MARKETING MANAGEMENT Unit IIGGS IPU Part time/Weekend MBA Program Batch
Product Concept A product is a ‘bundle of utilities’ that can be offered to a market to satisfy a need or want. It could be: Physical Good (e.g. a computer) Services (e.g. computer assembling or repair) Idea (e.g. ‘eliminates manual work’, cloud computing) Persons (e.g. Amitabh Bacchan endorsing Gujarat)
Levels of a Product5 Levels: Core Benefit Basic Product Expected Product Augmented Product Potential Product
Core Benefit:The fundamental service/ benefit that the consumer is really buying.E.g. Transport / Entertainment
Basic Product:Core benefit turned into basic product.E.g. Bus / Movie
Expected Product:A set of attributes & conditions that buyers normally expect.E.g. Seats, AC, Curtains / Story, Songs, Dialogues, Romance, Action
Augmented Product:Meeting customer’s desires beyond their expectations.E.g. Comfortable seats, Video coach, Noise-proof chamber in case of Bus / Good acting, Nice songs, Great story-line in case of Movie. Mainly competition takes place at the ‘Augmentation’ level.
Potential Product:Evolution of new ways to satisfy customers & distinguish their offer.E.g. More leg space, distance between the seats, option to stretch-out, Welcome drinks/ newspaper on arrival, pillows and blanket in case of Bus/ 3-D, special effects, no advertisements in between, Dolby sound (sound effects) in case of movie.
Core benefit: Transport Basis product: Bus Expected product: Seats Augmented product: Comfortable seats, more leg room
E.g. Apple iPhone 4s “siri experience” E.g. Coca Cola“sharing happiness”
Classification of Products: Durability & Tangibility: 3 types Non-Durables: Consumer quickly (one or few uses) & purchased frequently; available at many locations; Small mark-up; Heavy advertisement Durables: Survive many uses, Require personal selling, High margins Services Intangible – can’t be seen Inseparable – can’t be separated from personnel
Consumer Goods Classification: 4 types Convenience Goods: Staples: goods that consumers purchase on a regular basis. Impulse goods: goods purchased without planning/ search effort. Emergency goods: like umbrella during rainy season/ summers. Shopping Goods: goods that the customer compares on such basis as: suitability, quality, price, style. E.g. furniture, clothing, appliances etc. Specialty Goods: goods with unique characteristics for which a significant
Industrial Goods: 3 types Material & Parts: Raw Material: farm products (e.g. wheat, cotton, fruits, vegetables) & natural products (e.g. fish, eggs, iron-ore, crude oil) Manufactured materials & parts: component materials (e.g. steel, yarn, cement) & component parts (e.g. spares, castings) Capital items: goods that facilitate in developing or managing the finished product. Installations: e.g. factories & offices; bought directly from the producer; includes long negotiation period for sales (personal selling). Equipment: machinery & tools (e.g. Earth movers, trolley, cranes)
Product Life Cycle Comprises of 4 stages: Introduction Growth Maturity
Introduction Stage: A new kind of a product or a modified product that has few competitors enters the market. Initial costs are high & profits are low since sales is just building up. Target market mainly comprises the innovators & early adopter categories.
Growth Stage: Sales start climbing up & the profits start rising. Consumer trials pick-up & product gains wider acceptance. Cost per customer increases due to high promotional costs. Competition starts picking up.
Maturity Stage: A product is mature when it has become a familiar offering. Consumer base is large. Sales growth plateaus & profits begin to stabilize since the peak has been achieved.
Decline Stage: Profits & product sales fall as technologically superior substitutes enter the market or customer needs change. Customer base reduces. Competition becomes less.
New Product Development(NPD) Product Development means altogether a new product or modification in an existing product for e.g. – quality, price, size, shape, feature, colour, packing etc. STAGES ARE: Idea Generation Idea Screening Concept Development & testing
Importance of Product Development: Offer temporary monopoly to the firm to widen their profit margins. Continuous production planning makes it hard for its competitors to imitate the product because by the time they learn to imitate, the innovator introduces new product.
Stages of NPD Idea Generation: The NPD process starts with search for ideas. It should define the products and markets, & should state new product’s objectives. Also state – how much effort should be devoted to developing breakthrough products, modifying existing products, and copying competitor’s products. NPD ideas can come from customers, researchers, employees, competitors, channel members and management.
Idea Screening: It involves review of ideas to arrive at best suitable idea. Each promising idea is looked upon as an opportunity to widen margins or market shares. Concept Development & Testing: Attractive ideas must be refined into testable product concepts. Any product idea can be turned into several product concepts. E.g. a powder added to milk to increases its nutritional value or taste. Idea leads to concept development like for e.g. an instant drink for adults who want a quick nutritious breakfast, or a health supplement for older people to drink before they go to bed.
