Marketing Management


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Marketing Management

  1. 1. Module – I Marketing Management Debasis Pani Asst. Professor, GIACR Introduction Marketing has its own origin in the fact that man is a creature of needs and wants. The need and wants creates a state of discomfort in persons and they tend to get products those satisfy these needs and wants. Marketing deals with identifying and meeting human and social needs. One of the shortest definitions of marketing is ―meeting needs profitably.‖ Marketing is an ancient art that exists in the society since time immemorial and has become an important management function today in any business starting from small scale cottage industry to the big MNC‘s What is Market? (Concept of Market) The word marketing has been derived form the word market and the word market is a derived of the Latin word marcatus meaning thereby merchandise. A market is a set of arrangement where both buyer and seller come in close contact with each other directly or indirectly; to sell or buy goods and services or for a predetermined transaction. Traditionally, a ―market‖ was a physical place where buyers and sellers gathered to exchange goods. Now marketers view the sellers as the industry and the buyers as the market. The sellers send goods and services and communications (ads, direct mail, e-mail messages) to the market; in return they receive money and information (attitudes, sales data). Market may be visible or non-visible. The visible form of market is known as marketplace i.e. a store, retail outlet, a vendor the non-visible form of market is known as marketspace it is purely digital i.e. shopping in internet, e-tailing, e-commerce. The metamarket, a concept proposed by Mohan Sawhney, describes a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries What is Marketing? (Definition) To Prof Philip Kotler - ―Marketing is a social managerial function by which an individual or a organization obtains what they need and want through creating, offering and exchange of products and services of value with others‖ To Peter F Drucker -‖Marketing is a process which converts a source; distinct knowledge into a contribution of economic value in the market place. The purpose of the business is to create customer‖ To American Marketing Association (AMA) – ―Marketing is the activity, set of institutions and process for creating, communicating, delivering and exchanging offerings that have value for customer, clients, partners and society at a large (Oct,2007)‖ What is Marketing Management? To Prof Philip Kotler- ―Marketing management is an art and science of choosing target markets and getting, keeping and growing customers through creating, communicating and delivering superior customer value.‖ To American Marketing Association(AMA) – ―It is the process of planning & executing the conception, pricing, promotion & distribution of ideas, goods & services to create exchange that satisfy individual & organizational goals‖ Nature of Marketing 1. Marketing is customer focused: marketing aims to satisfy the customer; thus, activities of marketing must be directed and focused at the customer Debasis Pani, Asst. Professor, GIACR 1
  2. 2. Module – I 2. Marketing must deliver to customer: marketers have to know customer needs and deliver the products as per the requirements of customer. The business strategy must be aimed at developing and delivering customer value than competitors. The customer value can be determined as follows Customer Value = Benefits perceived and offered / Cost incurred Benefit = Functional benefit + Emotional benefit Cost = Monetary cost + Energy cost + Energy cost + Psychic cost Value can be seen as primarily a combination of quality, service and price called the customer value triad Customer Value = f (Price, Quality, Satisfaction) 3. Marketing is an interdisciplinary science: marketing as a social science has its origin from various disciplines namely Economics, Law, Sociology, Psychology, and Anthropology. For this reason this also termed as Cocktail science. 4. Marketing is customer need specific: marketing starts with identification of customer needs, wants and requirements. These are turned into probable features that might satisfy the basic needs. Then the portable form of the product is made out and presented before the customer for acceptance. The customer suggests for changes or improvements in that and the final product is brought before the customer. 5. Marketing is a key business: in marketing customer provides business and business seeks customer the whole business revolves round the customer. 6. Marketing sub-systems affect company strategy: marketing has its own sub-system which interacts with each other to form complete marketing system that is responsive to company marketing strategy. 7. Marketing is a part of total environment: the total environment of all resources and intuition which are directly related to the production and distribution of goods, services, ideas, place and persons for the satisfaction of human needs. It is important to look at external and internal environment of any marketing organization. 8. Marketing results in mutually beneficial relationship: now-a-days marketing is everything that results in the mutually beneficial relationships with the customer. Scope of Marketing To know the scope of marketing we must understand what marketing is?, How it works? What is marketed? Who does marketing? I What is Marketing? Marketing means understanding and responding to customer needs. Marketing is the process of creating and managing demand so it is other wise called as Demand Management II How Marketing Works? The process of marketing involves an exchange and transaction between the buyer and seller. Exchange is the process of obtaining a desired product from someone by offering something in return. A transaction is a trade-off value between two or more parties. If the buyer is not satisfied, then the transaction has been at best a Selling transaction. If the seller does not make a profit then it has been a Dumping transaction. Thus a transaction could be termed as a Marketing transaction only if it could result in mutual satisfaction to both the buyer and the seller. III What is Marketed? Marketing people are involved in marketing 10 types of entities: goods, services, experiences, events, persons, places, properties, organizations, information, and ideas. Goods. Physical goods constitute the bulk of most countries‘ production and marketing effort. Services. As economies advance, a growing proportion of their activities are focused on the production of services. Services include airlines, hotels, and maintenance and repair people, as well as professionals such as accountants, lawyers, engineers, and doctors. Many market offerings consist of a variable mix of goods and services. Experiences. By orchestrating several services and goods, one can create, stage, and market experiences. Events. Marketers promote time-based events, such as the Olympics, trade shows, sports events, and artistic performances. Debasis Pani, Asst. Professor, GIACR 2
  3. 3. Module – I Persons. Celebrity marketing has become a major business. Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other professionals draw help from celebrity marketers. Places. Cities, states, regions, and nations compete to attract tourists, factories, company headquarters, and new residents. Place marketers include economic development specialists, real estate agents, commercial banks, local business associations, and advertising and public relations agencies. Properties are intangible rights of ownership of either real property (real estate) or financial property (stocks and bonds). Properties are bought and sold, and this occasions a marketing effort by real estate agents (for real estate) and investment companies and banks (for securities). Organizations. Organizations actively work to build a strong, favourable image in the mind of their publics. Philips, the Dutch electronics company, advertises with the tag line, ―Let‘s Make Things Better.‖ Universities, museums, and performing arts organizations boost their public images to compete more successfully for audiences and funds. Information. The production, packaging, and distribution of information is one of society‘s major industries. Among the marketers of information are schools and universities; publishers of encyclopedias, nonfiction books, and specialized magazines; makers of CDs; and Internet Web sites. Ideas. Every market offering has a basic idea at its core. In essence, products and services are platforms for delivering some idea or benefit to satisfy a core need. IV Who Markets? A marketer is someone who seeks a response as attention, purchase, a vote, a donation for another party called prospect. If two parties are seeking to sell something to each other we call both them as marketers. Marketers are skilled in stimulating demand for a company‘s products. Marketing management has the task of influencing the level, timings and composition of demand in a way that will help the organization to achieve its objectives. Function of Marketing In most of the business enterprise, marketing department is set up the supervision of the marketing manager. The major purpose of this department is to generate revenue for the business by selling want satisfying goods and services to the customers. In order to achieve this purpose, marketing manager has to perform the following function. 1. Marketing Research: is the systematic search for and analysis of facts related to a marketing problem. It helps in analyzing the buyers‘ habit, relative popularity of a product. Effectiveness of advertisement etc. it provides up-to-date information in regular intervals of time regarding marketing and thus help in decision making. 2. Product Planning and Development: it always necessary to plan and develop products which meet the specification of the customers. Product planning and development involves a number of decisions viz, what to produce or buy? How to have its packaging? How to fix its price and how to sell it? 3. Buying and Assembling: are important function of marketing buying involves determination of requirements, finding the sources of supply placing the order and receiving the goods. But assembling means collection of goods already purchased from different sources at a common point. It is also used in another sense. Raw material are purchased and assembled in order to produce goods and services as per the need of customers. 4. Selling: this is an important function of marketing under which ownership of goods is transferred from the seller to the buyer. This is done at a price. There are two different forms of selling i.e. negotiated selling and auction selling. 5. Standardisation, Grading and Branding: Standardisation means setting up of specifications of a product. The Gradation is done on the basis of these specifications and standards. At last, a brand name is given to a product for identification. In general branding is a way for an organization to identify its offerings and distinguish them from those of competitors. Debasis Pani, Asst. Professor, GIACR 3
