Transcript of "Marketing Management Notes Unit II"
Marketing Environment: Marketing environment is ever changing. Analysis of the external environment consist of identification of opportunities and threats and tracing it to a particular source. The environment is changing so fast that the rate of change in the environment out scrip’s the rate of change in the organization. Environment means the sub-total of external factors within which any organization operates. According to Philip Kotler, “external factors and forces that affect the firm’s ability to develop and maintain successful transactions and relationships with the target customers. Marketing environment includes all forces that effect marketing and operations of any organization such forces may be both external and internal.
Marketing Environment Variables: The marketing environment variables include all those factors which are external to a firm and which affect the marketing process. Therefore, the company’s marketing executives must constantly monitor the changing marketing scene and observe the changing environment through marketing research. The marketing environment consists of 2 factors which affects the company’s abilities to serve its markets: 1) Controllable Factors: The controllable factors are well within the grip of the firm and is easy to adjust to suit the changes. These consist of marketing policies and marketing strategies . Framing of marketing policies is done by the top management and the strategies by middle level management
2) Uncontrollable Factors: Controllable factors will have to filtered through various uncontrollable environmental factors before they reach to the consumers various elements under controllable variables affect an organization and its marketing strategies. The uncontrollable environment consists of 2 levels i.e. micro-environment and macro-environment. Micro-Environment: This consists of elements or forces that influence marketing directly. It includes suppliers, marketing intermediaries, customers, competitors, and the general public. Macro-Environment: This environment includes the following:
<ul><li>Social-Cultural Forces: These consist of the following factors: </li></ul><ul><li>a) Sociological Factors: </li></ul><ul><li>b) Psychological Factors: </li></ul><ul><li>c) Anthropological Factors: </li></ul><ul><li>2) Economic Forces: The components of this force are as follows: </li></ul><ul><li>a) Consumers: </li></ul><ul><li>b) Competition: </li></ul><ul><li>c) Price: </li></ul><ul><li>3) Ethical Forces: The business community has the ethical responsibility while delivering goods to the society. Off late, excessive profiteering, making quick money have </li></ul>
forced some of the business people to disintegrate the ethical values from the business. Non-standardization as to quality, adulteration, imitation, giving false impression and so on have led to the customer exploitation beyond the limits resulting in socio-economic pollution of minds and relations. 4) Political Forces: Marketing environment is the brace of political framework in which the government of the Nation woks. It is the government that regulates the business activities as it is the custodian of the nation. Whatever the marketer is to decide and act in the face of legal framework provided by the political party ruling the Nation. 5) Physical Forces: The physical factors here refer to the
<ul><li>physical distribution of goods and services. These refer to the creation of place and time utilities. </li></ul><ul><li>6) Technological Forces: Science and technology is always changing. This changing face of science and technology has impact on marketing environment. </li></ul><ul><li>Environmental Scanning: </li></ul><ul><li>Knowledge of environmental factors is important. But what is more important is the ability of the marketer to forecast changes in these factors. Verbal and written information are two among the many techniques of environment scanning. Sources of verbal information are: </li></ul><ul><li>Radio and Television Reports; </li></ul>
2) Firm’s employees like peers, subordinates, supervisors; 3) Customers; 4) Financial Institutions; and 5) Consultants. SPIRE Approach: Integrating environment forces into strategic decision through novel approach is called SPIRE (Systematic Probing and Identification of the Relevant Environment) approach. This was the essence of Klien and Newmans recommendations in, ‘How to integrate new environmental forces into strategic planning?’ According to authors this approach which may seem tedious at times reduces the risk of overlooking potentially important environmental factors. The probing and
