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Marketing Management Pdf Version by Er. S Sood

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Marketing Notes for MBA, BBA & PGDBM Students

Marketing Notes for MBA, BBA & PGDBM Students

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  • 1. Chapter 1Marketing: Nature & Scope of Marketing, Concepts - production, product, selling, marketing & societalmarketing, marketing environment –marketing management and its environment.Market and MarketingWhat is Market?Originally, a “Market” was a public place in a town or village, where householdprovisions and other objects were available for sale. The definition of market hasexpanded in this globalized world. The traders may be spread over a whole town, or cityor region or a country and yet form a market. For example, stock market, Oil & Oilseedsmarket, Steel or Metals market etc where people across the countries can participate in thebusiness.The essentials of a market are (I) a commodity / item which is dealt with, (2) the existenceof buyers and sellers, (3) a place; be it a certain region, a country or the entire world and(4) interactions between buyers & sellers to facilitate transactions.Classification of markets:1. On the basis of Geographic Area –Local Market is the place where the purchase and sale of goods / services involve buyers and Sellers of asmall local area. The example of local market is a village or a town, market. In thisMarket day to day requirement like vegetable, fruits, meat and fish are sold.Regional Market –When the purchase and sale of goods involve buyers and sellers of a region, such as a large town marketcatering to needs of a group of villages or towns, such a market is common in case of wholesale/ retail saleof food grains.National Market –When the purchase and sale of goods involve both buyers and sellers of the entire nation then it is called asnational market. This type of market in the case of commodities such as Cotton & Textiles Market locatedin Mumbai, Tea and Jute Markets located in Kolkata. With the advent of internet, this concept is alsogetting obsolete, as you can operate in any market, sitting in your town or city.Global or World Market –When the purchase and sale of goods involve buyers and sellers of many nations, there is said to be aWorld or Global Market. Many commodities such as Gold, Silver, Tea, Coffee, Spices are sold in suchglobal markets. Many manufactured products and specialized services are also sold across the globe bymany companies. Producers of Coca-Cola and Sony brand sell their products in the global market in almostall countries. Indian companies like TCS, Infosys, and WIPRO sell and provide their IT enabled services tomany companies in different parts of the world. They operate in a Global Market.2. On the basis of Nature of Competition in the market –Perfect Market –It refers to a market or market situation where there is perfect competition. Competition is said to beperfect when (a) the sellers & buyers of a particular product are so many that none of them have to sell orbuy at a single uniform price. (b) Price is determined by the market forces of supply & demand.Imperfect Market –
  • 2. In contrast to the perfect competition, the imperfect market will have imbalance between number of buyersand sellers. This market is further divided into three parts. They are Monopoly, Monopolistic andoligopoly. In case of monopoly, single seller dominates the entire market where as in oligopoly few sellersdominate the market. The details of these types of markets will be discussed in the pricing unit.3. On the basis of Nature of Goods Sold –Consumer Goods Market –Definition: A Consumer Goods Market is defined as a market where the final output of the firm goes forthe consumption of individual or household.Consumer Goods Market –This is a market, where the buyers who are individuals and households purchase a variety of products andservices to satisfy their needs and wants. For example, an individual buys chocolate for his personalconsumption whereas a family buys a refrigerator for household or family consumption. Products sold inconsumer goods market are classified as Nondurables, such which are frequently purchased such asbathing soap, detergent etc. and Durables such as refrigerator, TV Set, Washing Machine, Car, Clothing etc.Nondurables are also known as FMCG – Fast Moving Consumer Goods e.g. Soap, detergent etc...Industrial Goods Market –Definition: A business market is defined as a market where output of one firm goes either as raw material,goods in process or as consumables of another industry.Nonprofit and Government Markets –This market which consists of nonprofit organizations such as social service agencies, educationalorganizations, charitable organizations and Government Departments and agencies needs special skills tosell to them. These buyers have limited purchasing power which is why pricing to this market needs to beplanned carefully. Government, which is a large buyer, makes purchases on the basis of tenders, bids andnegotiation.Marketing is everywhere.Formally or informally, people and organizations engage in a vast number of activities that could be calledmarketing. Good marketing has become increasingly vital ingredient for business success.Marketing is a set of business activities that facilitate movement of goods and services from producer toconsumer. It is an ongoing process of discovering and translating consumer needs into products andservices, creating demands for them, serving the customer and his demand through a marketingprogramme of promotion and distribution to fulfill the company’s marketing goals in a competitiveenvironment.
  • 3. Definitions of marketing: Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchange that satisfy individual and organizational goals. (American marketing association). Marketing is the process of identifying the customer/market need, want & desires & then converting those need wants & desires into required products or services at a particular price. Importance of marketing / Functions of Marketing : The delivery of goods and services from producers to their ultimate consumers or users includes many different activities. These different activities are known as marketing functions. Marketing has proved its importance in following fields:1. Marketing Research and Information Management -- Marketers need to take decisions scientifically. Marketing research function is concerned with gathering, analyzing and interpreting data in a systematic and scientific manner. The types of market information could be analysis of market size and characteristics, consumer tastes and preferences and changes in them from time to time, channels of distribution and communication and their effectiveness, economic, social, political and technological environment and changes therein. A company can procure such information from specialized market research agencies, government or can decide to collect themselves. 2. Advertising and Sales Promotion – Advertising is a mass media tool used to inform, persuade or remind customers about products or services. It is an impersonal message targeted at a chosen group through paid space or time.3. Sales Promotion is a short-term incentive given to customers or intermediaries to promote sales. It supplements advertising and personal selling and can be used at the time of launching a new product or even during its maturity period.4. Product Planning and Management – A Marketer should identify the needs and wants of consumers, develop suitable products / services and make them available. Marketer is also required to maintain the product and its variations in size, weight, package and price range according to the changing needs and requirements of his customers. Information available through Market Research helps product management in taking appropriate decisions while planning the marketing efforts.5. Selling – This function of marketing is concerned with transferring of products to the customer. An important part of this function is organizing sales force and managing their activities. Sales force management includes recruitment, training, supervision, compensation and evaluation of salesmen. They need to be assigned targets and territories where they can operate. The salesmen interact with prospective purchasers face-to-face in order to sell the goods. The purchaser may be end customer or an intermediary, such as a retailer or a dealer.6. Physical Distribution – Moving and handling of products from factory to consumers come under this function. Order processing, inventory, management, warehousing and transportation are the key activities in the physical distribution system.7. Pricing – This is perhaps the most important decision taken by marketer, as it is the only revenue fetching function and success and failure of the product may depend upon this decision. Therefore, the decision regarding how much to charge should be taken such that the price is acceptable to the prospective buyers and at the same time fetches profits for the company. While deciding on the price, the factors to be considered are competition; competitive prices company’s marketing policy, government policy, and the buying capacity of target market etc.
  • 4. Scope of marketing1. Product policy or planning Marketing research: it includes Identifying the consumer requirements. Collection of data Analysis of data, and Findings/ conclusions Motivation research It includes motivating the consumer through advertising, keeping the prices low, etc. Test marketing It includes testing the product in a similar area before it is launched in the market. It gives the manufacturer of a new product a foretaste of the consumer’s reactions to the product. 2. Distribution Distribution can be organized through various channels. Channels of distribution Manufacturer - distributor – wholesaler - retailer-consumer. Manufacturer - wholesaler – retailer – consumer. Manufacturer – retailer – consumer. Manufacturer – consumer. Transportation This involves transferring of goods or products to the buyers by ones own or hired transport. Warehousing This is a kind of arrangement made for storing goods in godowns, which may be ones own or hired. 3. Sales planning The sales plan of any company will be a part of any company’s marketing plan. This itself would be a part of company’s total plan. Sales plan helps in sales budgeting. A sales budget can be defined as the estimate of sales turnover and the likely selling expenses for the plan period normally for a year. The sales budget serves several purposes which includes: Setting up of sales targets for products, territories, etc. The targets can be broken down in a monthly basis to account for seasonality for each product, territory, etc. It sets up the expense limits under different heads. A budget can be used for the purpose of monitoring the actual performance of the sales efforts, for identification of deviations, the causes of the same and revision of the budget, if required. 4. Sales management This includes: Recruitment of a sales force or sales staff. Training and development of the sales staff. Fixing sales targets for the sales staff. Fixing incentives for the sales staff. 5. Miscellaneous marketing activities The 4 ps of marketing mix are: Product, price, place, promotion However of late great emphasis has begun to be laid on packaging as well.