  4. 4. Module – I 6. Packaging: a good package represents a combination of the designer‘s creative skills and the product as well as marketing and sales knowledge of the manufacturer‘s management team. Packaging acts as a multi-purpose arrangement. 7. Storage: goods are stored in warehouse to protect them from any kind of damage till they are actually sold in the market. In addition, modern warehouse performs certain marketing services like grading, packing, labeling, etc. 8. Transportation: it provides the physical means which facilitate the movement of persons, goods and services from one place to another. It plays a significant role in price mechanism. 9. Salesmanship: or personal selling is widely used in retail marketing. It involves direct and personal contact of the seller or his representative with the purchaser. 10. Advertising: it is an important function. It helps to spread the message about the product and thus promote its sale. 11. Pricing: determining the price of a product is also another function of the marketing manager. Pricing of a product is influenced by the cost of production, profit margin, price fixed by the rival firm and Govt. policy. 12. Financing: financing of a customer purchasing has become an integral and strategic part of modern marketing. The provision of goods to the customers on credit basis in an important device to increase the volume of sales. 1. Concepts of Marketing and Market The marketing concept emphasizes the determination of the requirements of present and potential customers and supplying products to satisfy their requirements. Remember, here we are not trying to say that any one concept is better or worse. What is important to know is that various concepts are applicable in different circumstances. 1. The Production Concept: The production concept, one of the oldest in business, holds that consumers prefer products that are widely available and inexpensive. Managers of productionoriented businesses concentrate on achieving high production efficiency, low costs, and mass distribution. This orientation makes sense in developing countries, where consumers are more interested in obtaining the product than in its features. This orientation has also been a key strategy of many Japanese companies. 2. The Product Concept: Other businesses are guided by the product concept, which holds that consumers favour those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time, assuming that buyers can appraise quality and performance. Product-oriented companies often design their products with little or no customer input, trusting that their engineers can design exceptional products. The product concept leads to ―Marketing Myopia‖ a term coined by Prof Theodore Levitt of Haward Business School. It is the shortsighted policies and practices of marketers without considering the customers need into concern. 3. The Selling Concept: The selling concept, another common business orientation, holds that consumers and businesses, if left alone, will ordinarily not buy enough of the organization‘s products. The organization must, therefore, undertake an aggressive selling and promotion effort. This concept assumes that consumers must be persuading into buying, so the company has a battery of selling and promotion tools to stimulate buying. The selling concept is practiced most aggressively with Unsought goods—goods that buyers normally do not think of buying, such as insurance and funeral plots. The selling concept is also practiced in the nonprofit area by fundraisers, college admissions offices, and political parties. Most firms practice the selling concept when they have overcapacity. Their aim is to sell what they make rather than make what the market wants. Debasis Pani, Asst. Professor, GIACR 4
  5. 5. Module – I 4. Marketing Concept: this concept emphasizes the determination of the requirements of potential customers and supplying products to satisfy their requirements. The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets. Theodore Levitt of Harvard drew a perceptive contrast between the selling and marketing concepts: ―Selling focuses on the needs of the seller; marketing on the needs of the buyer. Selling is preoccupied with the seller‘s need to convert his product into cash; marketing with the idea of satisfying the needs of the customer by means of the product and the whole cluster of things associated with creating, delivering and finally consuming it.‖ The marketing concept rests on four pillars: target market, customer needs, integrated marketing, and profitability. It starts with a welldefined market, focuses on customer needs, coordinates activities that affect customers, and produces profits by satisfying customers. 5. Societal Marketing Concept: which holds that the organization‘s task is to determine the needs, wants, and interests of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer‘s and the society‘s well-being. The societal marketing concept calls upon marketers to build social and ethical considerations into their marketing practices. They must balance and cope with the often conflicting criteria of company profits, consumer want satisfaction, and public interest. Some companies practice a form of the societal marketing concept called Cause marketing it implies marketing skills to effect social changes which would benefit the individual and the society. 2. Marketing Mix (Product, Price, Promotion & Place) Marketers use numerous tools to elicit the desired responses from their target markets. These tools constitute a marketing mix Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the 4 Ps of marketing: product, price, place, and promotion. Marketing-mix decisions must be made to influence the trade channels as well as the final consumers. Typically, the firm can change its price, sales-force size, and advertising expenditures in the short run. However, it can develop new products and modify its distribution channels only in the long run. Thus, the firm typically makes fewer period-to-period marketing-mix changes in the short run than the number of marketingmix decision variables might suggest. Robert Lauterborn suggested that the sellers‘ four Ps correspond to the customers‘ four Cs Four Ps Four Cs Product Customer solution Price Customer cost Place Convenience Promotion Communication Winning companies are those that meet customer needs economically and conveniently and with effective communication Debasis Pani, Asst. Professor, GIACR 5
  6. 6. Module – I 3. Product: Product Concept What is a Product? Thus, a product may be defined in a narrow as well as broad sense. In n narrow sense, it is a set of tangible physical aid chemical (compound) attributes in an identifiable and readily recognizable form. In a broader sense we may look at it in the form of an object, idea, service, person, place, activity, goods, or an organization. It can even be a combination of some of these factors. The product is much more than just a bundle of physical attributes, it‘s the concept that customer buys. The product is a bundle of satisfaction that a customer buys. It represents a solution that just what the manufacturer understand it to be. To Philip Kotler, “A product is any thing that can be offered to the market for attention, acquisition, use or consumption it includes physical objects, services, personalities, place and organization‖ To Jerome McCarthy, ―A product is more then a physical product with its related functional and aesthetic features. It includes accessories, installation, and instruction on use, the package perhaps the brand name, which fulfills some psychological need and assures that service facilities will be available to meet the customers need after purchase‖ From the above definitions it can safely be concluded that the word product, in the context of marketing, has a much wider association. It is applicable to any offering to a market for possible purchase or use. It encompasses Physical objects (e.g., a television), services (e.g., airlines), places (e.g.. Tourist resorts), organizations (e.g., Red Cross), persons (e.g., an athlete) and ideas (e.g., flood relief aid). It also includes supporting services e.g., design, brand, package, label, price, etc. to sum up, a product is a combination of physical, economic, psychological and social benefits Levels of Product You can say a product is a good, service, or idea consisting of a bundle of tangible and intangible attributes that satisfies consumers and is received in exchange for money or some other unit of value. Marketers plan their market offering at five levels. Each level adds more customer value, and together the five levels constitute a customer value hierarchy. 1. The most fundamental level is the core benefit: the fundamental service or benefit that the customer is really buying. A hotel guest is buying ―rest and sleep‖; 2. At the second level, the marketer has to turn the core benefit into a basic product. Thus, a hotel room includes a bed, bathroom, towels, and closet. 3. At the third level, the marketer prepares an expected product, a set of attributes and conditions that buyers normally expect when they buy the product. Hotel guests expect a clean bed, fresh towels, and so on. 4. At the fourth level, the marketer prepares an augmented product that exceeds customer expectations. A hotel might include a remote-control television set, fresh flowers, and express check-in and checkout. Today‘s competition essentially takes place at the product-augmentation level. (In less developed countries, competition takes place mostly at the expected product level.) 5. At the fifth level stands the potential product, which encompasses all of the possible augmentations and transformations the product might undergo in the future. Here, a company searches for entirely new ways to satisfy its customers and distinguish its offer. Debasis Pani, Asst. Professor, GIACR 6
  7. 7. Module – I 4. Product Classification There are several ways of classifying products: I ) On the basis of the user status, products may be classified as consumer goods and industrial goods. 2) On the basis of the extent of durability, products may be classified as durable goods and nondurable goods. 3) On the basis of tangibility, products may be classified as tangible goods and non tangible goods. These non-tangible goods are referred to as services. 1) Consumer goods: are those products which are bought by the household or ultimate consumer for personal or non-business use. For example, a tooth brush, a comb, a wrist watch. Convenience goods (Staple goods): A class of consumer goods that people buy frequently with least possible time and effort are called convenience goods. These are the products the consumer wants to purchase frequently, immediately, and with minimum effort. E.g. milk, bread, butter, eggs, soap, newspaper, biscuits, tooth pastes, etc Shopping goods: shopping refers to the activity of going to shops / stores and buying things. These are a class of consumer goods that are purchased only after the buyer has spent some time and effort comparing price, quality, style, colour of alternative products in competing stares. The purchaser of shopping goods lacks complete information prior to the shopping trip and gathers information during it. E.g. dress material, jewellery, furniture, appliances, and shoes. Specialty goods: A class of consumer goods with perceived unique characteristics, such that consumers are willing to spend special effort to buy them are known as specialty goods. The buyer of specialty goods is well aware of what he or she wants and is willing to make a special effort to obtain it. e.g. photographic equipments, TV sets, video players, mobile phones, automobiles, etc 2) Industrial goods: are those goods which are meant to be bought by the buyer as input in production of other products or for rendering some services. Industrial products are meant for nonpersonal and commercial use. Industrial goods include items like machinery, raw materials, components, etc. Raw materials: are those industrial goods that become part of another physical product. Raw materials include goods found in natural state such as minerals, marine, products, land, products of forests, etc Fabricating materials into parts: have already been processed, to some extent, but may need further processing before actual use. For example, pig irons being converted into steel. Debasis Pani, Asst. Professor, GIACR 7
