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Marketing Management
 

Marketing Management

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Complete notes on Marketing Management as per BPUT Syllabus

Complete notes on Marketing Management as per BPUT Syllabus

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    Marketing Management Marketing Management Document Transcript

    • Module – I Marketing Management Debasis Pani Asst. Professor, GIACR Introduction Marketing has its own origin in the fact that man is a creature of needs and wants. The need and wants creates a state of discomfort in persons and they tend to get products those satisfy these needs and wants. Marketing deals with identifying and meeting human and social needs. One of the shortest definitions of marketing is ―meeting needs profitably.‖ Marketing is an ancient art that exists in the society since time immemorial and has become an important management function today in any business starting from small scale cottage industry to the big MNC‘s What is Market? (Concept of Market) The word marketing has been derived form the word market and the word market is a derived of the Latin word marcatus meaning thereby merchandise. A market is a set of arrangement where both buyer and seller come in close contact with each other directly or indirectly; to sell or buy goods and services or for a predetermined transaction. Traditionally, a ―market‖ was a physical place where buyers and sellers gathered to exchange goods. Now marketers view the sellers as the industry and the buyers as the market. The sellers send goods and services and communications (ads, direct mail, e-mail messages) to the market; in return they receive money and information (attitudes, sales data). Market may be visible or non-visible. The visible form of market is known as marketplace i.e. a store, retail outlet, a vendor the non-visible form of market is known as marketspace it is purely digital i.e. shopping in internet, e-tailing, e-commerce. The metamarket, a concept proposed by Mohan Sawhney, describes a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries What is Marketing? (Definition) To Prof Philip Kotler - ―Marketing is a social managerial function by which an individual or a organization obtains what they need and want through creating, offering and exchange of products and services of value with others‖ To Peter F Drucker -‖Marketing is a process which converts a source; distinct knowledge into a contribution of economic value in the market place. The purpose of the business is to create customer‖ To American Marketing Association (AMA) – ―Marketing is the activity, set of institutions and process for creating, communicating, delivering and exchanging offerings that have value for customer, clients, partners and society at a large (Oct,2007)‖ What is Marketing Management? To Prof Philip Kotler- ―Marketing management is an art and science of choosing target markets and getting, keeping and growing customers through creating, communicating and delivering superior customer value.‖ To American Marketing Association(AMA) – ―It is the process of planning & executing the conception, pricing, promotion & distribution of ideas, goods & services to create exchange that satisfy individual & organizational goals‖ Nature of Marketing 1. Marketing is customer focused: marketing aims to satisfy the customer; thus, activities of marketing must be directed and focused at the customer Debasis Pani, Asst. Professor, GIACR 1
    • Module – I 2. Marketing must deliver to customer: marketers have to know customer needs and deliver the products as per the requirements of customer. The business strategy must be aimed at developing and delivering customer value than competitors. The customer value can be determined as follows Customer Value = Benefits perceived and offered / Cost incurred Benefit = Functional benefit + Emotional benefit Cost = Monetary cost + Energy cost + Energy cost + Psychic cost Value can be seen as primarily a combination of quality, service and price called the customer value triad Customer Value = f (Price, Quality, Satisfaction) 3. Marketing is an interdisciplinary science: marketing as a social science has its origin from various disciplines namely Economics, Law, Sociology, Psychology, and Anthropology. For this reason this also termed as Cocktail science. 4. Marketing is customer need specific: marketing starts with identification of customer needs, wants and requirements. These are turned into probable features that might satisfy the basic needs. Then the portable form of the product is made out and presented before the customer for acceptance. The customer suggests for changes or improvements in that and the final product is brought before the customer. 5. Marketing is a key business: in marketing customer provides business and business seeks customer the whole business revolves round the customer. 6. Marketing sub-systems affect company strategy: marketing has its own sub-system which interacts with each other to form complete marketing system that is responsive to company marketing strategy. 7. Marketing is a part of total environment: the total environment of all resources and intuition which are directly related to the production and distribution of goods, services, ideas, place and persons for the satisfaction of human needs. It is important to look at external and internal environment of any marketing organization. 8. Marketing results in mutually beneficial relationship: now-a-days marketing is everything that results in the mutually beneficial relationships with the customer. Scope of Marketing To know the scope of marketing we must understand what marketing is?, How it works? What is marketed? Who does marketing? I What is Marketing? Marketing means understanding and responding to customer needs. Marketing is the process of creating and managing demand so it is other wise called as Demand Management II How Marketing Works? The process of marketing involves an exchange and transaction between the buyer and seller. Exchange is the process of obtaining a desired product from someone by offering something in return. A transaction is a trade-off value between two or more parties. If the buyer is not satisfied, then the transaction has been at best a Selling transaction. If the seller does not make a profit then it has been a Dumping transaction. Thus a transaction could be termed as a Marketing transaction only if it could result in mutual satisfaction to both the buyer and the seller. III What is Marketed? Marketing people are involved in marketing 10 types of entities: goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. Goods. Physical goods constitute the bulk of most countries‘ production and marketing effort. Services. As economies advance, a growing proportion of their activities are focused on the production of services. Services include airlines, hotels, and maintenance and repair people, as well as professionals such as accountants, lawyers, engineers, and doctors. Many market offerings consist of a variable mix of goods and services. Experiences. By orchestrating several services and goods, one can create, stage, and market experiences. Events. Marketers promote time-based events, such as the Olympics, trade shows, sports events, and artistic performances. Debasis Pani, Asst. Professor, GIACR 2
    • Module – I Persons. Celebrity marketing has become a major business. Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals draw help from celebrity marketers. Places. Cities, states, regions, and nations compete to attract tourists, factories, company headquarters, and new residents. Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. Properties are intangible rights of ownership of either real property (real estate) or financial property (stocks and bonds). Properties are bought and sold, and this occasions a marketing effort by real estate agents (for real estate) and investment companies and banks (for securities). Organizations. Organizations actively work to build a strong, favourable image in the mind of their publics. Philips, the Dutch electronics company, advertises with the tag line, ―Let‘s Make Things Better.‖ Universities, museums, and performing arts organizations boost their public images to compete more successfully for audiences and funds. Information. The production, packaging, and distribution of information is one of society‘s major industries. Among the marketers of information are schools and universities; publishers of encyclopedias, nonfiction books, and specialized magazines; makers of CDs; and Internet Web sites. Ideas. Every market offering has a basic idea at its core. In essence, products and services are platforms for delivering some idea or benefit to satisfy a core need. IV Who Markets? A marketer is someone who seeks a response as attention, purchase, a vote, a donation for another party called prospect. If two parties are seeking to sell something to each other we call both them as marketers. Marketers are skilled in stimulating demand for a company‘s products. Marketing management has the task of influencing the level, timings and composition of demand in a way that will help the organization to achieve its objectives. Function of Marketing In most of the business enterprise, marketing department is set up the supervision of the marketing manager. The major purpose of this department is to generate revenue for the business by selling want satisfying goods and services to the customers. In order to achieve this purpose, marketing manager has to perform the following function. 1. Marketing Research: is the systematic search for and analysis of facts related to a marketing problem. It helps in analyzing the buyers‘ habit, relative popularity of a product. Effectiveness of advertisement etc. it provides up-to-date information in regular intervals of time regarding marketing and thus help in decision making. 2. Product Planning and Development: it always necessary to plan and develop products which meet the specification of the customers. Product planning and development involves a number of decisions viz, what to produce or buy? How to have its packaging? How to fix its price and how to sell it? 3. Buying and Assembling: are important function of marketing buying involves determination of requirements, finding the sources of supply placing the order and receiving the goods. But assembling means collection of goods already purchased from different sources at a common point. It is also used in another sense. Raw material are purchased and assembled in order to produce goods and services as per the need of customers. 4. Selling: this is an important function of marketing under which ownership of goods is transferred from the seller to the buyer. This is done at a price. There are two different forms of selling i.e. negotiated selling and auction selling. 5. Standardisation, Grading and Branding: Standardisation means setting up of specifications of a product. The Gradation is done on the basis of these specifications and standards. At last, a brand name is given to a product for identification. In general branding is a way for an organization to identify its offerings and distinguish them from those of competitors. Debasis Pani, Asst. Professor, GIACR 3
    • Module – I 6. Packaging: a good package represents a combination of the designer‘s creative skills and the product as well as marketing and sales knowledge of the manufacturer‘s management team. Packaging acts as a multi-purpose arrangement. 7. Storage: goods are stored in warehouse to protect them from any kind of damage till they are actually sold in the market. In addition, modern warehouse performs certain marketing services like grading, packing, labeling, etc. 8. Transportation: it provides the physical means which facilitate the movement of persons, goods and services from one place to another. It plays a significant role in price mechanism. 9. Salesmanship: or personal selling is widely used in retail marketing. It involves direct and personal contact of the seller or his representative with the purchaser. 10. Advertising: it is an important function. It helps to spread the message about the product and thus promote its sale. 11. Pricing: determining the price of a product is also another function of the marketing manager. Pricing of a product is influenced by the cost of production, profit margin, price fixed by the rival firm and Govt. policy. 12. Financing: financing of a customer purchasing has become an integral and strategic part of modern marketing. The provision of goods to the customers on credit basis in an important device to increase the volume of sales. 1. Concepts of Marketing and Market The marketing concept emphasizes the determination of the requirements of present and potential customers and supplying products to satisfy their requirements. Remember, here we are not trying to say that any one concept is better or worse. What is important to know is that various concepts are applicable in different circumstances. 1. The Production Concept: The production concept, one of the oldest in business, holds that consumers prefer products that are widely available and inexpensive. Managers of productionoriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This orientation makes sense in developing countries, where consumers are more interested in obtaining the product than in its features. This orientation has also been a key strategy of many Japanese companies. 2. The Product Concept: Other businesses are guided by the product concept, which holds that consumers favour those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time, assuming that buyers can appraise quality and performance. Product-oriented companies often design their products with little or no customer input, trusting that their engineers can design exceptional products. The product concept leads to ―Marketing Myopia‖ a term coined by Prof Theodore Levitt of Haward Business School. It is the shortsighted policies and practices of marketers without considering the customers need into concern. 3. The Selling Concept: The selling concept, another common business orientation, holds that consumers and businesses, if left alone, will ordinarily not buy enough of the organization‘s products. The organization must, therefore, undertake an aggressive selling and promotion effort. This concept assumes that consumers must be persuading into buying, so the company has a battery of selling and promotion tools to stimulate buying. The selling concept is practiced most aggressively with Unsought goods—goods that buyers normally do not think of buying, such as insurance and funeral plots. The selling concept is also practiced in the nonprofit area by fundraisers, college admissions offices, and political parties. Most firms practice the selling concept when they have overcapacity. Their aim is to sell what they make rather than make what the market wants. Debasis Pani, Asst. Professor, GIACR 4
    • Module – I 4. Marketing Concept: this concept emphasizes the determination of the requirements of potential customers and supplying products to satisfy their requirements. The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets. Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts: ―Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller‘s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.‖ The marketing concept rests on four pillars: target market, customer needs, integrated marketing, and profitability. It starts with a welldefined market, focuses on customer needs, coordinates activities that affect customers, and produces profits by satisfying customers. 5. Societal Marketing Concept: which holds that the organization‘s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer‘s and the society‘s well-being. The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices. They must balance and cope with the often conflicting criteria of company profits, consumer want satisfaction, and public interest. Some companies practice a form of the societal marketing concept called Cause marketing it implies marketing skills to effect social changes which would benefit the individual and the society. 2. Marketing Mix (Product, Price, Promotion & Place) Marketers use numerous tools to elicit the desired responses from their target markets. These tools constitute a marketing mix Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the 4 Ps of marketing: product, price, place, and promotion. Marketing-mix decisions must be made to influence the trade channels as well as the final consumers. Typically, the firm can change its price, sales-force size, and advertising expenditures in the short run. However, it can develop new products and modify its distribution channels only in the long run. Thus, the firm typically makes fewer period-to-period marketing-mix changes in the short run than the number of marketingmix decision variables might suggest. Robert Lauterborn suggested that the sellers‘ four Ps correspond to the customers‘ four Cs Four Ps Four Cs Product Customer solution Price Customer cost Place Convenience Promotion Communication Winning companies are those that meet customer needs economically and conveniently and with effective communication Debasis Pani, Asst. Professor, GIACR 5
    • Module – I 3. Product: Product Concept What is a Product? Thus, a product may be defined in a narrow as well as broad sense. In n narrow sense, it is a set of tangible physical aid chemical (compound) attributes in an identifiable and readily recognizable form. In a broader sense we may look at it in the form of an object, idea, service, person, place, activity, goods, or an organization. It can even be a combination of some of these factors. The product is much more than just a bundle of physical attributes, it‘s the concept that customer buys. The product is a bundle of satisfaction that a customer buys. It represents a solution that just what the manufacturer understand it to be. To Philip Kotler, “A product is any thing that can be offered to the market for attention, acquisition, use or consumption it includes physical objects, services, personalities, place and organization‖ To Jerome McCarthy, ―A product is more then a physical product with its related functional and aesthetic features. It includes accessories, installation, and instruction on use, the package perhaps the brand name, which fulfills some psychological need and assures that service facilities will be available to meet the customers need after purchase‖ From the above definitions it can safely be concluded that the word product, in the context of marketing, has a much wider association. It is applicable to any offering to a market for possible purchase or use. It encompasses Physical objects (e.g., a television), services (e.g., airlines), places (e.g.. Tourist resorts), organizations (e.g., Red Cross), persons (e.g., an athlete) and ideas (e.g., flood relief aid). It also includes supporting services e.g., design, brand, package, label, price, etc. to sum up, a product is a combination of physical, economic, psychological and social benefits Levels of Product You can say a product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value. Marketers plan their market offering at five levels. Each level adds more customer value, and together the five levels constitute a customer value hierarchy. 1. The most fundamental level is the core benefit: the fundamental service or benefit that the customer is really buying. A hotel guest is buying ―rest and sleep‖; 2. At the second level, the marketer has to turn the core benefit into a basic product. Thus, a hotel room includes a bed, bathroom, towels, and closet. 3. At the third level, the marketer prepares an expected product, a set of attributes and conditions that buyers normally expect when they buy the product. Hotel guests expect a clean bed, fresh towels, and so on. 4. At the fourth level, the marketer prepares an augmented product that exceeds customer expectations. A hotel might include a remote-control television set, fresh flowers, and express check-in and checkout. Today‘s competition essentially takes place at the product-augmentation level. (In less developed countries, competition takes place mostly at the expected product level.) 5. At the fifth level stands the potential product, which encompasses all of the possible augmentations and transformations the product might undergo in the future. Here, a company searches for entirely new ways to satisfy its customers and distinguish its offer. Debasis Pani, Asst. Professor, GIACR 6
    • Module – I 4. Product Classification There are several ways of classifying products: I ) On the basis of the user status, products may be classified as consumer goods and industrial goods. 2) On the basis of the extent of durability, products may be classified as durable goods and nondurable goods. 3) On the basis of tangibility, products may be classified as tangible goods and non tangible goods. These non-tangible goods are referred to as services. 1) Consumer goods: are those products which are bought by the household or ultimate consumer for personal or non-business use. For example, a tooth brush, a comb, a wrist watch. Convenience goods (Staple goods): A class of consumer goods that people buy frequently with least possible time and effort are called convenience goods. These are the products the consumer wants to purchase frequently, immediately, and with minimum effort. E.g. milk, bread, butter, eggs, soap, newspaper, biscuits, tooth pastes, etc Shopping goods: shopping refers to the activity of going to shops / stores and buying things. These are a class of consumer goods that are purchased only after the buyer has spent some time and effort comparing price, quality, style, colour of alternative products in competing stares. The purchaser of shopping goods lacks complete information prior to the shopping trip and gathers information during it. E.g. dress material, jewellery, furniture, appliances, and shoes. Specialty goods: A class of consumer goods with perceived unique characteristics, such that consumers are willing to spend special effort to buy them are known as specialty goods. The buyer of specialty goods is well aware of what he or she wants and is willing to make a special effort to obtain it. e.g. photographic equipments, TV sets, video players, mobile phones, automobiles, etc 2) Industrial goods: are those goods which are meant to be bought by the buyer as input in production of other products or for rendering some services. Industrial products are meant for nonpersonal and commercial use. Industrial goods include items like machinery, raw materials, components, etc. Raw materials: are those industrial goods that become part of another physical product. Raw materials include goods found in natural state such as minerals, marine, products, land, products of forests, etc Fabricating materials into parts: have already been processed, to some extent, but may need further processing before actual use. For example, pig irons being converted into steel. Debasis Pani, Asst. Professor, GIACR 7
    • Module – I Installation: They are manufactured industrial products, They alter the scale of operations in a firm, Normally, installations are directly sold to the industrial user and middleman are not involved. Pre-sale and post-sale servicing is required for these products. Accessory equipment: They are used to aid production operations of an industrial buyer and do not have an influence on scale of operations of buyer. They do not form part of the finished product. Operating supplies: They are low priced, short-lived items purchased with minimal effort and could well be termed as convenience goods of industrial field. They aid in the firm's operations without becoming part of the end product e.g., lubricating oil, stationery, etc. 3) Durable and Non-durable goods: Tangible products with a long life and lasting of many years of active service to the owner are termed as durable goods. Television, fan, refrigerator, pressure cooker etc., may be cited as examples of durable goods. A durable product would require a lot of personal selling, and pre-sales and post-sales service. Products which are consumed in one go or last few uses and get depleted on consumption are termed as non-durable goods. These are the products that have to be advertised heavily, with a view to inducing people to try them out, and thus, build up brand preference and brand loyalty. 4) Services: are those separately identifiable, essentially intangible activities which provide want satisfaction, and which are not necessarily tied to the sale of a product or another service. 5. New Product Development In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process: one involves the idea generation, product design, and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share. Significance of New Product Development 1. For survival and growth in the long run 2. To meet the requirements of customers 3. Modification or elimination of existing products Debasis Pani, Asst. Professor, GIACR 8
    • Module – I S1 Idea Generation Customers: Customers are sometimes able to discuss their requirements and offer ideas that will meet those problems. Competitors: Systematic comparison or bench marking with the competition may offer good source of new product ideas. Distributors: Suggestions from distributors and their problems in handling present products often thrown up new ideas. Creative techniques: Brainstorming, focused interviews and technological forecasting enable one to find out the latent capabilities of innovations. External world: The external world, especially the use of their technology, offers a good source of ideas for implementation in the home market. Research and development: Create new product ideas through R&D. From initial generation of ideas to full commercialization and well into the mature age of a product, the developers should strive to control what is in their power to control a do to monitor what is beyond their control. S2. Idea Screening A company should motivate its employee to submit new ideas to an idea manager whose name and phone number are widely circulated. Idea should be written down and reviewed each week by an idea committee. The company then sorts the proposed ideas into three groups promising, survival and rejects. Promising ideas: is researched by the committee member who reposts back to the committee. Surviving ideas: is move into a full scale screening process In screening ideas a company must avoid two types of errors. A DROP error occurs when the company dismisses an otherwise good idea. It is extremely easy to find fault with other people‘s idea. A GO error occurs when company permits a poor idea to move into development and commercialization. The purpose of screening is to drop poor ideas as early as possible. S3 Concept Development and Testing Concept development involves asking question such as the following: Need: Do customers find a strong perceived need for the benefit offered? Trust: Do they believe that the new product has the benefits claimed? Communicability: Do customers easily understand the key benefits being offered? Usage: Does it offer easy adoption? Perceived Value: Do Customers see it as offering value at the price being considered? After the working area is defined, concept generation begins, often at a hectic pace. Ideas flow fast and in most cases rejection is equality fast. The team looks for the few fast and inmost cases rejection is equally fast. The team looks for the few concepts the warrant concepts development – Debasis Pani, Asst. Professor, GIACR 9
    • Module – I the evolving of an original ideation attempt into a specific statement of need, form and technology that can be evaluated. Concept Evaluation Often considered the heart of the new products process, the Evaluation State is long, involved, and difficult. Evaluation actually begins when the strategist evaluates the organization‘s abilities. And it continues long after a product is marketed since a product often needs revision to remain competitive. Concept testing and other prescreening marketing research prepare the team for the actual screening evaluation. This evaluation is a full, detailed analysis of the proposal. If the concept passes screening, technical development begins. The technical work produces prototypes, which can then be evaluated and if all goes well, the finished product can be prepared for use testing. S4 Marketing Strategy Development Following a successful concept test, the new-product manager will develop a preliminary strategy plan for introducing the new product into the market. The plan must consist of three parts. The first part describes the target markets size, structure and behaviour; the planned product positioning and the sales, market share, and profit goals sought in the first few year. The second part outlines the planned price, distribution strategy and marketing budget for the first year. The third part of the marketing strategy plan describes the long-run sales and profit goals and marketing-mix strategy over time S5 Business Analysis Management needs to prepare sales; cost and profit projections to determine whether they satisfy company objectives. If they do, the concept can move to the development stage. As new information comes in, the business analysis will undergo revision and expansion. Estimating Total Sales Estimating Costs and Profits S6 Product Development The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desire customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that the engineers can use. 1. Physical prototypes: the R&D department will develop one or more physical version of the product concept. Its goal is to find a prototype that embodies the key attributes described in the product concept statement, that performs safely under normal use and conditions, and that can be produced within the budgeted manufacturing costs 2. Customer tests: when the prototypes are ready, they must be put through rigorous functional tests and customer tests. Alpha testing is the name given to testing the product within the firm to see how it performs in different applications. A> The rank-order method B> The paired-comparison method and C> The monadic-rating. S7 Market Testing After management is satisfied with functional performance, the product is ready to be dressed up with a brand name and packaging and put into a market test. The stage at which the product and the marketing program are introduced to a more realistic market settings. Test marketing gives the marketer an opportunity to tweak the marketing mix before the going into the expense of a product launch. The amount of test marketing varies with the type of product. Costs of test marketing can be enormous and it can also allow competitors to launch a ―me-too‖ product or even sabotage the testing so that the marketer gets skewed results. Consumer goods market testing: in testing consumer products, the company seek to estimate four variables: trial, first repeat, adoption and purchase frequency. Sales wave research: sales offering trial to a sample of consumer in successive periods. Simulated test marketing: test in a simulated shopping environment to a sample of consumers Debasis Pani, Asst. Professor, GIACR 10
    • Module – I Controlled test marketing: a few stores that have agreed to carry new products for a fee Standard test markets: full marketing campaign in a small number of representative cities. (How many test cities? Which cities? Length of test? What information? What action to take?) Business goods market testing business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha testing (with in the company) and beta testing (with outside customers). During beta testing, the vendor‘s technical people observe how test customers use the product, a practice that often exposes unanticipated problem of safety and servicing and alerts the vendor to customer trainings and servicing requirements. A second common test method for business goods is to introduce the new product at trade shows. The vendor can observe how much interest buyers show in the new product how they react to various features and terms and how many express purchase intentions or place orders. S8 Commercialization Management‘s decision that the new item is worth marketing either in a test market situation or in a full – scale launch – is called the point of commercialization. Pilot processes are then converted to full-scale manufacturing. Final design specifications are written. Marketing strategy is finalized, including actual brand, packaging, service commitment etc. The team gradually moves the company from tentative exploration of a concept into production and marketing of a new product. When (Timing) First entry, Parallel entry and Late entry Where (Geographic strategy) To whom (Target market prospects) How (Introductory market strategy) 6. Product Life Cycle (PLC) A company‘s positioning and differentiation strategy must change as the product, market, and competitors change over the product life cycle (PLC) To say that a product has a life cycle is to assert four things: (1) Products have a limited life; (2) Product sales pass through distinct stages with different challenges, opportunities, and problems for the seller; (3) Profits rise and fall at different stages of the product life cycle; and (4) Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each stage. Most product lifecycle curves are portrayed as a bell-shape. This PLC curve is typically divided into four stages Introduction: A period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses incurred with product introduction. Growth: A period of rapid market acceptance and substantial profit improvement. Maturity: A period of a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition. Decline: The period when sales show a downward drift and profits erode. Debasis Pani, Asst. Professor, GIACR 11
    • Module – I a) Growth slump maturity pattern: often characteristics of small kitchen appliances such as handled mixtures and bread makers. Sales grow rapidly when the product is first introduced and then fall to a petrified level that is sustained by late adopters buying the product for the first time early adopters replacing the product. b) The cycle recycle pattern: often describes the sales of new drugs. The pharmaceutical company aggressively promotes its new drug and this produces the first cycle. Later sales start declining and the company gives the drug another promotion push, which produces a second cycle usually smaller magnitude and duration. c) The scalloped pattern: here sales pass through a succession of life cycles based on the discovery of new product characteristics, uses or users. The sales of nylon for example show a scalloped pattern because of the many new uses- parachutes, hosiery, shirts, carpeting, boats sails, automobile tires that continue to be discovered over time. Style, fashion and fad life cycle Debasis Pani, Asst. Professor, GIACR 12
