Introduction to

Marketing
Management
Table of Contents:

1. Marketing Concept…………………………………………………….3-12

2. Marketing and Strategic Planning Process…………………………….13-29

3. Marketing Environment………………………………………………..30-37

4. Market Research and Marketing Information System………………...38-50.

5. Demand Forecasting and Market Potential Analysis………………….51-58

6. Consumer Buying Process and Organisational Buying Behaviour……59-74

7. Market Segmentation, Target Market, Positioning and Differentiation.75-89

8. Product Decisions and Product Life Cycle…………………………...90-100

9. Distribution and Promotion Decisions……………………………...101-112

10. Personal Selling and Sales Management…………………………..113-119

11. Pricing Decisions…………………………………………………..120-124

12. New Product Development………………………………………..125-127

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 Marketing Concept

Marketing- The most crucial word in the world of business today, but it has been practiced
in one form or the other since ages. Marketing is indeed a very ancient art. Marketing exists
in any type of economic system and any stage of economic development.

Evolution of Marketing

Marketing as we all know it today began in the 1970s with the birth of the "marketing
orientation". During the first stage of capitalism business had a production orientation.
Business was concerned with production, manufacturing, and efficiency issues. By the mid
1950s a second stage emerged, the sales orientation stage. Business's prime concern was to
sell what it produced. By the early 1970s a third stage, the marketing orientation stage
emerged as businesses came to realize that consumer needs and wants drove the whole
process. Marketing research became important. Businesses realized it was futile putting a
lot of production and sales effort into products that people did not want. Some
commentators claim that we are now on the verge of a fourth stage, one of a personal
marketing orientation. They believe that the technology is available today to market to
people on an individual basis (see personalized marketing, permission marketing, and mass
customization). They feel it is no longer necessary to think in broad aggregated terms like
market segments or target markets.

Concepts of Marketing:

Different firms do business with different orientations and perceptions which leads to the
following marketing concepts:

The Exchange Concept

The Production Concept
The Product Concept

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 The Sales Concept
The Marketing Concept
The Societal Marketing Concept

The Exchange Concept:

Exchange is the oldest form of marketing. It is the process of satisfying human wants via
trade (barter, purchase, swap etc.). Marketing is a much broader concept than exchange.
Exchange takes into account only the pricing and distribution aspects of marketing but
misses out on the most crucial idea of customer orientation and satisfaction.

The Production Concept:

This Management philosophy believes that buyers prefer goods and services which are
cheap and widely available. Goods are produced without taking into consideration the
choices or tastes of your customers.

The Product Concept:

This concept seeks to win the market through product attributes but fails to understand the
consumer preferences. The main focus is on product quality and differentiation. The
concept assumes that market success can be achieved via product excellence, improved
products, new products and specially engineered products.

The Sales Concept:

The concept believes that the company would not only focus on production but also
aggressively promote and push the products through advertising and personal selling. This
pays little attention to whether the product is really needed by the consumers. The main
focus is to beat the competition with regards to sales.

The Marketing Concept:

This involves focusing on customer needs before developing the product, aligning all
functions of the company to focus on those needs and realizing profits by successfully
meeting customer needs over a long term. The concept puts the consumer at both the
beginning and the end of the business cycle. Every department, every worker and manager
will think customer and act customer.

The Societal Marketing Concept:

The societal marketing concept is an enlightened marketing that holds that a company
should make good marketing decisions by considering consumers' wants, the company's
requirements, and society's long-term interests. The concept has an emphasis on social
responsibility and suggests that for a company to only focus on exchange relationship with
customers might not be in order to sustain long term success. Rather, marketing strategy
should deliver value to customers in a way that maintains or improves both the consumer's
and the society's well-being.

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Customer vs. Consumer

• A customer – purchases and pays for a product or service.

• A consumer – is the ultimate user of the product or service; the consumer may not have
paid for the product or service.

Marketing Concept and Philosophy

The marketing concept and philosophy is one of the simplest ideas in marketing, and at the
same time, it is also one of the most important marketing philosophies. At its very core are
the customer and his or her satisfaction. The marketing concept and philosophy states that
the organization should strive to satisfy its customers' wants and needs while meeting the
organization's goals. In simple terms, "the customer is king".

The implication of the marketing concept is very important for management. It is not
something that the marketing department administers, nor is it the sole domain of the
marketing department. Rather, it is adopted by the entire organization. From top
management to the lowest levels and across all departments of the organization, it is a
philosophy or way of doing business. The customers' needs, wants, and satisfaction should
always be foremost in every manager and employees' mind.

The marketing era started to dominate around 1970, and it continues to the present. The
marketing concept recognizes that the company's knowledge and skill in designing
products may not always be meeting the needs of customers. It also recognizes that even a
good sales department cannot sell every product that does not meet consumers' needs.
When customers have many choices, they will choose the one that best meets their needs.

What is Marketing?

The term marketing has changed and evolved over a period of time, today marketing is
based around providing continual benefits to the customer, these benefits will be provided
and a transactional exchange will take place.

The Chartered Institute of Marketing define marketing as ‘The management process

responsible for identifying, anticipating and satisfying customer requirements
profitability’

If we look at this definition in more detail Marketing is a management responsibility and

should not be solely left to junior members of staff. Marketing requires co-ordination,
planning, implementation of campaigns and a competent manager(s) with the appropriate
skills to ensure success.

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Marketing objectives, goals and targets have to be monitored and met, competitor strategies
analysed, anticipated and exceeded. Through effective use of market and marketing
research an organisation should be able to identify the needs and wants of the customer and
try to delivers benefits that will enhance or add to the customers lifestyle, while at the same
time ensuring that the satisfaction of these needs results in a healthy turnover for the
organisation.

Philip Kotler defines marketing as ‘satisfying needs and wants through an exchange
process’.

Within this exchange transaction customers will only exchange what they value (money) if
they feel that their needs are being fully satisfied; clearly the greater the benefit provided
the higher transactional value an organisation can charge.

Following are the important characteristics of Marketing:

It is a total system of business strategies and activities which are consumer oriented.
It is an integrated process- a result of interaction of many activities.
It starts with understanding consumer needs and then catering to those needs.
It should consistently increase the profits over the long run.

Marketing in the firms begins and ends with customers. It is clearly shown in the diagram
given below:

Develop a
Identify marketing To reach To provide
and analyse programme output of
with a mix
of

Product planning

Distribution
Customers system Customers Customer
(market) (market) satisfaction
Price structure

Promotional
Programme

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Core Marketing Concepts:

Needs: States of felt deprivation. Needs may be physiological, e.g. - need for food,
clothing, warmth, shelter and safety. Social needs are craving for belongingness and
affection. These are basic requirements of any individual.

Wants: Wants are the forms human needs take as they are shaped by culture and individual
personality characteristics. While human needs are limited, wants are unlimited.

Demand: When human wants are backed by purchasing power and willingness to buy they
become demands.

Marketing Offers: Combinations of products, services, information, or experiences

offered to a market to satisfy a need or want.

Customer value: difference between the value the customer gains from buying and using a
product and the cost of buying the product.

Customer Satisfaction: Depends on how well the product’s performance lives up to the
customer’s expectations.

Market: A set of actual and potential buyers of a product.

How do companies handle marketing?

It is important to realize that the ultimate goal of any company or organization is survival.
In order to stay in business, a company has a mission. Formulating the mission statement is
an important marketing task. The mission is often reflected in the company slogan and is
part of its branding. Next step is to start the overall marketing process. After conducting a
SWOT analysis, the company defines its product and market. Pricing strategy is worked
out. Market and competitor research is a crucial part of this process. Once the company has
launched its product in the targeted markets, sales and promotion process starts. Marketing
and sales are closely linked – only a joined effort will result revenues.The potential
customers must first be aware of and then comprehend the product. Only when potential
customers are convinced that it is beneficial for them will they consider purchasing the
product. During each of the phases described, the company interacts with different publics.
Depending on the public to be addresses, PR is the communication tool. PR consists of
different disciplines and each one addresses its own specific public(s).

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Market Orientation:

To achieve superior performance, a business must develop and sustain competitive

advantage. But where competitive advantage was once based on structural characteristics
such as market power, economies of scale, or a broad product line, the emphasis today has
shifted to capabilities that enable a business to consistently deliver superior value to its
customers. This, after all, is the meaning of competitive advantage and a market-oriented
culture provides a solid foundation for these value-creating capabilities.

A business is market-oriented when its culture is systematically and entirely committed to

the continuous creation of superior customer value. Specifically, this entails collecting and
coordinating information on customers, competitors, and other significant market
influencers (such as regulators and suppliers) to use in building that value.

The three major components of market orientation - customer orientation, competitor focus,
and cross-functional coordination - are long-term in vision and profit-driven. Market
orientation provides "a unifying focus for the efforts and projects of individuals, thereby
leading to superior performance." A developing stream of empirical research has found a
strong relationship between market orientation and several measures of business

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performance, including profitability, customer retention, sales growth, and new product
success.

Inter-
Functional
Coordination

Customer Competit
Orientation or Focus

Market
Orientation

Customer Orientation

It is the set of beliefs in sales that says that customer needs and satisfaction are the priority
of an organization. It focuses on dynamic interactions between the organization and
customers as well as competitors in the market and its internal stakeholders. It involves a
continuous improvement in business processes. It is "the business seen from the point of
view of its final result, that is, from the customer’s point of view." (Peter F. Drucker, 1994,
p.39)

The heart of a market orientation is its customer focus. To create superior value for buyers
continuously requires that a seller understand a buyer's entire value chain, not only as it is
today but also as it evolves over time. Buyer value can be created at any point in the chain
by making the buyer either more effective in its markets or more efficient in its operations.

A market-oriented business understands the cost and revenue dynamics not only of its
immediate target buyers but also of all markets beyond, for demand in the immediate and
"upstream" markets is derived from the demand in the original "downstream" markets.

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Therefore, a market-driven business develops a comprehensive understanding of its
customers' business and how customers in the immediate and downstream markets perceive
value.

Customer orientation and sales orientation are two extremes in dealing with customers. A
salesperson can never adopt both attitudes in serving a customer.

Customer orientation places an emphasis on listening to customers. Customer-oriented

salespeople tend to exhibit behaviors that enhance long term customer satisfaction, possibly
at the expense of immediate sales.

On the other hand, sales orientation encourages opportunistic if these are necessary to
make the sale. Sales-oriented salespeople tend to focus on immediate sales regardless of
customer benefit, possibly at the expense of long-term satisfaction.

There are seven key behaviors that strongly indicate a customer orientation attitude:

• Thinking and talking about clients a lot

• Continually assessing your customers’ perceptions
• Resolving priority issues in favor of the customer
• Giving in, compromising, adding value for the customer
• Making amends to customers for poor treatment
• Employing a "whatever it takes" policy to satisfy special needs
• Redesigning processes, re-deploying resources and when they get in the way of service
quality

Employees of market-oriented businesses spend considerable time with their customers.

Managers and employees throughout the business call on their customers or bring them into
their own facilities in a constant search for new ways to satisfy their needs. For example,
DuPont has developed a program called "Adopt a Customer" that encourages a blue-collar
worker to visit a customer once a month, learn the customer's needs, and be the customer
representative on the factory floor.

Market-driven businesses continuously monitor their customer commitment by making

improved customer satisfaction an ongoing objective. To maintain the relationships that are
critical to delivering superior customer value, they pay close attention to service, both
before and after sales. Because of the importance of employees in this effort, these
businesses take great care to recruit and retain the best people available and provide them
with regular training. Some businesses even involve their customers in hiring, training, and
developing contact people as well as in making motivation and reward system decisions.
Involving customers in these key areas forges strong customer loyalty.

Competitor Focus

Creating superior customer value requires more than just focusing on customers. The key
questions are which competitors, and what technologies, and whether target customers

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 perceive them as alternate satisfiers. Superior value requires that the seller identify and
understand the principal competitors' short-term strengths and weaknesses and long-term
capabilities and strategies. A seller should adopt a chess-game perspective of its current
and principal potential competitors. Moreover, it should continuously examine the
competitive threats they pose, inferring these threats from intent and value-creation
capabilities. This is crucial information to a seller in developing its contingency
competitive strategies.

Inter-functional Coordination

The third of the three core components of a market orientation is the coordination of
personnel and other resources from throughout the company to create value for buyers.
Any point in the buyer's value chain is an opportunity for a seller to create value for the
buyer firm. This means that any individual in any function in a seller firm can potentially
contribute to value creation. As Michael Porter (1985) explains:

Every department, facility, branch office, and other organizational unit has a role that must
be defined and understood. All employees, regardless of their distance from the strategy
formulation process, must recognize their role in helping a firm achieve and sustain
competitive advantage.

Complexity

• Building a house
high
• Individual journey
• Health care products/
services
• Consulting
Customer Driven Output
limited • Interior decoration products • Meal in a restaurant
• Repair Patch
Customer-Centric Output • Tailor made
clothes
• Petrol • Package tour
• Commodity • Standard software
Seller Driven Output • Individual
non • Train journey colour of
• Basic food car
• Fast • Individual
Food music cd • Haircut
Non limited high
Individuality
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Marketing Management in a Customer-Orientated Business

The process of marketing management is about attracting and retaining customers by

offering them desirable products that satisfy needs and meet wants. Marketing management
in a customer-orientated business consists of five key tasks summarised in the table below:

Marketing Task Commentary

Identify target Management has to identify those customers with whom they
markets want to trade. The choice of target markets will be influenced by
the wealth consumers hold and the business' ability to serve them
Market research Management has to collect information on the current and
potential needs of customers in the markets they have chosen to
supply. Areas to research include how customers buy (which
marketing channels are used) and what competitors are offering
Product development Businesses must develop products and services that meet needs
and wants sufficiently to attract target customers to wish and buy
Marketing mix Having identified the target markets and developed relevant
products, management must then determine the price, promotion
and distribution for the product. The marketing mix is tailored to
offer value to customers, to communicate the offer and to make it
accessible and convenient
Market monitoring The objective in marketing is to first attract customers - and then
(most importantly) retain them by building a relationship. In order
to do this effectively, they need feedback on customer satisfaction.
They also need to feed this back into product design and
marketing mix as customer needs and the competitive
environment changes

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 Marketing and Strategic Planning Process

Entrepreneurs and business managers are often so preoccupied with immediate issues
that they lose sight of their ultimate objectives. That's why a business review or
preparation of a strategic plan is a virtual necessity. Strategic planning is the
management task concerned with the growth and future of a business enterprise. It can
be viewed as a stream of decisions and actins that lead to effective strategies and which,
in turn, help the firm achieve its growth objectives. This may not be a recipe for
success, but without it a business is much more likely to fail. A sound strategic
planning should:

• Provides the direction to the corporation and indicates how growth is to be achieved
• Enable long-term decisions concerning the firm
• Ensures optimum utilization of resources
• Prepares the firm to face the future
• Helps acquire relevant competitive advantages
• Nature, Importance and scope

Major concerns of Strategic Planning

Future: Long term dynamics is its concern, not day-to-day tasks.

Growth: Direction, action, pace and timing of growth.

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Environment: The fit between the business and its environment.

Business portfolio: Product- market scope and postures.

Strategy: Strategy is its concern, not the operational activities.

Integration: Integration of all the major functions and not just a particular function.

Creating core competencies, creating long term sustainable organizational capability is its
concern.

Corporate strategy is its concern.

Key Steps towards a Strategic Plan

The preparation of a strategic plan is a multi-step process covering vision, mission,
objectives, values, strategies, goals and programs. These are discussed below.

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The Mission

The nature of a business is often expressed in terms of its Mission which indicates the
purposes of the business, for example, "to design, develop, manufacture and market
specific product lines for sale on the basis of certain features to meet the identified needs of
specified customer groups via certain distribution channels in particular geographic areas".

The Vision

The next step is to develop a realistic Vision for the business. This should be presented as a
pen picture of the business in three or more year’s time in terms of its likely physical
appearance, size, activities etc.

The Values

The next element is to address the Values governing the operation of the business and its
conduct or relationships with society at large, customers, suppliers, employees, local
community and other stakeholders.

The Objectives

The next key element is to explicitly state the business's Objectives in terms of the results it
needs/wants to achieve in the medium/long term. Aside from presumably indicating a
necessity to achieve regular profits, objectives should relate to the expectations and
requirements of all the major stakeholders, including employees, and should reflect the
underlying reasons for running the business. These objectives could cover growth,
profitability, technology, offerings and markets.

The Strategies

Next are the Strategies - the rules and guidelines by which the mission, objectives etc. may
be achieved. They can cover the business as a whole including such matters as
diversification, organic growth, or acquisition plans, or they can relate to primary matters
in key functional areas.

The Goals

These are specific interim or ultimate time-based measurements to be achieved by

implementing strategies in pursuit of the company's objectives. Goals should be
quantifiable, consistent, realistic and achievable. They can relate to factors like market
(sizes and shares), products, finances, profitability, utilization, efficiency.

The Action Plans

The final elements are the action plans which set out the implementation plans for the key
strategies. These should cover resources, objectives, time-scales, deadlines, budgets and
performance targets.

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It goes without saying that the mission, objectives, values, strategies and goals must be
inter-linked and consistent with each other. This is much easier said than done because
many businesses which are set up with the clear objective of making their owners wealthy
often lack strategies, realistic goals or concise missions.

Statements on vision, mission, objectives, values, strategies and goals are not just elements
of future planning. They also provide benchmarks for a historic review. Most managers
will find it exceedingly difficult to develop a future strategy for a business without
knowing its current strategies and measuring their success to date.

Assessing Current Position

The starting point must be to determine a company's existing (implicit or explicit) vision,
mission, objectives and strategies. Then judge these against actual performance along the
following lines:

Is the current vision being realized?

How has the company's mission and objectives changed over the past say, three
years? Why have the changes occurred or why have no changes occurred? Identify
primary reasons and categorize them as either internal or external.
Describe the actual strategies followed over the past few years in respect of
products/services, operations, finance, marketing, technology, management etc.
Critically examine each strategy statement by reference to activities and actions in
key functional areas covering such matters as:
o How has the company been managed?
o How has the company been funded?
o How has the company sought to increase sales and market share?
o How have productivity/costs moved?

SWOTs - Keys to Business Strategies

Having built up a picture of the company's past aims and achievements, the all-important
SWOT (strengths, weaknesses, opportunities and threats) analysis can commence.

Strengths & Weaknesses

Strengths and weaknesses are essentially internal to the organization and relate to matters
concerning resources, programs and organization in key areas. These include:

Sales - marketing - distribution - promotion - support;

Management - systems - expertise - resources;
Operations - efficiency - capacity - processes;
Products - services - quality - pricing - features - range - competitiveness;
Finances - resources - performance;

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 R&D - effort - direction - resources;
Costs - productivity - purchasing;
Systems - organization - structures.

Threats & Opportunities

The external threats and opportunities confronting a company can exist or develop in the
following areas:

The company's own industry where structural changes may be occurring

(Size and segmentation; growth patterns and maturity; established patterns and
relationships, emergence/contraction of niches; international dimensions; relative
attractiveness of segments)
The marketplace which may be altering due to economic or social factors
(Customers; distribution channels; economic factors, social/demographic issues;
political & environmental factors)
Competition which may be creating new threats or opportunities
(Identities, performances, market shares, likely plans, aggressiveness, strengths &
weaknesses)
New technologies which may be causing fundamental changes in products,
processes, etc.
(Substitute products, alternative solutions, shifting channels, cost savings etc.)

Develop Business Strategies

Once the SWOT review is complete, the future strategy may be readily apparent or, as is
more likely the case, a series of strategies or combinations of tactics will suggest
themselves. Use the SWOTs to help identify possible strategies as follows:

Build on strengths
Resolve weaknesses
Exploit opportunities
Avoid threats

The resulting strategies can then be filtered and moulded to form the basis of a realistic
strategic plan .Finally Monitor/review/evaluate/update Strategic Plan document

There are certain analytical tools used to find out the current status and position of an
organisation or individual in relation to their external environment and current role. They
can then be used as a basis for future planning and strategic management. These are
discussed below:

Strategy - SWOT analysis

Definition:

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SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats.
SWOT analysis is an important tool for auditing the overall strategic position of a business
and its environment.