<ul><li>identification extend to variables that have clear operational meaning to managers. The aim of this approach is not to forecast environmental factors behaviour but to flag the relevant environmental factors and spell out its potential impact on identified operations. The steps involved in SPIRE approach are as follows: </li></ul><ul><li>Opening possible interactions through a matrix which sets out a detailed list of environmental variables and strategic marketing components. </li></ul><ul><li>Identify these impact linkages between environmental variables and other strategic marketing components. The possible effect of each factor on each component is considered. </li></ul><ul><li>Some strategic components tend to respond together </li></ul>
and some environmental factors will influence all components. These clusters form the basis of forecasts as they are relevant environmental factors which need the attention of the marketer and other decision makers in the organization. The advantage of SPIRE approach is that it increases sensitivity of all decision makers, helps in generating creative ideas, forecasts can be used in actual decision making and a framework is established for rapid assimilation of unexpected environmental changes. Scenario Building: Another approach to environmental scanning is called scenario building. This is a process involving the decision
decision maker who has to analyse his decisions relating to the future. Following steps are involved in this technique: Stage 1: Analysis of the Decision: Stage 2: Identification of the key decision factors: Stage 3: Keying in societal factors: Stage 4: Analysis of each key variables separately: Stage 5: Selection of scenario logistics: Stage 6: Elaborating Scenarios:
<ul><li>Measuring Market Demand: </li></ul><ul><li>The marketers first step in evaluating market opportunities is to estimate the total market demand. Market demand for a product is the total volume that would be bought by a defined customer group; in a defined geographical area; in a defined time period; in a defined marketing environment under a defined marketing programme. </li></ul><ul><li>It pays to compare the current level of market demand to the potential demand level. The result is called the market penetration index. </li></ul><ul><li>A low market penetration index indicates substantial growth potential for all the firms. </li></ul><ul><li>A high market penetration index suggests that there will be increased costs in attracting the few remaining prospects. </li></ul><ul><li>Generally, price competition increases and margins fall when </li></ul>
<ul><li>the market penetration is already high. </li></ul><ul><li>A company should also compare its current market share to its potential market share. The result is called company’s share penetration index. </li></ul><ul><li>A low share penetration index indicates that the company can greatly expand its share. </li></ul><ul><li>Estimating Current demand: </li></ul><ul><li>The main element in this are: </li></ul><ul><li>Total Market Potential: Total market potential is the maximum amount of sales that might be available to all the firms in an industry during a given period, under a given level of industry marketing effort and environmental conditions. A common way to estimate total market potential is as follows: </li></ul>
<ul><li>Estimate the potential number of buyers; </li></ul><ul><li>Number of times the average quantity purchased; </li></ul><ul><li>Price at which purchased. </li></ul><ul><li>The most difficult to estimate is the number of buyers for a specific product in the market. </li></ul><ul><li>One can always start with the total population in the Nation. </li></ul><ul><li>The next step is to eliminate groups that obviously would not buy the product. </li></ul><ul><li>We might do further research and find that people with other reasons would not use the product. </li></ul><ul><li>Area Market Potential: Companies face the problem of selecting the best territories and allocating their marketing budget optimally among these territories. Therefore, they need to estimate the market potential of different cities, states, and </li></ul>
<ul><li>Nations. Two methods of assessing area market potential are available: </li></ul><ul><li>The market build-up method: This method calls for identifying all the potential buyers in each market and estimating the potential purchases. This method produces accurate results if we have a list of all potential buyers and a good estimate of what each will buy. Unfortunately, this information is not easy to gather. </li></ul><ul><li>An efficient method of estimating area market potential makes use of the Standard Industrial Classification (SIC) system developed by the U.S. Bureau of Census: </li></ul><ul><li>The SIC classifies all manufacturing into 20 major industry groups each with a 2 digit code (eg. Number 25 specified for furniture and fixtures). </li></ul><ul><li>Each major industry group is further subdivided into 150 </li></ul>
