Scope for product differentiation: Industries where then, is a greater loss which can be prevented? Managers need to cqnduct a financial analysis of
scope for product differentiation are lesser price competitive as compared a reactive price change and if it is concluded that reacting lo the price change
--- > . . --------------- to industries where commoditisation happens rapidly. . is cheaper than losing sales then it may be a good business decision to respond.
6. Product perishability: The more perishable the product (services), the But further thinking is required before one comes to that conclusion.
more the likelihood of price competition. Step 2: The next question to ask is "how much sales loss is really preventable?".
7. Number of and diversity of competitors: The greater the number and Whenever a new competitor enters the market, some sales loss is inevitable,
diversity of companies, the less intense the internal rivalry and the less even if the company matches the price cul, because people may shift for reasons
the likelihood of price competition. other than price . .
8. Industry growth rate: When the industty or market is stagnant, finns Step 3: If one were to reach the conclusion that a substantial portion of sales
pursue growth by taking away share from the competitor; in such cases loss is preventable, then the next question to ask is "If you respond, is your
price competition would be intense. competitor willing and able to cut price again to match your price levels?"
Asking lhis question forces managers to think two or three moves ahead. If the
9. Buyer concentration, · A highly concentrated buyer base will have
competitor matches your price reaction, then any advantage the company might
bargaining power and can create greater price competition.
have gained is nullified. At this stage, companies cannot backtrack on· thei~
10. Price sensitivity of the buyers: The greater the price sensitivity, the greater price reaction and find themselves in an il1'etrievable and unviable situation.
is the price competition.
If the competitor is not able to match your price reaction, then·it might
It is important to remember that these factors do not create an impact in make sense to go ahead and respond to the price cut. At this stage too,
isolation; but work collectively as well to create greater price· competitiveness. managers can consider a number of alternatives that can substantially reduce
Managers have to identify the factors critical to competition in an indust1y, so the cost of reacting with a price cut. · · ··
as to build a profitable competitive position in the industry first. Companies
Focus the reactive price cut only on those customers likely to be attracted
need to become strong competitors first by building sustainable competitive
by the competitors price offer. ·Companies need to· assess ·the price
advantages.
sensitivity of their customers and focus their offer only o_n the price
In a price competitive industry, it is suicidal to drive growth with price sensitive customer.

11@$11 Marketing Management Strategic Pricing

 Focus the reactive price c ul only on the incrcrncnlal vo lum e al risk. pmducl ca tegory may affect sa les .of th e related ca tego ries. II' the respon se is
Focus yo ur react ive price cul 011 a particular geogra phic area or product 'Yes ' the nwrk et position is threa tened, manage rs need lo rurthcr eva luat e the
line where the co mpetitor has the most lo lose. This impli es reta liating 1·aluc or the markds al risk to justify th e hi gh cost o l' responding before they
with the intention or signa ling Lo the co mpelllu1 to back down and stop artua ll y decide to rctaliak.
the price culling. Ir howev<.!r the co mpan y's position in ot her markets is not Ll,reate ned,
Raise the cost to the com petitor of its price cutting actions. This a non- acco mmodating or ignorin g the price cut would be a more prudent res ponse.
p.ricc action that companies ·can take in markets which are more quality Reacting to coi11pelitio1~ it'1volves more than i'eacting with a price cut.
sensitive. Companies can alert customers, through their communications, ft involves deciding how to adapt to the company's competitive long-term
of the quality compromises that they may be making by opting for cheaper . strategy. It must be rerpembered that any pricing action or reaction must fit in
price. with the company-'s coh1petitive strategy; problems arise when pricing is viewed
Leverage any compet1t1ve advantages to increase the value to the independently of a company's growth and competitive strategy in market.
customer as an alternative. This is yet another powerful non-price action Any departure fiom a particular pricing strategy that a company would
that companjs can take, which customers perceive as a bigger gain than have adopted will have to be followed up with an adjustment in the
a Jiscount. competitive strategy in a market. Figure 11.2 summarises different strategic
Step 4: Goihg back to step three, if the competitor is able to match your price options that companies have when reacting to competition and when to use
reaction, then the next question to ask is "Will the multiple actions and reactions them. Price reaction decis ions need to be made against this larger backdrop
required to match a competitor still cost less than the avoidable sales loss?" of strategic options. ·
This forces managers to think about the total cost of the price war rather than• Competitive strategy involves much more than just deciding whether or
cost of singular pricing actions. not to react with price.
Multiple responses take prices into a downward spiral, at the end of which Competitor is Strategically
either the competitor may still hold the advantage or neither company nor Weaker ·stronger
com:petitor may hold the advantage. In any of these two scenarios, the company
is still the loser and will find itself in an irreversible situation. · .\')
Too Costly IGNORE ACCOMODATE
6
If the answer to the question is 'Yes', that the cost of multi pie reactions is -~
.,
still less than the sales loss, then it may make business sense to respond. A:

If however the answer is 'No', then it advisable for the company not 1 Cost Justified ATIACK DEFEND
to initiate a price reaction in the first place at all. At such times focusing
on other areas such as product improvements, increasing reach and efficiency
of distribution, effective communications would be more advisable to prevent Fig. 11.2: Different Strategic Options
sales losses. In addition to the costs arid benefits of retaliation, one must consider the
Step 5: Revert to Step 1: So far we have looked at all responses wher~ the cost concept of strategic weaknesses and _strengths, referring to a competitor's
of responding was less than the sales loss. We now need to look at situations relative competitive advantage.
where the cost of responding is more than the sales loss, i,e., it is cheaper to Competitor is strategically weaker/cost of responding is too high: We
accept the sales loss than to respond to the price cut. The logical answer to this have seen earlier that when the cost of responding is too high, it may
question would be for the company to accommodate or ignore the price cut and advisable to ignore the price cut. This is an appropriate response when .
focus its efforts in other areas we stated earlier: But the answer is often not so the competitor is strategically weaker with. no competitive product or
straight fo1ward. A competitor's pricing actions may end up threatening the cost advantages and when the sales one stands to lose may be small and
company's business -in other territories and market segments or the customer limited .
segment in_ which the price cut has been initiated is strategically important to
the company. But one could argue this differently to say that if the competitor is indeed
weaker, why should the competitor's pricing action be ignored, even if it
Step 6: The question to now ask is if"the company's position in other markets is costly. A company which is stronger should use its competitive sfre,ngth·
is threatened if the competitor gains share?'_' This could happen in cases where and_ resources to drive out a weaker competitor. Finding a flaw in this logic
companies sell a range of complementary products, hence, loss of share in one

Marketing Management Strategic Pricing

 is dinirnll , bul th e conseq ue nces of this action mu st be und erstood first. The lwn s impl e rules or price co mpdition that cmcrg..: from rhis arc:
l' irst ly, it is dead end path , as a weak co mpctitur is like ly to get clnvcn
l) o not initiate price co mpetiti on unl ess the short-lcrm ga in 1s worth il
out or the market clue to the mark e t lt1 1·ccs an yway. Whether a compan y
aficr takin g into acco unt the competitor 's long-t<:rm reactions.
should actually co mpromi se it s prolits in driving o ut a ··weak" com petitor
is the question . Secondly, ii wo uld b..: a misconception to think that by Donni react lo a co mpetitor 's price cut except ;vith price.and non -price
driving out weak competitors, one can actually eliminate competition. actions that cost less than accommodating the co mpetitor 's behaviour
This may happen only temporarily, becau se with· time newer competitors would cost.-
may emerge, who will buy the assets of the bankrupt competitors.
Managers need to be aware of long-terni consequences of their actions
against weaker competitors.
Competitor is weaker and the price reaction is cost justified: The Collect information on the price cuts in the airline industry over the past few
logical response is to attack in such a s ituation. But such situations would months. Which industry factors stated above necessitated the price moves?
seldom arise because in the first place it would be a misjudgment on part What was the impact of the price cuts on the different players?
of the competitor to use a price action from a position of weakness. But
should such a situation arise, managers should consider attack strategies
that yield a larger gain to the company. [f the competitor has assets which
could be of value tu the com pany, attacking and forcing a sellout may
result in a larger gain .
So far, we have lea rnt about avoiding negative sum compet1t1ve
Competitor is neutral or stronger and the price reaction is too confrontation, but this still leaves us with the question "what about companies
costly:Companies will have to accommodate stronger competitors. when that have made price the central element of their growth strategy?" Examples of
price retaliation is too costly. Accommodate is not to be confused with the low cost airlines ari"d retailers come to mind, whose entire value proposition
ignoriIYg the competitor. Accommodating means actively adjusting one's .is built on low prices. One might argue that these companies have built their
own competitive and growth strategies to minimise the adverse impact of strategies around capturing markets and more importantly creating new markets
the threat and at the same time preparing to live with it. Typically at such with lower prices. These companies are able to do so profitably and if it can
times companies would re- look at their product portfolios and the product work for them then it can work for everyone.
markets they compete in. Portfolio rationalisation, exiting unattractive
The answer is that· it can work for anyone provided that there is an
market segments under the market conditions, pruning product lines are
understanding of the circumstances that enabled these companies to be so
some of the strategic actions companies take when accommodating a
successful. This understanding is critical to replicating their success.
stronger competitor. T he key is to first understand the changed market
conditions and then adapt one's strategy to compete profitably in the new Firstly, every one of these companies first created business models that
market conditions. enabled them to have better cost structures than their c.ompetitors. In fact,
by serving customers more cost-effectively, these companies actually
Competitor is stronger and the price reaction is cost justified: This
earned profits in excess of their competitors, making their efforts a
is common scenario when a price-cutting competitor is on par with the
positive sum game.
defending company whose market has been attacked. Because ?f the
attacker's strength, the amount of sales at risk is so liirge that a vigorous They communicated their cost advantages decisively to their competitors,
defense becomes cost justified. The purpose of a defend strategy is which resulted in mahy of their rivals backing off till such time as they
not merely to react with price but to convince the competitor to back coutd·:evamp tbei-r own cost structures.
off. Companies would use a combination of pricing, distribution and
----· -- . --·----------- communication actions to defend the market share.
These companies used p~ice not so _much to grab market shares, but
more imp.ortantly to substantially expand markets. Targ~ting customer
The above model emphasises once again that manage rs need to be: segments·hitherto untapped -resulted in bigger gains for these companies
themselves and for the industry as a whole too. · · ·
Selective about choosing some confrontations and avoiding others.
Before· embarking on a price based strategy, managers need to ask which
Think two or three moves ahead.
ones of these is their rationale for building a value proposition solely on price.
Analyse long-term consequences on profi tability rather than just market lmportantly, managers need to understand that rarely can the strategy be built
share.

Marketing Management Strategic Pricing

Notes on pri ce alon e. Each of these companies has deli vered products and services on Th e type or channel used a/Teets the product's perceived value and
pa r with the ir competitors i-eali s1n g that ;1 strat egy based on pri ce alon e cannot ctinscqu c ntl y it s pri ce. A 111 cdi c inal·toulhpaslc pos ilioncd as a presc ription
be sustain ed indefinitely. pro du ct will necessaril y need lo be sold through phann aey outlets. As
th e fram e or rc l'c rcncc arc other pharmace uti cal products givin g·it hi gher
11.6.1 Role of the Distribution Channel iu Setting Prices
· percc iv'cd va lue in th e customers n1i11cl , consequentl y th e pri ce is ex pected
Di stribution channels· pro vide a c ritical linkage lo ultimate customers to be hig her. The same product positioned as a staple product lo be retailed
in an effective and efficient manner. Channel strategy needs lo be integrated through grocery outlets will have lower perceived value and consequently
with pricirig strategy, as a well-developed pricing strategy may be poorly lower pricing. Product positioning, type of channel and pricing become
implemented by the distribution channel , dooming the stcategy. inextricabl y Jinked .
Distribution ch~nnel policy affects the following: .2. Role of the channel intermediaries: Thi;: more activities the company
asks channel intermediaries to execute, the more the company must "pay"
The products and services with which the company's product is compared
(reference effect) for these activities through its markup policy. This in turn affects the
company 's cost structure. The costs of these activities represent a variable
The image customers have of the product · cost to the company, hence, the greater the variable costs, t~e higher the
The ability to differentiate through augmentation contribution margin. However, this decision is taken not onl~ with an eye
on tI{e·costs, but more with the requirements of the targe.t rnarkets.
The ability to target and reach desired customer segments
3. Managing the price through the distribution channel: The company's
The ability to implement the desired pricing strategy
goal should be to develop pricing strategy that is aimed at all channel
The ability to control the share of contribution among channel members intermediaries achieving satisfactory profit levels. Channel members
Since all of these factors are cons iderations in formulating a pricing earn profits through markups and driving sales volumes. Companies that
strategy, distribution channel policy and pricing strategy need to be provide lower markups must be able to justify the same through providing
thoughtfully coordinated. In general , distribution channels affect pricing volumes to allow the channel member achieve his own profit objectives.
decisions in "the following three ways: Such companies would necessarily use puli"strategies.