  8. 8. Module – I Installation: They are manufactured industrial products, They alter the scale of operations in a firm, Normally, installations are directly sold to the industrial user and middleman are not involved. Pre-sale and post-sale servicing is required for these products. Accessory equipment: They are used to aid production operations of an industrial buyer and do not have an influence on scale of operations of buyer. They do not form part of the finished product. Operating supplies: They are low priced, short-lived items purchased with minimal effort and could well be termed as convenience goods of industrial field. They aid in the firm's operations without becoming part of the end product e.g., lubricating oil, stationery, etc. 3) Durable and Non-durable goods: Tangible products with a long life and lasting of many years of active service to the owner are termed as durable goods. Television, fan, refrigerator, pressure cooker etc., may be cited as examples of durable goods. A durable product would require a lot of personal selling, and pre-sales and post-sales service. Products which are consumed in one go or last few uses and get depleted on consumption are termed as non-durable goods. These are the products that have to be advertised heavily, with a view to inducing people to try them out, and thus, build up brand preference and brand loyalty. 4) Services: are those separately identifiable, essentially intangible activities which provide want satisfaction, and which are not necessarily tied to the sale of a product or another service. 5. New Product Development In business and engineering, new product development (NPD) is the term used to describe the complete process of bringing a new product or service to market. There are two parallel paths involved in the NPD process: one involves the idea generation, product design, and detail engineering; the other involves market research and marketing analysis. Companies typically see new product development as the first stage in generating and commercializing new products within the overall strategic process of product life cycle management used to maintain or grow their market share. Significance of New Product Development 1. For survival and growth in the long run 2. To meet the requirements of customers 3. Modification or elimination of existing products Debasis Pani, Asst. Professor, GIACR 8
  9. 9. Module – I S1 Idea Generation Customers: Customers are sometimes able to discuss their requirements and offer ideas that will meet those problems. Competitors: Systematic comparison or bench marking with the competition may offer good source of new product ideas. Distributors: Suggestions from distributors and their problems in handling present products often thrown up new ideas. Creative techniques: Brainstorming, focused interviews and technological forecasting enable one to find out the latent capabilities of innovations. External world: The external world, especially the use of their technology, offers a good source of ideas for implementation in the home market. Research and development: Create new product ideas through R&D. From initial generation of ideas to full commercialization and well into the mature age of a product, the developers should strive to control what is in their power to control a do to monitor what is beyond their control. S2. Idea Screening A company should motivate its employee to submit new ideas to an idea manager whose name and phone number are widely circulated. Idea should be written down and reviewed each week by an idea committee. The company then sorts the proposed ideas into three groups promising, survival and rejects. Promising ideas: is researched by the committee member who reposts back to the committee. Surviving ideas: is move into a full scale screening process In screening ideas a company must avoid two types of errors. A DROP error occurs when the company dismisses an otherwise good idea. It is extremely easy to find fault with other people‘s idea. A GO error occurs when company permits a poor idea to move into development and commercialization. The purpose of screening is to drop poor ideas as early as possible. S3 Concept Development and Testing Concept development involves asking question such as the following: Need: Do customers find a strong perceived need for the benefit offered? Trust: Do they believe that the new product has the benefits claimed? Communicability: Do customers easily understand the key benefits being offered? Usage: Does it offer easy adoption? Perceived Value: Do Customers see it as offering value at the price being considered? After the working area is defined, concept generation begins, often at a hectic pace. Ideas flow fast and in most cases rejection is equality fast. The team looks for the few fast and inmost cases rejection is equally fast. The team looks for the few concepts the warrant concepts development – Debasis Pani, Asst. Professor, GIACR 9
  10. 10. Module – I the evolving of an original ideation attempt into a specific statement of need, form and technology that can be evaluated. Concept Evaluation Often considered the heart of the new products process, the Evaluation State is long, involved, and difficult. Evaluation actually begins when the strategist evaluates the organization‘s abilities. And it continues long after a product is marketed since a product often needs revision to remain competitive. Concept testing and other prescreening marketing research prepare the team for the actual screening evaluation. This evaluation is a full, detailed analysis of the proposal. If the concept passes screening, technical development begins. The technical work produces prototypes, which can then be evaluated and if all goes well, the finished product can be prepared for use testing. S4 Marketing Strategy Development Following a successful concept test, the new-product manager will develop a preliminary strategy plan for introducing the new product into the market. The plan must consist of three parts. The first part describes the target markets size, structure and behaviour; the planned product positioning and the sales, market share, and profit goals sought in the first few year. The second part outlines the planned price, distribution strategy and marketing budget for the first year. The third part of the marketing strategy plan describes the long-run sales and profit goals and marketing-mix strategy over time S5 Business Analysis Management needs to prepare sales; cost and profit projections to determine whether they satisfy company objectives. If they do, the concept can move to the development stage. As new information comes in, the business analysis will undergo revision and expansion. Estimating Total Sales Estimating Costs and Profits S6 Product Development The job of translating target customer requirements into a working prototype is helped by a set of methods known as quality function deployment (QFD). The methodology takes the list of desire customer attributes (CAs) generated by market research and turns them into a list of engineering attributes (EAs) that the engineers can use. 1. Physical prototypes: the R&D department will develop one or more physical version of the product concept. Its goal is to find a prototype that embodies the key attributes described in the product concept statement, that performs safely under normal use and conditions, and that can be produced within the budgeted manufacturing costs 2. Customer tests: when the prototypes are ready, they must be put through rigorous functional tests and customer tests. Alpha testing is the name given to testing the product within the firm to see how it performs in different applications. A> The rank-order method B> The paired-comparison method and C> The monadic-rating. S7 Market Testing After management is satisfied with functional performance, the product is ready to be dressed up with a brand name and packaging and put into a market test. The stage at which the product and the marketing program are introduced to a more realistic market settings. Test marketing gives the marketer an opportunity to tweak the marketing mix before the going into the expense of a product launch. The amount of test marketing varies with the type of product. Costs of test marketing can be enormous and it can also allow competitors to launch a ―me-too‖ product or even sabotage the testing so that the marketer gets skewed results. Consumer goods market testing: in testing consumer products, the company seek to estimate four variables: trial, first repeat, adoption and purchase frequency. Sales wave research: sales offering trial to a sample of consumer in successive periods. Simulated test marketing: test in a simulated shopping environment to a sample of consumers Debasis Pani, Asst. Professor, GIACR 10
  11. 11. Module – I Controlled test marketing: a few stores that have agreed to carry new products for a fee Standard test markets: full marketing campaign in a small number of representative cities. (How many test cities? Which cities? Length of test? What information? What action to take?) Business goods market testing business goods can also benefit from market testing. Expensive industrial goods and new technologies will normally undergo alpha testing (with in the company) and beta testing (with outside customers). During beta testing, the vendor‘s technical people observe how test customers use the product, a practice that often exposes unanticipated problem of safety and servicing and alerts the vendor to customer trainings and servicing requirements. A second common test method for business goods is to introduce the new product at trade shows. The vendor can observe how much interest buyers show in the new product how they react to various features and terms and how many express purchase intentions or place orders. S8 Commercialization Management‘s decision that the new item is worth marketing either in a test market situation or in a full – scale launch – is called the point of commercialization. Pilot processes are then converted to full-scale manufacturing. Final design specifications are written. Marketing strategy is finalized, including actual brand, packaging, service commitment etc. The team gradually moves the company from tentative exploration of a concept into production and marketing of a new product. When (Timing) First entry, Parallel entry and Late entry Where (Geographic strategy) To whom (Target market prospects) How (Introductory market strategy) 6. Product Life Cycle (PLC) A company‘s positioning and differentiation strategy must change as the product, market, and competitors change over the product life cycle (PLC) To say that a product has a life cycle is to assert four things: (1) Products have a limited life; (2) Product sales pass through distinct stages with different challenges, opportunities, and problems for the seller; (3) Profits rise and fall at different stages of the product life cycle; and (4) Products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each stage. Most product lifecycle curves are portrayed as a bell-shape. This PLC curve is typically divided into four stages Introduction: A period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses incurred with product introduction. Growth: A period of rapid market acceptance and substantial profit improvement. Maturity: A period of a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition. Decline: The period when sales show a downward drift and profits erode. Debasis Pani, Asst. Professor, GIACR 11
  12. 12. Module – I a) Growth slump maturity pattern: often characteristics of small kitchen appliances such as handled mixtures and bread makers. Sales grow rapidly when the product is first introduced and then fall to a petrified level that is sustained by late adopters buying the product for the first time early adopters replacing the product. b) The cycle recycle pattern: often describes the sales of new drugs. The pharmaceutical company aggressively promotes its new drug and this produces the first cycle. Later sales start declining and the company gives the drug another promotion push, which produces a second cycle usually smaller magnitude and duration. c) The scalloped pattern: here sales pass through a succession of life cycles based on the discovery of new product characteristics, uses or users. The sales of nylon for example show a scalloped pattern because of the many new uses- parachutes, hosiery, shirts, carpeting, boats sails, automobile tires that continue to be discovered over time. Style, fashion and fad life cycle Debasis Pani, Asst. Professor, GIACR 12