    • Module – I Style: is a basic and distinctive mode of expression appearing in a field of human endeavor. Style appears in homes; clothing and are. Fashion: is a currently accepted or popular style in a given field. Fashion pass through four stages: distinctiveness, emulation, mass fashion and decline. Fads: are fashions that come quickly into public view, are adopted with great zeal, peak early and decline very fast. Stage – 1 Marketing strategies at Introduction stage and the Pioneer advantage Because it takes time to roll out a new product and fill dealer pipelines, sales growth tends to be slow at this stage. Buzzell identified several causes for the slow growth: delays in the expansion of production capacity, technical problems, delays in obtaining adequate distribution through retail outlets, and customer reluctance to change established behaviors. Profits are negative or low in the introduction stage because of low sales and heavy distribution and promotion expenses. Much money is needed to attract distributors. Promotional expenditures are high because of the need to (1) inform potential consumers, (2) induce product trial, and (3) secure distribution. Companies must decide when to enter the market with a new product. Most studies indicate that the market pioneer gains the most advantage. Such pioneers as Amazon.com, Cisco, CocaCola, eBay, Eastman Kodak, Hallmark, Microsoft, and Xerox developed sustained market dominance. However, the pioneer advantage is not inevitable some cases due to inappropriate product mix and marketing strategies. Five factors are very important for the market pioneer for long term market leadership they are: vision of a mass market, persistence, relentless innovation, financial commitment and asset leverage. The pioneer should visualize the various product market it could initially enter basing on the profit potential of each product market, knowing that it cannot enter all of them at once. The marketing task for a pioneer firm is to stimulate demand for the new product and also to reduce the break-even time. A) Rapid skimming: involves high price and high promotion. This strategy also works when the market size for the product is large and the threat form competition is imminent. E.g. consumer electronics. B) Slow skimming: high price low promotion works under the assumption that firm has sufficient time to recover its pre-launch expenses. Many industrial products, more specifically renewable energy resources, laser technology or petrochemicals may fall under this category. C) Rapid penetration: low price and high promotion, works if the objectives are market share and profit maximization in the long run, and the market is characterized by intensive competition or other entry barriers. Japanese firms adopted this strategy to launch their product in North America and Europe. Later, South Korean, Taiwanese and Hong-kong based firms used the same strategy to uproot Japanese and other local competitors, leading India firms like Nirma and T-Series and followed this strategy. D) Slow penetration strategy: low price, low promotion delivers results when the threat from competition is minimal, market is large and predominantly price sensitive and majority of the market is familiar with the product. E.g. Maruti Udyog‘s initially offered Suzuki 800. Stage- 2 Marketing strategies at Growth Stage The growth stage is marked by a rapid climb in sales, as DVD players are currently experiencing. Early adopters like the product, and additional consumers start buying it. Attracted by the opportunities, new competitors enter with new product features and expanded distribution. Debasis Pani, Asst. Professor, GIACR 13
    • Module – I Prices remain where they are or fall slightly, depending on how fast demand increases. Companies maintain or increase their promotional expenditures to meet competition and to continue to educate the market. Sales rise much faster than promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits increase during this stage as promotion costs are spread over a larger volume and unit manufacturing costs fall faster than price declines owing to the producer learning effect. During this stage, the firm uses several strategies to sustain rapid market growth as long as possible: (1) Improving product quality and adding new product features and improved styling; (2) Adding new models and flanker products; (3) Entering new market segments; (4) Increasing distribution coverage and entering new distribution channels; (5) Shifting from product-awareness advertising to product-preference advertising; and (6) Lowering prices to attract the next layer of price-sensitive buyers. Stage – 3 Marketing Strategies: Maturity Stage At some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity. This stage normally lasts longer than the previous stages, and poses formidable challenges to marketing management. Most products are in the maturity stage of the life cycle, and most marketing managers cope with the problem of marketing the mature product. The maturity stage divide into three phases: growth, stable and decaying maturity. In the first phase the sales growth rate starts decline, in the second phase sales flatten on a per capita basis of market saturation. In the third phase, decaying maturity, the absolute level of sales starts to decline, and customers begin switching to other products. The sales slowdown creates overcapacity in the industry, which leads to intensified competition. Competitors scramble to find niches. They engage in frequent markdowns. They increase advertising and trade and consumer promotion. They increase R&D budgets to develop product improvements and line extensions. Three strategies for the maturity stage are market modification, product modification, and marketing-mix modification: A) Market modification. The company might try to expand the market for its mature brand by working to expand the number of brand users. This is accomplished by (1) converting nonusers; (2) entering new market segments (as Johnson & Johnson did when promoting baby shampoo for adult use); or (3) winning competitors‘ customers (the way Pepsi-Cola tries to woo away Coca-Cola users). Volume can also be increased by convincing current brand users to increase their usage of the brand. Like 1. Use the product on more occasions. 2. Use more of the product on each occasion. 3. Use the product in new ways. B) Product modification. Managers try to stimulate sales by modifying the product‘s characteristics through quality improvement, feature improvement, or style improvement. Quality improvement aims at increasing the product‘s functional performance—its durability, reliability, speed, taste. Feature improvement aims at adding new features e.g. size, weight, materials, and additives, accessories that expand the product performance, versatility, safety or convenience. New features build the company‘s image as an innovator and win the loyalty of market segments that value these features. Style improvement: aims at increasing the products esthetic appeal, it gives a unique market identity. Yet it invites problem 1. It is difficult to predict wither people and which people will like a new style. 2. A style change usually requires discontinuing the old style and the company risks losing customer. C) Marketing program modification. Product managers can try to stimulate sales by modifying other marketing program elements. They should ask following questions Debasis Pani, Asst. Professor, GIACR 14
    • Module – I Price: would a price cut attract new buyers? If so should the list price be lowered, or should prices be lowered through price specials, volume or early purchase discounts, fright cost absorption, or easier credit terms? Distribution: can the company obtain more product support and display in existing outlets? Can more outlets be penetrated? Can the company introduce the product into new distribution channels/ Advertising: should advertising expenditures be increased? Should the message or copy be changed? Should the media mix be changed? Should the time frequency or the size of the ads be changed? Sales promotion: should the company step up sales promotion – trade deals, cents-off coupons, rebates, warranties, gifts and contests? Personal selling: should the number or quality of salespeople be increased? Should the basis for sales force specialization be changed? Should the sales territories be revised? Should the sales force incentives be revised? Can sales call planning be improved? Services: can the company speed up delivery? Can it extend more technical assistance to customers? Can it extend more credit? Stage-4 Marketing Strategies: Decline Stage The sales of most product forms and brands eventually decline for a number of reasons, including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. All of these factors lead ultimately to overcapacity, increased price cutting, and profit erosion. As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budget and reduce their prices further. In a study of company strategies in declining industries, Harrigan identified five possible decline strategies: 1. Increasing the firm‘s investment (to dominate the market or strengthen its competitive position); 2. Maintaining the firm‘s investment level until the uncertainties about the industry are resolved; 3. Decreasing the firm‘s investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm‘s investment in lucrative niches; 4. Harvesting (―milking‖) the firm‘s investment to recover cash quickly; and 5. Divesting the business quickly by disposing of its assets as advantageously as possible. The appropriate decline strategy depends on the industry‘s relative attractiveness and the company‘s competitive strength in that industry. A company that is an unattractive industry but possesses competitive strength should consider shrinking selectively. A company that is in an attractive industry and has competitive strength should consider strengthening its investment. Locating product or Brands in their Life cycles The approach to locating a product or brand in its life cycle involves environment scan and trend analysis. Specifically, this involves the following procedures: 1. Analysis of historical sales and growth trends in the brand and industry per se. 2. Analysis of recent trends in the market-place: specifically, this involves analyzing recent trends regarding the number and strength of competitors; the quality and performance and perceived benefits of competitor products; shift in distribution channels, if any; and the relative advantage the brand product enjoys over competitors in the market-place. 3. Analysis of development of short-term tactics of competitors. 4. Analysis of historical information regarding life cycles of similar and related products. 5. Based on the above analysis, project brand or product sales. 6. Estimate probable years remaining for the brand or product. 7. Fix brand or product‘s position in the life cycle. Characteristics Sales Introduction Low sales Debasis Pani, Asst. Professor, GIACR Growth Rapidly sales rising Maturity Peak sales Decline Declining sales 15
    • Module – I Costs Profits Customer Competitors High cost customer Negative Innovators Few per Average cost per customer Rising profit Early adopters Growing number Marketing objectives Create product awareness and trial Maximum market share Strategies Product Offer a product Price Charge plus Distribution Build selective distribution Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Advertisement Build product awareness among early adopters and dealers Use heavy sales promotion to entice trial Sales promotion basic cost Low cost per customer High profit Middle majority Stable number beginning to decline Maximizing profit while defending market share Diversify brands and items models Low cost per customer Decline profit Laggards Decline number Price to match or best competitors Build more intensive distribution Cut price Build awareness and interest in the mass market Stress brand difference Reduce to take advantage of heavy consumer demand Increase to encourage brand switching Reduce expenditure and milk the brand Phase out weak Go selective: phase out unprofitable outlets Reduce to level needed to retain hard core loyal. Reduce to minimal level. Critique of the Product Life-Cycle Concept Advantage 1. The PLC concept is best used to interpret product and market dynamics. 2. As a planning tool, this concept helps managers characterize the main marketing challenges in each stage of a product‘s life and develop major alternative marketing strategies. 3. As a control tool, this concept helps the company measure product performance against similar products launched in the past. Disadvantage 1. The PLC concept is less useful as a forecasting tool because sales histories exhibit diverse patterns, and the stages vary in duration. 2. Critics claim that life-cycle patterns are too variable in their shape and duration. They also say that marketers can seldom tell what stage the product is in: 3. A product may appear to be mature when it is actually only in a plateau prior to another upsurge. 4. One final criticism is that the PLC pattern is the result of marketing strategies rather than an inevitable course that sales must follow. 5. An obsession with PLC may lead a firm to kill its product or brand in the belief that it has reached the decline phase. 7. Product Mix Decision Debasis Pani, Asst. Professor, GIACR 16
    • Module – I Product line includes all closely related or similar products offered by the firm for satisfying a particular class of need, being distributed through the same channels or possessing common physical or technical characteristics, more or less they fall under a particular price range. E.g., Audio systems offered by Philips is a product line. While televisions offered by the same company (Philips) is another product line. Product lining is the marketing strategy of offering for sale several related products of various sizes, types, colors, qualities, or prices. Line depth refers to the number of product variants in a line. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. When you add a new product to a line, it is referred to as a Line extension. When you add a line extension that is of better quality than the other products in the line, this is referred to as trading up or brand leveraging. When you add a line extension that is of lower quality than the other products of the line, this is referred to as trading down. Image anchors are highly promoted products within a line that define the image of the whole line. Image anchors are usually from the higher end of the line's range. When you add a new product within the current range of an incomplete line, this is referred to as line filling. A Product Mix (also called product assortment) is the set of all products and items that a particular marketer offers for sale. The number of products carried by a firm at a given point of time is called its product mix. The product mix of an individual company can be described in terms of width, length, depth, and consistency. The width(or breadth) refers to how many different product lines the company carries. The length refers to the total number of items in the mix. The depth of a product mix refers to how many variants of each product are offered. Or it refers to number of product items with in each product line and variations like size, packaging and colors. The consistency of the product mix refers to how closely relate the various product lines are in end use, technology, production requirements, distribution channels, or some other way. Fabric care Ujala supreme (9ml,30ml,75 ml,125ml,250 ml) Ujala washing power (25g, 500g, 1kg ) House hold insecticides Maxo cyclothrin coil (8hr,10hr,1 2hr) Utensil cleaners Exo dish bar (100g,200g,3 80g) Max vaporizer (30ml, 45ml) Max aerosol (150ml, 300ml) Exo dish wash liquid (500ml, 125ml) Fragrances Personal care Maya (8,15,20,4 0, and 100 sitcks) Jeeva natural (Coconut milk with milk protein, coconut milk with jasmine and coconut milk with kasturi manjal and is presented in 75gm packs ) Allied business Continen tal special Marketin g of Godrej tea Marketin g of Ekta dhoop Stiff & shine (20gm sachets, 100ml and 200ml bottles) 1. Product mix width: the total number of product line that company offers to the consumers. E.g. jyoti laboratories product mix has six product lines. Hence width is 6 Debasis Pani, Asst. Professor, GIACR 17
    • Module – I 2. Product mix length: the total number of items that company carries within its product line e.g. Jyoti laboratories fabric care division has three items. 3. Product line depth: the number of versions offered of each product in the line. E.g. Jyoti laboratories Jeeva Natural is offered in 3 versions i.e. Coconut milk with milk protein, coconut milk with jasmine and coconut milk with Kasturi manjal and is presented in 75gm packs. 4. Product mix consistency: if company‘s product line usage, production and marketing are related then product mix is consistent else unrelated e.g. incase of Jyoty laboratories all six product lines are FMCGs. Hence it is having consistent product mix. But ITC Company‘s cigarette and cloth product line are totally unrelated. Product Mix Decision Product line addition / deletion Most of the companies have range of products in its existing product lines, like LG, Samsung, Videocon has a range of TVs in its product line, right from budget TVs to premium TVs. Line stretching occurs when this range is lengthened. This stretching could be upward, downward or both ways. a) Upward stretching: Here a company operates in the lower end of the market. By upward stretch, it proposes to enter the higher end. Perhaps, it is motivated by higher margin of profits, higher growth rate or a position of a full-range marketer. This decision has its own risks. A well established high-end marketer might assault the stretcher by stretching downwards. Besides, it is a question of credibility of a lower-end marketer -whether he will be able to produce high quality products. There is one more risk. The existing infrastructure of a low-end marketer may not be competent to deal with the high-end market. b) Downward stretch: Lets start with an example: like all of you know parker, parker started with pens only at high price but if we look at parker today we can see products available in the range of 50 Rupees which no one could have though of in older times. Many companies start with high-end products, but later stretch downwards by adding low-priced products. The down-end products are advertised heavily so as to pull customers to the whole line on the basis of price. Samsung advertises its budget line 20" inches TV at Rs. 6,000. Once the customer is pulled, he may decide to buy a higher priced model- he trades up. This strategy needs careful handling. The budget brand being promoted should not dilute the overall brand image. Besides, the budget brand must be available. Consumers should not get a feeling that they were hooked to a bait, for switching later. Downward stretch is practiced in the following situations: 1. A competitor stretches upward and challenges the marketer. He counter-attacks him stretching downwards 2. Most companies start at the upper end, and then roll downwards. 3. The high-end market has a slow growth rate. 4. By filling the gap at the low-end, new competition is avoided. Downward stretch has its own risks. The down-end item might cannibalize the high-end items. Besides, our downward stretch might provoke a competitor to move upward. Down-end product may not be managed properly as the company may not have that capacity. It may dilute the brand image of the company‘s products. It is, however, needs careful consideration - a product line should not have a gap at the lower-end. It exposes the company to competition. c) Two way stretch Beside upward and downward stretch you can even stretch in two ways like several companies serve the middle-end market. They can stretch their product line in both the directions. Ashoka group of ITC has thus elite 5-Star hotels, at the upper-end comfort hotels at the middle end and budget hotels like Ashoka Yatri Niwas at lower end. Cannibalization Debasis Pani, Asst. Professor, GIACR 18
    • Module – I When the sales of the firms new products are due mainly because of decreasing sales of its existing and established product then we say that cannibalization has occurs in brief we can say by this you are actually eating away your own market. A good example of it would be Hyundai Santro they have introduced Santro Xing as a new product in the market in other way they have cannibalized their own market, like a person who wanted to buy Santro old model will buy Xing as it latest so they are not capturing new customer but converting their own customers only if they are able to make a person buy their product where he was planning to buy some product of Maruti then it is not cannibalization. If you want to avoid cannibalization, the new product should not be identified too closely with established products. Instead it should be targeted with new appeals to different market segments. Cannibalization is desirable when margins on new products are higher than those on established Products. In highly competitive industries, it is often desirable to induce target customers to trade up to the firm‘s newer products. This strategy is adopted by Videocon International, Which entered the market with a low priced color TV with basic features and then introduced more sophisticated models up the price scale in order to ensure that customers in all segments would buy only Videocon products. Product abandonment This involves discontinuing or deleting either an individual product or an entire product line HUL abandoned its direct marketing wing as Direct Sangam. Generally products that are abandoned are those for which demand is low leading to uneconomical short production runs or frequent and uneconomical price and inventory adjustments. In brief these products have lived their life or are unproductive. Product modification Product modification achieved by reformulation, redesign, changing unit sizes and adding / removing features are dictated by a firm‘s long-term goals, customer preferences and competitive developments in the particular product market. 8. Branding What is a Brand? The American Marketing Association defines a brand as a name, term, sign, symbol, or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. A brand distinguishes a product or service from similar offerings on the basis of names are: LUX, LIRIL, REXONA, EVITA, PROTEX, HAMAM AND LE SANSI in case of toilet soaps; SUR, ARIEL, and NIRMA in case of detergents and NIVEA, FEM, OIL OF OLEY, CHARMIS AND VASELINE in case of vanishing creams. Principle of ABCPUV The legal version of a brand mark is the Trade mark Brand that has been given legal protection and has been granted solely to its owner originally helped trace the source of the guild producer Brand Recognition – awareness, loyalty, quality, emotion ―customers remember the brand‖ Brand Preference / Loyalty – the degree to which customers are committed to further purchases e.g. ―choose the brand over other brands‖ Brand Insistence – ―willing to search for it.‖ and if they don‘t find the brand they want, will not but a substitute Brand Awareness – your product is the first that comes to mind in a certain product category e.g., ice tea = Snapple, running shoes = Nike Brand Dilution is the phenomenon said to occur when consumers are no longer able to differentiate a specific brand from similar brands/products. Debasis Pani, Asst. Professor, GIACR 19
    • Module – I Brand Conviction represents the formation of a strong attitude towards the brand in the consumer‘s mind. What is Brand Equity? Equity refers to the value of a property after all charges and debts have been paid and brand equity refers to the value of a brand it means brand is treated as a property so brand is an assets. The most important assets of any business which are intangible: its company name, brand, symbols, and slogans, and their underlying associations, perceived quality, name awareness, customer base, and proprietary resources such as patents, trademarks, and channel relationships. Some time the brand may become a liability for the company if every thing will not go as per the customers will like METRO -> ORTEM, NOIDA -> ONIDA. ―Brand Equity is a set of assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by the product or service to a firm and/or to that of firm‘s customers.‖ Benefits of Branding Let us start the topic with a very basic question, why are people willing to pay more for a branded product than an unbranded one? And in what way the brand will help the buyer and seller? To find the answer let us focus on the benefit of branding for both the parties. TO BUYER 1. Help buyers identify the product that they like/dislike. 2. Identify marketer 3. Helps reduce the time needed for purchase. 4. Helps buyers evaluate quality of products especially if unable to judge products characteristics. 5. Helps reduce buyer‘s perceived risk of purchase. 6. Buyer may derive a psychological reward from owning the brand, IE Rolex or Mercedes. TO SELLER 1. Differentiate product offering from competitors 2. Helps segment market by creating tailored images 3. Brand identifies the company‘s products making repeat purchases easier for customers. 4. Reduce price comparisons 5. Brand helps firm introduce a new product that carries the name of one or more of its existing products. 6. Easier cooperation with intermediaries with well known brands 7. Facilitates promotional efforts. 8. Helps foster brand loyalty helping to stabilize market share. From the above discussion we have concluded branding is a very important decisions not only from buyer point but also form the seller‘s point of view. Now days it has become strategic marketing decision from tactical decision as because it has the ability to sustain a business and provide long term value to customers. Branding Decisions Following are some of the decisions that a brand manager has to take with regard to brand selection and it's positioning in business Selecting a Good Brand Name There is no simple solution to the problem of selecting a brand name. However, through extensive research and past experiences, market researchers have developed certain principles which should be followed while selecting the brand name. Following are the general traits of a brand 1. Acceptable lo the social settings 2. Easy to recognize Debasis Pani, Asst. Professor, GIACR 20
    • Module – I 3. A brand name should reflect directly or indirectly some aspect of the product viz. benefit, function, etc. 4. A brand should be distinctive, especially if there is a higher confusion in the category 5. A brand name should be easy to pronounce. 6. It should be easy to memorize and recall 7. It should be such that can be legally protected, if necessary. Brand building is an expensive exercise and it takes a long time to create a successful brand. It is observed that many competitors lake advantage of the situation and try to imitate the brand which makes brand managers to provide legal protection to the brand through trademark registration. To Brand or Not to Brand? Whether to brand a product or not is a decision which can be taken only after considering the nature of the product, the type of outlets represents for the product, the perceived advantages of branding and the estimated costs of developing the brand. Unbranded products are called generic product like fruit, salt, nut and bolt. Brand Sponsorship Decision The question of sponsorship of a brand refers basically to the decision as to whether it should be a manufacturer's brand or a private brand or-partly manufacturer's brand and partly private brand. In most developed countries where large chain / departmental stores dominate the retail distribution system, retailers buy the products form manufacturers and sell them under their own brand. This is a growing phenomenon in Indian context as we see emergence of organized retailing with large chain stores corning up in different product categories. Pantaloons, Big Bazaar, Shoppers' Stop, Life Style, Kids Kemp, and Cross Roads are some of the upcoming super markets and chain stores marketing exclusive and extensive product categories. Franchising The focus today is on franchising. Franchising deals are therefore becoming the order of the day. In India many companies are coming to the customer in franchise format of business like, NIIT, APTECH, TITAN, and BATA. Franchising has reduced the need of large investments. The franchisee gains by tying up with an established brand. Financing becomes easier, since goodwill of the present company backs up the franchisee. The marketing costs are borne by the franchiser. Brand Quality Decision Since the brand delivers a higher value than a commodity, perceived quality is a critical decision. The matrix of such attributes will decide the product positioning. A marketer has the option to position his product at any segment of the market viz. top, bottom or the intermediate. Family Branding (Umbrella Branding) (a) It is cost effective in as much as it reduces product launch costs and also the promotional expenses incurred on a continuing basis. The success of one brand when well promoted gives a push to the entire product line. Management of trade channel also is easier. (b) For products of uneven quality, this approach is a dicey proposition. Even in markets showing variations in consumer profiles, this approach is not useful. (c) Each product is denied a special identity, which can go a long way to make it click. Like Nokia is a corporate or family brand. There is no sub-branding and the individual products are merely defined by numeric descriptors such as 5300, 6600, 1112 and even these do not appear on the product itself. Yet, the brand has succeeded most of its competitors like Motorola and Ericsson. Individual Branding Debasis Pani, Asst. Professor, GIACR 21
    • Module – I (a) Individual brand invokes associations and imageries. These psychological factors influence the buying decision. For example, Hindustan Unilever sells its products under different brand names like Rin, Surf, Lux, etc. (b) Even if the product fails, the effects are restricted to that product only. They are not transferred to the whole product line. (c) Costlier strategy. (d) No benefit to the brand of the organization‘s reputation. Brand Portfolio Decision A firm may decide to have several brands of the same product which to some extent are competing with each other. The basic reason is that, at least in the consumer products, various benefits and appeals and even marginal difference between brands can win a large following. Similarly the brand manager can decide about the combination of brands that the company should offer to the customers. Though Hindustan Lever Limited has a bigger portfolio, they are concentrating on few brands in their portfolio as power brands, which will give rich dividend to the company in future. Brand Repositioning Decision Brands also undergo through an ageing process and the customers corresponding move in the value life cycle. So unless the brands are rejuvenated (to look or feel younger or more lively) they will not enjoy the market position what they were having in the past. Over the life cycle of a product, several market parameters may also undergo change such as introduction of a competing product and or brand in the same category, shifts in consumer preferences, emergence of new needs, etc. All and each of such challenges call for an evaluation as to whether the original positioning of the brand is still optimal or not. Stagnating or declining sales also point to a need for reassessment of the original brand positioning for example, Lifebuoy has been repositioned several times in the recent past, from the health segment to the sports segment and now in beauty segment through Lifebuoy plus extension. Generic Usage of Brand Names Sometimes, a brand name becomes so successful that it comes to be associated with a particular product category, e.g., Dalda is a brand name commonly used for any vanaspati ghee. The brand names then do not remain distinct and become generic. Cellophane, nylon, fiberglass, celluloid, Kerosene and aspirin have thus become generic. Xerox and Band Aid are not yet legally generic, but they have been so well promoted that many people just use them generically. Brand Strategy Decision A Company has four choices in respect of its brand strategy: (i) Line extensions: Extend the existing brand name in the existing product category. Here the company introduces additional items in the same product category, keeping the brand name same. The additional items may be of a different size (say a 150 gm cake of Palmolive Soap). There may be a new form, say Liquid Lifebuoy Soap. The additional item can be of different colour say, a blue soap instead of a white soap. The package may be different, say a sachet of a shampoo. Some additional flavors can be introduced; say Brown & Polson Custard Powder is now available in chocolate and with elachi flavor. There may be added ingredients, say, Lifebuoy Gold. Lux is available in three skin types, say for normal skin, dry skin and oily skin, making it ―your kind of soap for your kind of skin.‖ Line extensions can be innovative or ―me-too‖ or may be void filling. (ii) Brand extensions: Extend the brand name to new product category. An existing brand name is extended to a product being launched in a new product category. Honda is a brand in the field of motorbikes. The same brand name is given to products in the field of lawnmowers (a machine for cutting the grass on lawns), and marine engines. Brand extension works well for rubbing off the success of established brand names to new products. The new product, therefore, finds easy acceptance. However, if the new product is not satisfactory in performance, it might affect the Debasis Pani, Asst. Professor, GIACR 22
