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Notes on Marketing Management Notes Prepared By Name of Book Written By Muhammad Akhlaq Khan Marketing Management Philip Kotler

Prepared by Muhammad Akhlaq Khan

CHAPTER-1 Assessing Marketings Critical Roll in Organizational Performance


GLOBAL ECONOMY: Rapid changes can easily render yesterdays winning businesses obsolete. After the end of cold war countries and companies are wrestling with increased global competition. A good news is that by global market we means a much larger market for goods and services and the bad news is that now these companies have to face a greater competition for a great number of competitors. Income Gap: A large part of world have grown poorer in the last few decades. Although the wages has risen but the purchasing power has declined especially for the less skilled work force. The gap between rich and poor nations is growing. Poor nations pressure the richer nations to open their markets but richer nations maintain tariffs and quotas to protect their local industry and employment. There are two solutions to this problem; 1 Counter Trade: {poorer nations should pay in goods for other goods and services. 2 Providing More for Less: The poorer nations should sell their goods for less than of the richer nations. Environmental Restrictions: Since 1970s environmental lows are being implemented which requires to install pollution control equipment. All these laws raised cost of manufacturing for the companies of richer countries. Technical Points: Companies must avoid jumping in too soon (before the market is ready) or too late (after the market has been concurred. WHAT IS MARKETING? THE CORE CONCEPTS: Marketing has been defined in various ways. One scholar has defined it as: - Creation and Delivery of standard of living. The definition which serves out purpose is as follows: A social and managerial process by which individuals and groups obtain what they need and want through creating, offering or exchanging products of value with others. This definition have following important points: A social and managerial process. 2. Individuals and groups 3. Needs and Wants, 4. Creating, offering and exchanging, 5. Products 6. Having value Let us consider them one by one. 1&2 A Social and Managerial Process: Marketing is not an individuals own working but the actions of individuals or groups with other individuals or groups. 3 Needs, Wants and Demands: Needs: Needs of every many are specific and few. They are Food, air, clothing, shelter and survival. Beyond this people have a strong desire for recreation. Need is a state of deprivation of some basic satisfaction. They are not created by society they exist in the very texture of human biology. Wants: Wants are the desires for specific satisfiers of needs. Need is food but a desire to eat a chicken or burger are wants. Needs are few but wants are many which are continually shaped and reshaped by social forces and institutions like school, families, business, competitors. Demands: Wants for specific products that are backed by 1) ability to buy and 2) willingness to buy them. 4 Creating Offering and Exchanging: People can obtain products in 4 ways 1) Self Production. 2) By coercion, (3) By begging and 4) by exchanging. Marketing emerges when people decided to satisfy their needs and wants through exchange. What is Exchange: It is the act of obtaining a desired product from someone by offering something in return. It have 5 conditions 1) At least two parties. 2 Each one have something of value. 3 Each one have a capability of communication and delivery 4 Each one is free to accept or reject the exchange offer. 5 Each one believes in the appropriateness of the exchange. 5 Product (Goods, Services, and Ideas) A product is any thing that can be offered to satisfy a need or want. A product can consist of as many as three components: 1- Goods, 2- Ideas, and 3- Services. 6 1

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

Value Cost and Satisfaction: A consumer chooses among many products to satisfy a need on the basis of value and cost of the article. Value: It is the consumers estimate about the overall capacity of the product to satisfy his need, and Cost includes the value he have to pay for the product and includes the opportunity cost (The cost of leaving the other products which he have not purchased.) 7 Markets: Market consists of all potential customers having a particular need or want (who are willing and able to engage in exchange) to satisfy that need or want. Thus market depends upon, 1) the no of persons who have need or want, 2) Have resources of others interest, and 3) willing and able to offer these resources in exchange for that they want. Traditionally a market is a place where buyer and sellers are gathered to exchange their goods. MARKETING MANAGEMENT Marketing management takes place when at least one part to a potential exchange thinks about the means of achieving desired responses from other parties. So, Marketing Management is a process of planning and executing, (conception, pricing, promotion and distribution) ideas, goods and services to create exchange that satisfies individuals and organizational goals. Types of Demands: 1 Negative Demand When people are even ready to pay to avoid such product. i.e. major part of the market dislikes the product. 2 No Demand When customer are unaware of or uninterested in product. 3 Latent Demand A demand which cannot be satisfied by any existing product. 4 Declining Demand: When demand of product starts decline day-by-day. 5 Irregular Demand: Demand for such products which varies seasonally, daily or even on hourly basis and causing problems of idle or overworked capacity. 6 Full Demand: Organizations faces full demand when they produces up to their full capacity. The marketing function is to maintain the current level of demand by continuously improving its quality and by measuring customers satisfaction. 7 Overfull Demand When demand goes more than their capacity and want to handle. Marketing management work in such situation is to decrease demand temporarily or permanently. 8 Unwholesome Demand: An organized effort to discourage their utilization. Like unselling compains conducted against cigarettes, alcohol etc. The marketing task is to get people who like something to give it up using such tools as fear messages, price hikes, reduced availability. COMPANY ORIENTATIONS TOWARD THE MARKET PLACE THE SELLING CONCEPTS Companies while making marketing, make certain assumptions on the basis of ideas they have some of these ideas are as follows: 1 Production Concept: Consumers favor those products which are widely available at low cost. Production oriented managers concentrate on high production with wide distribution. 2 Product Concept: Consumer favor those products that offer most quality, performance on innovative features. Product oriented managers focuses on marketing the superior products and improving them over time. 3 Selling Concept/Sales Concept: If customer is left alone, will ordinarily not buy enough of the organizations products. The organization must, therefore, undertake an aggressive selling and promotion effort. THE MARKETING CONCEPTS: The marketing concept is to achieve organizational goals by being more effective than competitors in integrating marketing activities to wards determining and satisfying the needs and wants of target markets. Pillars Of Marketing Target Market: Determine a part of total market to be served. 2) Customer Needs: Customers needs are of five types Stated needs: (The customer wants an expensive care) Real need: (Customer wants a car having low operation cast and not effected by its initial price) Unstated need, (The customer expects good service from the dealer) Delighted Needs, (Customer buys the care and receives a complimentary US. road atlas) Secret Need. (Wants to be seen by friends as a value-oriented savvy consumer) Coordinated or Integrated Marketing. When all the companys departments work together to serve the customers interests, the result is integrated marketing. It takes place on two levels: Various marketing functions____sales force, advertising, product management, marketing research, and so on____must work together. All these marketing functions must be coordinated from customers point of view. Social marketing must be well coordinated with other company departments. 2

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

Profitability or organization. The ultimate purpose of the marketing is to help organizations to achieve their goals. In for profit organizations the key aim is not only profits but to achieve profit as a by-product of doing the job well. Points That forces organizations More towards the Marketing Concepts: 1 Sales Decline Look for the answer for decline in sales and movers to increase this sales by marketing. 2 Slow Growth: When sales growth rate is low and organization makes organized marketing movement to catch new markets. 3 Changing Buying Patterns: When customer wants changes rapidly. 4 Increased Competition... When companies are suddenly attacked by powerful marketing companies and forced to meet the change. 5 Increased Marketing expenditures: When expenditures of companies for advertising, sales promotion, marketing research, and customer, service getting out of hand. Management then decides it is time to undertake a marketing audit to improve its marketing. 5 Social Concept: In the social concept managers determine 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 consumers and the societys well-being. THE RAPID ADOPTION OF MARKETING MANAGEMENT: Marketing management today is the subject of growing interest in all types of organizations, within and outside the business sector and in countries throughout the world.

CHAPTER-2 Building Customer Satisfaction Through Quality, Service, and Value


DEFINING CUSTOMER VALUE AND SATISFACTION: Customer Value: Customer Delivered Value is the difference between total customer value and total customer cost. Total Customer Value is the bundle of benefits customers expect from a given product or service. Total Customer Cost is the bundle of costs customers expect to incur in evaluating, obtaining and using the product or service. Customer Satisfaction: Satisfaction is a persons feelings of pleasure or disappointment resulting from comparing a products perceived/actual performance (or outcome) in relation to his or her expectations. Tools for Tracking and Measuring Customer Satisfaction: Complaints & Suggestion System: Make it easy for customer to deliver suggestions and complaints. By way of suggestion boxes, supplying comments cards to customers or hiring a public relationing officer. Customer Satisfaction Survey: Responsive companies uses a direct measure of customer satisfaction by conducting periodic surveys. They send questioner or make a telephone call asking about their satisfaction with the product. Ghost Shopping: Companies hire persons top pose potential buyers to report their findings on strong and weak points they experienced in buying the products of company and of the competitors. These hired persons are called ghost shopper can even pose certain problems to test whether the companys sells personnel handle the situation well. Lost Customer Analysis: Companies should contact customers who have stopped buying or switched to other suppliers to learn the reason. DELIVERING CUSTOMER VALUE AND SATISFACTION: Keeping in view the importance of customer value and satisfaction, what does the company produce and deliver the customer? To answer this question, we need to discuss the concepts of a value chain and value-delivery systems. Value Chain: is a tool for identifying ways to create more customer value. It is a collection of activities that are performed to design, produce, market, deliver and support product. Value chain identifies nine strategically relevant activities that create value and cost in a specific business. These nine activities consist of five primary and four support activities. The primary activities represent the sequence of bringing materials into the business, converting them in to final products, shipping out them, marketing them and servicing them. The support activities include procurement, technology development, human resources management and firm infrastructure Value Delivery System/Network: To be successful the firm needs to look beyond its own operations, into the value chains of its suppliers, distributors, and customers. Many companies today partnered with specific suppliers and distributors to create a superior value-delivery network Attracting and Retaining Customers: 3

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Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

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In addition to improving supply many companies are intent on developing stronger bonds and loyalty with their ultimate customers. COMPUTING THE COST OF LOST CUSTOMERS: Today companies must pay closer attention to their customer defection rate and take steps to reduce it. there are four steps to this process: Company must define and measure its retention rate. 2. Distinguish the causes of customer attrition and identify those that can be managed better. 3. Estimate how much profit it loses when it loses customers. 4. How it would cost to reduce the defection rate. The Need for Customer Retention The cost of attracting a new customer is estimated to be five times the cost of keeping a current customer happy. Relationship Marketing The process of attracting and keeping customers is called relationship marketing. The main steps in customer development process are as follows: Suspects: The company locates every one who might buy the product or services. Prospects: Out of suspects the persons having strong potential interest in the product and ability to pay for it are separated and are called prospects. Disqualified Prospects: Disqualified prospects are those to whom the company rejects because, they have poor credit standing or being unprofitable. First-Time Customers: The company hopes to convert many of its qualified prospects into first-time customers. Repeated Customer: The first time customers which are satisfied with the product and buys it again becomes repeated customers. They may continue to buy from competitors as well. Clients The next step is to convert repeated customers in to clients. Clients are those customers who buy only from the company the relevant product categories. Advocate: The next step is to convert clients into advocates. Advocates are those who praise the company products and encourage others to buy from it. Partners: It is an ultimate challenge to turn advocates into partners where the customer and company work together actively. During all above process some customers may become inactive or drop out due to moving other location, dissatisfaction or adopting other companies products etc. It is often easier to re-attract ex-customers than to find new ones. The cost of attracting a new customer is estimated to be 5 times the cost of keeping a current customer happy. Developing the loyal customers increases the companys revenue. The company have to spend for building greater customer loyalty. However, a company should not invest in customer relationship building so much as the cost may exceed the gains. There are 5 different levels of company investment in customer relationship building. Basic Marketing: The sales person simply sells the product. Reactive Marketing: the sales person sells the product and encourages the customers call if they have any question, comments or complaints. Accountable Marketing: The sales person phones the customer a short time after the sale to check whether the product is meeting the customers expectations and also ask him for any product or service suggestions and any specific disappointments. Pro-active Marketing: The sales person contacts the customer from time to time telling about improved products and products new uses. (Use of sales rapes) Partnership Marketing: The company works continuously with customers to discover ways to effect customer servings or to help the customer to perform better. A company can use three customer value-building approaches 1) Adding financial benefits; 2) adding social benefits 3) adding structural tiles. Adding Financial Benefits: A company can offer two financial benefits, a) frequency marketing programs and b) club marketing programs. Frequency Marketing Programs (FMPs) are designed to provide rewards to customers who buy frequently and/or in substantial amounts. Frequency Marketing is an acknowledgment of the fact t that 20% of a companys customer might account for 80% of its business. b) Many companies have created affinity groups, or clubs of their customers to bond them closer to the company. Club membership may be offered automatically upon purchase of a certain amount, or by paying a fee. Adding Social Benefits: Here company personnel work on increasing their social bonds with customers by individualizing and personalizing their customer relationships. Customers may be nameless to the institution: clients cannot be nameless. Customers are served as part of the mass or as part of large segments; clients are served on an individual basis. Customers are served by anyone who happens to be available; clients are served by the professional assigned to them. Adding structural Tiles: The company may supply customers with special equipment or computer linkages that help customers manage their orders, payroll, inventory, and so on. 4

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

IMPLEMENTING TOTAL QUALITY MARKETING: Total Quality Marketing (TQM) is an organization-wide approach to continuously improving the quality of all the organizations processes, products and services. Quality is the totality of features and characteristics of a product or service having ability to satisfy stated or implied needs. Marketers play several roles in helping their company in defining and delivering high quality goods and services to target customers. They bear the responsibility for correctly identifying the customers needs and requirements. They must communicate customer expectations correctly to product designers. they must make sure that the customers orders are filled correctly and on time. They must check that customers have received proper instructions, training, and technical assistance. They must stay in touch with customers after the sale to ensure that they are satisfied and remain satisfied. They are making their specific contributions to total quality management and customer satisfaction. One implication of TQM is that marketing people must spend time and effort not only to improve external marketing but also to improve internal marketing. The marketer must complain like the customer complains when the product or the service is not right. Marketing must be the customers watchdog or guardian, and must constantly hold up the standard of giving the customer the best solution.

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

CHAPTER-3 Winning Markets Through Market Oriented Strategic Planning


A) THE NATURE OF HIGH PERFORMANCE BUSINESS: There are four proposed characteristics of a high-performance business. 1) Stakeholders, 2) processes, 3) resources and 4) organization. 1 Stakeholders: The business must define its stakeholders and their needs. Stakeholders may be customers employees, suppliers and distributors. The business must strive to satisfy the expectations of each stakeholders group. The satisfaction of stakeholders lead to increase in profits and higher value of the organization. 2 Processes: A company can accomplish its goals only by managing and linking its processes. 3 Resources: To carry-out processes a company needs resources like labor power, material, machines energy etc. These resources can be owned, leased or rented. The management should adopt the way which provide them best output at labor outlets. 4 Organization: Organization consist of its structures, policies, and corporate cultures. In rapidly changing business environment organizational structures and policies can be changed (with difficulty) but its culture is hard to change. But its changing is a key to implementing a new strategy successfully. B) CARPORATE STRATEGIC PLANNING: All corporate headquarters must undertake planning activities: i.e. I) Defining company mission, II) Establishing Strategic Business Units, III) assigning resources to each SBU, IV) Planning new business. I Defining Corporate Mission: Organizations exists to accomplish something, which should be clear and specific. The aim may, over time lose its relevance because of changed market conditions. Successful company renew their mission in the light of following questions: a) When is our business, b) Who is our customer? c) Value of the customer, d) What will our business be, e) What should our business be? 1 ELEMENTS THAT SHAPE THE COMPANYS BUSINESS; Each companys business is shaped by 5 elements: a) History: of aims, policies and achievements, b) Current Preferences of management and owners. c) The market environment: d) Resources Available determines, which mission is possible. e) Distinctive Competencies: Mission should be based on what it does best. 2 GOOD MISSION STATE MAJOR CHARACTERISTICS: The major characteristics of a good mission are as follows: i) Focus on limited number of goals, ii) Stress the major policies and values that the company want to honor. iii) Define the major competitive scopes within which the company will operate. It may be any of the following types: a) Industry Scope: The scope of the industry in which the organization operates. b) Product and Applications Scope: The range of products and application in which the company will participate. c) Competency Scope: The range of technical and other competencies which the company will master. d) Market Segment Scope: the type of customer the company will serve. e) Vertical Scope: The number of channels and levels involved in process from raw material to making finished goods and then their distribution. f) Geographical Scope: The range of regions, counties and groups in which a company will operate. II Establishing Strategic Business Unit: Large companies normally manage quite different business at one time, each requiring its own strategy. such companies divide them in to Strategic Business Units. (SBUs). They divide them according to their major products or markets. CHARACTERISTICS OF SBU: 1 Separately identifiable. 2 Have a distinct mission from others and the company. 3 Have its own competitors 4 Have its own executive group with profit responsibilities. III Assigning Resources to SBUs 6

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

The purpose of identifying SBUs is to develop separate strategies and assign appropriate funding. Each SBU sends its plan to headquarters, who approves them and sends back for revision or implementation. The purpose of sending plans to the headquarters is to check, which of its SBU is performing well and to decide, which SBU to be build, hold, maintained, harvest and divest. IV Planning New Business: Often the projected sales are less than corporate management wants them to be. If their is a strategic-planning gap between future desired and projected sales, company management will have to develop new business to fill this gape. There are three ways to fill this gap. 1) Intensive Growth 2) Integrative Growth, 3) Diversification Growth, and 4) Downsizing Older Business. 1 INTENSIVE GROWTH: Management first reviews for improving its existing business performance. It may be done by adopting following three strategies: Market Penetration Strategy: Finding the ways to increase the current products market share in the current market. b) Direct Market Development Strategy: A strategy to look for new markets whose needs might be met by its current products. c) Product Development Strategy: In addition to above tow management should also consider new-product possibilities. 2 INTEGRATIVE GROWTH: Sales and profits can often be increased by backward, forward and horizontal integration. Backward Integration: Mixing or engaging the business supplying to you, e.g. raw materials. b) Forward Integration: Integrating with an organization to whom you provide goods, like retailers and wholesalers. c) Horizontal Integration: Acquiring one or more competitors. 3 DIVERSIFICATION GROWTH: When good opportunities are found outside the present business. There are three types of diversified growth. Concentric Diversification Strategy: Seek new products having technological synergys with existing product lines even through the new products themselves may appeal to a different group of customers. b) Horizontal Diversification: Search new product that could appeal to current customers through the new product or technology, unrelated to its current product line. c) Conglomerate Diversification: Find new business having no relationship to the companies old business. 4 DOWNSIZING OLDER BUSINESS: Management should not only develop new businesses but also carefully divest / close tired old business in order to release needed resources and reduce costs. C BUSINESS STRATEGIC PLANNING: Individual business units managers prepares their own strategic plans in the light of the organization goals and strategies. It consist of six steps: 1) Business mission, 2) External environmental analysis, 3) Internal Environment Analysis, 4) Goal formulation, 5) Strategy Formulation, 6) Program Formulations, 7) Implementation, and 8)Feedback. 1 Business Mission: Each SBU define its mission within the broad company missions. 2 External Environmental Analysis: A SBU manager has to monitor key external macro-environment and significant micro environment actors e.g. customs, competitors, suppliers etc.) that effect its ability to earn profit. It should identify the associated opportunities and threats. Opportunities: Marketing opportunity is an area of buyers in which a company can perform profitably. Opportunities can be listed and classified according to their attractiveness and success probability. Threats: An environmental threat is a challenge posed by an unfavorable trend or development that would lead in the absence of defensive marketing action to deteriorate the sales and profit. 3 Internal Environment Analysis: Keeping in view the external environmental opportunities and threats they should consider the internal strengths and weaknesses. 4 Goal Formulation: After evaluating the strengths and weaknesses of organization management proceeds to develop specific goals for the planning period. This stage of business strategic planning process is called goal formulation. Every few businesses follow only one objective, rather most businesses pursue a mix of objectives including profitability, sales, growth market shares. The business units sets these objectives and then manages by objectives. Business objectives must meat four criteria's: They must be arranged hierarchically. b) Should be stated quantitatively c) Goals should be realistic. d) Objectives must be consistent. 5 Strategy Formulation: 7

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

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Goals indicate what a business unit wants to achieve. Strategy is a game plan for ____how to get their or how to get above goals. Three generic types of strategies are: Overall Cost Leader Ship: Business works hard to achieve the lowest cost of production and distribution so that it can set price lower than its competitors, and win a large market share. b) Differentiation: In it business concentrate on achieving superior performance in an important customer benefit area valued by a large part of the market. c) Focus: In it business focuses on one or more narrow markets rather than going after a large market. d) Alliances: Many firms make marketing alliances which fall in to 4 categories. Product / Service Alliance or Licensing. company licenses another to produce its product or two companies jointly market their complementary products or an new product. Promotional Alliances One company agrees to carry a promotion for another companys product or service. e.g. A ban may agree to display paintings from a local art gallery on its walls. Logistics Alliances: One company offers logistical support services for another companys product. For example Abbot Laboratories warehouses and delivers all 3Ms medical and surgical products across the USA. Pricing Collaboration: One or more companies join in a special pricing collaboration. Program Formulation: After formulating strategies business works out detailed work programs. After formulating programs, marketing people must evaluate the program costs. These are the determination of ways as to, how the strategy will be implemented. Thus if a business decides to achieve technical leadership it must have to make program to develop its research and development department, etc. Implementation: Clear strategy and well-thought-out supporting programs are useless, if the firm fails to implement them carefully. Indeed strategy is one of the seven elements that the best managed companies exhibit. The seven elements are divided in to two groups. Hardware and Software. HARDWARES are Strategy, Structure, and System. SOFTWARES are style, staff, skills and shared value. Style means that employees share a common way of thinking and behaving. Staff: Means company have hired able people, trained them well and assigned them the right jobs. Skills: Means that employees have the skills needed to carry out the companys strategy. Shared Values: Means employees share the same guiding values. Feed-Back & Control: At the end the firm need to track the results and monitor new developments in the internal and external environments. THE MARKETING PROCESS: To fully understand the marketing process, we must first look at how a company defines its business. The task of any business is to deliver value to the market at a profit. There are at least two views of the value-delivery process. First is the traditional view is that firms makes something and then sells it. In this view marketing takes place in the second half and it assumes that the company knows what to make and that the market will buy enough units to produce profits for the company. Second one is the new view of business process. It places marketing at the beginning of the business planning process. Instead of emphasizing marketing and selling, companies see them-selves as part of a value creation and delivery sequence. This sequence consist of three parts. Choosing the value, represents the homework that marketing must do before any product exists. The formula ____ segmentation, targeting, positioning (STP)_____ is the essence of strategic marketing. b) When the value has been chosen, business unit is ready to provide the value. The tangible products specifications and services must be detailed, and a target price must be established. Developing specific product features, prices, and distribution occurs at this stage and are part of tactical marketing. c) In the third phase the value is communicated. Here further tactical marketing occurs in utilizing the sales force, sales promotion, advertising, and other promotional tasks to inform the market about the product. The Japanese have further developed this view by promulgating the following concepts: Zero Customer feedback time: Customer feedback should be continuously collected, to learn, how to improve the product and its marketing. 2) Zero product-improvement time: Improvement ideas of customers and employees should be evaluated and the most valued and feasible ideas should be introduced as soon as possible. 3) Zero Purchasing Time: Company should receive required parts continuously through just-in-time arrangements with suppliers. 4) Zero Setup Time: The company should be able to manufacture any of its products as soon as they are ordered. 5) Zero defects: The product should be of high quality and free of flaws. The Marketing Process consist of 1)analyzing marketing opportunities, 2) developing marketing strategies, 3) planning marketing programs, and 4) managing the marketing effort. 8

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

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Analyzing Marketing Opportunities: The first task of marketing managers is to analyze the long-run opportunities in this market for improving the units performance. The purpose of market research is to gather significant information about the marketing environment. Developing Marketing Strategies: It consist of two parts 1) Differentiating, and 2) positioning strategy for the target market. After launching the products the product strategy will have to be modified at the different stages in the product life cycle, consisting of four phases, introduction, growth, maturity, and decline. Planning Marketing Programs: To transform market strategy into marketing programs marketing managers must make basic decisions on i) marketing expenditures, ii) marketing mix, and iii)marketing allocation. i) MARKETING EXPENDITURE: The management have to decide as to what level of marketing expenditure is necessary to achieve its marketing objectives. ii) MARKETING MIX: Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market. There are literally dozens of marketing-mix tools. A four factor classification of these tools is very popular, called as four Ps: product, price, place and promotion. Marketing mix decision must be made for both distribution channels and final consumers. All the marketing-mix variables cannot be adjusted in the short run.

Marketing Mix

Product Price Promotion Place Variety List Price Sales promotion Channels Quality Discounts Advertising Coverage Design Allowances Sales Force Assortments Brand Name Payment - Public relations Locations Packing period Direct Marketing Inventory Sizes Credit Transport Services terms Warranties Returns. Managing the Marketing Effort. The final step in marketing process is managing the marketing effort. The company must build a marketing organization that is capable of implementing the marketing plan. There are three types of marketing control: Annual Plan control: The task of company is achieving its sales, profits, and other goals. First management state well-defined goals for each month or quarter. Second, management must measure its ongoing performance in the market place. Third, management must determine the underlying causes of any serious performance gaps. Fourth, management must choose corrective actions to close gaps between goals and performance. Profitability Control Measuring the actual profitability of products, customer groups, trade channels, and other sizes. Marketing profitability analysis measures the profitability of different marketing activities. Marketing efficiency studies try to determine how various marketing activities could be carried out more efficiently. c) Strategic Control: Evaluating whether the companys marketing strategy is appropriate to market conditions. Because of rapid changes in the marketing environment, each company needs to re-assess periodically its marketing effectiveness through a control instrument known as the marketing audit.