groups designated by 3 digits code (number 251 is household furniture and 252 is office furniture). c) Each industry is further subdivided into approx. 450 product categories designated by 4 digits code (number 2521 is wooden office furniture and number 2522 is metal office furniture). For each 4 digit SIC number the census of manufacturers provides the number of establishments sub classified by location, number of employees, annual sales, and networth. 2) Multiple Factor Index Method:
<ul><li>Estimating future Demand: </li></ul><ul><li>Companies commonly use 3 stage procedure for preparing sales forecast: </li></ul><ul><li>Macro Economic forecast; </li></ul><ul><li>Industry forecast; </li></ul><ul><li>Company sales forecast. </li></ul><ul><li>All forecasts are based on 3 information bases: </li></ul><ul><li>What people say? </li></ul><ul><li>What people do? </li></ul><ul><li>What people have done? </li></ul><ul><li>The first basis of what people say – involves surveying the opinions of buyers or the sales people who sell products to them. The methods involved in this are: </li></ul><ul><li>1) Survey of buyers intention: </li></ul>
<ul><li>2) Composite of sales force opinion: and </li></ul><ul><li>3) Expert opinion: </li></ul><ul><li>The second basis of what people do involves following methods: </li></ul><ul><li>Putting the product in the test market to measure buyer response. </li></ul><ul><li>The last basis of what people have done involves: </li></ul><ul><li>Analysing records of past buying behaviour – using time series analysis. </li></ul><ul><li>Statistical demand analysis. </li></ul><ul><li>Market Segmentation: </li></ul><ul><li>Market segmentation id the art of dividing the customers of product into several homogeneous groups on the basis of </li></ul>
<ul><li>their common characteristics such as income, age, education, race, gender, profession, geographic location, etc. The aim of market segmentation is to prepare different programmes and strategies for all segments so that maximum satisfaction may be provided to all the consumers of these segments and the object of earning maximum profits may be achieved. </li></ul><ul><li>Levels of market segmentation: </li></ul><ul><li>This is done at 4 levels: </li></ul><ul><li>Segment Marketing: </li></ul><ul><li>Niche Marketing: </li></ul><ul><li>Local Marketing: </li></ul><ul><li>Individual Customer Marketing: </li></ul><ul><li>Patterns of Market Segment: (Preference Segments) </li></ul><ul><li>1) Homogeneous Preference: </li></ul>
<ul><li>2) Diffused Preference: </li></ul><ul><li>3) Clustered Preference: </li></ul><ul><li>Segmenting Consumer and Business Markets: </li></ul><ul><li>Bases for segmenting consumer market: </li></ul><ul><li>Geographic Segmentation: </li></ul><ul><li>Demographic Segmentation: </li></ul><ul><li>a) Age: </li></ul><ul><li>b) Life Stage: </li></ul><ul><li>c) Gender: </li></ul><ul><li>d) Income: </li></ul><ul><li>e) Generation: </li></ul><ul><li>f) Social Class: </li></ul><ul><li>3) Psycho graphic Segmentation: </li></ul><ul><li>a) Lifestyle: </li></ul><ul><li>b) Personality: </li></ul>
<ul><li>c) Values: </li></ul><ul><li>4) Behavioural Segmentation: </li></ul><ul><li>a) Occasions: </li></ul><ul><li>b) Benefits: </li></ul><ul><li>c) User Status: </li></ul><ul><li>d) Usage Rate: </li></ul><ul><li>e) Loyalty Status: </li></ul><ul><li>f) Buyer Readiness Stage: </li></ul><ul><li>g) Attitude Towards the Product: </li></ul><ul><li>Bases for Segmenting Business Markets: </li></ul><ul><li>Demographic: </li></ul><ul><li>a) Industry: Which industries should we serve? </li></ul><ul><li>b) Company Size: What size companies should we serve? </li></ul><ul><li>c) Location: What geographical areas should we serve? </li></ul>
2) Operating Variables: a) Technology : What customer technology should we focus on. b) User or Nonuser status : Should we serve heavy users, medium users, light users, or nonusers? c) Customer Capabilities: Should we serve customers needing many or few services? 3) Purchasing Approaches: a) Purchasing-function Organization : Should we serve companies with highly centralized or decentralized purchasing functions? b) Power Structure : Should we serve companies that are engineering dominated, financially dominated, and so on? c) Nature of existing relationships : Should we serve companies with which we have strong relationships or simply go after most desirable companies?
d) General Purchase Policies: Should we serve companies that prefer leasing? Service contracts? Systems purchase? Sealed bidding? e) Purchasing Criteria: Should we serve companies that are seeking quality? Service? Price? 4) Situation Factors: a) Urgency: Should we serve companies that need quick and sudden delivery and changes? b) Specific Application: Should we focus on special applications of our product rather than all applications? c) Size of Order: Should we focus on large or small orders? 5) Personal Characteristics: a) Buyer-Seller Similarity: Should we serve companies whose people and values are similar to ours? b) Attitudes towards risk: Should we serve risk-taking or risk-avoiding customers?