    • Module – I reparations of the company‘s other products. Most of the times, brand name may not be appropriate for the new product category. (iii) Multiple brands: Have new brand names in the same product category. The strategy is employed to saturate the market. Additional brands are introduced to cater to the different segments Besides, if each brand has a small market share, the overall profitability may get affected. Our brands should affect the competitor‘s brands, and not the other brands of our ownSometimes, a company gets a legacy of new brands in the process of acquisition. Thus Coca Cola got the Thums Up, Gold Spot and Limca brands. (iv) New brands: Invent a new brand name for a new product category. To make brand names more appropriate, a company puts a new brand name when it enters a new product category. A new brand again has to be built up, and this is quite expensive. It should be considered whether the sales and profits estimated for the new brand justify it. 9. Packaging A package is basically an extension of the product offered for sale. Sometimes the package is more important than the product it contains as it contains the product and protects it till the consumer is ready for the consumption or use. Some marketers even call packaging a 'fifth P', along with product, price, promotion and place. the packaging of a product has become a major element of the promotion of that product to the potential consumer. Packaging requirements therefore include: 1. Product Description: The pack must convey to the potential consumer not just what the product is, but what it does; in terms of the benefits it offers 2. Product Image: The packaging must also match the required image, so that the boxes for expensive jewels look expensive themselves 3. Product Value: The pack is often designed to make it contents look more than they really are. 4. Shelf Display: The pack should be designed to make the most of the shelf space available which may mean making the pack look more compact as possible, so that more can be placed in the shelf. Packaging as a function consists of two distinct elements, (i) the positive aspects, viz., the science and technology related to package design, selection of packaging materials, etc, and (ii) the behavioral aspects, viz., the art of product design which is associated with consumer motivation research, buying research, etc. In marketing, packaging is defined as the activities of designing and producing the container or wrapper for a product. The container or wrapper is called the 'package'. According to Philip Kotler and Gary Armstrong, the packaging may include up to three levels of material. The primary package is the product's immediate container. If you consider a toothpaste, the tube holding the toothpaste is the primary package. The secondary package is the card board material that protects the primary package and that is thrown away when the product is about be used. The shipping packaging is the packaging necessary to store, identify, and ship the product (a carton in this case, which contains hundred toothpaste units). Finally labeling is part of packaging and consists of printed information appearing on or with the package. Function of Packaging 1. Protection: The primary function of packaging is to protect the products from the environmental and physical hazards to which the product may be exposed in transit from the manufacturer's plant to the retailer's shelves and while on display on the shelves 2. Appeal: The package is increasingly being used as a marketing tool. The importance is also increasing due to the changed structure of retail business, especially the emergence of self-service stores. In the case of consumer products, package serves as a silent salesman. This is true, irrespective of whether the products are a luxury, semi-luxury or an ordinary everyday use product, Debasis Pani, Asst. Professor, GIACR 23
    • Module – I Consumer research on packaging concentrates on two aspects, which have an influence on consumer purchase decisions. The first one is color and the second is the package or container design. Almost all researchers have come to the conclusion that each color has its own distinct characteristics and, therefore, has to be used in a package so that there is no mismatch between what is expected of the package and the color used in the packaging. 3. Performance: This is the third function of a package. It must be able to perform the task for which it is designed. This aspect becomes crucial in certain types of packaging. For example, an aerosol spray is not only a package but also an engineering device. If the package does not function, the product itself becomes totally useless. 4. Convenience: The package must be designed in a way, which is convenient to use. It should be convenient not only to the end user but also to the distribution channel members, such as wholesalers and retailers. From the intermediaries standpoint the convenience relates to handling and stocking of packages. 5. Cost-effectiveness: The package finally must be cost-effective. Packaging cost as a percentage of product cost varies dramatically from one industry to another, from less than one percent in engineering industry to more than ten percent in the cosmetics industry. It is important to appreciate that while analyzing packaging costs, it is not enough to consider only the cost of package. Packaging Strategies We have already mentioned that packaging plays a greater role in the promotion of the product. Some of the widely used promotional packaging techniques are follows 1) Discount Pack: A 'flash' in distinctive colour is superimposed on the package, announcing the special price discount being offered. This is the most widely used form. 2) Coupon-Pack: A coupon of certain values, either as a part of the package or placed separately in the package, can be redeemed after the purchase of the product. 3) Premium Package: A premium package can take three forms. If the premium accompanies the product within the package then it is called in pack premium. If it accompanies the pack as a separate unit then it is called with pack premium, A coupon on the pack allowing a discount is called on pack premium package. 4) Prime Packaging: A specially made package having either a re-use or prestige value is referred to as prime package. Instant coffee packed in glass tumblers having colours is an example of the first type. The set of watches presented by Titan for the married couple in a gold plated package called "Bandhan" is an example of a prime pack. 5) Self-Liquidators: The buyer has to send to the company a number of packages or part thereof as evidence of buying the product in return, he may purchase additional quantity of the same product at reduced prices or be rewarded with a different product. Several companies in India, in the processed food like Maggi and Top Ramen and Sargam Tea occasionally use this technique. 6) Redesigning of the Package: Introduction of a new package can also be used as a promotional technique. For example, till the very recent past, edible oils were packed in tin cans in India, which looked messy and dirty. Most of the larger firms have now started using transparent one-liter PET (polyethylene terephthalate) bottles, which look gleaming and fresh. 7) Odd Size Packaging: Packaging can also be used ingenuously to avoid direct price comparison with the competing products. This is done by a deliberate choice of odd size, while the competing brands follow a standard size. A recent example in India is the launch of soft drinks by Pepsi in 200 ml bottles at Rs 5 when the industry standard was 300 ml at a price point of Rs 7 and rest other players immediately followed the brand leader with a 200 ml, pack size. The size of Dove soap also is also odd enough for the slim bathing soap category in Indian market. 8) Packaging the Product Line: Packaging can be used to develop a family resemblance in the packaging of its several products. Identical packages or the packages with some common features are used for all the products of a product line. This kind of packaging strategy had the benefits of umbrella branding. Under this strategy, when new products are added to a line, promotional value associated with old products extends to the new ones. Debasis Pani, Asst. Professor, GIACR 24
    • Module – I 9) Bundle Packaging: Placing more than one unit in one container is referred to as bundle or multiple packaging. This packaging strategy increases the sales to a large extent. This is seen in bathing and washing soap category in India. 10) Packaging in Perishables: In specific product areas where shelf life is an integral issue, packaging brings a combination of functional as well as promotional value. For example in ice cream business, the refrigerator serves as a status symbol for the retailer and also with the sale of the brand. 10. Labelling Decision The paper or the plastic wrapper attached to a bottle of medicine or a jam bottle carrying product information is technically called a label. Labeling is regarded as part of marketing because packaging decision making involves the consideration of the labeling requirements. The label helps in identification of the brand. It also describes several things about the product. In a medicine bottle the label explains about the composition and maximum retail price to the customer with directions of use and statutory warnings. Normally a label provides details about the manufacturer, the place of manufacturing, the date of manufacturing, its contents, the directions for use and the safety measures involved in the product use and expiry date. In many cases the label also does the promotion function due to its highly visible graphics. A label must also carry the suitable instruction for the proper disposal of the product and its package or at least a plea to consumers to avoid littering. As per the legal provisions a label must carry any specific nutrition information, warnings and legal instructions as required by law. Most consumer packaged goods are labeled with an appropriate Universal Product Code (UPC), an array of black bars readable by optical scanner, The advantage of the UPC which allows computerized checkout and compiling of computer generated sales volume information have become clear to distributors, retailers and consumers in recent years. A good label is one which helps a potential buyer to make his decision by providing relevant and correct information. Apart from the information, which must be statutorily given, the label should therefore provide: i) Picture of the product, accurate as to size, colour and appearance ii) Description of raw products used along with methods of processing iii) Directions for use, including cautions against misuse 11. Service as a Product Services marketing is a sub field of marketing, which can be split into the two main areas of goods marketing (which includes the marketing of fast moving consumer goods (FMCG) and durables) and services marketing. Services marketing typically refers to both business to consumer (B2C) and business to business (B2B) services, and includes marketing of services like telecommunications services, financial services, all types of hospitality services, car rental services, air travel, health care services and professional services. 12. Price: objective of Pricing Debasis Pani, Asst. Professor, GIACR 25
    • Module – I PRICE The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. One can define price as that which people have to sacrifice in order to acquire a product or service. Price may be defined as the value of product attributes expressed in monetary terms which a consumers pays or is expected to pay in exchange and anticipation of the expected or offered utility. Price is therefore, a link that binds consumers and the company. It helps to establish a mutually advantageous economic relationship and facilitate the transfer of ownership of goods and services from the company to the buyers. PRICING Pricing is the function of determining product value in monetary terms by the marketing manager of a company before it is offered to the target consumers for sale. The managerial tasks involved in product pricing includes establishing the pricing objectives, identifying the price governing factors, ascertaining their relevance and relative importance, determining product value in monetary terms and formulation of price policies and strategies so as to effectively employ price as a strategic instrument in marketing a company‘s products. Objective of Pricing Pricing objectives are overall goals that describe the role of the price in organizations long-range plans. Pricing objectives aid planners in formulating price policies, planning pricing strategies and setting actual prices. Thus, all pricing objectives emanate from the corporate and marketing objectives of the firm. The various objectives are  Profit-maximization in the short-run  Profit-optimization in the long-run  A minimum return (or target return) on investment  A minimum return on sales turnover  Target sales volume from target market  Deeper penetration of the market  Keeping competition out, or keeping it under check  Fast turn around and early cash recovery  Stabilizing prices and margins in the market: an objective to stabilize price means that the marketing manager attempts to keep prices stable in the marketplace and to compete on non-price considerations.  Providing commodities at prices affordable by weaker sections  Providing commodities or services that will stimulate economic development  Match competitors prices  Encourage the exit of marginal firms from the industry  Avoid government investigation or intervention  Obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel  Enhance the image of the firm, brand, or product  Be perceived as ―fair‖ by customers and potential customers  Create interest and excitement about a product  Use price to make the product ―visible" 13. Pricing Policies A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area and when it enters bids on new contract work, here the crucial decision is What is the price of a Product?. A pricing policy is a standing answer to this frequent question. Because a policy approach is well defined and clear cut, Debasis Pani, Asst. Professor, GIACR 26
    • Module – I is common to all for well managed enterprises. But, for many companies it remains a patch work of adhoc decisions. Whatever may be the issue, the price should be consistent with company pricing policies. To accomplish this, many firms set up a pricing department to develop policies and establish or approve decisions. So the pricing department has to consider several factors in setting its pricing policy. According to Kotler an organization goes through the following steps in setting its pricing policy Selecting the Pricing Objectives 6. Selecting the Final Price Determining the Demand 5. Selecting a Pricing Method 3. Estimating Costs 4. Analyzing Competitors Cost, Prices and Offers Step 1: Selecting the pricing objectives the company must decide where it wants to position its market offering. The clearer firm‘s objectives the easier it is to set price. A company can pursue any of five major objectives through the pricing: survival, maximum current profit, and maximum market share, maximum market skimming or product-quality relationship. Survival: As long as prices cover variable costs and some fixed costs, the company stays in business. Survival is a short-run objective: in the long run, the firm must learn how to add value Maximum Current Profit: Many companies try to set a price that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow or rate of return on investment. Maximize market share: They believe that a higher sales volume will lead to lower unit costs and higher long-run profit. They set the lowest price, assuming the market is price sensitive. Maximum market skimming: Companies unveiling a new technology favor setting high prices to ―skim‖ the market. Sony is a frequent practitioner of market skimming pricing. Product quality leadership: product or services characterized by high level of perceived quality, taste and status with a price just high that consumers can afford Other objectives: Non profit and public organization may have different pricing objective e.g. a university aims at partial cost recovery. Step 2: Determining the demand each price will lead to a different level of demand and therefore have a different impact on a company‘s marketing objectives. The relation between alternative prices and the resulting current demand is captured in a demand curve. In the normal case, demand and price are inversely related: the higher the price, the lower the demand. In the case of prestige goods, the demand curve sometimes slopes upward. A perfume company raised its price and sold more perfume rather than less! Some consumers take the higher price to signify better product. However, if the price is too high, the level of demand may fall. The process of estimating demand therefore leads to Estimating Price sensitivity of market Estimating and analyzing demand curve Determining price elasticity of demand. Step 3: Estimating costs demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost of producing, distributing and selling the product, including a fair return for its effort and risk. Debasis Pani, Asst. Professor, GIACR 27
    • Module – I A company‘s cost take two forms, fixed and variable. Fixed costs are costs that do not vary with production or sales revenue. A company must pay bills each month for rent heat, interest, salaries and so on. , Regardless of output. Variable costs vary directly with the level of production. They are called variable because their total varies with the number of units produced. Total costs consists have the sum of the fixed and variable costs for any given level of production. Average cost is the cost per unit at the level of production; it is equal to total costs divided by production. To price intelligently, management needs to know how its costs vary with different levels of production. Step 4: Analyzing competitors’ costs, price and offers within the range of possible prices determined by the market demand and company costs the firm must take the competitors costs, price and possible price reactions into account. The firm should first consider the nearest competitor‘s price. If the firm‘s offer contains positive differentiation features not offered by the nearest competitor, their worth to the customer should be evaluated and added to the competitors price. If the competitors offer contains some features not offered by the firm, their worth to the customer should be evaluated and subjected from the firm‘s price. Now the firm can decide whether it can charge more, the same or less than the competitor. The firm must be aware, however, that competitors can change their prices in reaction to the price set by the firm. Step 5: Selecting a pricing method given the three Csthe customers demand schedule, the cost function and competitor‘s prices – the company is now ready to select a price. Side figure summarizes the three major considerations in price setting. Costs set a floor to the price. Competitor‘s prices and the price of substitutes provide an orienting point. Customer‘s assessment of unique product features establishes the ceiling price. Company selects a pricing method that includes one to more of these three considerations. The pricing approaches are cost-based or buyer-based or competition-based. Step 6: Selecting the final price pricing methods narrow the range from which the company must select its final price. In selecting that price, the company must consider additional factors, including, Psychological pricing, Gain-and risk-sharing pricing, The influence of other marketing-mix elements on price, Company pricing policies and The impact of price on other parties. 14. Pricing Methods The basic principle which should always be-'kept supreme in the mind by the' marketer while deciding the price or selecting a pricing method for a product is that the pricing should always create some profit for the company at the minimal level and it still should attract potential customers at the highest level. Debasis Pani, Asst. Professor, GIACR 28
    • Module – I Pricing Methods Cost-based Methods 1. Cost-plus or mark up. 2. Marginal cost or contribution. 3. Target return. Competition-based Method 1. Leader pricing 2. Going rate pricing 3. Bid & Auction Pricing Demand-based Method 1. Discrimination/ Differential/ Variable/ Flexible 2. Perceived Value 3. Psychological 4. Value. EDLP {1} Cost-based Methods [A] Cost-Plus Pricing or Full-Cost Pricing or Mark-up Pricing As the name suggests, this type of pricing involves adding a pre-determined profit to the total cost of a product and putting the sum arrived on the price-tag. Cost-plus pricing is the most popular method used in manufacturing and retail trades. Cost-plus pricing means setting the price of one unit of a product equal to the total cost of the unit plus the desired profit on the unit. There are three steps involved in cost-plus pricing method. Step – I (Calculation of Average Variable Cost) The first step in price fixation is to estimate the AVC. Variable costs are costs which vary with number of items produced. Thus, total variable cost (TVC) is the sum total of variable costs. Then AVC is defined as the variable cost per unit of the product. Step – II (Calculation of Average Fixed Cost) Fixed costs are costs which remain constant irrespective of the number of units produced. Thus, total fixed cost (TFC) is the sum total of fixed costs. So average fixed cost (AFC) will be the fixed cost per unit of the product produced. i.e AFC =Total fixed cost / Units of output produced Step – III (Determination of the Desired Profit Margin) The desired profit margin is simply the difference between the selling price of an item and its cost. It is also termed as ‗mark up‘, is always expressed as a percentage and it is the convention to express it as a percentage of selling price. This mark up or profit margin may be fixed simply by a rule of thumb, what the firms individually consider to be a fair (past experience, practice of the rival firm) or just (what the market will bear) percentage for this. In cost-plus pricing, the simple formula used is: Selling price = Unit total cost + Desired unit profit Selling price = AVC + AFC + Mark up Example-1: Suppose a company marketing refrigerators produces 10,000 units in a year. Various costs incurred by the company are as follows: 1. Raw material =Rs. 5,00,00,000 2. Packing material =Rs. 5,00,000 3. Rent =Rs. 10,00,000 Debasis Pani, Asst. Professor, GIACR 29
    • Module – I 4. Electricity 5. Salaries to employees 6. Distribution costs 7. Other costs TOTAL =Rs. =Rs. 2,50,000 60,00,000 Thus Total Cost of 10,000 units = Rs 6,07,50,000 Total unit cost or Average Total Cost (ATC) = =Rs. =Rs. = Rs 20,00,000 10,00,000 6,07,50,000 Total Cost / Unit of output produced Total cost of 1 unit = Rs 6,07,50,000 / 10,000 =Rs 6075 Suppose the management decided to of 20% mark up then the selling price is = Total unit cost + Mark up Selling price = Rs 6075 + 20% = Rs 7290 Advantages: 1. It may contribute to price stability. This is a desirable result because price changes can be expensive and may provoke undesirable reactions by competitors. 2. The formula used cost-plus pricing is simple and easy to understand. 3. Firms preferring stability use cost-plus or full-cost as a guide to pricing in an uncertain market where knowledge is incomplete. Because in practice, firms are uncertain about the shape of their demand curve and about the probable response to any price change. 4. In cases where costs or getting information are high and the process of trial and error is costly, firms use full cost or cost plus pricing to reduce the cost of decision making. 5. Cost-plus pricing is used for public utility pricing, determining the product design when the selling price is pre-determined, pricing products that are designed to the specification of a simple buyer and monopoly buying-where the buyer know a great deal about suppliers cost, 6. Construction companies submit job bids by estimating the total project cost and adding a standard mark up for profit. 7. Lawyers and accountants typically price by adding a standard mark up on their time and costs. Limitations 1. It considers cost as the prime determinant of price and it demotes the influence of demand 2. It fails to reflect the forces of competition adequately 3. If variable cost fluctuates frequently and significantly, full – cost pricing may not be an appropriate method of pricing. 4. It is based on a concept of cost that is frequently not relevant for the pricing decision. It is marginal cost rather than full cost of a product that should be used for fixing its price. 5. In full cost or mark up pricing, historically cost rather than current cost data are used. This may lead to under-pricing under increasing cost conditions and to over-pricing under decreasing cost conditions, which may go against the firm‘s objective. 6. It over values the meticulousness of allocating costs. The costs of individual products can‘t be determined exactly in multi-product situation. [B] Target Profit Pricing or Target Return Pricing In this type of approach, the company targets some profit figure to be achieved. And prices its products so as to achieve the same profit objective. Most of the American firms they follow this pricing method. Rate of return pricing is a refined variant of full-cost pricing. A firm which intends to earn a total profit of Rs. 20,00,000/- in one year, producing 1,00,000 units would cost the company Rs. 1,00,00,000 including all the costs. Thus the cost of production of 1,00,000 units is Profit objective Total a+b=c Price per unit = c / unit of production Debasis Pani, Asst. Professor, GIACR = = = = Rs 1,00,00,000 ---------(a) Rs 20,00,000 --------(b) Rs 1,20,00,000 Rs 1,20,00,000 / 1,00,000 = Rs 120 30
    • Module – I Thus if the company keeps the price of Rs.120/- per unit of its product, it will earn the targeted profit of Rs. 20,00,000/- in the year. 1. Though this method aims at the targeted profit for the company it also ignores the competition. 2. Moreover, this method does not consider the effect of the price on demand. 3. The company can achieve the target profit only if it sells all the 1,00,000 units produced, at the price of Rs. 120% per unit. The limitation with this method that the company cannot be rest assured- that the set objectives would be achieved (products 1,00,000 units selling at a price of Rs.120) also the consumer may perceive the rival product a better choice. [C] Break-Even Analysis This is the most important pricing method which takes into consideration both fixed costs and variable costs and the break-even point involved. The analysis works out break-even points and total revenues at different prices and then ascertains which price maximizes the profit. A break even point is that quantity of output at which total revenue equals to total costs, assuming a certain selling price. The following diagram shows the determination of the break even point. In this diagram, total revenue line intersects the total cost line at point B is the breakeven point and Q is the break-even quantity out put. At break-even point the firm neither makes profit nor makes loss. Therefore any quantity less than Q firm incurs a loss and for any output greater than Q makes profit. It is common sense that the more quantity sold above the break-even quantity, the more profits the company is likely to make. Break-even volume = Fixed cost / (Price – Variable cost) Example: 3 Suppose fixed cost of a firm are Rs.25,000 and the variable cost per unit is Rs. 30 which is a constant. The possible selling prices are Rs.60, Rs.80 and Rs.100. the firm estimates its demand for the product as 900,600,250 units at these prices respectively. Applying break-even analysis and assuming profit maximization as the objective of the firm, select the suitable price. Solution: Fixed cost = Rs.25,000 Variable cost per unit = Rs.30 Selling prices are : Rs.60, Rs.80, Rs.100 Estimated sales volume or demand are: 900 units,600 units and 250 units Assuming demand as X the total revenue and total costs functions can be formulated as revenue functions: R1= Rs.60X, at P1 = Rs.60 R2= Rs.80X, at P2 = Rs.80 R3= Rs.100X, at P3 = Rs.100 Cost function: C = Rs.25,000+Rs.30X Now, at price P1= Rs.60, break-even point (BEP) is B1= Rs.25,000/ Rs.60- Rs.30 = 833.33 units At price P2= Rs.80, BEP is B2= Rs.25,000/ Rs.80- Rs.30 = 500 units At price P3= Rs.100, BEP is B3= Rs.25,000/ Rs.100- Rs.30 = 357.14 units At estimated demand, Q1=800 units, Profit or loss = R1-C Debasis Pani, Asst. Professor, GIACR 31
    • Module – I = (Rs.60 x 900) – (Rs.25,000 + Rs.30x900) = Rs. 2000 (Profit) At estimated demand, Q2=600 units, Profit or loss = R2-C = (Rs.80 x 600) – (Rs.25,000 + Rs.30x600) = Rs. 5000 (Profit) At estimated demand, Q3=400 units, Profit or loss = R3-C = (Rs.100 x 250) – (Rs.25,000 + Rs.30x250) = Rs. 7500 (Loss) Since at price Rs.100, the firm incur a loss by expecting to sell 250 units, the price Rs.100 will be unsuitable to charge per unit of the product. But the firm makes profit at Rs.60 and Rs.80, when expects to sell 900 units and 600 units respectively. Comparing these two situations, we can suggest that Rs.80 would be the suitable price as estimated profit is maximum at price i.e., Rs.5,000. Evaluation of break-even analysis break-even analysis is based on following assumptions:  Total fixed costs are constant.  Variable costs remain constant per units of output Because of the above assumptions, the analysis is subject to following drawbacks  Though fixed costs are constant in the short-run actually change in the long-run  Average variable costs normally fluctuate.  The analysis cannot tell us whether or not we can actually sell the break-even quantity of out put. Despite the above shortcomings, the management always finds the break-even analysis useful as a pricing tool, especially in the short-run when firms experience reasonably stable costs and demand structures. [D] Marginal Cost Pricing Marginal analysis is a pricing method which takes into account the demand as well as costs of determines the best price for profit maximization. In this method, price is determined according to the rule of marginalization, i.e. equality of marginal revenue and marginal cost. With MC pricing the firm seeks to fix its prices so as to maximize its total contribution to fixed costs and profit.  Marginal revenue: it is defined as the additional revenue associated with an additional unit of output sold. Thus, if R=R(X) is the total revenue function, marginal revenue will be the rate of change in total revenue(R) due to a small change in output (X),i.e., MR=dR / dX. In a competitive market MR remains same for all units of output sold. But in a monopoly market, it decreases with increase in the quantity of output sold. The reason is that in a competitive market, the firm is assumed to sell any quantity of output at same price but in monopoly normally firms reduces price to enhance to selling.  Marginal cost: it is defined as the additional variable cost associated with an additional unit of output. Thus, if C=C(X) is the total cost function, marginal cost will be the rate of change in total cost(C) due to a small change in output (X),i.e., MC=dC / dX. Irrespective of the market structure, MC first decreases, then reaches a minimum and finally, increases as output increases. This is the reason why the MC curve is U-shaped but always passes through the lowest point on the average total cost curve which is also U-shaped. Advantages: 1) This method is useful in introductory campaigns, for pricing our goods for exports and when the goods are likely to get out of fashion soon. 2) With MC pricing, prices are never rendered uncompetitive merely because of a higher fixed overhead structure, or because hypothetical unit fixed costs are higher than those of the competitors. 3) MC more accurately reflects future as distinct from present cost levels and cost relationships. 4) MC pricing permits a manufacturer to develop a far more aggressive pricing policy. An aggressive pricing policy should lead to higher sales. Debasis Pani, Asst. Professor, GIACR 32
    • Module – I 5) MC pricing is more useful for pricing over the lifecycle of a product, which requires short-run marginal cost and separable fixed cost data relevant to each particular stage of the cycle, not long-run full-cost data. Disadvantages: 1) In a period of business recession firms using MC pricing may lower prices in order to maintain business and this may lead other firms to reduce their prices leading to cut-throat competition. With the existence of idle capacity and the pressure of fixed cost, firms may successively cut down prices to a point at which no one is earning sufficient total contribution to cover its fixed costs and earn a fair return an capital employed. 2) This pricing principle implies an optimal utilization of resources. But if there is unutilized capacity in the industry, this objective can‘t be achieved. 3) Where indivisibility are present MC concepts become arbitrary. 4) In certain cases, the MC may be simply indeterminate or the computation of such may be a very cumbersome affair. e.g., the postal department charges the same price for delivering a letter irrespective of distance. 5) This pricing model assumes pressure of a single objective by a firm, i.e. profit-maximization in practice, however, a firm may aspire to achieve multiple objectives, i.e., along with the profit or sales maximization the firm may emphasize on growth, market-penetration, early cash recovery and product line development, etc. 6) This pricing method assumes a single product whose price is to be fixed. Its extension for pricing of joint products and multiple products is very difficult. 7) The pricing concerned in this model, is the final one. There is no provision for fixing wholesale and retail prices simultaneously in the model. 8) Rival‘s reactions are not well taken into consideration while determining the price through this method. 9) This approach is more or less static. If takes certainly for granted. In practice, pricing decisions require a dynamic approach in which the effects of risks and uncertainties are well taken into account. 10) There is no link between pricing and marketing strategies of a firm in this method. 11) Some accountants are fully conversant with the marginal cost techniques themselves, and are not, therefore capable of explaining their uses to management. {2} Competition Based Methods (A) Going Rate Pricing Instead of cost, the emphasis here is on the market and market situation. The firm adjusts its own pricing policy to the general pricing structure in the industry. Where costs are particularly difficult to measure, this may seem to be the logical first step in a rational pricing policy. As the name suggests this type of pricing entails following the general prices for similar products in the market. The companies exercising such pricing keep a watch on the prices of their competitors. They increase or decrease the prices in accordance to its competitor‘s strategy. In such a pricing behaviour the firms ignore the costing component structure on the profit objective. (B) Bid Pricing Bidding is the act of offering or to provide for a particular price. This Pricing strategy is exercised by companies operating in an industry where they bid for various jobs on a turnkey basis. The examples of such industries are construction industry, engineering industry, general supplier industry etc. Since the job or the contract goes to the company with the lowest bid or quotation, the companies quote their price on the expectation of how their competitors will quote for the same contract or job. In doing so the companies should not bid below their costs. On the other hand if they quote at high for ensuring high profit, they may not get the contract or the job. Thus they should strike a balance between the probability of getting the contract and the profit. (C) Auction Type Pricing The dictionary meaning of auction refers a public event at which things are sold to the person who offers the most money for them: This type of pricing is growing more popular, especially with the Debasis Pani, Asst. Professor, GIACR 33