Channel design - the type of channel used 11.6.2 Product Line Pricing

The role of the channel members Product line pricing is scttingpdces for an entire line of products. Compared
to·setting prices on a single product, product line pricing encompasses broader
Implementing the price through the distribution channel concerns. In product line pricing, the manager tries to achieve profit and other
Channel design: Distribution channel strategy like pricing strategy goals from the entire line rather than for a single component of the line.
begins with target customer ide11tification and then selecting or creating To do this effectiv~ly, managers hav~ to d_etermine two things:
aj:,propriate channels to reach those customers. The channel selected will
in tum afl:ec~ thr. company's pricing strategies. 1. Role of products in the product line: In previous units, we have learnt
about the concept of product' lines. Each of the products in a line is
Generally, direct routes are used when the cm:tomer base is geographically assigned roles such as "fighter" ot "flanker" or "flagship" roles. Fighter
concentrated or consists of institutional buyers. Direct chann'e!s while brands are created as low priced generic products target the highly price
giving the company ·increase control, increase financial management sensitive market segments and are used as key weapons of the company's
issues. competitive strategy. The margi11s ·on these products are typically lower.
Indirect channel routes are used to reach geographically dispersed target Flagship brn:1da, us,·nlly the star's of the product line, are differentiated
markets. Channel intermediaries are given markups over the wholesale products competing in high growth markets or markets critical to the
price to cover their costs of m·arketing, financial, operational activities and growth of the company. Flanker ~rands are products usually in value or
earn profit. The longer the indirect channel, the greater the distribution · economy segments or any other segments where a tactical presence
costs and markups to be incorporated. Most companies choose both direct . - . is requ ired. Companies invest in building them as strong brands in their
and indirect channels. This accentuates conflicts between companies and · respective segments.
channel intermediaries. Diffen:nt channel approaches mean the pricing Product line pricing considers these roles to maintain sufficient price
·strategy must deal with diff~i-ent markups for'the various intermediaries. differences between the products in the line to avoid cannibalisation-

Marketing Management Strategic Pricing

 a situation where one or th e co mpan y's produ cts eals into lhe sa les or U niforn1 delivered pri cing: lr Lhe company wa nts· Lo equ ali se
another product in lhe product line. th e cos ts for all custo mers, the {inn will adopt uniform deli ve red
2. Relationships among products: The mana ger mu st also petermine the pri c ing. Th e co mpan y pa ys th e actual freig ht charges and bi ll s c\·cry
n::lationship that exists among th e va riou s products in the line. lfproduets purc haser an ide nti ca l Jl'at freight charge.
are complementary, an increase in the sale of one automatically leads to the Freight absorption pricing: The co mpan y pays all or part or ·
increase in sale of the other, such as film based cameras and photographic the actual frei ght charges and docs not pass them onto the buyer.
film. Pricing of complementary products is critical due to derived demand Companies !11ay use this tactic in intensely competitive markets ·or
( end-benefit effect). In such cases, companies usually price the basic· as a way to break into new markets. --- --- ------- - --- -----
product competitively an_d price .the accessories or competitive products
2. Discounts, allowances and rebates: A base price can be lowered through ------- --- ------------
at higher prices.
the use of discounts and related tactics ·of allowances, rebates and zero~
Two products in a line can also be substitutes for each other such as liquid per cent financing . Companies use various forms of discounts to change
shoe polish and cream shoe polish. The pricing of one will affect the buying patterns of customers, such as buying during off season, cash
other. Managers assign prices based on the growth strategies and role of instead of credit and buying larger quantities. The following arc the most
the product in the line at a given time. common tactics:
Product line pricing is particularly challenging because of the difficulty in Quantity discounts: It is when buyers get lower prices for buying
identifying costs of each product in the line. Many costs in inanufacturing multiple units or larger quantities. Quantity discounts_ may be
and marketing are shared between products. Assignment of these shared cumulative or non-cumulative. Cumulative discounts are total
costs to the individual products is a highly subjective exercise and 1s deductions made from the customers' total purchases in a specified
prone to errors. time period and arc intended to encourage customer loyalty. Non-
11.6.3 Pricing Tactics cumulative discounts are discounts that apply to single orders
or purchases rather than to the total volume and are intended to
Pricing strategies set the base le\lel of prices, the general price level at encourage purchases In larger quantities. ·
which company expects to sell the products or services. The general price levels
would be in terms of price skimming, penetration pricing or neutral pricing. Cash discounts: As the name suggests, it is a discount offered to
the customer or channel intermediary in return for· prompt payment
We have so far learnt the various factors that affect the company's choice for goods and services. Prompt payment reduces interest costs and
of pricing strategy and the processes by which those decisions evolve. The final bad debts for the company.
step is to fine tune the base level prices, known as pricing tactics.
Tracie discounts: They are given to channel intermediaries in
Fine-tuning techniques are short-run approaches that do not change the return for certain special functions performed.
general price level; they do however result in changes within the price level.
These tactics allow the. company to adjust for competition in certain markets, Seasonal discounts: These are price reductions for buying
take advantage of unique demand situations, meet promotional and pricing merchandise off season; it · shifts the inventory function and
goals, affect the target consumers' perception of price and meet changing inventory carrying costs to the buyer. Seasonal discounts- enable
government regulations. Fine- tuning tactics include various sorts of discounts, manufacturers to maintain a steady production schedule round the
allowances, geographic pricing and special pricing tactics. . · year.

l. Geographic pricing: Many companies ship tooir products to nationwide Promotional allowances: Also known as advertising allowances,
and worldwide markets. Companies may use differe11t geographic pricing these are payments•to-channel members for promoting the company's
tactics to moderate the impact of fr.eight costs on distant customers. The products. It is both a pricing tactic as well as promotional tool. As
following methods of geographic p1icing are commonly used: · · a ·pricing tool it is a trade discount, where the reta.iler or dealer gets
. partly or fully compensated for -certain promotional activities .
FOB origin pricing: Free-on-board origin pricing is a price tact ic
that requires the buyer to absorb the freight costs from the point of Rebate: Tl is a cash refund given for the purchase of a product d uring .
shipping (origin). Because transportation costs generally i!1crcase a specific period. The advantage of a rebate is that it is temporary
with the increase in the distance the merchandise is shipped, inducement; and does not alter the base price structures. Discounts
customers located farthest away pay the highest prices. become very difficult to withdraw sometimes as the company may
face ·s tiff ~csistance from the buyers.

Marketing Management Strategic Pricing

 Zero per cent financing: It is very commonly used for high priced to stimulate short- term demand for a product as a sa les promotion
item s like co nsumer durab les and se rves to stimulate demand. · tactic.
3. Special pncmg tactics: Spcc i,11 pri c ing tactics an.: unique and dciy Cross-benefit pricini.:: It is ll'hcn pri ces arc adjusted across various
catcgorisati~rn. Managers ma y us~ thl:s e_ ta ctics rur various rcasor1s; . h1oclcls of a parti cular catcgnr>. such that the margin losses on a
stimulate demand !'or speciric SK Us, increase store patronage and offer specific model arc subs idi sed b, a different model. This is similar
wider variety at a specific price point. t6 loss leader pric ing and th e aim is lo gain acceptance for a basic
model or set compet itive prices for a model that faces greater
· Price lining: When a company establishes prices for different
competition .
products in its product lines, it establishes a price line. Price lining is
the pr;ctice of offering a product line with several items at specific 11.6.4 The Pricing Process
price points. A brand of shirts may have 40 differr;nt styles with in its
product line. The company may establish four price points for the
The firrri must set a price for the first time when it deve lops a.new product ---~------. -___ .---. --
or when it introduces its existing products in a new region or country. The first
entire line; say Rs 500, Rs 750, Rs 950 and Rs 1250. The company decision that the company has to take is about the market segment to target and
would then price the 40 different variefo;s of shirts at these four position the product in that market segment. Subsequent decisions of product
specific price points. This tactic is very commonly used for product strategy, dilribution strategy and channel design, communication strategy and
lines like apparel, shoes, cosmetics, _watches, where there is large media selection as well as pricing strategy, will follow from the segmentation,
variety-within the product line. · targeting and positioning decisions.
Loss leader pricing: It is an attempt by the company to attract In case of new products at the introduction stage of the life cycle, the
customers to the store by selling some items at near or below cost, in S-T-P decisions will not be relevant, in which case the company hast<- make
the hope that customers will then buy other items once in the store.
an independent decision on the pricing strategy. We have learnt earlier that
Loss leader pricing is used on items that customers recognise well companies that follow strategic pricing, use price and cost information (break-
as bargains at a special price. The goal is not to sell large quantities
even sales and contribution margin) even to select the target markets that they
of the specific items, but to appeal _to customers who might shop can serve profitably. Hence, preliminary financial analysis wil_l become an
elsewhere.
--- --·----· ~-- - important input to the S-T-P decisions.
Odd-even pricing: Also known as psychological pricing, it rneiins The pricing strategy will ind icate a broad range of prices within which
prices ending in odd numbers to connote a bargain or even numbers the company would look to pncing the product. The next step is to determine
to imply quality. Odd numbered prices end in 9s, such as 799, 499, the demand for a product, in the given target market at different price levels
259 make the consumers fee l they are paying lower prices for the indicated by the pricing strategy. Each price will have differing level of demand
product as Rs 99 sounds far cheaper than Rs 100. Research has and therefore a differing impact on the company's profitability.
shown that this a very successful pricing tactic. Even numbered
pricing is used to denote quality.· To estimate the differing levels of demand, companies have to estimate the
price sensitivity of the target market. Based on the price sensitivity, companies
Price bundling: It means marketing two _or more products _in a must estimate how responsive or elastic the demand would be to changes in
single package at a special price and is often used for complementary prices. If demand hardly changes with a price increase or decrease, we say that
products such as toiletries, hardware and software, vacation holiday the demand is inelastic and this could be because the customer is relatively price
packages and so on. Price bundling can stimulate demand for _the insensitive. Elastic demand is when there is a substantial change in the quantity
bundled items if the target market perceives it'to be good value. demanded resulting from a price increase or decrease, and could be explained
Companies also use this tactic to push certain slow moving_ite·ms, by. the relative price sensitivity of the customer. The higher· the elasticity of
or to induce trial for new products. There are different views on the demand, the greater the volume growth with I per cent price reduction.
effectiveness of price bundling due to its over usage. A related tactic
would be unburidling or reducing the number of products that are Price elasticity of demand depeqds on the magnitude and direction of the
sold with the basic product. price change. It may be negligible for a small price change, but substantial with
a big price change. It may also differ for price reductions versus price increases,
Price induc~d ~a~1pling: Also known as promotional pricing, it and there may be a price indifference band within which price changes have
means offering a special introductory price to the buyer for a limited no effect on quantity demanded. Finally, long-run _price elasticity may differ
tii~e period. This tactic _is tised to induce trials for new products or
from shor- run price elasticity, as buyers may continue to buy from a supplier

Marketing Management Strategic Pricing

·Notes dl·, pill' ;1 pri ce. 11icn;;isc. but lllcl y c1c11lu;ill y swit<ih suppli ers. I he: rc1c rsc G Iii
also happc: 11 :1 , buye r, m:1:, dc: lc ct a i'l c: r ,1 pri(' ~ i11crc;1 sc. but 111.11 e1 c·111u ,rlh Check your Progress 4
return lat c: 1·.
Demand set s ,1 cT il i11g ,i r narroll's th e ran ge w ithin ll'hich marketers ca n ,c l Fill in the blanks.
prices. Estimating costs at dilTcrcnl levels or production will dctenninc the I. _ _ _ _ _ _ pricing 1s a price tacLic that rcqum.:s th e bu yer lo
most profitable quantity and hence, the most pro!itable price that companies can absorb the freight costs from the point of shipping.
charge. Companies ·can also approach cost esti111ation using the target costing
method. Companies cfetetmine the price at which they would be able to sell the 2. _ _ _ __ _ are given to channel intermediaries in return for
. best quantity in the target mar~ct. certain special functions performed .