The Key Distinction - Internal and External Issues

Strengths and weaknesses are Internal factors. For example, a strength could be your
specialist marketing expertise. A weakness could be the lack of a new product.

Opportunities and threats are external factors. For example, an opportunity could be a
developing distribution channel such as the Internet, or changing consumer lifestyles that
potentially increase demand for a company's products. A threat could be a new competitor
in an important existing market or a technological change that makes existing products
potentially obsolete.

It is worth pointing out that SWOT analysis can be very subjective - two people rarely
come-up with the same version of a SWOT analysis even when given the same information
about the same business and its environment. Accordingly, SWOT analysis is best used as
a guide and not a prescription. Adding and weighting criteria to each factor increases the
validity of the analysis.

Areas to Consider

Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses,
Opportunities and Threats are listed in the example SWOT analysis below:

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Porter’s five forces Model:

Defining an industry

An industry is a group of firms that market products which are close substitutes for each
other (e.g. the car industry, the travel industry).

Some industries are more profitable than others. Why? The answer lies in understanding
the dynamics of competitive structure in an industry.

The most influential analytical model for assessing the nature of competition in an industry
is Michael Porter's Five Forces Model, which is described below:

Porter explains that there are five forces that determine industry attractiveness and long-run
industry profitability. These five "competitive forces" are

- The threat of entry of new competitors (new entrants)

- The threat of substitutes
- The bargaining power of buyers
- The bargaining power of suppliers
- The degree of rivalry between existing competitors

Threat of New Entrants

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New entrants to an industry can raise the level of competition, thereby reducing its
attractiveness. The threat of new entrants largely depends on the barriers to entry. High
entry barriers exist in some industries (e.g. shipbuilding) whereas other industries are very
easy to enter (e.g. estate agency, restaurants). Key barriers to entry include

- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.

Threat of Substitutes

The presence of substitute products can lower industry attractiveness and profitability
because they limit price levels. The threat of substitute products depends on:

- Buyers' willingness to substitute

- The relative price and performance of substitutes
- The costs of switching to substitutes

Bargaining Power of Suppliers

Suppliers are the businesses that supply materials & other products into the industry. The
cost of items bought from suppliers (e.g. raw materials, components) can have a significant
impact on a company's profitability. If suppliers have high bargaining power over a
company, then in theory the company's industry is less attractive. The bargaining power of
suppliers will be high when:

- There are many buyers and few dominant suppliers

- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g. brand manufacturers
threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers

Bargaining Power of Buyers

Buyers are the people / organisations who create demand in an industry. The bargaining
power of buyers is greater when

- There are few dominant buyers and many sellers in the industry
- Products are standardised
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers

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Intensity of Rivalry

The intensity of rivalry between competitors in an industry will depend on:

- The structure of competition - for example, rivalry is more intense where there are
many small or equally sized competitors; rivalry is less when an industry has a clear market
leader.

- The structure of industry costs - for example, industries with high fixed costs
encourage competitors to fill unused capacity by price cutting

- Degree of differentiation - industries where products are commodities (e.g. steel, coal)
have greater rivalry; industries where competitors can differentiate their products have less
rivalry

- Switching costs - rivalry is reduced where buyers have high switching costs - i.e. there is
a significant cost associated with the decision to buy a product from an alternative supplier

- Strategic objectives - when competitors are pursuing aggressive growth strategies,

rivalry is more intense. Where competitors are "milking" profits in a mature industry, the
degree of rivalry is less

- Exit barriers - when barriers to leaving an industry are high (e.g. the cost of closing
down factories) - then competitors tend to exhibit greater rivalry.

Analytical Models used in Appraising Business Portfolios

The BCG Matrix:

The BCG Matrix was created by the Boston Consulting Group (BCG) and it became on of
the most well-known portfolio management decision making tools in the early 1970's. It is
based on the product life cycle theory, and it is used to prioritize the product portfolio in a
company or department. There are two dimensions - market share and market growth. The
basic premise in using the Matrix is that the higher the market share a product has, the
higher the growth rate and the faster the market for that product grows.

The BCG Matrix was created in order to alleviate the standard one-size fits all in their time.
It is useful to a company to achieve balance between the four categories of products a
company produces. Market decisions are also well made by considering and using the
Porter's Five Forces.

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Four segments in the BCG matrix:
1. Cash Cows (high market share, low growth) - Keep investments low, while keeping
profits high. Profits and cash generation should be higher because of low growth.

2. Dogs (low market share, low growth) - Liquidate, if they are not delivering cash.
Avoid and reduce the number of these an organization maintains. Keep an eye out for
expensive revival strategies - a dog is typically always a dog.

3. Stars (high market share, high growth) - Invest further in these - they incur high costs,
but they are market leaders and should also generate lots of cash. Stars may balance on net
cash flow, but the organization should try to maintain market share on this would because
rewards are likely

4. Question marks (low market share, but high growth) - These have poor cash inflow,
but have high demands and low returns due to low market share. Efforts should be made to
change market share. If this isn't possible, this will likely turn into a dog as growth slows.

Caution should be taken as high market share isn't the only consideration. High market
share doesn't necessarily mean profit. Growth isn't necessarily the only valid measurement
factor. Occasionally, dogs can earn more cash than cash cows.

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The GE/McKinsey Matrix was developed in the 1970s by the management consulting firm
McKinsey & Co. as a tool to screen General Electric’s large portfolio of strategic business
units (SBUs). The idea behind the matrix (a.k.a., the GE Business Screen or GE Strategic
Planning Grid) is to evaluate businesses along two composite dimensions: industry
attractiveness and industry strength. Conceptually, this matrix is similar to the BCG
Growth-Share Matrix in that it maps SBUs on a grid of the industry and, at the same time,
marks their competitive position. The GE/McKinsey Matrix improves on the BCG
approach in two ways: 1) it utilizes more comprehensive axes (the BCG matrix uses market
growth rate as a proxy for industry attractiveness and relative market share as a proxy for
the strength of the business unit); and 2) it consists of nine-cells rather than four, allowing
for greater precision.

Industry attractiveness and SBU strength are calculated by first identifying the criteria for
each, determining the value of each parameter in the criteria, and multiplying that value by
a weighting factor. The result is a quantitative measure of industry attractiveness and the
SBU’s relative performance in that industry. The industry attractiveness index is made up
of such factors as market size, market growth, industry profit margin, amount of
competition, the degree of seasonal and cyclical fluctuations in demand, and industry cost
structure. The industry attractiveness index consists of factors like relative market share,
price, competitiveness, product quality, customer and market knowledge, sales
effectiveness, and geographic advantages.

Each SBU can be portrayed as a circle plotted on the matrix, with the information
conveyed as follows:

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 • Market size is represented by the size of the circle.

• Market share is shown by using the circle as a pie chart.

• The expected future position of the circles is indicated by an arrow.

The sample diagram shows the relative position of an SBU with a market share of 65%.
The arrow in the upward right position indicates that the SBU is expected to lose strength
relative to competitors, and that the business unit is in an industry that is projected to
become increasingly less attractive. The tip of the arrow indicates the future position of the
center point of the circle.

Both axes are divided into three segments, yielding nine cells. The nine cells are grouped
into three zones:

• The Grey Zone consists of the three cells in the upper left corner. If the SBU falls in
this zone, it’s in a favorable position with relatively attractive growth opportunities.
This position indicates a "green light" to invest and grow this SBU.

• The white Zone consists of the three diagonal cells from the lower left to the upper
right. A position in the yellow zone is viewed as having medium attractiveness.
Management must therefore exercise caution when making additional investments
in this SBU. The suggested strategy is to protect or allocate resources on a selective
basis rather than growing or reducing share.

• The Red Zone consists of the three cells in the lower right corner. A harvest
strategy should be used in the two cells just below the three-cell diagonal. These
SBUs shouldn’t receive substantial new resources. The SBUs in the lower right cell
shouldn’t receive any resources and should probably be divested or eliminated from
a firm’s portfolio.

There are strategy variations within these three groups. For example, within the Red Zone,
a firm would be inclined to quickly divest itself of a weak business in an unattractive
industry, whereas it might perform a phased harvest of an average SBU in the same
industry.

Ansoff Growth Strategy Matrix

Ansoff's growth strategy matrix remains a popular tool for analyzing growth.

24
 The matrix presents four main strategic choices, ranging from an incremental strategy in
which current products are sold to existing customers to a revolutionary strategy in which
new products are sold to new customers.

• Market penetration. In this quadrant, the company markets existing products to existing
customers. The products remain unchanged and no new customer segments are pursued;
instead, the company repositions the brand, launches new promotions or otherwise tries to
gain market share and accordingly, increase revenue.

• Market development. Here, the company markets existing products to one or more new
customer segments. These customers could represent untapped verticals, virgin geographies
or other new opportunities.

• Product development. This quadrant involves marketing new products to existing

customers. The company grows by innovating, gradually replacing old products with new
ones.

• Diversification. This quadrant entails the greatest risk; here, the company markets new
products to new customers. There are two types of diversification: related and unrelated. In
related diversification, the company enters a related market or industry. In unrelated
diversification, the company enters a market or industry in which it has no relevant
experience.

These quadrants represent varying degrees of risk. Assuming that the more a business
knows about its market, the more likely it will be to succeed; the market penetration
strategy entails the least risk, while the diversification strategy entails the most. (In fact,
consultants often refer to the diversification cell as the 'suicide cell.')

25
Marketing planning - the link with strategic planning

Macdonald (1995) suggests that several stages have to be completed in order to arrive at a
strategic marketing plan. These are summarised in the diagram below:

The extent to which each part of the above process needs to be carried out depends on the
size and complexity of the business.

In an undiversified business, where senior management has a strong knowledge and

detailed understanding of the overall business, it may not be necessary to formalise the
marketing planning process.

By contrast, in a highly diversified business, top level management will not have
knowledge and expertise that matches subordinate management. In this situation, it makes
sense to put formal marketing planning procedures in place throughout the organisation.

Businesses that succeed do so by creating and keeping customers. They do this by

providing better value for the customer than the competition.

26
Marketing management constantly have to assess which customers they are trying to reach
and how they can design products and services that provide better value (“competitive
advantage”).

The main problem with this process is that the “environment” in which businesses operate
is constantly changing. So a business must adapt to reflect changes in the environment and
make decisions about how to change the marketing mix in order to succeed. This process of
adapting and decision-making is known as marketing planning.

Where does marketing planning fit in with the overall strategic planning of a
business?

Strategic planning as already discussed is concerned about the overall direction of the
business. It is concerned with marketing, of course. But it also involves decision-making
about production and operations, finance, human resource management and other business
issues.

The objective of a strategic plan is to set the direction of a business and create its shape
so that the products and services it provides meet the overall business objectives.

Marketing has a key role to play in strategic planning, because it is the job of marketing
management to understand and manage the links between the business and the
“environment”.

Sometimes this is quite a straightforward task. For example, in many small businesses there
is only one geographical market and a limited number of products (perhaps only one
product!).

However, consider the challenge faced by marketing management in a multinational

business, with hundreds of business units located around the globe, producing a wide range
of products. How can such management keep control of marketing decision-making in such
a complex situation? This calls for well-organised marketing planning.

What are the key issues that should be addressed in marketing planning?

The following questions lie at the heart of any marketing (or indeed strategic) planning
process:

• Where are we now?

• How did we get there?
• Where are we heading?
• Where would we like to be?
• How do we get there?
• Are we on course?

Why is marketing planning essential?

27
Businesses operate in hostile and increasingly complex environment. The ability of a
business to achieve profitable sales is impacted by dozens of environmental factors, many
of which are inter-connected. It makes sense to try to bring some order to this chaos by
understanding the commercial environment and bringing some strategic sense to the
process of marketing products and services.

A marketing plan is useful to many people in a business. It can help to:

• Identify sources of competitive advantage

• Gain commitment to a strategy
• Get resources needed to invest in and build the business
• Inform stakeholders in the business
• Set objectives and strategies
• Measure performance

Marketing planning - setting marketing objectives

Introduction

Objectives set out what the business is trying to achieve.

Objectives can be set at two levels:

(1) Corporate level

These are objectives that concern the business or organisation as a whole. Examples of
“corporate objectives might include:

• We aim for a return on investment of at least 15%

• We aim to achieve an operating profit of over Rupees 10 million on sales of at least
Rupees 100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable
future

(2) Functional level- e.g. specific objectives for marketing activities

Examples of functional marketing objectives” might include:

• We aim to build customer database of at least 250,000 households within the next 12
months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets

Both corporate and functional objectives need to conform to the commonly used SMART
criteria.

28
The SMART criteria are summarised below:

Specific - the objective should state exactly what is to be achieved.

Measurable - an objective should be capable of measurement – so that it is possible to

determine whether (or how far) it has been achieved

Achievable - the objective should be realistic given the circumstances in which it is set and
the resources available to the business.

Relevant - objectives should be relevant to the people responsible for achieving them

Time Bound - objectives should be set with a time-frame in mind. These deadlines also
need to be realistic.

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 Marketing Environment

Organizations do not operate in isolation. Although managers may be able to direct internal
resources, many things that affect an organization are beyond a manager’s control. Here, the
term- Marketing Environment comes into picture. It refers to all of the forces surrounding and
affecting a firm’s ability to do and grow business successfully over a long period of time.

The success of Marketing Management fully depends on the knowledge of marketing

environment. A firm should know the current environment and upcoming trends in it to so that it
can respond to the changes accordingly. A detailed study of marketing environment helps in
developing strategic response to the environment. It also enables the firm to gauge the
opportunities and threats ahead.

30
 The marketing environment consists of the macro environment, microenvironment and internal
environment. The figure given below shows the different components of the marketing
environment:

Macro Environment

Political factors
Micro Environment

Demographic
Internal Environment Environment
Man
Economic factors
Machine
Customers Money
Material
Minutes
Suppliers

Technological factors Socio-cultural

Stakeholders Environment

Legal Environment

Natural Environment

31
 Micro Environment- The microenvironment refers to the forces that are close to the
company and affect its ability to serve its customers. It includes suppliers that deal directly
or indirectly, consumers and customers, and other local stakeholders. Micro tends to
suggest small, but this can be misleading. In this context, micro describes the relationship
between firms and the driving forces that control this relationship. It is a more local
relationship, and the firm may exercise a degree of influence.

Macro environment- The macro environment refers to all forces that are part of the larger
society and affect the microenvironment.It includes all the factors that influence the firm
but are not in its direct control. A company does not generally influence any laws (although
it is accepted that they could lobby or be part of a trade organization). It broadly includes
concepts such as demography, economy, natural forces, technology, politics, culture and
Govt. policies. The macro environment is continuously changing, and the company needs
to be flexible to adapt. There may be aggressive competition and rivalry in a market.
Globalization means that there is always the threat of substitute products and new entrants.
The wider environment is also ever changing, and the marketer needs to compensate for
changes in culture, politics, economics and technology.

Demographic Environment:

No business can run without people, so it becomes important to study the population- its size,
growth rate, age distribution, religious composition and literacy level. This is a very important
factor to study for marketers and helps to divide the population into market segments and target
markets

Socio-Cultural Environment:

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Consumer buying behavior is closely related to the socio-cultural setup. In any society, the
culture, traditions, beliefs, values and lifestyles of the people largely influence their consumption
patterns and purchase decisions. Culture relates to religion, language, education etc. whereas
social class is determined by income, occupation location of residence etc. The values can also
be further categorized into core beliefs, which passed on from generation to generation and very
difficult to change, and secondary beliefs, which tend to be easier to influence. As a marketer, it
is important to know the difference between the two and to focus your marketing campaign to
reflect the values of a target audience.

Economic Environment:

It relates to the both the general economic conditions as well as segment wise economic
conditions of the population with respect to – their disposable income, purchasing power etc.. It
also includes the growth rate of the economy, tax rates, inflation rates, credit availability and
interest rates, price of important materials, labour rates, energy scene etc. This refers to the
purchasing power of potential customers and the ways in which people spend their money.
Within this area are two different economies, subsistence and industrialized. Subsistence
economies are based more in agriculture and consume their own industrial output. Industrial
economies have markets that are diverse and carry many different types of goods. Each is
important to the marketer because each has a highly different spending pattern as well as
different distribution of wealth.

Political Environment:

This plays a very important role in case of a business/industrial firm. The political environment
includes all laws, government agencies, and groups that influence or limit other organizations
and individuals within a society. The political environment of a nation directly influences its
economic status thus affecting the industrial growth. In fact, the economic and political
environments are closely knit and they have a major role in structuring the industrial setup.
Political environment may include- the type of government in the country, its stability, media,
social and religious organizations etc..It is important for marketers to be aware of the political
scenario as it can be complex. Some products are regulated by both state and federal laws. There
are even restrictions for some products as to who the target market may be, for example,
cigarettes should not be marketed to younger children. There are also many restrictions on
subliminal messages and monopolies. As laws and regulations change often, this is a very

33
important aspect for a marketer to monitor.

Natural environment:

This covers the aspects of climate, ecology and availability of natural resources. This includes
the natural resources that a company uses as inputs and affects their marketing activities. The
concern in this area is the increased pollution, shortages of raw materials and increased
governmental intervention. As raw materials become increasingly scarcer, the ability to create a
company’s product gets much harder. Also, pollution can go as far as negatively affecting a
company’s reputation if they are known for damaging the environment. The last concern,
government intervention can make it increasingly harder for a company to fulfill their goals as
requirements get more stringent.

Technological Environment:

For a business firm, technology affects not only its final products, but also its raw materials,
processes, and operations as well as its customer segments. The technological environment is
perhaps one of the fastest changing factors in the macroenvironment. This includes all
developments from antibiotics and surgery to nuclear missiles and chemical weapons to
automobiles and credit cards. As these markets develop it can create new markets and new uses
for products. It also requires a company to stay ahead of others and update their own technology
as it becomes outdated. They must stay informed of trends so they can be part of the next big
thing, rather than becoming outdated and suffering the consequences financially.

Legal Environment:

Businesses should have a thorough understanding of the implications of all the legal provisions
relating to their business. Business legislation is classified into categories like- corporate affairs,
consumer protection, employee protection, corporate protection etc.

34
Fad, Trend and Megatrend

Enterprising companies are always keen on understanding the unmet needs and wants of
customers and manage to create solutions to them. A proper analysis of marketing environment
helps in understanding fads, needs and trends. A Fad is an event which is unpredictable, short
lived and without social, economic and political significance. Earning profit out of a fad is more
a matter of luck and good timing than anything else. A trend is a direction or sequence of events
that has some momentum and durability than fad. A trend tells about the shape of the future
giving us many marketing opportunities. Mega trends are large social, economic, political and
technological change that are slow to form, and once in place, they influence us for sometime-
around seven to ten years or even longer. Many marketing programs or new product launch are
likely to be more successful if trends and mega trends are taken into consideration. But all such
opportunities do not ensure success and market research is necessary to analyze the actual
potential.

Evaluation of marketing opportunities:

The assessment of marketing opportunities for companies is a research that supports various
strategic business decisions of companies with an emphasis on the decisions in the marketing
field.

While analyzing a marketing opportunity, it should be ensured that the idea has a demonstrated
need, ready market, and ability to provide a solid return on investment.

Is the idea feasible in the marketplace? Is there demand? Can it be done? Are you able to
pull together the persons and resources to pull it off before the window of opportunity
closes? These questions must be considered and answered. Three exterior criteria that
mostly affect the marketing opportunities of a company are the size of the market, the level
of competition and the potential growth of the market. The marketing opportunities of a
company are greater when the demand is relatively high, the competition is low and when
the market is rapidly increasing in size. The usual contents that are included in research of
marketing opportunities for a company are as follows:

• The size of the market for individual products/ services

• Assessment of demand in individual marketing segments
• The consuming habits in individual segments
• Relative sales potential
• Identification and assessment of the competition (also the market share)
• The role of distribution channels
• The trends of the market under study

Companies exploring business ideas always have the customer and the market in mind. They
make an in depth study of the marketing environment to determine industry issues, market

35
structure, market size, growth rate, market capacity, attainable market share, cost structure, the
core economics, exit strategy issues, time to breakeven, opportunity costs, and barriers to entry.
Below are two models that entrepreneurs use to evaluate their business ideas and plans.

Let us study an easy model that we can use to evaluate marketing opportunities. This is called the
RAMP model.