  • 5. Nature of marketing:1. A marketer must deliver value for money: marketers have to track customer needs and deliver the product as per the requirements. This is not the end in itself. The company must satisfy the following equation: (Value= benefits/cost)2. Marketing system affect company strategy marketing has its own subsystems, which interact with each other to form complete marketing system that is responsive to company marketing strategy.3. Marketing creates mutually beneficial relationships: the customer is the focus of all marketing activities. But, since the beginning of 1990s; the focus is shifting to the way of doing business, the strategic aspects of marketing.4. Marketing is customer focused: Marketing intends to satisfy and delight the customer. Marketers can remain in the customer mind if they are provided value for what they spend. Customer focus can optimize costs for the customer while allowing the organizations focus on its core competencies.5. Marketing is surrounded by customer needs: Marketing starts with the identification of customer needs and requirements. These are turned into probable features that might satisfy the basic needs. The portable form of product is made out and presented before the customer for approval. The customer suggests changes or improvements in the portable product and the final product is brought before the customer.Marketing Orientations/Concepts: Companies adopt different philosophies to market their products and services. Ananalysis of evolution of marketing thought over last several decades and reliance of marketing managers onspecific marketing orientations, leads us to classify marketing concepts into several categories. Thesecategories reflect the philosophies guiding the company’s marketing efforts. The philosophy adopted by acompany should strike a balance between the interests of the company, customers, society and public. Thereare five competing concepts and an organization can choose any one of them for conducting marketingactivities.1. The Production Concept – This is one of the oldest concepts of marketing and assumes that consumerswill prefer those products and services that are easily available and affordable.Companies which adopt this philosophy for their marketing should focus on improving production anddistribution efficiency. Production concept is a useful philosophy under situations where demand is morethan supply and the companies are trying to increase production and when production costs are high.Companies are trying to achieve economies of scale. Under such conditions, it is likely that quality ofproducts is neglected and service to customers is very impersonal.2. The Product Concept assumes that consumers will prefer those products that offer quality,performance or innovative features. Managers in such companies focus on developing superior productsand improving the existing product lines by devoting time to innovations. The problem with this orientationis that managers forget to read the customer’s mind and launch products based on their own technologicalresearch and scientific innovations. Very often it is observed that innovations enter the market before themarket is ready for the product, or is aware or clear about its benefits. This product oriented management with excessive attention to product rather thancustomer leads to shortsightedness about business. This was termed as “Marketing Myopia” by Prof.Theodore Levitt of Harvard Business School. He recommended that companies should have a clearer andbroader vision of business they are in and should adapt to the changes in the needs of the customers and inthe environment. For example, a company like KODAK should not think they are only in the business of
  • 6. selling cameras and photographic films. They should believe that they are in the business of preservingmemories for customers and photography in general.3. The Selling Concept – The Selling concept assumes that consumers generally, will not buy acompany’s products unless aggressive selling and promotion efforts are undertaken. It also holds thatconsumers typically do not think of buying these products which are nonessential goods withoutpersuasion or aggressive selling action. Use of this concept leads people to believe that marketing is allabout selling. The problem with this approach is the belief that the customer will certainly buy the productafter persuasion and will not complain even if dissatisfied.In reality, this does not happen and companies pursuing this concept fail in business. This approach isapplicable in the cases of unsought goods such as life insurance, vacuum cleaners that buyers normally donot think of buying. E.g. Insurance policies etc..4. The Marketing Concept The Marketing Concept proposes that a company’s task is to create, communicate and deliver abetter value proposition through its marketing offer, in comparison to its competitors; to its target segmentand that this customer oriented approach only can lead to success in the market place. Today, marketingfunction is seen as one of the most important function in the organization. Many marketers put thecustomers at the centre of the company and argue in favor of such a customer orientation where allfunctions work together to respond, serve and satisfy the customer.5. Holistic marketing Concept: The holistic marketing concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognizes their breadth and interdependencies. Holistic marketing is thus an approach to marketing that attempts to recognize and reconcile the scope and complexities of marketing activities. Relationship marketing- it aims at building up the good relationship for long-term with key parties- customers, suppliers, distributors, and other marketing partners- in order to earn and retain their business. It involves cultivating the right kind of relationship with the right constituent group. Integrated marketing- the marketer’s task is to device marketing activities and assemble fully integrated marketing programs to create, communicate, and deliver value for consumers. One traditional depiction of marketing activities is in the terms of marketing mix, which has been defined as the set of marketing tools. These tools broadly grouped in four, which are: product, price, place and promotion. Internal marketing- holistic marketing incorporates internal marketing, ensuring that everyone in the organization embraces appropriate marketing principles, especially senior management. Internal marketing is the task of hiring, training, and motivating able employees who want to serve customers well.
  • 7. Social Responsibility marketing- holistic marketing incorporates social responsibility marketing and understanding broader concerns and the ethical, environmental, legal, and social context of marketing activities and programs.The Marketing Environment: A companys marketing environment consists of "the actors and forces outside marketing that affect marketing managements ability to develop and maintain successful transactions with its target customers" It is important for a company to evaluate both its micro and macro environment in order to identify any trends that are occurring that may require them to alter their marketing strategy. A marketing oriented company always keeps tab on its external environment carefully to analyze opportunities and threats. This external environment influences company’s strategies in two levels i.e. external macro environment and external micro environment. The macro environment involves political and legal, economic and natural, social and cultural and technology environment. The micro environment consists of supply chain, customer and competitor. These factors are uncontrollable by the organization. Even the best company faces threat if one of the external environments is adverse to it. A moderate company will be successful if the external environment favors it. Hence marketing companies should monitor the external environment carefully and continuously.Environmental scanning: “This is the process of gathering, analyzing and forecasting of external environments’ information toidentify opportunity and threats that company faces”.Need for environmental scanning:It helps in1. Identifying the opportunities that company has in immediate future.2. Identifying the threats faced by the company.3. Demand forecasting4. Developing appropriate business plans.5. Adjusting the company strategy in changing competitive environment.Micro-environment: The forces which are very close to company and have impact on valuecreation and customer service.
  • 8. Note: Describe all the points in yourown languageMarketing intermediaries: The firms whichdistribute and sell the goods of the company to theconsumer.Publics: These are microenvironment groups, whichhelps company to generate the financial resources,creating the image, examining the companies’ policyand developing the attitude towards the product.Competitors: A company should monitor itsimmediate competitor. The product should bepositioned differently and able to provide betterservices.Suppliers: suppliers are the first link in the entiresupply chain of the company.Customers: A company may sell their productsdirectly to the customer or use marketingintermediaries to reach them. Direct or indirectmarketing depends on what type of marketsCompany serves.The company: company consists of No of resources like Human resources, financial resources, etc.All the resources are arranged into a particular symmetry depending upon the strategies and plans. That directly or indirectlyaffects the company’s micro environment.*********************************************************************************************************************************************************Company’s macro environment: Demography: The study of population characteristics like size, density, location, gender composition, age structure, occupation and religion. Demography statistics helps companies to develop their products in better way. These statistics are also used in developing proper supply chain, communicating product information and changing the product attributes. Demographic environment is analyzed on the basis of the following factors.1. Age structure of the population2. Marital status of the population3. Geographic distribution of the population4. Education level5. Occupation.Political & Legal Environment:Government policies, legislations,regulations, and stability will directlyaffect the business. Therefore it is inevitable for the firm to closely monitor this environment.Economic & Natural Environment:It will include Monthly per capita consumption in rural area & urban Areas, Interest rate, Inflation, Changesin Income.Social and cultural environment:
  • 9. Social and cultural environment refers to the influence exercised by certain social factor which are “beyond the companies gate” Culture refers to dance, drama, music and festival include Knowledge, belief, art, moral, law, customs & others capabilityTechnology environment:Growth of information technology and biotechnology industries: Information technology hasrevolutionized the lives of the people. It bought dramatic changes in the way organizations operates. Ithelped in cost reduction, automation, better communication and efficiency in the organizations. Indianbanks few years ago use to take lengthy time to process the customer requests reduced it to few hoursbecause of information technology.
  • 10. Chapter 2Consumer buying behavior: consumer decision making process (five step model), factors affectingbuying behavior, purchase behavior, buyer’s role. Consumer Buying behavior: Consumer behaviour is the study of when, why, how, and where people do or do not buy product. Itblends elements from psychology, sociology, social anthropology and economics. It attempts to understand thebuyer decision making process, both individually and in groups. It helps to study: What are the needs of consumer & what they are buying? Why they are buying? Who is actually buying or influencing the decision? When do the customers make purchase? From where the buy? How do the buy? What factors affect their purchasing decision? How often they buy & use a particular product?Types of consumers:We can broadly divide into two types:1 Individual consumer: these consumers purchase goods or services for their personal usage, householdconsumption, and consumption by any family member or presenting a gift to friend or family. E.g. LCD, Hometheatre etc. a consumer basically buys these products for final usage & may be called as end user or ultimateconsumer.2 Organizational consumers: these included industrial houses & govt. agencies or institutions. (I.e. bothprofitable and non profitable organizations) these organizations buy good & services to run their daily operations.E.g. manufacturing firm’s buys raw material, & advertising agency may require some office material likedecorations, lights or furniture’s.Types of consumer buying behavior: Routine Response/Programmed Behavior--buying low involvement, frequently purchased low costitems; need very little search and decision effort; purchased almost automatically. Examples include softdrinks, snack foods, milk etc. Limited Decision Making--buying product occasionally. When you need to obtain information aboutunfamiliar brand in a familiar product category, perhaps. Requires a moderate amount of time forinformation gathering. Examples include Clothes--know product class but not the brand. Extensive Decision Making/Complex high involvement, unfamiliar, expensive and/or infrequentlybought products. High degree of economic/performance/psychological risk. Examples include cars,homes, computers, education. Spend a lot of time seeking information and deciding.Information from the companies MM; friends and relatives, store personnel etc. Go through all fivestages of the buying process. Impulse buying: no conscious planning. The purchase of the same product does not elicit the samebuying behavior. Product can shift from one category to next. E.g. going out for a dinner for one personmay be extensive decision making, but limited decision making for someone else. The reason for dinner,whether it is a celebration purpose or a meal with couple of friends also determine the extent if decisionmaking.Elicit (draw, bring out, Extract)
  • 11. Consumer Buying Behaviour model:1. Problem Recognition (awareness of need)—the process of buyer’s decision making initiateswhen the buyer recognizes a particular need. This need may be a new one or an existing problemwhich a customer is facing & want a solution for it. E.g. a person does not have vehicle for going tooffice & he is facing a problem of being late. So here the need of that person is to purchase vehicle whichne never feel while he was in college days.Or need can be stimulated by the marketer through product information--? I.E., see a commercialfor a new pair of shoes, stimulates your recognition that you need a new pair of shoes.2. Information search--o Internal sources like memory.o External sources, if you need more information. Friends and relatives (word of mouth). Marketerdominated sources; comparison shopping; public sources etc. A successful information search leaves abuyer with possible alternatives, the evoked set. Evoke(call to mind, Suggest, remind or inducing)Hungry, want to go out and eat, evoked set iso Chinese food, Indian food, burger king or somewhere in canteen or dhabha.o Or just remember the advertisement of some pain reliever like fast relief or volini (cream or spray)3. Evaluation of Alternatives--need to establish criteria for evaluation, features the buyer wants or doesnot want. Rank/weight alternatives or resume search. May decide that you want to eat something spicy,Indian (Punjabi) gets highest rank etc. If not satisfied with your choice then returns to the search phase.Can you think of another restaurant? Selection of alternatives can be done on the basis of followingfactors. (Benefit selection, Features selection, brand selection & Price selection)4. Purchase decision—after evaluation all the alternatives, consumer is now ready to make the finalpurchase decision about the brand or product. The actual purchase decision about the product or brand.At this stage questions like “when to buy” “from where to buy” also affects the purchasing decisions.After all deep consideration finally a customer takes a decision to purchase the selected product orservice.5. Post-Purchase Evaluation--outcome: Satisfaction or Dissatisfaction. Cognitive Dissonance, have youmade the right decision. This can be reduced by warranties, after sales communication etc.After eating an Indian meal, may think that really you wanted a Chinese meal instead.Dissonance (difference, conflict or disagreement) & Cognitive (possessing the power to think or meditate;meditative; capable of perception; aware; perceptive)
  • 12. Exposure: (contact, experience, disclosure, publicity)Comprehension: (understanding, knowledge, command, conception)Retention: (withholding, maintenance, custody)
  • 13. Factors influencing buying behavior:Buyer is not only the single identity who takes all the decisions: rather there are lot of factors (like cultural,social, personal, & psychological factors) which influence customer behavior.1. Cultural factors: A) culture is one of the most dominating factors which build the beliefs & the behavior of a person. These factors are related to the cultural practices & beliefs by the society as whole in a region or country. Here culture is a set of values, beliefs, behaviors, & customs that differentiate societies from one another. A society’s culture prescribes the rules & regulations, which determine how companies operate in a particular region. (Customs: background, traditions, way of life, civilization.). B) Subculture: this is a smaller group that deviates from main culture & provides identity to its members. A culture can be divided into subcultures on the basis of various factors such as geographic region, demographic characteristics, political beliefs & religion etc. best example of subculture is India, which is one of the most religiously diverse nations in the world. C) Social Class: refers to the hierarchical arrangement of society into v arious divisions, each of which signifies social status. It is an imp determinant of buyer behaviors it affects consumption patterns, activities & interest of consumers. We may classify them according to income of a group like upper class, upper middle classes, medium class or base class. 2. SOCIAL FACTORS: A) Family: is the strongest affecting group of consumer behavior. This group includes parents, grandparents, spouse & children, who always derives the behavior of individual from grandparents & parents one acquires orientation towards culture, religion, economics, sense of personal ambition, self worth & love. Then next come to spouse & children, who exert a more direct influence on every day buying behavior.