  13. 13. Module – I Style: is a basic and distinctive mode of expression appearing in a field of human endeavor. Style appears in homes; clothing and are. Fashion: is a currently accepted or popular style in a given field. Fashion pass through four stages: distinctiveness, emulation, mass fashion and decline. Fads: are fashions that come quickly into public view, are adopted with great zeal, peak early and decline very fast. Stage – 1 Marketing strategies at Introduction stage and the Pioneer advantage Because it takes time to roll out a new product and fill dealer pipelines, sales growth tends to be slow at this stage. Buzzell identified several causes for the slow growth: delays in the expansion of production capacity, technical problems, delays in obtaining adequate distribution through retail outlets, and customer reluctance to change established behaviors. Profits are negative or low in the introduction stage because of low sales and heavy distribution and promotion expenses. Much money is needed to attract distributors. Promotional expenditures are high because of the need to (1) inform potential consumers, (2) induce product trial, and (3) secure distribution. Companies must decide when to enter the market with a new product. Most studies indicate that the market pioneer gains the most advantage. Such pioneers as, Cisco, CocaCola, eBay, Eastman Kodak, Hallmark, Microsoft, and Xerox developed sustained market dominance. However, the pioneer advantage is not inevitable some cases due to inappropriate product mix and marketing strategies. Five factors are very important for the market pioneer for long term market leadership they are: vision of a mass market, persistence, relentless innovation, financial commitment and asset leverage. The pioneer should visualize the various product market it could initially enter basing on the profit potential of each product market, knowing that it cannot enter all of them at once. The marketing task for a pioneer firm is to stimulate demand for the new product and also to reduce the break-even time. A) Rapid skimming: involves high price and high promotion. This strategy also works when the market size for the product is large and the threat form competition is imminent. E.g. consumer electronics. B) Slow skimming: high price low promotion works under the assumption that firm has sufficient time to recover its pre-launch expenses. Many industrial products, more specifically renewable energy resources, laser technology or petrochemicals may fall under this category. C) Rapid penetration: low price and high promotion, works if the objectives are market share and profit maximization in the long run, and the market is characterized by intensive competition or other entry barriers. Japanese firms adopted this strategy to launch their product in North America and Europe. Later, South Korean, Taiwanese and Hong-kong based firms used the same strategy to uproot Japanese and other local competitors, leading India firms like Nirma and T-Series and followed this strategy. D) Slow penetration strategy: low price, low promotion delivers results when the threat from competition is minimal, market is large and predominantly price sensitive and majority of the market is familiar with the product. E.g. Maruti Udyog‘s initially offered Suzuki 800. Stage- 2 Marketing strategies at Growth Stage The growth stage is marked by a rapid climb in sales, as DVD players are currently experiencing. Early adopters like the product, and additional consumers start buying it. Attracted by the opportunities, new competitors enter with new product features and expanded distribution. Debasis Pani, Asst. Professor, GIACR 13
  14. 14. Module – I Prices remain where they are or fall slightly, depending on how fast demand increases. Companies maintain or increase their promotional expenditures to meet competition and to continue to educate the market. Sales rise much faster than promotional expenditures, causing a welcome decline in the promotion-sales ratio. Profits increase during this stage as promotion costs are spread over a larger volume and unit manufacturing costs fall faster than price declines owing to the producer learning effect. During this stage, the firm uses several strategies to sustain rapid market growth as long as possible: (1) Improving product quality and adding new product features and improved styling; (2) Adding new models and flanker products; (3) Entering new market segments; (4) Increasing distribution coverage and entering new distribution channels; (5) Shifting from product-awareness advertising to product-preference advertising; and (6) Lowering prices to attract the next layer of price-sensitive buyers. Stage – 3 Marketing Strategies: Maturity Stage At some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity. This stage normally lasts longer than the previous stages, and poses formidable challenges to marketing management. Most products are in the maturity stage of the life cycle, and most marketing managers cope with the problem of marketing the mature product. The maturity stage divide into three phases: growth, stable and decaying maturity. In the first phase the sales growth rate starts decline, in the second phase sales flatten on a per capita basis of market saturation. In the third phase, decaying maturity, the absolute level of sales starts to decline, and customers begin switching to other products. The sales slowdown creates overcapacity in the industry, which leads to intensified competition. Competitors scramble to find niches. They engage in frequent markdowns. They increase advertising and trade and consumer promotion. They increase R&D budgets to develop product improvements and line extensions. Three strategies for the maturity stage are market modification, product modification, and marketing-mix modification: A) Market modification. The company might try to expand the market for its mature brand by working to expand the number of brand users. This is accomplished by (1) converting nonusers; (2) entering new market segments (as Johnson & Johnson did when promoting baby shampoo for adult use); or (3) winning competitors‘ customers (the way Pepsi-Cola tries to woo away Coca-Cola users). Volume can also be increased by convincing current brand users to increase their usage of the brand. Like 1. Use the product on more occasions. 2. Use more of the product on each occasion. 3. Use the product in new ways. B) Product modification. Managers try to stimulate sales by modifying the product‘s characteristics through quality improvement, feature improvement, or style improvement. Quality improvement aims at increasing the product‘s functional performance—its durability, reliability, speed, taste. Feature improvement aims at adding new features e.g. size, weight, materials, and additives, accessories that expand the product performance, versatility, safety or convenience. New features build the company‘s image as an innovator and win the loyalty of market segments that value these features. Style improvement: aims at increasing the products esthetic appeal, it gives a unique market identity. Yet it invites problem 1. It is difficult to predict wither people and which people will like a new style. 2. A style change usually requires discontinuing the old style and the company risks losing customer. C) Marketing program modification. Product managers can try to stimulate sales by modifying other marketing program elements. They should ask following questions Debasis Pani, Asst. Professor, GIACR 14
  15. 15. Module – I Price: would a price cut attract new buyers? If so should the list price be lowered, or should prices be lowered through price specials, volume or early purchase discounts, fright cost absorption, or easier credit terms? Distribution: can the company obtain more product support and display in existing outlets? Can more outlets be penetrated? Can the company introduce the product into new distribution channels/ Advertising: should advertising expenditures be increased? Should the message or copy be changed? Should the media mix be changed? Should the time frequency or the size of the ads be changed? Sales promotion: should the company step up sales promotion – trade deals, cents-off coupons, rebates, warranties, gifts and contests? Personal selling: should the number or quality of salespeople be increased? Should the basis for sales force specialization be changed? Should the sales territories be revised? Should the sales force incentives be revised? Can sales call planning be improved? Services: can the company speed up delivery? Can it extend more technical assistance to customers? Can it extend more credit? Stage-4 Marketing Strategies: Decline Stage The sales of most product forms and brands eventually decline for a number of reasons, including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. All of these factors lead ultimately to overcapacity, increased price cutting, and profit erosion. As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels, and they may cut their promotion budget and reduce their prices further. In a study of company strategies in declining industries, Harrigan identified five possible decline strategies: 1. Increasing the firm‘s investment (to dominate the market or strengthen its competitive position); 2. Maintaining the firm‘s investment level until the uncertainties about the industry are resolved; 3. Decreasing the firm‘s investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm‘s investment in lucrative niches; 4. Harvesting (―milking‖) the firm‘s investment to recover cash quickly; and 5. Divesting the business quickly by disposing of its assets as advantageously as possible. The appropriate decline strategy depends on the industry‘s relative attractiveness and the company‘s competitive strength in that industry. A company that is an unattractive industry but possesses competitive strength should consider shrinking selectively. A company that is in an attractive industry and has competitive strength should consider strengthening its investment. Locating product or Brands in their Life cycles The approach to locating a product or brand in its life cycle involves environment scan and trend analysis. Specifically, this involves the following procedures: 1. Analysis of historical sales and growth trends in the brand and industry per se. 2. Analysis of recent trends in the market-place: specifically, this involves analyzing recent trends regarding the number and strength of competitors; the quality and performance and perceived benefits of competitor products; shift in distribution channels, if any; and the relative advantage the brand product enjoys over competitors in the market-place. 3. Analysis of development of short-term tactics of competitors. 4. Analysis of historical information regarding life cycles of similar and related products. 5. Based on the above analysis, project brand or product sales. 6. Estimate probable years remaining for the brand or product. 7. Fix brand or product‘s position in the life cycle. Characteristics Sales Introduction Low sales Debasis Pani, Asst. Professor, GIACR Growth Rapidly sales rising Maturity Peak sales Decline Declining sales 15