The RAMP Model (source: Business Idea and Opportunity evaluation- Ryan Allis)

Let’s start with the first letter, R, which stands for Return. Return really is return on
investment.

R Discuss Exit Strategy (acquisition or IPO)

R Is it profitable? Will your revenues be higher than your expenses?
Time to breakeven (how long before cash flow positive? How long until the company
R
begins to have an aggregate net income)
R Investment Needed. How much money will it take to start-up this venture.

Now let’s look at A. A stands for advantages.

Look at cost structure (suppliers, what each element will cost to source or
A
manufacture)
Barriers to entry (large competitors, regulations, patents, large capital requirements. If
A there are many barriers to entry, it will be difficult to enter a market. The higher the
barriers to entry, the more disadvantaged you will be.
Intellectual Property. Do you have a proprietary advantage such as a patents or
A
exclusive licenses on what you will be selling?
Distribution Channel. How will you be selling your product? Will you sell it direct to
the consumer via the Internet, sell it to wholesales, sell it to businesses, or sell it to
A
retail stores. If can develop a unique distribution channel this can surely be an
advantage.

36
Now let’s look at M. M stands for Market.

Is there a big need for this product or service? Try to avoid ideas that sound cool but
M there is no real need for. Make sure your product or service fills and need or solves a
problem.
M Target market (who are you selling to? businesses? consumers? what demographics?)
Analyze target market (who are you selling to? businesses? consumers? what
M
demographics?)
Pricing (what you they charge, what will be the price, will there be a high enough
M
markup).
M Analyze market size

Finally let’s look at P. P stands for potential.

Risk vs. Reward. How risky is the opportunity? If it is very risky, it there a chance for
P the business to do very well. Will there be a high reward for the founders and
investors if the company succeeds?
P The Team. Is the team right for the business? Do you have knowledge in this area.
Timing. Is the market ready for your product? You may have a great idea for flying
P cars, but if consumers are not ready for your product you may not be able to turn your
idea into a successful business.
Goal Fit. Does the business concept fit the goals of the team to create a high potential
P
or lifestyle business?

37
 Market Research and Marketing information Systems

Information is vital to Marketing

Without Information, companies of the 21st century will find it more difficult to grow or even
survive in an environment that is getting fiercer and fiercer : Information for dealing with its
customers, data about its own performance, about its markets, and more and more, information
about its whole environment (including social, political, economic and cultural factors; 'Macro-
Marketing' in other words).

The complexity of management decision making has increased greatly during recent years, it is
much more significant for the firm’s marketing management because it is located at the interface
between the firm and ever changing character of most markets a growing concern for
environmental quality; the ever increasing competition from other brands and substitute products
, growing shortages of certain raw materials, the volatility of international political relationships
and rapid changing technology results in growing difficulties in making efficient marketing
decisions .

Today, in case of most of the business firms, the management groups remain far from their
customers-the individual who is the key to business success. A complicated distribution system
intervenes between managers and widely scattered customers, yet they must know who their
customers are and what their expectations are. The managers must also have complete market
intelligence and competitor knowledge for sound decision making. For most of such information,
executives rely upon their sales representatives and dealers, but increasingly the final link in the
communication channel through which the consumers communicate with the company is market
research. It enables the manufacturer or producer or service provider to what the consumers
want, at what time they want, in how much quantity they want, how many of them want a
particular commodity, how it could be made available and how many other customers would be
attracted by the producer or a dealer. Proper assessment of the market demand can be made and
market risk can be reduced.

38
With the increasing complexity of business activity, the magnitude of marketing problem is also
increasing. As a result the costs involved are also huge, this is why management is turning more
and more to rigorous market information as a way of reducing the uncertainties inherent in
decision making.

Marketing Research vs. Market Research

These terms often are used interchangeably, but technically there is a difference.

Marketing research is sort of a communication link between company and customers, market and
environment: marketing research generates and gives company information to help companies
make better marketing strategies and plans.
Market research (compared to marketing research) is the part of marketing research that is about
researching the market place (customer needs, competition, opportunities, and changes in the
marketplace).

Definition- Market research is the process of systematically gathering, recording and analyzing
data and information about customers, competitors and the market.

It’s uses include to help create a business plan, launch a new product or service, fine tune
existing products and services, and expand into new markets. Market research can be used to
determine which portion of the population will purchase a product/service, based on variables
like age, gender, location and income level.

The key idea behind Marketing Research is:

1. it is the research on the manifold problem of marketing

2. Its purpose is to aid decision making in marketing
3. Systematic gathering and analysis of information is what it does in achieving its mission.

A list of questions that can be answered through market research:

What is the current status of the market? What are the ongoing trends? Who are the
competitors and what are their strategies?
What is the product feedback in the market?
Which needs are important? Are the needs being met by the current products?
What are the customer preferences and expectations?

The steps in market research are as follows:

39
 Define the problem and
research objectives

Develop the research plan

Collect the information

Analyze the information

Present the findings

Make the decision

Define the Problem and the research objectives-

Problem should not be defined either too broadly or too narrowly. Following questions help
in formulating a problem--What is purpose of study - solve a problem? Identify
opportunity? Is additional background info necessary? What information is needed to make
decision? How will information be utilized? Should research be conducted?

Develop the research Plan-

This is to efficiently gather information. It involves decisions on the data sources, research
approaches, research instruments, sampling plan and contact methods.

1. Data sources:

40
 Primary data -Primary research entails the use of immediate data in determining the
survival of the market. The popular ways to collect primary data consist of surveys,
interviews and focus groups, which shows that direct relationship between potential
customers and the companies
Secondary data- secondary research is a means to reprocess and reuse collected
information as an indication for betterments of the service or product. Information
relates to a past period.

2. Research Approaches:

Observational research- It is a social research technique that involves the direct

observation of phenomena in their natural setting
Focus Group Research- A focus group is a form of qualitative research in which a
group of people are asked about their attitude towards a product, service, concept,
advertisement, idea, or packaging. Questions are asked in an interactive group
setting where participants are free to talk with other group members.
Survey Research- The broad area of survey research encompasses any measurement
procedures that involve asking questions of respondents to understand their
knowledge, beliefs, preferences and satisfaction. A "survey" can be anything from a
short paper-and-pencil feedback form to an intensive one-on-one in-depth
interview.
Behavioral Data- data that reveal the buying behavior of our customers and
prospects.
Experimental research- The general procedure is one or more independent variables
are manipulated to determine their effect on a dependent variable.

3. Research Instruments:

Questionnaires- It is a common instrument for collection of primary data. It consists

of a set of questions presented to respondents.
Qualitative measures- These are research techniques, in which data is obtained from
a relatively small group of respondents and not analyzed with statistical techniques.
Mechanical devices- Galvanometers, eye cameras, brain wave scanners etc. are
used.

4. Sampling Plan- This calls for three decisions—

a) Sampling unit: who is to be surveyed

b) Sample Size: how many people should be surveyed
c) Sampling Procedure: How should the respondents be chosen?

5. Contact Methods

41
 Mail Questionnaire- It is the best way to reach people who would not give personal
interviews or whose responses might be biased or distorted by the interviewers
Telephone Interview- It is the best method for gathering information quickly. The
response rate is typically higher than in the case of mailed questionnaires.
Personal Interview- It is the most versatile method. The interviewers can ask more
questions and record additional observations about the respondent, such as dress
and body language. But it is more expensive and requires more planning and
supervision.
Online Interview- A company can include a questionnaire on its website and offer
an incentive to answer the questionnaire or it can place a banner on a frequently
visited site, inviting people to answer some questions and possibly win a prize.

Collect the Information- This phase is the most error prone and most expensive. At times
some of the respondents cannot be contacted again while some others are reluctant to
cooperate. In some cases the respondents give dishonest answers and certain interviewers
are also biased.

Analyze the Information- The collected data is then tabulated and frequency distributions
are developed. Different statistical techniques and decision models are used to get the
findings.

Present the findings-the findings are presented to the management for making major
marketing decisions.

Make the decision- Research provides the required information to the managers.
Depending upon the reliability of the findings, it is accepted or rejected.

Characteristics of Good Marketing Research

1 Scientific Method Effective research uses scientific method: careful

observation, formulation of hypotheses, prediction and
testing
2 Research creativity With more innovative ways to solve a problem, marketing
research can give better results.
3 Multiple methods Use of two or more methods increases the confidence in the
results.
4 Interdependence of Researchers recognize that data are interpreted from
models and data underlying models that guide the type of information
sought.
5 Value and cost of Cost of the information is determined by its value and value
information is a qualitative term which depends on the reliability and
validity of the findings.
6 Healthy skepticism Researchers are alert to the problems caused by “marketing

42
 myths”.
7 Ethical marketing Misuse of marketing research can harm or annoy
consumers, increasing resentment at what consumers regard
as an invasion of their privacy or a disguised sales pitch.

Areas of marketing research:

1. Research on Products and services-

Determining customer acceptance of proposed new products

Making comparative studies of competitive products
Evaluating new comparative products
Determining current or new uses of current products
Evaluating and market testing proposed new products or services
Determining sources of customer dissatisfaction with products
Making packaging and design studies

2. Research on markets

Analyzing size of market for existing products

Estimating demand for new product
Sales forecasting and general business forecasting
Determining characteristics of markets of products
Analyzing sales potentials and relative profitability of territories.
Studying trends in market size and composition.

3. Research on sales methods and policies

Estimating or revising sale territories

Estimating present and proposed sales methods
Studying competitive pricing
Analyzing salesman activities and effectiveness
Setting sale quotas and developing salesman’s standards
Studying distribution cost
Establishing salesmen’s compensation plans

4. Research on advertising

Estimating advertising effectiveness

Analyzing competitive advertising and selling practices
Selecting advertising media
Making motivational or qualitative studies

Following diagram shows the scope of marketing research:

43
 Product Research

Advertising Marketing research Market

research Research

Sales Research

Objectives of marketing Research:

To determine present market situation and current trends in the market.

To discover what major underlying factors are dominating that situation and how
these factors can be influenced or controlled.
To set up plan for keeping in touch with the behavior of these dominating factors
and for measuring the results of any effort made to influence or control them.

Marketing Marketing
Research Strategy

Knowledge about
nature and
composition of
customers, developing
marketing mix, to
prove “what went
wrong” to anticipate
competitive move

44
Marketing Information Systems
For any business to excel, knowledge changes in the market place is very critical and it is
the foremost responsibility of the marketers to keep a track of these changes. Companies
study their managers’ information needs and design marketing information systems to meet
these needs. A marketing Information Systems consists of people, equipment, and
procedures to gather, sort, analyze, evaluate and distribute needed, timely and accurate
information to marketing decision makers.

A marketing information system (MIS) is intended to bring together disparate items of data
into a coherent body of information. An MIS is, as will shortly be seen, more than raw data
or information suitable for the purposes of decision making. An MIS also provides methods
for interpreting the information the MIS provides. Moreover, as Kotler's1 definition says,
an MIS is more than a system of data collection or a set of information technologies:

"A marketing information system is a continuing and interacting structure of people,

equipment and procedures to gather, sort, analyse, evaluate, and distribute pertinent, timely
and accurate information for use by marketing decision makers to improve their marketing
planning, implementation, and control".

Figure 9.1 illustrates the major components of an MIS, the environmental factors
monitored by the system and the types of marketing decision which the MIS seeks to
underpin.

The explanation of this model of an MIS begins with a description of each of its four main
constituent parts: the internal reporting systems, marketing research system, marketing
intelligence system and marketing models. It is suggested that while the MIS varies in its
degree of sophistication - with many in the industrialized countries being computerized and
few in the developing countries being so - a full fledged MIS should have these

45
components, the methods (and technologies) of collection, storing, retrieving and
processing data..

Internal reporting systems: All enterprises which have been in operation for any period
of time have a wealth of information. However, this information often remains under-
utilized because it is compartmentalized, either in the form of an individual entrepreneur or
in the functional departments of larger businesses. That is, information is usually
categorized according to its nature so that there are, for example, financial, production,
manpower, marketing, stockholding and logistical data. Often the entrepreneurs, or various
personnel working in the functional departments holding these pieces of data, do not see
how it could help decision makers in other functional areas. Similarly, decision makers can
fail to appreciate how information from other functional areas might help them and
therefore do not request it.

The internal records that are of immediate value to marketing decisions are: orders
received, stockholdings and sales invoices. These are but a few of the internal records that
can be used by marketing managers, but even this small set of records is capable of
generating a great deal of information.

By comparing orders received with invoices an enterprise can establish the extent to which
it is providing an acceptable level of customer service. In the same way, comparing
stockholding records with orders received helps an enterprise ascertain whether its stocks
are in line with current demand patterns.

Marketing research systems: Marketing research is a proactive search for information.

That is, the enterprise which commissions these studies does so to solve a perceived
marketing problem. In many cases, data is collected in a purposeful way to address a well-
defined problem (or a problem which can be defined and solved within the course of the
study). The other form of marketing research centres not around a specific marketing
problem but is an attempt to continuously monitor the marketing environment.

Marketing intelligence systems: Whereas marketing research is focused, market

intelligence is not. A marketing intelligence system is a set of procedures and data sources
used by marketing managers to extract information from the environment that they can use
in their decision making. This scanning of the economic and business environment can be
undertaken in a variety of ways, including::

Unfocused The manager, by virtue of what he/she reads, hears and watches exposes
scanning him/herself to information that may prove useful. Whilst the behaviour is
unfocused and the manager has no specific purpose in mind, it is not
unintentional

Semi- Again, the manager is not in search of particular pieces of information that
focused he/she is actively searching but does narrow the range of media that is
scanning scanned. For instance, the manager may focus more on economic and
business publications, broadcasts etc. and pay less attention to political,

46
 scientific or technological media.

Informal This describes the situation where a fairly limited and unstructured attempt is
search made to obtain information for a specific purpose. For example, the
marketing manager of a firm considering entering the business of importing
frozen fish from a neighbouring country may make informal inquiries as to
prices and demand levels of frozen and fresh fish. There would be little
structure to this search with the manager making inquiries with traders
he/she happens to encounter as well as with other ad hoc contacts in
ministries, international aid agencies, with trade associations,
importers/exporters etc.

Formal This is a purposeful search after information in some systematic way. The
search information will be required to address a specific issue. Whilst this sort of
activity may seem to share the characteristics of marketing research it is
carried out by the manager him/herself rather than a professional researcher.
Moreover, the scope of the search is likely to be narrow in scope and far less
intensive than marketing research

In addition it involves management in talking to producers, suppliers and customers, as

well as to competitors. Nonetheless, it is a largely informal process of observing and
conversing.

Some enterprises will approach marketing intelligence gathering in a more deliberate

fashion and will train its sales force, after-sales personnel and district/area managers to take
cognizance of competitors' actions, customer complaints and requests and distributor
problems. Enterprises with vision will also encourage intermediaries, such as collectors,
retailers, traders and other middlemen to be proactive in conveying market intelligence
back to them.

To understand MIS better an example of development of management information system

of an irrigation project is given below:

IRRIGATION: Information is everything

CMC has designed, developed and implemented a management information system (MIS)
for this World Bank-funded project in Maharashtra, India

47
The product
MIS: Management Information System
A comprehensive system for the planning, design, construction, monitoring, operation and
maintenance of irrigation schemes

The client
Irrigation Department, Government of Maharashtra
The department controlling water resources in India's most industrialized state

Project
Development and establishment of management information systems (MIS) for six selected
major irrigation projects under the World Bank-funded Maharashtra Composite Irrigation
Project - III (restructured)

Background
Out of the six selected irrigation projects, three schemes - Kukadi, Bhima and Krishna - are
located in the Krishna river basin. The remaining three - Upper Penganga, Majalgaon and
Jayakwadi - are located in the Godavari river basin in the state of Maharashtra.

These six projects are administered by the chief engineer (specified projects), Pune, and the
chief engineer (specified projects), Aurangabad. Each of the six projects is administratively
divided into two circles - a project circle, headed by a superintending engineer and a
command area development (CAD) circle, headed by an administrator. Each circle
administratively controls four to five divisions, and each division, in turn, has four to five
sub-divisions.

A special analysis and evaluation cell (SAEC), headed by a superintending engineer,

coordinates and interacts with the different project circles, CADA circles and associated
institutions like the directorate of irrigation research and development (DIRD), the public
works department (PWD), the revenue department (resettlement and rehabilitation), the
quality control organization and the agriculture department. The roles of the associated
institutions have been specified by the state irrigation department.

Objective
The primary objective of developing and establishing an MIS for the selected major
irrigation schemes was to provide a comprehensive system facilitating planning, design,
construction, monitoring, operation and maintenance of the schemes.

The system developed by CMC

Provides quick, accurate and relevant information

Improves data management and handling capacity
Provides effective sharing of data and information amongst various management levels
and with associated offices

48
Scope
CMC handled the study, design, development, testing and installation of the management
information system, training of officials, as well as implementation support for the system.

MIS has the following modules:

Construction

Land acquisition
Rehabilitation and resettlement
Resource requirement planning
Procurement monitoring
Stores and inventory
Asset management
Schedule of rates
Roads and bridges
On-farm development works
Quality control
Construction monitoring and management
Works accounts

Operation and maintenance

Plan of operation and management

Drainage network monitoring maintenance management
Resource requirement planning
Coordination with water users' associations (WUAs)
Command area agriculture
Asset management
Integrated agriculture development
Maintenance management
Project management

Administration management
Personnel administration

System
The system is based on a client-server configuration. The server is a Pentium machine with
open SCO Unix as the operating system and open Ingres as the back-end. The clients are
486 PCs with Gupta SQL 5.0 (with Ingres router) as the front-end, operating in MS
Windows.

49
MIS covers the offices of the secretary, the joint secretary and the deputy secretary of the
state irrigation department based in Mumbai, and is connected to the offices of the chief
engineers (specified projects) in Pune and Aurangabad.

Finally the distinction between marketing research and marketing information systems is
given in the table below:

Sr.No Parameter Marketing research Marketing Information System

1 Definition Systematic collection, Includes a set of procedures and
recording, and analysis of methods for the continuous
data about problems analysis and presentation of
relating to marketing of information for decision making in
goods, services and ideas the area of marketing.
2 Scope handles problems Concerned with the problems in all
pertaining to a particular area of marketing such as sales,
area cost of distribution, advertising,
etc.
3 Continuity Operates on specific A continuous process
marketing problems and is
over after the research
study
4 Objective Conceived with finding Cautions against possible
solutions for specific marketing problems and helps in
marketing problems preventing them, also helps in
solving problems when they arrive
5 Orientation May be a post-mortem of Always directed at the future
what has already taken aspects of marketing management
place or may relate to
present situation for a
future decision
6 Higher System A part of marketing An integral part of Marketing
information system Information System of the
organization

50
Demand Forecasting and Market Potential Analysis

Understanding customer demand is key to any manufacturer to make and keep sufficient
long-lead inventory so that customer orders can be correctly met. Forecasts are never
perfect but are valuable in better preparedness for the actual demand.

The concept of matching supply with demand is straightforward. Just strike the right
balance between what your customers want and the inventory investment required to meet
that demand.

Of course, it's not that easy. Buying too much wastes time, money and space—and exposes
you to potential losses from liquidating overstocks. Underestimating demand leads to
backorders, cancellations and unsatisfied customers who turn to your competitors.

Measures of Market Demand:

There can be as many as ninety types of demand measures. It can be measured at six
different product levels, five different space levels, and three different time levels. Each
demand is for a specific purpose. Thus a company might make a short – range forecast of
the total demand for a particular products item to provide a basis for ordering raw materials
, planning production, and scheduling short –run financing . Or it might make a long range
forecast of regional demand for its major product line to provide a basis for considering
market expansion. The different levels are shown in the diagram below:

51
 World
Space level
India
Region
Territory
Customer

All sales
Industry sales

Company Sales
Product
level
Product
line sales

Product
form sales

Product
item sales

Short run Medium Long

run run

Time level

Fig-1 Ninety Types of Demand Measurement (6x5x3)

Forecast depends upon the type of market being considered. Different ways of segregating
the market are as follows:

Potential Market- The set of consumers who have sufficient level of interest in the market
offer. In addition to this affordability of the consumer and accessibility of the product are
important.

Available market- Set of consumers having interest, income and access to the market
offer.

Target market- Part of the qualified available market which company decides to pursue.