From this price, they deduct the desired profit margin , leaving them 3. _ _ _ _ _ _ is the practice ofoffering a product line with several
with the target cost they must achieve. They then examine each cost clement, items at specific price points. ------------ · -- ------~
manufacturing, prnduct design, materials and consider ways to reduce each 4. Odd-even pricing is also known as - - - -- - pnc111g.
cost element, _without compromising quality or functionality. The objejtive is
to bring final costs within the target cost range. Using strategic pricing concepts
and target costing, companies achieve profitable pricing objectives, •
Knowledge of competitors' costs and prices and possible reactions to
different price levels must be taken into account. Market conditions, product I. Southwest Airlines and lkea are two examples of companies that have
life cycle anct' impact of competition have already been considered when price as a key element of their growth strategy. Collect information on
determining the overall pricing strategy. Competitor reactions to specific prices their business models and ways of operating. Can you identify why
must be considered when determining a price level. A marketer must be aware they have been successful in using price as an element of their growth
of its competitor's likely reactions to different prices, and the competitor's cost strategy?
structure.
2. Collect product informafion on Tata Tea or HLL's tea portfolio.
Selecting the pricing tactic is the final step of determining the price, but not Collect price information from a retailer or from the Internet on all the
necessarily the final step in the pricing process. The last step involves the brands and their SKUs. Observe pricing differences between brands.
actual reaction of the market, and monitoring and evaluating the response. Are there sufficient differen_ces? Does the pricing reflect the brand's
posttwning and role in the portfolio? You can do thi s exercise for any
Companies do need to continuously review their prices and cost structures,
product portfolio.
although they may not frequently make price changes. Price changes may be
nece.ssitatcd to compcti_tors or unavoidable cost increases. In any case, it is a
decision that a company must take kecping ·in mind all the factors we have
covered in this and the earl ier unit on pricing:_
Strategic pricing is about targeting marketing markets that can be served
profitably, communicating information that justifies price levels and
managing pricing processes and systems to keep prices aligned with value
received.
The only way to ensure profitable pricing is to let anticipated pricing
and anticipated .levels of sales at that pr-ice, determine the costs incurred,
rather than the way around.
An effective pricing strate.gy -r equires a good understanding of the yalue of
the product to the buyers. ¼Jue refers to the total savings or satisfaction
that the customer rece ives from the product or in other word s the utility
gained from the product.
The gap between the buyers ' willingness to pay and the economic value
of the product is termed as price sensitivity of the customer. - -------------- - -- -- - -

Marketing Management Strategic Pricing

 The pricing strategy is i111pactccl by the product's Ii fe cyc le, as at each
stage th ere arc changes i°n cost slrncl urcs, buyers' price ·sc,isilivity, the
nature of' co mpetition chan ges and the product itscl I".
Value: The total sav in gs or sa tisfacti on that the cus tomer receives from
. Price collJ pctition is n1,.ore co111m only see n in certa in indus{ri es and not al the product or in other 11ords the utilit y ga ined from th e product.
all in so me others du e lo the inherent c hara cteri stics of the industry and Derived demand: The re lationship betwee n th e desired end benefit and
buyer base. These characteristics indicate the likelihood and nature of the buyers' price sensitivity for one of the products co ntributing towards
competitive response to pricing action within the industry. achieving that end benefit.
·In a price competitive industry, it is suicidal to drive growth with price Price buyers: Those who seek to buy at the lowest price consistent with
without a competitive advantage. Competition drives out profitability some minimum level of quality.
except for those with a competitive advantage that prevents competition ·
Relationship buyers: Those who already have a ve1y strong preference ·
from fully matching their costs or value proposition.
for a brand based on the supplier's reputation and their own experience
Companies have different strategic options, depending on the competitor 's with the brand.
1elativc strengths and weaknesses and the co~t of responding to the price
cuts.
) . Price lining: The practice of offering a product line with several items at
specific price points.
Distribution channels affect pricing decisions through the channel design,
the role of the channel members and implementation of the price-through
the distribution channel.
I. What is value-based pricing approach and why havt companies adopted
Product line pricing is setting prices for _an entire line of products. In this approach? What is the difference between the cost-based and value-
product line pricing, the manager tries to achieve profit and other goals based pricing approach?
from the entire line rather than for a single component of the line.
2. How do costs affect the pricing decision? Explain the terms incremental
Pricing strategies set the base level of prices; pricing tactics fine tune cost and contribution margin. ·
the base level prices. Pricing tactics include various -s_o rts of discounts,
3. Explain why price sensitivity of the customer can be an important input
allowances, geographic pricing and special pricing tactics.
to market segmentation . How has the Internet affected price sensitivity?
When a firm is setting prices for a product for the first time, the Explain using the different price sensitivity effects you have studied.
first decisions to be taken are segmentation, targehng and positioning 4. Why is it important to understand the price competitiveness of an industry?
decisions. The pricing stratt:gy decision follows from the S-T-P decisions. What factors determine the price competitiveness of an industry?
Demand can be elastic or inelastic. Elastic demand is when the sales levels 5. What is product line pricing? How does the goal of product line pricing
change, with a price reduction or increase. Inelastic demand is when the differ from the goal of pricing individual products? How do managers
sales levels do not change in response .to price changes. Price elasticity of achieve these goals?
demand depends on the magnitude a~d direction of the price change and
6. Write short notes on:
long-run price elasticity differs from short-run elasticity. ·
a) Pricing Strategy
Selecting tbe pricing tactic is the final step of determining the price, but
b) Pricing Tactics
not necessarily the final step in the pricing process. The last step involves
the actual reaction of the market and monitoring and evaluating the c) Pricing Process
response,
d) Econpinip ~Jue and Perceived \alue
e) Price Sensitivity

Marketing Management Strategic Pricing

 ( )sugge·sted Readin'
,.-
g , '
Check your Progress I
I. Dillon. William R; Thomas J. Madden and Neil 11 Firt le. Marketing
' Fill in the blanks.
Research i11 u Morke1i11y, E11vim11111e111 St. Loui s: Time Mirror/Mosby
I. Distribution channcts play a key role in design and implementation or the Co ll ege Publi shing.
pricin& decision.
2. Ramaswamy, VS. and S. Namakµmari. 2002. Mark~ting Managemen/ -
2. Strategic pricing is the co-ordination of interrelated ~1arketing, competitive Planning, !mple111entation and Conlrol (Global Perspective). New Delhi:
and financial decisions to set prices profitably.
-- ---- - -- -- ---- -- - ----
Macmillan India Ltd.
State True or False.
I. True ----- --------------- -
2. True
Check your Progress 2 )
Fill in the blanks.. ..
I. The economic value is the price of the customer's best alternative plus the
value of whatever differentiates the offering from the alternative.
2. Price proportion cost refers to the percentage of the total cost of the end
benefit accounted for by the products price.
State True or False.
I. True
. 2. True
3. False
Check your Progress 3
State True or False.
I. False ·
2. True
_3. · False
4.- True
· _Check your Progress 4
·. Fill in the blanks.
-~--------------------
I. Free-on-boardorigin pricing is a price tactic that requires the buyer to
absorb the freight costs from the point of shipping.
---------------------- 2. Trade discounts are given to channel intermediaries in return for certain
special functions performed. ·
3. Price ljnjn~ is the practice of offering a product line with several items at
specific price points. ·
4. · Odd-even pricing is also known as psychological pricing.

Marketing Management Strategic Pricing

 Integrated Marketing Communications (IMC)
---- ··---- ----------------- UNIT
Structure·• I'ill.• w

12.1 Introduction
12.2 Concept of!MC
12.3 The Communications Process
_12.3.1 The AIDA Concept
12.4 The Communications Mix
12.4.1 Advertising
) 12.4.2 Sales Promotion
12.4.3 Public Relations and Publicity
12.4.4 Personal Selling
IJ.4.5 Direct Marketing
12.4.6 Internet as a Communication Tool
12.5 Factors affecting the Communications Mix
12.6 The Media Mix
12.6.1 Factors affecting Media Selection
12.6.2 Characteristics of Different Media
12.7 Planning Communications Campaign
12.8 Budgeting for Marketing Communications
Summary
Keywords
Self-Assessment Questions
Answers to Check your Progress
Suggested Reading

Marketing Management Integrated Marketing Communications (IMC)

 Thi.; st1ati.;gic:, bi.;l1iml mark etin g co 111111unica tions programm es h,\ \'t'
changed clra111ati call y m ·cr the yea rs. Firms have lea rnt that i.;111phasising IM C,
Objectives
rather than treatin g eac h c lement 111 1solation, amplifies the message int..:ndc:d
Aller go ing through this unit, you will be able to: for the targe t 111ark c t. IMC , th erefo re , is a "force mu ltipli er".
Assess the role of Integrated Marketing Co111111unicatiuns (IMC) in The key pillars ofa fir111 'scci111mu11ications plan arc:
the marketing mix The target market (consumers-o r stakeholders) for whom the message is -
Fo.rrnulate objectives of marketing communications intendcd.
Identify the factors to affect the communications mix The communications objectives of the campaign.
Evaluate the strengths and lirnit~tions of media mix -~letnents Based on the above, a firm develops a communication strategy and an
optimal mix by selecting the appropriate communications and media tools. The
Develop a communications campaign and create a budget for IMC
aim is to choose a variety of different options that share a common meaning and
content, but also olTer different, complementary advantages. "Mix and Match"
)
is the key theme of an IMC campaign.
Overall market ing
Marketing communications are the means by which firms attemp t Jo objective
inform, persuade and remind its target markets, using both direct and indirect Promotional mix
m eans, about the brands they sell as well as about th e company as a whole. • Advertising
Although communications directed to target markets arc the mainstay of
the communications programme, firms need. to communicate with all its
I •
•
Public relations
Sales promotions

stakeholders (customers, shareholders, suppliers, channel partners, customers,

Marketing mix
• Personal selling

employees and government agencies). Firms develop speoific communications •• Product

Place· (distribution)
plans directed to the stakeholders.
• Promotion
• Price

I
Integrated M~rketing Communications (IMC) is the carefu l coordination
of all communication messages for a product or service to ensure the consistency I Promotion plan

of messages at every contact point where a customer meets the consumer. Most Target market
communications plans need to use several communication options and too ls,
very rarely would a firm use a single communication too l or med ia option, to
reach a particular target market. Fig. 12.1: The Concept ofIMC
From a consumer's view.point, the several different elements are already Objectives of IMC
integrated: consumers do not think of the different elements as separate; for The key objectives of any communication by a firm, to any target market
them everything is an "ad". It _is only marketers who recognise them as different or stake- holder, are essentially Inform, Persuade and Remind.
elements, and in doing so, man:y marketers have neglected the fact that uHimately
all communication must ·be integrated to deliver one coherent message. The starting point of developing a communications campaign is to· put
down dearly and explicitly the objectives of the campaign. That is to say that it
_The most common rift is between the sales force and advertising; it is is not enough to state that "We want to inform our customers about our brands".
very common for sales people to contradict claims made in the advertising. Managers have to be very explicit in terms of specifically what about the brand
Each element of the communi cations mix and media mi x must work together do they want their customers to know about.
like d ifferent members of a team, to achieve the firm 's overall communi cations
goals. This emphas is on teamwork and synergies across communicati ons and Firms need to jnfor111 th eir target markets about a number of things:
m edia options is known as Integrated Marketing Communi cations (IMC). 1. New product co ncep t, ·a new b~~;1d launch, a new model, a new pack size
or even a new feature or benefit being offered.