  • 14. B) Reference groups: these are various groups of people with whom consumer interacts formally or informally & learn attitude, beliefs, & ethics. Influence of these groups on individual depends upon the frequency of interaction. C) Roles & status: the role that a consumer playing in society or the status he has gained in society directly influences the CBB.3. Personal factors: A. Age & gender: starting from the birth of child to his final stage: his tastes, preferences & behavior never remain same. It keeps on changing from time to time depending upon previously discussed factors. That is why marketers keep a deep focus on particular age group. E.g. Nestle Milo for growing up children or Cerelac for infant (toddler, baby) & Nestle classic for Men /adults. Similarly gender plays role as age group. Tastes & preferences of males & females always remain different. Both groups of males & females always behave differently as their personality, style attitude, briefs & behaviors. B. Occupation: buyer’s consumption patterns are also strongly influences by his occupation or profession & his income level. C. Family life cycle: it plays crucial role individual decision making process. Life cycle passes from many successive (succeeding, following, & straight) stages like introduction, growth, maturity & decline. ( young single(young age, unmarried, earning having choices saving, entertainment, new clothes, fashion etc.), young couple( includes newly married couple move from single to couple, demands commitment from relationship , earn more to proceed in life with comfort), full nest( parenthood stage which starts after the birth of first child, include increase in responsibilities as mothers leave their job in order to give full attention to their child), empty nest(stage comes when children grows up to adulthood & leaves the home to established a life of their own. Mostly occurs at retirement stage.) or older single( most difficult & harder stage as one of the spouse falls ill or even passes away & the other spending their saving on medicines so as to maintain his/her health.)4. Psychological Factors Affecting Buyers Choice: A. Motivation: A motive is a need that has a sufficient level of intensity. Creating a tension state that drives the person to act. Or satisfying the need reduces the felt tension. B. Beliefs and Attitudes: An attitude describes a person’s relatively consistent evaluations, feelings, and tendencies toward an object or idea. C. Perception: The process by which an individual selects, organizes, and interprets information inputs to create a meaningful picture of the world. D. Learning: Changes in an individual’s behavior arising from experience.
  • 15. CHAPTER: Market Segmentation:Market Segmentation: The breaking down or building up of potential buyers into groups calledsegmentation.Market Segments: Dividing a market into distinct groups of buyers on the basis of needs,characteristics or behavior that might require separate market mixes.WHY SEGMENTATION?Market segmentation is used by marketers as a strategic marketing tool for defining the market &thereby allocating the resources effectively. No company can control global market by considering it asingle unit. Co’s have to divide a global market into segments.As in map of India, United India or Complete Map is a BIG market that consists for four zones viz.NORTH, SOUTH, EAST & WEST.But to provide services effectively & in order to fulfill the demands of each segment segmentation isdone.Reasons for Market Segmentation/ Benefits:As already stated, segmentation is the basis for developing targeted and effective marketing plans.Furthermore, analysis of market segments enables decisions about intensity of marketing activities inparticular segments. A segment-orientated marketing approach generally offers a range of advantagesfor both, businesses and customers.Better serving customers’ needs and wants  It is possible to satisfy a variety of customer needs with a limited product range by using different forms, bundles, incentives and promotional activities. The computer manufacturer Dell, for instance, does not organize its website by product groups (desktops, notebooks, servers, printers etc), but by customer groups (privates, small businesses, large businesses, public/state organizations). They offer the same products to all customer groups. Nevertheless, they suggest product bundles and supporting services that are individually tailored for the needs of each particular group. As an example, Dell offers to take on all IT-administration for companies. This service provides a huge potential for savings for corporate customers. However, it would be absolutely useless for private customers. Thus, segment-specific product bundles increase chances for cross selling.Higher Profits  It is often difficult to increase prices for the whole market. Nevertheless, it is possible to develop premium segments in which customers accept a higher price level. Such segments could be distinguished from the mass market by features like additional services, exclusive points of sale, product variations and the like. A typical segment-based price variation is by region. The generally higher price level in big cities is evidence for this.Opportunities for Growth  Targeted marketing plans for particular segments allow to individually approach customer groups that otherwise would look out for specialized niche players. By segmenting markets, organizations can create their own ‘niche products’ and thus attract additional customer groups.
  • 16. Sustainable customer relationships in all phases of customer life cycle  Customers change their preferences and patterns of behavior over time. Organizations that serve different segments along a customer’s life cycle can guide their customers from stage to stage by always offering them a special solution for their particular needs. For example, many car manufacturers offer a product range that caters for the needs of all phases of a customer life cycle: first car for early twenties, fun-car for young professionals, family car for young families, etc. Skin care cosmetics brands often offer special series for babies, teens, normal skin, and elder skin.Targeted communication  It is necessary to communicate in a segment-specific way even if product features and brand identity are identical in all market segments. Such a targeted communications allows stressing those criteria that are most relevant for each particular segment (e.g. price vs. reliability vs. prestige).Stimulating Innovation  An undifferentiated marketing strategy that targets at all customers in the total market necessarily reduces customers’ preferences to the smallest common basis. Segmentations provide information about smaller units in the total market that share particular needs. Only the identification of these needs enables a planned development of new or improved products that better meet the wishes of these customer groups. If a product meets and exceeds a customer’s expectations by adding superior value, the customers normally is willing to pay a higher price for that product. Thus, profit margins and profitability of the innovating organizations increase.Higher Market Shares  In contrast to an undifferentiated marketing strategy, segmentation supports the development of niche strategies. Thus marketing activities can be targeted at highly attractive market segments in the beginning. Market leadership in selected segments improves the competitive position of the whole organization in its relationship with suppliers, channel partners and customers. It strengthens the brand and ensures profitability. On that basis, organizations have better chances to increase their market shares in the overall market. ADVANTAGES OF MARKET SEGMENTATION Better Knowledge of the Customer: for grouping the whole heterogeneous market into different homogeneous segments, marketers need to know deeply the needs & wants of consumers. They analyze the consumers & their needs very minutely & get the information about which product consumer will prefer to buy or which one not. Adjustment/Installation of products to market needs: a better understanding of consumer helps the marketers to adjust their products & services according to their needs of different market segments, which ultimately helps in increasing brand loyalty & decreasing the brand switching. Earn more profits: when different products serve the different needs of all consumers, it automatically helps the org. to capture major market share & helps in earning more profits. Develop effective marketing plan: segmentation allows the marketers to develop a better & effective marketing plan through matching a product or service to the needs of the target market.
  • 17.  Better Targeting & positioning of the product: segmentation is the first step in STP process or framework. After dividing the entire market into different homogeneous segments, it becomes easy for co’s to target particular market & developing marketing strategies according to market or consumer needs. Segmentation improves the market position: it improves the positioning of the co’s by finding how well products & services will meet the target market needs, compared to how well its competitors’ products or services meet those needs. This provides a clear picture about their market position & effective ways to maintain or improve their position. Helps to come out cut throat competition effectively: it helps a co to understand the target market. & improving the competitive positioning by differentiating their products from competitors. It also reduces competition by competing in more narrowly defined markets. Better resources allocation: co. resources are MEN, MONEY, MACHINE, and MATERIAL. Or Products & services. Clearly defined segments help to install reqd. products /services or any of 4M’s by developing appropriate marketing mix.ADVANTAGES OF MARKET SEGMENTATION: (**if come in 5 marks) The following are the advantages of Market Segmentation for a firm: 1. Helps in better understanding of the customers’ needs and wants. 2. Better targeting and position of the product. 3. Encourages two-way communication among the potential buyer and the organization. 4. Maintaining effective relationship with the customers. 5. Retaining the existing customers and attracting new ones. 6. Improving service delivery standards. 7. Reducing cost / expenses on various marketing activities and increases market share; resulting in higher profits. 8. Better understanding of the consumer. 9. Lesser competition 10. Better marketing mix 11. Better Distribution channel 12. Good for medium size firms BASIS OF SEGMENTATION, OR HOW SEGMENTATION IS DONE?
