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Purbanchal University -‐ MCA III
Marketing Management
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Unit 1: Introduction MEANING OF MARKETING AMA definition of Marketing According to AMA (1985) "Marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational objectives." •
This is a management-‐oriented definition of marketing.
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It recognizes marketing as a process.
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The process involves planning and implementation of the marketing activities that are undertaken to create exchanges that meet individual and organizational goals.
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William J. Stanton’s Definition "Marketing is a total system of business activities designed to plan, price, promote, and distribute want satisfying products to target markets to achieve organizational objectives." Stanton has emphasized on the following two major aspects of marketing: •
The entire system of business activities should be market or customer-‐oriented. Customer wants must be recognized and satisfied effectively.
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Marketing should start with an idea about a want-‐satisfying product and should not end until the customers' wants are completely satisfied, which may be sometime after the exchange is made.
William M. Pride and O.C. Ferell’s Definition "Marketing consists of individual and organizational activities that facilitate and expedite satisfying exchange relationships in a dynamic environment through the creation, distribution, promotion and pricing of goods, services and ideas." This definition provides a broader coverage of the scope of marketing. The major issues focused in this definition are: •
Marketing consists of a diverse group of activities performed at individual and organizational levels.
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Marketing is executed through a mutually satisfying exchange process. •
Marketing has to perform in a dynamic environment.
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Marketing is concerned with the creation, distribution, promotion and pricing of goods, services, and ideas.
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Philip Kotler’s Definition “Marketing is a social process by which individuals and groups obtain what they need and want through creating and exchanging products and value with others". This definition of marketing focuses on the following issues: •
Marketing is a social process where various individuals and groups (organizations) participate.
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Individuals and groups satisfy their needs and wants through the process of marketing.
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Marketing creates satisfying products and values.
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The products and values are exchanged for mutual benefits. MARKETING TASKS Where can we use Marketing?
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Business Organizations
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Non-‐profit Organizations
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Politics
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Religious Organizations
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Homes
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Personal Life What can we sell through Marketing?
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Goods
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Services
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Ideas
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Experiences
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Events
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Places
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Properties
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Organizations
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Information
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Persons
BUSINESS ORIENTATIONS OR MARKETING CONCEPTS Production concept •
Start: Factory
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Focus: Product
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Means: Production Efficiency
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Offer to Buyers: Low priced products
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Objective: Profit through mass production and merchandising
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Product concept •
Start: Factory
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Focus: Product
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Means: Product quality and performance
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Offer to Buyers: Product quality and performance guarantee
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Objective: Profit through long-‐lasting and high performance products
Selling concept •
Start: Factory
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Focus: Product
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Means: Aggressive selling and promotion
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Offer to Customers: Promises of product superiority and extra benefits
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Objective: Profit through high sales volume
Marketing concept •
Start: Market
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Focus: Customers' needs
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Means: Integrated marketing
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Offer to Customer: Customer satisfaction
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End: Profit through customer satisfaction
Customer concept •
Start: Individual Customer
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Focus: Customer’s needs and values
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Means: Customized marketing
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Offer to Customers: Customer life time value
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Objective: Profit through high share on customer’s expenditure and loyalty
Societal marketing concept •
Start: Market
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Focus: Customers' needs
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Means: Integrated marketing •
Offer to Society: Consumer welfare
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Objective: Profit through social welfare
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DYNAMISM IN BUSINESS AND MARKETING CUSTOMERS •
Expect higher quality
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Expect better services
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Perceive fewer product differences
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Show less brand loyalty
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Access better product information on the Internet
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Shop more intelligently
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Show greater price sensitivity
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Search for value MANUFACTURERS
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Face intense competition from domestic and foreign sources
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Increasing promotion costs and lowering profit margins
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Facing competition from large and powerful retailers who sell their own brands RETAILERS
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Small store-‐based retailers are being replaced by large retail outlets such as department stores, supermarkets, mega stores etc.
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Direct marketing companies are taking away a large share of the store-‐based retailers. HOW COMPANIES ARE RESPONDING TO THE CHALLENGES
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Reengineering: functional departments to process management through a multidisciplinary team.
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Outsourcing: Buying more goods and services from outside. Many moving towards virtual companies.
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E-‐commerce: Marketing through the Internet.
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Benchmarking: From self-‐improvement to adopt “best practices” of “world class performers”.
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Strategic Alliances: Forming networks of partner firms – sharing of assets and competencies.
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Partner Suppliers: Use reliable suppliers for longer duration.
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Market centered: From organizing by products to organizing by markets.
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Global and Local: Working in both local markets and global markets – known as “glocal”.
Decentralized: From top-‐down management to encouraging initiative and innovativeness at the local level.
HOW MARKETERS ARE RESPONDING TO THE CHALLENGES •
Customer relationship marketing: transaction marketing to relationship marketing.
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Customer lifetime value: From making profits from each sale to making long-‐term profits through customer retention and loyalty.
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Customer share: From market share to share on a customer’s purchase.
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Target marketing: From selling to everyone to selling to a well-‐defined target market.
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Customization: Individualizing and customizing offers and messages.
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Customer databases: From sales data to data and information about individual customer’s purchases, preferences, and demographics.
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Integrated marketing communications: Blending several communication tools to project a “brand image”.
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Marketing channels as partners: Treating channel members more as partners than customers.
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Internal Marketing: Every employee is a marketer.
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Model-‐based decision making: From intuition-‐based decision-‐making to decision-‐making based on hard data (facts) and information about the marketplace.
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Unit 2: MARKETING INFORMATION SYSTEM Meaning Marketing Information System (MkIS) is the mechanism for providing decision-‐making information and data to the marketing decision maker. MkIS provides a continuous flow of information about prices, advertising, sales, competition and distribution. It is the major tool for scanning and monitoring the external environmental forces. MkIS collects vital information from various sources, analyzes and synthesizes them, and disseminate to the marketing decision makers. The system provides valuable information inputs to the organization to effectively implement the marketing concept. Features of Marketing Information System The following features can be identified in the system: •
MkIS is made up of people
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MkIS is equipment based
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MkIS is a continuous process
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MkIS provides valuable information
COMPONENTS OF MARKETING INFORMATION SYSTEM •
Many large organizations maintain their own full-‐fledged information system.
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Medium sized organizations maintain partial system and partially purchase information from the market.
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Small organizations generally do not maintain their own MkIS and prefer to buy information from outside agencies.