    • Module – I growth of the internet. One major purpose of auctions is to dispose of excess inventories or used goods. Companies must be aware of the three major types of auctions and their pricing procedure 1. English auctions (ascending bids): the seller puts up an item and bidders raise the price until the top price is reached. Antiques, real estate, used equipment and vehicle. 2. Dutch auctions (descending bids): one seller and many buyers, or one buyer and many sellers. In the first kind, an auctioneer announces a high price for a product and then slowly decreases the price until a bidder accepts the price. In the other, the buyer announces some thing that he wants to buy and then potential sellers compete to get the sale by offering the lowest price. 3. Sealed-bid auctions: here the buyer can submit only one bid and cannot know the other bids. A supplier will not bid below the cost but cannot bid too high for fear of losing the job. {3} Demand Based Methods The price of a product should be set in line with the marketing strategy. The danger is that if price is viewed in isolation, as it was with full cost pricing, it has not taken into consideration the positioning, strategic objectives and promotion decision. For new products, price will depend upon positioning, strategy, and for existing products price will be affected by strategic objectives. 15. Promotion: Advertising Communication is the verbal and non-verbal transmission of information between sender and receiver. And Promotion is communication about an organization and its products that is intended to inform, persuade, or remind target market members A Promotion mix (sometimes called a Marketing communication mix) is the particular combination of promotional methods a firm uses to reach a target market. Promotion is the chief means of influencing the buyer behaviour for a marketer promotion includes advertising, sales promotion, personal selling, public relations, publicity and direct marketing. All these tools have one aspect in common, they all communicate to the customer buy me. Marketers can use several promotional methods to communicate with individuals, groups, and organizations. Two, three, or four of these ingredients are used in a promotion mix, depending on the type of product and target market involved. Adverting is one of the element of the promotion mix, but it often considered important in the overall marketing mix design. Its high visibility and pervasiveness made it as an important social topic in Indian society. Advertising is the dissemination of information by non-personal means through paid media where the source is the sponsoring organization. Definition of Advertising The word advertising originates from a Latin word advertero, ‗ad‘ means towards and ‗verto‘ means I turn. Thus advertising literally means to turn peoples attention to a specific thing. The dictionary meaning of the term is ―to give public notice or to announce publicly‖ Debasis Pani, Asst. Professor, GIACR 34
    • Module – I The American Marketing Association, Chicago, has defined advertising as ―Any form of nonpersonal presentation or promotion of ideas, goods or services, by an identified sponsor.‖ To Advertising Standard Council of India ― An advertisement is defined as a paid-for communication, addressed to the public or a section of it, the purpose of which is to influence the opinions or behaviour of those to whom it is addressed.‖ What 1. 2. 3. 4. 5. Advertisement Is? (Features) it is a non-personal presentation of message It is a paid form of communication Its purpose is to promote ideas about the products and services of a business It is issued by an identified sponsor It persuades buyers to purchase the goods and service advertised Advertising includes the following forms of messages: The messages carried inNewspapers and magazines On radio and television broadcasts Circular of all kinds, (whether distributed by mail, by person, thorough tradesmen, or by inserts in packages) Dealer help materials, Window display and counter – display materials and efforts Store signs, motion pictures used for advertising. wall paintings, billboards, mobile telephone screens, printed flyers, skywriting Advertising Objectives Advertising seeks to state the consumer, so that he/she may have a favorable reaction to the promotional message. Advertising objectives serve as guidelines for the planning and implementation of the entire advertising programme. The basic objectives of an advertising programme may be listed as below: 1. To stimulate sales amongst present, former and future consumers. 2. To communicate with consumers. This involves decision regarding copy. 3. To retain the loyalty of present and former consumers. Advertising may be used to reassure buyers that they have made the best purchase, thus building loyalty to the brand name or the firm. 4. To increase support. Advertising impliedly bolsters the morale of the sales force and of distributors, wholesalers, and retailers, It thus contributes to enthusiasts and confidence attitude in the organizational. 5. To project an image. Advertising is used to promote an overall image of respect and trust for an organization. This message is aimed not only at consumers, but also at the government, shareholders, and the general public. Importance of Advertising Generally, advertising is a relatively low-cost method of conveying selling messages to numerous prospective customers. It can help train dealers salesmen in product uses and applications. It can build dealer and consumer confidence in the company and its products by building familiarity. Advertising is to stimulate market demand. While sometimes advertising alone may succeed in achieving buyer acceptance, preference, or even demand for the product. Advertising is efficiently used with at least one other sales method, such as personal selling or point-of-purchase display, to directly move customers to buying action. Advertising has become increasingly important to business enterprises both large and small. Non-business enterprises have also recognized the importance of advertising. The attempt by army recruitment, the health department popularizes family planning through advertising. Advertising assumes real economic importance too. Advertising strategies that increase the number of units sold, so that advertising cost per unit of output is decreased and that leads to decrease in production cost per unit of output. It in turn leads to lower prices. Lower consumer prices then allow these products to become available to more people. Advertising pays for many of the enjoyable entertainment and educational aspects of modern life. Debasis Pani, Asst. Professor, GIACR 35
    • Module – I Advertising has become an important factor in the campaigns to achieve such societaloriented objectives such as the discontinuance of smoking, family planning, physical fitness, and the elimination of drug abuse. Advertising helps to increase mass marketing while helping the consumer to choose from amongst the variety of products offered for his selection. The Five Ms of Advertising 1. Setting the advertising objectives (Mission) – The advertising objectives must flow from prior decisions on target market, market positioning, and marketing mix. Advertising objectives can be classified according to whether their aim is to inform, persuade, remind, or reinforce. 2. Deciding on the advertising budget (Money) – There are five specific factors to consider when setting the advertising budget (1) Stage in the product life cycle - New products typically receive large advertising budgets to build awareness and to gain consumer trial. Established brands usually are supported with lower advertising budgets as a ratio to sales. (2) Market share and consumer base – High market- share brands usually require less advertising expenditure as a percentage of sales to maintain share. To build share by increasing market size requires larger expenditures. (3) Competition and cluster - In a market with a large number of competitions and high advertising spending, a brand must advertise more heavily to be heard. Even simple cluster from advertisements not directly competitive to the brand creates a need for heavier advertising. (4) Advertising frequency: The number of repetitions needed to put across the brand‘s message to consumers has an important impact on the advertising budget. (5) Product substitutability: Brands in a commodity class (cigarettes, beer, soft drinks) require heavy advertising to establish a differential image. Advertising is also important when a brand can offer unique physical benefits or features. 3. Choosing the advertising message (Message) - Advertising campaigns vary in creativity: (1) Message generation: a successful advertising must hold the attention of the target group or intended audience‘s attention and influence their belief or behaviour through message. While creating a message, memorable and attention getting words must be found. (2) Message evaluation and selection: a good ad normally focuses on one core selling proposition. Dik Twedt suggested that messages be rated on desirability, exclusiveness, and believability Debasis Pani, Asst. Professor, GIACR 36
    • Module – I (3) Message execution: The message‘s impact depends not only on what is said, but often more important, on how it is said. Some ads aim for rational positioning and other for emotional positioning. (4) Social responsibility review: advertisers and their agencies must be sure their ―creative‖ advertising does not overstep social and legal norms. 4. Deciding on media (Media) After choosing the message, the advertiser‘s next task is to choose media to carry it. The steps here are deciding on desired reach, frequency, and impact; choosing among major media types; selecting specific media vehicles; deciding on media timing; and deciding on geographical media allocation. 5. Evaluating advertising effectiveness (Effectiveness) Most measurement of advertising effectiveness deals with specific ads and campaigns. Most of the money is spent by agencies on pretesting ads, and much less is spent on evaluating their effectiveness. A proposed campaign should be tested in one or a few cities first and its impact evaluated before rolling it out nationally. Most advertisers try to measure the communication effect of an ad-that is, its potential effect on awareness, knowledge, or preference. 16. Sales Promotion Sales promotion is one of the most loosely used terms in the marketing vocabulary. We define sales promotion as demand. Stimulating devices designed to supplement advertising and facilitate personal selling. Short-term incentives to encourage the purchase or sale of a product or service Definitions of Sales Promotion To American Marketing Association ― Those marketing activities other than personal selling advertising and publicity that stimulate consumer purchasing and dealer effectiveness such as display shows and exhibitions, demonstrations and various non-recurrent selling efforts not in the ordinary routine.‖ Concept of Sales Promotion Sales promotion consists of diverse collection of incentive tools, mostly short-term designed to stimulate quicker and / or greater purchase of a particular product by consumers or the trade. Where as advertising offers a reason to buy, sales promotion offers an incentive to buy. Sales promotion includes tools for consumer promotion; trade promotion; and sales-force promotion. Sales promotion efforts are directed at final consumers and designed to motivate, persuade and remind them of the goods and receives that are offered. It is non recurrent in nature which means it can‘t be used continuously. Creative sales promotion can be very effective. It is the marketing manager‘s responsibility to specify promotion objectives and policies. Objectives of Sales Promotion i) To introduce new products To induce buyers to purchase a new product, free samples may be distributed or money and merchandise allowance may be offered to business to stock and sell the product. ii) To attract new customers New customers may be attracted through issue of free samples, premiums, contests and similar devices. iii) To induce present customers to buy more Present customers may be induced to buy more by knowing more about a product, its ingredients and uses. Debasis Pani, Asst. Professor, GIACR 37
    • Module – I iv) To help firm remain competitive Sales promotions may be undertaken to meet competition from a firm. v) To increase sales in off season Buyers may be encouraged to use the product in off seasons by showing them the variety of uses of the product. vi) To increase the inventories of business buyers Retailers may be induced to keep in stock more units of a product so that more sales can be affected. Types of Sales Promotion For the purpose of convenience, the types of sales promotion methods may be grouped under three categories: 1. Types of sales promotion directed at consumers. 2. Types of sales promotion directed at dealers and distributors. {A} Consumer Promotion Tools The main consumer promotion tools include samples, coupons, cash refund offers, price packs, premiums, prizes, patronage rewards, free trials, product warranties, tie-ins, and point of purchase displays and demonstrations. 1) Samples: are offers of a free amount or trial of a product to consumers. The sample might be delivered door to door sent in the mail, picked up in a store, found attached to another product or featured in an advertising offer. Sampling is the most effective and most expensive way to introduce a new product. 2) Coupons: are certificates entitling the bearer to a stated saving on the purchase of a specific product. Coupons can be mailed, enclosed in or on other products or inserted in magazine and newspaper advertisements. Coupons can be effective in stimulating sales of a mature brand and inducing early trial of a new brand. 3) Cash Refund Offers or Rebates: These are like coupons except that the price reduction occurs after the purchase rather than at the retail shop. The consumer sends a specified ―proof of purchase‖ to the manufacturer, who in turn ‗refunds‘ part of the purchase price by mail. Cash refunds have been used for major products such as automobiles as well as for packaged goods. 4) Price Packs: These are offers to consumers of savings off the regular price of a product, flagged on the label or package. They may take the form or a reduced-price pack which is single packages sold at a reduced price (such as two for the price of one) or a banded pack, which is two related products banded together (such as a tooth brush and tooth paste). Price packs are very effective in stimulating short term sales, even more than coupons. 5) Premiums or Gifts: A premium is a gift that a producer offers the customer in return for using its product at a relatively low cost or free as an incentive to purchase a particular product. 6) Prizes: These are offers of the chance to win cash, trips or merchandise as a result of purchasing something. Pepsi-cola offered the chance to win cash by matching numbers under the bottle cap with numbers announced on television. Sometimes the prize is a person, offering the winner either cash or dinner with actor Sharuk Khan. 7) Patronage Awards: this is also called frequent-user incentives are programs developed to reward customers who engage in repeat (frequent) purchases. Frequent-user incentives build customer loyalty. An airline‘s frequent-flyer program is one example of a frequent-user incentive 8) Free Trials: Free trails consist of inviting prospective purchasers to try the product without cost in the hope that they will buy the product. Thus, often we see, auto dealers encourage free test drives to stimulate purchase interest. 9) Point-of-Purchase Displays: These take place at the point of purchase or sale. Display of visible mark or product at the entrance of the store is an example. Unfortunately many retailers do not like to handle the hundreds of displays, signs and posters they receive from manufacturers. Hindustan Lever often uses this tool to promote its products in the rural market. {B} Trade Promotion Tools Manufacturers use several promotion tools. Some of which are mentioned below: Debasis Pani, Asst. Professor, GIACR 38
    • Module – I 1) Price-Off: Manufacturers may offer a price-off, which is straight discount off the list price on each case purchased during a stated period of time. The offer encourages dealers to buy a quantity or carry a new item that they might not ordinarily buy. 2) Allowance: Manufacturers may offer an allowance in return for the retailer‘s agreeing to feature the manufacturer‘s products in some way. An advertising allowance compensates retailers for advertising the manufacturer‘s product. A display allowance compensates them for carrying a special display of the product. 3) Free Goods: Manufacturers may offer free goods, which are extra cases of merchandise to middlemen who buy a certain quantity of items. 4) Push Money: Manufacturers may offer push money which is cash or gifts to dealers or their sales force to push the manufacturer‘s goods. {C} Business and Sales Force Promotion Tools 1) Trade Show: A trade show is an industry wide exhibit at which many sellers display their products. Some trade shows are organized exclusively for dealers to permit manufacturers and wholesalers to show their latest lines to retailers. Others are promotions designed to stimulate consumer awareness and interest. 2) Sales Contests: A sales contest aims at inducing the sales force or dealers to increase sales over a stated period, with prizes going to those who succeed. Incentives work best when they are tied to measurable and achievable sales objectives (such as finding new accounts or reviving old accounts) for which employees feel they have an equal chance. 3) Specialty Advertising: Specialty advertising consists of useful, low-cost items (such as calendars, pens, pencil, calendars, paper weights, and memo pads) bearing the company‘s name and address, and sometimes an advertising message, that salespeople give to prospects and customers. 17. Personal Selling Personal selling is paid personal communication that attempts to inform customers and persuade them to purchase products or services. Personal selling allows the marketer or seller to communicate directly with the prospect or customer and listen to his or her concerns, answer specific questions, provide additional information, inform, persuade, and possibly even recommend other products or services. Definition of Personal Selling To Philip Kotler,‖ Personal selling could be defined as face to face interaction with one or more prospective purchases/buyers for the purpose of making sales.‖ Features of Personal Selling 1. Personal selling involves persuasion of customers / buyers 2. Personal selling involves of buyers confidence 3. Personal selling involves providing information about products availability, their broad features uses and their utility to customers. 4. Personal selling involves mutual benefit to sellers and the buyers. 5. Personal selling is a way to the establishment of sound and casting relations between the salesman and customer. 6. Personal selling is an activity of one human mind influencing another human mind. Advantage of Personal Selling 1. Personal selling is a face-to-face activity; customers therefore obtain a relatively high degree of personal attention Debasis Pani, Asst. Professor, GIACR 39
    • Module – I 2. The sales message can be customized to meet the needs of the customer 3. The two-way nature of the sales process allows the sales team to respond directly and promptly to customer questions and concerns 4. Personal selling is a good way of getting across large amounts of technical or other complex product information 5. The face-to-face sales meeting gives the sales force chance to demonstrate the product 6. Frequent meetings between sales force and customer provide an opportunity to build good long-term relationships Disadvantage of Personal Selling 1. 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). 2. In addition, a sales person can only call on one customer at a time. 3. This is not a cost-effective way of reaching a large audience Type of Sales People 1. Deliverer: A salesperson whose major task is the delivery of a product (milk, bread, or fuel). 2. Order taker: A salesperson who acts predominantly as an inside order taker (the salesperson standing behind the counter) or outside order taker (the soap salesperson calling on the supermarket manager). 3. Missionary: A salesperson whose major task is to build goodwill or to educate the actual or potential user, rather than to sell (the medical ―detailer‖ representing an ethical pharmaceutical firm). 4. Technician: A salesperson with a high level of technical knowledge (the engineering salesperson who is primarily a consultant to client companies). 5. Demand creator: A salesperson who relies on creative methods for selling tangible products (vacuum cleaners or siding) or intangibles (insurance or education). 6. Solution vendor: A salesperson whose expertise lies in solving a customer‘s problem, often with a system of the firm‘s goods and services (such as computer and communications systems). Personal Selling Process (1) Prospecting and qualifying: The first step in selling is to identify and qualify prospects. Companies can generate leads by examining data sources (newspapers, directories, CDROMs, Web sites); exhibiting at trade shows to encourage drop-bys; inviting customers to suggest the names of prospects; cultivating referral sources such as suppliers, dealers, and bankers; contacting trade associations; engaging in speaking and writing activities that draw attention; using the telephone, mail, and the Internet to find leads; and dropping in unannounced (cold canvassing). Companies can then qualify the leads (by contacting them by mail or phone) to assess their level of interest and financial capacity. (2) Pre-approach: The salesperson needs to learn as much as possible about the prospect company (what it needs, who is involved in the purchase decision) and its buyers (their personal characteristics and buying styles) by consulting trade and database sources. The salesperson can then set call objectives: to qualify the prospect, gather information, make an immediate sale. Another task is to decide on the best approach, which might be a personal visit, a phone call, or a letter. The best timing should also be considered because many prospects are busy at certain times. Finally, the salesperson should plan an overall sales strategy for the account. (3) Approach: In this step, the salesperson decides how to get the relationship off to a good start. The salesperson might consider wearing clothes similar to what the buyers typically wear, show courtesy and attention to the buyer, and avoid distracting mannerisms. When meeting with the Debasis Pani, Asst. Professor, GIACR 40
    • Module – I prospect, the rep should open with a positive statement and then concentrate on understanding the buyer‘s needs through careful questioning and active listening. (4) Presentation and demonstration. Having listened to the buyer‘s needs, the salesperson now tells the product ―story,‖ being careful not to overemphasize product features (a product orientation) at the expense of a discussion of benefits and value (a customer orientation). Companies have developed three different styles of sales presentation. The oldest is the canned approach, a memorized sales talk covering the main points. It is based on stimulus-response thinking; that is, the buyer is passive and can be moved to purchase by the use of the right stimulus words, pictures, and actions. The formulated approach is also based on stimulus-response thinking but first identifies the buyer‘s needs and buying style and then uses an approach formulated to this type of buyer. The need-satisfaction approach starts with a search for the customer‘s real needs, after which the salesperson takes on the role of a knowledgeable consultant to help the customer save or make more money. (5) Overcoming objections: Customers almost always pose objections during the presentation or when asked for the order. To handle these objections, the salesperson maintains a positive approach, asks the buyer to clarify the objection, asks questions that lead the buyer to answer his or her own objection, denies the validity of the objection, or turns the objection into a reason for buying. Handling and overcoming objections is a part of the broader skills of negotiation. (6)Closing. Now the salesperson attempts to close the sale using one of several closing techniques. The representative can ask for the order, recapitulate the points of agreement, offer to help the buyer write up the order, ask whether the buyer wants A or B, get the buyer to make minor choices such as the color or size, or indicate what the buyer will lose if the order is not placed now. In addition, the representative might offer the buyer an inducement to close, such as a special price, an extra quantity, or a token gift. (7) Follow-up and maintenance. Follow-up and maintenance are necessary to ensure customer satisfaction and repeat business. Immediately after closing, the salesperson should cement any necessary details on delivery time, purchase terms, and other matters that are important to the customer. The salesperson should schedule a follow-up call when the initial order is received to check on proper installation, training, and servicing. The purpose is to detect any problems, assure the buyer of the salesperson‘s interest, and reduce any cognitive dissonance that might have arisen. The salesperson should also develop a maintenance and growth plan for the account. 18. Public Relation Simply speaking, public relations would mean - building good relations with the company‘s various publics by obtaining favourable publicity, building up a good corporate image, and handling or heading off unfavourable rumours, stories, and events. The PR department of a company not only focus on the company relate issues constructively to customers, suppliers, and dealers, but it must also relate to a large number of interested publics. Definition A public is any group that has an actual or potential interest in or impact on a company‘s ability to achieve its objectives. Public relations (PR) involve a variety of programs designed to promote or protect a company‘s image or its individual products. To Dennis Adcock,‖ Public relation is the deliberate, planned and sustained effort to establish and maintain mutual understanding between an organisation and its publics.‖ Public relations is used to promote products, people, places, ideas, activities, organizations, and even nations. Public relations can have a strong impact on public awareness at a much lower cost than advertising can. The company does not pay for the space or time in the media. Rather, it pays for a staff to develop and circulate information and to manage events. And it would have more credibility than advertising. Debasis Pani, Asst. Professor, GIACR 41
    • Module – I Functions of Public Relation 1. Press relations: Presenting news and information about the organization in the most positive light. 2. Product publicity: Sponsoring efforts to publicize specific products. 3. Corporate communication: Promoting understanding of the organization through internal and external communications. 4. Lobbying: Dealing with legislators and government officials to promote or defeat legislation and regulation. 5. Counselling: Advertising management about public issues and company positions and image during good times and crises. Major Public Relation Tools (1) News: One of the major tools is news. PR professionals find or create favourable news about the company and its products or people. Sometimes news stories occur naturally, and sometimes the PR person can suggest events or activities that would create news. (2) Press Conference: a press conference is held in order to brief members of the media about a major news event or some time the PR persons provide fact sheets to the media people to develop a story over fact during press conference. (3) Speeches: Speeches can also create product and company publicity. Increasingly, company executives must field questions from the media or give talks at trade associations or sales meetings, and these events can either build or hurt the company‘s image (4) Special Events: ranging from news conferences, press tours, grand openings, fashion show, cultural programmes and educational programs designed to reach and interest target publics. (5) Written Material: Public relations people also prepare written materials to reach and influence their target markets. These materials include annual reports, brochures, articles, and company newsletters and magazines (6) Audiovisual Materials: such as films, slide-and-sound programs, and video- and audiocassettes, are being used increasingly as communication tools. (7) Corporate Identity Materials: can also help create a corporate identity that the public immediately recognizes. Logos, stationery, brochures, signs, business forms, business cards, buildings, uniforms, and company cars and trucks—all become marketing tools when they are attractive, distinctive, and memorable. (8) Employee Relation Programme: employee are the extreme internal public, using the company newsletters to remind employees about their importance to the organization will build a strong brand image. (9) Community Relation Programme: companies maintain the role of good community citizens within the markets. Tata group of companies highlights their community relationship based communication for building a strong brand image with in the local community and stake holders. 19. Publicity Publicity is the deliberate attempt to manage the public's perception of a subject. Publicity is a form of commercially significant news about a product, an institution, a service or a person published in a print space or broadcast on radio or television that is not paid for by the sponsor Definition Publicity is defined as the non-personal stimulation of demand for a product, service or business unit by planting commercially significant news about the in a published medium or obtaining favourable presentation of it upon radio, television or stage is not paid by the sponsor. The salient feature of the above definition is Debasis Pani, Asst. Professor, GIACR 42
    • Module – I 1. Non-personal / Mass media: like advertising publicity also reaches a very large number of people at the same time through mass media such as newspapers, radio, TV. 2. Commercially significant news: as most of the publicity is unpaid, because mass media tend to communicate that information free of cost. 3. Higher credibility because the message is communicated through the mass media 4. No sponsor: since the information is originated from the media, there is no sponsor. 5. Purpose is to stimulate demand: in some situation where publicity is properly planned, it may lead to the creation or reinforcement of a favorable impression about the company. Publicity may be positive and negative, negative publicity can damage the company‘s or product‘s image, resulting in reduced demand for the product. The advantages of publicity are low cost, and credibility The disadvantages are lack of control over how your releases will be used, and frustration over the low percentage of releases that are taken up by the media. Examples of publicity:- Cell Guru in NDTV 24X7, Bike and Car Shows in NDTV "Aaj desh mein 15 lakh se zyada bachche anaath hai. Kisi bachche ko apnaiye, usse apna naam dijiye.' - Project Crayons. (A Child Rehabilitation and Youth Oriented Nationwide Service.) Advertising Vs Publicity Factors Payment Advertising the sponsoring organization has to pay for media space and or time Sponsor Has a clearly identified sponsor which may be either the company or brand name The company has total control over content and coverage of the message Content Schedule Intent Credibility The company can schedule repetition of the message as many times as desired The message is meant to create, maintain and enhance a favorable impression about the company and product Low Publicity Since the message is designed and printed by the media, the company does not have to pay for it No sponsor is identified the message originates from the media sources The company has no control over the content and coverage, although it may have initiated media interest and supplied the necessary information The company cannot schedule repetition of messages. Presented as news hence, less persuasive, may create a favorable or unfavorable impression High 20. Propaganda Propaganda means spreading of ideas or messages. Like publicity and advertising, propaganda also communicates ideas but it is only one sided communication and there is always favour for a cause. Propaganda means to multiply or disseminate ideas, opinion, notion or information. Definition To Jowett and Donnell ―Propaganda is the deliberate, systematic attempt to shape perceptions, manipulate cognitions, and direct behaviour to achieve a response that furthers the desired intent of the propagandist.‖ Debasis Pani, Asst. Professor, GIACR 43