Penetrated market- Set of consumers already buying company’s product.

52
Market Demand- It can be defined as an aggregate of the demands of all potential
customers (market participants) for a specific product over a specific period in a specific
market under a specific marketing program..

Market
Potential, Q2

Market
Demand
in Market
specific forecast, Qf
period

Planned
Market Expenditure
minimum,Q1

Industry Marketing Expenditure

Fig: Marketing demand as a function of Industry marketing expenditure (assumes a

particular marketing environment.

In the diagram above, the horizontal axis shows varying Industry expenditure in a given
time period and the vertical axis indicates the resulting market demand .Base sale Q1 will
happen irrespective of any marketing expenditure. It is clear in the figure that with
increasing expenditure the market demand increases, first at an increasing rate and then at a
decreasing rate. The upper limit of market demand is called the market potential.

Market Potential-The market forecast shows expected market demand, not maximum
market demand. For the latter, we have to visualize the level of market demand for a very
high level industry marketing effort,It can be defined as the limits approached by market
demand as industry marketing effort goes to infinity for a given environment, in a given
period of time.

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Market Forecast- Only one of the many possible levels of industry marketing efforts will
actually occur. The market demand corresponding to the expected efforts is called the
market forecast. The market forecast shows the levels of market demand corresponding to
the actual. The market forecast shows the levels of market demand corresponding to the
actual level of industry marketing expenditure in the given environment.

Company demand: . We are now ready to define company demand. company demand is
the company’s share of market demand. In symbols: Qi = siQ

Where : Qi = Company I’s demand

Si = Company I’s market share
Q = total market demand

Company demand , like market demand, is a function called the company demand function
or sales – response function and is subject to all the determinants of market demand plus
what ever influence company market share.

Company Forecast: Its demand describes estimated company sales at alternative levels of
company marketing efforts. It remains for management to choose one of the levels. The
choice level of sales, which may be called the company forecast.

Company’s Potential: Company’s sales potential is the limits approached by company

demand as company marketing effort increases relative to competitors. The absolute limits
of company demand are of course, the market potential. The two would be equal if the
company achieved 100 percent of the market that is, if the company becomes a monopolist.
In most of the cases, company’s sales potential is less than market potential, even when
company marketing expenditure increase considerably relative to competitors. The reason
is that each competitor has a hard core of loyal buyers who are not very responsive to other
companies.

Current Demand Estimation:

Total market potential: It is the calculation of the greatest amount of potential sales of a
particular product in that product industry in a specific time period. The total market
potential is calculated by multiplying the number of buyers in the market by the quantity
purchased by the average buyer, by the price of one unit of the product.

Total Market Potential = Potential number of buyers x Average quantity purchased by a

buyer x The price

Area Market Potential: When the market potential is calculated on the basis of territories
like towns, cities, states etc. it is called area market potential. Two major methods for
calculating the same are given below:
Market-Buildup Method- It is the method of estimating the potential of a market by
identifying the number of potential buyers in the market and the purchase requirements of

54
each. The source of the data may be published sic coded data, primary research like
questionnaires or surveys, or sales history.

Multiple-factor index method

Companies making sales directly to the end consumer face the problem of having too many
potential consumers to list effectively. The standard manner of determining regional
attractiveness is the multiple or market-factor index method. This method identifies market
factors that correlate with market potential and then combine them into a weighted index.
The geographic area can be broadly or narrowly defined to include entire nations or simply
small towns. An example of this method is the buying power index (BPI), which uses an
area’s share of national population, effective buying income, and retail sales as a basis of
determining a location’s attractiveness. Other measures of market potential and
attractiveness are also employed.

Industry Sales and Market Share

Marketing performance is often measured against standards set by competitors and
the industry. In order to measure one’s performance, it is often necessary to estimate
competitor sales. Industry trade organizations will often publish data on total sales. In this
manner, a company can measure its market share and sales growth against the industry as a
whole. However, to benchmark against specific competitors, companies often employ
marketing research firms. Markets that make sales to other businesses typically have more
difficulty in obtaining accurate competitor sales estimates because distributors and
customers are hesitant to provide such information.

Forecasting Future Demand

An accurate sales forecast is crucial to business planning. Sales forecasts filter

through the organization and have a large impact on daily operations. It can have an
impact on production schedules, inventory control, personnel planning, and a host of other
business decisions. The quality of a sales forecast can translate into gained or lost profits.
Forecasting future sales involves analysis on three distinct levels: the economy, the
industry, and company or product market. All forecasts are built on three types of
information: what consumers say, how consumers actually act, and how consumers have
acted in the past. The macroeconomic forecast calls for projecting inflation,
unemployment, interest rates, net exports, consumer spending, etc. When broad economic
forecasts are completed, this information is then used to analyze industry prospects. This
in turn is used to help estimate company performance. While larger firms conduct their
own forecasting, smaller companies can buy forecasts from marketing research firms,
specialized forecasting firms, and futurist research firms.
Forecasting methods differ in complexity, time requirements, and level of scientific
or arbitrary methodology. There are five main categories of forecasting techniques:
executive judgment, surveys, time series analysis, correlation methods, and market tests. A

55
firm will decide on the appropriate method based on cost, type of product, market
characteristics, forecast time span and purpose, availability of data, and other factors.

Time Series Analysis

This type of forecasting technique uses historical sales data in order to find patterns
over time. Most time-series analysis involves the use of seasonal, cyclical, trend, or
random factors to find patterns over time. However, one type of time series analysis that
uses only historical data is exponential smoothing. The basic premise is that these patterns
will continue into the future. Therefore, the accuracy of this method is largely determined
by the validity of that premise

Correlation Methods
The basic principle of this method is to find a relationship between sales and other
variables. These variables may include income, population growth, inflation, etc. This is
accomplished by examining historical sales and variable data to determine if a correlation
exists.

Test Marketing
Market testing involves introducing a product or service in a limited capacity in
order to gain knowledge about the larger population. This method provides information on
actual purchases rather than intended or historical purchases. The lack of reliance on
historical data enables firms to estimate sales for new products or existing products being
introduced into new markets. In addition, the data is more accurate because it reflects real
purchasing decisions.

Executive Judgment
This forecasting method is based solely upon the subjective judgment of one or
more executives. This method is inexpensive and expedient; however, there are serious
problems as well. Personal experience is a major factor in the decision process. While
possibly effective in stable demand markets, changing environmental factors greatly reduce
accuracy and effectiveness. In addition, forecasts are made with added weight to recent
experiences causing forecasts to be either overly optimistic or pessimistic

Surveys
Another manner of estimating future sales is to survey or interview customers, sales
people, or experts about their expectations for the future.

Customer forecasting survey

Information can be gained regarding the quantity, time, and type of product that consumers
desire. Often this technique is more effective when there are a relatively small number of
consumers. There are three main disadvantages of this type of forecasting method. First,
customers must be able and willing to answer questions with reasonable accuracy.
Secondly, responses reflect intentions rather than actual buying behavior. Finally,
customer surveys typically require relatively large amounts of time and money

56
Sales-force forecasting surveys
This type of survey requires a company's sales force to estimate future sales in their
territories. These responses are then compiled to develop a forecast. The advantage of this
surveying technique is that the sales force is "closer" to the consumer and can gauge market
trends and needs. In addition, the sales force usually will work harder to meet their own
projections.
Sales-force forecasting also has disadvantages. Much like the executive judgment method,
sales force surveys depend upon experience and subjective estimates. The main short fall
of this method is that sales people have incentives to underestimate sales potential in their
territories so that their quotas will be easier to meet. In addition, salespeople can be either
too optimistic or pessimistic based on recent experiences.

Expert forecasting surveys

This method simply outsources the forecasting duties to experts such as economists,
management consultants, advertising executives, etc. While outsourcing is relatively
inexpensive and expedient, experts have less incentive for performing well

Developments and Trends in Sales Forecasting

Technology has shaped and defined the direction of sales forecasting. We see its
effect in data gathering and in data analysis. These improvements have dictated changes
and trends of their own.

Data Gathering
Data gathering has been improved through the use of Internet sales and Tele-
communication technology. However, one of the biggest recent advancements in data
gathering has been the adoption of UPC scanner codes by the retailing community. Four
main trends are expected to result from this technology. First, with the development of
better and faster communications technology, sampling a portion of sales data will be
replaced by a census-based reporting process. No longer will only a portion of sales data
be available for constructing sales forecasts. An increase in the number of data points
results in more accurate projections. In addition, much finer market level information can
be reported and analyzed. Data can be gathered on the smallest market segments or
compiled for analysis on larger geographic regions. With more detailed information on
local factors, micro managed marketing strategies become a reality. A related development
is the ability to determine causal marketing and merchandising factors affecting sales. The
simultaneous tracking of the local marketing mix and media expenditures provides
important information on affecting the demand curve on that micro level. Finally, with an
increase in data gathering efficiency, demand for analysis tools will spark the development
of automated expert systems at both ends of the information stream

Data Analysis
Database marketing involves the use of computer software to maintain detailed
customer information for marketing research purposes. Technology improvements,
diversification of products and markets, rising labor and media costs, and the expanding

57
use of electronic transactions (credit cards, etc.) has dramatically increased the use of
database marketing. The improved analytical software has resulted in a leveling of the
playing field for sales forecasting. No longer are the colossal corporations the only entities
able to afford accurate forecasting techniques. Smaller more sophisticated competitors can
often compete with larger corporations with the expansion of internet and distribution
technology. In a small way, improved forecasting, through advances in data gathering and
analysis, has added to the new competitive global environment businesses must operate in
today.

58
Consumer Buying Process and Organizational Buying
Behavior

To understand the buyer and to create a customer out of him, is the purpose of buyer
behavior study. Possibly the most challenging concept in marketing deals with
understanding why buyers do what they do (or don’t do). But such knowledge is critical
for marketers since having a strong understanding of buyer behavior will help shed light on
what is important to the customer and also suggest the important influences on customer
decision-making. Before proceeding, it is important to understand that there are two
categories of buyers- the individual buyer and the organizational buyer.

Consumer buying Process

Why Consumers Buy?

Customers make purchases in order to

satisfy needs. Some of these needs are
basic and must be filled by everyone on the
planet (e.g., food, shelter) while others are
not required for basic survival and vary
depending on the person. It probably
makes more sense to classify needs that are
not a necessity as wants or desires. In fact,
in many countries where the standard of
living is very high, a large portion of the
population’s income is spent on wants and
desires rather than on basic needs.

Understanding consumer purchase behavior involves not only understanding how

decisions are made but also understanding the dynamics that influence purchases.

What Influences Consumer Buying Process?

The decision-making process for consumers is complex. There are many factors that can
affect this process as a person works through the purchase decision. The number of
potential influences on consumer behavior is limitless. However, marketers are well served
to understand the key influences. These are shown in the diagram below:

59
The influences are categorized into three major groups: Internal, External and Marketing

For the most part the influences are not mutually exclusive. Instead, they are all
interconnected and work together to form what is known as consumer behavior.

Perceptual Filter

Perception is how we see ourselves and the world we live in. However, what ends up being
stored inside us doesn’t always get there in a direct manner. Often our mental makeup
results from information that has been consciously or subconsciously filtered as we
experience it, a process we refer to as a perceptual filter. To us this is our reality, though it
does not mean it is an accurate reflection on what is real. Thus, perception is the way we
filter stimuli (e.g., someone talking to us, reading a newspaper story) and then make sense
out of it.

People can emerge with different perceptions of the same thing because of three perpetual
processes:

Selective Attention- An average person is exposed to many brand communications in a

short time span and most stimuli are screened out. This is selective attention. Marketers
have to struggle hard to attract consumer’s notice.

Selective distortion-It is the tendency to interpret information in away that fit our
preconceptions.

60
Selective retention- People tend to retain information that supports their attitudes and
beliefs.

Subliminal perception- The argument is that marketers send out subliminal messages in ads
and packages. Consumers are not consciously aware of these messages but yet they affect
their behavior.

Marketing Implications:
Marketers spend large sums of money in an attempt to get customers to have a positive
impression of their products. But clearly the existence of a perceptual filter suggests that
getting to this stage is not easy. Exposing consumers to a product can be very challenging
considering the amount of competing product messages (ads) that are also trying to
accomplish the same objective (i.e., advertising clutter). So marketers must be creative and
use various means to deliver their message. Once the message reaches consumer it must be
interesting enough to capture their attention (e.g., talk about the product’s benefits). But
attending to the message is not enough. For marketers the most critical step is the one that
occurs with awareness. Here marketers must continually monitor and respond if their
message becomes distorted in ways that will negatively shape its meaning. This can often
happen due in part to competitive activity (e.g., comparison advertisements). Finally,
getting the consumer to give positive meaning to the message they have retained requires
the marketer make sure that consumers accurately interpret the facts about the product.

Knowledge

Knowledge is the sum of all information known by a person. It is the facts of the world as
he/she knows it and the depth of knowledge is a function of the breadth of worldly
experiences and the strength of an individual’s long-term memory. Obviously what exists
as knowledge to an individual depends on how an individual’s perceptual filter makes
sense of the information it is exposed to.

Marketing Implications:
Marketers may conduct research that will gauge consumers’ level of knowledge regarding
their product. As we will see below, it is likely that other factors influencing consumer
behavior are in large part shaped by what is known about a product. Thus, developing
methods (e.g., incentives) to encourage consumers to accept more information (or correct
information) may affect other influencing factors.

Attitude
In simple terms attitude refers to what a person feels or believes about something.
Additionally, attitude may be reflected in how an individual acts based on his or her
beliefs. Once formed, attitudes can be very difficult to change. Thus, if a consumer has a
negative attitude toward a particular issue it will take considerable effort to change what
they believe to be true.

61
Marketing Implications:
Marketers facing consumers who have a negative attitude toward their product must work
to identify the key issues shaping a consumer’s attitude then adjust marketing decisions
(e.g., advertising) in an effort to change the attitude. For companies competing against
strong rivals to whom loyal consumers exhibit a positive attitude, an important strategy is
to work to see why consumers feel positive toward the competitor and then try to meet or
beat the competitor on these issues. Alternatively, a company can try to locate customers
who feel negatively toward the competitor and then increase awareness among this group.

Personality

An individual’s personality relates to perceived personal characteristics that are

consistently exhibited, especially when one acts in the presence of others. In most, but not
all, cases the behavior one projects in a situation is similar to the behaviors a person
exhibits in another situation. In this way personality is the sum of sensory experiences
others get from experiencing a person (i.e., how one talks, reacts). While one’s personality
is often interpreted by those we interact with, the person has their own vision of their
personality, called Self Concept, which may or may not be the same has how others view
us.

Marketing Implications:
For marketers it is important to know that consumers make purchase decisions to support
their self concept. Using research techniques to identify how customers view themselves
may give marketers insight into products and promotion options that are not readily
apparent.

Lifestyle

This influencing factor relates to the way we live through the activities we engage in and
interests we express. In simple terms it is what we value out of life. Lifestyle is often
determined by how we spend our time and money.

Marketing Implications:
Products and services are purchased to support consumers’ lifestyles. Marketers have
worked hard researching how consumers in their target markets live their lives since this
information is key to developing products, suggesting promotional strategies and even
determining how best to distribute products. The fact that lifestyle is so directly tied to
marketing activity will be further examined as we discuss developing target market
strategies.

Roles

Roles represent the position we feel we hold or others feel we should hold when dealing in
a group environment. These positions carry certain responsibilities yet it is important to
understand that some of these responsibilities may, in fact, be perceived and not spelled out
or even accepted by others. In support of their roles, consumers will make product choices

62
that may vary depending on which role they are assuming. As illustration, a person who is
responsible for selecting snack food for an office party his boss will attend may choose
higher quality products than he would choose when selecting snacks for his family.

Marketing Implications:
Advertisers often show how the benefits of their products aid consumers as they perform
certain roles. Typically the underlying message of this promotional approach is to suggest
that using the advertiser’s product will help raise one’s status in the eyes of others while
using a competitor’s product may have a negative effect on status.

Motivation

Motivation relates to our desire to achieve a certain outcome. Many internal factors we
have already discussed can affect a customer’s desire to achieve a certain outcome but
there are others. For instance, when it comes to making purchase decisions customers’
motivation could be affected by such issues as financial position (e.g., Can I afford the
purchase?), time constraints (e.g., Do I need to make the purchase quickly?), overall value
(e.g., Am I getting my money’s worth?), and perceived risk (e.g., What happens if I make a
bad decision?). Maslow’s theory of human motivation is given below. It says that human
needs are arranged in a hierarchy, from the most pressing to the least pressing after
satisfying one important need, he or she will try to fulfill the next level of need.

Marketing Implications:
Motivation is also closely tied to the concept of involvement, which relates to how much
effort the consumer will exert in making a decision. Highly motivated consumers will want
to get mentally and physically involved in the purchase process. Not all products have a

63
high percentage of highly involved customers (e.g., milk) but marketers who market
products and services that may lead to high level of consumer involvement should prepare
options that will be attractive to this group. For instance, marketers should make it easy for
consumers to learn about their product (e.g., information on website, free video preview)
and, for some products, allow customers to experience the product (e.g., free trial) before
committing to the purchase.

External Influences

Consumer purchasing decisions are often affected by factors that are outside of their
control but have direct or indirect impact on how we live and what we consume.

Culture

Culture represents the behavior, beliefs and, in many cases, the way we act learned by
interacting or observing other members of society. In this way much of what we do is
shared behavior, passed along from one member of society to another. Yet culture is a
broad concept that, while of interest to marketers, is not nearly as important as
understanding what occurs within smaller groups or sub-cultures to which we may also
belong. Sub-cultures also have shared values but this occurs within smaller groups. For
instance, sub-cultures exist where groups share similar values in terms of ethnicity,
religious beliefs, geographic location, special interests and many others.

Marketing Implications:
As part of their efforts to convince customers to purchase their products, marketers often
use cultural representations, especially in promotional appeals. The objective is to connect
to consumers using cultural references that are easily understood and often embraced by the
consumer. By doing so the marketer hopes the consumer feels more comfortable with or
can relate better to the product since it corresponds with their cultural values. Additionally,
smart marketers use strong research efforts in an attempt to identify differences in how sub-
culture behaves. These efforts help pave the way for spotting trends within a sub-culture,
which the marketer can capitalize on through new marketing tactics (e.g., new products,
new sales channels, added value, etc.).

Other Group Membership

In addition to cultural influences, consumers belong to many other groups with which they
share certain characteristics and which may influence purchase decisions. Often these
groups contain opinion leaders or others who have major influence on what the customer
purchases. Some of the basic groups we may belong to include:

Social Class – represents the social standing one has within a society based on such
factors as income level, education, occupation
Family – one’s family situation can have a strong effect on how purchase decisions
are made

64
 Reference groups – most consumers simultaneously belong to many other groups
with which they associate or, in some cases, feel the need to disassociate

Marketing Implications:
Identifying and understanding the groups consumers belong to is a key strategy for
marketers. Doing so helps identify target markets, develop new products, and create
appealing marketing promotions to which consumers can relate. In particular, marketers
seek to locate group leaders and others to whom members of the group look for advice or
direction. These opinion leaders, if well respected by the group, can be used to gain insight
into group behavior and if these opinion leaders accept promotional opportunities could act
as effective spokespeople for the marketer’s products.

Purchase Situation

A purchase decision can be strongly affected by the situation in which people find
themselves. In general, a situation is the circumstances a person faces when making a
purchase decision, such as the nature of their physical environment, their emotional state,
or time constraints. Not all situations are controllable, in which case a consumer may not
follow their normal process for making a purchase decision. For instance, if a person needs
a product quickly and a store does not carry the brand they normally purchase, the
customer may choose a competitor’s product.

Marketing Implications:
Marketers can take advantage of decisions made in uncontrollable situations in at least two
ways. First, marketers can use promotional methods to reinforce a specific selection of
products when the consumer is confronted with a particular situation. For example,
automotive services can be purchased that promise to service vehicles if the user runs into
problems anywhere and at anytime. Second, marketers can use marketing methods that
attempt to convince consumers that a situation is less likely to occur if the marketer’s
product is used. This can also be seen with auto products, where marketers explain that
using their product will prevent unexpected damage to their vehicles.