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

CHAPTER-4 Managing Marketing Information System and Measuring Market Demand


A WHAT IS MARKETING INFORMATION SYSTEM: A marketing information system consist of people equipment and procedure to gather, sort, analyze, evaluate, and distribute needed informations timely and accurately to marketing decision makers. The needed information is developed through sub-systems of Marketing Information System. Sub-systems of MIS 1 Internal Company Records, 2 Marketing Intelligence Activities, 3 Marketing Research and 4 Marketing Decision Support System. 1 Internal Record System: It includes reports on orders, sales prices, inventory levels, receivable, payable and so on. By analyzing these information marketing managers can spot light important opportunities and problems. I) ORDER-TO-PAYMENT CYCLE It is the heart of the internal record system. It includes procedure and time involved in receiving order, shipping goods back ordering of out-of-stock items and receiving payment against shipped items. Today companies need to do these steps quickly and accurately as the customer favor those firms who deliver goods on time. Many companies are now using electronic data interchange (EDI) software to improve the accuracy and efficiency of the order to payment cycle. II) SALES REPORTING: Marketing manager need up-to-date reports of their current sales. Computer technology may be used to design fast and comprehensive sales reporting system Marketing Information System represents a cross between what a manager think they need, what managers really need, and what is economically feasible. In this regard marketing executives ____like product managers, sales managers, sales representatives_____ to discover their information needs. 2 Marketing Intelligence System It is a set of procedures and sources used by managers to obtain their everyday information about pertinent development in the marketing environment. It is done by: a) reading books, b reading newspapers. c) trade publications d) talking to customers, e) talking to suppliers f) talking to distributors, g) talking to other outsiders, and h) talking to other managers & personnel within the company. If the marketing intelligence system is too casual, valuable information could be lost or arrive too late. A well run company take following 4 steps to improve quantity and quality of marketing intelligence system: THROUGH TRAINING THE SALES FORCE: By training the sales force to spot and report new developments. They should know that what type of information to be provided to which manager. they are in excellent position to pick-up information missed by other means. Yet being very busy they may fail to pass on the significant information. b) THROUGH DISTRIBUTORS: Company may motivate distributors, retailers, and other intermediaries to pass along important intelligence. c) PURCHASE INFORMATION FROM OUTSIDE: Company may purchase information from outside suppliers, e.g. research firms. These research firms gather and store data at a much lover cost than the company could do on its own basis, and sell this information to the parties having concern. d) ESTABLISHING AN INTERNAL MARKETING INFORMATION CENTER to collect and circulate the marketing intelligence information. The staff scans major publications, prepare an abstract of relevant news and provide it to marketing manager. It collect and files relevant information to assist manager in evaluating new information. 3 Marketing Research System: Marketing research system is a systematic way of designing, collecting, analyzing and reporting data and findings which are relevant to a specific marketing situation, faced to the company. I) SUPPLIERS OF MARKETING RESEARCH: There are a number of ways to do marketing research. Large companies generally have their own marketing research departments. While small companies may not have such departments and can conduct research in creative and affordable manner, such as given bellow: Engaging students or Professors to design and carry-out marketing research projects. b) Using on line information services such as America on Line. c) Many small companies routinely visit their competitors to bring new ideas. Large companies can adopt any of the following ways of marketing research. 10

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

Syndicated-service Research Firms: These firms gather information about consumers and trade which they sell for fee. b) Custom Marketing Research Firms: These firms are hired to carry-out certain research projects. They participate along with company in designing the way of study and thus report results which becomes the property of the company. c) Specialty Line Marketing Research Firms: They provide specialized research services to others. II) THE MARKETING RESEARCH PROCESS: Marketing research process is consist of five steps given bellow: Define the problem and research objectives. A well defined problem is half solved. b) Developing the Research Plans depends on the defined problem. It involves planning for gathering the needed information. The research plan involves decision about: Data sources: i) Secondary Data: Already gathered data for some purpose and can also be used for this purpose and ii) Primary Data: Data gathered only for the specific purpose. Research approaches Research data may be gathered in four ways i) Observational research: Data gathered by observing the relevant actors and settings. ii) Focus Group Research: 6 to 8 people are invited to spend few hour with a skilled researcher and discuss product or issue. iii) Survey Research: Survey research best suit for descriptive research. surveys are under taken to learn about peoples knowledge, beliefs, satisfaction et. and measure its magnitude in the general population iv) Experimental Research It is the most significally valid research. It calls for selecting matched groups of subjects, subjecting them to different treatments, controlling extraneous variables and checking whether observed responses differences are statistically significant. Research instruments: Two main research instruments for collecting data are Questionnaires and Mechanical Instruments. i) Questionnaires: A most commonly used instrument for collecting primary data. It consist of a set of questions presented to respondents for their answers. Questions may be close end or open end closed end questions specify all the possible answers that are easier to interpret and tabulate. Open end questions allow respondents to answer in their own words. ii Mechanical Instruments: Used less frequently. Galvanometers measure the subjects interest or emotions aroused by exposure to a specific ad or picture. Sampling Plans: After deciding the research approach and instruments, the researcher must design a sampling plan. It calls for three decisions i) Sampling Unit: Who is to be surveyed. The target population to be sampled. ii) Sample Size: How many people should be surveyed. Large sample give more reliable results. But causes more difficulties and more expenses. Generally a sample of 1% of population give the reliable results. iii) Sampling Procedure: How should the respondents be chosen? To obtain a representative sample a probability sample of the population should be drawn. Contact methods: When the sampling plan has been determined the researcher must decide how the subject should be contacted. the choices are i) mail, ii) telephone, or iii)personal interviews. i) Mail Questionnaire is the best way to reach people who would not give personal interviews or whose responses might be biased by the interviewers. But in it response is very low and slow. ii) Telephone Interviewing a best method for gathering information quickly. The interviewer is able to clarify questions if the respondents do not under stand them. iii) Personal Interviewing is the most versatile of the three methods. The interviewer can ask more questions and can record additional observations about the respondent such as dress, body, and language. It is the most expensive method requires more administrative planning and supervision than other method. c) COLLECT THE INFORMATION. It is the most expensive and prone to error stage of research process. It is necessary for the organization to take care while collecting information and to edit it properly. The use of modern instruments like Computers, cash registers, and optical scanners has helped organizations in gathering informations before and after an advertising compain. d) ANALYZE THE INFORMATION: The next-to-last step is to extract pertinent findings from the collected data. Researchers tabulates the data and develops frequency distributions. Averages and measures of dispersion are computed for the major variables. e) PRESENT THE FINDINGS: The last step of marketing research is presenting the findings to the relevant parties. The researcher should not overwhelm management with lots of numbers and fancy statistical techniques, but rather should present major findings that are pertinent to the major marketing decisions facing management. 11

Notes on Marketing Management

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III Characteristics Of A Good Marketing Research: A good marketing research should have seven characteristics. Scientific Method: is careful observation, formulation of hypotheses, prediction and testing. b) Research Creativity: Marketing research should also develop innovative ways to solve a problem c) Multiple Methods: Good Market researchers prefer to use multiple sources to avoid over-reliance on anyone method. d) Interdependence of Models and Data: e) Value and Cost of Information: f) Healthy Skepticism: g) Ethical Marketing. 4 Marketing Decision Support System:(MDSS) MDSS is a coordinated collection of data, tools and techniques with supporting software and hardware by which an organization gathers and interprets relevant information from business and environment and turns it into a basis for marketing action.

AN OVERVIEW OF FORECASTING AND DEMAND MEASUREMENT


Companies undertake marketing research to identify market opportunities. After completing research company evaluate each opportunity before choosing target market. Marketing is responsible to prove sales forecasts which are based on demand. Managers need to define carefully what they mean by market demand. Definition of Market: A market is a set of all actual and potential buyers of a product. Keeping in view this definition a market may be sub-divided in to following ways. Potential Market is the set of consumers who has shown a sufficient level of interest in a defined market offer. b) Available Market the set of consumer who have interest, income and access to a particular market offer. c) Qualified available Market: the set of consumers who have qualifications of available market and also qualification for the particular market offer. d) Target Market also called served market is the part of qualified available market the company decide to pursue. e) Penetrated Market the set of customers who have already bought the product of the company. MEASURES OF MARKET DEMAND: As a part of their planning companies prepare many estimates of market size. Market demand can be measured for six different product levels. 1 All sales, 2 Industry Sales 3 company sales, 4 Product line sales 5 Product Form sales 6 Product item sales. Five different space levels 1 world 2 Country wide 3 Region 4 Territory 5 Customer and three time levels 1 Short run 2 Medium run 3 Long run. A Vocabulary for Demand Measurement; Market demand for a product is the total volume that would be bought by a defined customer group in a given geographical at a specified time period in a defined marketing environment under a defined market program. Market Forecast The market demand corresponding to the level of expenditure actually occurred is called the market forecast. Market Potential The market forecast shows expected market demand not maximum market demand. To assess market potential we have to visualize the market demand for a very high level of industry marketing expenditure, where further increase in marketing effort would have little effect in stimulating further demand. Company Demand: is the companies estimated share of the market demand at alternative levels of company marketing effort. Companies sales Forecast expected level of company sales based on a chosen marketing plan and on assumed marketing environment. Sales Quota the sales goal set for a product line, division or sales representative. It is primarily a managerial device for defining and stimulating sales effort. Sales Budget: is a conservative estimate of the expected volume of sales and is used primarily for making current purchasing, production, and cash-flow decisions. Companies Sales Potential It is the sales limit approached by company demand as company marketing effort increases relative to competitors. The absolute limit of company demand is, of course, the market potential. The two would be equal if the company achieved 100% of the market.

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CHAPTER-5 Scanning the Marketing Environment


Successful companies take an outside-inside view of their business. They recognize that the marketing environment is constantly spinning new opportunities and threats and the understand the importance of continuously monitoring and adopting to the changing environment. Many companies fail to see change as opportunity. They ignore or resist change until it is too late. ANALYZING NEEDS AND TRENDS IN THE MACRO ENVIRONMENT: Successful companies recognize and respond (profitably) to un-met needs and trends in the macro environment. Many opportunities are found by identifying trends. A trend is a direction or sequence of events that have some momentum and durability. They are more predictable and durable than fads. A Fad is an unpredictable, short lived, and without social, economic and political significance. Megatrends are large, social, economic, political and technical changes (that are slow to form), and once the come they influence us for some time, i.e. between 7 to 10 years or longer. IDENTIFYING AND RESPONDING TO THE MAJOR MACRO-ENVIRONMENT FORCES: Companies, its suppliers, customers, competitors all operate in macro environment of forces and trends that shape opportunities and threats. They are non-controllable and must have to be monitored and responded. Within rapidly changing global picture the firms must monitor six major forces effecting the environment. 1) Demographic environment, 2) economic environment, 3) Natural environment 4) Technological environment 5) political/legal environment, and 6) Social/Cultural environment. Demographic Environment: Means the population forces which effect the environment. Marketers keenly interested 1 growth rate of population in different cities, 2 ages distribution, 3 ethnic mix, 4 educational level 5 household patterns and 6 regional characteristics. GROWTH RATE: is watched to make the future and present needs planning. AGE MIX: can be divided in to six age groups a) Pre-school b) School-age children c) Teens, d) Young adults age 25-40 e) Middle-aged adults age 40-65 f) Old adults above 65 ETHNIC MARKETS: Ethnic means national or tribal groups that has a common culture tradition. Each population group has certain specific wants and buying habits. EDUCATIONAL GROUP: Population of any society falls into five educational groups a) Illiterate, b) High school drop-outs c) High school degrees d) College degrees, e) Professional degrees. The education level also effect the environment of the market. HOUSE HOLD PATTERNS: The traditional house hold pattern quit differs from a modern house hold pattern now all the peoples of house either do job or go to school and use redeemed foods. REGIONAL / GEOGRAPHICAL CHARACTERISTICS: Geographical characteristics also effects the environment. The people are shifting from rural areas to cities and population of cities is increasing in multiples. Changing a mass Market in to Micro Markets: All the above changes causes a mass market to be changed / converted in to numerous micro markets, education, lifestyle, geography and so on. Each group has its own preferences and consumer characteristics. Economic Environment: Economic environment denotes the available purchasing power of the economy. It depends on current income, prices, savings, debt, and credit availability. CURRENT INCOME: Nations vary greatly in their level and distribution of income. It is a major determinant in the nations industrial structure. There are four types of industrial structures Subsistence Economies: In it wast majority is engaged in simple agriculture and consume most of their products. There economies offer few opportunities for marketers b) Raw Material Exporting Economies: These economies are rich in one or more natural resources, but poor in other respects. Much of their revenue comes from exporting these resources. Such countries are good markets for extractive equipment, tools and supplies and material handling trucks. Depending on number of foreign residing and wealthy native rulers and landholders, they are also a market for western-style commodities and luxury goods. c) Industrializing Economies: Economies in which 10 to 20% of the countrys gross domestic products are manufactured. As manufacturing increases countries relies more on imports of raw materials & heavy machinery, and less on import of finished products. Industrialization creates a new rich class and a small growing middle class, both demanding new types of goods, some of which can be satisfied only by imports. 13

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Industrial Economies: the major exporters of manufactured goods and investments funds. They buy manufactured goods from each other and also export them to other types of economies in exchange for raw materials and semi-finished goods. PRICES: Depends upon various things like inflationary rate, industrialization in the country, economic stability etc. SAVINGS: The economy making more savings will prosper fastly because banks can give loan at lesser interest rate. DEBT: Debts depend upon the savings of the economy. CREDIT AVAILABILITY INTEREST RATE STAGE OF ECONOMY IN THE BUSINESS LIFE CYCLE INFLATION Natural Environment: Natural environment also effects the environment trends. Such as pollution and the action of greens against it. Marketers need to be aware of threats and opportunities associated with four trends in the natural environment. Shortage of raw material The earths raw materials consist of the infinite, the finite renewable, and the finite nonrenewable. Infinite resources, such as air and water poses no immediate problem, though in long run their are many problems. Finite renewable resources, such as forests, and food must be used wisely. and Finite nonrenewable resources like oil, coal. platinum, zinc, silver, will pose serious problems as their time of depletion approaches. b) Increased Energy Cost: Nonrenewable finite resources has created serious problems for the world economy, because as they are deteriorating their prices are increasing. c) Increased Level of Pollution: Some industrial activities inevitable damage the natural environment. Like dangerous mercury levels in the ocean, the quantity of DDT and other chemical pollutions in the soil etc. d) Changing roles of Governments: - Governments vary in their concern and efforts to promote a clean environment. The major hopes are that companies around the world will accept more social responsibility and that less expensive devices will be invented to controlled and reduce pollution. Technological Environment: Technology is dramatically changing lives of the people. Every new technology has a force creative force and distructs the previous inventions. e.g. transistors hurt the vacuum-tube etc. the marketers should watch the following trends in technology: Accelerating Pace of Technological Change. Many of the today's common products were not available 30 years ago. The time lag between new ideas and their successful implementation is decreasing rapidly. b) Unlimited Opportunities for Inventions. Scientists today are working on a startling range of new technologies that will revolutionize products and production process. c) Varying Research and Development Budgets. Keeping in view the above situations it is necessary to increase the research and development budgets. d) Increased Regulations of Technological Change. As products become more complex the public needs to be assumed of their safety. Government agencies are now investigating to ban potentially unsafe products. Safety and health regulations have been increased in the areas of food, automobiles, clothing, electrical appliances, and construction. Marketers should be aware of these regulations when proposing developing and launching new products. Political / Legal Environment: Marketing decision are strongly affected by change in political and legal requirements. This environment is composed of, Laws, Government agencies and pressure groups that influence organizations as well as markets. It includes following: LEGISLATION REGULATING BUSINESS: Business legislation has three main purposes: Protect companies from unfair competition Protect consumers from unfair business practice. Protect interests of society from un-bridled business behavior. GROWTH OF SPECIAL INTEREST GROUPS: Power of special groups have increased over the last few decades. They try to save their interests and thus effect the environments. Social /Cultural Environment: Societies are shaped with their beliefs, values and norms. People have different views and at the same time from different points of views. Peoples Views About Themselves. b) Peoples Views About Others. c) Peoples Views About Society. d) Peoples Views About Nature. e) Peoples Views of the Universe. EXTERNAL MICRO ENVIRONMENT: They are part of companies marketing system 1) the market, 2) the supplier, 3) market intermediaries 14

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Market: Market have three factors People or organizations with wants. b) Their purchasing power, c) Their buying behavior. The Supplier: Organizations need cooperative relationship with supplier. Market Intermediaries: They are independent business organizations that directly aid in the flow of goods and services between a marketing organization and its markets. There are two types of market intermediaries 1) The firms middle-man (the whole seller and retailer appointed by the organization). and 2)Various facilitating organizations which provide services i.e. transportation, warehousing, financing etc. They are needed to complete exchange between buyers and sellers.

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CHAPTER-6 Analyzing Consumer Markets and Buyer Behavior


The aim of marketing is to satisfy the target customers needs and wants. Model of consumer Behavior In the beginning marketers could understand consumers through the daily experience of selling them. But with the growth of companies direct contact with the consumer has become impossible. Now managers had to rely on 7 Os given bellow. 1 Occupants Who constitute the market? 2. Objects What does the market buy? 3. Objectives Why does the market buy? 4. Organizations Who participates in buying? 5. Operations How does the market buy? 6. Occasions When does the market buy? 7. Outlets Where does the market buy? MAJOR FACTORS INFLUENCING BUYING BEHAVIOR: These factors can be sub-divided in to following four categories. 1 Cultural Factors 2 Social Factors 3 Personal Factors 4) psychological Factors. Cultural Factors: Culture influences the consumer behavior most effectively than any others. It include culture, sub-culture and social class. CULTURE: A fundamental determinant of a persons wants and behavior. It includes broad culture/atmosphere of country. Every economy have its own values, perceptions, preferences, and behaviors. b) SUB-CULTURE: Each culture consists of small sub-cultures providing more specific identification. and socialization for its members. They include, nationalities, religions, and geographical regions. c) SOCIAL CLASS: It is relatively homogeneous divisions of society which are hierarchically ordered and whose members share similar values. It do not reflect income alone but also other indicators like occupation, education, area of residence. It differs in their dress, speech, patterns, performance. Social Factors: In addition to cultural factors, a consumers behavior is influenced by such social factors as reference groups, family, and roles and status's. Reference groups: A persons reference groups consist of all the groups that have a direct (face-to-face) or indirect influence on the persons attitudes or behavior. Groups having a direct influence on a person are called membership groups. Membership groups may be subdivided in to primary and secondary. Primary groups include family, friends, neighbors and co-workers etc. with whom the person interact fairly and continuously. Secondary groups include religious, professional, and trade-union groups which require less interaction. b) Family: Most influential primary group, can also be subdivided in two groups. parents and other i.e. spouse and children c) Roles and Status's: Role is the activities that a person is expected to perform due to his status e.g. in family, with friends, in the company where he works. Personal Factors: Following are the personal factors which effect the consumer behavior: Age and stage in life cycle: People buy different goods and services over their lifetime. b) Occupation: Occupation also effect the consumption pattern. e.g. a worker will purchase necessities with low price, while the president of company will buy expensive things. c) Economic Circumstances: Product choice is also greatly effected by ones economic circumstances. Which include their spend able income, savings and assets. debts, borrowing power and attitude toward spending versus saving. d) Lifestyle: People coming from the same subculture, social class, and occupation may lead quite different lifestyles. A lifestyle is the persons pattern of living in the world as expressed in the persons activities, interests, and opinions. e) Personality and Self Concept: Each person has a distinct personality that influences his or her buying behavior. By personality, we mean a persons distinguishing psychological characteristics that lead to relatively consistent and enduring responses to his or her environment. Personality is usually described in terms of such traits as self-confidence, dominance, autonomy, deference, sociability, defensiveness, and adaptability. It is a useful variable in analyzing a persons behavior. Psychological Factors: Psychological factors are four: 1 Motivation, 2 Perception, 3 Learning 4 Beliefs and Attitudes. I) MOTIVATION: A man have many needs at any one time . They are of two types. Biogenic: The need which arise from physiological states of tension such as hunger, thirst, discomfort etc. 16

Notes on Marketing Management

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b) Psychogenic They arise from psychological states of tension such as the need for recognition, esteem or belonging. Most psychogenic needs are not intense enough to motivate the person to act on them immediately. A need becomes a motive when it is aroused to a sufficient level of intensity. A motive is a need sufficiently pressing to drive the person to act. II) PERCEPTION: A motivated person is ready to act. How the motivated person actually acts is influenced by his or perception of the situation. Perception is the process by which an individual selects, organizes and interprets information inputs to create a meaningful picture of the world. Perception depends upon not only physical stimuli, but also on the stimulis relation to the surrounding field and on conditions within the individual. Different people can perceive the same situation differently due the three perceptual processes: a) Selective Attention, b) Selective Distortion and Selective Retention. As a result, people may not necessarily see or hear the message that marketers want to send. Marketers must, therefore, be careful to take these perceptual processes into account in designing their marketing campaigns. Selective Attention: Selective attention means the marketers have to work hard to attract consumers notice because to consumer pay selective attention to the advertisements. People notice those adds that relates to current needs People notice those adds that they anticipate. People likely to notice those adds whose deviations are large than normal size adds. b) Selective Distortion: It is the tendency of people to twist information into personal meanings and interpret information in a way that will support their perceptions. c) Selective Retention: People tends to retain those information that supports their attitudes and beliefs due to selective retention. III) LEARNING When people act, they learn. It involves changes in the individuals behavior arising from experience. IV) BELIEFS AND ATTITUDES Through doing and learning people acquire beliefs and attitudes. These in turn influence their buying behavior. A belief is a descriptive thought that a person holds about something. and An Attitude is a persons (enduring favorable or unfavorable evaluations), emotional feeling and action tendencies toward sum object or idea. THE BUYING PROCESS: To be successful marketers must go beyond the understanding as to how consumers actually make their buying decisions, rather they must identify who makes the buying decision. The types of buying decisions and steps in buying process are given bellow. Buying Roles: It is easy to identify buyer for many products. But marketers must be careful in making their (targeting)decisions because buying roles change. There are five roles people can play in buying decisions Initiator: Who firs suggest the idea of buying product. b) Influencer: A person whose view or advice influence the decision. c) Decider: A person who decides on any component of buying decision _____ whether to buy, what, how and whom to buy. d) Buyer: Who actually purchase. e) User: A person who consumes or uses the product or service. Buying Behavior: Behavior varies with the type of buying decision. there are four types of consumers buying behavior based on degree of buyers involvement and degree of differences among brands. 1) Complex buying behavior, 2) dissonance, reducing buyer behavior, 3) Habitual buying behavior, and 4) variety seeing buying behavior. COMPLEX BUYING BEHAVIOR: Consumer are involved in complex buying behavior when they are highly involved in purchase, aware of significant differences among brands, product is expensive and risky, typically does not know much about product category, and has much to learn. It involve three step process. 1) buyer develops beliefs about the product. Second, develops attitudes about the product and third, he make thoughtful purchase choice. The marketers must know the consumers information gathering and evaluation process and develop strategies to assist the buyer in learning about the products attributes and call for his attention towards high standing of the companys brand. To differentiate the brands features marketers should use print media to describe brands benefits. DISSONANCE ____REDUCING BUYER BEHAVIOR: Reducing buying behavior is characterized by: consumer is highly involved in purchase, see litter difference in brands, 17

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purchase is expensive , infrequent and risky, In this case the buyer will shop around to learn what is available but will buy fairly quickly, perhaps responding primarily to a good price or to purchase convenience. After the purchase the consumer might experience dissonance that stems from noticing certain disquieting features of the product or hearing favorable things about other product. The consumer will be alert to the information to justify his decision of purchase. 3 HABITUAL BUYING BEHAVIOR: Many products are bought under conditions of low consumer involvement and the absence of significant brand differences, e.g. salt, tea, toothpaste etc. Marketers can convert low involvement products into one of high involvement by four ways given bellow: link product to some involving issue e.g. toothpaste resisting cavity; link product to some involving personal situation, e.g. our coffee taken early in the morning shake of sleepiness; advertise to trigger strong emotions related to personal values or defence. Add an important product feature to a low involvement product. VARIETY SEEING BUYING BEHAVIOR: This type of buying behavior is characterized by: Low consumer involvement, significant brand differences consumers can do a lot of brand switching. In such a situation the market leader try to encourage habitual buying behavior by dominating the shelf space, avoiding out-of-stock conditions, and sponsoring frequent reminder advertising. Challenger firms will encourage variety seeking by offering lower prices, deals, coupons, free samples, and advertising that presents reasons for trying something new. THE STAGES OF THE BUYING DECISION PROCESS:` Smart companies keep an eye on the buying decision process involved in their product category. Generally a buyer while making buying decision passes through 5 different stages. It is not necessary that consumer pass through them sequentially especially in the case of low involvement purchase in such a case consumer may shift or reverse some stages. These five stages are 1) Problem recognition, 2) Information Search, 3) Evaluation of Alternatives, 4) Purchase Decision, 5) Post purchase behavior. Problem Recognition: Buying process begins when buyer recognizes the problem or need. A need may arise either internally or externally. Internal needs are like hunger, thirst, sex etc. arise to a thresh hold level and becomes a drive. The external need aroused by an external source, for example a person passes a bakery and saw bread and biscuits that stimulates his hunger. Marketers need to identify the circumstances that trigger a particular need, then they develop the marketing strategies that trigger consumer interest. Information Search: An aroused consumer will be inclined to search for more information. We may distinguish between two levels of arousal. The Milder search and the active information search. THE MILDER SEARCH: It may also be called as heightened attention. At this stage the consumer simply pays more attention to information's about the desired product, like ads of the product, see friends who have purchased that product etc. THE ACTIVE INFORMATION SEARCH: At this stage he actually looks for reading material, phones friends, and engages in other activities to learn about the product. The extent of search depends upon the strength of the drive, the amount of information he already has, and the ease of obtaining additional information, the value he gives to the additional information and the value of satisfaction he obtains from the search. Consumer may can get information from the following four sources: Personal sources: Family, friends, neighbors, acquaintances. Commercial sources: Advertising, salespersons, dealers, packaging, displays. Public sources Mass medial, consumer-rating organizations. Experiential sources: Handling, examining, using the product. Through gathering information, the consumer learns about competing sets of brands and their features. The selling company must strategies to get its product into the awareness set, consideration set, and choice set. The company must also identify the other brands in the consumer's choice set so that it can plan its competitive appeals. He should also identify the consumers information sources and evaluate their relative importance. Evaluation of Alternatives: There is no single and simple valuation process used by all consumers in all situations. Some basic concepts will help us to understand consumer evaluation process: i) Consumer is trying to satisfy a need. ii) He is looking for certain benefits from the product solution, 18

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iii) He looks at every product as a bundle of attributes, with varying abilities of providing benefits sought to satisfy need. The attributes of interest to buyers vary by product: camera: picture, sharpness, speed, size, price, and life; hotel: location, cleanliness, atmosphere, price; tyers: safety, tread life, ride quality, price. Marketers can do a number of things to influence buyers decision: i) Modify Product: They may redesign the brand so that it offers more characteristics that the buyer desires. It is also called real repositioning. ii) Alter beliefs about the brand: A try to alter the buyers' beliefs about where the brand stands on key attributes. It is useful where the buyer underestimate the brand qualities. It is not recommended if buyers are accurately evaluating brand exaggerated claims would lead to buyer dissatisfaction and bad word or mouth. iii) Alter the beliefs about the competitors brands; A try to alter the buyers beliefs about where competitive brands stand on different attributes. This strategy, called competitive repositioning, makes sense when buyer mistakenly believe a competitor's brand has more quality that it actually has. It is often accomplished by running a comparison ad. iv) Alter the importance weights: The marketer could try to persuade buyers to attach more importance to the attributes in which the brand excels. v) Call attention to neglected attributes: In such a case the marketer draws the buyer's attention to neglected attributes, which are not very clear in the mind of the buyer. vi) Shift the buyers ideas: The marketers could try to persuade buyers to change their ideal levels for one or more attributes. Purchase Decision: In the evaluation stage the consumer forms preferences among brands in the choice set. The consumer may for an intention to buy the most preferred brand. However, two factors may intervene between the purchase intention and purchase decision. 1) Attitudes of others, and 2) Unanticipated situational factors. i) Attitudes of Others The extent to which others attitudes reduces one's preferred alternatives depends on two things, first, the intensity of the other person's negative attitude toward the consumer's preferred alternative and, second, the consumer's motivation to comply with the other person's wishes. The more intense the other person's negativism and the closer the other person is to the consumer, the more the consumer will adjust his purchase intention. ii) Unanticipated situational Factors: A consumer's decision to modify, postpone, or avoid a purchase decision is heavily influenced by perceived risk. The amount of perceived risk varies with the amount of money at stake, the amount of attribute uncertainty, and the amount of consumer self-confidence. Post Purchase Behavior: After purchasing the product the consumer will experience some level of satisfaction or dissatisfaction The marketer's job does not end when the product is bought but continues into the post purchase period Marketer must monitor post purchase satisfaction, post purchase actions, and post purchase product use and dispose.