The source of information lies in the market, marketing environment, and competitors. •
There is an information assessment activity that makes an appraisal on the type, quantity and quality of information needed by the marketing managers.
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The three major methods of information development -‐ internal records, marketing intelligence and marketing research interact with each other to collect the needed information.
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The information generated by the three tools are analyzed, synthesized and stored in the decision support system. The information is disseminated to the marketing managers for decision making.
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There are four major components of the MKIS: the internal records system, marketing intelligence system, marketing research system and decision support system.
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INTERNAL RECORDS SYSTEM Internal records are vital and easily accessible source of information. The records are gathered from sources located within the organization. The major internal records used by the MkIS are: •
Customers' orders and complaints
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Invoices
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Sales reports
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Marketing research reports
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Other miscellaneous records: financial statements, audit reports and inventory level records. Such records are stored in the MkIS for cost and profit analysis for a market, brand or customer group.
MARKETING INTELLIGENCE SYSTEM OR ENVIRONMENTAL MONITORING AND SCANNING Marketing intelligence is the set of procedures and sources used to obtain everyday information about pertinent developments in the marketplace and marketing environment. Marketing intelligence gathering, also known as environment scanning, is executed through informal as well as formal methods. Informal or casual environment scanning methods •
Reading newspapers; magazines and trade journals to collect new developments in the marketing environment, particularly in politics, economy and technology.
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Talking to customers, suppliers, channel members and other outside people to collect information on customer preferences, attitude toward the organization's and the competitors’ products and competitors' strategies.
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Talking to functional managers within the organization, particularly production, research and development and finance managers, to collect their viewpoints on the organization's problems and prospects.
Formal environment scanning •
Sales personnel: The sales staff, particularly working close to the market, are trained and motivated to spot and report back any new developments in the market place.
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Marketing Channels: The marketing intermediaries (dealers, distributors, wholesalers and retailers) know in advance about the new product/brand launching, price changes and promotion schemes.
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Job Openings: A firm may advertise job openings in which many of the staffs working in competitive organizations also apply for the job. The job openings may be actual or fictitious. The MkIS executive can collect vital intelligence information from the candidates about their present or past organizations during the interview.
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Private Intelligence Agencies: Private agencies collect and sell commercial intelligence information to interested parties.
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Marketing Information Center: Internal Marketing Information Center secretly places its staff in competitors' organization. The identity of such staffs, popularly known as commercial spies, is kept as top-‐secret. The commercial spies collect vital inside information about competitors' policy, strategy and actions and report back to the organization.
MARKETING RESEARCH SYSTEM Marketing Research involves specific inquiries into specific marketing problems. •
It is problem oriented and based on systematic and careful planning and implementation.
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Scientific methods are used for gathering and analysis of information to achieve objectivity in the
research. •
Marketing research is an applied research that attempts to use the existing knowledge to solve the specific marketing problems faced by the firm.
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It is a very short-‐term research often completed within a month.
DECISION SUPPORT SYSTEM The decision support system (DSS) does not collect any information. The system stores, analyzes and synthesizes the collected and stored information. This system has three components: •
Data bank: It is the storehouse for all the collected information from internal reports, marketing intelligence and marketing research.
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Statistical bank: It consists of various statistical analysis tools that help to classify and simplify the raw data for effective analysis.
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Model bank: It consists of various models that facilitate decision-‐making based on the analyzed and synthesized data.
PROCESS AND AREAS OF MARKETING RESEARCH Process of Marketing Research Stage 1: Identification and Definition of the Problem Definition of the problem is the first step towards finding a solution. Definition of the problem involves two major activities:
a. Identification of the problem The first sign of a problem is usually a departure from normal function such as failures in attaining targets and objectives.
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b. Formulation of the problem This stage involves refining the problem and describing the relevant situation and environment of the problem. In this stage, the researcher formulates the research objectives and prepares statement of hypotheses. Stage 2: Designing the Research Plan This is the most crucial stage in the research process. Therefore, the researcher needs to undergo maximum consultation in order to arrive at a foolproof research plan. This stage requires the researcher to formulate the research design for the marketing research project. Here the researcher has to determine answers to the following issues: •
Exploratory vs. conclusive research design
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Interviewing methods – personal, group or in-‐depth interviews.
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Large-‐scale vs. small-‐scale survey
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Selection of sample: probability (random) or non probability (convenience, systematic, and judgmental sampling).
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Preparing data-‐gathering instrument: Questionnaires and Checklists
Stage 3: Collection and Analysis of Data This stage requires the careful monitoring, supervision and management of the people involved in the data collection process. In this stage the following activities are involved: •
editing the questionnaires
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coding
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entering into the computer
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tabulating the data for analysis
Stage 4: Reporting the Findings The end product of a marketing research project is the research report. The report contains: •
The purpose of the research
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Research methodology followed
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The major findings of the research
Marketing research report should contain three parts: •
a brief executive summary
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major findings
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tabulations
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Areas of Marketing Research Product Research •
Developing product specifications: Developing product specifications is the most primary form of product research. In marketing, it is necessary to determine the set of optimum product attributes or the best combination of attributes. The optimum product attributes form the basis on which future products are developed and designed for the market segments(s).
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Concept development and testing: Product idea is the most critical element in a product; consumers can easily react to product concept without seeing the physical product itself. The research is conducted on the belief that people usually are attracted by the idea behind the product before they become interested in the physical product.
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Product tests: Product test is one of the most basic and most widely used marketing researches. Product test is very important in the area of frequently purchased consumer products such as food, beauty aids, and household products.
The researcher tests the physical products, mostly prototypes, in actual use conditions. The prototypes are manufactured in small number in the laboratory. •
Test marketing research: Test marketing attempts to test on a limited scale the commercial viability of the new or modified product and the marketing mix designed for the product in the context of a market segment. There are two purposes of test marketing research: (1) to provide a reasonable estimate of sales and market share for the product and (2) to correct the marketing mix for the product.
Advertising Research Advertising research is the other most frequently conducted marketing research. It includes the following researches: •
Research for setting advertising objectives (brand recognition, trial purchase, influence purchases at the sight of buying, value addition to the product, help personal selling and sales promotion and remind the buyers about the brand or company).
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Copy testing: The effectiveness of an advertisement is evaluated at three phases: (a) a pre-‐test at the time of the finalization of the layout design, (b) a tracking study during the advertisement campaign and (c) a post-‐test after the campaign.