<ul><li>c) Loyalty: Should we serve companies that show high </li></ul><ul><li>loyalty to their suppliers? </li></ul><ul><li>Segmenting the Market: </li></ul><ul><li>Survey Stage: </li></ul><ul><li>a) Focus group discussions and in depth interview. </li></ul><ul><li>b) Based on the above develop a questionnaire to collect data on: </li></ul><ul><li>i) attributes sought in a product and their priority rating. </li></ul><ul><li>ii) brand awareness and rating of different brands. </li></ul><ul><li>iii) product usage patterns. </li></ul><ul><li>iv) customer attitude towards the generic product or product </li></ul><ul><li>category itself. </li></ul><ul><li>v) demographics, psychographics, and media habits of sample </li></ul><ul><li>respondents. </li></ul><ul><li>2) Analysis Stage: </li></ul><ul><li>3) Profiling Stage: </li></ul>
Marketing mix The Marketing mix is generally accepted as the use and specification of the "four P's" describing the strategic position of a product in the marketplace. One version of the marketing mix originated in 1948 when James Culliton said that a marketing decision should be a result of something similar to a recipe. This version was used in 1953 when Neil Borden, in his American Marketing Association presidential address, took the recipe idea one step further and coined the term "Marketing-Mix". A prominent marketer, E. Jerome McCarthy, proposed a 4 P classification in 1960, which has seen wide use. A "Marketing Mix" is the set of controllable, tactical marketing tools that work together to achieve company's objectives, they are: product, price, promotion and place . Although some marketers have added other P's, such as people, process and physical evidence by Magrath for service-based industries, public relations and political power by Kotler, and packaging by YS Chin, the fundamentals of marketing typically identifies the four P's of the marketing mix as referring to:
Product - A tangible object or an intangible service that is mass produced or manufactured on a large scale with a specific volume of units. Intangible products are often service based like the tourism industry & the hotel industry. Typical examples of a mass produced tangible object are the motor car and the disposable razor. A less obvious but ubiquitous mass produced service is a computer operating system. Price – The price is the amount a customer pays for the product. It is determined by a number of factors including market share, competition, material costs, product identity and the customer's perceived value of the product. The business may increase or decrease the price of product if other stores have the same product. Place – Place represents the location where a product can be purchased. It is often referred to as the distribution channel. It can include any physical store as well as virtual stores on the Internet.
Promotion – Promotion represents all of the communications that a marketer may use in the marketplace. Promotion has four distinct elements - advertising, public relations, word of mouth and point of sale. A certain amount of crossover occurs when promotion uses the four principal elements together, which is common in film promotion. Advertising covers any communication that is paid for, from and cinema commercials, radio and Internet advertisements, through print media and billboards. The term "Marketing Mix" however, does not imply that the 4P elements represent options. They are not trade-offs but are fundamental marketing issues that always need to be addressed. They are the fundamental actions that marketing requires whether determined explicitly or by default.
The service marketing mix comprises of the 7’p’s. These include the above 4 P’s of marketing mix and the following 3P’s: People : An essential ingredient to any service provision is the use of appropriate staff and people. Recruiting the right staff and training them appropriately in the delivery of their service is essential if the organisation wants to obtain a form of competitive advantage Process : Refers to the systems used to assist the organisation in delivering the service. Physical evidence : Where is the service being delivered? Physical Evidence is the element of the service mix which allows the consumer again to make judgments about the organisation. Physical evidence is an essential ingredient of the service mix, consumers will make perceptions based on their sight of the service provision which will have an impact on the organisations perceptual plan of the service.