    • Module – I Propaganda is a concerted set of messages aimed at influencing the opinions or behaviors of large numbers of people Example: 1. Samajwadi Party: ―punarjanam ho yadi mera, toh phir ho Ganga ke tat par Uttar Pradesh. Ek lagan nayi.‖ 2. "Aage badhne ke liye, raahey itni... roshan kabhi na thi. Bharat Uday." 3. "I make my India shine. I am India Shining." - 'India Shining.' Propaganda also has much in common with public information campaigns by governments, which are intended to encourage or discourage certain forms of behavior (such as wearing seat belts, not smoking, not littering and so forth) Common media for transmitting propaganda messages include news reports, government reports, historical revision, books, leaflets, movies, radio, television, and posters. In the case of radio and television, propaganda can exist on news, current-affairs or talk-show segments, as advertising or public-service announce "spots" or as long-running advertorials. Propaganda campaigns often follow a strategic transmission pattern to instruct the target group. 21. Place: Marketing channels The availability of the product in the market depends on the efficacy of the distribution channel; therefore the distribution channel plays a significant role in the marketing activities. In fact the success of a company‘s marketing effort depends on its command over the distribution network. An effective distribution system helps in making available goods in the right quantity at right time when they are required and giving a reasonable earning to those who are associated with the distribution system like wholesalers retailers etc. Definition To American Marketing Association ―A channel of distribution or marketing channel is a structure of intra-company organization, units and intra-company agents and dealers, wholesalers and retailers through which a commodity product of services is marketed‖ A channel of distribution comprises a set of institutions which perform all of the activities utilised to move a product and its title from production to consumption. Why We Need Distribution Channel? (Function & Importance) Distribution channel are required to smoothen the flow of goods and services from the manufacturer to the consumer including this, distribution channel or marketing channel carries lot of function as given below. (1) Provide Distribution Efficiency: In the first place, the channel brings together the manufacturer and the user in an economic manner and thereby provide distribution efficiency to the manufacturer.  Minimize the number of contacts needed for reaching consumers  Break the Bulk and cater to tiny requirements of individual  Spatial Difference  Temporal Difference  Need to provide assortment (2) Provide Salesmanship: Marketing channels also provide salesmanship. In particular, they help in introducing and establishing new products in the market. In many cases, buyers go by the Debasis Pani, Asst. Professor, GIACR 44
    • Module – I recommendations of the dealers. The dealers establish the products in the market through their persuasive selling and person-to-person communication. They also provide pre-sale and after-sale service to the buyers. (3) Help in Price Mechanism: In many cases, the channels also help implement the price mechanism. They conduct price negotiations with buyers on behalf of the manufacturer and assist in arriving at the right price the price that is acceptable to the maker as well as the user. (4) Look after a Part of Physical Distribution and Financing: Channels also look after a part of the physical distribution functions like transportation, handling, warehousing, sub distribution, order processing and inventory management. Channels also share the financial burden of the manufacturer by financing the goods flowing through the marketing pipeline. (5) Assist in Merchandising: Through merchandising, they help reinforce the awareness about the product among customers. When a customer visits a retail shop, his attention can be allured by an attractive display of the product brand increasing his awareness and interest. Merchandising, especially display complements the selling efforts of the company and acts as a silent salesman at the retail outlet. (6) Provide Market Intelligence: Channels provide market intelligence and feedback to the principal. In the nature of things, channels are in a good position to perform this task, since they are in constant and direct contact with the customers. They feel the pulse of the market all the time. (7) Act as Change Agents and Generate Demand: In certain cases, the marketing task involves diffusion of some innovation among consumers. In such cases, the channels go much beyond the conventional functions of distribution support act as ‗change agents‘ among consumers and generate demand for the product. (8) Take Care of the Flows Involved in Distribution: The distribution process can be viewed as a series of flows: the physical flow of products, the title/ownership flow, risk flow, the negotiation flow, the financing/payment flow, the information flow and promotion flow. Marketing channels handle and take care of all these flows. What is Distribution Channel Management The distribution channel management is defined as a set of activities associated with the creation and maintenance of a distribution channel. Design of Distribution Channel Sometimes, firms in similar business have different kinds of distribution channels. This is so, because a company wants distribution channel to achieve maximum customer satisfaction and acquire a competitive advantage. An efficient distribution channel can be planned on the basis of four steps given as follows: {1} Specifying the Role of Distribution Channel: Channel strategy has to be proportional to a company's marketing objectives, its mission statement, and roles assigned to the rest of the marketing mix. A company must decide whether distribution will be used defensively or offensively. Under a defensive approach, a firm will strive for a distribution that is as good as a competitor but not necessarily better than the competitor. But in an offensive strategy a manufacturer will try to gain advantage over the competitor by having a more efficient channel. {2} Selecting the Type of Channel: Once role of distribution is agreed, the next step involves determining the most suitable type of channel for the companies. Companies need to decide if it wants to use middlemen or not. Marketing Intermediaries 1) Agent or Brokers (Jobber) – An intermediary who searches for customers and negotiates on a producer‘s behalf but does not take title to the goods. Agents generally work for producers continuously, where as brokers may be employed for a particular deal. Debasis Pani, Asst. Professor, GIACR 45
    • Module – I 2) Retailers – A business enterprise that sells goods or services directly to the final consumer for his or her personal, non business use. They purchase goods directly from the wholesalers or, in some cases directly from the producer. 3) Wholesaler – A business enterprise that sells goods or services to those who buy for resale or business use usually retailers. They primarily deal in bulk and will ordinarily sell to the retailer or other intermediaries. 4) Distributor – is a general term applied to a variety of intermediaries. These individual firms perform several functions, including inventory management, personal sale and financing. Distributors are more common in organizational markets, although wholesalers also occasionally act as distributor. 5) Dealer – is type of intermediary that acts same as distributor but they sell only to final customers and not to other intermediaries. 6) Value-added reseller (VARs) – they are intermediaries that buy the basic product from producers and add value to it or, depending on the nature of the product, modify it and then resell it to final customers. 7) Merchants – Assumes ownership of product and resells to customers or other intermediaries for a profit. Merchants usually take physical possession of the goods and they sell. 8) Facilitating Agents (C & F Agents) – An intermediary who assists in the distribution process but neither takes title of goods nor negotiates purchase or sales. The following are the services where assistance is required: transportation and storage, covering the risk (insurance), financial services. Types of Channel 1. Zero level Channel (Direct Marketing/ Direct Distribution) Producer ------- Consumer (Indirect Distribution/ Indirect Marketing) 1. One Level Channel Producer ----- Retailer ------ Consumer Producer --- Dealer ----- Consumer 2. Two Level Channel Producer --- Wholesaler / Distributor ---- Retailer ----- Consumer 3. Three Level Channel Producer ---- Distributor ----- Wholesaler ----- Retailer ------ Consumer 4. Four Level Channel Producer --- Agent ---- Distributor---Wholesaler ---- Retailer --- Consumer Debasis Pani, Asst. Professor, GIACR 46
    • Module – I The figure also shows channels commonly used in industrial marketing. An industrial- goods manufacturer can use its sales force to sell directly to industrial customers; or it can sell to industrial distributors, who sell to the industrial customers; or it can sell through manufacturer‘s representatives or its own sales branches directly to industrial customers, or indirectly to industrial customers through industrial distributors. Zero-, one-, and two -level marketing channels are quite common in industrial marketing channels. {3} Determining intensity of distribution: The next decision relates to intensity of distribution, or in other words, the number of middlemen used at the wholesale and retail levels in a particular territory. The target market‘s behavior and the product capture have direct bearing on this decision. There are three main degrees of intensity possible. (a) Intensive distribution: Under this distribution, a producer sells his product through every available outlet in the market. If the nature of the product is a convenience product, then intensive distribution is preferable. For example, Colgate sells its dental hygiene products in supermarkets, drug stores and other retail outlets. (b) Selective distribution: Producer sells his products through multiple retailer and wholesalers. The intensity of sale from this distribution lies midway between exclusive and intensive distribution. Appliances, Furniture, Men‘s suits, Stereos and Automobiles (c) Exclusive distribution: Supplier agrees to sell his products only to a single wholesaling middleman and / or retailer in a given market. At the wholesale level such an arrangement is termed as distributorship and at retail level, it is called dealership. Fine art, Farm equipment and Heavy machinery {4} Choosing Specific Channel Members: The selection of specifics channel members depends upon the market, the product, the company and the middlemen. This process helps in designing an efficient distribution channel, increasing co-ordination between various components of marketing mix. 22. Vertical and Horizontal Integration Channel Structure Channel structure is the way in which the different parts of the channel are arranged together, or organized for moving the goods form manufacturer to the consumer. In other words Channel structure consists of a number of outlets that may be adopted in moving goods from manufacturer to customers Debasis Pani, Asst. Professor, GIACR 47
    • Module – I Channel Structure Direct Indirect Horizontal Vertical Multi-channel {A} Direct and Indirect Channel Structure: A company may undertake to distribute its goods to customers or retailers without involving any intermediaries. This is referred to as a Direct channel which constitutes the shortest channel in distribution process. Manufacturers, in this case, do not rely on intermediaries. They directly reach their customers to sell their products. Examples of this sort are catalogue, direct mail, Avon, Tupperware. Avon, Amazon.com, and Amway are some of the B2B exchanges which indulge in direct distribution channel (DDC). Alternatively, goods may pass through one or more intermediaries such as wholesalers or agents. This is an indirect distribution channel (IDC). Most of the FMCG manufacturers have indirect distribution channel. {B} Vertical Marketing Systems (VMS) (Vertical Integration) 1. A VMS, on the other hand, includes various parties, like wholesalers, producers and retailers, acting as a unified system. 2. It is a tightly coordinated distribution channel designed specifically to improve operating efficiency and marketing effectiveness. 3. In VMS, there is nothing as one marketing function gaining more importance over the other. Instead, each function is performed, at its best, in unity. 4. A marketing channel that is professionally managed and centrally controlled by a single marketing channel member in a vertical marketing system (VMS). 5. Vertical marketing system improves distribution efficiency by combining the efforts of individual channel members. 6. Kotler points out that, VMS has become a dominant distribution channel in the US, serving 70 to 80 percent of total market. There are three types of VMS. (1) Corporate vertical marketing systems. A firm at one level of channel owns firm at the next level or subsequent levels or it may own an entire channel. VMS here combines successive stages of production and distribution under single ownership. Vertical integration of operations gives higher degree of control to the manufacturer. Similarly, certain manufacturers of food items have their own raw material supplying firms. E.g. Bata‘s total distribution is controlled by the Company ownership. (2) Administered vertical marketing systems: An administrated VMS coordinates successive stages of production and distribution not through common ownership but through the size and power of one of the member. Manufactures of dominate brand are able to secure strong trade cooperation and support from resellers. Brand leader or firms that are market leaders are able to obtain trade cooperation. Firms like Hindustan Lever, Lipton, Proctor and Gamble, Nestle, Telco, Maruthi and others are able to get shelf space, promotional support, and also support for price policies from the trade, mainly because their brands are market leaders. Kellogg Co., Campbell soup company use administrated channels. (3) Contractual Vertical Marketing Systems: In a contractual VMS, a marketing channel in which channel members are independent but have inter organizational relationships that are formalized through contracts or other legal agreements. Under this system, independent producers, wholesalers and retailers operate on contractual basis specifying how they will try to improve effectiveness and efficiency of their distribution. E.g. NIIT, Aptech 1. Wholesalers sponsored voluntary chains: Wholesalers organize voluntary chains of independent retailers to help them compete with large organizations. This organization helps Debasis Pani, Asst. Professor, GIACR 48
    • Module – I them compete with large companies on the basis of economies which arise as a result of standardization of selling practices and buying economies. 2. Retailer Co-operatives: Retailer takes initiative and organizes a new business entity to carry on business. Retailer cooperatives consist of independent retailers who set up a central buying organization and conduct joint promotional efforts. It is a voluntary association, but the impetus for the cooperative come from the retailers rather than from a wholesaler 3. Franchise organization. In this, a member called a franchisee links himself to one of the stages in production distribution process, for example, Dominos Pizza. Franchise organization can further be divided into three  Manufacturer sponsored retailer franchise. For example, Ford and Chrysler which license dealers to sell its cars.  Manufacturer sponsored wholesaler franchise. For example Coke and Pepsi license bottlers in various markets who buy its syrup concentrate and then carbonate, bottle and sell it to retailers in local markets.  Service firm sponsored retailer franchise. In this, service firm organizes a whole system for bringing its service efficiently to consumers. For example, McDonald's, Burger King and Pizza Hut. {C} Horizontal Marketing Systems (HMS) (Horizontal Integration) 1. In this channel two or more unrelated companies join together, so as to have pooled resources to exploit an emerging marketing opportunity. 2. This system takes place when a company lacks capital and the know how of production and/or marketing resources and is afraid of taking risks or venturing out alone. Adler calls this as ―symbiotic marketing‖. 3. A good example is departmental stores/ hotels having arrangements with local banks to offer in-store banking. 4. The companies might work together on a temporary or permanent basis or create a joint venture company. {D} Multi-channel Marketing Systems (MMS): In the past, many companies sold to a market through a single distribution channel. Today's more and more companies have started adopting multi-channel marketing system. Multi-channel marketing occurs when a company uses different channels to reach same/different market segments. This is done to ensure availability of right product at the right time, to the right consumer. Multi-channel is used when, (1) A same product is sold to different markets, for example, computers to business and consumer markets. (2) Unrelated products are sold within a single market, when (a) size of buyers varies greatly, for example, hotels sell packages directly to travel department of large MNC's but use travel agents to reach small business and consumers. (b) Geographic concentration varies across different parts of the market, for example, a company may use direct channel to sell product in a concentrated market area while indirect distribution channel, to cater to a sparsely populated area. 23. Channel Conflict Management Disagreement among marketing channel members on goals and roles leads to the beginning of channel conflict, that exist who should do what and for what rewards. (1) Vertical Channel Conflict: exists when there is conflict between different levels with in the same channel. For example, General Motors came into conflict with its dealers years ago in trying to enforce policies on service, pricing, and advertising. And Coca-Cola came into conflict with its bottlers who agreed to also bottle Dr. Pepper. (2) Horizontal Channel Conflict: exists when there is conflict between members at the same level with in the channel. Some Ford car dealers in Chicago complained about other Chicago Ford dealers advertising and pricing too aggressively. Some Pizza Inn franchisees complained about other Pizza Inn franchisees cheating on the ingredients, maintaining poor service, and hurting the overall Pizza Inn image. Debasis Pani, Asst. Professor, GIACR 49
    • Module – I (3) Multi-channel Conflict: exists when the manufacturer has established two or more channels that compete with each other in selling to the same market. When Good year began offering its popular tire brands for sale through mass – market retailer like Sears, Wal-Mart, and Discount Tire, it angered its independent dealers. Multi-channel conflict is likely to be especially intense when the members of one channel either get a lower price (based on larger volume purchases) or are willing to work with a lower margin. Causes of Channel Conflict Sources of conflict Examples 1 Differences in Manufacturers want long-term profitability but middlemen prefer objectives short-term 2 Dealings with Middlemen feel cheated when the manufacturer deals with large customers customers and asks them to serve small customers 3 Differences in The manufacturer feels that the middlemen are not giving attention interests to the firm‘s products. The middlemen are interested in products that are fast moving or have higher margins for them 4 Differences in The manufacturer wants the middleman to carry a higher inventory perceptions due to the perception of good market conditions. The middleman does not share this optimism 5 Compensation Manufacturer‘s representatives (agents) feel that the commission percentage offered by the manufacturer is not adequate. The manufacturer thinks otherwise 6 Unclear territory The territory boundaries between middlemen are not clear, boundaries resulting in competition among the firm‘s intermediaries to secure business from the same customers Managing Channel conflict Some channel conflict can be constructive. It can lead to more dynamic adaptation to a changing environment. But too much conflict is dysfunctional. The challenge is not one of the eliminating conflict but of managing it better. There are several mechanisms for effective conflict management. (1) Effective Communication Network: An effective communication network between the manufacturer and the intermediaries can be developed through periodic formal and informal meetings and cooptation of intermediaries in board of directors or advisory committees. (2) Joint Goal-setting: Perhaps the most important mechanism is the adoption of super ordinate goals. The channel members somehow come to an agreement on the fundamental goal they are jointly seeking, whether it is survival, market share, high quality, or customer satisfactions. or product/service quality in a highly competitive market where survival and success of channel members depend on their performance and cooperation. (3) Diplomacy: Diplomacy takes place when each side sends a person or group to meet with a counterpart from the other side to resolve the conflict. It makes sense to assign diplomats to work more or less continuously with each other to avoid the flaring up of conflicts. (4) Mediation: Mediation means resorting to a neutral third party who brings skills in conciliating the two parties‘ interests In mediation a neutral third party tries to conciliate the interests of the two parties. (5) Arbitration: Arbitration occurs when the two parties agree to present their arguments to a third party (one or more arbitrators) and accept the arbitration decision (6) Channel Leadership (Channel Power): This is certainly true for marketing channels. Nevertheless, many channel conflicts can be resolved through effective channel leadership. The channel leader is able to reduce conflicts among channel members because it possesses channel power. Channel power is the ability of one channel member to influence another member‘s marketing decisions and goal achievement. Channel power enables a channel leader to influence overall channel performance. Channel power is derived from the control of resources and services Debasis Pani, Asst. Professor, GIACR 50
    • Module – I critical to other channel members. The channel member that controls resources on which other members depend is usually the channel leader. For example, fertilizer dealers depend heavily on chemical manufactures for many resources and services, including on-time product delivery, price information, employee training, legal assistance, and credit. As a result, the chemical manufacturer can influence dealer‘s decisions regarding budgets, size of product purchases, pricing, and advertising. 24. Physical Distribution System Physical distribution activities are concerned with the storage and the movement of the finished products after their production and before their consumption. Marketing logistics is somewhat larger in scope compared to physical distribution. It covers physical distribution plus a part of the task of marketing channels. While physical distribution takes care of functions such as transportation, warehousing and inventory management and facilitates the flow of the product, marketing channels actually connect the firm with its customers Definition To Philip Kotler, ―Physical distribution involves planning, implementing and controlling the physical flows of materials and final goods from points of use to meet customer requirements at a profit‖. From the various definitions, it can be said that physical distribution relates to the physical flow of goods from the manufacturers to the consumers and also between the producers to the marketing middlemen. Thus the various physical distribution considerations are important in the design of new channels of distribution and in the modification of existing systems because channel arrangements become physical distribution operating parameters. Objectives of Physical Distribution Management Physical distribution provides place-utility and time-utility to a product. In other words, it is physical distribution that makes the product available at the right place and at the right time, thereby maximizing the company‘s chance to sell the product and strengthening its competitive position. {1} Ensure Physical Flow: Ensures the physical flow of the product from the producer to the consumer. Without this flow, marketing cannot take place. Physical distribution activities are concerned with the storage and the movement of the finished products after their production and before their consumption. Physical distribution refers to the activities—order processing, inventory management, materials handling, warehousing, and transportation—used to move products from producers to consumers and other end users. {2} Confers Place and Time Utility on Products: It is physical distribution that give place utility and time utility to a product by making it available to the user at the right place and at the right time. Thereby, it maximizes the chance to sell the product and strengthen the company‘s competitive position. If any product made in any place could be consumed in its entirety at the very place of production and at the very time of production, there would be no need for physical distribution of that product. But such products are very rare. In practice, almost every product gets consumed at places and times that are different from those of their manufacture. They have to be carried to places of consumption; they have to be stored; and they have to be distributed. {3} Physical Distribution is Crucial: In some cases, huge production capacities get established at a given location on coordination of technology and economies of scale. In all such cases, the product has to be marketed over an extended territory; it has to be transported over long distances, stored for a considerable length of time and sold. Then, there are products, which are impacted by the seasonality factor-either production is continuous but demand is seasonal or Debasis Pani, Asst. Professor, GIACR 51
    • Module – I demand is continuous but production is seasonal. Here too, physical distribution becomes particularly crucial. It has to perform the balancing act between production and consumption. {4} Helps Build Clientele: It is physical distribution that determines the customer service level to a large extent. As a result, it serves as a vital tool in building clientele/market for the product. And conversely ineffective physical distribution leads to loss of customers and markets. {5} A Promising Area for Cost Reduction: Physical distribution is a fertile area for cost savings. Over the years, in most businesses, physical distribution costs have grown into a sizeable chunk of the total costs and now ranks second among all cost elements, next only to material costs. And surprisingly, it has remained one of the neglected areas of cost control. Important Activities under Physical Distribution {1} Order Processing: The distribution process is activated by a customer order. The order cycle includes the time spent in processing the order as well as the time taken by the physical motion and therefore depends on the speed and efficiency of operations, Electronic systems are now available to reduce the time needed for the flow of information and communications. {2} Warehousing Decision: A warehousing is a location with proper facilities where shipments are received from a factory or production centre, broken down, reassembled, and shipped to the customer as per their orders‖ it is also defined as a building in which goods are stored, bonded or displayed for sale. {3} Inventory Management Decision: Managing the inventory is the distribution system is probably the most critical activity in the logistic management process. Inventories may be held in the material management cycle to supply the production function or in the distribution function to meet customer demand. Inventory control is again a crucial decision to efficient physical distribution. {4} Transport Decision: Transportation confers ‗time utility‘ and ‗place utility‘ to the product; it determines the company‘s customer service; it also has a crucial bearing on the other elements of physical distribution and marketing, like warehousing, inventory control and channel management. Finally, transportation is also a very important cost element in most businesses. {5} Material Handling: Safe smooth and speedy placing and positioning of goods to facilitate these movement and storages Material handling equipment selection and replacement policies are the crucial decision under physical distribution related to material handling. 25. Logistic Management The term logistic originated from the Greek word ‗Logisticos‘, meaning the science and computing and calculating. Since ancient time logistic was performed but the earlier it was used first within the facet of military science and it refers to the practical art of moving armies and materials engaged in fight enemy to achieve the desired results. In the industrial and commercial world, logistics means it cover activities for the material flow from the source to the processing facilities, and subsequent distribution of finished goods from there to the ultimate users. To Council of Logistics Management (CLM),‖ Logistics is the process of planning, implementing and controlling of efficient, effective flow and storage of goods, services and released information from the point of origin to the point of consumption for the purpose of conforming to customer expectations. It is an internal integration of integrated material function to ensure a smooth flow of raw materials from the point of inceptions to the first production point, semi-finished goods with in the production process, and finished goods from the last production point of consumption. Hence a set of activities which are involved in logistic are warehousing, protective packaging, order processing, forecasting, inventory management, transportation, and related information system. Features of logistics Debasis Pani, Asst. Professor, GIACR 52
    • Module – I        It ensures a smooth flow of all types of goods such as raw materials, work –in-progress and finish goods. It has the ability to meet customer expectations and requirements of goods. It ensures the delivery of quality product. It offers the best possible customer service at the least possible cost. It is an integration of various management functions for optimization of resources. It deals with movement and storage of goods in appropriate quantity. It enhanced productivity and profitability Difference between Physical Distribution and Physical Distribution 1.Management of movement, inventory control, protection and storage of raw materials and of processed or finished goods to and from the production line. 2.Narrow scope than of logistics. 3.Concerned with creation of time and place utilities. 4.Deals with outbound activities only. Logistics Logistic 1. Process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw material, in-process inventory, finished goods and related information from point of origin to point of consumption for the purpose of confirming customer requirements. 2. Larger scope. 3. Creates time, place, form and possession utilities. 4. Deals with both inbound and outbound activities. Objectives of Logistics (1) Right Response: it is the first objective of any logistics system to meet the service requirements of its customers by means of quick response with positive attitude. In this context real time communication of information regarding requirement and availability of logistics service is the core response. (2) Right Quality: it includes consistency in the quality of the product and their zero-defect delivery. (3) Right Quantity: it deals with the maintenance of a minimum possible level of inventory required for a desired level of customer services. It that context modern inventory management techniques such as zero inventory, just-in-time (JIT), MRP-I, MRP-II systems and extensive use of information technology for maintaining a sound inventory. (4) Right Value: logistic add value by creating time and place utilities. Apart from above, the real value addition is made by logistics is in terms of quality, quick response, better service and consistency and reliability of the total logistic system, which generate superior customer value. (5) Right Cost Trade-off: logistics system ensures a proper balance between total logistics cost and a desired level of customer service performance. (6) Right Information: it is the core logistic operational objective and the basic ingredient of the logistic system. In order to achieve a logistic mission of the best possible customer service, information regarding the requirement of goods is the primary aspect. E.g. point-to-point information is one of the important elements in the customer service portfolio. Functions of Logistic Management {1} Procurement Function: this ensures a smooth flow of raw materials, parts and components of specified quantity and quality from certified suppliers to production canters. This function includes identification of the inputs needed in terms of quality specification and quality requirement study of sources for procurement, negotiation with them and final supply contracts, order placement and shipment of input consignments. This logistics function is required to complete the procurement process. After procurement and arrival of input materials, there is subsequent requirement of other logistical functions such as Debasis Pani, Asst. Professor, GIACR 53