  • 18. 1. Consumer based:These mostly based on the characteristics of the consumers. It further includes personal, psychographic& geographic factors. Under this, marketers can also use single base or multiple bases according to therequirement.A. DEMOGRAPHIC FACTORS: is the study of total population in terms of age , gender, education, income, family life cycle, marital status & religion etc.a) Age: Infants market(0 to 1 year) , child market( 1 to 12 years) , teenagers market( 13 to 19 years), adolescent market(16 to 19 years), college going market youngsters(20 to 26 years), youth market( 27 to 35 years), Mid age market( 36 – 50 yrs) , old age market( 51 yrs & above).b) Gender: based on the basis of the gender (Male & female) e.g. Cosmetic market, automobile market like Scoters, bikes & Scotties.c) Education: affects largely the buying preferences, tastes, attitude & behavior of consumers. An educated customer is more aware about the product & services plus its features & benefits than a less educated person.d) Occupation, Income: the job status you hold. Different professional will choose different products. E.g. Top management like to have Mercedes, BMW’s, Middle management satisfies themselves in Honda, Hyundai Sedan Cars. & Line management likes to have Hatchback segments or two wheelers.e) Family life cycle: (young single, young couple, full nest, empty nest & older single).B. PSYCHOGRAPHIC FACTORS:Relates to psychology of consumers. a) Perception: is the process of receiving & interpreting the received information with mind or senses. Buying patterns of consumers is largely determined by their perception. For instance, consumer largely perceives luxury items as a status symbol. While for others it is just money wastage.
  • 19. b) Personality characteristics: are the individual characteristics, attitudes & habits that differentiate them from others. These charts includes thriftiness (relates to Economy), extroversion (sociability), introversion (nervousness), aggressiveness (violence), ambitiousness etc. c) Attitudes: of a person is the combination of his beliefs, affects & behavior. It reflects that how a consumer feels& reacts about the product & services. d) Motives: is some unsatisfied need of a consumer that directs his behavior to purchase something to fulfill that need. Small to small purchase by consumer is related to a motive or need .e.g. several co’s has launched golden eye technology TV’s or monitors in order to fulfill the motive of eye protection needs.C. GEOGRAPHIC BASED FACTORS:Done on the basis of location. a) Geographical units: comprises of different countries, states, regions, cities etc. within a country or region, this segmentation can further be carried out as east zone , west, south & north, central, coastal or hilly zone. Marketers divide the products & services according to the need of each zone or segment. E.g. cream for cold areas moisturizing cream, for dry it may be sun protection cream. b) Geographical variables: like natural resources, population density etc. or climate like (foot wares, clothings etc).2. PRODUCT RELATED SEGMENTATION: a) Occasional purchase: When a product is consumed or purchased. It may be regular occasion like morning, afternoon or evening or special occasion like festival season like Diwali, Valentine’s Day. 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. Special Gifts items are marketed for special occasions. b) Product Usage Some markets can be segmented into light, medium and heavy user groups. For example, domestic users or industrial users. c) Brand Loyalty: Loyal consumers those who buy one brand all or most of the time - are valuable customers. Many companies try to segment their markets into those where loyal customers can be found and retained compared with segments where customers rarely display any product loyalty. The holiday market is an excellent example of this.. d) Benefits Sought: What benefit the customers are searching for in the given product also makes a different segment. Benefit segmentation requires Marketers to understand and find the main benefits customers look for in a product. An excellent example is the toothpaste market where research has found four main "benefit segments" - economic; medicinal, cosmetic and taste. KOTLER MENTIONS FIVE CRITERIA FOR AN EFFECTIVE SEGMENTATION: 1. Measurable: It has to be possible to determine the values of the variables used for segmentation with justifiable efforts. This is important especially for demographic and geographic variables.
  • 20. For an organization with direct sales (without intermediaries), the own customer database could deliver valuable information on buying behavior (frequency, volume, product groups, mode of payment etc). 2. Relevant: The size and profit potential of a market segment have to be large enough to economically justify separate marketing activities for this segment. 3. Accessible: The segment has to be accessible and servable for the organization. That means, for instance, that there are target-group specific advertising media, as magazines or websites the target audience likes to use. 4. Distinguishable: The market segments have to be that diverse that they show different reactions to different marketing mixes. 5. Feasible: It has to be possible to approach each segment with a particular marketing program and to draw advantages from that. STRATEGIES FOR MARKET SEGMENTATIONUndifferentiated strategy: The organisation that follows this strategy designs a single marketing mix for the entire market. The followers of this strategy hold the assumption that all consumers of their segment have similar needs for a specific kind of product. There is homogeneous market, or demand is so diffused it is not worthwhile to differentiate, and marketers try to make demand more homogeneous. Single MM consists of: 1. Single Pricing strategy 2. Single Promotional program aimed at everybody 3. Single Type of product with little/no variation 4. Single Distribution system aimed at entire market This strategy is successful only when organization is able to develop and maintain a single marketing mix. The main objective of this approach is to maximize the sales.Concentration strategy: An organisation that adopts concentration strategy chooses to focus its marketing efforts on only one market segment. Only one marketing mix is developed. E.g. The manufacturer of Rolex watches has chosen to concentrate on the luxury segment of the watch market. An organisation that adopts a concentration strategy gains an advantage by being able to analyze the needs and wants of only one segment and then focusing all its efforts on that segment. This can provide a differential advantage over other organisations that market to this segment but do not concentrate all their efforts on it. The primary disadvantage of concentration is related to the demand of the segment. As long as demand is strong the financial position of the organisation will also be strong but if demand declines the organization’s financial position will also declines.Differentiated marketing segmentation: It is also called multi segment marketing. Market coverage strategy whereby a company attempts to appeal to two or more clearly defined market segments with a specific product and unique
  • 21. marketing strategy tailored to each separate segment. Typically differentiated marketing createsmore total sales than undifferentiated marketing, but it also increases the costs of doing business.OrA strategy that recognizes different preferences of individual market segments and develops aunique marketing mix for each.
  • 22. Chapter (4) Marketing mix: 4ps of products & 7ps of services, components & factors affecting: Marketers use different tools in order to get the desired response from the customers or best satisfy their needs. These tools are known as The Marketing Mix. Marketing Mix Marketing Mix is a combination of marketing tools that a company uses to satisfy their target customers and achieving organizational goals. McCarthy classified all these marketing tools under four broad categories: 1. Product 2. Price 3. Place 4. Promotion These four elements are the basic components of a marketing plan and are collectively called 4 P’s of marketing. 4 P’s relate more to physical products than services. The important thing to note is that all these four P’s (variable) are controllable, subject to internal and external constraints of marketing environment. Marketers, using different blends of these variables, can target different group of customers having different needs. So, a customer may call marketing mix “the offering”.1. PRODUCT Product is the actual offering by the company to its targeted customers which also includes value added stuff. Product may be tangible (goods) or intangible (services).While formulating the marketing strategy, product decisions include: What to offer? Brand name: Name to be given to product. Packaging: An appealing, Hygienic and protective packing. Quality: In terms of Durability and Reliability. Appearance: The Looks, Design, Colors and style.
  • 23. Functionality: Features and utility to customers. Accessories: The value on Parts or spares to be provided. Installation: The perfect place of launch. After sale services: Important part for customer satisfaction. Warranty: A stipulated time period for offering free repairs.2. PRICE Price includes the pricing strategy of the company for its products. How much customer should pay for a product? Pricing strategy not only related to the profit margins but also helps in finding target customers. Pricing decision also influence the choice of marketing channels. Price decisionsinclude: Pricing Strategy :(Penetration, Skimming, etc.) List Price: Payment period: Discounts: Financing: Credit terms: Using price as a weapon for rivals is as old as mankind. but it’s risky too. Consumers are often sensitive for price, discounts and additional offers. Another aspect of pricing is that expensive products are considered of good quality.3. PLACE (PLACEMENT): It not only includes the place where the product is placed, all those activities performed by the company to ensure the availability of the product tot he targeted customers. Availability of the product at the right place, at the right time and in the right quantity is crucial in placement decisions. Placement decisionsinclude: Placement: Distribution channels: Logistics: Inventory: Order processing: Market coverage: selection of channel members:4. PROMOTION Promotion includes all communication and selling activities to persuade future prospects to buy the product. Promotion decisions include: Advertising: Media Types: Message: Budgets: Sales promotion: Personal selling: Public relations: Direct marketing:
  • 24. SERVICE MIX OF MARKETING (7P’S OF SERVICES) The service marketing mix is also known as an extended marketing mix and is an integral part of a service blueprint design. The service marketing mix consists of 7 P’s as compared to the 4 P’s of a product marketing mix. Simply said, the service marketing mix assumes the service as a product itself. However it adds 3 more P’s which are required for optimum service delivery. The product marketing mix consists of the 4 P’s which are Product, Pricing, Promotions and Placement. These are discussed in my article on product marketing mix – the 4 P’s. The extended service marketing mix places 3 further P’s which include People, Process and Physical evidence. All of these factors are necessary for optimum service delivery. Let us discuss the same in further detail. Product – The product in service marketing mix is intangible in nature. Like physical products such as soap or a detergent, service products cannot be measured. Tourism industry or the education industry can be an excellent example. At the same time service products are heterogeneous, perishable and cannot be-owned. The service product thus has to be designed with care. Generally service blue printing is done to define the service product. For example – a restaurant blue print will be prepared before establishing a restaurant business. This service blue print defines exactly how the product (in this case the restaurant) is going to be. Place - Place in case of services determine where is the service product going to be located. The best place to open up a petrol pump is on the highway or in the city. A place where there is minimum traffic is a wrong location to start a petrol pump. Similarly a software company will be better placed in a business hub with a lot of companies nearby rather than being placed in a town or rural area. Promotion – Promotions have become a critical factor in the service marketing mix. Services are easy to be duplicated and hence it is generally the brand which sets a service apart from its counterpart. You will find a lot of banks and telecom companies promoting themselves rigorously. Why is that? It is because competition in this service sector is generally high and promotions is necessary to survive. Thus banks, IT companies, and dotcoms place themselves above the rest by advertising or promotions. Pricing – Pricing in case of services is rather more difficult than in case of products. If you were a restaurant owner, you can price people only for the food you are serving. But then who will pay for the nice ambience you have built up for your customers? Who will pay for the band you have for music? Thus these elements have to be taken into consideration while costing. Generally service pricing
  • 25. involves taking into consideration labor, material cost and overhead costs. By adding a profit mark-upyou get your final service pricing. You can also read about pricing strategies.Here on we start towards the extended service marketing mix.People – People is one of the elements of service marketing mix. People define a service. If you have anIT company, your software engineers define you. If you have a restaurant, your chef and service staffdefines you. If you are into banking, employees in your branch and their behavior towards customersdefine you. In case of service marketing, people can make or break an organization. Thus manycompanies nowadays are involved into specially getting their staff trained in interpersonal skills andcustomer service with a focus towards customer satisfaction. In fact many companies have to undergoaccreditation to show that their staff is better than the rest. Definitely a USP (Unique SellingProposition), in case of services.Process – Service process is the way in which a service is delivered to the end customer. Lets take theexample of two very good companies – Mcdonalds and Fedex. Both the companies thrive on theirquick service and the reason they can do that is their confidence on their processes. On top of it, thedemand of these services is such that they have to deliver optimally without a loss in quality. Thus theprocess of a service company in delivering its product is of utmost importance. It is also a criticalcomponent in the service blueprint, wherein before establishing the service, the company definesexactly what should be the process of the service product reaching the end customer.Physical Evidence – The last element in the service marketing mix is a very important element. As saidbefore, services are intangible in nature. However, to create a better customer experience tangibleelements are also delivered with the service. Take an example of a restaurant which has only chairs andtables and good food, or a restaurant which has ambient lighting, nice music along with good seatingarrangement and this also serves good food. Which one will you prefer? The one with the niceambience. That’s physical evidence. Several times, physical evidence is used as a differentiator inservice marketing. Imagine a private hospital and a government hospital. A private hospital will haveplush offices and well-dressed staff. Same cannot be said for a government hospital. Thus physicalevidence acts as a differentiator.This is the service marketing mix (7p) which is also known as the extended marketing mix.