~ Marketing Management Integrated Marketing Communications (IMC)

 2. The brand 's diffe rential advantage over its competitors.
3. Ou tlets where the brands an.: available in the city, or the opening ol' a 11e11 Check your Progress I
outl et in the cit y or region.
Fill in the blanks.
4. A new offer or deal or pricing being offered to the market.
I. The key pillars or a firm 's rnrnmunications plan arc tht.: and
5. Explain how the product works and the utility of the product.
___ of the campaign.
6. · Suggest new ·u~es of'the product or new ways to use the product.
2. The key objcciivcs of any communication by a firm are to ____ _
7. A new packaging design or packaging change. ____ and ____
8. New technologies that a company has developed or acquired. '- --- ---- --- ------ -- ---
9. A cost or competitive advantage that the company may have achieved and
wants its target markets and stakeholders to know about.
10. Correct a negative perception that might have developed or to counter a
--> ------- competitor 's claim.
Make a note of fi ve different advertisements today. With the help of the
above list, write out what you have understood as the specific objective of
Persuading its target markets to buy can also mean a number of things the communication. Now examine how difficult it was for you to do so. Did
specifically: the communication have a clear objective? Was it clearly communicated?
1. Stimulate purchase by keeping the brand injhe consideration set. Suggestion: You can expand the scope of this acti;ity later in the unit by
'- examining the choice of media for the specific communication t;isk.
2. Persuade consumers to buy now.
3. Encourage switching from a competitor by giving the consumer a clear
reason why.
4. Persuade the consumer to stay loyal to the company's brands.
T_he task of any communications programme does not end with informing
• O ther Advert ise ments
and persuading. Even the best most memorable communications campaign can • News articles
and will be forgotten by consumers. Hence, reminder communication is a very • Other stot'c di splays

important element of a firm's communication plan for the ye::)r. Consumers need
to be reminded about a number of things: Sender Encodi ng the Message Decoding the Receiver
message channel message
1. Maintaining brand awareness arid brand recall. Even the most popular • Marketing • Advertisement • Media • Receiver inlcrpretati on • Customers
brands suffer from "awareness decay" if they are not seen or heard from. manager • · Sales presentation • Salesperson of message • Viewers/
• Advertising • Store display • Retail s tore li steners
2. That a product will be needed in the near future: this is especially trne manager • Coupon • Local news show • News
• Advertising • Press release med ia
of seasonal products like air conditioners, air coolers, fans, ice creams, agency
Feedback • Clients
and "cold drinks" amongst others. These products step up their reminder channel

·campaigns prior to onset of the season, to rebuild their.brand recall. • Market resea rch
• Sales results
3. Remind consumers of occasions of use. • ~hange in market share

To develop an effective IMC programme that meets the organisation's Fig. 12.2: The Process of Co~munication
goals, mark~ting managers need to put down explicitly and clearly the objectives
Firms are both senders and receivers of messages. As .s.enders, marketers
of their comnuinications programme for the first. This exercise is not done in
isolation. It is based on a great deal on the past year's results of the earlie·r attempt to infonn, persuade and remind the target markets about the company
communications campaigns, feedback and responses of the target market to the and its products and services. As receivers; they must attune themselves to
earlier .campaigns. Market research specific to marketing communications is a the responses and feedback they get from the target markets, and adapt their
a
vital element of developing communications plan. communications programmes. _Remember that. a lack of response is also a
feedback.

Marketing Management Integrated Marketing Communications (IMC)

No(es The mess11 gc ori g inates f'ro111 a sender. in this case the organisation . 12.3.1 ThcAIDAConccpt "!
~otes ,,
/\I li "t ,trc th e se nder 's thou ghts and id eas, whi ch now have tn he put The 11":I V ennsumcrs respond tu markeling com111u111 catio11 s is o r pnnie
into words. 1:ncodi'n g is th e con ve rsion or these ideas into a clear message. i111po1·ta11 ce l ll marketers. Sevcr,il Res ponse I li crnn;hy Mode ls (sec Fi gure 12.J )
lincodin g i11 1o lws words. sy mbol s. ·rce lings, colours, sounds, sme ll s, etc. A arc used to stud y how ctrnsumers 1\:spond lo message~. lhc class ic mod e l being
cardinal rule or colllmunication is that 70% of any communication is ncin-verbal I he A IDJ\co11ccpt. Tit is model outlines th e process li.1r achi eving eom111unicatio11
and effective communication is that, which appeals to all the five senses. This goal s in terms of' stages of consumer involvement and response to the message.
rule applies lo marketing communications as well; hence, marketers use several The acronym sta·nds for allention , interest, desire and action being the different
· communications.clements to appeal to all the five senses. stages of consumer respo11se to the commuriication. ·
Transmission of the message requires a channel - say radio, store displays, Models
product demonstrations and film and so on. These channels are the media Communications
AIIJA I li erarchy of Innovation-
tools available to the 1j1arketel'. A firm must select the media, which is most Stage Model'
Model' Effects Model' Adoption Model'
appropriate to the message. Marketers today have recognised that every contact I
that a customer has with a product is a med ia chann~I. Marketing plans must Cognitive
Awareness
! Exposure
consider every " touch point" of the company or the brand with the consumer. stage Attention
! . f\warcncss Reetpion

The receiver, in this the target market, is said to have received the message
when the message enters his frame of reference. However, a number of factors
" Learn"
1·
lne~·est
Knowled ge
I l
lnt.•cst
Conlnitive
. response

t
Afl ectivc Lik~ng Attitude
can interfere with the reception of the message, and the target marke t may not
even notice the message being transmitted. These factors known as media noise
or media cl titter could be competing advertisements, the physical surroundings,
stage
"l'eal" !
Desire
Pretetcnce
Conviction •' 1
Evaluation
!
Intention
I
light, climate, presence of other people among others. A customer's own ' '
emotional state, moods, physical discomfort can prevent a message from being
Connative
Behaviour
l
Action
i
Purchase
Ttail i
Behaviour
received. Although marketers do not have much control over these factors , they stage " Do" .!
Adoption
can select media channels, spots, timings when reception is likely to be at its
best Fig. 12.3: Response hierarchy Models
The target market will decode the message received as per their The model proposes that consumer~ respond to marketing messages
understanding of the communication. Decoding is the interpretation of the in a Cognitive (Learn), Affective (Feel) and Conative (Do) sequence. Target
language, tone, syi-nbols, colours and feelings of the message. Even though the consumers must first learn about a product before they can act on it. Marketers
message is received, the consumer will interpret the message as per his own try to draw the attention of the consumer to the message. Attention or awareness
understanding, knowledge and needs. Factors like age, gender, social class, is the first stage ofresponse, but this by it~elfwill not lead to action. The message
culture, values, attitudes, beliefs all greatly affect how messages are interpreted. must create enough interest imd arouse a desire to own the product To enable
Marketers must pay great attention to understanding the consumer's frame of this to happen, marketers must create opportunities for the target markets to feel _
reference to ensure that there is proper match between ·the encoding of the the product or get a feel of the product. When the desire to acquir.e the product is
message and the target markets' attitudes and'ideas. strong and the target -consumers are convinced of the product's advantage over
In interpersonal communication, th_e receiver's response to the message competing products, then consumers will be compelled to act
is the direct teedoack lo lite seude1. Ma,ketiug communication i~ targdy },,{c,ot l::.i5l .. i ......... .,~..J .... ,u..... ":" ...... rH .......1:-nn ~ ... : .......... : ......... c- u,:11 r,,'llN" thrnnoh fue:,.different.
impersonal, hence, feedback would also be largely indirect. The indirect factors stages as suggested by the AIDA concept. The sequence, -however, may not
that marketers try to measure are: apply to all purchase situations . For impulse purchases, consumers are seen to
do or act first, and feel and -learn later.
Number of people who saw the communication compared to the number
of people e xposed to the communication. For several low involvement purchases, one may observe a Do repeatedly
in the case of habitual buyirig behaviour; or Learn-D o-Feet in the case of
Recognition and recall of the commtmication .
variety seeking behaviour. The AIDA model does have its limitations as it does
Brand awareness and brand recall levels .. rrot explain how communications may ·affect all types of purchase situations.
Pti'rchase in te nti on. Regardless of the sequen~e of the stages; _it is still a very usefuttool to measure
the effoctivcness of the communi cati ons campa ign. It is also used to evaluate

Marketing Management Integrated Marketing Communications (1 MC)

 the cll'eetiveness of each clc1rn.: nt 01· th e communications mix and media mix in for the media space used. It is the most popularly used form or co 1111n - .
. .. .. UIHCat1on
terms of their abilit y tn ;1lkct the con sumer response process . I)ccausc of II S abilit y to reach large target markets very 1'a1)idl.y /\.d ·t· -
. · ve, 1s111g
c., pcnd1turcs arc on the ri se annuall y and it is estimated that Rs 11 ,91 5 crorc
it\ Check your Progress 2 1vas spent on advertising in India in 2005, an increase 01· nearl y 15'½, over 200 _
Spchding on advertising varies by industry. -
4
________ .., _·---------
Fill in_thc blanks. What can advertising do very effectively'?
I. _____ includes competing advertisements, the physical Advertising can reach mass markets with great geographic spread very
surroundings, light; climate, presence of other people among others. quickly. It is, therefore, known as the mass communication element of the
communications mix. Due to this, cost per contact is very low. ·
2. AIDA stands for ._ _ _ _ _ _ _ _ _ _ and _ _ __
It can communicate the unique benefits of the product and its differential
r advantage over competitors.
It -can influence attitudes and create interest and desire for a product.
It positions the brand at the desired slot in the consumers t:nind.
Visit a flagship outlet of any leading brand in your city (say Sony World,
Samsung Digital Home, Himalaya) and observe the following: It confers "legitimacy" onµ product. There was a li1~~e ·when consumers
believed that if a product was being advertised, then it was probably not
a) Product displays selling. Today, it is widely believed that if a product is being advertised, - ----- ------- ----·
b) Approach of the sales people at these outlets - is it more consultative then it is probably a legitimate product worth considering.
or is it sales oi·iented? It can convey emotional benefits of the brand.
c) What arc the non-verbal conJmunication cues observed at the outlets? It can combat competitive claims, correct false impressions and
(Hint: waiting time, floor layout, lighting, assist;nce P.rovided, misinformation.
cleanliness, attitude of staff) It can build up inquiries for the product.
d) Are these outlets more communication oriented or sales oriented? The limitations of advertising are:
It is a monologue or a one-way communi~ation between company
·and customer. Despite the several methods used to measure advertising
effectiveness, much of the real effect of advertising is long term. Target
The Communications Mix consists of a set of communications tools, markets need to be repeatedly exposed to the advertising, for it to take
which marketers use to communicate with their target markets. The elements effect. ·
of the mix differ in their ability to influence and affect target markets. It Although cost per contact may be low, absolute ad spends required are
is therefore important to understand the_real utility as well as limitations very high,just for the message to be noticed. This is essentially due to the
of each communications tool. In a sens·e, every customer contact point media and competitive clutter. -------- ·-------- . ---
with the company is a communications tool. However, the major ele9ents of
thP r,mm1nnirMion~ rni'< 1;1.re advertising, public relations, sales promotions, Advertising is seen as interfering with the consumers viewing, reading
personal selling and the Internet. (The Internet 1s very u111y_uc 111 ,111, ~=u~ tho.t . or listeninll experience, hence, consumers tend to "zap" the advertising.
it is not only a communications tool but also a media tool and a medium of There are devices today that enable cuu~umc::1:, to rt;t;o;J their favourite
doing business. Most marketing textbooks do not consider Internet as a part TV shows minus the advertising. Whilst advertising can influence wants
of the communications mix per se. It is today, a very vital element of a firm's it cannot change deeply rooted values and attitudes. '
communication strategy and to give it its due importance, we are considering it Firms often count upon advertising for their products and see it as a
as a part of the communications mix.) quick fix for all problems. It cannot create flemand fo r or sell a poorly conceived
12.4.1 Advertising pro?uct. A company's success with its-products depends equally on the success
of each element of the marketing mix.
Advertising is any form of impersonal, paid-for communication. This not
to suggest that the other clements arc free, but for advertising, the firm pays

~ Marketing Management Integrated Marketing Communications ([MC)