  16. 16. Module – I Costs Profits Customer Competitors High cost customer Negative Innovators Few per Average cost per customer Rising profit Early adopters Growing number Marketing objectives Create product awareness and trial Maximum market share Strategies Product Offer a product Price Charge plus Distribution Build selective distribution Offer product extensions, service, warranty Price to penetrate market Build intensive distribution Advertisement Build product awareness among early adopters and dealers Use heavy sales promotion to entice trial Sales promotion basic cost Low cost per customer High profit Middle majority Stable number beginning to decline Maximizing profit while defending market share Diversify brands and items models Low cost per customer Decline profit Laggards Decline number Price to match or best competitors Build more intensive distribution Cut price Build awareness and interest in the mass market Stress brand difference Reduce to take advantage of heavy consumer demand Increase to encourage brand switching Reduce expenditure and milk the brand Phase out weak Go selective: phase out unprofitable outlets Reduce to level needed to retain hard core loyal. Reduce to minimal level. Critique of the Product Life-Cycle Concept Advantage 1. The PLC concept is best used to interpret product and market dynamics. 2. As a planning tool, this concept helps managers characterize the main marketing challenges in each stage of a product‘s life and develop major alternative marketing strategies. 3. As a control tool, this concept helps the company measure product performance against similar products launched in the past. Disadvantage 1. The PLC concept is less useful as a forecasting tool because sales histories exhibit diverse patterns, and the stages vary in duration. 2. Critics claim that life-cycle patterns are too variable in their shape and duration. They also say that marketers can seldom tell what stage the product is in: 3. A product may appear to be mature when it is actually only in a plateau prior to another upsurge. 4. One final criticism is that the PLC pattern is the result of marketing strategies rather than an inevitable course that sales must follow. 5. An obsession with PLC may lead a firm to kill its product or brand in the belief that it has reached the decline phase. 7. Product Mix Decision Debasis Pani, Asst. Professor, GIACR 16
  17. 17. Module – I Product line includes all closely related or similar products offered by the firm for satisfying a particular class of need, being distributed through the same channels or possessing common physical or technical characteristics, more or less they fall under a particular price range. E.g., Audio systems offered by Philips is a product line. While televisions offered by the same company (Philips) is another product line. Product lining is the marketing strategy of offering for sale several related products of various sizes, types, colors, qualities, or prices. Line depth refers to the number of product variants in a line. Line consistency refers to how closely related the products that make up the line are. Line vulnerability refers to the percentage of sales or profits that are derived from only a few products in the line. When you add a new product to a line, it is referred to as a Line extension. When you add a line extension that is of better quality than the other products in the line, this is referred to as trading up or brand leveraging. When you add a line extension that is of lower quality than the other products of the line, this is referred to as trading down. Image anchors are highly promoted products within a line that define the image of the whole line. Image anchors are usually from the higher end of the line's range. When you add a new product within the current range of an incomplete line, this is referred to as line filling. A Product Mix (also called product assortment) is the set of all products and items that a particular marketer offers for sale. The number of products carried by a firm at a given point of time is called its product mix. The product mix of an individual company can be described in terms of width, length, depth, and consistency. The width(or breadth) refers to how many different product lines the company carries. The length refers to the total number of items in the mix. The depth of a product mix refers to how many variants of each product are offered. Or it refers to number of product items with in each product line and variations like size, packaging and colors. The consistency of the product mix refers to how closely relate the various product lines are in end use, technology, production requirements, distribution channels, or some other way. Fabric care Ujala supreme (9ml,30ml,75 ml,125ml,250 ml) Ujala washing power (25g, 500g, 1kg ) House hold insecticides Maxo cyclothrin coil (8hr,10hr,1 2hr) Utensil cleaners Exo dish bar (100g,200g,3 80g) Max vaporizer (30ml, 45ml) Max aerosol (150ml, 300ml) Exo dish wash liquid (500ml, 125ml) Fragrances Personal care Maya (8,15,20,4 0, and 100 sitcks) Jeeva natural (Coconut milk with milk protein, coconut milk with jasmine and coconut milk with kasturi manjal and is presented in 75gm packs ) Allied business Continen tal special Marketin g of Godrej tea Marketin g of Ekta dhoop Stiff & shine (20gm sachets, 100ml and 200ml bottles) 1. Product mix width: the total number of product line that company offers to the consumers. E.g. jyoti laboratories product mix has six product lines. Hence width is 6 Debasis Pani, Asst. Professor, GIACR 17
  18. 18. Module – I 2. Product mix length: the total number of items that company carries within its product line e.g. Jyoti laboratories fabric care division has three items. 3. Product line depth: the number of versions offered of each product in the line. E.g. Jyoti laboratories Jeeva Natural is offered in 3 versions i.e. Coconut milk with milk protein, coconut milk with jasmine and coconut milk with Kasturi manjal and is presented in 75gm packs. 4. Product mix consistency: if company‘s product line usage, production and marketing are related then product mix is consistent else unrelated e.g. incase of Jyoty laboratories all six product lines are FMCGs. Hence it is having consistent product mix. But ITC Company‘s cigarette and cloth product line are totally unrelated. Product Mix Decision Product line addition / deletion Most of the companies have range of products in its existing product lines, like LG, Samsung, Videocon has a range of TVs in its product line, right from budget TVs to premium TVs. Line stretching occurs when this range is lengthened. This stretching could be upward, downward or both ways. a) Upward stretching: Here a company operates in the lower end of the market. By upward stretch, it proposes to enter the higher end. Perhaps, it is motivated by higher margin of profits, higher growth rate or a position of a full-range marketer. This decision has its own risks. A well established high-end marketer might assault the stretcher by stretching downwards. Besides, it is a question of credibility of a lower-end marketer -whether he will be able to produce high quality products. There is one more risk. The existing infrastructure of a low-end marketer may not be competent to deal with the high-end market. b) Downward stretch: Lets start with an example: like all of you know parker, parker started with pens only at high price but if we look at parker today we can see products available in the range of 50 Rupees which no one could have though of in older times. Many companies start with high-end products, but later stretch downwards by adding low-priced products. The down-end products are advertised heavily so as to pull customers to the whole line on the basis of price. Samsung advertises its budget line 20" inches TV at Rs. 6,000. Once the customer is pulled, he may decide to buy a higher priced model- he trades up. This strategy needs careful handling. The budget brand being promoted should not dilute the overall brand image. Besides, the budget brand must be available. Consumers should not get a feeling that they were hooked to a bait, for switching later. Downward stretch is practiced in the following situations: 1. A competitor stretches upward and challenges the marketer. He counter-attacks him stretching downwards 2. Most companies start at the upper end, and then roll downwards. 3. The high-end market has a slow growth rate. 4. By filling the gap at the low-end, new competition is avoided. Downward stretch has its own risks. The down-end item might cannibalize the high-end items. Besides, our downward stretch might provoke a competitor to move upward. Down-end product may not be managed properly as the company may not have that capacity. It may dilute the brand image of the company‘s products. It is, however, needs careful consideration - a product line should not have a gap at the lower-end. It exposes the company to competition. c) Two way stretch Beside upward and downward stretch you can even stretch in two ways like several companies serve the middle-end market. They can stretch their product line in both the directions. Ashoka group of ITC has thus elite 5-Star hotels, at the upper-end comfort hotels at the middle end and budget hotels like Ashoka Yatri Niwas at lower end. Cannibalization Debasis Pani, Asst. Professor, GIACR 18
  19. 19. Module – I When the sales of the firms new products are due mainly because of decreasing sales of its existing and established product then we say that cannibalization has occurs in brief we can say by this you are actually eating away your own market. A good example of it would be Hyundai Santro they have introduced Santro Xing as a new product in the market in other way they have cannibalized their own market, like a person who wanted to buy Santro old model will buy Xing as it latest so they are not capturing new customer but converting their own customers only if they are able to make a person buy their product where he was planning to buy some product of Maruti then it is not cannibalization. If you want to avoid cannibalization, the new product should not be identified too closely with established products. Instead it should be targeted with new appeals to different market segments. Cannibalization is desirable when margins on new products are higher than those on established Products. In highly competitive industries, it is often desirable to induce target customers to trade up to the firm‘s newer products. This strategy is adopted by Videocon International, Which entered the market with a low priced color TV with basic features and then introduced more sophisticated models up the price scale in order to ensure that customers in all segments would buy only Videocon products. Product abandonment This involves discontinuing or deleting either an individual product or an entire product line HUL abandoned its direct marketing wing as Direct Sangam. Generally products that are abandoned are those for which demand is low leading to uneconomical short production runs or frequent and uneconomical price and inventory adjustments. In brief these products have lived their life or are unproductive. Product modification Product modification achieved by reformulation, redesign, changing unit sizes and adding / removing features are dictated by a firm‘s long-term goals, customer preferences and competitive developments in the particular product market. 8. Branding What is a Brand? The American Marketing Association defines a brand as a name, term, sign, symbol, or design, or a combination of these, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. A brand distinguishes a product or service from similar offerings on the basis of names are: LUX, LIRIL, REXONA, EVITA, PROTEX, HAMAM AND LE SANSI in case of toilet soaps; SUR, ARIEL, and NIRMA in case of detergents and NIVEA, FEM, OIL OF OLEY, CHARMIS AND VASELINE in case of vanishing creams. Principle of ABCPUV The legal version of a brand mark is the Trade mark Brand that has been given legal protection and has been granted solely to its owner originally helped trace the source of the guild producer Brand Recognition – awareness, loyalty, quality, emotion ―customers remember the brand‖ Brand Preference / Loyalty – the degree to which customers are committed to further purchases e.g. ―choose the brand over other brands‖ Brand Insistence – ―willing to search for it.‖ and if they don‘t find the brand they want, will not but a substitute Brand Awareness – your product is the first that comes to mind in a certain product category e.g., ice tea = Snapple, running shoes = Nike Brand Dilution is the phenomenon said to occur when consumers are no longer able to differentiate a specific brand from similar brands/products. Debasis Pani, Asst. Professor, GIACR 19