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Sales Research Sales research involves the identification and measurement of all those variables that individually or in combination affect the sales. It includes: •
Sales analysis: It is an analysis of the actual sales results. Sales analysis is based on the analysis of sales invoices and executed in terms of sales territory, product, customer and size of order.
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Distribution analysis: It is performed to evaluate the efficiency of the distribution channels and the cost of distribution.
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Sales force performance analysis: It involves an evaluation of the performance of the sales personnel working for the company in the field.
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Sales or market potential analysis: It is performed to evaluate the potentials for each geographic market segment.
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Sales forecasting is a necessary part of the marketing decision. Subjective or judgmental methods include jury of executive opinion and sales force estimates. Objective methods include, trend analysis, regression analysis and survey
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Unit 3: MARKET SEGMENTATION AND TARGETING Meaning A market consists of buyers who differ in terms of their needs, buying power, buying motives, buying attitudes and locations. Market segmentation recognizes this reality and divides the total market into distinct group of buyers having different needs and characteristics. William J. Stanton defines market segmentation "as a process of dividing the total market for a good or service into several smaller groups, such that the members of each group are similar with respect to the factors that influence demand".1 Philip Kotler defines market segmentation as "dividing a market into distinct groups of buyers with different needs, characteristics, or behavior who might require separate products or marketing mixes".2 There are several approaches in dealing with the market. These approaches are mass marketing, product variety marketing, individual marketing and target marketing. Mass marketing Mass marketing is adopted under production or selling concepts. It follows an undifferentiated approach in dealing with the market. Under mass marketing, the organization views the entire market as homogeneous in need and characteristics and adopts a policy of market aggregation. Under market aggregation, the same marketing mix is applied in the entire market. This approach is economical as it lowers the marketing costs of production, distribution and promotion. Many firms selling undifferentiated products such as food and staple items follow this approach. Product-‐variety marketing An organization may adopt a product variety marketing approach, under which, two or more product varieties may be offered to the market so that the buyers may have product options. This approach also does not recognize the fact that buyers have different needs and characteristics. The product variety is offered on the assumption that a buyer likes changes. Individual or customized marketing Under individual marketing, each individual is recognized to have distinct needs and characteristics. The individual is approached with a separate marketing mix. It is the ultimate form of segmentation and is also known as customized marketing. The tailored made dress, the cobbler designed shoes and gold-‐smith designed jewelry are examples of customized marketing where the service provider fits the product-‐ service offer to the individual needs of the customer. 1
. Op. Cit., Stanton, et.al. , p. 123 . Op. Cit. , Kotler, p. 249.
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Target marketing Under target marketing, customer groups or market segments having similar needs and characteristics are identified and appropriate marketing mixes are developed for each market segment. Here, the organization does not try to meet the specific needs of individual buyers; rather its efforts are concentrated on meeting the general needs of the customer groups. Target marketing is the most popular form of segmentation. SEGMENTATION VARIABLES FOR CONSUMER MARKETS Consumer markets are segmented on the bases of four major variables -‐ geographic, demographic, psychographic, and behavioral. Geographic or Location Segmentation Geographic segmentation is the most primary form of market segmentation. The following geographical variables can be used for market segmentation purposes: •
Area: Most organizations decide the geographic area of their operation in terms of countries, districts and cities. The purpose of area segmentation is to determine the location of consumers in a particular geographical area. For instance, the Nepal market may be segmented on several geographical area bases, such as the five developmental regions, 14 zones and 75 districts. The area segmentation is not complex and can be implemented by any organization with an estimate of the demand for a particular product in a specific area.
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Topography and climate: Topography and climate, to a large extent, affect the product needs of the market as well as the variation in the packaging and distribution systems. An organization selling in the Nepalese market may segment the total market into Tarai, mid-‐mountain and the Himalayan markets.
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Population density: The population density determines the size of demand for the product. When population density variable is used the market is normally segmented into urban, sub-‐urban and rural markets. In the Nepalese context, these sub-‐markets differ sufficiently in terms of product needs, affordability of buyers, promotion sensitivity and distribution networks.
Demographic Segmentation Demographic variables commonly used for segmentation of a consumer market are age, gender, income and social class, family size and family life cycle. Occupation, education, ethnicity and religion are also used in some cases.
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Age: Most of the consumer's product needs differ in terms of their age. Age segmentation is implemented in many of the consumer items, such as clothing, shoes, cosmetics, entertainment etc. Infants' product needs vary that from young children. The teenagers demand different products from adult consumers. The old people's market has unique product demands. Due to the differences in product needs of consumers of different age groups, marketing organizations extensively use age variable for segmenting the consumer market.
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Gender (sex): The male market is distinctively different from the female market in terms of product needs, buying motives and considerations. Gender is a commonly used segmentation variable in the consumer market. It is frequently used in marketing of clothes, cosmetics, shoes, magazines etc. Organizations are using gender segmentation to market such products as cars and two-‐wheelers.
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Income and social-‐class: Income and social class influence consumers' need, product use, usage rate and buying behavior. Consumers' income is directly related to their ability to buy and has to be considered in offering products to different income group consumers. Social class affects consumers' aspirations for certain life-‐style, to be achieved by consumption of products coherent with the desired life-‐style.
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Family size and family life cycle: Family size is used as a segmentation variable as it affects the size of the packages to be sold in the market. Size of the family affects the product's usage rate of grocery and other household items, such as furniture and home appliances.
The family life cycle variable is used to define the stage of the family in which the family size changes with time. The family life cycle variables have been designed in the context of the western social system where young people live away from the family to pursue studies and career. The young people marry and raise their family. Once their children reach mid-‐teens they leave their family to pursue studies and career. This concept although western is gradually entering the urban social structure of Asia including Nepal. The family life cycle variable classifies the consumer market into the following eight groups: Young market Single unmarried market -‐ a bachelor living alone away from his/her family. Married couple -‐ young married couple without children. Full nest 1 -‐ Married couple with one child under six years old Full nest 2 -‐ Married couple with two or more children Middle-‐aged market Full nest 3 -‐ Married couple with two or more grown up children
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Empty nest 1 -‐ Married couple with no children living with the couple Elderly market Empty nest 2 -‐ Retired married couple Single elderly male or female living alone •
Occupation: The consumer market can be segmented on the basis of occupation of consumers. Occupational segmentation is used to market products directly related to consumers' occupation, such as tools, books, magazines etc. Such segmentation may categorize the market into professionals, students, homemakers, farmers etc.