Market Strategy Development: It chalks out a plan to introduce new product in market. Generally consists of 3 parts: First part describes the target market’s size, structure & behaviour, then planned product positioning and the sales, market share and profit goals sought in few years. Second part outlines the product’s planned price, distribution strategy, and marketing budget for first year.
Business Analysis: Mgmt. needs to prepare sales, cost & profit projections to determine whether they satisfy the company’s objectives. If they do, the product concept can move to the product development stage. Product Development: After business analysis, the product concept moves to R&D and / or engineering to be developed into a physical product. Few versions of the product concept that can be produced within the budgeted manufacturing costs are prepared.
Market Testing: The goals are to test the new product to learn how large the market is & how consumers and dealers react to handling, using and re-purchasing the actual product. The feedback is derived through surveys, interviews and observational methods. Commercialization: Market testing gives mgmt. enough info to decide whether to launch the new product or not. This stage is characterized by heavy expenditure on placement and promotion of the product.
Challenges in NPD Risky (e.g. what if TATA NANO failed) Shortage of important new product ideas Fragmented Markets – Small market segments means lower sales and profits for each product (e.g. cola versus local lemon-soda) Social & Govt. constraints – consumer safety & ecological compatibility Cost – rising R & D, manufacturing & marketing costs Time – longer development time
Product Mix Is the set of all products and items that a particular seller offers for sale to buyers. E.g. Unilever Product Line Detergents Soaps Shampoos Toothpaste Product Arial Breeze Clinic Plus Close-Up Line Length Surf Lux Clinic Active Wheel Pears Sunsilk Dove Halo Lifebuoy
Product Line A product line is a group of products that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same channels, or fall within given price ranges. E.g. small size or mid-size car segment A company can enlarge the length of its product line
Line Stretching Line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch: Downward Upward Both ways
Downward Stretch: When companies initially locate at the upper end of the market and subsequently stretch their line downward. Companies add models to end of their line in order to advertise their brand starting at a low price. Risk is low-end item might cannibalize the high-end. Downward Stretch: Reasons The company is attacked by a competitor at high-end and decides to counterattack by invading the competitors low-end. The company finds that slower growth is taking place at the high-end.
Upward Stretch: When companies in the lower-end locate at the upper end of the market. Reasons: Companies might be attracted by: Higher growth rate, or Higher margins Risky: Why? Customer may not believe that the low-end targeting company can produce high quality product. E.g. T-
Two way or Both way stretch E.g. : Hindustan UnileverDove: High-endPears/ Lux: Medium-endLifebuoy: Low-end
Branding A brand is a name, term, sign, symbol or design, or a combination of them, intended to identify the goods or services of one seller and to differentiate him from competitors. Brand conveys a warranty of ‘quality’ called Brand Equity. (E.g. Mercedes in premium cars, Levi’s for Jeans, Amul for milk-based products)
Brand Equity It is related with the degree of brand name recognition, perceived brand quality & strong mental and emotional associations. Advantages are: Reduced mktg. costs because of brand awareness and loyalty. More trade leverage in bargaining with distributors. High price for higher perceived quality. Easy launch / extensions
Significance of Branding Brand identifies the seller or maker of the product. (E.g. Tata Steel, Bajaj Pulsar, Nestle Maggi) Easier for seller to process orders & track problems. Legal protection to seller through registered patent or trademark. Brand loyalty gives seller some protection from competition. Strong brands help build the corporate image. Brands make the product easier to handle, hold
Levels of Branding A brand can convey up to 6 levels of meaning: Attributes Benefits Values Culture Personality User
Attributes: like - Premium, Expensive, Well-built, Durable, Well engineered & High Re-sale Value. E.g. Mercedes-Benz. Benefits: Attributes need to be translated into functional & emotional benefits. E.g. High pick-up, Good mileage and Speed for Mercedes cars. Value: High performance, Safety, Prestige Culture: German Engineering that represent
Branding Brand Name Decision: How to name the Brand? Individual Name Blanket Family Name Separate Family Name Company Individual Name Brand Strategy Decision: What strategy to adopt to promote a Brand? Line extension
Brand Name Decision: Individual Name: E.g. Wheel, Arial, Surf –Detergents by Unilever have individual names. Advantage is if the company’s product fails, the company’s image or name is not badly hurt. Blanket Family Name: E.g. Maggi Noodles, Maggi Soups, Maggi Tomato Ketchup of Nestle under the name of ‘Maggi’. Advantage is no need for heavy advertising
Separate Family Name: Nestle has separate family name for all products – like Polo, Nescafe, Maggi, Powder Milk, Curd etc. Where a company produces different products, it is not desirable to use one blanket family name (like say, Maggi Polo, or Maggi Coffee). Company Individual Name: Company trade name is combined with individual product names like for e.g. Tata Nano, Tata Steel, Tata Voltas, Taj Hotels by Tata, Tata Salt. Manufacturer tie their company name to an individual brand name for each product to enhance product’s reputation (equity).