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CHAPTER-7 Analyzing Business Markets and Business Buyer Behavior


WHAT IS ORGANIZATIONAL BUYING: Organizational buying is the decision-making process by which formal organizations establish the need for purchased products and services and identify, evaluate, and choose among alternative brands and suppliers. DIFFERENCE BETWEEN BUSINESS MARKET AND CONSUMER MARKET: Business Market: consist of all the organizations that acquire goods and services, used in the production of other products or services, that are sold, rented, or supplied to others. The major industries making up the business market are agriculture, forestry, and fisheries mining, manufacturing, construction, transportation, communication, public utilities, banking, finance, and insurance, distribution and services. Business markets have several characteristics that contrast sharply with consumer markets some of them are given bellow: 1 FEWER BUYERS: Business marketers normally deals with far fewer buyers than the consumer marketers does. 2 LARGER QUANTITY BUYERS: Buy in bulk items for reproduction. A few large buyers do most of the purchases. 3 CLOSER SUPPLIER-CUSTOMER RELATIONSHIP: Because of the smaller number of customer base and the importance and power of the large customers, there are close relationships between customers and suppliers. 4 GEOGRAPHICALLY CONCENTRATED BUYERS: Generally one type of organizations exist in one locality. Therefore, buyers are concentrated in few localities. 5 DERIVED DEMAND: Demand of business goods is ultimately dependent on demand of consumer goods. 6 INELASTIC DEMAND: The demand of such goods is not much effected by the change in price, especially in the short run, because producers cannot make quick changes in their production methods. 7 FLUCTUATING DEMAND: A small percentage increase in consumer demands can lead to a much larger percentage increase in demand for planed and equipment, necessary to produce the additional output. Sometimes a rise of 10% in consumer demand can cause as much as 200% rise in business demand for the product in the next period, and a 10% fall in consumer demand may cause a complete collapse in business demand. This sales volatility has led many business marketers to diversify their products and markets to achieve more balanced sales over the business cycle. 8 PROFESSIONAL PURCHASING: Business good are purchased by trained purchasing agents, who must follow the organizational policies, constraints, and requirements. Professional buyers spend their lives in learning how to buy better, are more cost effective. This means the business marketers have to provide greater technical data about their product and its advantages over competitors' products. 9 SEVERAL BUYING INFLUENCES: More people can influence a business buying decision than a consumer buying decision. Buying committees consisting of technical experts and senior managers are common in the purchase of major goods. Consequently business marketers have to send well trained representatives and often uses teams to deal with the well-trained buyers. Although ad, sales promotion and publicity plays important role but personal selling usually serves as a main marketing tool. 10 DIRECT PURCHASING: Business buyers often buy directly from the manufacturers rather than through intermediaries, especially those items that are technically complex and expensive. 11 RECIPROCITY: Business buyers often select suppliers who also buy from them. 12 LEASING: Many industrial buyers lease their equipment instead of buying it. Buying Situations: Business buyers faces many decisions in making a purchase. The number of decisions depends on the type of buying situation. There are three types of buying situations the straight re-buy the modified re-buy and the new task. 1 STRAIGHT REBUY: Purchases are ordered on routine basis from a previous supplier called in-supplier. The out-supplier offer something new or exploit dissatisfaction with the supplier. Out supplier try to get a small order and then enlarge their share over time. 2 MODIFIED REBUY: A situation in which the buyer wants some modification in price, delivery requirements or other terms. It involves additional discussion between buyer and seller representative who tries to defend his position and becomes nervous. The out supplier see an opportunity and offer better facilities to gain some business. 3 NEW TASK: Purchasing for the first time, therefore requires more time and analysis of suppliers. System Buying and Selling: Many business buyers prefer to buy a total solution of their problem from one seller. It is called system buying Participants in the Business Buying Process: It is also called buying center and includes all persons involved in purchasing which are given bellow: i) Initiators: Those who request that something be purchased. ii) Users: Those who will use the product or service. In many cases, the users initiate the buying proposal. 20

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Influences: People who influence the buying decision by defining specifications and providing information for evaluating alternatives. Technical personnel are particularly important influences. iv) Decider: People who decide on product requirements and or on suppliers. v) Approvers: People who authorize the proposed actions of deciders or buyers. vi) Buyers: People who have formal authority to select the supplier and arrange the purchase terms. vii) Gatekeepers: People who have the power to prevent sellers or information from reaching to members of the buying center. e.g. purchasing agents, receptionists, and telephone operators may prevent sales persons from contacting user or deciders. Major Influences on Business Buyers: Business buyers are subject to many influences when they make their buying decision. They may be classified in to four groups 1) environmental factors, 2) organizational factors, 3) interpersonal factors, and 4) Individual factors. ENVIRONMENTAL FACTORS: Business buyers are heavily effected by factors in the current and expected economic environment, level of demand for their product Economic outlook, interest rate technological developments, and political regulatory. ORGANIZATIONAL FACTORS: Each buying organization has specific objectives, policies, procedures, organizational structure, and system. Business marketers should be particularly aware of these. Following are the organizational trends in the organizational area: i) Purchasing department upgrading: Purchasing department commonly occupy a low position in the management hierarchy They are now being up graded. ii) Centralized Purchasing: In multi-divisional companies most purchasing is carried out by separate divisions because of their differing needs. Recently some of the companies have started the centralized purchasing. iii) Decentralized Purchasing of small ticket items: iv) Long-term Contracts: Business buyers are increasingly accepting long term contracts with suppliers. v) Purchasing Performance Evaluation and buyers professional development: Many companies have installed the incentive systems to reward purchasing managers for goods buying performance. INTERPERSONAL FACTORS: The buying center usually includes several participants with differing interests, authority, status, empathy, and persuasiveness. the business marketer is not likely to know what kind of group dynamics take place during the buying process, although whatever information he can discover about the personalities and interpersonal factors would be useful. INDIVIDUAL FACTORS: Each participant in the business buying process has his own motivations, perceptions, and preference, influenced by the participants age, income, education, job position, personality, attitudes toward risk, and culture. THE PURCHASING PROCESS: Business buyers purchase goods and services - to make money - to reduce operating cost, or - to satisfy a legal or social obligation. For buying goods business buyers have to go through buying or procurement process having eight steps called buy phases. PROBLEM RECOGNITION: Some one in the organization recognizes the problem that can be met by acquiring a good or service. Events leading to problem recognition are the following: i) Company decides to produce a new product and needs new equipment and materials to produce it. ii) A machine breaks down and requires replacement or new parts. iii) Purchased material turns out to be unsatisfactory, and the company searches for another supplier. iv) A purchasing manager senses an opportunity to obtain lower prices or better quality. GENERAL NEED DESCRIPTION: On recognition the buyer proceeds to determine the needed items general characteristics and quality needed. PRODUCT SPECIFICATION: After identifying the general needs the buying organization proceeds to develop the items technical specifications. For it a product value analysis is conducted. What is the product value analysis: PVA is an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized or made by cheaper methods. SUPPLIER SEARCH: Then the company searches the most appropriate suppliers. For this purpose organizations uses trade directories, computer search or make phone to other companies for recommendations. PROPOSAL SOLICITATION: The buyer invite the qualified suppliers to submit proposals with detailed specifications. The company evaluate proposals and eliminate some suppliers and invite the remaining ones to make a formal presentation. SUPPLIERS SELECTION: The buying center, before selecting a supplier, specify the desired attributes of the suppliers. Then it will rate suppliers on these attributes and identify the most attractive suppliers. For this they often use a supplier-evaluation model. The attributes may include the delivery reliability, price, and supplier 21

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reputation are highly important. Then the buying center attempt to negotiate with its preferred suppliers for better prices and terms before making the final selection. The buying center also decide as to how many suppliers to use. Furthermore these companies want each chosen supplier to be responsible for a larger component system. They also often require the chosen suppliers to achieve continuous quality and performance improvement while at the same time lowering the supply price each year by a given percentage. ORDER-ROUTINE SPECIFICATION: After selection of supplier the buyer negotiate final order listing the i) Technical specifications, ii) Quantity needed, iii) expected time of delivery, iv) return policies, v) warrantees. etc. Writing a new purchase order each time is expensive and time consuming. The purchaser also do not wants to make a large purchase order ( and thus decreasing number of orders), because it means to carry more inventory. A blanket contract establishes a long term relationship in which the supplier promises to re-supply at an agreed price over a specified period of time. PERFORMANCE REVIEW: When all is done the buyer reviews the performance of the chosen supplier. Three methods are commonly used. 1) the buyer may contact the end user and ask for evaluation, 2) Rate the supplier on several criteria using a weighted score method or 3) aggregate the cost of poor supplier performance to come up with adjusted cost of purchase including price. Above given stages are for the new task buying situation. In modified-re-buy or straight-re-buy situations, some of these stages would be compressed or bypassed. INSTITUTIONAL AND GOVERNMENT MARKETS: So far our discussion is about the profit seeking organizations. Much of it also applies to the buying practices of institutional and government organizations. However, their certain special feature found in these markets.

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CHAPTER-8 Analyzing the Industries and Competitors


There are five forces that determine the intrinsic long-run profit attractiveness of a market or market segment. These are industry competitors, potential entrants, substitutes, buyers, and suppliers. The five threats they poses are as follows: 1 Threat of intense segment revelry: A segment is unattractive if it already contains numerous, strong, or aggressive competitors. It is even more unattractive if the segment is stable or declining. 2 Threats of new entrants: A segment's attractiveness varies with the high of its entry and exit barriers. The most attractive segment is one in which entry barriers are high and exit barriers are low i.e. Few new firms can enter the industry, and poor-performing firms can easily exit. But when the entry and exit both barriers are high it means that poor performing firms will also stay in the market. and if both barriers are low it means more firms can enter in the segment. 3 Threats of Substitute Products; A segment is unattractive when there are actual or potential substitutes for the product are available. 4 Threat of buyers growing bargaining power: A segment is unattractive if the buyer have strong or growing bargaining power because he will force prices down, and demand more quality. 5 Threat of suppliers growing bargaining power; IDENTIFYING COMPETITORS: Competitors may be at four levels: 1 Brand competitors: A company offering similar product and services to the same customers at similar prices. 2 Industry competitors: Occurs when a company sees its competitors as all companies making the same product or class of products. 3 Form competition: Occurs when a company sees its competitors as all companies manufacturing products that supply the same service. 4 Generic competition: Occurs when a company sees its competitors as all companies compete for the same consumer Rupee. Industry Concept of Competitors: An industry is a group of firms that offer a product or class of products that are close substitutes for each other. Number of Sellers and Degree of Differentiation: The starting point for describing an industry is to specify whether there are one, few, or many sellers of the product and whether the product is homogeneous or highly structure type: 1 PURE MONOPOLY: Exist when only one firm provides a certain product or service in a certain country. It may by due to a regulatory edict, patent, license, scale economics or other factors. 2 OLIGOPOLY: An industry structure in which a small number of (usually) large firms produce product that range from highly differentiated to standardized. there are two forms of oligopoly pure and differentiated. i) Pure oligopoly: consist of a few companies producing essentially the same commodity (oil, steel). A company in a pure oligopolistic industry would find it hard to charge anything more than the going price unless it can differentiate its services. i) Differentiated Oligopoly: consist of a few companies producing partially differentiated products (cameras, autos) The differentiation can occur along lines of quality, features, styling, or services. Each competitors may seek leadership in one of these major attributes, attract the consumers favoring that attribute and charge a price premium for that attribute. 3 MONOPOLISTIC COMPETITION: Consist of many competitors able to differentiated their offers in whole or part (restaurants, beauty shops). Many of the competitors focus on market segments where they can meet customer needs in a superior way and command a price premium. 4 PURE COMPETITION: Consists of many competitors offering the same product and service (stockmarket, commodity market). Since there is no basis for differentiation, competitors price will be the same. No competitor will advertise unless advertising can create psychological differentiation (cigarettes) in which case it would be more proper to describe the industry and monopolistically competitive. Sellers will enjoy different profit rates only to the extent that they achieve lower costs of production or distribution. Entry and Mobility Barriers: Industry differ greatly in their ease of entry. It is easy to open a new restaurant but difficult to enter the air craft industry. The major barriers include high capital requirements, economies of scale, patents and licensing requirements, scarce locations, raw materials, or distributions, and reputational requirements. Exit and Shrinkage Barriers: Ideally firms should be free to leave industries in which profit are unattractive, but they often face exit barriers. Most common barriers are lager moral obligations to customers, creditors, and employees, government restrictions, low asset salvage value due to over-specialization or obsolescence; lack of alternative opportunities high vertical integration and emotional barriers. 23

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Even if some firms do not want to exit the industry they might want to decrease their size. The companies try to reduce the shrinkage barriers to help their ailing competitors get smaller gracefully. Two of the most common shrinkage barriers are contract commitments and suborns management. Cost Structure: Each industry has a certain cost mix that drive much of its strategic conduct. For example steel making involves heavy manufacturing and raw-materials cost, while toy manufacturing involve heavy distribution and marketing cost. Firms will pay the greatest attention to their greatest costs and will strategies to reduce these costs. Degree of Vertical Integration: Some firms find it advantageous to integrate backward and forward which often causes lower in cost and give company more control over the value-added stream. Moreover, vertically integrated firms can manipulate their prices and costs in different segments of their business to earn profit where taxes are low. Degree of Globalization: Some industries are highly local others are global. Companies in the global industries need to compete on a global basis if they are to achieve economies of scale and keep up with the latest advances in technology. IDENTIFYING COMPETITORS' STRATEGIES: A company's closest competitors are those pursuing the same target markets with the same strategy. A group of firms following the same strategy in a given target market is called a strategic group. A company need to identify the strategic group in which it competes. A company must continuously monitor its competitors' strategies and revise their strategies through time depending upon the competitors strategy. DETERMINING COMPETITORS' OBJECTIVES: After identifying its main competitors and their strategies a company may ask itself: what is each competitor seeking in the marketplace? What drives each competitor's behavior? An initial assumption is that competitors strive to maximize their profits. and alternative assumption is that they pursues a mix of objectives : current profitability, market share growth cash flow, technological leadership, service leadership and son on. A competitors objectives are shaped by many things, including its size, history, current management, financial situation, and place in the large organization. If a competitor is part of a larger company, it is important to know whether the parent company is running it for growth or milking it. If the competitor is not critical to its parent company, it could be attacked more readily. Finally a company must also monitor its competitors expansion plans. Assessing Competitors Strengths and Weaknesses: To identify the strengths and weaknesses of competitors a company should first gather recent information on each competitor's business, including data on sales, market shale, profit margin, return on investment, cash flow, new investments and capacity utilization. Companies normally learn about their competitors position through secondary data, personal experience, and hearsay. They can augment their knowledge by conducting primary marketing research with customers, suppliers, and dealers. All these sources help a company decide whom to attack in the programmable-controls market. In general every company should monitor three variables when analyzing its competitors: i) Share of market: The competitor's share of the target market. ii) Share of mind: The percentage of customers who named the competitor in responding to the statement. Name the first company that comes to mind in this industry. iii) Share of heart: The percentage of customers who named the competitor in responding to the statement. Name the company from whom you would prefer to buy the product. Estimating Competitors Reaction Patterns: Identification of competitors strangest and weaknesses help managers to anticipate the competitors likely reactions to other companies' strategies (e.g. a price cut, a promotion step-up, or a new-product introduction). In addition, each competitor has a certain philosophy of doing business, a certain internal culture, and certain guidelines beliefs. Most competitors fall into one of following four categories. 1 THE LAID BACK COMPETITORS: A competitor that doesn't react quickly or strongly to a rival's move. The reasons may vary. The laid back competitors may feel their customer are loyal, slow in noticing the move, may face lack of funds to react. 2 THE SELECTIVE COMPETITORS: A competitor that react to only certain types of attacks and not to others. It might respond to price cuts but not to advertising expenditure increases. 3 THE TIGER COMPETITOR: A competitor that react swiftly and strongly to any assault on its terrain. 4 THE STOCHASTIC COMPETITORS: A competitor that does not exhibit a predictable reaction pattern. Such competitor might or might not retaliate on a particular occasion: there is no way of predicting this decision on the basis of its economic situation, history, or any thing else. Some industries are characterized by relative accord among the competitors, and others by contrast fighting. Here are some of the observations about the likely state of competitive relations. 1 If competitors are nearly identical and make their living in the same way then their competitive equilibrium is unstable. 2 If a single major factor is the critical factor, then competitive equilibrium is unstable. 24

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3 If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differently attractive to some consumers. The more factors that may provide a advantage, the more competitors who can coexist. Competitors all have their competitive segment, defined by the preference for the factor trade-offs that they offer. DESIGNING THE COMPETITIVE INTELLIGENCE SYSTEM: Each company should carefully design its competitive intelligence system to be cost effective. Everyone in the company must be only sense, serve and satisfy the customer but also be given an incentive to spot competitive information and pass it on to the relevant parties in the company. Sometimes cross-disciplinary teams are formed specifically for this purpose. There are four main steps involved in designing a competitive intelligence system: 1 Setting up the System: The first stem calls for identifying vital types of competitive information identifying the best sources of this information and assigning a person who will manage the system and its services. 2 Collecting the Data: the data are collected on a continuous basis form the field, circuits, and competitors' employees, from people who do business with competitors. 3 Evaluating and Analyzing the Data: The data are checked for validity and reliability, interpreted, and organized. 4 disseminating information and Responding: Key information is sent to relevant decision maker and managers' inquires about competitors are answered. SELECTING COMPETITORS TO ATTACK AND AVOID: With good competitive intelligence, managers will find it easier to formulate their competitive strategies. They will have a better sense of whom they can effective compete with in the market. Generally managers conduct a customer value analysis to reveal the company's strengths and weaknesses relative to various competitors. The aim of a customer value analysis is to determine the benefits that customers in a target market segment want and how they perceive the relative value of competing suppliers, offers. The major steps in customer value analysis are: 1 Identifying the major attributes that customers value 2 Assess the quantitative importance of the different attributes. 3 Assess the company's and competitors' performances on the different customer values against their rated importance. 4 Examine how customers in a specific segment rate the company's performance against a specific major competitor on an attribute-by-attribute basis. 5 Monitor customer values over time. After the company has done its customer value analysis, it can focus its attack on one of the following classes of competitors: strong versus weak competitors, close versus distant competitors, and good versus bad competitors. Strong Versus Weak Competitors: Most companies aim their shots at their weak competitors. This strategy requires fewer resources and time per share point gained. But in the process of attacking weak competitors, the firm may achieve little in the way of improved capabilities. The firm should also compete with strong competitors to keep up worth the state of the art. Furthermore, even strong competitors have some weaknesses, and the firm may prove to be a worthy competitor. Close versus Distant Competitors: Most companies compete with competitors who resemble them the most. At the same time, the company should avoid trying to destroy the close competitor. Good Versus Bad Competitors: Porter argues that every industry contains "good" and "Bad" competitors. Good competitors have a number of characteristics: they play by the industry's rules: they make realistic assumptions about the industry's growth potentials; they set prices in a reasonable relation to costs; they favor healthy industry; they limit themselves to a portion or segment of the industry; they motivate other to lower costs or improve differentiation's; and the accept the general level of their share of profits. Bad competitors violate the rules: They try to buy share rather than earn it: they take large risks; they invest in over capacity; and in general, they upset the industrial equilibrium. A company benefits in several ways from good competitors. Competitors confer several strategic benefits: They lower the antitrust risk; they increase total demand; they lead to more differentiation; the share the cost of market development and legitimatize a new technology; they improve bargaining power vis--vis labor unions or regulators; and they may service less attractive segments.