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Education: Levels of educational achievements of the consumers may be used to segment the market for products such as books and magazines.
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Ethnicity and religion: Ethnicity and religion are used to segment the consumer market for those products that reflect variation among people of different ethnicity and religion.
Psychographic Segmentation Psychographic segmentation uses the individual psychological factors, such as buying motive, personality and life-‐style to divide the consumer market. Psychographic segmentation is more difficult to achieve than demographic segmentation. Measurement of motivation, personality and life-‐style requires deep probing into the consumers' psyche. •
Buying motives: The buying motives are consumers' reasons for buying a product. Consumers show significant differences in their choice of products that is influenced by their buying motives. Consumer may have rational motives as economy, durability, efficiency and convenience for buying the product. Their choice may be influenced by emotional motives, such as love, affection, gratitude and desire to belong to a group. Their choice may be affected by the ego-‐related motives, such as status and image. Marketers can segment the consumer market on the basis of the underlying motivation force(s) that drives the consumer to buy the product.
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Personality: Personality variable is frequently used in segmenting the consumer market for products, such as garments, cosmetics, cigarettes, alcoholic beverages, automobiles etc. Marketers often develop personality image on their brands and try to market the brands to consumers having corresponding personality characteristics. Consumer groups may be identified in clusters or segments having different personality traits, such as independent, impulsive, masculine, feminine, self-‐confident, introvert, extrovert etc.
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Life-‐style: Life-‐style is a new segmentation variable. When marketers identified significant variation in the life-‐style of consumers in the same personality groups they began to segment the
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consumer market in terms of life-‐style. Life-‐style refers to the distinctive mode of orientation an individual has toward consumption, work and play. Life styles of consumers are analyzed on the bases of three factors:
Activities: How the consumers spend their time? Interests: What are the major interest areas of consumers? What are their hobbies? How they spend their free time?
Opinions: Their belief about themselves and broad social issues.
Life style clusters are generated through consumer research. The research analyses the consumers' activities, interests and opinions and consumer groups are identified with common life-‐style characteristics. Once life-‐style clusters are identified, they are profiled and given a life-‐ style name, such as quiet family person, the traditionalist, the play boy, the discontented etc. The life-‐style name for one product differs from those selected for other products. Behavioral Segmentation The consumer market can also be segmented on the basis of purchase behavior of consumer toward the product. Behavioral segmentation variables commonly used are product benefits desired, purchase occasions, user status, loyalty status, usage rate and marketing factor sensitivity. The behavioral segmentation is based on the research of consumers on the following aspects:
i. Awareness and knowledge of the product or brand
ii. Attitude toward the product or brand
iii. Use of the product or brand
iv. Response to the marketing input
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Benefits: The most important form of behavioral variable for segmentation of the consumer market involves classifying buyers according to the benefits they seek from the product. For example, the tooth-‐paste market can be segmented into several benefit segments, such as (i) pleasant flavor, (ii) avoid tooth decay, (iii) brighter teeth, (iv) stronger gum and (v) economy.
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Occasions: Consumers show considerable difference in terms of purchase occasion in buying a product. Occasions in which buyers develop product needs, purchase and use a product are another behavioral variable used for segmentation. For example, an airline company may segment its passengers traveling for either of the two occasions: business and vacation.
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User status: Consumers generally show difference in terms of frequency of purchase of a product for which the user status segmentation is used. It classifies the market in terms of (i) regular user, (ii) first time user, (iii) potential user, (iv) ex-‐user and (v) non-‐user.
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Usage rate: Since consumers show difference in terms of the purchase and consumption quantity of a product, marketers use the usage rate segmentation. Under usage rate segmentation the market is classified into (i) heavy user, (ii) medium user and (iii) light user.
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Loyalty status: Consumer loyalty pattern toward a brand or store is also a method of segmenting the market. According to loyalty segmentation the consumers are classified into the following four categories: (i) Full or undivided loyalty: Consumers who buy one brand all the time. If the consumer buys brand A in all purchase occasion the loyalty pattern will take the shape of: A A A A A A
(ii) Divided loyalty: Consumers who are loyal to two brands and
show
the
loyalty
pattern of A B A B A B (iii) Shifting loyalty: Consumers who shift their loyalty from one brand to the other show the loyalty pattern of A A A B B B (iv) No loyalty: Consumers who constantly switch from one brand to the other show the loyalty pattern of A B C D E F •
Marketing factor sensitivity: Consumers show different degree of response to various marketing inputs directed at them. According to marketing factor sensitivity segmentation the market is divided into (i) price sensitive, (ii) service sensitive and (iii) promotion sensitive.
SEGMENTATION VARIABLES FOR INDUSTRIAL (BUSINESS) MARKETS The industrial or business market is very large in size. It includes industrial, institutional, and reseller markets. Since the buying activity in this market is mostly guided by logical reasoning, the segmentation variables used are much simpler than in the consumer market. The common segmentation variables for industrial or business market can be grouped into geographic, demographic, operating and purchase procedure variables. Geographic Variables The location of the business becomes a primary segmentation variable as every business supplier has to decide its geographical boundary of operation. In international marketing, the organization has to decide as to which region or country of the world it wants to export. Similarly, in domestic marketing it has to decide whether to sell to customers in urban or rural areas. Since product needs and packaging requirements are affected by the climatic conditions, the climate of the market is also used for segmenting the business market. For example, a garment manufacturer in Nepal has to supply warm clothing in the hills and mountains while the plain region of Tarai demands light type of clothing.
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Demographic Variables The demographic variables used for segmenting the business market are type of the organization and size of the organization. •
Type of business: The business market has a wide variety of customers, such as the government, manufacturers, service providers, social institutions, resellers and so on. These customers often require different product offers, distribution system and price structures. Thus, type of organization becomes one of the most important segmentation variables.
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Size of business: The business market significantly differs in terms of size of operation. It ranges from the street vendor to the government. The size of the organization determines the type and quantity of products needed by the customer and therefore, the size of business is an important variable for segmentation.
Operating variables The operating variables used for segmenting the business market are concerned with the type of technology, usage rate and service requirement of the customer. •
Technology: Organizations operate under different level of technology. The type of technology adopted by the customers determines their product requirements. The organization selling computers in Nepal has to determine who among its potential customers are technologically ready to use computers in their operation.