The Service marketing mix involves analysing the 7’p of marketing involving, Product, Price, Place, Promotion, Physical Evidence, Process and People. To certain extent managing services are more complicated then managing products, products can be standardised, to standardise a service is far more difficult as there are more input factors i.e. people, physical evidence, process to manage then with a product
<ul><li>Marketing Information: </li></ul><ul><li>Marketing information is crucial to effective marketing management. Marketing excellence is achieved by a firm when it has a direct relationship to the way it manages marketing information. Marketing excellence is the net result of correct marketing decisions. The decisions can be correct only when they are information based. </li></ul><ul><li>Need for a system to handle marketing information: </li></ul><ul><li>Advantages conferred by a system: A system is essentially an integral procedure in which inputs are received, processed and stored, and the outputs are transmitted for absorption in the main stream. </li></ul><ul><li>Improve the data capture process: A system improves the data capture process and checks for reliability, consistency, and quality. </li></ul>
3) Smoothens the operation: A system smoothens the operations in gathering, processing, and transmitting the data; it also works out patterns from out of the available information. 4) Tailors information outputs to suit needs of executives: Executives at different levels may need only particular segments of the marketing information output, depending on the decisions they are called upon to make. Organizing information into a system helps meet all such requirements. 5) Helps using same information several times, and for different purposes: A system framework facilitates repetitive use of the same information by different departments/executives at different times and for different purposes. A system framework is essential for this purpose. 6) Helps sort out conflicting information: Quite often, a firm receives conflicting information on inputs on a given subject. A system framework helps quick scanning of such information
inputs and cross checking one with the other. 7) Integrates all information: Integration of information is perhaps the most important benefit of a system framework. A system helps instant access to company-wide data by integrating all data into a unified entity. 8) Converts data into information and information into insights; in particular, creates customer insights out of transaction data: 9) Serves as knowledge-management mechanism: A system converts raw data into information and information into knowledge; supports capture of knowledge; serves as a mechanism to manage it; makes the knowledge flow where it is required; and ensures that it is available in a readily usable form. In short, an MIS will serve as a total knowledge management mechanism.
<ul><li>Classification of Marketing Information: </li></ul><ul><li>The information used in Marketing can be classified using 2 different approaches: </li></ul><ul><li>Based on End use/purpose: This can be divided into 3 types: </li></ul><ul><li>a) Information needed for marketing planning: </li></ul><ul><li>b) Information needed for marketing operations: </li></ul><ul><li>c) Information needed for marketing control: </li></ul><ul><li>2) Based on Subject Matter: It can be classified into the following: </li></ul><ul><li>a) Product: </li></ul><ul><li>b) Consumer: </li></ul><ul><li>c) Pricing: </li></ul><ul><li>d) Distribution Channels: </li></ul><ul><li>e) Promotion: </li></ul><ul><li>f) Sales force: </li></ul>
<ul><li>g) Competition: </li></ul><ul><li>h) Sales Methods: </li></ul><ul><li>i) Internal operations of the firm: </li></ul><ul><li>j) External environment of the firm: </li></ul><ul><li>Designing an MIS: </li></ul><ul><li>Following are the steps involved in designing and developing an MIS: </li></ul><ul><li>Defining information needs, </li></ul><ul><li>Classifying information appropriately and identifying whether it is for planning, implementation, or control purposes. </li></ul><ul><li>Evaluating the cost of collecting and processing information and comparing the cost vs benefits. </li></ul><ul><li>Identifying the source of the information. </li></ul>
<ul><li>5) Designing the mechanisms or procedures for gathering, processing, storing, and retrieval of the information. </li></ul><ul><li>6) Deciding the frequency and timing of collection/supply of the information. </li></ul><ul><li>7) Processing, analysing, and interpreting the information and handing it over to the right person, at the right time, and in the manner. </li></ul><ul><li>8) Monitoring, maintaining, reviewing, and improving the system. </li></ul><ul><li>Requisites of a good MIS: </li></ul><ul><li>Must be a unified system. </li></ul><ul><li>Should be conceived and used as a marketing decision support system. </li></ul><ul><li>Must be compatible with the culture and sophistication of the firm and of the marketing organization in particular. </li></ul>
4) Must be user oriented and user friendly; must also secure users involvement. 5) Must involve the suppliers of the information as well. 6) Must be economical. 7) Must meet the principle of selectivity. 8) Must be capable of smoothly absorbing changes that may become necessary. 9) Must be fast.