    • Module – I handling, storage movement to shop floors for final use in the manufacturing process. These functions are generally attributed as in bound logistic or traditionally materials management of the total logistic system. {2} Production Function: the primary task is to establish and maintain an orderly smooth and economic flow of material facilitating total production system, avoiding idle time for any manufacturing facility due to non-availability of any input items. This is why, a set of logistics components crucial at this stage comprise inputs inventory, production schedule, material handling, storage, temporary protective packaging, if required and final package. The procurement function of logistics is also called as manufacturing function or operation function of logistic. {3} Physical Distribution Function: refers to the movement of finished goods from the last point of production to consumption or end users. In other words this function of logistics facilitates sales and marketing performance of the enterprise by means of timely and economical product availabity. Hence the major logistics function come under this function are inventory management of output products, transportation, distribution warehousing, order processing and protective packaging. Apart these supportative activities are required in the facilitation of physical distribution namely forecasting for a trade-off between demand and supply to ensure better customer service, information flow and material handling. The physical distribution of logistics ensures zero-defect service and prohibits stock-out by making the product available regularly with the minimum inventory level. It offers cost-efficient value added customer service and makes a difference in the market place. This function is also called as out-bound logistics and marketing logistics. Marketing Management (Module - II) Debasis Pani Faculty, GIACR 1. Marketing Environment (Study Material) 2. Marketing Planning and Control Marketing Planning Marketing planning is the basis for strategy development. The aim of marketing planning is to shape the company‘s business, products, and services and messages so that they achieve targeted profits and growth. The marketing plan thus the central instrument for directing and coordinating the marketing efforts. The marketing planning process starts with the identification and analysis of marketing opportunities and ends with formulation of plans Market Opportunity Debasis Pani, Asst. Professor, GIACR 54
    • Module – I It is the process of identifying the market opportunity, It becomes an important decision before the management of a firm to launch or diversify in any product area; so for identify the market opportunity the marketer has to go for various type of analysis that are given below Demand Condition Market Segment Analysis Industry Analysis MARKET Competition Analysis Trade Analysis OPPORTUNITY {A} Size of the Market This is the starting point of any detailed analysis for the determination of market opportunity that determines the market sizes are 1. Demand Analysis: it is the core aspects of market opportunity. The market consists of existing and potential buyers. This implies that the market demand will come from only those customers who have the willingness and purchasing power to buy a product or services at a given price level. E.g. A vegetable oil manufacturing firm have to estimate the annual consumption of vegetable oil by an average family or individual to arrive at the market size for vegetable oil. Demand analysis must start with the description of the product which people want and are willing to pay for. 2. Segmentation Analysis: market oriented firms understand their nirvana in only when they take a segmental approach to satisfying the market demand. Segmentation is the process of dividing the market into homogeneous subunits. Homogeneity is on the basis of demographic, psychographic; characteristics of consumers firm may segment its market on the basis of age, education, occupation, income and lifestyle of the consumer. 3. Industry Analysis: Michel E Portor allows a firm to see through the complexity and pinpoint those factors that are critical to any firm survival and profitability. Threat of New Entrants Suppliers Bargaining Power Intensity of Inter-firm Rivalry Buyers Bargaining Power Threat from Substitutes Besides the above analysis the firm also needs to study industry trend during the time period covered by the market opportunity analysis (MOA). Information to be looked for is industry growth rate in term of sale, production, return on investment and so forth. It should analysis common practices characterizing the entire industry. 4. Competitor Analysis: analysis of competition and how well the market is serviced tell us if the market is attractive enough to enter e.g., if a market is well served and customers are satisfied with what they are getting then the very little opportunity exists for any new entrant. E.g. Gajra Gears scored over TELCO only because the letters transmission gears were available in major cities or transport centers where it either had its authorized sales and service centers or dealers. {B} Extent and Quality of Service Rendered by Competitors Debasis Pani, Asst. Professor, GIACR 55
    • Module – I Here besides industry and competitor analysis the firm also needs to go into distribution channel analysis. The firm needs to study the characteristics of channel and whether it needs to adopt the established pattern of distribution. {C} Marketing Programs Required Satisfying the Customer The focus of this analysis is on marketing effort and cost likely to be incurred in order to satisfy customer needs or even generate demand for a product or service. E.g. the most important element of marketing mix in ice cream industry is advertising and distribution. Very often the advertising expenses increases 40% of total sales revenue invest in brand building, creation of retail network in its served market. {D} Identification of Key-success Factors and linking them to Firms Strength and Weakness: the last phase of market opportunity analysis (MOA) is to identify all success factors and assess the extent to which the firm has them. Key success factors -> R&D, Finance, Marketing, Services, Manpower, and Technology. Company strength - > Personal, R&D, Marketing, Manufacturing, Capacity and Location. {E} Product Market Selection Having identified market opportunity, it is now important to carry out a product. Market analysis for evolving a marketing plan What marketers should be served? Here the marketers need to address to be in national or regional market, youth market or gender specific market. What form should the product take? The firm should decide whether to market the product as a commodity or as a branded product. What should the product offer? E.g. conservation of energy resulting in low electricity bills is important for marketing of electrical consumer appliances Making Product Market Choice 1. Horizontal Markets or Horizontal Diversification: horizontal diversification generally starts with a technical innovation or up-gradation and involves identification of market segments and product forms that will give the firm the desired competitive advantage. One can seen this kind of diversification in electronic firms, making entertainment products like radios, television sets and tape recorder. Decision to horizontally diversify is based on following condition.  Firms assessment of its strength and weakness  Market potential in the target market or size of the target market.  Intensity of rivalry in the selected product market.  Entry and exit barriers in the selected industry  Value addition by manufacturing 2. Vertical Product- Market Choice: Vertical product market choice refers to the market level at which suppliers sells. E.g. cigarette companies realize that the quality of their product can get adversely affected, if they use poor quality of leaf tobacco, paper or even filter. Consequently they have diversified into these product groups also. The marketer need to concern about  Is there a possibility that market development may get absorbed by poor product quality or by product misuse?  At what point in the manufacturing chain do quality risks exits?  Can the company minimize these risks by taking the responsibility the manufacturing process? Approaches to Marketing Planning {A} Profit Impact of Market Strategies (PIMS): this approach suggests identification of strengths and weaknesses on the basis of a firm‘s return on investment analysis. This analysis helps the firm to identify the key success factors in the industry linked to its market share. The PIMS study conducted that the ROI of a firm linked to its market share. SWOT Analysis: Debasis Pani, Asst. Professor, GIACR 56
    • Module – I In situation analysis, also known as SWOT analysis, an organization identifies internal strengths and weaknesses, as well as external opportunities and threats. It seeks to answer two general questions:  Where is the firm now?  In what direction is it headed? Strengths & Weaknesses: The analysis of the internal environment of the firm reveals its strengths and its weaknesses which helps the firm to analyze how to turn its weaknesses in to strengths. Firms strengths consists of its resources and capabilities that can be useful in developing its competitive advantage over its competitors. Some of the examples of firms strengths are –Its access to high grade natural resources, strong brand name, strong distribution network, brand name, patents, strong information network, etc. Firms weaknesses is absence of certain strengths which is the necessity for its business to fight competition. Some of the examples of it are – poor reputation among customers, lack of access to natural resources, lack of coordination with the suppliers and distributors, dissatisfied employees, demotivated marketing staff, etc Opportunities & Threats: The analysis of the external environment reveals to the firm the opportunities available for it in the market and what are the threats it is facing, which helps it analyze the various strategies what to select. Some of the examples of opportunities are – arrival of new technology, removal of some trade barriers or government regulations, an unfulfilled customer need, etc. The changes that take place regularly in the external environment gives rise to certain threats to the business like shift in consumer tastes, new regulations, increased trade barriers. Now the firm has to identify the best fit between its strengths and the opportunities available and try to overcome its weaknesses and ready to face the challenges / threats. Strength – Opportunities strategies: pursue those opportunities which best fit Companies strengths Weaknesses – opportunities strategies: pursue opportunities to overcome weaknesses Strengths – Threats strategies: identify ways through which firm can use its strength to reduce the degree of external threats Weaknesses – Threats: Establish a defensive plan to prevent the firm‘s weaknesses from making It highly susceptible to external threats. {B} Portfolio Methods: for a product or business unit to be categorized as an SBU. It is important that it must have the following three characteristics.  it should be a single business or collection of related business that can be planned independent of the rest of the firm.  It has its own set of competitors  It is headed by a manager who is accountable for strategic planning and profit generation. Debasis Pani, Asst. Professor, GIACR 57
    • Module – I BCG Matrix Approach: The BCG Matrix, named after the Boston Consulting Group (BCG), is perhaps the most famous 2x2 matrix. The matrix measures a company‘s relative market share on the horizontal axis and its growth rate on the vertical axis. This model is also known as growth share matrix. Axis component 1. Market growth rate: the rate at which market is growing. 2. Relative market share: market share of the SBU divided by the market share of the largest competitor. Model components STAR: this category represents the high market share and high industry growth. The SBU‘s in this category require large investment to defend their position. SBU will turn as cash cow after some time CASH COW: this category represents the low growth rate and high market share which is the characteristics of SBU operating in mature industry. Here company needs less investment to hold their position. Hence it generates more cash or in management terms we say cash cow can be milked. QUESTION MARK: this category represents high market growth and low market share. SBU‘s in this category has two options, either to invest heavily and bring them to star position or divest / liquidate from that position. DOG: SBU‘s in this category generates less cash for the company as it operates in low growth and low market share. Usually companies will not invest in this category and try to liquidate or divest. Example: Indian Tobacco Company (ITC) 1. SBU: FMCG Industry growth rate : 24% Company growth rate : 50% Company‘s market share : 8% Largest competitor share : HUL : 54% Relative market share : (8 / 54) = 0.14 ITC‘s FMCG segment analysis shows that though it is market leader in some category their overall market share is 0.14. company is in the high growth low relative market share area i.e. question mark position. ITC should invest heavily to convert its SBU position into star. 2 SBU : Paper board Industry growth rate : 7.2% Company growth rate : 11% Company‘s market share : 55% Largest competitors share : BILT 35% ITC‘s paperboard industry is in low growth and high market share category i.e. in cash cow segment. It should plan for investing the cash generated from this position into other businesses. The GE Approach: management can use the GE business matrix to classify SBU‘s on the basis of two factors.  Market attractiveness: Overall market size, Annual market growth rate, Historical profit margin, Competitive intensity, Technological requirements, Inflationary vulnerability, Energy requirements, Environmental impact, Social-political legal Debasis Pani, Asst. Professor, GIACR 58
    • Module – I  Business position: Market share, Share growth, Product quality, Brand reputation, Distribution network, Promotional effectiveness, Productive capacity, Productive efficiency, Unit costs, Material supplies, R & D performance, and Managerial personnel Each cell in the model represented by the particular strategy namely, invest strategy, protect strategy, harvest strategy and divest strategy. Invest strategy: in this position SBU 1. Should have ample resources 2. Should by support by well financed marketing efforts. Protect strategy: SBU‘s in this position should 1. Allocate the resources selectively 2. Develop strategies which help in maintain its market position. 3. Generate cash needed by other SBU‘s Harvest strategy: SBUs should not receive substantial new resources and if required sell them. Divest strategy: SBUs which falls into this category should not receive any resources and sell I or shut it as early as possible. Marketing Planning Process 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‖. Debasis Pani, Asst. Professor, GIACR 59
    • Module – I Step - 1 Goal Setting A mission statement is a formal description of the mission of a business. Definition of the organizational mission refers to a long-term commitment to a type of business and a place in the market Objectives set out what the business is trying to achieve. Objectives can be set at two levels: Corporate level. These are objectives that concern the business or organization as a whole.e.g. We aim to achieve an operating profit of over Rs 5 crores on sales of at least Rs 100 crores. Functional level. They are specific objectives for marketing activities e.g. we aim to build customer database of at least 250,000 households within the next 12 months. The functional objectives need to conform to the commonly used SMART criteria. Stands for Specific, Measurable, Achievable, Relevant, and Time bound. Step –2 Analyze Present Marketing Situation External Analysis: Market size and growth, Competitors, Market Share, Legal and Political, Technology, Industry Past Performance, Social factors, Opportunities Internal Analysis: Financial Resources, Production Capabilities, Production Capacity, R&D Capabilities, Sales capabilities, Corporate Mission and Objectives, Distribution Capabilities, Costs. Step – 3 Creating the Marketing Strategy Identifying Target Markets: Position analysis, specifically defined market segments, Geographically located, Current Size, Potential growth, Estimated resistance to be encountered, Assess ability to overcome expected resistance Select Appropriate Marketing Mix: Factors to consider Product Strategies including Specifications, Product Line and product support activities. Pricing Strategies including Retail & Wholesale Pricing, Discounts, coupons, no sales tax and free shipping. Distribution strategies including delivery channels, types of middlemen, warehousing, inventory, transportation costs and shipping costs. Promotion strategies including types of salespeople, advertising venues, trade shows, catalogs, direct mail, web site offerings, search engine optimization and email campaigns. Step – 4 Implementation and Control Developing Implementation Plan: to carry out marketing mix; Determine Required Mix Activities, Estimate Time Required for each Activity, Arrange Activities in Logical Sequence, Combine Activities into Plan of Action, Establish Dates for Start /Completion of each Activity, Assign Responsibility for the Performance of each Activity, Determine Costs and Set Budget for each Activity, Begin Implementing Plan of Action for each Activity based on Established start days. Establish Control And Evaluation Criteria And Implement Procedure: Identify Key Performance Areas, Establish Performance Standards /Criteria, Measure Performance Results, Compare Performance Results with Established Performance Standards /Criteria, Identify Discrepancies Between Results and Established Performance Standards / Criteria, Diagnose the Causes of Discrepancies, Establish Corrective Action to Bring Results into Line with Established Performance Standards /Criteria, Implement Corrective Procedures and Measure Performance results. Marketing Control Process Implementation without control may sometime leads to wastage of resource, so controlling is necessary to check and put the marketing effort on right track. Again a marketing manager must Debasis Pani, Asst. Professor, GIACR 60
    • Module – I know the marketing performance unless it can‘t plan for the future. So for the both the purpose control on marketing activity is necessary Marketing control in a simple sense we can say that controlling of marketing activity and when those set of activity take a form of sequential process than it becomes marketing control process. Marketing control is the process of measuring the marketing results, diagnosing the results and taking corrective actions. Marketing control process is the set of set of sequential activities related to measuring the marketing results, diagnosing the results and taking corrective actions for the purpose of organizing the marketing activity to fulfill the objectives of the company. Step – 1 Measuring Marketing Performance Philip Kotler identified four types of control they are used for measuring marketing performance {A} Annual Plan Control: used by top or middle management to evaluate actual performance against targeted performance and analyze variance. 1. Sales analysis: it refers to measuring actual sales as compared to targeted sales. 2. Market share analysis: here the marketer must consider his/her firms share only amount large organized sector firms like a product-wise, segment-wise and region wise market share analysis. 3. Marketing expenses to sales analysis Advertising to sales ratio Sales promotion to sales ratio Sales forecast to sales ratio Distribution expenses to sales ratio Sales administration to sales ration Marketing research to sales ratio 4. Financial analysis: a marketer need to analyze all the factors that affect the firms rate of return, return on assets and also firms leverage. 5. Customer attitude tracking: thorough Customer survey, customer panels and feedback suggestion system {B} Profitability Control: used by market to examine firm‘s profitability by product territory, customer segment and trade channel.  Identifying the functional expenses  Assign the functional expenses to marketing entities  Prepare a profit and loss statement for each marketing entity. {C} Efficiency Control: used by both line and staff executives and marketing controller to assess the effectiveness of money spent on sales force, advertising, sales promotion and distribution.  Sales force efficiency indicators (average sales call per day, average time spent per customer, average time spent on travel, number of customer added or lost, cost per call)  Advertising efficiency indicators (ad cost per thousand target customer, no of enquiry generated by an ad, cost per enquiry)  Distributor efficiency indicator (market reach: number of the customer served by it, sales by channel members, cost per channel member) {D} Strategic control: used by top management to examine whether the company and market fit with the external environment is perfect. Tools used here are marketing effectiveness audit or marketing audit (relationship barometer). The relationship barometer aims to assess how well a customer is integrated in the organization. Core value of the organization and their internalization Organization structure, Organizational policies, Organizational system. People skill attitude and knowledge, Technology Strategy for customer retention. Marketing Audit: it is a comprehensive, systematic, independent and periodic examination of a company‘s or business unit‘s marketing environment, objectives, strategies and activities with a view to determine problem areas and opportunities and recommending a plan of action to improve the company‘s marketing performance Step – 2 Diagnosing Results Debasis Pani, Asst. Professor, GIACR 61
    • Module – I Marketing strategy and implementation are the two ends of a continuum and it is difficult to draw a line of distinction between the two. So it is necessary to understand the market strategy and implementation affects each other and in turn, the firms performance in the market place. In many firm implementation problem can be tracked to four factors Function: market function considered as grass root ones like selling, trade promotion, and distribution management. Problems may arise due to structural issues like direct vs. indirect marketing Programmes: at the programme level firm have to appropriate that until their marketing and nonmarketing programme blend. Systems: it is a serious one particularly when it comes to the grass root level like sales reporting system, rituals, politicization and unavailability characterize this systems problems. Policy Directives: Problems relating to policies occurred when organization lakes a marketing culture, hence every thing other than the customer occupies center stage in the management thinking. Step – 3 Taking Corrective Action Most of the problems occurred due to poor implementation of strategy so it can be overcomed through a corrective action.  Most problems can be overcomed through a focused approach and working to create core organizational values of customer care.  Much of the problem is stored out be mission statement interaction, continuous interaction, formal and informal can sort out the problem of coordination among marketing and nonmarketing programmes.  Training and development of marketing personal and distributions in key market function  Planning involving everyone from lowest level to the top level and gaining commitment from all concerned to meet targets can also help solve problems of implementation.  Good leadership is another key to overcoming implementation problems. 3. Segmenting (Demographic and Psychographic) Development of a successful marketing strategy begins with an understanding of the market for the good or service. A market is composed of people or institutions with need, sufficient purchasing power and willingness to buy. A company can‘t serve the need of every consumer in a broad market. The market place is heterogeneous with differing wants and varying purchase power. The heterogeneous marketplace can be divided into many homogeneous customer segments along several segmentation variables. The division of the total market into smaller relatively homogeneous groups is called market segmentation. The developed product may or may not fit the requirement of customer in a particular segment because all the customers are not alike they differs in their taste, preference and need. Hence the organizations look for a fit between their competencies and the segments‘ profitability. The identified segments are then targeted with clear marketing communications. Such Debasis Pani, Asst. Professor, GIACR 62
    • Module – I communications are referred to as positioning the product or service in the mind of the customer so as to occupy a unique place. This involves identifying different points of differentiation and formulating a unique selling proposition (USP). In today‘s marketplace, differentiation holds the key to marketing success. Marketing strategy is all about STPV, it is a process of segmenting markets in terms of dividing the market and then targeting an attractive segment and positioning the product with potential customers in the target group and finally extending all value proposition to customer to make him or her delight. Market Segmentation The dictionary meaning of segmentation is an act of dividing one part into different parts; where one of these parts is segment. Accordingly, the process of dividing a market into a number of submarkets or segments is known as market segmentation. To Philip Kotler ―Market segmentation is the sub-division of market into homogeneous subsections of customers. Where any sub-section may conceivably be selected as a market target to be reached with a distinct marketing mix‖ Market segmentation is the process of dividing the market into different homogeneous subunits on the basis of customers who have same set of need, taste and preferences. Market segmentation is the process of identifying clients and prospects with similar need want and purchase behavior. The overall objective of using a market segmentation strategy is to improve a firms competitive position as well as better serving the need of the firm‘s client. Objectives of Market Segmentation Better matching of customer needs: - Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution Enhanced profits for business: - Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits Better opportunities for growth: -Market segmentation can build sales. For example, customers can be encouraged to ―trade-up‖ after being introduced to a particular product with an introductory, lower-priced product Retain more customers: - Customer‘s purchasing pattern changes depending upon change in circumstances. By marketing products that appeal to customers at different stages of their life, a business can retain customers who might otherwise switch to competing products and brands. Target marketing communications: - Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost. Gain share of the market segment: - a business can‘t maximize its profit unless and until a business has a strong or leading share of market. Through careful segmentation and targeting, business can attain competitive position in the industry by achieving leading share of the market. Basis for Consumer Market Segmentation 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 are demographic profile, geographic profile, behavioral profile and psychographic profile Debasis Pani, Asst. Professor, GIACR 63
    • Module – I {A} Demographic Segmentation: consists of dividing the market into groups based on variables such as age; gender family size, income, occupation, education, religion, race and nationality. Age: Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups. Life-cycle stage: A consumer stage in the life cycle is also an important variable. We can talk of the following products to talk of the life-cycle concept: Infants: Baby foods like Cerelac and Farex. Young child: Leo toys, Barbie dolls (Again these can be segmented by gender basis for small girls and boys) Adolescent: Trendy products and services like Jeans, T-shirts, and Coffee shops Young Adults: Mobiles, music systems, mobile phones Old people: Investment instruments, health packages for old. Gender: Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics. E.g. soft perfumes for women and deodorants for men. Kinetic scooters are targeted more at women where as Bajaj Pulsar is targeted at men. Income: income is another popular basis for segmentation by which many companies try to identify their prospects who can afford it. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. Besides above Occupation (Professionals, manual worker), Education (Highly qualified, low qualified), Religion (Hindu, Muslim), Nationality (Indian, American) are further basis of demographic segmentation. {B} Geographic Segmentation: Geographic segmentation tries to divide markets into different geographical units. These units include, Regions: refers to one of the areas that a country is divided into, that has its own customs and/or its own government. E.g. in India, North India, West India, as regions or zones and Delhi, Mumbai, Chennai as metropolitan cities and Jaipur, Lucknow and Baroda as smaller cities. Urban and rural : Population within ranges or above a certain level Population density connected to a town or city are the basis of defining a urban, suburban, rural, and semi-rural areas Geographic segmentation is an important process particularly for multi-national and global businesses and brands. Many such companies have regional and national marketing programmes that alter their products, advertising and promotion to meet the individual needs of geographic units. {C} Behavioral Segmentation: Behavioral segmentation divides customers into groups based on the way they respond to, use or know of a product means on the basis of their knowledge of, attitude toward, use of, or response to a product. Behavioral segments can group consumers in terms of: Occasions: Buyers can be distinguished according to the occasions on which they develop a need, purchase a product, or use a product For example; cereals have traditionally been marketed as a breakfast-related product. Kellogg‘s have always encouraged consumers to eat breakfast cereals on the ―occasion‖ of getting up. More recently, they have tried to extend the consumption of cereals by promoting the product as an ideal, anytime snack food. In India, lots of home shopping takes place on the occasion of ‗Divali‘. TV sets sales goes up during world cup cricket. Benefits: Buyers can be classified according to the benefits they seek. One study of travelers uncovered three benefit segments: those who travel to be with family, those who travel for adventure or education, and those who enjoy the ―gambling‖ and ―fun‖ aspects of travel. User status: Markets can be segmented into nonusers, ex-users, potential users, first time users, and regular users of a product. The company‘s market position also influences its focus. Market leaders focus on attracting potential users, whereas smaller firms try to lure users away from the leader. Debasis Pani, Asst. Professor, GIACR 64
    • Module – I Usage rate: Markets can be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for a high percentage of total consumption. Marketers usually prefer to attract one heavy user rather than several light users, and they vary their promotional efforts accordingly. Buyers can be divided into four groups according to brand loyalty status: (1) hard-core loyals (who always buy one brand), (2) split loyals (who are loyal to two or three brands), (3) shifting loyals (who shift from one brand to another, and (4) switchers (who show no loyalty to any brand). Each market consists of different numbers of these four types of buyers; thus, a brandloyal market has a high percentage of hard-core loyals. Buyer-readiness stage: A market consists of people in different stages of readiness to buy a product: Some are unaware of the product, some are aware, some are informed, some are interested, some desire the product, and some intend to buy. The relative numbers make a big difference in designing the marketing program. Attitude: Five attitude groups can be found in a market: (1) enthusiastic, (2) positive, (3) indifferent, (4) negative, and (5) hostile. So, for example, workers in a political campaign use the voter‘s attitude to determine how much time to spend with that voter. They may thank enthusiastic voters and remind them to vote, reinforce those who are positively disposed, try to win the votes of indifferent voters, and spend no time trying to change the attitudes of negative and hostile voters. {D} Psychographic Segmentation: In psychographic segmentation, buyers are divided into different groups on the basis of lifestyle or personality and values. People within the same demographic group can exhibit very different psychographic profiles. Lifestyle: Lifestyles are the ways in which people live and spend time and money People exhibit many more lifestyles than are measured by three attributes they are A- Activities: Work, hobbies, shopping style I- Interests: In food, fashion, recreation O- Opinions: About themselves, others, social issues. Personality: Marketers can endow their products with brand personalities that correspond to consumer personalities. Apple Computer‘s iMac computers, for example, have a friendly, stylish personality that appeals to buyers who do not want boring, ordinary personal computers. Values: Core values are the belief systems that underlie consumer attitudes and behaviors. Core values go much deeper than behavior or attitude, and determine, at a basic level, people‘s choices and desires over the long term. Marketers who use this segmentation variable believe that by appealing to people‘s inner selves, it is possible to influence purchase behavior. Levels of Market Segmentation A market comprises of different consumers possessing innumerable tastes and preferences. Depending on their marketing approach and the nature of the products. Marketers can adopt different levels of segmentation. The levels of market segmentation are: {A} Segment Marketing: A market segment consists of a large identifiable group within a market, with similar wants, purchasing power, geographical location, buying attitudes, or buying habits., Segment marketing allows a firm to create a more fine-tuned product or service offering and price it appropriately for the target audience. The choice of distribution channels and communications channels becomes much easier, and the firm may find it faces fewer competitors in certain segments. Because the needs, preferences, and behavior of segment members are similar but not identical {B} Niche Marketing: A niche is a more narrowly defined group, typically a small market whose needs are not being well served. Marketers usually identify niches by dividing a segment into sub segments or by defining a group seeking a distinctive mix of benefits. In an attractive niche, customers have a distinct set of needs; they will pay to the firm that best satisfies their needs; the niche is not likely to attract other competitors; the nicher gains certain economies through specialization; and the niche has size, profit, and growth potential. Whereas segments are fairly Debasis Pani, Asst. Professor, GIACR 65