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Usage rate: Organizations also show substantial differences in their usage rate of product. Usage rate affects the quantity and frequency of purchase by the organizations requiring the marketer to adopt different distribution system for heavy users, medium users and light users and these customers treated as separate market segments.
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Service requirement: Some customers prefer the supplier to deliver the product, provide warranty, credit and so on. The type and level of after sales service demanded by the customers can be a segmentation variable in the business market.
Purchase Procedure Variables Business market can be segmented on the basis of several purchase procedures related variables, such as type of purchase organization, documentation requirements and time spent on purchasing. •
Purchase organization: The type of purchase organization adopted by the customer determines the complexity of the buying act. Some organizations give the responsibility of procurement to an individual while others use purchase committee. Selling to an individual becomes far easier than
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selling to a committee. The public relation requirement in the two situations differs in type and intensity. Thus, these two markets may be treated as different segments. •
Documentation: Much of the government procurement is based on formal documentation, such as quotations, sealed bids and tenders. In Nepal, the supplier to government has to submit several subsidiary documents, such as the renewed registration certificate and income tax clearance certificate to qualify as a supplier. Purchase by business organization is based on simple open quotations that are further negotiated to arrive at the transaction. Therefore, the market can be segmented on the basis of the number and type of documents required by the customer to execute the transaction.
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Time: Time required for completing purchase transaction also differs according to the type of product. Purchase of an installation usually requires more time for investigation and negotiation than the purchase of accessory equipment and operating supplies. Customers also take varying amount of time to complete the purchase transaction. The government takes more time to complete a purchase transaction than the private and non-‐governmental customers. Since the time taken to complete the transaction involves different types of costs, it can be an important segmentation variable.
Segment Evaluation The market segments are evaluated on the three basic criteria: segment size and growth, segment structural attractiveness and organizational objectives and resources. •
Segment size and growth: Segment evaluation involves an assessment of the size and growth characteristics of the market segments. The information on the size and growth is collected on the basis of current sales, sales growth rates and profit potential of the various market segments. The size of the segment is a relative matter to the size of the organization. Large organizations, such as multinational companies, prefer to operate in large segments while small organizations will feel safe and comfortable to function in smaller segments. Market growth is a normally desired characteristic irrespective of the size of the organization. All organizations, large or small, will prefer to operate in market segments that offer high and growing sales volume.
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Segment structural attractiveness: Profit is the major objective of every business organization. Therefore, the market segments need to be evaluated from the profit point of view. Some segments may offer attractive short-‐term profits that may evaporate in the long-‐run. The profit potentials of the market segment need to be evaluated from the long-‐run perspective. Besides the profit, market segments need to be evaluated in terms of their structural attractiveness.
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Michael E. Porter3 has forwarded a five-‐threat analysis for evaluation of the market segments' structural attractiveness and their ability to provide long-‐run profit. •
Threat of intense segment rivalry: A market segment that already has many strong and aggressive competitors is structurally unattractive. The segment is unattractive if it is not growing; if high risks are involved; and if fixed costs are too high. The segment should not be considered if the exit barriers are high. An organization should operate in low exit barrier segments where it can come out without suffering major losses. For example, the Indreni Soya Milk suffered an irreparable financial loss as the soya milk concept was rejected by Nepalese consumers and the plant had no alternative use. Many new companies entering to manufacture and sell instant noodles in the Nepalese market may find the market unattractive due to intense segment rivalry.
•
Threat of new entrants: A market segment that can easily allow new competitors is structurally unattractive. Market segments that have low entry barriers can invite new competitors and seriously affect the organization's market share and profit. The woolen carpet industry in Nepal suffered due to its low entry barriers. A segment should be considered attractive if it has high entry barriers and low exit barriers
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Threat of substitute products: A market segment that faces actual or potential competition from substitute products is structurally unattractive. The organization has to evaluate actual and potential competition in the market segment at the brand, product form and generic levels.
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Threat of buying power of customers: A market segment in which the customers are strong, demanding and disloyal is structurally unattractive. If the market segment contains few large organized buyers their bargaining power will be heavy. In a price sensitive undifferentiated product market buyers’ brand switching costs are low and they constantly move from one brand to the other.
•
Threat of bargaining power of suppliers: A market segment is structurally unattractive if the banks charge high interest rates on loans; if raw material and equipment costs are high; if trade unions are strong; and if the cost of public utilities as water, electricity and transportation are unstable and growing.
Organizational Objectives and Resources: The organization has to evaluate the market segment in terms of its objectives. Many organizations select market segments that are consistent with their objectives. Business organizations that want to maintain an environment-‐friendly image do not easily enter into a venture that pollutes the environment. Very often a market segment may have size, growth
3
. Michael E. Porter, Competitive Advantage, New York Free Press, 1985. , pp. 234-236
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and profitability factors favorable, but it is not served by an organization due to lack of resources in terms of production facility, personnel or finance. Segment Selection The organization has to decide on the number of market segments to enter and serve. The following five alternative market coverage patterns are available to an organization: •
Single segment coverage: It is a market concentration strategy, under which, the organization selects one market segment and directs all its marketing efforts in that segment. It develops a single marketing mix to be implemented in that segment. An example of concentration could be Hotel Holiday Inn, Kathmandu that targets only at the high profile tourist market.
This type of coverage has both its merits as well as demerits. It allows an organization to specialize in the market segment. The organization can adequately understand the needs and characteristics of the market and accurately design the marketing mix to deal with the segment. It can penetrate deeply into the market and develop a reputation as an expert in the product-‐market factor. The organization also faces little challenge from competitors in its specialized market segment. On the other side, it is a high risk strategy, because the organization "puts all its eggs in one basket". The organization will suffer serious damage if the demand for the product declines in that segment due to any reason. •
Multi-‐segment coverage: Under multi-‐segment coverage, an organization selects two or more market segments to enter at a time. It develops separate marketing mixes for each of the segments. It develops separate versions of the basic product, use different promotional tools, maintain price differentiation and follow different distribution network.
This form of market coverage helps the organization to diversify the risk factors to several segments. It frequently leads to higher total sales volume and profits for the organization. It also allows the organization to move its resources and efforts from less attractive segments to more attractive ones. Despite its various advantages, it is a high cost strategy. The high cost results from the need to design separate marketing mix for each segment. •
Product specialization: Product specialization is a mixture of single-‐coverage and multi-‐coverage strategies. Under product specialization, the organization specializes on the manufacture and/or marketing of a single product. It, however, sells the same product in several market segments. The organization slightly modifies its marketing mix to match the requirements of the various market segments. Manufacturers of scientific equipment, such as microscopes follow product specialization and sell the same microscope to research labs, universities, schools, pathology services etc.