<ul><li>Characteristics of a good Marketing Information: </li></ul><ul><li>Relevance to decision-making: </li></ul><ul><li>Clarity: </li></ul><ul><li>Completeness: </li></ul><ul><li>Confidentiality: </li></ul><ul><li>Precision: </li></ul><ul><li>Cost Reasonableness: </li></ul><ul><li>Reliable (from genuine sources): </li></ul><ul><li>Accuracy: </li></ul><ul><li>Timeliness: </li></ul><ul><li>Objectivity: </li></ul><ul><li>Authenticity: </li></ul><ul><li>Strategic Value: </li></ul><ul><li>Types of output from MIS: </li></ul><ul><li>MIS must provide an information that is needed for decision- </li></ul>
<ul><li>making. It must come to the decision makers in the manner and form in which they need it and at the time they need it. With the recent progress in the field of I.T. practically any kind of information output/report that is needed for marketing decisions can be made available by the MIS. </li></ul><ul><li>The output/reports from the MIS can be classified into following 4 categories: </li></ul><ul><li>Periodic Reports: These are presented in predetermined formats at specified intervals of time. They are the normal outputs of any data processing system. </li></ul><ul><li>Triggered Reports: These are reports on specific situations. By their very nature, the marketing task and marketing decision requires a host of triggered reports on various situations and subjects. In fact, the competence of the MIS gets tested by its capacity to give the right triggered reports. </li></ul>
<ul><li>3) Demand Reports: These reports are the answers provided by the system to specific queries raised by the marketing decision-makers. </li></ul><ul><li>4) Plan Reports: These are reports made for assisting the formulation of sales forecasts, sales plans, distribution plans, facilities plan, and sales budgets. </li></ul><ul><li>Other outputs from MIS are as follows: </li></ul><ul><li>Specialized Databases: MIS develops specialized databases on different aspects of marketing. </li></ul><ul><li>Customer Databases: Customer database is one such specialized database. Apart from the basic information about name, address, and other demographic details, data pertaining to: What an individual customer has bought; When the last purchase was made; and other similar details are available in this database. </li></ul>
They also provide the RFM (Regency, Frequency, and Monetary) formula which in turn helps the firm to arrive at a customer index that shows which customers are more profitable for the firm. III) Marketing Intelligence: Marketing intelligence is different from regular marketing information or marketing research data. It may form a part of the MIS but it is special in the sense that it gives strategic information and it is quite often related to competitors activities. Broadly marketing intelligence furnishes information on changes in market conditions, changes in customer requirements, emerging strategies of competitors, and emerging opportunities in the business. IV) Data Warehousing: Today organizations collect data or information faster than they can apply it. They need to warehouse it and apply it whenever needed. In fact, they apply it repeatedly for multiple purposes.
<ul><li>The mission of data warehousing is to store data from multiple operational systems in a meaningful format. The data that is warehoused is non-volatile in the sense that it is stored in the warehouse separated from operational systems. </li></ul><ul><li>V) Data Mining: This refers to the automated analysis of large data sets stored in the data warehouse with a view to finding patterns that might otherwise go undiscovered. </li></ul><ul><li>The utility of Data Mining are as follows: </li></ul><ul><li>It is of use in direct marketing: </li></ul><ul><li>Leads to effective customer base: </li></ul><ul><li>Used for online marketing in particular: </li></ul><ul><li>Used in retailing: </li></ul>
<ul><li>Components of a marketing information system : </li></ul><ul><li>The explanation of this model of an MIS begins with a description of each of its four main constituent parts: </li></ul><ul><li>The 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 . </li></ul><ul><li>Marketing research system: 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 </li></ul>
research centres not around a specific marketing problem but is an attempt to continuously monitor the marketing environment. 3) Marketing intelligence system: A marketing intelligence system is a set of procedures and data sources used by marketing managers to shift information from the environment that they can use in their decision-making . 4) Marketing models : Within the MIS there has to be the means of interpreting information in order to give direction to decision. These models may or may not be computerised. Some typical tools are: · Time series sales model · Brand switching model · Linear programming · Elasticity models (price, incomes, demand, supply, etc.)
· Regression and correlation model · Analysis of Variance (ANOVA) model · Sensitivity analysis · Discounted cash flow · Spreadsheet ‘what if model’. Following Figure 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 consider.
The marketing information systems and its subsystems :