 Ti\o is a revolutionary new service that puts viewers in corii'rol ·o'rtheir (coi1surn cr sales promotion) or members of th e distributi on channe l (trade
television viewing experience in a way never possible before. Ti\o's service promotions). J\cl verti sin g offers a reason lo bu y, sales pro11mtiu11 provides the
uses an electrbnic de~ice called a Digital Video Recorder (DVR). It's set top 11n111cdi ate in ccnti v<.! to bu y; ad vertising innucnccs attitude~, sa les promotion
box seties 2, c~n digitally save upto 60 hours of television programs to its hard in0t1e11 ccs purc hase belrnviour. t,ales promotion tool s work best whc11 supported
disk,_With Ti\o viewers get more control than ever before on what they want by ad vertis ing.
to watch and minus the advertising . Subscribers can digitally recmd their There arc severa l sales promotional tools and the cho ice of tool depends
t~~voudfe ~h\)WS, creatfng and organising their own programming scheq-qle to on _the typical purchase behaviour of the· target consumers. Even· within
~wat~h TVwh~n they want and are not bound by,the time table of.any network. the. target markets, several types of purchase behaviour may be observed :
~*- '. <I<,·
t~ou~.: mp wf,hsUe
. . i ·,
..
' ..
·· · . . • • ·. · _\ , , · loyal customers, brand switchers, regular users but low product usage, irregular
product usage and customers who have· not tried the brand at all.
Major types of advertising
Loyal users: Marketers try to reward loyal users and try to increase their
The firm's communi cation objectives determine the type of advertising it
consumption as well as reinforce purchase behaviour. Loyalty programmes
uses. such as frequ ent flyer programmes (airlines) or pr~ferred customer cards
1. Corporate or institutional advertising promotes the company as a whole (petro cards offered by HPCL, BPCL) are commoifly used .
and is intended to establish, change or maintain the company's identity. To lure competitors' customers: The objective of the marketer is to
It does not specifically ask the target audience to do anything, but to be entice and persuade the customer to switch. Contests, discounts, free gifts
informed and maintain a favourable attitude towards the company and its and sample packs act as incentives to induce trial.
products.
brand switchers: Those customers who are not loyal to any s ingle brand
2. Product advc1tising on thr.: ulhcr hand not only informs, but seeks to and try a variety of brands. On lhc one hand, as marketers try to lure the
promote the benefits of using the firm 's products. competitors' customers, they must persuade their existing customers to
3." Pioneering advertising is used at the introduction stage of the life cycle, buy their brands more· often. Discounts, extra quantity at the same price
wh·en the company is aiming to create a primary demand for the product or ·bonus packs, free gifts, attractive ·product displays, attractive reusable
-- -·-. ----------------- concept. Companies need to explain the product concept and establish packaging rewards _programmes and contests are some incentives
the utility of the product. Consumers need to learn in-depth information marketers use to reduce brand switching.
about the product and need to _see the product being demonstrated. Low product usage or infrequent product usage: These _could be
4. Competitive. advertising is most appropriate during the growth stage of customers loyal to a brand, but whose consumption of the product is low
the life cycle, when a firm is ttying to build demand for their brands. or infrequent. Incentives given would try to increase consumption as well
Advertising at this stage stresses differences between brands so as to as frequency of usage. In.such cases,.marketers tty to use a combination
build brand preference. Comparative adve1tising directly or indi-rcctly of-advertising (to irifluerice increased or frequency of usage) and sales
compares two or more competing brands on specific attributes. Latter .promotions to achieve long-term results.
growth and maturity stages of the life cycle sees intense competition Non-customers: They would be those prospects who are within the core
amongst players, and companies often,r~sort to comparative advertising to target markets, but have never used the brand. Marketers try to induce
directly attack a competitor. However, companies need to be very careful trial with special trial packs or a special price offer. Trial offers work best
about comparative advertising for two reasons. Firstly, it can attract,a law when they are supported by product demonstrations at the retail outlets.
suit from a competitor for unfair practices. Secondly, 'it actually provides
the competitor a fair amount-Of mileage at no cost to the competitor. Consumer promotions ,pull a product through the channel by creating a
demand, whereas trade promotions try to push a product through the channel by
The major decision for apvertisers _is the choice of media and the creative motivating channel members t_o sell more of a particular brand.
style of communicating with target markets. ·
The objectives of a trade promotion are to increase the quantity, frequency
12.4.2 Sales Promot ion · · ·
and regularity of purchases by the channel men,bers. The ultimate objectives
Sales promotion 'is defined as .any short duration communication activity, of these trade promotions are to maintain or increase shelf space at the retail
which provides an incentive to the target market to purchase a product or outlets, get the retailers to stock the complete line or push slow moving items in
service immediately. The incentives can take several forms, both monetary and the product line, suppo1t a cons umer sales promotion and increase inventories
non- monetary. Sales prori1otions· activities can be directed at target consumers to block shelf space avai lable to a competitor.

Marketing Management Integrated Marketing Communications (IMC)

 such as dealer contests, free gifts on quantity purchased, free training, During the introductory period, innov_ati vc new products need much more
bu~incss co11!'erc11ccs and convcnlions at exotic locat ions to reward lop exposure 111 th e media tlrnn cnnvcnliu11al adve1tisi11g. When Sony first
pcrformern, at11act1 ve di sp lay units and shop signbuards. Muncrary 111ccnt1vcs intrnd11L'L d ii , W,1lk111an tn lhc wo rld , they hired hordes oi' yo ung pc·,1 plc
0

include trade allowances such as a price rccluct1on or higher margin s and push to wear th e Wu lkman and dc111011strat e their enjoyment ol' th e music
money, which include monetary bonuses. · · whilsr ridin g the subwa y in New Yori<. This attracted amused and curious
Since sales promotions produce quick and early results, companies onlooker~ and created a lot oi' buzz in th e media·. At the Oscar /\wards
are tempted· to repeatedly run sales promotions. · It is important to remember· show, a few years ago, Toyota provided its Prius hybrid sedans to all
that any successful campaign, if repeated often, will suffer from diminishing the red carpet Hollywood celebrities. The TV' cameras focused on the ---· ------------
returns. Repeated use of sales promotions has led to a reduction of brand loyalty, cars as. the celebrities arrived for the show, providing valuable worldwide
increased price sensitivity and has actually encouraged brand switching. In mariy publicity for the Prius.
cases the sales prolJlotion scheme merely subsidises buyers who had bought the 2. Event sponsorship: Companies sponsor events; which ai'e sufficiently
brand anyway. Consumers and trade alike have now come to demand deals and newsworthy to achieve coverage. Event sponsorship can be of two kinds: ·
discounts anyway. one, where the company becomes a part of an already established or well-
Howeve1; these are drawbacks of the run-of-the-mill sales promotions known event like the Mumbai Marathon, cricket matches or film awards.
schemes. Companies have learnt that a creative and well-executed· sales In -such cases, participation of the company is by way of s~onsorship of
promotion campaign, which involve the customer in some kind of activity the awards and publicity at the venue.
surrounding the brand, can produce the desired results in the short term and build The second kind is where the companies create-an event exclusively for the
the brand equity in the long term. Hence, sales promotion as a communication company or the brand like the Bournvita Quiz Contest, Brand Equity Quiz
tools is still a very effective tool and one must be discriminating about the type and the Camlin Art Contest. The focus of the entire event is exclusively
of campaign created. on a single company or brand and allows the customers to experience and
12.4.3 Pub!ic Relations and Publicity interact with the brand. Such exclusive events create stronger and deeper
ties with brand, but require much greater commitment from the company
Public relations and publicity relate to a variety of programmes designed in executing the event consistently. ·
to promote and protect the image of a company and its products.
3. Product placements: Markett,rs can garner valuable publicity by ensuring ·
Publicity relates to any non -personal communications through the their products appear as a part ·of a movie or television show. In the
media, such as press releases, interviews, press conferences, feature articles, Hollywood movie Cast AwaJ;, the lead actor Tom Hanks is an employee
newsletters, photographs and corporate films. for publicity, the media space is of FedEx and although the movie is a human story, FedEx is an integral
not bought like advertising media space. part of the storyline. Much coverage was given to the company's ground
Public relations (PR) includes activities like event sponsorships, lobbying, operations and commitment to service. Recently, Ti\o was featured in
employee and investor relations and public affairs. the hit sit-c.om Friends, where Rachel's character talks about "Ti\bing"
her favorite shows. Companies have to pay a fee for product placements,
Public relations and publicity support every element of the communications
negotiated as per the exposure g1.ven to the product. Product placements
mix and increases the effectiveness of the communications campaign.
work best when the product is shown as an integral part of the plot or
Consumers, today, attach much more credibit'ity to what is written in the media
storyline of the movie or television show.
about a company and its products, rather than the claims that companies make in
their advertising. It is for these very reasons that PR and publicity have become 4. Consumer education: An aware and educated customer is believed to be
an integral part of every company's commuriications programme throughout more loyal; hence, companies organise training programmes and seminars
the year. to not only educate and train customers, but also to build stronger.ties
with them. Consumer education works for high involvement products
Public relations tools
like invest_ment and financial planning products, computer hardware and
1. New product publicity: l'ro~uct publicity is instrumental in introducing software products. LG and Samsung regularly run microwave-cooking -------------. --------
new products to the markets by creating a buzz, prompting free news · classes to educate customers about the utility of the microwave oven.
stories and positive word of mouth. Any product, which is technology intensive does intimidate even the most
technologically savvy customer, and such programmes help customers
overcome their "fear" of such products and truly.understand the product's
utility.

Marketing Management Integrated Marketing Communications (IMC)

 5. Cause related marketing: Co111p,1n il!s build awareness and loya lty by For direct mark eti ng co n1111uni cations. co mpani c, need t,, acq uire updated li sts
supportin g causes, whi c h arc close to th e custo me r 's hea rt. liduca tion , of custom ers and their addresses. l\ lan y companies use direc t lllarkt:tin g to
healthcare and socia l upliftmcnt prngrnmm es get the larges t share or keep in touch 11·i th their ex istin g customers, an effective way oi' a follow -up
co rporat e fund ing .. Firms often. donat e· ;; percentage of sa les to ca uses co rnmuni ca ti o n ,,· ith the -: usto111 er.
and charities, which their target markets arc Iikcl y Lo Cavour. ·'Green
12.4.6 Internet as a Commuuication 'fool
Marketing" is becoming very popular. By positioning their companies
as ecologically responsible! marketers convey theii· concern for the The grow th of the Internet as.communications tool can best be desc ribed
environment and society as a whole. as rapid and formidable with a deep far-reaching impact on the way companies
will now communicate with their audiences .
----------------------
. 12.4.4 Person_al Selling
· Most traditional media assumes that target audiences are passive-
Personal selling is direct personal contact between a sales representative
recipients of the message. Early communication efforts treated the Internet in
and one or more prospective buyers to influence the buyer in a purchase
much the same manner and hence, the results were disappointing. The next
situation . _P ersonal selling offers several advantages:
phase of communication efforts treated the Internet as a tool for offering
Personal selling provides a detailed explanation and demonstration of the the bast deals and discounts to the customer, and it soon became a popular
product, This is especially required 'rot ·products, which are technically medium for discounting. This, companies realised soon enough, was a gross
complex or very innovative. · "iii1.dertitili sation of the power of the medium. Companies have learnt today that
The sales message can be varied as per the knowledge level and motivations the Internet is a very unique channel as it is a communication tool, a media tool
of each prospective customer. When the customer has objections or and an e-commerce medium. The unique characteristics of the Internet have
doubts, the salesperson is there to provide clarifications. revealed themselves with experience and over time. •

The personal selling process ensures follow up and is more likely to close The unique characteristics of the Internet as stated by David Aaker in his
the sale. book, Brand Leadership are:

Personal selling efforts are directed only to qualified prospects and The Internet is interactive and involving: In coatrast to traditional
--~
..
------- ------ - - -- - --- - leads to minimal spillover and wastage associated with other. forms of advertising, the Internet is a channel of two-way communications enabling
c9mmunication. a dialogue with target audiences. The Web is all about experiences with
the audience playing an active role. David Aaker states that customer's
Although a very effective form of communica tion, the cost per cont~cl is
attitL1de to this medium is "lean-forward" rather than " lean back". The
extremely high. Hence, personal selling works best when:
target audience usually has a specific functional goal in mind - seeking
The product is of very high unit value, is technically complex or custom information, entertainmc:nt or transactions - and treats anything that gets
made. in the way of achieving this goal as an annoyance. Interactivity is not only
with the company, bu t more so with other target audience members , who
Prospective customers are geographically concentrated arid few in
share similar goals and motivations. The companies provide a context
numbers.
or platform for social networking by building communities around the
The product concept is new to the world and requires concept s~lling. brands.
There are different forms of personal selling directed to end consumers, The greater invoivement and active participation of the target audience
which companies use today: sales force, network marketing (mu,lti~level is what makes the web a unique communication and media tool. However,
marketing), exhibitions or trade fairs and telemarketing. Not all ·companies this also · means, that any impact - whether positive or negative - is
would employ saies people to approach customers, but most companies have a likely to be remembered and to influence future behaviour. The brand
sales force to provide sales and service support to their trade or channel partners. associations thus crea!ed are stronger because of the experience.
Sales Force Management is part of the Sales and Distribution function in the
o rganisation. The Internet offers current, rich and in-depth information: Companies
can describe their entire product lines, complete with specifications and
12.4.S Direct Marketing technical details and guidance for usage. Moreover, this information can
Dir~ct marketing _is any ·font\ of di rect but non-personal contact with the be organised in di fferent formats as per. the requi rements of the di ffere nt
target market. Direct marketing activities include sending direct mailers and audience members. B uyers of high involvement products often engage in
catalogues to customers, email messages, SMSs or even MMSs to customers. extensive information search, which in the absence of the web, was often
. tedious.

tat4B Marketing Management Integrated Marketing Communications (IMC)

 The information if kept q1_rrent lures the customer back to the s it e and can Survey research sugges ts that consumers find most pop-ups and banner
he lp build a re lati onship. Websites that regul arl y post nc11 deve lopments adverti s ing irritatin g and anno yin g and a re therefore very skepti ca l about
in th e industry, share inlo nnation on new tec hnologies and pro du cts o r such co mmunica ti on. Neve rth e less, co mpani es need to continue loo kin g fo r
crea te so me e nterta inment around th e product, be.come dest inati on s it es inn ova ti ve, mo(e tai'getccl ways of adve rti sin g to reduce the annoya nce.
for th e enthus ias t.· · ·
lntrnncts _are sys tems o r pri va te we bsites conn ec tin g peo pl e within
The Internet personalises the information: Persons vi siting th e site ca n orga nisations, as well as its vendor and channe l partners. lntrancts are criti cal
select content of interest and avoid irrelevant content by choosing from for communication within organisations. They are the communication lifelines
the menus. M any sites collect information about how customers use the for organisations, which are multinational or transnational. Communications
site, based on prior•site usage and provide customised l'ecornmendations within organisations are essential as all employees must share a common
and information. understanding _o f the goals and strategies of the organisation.
Amazon.com recommends books based on prior purchases and book Customer extranets are where a part of the intranet is open to customers
searches. Food sites can recall the type of recipes that customers click on and and usually allows customers to access information, process orders and receive
download and provide specific recipes in that category only. backup support. Dell, for example, has created password protected customised
Tools for Internet communication are : extranet websi):s, which allows employees of its 200 largest customers
to get access to restricted ' information such as a technical data bank used by
Website Dell eng'ii1eets to troubleshoot problems. These cxtranets arc valuable tools for
Advertising and sponsored content building loyal partnerships with customers.