    • Module – I large and normally attract several competitors, niches are fairly small and may attract only one or two rivals. {C} Local Marketing: Target marketing is leading to some marketing programs that are tailored to the needs and wants of local customer groups (trading areas, neighborhoods, even individual stores). Those favoring local marketing see national advertising as wasteful because it fails to address local needs {D} Individual Marketing: The ultimate level of segmentation leads to ―segments of one,‖ ―customized marketing,‖ or ―one-to-one marketing.‖ For centuries, consumers were served as individuals: The tailor made the suit and the cobbler designed shoes for the individual. Much business to business (B2B) marketing today is customized, in that a manufacturer will customize the offer, logistics, communications, and financial terms for each major clients. Now technologies such as computers, databases, robotic production, intranets and extranets, e-mail, and fax communication are permitting companies to return to customized marketing, also called ―mass customization.‖ Mass customization is the ability to prepare individually designed products and communications on a mass basis to meet each customer‘s requirements. 4. Targeting Target market selection is the next logical step following segmentation. It means choosing one‘s target market. Once the market-segment opportunities have been identified, the organization has to decide how many and which ones to target. Now a company will develop its marketing strategies to match the firm‘s product offerings to the needs of particular target segments. The firm should look for a match between the value requirements of each segment and its distinctive capabilities. Marketers have identified four basic approaches to do this: {A} Full Market Coverage: Here a firm attempts to serve all customer groups with all of the products they might need. Only very large firms can undertake a full market coverage strategy. In the side figure shows a full market coverage strategy where it cover the entire market M1, M2,M3 with the existing product range P1,P2 and P3. Examples include IBM (computer market), General Motors (vehicle market), and Coca-Cola (drink market). Large firms can cover a whole market in two broad ways: through undifferentiated marketing or differentiated marketing. Undifferentiated Marketing (Mass Marketing): A firm may produce only one product or product line and offer it to all customers with a single marketing mix. Such a firm is said to practice undifferentiated marketing, also called mass marketing. It used to be much more common in the past than it is today. While undifferentiated marketing is efficient from a production viewpoint (offering the benefits of economies of scale), it also brings in inherent dangers. A firm that attempts to satisfy everyone in the market with one standard product may suffer if competitors offer specialized units to smaller segments of the total market and better satisfy individual segments. Differentiated Marketing: Firms that promote numerous products with different marketing mixes designed to satisfy smaller segments are said to practice differentiated marketing. It is still aimed at Debasis Pani, Asst. Professor, GIACR 66
    • Module – I satisfying a large part of the total market. The firm operates in several market segments and designs different programs for each segment. General Motors does this with its various vehicle brands and models; Intel does this with chips and programs for consumer, business, small business, networking, digital imaging, and video markets. By providing increased satisfaction for each of many target markets, a company can produce more sales by following a differentiated marketing approach. In general, it also raises production, inventory and promotional costs. Despite higher marketing costs, a company may be forced to practice differentiated marketing in order to remain competitive. Sometime the differentiated approach leads to counter-segmentation just to broaden their customer base. Smith Kline Beecham introduced Aquafresh toothpaste to attract three benefit segments simultaneously: those seeking fresh breath, whiter teeth, and cavity protection. Next, the company moved deeper into counter-segmentation by launching flavored toothpastes for children, toothpaste for people with sensitive teeth, and other toothpaste products. {B} Market Specialization: the marketers for getting more profit from the market may go for a specialized approach. It is of three types as selective specialization, product specialization and market specialization. In the side figure the firm adopting selective specialization is targeting M1 market with P2 product, M2 with P3 and M3 with P1. The marketer following product specialization is targeting M1, M2 and M3 market with P2 product. At last the market specialization firm is targeting M1 market with P1, P2 and P3 product. Selective Specialization: Here the firm selects a number of segments, each objectively attractive and appropriate. There may be little or no synergy among the segments, but each segment promises to be a moneymaker. This multi-segment coverage strategy has the advantage of diversifying the firm‘s risk e.g. Radio Mirchi, Sony, Zee and Colors telecasts many programme to different types of customer. Product Specialization: Another approach is to specialize in making a certain product for several segments. An example would be a microscope manufacturer that sells microscopes to university laboratories, government laboratories, and commercial laboratories. Through a product specialization strategy, the firm builds a strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology. Market Specialization: With market specialization, the firm concentrates on serving many needs of a particular customer group. An example would be a firm that sells an assortment of products only to university laboratories, including microscopes, oscilloscopes, and chemical flasks. The firm gains a strong reputation in serving this customer group and becomes a channel for further products that the customer group could use. However, the downside risk is that the customer group may have its budgets cut. {C} Concentrated Marketing: Rather than trying to market its products separately to several segments, a firm may opt for a concentrated marketing approach. With concentrated marketing (also known as niche marketing), a firm focuses its efforts on profitably satisfying only one market segment. Through concentrated marketing, the firm gains a thorough understanding of the segment‘s needs and achieves a strong market presence. Furthermore, the firm enjoys operating economies by specializing its production, distribution, and promotion; if it attains segment leadership, it can earn a high return on its investment. It may be a small segment, but a profitable segment. This approach can appeal to a small firm that lacks the financial resources of its competitors and to a company that offers highly specialized good and services. Debasis Pani, Asst. Professor, GIACR 67
    • Module – I Along with its benefits, concentrated marketing has its dangers. Since this approach ties a firm‘s growth to a particular segment, changes in the size of that segment or in customer buying patterns may result in severe financial problems. Sales may also drop if new competitors appeal successfully to the same segment. Niche marketing leaves the fortunes of a firm to depend on one small target segment. {D} Micro Marketing: This approach is still more narrowly focused than concentrated marketing. Micro marketing involves targeting potential customers at a very basic level, such as by the postal code, specific occupation or lifestyle. Ultimately, micromarketing may even target individuals themselves. The internet allows marketers to boost the effectiveness of micromarketing. With the ability to customize (individualization attempts by the firm) and to personalize (individualization attempts by the customer), the internet offers the benefit of mass customization – by reaching the mass market with individualized offers for the customers. 5. Positioning (STP) The concept of positioning seeks to place a product in a certain ‗position‘ in the minds of the prospective buyers. Positioning is the act of designing the company‘s offer so that it occupies a distinct and valued place in the target customers‘ minds. In a world that is getting more and more homogenized differentiation and positioning hold the key to marketing success! In the year 1981 in the book called ―The Battle of Your Mind‖ Al Ries and Jack Trout described how positioning is used as a communication tool to reach target customers in a crowded market place. According to them, ―Positioning is a creative and maintaining an image for the product or brand in the mind of the target audience relative to other brands.‖ ―Thus positioning is not what we do to a product but is what we do to the mind of the prospect.‖ To Philip Kotler, ―Positioning is the act of designing the company‘s offering and image to occupy a distinctive place in the target market‘s mind.‖ One way to think about positioning is to imagine a triangle, where having three components of the market as customer, company and competitor. The marketer‘s job is to find a positioning of the product or service that is both possible and compatible with organization constraints which uniquely place the product/service among competitive offerings so as to be most suitable to one or a number of segments of customers. This is why smart companies rely on differentiation, the act of designing a set of meaningful differences to distinguish the company‘s offering from competitors‘ offerings. Differentiation Variables Debasis Pani, Asst. Professor, GIACR 68
    • Module – I {A} Product Differentiation ➤ Form. Many products can be differentiated in form—the size, shape, or physical structure of a product. ➤ Features. Features are the characteristics that supplement the product‘s basic function. Marketers start by asking recent buyers about additional features that would improve satisfaction, then determining which would be profitable to add, given the potential market, cost, and price. ➤ Performance quality. Performance quality is the level at which the product‘s primary characteristics operate. So marketers must choose a level suited to the target market and rivals‘ performance levels. ➤ Conformance quality. Buyers expect products to have a high conformance quality, which is the degree to which all of the produced units are identical and meet the promised specifications. ➤ Durability. Durability, a measure of the product‘s expected operating life under natural or stressful conditions, is important for products such as vehicles and kitchen appliances. ➤ Reliability. Buyers normally will pay more for high reliability. ➤ Repairability. Buyers prefer products that are easy to repair. Repairability is a measure of the ease of fixing a product when it malfunctions or fails. ➤ Style. Style describes the product‘s look and feel to the buyer. Buyers are normally willing to pay more for products that are attractively styled. Style has the advantage of creating distinctiveness that is difficult to copy; however, strong style does not always mean high performance. ➤ Design. As competition intensifies, design offers a potent way to differentiate and position a company‘s products and services. Design is the integrating force that incorporates all of the qualities just discussed; this means the designer has to figure out how much to invest in form, feature development, performance, conformance, durability, reliability, repairability, and style. {B} Services Differentiation ➤ Ordering ease refers to how easy it is for the customer to place an order with the company. ➤ Delivery refers to how well the product or service is delivered to the customer, covering speed, accuracy, and customer care. ➤ Installation refers to the work done to make a product operational in its planned location. Buyers of heavy equipment expect good installation service. ➤ Customer training refers to how the customer‘s employees are trained to use the vendor‘s equipment properly and efficiently. General Electric not only sells and installs expensive X-ray equipment in hospitals, but also gives extensive training to users of this equipment. ➤ Customer consulting refers to data, information systems, and advising services that the seller offers to buyers. ➤ Maintenance and repair describes the service program for helping customers keep purchased products in good working order, an important consideration for many products. {C} Personnel Differentiation: Companies can gain a strong competitive advantage through having better-trained people. Singapore Airlines enjoys an excellent reputation in large part Debasis Pani, Asst. Professor, GIACR 69
    • Module – I because of its flight attendants. Well trained personnel exhibit six characteristics: competence, courtesy, credibility, reliability, responsiveness, and communication. {D}Channel Differentiation: Companies can achieve competitive advantage through the way they design their distribution channels‘ coverage, expertise, and performance. Caterpillar‘s success in the construction-equipment industry is based partly on superior channel development. Its dealers are found in more locations, are better trained, and perform more reliably than competitors‘ dealers. Dell Computers has also distinguished itself by developing and managing superior direct-marketing channels using telephone and Internet sales. {E} Image Differentiation: Buyers respond differently to company and brand images. Identity comprises the ways that a company aims to identify or position itself or its product, whereas image is the way the public perceives the company or its products. Image is affected by many factors beyond the company‘s control. An effective image establishes the product‘s character and value proposition; it conveys this character in a distinctive way; and it delivers emotional power beyond a mental image. For the image to work, it must be conveyed through every available communication vehicle and brand contact, including logos, media, and special events. 6. Marketing Research (Study Material) 7. Market Forecasting Demand forecasting is predicting future demand for a product. The information regarding future demand is essential for planning and scheduling production, purchase of raw materials, acquisition of finance and advertising. The information regarding future demand is also essential for existing firms to be able to avoid under or over production. The demand forecast is the foundation for all marketing decisions on physical distribution, promotion, sales force and pricing. On the basis of time frame of the forecast, demand forecasting can be grouped into three types: 1. Short-range forecast: it helps in the year to year business planning. Such forecasting are usually made for one year and reviewed monthly, quarterly or halfly. 2. Long-range forecast: it facilitates investment decision at the time of starting a new industrial unit or while attempting expansion or diversification. Such forecasting usually done for the period of five year to ten year. 3. Perspective planning forecast: sometime one comes across a still longer term forecast, say 15 or 20 years. Such forecasts are normally used for the purpose of perspective planning. Various methods to demand forecasting have been divided into two types they are qualitative methods and quantitative methods. The techniques of forecasting are many but the choice of a suitable method is a matter of purpose, experience and expertise. To a large extent it also depends on the nature of the data available for the purpose. [I] Qualitative Methods of Demand Forecasting (1) Jury Method/Executive Opinion Method: the jury method is one of the commonly employed methods of sales forecasting. It is also known as executive opinion method. Judgment is the basis in this method. This is true for both the jury method and the percolated jury method. The difference that in the former the participants are limited to the top executives and in the latter, a large number of marketing and sales executive participate. In both, the participants exercise their judgment and give their opinions. The final forecast is arrived at by averaging these opinions. Debasis Pani, Asst. Professor, GIACR 70
    • Module – I Evidently for the forecasts arrived at by this method is reliable, the executives participating must have versatile experience and sound knowledge of the business. (2) Survey of Experts Opinion: this is yet another judgment based method of sales forecasting but is some what different from the jury method. In this jury method, opinion of executives gives rise to the forecast. In survey of expert opinions, experts I the concerned field, inside or outside the organizations are approached for their estimates. This method is used more in developing total industry forecast than company sales forecast. (3) The Delphi Method: is a kind of survey of expert opinion method. It is used more for working out broad-based, futuristic estimates, rather than sales forecasts. In this method a panel of experts in the field is interrogated by a sequence of questionnaires. Any information that is available with any one member of the panel is passed on to others as well as enabling all members to have access to all the available information. The panel members are asked to react to a checklist of questions, which are significant to the forecast that is attempted. Their opinions are reactions are analyzed and where there is a sharp difference on an issue, interchanges are permitted and the final forecasts are presented. (4) Sales Force Composite Method: here the sales forecasting is done by the sales force. It is also judgment based method. Each salesman develops the forecast for his respective territory, the territory wise forecasts are consolidated at branch/area/region level; and the aggregate of all these forecasts is taken as the corporate forecast. Composite method seeks to aggregate the judgment of entire sales force. It is a grassroot method; the forecasting originates at the grassroot level people who are close to the market place from the basis for the forecast. (5) Survey of Buyer Intensions: forecasting is the art of anticipating what buyers are likely to do under a given set of condition. The various surveys also inquire into a consumers present and future personal finances and their expectation about the company. Buyer intension surveys are particularly useful in estimating demand for industrial products, consumer durables, product purchases where advanced planning is required and new products. (6) Market Test: it is a essentially a risk control method or it is experiential marketing at minimum cost and risk. When firm decides on full scale manufacturing and marketing of the product on the basis of results of experiment, it helps avoid costly business errors. This method is useful for new product, with the support of the chosen marketing mix, is actually launched and marketed in a few selected cities/ towns/ other territories. The selected test markets will be representative of the final market [II] Quantities Methods of Demand Forecasting (1) Simple Projection Method: the simple projection method is the one in which the current year‘s forecast is arrived at by simply adding an assumed growth rate to last years sales; same firms go by the industry growth rate and project the sales; some others take the growth rate achieved by the No1 firm in the industry. Another formula, as shown below is also used by same firms Next years sales = (This year‘s sales)2 / Last years sales Only where the year-by-year sales are stable and show an increasing trend, this formula will provide a reasonably reliable estimate (2) Extrapolation Method: extrapolation is a projection method, but is a bit more complex compared to the simple projection method. It involves the plotting of the sales figure for the past several years and stretching of the line or the curve as the case may be. The extrapolation will give the figures for the coming years. Extrapolation basically assumes that the variable well follow their previously established pattern. In other words, the assumption is that the past will show the future. (3) Moving Average Method: this method helps eliminate the effects of seasonality and other irregular trends in sales while forecasting future sales. The method delivers a time series of moving averages. Each point of the time series is the arithmetical or weighted average of a number of preceding consecutive points of the series. If seasonal effects are present in the demand pattern of the product, a minimum of two years sales history is needed for applying this model. Debasis Pani, Asst. Professor, GIACR 71
    • Module – I (4) Exponential Smoothing: is yet another projection method used for sales forecasting. It is similar to moving averages and is used fairly extensively. It too represents the weighted sums of all past numbers in a time series, with the heaviest weight placed on the most recent data or information. This method involves estimating the value of the ‗smoothing constant‘ usually designated by symbol alpha And then using it to smooth the raw sales data. This assumption is this method is that actual sales are a function of environmental factors and the method helps to smothout these factors. This can be represented symbolically as St = Xt + ( 1 – ) St-1 St Refers to smoothed sales in period t Is smoothing constant with a value between 0 to 1 Xt is actual sales in period t St-1 is smoothed sales in period t-1 This method is particularly useful when forecasts of a large number of items are made. It is not necessary here to keep a long history of past data. (5) Time Series Analysis: is also known as trend cycle analysis. A time series is a set of chronologically ordered raw data, for example, the monthly sales of given product for several continue years. Time series analysis helps to identify and explain: Systematic variation or seasonal variation, which arises due to seasonality in the series of data. Cyclical pattern that repeat themselves every two or every three years and soon. Trend in the data Growth rates of these trends The main assumption in time series analysis is that the factors influencing sales will not changes very much over a period of time and that the future will reflect the past. In this sense this method is basically a projection method. Projections of future sales are made by studying the interaction of the basic and significant influence of sales. A through and systematic analysis of data is carried out. All the basic factors underlying the sales fluctuations are analyzed. The four main types of sales variations are as follows. 1. Long-term growth trends (Secular trends) 2. Cyclical changes 3. Seasonal variations 4. Irregular or random fluctuations Are isolated and measured using the statistical procedure. The trend lines for each type of variations are studied and sales estimates are made. (6) Regression Analysis: it is another analytical technique used for demand forecasting. This technique combines economic theory and statistical technique of estimation. Economic theory is employed to specify the determinants of demand (Demand function) and to determine the nature of relationship between the demand for a product and its determinants. Statistical techniques are employed to estimate the values of parameters in the estimated equation. In regression technique of demand forecasting, the analysts estimate the demand function for a product. In the demand function, the quantity to be forecast is a ‗dependent variable‘ and the variables that affect or determine the demands are ‗independent variable‘ or ‗explanatory variables‘. The simple regression technique is based on the assumptions (i) that independent variable will continue to grow at its past growth rate, and (ii) that the relationship between the dependent and independent variables will continue to remain the same in the future as in the past. The regression method, in general will give more accurate forecasts than the trend method since regression takes into account causal factor. (7) Econometric Models: this models basically attempts to express economic theories in mathematical terms so that they can be verified by statistical methods and used to measure the impact of one economic variable upon another predicting future event. The econometric model is constituted by a set of interdependent equations that describe and simulate the total demand situation. The forecast is derived through this set of equations. Debasis Pani, Asst. Professor, GIACR 72
    • Module – I Econometric model are quite complex and expensive to develop. But they predict the turning points more accurately. Econometric model are used more in forecasting the demand of durable goods, industrial as well as consumer durables, where replacement demand is significant factor to be projected. 8. Marketing Information System We all know that no marketing activity can be carried out in isolation, know when we say it doesn‘t work in isolation that means there are various forces could be external or internal, controllable or uncontrollable which are working on it. Thus to know which forces are acting on it and its impact the marketer needs to gathering the data through its own resources which in terms of marketing we can say he is trying to gather the market information. This collection of information is a continuous process that gathers data from a variety of sources synthesizes it and sends it to those responsible for meeting the market places needs. The effectiveness of marketing decision is proved if it has a strong information system offering the firm a competitive advantage. Information should not be approached in an infrequent manner. If research is done this way, a firm could face these risks: 1. Opportunities may be missed. 2. There may be a lack of awareness of environmental changes and competitors‘ actions. 3. Data collection may be difficult to analyze over several time periods. 4. Marketing plans and decisions may not be properly reviewed. 5. Data collection may be disjointed. 6. Previous studies may not be stored in an easy to use format. 7. Time lags may result if a new study is required. 8. Actions may be reactionary rather than anticipatory. So, every firm must organize a rich flow of information to its marketing managers. Competitive companies study their managers‘ information needs and design marketing information systems (MIS) to meet these needs. Marketing Information System (MIS) To Philip Kotler, ―A marketing information system (MIS) 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 a set of procedures and methods designed to generate, analyze, disseminate, and store anticipated marketing decision information on a regular, continuous basis. An information system can be used operationally, managerially, and strategically for several aspects of marketing. To carry out their analysis, planning, implementation, and control responsibilities, marketing managers need information about developments in the marketing environment. The role of the MIS is to assess the manager‘s information needs, develop the needed information, and distribute that information in a timely fashion. The in-formation is developed through internal company records, marketing intelligence activities, marketing research, and marketing decision support analysis. Debasis Pani, Asst. Professor, GIACR 73
    • Module – I {1} Internal Record System Marketing managers rely on internal reports on orders, sales, prices, costs, inventory levels, receivables, payables, and so on. By analyzing this information, they can spot important opportunities and problems The heart of the internal records system is the order-to-payment cycle. Sales representatives, dealers, and customers dispatch orders to the firm. The sales department prepares invoices and transmits copies to various departments. An increasing number of companies are using electronic data interchange (EDI) or intranets to improve the speed, accuracy, and efficiency of the order-to-payment cycle. Marketing managers need up-to-the-minute reports on current sales. Armed with laptop computers, sales reps can access information about prospects and customers and provide immediate feedback and sales reports. Sales force automation (SFA) software has come a long way. Earlier versions mainly helped managers track sales and marketing results or acted as glorified date books. {2} Marketing Intelligence System Whereas the internal records system supplies results data, the marketing intelligence system supplies happenings data. A Marketing Intelligence System is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. A company can take several steps to improve the quality of its marketing intelligence.  It can train and motivate the sales force to spot and report new developments. As sales representatives are treated as the company‘s ―eyes and ears‖.  The company can motivate distributors, retailers, and other intermediaries to pass along important intelligence. Retailers often send mystery shoppers to their stores to assess how employees treat customers  A company can network extremely. Companies can learn about competitors by purchasing their products; attending open houses and trade shows; reading competitors‘ published reports; attending stockholders‘ meetings; talking to employees, dealers, distributors, suppliers, and freight agents; collecting competitors‘ ads; and reading the Wall Street Journal, the New York Times, and trade association papers.  The company can set up a customer advisory panel made up of representative customers or the company‘s largest customers or it‘s most outspoken or sophisticated customers.  A company can take advantage of government data resources. Debasis Pani, Asst. Professor, GIACR 74
    • Module – I   The company can purchase information from outside suppliers such as the A. C. Nielsen Company and Information Resources, Inc, IDC, ORG, MARG. Some companies use online customer feedback system to collect competitive intelligence. The staff scans the Internet and major publications, abstracts relevant news, and disseminates a news bulletin to marketing managers {3} Marketing Research Management cannot always wait for information to arrive in bits and pieces from internal sources. Also, sources of market intelligence cannot always be relied upon to provide relevant or up-to-date information (particularly for smaller or niche market segments). In such circumstances, businesses often need to undertake specific studies to support their marketing strategy, this is market research. Marketing Research is the systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company. {4} Marketing Decision Support System A growing number of organizations are using a marketing decision support system to help their marketing managers make better decisions. Little defines an MDSS as follows: A marketing decision support system (MDSS) is a coordinated collection of data, systems, tools, and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action. 9. Customer Value Proposition Marketing as a social science starts and ends with customer. And its basic principle is that customers will buy from the firm with the highest customer perceived value. (CPV) is the difference between the prospective customer evaluation of all the benefits and all the costs of an offering and the perceived alternatives. Total customer value is the perceived monetary value of the bundle or economic, functional, and psychological benefits customers expect from a given market offering. Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the given marketing officering. The value proposition consists of the whole cluster of benefits the company promises to deliver; it is more than the core positioning of the offering. For example, Volvo‘s core positioning is ―safety,‖ but the buyer is promised more than just a safe car; other benefits include a long-lasting car, good service, and long warranty period. The Value Delivery Network The customer value can be determined as follows Customer Value = Benefits perceived and offered / Cost incurred Benefit = Functional benefit + Emotional benefit Cost = Monetary cost + Energy cost + Energy cost + Psychic cost Debasis Pani, Asst. Professor, GIACR 75