  20. 20. Module – I Brand Conviction represents the formation of a strong attitude towards the brand in the consumer‘s mind. What is Brand Equity? Equity refers to the value of a property after all charges and debts have been paid and brand equity refers to the value of a brand it means brand is treated as a property so brand is an assets. The most important assets of any business which are intangible: its company name, brand, symbols, and slogans, and their underlying associations, perceived quality, name awareness, customer base, and proprietary resources such as patents, trademarks, and channel relationships. Some time the brand may become a liability for the company if every thing will not go as per the customers will like METRO -> ORTEM, NOIDA -> ONIDA. ―Brand Equity is a set of assets and liabilities linked to a brand, its name and symbol that add to or subtract from the value provided by the product or service to a firm and/or to that of firm‘s customers.‖ Benefits of Branding Let us start the topic with a very basic question, why are people willing to pay more for a branded product than an unbranded one? And in what way the brand will help the buyer and seller? To find the answer let us focus on the benefit of branding for both the parties. TO BUYER 1. Help buyers identify the product that they like/dislike. 2. Identify marketer 3. Helps reduce the time needed for purchase. 4. Helps buyers evaluate quality of products especially if unable to judge products characteristics. 5. Helps reduce buyer‘s perceived risk of purchase. 6. Buyer may derive a psychological reward from owning the brand, IE Rolex or Mercedes. TO SELLER 1. Differentiate product offering from competitors 2. Helps segment market by creating tailored images 3. Brand identifies the company‘s products making repeat purchases easier for customers. 4. Reduce price comparisons 5. Brand helps firm introduce a new product that carries the name of one or more of its existing products. 6. Easier cooperation with intermediaries with well known brands 7. Facilitates promotional efforts. 8. Helps foster brand loyalty helping to stabilize market share. From the above discussion we have concluded branding is a very important decisions not only from buyer point but also form the seller‘s point of view. Now days it has become strategic marketing decision from tactical decision as because it has the ability to sustain a business and provide long term value to customers. Branding Decisions Following are some of the decisions that a brand manager has to take with regard to brand selection and it's positioning in business Selecting a Good Brand Name There is no simple solution to the problem of selecting a brand name. However, through extensive research and past experiences, market researchers have developed certain principles which should be followed while selecting the brand name. Following are the general traits of a brand 1. Acceptable lo the social settings 2. Easy to recognize Debasis Pani, Asst. Professor, GIACR 20
  21. 21. Module – I 3. A brand name should reflect directly or indirectly some aspect of the product viz. benefit, function, etc. 4. A brand should be distinctive, especially if there is a higher confusion in the category 5. A brand name should be easy to pronounce. 6. It should be easy to memorize and recall 7. It should be such that can be legally protected, if necessary. Brand building is an expensive exercise and it takes a long time to create a successful brand. It is observed that many competitors lake advantage of the situation and try to imitate the brand which makes brand managers to provide legal protection to the brand through trademark registration. To Brand or Not to Brand? Whether to brand a product or not is a decision which can be taken only after considering the nature of the product, the type of outlets represents for the product, the perceived advantages of branding and the estimated costs of developing the brand. Unbranded products are called generic product like fruit, salt, nut and bolt. Brand Sponsorship Decision The question of sponsorship of a brand refers basically to the decision as to whether it should be a manufacturer's brand or a private brand or-partly manufacturer's brand and partly private brand. In most developed countries where large chain / departmental stores dominate the retail distribution system, retailers buy the products form manufacturers and sell them under their own brand. This is a growing phenomenon in Indian context as we see emergence of organized retailing with large chain stores corning up in different product categories. Pantaloons, Big Bazaar, Shoppers' Stop, Life Style, Kids Kemp, and Cross Roads are some of the upcoming super markets and chain stores marketing exclusive and extensive product categories. Franchising The focus today is on franchising. Franchising deals are therefore becoming the order of the day. In India many companies are coming to the customer in franchise format of business like, NIIT, APTECH, TITAN, and BATA. Franchising has reduced the need of large investments. The franchisee gains by tying up with an established brand. Financing becomes easier, since goodwill of the present company backs up the franchisee. The marketing costs are borne by the franchiser. Brand Quality Decision Since the brand delivers a higher value than a commodity, perceived quality is a critical decision. The matrix of such attributes will decide the product positioning. A marketer has the option to position his product at any segment of the market viz. top, bottom or the intermediate. Family Branding (Umbrella Branding) (a) It is cost effective in as much as it reduces product launch costs and also the promotional expenses incurred on a continuing basis. The success of one brand when well promoted gives a push to the entire product line. Management of trade channel also is easier. (b) For products of uneven quality, this approach is a dicey proposition. Even in markets showing variations in consumer profiles, this approach is not useful. (c) Each product is denied a special identity, which can go a long way to make it click. Like Nokia is a corporate or family brand. There is no sub-branding and the individual products are merely defined by numeric descriptors such as 5300, 6600, 1112 and even these do not appear on the product itself. Yet, the brand has succeeded most of its competitors like Motorola and Ericsson. Individual Branding Debasis Pani, Asst. Professor, GIACR 21
  22. 22. Module – I (a) Individual brand invokes associations and imageries. These psychological factors influence the buying decision. For example, Hindustan Unilever sells its products under different brand names like Rin, Surf, Lux, etc. (b) Even if the product fails, the effects are restricted to that product only. They are not transferred to the whole product line. (c) Costlier strategy. (d) No benefit to the brand of the organization‘s reputation. Brand Portfolio Decision A firm may decide to have several brands of the same product which to some extent are competing with each other. The basic reason is that, at least in the consumer products, various benefits and appeals and even marginal difference between brands can win a large following. Similarly the brand manager can decide about the combination of brands that the company should offer to the customers. Though Hindustan Lever Limited has a bigger portfolio, they are concentrating on few brands in their portfolio as power brands, which will give rich dividend to the company in future. Brand Repositioning Decision Brands also undergo through an ageing process and the customers corresponding move in the value life cycle. So unless the brands are rejuvenated (to look or feel younger or more lively) they will not enjoy the market position what they were having in the past. Over the life cycle of a product, several market parameters may also undergo change such as introduction of a competing product and or brand in the same category, shifts in consumer preferences, emergence of new needs, etc. All and each of such challenges call for an evaluation as to whether the original positioning of the brand is still optimal or not. Stagnating or declining sales also point to a need for reassessment of the original brand positioning for example, Lifebuoy has been repositioned several times in the recent past, from the health segment to the sports segment and now in beauty segment through Lifebuoy plus extension. Generic Usage of Brand Names Sometimes, a brand name becomes so successful that it comes to be associated with a particular product category, e.g., Dalda is a brand name commonly used for any vanaspati ghee. The brand names then do not remain distinct and become generic. Cellophane, nylon, fiberglass, celluloid, Kerosene and aspirin have thus become generic. Xerox and Band Aid are not yet legally generic, but they have been so well promoted that many people just use them generically. Brand Strategy Decision A Company has four choices in respect of its brand strategy: (i) Line extensions: Extend the existing brand name in the existing product category. Here the company introduces additional items in the same product category, keeping the brand name same. The additional items may be of a different size (say a 150 gm cake of Palmolive Soap). There may be a new form, say Liquid Lifebuoy Soap. The additional item can be of different colour say, a blue soap instead of a white soap. The package may be different, say a sachet of a shampoo. Some additional flavors can be introduced; say Brown & Polson Custard Powder is now available in chocolate and with elachi flavor. There may be added ingredients, say, Lifebuoy Gold. Lux is available in three skin types, say for normal skin, dry skin and oily skin, making it ―your kind of soap for your kind of skin.‖ Line extensions can be innovative or ―me-too‖ or may be void filling. (ii) Brand extensions: Extend the brand name to new product category. An existing brand name is extended to a product being launched in a new product category. Honda is a brand in the field of motorbikes. The same brand name is given to products in the field of lawnmowers (a machine for cutting the grass on lawns), and marine engines. Brand extension works well for rubbing off the success of established brand names to new products. The new product, therefore, finds easy acceptance. However, if the new product is not satisfactory in performance, it might affect the Debasis Pani, Asst. Professor, GIACR 22
  23. 23. Module – I reparations of the company‘s other products. Most of the times, brand name may not be appropriate for the new product category. (iii) Multiple brands: Have new brand names in the same product category. The strategy is employed to saturate the market. Additional brands are introduced to cater to the different segments Besides, if each brand has a small market share, the overall profitability may get affected. Our brands should affect the competitor‘s brands, and not the other brands of our ownSometimes, a company gets a legacy of new brands in the process of acquisition. Thus Coca Cola got the Thums Up, Gold Spot and Limca brands. (iv) New brands: Invent a new brand name for a new product category. To make brand names more appropriate, a company puts a new brand name when it enters a new product category. A new brand again has to be built up, and this is quite expensive. It should be considered whether the sales and profits estimated for the new brand justify it. 9. Packaging A package is basically an extension of the product offered for sale. Sometimes the package is more important than the product it contains as it contains the product and protects it till the consumer is ready for the consumption or use. Some marketers even call packaging a 'fifth P', along with product, price, promotion and place. the packaging of a product has become a major element of the promotion of that product to the potential consumer. Packaging requirements therefore include: 1. Product Description: The pack must convey to the potential consumer not just what the product is, but what it does; in terms of the benefits it offers 2. Product Image: The packaging must also match the required image, so that the boxes for expensive jewels look expensive themselves 3. Product Value: The pack is often designed to make it contents look more than they really are. 4. Shelf Display: The pack should be designed to make the most of the shelf space available which may mean making the pack look more compact as possible, so that more can be placed in the shelf. Packaging as a function consists of two distinct elements, (i) the positive aspects, viz., the science and technology related to package design, selection of packaging materials, etc, and (ii) the behavioral aspects, viz., the art of product design which is associated with consumer motivation research, buying research, etc. In marketing, packaging is defined as the activities of designing and producing the container or wrapper for a product. The container or wrapper is called the 'package'. According to Philip Kotler and Gary Armstrong, the packaging may include up to three levels of material. The primary package is the product's immediate container. If you consider a toothpaste, the tube holding the toothpaste is the primary package. The secondary package is the card board material that protects the primary package and that is thrown away when the product is about be used. The shipping packaging is the packaging necessary to store, identify, and ship the product (a carton in this case, which contains hundred toothpaste units). Finally labeling is part of packaging and consists of printed information appearing on or with the package. Function of Packaging 1. Protection: The primary function of packaging is to protect the products from the environmental and physical hazards to which the product may be exposed in transit from the manufacturer's plant to the retailer's shelves and while on display on the shelves 2. Appeal: The package is increasingly being used as a marketing tool. The importance is also increasing due to the changed structure of retail business, especially the emergence of self-service stores. In the case of consumer products, package serves as a silent salesman. This is true, irrespective of whether the products are a luxury, semi-luxury or an ordinary everyday use product, Debasis Pani, Asst. Professor, GIACR 23