Intranet Web PR includes web communications outside the control -of

organisations, such as personal home pages, news or gossip-oriented sites,
Customer extranets
discussion groups and chat rooms. It is an old adage that a happy customer will
Web PR recount his experience to perhaps three people, but a disgruntled customer will
Email narrate his experience to 10 or 15; and now on the Net to thousands, instantly
--- - '-~ ---- ------- --- -- at no extra cost. A small computational flaw in the Intel Pentium chip sparked
The website or home page of the company is potentially the most powerful . off a massive worldwide discussion, which became a serious image problem
communication tool and is the basis of the relationship between the customer for Intel. Companies influence Web PR by participating in these discussions
and the ~ompany. The website should deliver a positive experience by having to cotTect and influence opinions as well _as creating discussion forums that
three basic characteristics: encourage constructive discussions.
The site must be easy to use; the visitor must not get frustrated or confused. E-mail is a popular channel for customer service and other marketing
It should meet customer expectations with respect to the functional goals of the communications. It becomes the ultimate personal contact. Emails are used to
customer. It must provide a reason to be revisited. Websites also need to offer' announce new store openings, special offers for existing customers, offer new
value in terms of information, transactions, entertainment, social experience,· products and upgrades, confirm orders amongst others. Because the Internet is
which becomes the motivations to revisit the site. .interactive, information can flow to and from customers . Emails are powerful
David Aaker suggests that companies 'must become dominant sites for tools for building long-term relationships with customers. However, companies
an area of interest related to the brand. Tide, a leading detergent brand, must limit the flow of messages .by being selective about what the customer
provides personalised solutions for removal of every possible kind of stain. The would like to be informed about, and must respond quickly and accurately to
site reflects the expertise and leadership of the brand as a powerful cleaning_ customer queries.
solution. This cleaning solutions service has now been branded as the Tide
Stain Detective.
Advertising an_d sponsored content is described as any paid content
or presence on the N et on any site. The most common forms are banner ads,
pop-ups or links. Wallpaper or cursor downloads are also forms of advertising
or sponsored contests. A very effective form .of sponsored content on the Net is
buying a keyword 011 popular sear.ch engines:This form of advertising though
increasingly popular, has . created· clutter . and risks turning audiences off.

Marketing Management Integrated Marketing Communications (IMC)

 lir!ll wi ll depend on lhe nalu1·c o r th e prnduct , stage in the product life cycle,
~ ; Check your Progress 3 chara cte ri sti cs or the targe t market. type of' buying decision, co mmunications
,__ ___ ·--·--------- budgets and wheth er a push or pull strategy w jll be used. \try importantl y, all
of these f'aclors arc interdepe ndent and n1t1 sl not be looked al in iso lation.
Fill in the hlanks.
I. Nature of the product: Products ca n be broadly class ifi ed into business
I. The major clements of th e communications n11 x arc
_ _ _ , sales promotions, _ _ _ and the Internet. and consumer products. Business products are often customised to the
buyers' specifications and arc not suited for mass ·communications.
2. _ _ _ _ _ is used at the introduction stage of the life cycle of the Producers of business goods such as computer servers and industrial
product. machinery rely heavily on personal ·selling and advertising would be
3. ·Most traditional media· assumes that target audiences are _ __ limited to frade media only. Mass media advertising, if at all used, serves a-
recipients of the message. different objective altogether. Airbus industry uses television advertising
directed at mass markets, only to build a positive corporate image, and to
4. _ _ _ are where a part of the intranet is open to customers and
correct any misrepresentations in the media.
usually allows customers to access infor;natio1), process orders and
receive backup support. Consumer products can be fu1ther classified into convenience, shopping,
specialty and unsought products. Co nvenience products being mass-
State-True or False.
market products rely very heavily on advertising through mass media,
I. Advertising is a mono'logue or a one-way co!llmunication between supported by sales promotions. Specialty products will use advertising
company and customer. very selectively through targeted media to 1naintain their products'
2. Sales promotion tools work best when supported by advertising. exclusive image. The locations and ambience of the stores play a major
role in communicating the exclusive upmarket image. Sales promotions
3. For publicity, the media space is bought like advertising media space. find no place in the communications mix for specialty products. Unsought
4. The personal selling process does not ensure follow up and is not goo\ls will rely very heavily. on personal selling, supported by highly
likely to close the sale. persuasive advertising to trigger the need for recognition by the consumer
---- -·----------------- and provide a strong motivation to buy. Sales people actively seek 1eads
to potential buyers, and because consumers do not actively seek such
products, companies must go lo them through sales people, direct mail or
direct response advertising.
I. Visit any ret~il outlet in your city and make a note of three different 2. Stage in the product life cycle: The product's stage in the life cycle is a
sales promotion. schemes currently being offered. Write down what big factor in designing the communications mix .. During the introduction
you have observed as the specific objective of the sales promotion. stage, the basic goal of communication is to create awareness and
What "type'; of customer do you think it is directed towards? Was it an knowledge about the product category. The communications strategy is
innovative sales ·promotio!].? What kind of sales impact do you think it to trigger a need and establish the utility of the product. There is a very
will have? heavy reliance on public relations, publicity, supported by advertising and
' product displays. Personal selling is used mainly to obtain-distribution.
2. Pick any one major brand and make a list of all the PR and publici,ty
activities carried· out by the brand in the past six mon~hs to one year. As the product moves to the growth stage, the communications miK
You can collect this information .from the websites as well as online changes as the objectives change. The major objective is now to build
archives of newspapers and magazines. Do they present a clear ' brand preference. The communications strategy shifts to establishing and ·
consistent picture of the brand? emphasising the brands' differential advantage over competition.
' Advertising now becomes a key element of the communications mix.
Public relations, publicity and sales promotion play the support role.
Personal selli ng would be used to enhance di strib ution netwo rks.
The maturity stage of the life cycle is marked by slow market growth
·c ommunications mixes vary a ·g reat deal from one product category ra tes a nd intense cori1pctition. Typically, firm s cut back on advertising,
and one industry to anothcr.. Thc particular communications mix chosen by a emphasising mainly on campaigns to rem ind customers and to combat

Marketing Management Integrated Marketing Communications (IMC)

 sales promotions and t;.adc. promotions become key clements or the to "push" Lhcir products through the chann el lo encl consumers. _Thi s is
com1nunica tions mi x at this stage. known as a push straLcgy.
As the product enter the dec line sta ge, all communi cations expenditure A pull slralegy, on the olhcr hand , sti mulates consumer demand by using
. is cut back. Some perso naJ s.: lling and sa les and trade promoti ons efforts advert ising and promotions directed to Lhc co nsumers. As consumers i;)cgin
wo uld be maintained. demand ing the product, 1·ctail ers, co11fro 11Lcd wilh ri sin g demand, increase Lhcir
3. Turget market: Niche market products arc characterised by highly inventory levels of the products. Consumer dema nd '"pull s" the product through
in formed, brand loyal, concentrated set of customers. The communications the retail channel.
· strategy is to build long-term profitable relationships. \try targeted and Rarely does a company use a push or pull strategy exclusively. Most
info;.mative advertising and selective distributions work best for such companies need to balance both push and pull strategies, vaiying only the
products, The website is also a very key .element of the communication . intensity levels in respons·e to external·factors such as competitive pressures or
mix for such products. seasonality of demand.
A convenience product targeted at the rural markets would require The demand for most consumer durables like air conditioners, televisions,
extensive consumer education. Advertising supported by personal selling DVD players is seen to have seasonal peaks and troughs, because in India
become key elements of a communication stra~gy directed to this buying is concentrated around festiva ls or marriages. Hence; prior to the onset
· ·. market. Hindustan Lever's Project Shakti employs rural women to of the "season", most firms use a push strategy to garner shelf space. As the
educate customers about products, inc_ulcate ·usagehabits and to persuade season picks up, they switch to a pull strategy to stimulate consumer demand
customers to buy. This multi -level marketing initiative achieves both the for their products.
communications objective and supports the distribution networks.
4. Type of buying decision: The communication depends on the type
of buying decisions. For routine buying decisions like toothpastes and
detergents, the communications strategy is to maintain brand recall. A medium is a channel used to convey a message to a target maiket. The
Hence, reminder advertising is a key element of the communication mix. media mix consists of all the media tools available to a marketer today. The -- ---- - _._ _--- ---- --- --
--- ~- . .______________ _ Consumer sales promotions are used from time to time to keep the interest seven major advertising media available today are television, radio, newspaper,
in the brand; trade promotions are also a key element of the mix and are magazines, outdoo1; Internet and cinema. In recent years, alternative media
intended to garner larger.shelf space. vehicles have emerged giving advertiser's innovative ways to reach their target
audiences and avoid advertising clutter.
For more c01:nplex buying decisions, personal selling and advertising ·
become the key elements of the communications mix. The website plays Media planning is a series of decisions that marketers need to make
a critical role in providing extensive information and assisting the buyer regarding the selection and use of media, ensuring optimal and cost-effective
in decision-making. . communication to the target audience. Specifically advertisers must determine
which types of media are best suited _to the message being corrimunicated and
5. Available funds: MoneYor rather the lack of it, can easily be the single
when and for how long the campaign must run. Media planning and scheduling
most important factor 'in determining the communications mix. Start-ups is a very scientific decision-making process, aided today by a numerous software
usually lack funds to use ariy formal'communications tools, and m~y resort tools,
to a unique communications plan, using only public relations or publicity
.. to . achieve their communication goals. Even established organisations, The Advertising Industry has had a 15% growth rate in 2005. Its size
faciug a casi1 crunch, may cut back on advertising even if if is essential today, is considered to be Rs. 11.9.15 crore. The growth in share of various
to -advertise. Usually-firins have to make a tradeoff between the funds advertising media is as follows:
available on one hand and the communications objectives and market Internet 57.1% Cinema 40%
necessities on the other h,_md.
Radio 33.3% TV 15%
6. Push and pull strategy: The last factor that affects the promotional
mix is whether a push or pull communications strategy will be used. Press 14.9% Outdoor 8.7%
Firms that use aggressive personal selling and promotions directed to Source: The Advertising Outlook 2006
the distribution channels, tiy to increase inventory levels throughout the
distribution channel. Beca(1se of the increased stock pressure, retailers try

Marketing Management Integrated Marketing Communications (IMC)