Buying Motives:

Definition:
The factors which precipitate the buyer's need and guide their final selection of the product
perceived as best satisfying that need. While the context and perception of the buyer will
mediate the information used and the interpretation put on it, all purchase decisions
incorporate a mix of economic (price), technological (performance), and social and
psychological (personal and emotional) factors. While one motive may dominate others,
the availability of choice in the market place means that buyers will often be faced with
two or more acceptable solutions to their purchase need, and so may appear to behave
'irrationally' in making their final selection, e.g. cite a minor feature 'I like the blue colour'
on the basis for a major purchase like a motor car. Identifying and understanding buying
motives is a key factor in the development of effective marketing strategies. There are two
types of buyer motives: Product motives and Patronage motives.

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Product Motive- Product motives are the impulses, desires and considerations which make
people buy a specific product. On the basis of nature of satisfaction sought by the buyer
product motive is classified as:

Emotional Product Motives- Impulses that appeal to the buyer’s pride or ego, his
urge to imitate others or his desire to be distinctive.
Rational Product Motives- This involves a logical analysis of intended purchase-
the purpose expected to be served by the product, the various alternatives available
to the buyer, etc.

Patronage motives- The impulses and influences which persuade a buyer to buy from
particular shops explain patronage motives. These can also be emotional and rational. A
buyer may buy from a specific shop without any reason (emotional) or may select a shop or
may select a shop because he knows that it offers a wide selection (rational).

Consumer Buying Process: Marketers must identify who makes the buying decision, the
type of buying decision that is involved and the steps in the buying process. Many products
involve a decision making unit consisting of more than one person.

Buying Roles:

1. INITIATOR- First identifies the need to buy a particular product or service to solve an
organisational problem.

2. INFLUENCER- Their views influence the buyers and deciders.

3. DECIDER- Ultimately approves all or any part of the entire buying decision -- whether
to buy, what to buy, how to buy, and where to buy;

4. BUYER- Holds the formal authority to select the supplier and to arrange terms of
condition;

66
5. USER- Consumes or uses the product or service;

6. GATEKEEPER- Controls information or access or both, to decision makers and

influencers.

Types of Buying Behaviour

There are four typical types of buying behaviour based on degree of buyer involvement in
the purchase and the type of products (or brands) that intends to be purchased.

1. Complex buying behaviour is where the individual purchases a high value brand and
seeks a lot of information before the purchase is made.

2. Habitual buying behaviour is where the individual buys a product out of habit e.g. a
daily newspaper, sugar or salt.

3. Variety seeking buying behaviour is where the individual likes to shop around and
experiment with different products

4. Dissonance reducing buying behaviour is when buyer is highly involved with the
purchase of the product, because the purchase is expensive or infrequent.

HIGH INVOLVEMENT LOW INVOLVEMENT

Significant
differences Complex buying Variety seeking
between behaviour buying behaviour
brands

Significant
differences Dissonance reducing Habitual buying
between buying behaviour behaviour
brands

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Consumer Buying Process:

1. Need/Want/Desire/Problem is Recognized

In the first step the consumer tries to recognize the problem or need. He has to determine
that for some reason he/she is not satisfied (i.e., consumer’s perceived actual condition) and
wants to improve his/her situation (i.e., consumer’s perceived desired condition). The need
can be triggered by internal and external stimuli. Marketers are good at identifying the
circumstances that trigger the particular need or interest in consumers.

2. Search for Information

When consumer is motivated to satisfy his or her need, he will undertake a search for
information on possible solutions. The sources used to acquire this information may be as
simple as remembering information from past experience (i.e., memory) or personal
sources (family, friends, neighbours), commercial sources (advertisements, sales persons,
dealers, display, etc.), public sources (mass media), and experimental sources (handling,
examining, and using the product).

3. Evaluate Options

Consumers’ search efforts may result in a set of options from which a choice can be made.
It should be noted that there may be two levels to this stage. At level one the consumer
may create a set of possible solutions to their needs (i.e., product types) while at level two
the consumer may be evaluating particular products (i.e., brands) within each solution.
Here the concepts involved are product attributes, weightage for important attributes, brand
image, utility function, and evaluation procedure.

4. Purchase

In many cases the solution chosen by the consumer is the same as the product whose
evaluation is the highest. However, this may change when it is actually time to make the
purchase. The “intended” purchase may be altered at the time of purchase for many
reasons such as: the product is out-of-stock, a competitor offers an incentive at the point-of-
purchase (e.g., store salesperson mentions a competitor’s offer), the customer lacks the
necessary funds (e.g., credit card not working), or members of the consumer’s reference
group take a negative view of the purchase (e.g., friend is critical of purchase). Marketers
whose product is most desirable to the consumer must make sure that the transaction goes
smoothly. For example, Internet retailers have worked hard to prevent consumers from
abandoning online purchase (i.e., online shopping carts) by streamlining the checkout

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process. For marketers whose product is not the consumer’s selected product, last chance
marketing efforts may be worth exploring, such as offering incentives to store personnel to
“talk up” their product at the checkout line.

5. After-Purchase Evaluation

Once the consumer has made the purchase they are faced with an evaluation of the
decision. If the product performs below the consumer’s expectation then he/she will re-
evaluate satisfaction with the decision, which at its extreme may result in the consumer
returning the product while in less extreme situations the consumer will retain the
purchased item but may take a negative view of the product. Such evaluations are more
likely to occur in cases of expensive or highly important purchases. To help ease the
concerns consumers have with their purchase evaluation, marketers need to be receptive
and even encourage consumer contact. Customer service centers and follow-up market
research are useful tools in helping to address purchasers’ concerns.

The marketer’s job is to understand the buyer’s behaviour at each stage and influences are
operating. This understanding allows the marketer to develop a significant and effective
marketing programme for the target market.

Organizational Buying behaviour-

Organizational buying behaviour is the decision making process by which formal

organizations establish the need for purchased products and services and identify, evaluate
and choose among alternative brands and suppliers.

Organizational Buyers- These buyers are those who purchase items on behalf of their
business or organization.

Organizational market can be classified as follows:

Industrial/Organizational Markets

Producer
o manufacturers
- produce tangible products for resale to other consumers
o service producers
- produce intangible products
Reseller
o wholesalers
- buy or handle merchandise for resale to organizations, users, retailers, and
other wholesalers
o retailers
- buy or handle merchandise or services for sale to final consumers
Government
o federal

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 o state
o county
o local
Institutional
o charitable
o educational
o community
o other non-business

The Phases of the Buying Decision Process

Organisational Buying Behaviour: Some Typical Characteristics

With the help of earlier discussions, we are now ready to identify some typical
characteristics of organisational buying behaviour.

1 Organisational buying is a multiperson buying activity: A large number of buying

situations in organisations (manufacturing, government, hospitals, and educational
institutions) would involve many persons. These persons may be from different functions
(production, purchase, design, maintenance), may have different backgrounds (engineers,
MBA, graduates etc.) may have different hierarchical levels within the organisation
(Managing Director, General Manager, Material Manager). Further, persons in a buying
situation, may appear to play different buying roles over the entire buying decision
exercise.

2 It is a formal activity which follows the procedures laid down in an organization:

Irrespective of the rupee value of technical complexities of products and services, buying
activities have to conform to the formal process and procedures of an organisation. Further,
all buying decisions are finally converted into formal contracts between buyers and
suppliers.

70
3 Longer time lag between efforts and results: Due to multiperson and a formal activity,
the organisation buying decisions take typically longer time. This leads to greater time lag
between the application of the market effort and obtaining of the buying response.

4 Rational but also emotional activity: In spite of a formal activity following a rational
criteria of evaluation, organisational buying cannot be devoid of the emotional (or
irrational) aspects. This is because it involves human beings in the buying decisions. These
human considerations are likely to play vital role in situations of almost similar alternatives
like buying of commodities, raw materials, standard products and components.

5 The uniqueness of organisations: In spite of the above common characteristics, no two

organisations would be similar in their buying behaviour and decisions, These differences
would be due to the nature of buying problems, objectives, resources, capabilities and so
on, It is therefore important to consider each organisation as a separate segment at the
selling level.

Differences in Organizational Transactions

Buying specialists are often used. Organizations often employ people who are
professional purchasing agents. Just as sales agents are professional specialists at
finding organizations that need the products that their employer produces,
purchasing agents are specialists are professional specialists at finding what their
employer needs.

Often use multiple buying responsibility. A household purchaser is often the

sole decision maker. Making a sale to an organization, however, often requires
selling to several entities within the buying center.

Often use multiple suppliers. It is often desirable to have a long term relationship
with more than one supplier, even if a second supplier has higher prices for
otherwise similar terms and conditions. If problems in quality or delivery are
experienced with a supplier, production can still be maintained if the second
supplier can be used to replace the first.

More likely to require exact specifications. A household purchaser might select a

particular model of desktop computer for no other reason than it has a pleasing

71
color. An organizational purchaser is more likely to set specifications regarding
processor speed, memory, hard drive size, and such before taking bids on price.

Often lease equipment and space. As a household consumer, you would probably
prefer to own your own car, furniture, and home. These are things that represent
personal expression, status, and wealth. Your objectives as a business manager,
however, are very different. You might prefer to lease public warehouse space to
provide the flexibility to change locations when the market demands, to lease trucks
so that you can leave the problems of maintenance and disposition to someone else,
etc.

More frequently employ competitive bidding and negotiation. Household

consumers are more likely to accept as final a price that is placed on a product in a
retail setting or to accept a price that is given to us by a service provider. As a
business manager, your employer is more likely to require that you accept, say,
three bids for a service or to negotiate various terms and conditions associated with
product specifications, delivery, and price.

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Figure 3: Major Influences on Organizational Buying Behaviour

Environmental Factors: These factors include economical, political, technical, legal or

regulatory, technological, infrastructural and cultural factors. Environmental factors
interact with each other to produce information, values, norms and general business
conditions.
An industrial marketer should be aware of the environmental factors which may affect the
buyer behaviour and correspondingly fine tune its marketing strategy. Failure to recognise
the influences may lead to wasteful efforts

Organisational Factors: Organisations may differ from each other due to objectives,
procedures, organisational structure, systems and technology. It is important to
recognise the influence of such organisational factors on the buying behaviour.

The Interpersonal Factors: Organisational buying is a multi-person activity. The situation

becomes more complex due to different statuses, authority, empathy and
persuasiveness of the members of the buying centre. These may lead to conflicts.
There are four ways which organisations use for conflict resolutions:

i) Problem Solving Approach: It involves information acquisition and deliberation for

more time.

ii) Persuasion: Attempt is made to influence the opinions of dissenting members by asking
them to reduce the importance of the criteria they are using in favour of better overall
achievements of organisational objectives.

iii) Bargaining: A more typical situation in which a conflict arises is due to fundamental
differences in buying goals and objectives. This is usually true for new buying

73
 situations. In such a situation, conflict is resolved not by changing the differences in
relative importance of the buying goals or objectives of the individuals involved, but by
the process of bargaining. In this a single party is allowed to decide autonomously in
the spec situation in return for some favour or promise of reciprocity in future
decisions.

iv) Politicking: When the earlier three fail, the parties may resort to tactics which may be
unhealthy and lead to casting of aspersions on the dissenting members.

Both `problem solving' and `persuasion' are rational methods. ‘Politicking’ and
‘bargaining’ are considered as non-rational methods.

The Individual Factors: In spite of the environmental, organisational and interpersonal

factors, it must be recognised that ultimately individuals, and not organisations, take buying
decisions. Each member of the buying centre has a unique personality, a particular set of
learned experience, a specified organisational function to perform, and perceptions of how
best to achieve both personal and organisational goals.

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 Market Segmentation, Target Market, Positioning and
Differentiation

Market Segments

Marketing opportunities increase when customer groups with varying needs and wants are
recognized. Markets can be segmented or targeted on a variety of factors including age,
gender, location, geographic factors, demographic characteristics, family life cycle, desire
for relaxation or time pressures.

Market Segmentation-

Definition- Market segmentation is the segmentation of markets into homogenous groups

of customers, each of them reacting differently to promotion, communication, pricing and
other variables of the marketing mix. Market segments should be formed in such a way that
differences between buyers within each segment are as small as possible. Thus, every
segment can be addressed with an individually targeted marketing mix.

A key factor in competitive success is focusing on little differences that give a marketing
edge and are important to customers. Market segmentation matches consumer differences
with potential or actual buying behavior. It may prove more profitable to develop smaller
market segments into a target segment.

75
When it comes to marketing strategies, most people spontaneously think about the 4P
(Product, Price, Place, Promotion) – maybe extended by three more Ps for marketing
services (People, Processes, Physical Evidence).

Market segmentation and the identification of target markets, however, are an important
element of each marketing strategy. They are the basis for determining any particular
marketing mix. Market segmentation is the first step in the three phase segmentation
strategy. After segmenting the market into homogeneous clusters, the marketer must select
one or more segments to target. So the second step is target marketing, which is process of
evaluating each market segment’s attractiveness and selecting one or more segments to
enter. The third step is market positioning, which involves arranging for a product to
occupy a clear, distinctive, and desirable place relative to competitive products, in the
minds of target consumers. Literature suggests the following steps:

Why Market Segmentation?

Segmentation is the basis for developing targeted and effective marketing plans.
Furthermore, analysis of market segments enables decisions about intensity of marketing
activities in particular segments. A segment-orientated marketing approach generally offers
a range of advantages for both, businesses and customers.

Better serving customers needs and wants- It is possible to satisfy a variety of customer
needs with a limited product range by using different forms, bundles, incentives and
promotional activities.

Higher Profits- It is often difficult to increase prices for the whole market. Nevertheless, it
is possible to develop premium segments in which customers accept a higher price level.
Such segments could be distinguished from the mass market by features like additional
services, exclusive points of sale, product variations and the like.

76
Opportunities for Growth- Targeted marketing plans for particular segments allow to
individually approach customer groups that otherwise would look out for specialized niche
players. By segmenting markets, organizations can create their own ‘niche products’ and
thus attract additional customer groups.

Sustainable customer relationships in all phases of customer life cycle- Customers

change their preferences and patterns of behavior over time. Organizations that serve
different segments along a customer’s life cycle can guide their customers from stage to
stage by always offering them a special solution for their particular needs.

Targeted communication- It is necessary to communicate in a segment-specific way even

if product features and brand identity are identical in all market segments. Such a targeted
communications allows stressing those criteria that are most relevant for each particular
segment (e.g. price vs. reliability vs. prestige).

Stimulating Innovation- An undifferentiated marketing strategy that targets at all

customers in the total market necessarily reduces customers’ preferences to the smallest
common basis. Segmentation provides information about smaller units in the total market
that share particular needs. Only the identification of these needs enables a planned
development of new or improved products that better meet the wishes of these customer
groups.

Higher Market Shares- In contrast to an undifferentiated marketing strategy,

segmentation supports the development of niche strategies. Thus marketing activities can
be targeted at highly attractive market segments in the beginning. Market leadership in
selected segments improves the competitive position of the whole organization in its
relationship with suppliers, channel partners and customers. It strengthens the brand and
ensures profitability. On that basis, organizations have better chances to increase their
market shares in the overall market.

Market preference pattern-

Homogeneous Preferences- It’s a market where all the consumers have roughly the same
preferences. The market shows no natural segments.

Diffused Preferences- Consumer preferences may be scattered throughput the space,

indicating that consumers vary greatly in their preferences.

Clustered Preferences- The market might reveal distinct preference clusters called natural
market segments.

Levels of Market Segmentation:

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1. Mass Marketing- It refers to the treatment of market as a homogeneous group and
offering the same marketing mix to all customers. Mass marketing allows economies of
scale to be realized through mass production, mass distribution, and mass communication.

2. Niche marketing-A niche market is a focused, targetable portion of a market. By

definition, then, a business that focuses on a niche market is addressing a need for a
product or service that is not being addressed by mainstream providers. You can think of a
niche market as a narrowly defined group of potential customers.

3. Segment marketing- Here different products are developed for one or more market
segments. Market is divided into segments and then different marketing mix is developed
for each segment.

4. Micro-marketing- Micromarketing can be defined as tailoring products and programs

or services to the needs and wants of individuals and groups, including local marketing and
individual marketing. The term local marketing refers to tailoring brands and promotions to
the needs and want of local groups, such as cities and neighborhoods. Individual marketing
is tailoring the product or service to one individual, also known as "one-to-one marketing".

Levels
Levels of
of Market
Market Segmentation
Segmentation
Mass
Mass Marketing
Marketing
Same
Same product to
product to all
all consumers
consumers
(no segmentation)
(no segmentation)
Segment
Segment Marketing
Marketing
Different
Different products
products to
to one
one or
or more
more segments
segments
(some segmentation)
(some segmentation)

Niche Marketing
Different products to subgroups within segments
( more segmentation)

Micromarketing
Micromarketing
Products
Products to suit the tastes
to suit the tastes of
of individuals
individuals or
or locations
locations
(complete segmentation)
(complete segmentation)

Effective Segmentation: Kotler mentions five criteria for an effective segmentation:

Measurable: It has to be possible to determine the values of the variables used for
segmentation with justifiable efforts. This is important especially for demographic
and geographic variables. For an organization with direct sales (without
intermediaries), the own customer database could deliver valuable information on
buying behavior (frequency, volume, product groups, mode of payment etc).

78
 Relevant: The size and profit potential of a market segment have to be large
enough to economically justify separate marketing activities for this segment.
Accessible: The segment has to be accessible and servable for the organization.
That means, for instance, that there are target-group specific advertising media, as
magazines or websites the target audience likes to use.
Distinguishable: The market segments have to be that diverse that they show
different reactions to different marketing mixes.
Feasible: It has to be possible to approach each segment with a particular
marketing program and to draw advantages from that.

Criteria for Market Segmentation

It is widely thought in marketing that than segmentation is an art, not a science.The key
task is to find the variable, or variables that split the market into actionable segments. There
are two types of segmentation variables:

(1) Needs- The basic criteria for segmenting a market are customer needs. To find the
needs of customers in a market, it is necessary to undertake market research.

(2) Profilers- Profilers are the descriptive, measurable customer characteristics (such as
location, age, nationality, gender, income) that can be used to inform a segmentation
exercise. The most common profilers used in customer segmentation include the following:

Geographic

• Region of the country

• Urban or rural

Demographic

• Age, sex, family size

• Income, occupation, education
• Religion, race, nationality

Psychographic

• Social class
• Lifestyle type
• Personality type

Behavioural

• Product usage - e.g. light, medium, heavy users

• Brand loyalty: none, medium, high
• Type of user (e.g. with meals, special occasions)

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Similarly Major segmentation variables for Business markets are the following:

Intermediary or final consumer

Type of corporation (public or private sector)
Size of corporation
Geographical location
Intensity of product use
Organization of purchasing function
Centralized or decentralized
Purchasing policies, rules and criteria

Identification of Target Market

Target Marketing involves breaking a market into segments and then concentrating the
marketing efforts on one or a few key segments.The beauty of target marketing is that it
makes the promotion, pricing and distribution of products and/or services easier and more
cost-effective.

Market Coverage strategies:

Market
Market Targeting
Targeting
Market
Market Coverage
Coverage Strategies
Strategies
Company
Company
Marketing
Marketing Market
Market
Mix
Mix

A. Undifferentiated Marketing
Company
Company
Marketing Segment
Segment 11
MarketingMix
Mix11
Company
Company Segment
Segment 22
Marketing
MarketingMix
Mix22
Company
Company Segment
Segment 33
Marketing
MarketingMix
Mix33
B. Differentiated Marketing

Segment
Segment 11
Company
Company
Marketing
Marketing Segment
Mix Segment 22
Mix
Segment
Segment 33
C. Concentrated Marketing

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Undifferentiated Marketing (Total Market Approach)
Single marketing mix for the entire market. All consumers have similar needs for a specific
kind of product. Homogeneous market, or demand is so diffused it is not worthwhile to
differentiate. Single Marketing Mix consists of:

1 Pricing strategy
1 Promotional program aimed at everybody
1 Type of product with little/no variation
1 Distribution system aimed at entire market

The elements of the marketing mix do not change for different consumers, all elements are
developed for all consumers. Examples include Staple foods-sugar and salt and farm
produce. Henry Ford, Model T, all in black. Popular when large scale production began.
Not so popular now due to competition, improved marketing research capabilities, and total
production and marketing costs can be reduced by segmentation. Organization must be able
to develop and maintain a single marketing mix. Major objective is to maximize sales.