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This type of market coverage helps the organization to specialize in one product area and develop reputation through experience. It diversifies the risk factor in several market segments and also lowers the organization's marketing costs by applying more or less similar marketing mixes in the various market segments. This strategy becomes risky when the existing technology is superseded by a new technology or if a substitute product replaces the organization's product. In order to avoid such risks, the organization must invest on research and development and be the technological leader in the field of its specialization. •
Market specialization: Under market specialization, an organization concentrates on a single market segment. The organization, however, tries to meet all product-‐service requirement of that segment. Examples of market specialization are operations of hotel or boarding school suppliers.
•
Full market coverage: Under full market coverage, an organization attempts to serve all possible market segments with a variety of product versions under a product line. This type of market coverage diversifies the marketing efforts to a large number of market segments. It is a very high cost strategy followed by some multinational companies. Such type of market coverage has been implemented by IBM in the field of computers.
•
Niche marketing: Some small organizations target to cover only the market niches rather than the market segments. Market segments are large identifiable groups of buyers within a market, while a market niche is a more narrowly defined small market that has been neglected by large organizations. Market niches are identified by dividing the market segments into sub-‐segments or by identifying customer groups whose needs have not been met by the existing product-‐service offers. In spite of IBM's avowed policy of full market coverage, Apple-‐Mackintosh successfully marketed its computers to the niche market of desk-‐top publishing.
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Unit 4: DIFFERENTIATION AND POSITIONING STRATEGY DIFFERENTIATION STRATEGY Differentiation factors are competitive advantages a firm is able to exercise in a market in relation to its competitors. Differentiation strategy creates values for customers for which the customers are willing to pay. Successful differentiation strategies have three characteristics: 1. Generate Customer Value: The strategy must add value for the customer. The differentiation strategy should be designed from the customer’s perspective rather than the firm’s perspective. Market research plays important role in understanding the customers’ perspectives. 2. Provide Perceived Value: The added value must be communicated to the customers and they should effectively perceive it. Creating brand value is the most effective method for communicating the differentiating features of a product, service or a company. 3. Sustainable: The differentiation factors projected by the firm should not be easy to copy by the competitors. Common Differentiation Factors Differentiation strategy is targeted at creating superior values for the customers. Superior values can be created through differentiation strategy implemented over the product, services, personnel, and image. •
Product Differentiation: Features, Styles, Design, Performance etc.
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Service Differentiation: Product Delivery, Installations, Customer Training, Customer Counseling, Free Servicing, Warranty, Credit Facility etc.
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Personnel Differentiation: Expertise, Experience, Responsiveness, Courteousness etc.
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Image Differentiation: High Quality, Modern Technology, Industry Leadership, Social Responsiveness etc.
POSITIONING STRATEGY Positioning refers to the strategic decisions and actions intended to create and maintain the firm’s product or service concept in customer’s mind.
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•
In positioning, the firm selects some of the key differentiation factors on which it has competitive advantage and establishes the image so that customers view the product or service as different.
•
In positioning, the projected image is crucial and what the firm does to the mind of customer is more important than what the firm does to the product.
Types of Positioning Product positioning may be of several types, such as attribute positioning, benefit positioning, usage occasion positioning, user positioning, competitive positioning and product class positioning. •
Attribute positioning: Attribute positioning is the simplest forms of positioning under which products are marketed on the basis of some of its important characteristics, such as quality, taste, durability, price, etc. In Nepal, most of the consumer product positions are based on the product characteristics.
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Benefit positioning: Benefit positioning highlights the end benefits associated with the product. It is also a simple form of positioning where an organization promises a unique benefit to consumers from the use of the product. Marketers of toilet soaps use health, cleanliness, and beauty and freshness benefits. Similarly, marketers of tooth-‐paste highlight brightness, protection, fresh breath and stronger gum benefit.
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Usage occasion positioning: Usage occasion positioning is based on the use of the product on a particular occasion or for a specific purpose. Marketers of instant noodles are promoting the product as a small quick snack (MaMa and Easy), school Tiffin (Aha and MinMin), and complete food (RaRa and WaiWai). A holiday travel package may be marketed by a travel agency for relaxation, adventure, turning dream into reality, education, entertainment and so on.
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User positioning: User positioning is based on the target consumers. It involves presenting the product as "the most suitable" for a particular category of consumers. Products may be targeted at high, middle or low income groups or children, teen age, young, middle aged or old consumers. For example, among the various brands of Surya Tobacco's cigarettes, Surya is targeted at high class urbanite consumers, Shikhar at the middle class urbanite consumers, Khukuri at the lower-‐middle class urban and rural consumers and Bijuli at the farmers and laborers.
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Competitive positioning: Competitive positioning presents the organization's product as better or superior to competitors' products. Coke and Pepsi always present their products as better from each other. Recent promotion for Kawasaki Bajaj motor cycle is found to challenge Hero Honda on fuel efficiency and maintenance expenses. Competitive positioning, if not implemented tactfully, often results in serious litigation cases such as in the cases between Nirma and Rin detergent cakes and Captain Cook and Tata table salt.
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Positioning Process Product positioning is implemented through a three-‐stage process: identification of differentiation factors, selection of the differentiating factors and communication of the selected factors. •
Identification of differentiation factors Differentiation factors are competitive advantages an organization is able to exercise in a market in relation to its competitors. They are values an organization is able to create for buyers. These values are what buyers are willing to pay.
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Selecting the differentiating factors Once the organization has identified all the differentiating factors it should select some factors that are relevant to the product, target market and the organization itself. In this stage, the organization has to decide on the number of differentiating factors to promote, and which ones to promote.
Number of differentiating factors: Many organizations believe that only one factor should be promoted. They believe that if an organization promotes several claims on their products buyers find it difficult to believe on the claims. Several organizations project double-‐benefit positioning in a competitive market mainly because many companies are promoting similar claims for their products. There are some successful cases of triple-‐benefit positioning, but they are rare cases. In some situations, multi-‐factor positioning may help an organization to achieve wider market coverage. An organization should be able to determine the exact number of positioning variables for their products. Organizations should avoid confused positioning, under-‐positioning, and doubtful positioning. •
Use of too many positioning variables or frequent changes of the variables may result into a confused positioning.