 12 .6.1 Factors affecting Media Selection toda y, it is poss ib le for ad vertisers to be·sc lccti , c in th.; audi ences they
want lo targc:t.
The pri111ary c!1·ivc rs 01· media se lection arc curnmuni ca ti on obj ecti ves
a1;d the des ired reach for th e: particular message. [ ach medium is its own TV adverti sing has two key strengths. First, that it is an effecti ve means
unique number or peopl e exposed lo that 111ediu111 nl so vari es . Marketers need of demoi1 strating product attributes and explainin g theii· corresponding
· in-depth under~tanJing of the characteristics of the media options and facts and consumer benefits, very persuasively. Second, it can dramatically portray
figures aboul the reach of the JiJicrcnt media. non-product related user _and usage imagery, brand personality and so on.
J. Additional attributes to be considered are edito1 ial fit between the message TV is !he most dTectivc medium fo r positioning of products.
and the medium. Automobile manufacturers will convey detailed technical The key disadvantage of television is very high clutter. Although cost per
information about their products in magazines like Overdrive, .Autocar · contact is low on TV because of its reach, absolute advertising spends
or Motoring and on television shows like Top Gear. ln this case, there on TV are very high because ~ large amount of advertising is required
is perfect fit between the editorial content of the medium, the message to stand out of the clutter. Because of the fleeting nature of the message
to be conveyed and the target market, which would be interested in this and the potentially distracting creative elements in the advertisement,
information. The same products would also use magazines like India the brand and the message can be overlooked by the consumers. TV
today or Business Today to convey other product attributes like service advertising rates and production rates have skyrocketed on the one hand
networks, fuel economy and styling and aesthetics. and advertisers report diminishing returns for their TV campaigns.
2. The target audience's involvement with medium is another key attribute TV advertising is under threat in the US and Europe due· to digital video
to be considered in med ia selection. Higher invol-..i::ment with medium recording services like Ti\o. This is because television is essentially an
ensures a higher opportunity to see for the message. Television shows like · entertainment medium for the target audience and anything that distracts
daily soaps, horror shows and cricket are high involvement shows and are from the entertainment is considered annoying; hence, advertising
preferred by advertisers not only for their high ratings, but also for their · zapping is common. Advertisers have tried to overcome this by being
ability to grip the viewer. sensitive to consumers and delivering their messages in an entertaining
format, ensuring greater receptiveness by the target audience. ,
3. Other attributes like the image of the medium itself and cost per contact
are considered when making a media selection. It is important to note that Despite !he drawbacks of television, it remains a very powerful lead
generally no advertiser would only use a single medium. There would medium. Properly designed and well-executed a<lversisemcnts can
however be a lead medium, supported by several complementary media, potentially deliver communication results and hence, advertising on
to ensure fulfillment of the firm's overall communication goals. television continues to grow.
12.6.2 Characteristics of Different Media 2. Radio is an all-pervasive medium with a reach of 90% in India. The
J. Television is generally acknowledged as the most powerful advertising . main advantages of radio are its geographic flexibility because of local
medium because it allows for sight, sound and motion and reaches a broad coverage, segmented audiences and relatively inexpensive advertisement
spectrum of consumers. The wide reach of television delivers a low cost rates- and production costs. It is, therefore, very effective for location
------· --------------- per contact. Television advertising in India in the year 2005 was estimated specific communication ca_mpaigns.
at Rs 5_003 crore a growth of 15% over'the previous year. The obvious disadvantage of radio is the_lack of visual images, which
Television is essentially a visually rich, entertainment medium, with a makes it a passive medium. Listeners are often multi-tasking whilst they
number ·o f channel and programming options available today. Television listen to the radio. Hence, processing of messages h"appens in a very
is considered as prestigious medium with high impact on the target passive way. Radio is very rarely used as the lead medium for a campaign,
but is very good reminder and support medium.
audiences.
Television ·advertising involves selection of specific programmes, the Radio advertising in India in 2005 was estimated to be Rs 200 crore
number of advertising spots and duration of each spot. Vast amount which is less than 2% of the total media pie. A~vertising is this mediurr:
of data is available on profile of viewers for each show, the ownership was fairly static for many years as radio listenership had lost out in a big
patterns of household products, purchase intentions. Advertisers carefully way to television. However, post the launch· of private FM stations in
study this data to gu ide selectfon of the appropriate programme to run 2000 and the second phase of licensing in 2005, it has once·again_become
an attractive medium. ·
their advertising spots. With the number of programme options available .

Marketing Management Integrated Marketing Communications (IMC)

 What makes an effective radio advertise111cnt'! at airport s o r malls, taxi tops, pole kiosks arc just some or th e outdoor ,,
media o ptions. l:vcn billboards ha ve been llans forrn cd m er ll1 c yea rs
/\ dl'c rti sing pi nncc r Da l' id Og ih·,· be li eves four !'actnrs arc 1.: riti eal :
and 110\\' emplo y colourful , di gital ly prnduccd graphics. backlig htin g and
ldcntily your lmrnd earl y in th e co111111ere ial . · three-dim ens ional images. Billboards do not necessaril y ha ve to sta y in
lclenti l'y it ol'tcn. one plac e. marketers can buy ad space on billboard laden tru c ks .that arc
drivl:11 continuousl y all da y lo selected areas.
Promise the listener a benefit early in the commercial.
Ad.vantages of outdoor media are that it is the only type of media which
Repeat it often. has constant exposure; no other medium allows a message to be displayed
Radio advertising can be extremely creative. The lack of visual images is 24/7. Ads on billboards are free to consumers; they don't have to buy a - .. ____ _____
------:....... __
·se~n as positive, because clever use of words, music, sound; humor can • newspaper, magazine or cable TV People, in busy metros, spend more
tap into the listener's imagination and leave long-lasting impressions. tii~e commuting than they do reading newspapers or watching TV. --------------
Outdoor is also an appealing option due-its ability to target geographically.
3. Print media are a stark contrast to the broadcast media, because of the static ----------------
Marketers have realised that they can more selectively reach their target
,ature of visuals in the print. In general, there are two main ~rint media -
audiences by creating outdoor media in places where key audiences·can
magazines and newspapers. Although the advantages and disadvantages
be found and where they are likely to be receptive. Outdoor media offer
--- ----- ----- --
........ ·of both arc fairly similar, each has some untque charactenst1cs.
lower cost per contact to the advertiser as compared to any broadcast or
Newspapers are topical media with a very regular and loyal readership. print media.
Newspapers arc well suited to communicate product related information
However, communication has to be very brief, without any elaborate
or for any kind of announcement or newsworthy advertising, which is
explanations, as the audiences' exposure time to the media is fleeting
in keeping with the character of the medium. Since most major dailies
and momentary. For this reason, outdoor advertising is main ly used as a
have local editions, it is possible to create geographically targeted - -- - -- ---- -··- - ------ --
reminder, support medium. The shelf life of the message varies from I 0
campaigns. The major disadvantages of newspapers are short shelf life
days .to a month, after which ~illboards can easily become "invi sible",
and limited reproduction quality. Despite these disadv.antages, newspaper
once the brain gets used to seeing th~ same advertising message there.
advertising is growing in India at almost 15%. This is seen to be a result of
macroeconomic changes - increasing disposable incomes, literacy rates
Outdoor media are also subject to local laws and restrictions and in India, ------- - ------ ---- --- -
the site owners are largely in the unorganised sector, with very few large
in Tier II and Tier III towns and popularity ·of news channels, which have
players. Maintenance of sites·is a critical issue, as poorly maintained sites
had a multiplier effect. According to NRS, the literacy rate has reached
unde1111ine the effectiveness of the communication. ·
66% and this in itself is adding new consumers to the .print media fold.
Outdoor advertising in India today is close Rs 870 crore and is giowing
Magazines, in contrast to newspapers, are feature-based media as they
large ly due to mushroommg of newer malls, mu ltiplexes and other
carry articles on a particular area of interest. Shelf life of magazines,
entertainment options. - - --- ---- --- --------- -
depending on the frequency of the magazine, is longer t~an newspapers
and reproduction quality is much better. Because magazmes are read at 5. Cinema \jdvertising today offers two kinds of communication
leisure, advertisers can provide more ·detailed messages to the readers. In opportunities. ----------------------
addition to product related information, magazines can also effectively One is the onscreen format, which consists of short advert_ising films and ---- ------------- -----
communicate ~s~r and usage imagery. ' slides screened before the movie or during the interval. The other being
---.---------- the off-screen format, which offers a much wider breadth of 012portunities. ----------------- ---- -
The readership base of magazines is irregular, highly dependent on the
interest thatthe cover ~•Ar;' gt"1e· ~tcs . I'rc,du ctior lead 'il:'e" '.'<e '!!qo very Signboards at ticket counters and snack counters, product displays in the ,. __ ------ -- ------ -- ---
high for magazines ~specially for prime advertising space. reception areas, events and contests at the food courts in the multiplexes,
Total print .advertising, lloth newspapers and magazines, logged in Rs
special offers or tie-in promotions with specific movies are just some of ------------------- ---
the countless off-screen options that are possible today. Timex watches
5700 crorc in 2005, garnering 48% of the media pie. ·
ran several tie-in promotions with the movie "Kaai" !It select multiplexes
4. Outdoor advertising has traditionally always been equated with either nationwide, which generated a huge interest in the 'brand with its target
hoardings or billboards and posters._ Ilowever, there are number of markets.
outdoor advertising opportunities today: transit ads on buses, subway,
Onscreen formats offer.very limited exp·osure today, as the opportunity to
commuter trains, bus shelters. sports stadia, ATMs, blimps, TV screens
see the message is very low; advertising before the movies and during the

Marketing Management Integrated Marketing Communications (IMC)

 interval can easil y be mi ssed by th e audi ences·. O ff-scree n opportuni ties
arc many more, largel y du e to th e gro wth or 111ultiplexes, popularit y o f
C R E ATI NG TIIE CA ~ll'A IGN
Bo ll ywood film s and s imultam;ous re lease or I lo ll ywoo d film s in In d ia,
a ll of whi ch a rc bringing th e audiences to th e th esi trcs. Marketing Obj ect ives ST I'
C inema ad ve rti s ing in India is of Rs 32 crorc a nd is expected Lo grow j
Communicati on Obj ecti ves
mainl y due to the o ff-scree n opportunities .
. I
Communi cati on Tasks - - - - May lead lo crca_ti o n
Check your Progress 4 I .
Communications mi x to be used
o( several campaigns

I . .
Fill in the blanks. Medi a mi x & obj ectives for each Media & Communi cation mix elements

1. Products can be broadly classified into _____ products.

2. is a series of decisions th at marketers need lo make Communicati o n Bud get Communication l:!nef tor
regarding the se lection and use of media, ensuring optimal and cost- the Agencies involved ..
effective communication to the target audience. • % of Sales
• Obj ecti ve/ Task Method
3. Transit ads on buses, subway, conmiuter trains, bus shelters, etc. are
• A·ffo rdability
_ examples of _ _ _,.
/ Creative & Media Strategy ·
• Advertising Strategy research (Art & Copy) j
• Product / Pos iti oning Media Plan
Media Schedul es
1. Select any brand · and make a note of all the campa igns through • Target Audience
Creati ve Concept Research
different media. As you read the next section, make a note of how the • Communications Media I
Creative Blueprints
communication vari es from media to media. Has the advertiser used • Message Element I
Story Boards
. the particular medium effectively, keeping in mind the character of 1
the medium? Create yampaign
Pre Test, Release & Post Test
2. Find out the followin g information:
a) Penetration of cable and satellite television in Jndia Fig. 12.4: Creating the Campaign
b) Top ten dailies and magazines in India In designing and planning a communications camp~ign, it is important..
c) Penetration of FM radio and the number of new FM stations to to distinguish between the message strategy ·and the creative strategy. The .
be launched in the next three years message strategy is the explicit objective of the campaign, or what the campaign
attempts to convey about the company and its brands. The creative strategy
d) Nnew outdoor media options not mentioned earlier for p'roducts
deals with how the message is to be encoded and conveyed to target audience.
such as umbrellas or carry bags.
\. .I Designing a communications campaign is both an art and a science. The artistic
aspects relate to· the creative strategy; the scientific aspects relate to the message
~trategy of the campaign. The message strategy has to be decided by the fim1;
however, planning the ·creative strategy, developing a media plan and executing
the campaign are very specialised work and is handled by advertising agency.
Campaign planning happens in distinctive stages
Stage I: The Marketing brief
. A campaig n pla n begins with a detailed briefin g to the advertising agency
personnel on the communications objectives for the company and for each of