Concentrated Marketing
Concentration is on a single market segment with one marketing mix.
Advantages include:

It allows a firm to specialize

can focus all energies on satisfying one group's needs
A firm with limited resources can compete with larger organizations.

Disadvantages include:

Puts all eggs in one basket.

Small shift in the population or consumer tastes can greatly effect the firm.
May have trouble expanding into new markets (especially up-market).

Objective is not to maximize sales; it is efficiency, attracting a large portion of one

section while controlling costs. Examples include-ROLEX, Anyone wear one.

Differentiated Marketing
Two or more segments are sought with a marketing mix for each segment, different
marketing plan for each segment. This approach combines the best attributes of
undifferentiated marketing and concentrated marketing.
Advantages include:

Shift excess production capacity.

Can achieve same market coverage as with mass marketing.

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 Price differentials among different brands can be maintained
Consumers in each segment may be willing to pay a premium for the tailor-made
product.
Less risk, not relying on one market.

Disadvantages include:

Demands a greater number of production processes.

More resources and increased marketing costs through selling through different
channels and promoting more brands, using different packaging etc.
Must be careful to maintain the product distinctiveness in each consumer group and
guard its overall image.

Two important factors to consider when selecting a target market segment are the
attractiveness of the segment and the fit between the segment and the firm's objectives,
resources, and capabilities.

Attractiveness of a Market Segment

The following are some examples of aspects that should be considered when evaluating the
attractiveness of a market segment:
Size of the segment (number of customers and/or number of units)
Growth rate of the segment
Competition in the segment
Brand loyalty of existing customers in the segment
Attainable market share given promotional budget and competitors' expenditures
Required market share to break even
Sales potential for the firm in the segment
Expected profit margins in the segment

Market research and analysis is instrumental in obtaining this information. For example,
buyer intentions, salesforce estimates, test marketing, and statistical demand analysis are
useful for determining sales potential. The impact of applicable micro-environmental and
macro-environmental variables on the market segment should be considered.

Note that larger segments are not necessarily the most profitable to target since they likely
will have more competition. It may be more profitable to serve one or more smaller
segments that have little competition. On the other hand, if the firm can develop a
competitive advantage, for example, via patent protection, it may find it profitable to
pursue a larger market segment.

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Suitability of Market Segments to the Firm

Market segments also should be evaluated according to how they fit the firm's objectives,
resources, and capabilities. Some aspects of fit include:
Whether the firm can offer superior value to the customers in the segment
The impact of serving the segment on the firm's image
Access to distribution channels required to serve the segment
The firm's resources vs. capital investment required to serve the segment

The better the firm's fit to a market segment, and the more attractive the market segment,
the greater the profit potential to the firm.

Target Market Strategies

There are several different target-market strategies that may be followed. Targeting
strategies usually can be categorized as one of the following:

• Single-segment strategy - Also known as a concentrated strategy. One market

segment (not the entire market) is served with one marketing mix. A single-
segment approach often is the strategy of choice for smaller companies with
limited resources.
• Selective specialization- This is a multiple-segment strategy, also known as a
differentiated strategy. Different marketing mixes are offered to different
segments. The product itself may or may not be different - in many cases only the
promotional message or distribution channels vary.
• Product specialization- The firm specializes in a particular product and tailors it
to different market segments.
• Market specialization- The firm specializes in serving a particular market
segment and offers that segment an array of different products.
• Full market coverage - The firm attempts to serve the entire market. This
coverage can be achieved by means of either a mass market strategy in which a
single undifferentiated marketing mix is offered to the entire market, or by a
differentiated strategy in which a separate marketing mix is offered to each
segment.

A firm that is seeking to enter a market and grow should first target the most attractive
segment that matches its capabilities. Once it gains a foothold, it can expand by pursuing a
product specialization strategy, tailoring the product for different segments, or by pursuing
a market specialization strategy and offering new products to its existing market segment.

Another strategy whose use is increasing is individual marketing, in which the marketing
mix is tailored on an individual consumer basis. While in the past impractical, individual
marketing is becoming more viable thanks to advances in technology.

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 Single Selective Product Market Full Market
Segment Specialization Specialization Specialization Coverage

S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3
P P P P P
1 1 1 1 1
P P P P P
2 2 2 2 2
P P P P P
3 3 3 3 3

Positioning for Competitive advantages:

Definition- It is the act of developing the company’s offerings and image to occupy a
distinct place in the minds of the target market.
It is a consumer driven strategy where the objective is to occupy a unique place in the
minds of the customers and maximize its potential benefit for the firm. A product’s position
is the definition that a consumer gives to the product on important attributes. Brand
positioning involves implanting the brand’s unique benefits and differences in the
customer’s mind. The end result of a positioning strategy is a distinct value proposition- a
reason for which the customer would buy the product or brand.

Qualities of a Successful Position:

Relevance- Position should focus on important consumer benefits, which have a higher
value for the target customers.

Distinctiveness- If a brand’s position lack distictiveness, it will be forced to compete on

the basis of price or promotion and may not build brand equity in the long run.

Coherence- There is a need to integrate all forms of communication to bring coherence to

the brand’s position.

Commitment- Once a position is adopted, it should take commitment to stay committed to

the position in the face of competitor’s threat to ensure the long term position of the brand
in the market.

Durability- The brand’s position is build over a period of time in a customer’s mind. They
take long period of time to get dominant market share.

Clarity- The brand’s position should have clarity so that it will be easy to communicate
and quick to comprehend.

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Courage- Adopting a strong position requires clarity of vision and courage for the brand
managers. It is much easier to have a generic positioning but it does not build a strong
position.

Positioning Strategies - There are seven positioning strategies that can be pursued
depending upon the following seven parameters:

Product Attributes: What are the specific product attributes?

Benefits: What are the benefits to the customers?

Usage Occasions: When / how can the product be used?

Users: Identify a class of users.

Against a Competitor: Positioned directly against a competitor.

Away from a Competitor: Positioned away from competitor.

Product Classes: Compared to different classes of products.

Product
Attributes

Product
Benefits Classes

Positioning
Strategies
Usage Away from a
Competitor
Occasions

Against a
Users Competito
r

Figure: Positioning Strategies

Product Differentiation-

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In marketing, product differentiation (also known simply as "differentiation") is the process
of distinguishing the differences of a product or offering from others, to make it more
attractive to a particular target market. This involves differentiating it from competitors'
products as well as one's own product offerings. Successful product differentiation creates
a competitive advantage for the seller, as customers view these products as unique or
superior.

Product differentiation can be achieved in many ways. It may be as simple as packaging the
good in a creative method, or as elaborate as incorporating new functional features.
Sometimes differentiation does not involve changing the product at all, but creating a new
advertising campaign or other sales promotions instead.

Differentiation is a source of competitive advantage. Marketing or product differentiation is

the process of describing the differences between products or services, or the resulting list
of differences. This is done in order to demonstrate the unique aspects of your product and
create a sense of value. Differentiation is effective only if it is valued by buyers.

The brand differences are usually minor; they can be merely a difference in packaging or
an advertising theme. Differentiation is due to buyers perceiving a difference, hence causes
of differentiation may be functional aspects of the product or service, how it is distributed
and marketed, or who buys it. The major sources of product differentiation are as follows.

Differences in quality which are usually accompanied by differences in price

Differences in functional features or design
Ignorance of buyers regarding the essential characteristics and qualities of goods
they are purchasing
Sales promotion activities of sellers and, in particular, advertising
Differences in availability (e.g. timing and location).

The objective of differentiation is to develop a position that potential customers see as

unique.

Marketing Mix

Marketing mix is a combination of marketing tools and activities that an organization

engages so as to best meet the needs of its targeted market and the company objectives.
Consumers often call the marketing mix "the offering." Traditionally the marketing mix
consisted of just 4 Ps or element:.

1. Product

2. Price

3. Place

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4. Promotion.

Getting the mix of these elements right enables the organisation to meet its marketing
objectives and to satisfy the requirements of customers.

In addition to the traditional four Ps it is now customary to add some more Ps to the mix to
give us Seven Ps.

The additional Ps have been added because today marketing is far more customer oriented
than ever before, and because the service sector of the economy has come to dominate
economic activity in this country. These 3 extra Ps are particularly relevant to this new
extended service mix.
The three extra Ps are:

1. Physical evidence – It is the ability and environment in which the service is delivered. It
includes both tangible goods that help to communicate and perform the service, and the
intangible experience of existing customers and the ability of the business to relay that
customer satisfaction to potential customers.

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 2. People – All people those are directly or indirectly involved in the consumption of a
service are an important part of an extended marketing mix. Knowledge workers,
employees, management and consumers often add significant value to the total
product or service offering.

3. Processes – procedures, mechanism and flow of activities by which services are

consumed (customer management processes) are an essential element of the
marketing strategy.
The 7 Ps - price, product, place, promotion, physical evidence, people, and
processes comprise the modern marketing mix that is particularly relevant in service
industry, but is also relevant to any form of business where meeting the needs of
customers is given priority

Creating a successful marketing mix that will increase results often takes experimenting
and market research. The key is to not always depend on "one" mix always explore other
avenues. The combining and coordination of these elements will be more effective than
depending on one. All the elements should be well coordinated so that the prospective
consumer is not sent mixed messages that can cause confusion. All the elements should
confirm to the same message

Product strategies

When an organisation introduces a product into a market they must ask themselves a
number of questions.

1. Who is the product aimed at?

2. What benefit will they expect?
3. How do they plan to position the product within the market?
4. What differential advantage will the product offer over their competitors?

We must remember that Marketing is fundamentally about providing the correct bundle of
benefits to the end user, hence the saying ‘Marketing is not about providing products or
services it is essentially about providing changing benefits to the changing needs and
demands of the customer’.

Product Decisions

When placing a product within a market many factors and decisions have to be taken into
consideration. These include: Product design, quality, form, features, branding, usefulness,
packaging, technology, style, warranties etc.

Pricing Strategies

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Pricing is one of the most important elements of the marketing mix, as it is the only mix,
which generates a turnover for the organisation. The remaining 3p’s are the variable cost
for the organisation. It costs to produce and design a product, it costs to distribute a product
and costs to promote it. Price must support these elements of the mix. Pricing is difficult
and must reflect supply and demand relationship. Pricing a product too high or too low
could mean a loss of sales for the organisation. Pricing should take into account the
following factors:

Fixed and variable costs.

Competition
Company objectives
Proposed positioning strategies.
Target group and willingness to pay.

Promotional strategies:

A successful product or service means nothing unless the benefit of such a service can be
communicated clearly to the target market. An organisation’s promotional strategy can
consist of advertising, public relations, sales promotion, personal selling and direct mail.

Place strategies

Refer to how an organisation will distribute the product or service they are offering to the
end user. The organisation must distribute the product to the user at the right place at the
right time. Efficient and effective distribution is important if the organisation is to meet its
overall marketing objectives.

Two types of channel of distribution methods are available. Indirect distribution involves
distributing the product by the use of an intermediary. Direct distribution involves
distributing direct from a manufacturer to the consumer e.g. for example Dell Computers.
Clearly direct distribution gives a manufacturer complete control over his product.

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 Product Decisions- Product Life Cycle

Marketing starts with the product since it is what an organization has to offer its target
market. As already stressed, organizations attempt to provide solutions to a target market’s
problems. These solutions include tangible or intangible (or both) product offerings
marketed by an organization.

In addition to satisfying the target market’s needs, the product is important because it is
how organizations generate revenue. It is the “thing” that profit oriented companies sell in
order to realize profits and satisfy stakeholders and what non-profit organizations use to
generate funds needed to sustain themselves. Without a well-developed product strategy
that includes input from the target market, a marketing organization will not have long-
term success.

Customers will choose a product based on their perceived value of it. Satisfaction is the
degree to which the actual use of a product matches the perceived value at the time of the
purchase. A customer is satisfied only if the actual value is the same or exceeds the
perceived value.

Kotler defined five levels of a product:

1. Core Benefit- The fundamental need or want that consumers satisfy by consuming the
product or service.

2. Generic Product- Version of the product containing only those attributes or

characteristics absolutely necessary for it to function.

3. Expected Product- The set of attributes or characteristics that buyers normally expect
and agree to when they purchase a product.

4. Augmented Product-Inclusion of additional features, benefits, attributes or related

services that serve to differentiate the product from its competitors.

5. Potential Product- All the augmentations and transformations a product might undergo
in the future.

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 Core
benefit
Basic
Product
Expected
product
Augmented
Product
Potential
Product

The Product Hierarchy-Product hierarchy stretches from basic needs to particular item
that satisfies those needs. The hierarchy consists of six levels:

1. Need Family- The core need that underlines the existence of a product family.
2. Product family- All the product classes that can satisfy a core need with reasonable
effectiveness.
3. Product Class- A group of products within the product family recognized as
having a certain functional coherence.
4. Product Line- A group of products within a product class that are closely related
because they perform a similar function.
5. Product Type- A group of items within a product line that share one of several
possible forms of the product.
6. Item or Product variant- A distinct unit within a brand or product line
distinguishable by size, price, appearance, or some other attribute.

Product Classifications-

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Products are classified into two categories depending upon the type of consumers who use
them, i.e. Consumer Products and Industrial Products.

In addition to categorizing by type of offering, most products intended for consumer use
can be further categorized by how frequently and where they are purchased.

• Convenience Products – These are products that appeal to a very large market
segment. They are generally consumed regularly and purchased frequently.
Examples include most household items such as food, cleaning products, and
personal care products. Because of the high purchase volume, pricing per item tends
to be relatively low and consumers often see little value in shopping around since
additional effort yields minimal savings. From the marketer’s perspective the low
price of convenience products means that profit per unit sold is very low. In order to
make high profits marketers must sell in large volume. Consequently, marketers
attempt to distribute these products in mass through as many retail outlets as
possible.
• Shopping Products – These are products consumers purchase and consume on a
less frequent schedule compared to convenience products. Consumers are willing to
spend more time locating these products since they are relatively more expensive
than convenience products and because these may possess additional psychological
benefits for the purchaser, such as raising their perceived status level within their
social group. Examples include many clothing products, personal services,
electronic products, and household furnishings. Because consumers are purchasing
less frequently and are willing to shop to locate these products, the target market is
much smaller than that of convenience goods. Consequently, marketers often are
more selective when choosing distribution outlets to sell their products.
• Specialty Products – These are products that tend to carry a high price tag relative
to convenience and shopping products. These products have unique characteristics or
brand identification. Consumption may occur at about the same rate as shopping
products but consumers are much more selective. In fact, in many cases consumers
know in advance which product they prefer and will not shop to compare products.
But they may shop at retailers that provide the best value. Examples include high-
end luxury automobiles, expensive champagne, and celebrity hair care experts. The
target markets are generally very small and outlets selling the products are very
limited to the point of being exclusive.

In addition to the three main categories above, products are classified in at least two
additional ways:

Emergency Products – These are products a customer seeks due to sudden events and for
which pre-purchase planning is not considered. Often the decision is one of convenience
(e.g., whatever works to fix a problem) or personal fulfillment (e.g., perceived to improve
purchaser’s image).

Unsought Products – These are products whose purchase is unplanned by the consumer
but occur as a result of marketer’s actions. Such purchase decisions are made when the

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customer is exposed to promotional activity, such as a salesperson’s persuasion or purchase
incentives like special discounts offered to certain online shoppers. These promotional
activities often lead customers to engage in impulse purchasing

Categories of Business Products

Materials and parts: These are goods that enter the manufacturer’s product completely.
They are of two types namely raw materials, manufactured materials and component parts.
Raw Materials are products obtained through mining, harvesting, fishing, etc., that are key
ingredients in the production of higher-order products. Manufactured materials are products
created through the processing of basic raw materials. In some cases the processing refines
original raw materials while in other cases the process combines different raw materials to
create something new. They can be classified as component materials like iron, steel, zinc
and component parts like motors, printed integrated circuits. The component materials are
further fabricated like from alumina to aluminium, pig iron to steel, and cloth from yarn.

Capital items: These are long lasting goods that facilitate developing or managing the
finished goods. They include two groups: Installations and equipment. Installations include
building, shades, Heavy equipments like earth movers, trucks, drillers etc. They need to be
replenished at different period of time.

Supplies and business services: These are short term goods and services that facilitate
managing or developing the finished product supplies. They can be maintenance, repair and
operating products. Maintenance supplies include painting, nailing and operating supplies include
writing papers, consumables for computer, etc..Business services can be classified as maintenance
services and advisory services.

Product Decisions:

Product Item- Specific version of a product that has a separate designation in the seller’s
list.

Product Lines- A broad group of products, which are meant for essentially similar uses
and posses reasonably similar physical characteristics.

Product mix and its constituents:

Product mix is a combination of products manufactured or traded by the same business

house to reinforce their presence in the market, increase market share and increase the
turnover for more profitability. Normally the product mix is within the synergy of other
products for a medium size organization. However large groups of Industries may have
diversified products within core competency. Godrej and Reliance in India are some of the
examples.

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One of the realities of business is that most firms deal with multi-products .This helps a
firm diffuse its risk across different product groups/Also it enables the firm to appeal to a
much larger group of customers or to different needs of the same customer group.

The constituents of a product mix include dimensions of width, depth, length and
consistency.

Fig: Constituents of Product Mix

Depth

ProductLine1 1-a 1-b 1-c 1-d 1-e

w
ProductLine2 2-a 2-b i
d
t
ProductLine3 3-a 3-b 3-c h

ProductLine4 4-a

Product Mix Items = 11

Number of Lines = 4

Average Depth = 3

Width- number of different product lines found within the company.

Depth- Refers to the average number of items offered by the company within each product
line.

Length- Refers to the total number of items produced by the company in all the product
lines.

Consistency- refers to how closely related are the various product lines in terms of
consumer behavior, production requirements, channels of distribution etc.

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There are three types of product decisions-

Individual product decisions

Product line decisions
Product mix decisions

Individual Product Decisions

Important decisions involved are related to product attributes, branding, packaging,

labeling, and product support services.

Product Attributes- The benefits offered by a product are delivered by product attributes
such as quality, design, and style. In most cases, the most important features are those
associated with the consumable product since they are the main reason a customer makes a
purchase. Benefits of consumable product features can be divided into two groups-
functional and psychological.

Functional Benefits

Are benefits derived from features that are part the consumable product. These features are
called functional because they result in a benefit the user directly associates with the
consumable product. For marketers functional benefits are often the result of materials,
design and production decisions. How the product is built can lead to benefits such as
effectiveness, durability, speed, ease-of-use, and cost savings to name just few.

Psychological Benefits

Are benefits the customer perceives to receive, when using the product though these may
be difficult to measure and may vary from customer to customer. These benefits address
needs such as status within a group, risk reduction, sense of independence, and happiness.
In addition to determining the type of features to include in a product, the marketer faces
several other decisions related to features.

Branding- Branding involves decisions that establish an identity for a product with the
goal of distinguishing it from competitors’ offerings. In markets where competition is
fierce and where customers may select from among many competitive products, creating an
identity through branding is essential. It is particularly important in helping position the
product in the minds of the product’s target market.

A strong brand offers many advantages for marketers including:

Brands provide multiple sensory stimuli to enhance customer recognition.

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 Customers who are frequent and enthusiastic purchasers of a particular brand are
likely to become brand loyal.
Well-developed and promoted brands make product positioning efforts more
effective.
Firms that establish a successful brand can extend the brand by adding new
products under the same “family” brand. Such branding may allow companies to
introduce new products more easily since the brand is already recognized within the
market.
Strong brands can lead to financial advantages through the concept of Brand Equity
in which the brand itself becomes valuable.

Packaging-

Packaging serves many purposes. It protects the product from damage which could be
incurred in handling and transportation and also has a promotional aspect. It can be very
expensive. Size, unit type, weight and volume are very important in packaging. It also acts
as an important marketing tool under competitive market conditions. It performs many
sales tasks like attracting attention, describing the product, creating consumer confidence
and making the sale.

Labelling

Labelling can vary from simple tags attached to the products to complex graphics that are
part of the package. Label identifies the product or band, describes several things about the
product like manufacturer’s name, place of manufacture, date, contents, using instructions
and safety precautions. Label can also promote the product through attractive graphics.