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CHAPTER-9 Identifying Market Segments and Selecting Target Markets


A company that decide to operate in a broad market recognizes that it cannot serve all customers in that market because customer are too numerous and diverse in their buying requirements. Instead of competing everywhere the company needs to identify the market segments that it can serve most effectively. In target marketing the sellers distinguish the major market segment, target one or more of those segments and develop products and marketing programs for each segment. Target marketing involves three major steps: 1 Market Segmentation: Identifying distinct groups of buyers who might require separate products. 2 Market Targeting: Select one or more market segments to enter. 3 Market Positioning: Establish and communicate products, key distinctive benefits in the market. MARKET SEGMENTATION: Market consist of buyers who differ in many ways. Markets can be segmented in a number of way. Here will examine (A) level of segmentation, (B) patterns of segmentation, (C) market segmentation procedure, (D) basis for segmenting of consumer and business markets, and (E) requirements for effective segmentation. Levels of Segmentation: Market segmentation represents an effort to increase a company's targeting precision. It can be carried out at four levels. 1) segments, 2) niches, 3) local areas, and 4)individuals and 5) self marketing. Before discussing these levels first we have to understand MASS MARKETING. In mass marketing the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers, like coca cola. The traditional argument is that mass marketing creates the largest potential market, which leads to the lowest costs and ultimately results in lower prices or higher margins, but it is difficult to carry out. SEGMENT MARKETING: A segment consist of large identifiable group within a market. Segment marketing is the mid point between mass marketing and individual marketing. The segment marketing companies know that buyers differ in want, purchasing power, location, buying habits. etc. The company tries to isolate some broad segments. e.g. an auto company identify four levels segments of car buyers, i) those who are seeking basic transportation, ii) those who are seeking high performance, iii) those who are seeing luxury, and iv) those who are seeking safety. Consumers belonging to one segment are considered quit similar in their wants and needs. yet they are not identical. Some segment members wants additional features not included in the offer while others would gladly give-up what they do not want very much. Segment marketing offers several benefits over mass marketing. The company can produce a more fine tuned product and price it appropriately for the target audience. The choice of distribution channels, and communication channels becomes much easier, and company have to face fewer competitors. NICHE MARKETING: A niche means a small market whose needs are not being well served. It is usually identified by dividing a segment into sub-segments. For example in the segment of heavy smokers a sub-segment of heavy smokers with emphysema. Segments being fairly large attract several competitors while niches are fairly small and normally attract only a few competitors. LOCAL MARKETING: Also called regional marketing, or localized marketing. In it market programs are tailored to the needs and wants of local customers groups, (trade areas neighbor hoods). INDIVIDUAL MARKETING: It is the ultimate level of segmentation which lead to "one -to-one marketing". it means producing a thing on receipt of order from customer according to the specifications. SELF MARKETING; A form of individual marketing in which individual customer takes more responsibility for determining which product and brands to buy. Patterns of Market Segmentation: Market segments can be built up in many ways. Instead of looking at demographic or lifestyle segments, we can distinguish preference segments. Three different patterns can emerge. i) HOMOGENEOUS PREFERENCES: A market where all the customers roughly have the same preference. The market shows no natural segments. ii) DEFUSED PREFERENCES: At the other extreme the customers preferences may be scattered and customers vary greatly in their preferences. The first brand to enter the market is likely to position in the center to appeal to the most people. A second competitor would locate next to the first brand and fight for market share. Or it could locate in a corner to attract a customer group that was not satisfied with the center brand. If several brands are in the market they are likely to position through out the space and show real differences to match consumer-preference differences. 26

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CLUSTERED PREFERENCES: The market might reveal distinct preference clusters, called natural market segments. The first firm in this market has three options. It might position in the center, hoping to appear to all groups. It may position in the largest market segment. It might develop several brands, each positioned in a different segment. If the first firm developed only one brand, competitors would enter and introduce brands in the other segments. Market Segmentation Procedure: Marketing research firms uses a three-step approach to identify the segments in the market. STEP ONE SURVEY STAGE: Researchers conduct exploratory interviews and focus on consumer's motivations, attitudes and behavior. From these findings researchers prepare a formal questioner to collect data about their: Attitudes and their importance rating Brand awareness and brand ratings. Product usage patterns. Attitudes towards the product category. Demographics, geographic, psycho-graphic and media-graphics of the respondents. STEP TWO ANALYSIS STAGE: The researcher applies factor analysis to the data to remove highly correlated variables, then apply cluster analysis to create a specific number of (maximally different) segments. STEP THREE PROFILING STAGE: Each cluster is profiled in terms of its distinguished attitudes, behavior, demographics, psycho-graphics, and media patterns. Each segment can be given a name, based on dominant distinguishing characteristic. Basis of Segmenting Consumer Markets: Two broad groups are used to segment consumer markets. First researchers form segments by looking at consumer characteristics, which may include geographic, demographic, and psycho-graphic characteristics. Other researchers try to form segments by looking at consumer responses to benefits sought. They use occasions and brands. The major segmentation variables are: 1) geographic, demographic, psycho-graphics and behavioral segmentation. GEOGRAPHIC SEGMENTATION: Dividing the market into different geographical units such as nations, states, regions countries, cities, urban, rural, climate etc. and then decide to operate in one or a few geographic areas. DEMOGRAPHIC SEGMENTATION: In it market is divided into groups on the basis of demographic variables such as age, family size, family life cycle gender, income, occupation, education religion, race, generation, nationality, or social class. These variables are the most popular because they are easier to measure than most other types of variables. a) Age and Life - Cycle Stage: Consumers wants and abilities change with age. However it is a tricky variable and is mostly effected by the psychology. b) Gender; Generally applied in clothing hair-styling, cosmetics, and magazines. Occasionally other marketers notice an opportunity for gender segmentation. c) Income: Another long-standing practice in such product and service categories as automobiles boats, clothing, cosmetics and travel. However, income does not always predict the best customers for a given product. d) Generation: Each generation is profoundly influenced by the milieu in which it grows up. Some marketers target baby bombers using communications and symbols that appeal to the optimism of that generation. e) Social Class: It has a strong influence on a person's preference in cars, clothing, home furnishing, reading habits etc. Many companies designee products for specific social classes PSYCHO-GRAPHIC SEGMENTATION: In psycho-graphic segmentation, buyers are divided into different groups on the basis of lifestyle and / or personality. People within the same demographic group can exhibit very different psycho-graphic profiles. a) Lifestyle: People exhibit many more lifestyles than seven as are suggested by the social classes. People product interests are influenced by their lifestyles. In fact, the goods they consume express their lifestyles. Marketers are increasingly segmenting their markets by consumer lifestyles. b Personality: Marketers also use personality variables to segment marketers. They endow their products with brand personalities that correspond to consumer personalities. BEHAVIORAL SEGMENTATION: Buyers are divided into groups on the basis of their knowledge of , attitude toward, use of, or response to a product. Following are the types of behavioral segmentation. 1 Occasions: Buyers can be distinguished according to the occasions they develop a need, purchase a product, or use a product. e.g. air travel is triggered by occasions related to business, vacation, or family. An air line can specialize in serving people for whom one of these occasions dominates. 2 Benefit Segmentation: A powerful form of segmentation involves classifying buyers according to the benefits they seek from the product. 3 User Status: Markets can be segmented into groups of nonusers, ex users, potential users, first-time users, and regular users of a product. The company's position in the market will also influence its focus. Marketshare leaders will focus on attracting potential users, while smaller firms will often focus on attracting current users away from the market leader. 27

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4 Usage rate: Market can also be segmented into light, medium, and heavy product users. Heavy users are often a small percentage of the market but account for the high percentage of total consumption. Marketers usually prefer to attract one heavy user to their product or service rather than several light users. 5 Locality Status: A market can be segmented by consumer-locality patterns. Consumers can have varying degrees of loyalty to brands, stores, and other entities. Buyers can be divided into four groups according to their brand-loyalty. i) Hard-core loyals: Who buy one brand all the time. ii) Split Loyals: Who are loyal to two or three brands. iii) Shifting Loyals: Those shift from favoring one brand to another. iv) Switchers: Consumers who show no loyalty to any brand. 6 Buyers-Readiness Stage: A market consist of people in different stages of readiness to buy a product. Some are unaware of the product, some are aware, some are formed, some are interested, some desire the product, and some intend to buy. The relative numbers make a big difference in designing the marketing program. 7 Attitude: Five attitude groups can be found in a market enthusiastic, positive, indifferent, negative, and hostile. MULTY ATTRIBUTE SEGMENTATION Marketers no longer talk about the average consumers, or even limit their analysis to only a few market segments. Rather they are increasingly crossing several variables in an effort to identify smaller, better defined target groups. Targeting Multiple Segments: Very often, companies may begin their marketing with one targeted segment, then expand into other segments. BASIS FOR SEGMENTING BUSINESS MARKETS: Business market s can be segmented with many of the same variables employed in consumer market segmentation, such as geography, benefit sought and usage rate. Yet business markets can also use several other variable given bellow: Demographic: It may include: 1 Industry: Which industries should we serve. 2 Company size: What size companies should we serve. 3 Location: Which geographical areas should we serve. Operating Variables: 1 Technology: What customer technologies should we focus on? 2 User /Nonuser status: Should we serve heavy users, medium, light or nonuser? 3 Customer Capabilities: Should we serve customers needing many or few goods or services? Purchasing Approach: 1 Purchasing Function Organization: Should we serve highly centralized or decentralized purchasing organizations? 2 Power Structure Should we serve Co. engineering dominants, financially dominants or so forth? 3 Nature of Existing Relationships: Serve companies having strong relations with us, or go after the most desirable. 4 General Purchase Policy: Serve them who prefer leasing, service contracts, system's purchases or sealed bidding. 5 Purchasing Criteria Serve those companies seeking quality? Service? or price? Situational Factors: 1 Urgency: Should we serve companies that need quick and sudden delivery or service? 2 Specific application: Should we focus on certain application of our product rather that all applications? 3 Size of Order: Should we focus on larger or small orders? Personal Characteristics: 1 Buyer Seller Similarity Should we serve companies whose people and values are similar to ours? 2 Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers? 3 Loyalty: Should we serve companies that show high loyalty to their suppliers? Requirements for Effective Segmentation: There are many ways of segmenting a market, however, all segmentation are not effective. To be useful market segments must be: 1 MEASURABLE: The purchasing power and characteristics of the segment can be measured. 2 SUBSTANTIAL: Segment should be large and profitable enough to serve. 3 ACCESSIBLE: The segment can be effectively reached and served. 4 DIFFERENTIABLE: The segment are conceptually distinguishable and respond differently to different marketing -mix elements and programs. If married and un-married woman respond similarly to a sale on perfume, they dont constitute separate segments. 4 ACTIONABLE : Effective programs can be formulated for attracting and serving the segments.

TARGET MARKETING
1 After identifying market-segments the enterprise has to evaluate them and decide, how many and which ones to target. Now we will examine the process of evaluating and selecting marketing segments: Evaluating the Market Segments: While evaluating the market segments the firm must look at two factors given bellow: I) The overall attractiveness of the segment and 28

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II) The companies objectives and resources. Selecting the Market Segment; After evaluating the firm decide to which and how many segments to serve. Selection can be made in any of the following five patterns I) SINGLE SEGMENT CONCENTRATION: The most simplest case in which company selects only one segment and concentrates on it. II) SELECTIVE SPECIALIZATION: Here the firm selects a number of segments, each objectively attractive and appropriate, given the firm's objectives and are resources. there may be little or no synergy among the segments, but each segment promises to be a money maker. This multi-segment coverage strategy has the advantage of diversifying the firm's risk. Even if one segment becomes unattractive the firm can continue to earn more in other one. III) PRODUCT SPECIALIZATION: When the firm concentrates on making a certain product that it sells to several segments. In it a company can build strong reputation in the specific product area. The downside risk is that the product may be supplanted by an entirely new technology. IV) MARKET SPECIALIZATION: Here the firm concentrates on serving many needs of a particular custom group. V) FULL MARKET COVERAGE: When the firm attempts to serve all customer groups with all the products that they might need. Only very large firms can undertake a full market coverage strategy. Large firms can cover a whole market in two broad ways through undifferentiated marketing or differentiated marketing. a) Undifferentiated Marketing: In it the firm ignores market-segment differences and goes after the whole market with one market offer. It focuses on buyers needs rather than differences among buyers. It design a product and a marketing program that will appeal to the broadest number of buyers. It relies on mass distribution and mass advertising. b) Differentiated Marketing: In it firms operate in several market segments and designs different programs for each segment. differentiated market creates more total sales than undifferentiated It also increase the cost of business the following are the costs: Product modification cost: Modifying a product to meet different market segment requirements usually involves more research and development, engineering and special tooling costs. Manufacturing cost: It is usually more expensive to produce 10 units of 10 different products than 100 units of one product. Administrative cost: for separate marketing plan for each market segment. This requires extra marketing reach, forecasting, sales analysis, promotion, planning and channel management. Inventory Costs: It is usually more to manage inventories containing many products than inventories containing few products. Promotion costs: The company has to reach different markets segments with different promotion programs. the result is increased promotion-planning costs and media costs. ADDITIONAL CONSIDERATION IN EVALUATING AND SELECTING SEGMENTS: Following four more considerations must be taken into account in evaluating and selecting segments: 1) Ethical choice of market targets, 2) segment interrelationships and super segments, 3) segment-by-segment evasion plans, and 4) intersegment cooperation. Ethical Choice of Market Targets: Market targeting sometimes generates controversy like cigarette markets have generate much controversy. In market targeting the issue is not who is targeted but rather how and for what. Socially responsible marketing calls for segmentation and targeting that serve not just the interests of the company but also the interests of those targeted. Segment Interrelationships and Super segments: In selecting more than one segment, the company should pay close attention to segment interrelationships on the cost, performance and technology side. Companies should also identify and try to operate in super segments rather than in isolated segments. A super segment is a set of segments sharing some exploitable similarity. Segment By Segment Invasion Plans: Even if the firm plans to target super segment, it is wise to enter one segment at a time and conceal its grand plan. The competitors must not know to what segment(s) the firm will move next. Intersegment Cooperation: The best way to manage segments is to appoint segment managers with sufficient authority and responsibility for building their segment's business. At the same time, segment managers should not be so segment-focused as to resist cooperation with other company personnel to improve overall company performance.

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CHAPTER-10 Differentiating and Positioning the Market Offering


In an industry know for intense competition, who can a small company can compete against industry leaders? One answer is by differentiating its product and avoiding direct competition. Companies that differentiate their offering solely by cutting their costs and price may be making a mistake, for several reasons. First cheaper products are often viewed as inferior in quality, second the firm may cut services to keep the price down which may alienate buyers. Third a competitor will usually find a lower-cost production method and offer an even cheaper version. If the firm did not distinguish its offering in any other way than price, it will be soundly beaten by the competitor. Companies are constantly trying to differentiate their market offering or value package from competitors. They provide new guarantees, special rewards for loyal users, new conveniences and enjoyments, and so on. Even when they succeed their competitors adopt such their value package and thus competitive advantages lasts only for a short time. Companies therefore, need to think, constantly about new feature and benefits to win the attention and interests of customers. TOOLS FOR COMPETITIVE DIFFERENTIATION: DIFFERENTIATION is the act of designing a set of meaningful differences to distinguish the company's offering from competitors' offering." The number of differentiations varies with the type of industry. Industries are of four types: 1 VOLUME INDUSTRY: A Industry in which companies can gain only a few but large competitive advantages, e.g. construction. In it a company can strive for low cast position or the highly differentiated position. Here profitability is correlated with company size and market share. 2 SEGMENTED INDUSTRY: An industry in which there are only few competitive advantages and each is small, e.g. steel industry. Here it is difficult to differentiate its product or decrease its cost Companies try to higher better salespeople, entertain more lavishly, but these are small advantages. 3 FRAGMENTED INDUSTRY: Where company faces many opportunities for differentiation, but each opportunity for competitive advantage is small. 4 SPECIALIZED INDUSTRY: An industry in which companies faces more opportunities for differentiation and each differentiation can have a high payoff, e.g. companies making special machinery for selected market segments. How exactly can a company differentiate its product form competitors. There are five dimensions A) Product, B)Service, C) Personnel, D)Channel, or E)Image. Product Differentiation: Differentiating the physical products. At one extreme the products are highly standardized and allow little variation, e.g. chicken, steel aspirin. Yet even here, genuine variation is possible. At the other extreme are products capable of high differentiation, such as automobiles, buildings, and furniture. The main product differentiations are 1) features, 2) performance, 3)durability, 4)reliability, 5)reparability, 6) style, and 7) design. FEATURES: Features are characteristics that supplement the product's basic function. PERFORMANCE: Refers the level at which the product's primary characteristics operate. CONFORMANCE QUALITY: Is the degree to which all the produced units are identical and meet the promised target specifications. DURABILITY: Durability is the measure of the product's expected operating life under natural and / or stressful conditions. RELIABILITY: It is the measure of the probability that a product will not malfunction or fail within a specified time period. Buyers normally will pay a premium for product with more reliability. REPARABILITY: Buyers prefer products that are easy to repair, STYLE: Buyers are normally willing to pay a premium for products that are attractively styled. Style describes the product's looks and feel to the buyer. DESIGN: A most patent way to differentiate and position a company's products and services. It is the totality of features that affect, how a product looks and functions in terms of customer requirements. Service Differentiation: In addition to differentiating its physical product a firm can also differentiate its services. When the physical product cannot easily be differentiated, the dye to competitive success often lies in adding more value-adding services and improving their quality. The main service differentiations are 1) ordering ease, 2)delivery, 3) installation, 4) customer training, 5) customer consulting, 6) maintenance and repair, and 7) few others. ORDERING EASE: It refers to how easy it is for the customer to place an order with the company. DELIVERY: Refers to how well the product or service is delivered to the customer, It includes the speed, accuracy and care attending the delivery process. INSTALLATION: Installation is the work done to make a product operational in its planned location. Buyers of heavy equipment expect good installation service from the vendor. CUSTOMER TRAINING: It refers to training the customers' employees to use the vendor's equipment properly and efficiently. 30

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CUSTOMER CONSULTING: It refers to data, information system and advising service that the seller offers free or for a price to buyer. MAINTENANCE AND REPAIR: It describes the company's service program for helping customers keep their purchased products in good working order. MISCELLANEOUS SERVICES: Companies find many other ways to add value by differentiating their customer services. They can offer a better product warranty or maintenance contract than their competitors. They can establish patronage awards. Virtually there are unlimited number of specific services and benefits that companies can offer to differentiate themselves from their competitors. PERSONNEL DIFFERENTIATION: Companies can gain a strong competitive advantage through hiring and training better people than their competitors. Better trained personnels exhibit six characteristics Competence: The employee possess the required skill and knowledge, Courtesy: The employees are friendly, respectful and considerate. Credibility The employees are trustworthy. Reliability The employees perform the service consistently and accurately. Responsiveness The employees respond quickly to customers' requests and problems. Communication: The employees make an effort to understand the customer and communicate clearly Channel Differentiation: Companies can achieve differentiation through the way they shape their distribution channels, particularly these channels are 1)coverage, 2)expertise, and 3) performance. Coverage means its dealers are found in more locations than competitors' dealers. Expertise: means its dealers are typically better trained and perform more reliably. Performance: refers to developing and managing direct marketing channels of high quality. Image Differentiation: Even when the offers of two competitors look same, buyers may respond differently to the company or brand image. Identity Versus Image: It is important to distinguish between identity and image. Identity comprises the ways that a company aims to identify itself or position its product. Image is the way the public perceives the company or its products. An effective image does three things for a product. first it conveys a singular message that establishes the product's character and value positions. Second, it conveys a message in a distinctive way so that it is not confused with similar messages from competitors. Third, it delivers emotional power so that it stirs the hearts as well as the minds of buyers. SYMBOLS: A strong image consists of one or more symbols that trigger company or brand recognition. The company brands and logos should be designed to instant recognition. WRITTEN AND AUDIOVISUAL MEDIA: The chosen symbols must be worked into advertisements that convey the company or brand personality. ATMOSPHERE: Distinctive physical condition in which the origination produces or delivers its products and services is another powerful image generator. EVENTS: A company can build an identity through the type of events it sponsors. DEVELOPING A POSITIONING STRATEGY: A company must carefully select the ways in which it will distinguish itself from competitors a difference is worth establishing to the extent that it satisfies the following criteria: Important: The difference delivers a high valued benefit to a sufficient number of buyers. Distinctive: The difference either is not offered by other or is offered in a more distinctive way by the company. Superior: The difference is superior to other ways of obtaining the same benefit. Communicable: The difference is communicable and visible to buyers. Preemptive: The difference cannot be easily copied by the competitors. Affordable: The buyer can afford to pay for the difference. Profitable: The company will fine it profitable to introduce the difference. Positioning is the act of designing the company's offering and image so that they occupy a meaningful and distinct competitive position in the target customers' minds. How Many Differences to Promote: Many marketers advocate promoting only one benefit to the target market. Each brand should back an attribute and tout itself a s number one on that attribute. The most commonly promoted number-one positioning are "best quality, best service, lowest price, best value, safest, fastest, most customized, most convenient and most advanced technology." Not everyone agrees that single-benefit positioning is always best. Double-benefit positioning may be necessary if two or more firms are claiming to be best on the same attribute. As companies increase the number of claims for their brand, they risk disbelief and a sole of clear positioning. In general, a company must avoid four major positioning errors. 31

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Underpositioning: Some companies discover that buyers have only a vague idea of the brand. Buyers don't really sense anything special about it. The brand is seen just as just an other entry in a crowded marketplace. Overpositioning: Buyers may have too narrow an image of the brand. That he deems it as high standard than his capabilities. Confused Positioning: Buyers might have a confused image of the brand resulting to many claims or changing the brand's positioning too frequently. Doubtful Positioning: Buyer may found it hard to believe the brand claims in view of the product's features, price, or manufacturer. The different positioning strategies that a company can adopt are given bellow: Attribute positioning: This occurs when a company positions itself on an attribute, such as size, number or years in existence, Benefit positioning: Here the product is positioned as the leader in a certain benefit. Use / application positioning: This involve positioning the product as best for some use or application. User positioning This involves positioning the product as best for some user group, Competitors Positioning: Here the product positions itself as better in some way than a named or implied competitor. Product category positioning: Here the product is positioned as the leader in a certain product category. Quality / Price positioning: Here the product is positioned as offering the best value for the price.

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CHAPTER-11 Developing New Product


Every company must carry on new product development. Replacement products must be created to maintain or build sales. A company can add new product through acquisition and/ or new-product development. The acquisition route can take three forms. 1 The company can buy other companies, 2 it can acquire patents from other companies, or 3 it can buy a license or franchise from another company. The new product development route can take two forms. 1 The company can develop new products in its own laboratories, or 2 it can contract with independent researchers or new-product-development firms to develop specific products for the company. There are six categories of new products in terms of their newness to the company and to the marketplace. i) New-to-the-world products: New product that create an entirely new market. ii) New product lines: New product that allow a company to enter an established market for the first time. iii) Additions to Existing product lines: New product that supplement a companys established product lines (Package, sizes, flavors, etc.) iv) Improvements and revisions of existing products: New products that provide improved performance or greater perceived value and replace existing products. v) Repositioning: Exhibiting products that are targeted to new markets or market segments. vi) Cost reductions: New product that provide similar performance at lower cost. CHALLENGES IN NEW-PRODUCT DEVELOPMENT: New technologies has shortened the product life cycle. The companies which fail to develop new products are putting themselves at great risk. At the same time the development of a new product is also risky due to the chances of failure. A new product may fail due to any one or more of the following reasons. i) Putting an new idea (favorite to high level executive) inspite of negative market research findings. ii) The idea is good but market size is over estimated. iii) The actual product is not well designed. iv) New product is either incorrectly positioned in the market, not advertised effectively, or overpriced. v) Development costs are higher than expected. vi) Competitors fight back harder than expected. In addition several other factors hinder new-product development, which are given bellow: i) Shortage of new production ideas in certain areas i.e. their may be few ways left to improve the products ii) Fundamental Markets: Keen competition leads to market fragmentation. iii) Social and governmental Constraints: New product have to satisfy such criteria as to consumer safety, archeological compatibility. iv) Coastlines of the new product development process: A company has to develop many new product ideas to find just one worthy of development. Moreover, company have to face high research and development costs. v) Capital shortages: Some companies with good ideas, cannot raise the funds needed to research and produce them. vi) Faster Development Time: Many competitors are likely to get the same idea at the same time and victory often goes to the swiftest. vii) Shorter Product Life Cycle: When a new product is successful rivals are quick to copy it. EFFECTIVE ORGANIZATIONAL ARRANGEMENTS: Successful new product development requires the company to establish an effective origination for managing the new-product-development process. An effective organization begins with its top management, which is ultimately responsible for the success of the new product. New product development requires management to define the business domains and product categories that the company wants to emphasize. Thus top management must establish specific criteria for acceptance of new-product ideas, especially in large multidivisional companies. A major decision facing top management is how much to budget for new-product development. Research and development out comes are so uncertain that it is difficult to use normal investment criteria for budgeting. Some companies solve this problem by encouraging and financing as many projects as possible. hoping to achieve a few winners. Other companies set their R&D budget by applying a conventional percentage of sales figures or by spending what the competitors spends. Still other companies decide how-many successful new products they need and work backward to estimate the required R&D budget investments. Companies handle the organizational aspects of new product development in several ways. The most common of these are:

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1 Product Managers: Many companies assign responsibility for new-product ideas to their product managers. In practice this system have many faults. The product managers are so busy in managing their existing products that they can thought litter about new products. 2 New Product Managers: Some companies have appointed new-produce managers who report to group product managers. this position professionalise the new-product function. However, like production managers, new-product managers tend to think in terms of product modification and line extensions limited to their product market. 3 New product Committees: Many companies have a high-level management committee charged with reviewing and approving new-product proposals. 4 New-Product Departments Large companies often establish a new-product department headed by a manager who has substantial authority and access to top management. The departments major responsibilities include generating an screening new ideas, working with R&D department, and carrying out field testing and commercialization. 5 New-Product Venture Teams: A venture team is a group brought together from various operating departments and charged with developing a specific product or business. MANAGING THE NEW PRODUCT DEVELOPMENT PROCESS: There are eight stages involved in the new-product development process. 1) idea generation, 2)idea screening, 3)concept development and testing 4) marketing strategy development, 5) business analysis, 6) product development, 7) market testing, and 8) commercialization. IDEA GENERATION: The new product development process with the search. Top managers should define the products the available markets and state the new products objectives. New product ideas can come from many sources, like customers, scientists, employees, competitors, channel members, and top management. Customers ; Consumers needs and wants are logical place to start the search for new-product ideas. Scientists / Employees: Companies also rely on their scientists, engineers, designers, and other employer for new-product ideas. Successful companies have established a culture that encourages every employee to seek new ways for improving the company's production. Competitors: Companies can also find good ideas by examining their competitor's products and services. They can lean from suppliers, distributors, and sales representatives, what competitors are doing. They can find out what customers like and dislike in their competitor's products. They can buy their competitors products, take them apart, and build better ones. Channel Members: Companies sales representatives and intermediaries are a particularly good source of new product ideas. They have first hand exposure to costumers needs and complaints. Top management: can be another manor source of development of new ideas. Idea Generation techniques: There are a number of techniques of idea generation some are given bellow: i) Attribute Listing: Listing the attributes of an existing product and then modifying each attribute in the search for an improved product. ii) Forced Relationships: In it several aspects are considered in relation to one an other to create a new product, e.g. a combine machine containing fax, telephone, and copy machine into one unit. iii) Morphological Analysis: It consist of identifying the structural dimensions, of a problem and examining the relationships among them. The hope is to find some novel combinations. iv) Need / Problem Identification: In it idea generation starts from reviewing consumer needs / problems. In it the consumers are asked about needs, problems and ideas. v) Brainstorming: Group creativity can be stimulated by brain storming technique. The usual brainstorming group consist of 6 to 10 peoples discussing the specific problem. The chain starts each discussion by saying, "Remember, we want as many ideas as possible, and remember, no evaluation." The ideas start flowing, one idea sparks another, and within an hour over a hundred or more new ideas may find their way into the tape recorder. To be maximally effective their four guidelines Criticism is ruled out: negative comments on ideas must be withheld until later. Freewheeling is welcomed: The wilder the idea, the better, it is easier to tame down than to think up. Quantity is encouraged: The greater the number of ideas generated, the greater will be the chances of an idea worth pursuing. Combining and Improving ideas is encouraged: Participants should suggest how other people's ideas can be joined into more ideas. vi) Synectics: William J.J Gorder felt the brainstorming sessions tent to produce solutions too quickly, before a sufficient number of perspective have been developed. Thus he has exposed a very different technique named as synectics method. It have five principles: a) Deferment: Look first for viewpoint rather than solutions. b) Autonomy of Object: Let the problem take on a life of its own. c) Use of Common Place: Take advantage of the familiar as a signboard to the strange. d) Involvement / detachment: Alternate between entering into the particulars of the problem and standardizing back from them. 34