  • 26. Chapter: Product decisions: product definition, new product developmentprocess, and product life cycle, positioning, branding, packaging & labelingdecisions.NEW PERODUCT: A product is a set of benefits offered for exchange and can be tangible (that is, something physical you can touch) or intangible (like a service, experience, or belief). Or the end result of the manufacturing process, to be offered to the marketplace to satisfy a need or want.NEW PRODUCT DEVELOPMENT PROCESS: It is a Process of developing a new product or service for the market. This type of development is considered the primary step in product or service development and involves a number of steps that must be completed before the product can be introduced to the market. New product development may be done to develop an item to compete with a particular product/service or may be done to improve an already established product. New product development is essential to any business that must keep up with market trends and changes.1. Idea generation – in this you are basically involved in the systematic search for new product Ideas. A company has to generate many ideas in order to find one that is worth pursuing. The Major sources of new product ideas include internal sources, customers, competitors, distributors and suppliers. Almost 55% of all new product ideas come from internal sources according to one study. Companies like 3M and Toyota have put in special incentive programs or their employees to come up with workable ideas.Almost 28% of new product ideas come from watching and listening to customers.
  • 27. Customers: even create new products on their own, and companies can benefit by finding these products and putting them on the market like Pillsbury gets promising new products from its annual Bake-off. One of Pillsbury’s four cake mix lines and several variations of another came directly from Bake-Off winners’ recipes.2. Idea Screening: -The second step in New product development is Idea screening. The purpose of idea generation is to create a large pool of ideas. The purpose of this stage is to pare these down to those that are genuinely worth pursuing. Companies have different methods for doing this from product review committees to formal market research. It, is helpful at this stage to have a checklist that can be used to rate each idea based on the factors required for successfully launching the product in the marketplace and their relative importance. Against these, management can assess how well the idea fits with the company’s marketing skills and experience and other capabilities. Finally, the management can obtain an overall rating of the company’s ability to launch the product successfully.3. Concept Development and Testing – The third step in New product development is Concept Development and Testing. An attractive idea has to be developed into a Product concept. As opposed to a product idea that is an idea for a product that the company can see itself marketing to customers, a product concept is a detailed version of the idea stated in meaningful consumer terms. This is different again from a product image, which is the consumers’ perception of an actual or potential product. Once the concepts are developed, these need to be tested with consumers either symbolically or physically. For some concept tests, a word or a picture may be sufficient, however, a physical presentation will increase the reliability of the concept test. After being exposed to the concept, consumers are asked to respond to it by answering a set of questions designed to help the company decide which concept has the strongest appeal. The company can then project these findings to the full market to estimate sales volume.4. Marketing Strategy Development – This is the next step in new product development. The strategy statement consists of three parts: the first part describes the target market, the planned product positioning and the sales, market share and profit goals for the first few years. The second part outlines the product’s planned price, distribution, and marketing budget for the first year. The third part of the marketing strategy statement describes the planned long-run sales, profit goals, and the marketing mix strategy. Business Analysis – Once the management has decided on the marketing strategy, it can evaluate the attractiveness of the business proposal. Business analysis involves the review of projected sales, costs and profits to find out whether they satisfy a company’s objectives. If they do, the product can move to the product development stage.5. Product Development - Here, R&D or engineering develops concept into a physical product. This step calls for a large investment. It will show whether the product idea can be developed into a full- fledged workable product. First, R&D will develop prototypes that will satisfy and excite customers and that can be produced quickly and at budgeted costs. When the prototypes are ready, they must be tested. Functional tests are then conducted under laboratory and field conditions to ascertain whether the product performs safely and effectively.6. Test Marketing – If the product passes the functional tests, the next step is test marketing: the stage at which the product and the marketing program are introduced to a more realistic market settings. Test marketing gives the marketer an opportunity to tweak the marketing mix before the going into
  • 28. the expense of a product launch. The amount of test marketing varies with the type of product. Costs of test marketing can be enormous and it can also allow competitors to launch a “me-too” product or even sabotage the testing so that the marketer gets skewed results. Hence, at times, management may decide to do away with this stage and proceed straight to the next one:7. Commercialization – The final step in new product development is Commercialization.Introducing the product to the market-it will face high costs for manufacturing and advertising and promotion. The company will have to decide on the timing of the launch (seasonality) and the location (whether regional, national or international). This depends a lot on the ability of the company to bear risk and the reach of its distribution network. Today, in order to increase speed to market, many companies are dropping this sequential approach to development and are adopting the faster, more flexible, simultaneous development approach. Under this approach, many company departments work closely together, overlapping the steps in the product development process to save time and increase effectiveness. PRODUCT LIFE CYCLE:The Product Life Cycle (PLC) is similar to the biological life cycle. For example, a seed is planted(introduction); it begins to grow (growth); it shoots out leaves and puts down roots as it becomes anadult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).Introduction.Here the need for immediate profit is not a pressure. The product is promoted to create awareness. Ifthe product has no or few competitors, a skimming price strategy is employed. Limited numbers ofproduct are available in few channels of distribution. Also include High Promotional Cost, Low & slowSale pattern.Growth.Competitors are attracted into the market with very similar offerings. Products become more profitableand companies form alliances, joint ventures and take each other over. Advertising spend is high andfocuses upon building brand. Sale of product grows up with time. Market share tends to stabilise.
  • 29. Maturity. Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. In this stage Producers attempt to differentiate products. In maturity stage Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and uses a greater variety of media. Only strategy to survive in this stage is to do product innovation and differentiation to feed up customer expectations and taste for something new. “It is well said: Do Innovation or Die”. Decline. At this point there is a downturn or downfall in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market due to poor innovation and lower sales. Companies can bounce back if they take timely and corrective actions like, Profits can be improved by reducing marketing spend and cost cutting, Innovation and differentiation can also be helpful if used without wasting the time. The best examples of companies surviving in competitive environment are MARUTI SUZUKI, NOKIA, SAMSUNG, LIFEBOY and many more. Problems with Product Life Cycle. In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. POSITIONING PRODUCT FOR COMPETITIVE ADVANTAGE:It is known as arranging for a product to occupy a clear, distinctive, and desirable place relative tocompeting products in the minds of target consumers. Best positioning examples are (Bata/Liberty –durable), (Tide – powerful), (Toyota – economy), (Cadillac/Mercedes – luxury), (Dettol soap – healthand hygiene).Choosing a Positioning StrategyThe positioning task consists of three steps:1. Identifying possible competitive advantages: offer consumers greater value, either throughlower prices or by providing more benefits that justify higher prices. Offer and deliver. “In what specificways company can differentiate its offer”?Market offer can be differentiated along the lines of product, services, channels, people, or image.a) Product differentiation: little variation (chicken, steel); highly differentiated (automobiles,clothing, furniture). • Form – size, shape (aspirin – color, coating, shape) • Features – Oral – B (added blue dye in the center bristles that fades) • Durability – vehicles, kitchen appliances, must not be subject to rapid technological obsolescence (PC, Video cameras) • Reliability – which company, which manufacturer? (real estate)
  • 30. • Reparability – (auto mobiles)b) Services differentiation: speedy, convenient, careful delivery.c) Channel differentiation: channels’ coverage, expertise, and performance. Caterpillar, Delld) Image differentiation: company or brand image Sonye) Symbols: McDonald’s golden arches, apple for Apple computer.2. Choosing the right competitive advantages: it speaks about (How many differences to promoteand which ones).How many differences to promote: only one benefit (Colgate– anti cavity protection), more than onebenefit (Pears Soap – three-in-one bar soap i.e. offering cleansing, moisturizing and deodorizingbenefits).Marketers should avoid three major positioning errors. (Under positioning, over positioning, confusedpositioning).Which differences to promote: important, distinctive, superior, communicable, defensive, affordable,profitable (Pepsi – crystal Pepsi, diet pepsi).3. Selecting an overall positioning strategy: value proposition – the full positioning of brand.Five winning value propositions upon which companies can position their products: More for more: produce high quality products, charge a high price, distribute through high quality dealers, advertise in high-quality media, hire and train more service people.upscale product at higher price (Mercedes-Benz automobiles; Haagen-Dazs ice cream) More for the same: Ad on services, 1+1 or 2, Surf excel or red label 10% extra free. The same for less: Big Bazar, Homeshop 18 etc. Less for much less:lower quality requirements in exchange for a lower price, Chinese products. More for less: winning value proposition. P&G , Dell, Thoshiba etc. BRANDING:Brands - introduction to BrandsA brand is an image associated with a product with unique character, for instance in design orfeature. It is reliable and well recognized among public. E.g. Nestle has Brands (Maggi, Hot & Sweet,Nescafé, Milk maid etc),Maruti Suzuki has brands (800cc, Alto, WagonR, Swift, Swift Dezire, Ertiga,SX4 etc).The advantages of having a strong brand are:  Inspires customer loyalty leading to repeat sales and word-of mouth recommendation. E.g. Toyota Innova, Dairy Milk, Éclairs and Homemade food at family restaurants.  The brand owner can usually charge higher prices, especially if the brand is the market leader. E.g. Honda Cars, Mercedes cars, Royal Enfield Motor cycles etc.  Retailers or service sellers want to stock top selling brands. With limited shelf space it is more likely the top brands will be on the shelf than less well-known brands. E.g. in Multi Brand Showrooms of Kapson, Reliance, Titan Eye etc.