  24. 24. Module – I Consumer research on packaging concentrates on two aspects, which have an influence on consumer purchase decisions. The first one is color and the second is the package or container design. Almost all researchers have come to the conclusion that each color has its own distinct characteristics and, therefore, has to be used in a package so that there is no mismatch between what is expected of the package and the color used in the packaging. 3. Performance: This is the third function of a package. It must be able to perform the task for which it is designed. This aspect becomes crucial in certain types of packaging. For example, an aerosol spray is not only a package but also an engineering device. If the package does not function, the product itself becomes totally useless. 4. Convenience: The package must be designed in a way, which is convenient to use. It should be convenient not only to the end user but also to the distribution channel members, such as wholesalers and retailers. From the intermediaries standpoint the convenience relates to handling and stocking of packages. 5. Cost-effectiveness: The package finally must be cost-effective. Packaging cost as a percentage of product cost varies dramatically from one industry to another, from less than one percent in engineering industry to more than ten percent in the cosmetics industry. It is important to appreciate that while analyzing packaging costs, it is not enough to consider only the cost of package. Packaging Strategies We have already mentioned that packaging plays a greater role in the promotion of the product. Some of the widely used promotional packaging techniques are follows 1) Discount Pack: A 'flash' in distinctive colour is superimposed on the package, announcing the special price discount being offered. This is the most widely used form. 2) Coupon-Pack: A coupon of certain values, either as a part of the package or placed separately in the package, can be redeemed after the purchase of the product. 3) Premium Package: A premium package can take three forms. If the premium accompanies the product within the package then it is called in pack premium. If it accompanies the pack as a separate unit then it is called with pack premium, A coupon on the pack allowing a discount is called on pack premium package. 4) Prime Packaging: A specially made package having either a re-use or prestige value is referred to as prime package. Instant coffee packed in glass tumblers having colours is an example of the first type. The set of watches presented by Titan for the married couple in a gold plated package called "Bandhan" is an example of a prime pack. 5) Self-Liquidators: The buyer has to send to the company a number of packages or part thereof as evidence of buying the product in return, he may purchase additional quantity of the same product at reduced prices or be rewarded with a different product. Several companies in India, in the processed food like Maggi and Top Ramen and Sargam Tea occasionally use this technique. 6) Redesigning of the Package: Introduction of a new package can also be used as a promotional technique. For example, till the very recent past, edible oils were packed in tin cans in India, which looked messy and dirty. Most of the larger firms have now started using transparent one-liter PET (polyethylene terephthalate) bottles, which look gleaming and fresh. 7) Odd Size Packaging: Packaging can also be used ingenuously to avoid direct price comparison with the competing products. This is done by a deliberate choice of odd size, while the competing brands follow a standard size. A recent example in India is the launch of soft drinks by Pepsi in 200 ml bottles at Rs 5 when the industry standard was 300 ml at a price point of Rs 7 and rest other players immediately followed the brand leader with a 200 ml, pack size. The size of Dove soap also is also odd enough for the slim bathing soap category in Indian market. 8) Packaging the Product Line: Packaging can be used to develop a family resemblance in the packaging of its several products. Identical packages or the packages with some common features are used for all the products of a product line. This kind of packaging strategy had the benefits of umbrella branding. Under this strategy, when new products are added to a line, promotional value associated with old products extends to the new ones. Debasis Pani, Asst. Professor, GIACR 24
  25. 25. Module – I 9) Bundle Packaging: Placing more than one unit in one container is referred to as bundle or multiple packaging. This packaging strategy increases the sales to a large extent. This is seen in bathing and washing soap category in India. 10) Packaging in Perishables: In specific product areas where shelf life is an integral issue, packaging brings a combination of functional as well as promotional value. For example in ice cream business, the refrigerator serves as a status symbol for the retailer and also with the sale of the brand. 10. Labelling Decision The paper or the plastic wrapper attached to a bottle of medicine or a jam bottle carrying product information is technically called a label. Labeling is regarded as part of marketing because packaging decision making involves the consideration of the labeling requirements. The label helps in identification of the brand. It also describes several things about the product. In a medicine bottle the label explains about the composition and maximum retail price to the customer with directions of use and statutory warnings. Normally a label provides details about the manufacturer, the place of manufacturing, the date of manufacturing, its contents, the directions for use and the safety measures involved in the product use and expiry date. In many cases the label also does the promotion function due to its highly visible graphics. A label must also carry the suitable instruction for the proper disposal of the product and its package or at least a plea to consumers to avoid littering. As per the legal provisions a label must carry any specific nutrition information, warnings and legal instructions as required by law. Most consumer packaged goods are labeled with an appropriate Universal Product Code (UPC), an array of black bars readable by optical scanner, The advantage of the UPC which allows computerized checkout and compiling of computer generated sales volume information have become clear to distributors, retailers and consumers in recent years. A good label is one which helps a potential buyer to make his decision by providing relevant and correct information. Apart from the information, which must be statutorily given, the label should therefore provide: i) Picture of the product, accurate as to size, colour and appearance ii) Description of raw products used along with methods of processing iii) Directions for use, including cautions against misuse 11. Service as a Product Services marketing is a sub field of marketing, which can be split into the two main areas of goods marketing (which includes the marketing of fast moving consumer goods (FMCG) and durables) and services marketing. Services marketing typically refers to both business to consumer (B2C) and business to business (B2B) services, and includes marketing of services like telecommunications services, financial services, all types of hospitality services, car rental services, air travel, health care services and professional services. 12. Price: objective of Pricing Debasis Pani, Asst. Professor, GIACR 25
  26. 26. Module – I PRICE The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service. One can define price as that which people have to sacrifice in order to acquire a product or service. Price may be defined as the value of product attributes expressed in monetary terms which a consumers pays or is expected to pay in exchange and anticipation of the expected or offered utility. Price is therefore, a link that binds consumers and the company. It helps to establish a mutually advantageous economic relationship and facilitate the transfer of ownership of goods and services from the company to the buyers. PRICING Pricing is the function of determining product value in monetary terms by the marketing manager of a company before it is offered to the target consumers for sale. The managerial tasks involved in product pricing includes establishing the pricing objectives, identifying the price governing factors, ascertaining their relevance and relative importance, determining product value in monetary terms and formulation of price policies and strategies so as to effectively employ price as a strategic instrument in marketing a company‘s products. Objective of Pricing Pricing objectives are overall goals that describe the role of the price in organizations long-range plans. Pricing objectives aid planners in formulating price policies, planning pricing strategies and setting actual prices. Thus, all pricing objectives emanate from the corporate and marketing objectives of the firm. The various objectives are  Profit-maximization in the short-run  Profit-optimization in the long-run  A minimum return (or target return) on investment  A minimum return on sales turnover  Target sales volume from target market  Deeper penetration of the market  Keeping competition out, or keeping it under check  Fast turn around and early cash recovery  Stabilizing prices and margins in the market: an objective to stabilize price means that the marketing manager attempts to keep prices stable in the marketplace and to compete on non-price considerations.  Providing commodities at prices affordable by weaker sections  Providing commodities or services that will stimulate economic development  Match competitors prices  Encourage the exit of marginal firms from the industry  Avoid government investigation or intervention  Obtain or maintain the loyalty and enthusiasm of distributors and other sales personnel  Enhance the image of the firm, brand, or product  Be perceived as ―fair‖ by customers and potential customers  Create interest and excitement about a product  Use price to make the product ―visible" 13. Pricing Policies A firm must set a price for the first time when it develops a new product, when it introduces its regular product into a new distribution channel or geographical area and when it enters bids on new contract work, here the crucial decision is What is the price of a Product?. A pricing policy is a standing answer to this frequent question. Because a policy approach is well defined and clear cut, Debasis Pani, Asst. Professor, GIACR 26