    • Module – I Value can be seen as primarily a combination of quality, service and price called the customer value triad Customer Value = f (Price, Quality, Satisfaction) Delivering Customer Value: In a hyper competitive economy any company can only win by creating and delivering superior value. This involves the understanding customer value; and sustaining customer value. To succeed, a company needs to use the concepts of a value chain and a value-delivery network. Value Chain Analysis: Michael Porter of Harvard proposed the value chain as a tool for identifying ways to create more customer value. Every firm performs certain activity to design, produce, and market, deliver, and support its product. The value chain identifies nine strategically relevant activities that create value and cost in a specific business. These nine values creating activities consist of five primary activities and four support activities. The primary activities represent the sequence of bringing materials into the business (inbound logistics), converting them into final products ( operations),shipping out final products ( outbound logistics), marketing them ( marketing and sales), and servicing them (service). The support activities procurement, technology development, human resource management, and firm infrastructure are handled in certain specialized departments. in each value-creating activity and to look for ways to improve it. It should go further and study the ―best of class‖ practices of the world‘s best companies. The firm‘s success depends not only on how well each department performs its work, but also on how well the various departmental activities are coordinated. Marketing Management (Module - III) Debasis Pani Faculty, IACR Who is a Consumer? In common practice, we do not make any difference between a customer and consumer. A Customer is one who is in the customary process of purchase or regularly purchases a product or service from a particular organization or shop. A customer is always defined in terms of a specific product or company. In a simple sense Consumers refers to individuals or households that use goods and services generated within the economy. But in marketing, consumer is anyone who typically engages in the activities of evaluating, purchase, using or disposing of goods and services Ultimate Consumer or End Consumer is one who purchases goods and services for the purpose of individual or household consumption. What is Behaviour? Behaviour refers to the process of responding to stimuli (The cues or actions that evoke/stimulate a reaction from the receiver), a human being shows his behaviour in the way he feel, act and think (FAT) similarly the consumer also shows his behaviour in way he feel, think and carry out action. What is Consumer Behaviour? Debasis Pani, Asst. Professor, GIACR 76
    • Module – I One thing is very common that we all are consumer; everybody in this world is a consumer. Every thing we buying are consuming Varity of goods and services. However we all have different tastes, likes and dislikes and adopt different behaviour patterns while making purchases decisions. Each consumer is unique and uniqueness is reflected in the consumption behaviour and patterns and processes of purchases. The study of consumer behaviour provides us with reasons, why the consumption behaviour differs from one another in buying and using product and services. To Philip Kotler, ―Consumer buying behaviour refers to the buying behaviour of final consumer individuals and households who buy goods and services for personal consumptions‖ To Schiffiman and Konuk, ―Consumer behaviour encompasses all the behaviour that consumers displays in searching for, purchasing, using, evaluating and disposing of products and services that they except will satisfy their need‖ To Batra & Kazmi, ―consumer behaviour refers to the mental and emotional process and the observable behaviour consumers during searching, purchasing and post consumption of a product or service‖ The study of consumer behaviour is the study of how individuals make decisions to spend their available resources (Time, Money, and Effort) on consumption related items. It includes the study of what they buy, why they buy it, when they buy it, where they buy it, how often they buy it and how often they use it. 1. Role of Consumers Often we find in a consumer decision process several individuals get involved. Each of them plays an influencing role.  Initiator: this is a person who shows the seed in a customers mind to buy a product. This person may be a part of customer‘s family like child, spouse or parents. Alternatively the persons may be a friend, a relative, a colleague or even the salesperson.  Influencer: this is a person with in or outside the immediate family of the customer who influences the decision process. The individual perceived as an influencer is also perceived as an expert. In consumer durable sale. The dealer plays an influencing role.  Decider: this is the person who actually takes the decision. In joint family- the elder in the family, nuclear family – literacy among women.  Buyer: this is the person who actually buys the product. This could be decider himself or herself or the initiator.  User: this is the person/ who actually consumes the product. This could be the entire family or just one person with in the customer‘s family. People who play these roles seek different values in the product or services. The perception of the value is a larger extent influenced by their prior experience or that oh the experience of other, media reports and the marketing created by the firm. These values which may also be referred to as market value are potential of a product or service to satisfy customers need and wants. 2. Consumer Decision Making Process The buyers decision process consists of five stages and it start before actual purchase and continue long after. Marketer needs to focus on the entire buying process rather than on just purchase decisions. Sometimes the consumer often skips or reserves some of these stages. The most important things to be considered by a marketer are to make all his promotion hitting the consumers‘ eye at each step of the whole process. Debasis Pani, Asst. Professor, GIACR 77
    • Module – I 1st Need Recognition: is the first stage of the buyer decision process in which the consumer recognizes a problem or need. The need can be trigged by internal stimuli when one of the person‘s normal needs hunger, thirst, and sex-rises to a level high enough to become a drive. A need can also be trigged by external stimuli e.g. advertising, discussing with friends. Role of the marketers in this case  To understand the drives/ motives related to unlimited purchases  To uncover the latent need structure surrounding a particular product  To arrange cues to match with timing of need arousal  To provide information in order to push needs above the threshold level 2nd Information Search: if the consumes drive is strong and satisfactory product is near at hand, the consumer is likely to buy it then. The stage of buyer decision process in which the consumer is aroused to search for more information, the consumer may simply have heightened attention or may go into active information search. Consumer can obtain information from any of several sources. These include. b) Personal sources – family, friend neighbors, acquaintance. c) Commercial sources – advertising, sales people, dealers, packaging, displays d) Public sources – mass media, consumer retailing organization. e) Experiential sources – handling, examining suing the product. Commercial sources normally inform the buyer but personal sources legitimize or evaluate products for the buyer.  High risk situation followed by complex information search and evaluation.  Low risk situation followed by simple search and information tactics.  Unit of information search depends on experience, social acceptability (gift), product factor, personal factors. 3rd Evaluation of Alternatives: the stage of the buyer decision process in which the consumer uses information to evaluate alternative brands in the choice set. How consumers go about evaluating purchases alternatives. In some cases, consumer use careful calculations and logical thinking. At other times, the same consumers do little or no evaluating instead they buy on impulsive and rely on intuition. Some times consumers make buying decision on their own; some time they turn to friends, consumers guides, or sales people for buying advice. Marketers should study buyers to find out how they actually evaluate brand alternatives. If they know what evaluating processes go on marketers can take step to influence the buyer‘s decision.  Evaluation of potential alternatives is made from ‗evoked set‘ brands.  Criteria to be used for brand evaluation through Product attributes (selection of relevant attributes, different weights to different attributes, developments of brand beliefs, utility functions for each attributes, consumer arrival at an attitude) e.g. ―100% fat free‖  Judgments or preference. 4th Purchase Decision: the buyer‘s decision about which brand to purchase but two factors can come between the purchase intention and the purchase decision. The first factor is attitude of others. The second factor is unexpected situational factors. The consumer may form a purchase intention based on factors such as expected income, expected product benefits. However, unexpected events may change the purchase intention. Debasis Pani, Asst. Professor, GIACR 78
    • Module – I   After evaluation ranked set of preference is created and purchase intention is developed. An attitude of others, unanticipated situational factors and perceived risks influences the purchase decisions. 5th Post-purchase Behaviour: the stage of the buyer decision process in which consumers take further action after purchase, based on their satisfaction or dissatisfaction. The answer lies in the relationship between the consumer‘s expectations and the products perceived performance. If the product falls short of expectations the consumer is disappointed. If it meets expectations, the consumer is delight. Cognitive dissonance: buyers discomfort caused by post-purchase conflict. Customer satisfactions are a key to building profitable relationships with consumers to keeping and growing consumers and repeating their customer life time value. A dissatisfied consumer responds differently. Bad word of mouth often travels further and faster than good word of mouth. Therefore a company should measure customer satisfaction regularly. It should setup systems that encourage customers to complain. In this way the company can learn how well it is doing and how it can improve.  Satisfaction is a function of expectation and perceived benefit S=f(E,P)  If P>E = Consumer Delight, P=E = Consumer Satisfaction and P<E = Consumer Dissatisfaction.  Strategies by consumers to rationalize decision (change evaluation of alternatives, seeking positive information, changing attitudes, may persuades friends/neighbours to try same brand)  Marketing implication ( confirm expectations, inducing attitude change, reinforcing buyers) 3. Factors Influencing Consumer Decision Making {1} Cultural Factors: Culture refers to the customs and beliefs, art, way of life and social organization of a particular country or group. Cultural factors have a significant impact on customer behavior. Culture is the most basic cause of a person‘s wants and behavior. Marketers are always trying to spot ―cultural shifts‖ which might point to new products that might be wanted by customers or to increased demand. Similarly the increased desire for ―leisure time‖ has resulted in increased demand for convenience products and services such as microwave ovens, ready meals and direct marketing service businesses such as telephone banking and insurance. Each culture contains ―Sub-Cultures‖ groups of people with share values. Sub-cultures can include nationalities, religions, racial groups, or groups of people sharing the same geographical Debasis Pani, Asst. Professor, GIACR 79
    • Module – I location. Sometimes a sub-culture will create a substantial and distinctive market segment of its own. Similarly, differences in social class can create customer groups. It is measured as a combination of occupation, income, education, wealth and other variables {2}Social Factors: A customer‘s buying behavior is also influenced by social factors, such as the groups to which the customer belongs and social status. Reference Groups: In a group, several individuals may interact to influence the purchase decision. The groups with whom you interact directly or indirectly influence your purchase decisions and thus their study is of great importance to marketer. These groups can sever as a reference group for a consumer if it serves as a point of reference or comparison the formation of the values, attitudes and behavior. Different kinds of groups, whether small or large, formal or reference group is a very wide one and includes both direct and indirect or group influences. Direct reference groups, which exert a significant influence on consumer‘s, purchase decisions and behavior, can be classified into six categories. There are the family, Friendship groups, Formal social groups, Formal shopping groups, Consumer action groups, and Work groups. Indirect reference groups comprise those individuals or groups with whom an individual does not have any direct face to face contact, such as film stars, TV stars, sportsman, and politicians. Reference groups are used in advertising to appeal to different market segments, group situation with which potential customers can identify are used to promote products and services. Three types of reference groups appeals most commonly used are: a) Celebrities: are well known people (in their specific field of activity) who are admired and their fans aspire to follow their behavior. Film stars and sports heroes are the most popular celebrities. Soft drink (Thums up), shaving cream (Palmolive), toilet soaps (Lux) are advertised using celebrities from the sports and film fields. b) Experts: such as doctors, lawyer, accountants and authors are used for establishing the benefits of the product. Colgate and Forhans toothpastes are examples of products, which use the expert reference groups appeal for promotion. c) The ‗common man‘: Another reference group appeal is that which uses the testimonials of a satisfied customer. It demonstrates to the prospective customer that demonstrates just like him uses and is satisfied with the product. Family: a group consisting of one or two parents and their children the other members of my family who have a blood relation or relation by adoption. The family of orientation consists of one‘s parents and siblings. From parents, a person acquires an orientation toward religion, politics, and economics as well as a sense of personal ambition, self-worth, and love. Marketers are interested in the roles and relative influence of the husband, wife, and children in the purchase of a large variety of products and services. The family also plays a role in consumer decision-making, as shown Roles: An individual may participate in many groups. His position within each group can be defined in terms of the activities he is expected to perform. You are probably a manager, and when in your work situation you play that role. However, at home you play the role of spouse and parent. Thus in different social positions you play different roles. Each of these roles influences your purchase decisions. Status: Each role that a person plays has status, which is the relative prestige accorded by society. Status is often measured by the degree of influence an individual exerts in the behavior and attitude of others. People buy and use products that reflect their status. {3} Personal Factors: Age and Life cycle Stage: Like the social class the human life cycle can have a significant impact on consumer behaviour. The life cycle is an orderly series of stages in which consumer attitude and behavioural tendencies evolve and occur because of developing maturity, experience, income, and Debasis Pani, Asst. Professor, GIACR 80
    • Module – I status. Marketers often define their target market in terms of the consumers‘ present lifecycle stage. The concept of lifecycle as applied to marketing will be discussed in more details. Occupation and Income: The profession or the occupation a person is in again has an impact on the products they consume. The status of a person is projected through various symbols like the dress, accessories and possessions. Life Style: Our life styles are reflected in our personalities and self-concepts, same is the case with any consumer. We need to know what a life-style is made of. It is a person‘s mode of living as identified by his or her activities, interest and opinions. There is a method of measuring a consumer‘s lifestyle. This method is called as the psychographics-which is the analysis technique used to measure consumer lifestyles- peoples activities, interests and opinions. Personality: personality is the sum total of an individual‘s enduring internal psychological traits that make him or her unique. Self-confidence, dominance, autonomy, sociability, defensiveness, adaptability, and emotional stability are selected personality traits. {4} Psychological Factors: Motivation: Motivation involves the positive or negative needs, goals, and desires that impel a person to or away from certain actions. By appealing to motives (reasons for behavior), a marketer can generate motivation. Economic and emotional motives are possible. Each person has distinct motives for purchases; these change by situation and over time. We all have needs we consume different goods and services with the expectation that they will help fulfils these needs. When a need is sufficiently pressing, it directs the person to seek its satisfaction. It is known as motive. All our needs can be classified into two categories—primary and secondary. Perception: The second major psychological factor that influences consumer behavior is perception. Perception can be described as ―how we see the world around us‖. All the time we are receding messages through our five organs viz.., eyes, ears, nose, mouth and skin. The different sights, sounds, smells, tastes and sensations that we feel are known as stimuli. Each person recognizes, selects, organizes and interprets these stimuli in his own individual manner based in his needs, values and expectations and this is known as perception. Since each individual‘s needs, motive and expectations are unique therefore each individual‘s perception is unique. As a marketing manager, you are providing stimulus to your consumers through the physical shape, colour, size, fragrance, feel, taste of your product, its package, advertisement and commercials. Learning: Learning refers to the skill and knowledge gained from past experience that we apply to evaluate future decisions and situations. A marketer can build up demand for his brand by associating it with strong motives, using the appropriate stimuli and cues and providing positive reinforcement. Thus making the consumer ‗learn ‗that the brand is good and worth patronizing. Beliefs & Attitudes: A belief is a descriptive thought that a person has about something. A person may believe that a certain coking oil ‗Sunflower‘ has the lowest fat content and is best for health. This belief may be based on some real facts or it may merely be a notion or opinion that the person has. The beliefs constitute the brand image about the brand. The marketer must ensure that consumers have relevant and correct information about the brand to facilitate formation of a positive brand image. Attitude is a person‘s enduring feeling, evaluation and tendency towards a particular idea or object. Starting from childhood, attitude develops over the time with each fresh knowledge input, experience and influence. Attitudes get settled into specific patterns and are difficult to change. It is easier to market product that fits in well with the existing patterns of attitudes rather than change the attitudes to fit a new product concept. 4. Special Topics in Marketing: Green Marketing (Study Material) Debasis Pani, Asst. Professor, GIACR 81
    • Module – I 5. Relationship Marketing Relationship Marketing was first defined as a form of marketing developed from direct response marketing campaigns which emphasizes customer retention and satisfaction, rather than a dominant focus on sales transactions As a practice, Relationship Marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages with the growth of the internet and mobile platforms, Relationship Marketing has continued to evolve and move forward as technology opens more collaborative and social communication channels. This includes tools for managing relationships with a customer that goes beyond simple demographic and customer service data. Relationship Marketing extends to include Inbound Marketing efforts, Public Relation, Social Media and Application Development. Relationship Marketing is a broadly recognized, widelyimplemented strategy for managing and nurturing a company‘s interactions with clients and sales prospects Why is it important? • It costs five times as much to attract a new customer as it does to keep a current one satisfied. • It is claimed that a 5% improvement in customer retention can cause an increase in profitability of between 25 and 85 percent depending on the industry. • Likewise, it is easier to deliver additional products and services to an existing customer than to a first-time ―buyer.‖ It also involves using technology to organize, coordinate business processes, particularly sales and marketing activities. The overall goals are to find, attract and win new clients, nurture and retain those the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service. Once simply a label for a category of software tools, today, it generally denotes a company-wide business strategy embracing all client-facing departments and even beyond. When an implementation is effective, people, processes, and technology work in synergy to increase profitability, and reduce operational costs Six market model There are six different markets which are central to relationship marketing. They are: 1. Internal markets, 2. Supplier markets, 3. Recruitment markets, 4. Referral markets, 5. Influence markets, and 6. Customer markets. Influence markets involve a wide range of sub-markets including: government regulators, standards bodies, lobbyists, stockholders, bankers, venture capitalists, financial analysts, stockbrokers, consumer associations, environmental associations, and labor associations. These activities are typically carried out by the public relations department, but relationship marketers feel that marketing to all six markets is the responsibility of everyone in the organization. Each market may require its own explicit strategies and a separate marketing mix for each. 6. Societal Marketing Debasis Pani, Asst. Professor, GIACR 82
    • Module – I The societal marketing concept holds that the business organization must take into account the needs and wants of the consumers and deliver the goods and services efficiently so as to enhance consumer‘s satisfaction as well as the society‘s well being. The societal concept is an extension of the marketing concept to cover the society in addition to the consumers. It combines the best elements of marketing to bring social change in an integrated planning and action framework with the utilization of communication technology and marketing techniques. It also looks for marketers to build social and ethical considerations in to the marketing practices. The goals of profit maximization should match with the goals of customer satisfaction and responsible corporate citizenship. In a sense, marketing is not a business activity alone but must take into account the social needs. Marketing must be a socially responsible or accountable activity. 7. Guerrilla Marketing The concept of guerrilla marketing was invented as an unconventional system of promotions that relies on time, energy and imagination rather than a big marketing budget. Typically, guerrilla marketing campaigns are unexpected and unconventional, potentially interactive, and consumers are targeted in unexpected places. The objective of guerrilla marketing is to create a unique, engaging and thought-provoking concept to generate buzz, and consequently turn viral. The term was coined and defined by Jay Conrad Levinson in his book Guerrilla Marketing. The term has since entered the popular vocabulary and marketing textbooks. Guerrilla marketing involves unusual approaches such as intercept encounters in public places, street giveaways of products, PR stunts, or any unconventional marketing intended to get maximum results from minimal resources. More innovative approaches to Guerrilla marketing now utilize cutting edge mobile digital technologies to engage the consumer and create a memorable brand experience. Levinson says that when implementing guerrilla marketing tactics, small size is actually an advantage. Small organizations and entrepreneurs are able to obtain publicity more easily than large companies, as they are closer to their customers and considerably more agile. Yet ultimately, according to Levinson, the guerrilla marketer must "deliver the goods". In The Guerrilla Marketing Handbook, he states: "In order to sell a product or a service, a company must establish a relationship with the customer. It must build trust and support. It must understand the customer's needs, and it must provide a product that delivers the promised benefits." Levinson identifies the following principles as the foundation of guerrilla marketing: 1. Guerrilla marketing is specifically geared for the small business and entrepreneur. 2. It should be based on human psychology rather than experience, judgement, and guesswork. 3. Instead of money, the primary investments of marketing should be time, energy, and imagination. 4. The marketer should also concentrate on how many new relationships are made each month. 5. Create a standard of excellence with an acute focus instead of trying to diversify by offering too many diverse products and services. 6. Instead of concentrating on getting new customers, aim for more referrals, more transactions with existing customers, and larger transactions. 7. Guerrilla marketers should use a combination of marketing methods for a campaign. 8. Use current technology as a tool to build your business. Debasis Pani, Asst. Professor, GIACR 83
    • Module – I 9. Messages are aimed at individuals or small groups, the smaller the better. 10. Commit to your campaign. Use Effective frequency instead of creating a new message theme for each campaign. 8. Online Marketing Internet marketing, also known as web marketing, online marketing, web advertising, or e-marketing, is referred to as the marketing (generally promotion) of products or services over the Internet. Internet marketing is considered to be broad in scope because it not only refers to marketing on the Internet, but also includes marketing done via e-mail and wireless media. Digital customer data and electronic customer relationship management (ECRM) systems are also often grouped together under internet marketing. Internet marketing ties together the creative and technical aspects of the Internet, including design, development, advertising and sales Types of Internet Marketing Internet marketing is broadly divided in to the following types: 1. Display advertising: the use of web banners or banner ads placed on a third-party website or blog to drive traffic to a company's own website and increase product awareness. 2. Search engine marketing (SEM): a form of marketing that seeks to promote websites by increasing their visibility in search engine result pages (SERPs) through the use of either paid placement, contextual advertising, and paid inclusion, or through the use of free search engine optimization techniques. 3. Search engine optimization (SEO): the process of improving the visibility of a website or a web page in search engines via the "natural" or un-paid. 4. Social media marketing: the process of gaining traffic or attention through social media websites such as Facebook, Twitter and LinkedIn. 5. Email marketing: involves directly marketing a commercial message to a group of people using electronic mail. 6. Referral marketing: a method of promoting products or services to new customers through referrals, usually word of mouth. 7. Affiliate marketing: a marketing practice in which a business rewards one or more affiliates for each visitor or customer brought about by the affiliate's own marketing efforts. 8. Inbound marketing: involves creating and freely sharing informative content as a means of converting prospects into customers and customers into repeat buyers. 9. Video marketing: This type of marketing specializes in creating videos that engage the viewer into a buying state by presenting information in video form and guiding them to a product or service Various Business Models Internet marketing is associated with several business models: 1. E-commerce: a model whereby goods and services are sold directly to consumers (B2C), businesses (B2B), or from consumer to consumer (C2C) using computers connected to a network. 2. Lead-based websites: a strategy whereby an organization generates value by acquiring sales leads from its website. Similar to walk-in customers in retail world. These prospects are often referred to as organic leads. 3. Affiliate Marketing: a process wherein a product or service developed by one entity is sold by other active sellers for a share of profits. The entity that owns the product Debasis Pani, Asst. Professor, GIACR 84
    • Module – I may provide some marketing material (e.g., sales letters, affiliate links, tracking facilities, etc.); however, the vast majority of affiliate marketing relationships come from e-commerce businesses that offer affiliate programs. 4. Local Internet marketing: a strategy through which a small company utilizes the Internet to find and to nurture relationships that can be used for real-world advantages. Local Internet marketing uses tools such as social media marketing, local directory listing, and targeted online sales promotions. 9. Mega Marketing Mega marketing refers to the marketing activity that involves other element of firms external environment such as government, media and pressure group. The term was coined by us academics Philip Kotler who suggests that a marketing mix must have two more P‘s: Public relation and Power. Public Relation: The profession or practice of creating and maintaining goodwill of an organization's various publics ( customers , employees , investors , suppliers , etc.), usually through publicity and other non paid forms of communication . These efforts may also include support of arts, charitable causes, education, sporting events, and other civic engagements. Power: Ability to cause or prevent an action, make things happen; the discretion to act or not act. Opposite of disability, it differs from a right in that it has no accompanying duties. Mega Marketing V/S Marketing Basis Marketing objectives Marketing To satisfy consumer demands Parties involved Type of inducement Consumers, distributors, dealers, suppliers. Market research, product development, planning etc. Positive and official inducements Timeframe Investment cost Personal involved Short low Marketers Marketing tools Mega-marketing To gain market access by satisfying consumer demand Govt. agencies, labour unions, reform group, general public Normal tools plus the use of power and public relation Positive and negative inducements (treats) Much longer Much higher Marketers and company officers, lawyers etc 10. Database Marketing Database marketing is a form of direct marketing using databases of customers or potential customers to generate personalized communications in order to promote a product or service for marketing purposes. The method of communication can be any addressable medium, as in direct marketing. The distinction between direct and database marketing starts from the attention paid to the analysis of data. Database marketing emphasizes the use of statistical techniques to develop models of customer behavior, which are then used to select customers for communications. As a consequence, database marketers also tend to be heavy users of data warehouses, because having Debasis Pani, Asst. Professor, GIACR 85
    • Module – I a greater amount of data about customers increases the likelihood that a more accurate model can be built. There are two main types of marketing databases, 1) Consumer databases: Consumer databases are primarily geared towards companies that sell to consumers, often abbreviated as B2C or B to C. Consumer database may include a variety of data, including name and address, history of shopping and purchases, demographics, and the history of past communications to and from customers. 2) Business databases. Business marketing databases are often much more advanced in the information that they can provide. This is mainly because business databases aren't restricted by the same privacy laws as consumer databases. Database for business-to-business marketers which often includes data on the business activity about the respective client. The communications generated by database marketing may be described as junk mail or spam, if it is unwanted by the addressee. Direct and database marketing organizations, on the other hand, argue that a targeted letter or e-mail to a customer, who wants to be contacted about offerings that may interest the customer, benefits both the customer and the marketer. Some countries and some organizations insist that individuals are able to prevent entry to or delete their name and address details from database marketing lists. The growth of database marketing: is driven by a number of environmental issues. Fletcher, Wheeler and Wright. Classified these issues into four main categories: (1) Changing role of direct marketing; (2) Changing cost structures; (3) Changing technology; and (4) Changing market conditions. Although organizations of any size can employ database marketing, it is particularly wellsuited to companies with large numbers of customers. This is because a large population provides greater opportunity to find segments of customers or prospects that can be communicated with in a customized manner. In smaller (and more homogeneous) databases, it will be difficult to justify on economic terms the investment required to differentiate messages. As a result, database marketing has flourished in sectors, such as financial services, telecommunications, and retail, all of which have the ability to generate significant amounts transaction data for millions of customers. Challenges and limitation of database marketing While real-time business intelligence is a reality and it posses big challenges before the companies. The percentage of the business that is online and the degree of level of sophistication of the software is also another challenge. Technology companies like Google, Dell, and Apple, are most facing these challenge. A major challenge for databases is the reality of obsolescence - a subset of this is the lag time between when data was acquired and when the database is used. This can be addressed by online and offline means including traditional methods. ( Alternative solution is Real-time Proximity Marketing) Debasis Pani, Asst. Professor, GIACR 86