  • 31. BRANDS - BUILDING A BRAND “What factors are important in building brand value”? Several factors are crucial in building successful brands, as illustrated in the diagram below:1. Quality: Quality is a vital ingredient of a good brand. Remember the “core benefits” – the things consumers expect. These must be delivered well, consistently. The branded washing machine that leaks, or the training shoe that often falls apart when wet will never develop brand equity.2. Positioning (**imp for 2 marks): Positioning is about the position a brand occupies in a market in the minds of consumers. Strong brands have a clear, often unique position in the target market. Positioning can be achieved through several means, including brand name, image, service standards, product guarantees, packaging and the way in which it is delivered. In fact, successful positioning usually requires a combination of these things.3. Repositioning (**imp for 2 marks): Repositioning occurs when a brand tries to change its market position to reflect a change in consumer’s tastes. This is often required when a brand has become tired, perhaps because its original market has matured or has gone into decline.4. Example of this can be repositioning of the (Thumbs Up) brand(Strong flavor) from a soft drink company.5. Communications: Communications also play a key role in building a successful brand. We suggested that brand positioning is essentially about customer perceptions – with the objective to build a clearly defined position in the minds of the target audience. All elements of the promotional mix need to be used to develop and sustain customer perceptions. Initially, the challenge is to build awareness, then to develop the brand personality and reinforce the perception.6. First-mover advantage: Business strategists often talk about first-mover advantage. In terms of brand development, by “first-mover” they mean that it is possible for the first successful brand in a market to create a clear positioning in the minds of target customers before the competition enters the market. There is plenty of evidence to support this. Think of some leading consumer product brands like Gillette, Coca Cola and Maruti that, in many ways, defined the markets they
  • 32. operate in and continue to lead. However, being first into a market does not necessarily guarantee long-term success. 7. Long-term perspective: This leads onto another important factor in brand-building: the need to invest in the brand over the long-term. Building customer awareness, communicating the brand’s message and creating customer loyalty takes time. This means that management must “invest” in a brand, perhaps at the expense of short-term profitability. E.g. Gmail, Hotmail, Mc-D etc. 8. Internal marketing 9. Finally, management should ensure that the brand is marketed “internally” as well as externally. By this we mean that the whole business should understand the brand values and positioning. This is particularly important in service businesses where a critical part of the brand value is the type and quality of service that a customer receives.Think of the brands that you value in the restaurant, hotel and retail sectors. It is likely that your favourite brands invest heavily in staff training so that the face-to-face contact that you have with the brand helps secure your loyalty.ESSENTIALS OF A GOOD BRAND NAME:1. It should be easy to pronounce & remember: small names with good meaning are easily adopted by consumers. E.g. Diary Milk, Bar one or 5 Star chocolates are easy and small to remembers than Nutela or Maltesers.2. It should be short & Sweet: the name must be sweet yet short, appealing to eyes, ears and brain. E.g. Amul, Raymonds, DCM, Bomaby Dying, Swift are of such type.3. It should point out producers: the name or symbol should be given in association of the product. Producers. E.g Asian Paints, Nerolac Paints, Mc-D, Nissan motors etc.4. It should be legally protectable: A brand name which is legally recognized is known as trade mark. Unprotected brand names are easy target for copy cats.5. It should be original: first priority must be given to names that are new for market and are never used by others. Original and protected brand name is difficult to copy by others in market.6. It should reflect product dimensions: a good brand name is that which directly or indirectly reflects the product dimensions in terms of usage or benefits. E.g. Ezee of Godrej company is really easy to use for better results. MERITS OF BRANDING TO DIFFERENT BUSINESS GROUPS:Merits to Manufacturers: 1) Product gets individuality. 2) Control of product Prices. 3) Increase Bargaining Power. 4) It reduces advertising cost. 5) Introduction of new product becomes easy. 6) It is a powerful weapon of product differentiation.Merits to Wholesalers & Retailer’s: 1) Quicker Sales 2) Advertising and Display of product get easier 3) Increase market share 4) Branded products have more stabilized prices
  • 33. Merits to Consumers: 1) Brand Stands for Quality and Image 2) Consumer Protection against Cheating 3) Branded Products Reflect their Life Style 4) Steady and regular supply of ProductsPACKAGING AND LABELING Packaging is the science, art, and technology of enclosing or protecting products for distribution, storage, sale, and use. Packaging also refers to the process of design, evaluation, and production of packages. Packaging can be described as a coordinated system of preparing goods for transport, warehousing, logistics, sale, and end use. Packaging contains, protects, preserves, transports, informs, and sells. In many countries it is fully integrated into government, business, institutional, industrial, and personal use.Objective or Functions or Factors to be considered while packaging:1. Protection – Packaging is used to protect the product from damage during shipping and handling, and to lessen spoilage if the product is exposed to air or other elements.2. Visibility – Packaging design is used to capture customers’ attention as they are shopping or glancing through a catalog or website. This is particularly important for customers who are not familiar with the product and in situations, such as those found in grocery stores, where a product must stand out among thousands of other products. Packaging designs that standout are more likely to be remembered on future shopping trips.3. Added Value – Packaging design and structure can add value to a product. For instance, benefits can be obtained from package structures that make the product easier to use while stylistic designs can make the product more attractive to display in the customer’s home.4. Distributor Acceptance – Packaging decisions must not only be accepted by the final customer, they may also have to be accepted by distributors who sell the product for the supplier. For instance, a retailer may not accept packages unless they conform to requirements they have for storing products on their shelves.5. Cost – Packaging can represent a significant portion of a product’s selling price. For example, it is estimated that in the cosmetics industry the packaging cost of some products may be as high as 40% of a product’s selling price. Smart packaging decisions can help reduce costs and possibly lead to higher profits.6. Expensive to Create - Developing new packaging can be extremely expensive. The costs involved in creating new packaging include: graphic and structural design, production, customer testing, possible destruction of leftover old packaging, and possible advertising to inform customer of the new packaging.7. Long Term Decision – When companies create a new package it is most often with the intention of having the design on the market for an extended period of time. In fact, changing a product’s
  • 34. packaging too frequently can have negative effects since customers become conditioned to locate the product based on its package and may be confused if the design is altered.8. Environmental or Legal Issues – Packaging decisions must also include an assessment of its environmental impact especially for products with packages that are frequently discarded. Packages that are not easily bio-degradable could draw customer and possibly governmental concern. Also, caution must be exercised in order to create packages that do not infringe on intellectual property, such as copyrights, trademarks or patents, held by others. LABELING The term "product label" is a general term used to refer to printed information affixed to a product (typically retail products) communicated from the manufacturer to consumers or other users. The primary purpose of a product label is to identify type, size, brand, product line, manufacturer and other product-specific information in order to inform the consumer and encourage a purchase.Objectives or Reasons or Importance of Labeling of Products: Most packages, whether final customer packaging or distribution packaging, are imprinted with information intended to assist the customer. For consumer products, labeling decisions are extremely important for the following reasons.1. Labels serve to capture the attention of shoppers. The use of catchy words may cause strolling customers to stop and evaluate the product.2. The label is likely to be the first thing a new customer sees and thus offers their first impression of the product.
  • 35. 3. The label provides customers with product information to aid their purchase decision or help improve the customer’s experience when using the product (e.g., recipes). 4. Labels generally include a universal product codes (UPC) and, in some cases, radio frequency identification (RFID) tags, that make it easy for resellers, such as retailers, to checkout customers and manage inventory. 5. For companies serving international markets or diverse cultures within a single country, bilingual or multilingual (means multiple languages) labels may be needed. 6. In some countries many products, including food and pharmaceuticals, are required by law to contain certain labels such as listing ingredients, providing nutritional information or including usage warning information. CHAPTER: PRICING DECISIONS: IMPORTANCE, OBJECTIVES & STRATEGIES PRODUCT PRICING: A price is an amount that we pay for a product or a service or an idea. Price is all around us. Rent of building, Train fare, Petrol or diesel for cars, fees to doctor etc is price in several forms. In Simple words price is the amount of money to be paid in return for a products or services consumed. Price is the only element in marketing mix that produces revenue, other all elements produce cost. WHAT IS PRICING? Pricing is the art of translating cost of product or services into quantitative or monetary terms. We can also say that pricing is the function of determining the product or service or idea in value in monetary terms before it is offered to target customers for sale. Pricing is the managerial task that involves establishing pricing objectives, identifying the factors governing the price , ascertaining their relevance and significance, determining the product value in monetary terms and formulation of price policies and strategies, implementing them and controlling them for best results. OBJECTIVES The clearer the firm’s objectives, the easier is to set a price. A company may choose any of its pricing objectives-1. SURVIVAL IN A COMPETITIVE MARKET: Some firms face difficulties surviving in the market place. The problem gets worse when the firm loses its uniqueness and/or its products are in maturity phase, when the customers has a choice from among the more efficient and contemporary substitutes. The firm trapped in the crowd of a matured market, shifting, customers preferences and undifferentiated offers, has to use a pricing strategy that will help it to stay in survival mode. This firm may resort to discontinuing its product. It may even consider running a promotion to liquidate its stock. For example, this firm may randomly discount its products to customers who may have a high search cost like software services on web.