Product Line decisions-

The important product line decisions include product line length. The product line is short
if the company can increase profits by adding new items. The product line is too long if the
marketer can increase profits by dropping items. For this, the company may go for the
following two methods:

Product Line Stretching- When a company lengthens its product line beyond its present
range. A company can stretch its line upward, downward or both ways.

Product Line Filling- Addition of new items within the existing range of product line. It is
usually done to get extra profits, to satisfy dealers, use excess capacity and plugging holes
to keep out competitors.

Line Pruning- a conscious decision is taken to reduce the number of items in the line, to
save costs and maximize efficiencies in production, distribution and promotion.

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Product Mix decisions- The product mix dimensions are already discussed above. These
provide the basis for defining the company’s product strategies. The company can increase
its business in four ways. It can add new product lines, thus widening its product mix. The
company can lengthen its product line to become competitive and strong, or it can add
more versions of each product and thus its product mix. Finally the company can persue
more product lie consistency- or less- depending upon whether it wants to have a strong
reputation in a single field or in several fields.

Product Life cycle:

The product life cycle is defined as the period that starts with the initial product design
(research and development) and ends with the withdrawal of the product from the
marketplace. The life cycle concept may apply to a brand or to a category of product. Its
duration may be as short as a few months for a fad item or a century or more for product
categories such as the gasoline-powered automobile. Product development is the incubation
stage of the product life cycle. There are no sales and the firm prepares to introduce the
product. As the product progresses through its life cycle, changes in the marketing mix
usually are required in order to adjust to the evolving challenges and opportunities.

It is characterized by specific stages, including research, development, introduction,

maturity, decline, and obsolescence. Each stage is often linked with changes in the flows of
raw materials, parts and distribution to markets. Conventionally, four main stages compose
a product's life cycle:

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Introduction. This stage mainly concerns the development of a new product, from the time
it is initially conceptualized to the point it is introduced on the market. The corporation
having an innovative idea first will often have a period of monopoly until competitors start
to copy and/or improve the product (unless a patent is involved as it is the case in industries
such as pharmaceuticals). When the product is introduced, sales will be low until customers
become aware of the product and its benefits. Some firms may announce their product
before it is introduced, but such announcements also alert competitors and remove the
element of surprise. Advertising costs typically are high during this stage in order to rapidly
increase customer awareness of the product and to target the early adopters. During the
introductory stage the firm is likely to incur additional costs associated with the initial
distribution of the product. These higher costs coupled with a low sales volume usually
make the introduction stage a period of negative profits. During the introduction stage, the
primary goal is to establish a market and build primary demand for the product class. The
following are some of the marketing mix implications of the introduction stage:

Product - one or few products, relatively undifferentiated.

Price - Generally high, assuming a skim pricing strategy for a high profit margin as the
early adopters buy the product and the firm seeks to recoup development costs quickly. In
some cases a penetration pricing strategy is used and introductory prices are set low to gain
market share rapidly.

Distribution - Distribution is selective and scattered as the firm commences implementation

of the distribution plan.

Promotion - Promotion is aimed at building brand awareness. Samples or trial incentives

may be directed toward early adopters. The introductory promotion also is intended to
convince potential resellers to carry the product.

Growth: If the new product is successful, sales will start to grow and new competitors will
enter the market, slowly eroding the market share of the innovative firm. The product starts
to be exported to other markets and substantial efforts are made to improve its distribution
since competition mainly takes place more on the innovative capabilities of the product
than on its price. The growth stage is a period of rapid revenue growth. Sales increase as
more customers become aware of the product and its benefits and additional market
segments are targeted. Once the product has been proven a success and customers begin
asking for it, sales will increase further as more retailers become interested in carrying it.
The marketing team may expand the distribution at this point. When competitors enter the
market, often during the later part of the growth stage, there may be price competition
and/or increased promotional costs in order to convince consumers that the firm's product
is better than that of the competition. During the growth stage, the goal is to gain consumer
preference and increase sales. The marketing mix may be modified as follows:

Product - New product features and packaging options; improvement of product quality.

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Price - Maintained at a high level if demand is high, or reduced to capture additional
customers.

Distribution - Distribution becomes more intensive. Trade discounts are minimal if

resellers show a strong interest in the product.

Promotion - Increased advertising to build brand preference.

Maturity. At this stage, the product has been standardized, is widely available on the
market and its distribution is well established. Competition increasingly takes place over
cost. The maturity stage is the most profitable. While sales continue to increase into this
stage, they do so at a slower pace. Because brand awareness is strong, advertising
expenditures will be reduced. Competition may result in decreased market share and/or
prices. The competing products may be very similar at this point, increasing the difficulty
of differentiating the product. The firm places effort into encouraging competitors'
customers to switch, increasing usage per customer, and converting non-users into
customers. Sales promotions may be offered to encourage retailers to give the product more
shelf space over competing products. During the maturity stage, the primary goal is to
maintain market share and extend the product life cycle. Marketing mix decisions may
include:

Product - Modifications are made and features are added in order to differentiate the
product from competing products that may have been introduced.

Price - Possible price reductions in response to competition while avoiding a price war.

Distribution - New distribution channels and incentives to resellers in order to avoid losing
shelf space.

Promotion - Emphasis on differentiation and building of brand loyalty. Incentives to get

competitors' customers to switch.

Decline: Eventually sales begin to decline as the market becomes saturated, the product
becomes technologically obsolete, or customer tastes change. If the product developes
brand loyalty, the profitability may be maintained longer. Unit costs may increase with the
declining production volumes and eventually no more profit can be made. During the
decline phase, the firm generally has three options:

a) Maintain the product in hopes that competitors will exit. Reduce costs and
find new uses for the product.
b) Harvest it, reducing marketing support and coasting along until no more
profit can be made.
c) Discontinue the product when no more profit can be made or there is a
successor product.

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The marketing mix may be modified as follows:

Product - The number of products in the product line may be reduced. Rejuvenate
surviving products to make them look new again.

Price - Prices may be lowered to liquidate inventory of discontinued products. Prices may
be maintained for continued products serving a niche market.

Distribution - Distribution becomes more selective. Channels that no longer are profitable
are phased out.

Promotion - Expenditures are lower and aimed at reinforcing the brand image for continued
products

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 Distribution and Promotion Decisions

The previous chapter on Product Decisions indicate that product decisions may be the most
important of all marketing decisions since these lead directly to the reasons (i.e., offer
benefits that satisfy needs) why customers decide to make a purchase. But having a strong
product does little good if customers are not able to easily and conveniently obtain it. With
this in mind we turn to the second major marketing decision area – distribution.

Distribution decisions focus on establishing a system that, at its basic level, allows
customers to gain access and purchase a marketer’s product. However, marketers may find
that getting to the point at which a customer can acquire a product is complicated, time
consuming, and expensive. The bottom line is a marketer’s distribution system must be
both effective (i.e., delivers a good or service to the right place, in the right amount, in the
right condition) and efficient (i.e., delivers at the right time and for the right cost). Yet, as
we will see, achieving these goals takes considerable effort.

Distribution Decisions:

Marketing channels are created to facilitate the exchange process, alleviate discrepancies,
standardize transactions and provide customer service. In a normal situation, a distribution
system consists of two levels of players between the manufacturer and the consumer. These
players are wholesale distributors and retailers. Distribution channels in different countries
are dissimilar in terms of the retail system, channel length and channel accessibility.

Characteristics of customers, product, intermediaries and the environment influence the

mode of channels. The characteristics of customers include number of customers,

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geographical distribution, income, and shopping habits. Product attributes include degree of
standardization, perishable nature of the product, bulk, service requirements and unit price.

The mode of channel is also affected by a variety of economic, social and political factors.
Generally, local markets in less developed countries are regulated or dominated by
networks of local intermediaries.

Internationally operating companies have to partner with these distributors to gain access to
their unique expertise and knowledge. Channel innovation depends on many factors like
level of economic development of the country in which the firm is operating, local
demographic/geographic factors, social norms, government actions and competitive
pressures. A properly designed distribution channel will help a company achieve a
sustainable competitive advantage. Channel structure varies depending on the customer.

In order to facilitate an effective and efficient distribution system many decisions must be
made including (but certainly not limited to):

Assessing the best distribution channels for getting products to customers

Market coverage (inclusive, selective, or exclusive distribution)
Determining whether a reseller network is needed to assist in the distribution
process
Arranging a reliable ordering system that allows customers to place orders
Creating a delivery system for transporting the product to the customer
For tangible and digital goods, establishing facilities for product storage
Decision regarding the Reverse logistics.

Functions of Channels:

Channels of distribution play an important role in marketing. Effective and well managed
channels provide sound competitive advantages to companies. Members of marketing
channels perform many functions:

Provide market information

Acts as a promotion tool
Reduce the number of contacts needed to reach the consumers
Meet small size consumer requirement
Supply assortment of various products
Conduct price negotiations with buyers
Carries out some part of physical distribution.
Absorb most of business risk

Distribution Strategies

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Depending on the type of product being distributed there are three common distribution
strategies available:

1. Intensive distribution: Used commonly to distribute low priced or impulse purchase

products e.g. chocolates, soft drinks.

2. Exclusive distribution: Involves limiting distribution to a single outlet. The product is

usually highly priced, and requires the intermediary to place much detail in its sell. An
example of would be the sale of vehicles through exclusive dealers.

3. Selective Distribution: A small number of retail outlets are chosen to distribute the
product. Selective distribution is common with products such as computers, televisions
household appliances, where consumers are willing to shop around and where
manufacturers want a large geographical spread.

If a manufacturer decides to adopt an exclusive or selective strategy they should select an

intermediary which has experience of handling similar products, credible and is known by
the target audience.

There are many types of distribution channels. The most important ones are wholesalers,
agents, retailers, the Internet and overseas distributors and direct sales. A description of
each is given below.

Wholesalers- These usually buy products from producers in large quantities and sell these
to retailers. They take ownership or title of goods. Most of the times they provide storage
facilities and sometimes take some of the product marketing responsibilities. The
wholesaler provides minimum contact between the producer and the customer.

Agents- They are used mostly in international markets. They will typically secure orders
for products and take commissions from the producer. Agents usually do not tie capital to
goods but sometimes they can stockpile products in cases when products need to get into a
market as soon as they are produced. They are very expensive to train and keeping them
under control is a difficult task due to the distances involved. Also they are difficult to be
motivated due to the nature of their payment.

Retailers- Retailers have a strong relationship with the customers. They will hold a lot of
different products and brands in stock and they will usually offer credit or discounts to the
customers. All products are promoted and merchandised by them. Also the retailers will
have the final say on price.

The Internet- E-commerce is a distribution channel that is growing steadily in the past
years. The Internet offers a large dispersed market to producers. Set up costs can be low
and all the e-commerce technology is easily attainable. Also in recent years there is a shift
in commerce and consumption habits that benefits distribution through the Internet.

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Direct sales- Direct sales involve the supply of customers directly from the producer's
factory. The marketing or sales in-house department looks after all contacts.

It is obvious that every business must take care of their distribution channel by making sure
there is no shortage in inventory and controlling the distribution channel member. It is also
important to consider the market penetration to make sure that the customer can actually
purchase your products.

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Channel Design Process-

The different steps involved in the process are as follows:

Determine the channel objectives- It may include effective coverage of target

market, effective and cost effective distribution, making products available nearest
to the consumption point etc.
Identify functions- Functions can be like providing information, promotion,
contact, breaking bulk etc.
Matching channel design to product attributes- Different products have different
channel requirements depending upon the product attributes.
Evaluating legal aspects and the distribution environment-The distribution
environment in the country or territory has to be reckoned while deciding on the
channel design.
Assessing competitors’ channel design- The strength and weaknesses of
competitors’ channels have to be assessed in order to get an edge over them.
Assessing company resources and matching channel design to it- Channel
decision is influenced by availability of resources in the company.
Final selection of the best design- After the various alternatives are evaluated, the
company chooses the best among them. Each alternative needs to be evaluated
against economic, control and adaptive criteria.

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 There are many factors affecting the distribution decisions. They can be categorized
into:

1. Market Factors
2. Product Factors
3. Producer/ Manufacture Factor

Market Factors-Analyzing and understanding the target market is the first step in
selecting marketing channels. This depends on:

Customer Preferences
Organizational customers
Geography
Competitors

Product Factors- Even products that end up at the same retail location may need different
intermediaries earlier in the channel. Product related factors are as follows:

Life Cycle
Product Complexity
Product Value
Product size and weight
Consumer Perceptions
Other Factors

Product/ Manufacturer Factor-

Company Objective
Company Resources
Desire for Control
Breadth of Product Life

Promotion Decisions

Another one of the 4P's is 'promotion'. This includes all of the tools available to the
marketer for 'marketing communication'. You can 'integrate' different aspects of the
promotions mix to deliver a unique campaign. The elements of the promotions mix are:

Personal Selling.
Sales Promotion.
Public Relations.
Advertising.
Direct Marketing.

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From the above figure it can be said that Marketing Communications Mix is the specific
mix of advertising, personal selling, sales promotion, public relations, and direct marketing
a company uses to pursue its advertising and marketing objectives.

The elements of the promotions mix are integrated to form a coherent campaign. When
deciding how to properly utilize the marketing communications mix to meet the marketing
objectives, it is important to consider the relative strengths and weaknesses of each
component of the mix. Further, one must always define the total budget first (generally
defined in the Marketing and/or Business Plan) and then decide upon the best way to
leverage the different elements of the mix to maximize the return on investment.

Advertising - Any paid form of nonpersonal presentation and promotion of ideas, goods,
or services by an identified sponsor is called advertising. It should reach large,
geographically dispersed audiences, often with high frequency and low cost per exposure.
Though overall costs are high, consumers perceive advertised goods as more legitimate.
Advertisement dramatizes company/brand, builds brand image and may stimulate short-
term sales. It is an impersonal, one-way communication and expensive.

Personal selling - Personal presentation by the firm’s sales force for the purpose of making
sales and building customer relationships. Most effective tool for building buyers’
preferences, convictions, and actions. Personal interaction allows for feedback and
adjustments. This is more relationship-oriented. Buyers are more attentive. It is considered
as the most expensive of the promotional tools

Sales promotion - Short-term incentives to encourage the purchase or sale of a product or

service. It may be targeted at the trade or ultimate consumer. It makes use of a variety of
formats: premiums, coupons, contests, etc.. This offers strong purchase incentives,

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dramatizes offers, boosts sagging sales and stimulates quick response. But it is short-lived
and is not effective at building long-term brand preferences.

Public relations - Building good relationships with the company’s various publics by
obtaining favorable publicity, building up a good "corporate image", and handling or
heading off unfavorable rumors, stories, and events. Highly credible; Very believable;
Many forms: news stories, news features, events and sponsorships, etc.; Reaches many
prospects missed via other forms of promotion; Dramatizes company or product; Often the
most under used element in the promotional mix; Relatively inexpensive.

Direct marketing - Direct communications with carefully targeted individual consumers to

obtain an immediate response and cultivate lasting customer relationships. Many forms:
Telephone marketing, direct mail, online marketing, etc.; Four distinctive characteristics:
Nonpublic, Immediate, Customized, Interactive; Well-suited to highly-targeted
marketing efforts

Similar to distribution decisions, while deciding upon your unique marketing

communications mix, we should consider the following factors:

Type of product
Nature of market
Stage of product in its life cycle
Budget availability
Company policy

Here are some general guideline as to how and when to emphasize different parts of the
mix according to the stages of a typical product life cycle:

Product Life Cycle

Pre-Introduction: Light advertising, pre-introduction publicity

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 Introduction: Heavy use of advertising, public relations for awareness, sales
promotion for trial

Growth: Advertising, public relations, branding and brand marketing, personal

selling for distribution

Maturity: Advertising decreases, sales promotion, personal selling, reminder &

persuasion

Decline: Advertising and public relations decrease, limited sales promotion,

personal selling for distribution

Characteristics of Different Promotions

There are seven characteristics on which each promotional option can be judged. While
these characteristics are widely understood as being important in evaluating the
effectiveness of each type of promotion, they are by no means the only criteria used for
evaluation. In fact, as new promotional methods emerge the criteria for evaluating
promotional methods will likely change. Promotional mix can be characterised on the basis
of:

1. Intended Audience: Mass vs. Targeted

2. Payment Model: Paid vs. Non-Paid
3. Interaction Type: Personal vs. Non-Personal
4. Message Flow: One-Way vs. Two-Way
5. Demand Creation: Quick vs. Lagging
6. Message Control
7. Message Credibility
8. Effective Cost of Promotion

Developing an integrated marketing communication program involves eight steps:

Identification of target Audience- Identify the target audience. In this plan you
determined the customer segments, which are your target audience
Determination of communication objectives- Determine the communication goals.
Your strategic market goals have been identified, but you may consider adding a
goal here that directly relates to this communications plan and segment.
Designing the communication message- A good message gets a customer's
attention, holds interest, arouses desire, and obtains action. A message must have
content, structure, and a format.
Selection of media channel
Deciding the total communication budget
Deciding on the communication mix- Select the communication tools, as listed
above.

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 Measurement of communication results- Evaluate the results. Did the message have
the intended impact on the target audience? Measure the behavior of the target
audience.
Managing integrated marketing communication process.

Promotion Mix Strategies- Push and Pull- A push strategy involves pushing the product
through distribution channels to final consumers. The manufacturer direcyts all activities ,
especially personal selling and trade promotion toward channel members to induce them to
carry the product in large quantities and to promote it to the final consumers.

Using a pull strategy, the manufacturer directs all marketing activities, especially
advertising and consumer promotion, toward the final consumers to induce them to buy the
product. Thus under a pull strategy, consumer’s demand pulls the product through the
channels.

Channel’s
personal
Manufacturer’s selling,
personal selling advertising
and trade and sales
promotion promotion
Manufacturer Retailers and Consumers
Wholesalers

Push Strategy

Demand Demand
Manufacturer Retailers and Consumers
Wholesalers

Consumer advertising and sales promotion

Pull Strategy

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Factors Affecting Promotional Choice

With four promotional methods to choose from how does the marketer determine which
ones to use? The selection can be complicated by company and marketing decision issues.

Company Issues:

• Promotional Objective – As we discussed, there are several different objectives a

marketer may pursue with their promotional strategy. Each type of promotion offers
different advantages in terms of helping the marketer reach their objectives. For
instance, if the objective of a software manufacturer is to get customers to try a
product, the use of sales promotion, such as offering the software in a free
downloadable form, may yield better results than promoting through Internet
advertising.
• Availability of Resources – The amount of money and other resources that can be
directed to promotion affects the marketer’s choice of promotional methods.
Marketers with large promotional budgets may be able to spread spending among all
promotion options while marketers with limited funds must be more selective on the
promotion techniques they use.
• Company Philosophy – Some companies follow a philosophy that dictates where
most promotional spending occurs. For instance, some companies follow the
approach that all promotion should be done through salespeople while other
companies prefer to focus attention on product development and hope word-of-
mouth communication by satisfied customers helps to create interest in their product.
• Target Market – As one might expect, customer characteristics dictate how
promotion is determined. Characteristics such as size, location and type of target
markets affect how the marketer communicates with customers. For instance, for a
small marketer serving business markets with customers widely dispersed, it may be
very expensive to utilize a sales force versus using advertising.
• Product – Different products require different promotional approaches. For the
consumer market, products falling into the convenience and shopping goods
categories are likely to use mass market promotional approaches while higher-end
specialty goods are likely to use personalized selling.
• Distribution –Marketing organizations selling through channel partners can reach
the final customer either directly using a pull promotion strategy or indirectly using a
push promotional strategy.
• Price – The higher the price of a product the more likely a marketer will need to
engage in personalized promotion compared to lower priced products that can be
marketed using mass promotion.

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Sales Promotion - A mass communication technique that offers short-term incentives to
encourage purchase or sales of a product or service.

Types:
Consumer Promotions - rebates, coupons, deals, free-samples, point-of-purchase display,
contests, sweepstakes, any sales promotions that reaches consumers directly.

Trade Promotions - trade allowances, merchandise, case, financial allowance, quantity

discounts, co-operative advertising; promotions given to channel intermediaries

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 Personal Selling and Sales management

Whether a company is in retailing or manufacturing, sells goods or services, is a large

multi-national or a local startup, is out to make a profit or is a non-profit, in all probability
at some point they will need to rely on personal contact with customers. In other words,
they will need to promote using personal selling.