D®ffli Marketing Management Inlcgratccl Marketing Communications (IMC)

 its brands. rl1 e eommunications bri e r mu st share with the age ncy all detail s on with flighting. For products with a seasonal demand, a more seasonal media
th e followin g as pect s: schedule is more appropriate. · ·
Firm s' marketin g objecti1·es, growth and competiti ve strateg ics Stage V: Advertising Pre-testing
Seg me ntation . target markets and positioning for each brand.
The creative blueprints and storyboards, which describes the advertising.
Past performance and dctai led market research on every aspect of th e fran\e by frame, approved by the client now need to be tested with consumer
brand panels. Advertising pre-testing is a very important part of the campaign
Results of previous campaigns, achievement of objectives and impact on planning and can be fairly lengthy stage of the campaign preparation, as it is
brands an important indicator of the effectiveness of the creative and media strategy.
. ' Great care is taken to elicit accurate responses from consumer panels. Based
At this stage the overall communications budget is also communicated on the responses several modifications may be effected, which once again must
to the agency. be tested with consumer panels. The adve11ising pre-testing stage may even
Stage II: Communications Tasks involve reworking of the communications mix, if it is required.
Prom the detailed marketing brief, a clear set of communications objectives Stage VI: Campaign Rollout
are evolved, whi~h must be put down as communications tasks or message Once the campaign is finalised, a detailed rollout is plan is prepared and
strategies. To achieve a particular communications_task, several campaigns the campaign is ready for release . Post release, the second phase of advertising··
may be required. T his stage of the campaign plan involves decisions on the testing is carried out on responses from consumers. Based on the response
appropriate corumunications mix, identification of the campaigns required and and effectiveness, changes may still be made in the creative or media plan if
their sequence, the creative strategy and media strategy. Al this stage, more found necessary. These market research studies may be caITied out at several
detailed budgets for each campaign arid each element of communications mix points in the campaign to get feedback on the effectiveness of the campaign and
need to be worked out and finalised. achievement of overall communication objectives. ·
Stage III: Creative and Media Strategy Stage VII: Post-campaign analysis
Once the campaign plan has been approved by the marketer, the agency The last set of advertising effectiveness studies are carried out at the end
now begins its work on developing the creative and media strategies. We have of the campaign to measure the overall effectiveness of the entire campaign and
discus;ed earlier in the unit the basic criteria used for media selection and its impact on sales and market share. Post-campaign analysis also assesses how
preparation of a nJedia strategy. Once the overall creative and media strategy the campaign could have been made more efficient and what factors c_ontributed
is agreed upon, the agency prepares several alternative creative blueprints and to its success. This analysis becomes an important input to planning of future
story boards for th e marketei: campaigns.
At this stage, several specialised agencies also get involved in the Ten common Creative Styles for Advertising
development of the campaign . In the advertising world today, there are
specialised agencies for each element of the communications mix including Depicts people in their normal e>r a typical moment in
Slice-of-Life
website creation, media buying, public . i;elations, direct marketing, film the life of the target audience.
production to name a few. In the case of several other agencies being'involved, Shows how the product will fit into the consumer's
the coordination responsibility often rests with the lead advertising agency to Lifestyle lifestyle.
ensure synergy and cohesiveness of the complete communication plan. Can feature a celebrity brand ambassador endorsing
Stage IV: Media Plan and Media Schedules · the product or a testimonial from an authentic customer.
The adve1tising agency will simultaneously begin the work on media Creates a fantasy for the viewer built around the use
---.--_ --- Fantasy of~he product. Creates the aspirational appeal for the
plan11ing and scheduling. Booking adve1tising space in any media today is a long
lead-time activity. Media planning and scheduling is a very complex scientific product.
....
process, given the vast array of media options . There are three basic types of Advertisers often use humour in-their ads, such as SBI
media schedules: continuous media schedule, which allows advertising to run Humorous Home Loans which the husbanc;f having lost a bet to his
throughout the year; flighted media schedule where the advertiser may schedule .. wife, is shown rolling papads.
·advertisements very heavily every two months or every fortnight to achieve a
greater impact; pulsing media schedLtlc which combines continuous scheduling

Marketing Management Integrated Marketing Communications (IMC)

 Ani"mated Product C reatin g an aniinatcd chara cter like Seven- Up's Fido 3. Competitiv e parity method : Some companies set the ir promotion
S y mbol s / 13 ra nd Dido or a creatin g n fi ctitious human chara cte r such as budge ts to ach ieve sharc-of~vo icc parit y with th eir co mpetitors. Wh il st
Persona "' La lita Ji " for Surr. ma inta in ing share-o r-vo ice is ce rta inl y a competiti ve obj ecti ve, this
meth od. or budge tin g is not ve ry sc ientifi ~ as objec ti ves, resources ·and.
- -
Builds a mood 6r image around the product, such opportunities differ wide ly rrom co mpan y to co mpan y. Most firm s use
Mood/Image this method main ly as a benchmark figure. ·
as peace of mind, love or beauty.
A rational appeal, which demonstrates to consumers the 4. Objective or task method: 'The objective or task method calls for
Demonstration marketers to develop ~udgets by first defining specific objectives and then
expected benefits.
determining the tasks that must be performed to achieve the objectives.
Uses the format of a music video to convey the message, . The sum of these costs becomes the communications budget for the.year.
Musical such a~ the Liberty shoes' commercial or Pepsi's "Oye This method of budgeting is more popularly used for several reasons.
Babli" commercial. For one, it is a more scientific method of estimating communications
expenditures. Secondly, it treats communications expenditures as an
Uses research or scientific ev ide_nce to give the
Scientific investment, necessary to achieve ce ttain objectives. Finally, it cortJ>els
brand superiority over competitors.
managers to ·budget for each campaign, leading to better monitoring and
control of communication expend itures.
This by far is the most popularly used method:· whi lst percentage of
One of the most difficult marketing decisions is to dctem1ine how much sales method is used to set the overall limits for communication expenditures,
to spend on marketing communications. Industries vary considerably in how objective or task 1nethod is used to precisely allocate resources to achieving the
much they spend on communications. Communication spends can vary firm's marketing objectives.
from 10-12% of salesjn the FMCG industry to 5-8% for industrial equipment
manufacturers. These are only indicative figures, as they would vary widely Check your Progress 5
-- - - --.- ----- - -- -- - --- from firm to firm , depending on the communications objectives. There are four
commonly used methods for setting advertising budgets: affordab le method, State True or False.
percentage-of-sales method, competitive parity and objective or task method.
I. Th\! message strategy deals with how the message is to be encoded
Methods of Setting Communication budgets and conveyed to target audience .
1. Affordable method: Many companies use this method to determine 2. Booking advertis ing space in any media today is not a long lead-time
budgets. This method completely_ ignores the role of communication as activity.
an investment and its impact on sales volume.
3. °Flighted media ·schedule means the advertiser schedules
Using this method can lead to uncertain annual budgets, which can make advertisements very_heavi ly every two_inonths or every fortnight to
long.range planning difficult. However, one qmnot completely ignore this achieve a greater impact.
method as ultimately companies have to make tradeoffs between ,w hat is
Fill in the blanks.
necessary and what is affordable. ·.
l. _ _ _ __ _ advertising depicts people. in their normal or a typical
2. Percentage of sales method: Many companies. set• communication
moment in the life of the target audie_nc(;.
expenditures at a specified percentage ofsales, either current or anticipated,
or of the sales price. This method has its advantages as it does take into 2. The _ _ _ _ _ calls for marketers to develop budgets by first
consideration what is affordable. It also forces marketing managers to defining specific objectives and then determining the tasks that must ------ --- -- --. -------
consider the relationship between promotion cost, unit selling price and be performed to achieve the objectives, ·
.,)
unit profitability: Lastly, it ensures a continuity of communication efforts,
as firms spend approximate the same percentage year-on-year. Whilst this
method is useful for setting the overa-ll c_ommunrcations budget for the
year, it is riot enough to merely se·t overall budgets. Marl<eters have to set
budgets for each campaign, hence more precise methods need to be used.

Marketing Management Integrated Marketing C9111111unications (IMC)

 There arc genera ll y four di !Terenl methods of determining marketing
budgets: affordable method , pcrcclllagc or sales, competitive parity and
obj ecti ve or task method . The most common is the use of percentage of
Collcr;t informali_on on the acjvcrti si1rn budgets or th <.: top IO compani es. sales and objecti ve methods together.
I low much do they spend on corporatcadvcrti sing and product aclvcrti sing'1

Marketing communications: Means by which firms attempt to inform,

persuade and remind its target markets, using both direct and indirect
Marketing calls for more than developing a good product, pricing and means, about the brands they sell as well as about the company as a whole.
making the product available; companies need to communicate with their
target markets. Sales promotion: Any short duration communication activity, ·which
provides an incentive to the target market to purchase a product or service
Most companies use several communication options to communicate immediately.
· ·with their target audiences .
Brand switchers: Customers who are not loyal to any single brand and
All the communication options . must work synergistically to create tty a variety of brands.
consistent and coherent messages. The concept of communication options
supporting each, rather than working in isolation, is known as Integrated Publicity: Any non-personal communications through the media, such as
Marketing Communications. press releases, interviews, press conferences, feature a1iicles, newsletters,
pholographs and corporate films.
The three tasks that any co·mmunication tool performs are Infonn,
Persuade and Remind.
The communications process consists of nine elements; the sender,
receiver, message, encoding, media, clutter, decoding, response and. I. What is IMC? Why is it important for commvnications campaign to by
feedback. integrated? Find out one recent example of a successful IMC campaign.
Response hierarchy models explain how consumers respo,id to marketing How did it help the brand?
communications. The sequence of response is usually cognitive, affective 2. What are the three key tasks that marketing communications perform?
and connative, but can ~ary according to types of buying de~isions.
Explain the communications process in detail.
The most commonly used response hierarchy model to guide marketing
3. Explain the different stages of consumer response. Do these always
communications is the AID Amodei: Allention, Interest, Desire and Action.
happen in the given sequence? If not, why?
This model is used to guide a·nd evaluate the marketing communications
plan. 4. What is theAIDAmodel? What is its utility in marketing communications?
The communications mix is a set of communications tools· and consists 5. Write short notes on:
of six elements: advertising, sales pr~~otions, personal sellini, public a) Communication mix
. relations and publicity, direct marketing and the Internet.
b) Role oflnternet in marketing communications
Communicatioq objectives and reach are the primary factors· for media
selection. Other factors such as cost per contact, editor{al fit, target c) Different media tools
audience's involvement with the medium, OTS and image of the medium d) Stages of planning a campaign
are important. factors to be considered . .
Communic_ations campaigns are planned stage wise; the different stages
being marketiµg brief, communications objectives/tasks, creative and
media strategy, media plan and media schedules, advertising pre-testing,
campaign rollout and post-campaign advertising testing and analysis.

Marketing Management Integrated Marketing Communications (IMC)

 Check) our Prog rc~~ 5
Stale Trnc or False.
Check your Progress I
I. Fal sc
Fill in the blanks.
2. False
I. The key pillars of a firm's communications plan arc target market and
communication objectives of tire campaign. 3. True
2. The key ol;>jectives of any c;9mmunication by afirm are to ii1fon1:. persuade Fill in the blanks.
and remind. I. Slice-of-life advertising depicts people in their normal or a typical moment
Check your Progress 2 in the life of the target audience.
Fill in the blanks. 2. The task method calls for marketers to develop budgets by first defining
I. specific objectives and then determining the tasks that must be performed
Media noise includes competing advertisements. the physical
to achieve thejbj ectives.
surroundings, light, climate, presence of other people among others.
2. AIDA stands for attention •. interest, desire and action.
Check your Progress 3
1. Dillon, William R., Thomas J. Madden and Neil H. Firtle. Marketing
Fill in the blanks.
I. The major elements of the communications mix are advertising. public
l Research in a Marketing Environment. St Louis: Time Mirror/Mosby
College Publishing.
relations, sales promotions. personal selling and the Internet. · j
2. Ramaswamy, V.S. and S. Namakumari 2002. Marketing Management -
2. Pioneering advertising is used at the introduction stage of the life cycle of Planning, Implementation and Control (Global Perspective). New Delhi:
1·.
the product. Macmillan India Ltd.
)
I
3. Most traditional media assumes that target audiences are passive recipients I
of the message.
II.
4. Customer extranets are where a part of the intranet is open to customers
· and usually allows customers to access information, process orders and
receive backup support.
l
I

State True or False. l

.I
l. True
.l
2. True
3. False
4. False
Check your Progress 4 .1··.
Fill in the blanks.
l. Pr~aucts can be broadly classified int~ business and consumer pr-oducts.
2. Media plannin g is a series of dec.isions that marketers need to make
regarding the selection and use of ·media, ensuring optimal and cost-
effective communi cation to the target audience.
-- --- ------- ---- --- ---. 3. Transit ads on buses, subway, commuter · trains, bus shelters, etc. are
examples of outdoor advertising.

Marketing Management Integrated Marketing Communications (IMC)