  • 36. 2. MAXIMIZE CURRENT PROFITS AND RETURN ON INVESTMENTS: many firms set a price to maximize their current profits and returns on investments. They estimate current demand and costs associated with different alternative prices and then select the price that produces maximum current profits, return on investment or cash flow. This objective pre-supposes the firm’s knowledge of cost and demand function. In reality, it may be difficult to precisely estimate the demand function, or even the cost functions.3. MAXIMUM MARKET SHARE: Some companies want to maximize their market share. They believe that higher sales volume will lead to lower unit costs and higher long-run profit. They set the lowest price assuming that the market is price sensitive. A company may also require more shares in the slow growing market to fully utilize its production capacity and in turn gain economies of scales and better profits.4. MAXIMUM MARKET SKIMMING: Companies unveiling a new technology favour setting high prices to maximize market skimming. Market skimming makes sense under the following conditions-a) A sufficient number of buyers have high current demandb) The high initial price does not attract more competitors to the marketc) The high price communicates the image of superior product.5. PRODUCT-QUALITY LEADERSHIP: a company might aim to be a product-quality leader in the market. Many brands strive to be “affordable luxuries”—products or services characterized by high levels of perceived quality, taste, and status with a price just high enough not to be out of customers’ reach. Brand such as Nescafe coffee, Livon, BMW cars have been able to position themselves as a quality leaders in their categories, combining quality, luxury, and premium prices with an intensively loyal customer base.6. PRICE STABILTY: In oligopolistic situation (small no. of sellers), where there are few sellers, each seller will try to maintain stability in his pricing. Smaller firms in these industries tend to follow the leader when setting their prices, a price cut by a leader is likely to be matched by all other firms in order to remain competitive. Thus, no firms’ gains from a price cut and no one is willing to engage in price war.7. ACHIEVE A TARGET RETURN: A company may price its products on the basis of the predetermined target return. It could be a specified percentage of sales volume or the total investment made by the business. This strategy is common among wholesalers and retailers. They add a desired amount of percentage on their purchase price to cover the expenses and provide their profits. Let’s assume that a wholesaler purchases an item for Rs. 100, and his target return is 5% on the purchase price. He will simply add this 5% to his purchase price and determine the selling price as Rs. 105.
  • 37. PRICING METHODS:1. COST PLUS PRICING AND MARK UP PRICING:COST PLUS PRICING: This method involves simply adding a percentage of the cost to arrive at theprice.E.g... Cost is INR 80 (variable cost + fixed cost per unit) and assuming manufacturer needs a profit of25% on cost then the price will be 80 + 25% of 80 = INR 100.MARKUP PRICING: Mark up pricing is addition of profit calculated as a percentage of sales ratherthan percentage on cost.FORMULA FOR CALCULATING MARK UP PRICINGSELLING PRICE=AVERAGE UNIT COST / (1-DESIRED MARK UP PERCENTAGE)Example: assuming profit is 20% of sales, unit cost INR 16MARKUP PRICE = 16/1-0.2 = INR 20Markups vary considerably among different goods. Markups are higher on seasonal items (to coverrisk), specialty items, slower moving items, items with high storage and handling costs. Markup priceshould be such that the price brings the expected sales. Sometimes companies introduce a new productwith high price to cover the costs rapidly but this high markup would be fatal if a competitor is pricinglow so competitors should be considered while setting the price.2. TARGET RETURNS PRICING: In this method the firm determines the price that would yield itstarget rate of return. Suppose a company invests $1 million, UNIT SALES =500000 and wants to set aprice that would earn 20% rate of return on investment i.e. $200000Formula for calculating target return price:TARGET RETURN PRICE = UNIT COST + (DESIRED RETURN*INVESTED CAPITAL/UNITSALES)TRP=$16+ (.20*1000000/50000) =$20In this the manufacturer can prepare a break even chart to know the profit at different sales levels.Break even volume is calculated by the following formulaBREAK EVEN VOLUME = fixed cost / (price-variable cost per unit) package design, smell, colour,shape, advertising theme, or the brandB. DEMAND BASED PRICING MODELS 1. PERCEIVED VALUE PRICING: An increasing number of companies are basing their price on the product’s perceived value. They see buyer’s perceptions of value not the sellers’ cost as the key to pricing. They use the non price variables in the marketing mix to build up perceived value in the buyers’ minds. A company develops a product concept for a particular target market with the planned quality and price. Then management estimates the volume it hopes to sell at this
  • 38. price. The estimate indicates the needed plant capacity, investment and unit costs. Management then figures out whether the product will yield satisfactory profit at planned price and cost. If the answer is yes, the company goes ahead with the product development otherwise drops the idea. 2. VALUE PRICING: In value pricing the company charges a low price for a high quality offering. The basic difference between perceived value pricing and value pricing is that in perceived value pricing the company should price at a level that captures what the buyer thinks the product is worth. On the other hand value pricing says the price should represent an extraordinary bargain for consumers.C. COMPETITION BASED PRCING 1. GOING RATE PRICING: In this method price is set keeping in mind the price of the competitors. The firm bases its pricing largely on the competitors’ prices paying less attention to its cost and demand. Therefore the firm charges somewhat the same price as its competitors. Generally the small firms follow the leader. Some firms might charge a slight premium or give a slight discount, but preserve the amount of difference. 2. SEALED BID PRICING: This method is popular where firms bid for jobs. The firm fixes the prices on how the competitors price their products. It means that if a firm wants to win a contract or a job then it should quote less than the competitors. With all this the firm can not set its price below a certain level if it can not price below the cost. On the other hand if it prices higher than the cost then less are the chances of winning the job.FACTORS INFLUENCING THE PRODUCT PRICING DECISIONS A. INTERNAL FACTORS Internal and controllable factors affecting the pricing decisions are- 1. Organizational factors: Organizational factors refer to internal arrangement or mechanism for decision making and its implementation. These arrangements differ widely from concern to concern at different times in the organization. Normally, pricing decision occur at two levels. Overall price strategy is the prerogative of the top executives who determine the basic price range. However, the actual pricing is dealt in lower levels. Price decision is the outcome of production and marketing specialists. 2. Marketing mix: though price is an important component of marketing mix, other components cannot be neglected. Any shift or change in any one of the element has an immediate effect on the other three elements. Therefore, pricing decision must be seen in isolation but as a part of total marketing strategy and should avoid conflict with other elements namely product, place and promotion. 3. Product differentiation: The technique of product differentiation gives much lee-way to the firm in setting prices for the products if done better than the competitors. Product differentiation is the ability of a manufacturer to make his computer distinctive from others in the market. In case of
  • 39. consumer goods, product differentiation is seen to the maximum possible extent. This can be bymeans of name that the product can be differentiated.4. Product costs: Production costs merely determine the business existence and it is the demandand the competition that determine the price. Precisely, it is the market that sets the price and notproduct costs. There is nothing wrong if it is said that it is price that determines the costs.However, there is close relation between costs and price. It is the effort of every concern to coverall the costs so that the firm has the fair chances of making surplus.5. Product life-cycle: the pricing policy followed is to be commensurate with the age of theproduct. That is, in what stage of the life-cycle the product is, that is going to decide the pricingpolicy to be followed. In introduction stage, the policy followed is of market penetration, i.e. theprices are to be the lowest possible. In growth stage, prices can be raised to extent tolerated by theconsumers. In third stage-prices can be raised by following the policy of market skimming andfinally in the decline stage prices can be reduced to maintain the demand.6. Functional position: Functional position of the manufacturer, wholesaler and retailer has itsown impact on the firm’s pricing policy. If the firm has a longer channel of distribution, theproduct price for the consumer is bound to be higher than in case of a smaller channel. However, asound channel management can bring about considerable slicing down in costs.7. Pricing objective: A price policy is the means to achieve the price goals so set. It is the pricingobjectives that provide the focus for framing policies and strategies. Therefore, a firm is expectedto define its price goals in clear-cut terms so that they are accepted and acted upon.B. EXTERNAL FACTORS:1. Product demand: Demand is the single most factor having tremendous impact on price, pricingpolicy and strategy followed by the firm. The demand may be elastic or inelastic or perfectlyelastic or perfectly inelastic. The pricing decision will vary depending upon the exact nature andextent of elasticity.2. Competition: knowing one’s competitor is critical to successful marketing planning. The firmshould constantly compare its products, prices, channels and promotion with those of competitors.A company’s competitors are those who are seeking the same customers and customer’s needs andmaking similar offers to them.3. Economic conditions: The economic conditions prevailing in the country or a region arehaving decisive impact on firm’s pricing policy. If the economic climate is good, and invigorating,generally the demand for and sales of a product or products increases. Sometimes, economypresents a peculiar situation of neither inflation nor deflation but stagflation where shortages arecommon-prices is falling and yet demand is diminishing. Under these circumstances, price policymay be to keep up the profits to cover the rising costs or cost reduction pricing. Thus, muchdepends on what the exact colour the economic conditions indicate.4. Government regulations: the government of the nation influences the pricing policies innumber of ways. Government happens to be the larger employer and the buyer of the economy.For instance, in the defense industry, car industry, locomotives, electronics, it is the largest buyerthat influences the prices. It regulates the prices of the products it makes available and services itrenders to the community.5. Ethical considerations: Business principles and ethics hardly go together. However, there areserious efforts made by many image conscious business houses to brace themselves in the back-