Personal selling is one of the oldest forms of promotion. It involves the use of a sales force
to support a push strategy (encouraging intermediaries to buy the product) or a pull strategy
(where the role of the sales force may be limited to supporting retailers and providing after-
sales service).

While there certainly are some salespeople that fit these descriptions, today the most
successful salespeople are those who work hard to understand their customers’ needs with
the ultimate goal of ensuring that customer’s needs are satisfied at a high level. And, more
importantly, personal selling holds a key role in the promotional activities of a large
number of organizations. In fact, in the business market where one company sells products
to another company, money spent to support the selling function far exceeds spending on
advertising.

Personal selling is a promotional method in which one party (e.g., salesperson) uses skills
and techniques for building personal relationships with another party (e.g., those involved
in a purchase decision) that results in both parties obtaining value. In most cases the
“value” for the salesperson is realized through the financial rewards of the sale while the
customer’s “value” is realized from the benefits obtained by consuming the product.
However, getting a customer to purchase a product is not always the objective of personal
selling. For instance, selling may be used for the purpose of simply delivering information.

Because selling involves personal contact, this promotional method often occurs through
face-to-face meetings or via a telephone conversation, though newer technologies allow
contact to take place over the Internet including using video conferencing or text messaging
(e.g., online chat).

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Important Aspects of Personal Selling:

It enhances the customer’s confidence in the seller

It promotes long term business relations through personal intimacy
It provides a human touch to business transactions
It helps facilitate the seller to understand each customer’s needs and preferences
more clearly
It helps satisfy a customer by modifying the product as per the customer’s choice
and preference.
Personal selling followed by personal service helps build long term relations
between the business and the customer.
It helps keep up the competition in the market, based on product customization as
per customer’s preferences.
It is a powerful and effective tool in convincing the customer about the product.
Through personal selling, the time lag between introducing a product through the
media and actually selling it is reduced.
It provides prospective customers with a better understanding of the product and an
interactive opportunity to liaise with the sales personnel.

Role of a Salesperson:

Kotler describes six main activities of a salesperson:

(1) Prospecting - trying to find new customers

(2) Communicating - with existing and potential customers about the product range

(3) Selling - contact with the customer, answering questions and trying to close the sale

(4) Servicing - providing support and service to the customer in the period up to delivery
and also post-sale

(5) Information gathering - obtaining information about the market to feedback into the
marketing planning process

(6) Allocating - in times of product shortage, the sales force may have the power to decide
how available stocks are allocated.

Selling Roles:

Below we discuss the four major types of selling roles: order getters, order takers, order
influencers, and sales support. It should be noted that these roles are not mutually
exclusive and that a salesperson can perform more than one and possibly all activities

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 • Order Takers

Seek repeat sales, make certain that customers have sufficient product quantities where
and when they need it. Do not require extensive sales effort. Arrange displays, restocks
them, answer phone calls. Low compensation is given to such salespeople and little
training is required. High turnover of personnel is witnessed. These are of two types:

o Inside Order Takers receive orders by mail/phone, sales person in a retail

store.
o Field Order Takers travel to customers. Use laptop computers to improve
tracking of inventory and orders etc.

Order Getters

Sell to new customers and increase sales to present customers, sometimes called creative
selling.
Generate customer leads, provide information, persuading customers and closing sales.
They are required for high priced, complex and/or new products. It is a high pressure job
and requires expensive and time consuming training.

Order Influencers

Distribute information regarding new goods or services, describes attributes and leaves
materials, does not close sales. Assist producers' customers in selling to their own
customers. Order influencers call on retailers and persuade them to carry the product.
Pharmaceuticals may go to doctors’ offices and persuade them to carry their products.

Support Personnel

Facilitate the selling function. Primarily business to business products.

o Trade Salespeople May perform order taking function as well. Spend much
time helping customers, especially retail stores, to promote the product.
They restock the shelves and set up displays. Technical Salespersons Offer
technical assistance to current customers. Usually trained engineers etc.
o Service Salespeople interacts with customers after sale is complete.

Elements of the Personal Selling Process

The personal selling process consists of the following steps:

1) Prospecting

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Prospecting refers to identifying and developing a list of potential clients. Sales people can
seek the names of prospects from a variety of sources including trade shows,
commercially-available databases or mail lists, company sales records and in-house
databases, website registrations, public records, referrals, directories and a wide variety of
other sources. Prospecting activities should be structured so that they identify only potential
clients who fit the profile and are able, willing and authorized to buy the product or service.

2) Pre-approach

Before engaging in the actual personal selling process, sales professionals first analyze all
the information they have available to them about a prospect to understand as much about
the prospect as possible. During the Pre-approach phase of the personal selling process,
sales professionals try to understand the prospect's current needs, current use of brands and
feelings about all available brands, as well as identify key decision makers, review account
histories (if any), assess product needs, plan/create a sales presentation to address the
identified and likely concerns of the prospect, and set call objectives. The sales professional
also develops a preliminary overall strategy for the sales process during this phase, keeping
in mind that the strategy may have to be refined as he or she learns more about the
prospect.

3) Approach

The approach is the actual contact the sales professional has with the prospect. This is the
point of the selling process where the sales professional meets and greets the prospect,
provides an introduction, establishes rapport that sets the foundation of the relationship,
and asks open-ended questions to learn more about the prospect and his or her needs.

4) Making the Presentation

During the presentation portion of the selling process, the sales professional tells that
product "story" in a way that speaks directly to the identified needs and wants of the
prospect. A highly customized presentation is the key component of this step. At this point
in the process, prospects are often allowed to hold and/or inspect the product and the sales
professional may also actually demonstrate the product. Audio visual presentations and/or
slide presentations may be incorporated at this stage and this is usually when sales
brochures or booklets are presented to the prospect. Sales professionals should strive to let
the prospect do most of the talking during the presentation and address the needs of the
prospect as fully as possible by showing that he or she truly understands and cares about
the needs of the prospect.

5) Overcoming Objections

Professional sales people seek out prospects' objections in order to try to address and
overcome them. When prospects offer objections, it often signals that they need and want
to hear more in order to make a fully-informed decision. If objections are not uncovered
and identified, then sales professionals cannot effectively manage them. Uncovering

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objections, asking clarifying questions, and overcoming objections is a critical part of
training for professional sellers and is a skill area that must be continually developed
because there will always be objections.

6) Closing the Sale

Technically "closing" a sale happens when products or services are delivered to the
customer's satisfaction and payment is received. Too many sales professions are either
weak or too aggressive when it comes to closing. If you are closing a sale, be sure to ask
for the order. If the prospect gives an answer other than "yes", it may be a good opportunity
to identify new objections and continue selling.

7) Follow-up

Follow-up is an often overlooked but important part of the selling process. After an order is
received, it is in the best interest of everyone involved for the sales person to follow-up
with the prospect to make sure the product was received in the proper condition, at the right
time, installed properly, proper training delivered, and that the entire process was
acceptable to the customer. This is a critical step in creating customer satisfaction and
building long-term relationships with customers.

Advantages of personal selling as a means of promotion:

Personal selling is a face-to-face activity; customers therefore obtain a relatively

high degree of personal attention
The sales message can be customized to meet the needs of the customer
The two-way nature of the sales process allows the sales team to respond directly
and promptly to customer questions and concerns
Personal selling is a good way of getting across large amounts of technical or other
complex product information
The face-to-face sales meeting gives the sales force chance to demonstrate the
product
Frequent meetings between sales force and customer provide an opportunity to
build good long-term relationships

Main disadvantages of using personal selling: The main disadvantage of personal selling
is the cost of employing a sales force. Sales people are expensive. In addition to the basic
pay package, a business needs to provide incentives to achieve sales (typically this is based
on commission and/or bonus arrangements) and the equipment to make sales calls (car,
travel and subsistence costs, mobile phone etc).

In addition, a sales person can only call on one customer at a time. This is not a cost-
effective way of reaching a large audience.

Sales Management:

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Sales management refers to the administration of the personal selling component of an
organization's marketing program. It includes the planning, implementation, and control of
sales programs, as well as recruiting, training, motivating, and evaluating members of the
sales force. The fundamental role of the sales manager is to develop and administer a
selling program that effectively contributes to the achievement of the goals of the overall
organization.

According to Committee of the AMA (American Marketing Assosiation) Sales

management means “the planning, direction, and control of personal selling, including
recruiting, selecting, equipping, assigning, routing, supervising, paying and motivating as
these tasks apply to the personal salesforce.”

THE ROLE OF SALES MANAGEMENT

Although the role of sales management professionals is multidisciplinary, their primary

responsibilities are:

(1) Setting goals for a sales-force;

(2) Planning, budgeting, and organizing a program to achieve those goals;

(3) Implementing the program; and

(4) Controlling and evaluating the results.

Even when a sales force is already in place, the sales manager will likely view these
responsibilities as an ongoing process necessary to adapt to both internal and external
changes.

Managing the sales process is typically the job of the Sales Manager. Good sales managers
usually exhibit the characteristics of: organization, a good personal sales record,
enthusiasm, ambition, product knowledge, trustworthiness, mentoring skills, and somebody
who is respected by others.

Sales Force Management-

Sales force management is defined as the analysis, planning, implementation, and control
of sales force activities. The major steps are as follows:

Developing sales force strategy and structure- A company can go for a territorial sales
force structure, product sales force structure, customer sales force structure or a mix of the
three. Sales force size is important because it is both productive and expensive. The size is
decided based on the workload approach.

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Recruiting and selecting sales persons- Careful selection will help to increase sales force
productivity. The traits to look for in selection are enthusiasm, commitment, persistence,
initiative and self confidence.. Recruitment is done through advertising in newspapers,
employment exchanges, campus recruitment etc. Selection procedure includes sales
aptitude tests, analytical skills, personality traits, experience etc.

Training sales persons- Training includes imparting knowledge about the company, its
products, production process, market situation, competition, pricing, and buyer’s habits.
Presentation skills, interpersonal skills, time management, reporting etc.

Compensating sales persons- In order to keep the sales force active, enthusiastic, and
motivated a good compensation plan is necessary. Compensation covers normally a fixed
salary, variable commission, travel expenses, fringe benefits, reward schemes, etc.

Supervising sales persons- This involves direction, control, guidance, and motivation of
the sales force to help them perform well on the job.

Evaluating sales persons- It is done through sales reports, call reports, expense reports,
personal observations, customer surveys, and sales meetings. Target vs. achievement is a
quantifiable means of evaluating sales persons.

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 Pricing Decisions

Pricing is one of the most difficult decisions faced by organisations. As well as a detailed
knowledge of the costs involved in producing a product or delivering a service, the decision
maker must also factor in the organisation’s strategic objectives and a range of
environmental factors, such as market demand, the expected life cycle and competitors’
actions.

What is Price?

• Buyers’ View – For those making a purchase, such as final customers, price refers
to what must be given up to obtain benefits. In most cases what is given up is
financial consideration (e.g., money) in exchange for acquiring access to a good or
service. But financial consideration is not always what the buyer gives up.
Sometimes in a barter situation a buyer may acquire a product by giving up their own
product. For instance, two farmers may exchange cattle for crops. Also, as we will
discuss below, buyers may also give up other things to acquire the benefits of a
product that are not direct financial payments (e.g., time to learn to use the product).
• Sellers’ View - To sellers in a transaction, price reflects the revenue generated for
each product sold and, thus, is an important factor in determining profit. For
marketing organizations price also serves as a marketing tool and is a key element in
marketing promotions. For example, most retailers highlight product pricing in their
advertising campaigns.

Objectives of Pricing-
Profit maximization in short run and profit optimization in long run.
Assured minimum return on investment

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 Ensure a specified targeted sales volume.
Make entry into new markets and market penetration in existing markets.
Maintain price leadership or price parity with competitors.
Improving cash flow through faster sales.
Liquidation of accumulated inventory of products.

Importance of Pricing:
Of all the elements of marketing mix, price is the only one which generates revenue. Price
is also the most important determinant of the profitability of any company or business.
• Most Flexible Marketing Mix Variable – For marketers price is the most adjustable
of all marketing decisions. Unlike product and distribution decisions, price can be
changed very rapidly. The flexibility of pricing decisions is particularly important in
times when the marketer seeks to quickly stimulate demand or respond to competitor
price actions
• Setting the Right Price – Pricing decisions made hastily without sufficient research,
analysis, and strategic evaluation can lead to the marketing organization losing
revenue. Any mistake in pricing will adversely affect the company, its profit, growth
and future.
• Trigger of First Impression - Often times customers’ perception of a product is
formed as soon as they learn the price, such as when a product is first seen when
walking down the aisle of a store.
• Important Part of Sales Promotion – Many a times price adjustments are part of
sales promotions that lower price for a short term to stimulate interest in the product.

Factors Affecting Pricing Decision

The final price for a product may be influenced by many factors which can be categorized
into two main groups:

Internal factors-

Marketing objectives- A company may seek objectives like market leadership, current
profit maximization, survival or product quality leadership, and accordingly set a low,
average or high price.

Marketing mix strategy- Pricing decision must be coordinated with other variables of the
marketing mix like product design, promotion and distribution. So any decision made for
any other variable in the marketing mix could affect or influence pricing decisions.

Costs- Cost forms the base level for price decisions. A company has to consider fixed,
variable and total costs while making price decisions.

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Organizational considerations- In different companies pricing decisions are handled
differently and by different people.

External Factors-

The market and demand- Marketers must continually use market research and their own
judgment to determine whether marketing decisions need to be adjusted. When it comes to
adjusting price, the marketer must understand what effect a change in price is likely to have
on target market demand for a product. The price demand relationship varies with the
nature of the markets, i.e. , pure competition, monopolistic competition, oligopolistic
competition etc.

Competition- Marketers will undoubtedly look to market competitors for indications of

how price should be set. For many marketers of consumer products researching
competitive pricing is relatively easy, particularly when Internet search tools are used.
Price analysis can be somewhat more complicated for products sold to the business market
since final price may be affected by a number of factors including if competitors allow
customers to negotiate their final price.

Other Environmental Factors- While making pricing decisions company has to consider the
economic condition, consumer perceptions, impact of pricing on wholesalers and retailers,
government regulations etc.

Pricing Strategies:

Cost Pricing

Under cost pricing the marketer primarily looks at production costs as the key factor in
determining the initial price. This method offers the advantage of being easy to implement
as long as costs are known. But one major disadvantage is that it does not take into
consideration the target market’s demand for the product. This could present major
problems if the product is operating in a highly competitive market where competitors
frequently alter their prices. Commonly used methods are mark up pricing or cost plus
pricing, target rate of return pricing, and marginal cost pricing.

Demand Based Pricing

Penetration pricing: Where the organisation sets a low price to increase sales and market
share. Once this is achieved, the price is increased.

Skimming pricing: The organisation sets an initial high price and then slowly lowers the
price to make the product available to a wider market. The objective is to skim profits of
the market layer by layer. However, the advantage is not sustainable. The high price tends

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to attract new competitors into the market, and the price inevitably falls due to increased
supply.

Competition oriented pricing

Here a given competitor’s price will serve as a benchmark. The three alternatives in this
method are premium pricing, discount pricing or parity pricing. Premium pricing uses a
high price where there is uniqueness about the product or service. This approach is used
where a substantial competitive advantage exists. Discount pricing is pricing below
competitor’s price level. Parity pricing is matching the price of competitors.

Value Pricing

This approach is used where external factors such as recession or increased competition
force companies to provide 'value' products and services to retain sales.

Product Line Pricing

Pricing different products within the same product range at different price points. An
example would be a video manufacturer offering different video recorders with different
features at different prices. The greater the features and the benefit obtained the greater the
consumer will pay. This form of price discrimination assists the company in maximising
turnover and profits.

Tender Pricing

This option is more applicable to business markets where institutional customers normally
call for competitive bidding through sealed tenders or quotations. The buyers look for the
best possible price consistent with the minimum assured quality specifications.

Differentiated Pricing

Different prices are charged for the same product by the company, in different market
segments. Price differentiation is made occasionally, based on customer class rather than
geographic marketing territory. Differentiation is at times done on the basis of purchase
volume.

Psychological Pricing

This approach is used when the marketer wants the consumer to respond on an emotional,
rather than rational basis.

Loss Leader Pricing

An important type of pricing program used primarily by retailers is the loss leader. Under
this method a product is intentionally sold at or below the cost the retailer pays to acquire
the product from suppliers. The idea is that offering such a low price will entice a high

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level of customer traffic to visit a retailer’s store or website. The expectation is that
customers will easily make up for the profit lost on the loss leader item by purchasing other
items that are not following loss leader pricing.

Product Bundle Pricing

Here sellers combine several products in the same package. This also serves to move old
stock. Videos and CDs are often sold using the bundle approach.

Promotional Pricing

Pricing to promote a product is a very common application. There are many examples of
promotional pricing including approaches such as BOGOF (Buy One Get One Free).

Geographical Pricing

Geographical pricing is evident where there are variations in price in different parts of the
world. For example rarity value, or where shipping costs increase price.

Premium pricing: The price set is high to reflect the exclusiveness of the product. An
example of products using this strategy would be Harrods, first class airline services,
porsche etc.

Optional pricing: The organisation sells optional extras along with the product to
maximise its turnover. This strategy is used commonly within the car industry.

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 New Product Development

New product development is a company's lifeblood. Growth and profits suffer without
aggressive product development introducing new products and services into the market.

All companies need to find out what their customers/potential customers want in order to
meet any gaps in the market. However, asking your customers to take the role of R&D
personnel to find out what they want will not always lead to success. The key to successful
market research for new product development comes from an understanding of what
customers value and not simply from asking them to submit their own solutions.

New product development research is not always about looking at the product in isolation;
the product, the packaging, the advertising and the pricing strategy are all integral parts of
the research. Any new product launch is inherently risky as it is a venture into the
unknown. B2B International has shown that thorough, well planned research can accurately
pinpoint the richest areas of opportunity and therefore prioritise the most promising areas
of new product development.

New Product Development Process: Steps to Develop New Products and

Services

The product development process involves eight stages:

1. Idea Generation

2. Idea Screening

3. Concept Development

4. Marketing Strategy

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 5. Business Analysis

6. Product Development

7. Test Marketing

8. Commercialization

Idea Generation:

Top management should define the products and markets to emphasize. New product
objectives should be clear. Idea generating techniques like attribute listing, problem
analysis, brainstorming etc. help in generating better ideas.

Idea Screening:

The second stage is of idea pruning. The company must avoid permitting a poor idea to
move into development and commercialisation. Idea rating is done by describing the
product, the target market and the competition and making some rough guesses as to
market size, product price, development time and costs, manufacturing costs and rate of
return.

Concept Development and Testing:

A ‘product concept’ is an elaborated version of the idea expressed in meaningful consumer

terms. Each concept requires concept positioning so that its real competition would be
understood, when compared to existing brands or substitutes. The concepts have to be
tested with an appropriate group of target consumers.

Marketing Strategy Development:

The product manager has to develop a preliminary marketing strategy for introducing the
product into the market. The marketing strategy statement has three parts. The first part
describes the size, structure and behaviour of the target market, the planned product
positioning, the sales, the market share and profit goals sought in the first few years. The
second part outlines the product’s planned price, distribution strategy, and marketing
budget for the first year. The third part describes the planned long run sales and profit goals
and marketing mix strategy over time.

Business Analysis:

This involves the evaluation of business attractiveness of the proposal. The management
must review the sales, cost and profit projections to determine whether they satisfy the
company’s objectives.

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Product Development:

If the product concept passes the business test, it moves to the R&D to be developed in to
a physical product. This stage checks whether the product idea can be translated into a
technically and commercially viable product.

Test Marketing:

If the management is satisfied with the product’s functional performance, the product is
ready to be dressed up with a brand name, packing and a preliminary marketing
programme, to be tested in more authentic consumer settings. The basic purpose is to learn
how consumers and dealers react to handling, using and repurchasing the actual product
and how large the market is.

Commercialisation:

Test marketing gives the management enough information whether to launch the product or
not. For launching the product, the major decisions include when, where, how and to
whom.

The consumer adoption process:

The process has five stages:

1. Awareness

2. Interest

3. Evaluation

4. Trial

5. Adoption

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