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e) Use of Metaphor: Let apparently irrelevant, accidental things suggest analogies that are sources of new viewpoints. IDEA SCREENING: The new developed ideas should be written down and review each week by an idea committee and sot it into 3 groups. i) Promising Ideas, ii) Marginal ideas, and iii) rejects. The company should offer payment or recognition to the employees submitting the best ideas. There may be two types of errors while idea screening; i) A Drop-error: When dismissed a good idea, and ii) A Go-error: When a company permits a poor idea to move into development and commercialization. CONCEPT DEVELOPMENT AND TESTING: Attractive ideas must be refined into testable product concepts. We can distinguish among a product ides, a product concept and a product image. A product Idea is a possible product idea, that the company might offer to the market A product concept is an elaborated version of the idea expressed in meaningful consumer terms. A product Image: is the particular picture that consumer acquire of an actual or potential product. Concept Development: A product idea can be turned into several product concepts. Following are the three questions on which the concepts are based. Who will use it, What primary benefits should it provide, When it can be used e.g. in hunger, in winter, at breakfast etc. By answering these questions a company can for many concepts, each being a category concept. Concept Testing: Concept testing calls for testing product concepts with an appropriate group of target consumers, then getting those consumers' reactions. The concept can be presented symbolically or physically. At this stage a word or picture description can suffice. However the more the tested concepts resemble the final product or experience, the more dependable concept testing is. MARKETING STRATEGY DEVELOPMENT: After testing the new-product manage must develop a preliminary marketing strategy plan for introducing the new product in to the market. The marketing strategy will undergo further refinement in subsequent stages. A plan to market the product is consist of three parts: First: Target Market size, structure and behavior. the planned product positioning and the sales mark. Second: Planned price, distribution strategy and marketing budget for the first year. Third: The long run sales and profit goals and marketing mix strategy. BUSINESS ANALYSIS: After developing strategy the company evaluate the product's business attractiveness. Management prepares estimates of sales cost and profit and determine whether they satisfy the companies objectives or not. If they do the product concept can move to the product development stage PRODUCT DEVELOPMENT: Until now the idea exists only as a word description, a drawing or a prototype. At this stage it jumps in investments evaluation and evaluation of costs to be incurred in the earlier stages. The company determines whether the product idea can be translated into a technically and commercially feasible product. If it cannot do so the companies accumulated project cost will be lost. MARKET TESTING: If the management is satisfied with the products functional and psychological performance. The product is ready to be dressed up with a brand name packing and preliminary marketing program. The goals are to test the new product in more authentic consumer setting and to learn how target the mark to and how consumers and dealers react to handling using and repurchasing the actual product. However, all companies dont conduct market testing. It is better, that where the more risk is involved the product must be market tested. In doing test marketing managers faces several questions like:i) How many test cities, ii) Which cities, iii) Length of test. iv) What information to be collected. v) What action is to be taken on the completion of test. COMMERCIALIZATION: If the test is cleared and company has decided to market the product the company have to make heavy expenditure on plant, building, manufacturing facilities. The sales forecast etc. CONSUMER ADOPTION PROCESS: How do potential customer learn about new product, try them, and adopt or reject them? Management must under stand this consumer-adoption process to build an effective strategy for early market penetration. The consumer adoption process is followed by the consumer loyalty process which the concern of the established producer. Stages in the Adoption Process: Adopters of the new product have been observed to move through the following five stages: 1 Awareness: The consumer becomes aware of the innovation but lacks information about it. 2 Interests: The consumer is stimulated to seek information about the innovation. 3 Evaluation: Consume consider in the light of information whether to try it or not. 4 Trail: Consumer try the product to improve his estimate of its value. 35

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5 Adoption: The consumer decides to make full and regular use of the innovation. Factors Influencing Adoption Process: It is sometimes harder to generalize about consumers. However, marketers recognize a few basic truths about the adoption process: PEOPLE DIFFER GREATLY IN THEIR READINESS TO TRY NEW PRODUCTS: Different people exhibit different behaviors in respect of adopting new ideas. They can be classified according to following five groups: i) Innovators: Willing to try new ideas at some risk ii) Early Adopters: Those who adopt new ideas early but carefully. iii) Deliberates: They adopt new ideas before the average persons. They rarely are leaders. iv) Skeptical: They adopt a product after a majority of people have tried it. v) Laggards: They are suspicious of changes and adopt the innovation only when it takes on a measure for tradition itself. PERSONAL INFLUENCE PLAYS A LARGE ROLE IN THE ADOPTION OF A PRODUCT: Personal influence is the effect, one person have, on others attitudes. It is an important factor. Its significance is greater in some situations and for some individuals than for others. It is more important in the evaluation stage of the adoption process than in the other stages. It have more influence on late adopters than early adopters and it is more important in risky situation than is safe situation. THE CHARACTERISTICS OF THE INNOVATION PRODUCT EFFECTS ITS RATE OF ADOPTION: Some products gain attention immediately while others take long time to gain acceptance. Five characteristics are especially important in influencing the rate of adoption of an innovation. i) Innovations relative advantages: The degree it appears superior to the existing products, the more quickly it will be adopted. ii) The innovation's compatibility: The degree to which it is relatively difficult to understand or use. iii) The innovation's Complexity: The degree to which it is relatively difficult to understand or use. iv) The innovation's Divisibility: The degree to which it can be tried on a limited basis. v) The innovation's Communicability: The degree to which its beneficial results are observable or describable to others. Other characteristics that influence the rate of adoption are cost, risk and uncertainty, scientific credibility, and social approval. The new-product marketer has to research all these factors and give the key ones maximum attention in designing the new-product and marketing program. LIKE PEOPLE ORGANIZATIONS VARY IN THEIR READINESS TO ADOPT AN INNOVATION:

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CHAPTER-12 Managing Life-Cycle Strategies


PRODUCTS LIFE CYCLE:(PLC) The product life cycle is an important concept that provides insight into a product's competitive dynamics. To fully explain the PLC, we will firs describe its present concept the demand/technology life cycle. Demand /Technology Life Cycle: Remember that most products exist as one solution among many to meet a need. The changing need level is described by a demand life-cycle curve. Once the need is identified, it is satisfied by some technology. Each new technology satisfies demand in a better way than the previous technology. Stages in the Product Life Cycle: To understand the product life cycle one should understand positively that: Product have a limited life, sales passes through distinct stages, profit rise and fall at different stages of the life cycle of the product. Product requires different marketing strategies at different stages of their life cycle. If we draw a curve of past sales history of products it will take bell shape and can be divided in to four stages: 1) Introduction, 2) Growth, 3) Maturity, and 4) Decline. 1 INTRODUCTION: A period of slow sales growth and substantial profit improvement. Profit are nonexistent in this stage because of the heavy expenses incurred with product introduction. 2 GROWTH: A period of rapid market acceptance and substantial profit improvements 3 MATURITY: A period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profit stabilize or decline because of increasing marketing outlays to defend the product against competition. 4 DECLINE: The period when sales show downward drift and profits erode. It is difficult to designate where each stage begins and ends. Usually the stages are marked where the rates of sales growth or decline becomes pronounced. Marketer should check the normal sequence of stages in their industry and the average duration of each stage. PRODUCT-CATEGORY, PRODUCT-FORM, PRODUCT, AND BRAND LIFE CYCLES: The product life-cycle concept can be used to analyze product-category, product-form, product and brand-lifecycle. Each of them can have different life cycle. 1 Product Category have the longest life cycle. Many product categories stays at maturity stage indefinitely e.g. cigarettes, newspapers etc. 2 Product Form: follows the standard life-cycle, more faithfully than product categories. 3 Product follows either the standard product-life-cycle or one of several variant shapes. 4 Branded Products: can have a short or long product life cycle. Although many new brands die an early death, some brand names have a very long PLC. and are used to name and launch new products. Other Shapes of the Product Life Cycle: Not all products exhibit the bell-shaped life cycle. Researchers have fond six to seventeen different life cycle patterns. Three common alternate patterns are, 1) growth-slump-maturity patterns, 2) cycle-recycle patterns and 3) scalloped pattern. 1 Growth-slump-Maturity Patterns: In it sales grow rapidly when product first introduced and then fell to "petrified" level. The petrified level is sustained by the late adopters buying the product for the first time and early adopters replacing the product.. 2 Cycle-Recycle Pattern: In it the company aggressively promotes its new product and this produces the firs cycle. Later, sales start declining and the company gives the other promotion push, which produces a second cycle. 3 Scalloped Pattern: Her sales passes through a succession of cycles based on the discovery of the new product characteristics, uses or users e.g. nylon's sales shows a scalloped pattern because of the many new uses. Style, Fashion, And Fad Life Cycles: There are three special categories of product life cycles that should be distinguished those pertaining to styles, fashions and fads. A Style is a basic and distinctive mode of expression appearing in a field of human endeavor. Once a style is invented, it can last for generations, going in and out of vogue. A fashion is a currently accepted or popular style in a given field. For example jeans are a fashion in today's clothing. A fashion tent to grow slowly, remains popular for a while, and decline slowly. The length of fashion cycle is hard to predict. Fads are fashions that come quickly into the public eye, adopted with great zeal, each early, and decline very fast. Their acceptance cycle is short, and they tend to attract only a limited following. Fads appears to people who are searching for excitement or who want to distinguish themselves from others. Fads do not survive because they do not normally satisfy a strong need or do not satisfy well. It is difficult to predict whether something will be only a fad or how long a fad will last. The amount of media attention, along with other factors, influence the duration of the fad's. 37

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The real winner in the fad war are those who recognize them early and can leverage those fads into products with staying power. MARKETING STRATEGIES THROUGHOUT THE PRODUCT LIFE CYCLE: Each stage of the product life cycle have an appropriate marketing strategy. Introduction Stage: The introduction stage starts when the new product is launched. Because it takes time to roll out the product in several markets and to fill the dealer pipelines, sales growth is slow at this stage. The reasons for slow growth may be i) delay in the expansion of production capacity, ii) delay in obtaining adequate distribution i.e. retail outlets, and iii) customer reluctance to change established behaviors. MARKETING STRATEGIES IN THE INTRODUCTION STAGE. In launching a new product, marketing management can set a high or a low level for each marketing variable (price, promotion, distribution, product quality). Considering the price and promotion management can pursue one of the four strategies given bellow: i) A Rapid-Skimming Strategy: Launching product at high price and high promotion level. The high promotion acts to accelerate the rate of market penetration. This strategy make sense under the following assumptions: - a large part of the potential market is unaware of the product - those who become aware of the product are eager to have it and pay the asking price; and - the firm faces potential competition and wants to build brand preference. ii) A Slow Skimming Strategy: Launching a product at high price and low promotion. High price helps to recover much profit per-unit and low promotion keeps the marketing expenses down. This combination is expected to skim lot of profit from the market. This strategy makes sense when - Market is of limited size. Most of the market is aware of the product. - buyers are willing to pay high price potential competition is not eminent. iii) A Rapid Penetration Strategy: Launching a product at low price and spend heavily on promotion. This strategy promises to bring about fastest market penetration and the largest market share. Assumptions are: Market is large. Market is unaware of the product. - most buyers are price sensitive Strong potential competition, - manufacturing cost falls with scale of production and accumulated manufacturing expenses. iv) A Slow penetration strategy: Launch a product at low price with low promotional expenses THE MARKET PIONEERS: Companies while entering in the market must decide either to be first in the market which is highly rewarding but risky, and expensive, or to come in later which would make sense that the firm can bring superior technology, quality, or brand strength. The Growth Stage: Marked by rapid climb in sales. The early adopters like to adopt the product and additional costumers start to buy the product. Seeing the attractive market opportunities competitors enter in the market. The introduce the new product features and expand the distribution chain. Its characteristics are: Prices remain the same or slightly changes due to change in demand. Companies maintain their promotional expenses. Profits increase during growth stage as 1) promotion costs are spread over the large volume and 2) unit manufacturing cost fall faster than price decline. The rate of growth eventually changes from an accelerating rate to decelerating rate. Firms have to watch for the on set of the decelerating rate in order to prepare new strategies. MARKET STRATEGIES IN THE GROWTH STAGE: To sustain rapid market growth as long as possible following are the strategies: i) improve product quality and adds new product features and improved styling. ii) Add new models and flanker products iii) Enters new market segments. iv) Increase its distribution coverage and enters new distribution channels. v) Shifting from product awareness advertising to product preference advertising. vi) Low down the price to attract the next layer of price-sensitive buyers. Maturity Stage: Here the product's rate of sales growth will slow down, and the product will enter a stage of relative maturity. This stage normally lasts longer than the previous stages, and it poses formidable challenges to marketing management. Maturity stage can be subdivided in to three phases. I) Growth maturity: The sales growth rate starts to decline. there are no new distribution channels to fill. II) Stable Maturity: Sales flatten on a per capital basis because of market saturation. III) Declining Maturity: The absolute level of sales starts to decline, and customers start switching to other products. MARKETING STRATEGIES IN THE MATURITY STAGE: Some company abandon their weak products. Marketers should systematically consider strategies of market product and marketing-mix modification. 38

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a)

Market Modification: The company might try to expand the market for its mature brand by working with the two factors that make up sales volume. 1 The company can try to expand the number of brand users in three ways: i) Convert Nonusers: The company can try to attract nonusers to the product. ii) Enter new market segments: Try to enter new segments that use the product but not the brand. iii) Win competitors' Customers: Try to attract the competitors' customers or adopt the brand. 2 Volume can also be increased by convincing current brand users to increase annual usage of the brand. Here are also three strategies: i) More frequent use: The company can try to get customers to use the product more frequently. ii) More usage per occasion: try to interest users in using more of the product on each occasion. iii) New and more varied uses: The company can try to discover new product uses and convince people to use the product in more varied ways. b) Product Modification: Managers also try to stimulate sales by modifying the product's characteristics through quality improvement, feature improvement, or style improvement. i) Quality Improvement: Aims at increasing the products functional performance its durability, reliability, speed, taste etc. ii) Feature Improvement: aims at adding new features e.g. size, weight, additives etc. that expand the products versatility; safety or convenience. iii) Style improvement: increasing to product's aesthetic appeal. c) Marketing-Mix Modification: Product managers might also try to stimulate sales by modifying other marketingmix elements. they should ask the following questions: i) Prices: Includes a price cut to attract new tries and users. If so should the list price be lowed or lowered through price specials, volume or early purchase discounts, freight cost absorption, or easier credit terms? Or the raise the price to signal higher quality? ii) Distribution: Obtain more product support and display in the existing outlets, more outlets be penetrated, introduce product into new distribution channel. iii) Advertising: Increase the advertising expenditure, adds message be changed or timing, frequency or size of add be changed? iv) Sales Promotion: Making trade deals, cents-off-coupons, rebates, warranties, gifts and contests. v) Personal Selling: Increase the quality or number of sales-people, re-division of sales territories. Increase the sales force incentives. vi) Services: Like speeding up delivery, technical assistance, and credit facility. 4 Decline Stage: The sales of most product forms and brands eventually decline. It might be slow, or rapid. Sales may polunge to zero or they may petrify at a low level. There are many reasons for sales decline including technological advances, shifts in consumer tastes, and increased domestic and foreign competition. All lead to overcapacity, increased price outing. and profit erosion. As sales 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. MARKETING STRATEGIES DURING THE DECLINE STAGE: In handling its aging products, a company faces a number of tasks and decisions. a) Identifying the Weak Products: The first task is to establish a system for identifying weak products. Firms may appoint a product-review committee with representatives from marketing , R&D, manufacturing, and finance. The committee develops the system for identify weak products. The controllers office supplies data, a computer program analyzes this and helps manager to decide, which products are dubious. The manager responsible for the dubious products fill out the ratting forms showing where they thin sales and profits will go, with and without any changes in marketing strategy. The product-review committee examines this information and makes a recommendation for each dubious product leave it alone, modify its marketing strategy, or drop it. b) Determining Marketing Strategies: Some firms will abandon declining markets earlier than others. Much depends on the exit barriers in the industry. The remaining firms will enjoy increased sales and profits. c) The Drop Decision: When a company decides to drop a product, it faces further decisions. If the product has strong distribution and residual goodwill, the company can probably sell it to another firm. If the fir can't find any buyers, it must decide whether to liquidate the brand quickly or slowly. It must also decide on how much parts inventory and service to maintain for past customers. MARKET EVOLUTION: Firms while viewing product life cycle pay particular attention to product or brand rather than to the overall market. This attitude yields the product-oriented picture rather than a market-oriented picture. The demand / technology life cycle requires to take a broader look at the whole market. STAGES IN MARKET EVOLUTION: Like product market evolve through four stages: emergence, growth, maturity, and decline.

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CHAPTER-13 Designing Marketing Strategies for Market Leaders, Challengers, Followers, and Nichers
A firm can occupy any of the following six competitive positions in the target market. 1 Dominant: Control the behavior of other competitors and has a wide choice of strategic option. 2 Strong: Can take action (without putting in danger its long-term position) regardless competitors action. 3 Favorable: Have a exploitable strength and a better-than-average opportunity to improve its position. 4 Tenable: Performing at a sufficiently satisfactory level to continue business but exist in the sufferance of another dominant company and has a less than average opportunity to improve its position. 5 Weak: have unsatisfactory performance but an opportunity exists for improvement. The firm must change or els exit. 6 Nonviable: Unsatisfactory performance and no opportunity to improvement. MARKET LEADER STRATEGIES: If a dominant firm want to remain number one it have to take three actions: 1 Find way to expand total market demand. 2 Defend its current market share through good defensive and offensive actions. 3 Try to increase its market share further even if market size remains constant. Expanding the total Market: Expansion can be made by way of new users, new uses, more usage, i) New Users: Finding new users for the product and exploring the new markets. ii) New Uses: Expanding market by discovering and promoting new uses for the product iii) More Usage: Convincing people to use more of the product per use occasion. Defending the Market Share: While trying to expand total market size, the dominant firm must continuously defend it s current business against rival attacks The leader is like a large elephant being attacked by a swarm of bees. There are six defense strategies that dominant firm can use. These are summarized bellow: i) POSITION DEFENCE: The most basic idea is to build an impregnable fortification around one's territory. ii) FLANK DEFENCE: The market leader should not only guard its territory but also erect outposts to protect a weak front or possibly serve as an invasion base for counterattacking. iii) PREEMPTIVE DEFENCE: A more aggressive defense maneuver is to launch an attach on the enemy before the enemy starts its offense against the leader. A company can launch a preemptive defence in several ways, like waging guerrilla action against the market by hitting one competitor here, another there and keep everyone off balance. Or it could try to achieve a grand market envelopment. Or it could begin sustained price attacks. Sustained, high-pressure strategies and at retaining the initiative at all times and keeping the competition always on the defensive. iv) COUNTEROFFENSIVE DEFENSE: Most market leaders, when attacked, will respond with a counterattack. The leader cannot remain passive in the face of a competitor's price cut, promotion blitz, product improvement, or sales-territory invasion. The leader has the strategic choice of meeting the attacker frontly, maneuvering against the attacker's flank, or launching a pricer movement to cut off the attacking formations from their base of operation. When a market leader's territory is attacked, an effective counterattack is to invade the attacker's main territory so that it will have to pull back some of its troops to defend its territory. v) MOBILE DEFENCE: It involves more than the leader aggressively defending its territory. In mobile defense, the leader stretches its domain over new territories that can serve as future centers for defense and offense. vi) CONTRACTION DEFENSE: Large companies sometimes recognize that they can no longer defend all of their territory. Their forces are spread too thin, and competitors are nibbling away on several fronts. The best fours of action then appears to be planned contraction (called strategic withdrawal). It is not market abandonment but rather giving up the weaker territories, and reassigning resources to stronger territories. Planned contraction is a move to consolidate one's competitive strength in the market and concentrate mass at pivotal positions. 3 Expanding Market Share: Market leaders can improve their profitability by increasing their market share. In many markets, one share point is worth tens of millions of rupees. MARKET CHALLENGER STRATEGIES: Second, third, and lower ranked firms are often called runner up or trailing they can adopt one of the two postures: 1) Attack the leader and other competitors in an aggressive bid for further market share (called market challengers). 2) They can play ball and not rock the boat (market followers). Defending the Strategic Objectives and Opponent(s) First of all a market challenger have to define his strategic objectives. Most market challengers strategic objective is top increase their market share. It requires a decision to attack, but first it have to decide as to whom to attack. 40

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i)

Attack the Market Leader: This is a high risk but potentially high-payoff strategy and makes good sense if the leader is "falls leader" who is not serving the market. In such a case a substantial segment that is unnerved or poorly served provide an excellent strategic target. ii) Attack firms of Its own size: That are not doing the sob and are under-financed. iii) Attack small and regional firms which are not doing the job well, and are under financed. Choosing a General Attack Strategy: Given clear opponents an objective, what options are available in attacking an enemy? We can make progress by imaging at opponent who occupies a certain market territory. We distinguish among five attack strategies: 1 FRONTAL ATTACK: When a company attacks the opponents strengths rather than its weaknesses. The out come depends on who has the more strength. and endurance. 2 FLANK ATTACK: When the company attacks the others weak points. The major principle of modern offensive warfare is concentration of strength against weakness. The aggressor may attack the strong side to tie up the defender's troops but will launch the real attack at the side or rear. 3 ENRICHMENT ATTACK: An attempt to capture a wide slice of the enemy's territory through a comprehensive blitz attack. It involves launching a grand offensive or several fronts, so that the enemy must protect its front, sides, and rear simultaneously. The aggressor may offer the market everything the opponent offers and more, so that the offer is unrefusable. Enrichment makes sense where the aggressor commands superior resources and believes that a swift enrichment will break the opponent's will. 4 BYPASS ATTACK: Consist of most indirect strategies. It means by passing the enemy and attacking easier markets to broaden one's resource base. The strategy offers three lines of approaches diversifying into unrelated products, diversifying into new geographical markets and leapfrogging into new technologies to supplant existing products. 5 GUERRILLA ATTACK: Consist of small intermittent attacks on the opponent's different territories. The aim is to harass and demoralize the opponent and eventually secure permanent footholds. The guerrilla aggressor uses both conventional and unconventional means to attack the opponent. These include selective price cuts, intense promotional blitzes, and occasional legal actions. Choosing a Specific Attack Strategy: The above five strategies are very broad. The challenger must put together a total strategy consisting of several specific strategies. Market challengers can choose from several specific attack strategies: i) Price-discount Strategy: Selling a comparable product at a lower price. ii) Cheaper-goods strategy: The challenger can offer an average or low-quality product at a much lower price. iii) Prestige-goods Strategy: Launch a higher-quality product and charge a higher price than the leader. iv) Product-proliferation Strategy: Challenger attack the leader by launching a larger product variety, thus giving buyer more choice. v) Product-innovation strategy: The challenger might pursue product innovation to attack the leader's position. vi) Improved-Services Strategy: Offering new or better services to customers. vii) Distribution-innovation strategy: Discovering or developing new channels of distribution. viii) Manufacturing-cost-reduction strategy: Pursuing lower manufacturing costs than the competitors through more efficient purchasing, lower labor costs, or modern production equipment. and use lower costs to price more aggressively to gain market share. ix) Intensive advertising promotion: Some challengers attack the leader by increasing their expenditure on advertising and promotion. A challenger can rarely improve its market share by relying only one strategy. Its success depends on combining several principles to improve its position over time. MARKET FOLLOWER STRATEGIES: Many runner-up / followers companies prefer to follow rather than challenge the market leader. But leaders never take lightly any effort to draw away their customers. If the runner-up's take any action like lower prices, improved service or additional product features, the leader can quickly match these to diffuse the attack. This is not to say that market followers lack strategies. A market follower must know how to hold current customers and win a fair share of new customers. Each follower tries to bring distinctive advantages to its target market. A follower is often a major target of attach by challengers, therefore, it must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up. Follower ship is usually not the same as being passive or a carbon copy of the leader. The follower has to define a growth path, but one that does not ignite competitive relation. Four broad followership strategies can be distinguished: i) Counterfeiter; Follower duplicates the leader's product and package and sells it on the black market or through disputable leaders. ii) Cloner; The cloner emulates the leader's products, distribution advertising, and so on. iii) Imitator: copies some thing from the leader but maintain differentiation in terms of packaging advertising, pricing, and so on. iv) Adapter; Take the leader's products and adapt or improve them. The adapter may choose to sell to different markets to avoid direct confrontation with the leader. But often the adopter grows into the future challenger. MARKET-NICHER STRATEGIES: 41

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An alternative, of being a follower in a large market, is to be a leader in a small market. Small firms commonly avoid competing with larger firms by targeting small markets of littler or no interest to the larger firms. Niching carries a major risk in that the market niche might dry up or be attacked. The company is then stuck with highly specialized resources that may not have high-value alternative uses. Niche Specialization: The key idea in nichemanship is specialization. The following specialists roles are open to nichers: i) End-user Specialist: The firm specializes in serving one type of end-use customer. ii) Vertical-level Specialists: The firm specials at some vertical level of the production-distribution value chain. iii) Customer-size Specialist: The firm concentrates on selling to either small, medium-size, or large customers. Many nichers specialize in serving small customers who are neglected by the majors. iv) Specific-customer specialists; The firm limits its selling to one or a few major customers. v) Geographic Specialists: The firms sells only in a certain locality, region or area of the world. vi) Product or product-line specialists: The firm carries or produces only one product or product line. vii) Product-feature specialist: The firm specials in producing a certain type of product feature. viii) Job-shop Specialist: The firm customize its products for individual customers. ix) Quality / price specialists: the firm operates at the low-or high-quality ends of the market. x) Service specialist: The firm offers one ore more services not available from other firms. xi) Channel Specialists: The firm specializes in serving only one channel of distribution.