Brand Strategy Decision Line Extension: consist of introducing additional items in the same product category under same brand name. E.g. Coke, Diet Coke. Maggi Noodles, Maggi Atta Noodles, Maggi Soupy Noodles etc. Brand Extension: A company may use its existing name to launch new products in other categories. E.g. Maggi Noodles, Maggi Soups, Maggi Ketchup/ Sauce.
Multi Brands: Different brands for different segments like Unilever’s detergents, soaps and shampoos. The motive is to appeal to different TGs. A major pitfall in introducing multi-brands is that each might obtain only a small market share and none may be particularly profitable. New Brands: When a company launches products in a new category, it may find that none of its current brand names are appropriate. E.g. Nirma Detergent & Nirma Salt. If Bata decides to make ‘bread’, it is not likely to call it – ‘Bata Bread’. Co-brands:
Challenges in building a brand To promote only the brand’s attributes would be a mistake. First, the buyer is not interested in the brand attributes as much as in its benefits. Second, competitors can easily copy the attributes. Third, the current attributes may become less valuable later hurting a brand that is too tied to a specific attribute. The most enduring meaning of a brand are its value, culture, and personality. Therefore branding should not dilute the value and personality. For e.g. it would be a mistake for Mercedes to market an inexpensive car bearing the name Mercedes.
Pricing: Price is the ‘P’ that produces revenue; the other 3 Ps produce costs. Price can be changed quickly, unlike product features and channels of distribution.
Pricing Objectives: Profit maximization (long-run, short-run, growth, stabilize market - prevent violent fluctuations in prices, discourage new entrants). Target ROI Market Share
Procedure for Price Setting: Steps are; Selecting the price setting Determining the demand Estimating costs Analyzing competitors
Selecting the pricing objective – it could be: survival, maximum profits, maximum sales growth, product- quality leadership (like Mercedes-Benz). Determining the demand – estimating the demand curve, probable quantities that it will sell at each possible price. high-price low-demand (for normal goods) high-price high demand (for prestige goods) Estimating costs – at different levels of output, at
Analyzing competitors – for their costs, prices and offers. Selecting pricing method – markup pricing, target- return pricing, perceived value pricing etc. Selecting a final price – depending upon pricing policies / strategies.
Factors affecting price: Uniqueness of product (e.g. Apple’s i-pod) Substitute awareness (monopoly, monopolistic competition) Difficulty in comparing substitutes Total income
Pricing Policies: Mark-Up or Cost Plus Pricing Target-Return Pricing Perceived Value Pricing Value Pricing
5 Pricing Policies Markup Pricing – also known as ‘cost-plus’ pricing.Variable Cost per unit Rs. 10Fixed Cost Rs. 30, 000Expected Unit Sales 50,000 unitsUnit cost = Variable Cost + Fixed Costs/ Unit Sales = 10 + 30,000/ 50,000 = Rs. 16Mark up is, say, 20% on Sales.Mark up Price = Unit Cost/ 1 – desired return on sales)
Break-even point: BEP = Fixed Cost / Price – Variable Cost = 30,000 / 20 – 10 = Rs. 30, 000 is break-even point
Target-Return Pricing – firm determines the price that would yield its target ROI. Investment = Rs. 10,00000 ROI expected = 20% or 2,00000 Target Return = unit cost + desired return x capital/ unit sales = 16 + 0.20 x 10,00000 / 50,000 = Rs. 20Here, the manufacturer estimates that the market will buy
Perceived Value Pricing – such method is based on the product’s perceived value. Manufacturer see the buyer’s perceptions of value, not the sellers cost, as the key to pricing. Value Pricing – in such method, manufacturer charge a fairly low price for a high quality offering. Value pricing says that the price should represent a high value offer to consumers. Going-rate Pricing – Firm pays less attention to its own costs or demand, and bases its price largely on
Penetration Pricing Strategy – where initially low prices are set to capture mass markets by encouraging rapid adoption of the product. this helps in capturing significant market shares even though the profit margins are often low and it takes longer to recover costs. Skimming Pricing Strategy – where prices are kept high in order to capture that market which focuses on quality, uniqueness and status.
Survival Pricing Strategy – is a short term strategy, implemented when companies face over production, or changing customer needs. focus is to keep the company going and as a result profits take a back seat. Psychological Pricing Strategy – Where pricing is intended to appeal to buyer’s emotion rather than logic this is why products may have an odd-even pricing or a prestige pricing to add status value.
Geographical Pricing Strategy – where pricing is differentiated on the basis of the geographic area the product is sold in. impact of freight charges, local taxes, levies, state tax, transport charges etc. are included in costing. Flexible Pricing Strategy – where prices are adjusted based on the customer’s ability to pay or negotiate. this also helps in gaining more customers and increasing market shares.
End of Unit IIAll contents are copyright protected and largely display the work of Philip Kotler for his book Marketing Management: Planning, Analysis, Implementation & Control. Please respect authors copyright. These study notes are for personal and non commercial consumption.