  27. 27. Module – I is common to all for well managed enterprises. But, for many companies it remains a patch work of adhoc decisions. Whatever may be the issue, the price should be consistent with company pricing policies. To accomplish this, many firms set up a pricing department to develop policies and establish or approve decisions. So the pricing department has to consider several factors in setting its pricing policy. According to Kotler an organization goes through the following steps in setting its pricing policy Selecting the Pricing Objectives 6. Selecting the Final Price Determining the Demand 5. Selecting a Pricing Method 3. Estimating Costs 4. Analyzing Competitors Cost, Prices and Offers Step 1: Selecting the pricing objectives the company must decide where it wants to position its market offering. The clearer firm‘s objectives the easier it is to set price. A company can pursue any of five major objectives through the pricing: survival, maximum current profit, and maximum market share, maximum market skimming or product-quality relationship. Survival: As long as prices cover variable costs and some fixed costs, the company stays in business. Survival is a short-run objective: in the long run, the firm must learn how to add value Maximum Current Profit: Many companies try to set a price that will maximize current profits. They estimate the demand and costs associated with alternative prices and choose the price that produces maximum current profit, cash flow or rate of return on investment. Maximize market share: They believe that a higher sales volume will lead to lower unit costs and higher long-run profit. They set the lowest price, assuming the market is price sensitive. Maximum market skimming: Companies unveiling a new technology favor setting high prices to ―skim‖ the market. Sony is a frequent practitioner of market skimming pricing. Product quality leadership: product or services characterized by high level of perceived quality, taste and status with a price just high that consumers can afford Other objectives: Non profit and public organization may have different pricing objective e.g. a university aims at partial cost recovery. Step 2: Determining the demand each price will lead to a different level of demand and therefore have a different impact on a company‘s marketing objectives. The relation between alternative prices and the resulting current demand is captured in a demand curve. In the normal case, demand and price are inversely related: the higher the price, the lower the demand. In the case of prestige goods, the demand curve sometimes slopes upward. A perfume company raised its price and sold more perfume rather than less! Some consumers take the higher price to signify better product. However, if the price is too high, the level of demand may fall. The process of estimating demand therefore leads to Estimating Price sensitivity of market Estimating and analyzing demand curve Determining price elasticity of demand. Step 3: Estimating costs demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company wants to charge a price that covers its cost of producing, distributing and selling the product, including a fair return for its effort and risk. Debasis Pani, Asst. Professor, GIACR 27
  28. 28. Module – I A company‘s cost take two forms, fixed and variable. Fixed costs are costs that do not vary with production or sales revenue. A company must pay bills each month for rent heat, interest, salaries and so on. , Regardless of output. Variable costs vary directly with the level of production. They are called variable because their total varies with the number of units produced. Total costs consists have the sum of the fixed and variable costs for any given level of production. Average cost is the cost per unit at the level of production; it is equal to total costs divided by production. To price intelligently, management needs to know how its costs vary with different levels of production. Step 4: Analyzing competitors’ costs, price and offers within the range of possible prices determined by the market demand and company costs the firm must take the competitors costs, price and possible price reactions into account. The firm should first consider the nearest competitor‘s price. If the firm‘s offer contains positive differentiation features not offered by the nearest competitor, their worth to the customer should be evaluated and added to the competitors price. If the competitors offer contains some features not offered by the firm, their worth to the customer should be evaluated and subjected from the firm‘s price. Now the firm can decide whether it can charge more, the same or less than the competitor. The firm must be aware, however, that competitors can change their prices in reaction to the price set by the firm. Step 5: Selecting a pricing method given the three Csthe customers demand schedule, the cost function and competitor‘s prices – the company is now ready to select a price. Side figure summarizes the three major considerations in price setting. Costs set a floor to the price. Competitor‘s prices and the price of substitutes provide an orienting point. Customer‘s assessment of unique product features establishes the ceiling price. Company selects a pricing method that includes one to more of these three considerations. The pricing approaches are cost-based or buyer-based or competition-based. Step 6: Selecting the final price pricing methods narrow the range from which the company must select its final price. In selecting that price, the company must consider additional factors, including, Psychological pricing, Gain-and risk-sharing pricing, The influence of other marketing-mix elements on price, Company pricing policies and The impact of price on other parties. 14. Pricing Methods The basic principle which should always be-'kept supreme in the mind by the' marketer while deciding the price or selecting a pricing method for a product is that the pricing should always create some profit for the company at the minimal level and it still should attract potential customers at the highest level. Debasis Pani, Asst. Professor, GIACR 28
  29. 29. Module – I Pricing Methods Cost-based Methods 1. Cost-plus or mark up. 2. Marginal cost or contribution. 3. Target return. Competition-based Method 1. Leader pricing 2. Going rate pricing 3. Bid & Auction Pricing Demand-based Method 1. Discrimination/ Differential/ Variable/ Flexible 2. Perceived Value 3. Psychological 4. Value. EDLP {1} Cost-based Methods [A] Cost-Plus Pricing or Full-Cost Pricing or Mark-up Pricing As the name suggests, this type of pricing involves adding a pre-determined profit to the total cost of a product and putting the sum arrived on the price-tag. Cost-plus pricing is the most popular method used in manufacturing and retail trades. Cost-plus pricing means setting the price of one unit of a product equal to the total cost of the unit plus the desired profit on the unit. There are three steps involved in cost-plus pricing method. Step – I (Calculation of Average Variable Cost) The first step in price fixation is to estimate the AVC. Variable costs are costs which vary with number of items produced. Thus, total variable cost (TVC) is the sum total of variable costs. Then AVC is defined as the variable cost per unit of the product. Step – II (Calculation of Average Fixed Cost) Fixed costs are costs which remain constant irrespective of the number of units produced. Thus, total fixed cost (TFC) is the sum total of fixed costs. So average fixed cost (AFC) will be the fixed cost per unit of the product produced. i.e AFC =Total fixed cost / Units of output produced Step – III (Determination of the Desired Profit Margin) The desired profit margin is simply the difference between the selling price of an item and its cost. It is also termed as ‗mark up‘, is always expressed as a percentage and it is the convention to express it as a percentage of selling price. This mark up or profit margin may be fixed simply by a rule of thumb, what the firms individually consider to be a fair (past experience, practice of the rival firm) or just (what the market will bear) percentage for this. In cost-plus pricing, the simple formula used is: Selling price = Unit total cost + Desired unit profit Selling price = AVC + AFC + Mark up Example-1: Suppose a company marketing refrigerators produces 10,000 units in a year. Various costs incurred by the company are as follows: 1. Raw material =Rs. 5,00,00,000 2. Packing material =Rs. 5,00,000 3. Rent =Rs. 10,00,000 Debasis Pani, Asst. Professor, GIACR 29
  30. 30. Module – I 4. Electricity 5. Salaries to employees 6. Distribution costs 7. Other costs TOTAL =Rs. =Rs. 2,50,000 60,00,000 Thus Total Cost of 10,000 units = Rs 6,07,50,000 Total unit cost or Average Total Cost (ATC) = =Rs. =Rs. = Rs 20,00,000 10,00,000 6,07,50,000 Total Cost / Unit of output produced Total cost of 1 unit = Rs 6,07,50,000 / 10,000 =Rs 6075 Suppose the management decided to of 20% mark up then the selling price is = Total unit cost + Mark up Selling price = Rs 6075 + 20% = Rs 7290 Advantages: 1. It may contribute to price stability. This is a desirable result because price changes can be expensive and may provoke undesirable reactions by competitors. 2. The formula used cost-plus pricing is simple and easy to understand. 3. Firms preferring stability use cost-plus or full-cost as a guide to pricing in an uncertain market where knowledge is incomplete. Because in practice, firms are uncertain about the shape of their demand curve and about the probable response to any price change. 4. In cases where costs or getting information are high and the process of trial and error is costly, firms use full cost or cost plus pricing to reduce the cost of decision making. 5. Cost-plus pricing is used for public utility pricing, determining the product design when the selling price is pre-determined, pricing products that are designed to the specification of a simple buyer and monopoly buying-where the buyer know a great deal about suppliers cost, 6. Construction companies submit job bids by estimating the total project cost and adding a standard mark up for profit. 7. Lawyers and accountants typically price by adding a standard mark up on their time and costs. Limitations 1. It considers cost as the prime determinant of price and it demotes the influence of demand 2. It fails to reflect the forces of competition adequately 3. If variable cost fluctuates frequently and significantly, full – cost pricing may not be an appropriate method of pricing. 4. It is based on a concept of cost that is frequently not relevant for the pricing decision. It is marginal cost rather than full cost of a product that should be used for fixing its price. 5. In full cost or mark up pricing, historically cost rather than current cost data are used. This may lead to under-pricing under increasing cost conditions and to over-pricing under decreasing cost conditions, which may go against the firm‘s objective. 6. It over values the meticulousness of allocating costs. The costs of individual products can‘t be determined exactly in multi-product situation. [B] Target Profit Pricing or Target Return Pricing In this type of approach, the company targets some profit figure to be achieved. And prices its products so as to achieve the same profit objective. Most of the American firms they follow this pricing method. Rate of return pricing is a refined variant of full-cost pricing. A firm which intends to earn a total profit of Rs. 20,00,000/- in one year, producing 1,00,000 units would cost the company Rs. 1,00,00,000 including all the costs. Thus the cost of production of 1,00,000 units is Profit objective Total a+b=c Price per unit = c / unit of production Debasis Pani, Asst. Professor, GIACR = = = = Rs 1,00,00,000 ---------(a) Rs 20,00,000 --------(b) Rs 1,20,00,000 Rs 1,20,00,000 / 1,00,000 = Rs 120 30