  • 40. drop of ethical values. Ethical norms say that the pricing should be such that the firm makes reasonable profit, it maintains quality standards, time and place dimensions of supply. These considerations are sure to improve company’s image. 6. Suppliers: Suppliers of inputs, particularly the raw-materials fabricated parts can have touching effect on the price of a product. Thus, a textile manufacturer is to take into account the prevailing market price of cotton or man-made fibers as the major input. Any hike in these will shoot up the cost of manufacturers. Again, the manufacturer passes it on to the consumers through price hike. 7. The buyer behaviour: Buyers here we mean both business buyers and final users. The composition of these buyers and their behaviour has definite impact the pricing decisions of the firm. Generally, if the buyers are more in number and smaller in strength, lesser will be the impact on the company pricing as they are too small to influence unless they are well organized. On the other hand, a few buyers but large users have profound influence on the pricing decisions. 8. Government regulations: the government of the nation influences the pricing policies in number of ways. Government happens to be the larger employer and the buyer of the economy. For instance, in the defense industry, car industry, locomotives, electronics, it is the largest buyer that influences the prices. It regulates the prices of the products it makes available and services it renders to the community. 9. Ethical considerations: Business principles and ethics hardly go together. However, there are serious efforts made by many image conscious business houses to brace themselves in the back- drop of ethical values. Ethical norms say that the pricing should be such that the firm makes reasonable profit, it maintains quality standards, time and place dimensions of supply. These considerations are sure to improve company’s image. 10. Suppliers: Suppliers of inputs, particularly the raw-materials fabricated parts can have touching effect on the price of a product. Thus, a textile manufacturer is to take into account the prevailing market price of cotton or man-made fibers as the major input. Any hike in these will shoot up the cost of manufacturers. Again, the manufacturer passes it on to the consumers through price hike. 11. The buyer behaviour: Buyers here we mean both business buyers and final users. The composition of these buyers and their behaviour has definite impact the pricing decisions of the firm. Generally, if the buyers are more in number and smaller in strength, lesser will be the impact on the company pricing as they are too small to influence unless they are well organized. On the other hand, a few buyers but large users have profound influence on the pricing decisions. PRICING STRATEGYPricing - link between price and business objectivesThe pricing objectives of businesses are generally related to satisfying one of five common strategicobjectives:Objective 1: To Maximise ProfitsAlthough the ‘maximisation of profits’ can have negative connotations for ‘the public’, in economictheory, one function of ‘profit’ is to attract new entrants to the market and the additional suppliers keep
  • 41. prices at a reasonable level. By seeking to differentiate their product from those of other suppliers, newentrants also expand the choice to consumers, and may vary prices as niche markets developObjective 2: To Meet a Specific Target Return on Investment (or on net sales)Assuming a standard volume operation (i.e. production and sales) target pricing is concerned withdetermining the necessary mark-up (on cost) per unit sold, to achieve the overall target profit goal.Target return pricing is effective as an overall performance measure of the entire product line, but forindividual items within the line, certain strategic pricing considerations may require the raising orlowering of the standard price.Objective 3: To Achieve a Target Sales LevelMany businesses measure their success in terms of overall revenues. This is often a proxy for marketshare. Pricing strategies with this objective in mind usually focus on setting price that maximises thevolumes sold.Objective 4: To Maintain or Enhance Market ShareAs an organisational goal, the achievement of a desired share of the market is generally linked toincreased profitability. An offensive market share strategy involves attaining increased market share, bylowering prices in the short term. This can lead to increased sales, which in the longer term can lead tolower costs (through benefits of scale and experience) and ultimately to higher prices due to increasedvolume/market share.Objective 5: To Meet or Prevent CompetitionPrices are set at a level that reflects the average industry price, with small adjustments made for uniquefeatures of the company’s specific product(s). Firms that adopt this objective must work ‘backwards’from price and tailor costs to enable the desired margin to be delivered.Our financial objectives in terms of price will be secured on how much money we intend to make from aproduct, how much we can sell, and what market share will get in relation to competitors. Objectivessuch as these and how a business generates profit in comparison to the cost of production, need to betaken into account when selecting the right pricing strategy for your mix. The marketer needs to beaware of its competitive position. The marketing mix should take into account what customers expect interms of price.There are many ways to price a product. Lets have a look at some of them and try to understandthe best policy/STRATEGY in various situations.Skimming/Premium Pricing:Use a high price where there is a unique brand. This approach is used where a substantial competitiveadvantage exists and the marketer is safe in the knowledge that they can charge a relatively higher price.Such high prices are charged for luxuries such as Cunard Cruises, Savoy Hotel rooms, and first class airtravel.
  • 42. Penetration Pricing:The price charged for products and services is set artificially low in order to gain market share. Oncethis is achieved, the price is increased. This approach was used by France Telecom and Sky TV. Thesecompanies need to land grab large numbers of consumers to make it worth their while, so they offer freetelephones or satellite dishes at discounted rates in order to get people to sign up for their services. Oncethere is a large number of subscribers prices gradually creep up. Taking Sky TV for example, or anycable or satellite company, when there is a premium movie or sporting event prices are at their highest –so they move from a penetration approach to more of a skimming/premium pricing approach.Economy Pricing:This is a no frills low price. The costs of marketing and promoting a product are kept to a minimum.Supermarkets often have economy brands for soups, spaghetti, etc. Budget airlines are famous forkeeping their overheads as low as possible and then giving the consumer a relatively lower price to fillan aircraft. The first few seats are sold at a very cheap price (almost a promotional price) and the middlemajorities are economy seats, with the highest price being paid for the last few seats on a flight (whichwould be a premium pricing strategy). During times of recession economy pricing sees more sales.However it is not the same as a value pricing approach which we come to shortly.Price Skimming:Price skimming sees a company charge a higher price because it has a substantial competitiveadvantage. However, the advantage tends not to be sustainable. The high price attracts new competitorsinto the market, and the price inevitably falls due to increased supply.Manufacturers of digital watches used a skimming approach in the 1970s. Once other manufacturerswere tempted into the market and the watches were produced at a lower unit cost, other marketingstrategies and pricing approaches are implemented. New products were developed and the market forwatches gained a reputation for innovation.The diagram depicts four key pricing strategies namely premium pricing, penetration pricing, economypricing, and price skimming which are the four main pricing policies/strategies. They form the bases forthe exercise. However there are other important approaches to pricing, and we cover them throughoutthe entirety of this lesson.Psychological Pricing:This approach is used when the marketer wants the consumer to respond on an emotional, rather thanrational basis. For example Price Point Perspective (PPP) 99 INR instead of 100 INR. Its strange howconsumers use price as an indicator of all sorts of factors, especially when they are in unfamiliarmarkets. Consumers might practice a decision avoidance approach when buying products in anunfamiliar setting, an example being when buying ice cream. What would you like, an ice cream at95Rs, 120Rs or 175Rs for 2 Bricks? The choice is yours. Maybe youre entering an entirely new market.
  • 43. Product Line Pricing:Where there is a range of products or services the pricing reflects the benefits of parts of the range. Forexample car washes; a basic wash could be 100, a wash and wax 150 and the whole package for 200.Product line pricing seldom reflects the cost of making the product since it delivers a range of prices thata consumer perceives as being fair incrementally – over the range.If you buy chocolate bars or potato chips (crisps) you expect to pay X for a single packet, although ifyou buy a family pack which is 5 times bigger, you expect to pay less than 5X the price. The cost ofmaking and distributing large family packs of chocolate/chips could be far more expensive. It mightbenefit the manufacturer to sell them singly in terms of profit margin, although they price over the wholeline. Profit is made on the range rather than single items.Optional Product Pricing:Companies will attempt to increase the amount customers spend once they start to buy. Optional extrasincrease the overall price of the product or service. For example airlines will charge for optional extrassuch as guaranteeing a window seat or reserving a row of seats next to each other. Again budget airlinesare prime users of this approach when they charge you extra for additional luggage or extra legroom.Captive Product Pricing:Where products have complements, companies will charge a premium price since the consumer has nochoice. For example a razor manufacturer will charge a low price for the first plastic razor and recoup itsmargin (and more) from the sale of the blades that fit the razor. Another example is where printermanufacturers will sell you an inkjet printer at a low price. In this instance the inkjet company knowsthat once you run out of the consumable ink you need to buy more, and this tends to be relativelyexpensive. Again the cartridges are not interchangeable and you have no choice.Product Bundle Pricing:Here sellers combine several products in the same package. This also serves to move old stock. Blu-rayand videogames are often sold using the bundle approach once they reach the end of their product lifecycle. You might also see product bundle pricing with the sale of items at auction, where an attractiveitem may be included in a lot with a box of less interesting things so that you must bid for the entire lot.Its a good way of moving slow selling products, and in a way is another form of promotional pricing.Promotional Pricing:Pricing to promote a product is a very common application. There are many examples of promotionalpricing including approaches such as BOGOF (Buy One Get One Free), money off vouchers anddiscounts. Promotional pricing is often the subject of controversy. Many countries have laws whichgovern the amount of time that a product should be sold at its original higher price before it can bediscounted. Sales are extravaganzas of promotional pricing!Geographical Pricing:Geographical pricing sees variations in price in different parts of the world. For example rarity value, orwhere shipping costs increase price. In some countries there is more tax on certain types of product
  • 44. which makes them more or less expensive, or legislation which limits how many products might beimported again raising price. Some countries tax inelastic goods such as alcohol or petrol in order toincrease revenue, and it is noticeable when you do travel overseas that sometimes goods are muchcheaper, or expensive of course.Value Pricing:This approach is used where external factors such as recession or increased competition force companiesto provide value products and services to retain sales e.g. value meals at McDonalds and other fast-foodrestaurants. Value price means that you get great value for money i.e. the price that you pay makes youfeel that you are getting a lot of product. In many ways it is similar to economy pricing. One must notmake the mistake to think that there is added value in terms of the product or service. Reducing pricedoes not generally increase value.

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