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CHAPTER-14 Designing and Managing Global Marketing Strategies


The world is rapidly shrinking with the advent of faster communication, transportation and financial flaws. A GLOBAL INDUSTRY: means an industry in which the position of competitors ( in geographic or national markets) are fundamentally affected by their overall global position. A GLOBAL FIRM: is a firm that operates in more than one country and captures (production, costs and reputation that are not available to purely domestic competitors. DECIDING WHETHER TO GO ABROAD: Most companies prefer to remain domestic if their domestic market were large enough. Yet there are several factors that might draw a company into international arena: 1 Global firms attach the company's domestic market and the company wants to counterattack these competitors in their home markets to tie up their resources. 2 Higher profit opportunities in foreign market than domestic market. 3 When firm needs a larger customer base to achieve economics of scale. 4 To reduce firms dependence on any one market. 5 Customer going abroad requires international services. Before going abroad the company must weigh several risks given bellow: 1 The company might not understand the foreign customers preferences an fail to offer competitively attractive products. 2 Might not understand the foreign countrys business culture or know how to deal effectively with foreign nationals. 3 Might underestimate foreign regulations and incur unexpected costs. 4 Company may lacks in managers with international experience. 5 The foreign country might change its commercial laws, devalue its currency, or undergo a political revolution and expropriate foreign property. DECIDING WHICH MARKET TO ENTER: The company has to define its international marketing objectives and policies. What proportion of foreign to total sales will it seek? Most companies start small when the venture abroad. Some plan to stay small, viewing foreign operations as a small part of their business. The company must decide whether to market in a few countries or many countries. Generally speaking, a company which decides to operate in fewer countries can do so with deeper commitment and penetration in each. A company should enter fewer countries when Market entry and control costs are high. Product and communication adoption costs are high; population and income size and growth are high in the initial countries chosen and Dominant foreign firms can establish high barriers to entry. DECIDING HOW TO ENTER: After deciding the target countries, it has to determine the best mode of entry. Its broad choices are indirect exporting, direct exporting, licensing, joint ventures, and direct investment. Indirect Export: It is exporting through independent intermediaries. There are four types of intermediaries. I DOMESTIC-BASED EXPORT MERCHANT: Who buyers the manufacturer's products and then sells them abroad. II DOMESTIC-BASED EXPORT AGENT: Who seeks foreign purchasers, negotiate with them and receives commission it includes trading companies. III CORPORATIVE ORGANIZATION: The export goods on behalf of several producers and are partly under the control of those producers. IV EXPORT MANAGEMENT COMPANY: A company who agrees to manage a company's export activities for a fee. Direct Export: Companies may deiced to handle their exports, themselves. In it the investment and the risk are somewhat greater but so is the potential return. The ways of direct export are given bellow: I DOMESTIC BASED EXPORT DEPARTMENT OR DIVISION: and an export sales manager carries on the actual selling. II OVERSEAS SALES BRANCH OR SUBSIDIARY: which handles the sales and distribution and might handle warehousing and promotion as well. It often serves as a display center and customer-service center. III TRAVELING EXPORT SALES REPRESENTATIVE: The company can send home-based sales representatives abroad to finds business. IV FOREIGN BASED DISTRIBUTORS OR AGENTS: Highiring foreign based distribution and sales agents. They might be given exclusive rights to represent the manufactures in that country or only limited rights. Licensing: In it the licenser licenses a foreign company to use a manufacturing process, trademark, patent, trade secrete or other items of value for a fee or royalty. Various methods of licensing are: I MANAGEMENT CONTRACT: When the company exports management services by appointing a manager to help the management of foreign country. 43

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CONTRACT MANUFACTURING: The manufacturer engages a local manufacturer to product the product on behalf of the company, locally in the country in which they are to be soled. III FRANCHISING: A complete form of licensing. The franchiser offers a franchisee a complete brand concept and operating system In return the franchisee invests in the business and pays certain fee to the franchiser. IV JOINT VENTURES: Foreign and local investors join together by investing and sharing ownership and control. V DIRECT INVESTMENT: Also called direct owner ship of foreign based assembly or manufacturing facilities. THE INTERNATIONALIZATION PROCESS In the internationalization process a firm moves through four stages given bellow: 1 No regular export activity. 2 Export via independent representative, 3 Establishing one or more subsidiaries, 4 Establishing of production facilitates abroad. DECIDING ON THE MARKETING PROGRAM International companies must have to decide, as to how much adopt the marketing strategy mix to local conditions. The potential adoptions that firms might make (in respect of their product, promotion, price etc.) as they enters foreign markets. Let us consider them one by one. Product: There are five different product strategies that companies can adopt are i) Straight Extension, ii) Product Adoption, iii) Product Innovation i) STRAIGHT EXTENSION: Introducing the product in the foreign market without any change. ii) PRODUCT ADOPTION: Involves altering the product to meet local conditions or preferences. There are several levels of adaptation. A company can produce a a) Regional version: naming it on the basis of the region northern version etc. or b) Country Version: iii) PRODUCT INNOVATION: It consists of creating something new. It can take two forms that are well adapted to a foreign country's needs. It may be of two types a) Backward Invention: re introducing earlier product. and b) Forward Invention: Creating a new product to meet the needs of an other country. Promotion: Either adopting some advertising campaigns used in the home market or change them for the local market. The process is called communication adoption. Price: Multinationals face several problems in pricing. They must had to deal with Price escalation, transfer prices dumping charges and gray markets. They have three choices i Setting a uniform price everywhere in local as well as foreign countries. ii Setting a market based price in each country. iii Setting a cost based price in each country. Place: Deciding as how the product will reach to the final users. How many intermediaries will be involved in the distribution process. DECISION OF MARKETING ORIGINATION: Depending upon the level of involvement in the international arena, companies may arrange their marketing activities in three ways Export Department: Begins simply by shipping out its goods. When international sales expand the company organizes an export department consisting of sales manager and a few assistants. International Division: Involving in several markets by different way. Export to one, licenses to other still make joint venture in the third. They creates an international division to handle international activities. Global Origination: When it becomes impossible to control through international division then they become global organization.

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CHAPTER-15 Product Lines Brands & Packing


1 2 3 4 5 1 2 3 4 5 6 7 FIVE LEVELS OF THE PRODUCT: These five levels constitute consumer value hierarchy: Core Benefit: Is the fundamental benefit that customer really buying. A consumer buying drill is actually buying a hole. Basic Benefit: Marketers converts the core benefit into basic product the core benefit in getting a hotel room is the buyer rest & sleep while core benefits include a bed, bathroom, towels, desk etc. Expected Product: A set of characteristics a buyer normally expects while purchasing a product. Augmented Product: That meets the customer's desires beyond their expectations. Consumption System: The way the purchaser performs trying to accomplish the benefits by using the product. PRODUCT HIERARCHY: It stretches from basic needs to particular items that satisfy needs. There are seven levels of product hierarchy. Need Family: The core need that under lies the existence of a product family. Product Family: All the product classes that can satisfy the core need. Product Class: A group of products within the product family. Product Line: A group in product class performing some functions. Product Type: A group in product line that share one of several possible forms of a product. Brand: The name associated with one or more products in the product line. Item: A distinct unit in a brand or product line distinguishable by price, size, etc. PRODUCT CLASSIFICATION: Marketers traditionally classified product on the basis of the varying product characteristic i.e. 1 Durability, 2 Tangibility, and 3 Use. Each product type has an appropriate marketing-mix strategy. Durability and Tangibility: According to durability and tangibility there are three groups Nondurable Goods; Tangible, consumed by one or few uses, like, soap, salt etc. Durable Goods: They are tangible and normally survive many uses, e.g. refrigerator, clothing machine etc. Services: Intangible, inseparable, variable and perishable. Consumer Goods Classification: Consumer buy a vast array of goods we can classify them among convenience, shopping, sociality, and unsought goods. Convenience Goods are those goods that the customer usually purchases frequently, immediately, and with a minimum of-effort. e.g. soap, newspapers, etc. Shopping Goods: That the consumer, in the process of selection and purchase, characteristically compares on such bases as suitability, quality, price, and style e.g. furniture, clothing used cars etc. Specialty Goods: Goods with unique characteristics and for which the buyer habitually willing to make a special purchasing effort e.g. fancy goods like cars, mens suits, etc. Unsought Goods: Consumer does not know about and not normally think to buy. Industrial Goods Classification: Industrial goods can be classified in terms of how they enter the production process and their relative coastlines. They can be classified in three coups materials and parts, capital items, and supplies & business services. Material and Parts: goods that enter the manufacturer's product completely. They fall into two classes, raw materials and manufactured materials and parts. Capital Items: Long lasting goods facilitates developing and managing finished products including two groups 1) Installations, 2) equipment. Supplies and Business Services: Short lasting goods and services helps in developing and managing the finished products. PRODUCT MIX DECISIONS A product Mid is the set of all products and items that a particular seller offers for sale to buyers. A companies product mix has a certain width, lengths, depth, and consistency. The Width refers of product mix refers to how many different product lines the company caries. The Length of product mix refers to the total number of items in its product mix. The Depth: refers to how many variants are offered of each product in the line. The Consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way. These four dimensions of the product mix provide the handles for defining the company's product strategy. The can expand its business in four ways i.e. by adding new product lines, adding more product variants and deepen its product mix or pursue more product-line consistency or less, depending upon whether it wants to acquire a strong reputation in a single field or participate in several fields. PRODUCT-LINE DECISIONS: A product line consist of various product lines. A product line is a group of products that are closely related because they perform a similar function, are soled to the same customer groups, are marketed through the same channels, or fall within given price ranges.. 45

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Each product line is usually managed by a different executive. Examples or product line are a company manufacturing Consumer Appliances like refrigerators, stoves, washing machines, and other appliance. Product Line Analysis: The product line manager needs to know the percentage of total sales and profits contributed by each item in the line. Product-Line Market Profile: The product line manager must also review how the product line is positioned against competitors' product lines. Product Line Length: The product line manager should have to maintain a the optimal product-line length. A product line is too short if the manager can increase profits by adding times, the line is too long if the manager can increase profit by dropping items. Line Stretching: When a company lengthen its product line beyond its current range. The company can stretch its line downward, upward, or both ways. Line Modernization: Even when product-line length is adequate, the line might need to be modernized. It may be an overhaul by piecemeal or all at once. Line Featuring: The product line manager typically selects one or a few items in the line to feature. Managers might feature low-end promotional models to service as traffic builders. Or may feature a high-end item to lend prestige to the product line.. Line Pruning: Product-line managers must periodically review items for pruning. There are two occasions for pruning. One is when the product line includes deadwood that is depressing profit. The weak items can be identified through sales and cost analysis. The other occasion for product pruning is when the company is short of production capacity. The manager should concentrate on producing the higher-margin items. BRAND DECISIONS: In developing a marketing strategy for individual products, the seller has to confront the branding decision. Branding is a major issue in product strategy. WHAT IS A BRAND: 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 or group of sellers and to differentiate them from those of competitors. In essence, a brand identifies the seller or maker. It can be a name, trademark, logo, or other symbol. Under the trademark law, the seller is granted exclusive rights to the use of the brand name in perpetuity. Thus it differs from other assets like patents and copyrights, which have expiration dates. A brand is a seller's promise to consistently deliver a specific set of features, benefits, and services to the buyers. The best brand convey a warranty of quality. A brand can convey up to six levels of meanings. 1 Attributes: A brand first bring some characteristics of the product, in mind of the buyer. The company uses one ore more of these attributes to advertise the product. 2 Benefits: A brand is more that a set of attributes. Customers are not buying attributes , they are buying benefits. 3 Value: The brand also conveys something about the producers values. The brand marketer must figure out the specific groups of buyers who are seeking these values. 4 Culture: The brand may represent a certain culture . 5 Personality: The brand can also project certain personality. 6 User: The brand suggest the kind to consumer who buyouts or uses the product. The concept and measurement of Brand Equity: Brands vary in the amount of power and value they have in the marketplace. Few customers are brand-loyal. Five levels of customer attitude towers their brand from lowest to highest: 1 Customer will change brands, especially for price reasons No brand loyalty. 2 Customer is satisfied. No reason the change the brand. 3 Customer is satisfied and would incur costs by changing brand. 4 Customer values the brand and sees it as a friend. 5 Customer is devoted to the brand. High brand equity provides a number of competitive advantages: 1 The company will enjoy reduced marketing costs because of the high level of consumer brand awareness and loyalty. 2 The company will have more trade leverage in bargaining with distributors and retailers. since customers expect them to carry the brand. 3 The company can charge a higher price that its competitors because the brand has higher perceived quality. 4 The company can more easily launch brand extensions since the brand name carries high credibility. 5 The brand offers the company some defense against fierce price competition. CHALLENGES IN BRANDING: Banding poses several challenges to the marketer. The key decisions are discussed in the following section. Branding Decision: The Brand or Not To Brand: While branding the products the management have to review two things the costspackaging, labeling, advertising, legal protection and the risk that the product may prove unsatisfying to the user? On the other hand branding gives the user several advantages: 1 Brand name makes it easier for the seller to process orders and track down problems. 46

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The sellers brand name and trademark provide legal protection of unique product features, which competitors would otherwise be likely to copy. 3 Branding gives the seller the opportunity to attract a loyal and profitable set of customers. Brand loyalty gives sellers some protection from competition and greater control in planning their marketing program. 4 Branding helps the seller segment markets. 5 Strong brands help build the corporate image, making it easier to launch new brands and gain acceptance by distributors and consumers. Brand-Sponsor Decision: A manufacturer has several options with respect to brand sponsorship The product may be launched as a manufacturer's brand (sometimes called nationals brand) a distributor's brand (also called retailer, store, house or private brand) or a licensed brand name Brand Name Decision Manufacturer who decide to band their products must choose which brand names to use. Four strategies are available here: 1 Individual Brand names 2 Blanket family name for all products 3 Separately family names for all products 4 Company trade name combined with individual product names Brand Strategy Decision: A company have five choices when it comes to brand strategy. The company can introduce line extensions, brand extensions, multi brands, new brands and co-brands. Line Extensions: When the company introduces additional items in the same product category under the same brand name, usually with new features, such as new flavors, forms, colors, added ingredients, package sizes, and so on. Brand Extensions: Using existing brand name to launch a product in a new category. For example Honda uses its company name to cover such different products as its automobiles, motorcycles, snow-bowers, lawnmowers, marine engines, and snowmobiles. Multi brands: A company will often introduce additional brands in the same product category. Various motives are there for it i.e. to establish different features or appeal to different buying motives, etc. New brands: When a company launches products in a new category, it may find that non of its current brand names are appropriate. When the present brand image is not likely to help the new product, companies are better off creating new brand names. Co-brands: A rising phenomenon is the appearance of co-branding (also called dual branding), is which two or more will-know brands are combined in an offer. Each brand sponsor expects that the other brand name will strengthen band preference or purchase intention. In the case of co-packaged products, each brand hopes it might be reaching a new audience by associating with the other brand. Brand-Repositioning Decision: However well a brand is positioned in a market, the company may have to reposition it later. A competitor may launch a brand next to the company's brand and cut into its market share. Or customer preferences may shift, leaving the company's brand with less demand. PACKAGING AND LABELING DECISIONS: Many marketers have called packaging a fifth P alongwith price, product place and promotion, and some treat it as an element of product strategy. PACKAGING: PACKAGING includes the activities of designing and producing the container or wrapper for a product. It is the immediate wrapping or covering provided alongwith the product to facilitate handling, protection and identification of the product. It may be a box, a bottle, a can or and container which goes alongwith the product into the hands of the ultimate users. In broader sense, packaging also includes the label and inserts, if any. PACKING: refers to the providing overall container, (boxes, cartons crates, etc.) for handling, protection, distribution and identification of products in commercial quantities, meant for the members of distribution channels, large commercial users or industrial consumers. However these two terms are being used interchangeably. In recent times packaging has become a potent marketing tool. Well-designed packages can create convenience value for the consumer and promotional value for the producer. Various tools have contributed to the growing use of packaging as a marketing tool: 1 Self-service: An increasing number of products are sold on a self-service basis in super markets and discount houses. The package must perform many of the sales tasks, It must attract attention, describe the product's features, create consumer confidence, and make a favorable overall impression. 2 Consumer Affluence: Rising consumer affluence means consumers are willing to pay a little more for the convenience, appearance, dependability, and prestige of better packages. 3 Company and Brand Image: Companies are recognizing the power of well-designed packages to contribute to instant recognition of the company or brand. 4 Innovation opportunity: Innovative packaging can bring large benefits to consumers and profits to producers. 47

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Developing an effective package for a new product requires several decisions. The first task is to establish packaging concept. Packaging concept defines what the package should be or do for the particular product. Should the package's main function be to offer superior product protection, introduce a novel dispensing method, suggest certain qualities about the product or the company, or something else. Once a packaging concept has be determined, decisions must be made on additional packaging elements i.e. size, shape, materials , color, text and brand mark. Package might include up to three levels of material Primary package (like bottle), Secondary Package (Cardboard box) or shipping package( containing dozens of packages of packed product) Labeling: It is a subset of packaging. Sellers must label their products. The label may be a simple tag attached to the product or an elaborately designed graphic that is part of the package. The label might carry only the brand name or a great deal of information. Even if the seller prefers a simple label, the law may require additional information. It is a piece of written communication informing the user of the product about its name, specifications, characteristics, origin, quality, color, type, size, model or the method of using, handling, maintaining or servicing the product. Not many labels are to carry all this information at one place.

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CHAPTER-17 Designing Pricing Strategies and Programs


SETTING PRICE: A firm must have to set its price on three occasion. 1) First time when it develops new product. 2) When it introduces its regular product in a new distribution channel or geographical area, and 3) when it enters or bids on new contract work. The firm has to consider many factors in setting its pricing policy. In the following paragraphs, we will describe a six step procedure for price setting: 1) selecting the pricing objective; 2) determining demand; 3) estimating costs; 4) analyzing competitors' costs, prices, and offers; 5)selecting a pricing method; and 6) selecting the final price. Selecting the Pricing Objective: The company first has to decide what it wants to accomplish with particular product offer. If the objectives of the organization are clear it will be easy to set price. There are six types of objectives a company can pursue survival, maximum current profit, maximum current revenue, maximum sales growth, maximum market skimming, or product-quality leadership. i) SURVIVAL: If the company is working with over capacity, or in intense competition or changing consumer wants. Then its major objective shall be to survive. They cut prices to keep the plant running and the inventories turnover. Profits are less important than survival. As long as prices covers the variable cost and some portion of fixed cost, the companies stay in business. However it is only a short run objective the firm must have to lean as how to add value. ii) MAXIMUM CURRENT PROFIT: Many companies set the price that will maximize current profit. They examine the estimated demand under different price levels and set that price at which the profit or cash inflow is maximum. iii) MAXIMUM CURRENT REVENUE: Revenues maximization requires estimating only the demand function. Many managers believe that revenue maximization will lead to long-run profit maximization and market share growth. iv) MAXIMUM SALES GROWTH: Some companies want to maximize unit sales 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. It is also called market penetration pricing. v) MAXIMUM MARKET SKIMMING: Means setting high prices to "skim" the market. It makes sense under the following conditions a) a sufficient number of buyers have a high current demand: b) the unit cost of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear; c) The high initial price does not attract more competitors to the market d) the high price communicates the image of a superior product. vi) PRODUCT QUALITY LEADERSHIP: A company might aim to be the product quality leader in the market. vii) OTHER PRICING OBJECTIVES: Non profit and public organizations may adopt a number of other pricing objectives. A university aims for partial cost recovery, knowing that it must rely on private gifts and public grants to cover the remaining costs. A nonprofit hospital may aim for full cost recovery in its pricing. Determining Demand: Each price will lead to different level of demand. In a normal case they are inversely related. Factors affecting price Sensitivity : The demand curve shows the markets purchase rate at alternative prices. Is sums the reactions of many individuals who have different price sensitivities. The first step in estimating demand is thus understanding the factors that affect the buyers price sensitivity: i) Unique Value Effect: Buyers is less price sensitive if the product is more distinctive. ii) Substitute Awareness Effect: Buyer is less sensitive if he knows less about substitutes. iii) Difficult Comparison Effect: Buyer is less sensitive if they cannot compare the quality of product with other product. iv) Total Expenditure Effect: Buyer is less sensitive for price if the amount of expenditure is less as a part of their total income. v) End-benefit effect: Buyers are less price sensitive if the expenditure is smaller as compare to the total end benefit of the product. vi) Shared-Cost Effect: Buyer is less price sensitive when part of the cost is born by other parties. vii) Sunk Investment Effect: Buyer is less price sensitive when the product its to be used in connection with asset previously bought. viii) Price Quality Effect: Buyers are less price sensitive when the product is assumed to have more quality, prestige or exclusiveness. ix) Inventory Effect: Buyers are less price sensitive when they cannot store the product. Methods of Estimating Demand Curves: Most companies make some attempt to measure their demand curves. To do so, they can use several methods. i) Statistically analyzing the existing data on past prices, quantities sold, and other factors to estimate their relationship. 49

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i)

ii) iii) iv) v) vi) 6

ii Conduct price experiments. Systematically carry the prices of several products sold and observed the results. and alternative approach is to charge different prices in similar territories to see how sales are affected. iii) Asking buyers to state how many units they would buy at different proposed prices. Price Elasticity of Demand: Marketers need to know how responsive, or elastic, demand would be to a change in price. Estimating Costs: Demand sets a ceiling of the price while costs sets the floor. The company wants to charge a price that covers its costs of producing, distributing, and selling the product, including a fair return for its effort and risk. TYPES OF COSTS: A company's costs take two forms, fixed and variable. They are collectively called as total cost and when they are divided in to units are called average cost. COST BEHAVIORS: At different product ion Levels: Management should know how cost vary with different levels of production. As a Function of Accumulated Production: Change of costs due to different levels of production. The firm which is making more production can charge low costs because of the expertness of the workers. As a Function of Differentiated Marketing Offers: Different buyers want different terms. Some wants daily delivery some wants weakly and some wants monthly with the consideration of saving which results the company in different costs. Therefore a company have to make activity-based cost accounting instead of standard cost accounting. Target costing: Costs change with production scale and experience. They also change as a result of a concentrated effort by the company's designers, engineers, and purchasing agents to reduce them. Target Costing is a Japanese technique. With research they determine product desired functions. Then they set the competitive price of the product from this they deduct profit margin and this leaves the target cost they must have to achieve. Analyzing competitors Costs Prices and Offers: Within the range of possible prices determined by the market demand and costs competitors' costs, prices and possible price reactions help the firms establishing where to set its prices. The company can send out comparison shoppers to price and assess competitors' offers, acquire competitors' price lists,, buy competitors' product and take it apart, and ask buyers how they perceive the price and quality of each competitor's offer. Once the company is aware of competitors' prices and offers, it can use them a s an orienting point for its own pricing. If the firms offer is similar to a manor competitor's one , then the firm will have to price close to the competitor or lose sales. If the firms offer is inferior the firm is not able to charge more than the competitors. If the firm's offer is superior, the firm can charge more than the competitor. Selecting a Pricing Method: Now the organization will be ready to select a price. It will be some where between one that is too low to produce profit and that is too high to produce enough demand. There are three major considerations in price setting 1) cost 2) competitors prices and 3) prices of substitutes. Company may select any pricing method that includes one or more of these three considerations. The pricing method will then lead to a specific price. Following are the price setting methods. MARK UP PRICING: A most elementary pricing method is to add a standard markup to the product's cost. Markups vary considerably amend different goods. Markups are generally higher on seasonal items ( to cover the risk of not selling), specialty items, slower moving items, items with high storage and handling costs, and demand-inelastic items. Companies also charge when hidden or highly variable costs are involved. TARGET RETURN PRICING: A price which yields organization target rate of return on investment. PERCEIVED VALUE PRICING: In it marketer see the buyers perception of value not the sellers cost as a key to pricing. VALUE PRICING: Charge a fairly how price for a high quality offering. It say that the price should represent the high value offered to consumers. GOING RATE PRICING: Basing price on competitors price. SEALED-BID PRICING: In it the firm basis its price on expectations of how competitors will price their products. Selecting the Final Price: Pricing methods arrows the pricing range. In considering the final price following additional factors should be considered. i) Psychological Pricing: Many consumers use price as an indicator of quality. ii) The influence of Other Marketing Mix Elements on Price: The final price must take into account the brands quality and advertising relative to competition. a) Brands with average quality but high relative advertising budgets were able to charge premium prices. b) Brand with high relative quality and high relative advertising obtained the highest prices. Conversely brands with low quality and low advertising charred the lowest prices. c) The positive relationship between high prices and high advertising held most strongly in the later stages of the product life cycle, for market leaders and for low-cost product. 50

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iii)