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Under-‐positioning is a failure to establish a definite image in the market, while over-‐positioning is presenting too narrow an image of the product and the company.
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When buyers do not believe on the sellers' claims it usually results into a doubtful positioning.
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Selection of positioning variables: Selection of the competitive advantage factors or the main
positioning variables needs to base on the following criteria: 1. Important: The positioning variable should be important to the market segment.
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2. Uniqueness: The variable should be unique. 3. Superiority: The variable should be superior to variables used by competitors. 4. Communicability: the variable should be easily communicable to buyers through the existing channels of communication. 5. Not easily copied: the variable should be such that competitors cannot easily copy it. 6. Profitability: the use of the variable should be able to give sufficient amount of profit to the organization. Communicating the positioning factors Once the organization has selected the main positioning variables, it should be able to deliver and communicate them to the target market. The organization's marketing effort should be directed at creating, placing and defending the positions. Marketing mix for a product, including product, price, distribution and promotion strategies, should support the positioning strategy. For instance, if an organization wants to place its product in high quality image position, the product's features, style and design should reflect the quality aspects. Packaging, branding and labeling should add to the high quality image of the product. It should be priced higher than the competitive level. The selection of the outlets should be in conformity with the high quality image. The organization should aggressively promote the product through high image advertising media. Unit 5: CUSTOMER ANALYSIS Customers exercise their choice with the objective of getting maximum value and satisfaction from products and services they buy. They form an expectation from each product or service they buy. If the product or service delivers value as per their expectation they are satisfied, if it delivers more value than expectation they are delighted, and if it delivers less value than expectation they are dissatisfied. CUSTOMER DELIVEREDVALUE Customers buy products and services that have the highest delivered value. Customer delivered value = Total customer value – total customer costs Total Customer Value •
Product Value: Delivered through product attributes and benefits
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Service Value: Delivered through warranty, delivery, installation, training etc.
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Personnel Value: Delivered through expertise, experience, and good behavior of salespersons.
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Image Value: Delivered through brand image and company image. Enhance the ownership value of the product and service.
Total Customer Costs •
Monetary Costs: Money spent on buying the product or service.
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Time Cost: Time spent on buying the product or service (search).
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Energy Cost: Energy spent on buying the product or service (search, evaluation, and purchase).
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Psychic Cost: Psychological frustrations and dissatisfaction from the product (post-‐purchase evaluation).
CUSTOMER SATISFACTION AND DISSATISFACTION After customers buy, use, or consume a product they tend to develop a feelings of satisfaction or dissatisfaction toward the product. Satisfaction refers to the buyer’s state of being adequately rewarded by the purchase decision. Thus, satisfaction is a type of customer attitude. Customers have certain prior or pre-‐purchase expectations from a product or service. They compare the product’s or service’s performance to their prior expectations. If they find the performance higher than their expectations then they are satisfied and if they find the performance lower than their expectations then they are dissatisfied. Advertising has a major role to play in forming the expectations. When they use or consume the product they compare the actual performance to their expectations. The interaction between the expectation and actual performance produce satisfaction or dissatisfaction. The confirmation process determines the level of satisfaction or dissatisfaction. When a customer gets what he/she has expected from a product he/she confirms that the product’s performance is equal to his/her expectations. This leads to satisfaction. When a customer does not get what he/she has expected from the product it leads to a situation of disconfirmation that leads to dissatisfaction. When a customer receives more than his/her expectation, it leads to positive disconfirmation. Positive disconfirmation is a state of emotional satisfaction or delight. When a customer receives less than his/her expectation, it leads to negative disconfirmation or dissatisfaction. The output of the customer’s net experience with a product works as a feed-‐back in the pre-‐purchase evaluation process.
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Pre-purchase Evaluation Purchase
Product Expectation
Confirmation
Satisfaction
Product Performance
Comparison Process
Disconfirmation
Positive: Emotional Satisfaction
Negative: Dissatisfaction
Several correlates of satisfaction and dissatisfaction have been noted down in various researches. Some of the correlates are presented here: •
Older consumers have lower level of expectations and tend to be more satisfied.
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Higher education level is associated with lower satisfaction.
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Men tend to be more satisfied than women.
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Higher confidence level and competency in purchase leads to higher satisfaction.
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When a consumer perceives that other people are satisfied they also tend to be satisfied.
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Consumers who are satisfied with their life tend to be satisfied with products.
Cost of Lost Customer The success of marketing today depends not only on attracting new customers but also on retaining old customers. The current business environment faces great challenge for retaining customers. High customer defection rate has forced many firms to follow the following five point strategy to retain customers: •
Define Retention Measurement Basis and Rate: Magazines (annual subscription), Educational institution (annual admission).
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Identify Causes for Customer Defection
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Measure the Loss of Profit from Defection
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Estimate the Cost of Reducing the Defection Rate
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Arrange Efficient Customer Feed-‐back System
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Customer Retention Customer loyalty is the key to success in the competitive business environment. The key to customer retention is customer satisfaction. A satisfied customer is a great asset to a firm in the following ways: •
Remains loyal for longer periods
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Buys more of the firm’s products
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Talks favorably about the firm and its products
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Pays less attention to competitors’ advertisements and offers
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Provides ideas to the firm
For this a firm needs to regularly monitor the post-‐purchase satisfaction level of customers and establish a system for listening to customers’ complaints and taking actions. RELATIONSHIP MARKETING Relationship marketing has emerged from the 1980s as a key concept in marketing literature and has been widely adopted by organizations in the contemporary business world. Relationship marketing shifts attention from short-‐term transaction and immediate profits toward a process of creating customer value through building long-‐term relationships with customers. The modern relationship marketing can be better understood if it is contrasted with the traditional transactional marketing. In transactional marketing the focus is on sales and sales are achieved through the effective implementation of marketing mix. Sales are perceived to be the result of immediate actions such as aggressive selling, sales promotions, or advertising. Relationship marketing’s focus is not on immediate sales; rather it is directed at building a large group of satisfied and loyal customers. Customer retention and winning back lost customers are the key strategy in relationship marketing. Relationship marketing uses sustained long-‐term efforts in delivering value to the customers and profit to the firm. Relationship marketing has the aim of building mutually satisfying long-‐term relations with key parties – customers, suppliers, distributors-‐ in order to earn and retain business. In a competitive market, it is not enough to build relationship only with customers; it is equally important to establish relationships with the vendors, intermediaries, and other influence groups. Relationship marketing is adopted by smart marketers who try to build up a long-‐term trusting win-‐win relationship with valued customers, distributors, dealers, suppliers and other stakeholders.