Companies Pricing Policy: The contemplated price must be consistent with company pricing policies. Many companies set up a pricing department to develop pricing policies and establish approve pricing decisions. iv) Impact of Price on Other parties: Management should also consider the reaction of parties to the contemplated price. How will the distributors and deals feel about it? will the company sales force be silting to sell at that price or complain that the price is too high? How will competitors react to Adopting the Price: Companies usually not set a single price but sets a pricing structure reflecting i) GEOGRAPHICAL PRICING: Pricing in different location, cities and countries. Either to charge high price to distant customers or low price to increase the volume of sales. Moreover whether the price will be revived in hard cash or in other items in payment which cause counter trade. COUNTERTRADE FORMS: 1 Barter: Direct exchange of goods. 2 Compensation Deal: Some percentage is received in cash and remaining in goods. 3 Buyback Arrangement: The seller sells the plant and technology and agrees to accept partial in cash and partial payment in the products manufactured with that equipment. 4 Offset: Seller received full amount in cash but agrees to spend a substantial amount of that in that country. ii) PRICE DISCOUNT ALLOWANCE: Most companies reward customers for 1) early payment 2) volume purchased and 3) off season buying, in any of the following ways. a) Cash discounts: For early payment. b) Quantity Discount: Discount allowed for large purchases. c) Functional Discount: For performing certain functions such as storing, selling and record keeping. d) Seasonal Discount: For out of season products. e) Allowances: Are other types of reductions from price such as at the time of launching new product. iii) PROMOTIONAL PRICING: Companies uses several pricing techniques to stimulate early purchase. The techniques are : a) Loss Leader Pricing: Selling at less than cost to increase sales. b) Special-event pricing: Like Eid and Christmas c) Cash Rebates: for a special time period. d) Low Interest Financing: Instead of decreasing price the company offer customers low-interest financing. e) Longer Payment Terms: Sellers stretch their loans over longer periods and thus lower monthly payments. f) Warranties and service contracts: The company can promote sales by adding a free warranty offer or service contract. g) Psychological Discounting: Putting an artificially high price on product and then offering it at substantial savings. iv) DISCRIMINATORY PRICING: When company sells one product at two or more prices that do not reflect a proportional difference in costs. It can take several forms: a) Customer Segment pricing: Different customer groups are charged different prices for the same product, e.g. lower admission fee for children and higher for the senior citizens. b) Product Form Pricing: Different versions of the product are priced differently. c) Image pricing: Pricing same product at two different levels based on image differences. d) Location Pricing: When same product is priced differently at different locations even though the cost of offering at each location is the same. e) Time pricing: Prices are varied by season, day, or hour. V) PRODUCT PRICING MIX: The pricing logic must be modified when the product is a part of productmix. In such a case the firm searches for a set of prices that maximize the profits on the total product mix. We can distinguish six situations involving product-mix pricing: 1) product line pricing, 2) optional-feature pricing, 3) captive-product pricing, 4)two-part pricing, 5) byproduct pricing, and 6) product-bundling pricing. a) Product line Pricing: Companies normally develop product lines, rather than single product. Management must decide on pricing steps to establish from one line to the next. The price steps should take into account cost differences between different lines, customer evaluations of different features, and competitors prices. b) Optional-feature pricing: Many companies offer optional products or features alongwith their main product. Pricing these options is sticky problem, because companies must have to decide which item is to include in the sticker price and which to offer as options.. c) Captive product pricing: Some products require the use of ancillary or captive product, e.g. razor and blades camera and camera films etc. Manufacturers of main product often price them low and set high markups on the supplies. d) Two-part pricing: Service firms often engage in this type of pricing. They charge a fixed fee plus a variable usage fee. Thus telephone users pay a minimum monthly fee plus charges for calls beyond a certain limit. 51

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By-product pricing: The production of certain products often results in the development of by-products. If the by-products have value to the customer group, then they should be priced on their value. Any income earned on the byproducts will make it easier for the company to charge a lower price on its main product. if competitors forces it to do so. f) Product-building Pricing: When the sellers bundle their products at a set price with some saving. Since customers may not have planned to buy all of the components, the savings on the price bundle must be substantial enough to induce them to buy the bundle. INITIATING AND RESPONDING TO PRICE CHANGES: After developing price strategies, companies will face situations where they need to cut or raise prices. Initiating Price Cuts: There are many circumstances which lead a firm to cut its prices: a) Excess Plant capacity: and additional revenues cannot be generated without price reduction. b) Declining Market Share: When companies found that they are loosing their market share, to restore their market they have to decries their price. e) Try to Dominate the Market through Lower Cost: and to increase their market share. This strategy also involves high risks: i) Low quality trap: Consumers will assume that the quality is below that of the higher priced competitors. ii) Fragile-market-share trap: A low price buys market share but not market loyalty. Customers will shift to another lower-price firm that comes along. iii) Shallow-pockets trap: High priced competitors may also cuts their price and may have longer staying power because of deeper cash reserves. Initiating Price Increases: Successful price increase can increase profits considerably if the sales volume is unaffected. The circumstances provoking price increases are: a) Cost Inflation: Rising costs unmatched by productive gains squeeze profit margins and lead companies to regular round to increase prices. Companies often raise prices by more than the cost increase in anticipation of further inflation or government price controls; this practice is called anticipatory pricing. b) Over Demand: When a company cannot supply all of its customers, it can raise its prices, or ration supplies to customers, or may do both. In over demand situation price can be increased in several ways: i) Adoption of delayed quotation pricing: When company does not fix the price of its product until it is finished or delivered. ii) Use of escalator clauses: When company requires the customers to pay todays price and all or any part of inflation increase that takes place before delivery. iii) Unbundling of goods and services: The company maintains its price but removes or prices separately one or more elements that were par of the former offer, such as free delivery or installation. iv) Reduction of discounts: The company instructs its sales force not to offer its normal cash and quantity discounts. A company might also have to decide whether to raise the price sharply on a one-time basis or to raise it by small amounts several times. While passing on price increases to the customers, the company needs to avoid the image of a price gouge, because customer will turn against the price gougers when the market softens. Other ways of Responding High Costs: There are some ways that a company can respond to high costs or demand without raising prices. The possibilities include the following: I) Shrinking the amount of product instead of raising the price. ii) Substituting less-expensive materials or ingredients. iii) Reducing or removing product features to reduce cost. iv) Removing or deducing product service, such as installation, free delivery, or long warranties. v) Using less expensive packaging material or promoting larger package size to keep down packaging cost. vi) Reducing the number of models offered. vii) Creating new economy brands. Reactions to Price Changes: Any price change can effect the customers, competitors, distributors, and suppliers and may provoke government reaction as well. CUSTOMERS REACTIONS: Customers often question about the motive behind the reduction or increase in price. They may treat it as a decrease in quality or strength of the company. On the other hand an increase in price may seem them that the item is hot and might be unobtainable if it is not bought soon. Customers are most price sensitive to products that cost a lot and are bought frequently, while they hardly notice higher prices on low-cost items that they buy infrequently. A seller can charge more than competitors and still get the business if the customer can be convinced that the products total lifetime costs are lower. COMPETITORS REACTIONS: A firm changing its price had to be worried about competitors as well as customers reactions. Competitors are most likely to react where the number of firms in the industry is small the 52

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product is homogeneous, and the buyers are highly informed. The problem is complicated because the competitor can put different interpretations on a company price cut and take such action which may surprises the company. When there are several competitors the company must estimate each close competitors likely reaction. Responding to Competitors Price Changes: How should a firm respond to a price change initiated by a competitor? In markets characterized by high product homogeneity. the firm has little choice but top meet a competitors price cut. The firm should search for ways to enhance its augmented product. If it cannot find any way it have to meet the price reduction. Before reacting the firm need to consider the following issues: 1) Why did the competitors change the price? 2) Does the competitor plan to make the price change temporary or permanent? 3) What will happen to the companys market share and profits if it does not respond? 4) What are the other competitors and other firms responses likely to be to each possible reaction? Market leaders often face aggressive price cutting by smaller firms trying to build market share. When the attacking firms product is comparable to the leaders, its lower price will cut into the leaders share., The leader at this point has several options: 1. Maintain price: The leader maintain its price and profit margin , believing that: a) It would lose too much profit if it reduced its price b) it would not loose to much market share, and c) it could regain market share when necessary. 2. Raise perceived quality: The leader could maintain price but strengthen the value of its offer. It could improve its product, services, and communications. It could stress the relative quality of its product over that of the low-price competitors. 3. Reduce Price: The leader might drop its price to the competitors price. When it believes a) its cost fall with volume, b) it would lose market share because the market is price sensitive, and c) it would be hard to rebuild market share one it is lost. 4. Increase price and improve quality: The leader might raise, its price and introduce new brands to market the attacking brand. 5. Launch low-price fighter line: One of the best responses is to add lower-price items to the line or to create a separate lower-price brand. This is necessary if the particular market segment being lost is price sensitive. The best response varies with situation. The company under attack has to consider the products stage in the life cycle, its importance in the companys product portfolio, the competitors intentions and resources, the market price and quality sensitivity, the behavior of costs with volume, and the companys alternative opportunities.

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CHAPTER-18 Selecting and Managing Marketing Channels


Between the producer and the final user stands the marketing channel. WHAT ARE THE MARKETING CHANNELS: Marketing channels are the sets of interdependent organizations involved in process of making a product or service available for use. The market intermediaries make up a marketing channel. They are also called trade channel or distribution channel. Why Intermediaries Used: Producers gain several advantages you the use of intermediaries. 1 They have lack of financial resources to carry out direct marketing. 2 If direct marketing is not feasible 3 The producers who establish their own channels can often earn a greater return by increasing their investment in their main business (Production of the goods). Channel Functions and Flows: A marketing channel performs the work of moving goods from producers to consumers. It overcomes the time, place, and possession gaps that separate goods and services from those who need or want them. Members of the marketing channel perform a number of dye functions: 1 Information: The collection and distribution of marketing research information about potential and current customers, competitors and other actors. 2 Promotion The development and dissemination of persuasive communications designed to attract customers to the offer. 3 Negotiation: The attempt to reach final agreement on price and other terms so that transfer of ownership or possession can be effected. 4 Financing: The acquisition and allocation of funds required to finance inventories at different levels of the marketing channel. 5 Risk taking: The assumption of risks connected with carrying out the channel work. 6 Physical possession: The successive storage and movement of physical products from raw materials to the final customers. 7 Payment: Buyers payment of their bills to the sellers through banks and other financial institutions. 8 Title: The actual transfer of ownership from one organization or person to another. Channel Levels: Each intermediary that performs work in bringing the product and its title closer to the final buyer constitutes a channel level. Since the produce and the final customer both perform work, they are part of every channel. By using the number of intermediary levels we designate the length of a channel. A zero-level channel (Also called direct marketing), consist of a manufacturer selling directly to the final customer. Its major types are door-to door sales, mail order, telemarketing, TV, selling and manufacturer-owned stores. A one-level channel One selling intermediary, such as retailer. A two-level channel contains two intermediaries. In consumer markets they are typically a wholesaler and a retailer. A three-level channel involving three levels of intermediaries. Channel normally describe a forward movement of products. One can also talk about backward channels. It is the recycling of solid wastes. Several intermediaries play a role in backward channels e.g. softdrink intermediaries, trash collection specialists, recycling centers, trash-recycling brokers etc. CHANNEL-DESIGN DECISIONS: In designing marketing channels, manufactures have to decide what is ideal, what is feasible, and what is available. Designing of a channel system calls for: 1)analyzing customer needs, 2)establishing channel objectives, and 3) identifying and evaluating the major channel activities. 1 Analyzing Customers Desired Service Output Levels: Understanding (what, where, why, when and how target customers buy) is the first step in designing the marketing channel. They must also understand the service output levels desired by the customers the types and levels of services that people want and expect when they purchase a product. Channels produce five channel out puts: I) LOT SIZE: It is the number of units that the marketing channel permits a typical customer to purchase on a occasion. Obviously different channels are set up for household buyers and the resale purpose buyers. The smaller the size, the greater the service output level that the channel must provide. ii) WAITING TIME: The average time that customers of that channel wait for receipt of the goods. iii) SPECIAL CONVENIENCE: The degree to which the marketing channel makes it easy for customers to purchase the product. iv) PRODUCT VARIETY: The assortment breadth provided by the marketing channel.

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v) SERVICE BACKUP: The added services like, credit, delivery, installation, repairs, provided by the channel. The greater the service backup, the greater the work provided by the channel. 2 Establishing the Channel Objectives and Constraints: Channels objectives should be stated in terms of targeted service output levels. Under competitive conditions, channel institutions should arrange their functional tasks so as to minimize total channel costs with respect to desired levels of service outputs. Several market segments desire differing service outputs. Effective channel planning requires determining which market segments to serve and the best channels to use in each case. 3 Identifying the major channel Alternatives: After defining the target market and desired positioning it should identify its channel alternatives. A channel alternative is described by three elements i)the types of available intermediaries, ii) the number of intermediaries needed, iii) the terms and responsibilities of each channel participant. i)TYPES OF INTERMEDIARIES: The firm needs to identify the types of intermediaries available to carry on its channel work. They are of following three types: a) Company Sales Force: Expand the companies direct sales force. Assign sales representatives to territories to contact all prospects in the areas. or to develop the different sales force for different industries. b) Manufacturers Agency: Higher manufacturers agents in different regions or en-use industries to sell the new test equipment. c) Industrial Distribution: Find distributors in different regions and end-use industries, who will buy and audio device. Give them exclusive distribution, adequate margins, product training and promotional support. ii) NUMBER OF INTERMEDIARIES: Companies have to decide the number of intermediaries to use at each channel level. Three strategies are available a) exclusive distribution, b) selective distribution, and c) intensive distribution. a) Exclusive Distribution: Severely limiting the number of intermediaries handling the companys goods, or services. It is used to maintain a great deal of control over the service level and service outputs offered by the revelers. b) Selective Distribution: It involves the use of more than a few but less than all of the intermediaries, who are willing to carry a particular product. Used by the old and new companies seeking to obtain distributors. c) Intensive Distribution: The manufacturer places the goods or services in as many outlets as possible. When the consumer requires a great deal of location convenience. This strategy is generally used for convenience items. ii) TERMS AND RESPONSIBILITY OF CHANNEL MEMBERS: The producer must determine the rights and responsibilities of the participating channel members, making sure that each channel member is treated respectfully and given the opportunity to be profitable. The main elements in the trade relations mix are price policies, conditions of sale territorial rights, and specific services to be performed by each party. a) Price Policy: the producer establish a price list and schedule of discounts that the intermediaries see as equitable and sufficient. b) Distributors territorial Rights: Distributors want to know where and under what terms the producer will enfranchise other distributors. c) Mutual services and responsibilities: must be carefully spelled out, especially in franchised and exclusive-agency channels. 4 Evaluating the Major Channel Alternatives: The producer may identify several channel alternatives and have to determine the one best suited to its needs. Each alternative needs to be evaluated against economic, control and adaptive criteria. i) ECONOMIC CRITERIA: Each channel can produce different level of sales and costs. The first step is to determine whether a company sales force or sales agency will produce more sales. Most marketing managers believe that company sales force will sell more and some believes that sales agency could conceivably sell more than a company sales force. ii) CONTROL CRITERIA: The produce must take into account control issues. Using a sales agency poses a control problem, because it is an independent business firm seeking to maximize its profit. The agents may concentrate on the customers who buy the most, not necessarily of the manufacturers goods. iii) ADAPTIVE CRITERIA: To develop a channel, the channel members must make some degree of commitment to each other for a specified period of time. These commitments invariably lead to a decrease in the producers ability to respond to a changing marketplace. In rapidly changing or uncertain product markets, the producer needs to seek channel structures and policies that maximize control and ability to change marketing strategy swiftly. CHANNEL-MANAGEMENT DECISIONS: After choosing a channel alternative, individual intermediaries must be selected, motivated and evaluated. Channel arrangements must also be modified over time. 1 Selecting Channel Members: 55

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Different producers attract qualified intermediaries differently within the chosen channel. Some producers have no trouble in recruiting intermediaries, a promise of exclusive or selective distribution will draw a sufficient number of applicants and some producers have to work hard to get qualified intermediaries. The producer has to determine the required characteristics of better intermediaries. They will want to evaluate intermediaries on the basis of : a) Number of years in business, b) the other lines carried by them, c) growth and profit records, d) solvency of the intermediary, d) cooperativeness, and e) reputation. Motivating Channel Members: A manufacturer must have to motivate the intermediaries to do their best fob. Following are some ways to motivate them: I) COERCIVE POWER: When the manufacturer threatens to withdraw a resource or terminate a relationship if intermediaries fail to cooperate. This power is quit effective if the intermediaries are highly dependent upon the manufacturer. ii) REWARD POWER: When the manufacturer offers intermediaries an extra benefit for performing specific acts or functions. It produces better results than coercive power but can be overrated. iii) LEGITIMATE POWER: When the manufacturer requires a behavior that is warranted by the contract. The manufacturer feels it has this right and the intermediaries have this obligation. iv) EXPERT POWER: Can be applied when the manufacturer has special knowledge that the intermediaries value. This is an effective form of power, if intermediaries would perform poorly without this help. Once the expertise is palled on to the intermediaries, this basis of power weakens The manufacturer must continue to develop new expertise so that the intermediaries will want to continue cooperating. v) REFERENT POWER: occurs when the manufacturer is so highly respected that intermediaries are proud to be identified with it. Evaluating Channel Members: The producer must periodically evaluate intermediaries performance against such standards as sales-quota attainment, average inventory levels, customer delivery time, treatment of damaged and lost goods, and cooperation in promotional and training programs. Modifying Channel Arrangements: A producer must do more than design a good channel system and set it into motion. The system will require periodic modification to meet new conditions in the marketplace. Modification becomes necessary when existing channel is not working as planned, consumer buying patterns change, the market expands, new competitions arises, innovative distribution channel emerge and the product moves into later stages in the product life cycle. CHANNEL DYNAMICS: Distribution channels do not stand still. New wholesaling and relating institutions emerge, and new channel systems evolve. Recently the market channels have grown as 1) vertical, 2)horizontal, and 3)multi-channel marketing systems. We will see how these systems cooperate, conflict, and compete. Vertical Marketing Systems: It is a challenge for the conventional marketing channels. A conventional marketing channel comprises an independent producer,, wholesaler(s), and retailer(s). Each is a separate business entity seeking to maximize its own profits, even if this goal reduces profit for the system as a whole. A vertical marketing system (VMS), by contrast, comprises the producer, whole seller(s) and retailer(s) acting as a unified system. One channel member owns the others or franchises them or has so much power that they all cooperate. The VMS can be dominated by the producer, the wholesaler, or the retailer. It is a professionally managed and centrally programmed networks, pre-engineered to achieve operating economies and maximum market impact. There are three types of VMS: I) corporate, ii) administered, and 3) contractual. i) CORPORATE VERTICAL MARKETING SYSTEM: Combining successive stages of production and distribution under single ownership. It is favored by companies that desire a high level of control over their channels. ii) ADMINISTERED VERTICAL MARKETING SYSTEM: Coordinate successive stages of production and distribution not through common ownership but through the size and power of one of the members. Manufacturers of a dominant brand are able to secure strong trade cooperation and support from revelers. iii) CONTRACTUAL VERTICAL MARKETING SYSTEM: It is consist of independent firms at different levels of production and distribution integrating their programs on a contractual basis to obtain more economise and sales impact than they could achieve alone. Contractual VMSs are of three types: a) Wholesaler sponsored voluntary chains: Wholesales organize voluntary chains of independent retailers to help them compete with large chain organizations. b) Retailer Cooperatives: Retailer might take the initiative and organize a new business entity to carry on wholesaling and possibly some production. c) Franchise Organizations: A channel member called a franchiser might link several successive stages in the production-distribution process. 56

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Horizontal Marketing Systems: In it two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity. Each company lacks the capital, know-how, production or marketing resources to venture alone, or it is afraid of the risk. The companies might work with each other on a temporary or permanent basis or create a separate company. Multi-channel Marketing System: It occurs when a single firm uses two or more marketing channels to reach one or more customer segments. By adding more channels companies can gain three important benefits. 1) increased market coverage, 2) the channel cost will be lower, and 3) is the more customized selling. (See Lesson Notes for this chapter at page 24)

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Chapter - 19 Managing Retailing, Wholesaling, and Market logistics


RETAILING: Retailing includes all the activities involved in selling goods or services directly to final consumers for their personal, nonbusiness use. A retailer or Retail Store is any business enterprise whose sales volume comes primarily from retailing. Types of Retailers: Store retailing, Non store retailing, and Retail Organizations. STORE RETAILING: The most important retail-store types fall into eight categories specialty stores, department stores, supermarkets, convenience stores, discount stores, off-price retailers, super stores, and catalog showrooms. New store types emerge to meet widely different consumer preferences for service levels and specific services. Retailers in most product categories can position themselves as offering one of four levels of services. 1) Selfservice retailing, 2) Self-selection retailing, 3)Limited-service retailing and 4) Full- service retailing. NONSTORE RETAILING: It is growing much faster than store rtailing, Non-store retailing falls into four major categories: 1) direct selling, 2) direct marketing, 3) automatic vending, and 4)buying services. RETAIL ORGANIZATIONS Although many retail stores are independently owned, and increasing number are falling under some form of corporate retailing. Retail organizations achieve many economies of scale. Retailer Marketing Decisions: Retailers have to make marketing decisions about 1) target market, 21) product assortment and procurement, 3) services and store atmosphere, 5) price, 6) promotion and 7) place. TARGET MARKET DECISION: Should the store focus on upscale, midscale, or downscale shoppers? Do they want variety assortment depth, or convenience? PRODUCT - ASSORTMENT AND PROCUREMENT DECISION: The product assortment must match the target ,arlets shopping expectations. SERVICE AND STORE ATMOSPHERE DECISION: Retailer must also decide on the services mix to offer customers. It is a key tool for differentiating one store from another. PRICE DECISION: It is the key positioning factor and must be decided in relation to the target market, the product-and-service-assortment mix, and competition. All retailers would like to charge high markups and achieve high volumes, but usually the two do not go together. PROMOTION DECISION Retailers use a vide range of promotion tools to generate traffic and purchases. They place ads, runs special sales, issue money-saving coupons, etc. Each retailer, must use promotion tools that support and reinforce its image positioning. PLACE DECISION: There are three keys to the success are location, location and location. WHOLESALING: Wholesaling includes all the activities involved in selling goods or services to those who buy for resale or business use. Wholesaling excludes manufacturers and farmers because they are engaged primarily in production, and it excludes retailers. Wholesalers differ from retailers in a number of ways: First: Wholesalers pay less attention to promotion, atmosphere, and location because they are dealing with business customers rather than final consumers,. Second: Wholesale transactions are usually larger than retail transactions, and wholesalers usually cover a large trade area than retailers. Third: the government deals with wholesalers and retailers differently in regard to legal regulations and taxes. Why are whole-salers used ? Manufacturers could by pass them and sell directly to retailers or final consumer. In general , wholesalers are used when they are more efficient in performing one or more of the following functions: Selling and promoting: They provide a sales force who helps the producer to reach many small business customers at a relatively low cost. Buying and assortment building: Wholesalers are able t select items and build the assortments where customers need, thus saving the customers considerable work. Bulk Breaking: He achieve savings for their customers through buying in large carload lots and breaking the bulk into smaller units. Warehousing: He hold inventories, thereby reducing the inventory costs and risks to suppliers and customers. Transportation: They provide quicker delivery to buyers because they are closer to the buyers than the manufacturer. Financing: They finance their customers by granting them credit, and finance their supplier by ordering early and paying their bills on time. Risk Bearing: Wholesaler absorb some risk by taking title and bearing the cost of theft, damage, spoilage, and obsolescence. Market Information: Supply information to the manufacturer and the customers. Management Services and Consultancy They help retailers in improving their operations, training their employees and telling them about layouts and displays. They may also help their supplier by providing training and technical services. 58

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MARKET LOGISTICS: The process of getting goods to customers has traditionally been called physical distribution. Physical distribution starts at the factory. Managers try to choose a set of whorehouses and transportation carriers that will deliver produced goods to final destinations in the desired time and at the lowest total cost. Market Logistics: involves planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customer requirements at a profit. Objectives of Market Logistics: Some companies state their market-logistics objectives as getting the right goods to right places at the right time for the least cost. Unfortunately, this objective provides little practical guidance. Market-Logistics Decisions: There are four major decisions that must be made with regard to market logistics 1) Ordering Process, 2) Warehousing, 3) Inventory, 4) Transportation. ORDERING PROCESS: Market logistics begins with a customer order. It is necessary to shorten the order-toremittance cycle. The longer the cycle takes, the lower the customers satisfaction and the lower the companys profits. WAREHOUSING: Every company has to store its finished goods until they are sold. A storage facility is necessary because production and consumption cycle rarely mach. The storage function helps to smooth discrepancies between desired quantities and timing to the market. The company has to decide the number of stocking locations. The number of stocking locations must strike a balance between customer service levels and distribution cost. INVENTORY: It is a major market logistics which effect the customers satisfaction. TRANSPORTATION: Transportation choices will affect product pricing, on-time delivery performance, and the condition of the goods when they arrive, all of which will affect customer satisfaction

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CHAPTER - 20 Designing and managing integrated marketing communications


DEVELOPING EFFECTIVE COMMUNICATION: There are eight steps in developing an effective total communication and promotion program. The marketing communicator must 1) identify the target audience, 2) determine the communication objectives, 3) design the message, 4) select the communication channels, 5) establish the total promotions results, and 8) manage and coordinate the integrated marketing communication process. Identifying the Target Audience: A marketing communicator must start with a clear target audience in mind, which may be potential buyers of the product, current users, or influencers. The audience could be individuals, groups, particular publics or the general public. The target audience will critically influence the communicators decisions on what to say, how to say it, when to say, where and to whom to say. IMAGE ANALYSIS: Image is the set of beliefs, ideas and impressions that a person holds regarding an object. Peoples attitude and actions toward an object are highly conditioned by that objects image. Determining the Communication Objectives: The marketing communicator must decide on the desired audience response, which may be a purchase, high satisfaction, and favorable word-of-mouth. Here we will discuss the marketers behavior in six buyer-readiness states awareness, knowledge, liking, preference, conviction and purchase. a) Awareness: When most of the audience is aware of the object, the communicators task is to build awareness,. This task can be accomplished with simple messages repeating the products name. b) Knowledge: When the target audience might have products awareness but not much more, the marketer may want its target audience to know about the organization and the product. c) Linking: If the target members know the product, how they feel about it? If they look favorably it is necessary to find out why and then develop a communication compaign to shore up favorable feelings. d) Preference: The target audience might like the product but not prefer it to others. In this case the communicator must try to build consumer preference. The communicator will promote the products quality, value, performance, and other features. The communicator can check on the compaigns success by measuring audience preferences again after the compeign. e) Conviction: A target audience might prefer a particular product but not develop a conviction about buying it. The communicators job is to build conviction among interested customers. that the product is their best choice. f) Purchase: Finally, some members of the target audience might have conviction but not quit get around to making the purchase. They may weight for information or plan to act later. The communicator must lead these consumers to take the final step. Designing the Message: Having defined the desired audience response, the communicator move to developing an effective message. Ideally, the message should gain attention, hold interest, arouse desire and elicit action. Formulating the message will require solving four problems: 1) what to say (message contents), 2) how to say it logically (message structure), c) how to say it symbolically (message format), and who should say it (message source MESSAGE CONTENTS; In determining the best message content, management search for an appeal, theme, idea, or unique selling proposition. This amounts to formulating some kind of benefit, motivation, identification, or reason why the audience should think about or investigate the product. There are three types of appeals rational, emotional, and moral.. i) Rational Appeals: to the audiences self interest. They show that the product will produce the claimed benefits. ii) Emotional Appeals: Attempt to stir up negative or positive emotions that will motivate purchase. iii) Moral Appeals: are directed to the audiences sense of what is right and proper. They are often used to exhort people to support social causes, such as a cleaner environment, better race relations, equal right for women, and aid to the disadvantaged. MESSAGE STRUCTURE: The effectiveness of the message depends upon its structure as well as its contents. Some early experiments supported stating conclusions for the audience rather than allowing the audience to reach its own conclusions. Conclusion drawing might cause negative reactions in the following situation: If the communicator is untrustworthy, If the issue is simple or the audience is intelligent, if the issue is highly personal. MESSAGE FORMAT: The communicator must develop a strong format for the message. If the message is written the communicator has to decide on the headline, copy, and color. If the message is to be carried of the radio, the communicator has to choose words, voice qualities etc. If the message is to be carried on television or in person, then all of the above elements plus body language have to be planned. Presenters have to pay attention to 60

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their facial expression, gestures, dress, posture, and heir style. If the message is carried by the product or its packaging, the communicator has to pay attention to color, texture, scent, size and shape. d) 4 MESSAGE SOURS: Message delivered by attractive or popular sources achieve higher attention and recall. Selecting the Communication Channel: The communicator must select efficient channels of communication to carry the message. In many cases many different channels must be used. Communication channels are of two broad types, 1) personal and non personal Win each are found many sub channels: I) PERSONAL COMMUNICATION CHANNELS: It involves two or more persons communicating directly with each other. They might communicate face to face, person to audience, over the telephone or through the mails. Personal communication channels derive their effectiveness through the opportunities for individualizing the presentation and feedback. II) NONPERSONAL COMMUNICATION CHANNELS: They carry messages without personal contact or interaction. They include media, atmospheres, and events. Media: Consist of print media, broadcast media, electronic media and display media. Most non personal messages come through paid media. 5 Establishing the total Promotional Budget: A most difficult marketing decision. Industries and companies vary considerably in how much they spend on promotion. Their are four common methods used to set a promotion budget a) the affordable method, b)percentage-of-sales method, c)competitive-parity method, and d)objective-and-task method. a) AFFORDABLE METHOD: Setting promotion budget at what company think that it can afford. This method of setting budgets completely ignores the role of promotion as an investment and the immediate impact of promotion on sales volume. It leads to an uncertain annual promotion budget, which makes long-range market communication planning difficult. b) PERCENTAGE-OF-SALES METHOD: any companies set their promotion expenditures at a specified percentage of sales or of the sales price. c) COMPETITIVE-PARITY METHOD: Some companies set their promotion budget to achieve share-of voice parity with their competitors. d) OBJECTIVE-AND-TASK METHOD: In it the marketers develop their promotion budgets by defining their specific objectives, determining the tasks that must be performed to achieve these objectives, and estimating the costs of performing these tasks. The sum of these costs is the proposed promotion budget. 6 Deciding on the Promotion Mix: Companies face the task of distributing the total promotion budget over the five promotional tools i)advertising, ii)sales promotion, iii)public relations and publicity, iv) sales force, and v) direct marketing. I) ADVERTISING: Qualities of advertising are a) Public presentation: A highly public mode of communication. b) Persuasiveness: It is a pervasive medium that permits the seller to repeat a message many times. It also allows the buyer to receive and compare the message of various competitors. c) Amplified expressiveness: Advertising provides opportunities for dramatizing the company and its product throughout the artful use of print, sound, and color. d) Impersonality: Cannot be a compelling as a company sales representative. The audience does not feel obligated to pay attention, or respond. Advertising is able to carry on only a monologue in front of, not a dialogue with the audience. ii) SALES PROMOTION: Although the sales-promotion tools are highly diverse, they all offer three distinctive benefits. Communication: Gain attention and usually provide information that may lead the consumer to the product. Incentive: They incorporate some concession, inducement, or contribution that gives value to the consumer. Invitation: They include a distinct invitation to engage in the transaction now. iii) PUBLIC RELATIONS AND PUBLICITY: The appeal of public relations and publicity is based on their three distinctive qualities: High credibility: News stories and features are more authentic and credible to readers than ads. Ability to catch buyers off guard: Public relations can reach many prospects who prefer to avoid sales people and advertisements. The message gets to the buyers as news rather than as a sales-directed communication. Dramatization: Like advertising, public relations has the potential for dramatizing a company or product. iv) PERSONAL SELLING: is the most cost-effective tool at later stages of the buying process, particularly in building up the customers preference, conviction, and action. It have three distinctive benefits: Personal confrontation: It involve an interactive relationship between two or more persons. Each party is able to observe the others needs and characteristics at close hand and make immediate adjustments. Cultivation: Personal selling permits all kinds of relationship to spring up, ranging from a matter-of-fact selling relationship to a deep personal friendship. Response: It makes the buyer feel under some obligation for having listened to the sales talk. The buyer has a greater need to attend and respond, even if the response is a polite thank you. 61

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v) DIRECT MARKETING: Although their are many forms of direct marketing direct mail, telemarketing, electronic marketing, and so on they all share four distinctive characteristics Direct marketing is: Nonpublic: The message is normally addressed to a specific person. Customized: The message can be customized to appeal to the addressed individual. Up-to-date: A message can be prepared very quickly for delivery to an individual. Interactive The message can be altered depending on the persons response. Factors in setting the promotion Mix: Companies must consider several factors in developing their promotion mix; the type of product market in which they are selling, whether to use a push or pull strategy, how ready consumers are to make a purchase, the products stage in the product life cycle and the companies market rank. 1 TYPE OF PRODUCT KARATE: Promotional tools vary between consumer and business markets. Consumergoods companies spend on sales promotion, advertising personal selling, and public relations in that order. Business-goods companies spend on personal selling, sales promotion,. advertising and public relations in that order. In general personal selling is more heavily used with complex, expensive, and risky goods and in markets with fewer and larger sellers. 2 PUSH VERSUS PULL STRATEGY: A push strategy involves manufacturers making activities (primarily sales force and trade promotion) directed at channel intermediaries. The goal is to induce the intermediaries to order and carry the product and promote it to en users. A pull Strategy: involves marketing activities (primarily advertising and consumer promotion) directed at end users. The purpose is to induce them to ask intermediaries for the product and thus induce the intermediaries to order the product from the manufacturer. 3 BUYER-READINESS STAGE: Promotional tools vary in their cost effectiveness at different stages of buyer readiness. Ad and publicity play the most important roles in the awareness stage, much more important than the roles played by cold calls from sales representatives or by sales promotion. 4 PRODUCT-LIFE-CYCLE STAGE: Promotional tools also vary in their cost effectiveness at different stages of the product life cycle. Different strategies are: In the introduction stage, advertising and publicity have the highest cost effectiveness, followed by personal selling to gain distribution coverage and sales promotion to induce trail. In the growth stage, all the tools can be toned down because demand has its own momentum through word-ofmouth. In the maturity stage, sales promotion, adv., and personal selling all grow more important in that order. In decline stage, sales promotion continues strong, adverting and publicity are reduced and sales people give the product only minimal attention. 5 COMPANY MARKET RANK: Top ranking brands drive more benefits from advertising than sales promotions. Measuring the Promotions Results: After implementing the promotional plan, the communicator must measure its impact on the target audience. This involve asking the target audience whether they recognize or recall the message, how many times they says it, what points they recall, how they felt about the message, and their previous and current attitudes toward the product and company. Managing and Coordinating Integrated Marketing Communications: Many companies still rely primarily on one or two communication tools to achieve their communication aims This practice persists in spite of the disintegration of mass markets into a multitude of mini-markets, each requiring its own communication approach; the proliferation of new types of media; and the growing sophistication of consumers.

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CHAPTER - 21 Managing Advertising, Sales Promotion, and Public Relations


DEVELOPING AND MANAGING AN ADVERTISING PROGRAM: It is the most common tool used by the organizations to direct persuasive communications to target buyers and publics. It may be defined as follows: ADVERTISING is any paid form of nonpersonal presentation and promotion of ideal, goods, or services by an identified sponsor. Organizations handle their advertising in different ways. In small companies, adv. is handled by someone in the sales or marketing department, who works with and advertising agency. A large company will often set up its own advertising department, whose manager reports to the vice president of marketing. In developing and advertising program, marketing managers must always start by identifying the target market and buyer motives, Then they can proceed to make the five major decisions in developing an advertising program, know as the five Ms: Mission: What are the advertising objectives? Money: How much can be spent? Message: What message should be sent? Media: What media should be used? Measurement: How should the results be evaluated? These decisions are further described in the following sections. Setting the Objectives: Prior to setting objectives decisions on the target market, market positioning and marketing mix are to be made. The market positioning and marketing mix strategies define the job that advertising must do in the total marketing program. Advertising objectives can be classified according to whether their aim is to inform persuade, or remind. a) INFORMATIVE ADVERTISING: Carried out heavily in the pioneering stage of a product category, where the objective is to build primary demand. b) PERSUASIVE ADVERTISING: It is important in the competitive stage, where a companys objective is to build selective demand for a particular brand. Most advertising falls into this category. In using comparative advertising, a company should make sure that it can prove its claim of superiority and that it cannot be counterattacked in an area where the other brand is stronger. Comparative advertising works best when it elicits cognitive and affective motivations simultaneously. c) REMINDER ADVERTISING: is highly important with mature products. A related form of advertising is reinforcement advertising which seeks to assure current purchasers that they have made the right choice. Choice of objectives should be based on a thorough analysis of the current marketing situation. Deciding on the Advertising Budget: After setting objectives the company can proceed to establish its advertising budget for each product. The role of advertising is to increase the demand of the product. The company wants to spend the amount required to achieve the sales goal. But how does a company know it is spending the right amount? There are five specific factors to consider when setting the advertising budget: 1. STAGE IN THE PRODUCT LIFE CYCLE: New product typically receive large advertising budgets to build awareness and to gain consumer trial. Established brands usually are supported with lower advertising budgets as a ration to sales. 2. MARKET SHARE AND CONSUMER BIAS: High-market-share brands usually requires less advertising expenditure as a percentage of sales to maintain their share. They builds share by increasing market size requires larger advertising expenditures. 3. COMPETITION AND CLUTTER: In a market with a large number of competitors and high advertising spending, a brand must advertise more heavily to be heard above the noise in the market. Even simple clutter from advertisements not directly competitive to the brand creates a need for heavier advertising. 4. ADVERTISING FREQUENCY: The number of repetitions needed to put across the brands message to consumers has an important impact on the advertising budget. 5. PRODUCT SUBSTITUTABILITY: Brands in accommodate class (e.g. cigarettes, soft drinks) require heavy advertising to establish a differential image. Advertising is also important when a brand can offer unique physical benefits or features. Choosing the Advertising Message: Advertising compaigns differ in their creativity which is more important than the number of dollars spent Only after gaining attention can a commercial help to increase the brands sales. Advertising go through four steps to develop a creative strategy: a) message generation, b) message evaluation and selection, c) message execution, and d) message social responsibility review. MESSAGE GENERATION: In principle the products message major benefits that the brand offers should the be decided as part of developing the product concept. Over time, the marketer might want to change the message without changing the product, especially if consumers are seeking new or different benefits format the product. 63

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Creative people use several methods to generate possible advertising appeals. Some proceed inductively by talking to the consumers, dealers, experts, and competitors. Some creative people user deductive framework for generating advertising message. Buyers are expecting one of the four types of rewards form a product i.e. rational, sensory, social or ego satisfaction. He might visualize (experience) these rewards after intended use, while intended use or in incidental use. Crossing these four types of rewards with three types of experiences generates 12 types of advertising messages. The advertisers can generate a theme for each of the 12 cells as possible messages for the product. b) MESSAGE EVALUATION AND SELECTION: The advertisers needs to evaluate the alternative messages. A good ad normally focuses on one core selling proposition. The message should be rated on desirability, exclusiveness, and believability. The message must first say something desirable or interesting about the product. The message must also say something exclusive or distinctive that does not apply to every brand in the product category. Finally, the message must be believable or provable. c) MESSAGE EXECUTION: The messages impact depends not only upon what is said but also on how it is said. Some ads aim for rational positioning and others for emotional positioning. Creative people must also find a style, tone, words, and format of executing message. All of these elements must deliver a cohesive image and message. Style : A message can be presented in any of the following different styles, or combinations of them. Slice of Life: Shows one or more persons using the product in a normal setting. Life style: Emphasize how a product fits in with a lifestyle. Fantasy: Creates a fantasy around the product or its use. Mood or image: Evokes a mood or image around the product, such as beauty, love or serenity. No claim is made about the product except through suggestion. Musical: Uses background music or shows one or more persons or cartoon characters singing a song involving the product. Personality symbol: Creates a character that personifies the product. The character might be animated (Mr. clean) or real (Marlboro man). Technical expertise: Shows the companys expertise, experience, and pride in making the product. Scientific Evidence: Presents survey or scientific evidence that the brand is preferred over or outperforms other brands. Testimonial evidence: This features a highly credible, likable, or expert source endorsing the product. Tone: The Communicator must also choose an appropriate tone for the ad. Some companies uses positive tone and almost always avoid humors so as not to take attention away from the message. In contrast, super stores, in the adds for staples office-supply, equally mundane products, focus on a hurorous situation rather than on the products themselves. Other companies use emotions to set the tone. Words: Memorable and attention-getting works must be found. The following themes listed on the left would have had much less impact without the creative phrasing on the right. Theme Creative Copy 7-up is not a cola The Un-Cola Let us drive you in our bus instead of driving your car. Take the bus an leave the driving to us. Shop by turning the pages of the telephone directory. Let your fingers do the walking. We dont rent as many cars, so we have to do We try harder. more for our customers. Format: The elements such as ad six, color, and illustration will make a difference in an ads impact as well as its cost. A minor rearrangement of mechanical elements within the ad can improve its attention-getting power. Larger-size ads gain more attention, though not necessarily by as much as their difference in cost. d) SOCIAL-RESPONSIBILITY REVIEW: Advertisers and their agencies must make sure that their creative advertising doesnt overstep social and legal norms. Most marketers work hard to communicate openly and honestly with consumers. Still, abuses may occur, and public policy makers have developed a substantial body of laws and regulations to govern advertising. 4 Deciding on the Media: The next task is to choose advertising media to carry it. The selection of media depends upon desired reach, frequency, and impact; choosing among major media types; selecting specific media vehicles; deciding on media timing; and deciding on geographical media allocation. DECIDING ON REACH, FREQUENCY, AND IMPACT: Media selection involves finding the most cost-effective media top deliver the desired number of exposures to the target audience. Exposures mean the seeking a certain response from the target audience. CHOOSING AMONG MAJOR MEDIA TYPES: The media planner has to know the capacity of the major media types to deliver reach, frequency and impact. Media planner make their choice among these media categories by considering several variables, the most important of which are the following: Target-audience media habits: for example, radio and television are the most effective media for reaching teenagers. 64

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Product: Womens dresses are best shown in color magazines, and Polaroid cameras are best demonstrated on television. Message A message announcing a major sale tomorrow will require radio or newspaper. A message containing a great deal of technical data might require specialized magazines or mailings. Cost: Television is very expensive, while newspaper advertising is relatively inexpensive. What counts is the cost-per-thousand exposures rather than the total cost. SELECTING SPECIFIC MEDIA VEHICLES: The media planner must next search for the most cost-effective media vehicles within each chosen media type. For example, the advertiser who decides to buy 30 seconds of advertising on network television can pay different amounts in relation to program timings, i.e. heavy amount during the famous programs and lesser amount at other times. The media planner relies on media-measurement services that provide estimates of audience size, composition, and media cost. Audience size has several possible measures. DECIDING ON MEDIA TIMING: In deciding the types of media to use the advertiser faces macro scheduling problem and a micro scheduling problem. Macro scheduling Problem: It calls for deciding how to schedule the advertising in relation to seasonal and business-cycle trends. Micro scheduling Problem: It calls for allocating advertising expenditures within a short period to obtain the maximum impact. DECIDING ON GEOGRAPHICAL MEDIA ALLOCATION: A company has to decide how to allocate its advertising budget over space as well as over time. The company makes national buys when it places ads on national TV networks or in nationally circulated magazines. Evaluating Advertising Effectiveness: Good planning and control of advertising depends critically on measures of advertising effectiveness. yet the amount of fundamental research on ad effectiveness is appallingly small. Most advertisers try to measure the communication effect of an ad that is, its potential effect on awareness, knowledge, or preference. They would also like to measure the Ads sales effect but often feel it is too difficult to measure. Yet both can be searched. COMMUNICATION-EFFECT RESEARCH: seeks to determine whether an ad is communicating effectively. Also called copy testing, it can be done before an ad is put into media and after it is printed or broadcast. There are three major methods of advertising pretesting. The direct rating method asks consumer to rate alternative ads. These ratings are used to evaluate an ads attention, read through, cognitive, affective, and behavior strengths. Portfolio test: ask consumers to view and listen to a portfolio of advertisements, taking as much time as they need. consumers are then asked to recall all the ads and their content, aided or unaided by the interviewer. Their recall level indicates and ads ability to stand out and to have its message understood and remembered. Laboratory Tests: use equipment to measure consumers physiological reactions to an ad. These tests measure an ads attention-getting power but re reveal nothing about its impact on beliefs, attitudes, or intentions. SALES-EFFECT RESEARCH: Communication-effect advertising research helps advertisers assess advertisings communication effects but reveals little about its sales impact. What sales are generated by an ad that increases brand awareness by 20% and brand preference by 10%. Advertisings sales effect is generally harder to measure that its communication effect. Sales are influenced by many factors besides advertising, such as the products features, price, availability and competitors actions. The fewer or more controllable these others factors are, the easier it is to measure advertisings effect on sales. Advertising Effectiveness: A summary of Current Research: Although companies need to do more research into ad effectiveness, professional researchers have drawn some general conclusions that are useful to marketers. 1. Impact of Ad on Brand Switching: Advertising appears effective in increasing the volume purchased by loyal buyers but less effective in winning new buyers. Advertising appears to be unlikely to have some cumulative effect that leads to loyalty; rather, features, displays, and especially price have a stronger impact on response that dose advertising. 2. The effect of surroundings: Ads may be more effective when their message is congruent with their surroundings. 3. The effect of positive versus negative messages: Consumers may sometimes respond more to negative messages than to positive messages. 4. Advertising versus sales promotions: In a recent study a market-research firm studying the effects of advertising found that 70% of the ad compaigns boosted sales immediately, but that the effect was strong only in 30% of the cases. Only 46% of the compaigns appeared to result in a long-term sales boost. SALES PROMOTION: It is a key ingredient in marketing compaigns. Sales Promotion consist of a diverse collection of incentive tools, mostly short term, designed to stimulate quicker and greater purchase of particular products/services by consumers or the trade. 65

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Advertising offers a reason to buy while sales promotion offers an incentive to buy. Sales promotion includes tools for consumer promotion (e.g. samples, coupons, cash refund offers prices off, prizes, patronage rewards, free trials, warranties, tie-in promotions, cross promotions, point-of-purchase displays and demonstrations etc.) trade promotion (prices off, advertising and display allowances, and free goods) and business and sales force promotion (trade shows and conventions, contests for sales reps, and specialty advertising.) Purpose of Sales Promotion: Sales promotion tools vary in their specific objectives a free sample stimulates consumer trial, while a free management-advisory service aims at cementing a long-term relationship with a retailer. Today, many marketing managers firs estimate what they need to spend in trade promotion, then what they need to spend in consumer promotion Whatever is left they will budget for advertising. There is a danger Sales promotions yield faster and more measurable responses in sales than advertising does. Sales promotions do not tend to yield new, long-term buyers in mature markets because they attract mainly del-prone consumers who switch among brands as deal become available. Loyal brand buyers tend not to change their buying patterns as a result of competitive promotion. advertising appears to be capable of deepening brand loyalty. Major Decisions in Sales Promotion: In using sales promotion, a company must establish its objectives, select the tools, develop the program protest the program, implement and control it and evaluate the results. 1 ESTABLISHING THE SALES-PROMOTION OBJECTIVES: Sales promotion objectives are derived from broader promotion objectives, which are derived from more basic marketing objectives developed for the product. The specific objectives set for sales promotion vary with the target market. For consumer, objects includes, encouraging purchase of larger-size units. building trail among nonusers, attracting Switchers away from competitors brands. For retailers objectives include persuading retailers to carry new items and higher levels of inventory, encouraging off-season buying , encouraging stocking of related items, offsetting competitive promotions, building brand loyalty, and gaining entry into new retail outlets. For the sales force objectives include: encouraging support of a new product or model encouraging more prospecting, and stimulating off-season sales. 2 SELECTING THE SALES-PROMOTION TOOLS: Many sales-promotion tools are available. The promotion planner should take into account the type of market, sales promotion objectives, competitive conditions, and each tools cost effectiveness. Consumer-Promotion Tools: The main consumer promotion tools are I) samples, ii) coupons(certificates to provide buyer some gift who fill and mail the coupon), iii) Cash refund (by the manufacturer to consumer who proves that he has purchased the product), iv) Price packs: Offering by jointing many units in one place at discounted price v) Premium: (Gift) Providing goods at reasonably low price as an incentive to purchase a particular product. vi) Prizes: offers of the chance to win cash, trips, or merchandise as a result of purchasing something. vii) Patronage Aware: Values in cash or other form that are proportional to ones patronage of a certain vendor or group of vendors. viii) Free Trails: Invite prospective purchasers to try the product without cost in the hope that they will buy the product ix) Product Warranties: Explicit or implicit promises by sellers that the product will prefer as specified or that the seller will fix it or refund the customers money during a specified period. x) Tie-in Promotions: Two or more companies that team up or coupons, refunds and contests to increase their pulling power. xi) Cross promotion: Involve using one hand to advertise another noncompeting brand. xii) Point-of-Purchase Displays and Demonstrations. Trade Promotion Tools: Persuading the retailer or wholesaler to carry the brand, more than the normal amount. Its major tools are: I) Price off: A straight discount off the list price on each call purchased during a stated time period. ii) Allowance: An amount offered in return for the retailers agreeing to feature the manufacturers products in some way. 66

Notes on Marketing Management

Prepared by Muhammad Akhlaq Khan

iii) Free goods: Offers of extra causes of merchandise to intermediaries who buy a certain quantity or who feature a certain flavor or size. Business and Sales Force Promotion Tools: These tools are used to gather business leads impress and reward customers and motivate the sales force to greater effort. Its major tools are I) Trade Shows and Conventions: Organize annual trade shows. ii) Sales Contests: a contest involving the sales force or dealer, aimed at including them to increase their sales results over a stated period. iii) Specialty Advertising: consist of useful low-cost items bearing the combines name and address and sometimes advertising message. Sales people give these items to prospects. 3 PRESENTING THE SALES-PROMOTION PROGRAM: Al 4 IMPLEMENTING AND CONTROLLING THE SALES PROMOTION PROGRAM: 5 EVALUATING THE RESULTS: PUBLIC RELATIONS: A public is any group that has an actual or potential interest in or impact on a companys ability to achieve its objectives. Public Relations (PR) involves a variety of programs designed to promote and or protect a companys image or its individual products. Public relations departments perform the following five activities, not all of which support marketing objectives. 1. Press relations: Presenting news and information about organization in the most positive light. 2. Product publicity: Sponsoring various efforts to publicize specific products. 3. Corporate Communication: Promoting understanding of the organization with internal and external communications. 4. Lobbying: Dealing with legislators and government officials to promote or defeat legislation and regulation. 5. Counseling: Advising management about public issues and company positions and image. This includes advising in the event of a product mishap when the public confidence in a product is shaken.

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