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This approach is directed at building strong economic, technical, and social relationships with the parties concerned over a period of time. The objective of relationship marketing is to build a valuable company asset popularly known as marketing network. Today, the real competition is not between companies; rather it is between marketing networks. Dimensions of relationship marketing Relationship marketing has three dimensions: •
The view of companies about customers is changing. The emphasis is shifting from transaction-‐ based marketing to relationship based marketing.
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A broader view is emerging of the markets with which a company interacts. In addition to their relationship with customers, companies are increasingly concerned about their enduring relationships with suppliers, middlemen, stakeholders (owners and employees), and other influence groups. The focus is also on internal marketing where all employees are trained and motivated to work for customer satisfaction.
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A strategy to bring the three key elements – quality, customer service, and marketing activities – to work together in order to produce synergistic effects for the benefit of the customers and external agencies.
Levels of relationships Different levels of relationship can be developed with customers. The extent to which an organization practices relationship marketing depends on its investment (time and money) in building the relationship. Relationship building process Relationship marketing involves a long-‐term process of building satisfied and loyal customers. This process can not be executed in a short period of time. It requires sustained enduring efforts on the marketer to convert customers with different levels of commitment towards the firm’s product or service. The process is explained below: •
Suspects: Most firms start from the pool of suspects. Suspects constitute of every one who has the possibility of buying the firm’s product or service.
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Prospects: From the pool of suspects the firm identifies customer groups who are most likely to buy the product or service.
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First time users: This group constitute of customers who have bought the firm’s product or service at least once. Depending on their level of satisfaction or dissatisfaction they can be either repeat buyers or defectors.
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•
Repeat customers: This group had positive experience with the first trial and have purchased the firm’ product or service for the second and third time. This group has the potential to be become loyal customers if the firm tries to build relationship. In absence of the firm’s effort to build the relationship the repeat customer may switch to competing firm’s product or service.
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Clients: This group consists of the loyal and satisfied customers who normally buy the firm’s product or service for a longer period of time. Marketers need to work closely with clients so that they maintain long-‐term loyalty.
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Members: In relationship marketing, some firms organize business clubs from among their loyal customers and offer the members of the club several benefits so that they remain loyal for ever.
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Advocates: From among the members of the business club, the firm tries to convert some customers into advocates who are vocal and who openly recommend the firm’s product or service to prospects and first time users.
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Partners: The ultimate objective of relationship marketing is to convert some of the advocates into the firm’s partners who work together with the firm for mutual benefits.
Customers in any of the above category may experience dissatisfaction with the firm and its product or service at any point of time and move to the ex-‐user pool. They might cease to use the product or defect to competitors’ product when better offers are made by the competitors. Therefore, the major focus of relationship marketing should be on delivering better value to the customer than what is offered by competitors. Practice of Relationship Marketing Relationship marketing is not equally effective in all situations. Relationship marketing is extremely effective with customers who have longer time horizons and high switching costs, such as buyers of office automation systems. Strategically, the level of investment (time and money) on building customer relationship should be matched with the number of customers and size of profit from the transaction. QUALITY MARKETING Quality is not a new concept in business. Even in the 19th century, quality was important in selling products. Quality during this period was self-‐evident and absolute and was measured in terms of weight, thickness, strength, or delicacy. Quality could be quantified and measured. The product concept that was popular during the 1950s and 1960s mainly focused on quality of products. Quality then meant ‘performance’, ‘durability’, and ‘freedom from defects’ (Stanton et.al., 1994:15). Other
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terms defining quality were ‘fitness for use’, ‘conformance to requirements’, and ‘freedom from variation’. During this period, quality was achieved through strict quality control of the production process. Quality and Customer Satisfaction Reference to the concept of quality marketing can be found in the marketing literature of the late 1990s when emphasis has been put on defining quality from the perspective of customers. From the customers’ perspective “quality is the totality of features and characteristics of a product or service that bear on its ability to satisfy stated or implied needs” (American Society of Quality Control, cited in Kotler and Armstrong, 1996: 583).This approach believes that the best measure of quality is customer satisfaction. In order to achieve good quality position in the market a firm needs to consistently try to satisfy customers. Quality in the market place simply means ‘better than competitors’ and what customers pay more for is better products or service. The new concept of quality marketing has shifted the power of deciding quality from technical experts to the end buyers. The quality marketing concept has emerged from the success of Japanese firms in manufacturing and successfully marketing small, fuel efficient, good looking automobiles in the American and European markets. What Japanese car manufacturers did was to study the points of dissatisfaction of auto users in the western market, constantly improved on the dissatisfaction aspects, and offered very satisfying models of cars with a network of service centers. Total Quality Marketing In order to achieve quality based on customer satisfaction a firm needs to do follow the total quality management (TQM) approach and implement it with modification in the form of total quality marketing. TQM is a popular philosophy of the 1980s that emphasizes that not only production process but also the policies and practices of the organization as a whole should be committed to continuous improvement of quality. Total quality marketing emphasizes that each marketing activity performed by the firm such as marketing research, sales training, advertising, customer service, and others should conform to the highest possible standards. Role of Marketers in Total Quality Marketing Marketers have three major roles to play in the success of total quality marketing. •
Correctly identify the customers’ needs and requirements and communicate customers’ expectations appropriately to product designers.
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Make sure that the customers’ orders are met in time and see that customers have received proper instructions, training, and technical assistance in the use of the product.
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Gather customer complaints on the current products and customers’ ideas for product or service improvement, and convey them to the proper departments in the firm.
Principles of Total Quality Marketing Total quality marketing can be effectively implemented by adopting the following principles: •
Quality is in the eyes of customer: Product or service quality means customers’ perceived quality.
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Quality must be reflected in every activity of the firm: Quality should be reflected not just on the product but also on sales personnel, advertising, services, product literature, delivery, after-‐ sales support, and other marketing activities.
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Quality requires total employee commitment: Not only the marketing personnel but the total employees of the firm should be fully committed to quality and motivated and trained to deliver it.
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Quality requires high quality partners: Quality can be delivered only when the firm’s partners such as suppliers and distributors also deliver quality.
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A quality program cannot save a poor product: If customers’ perceive one of the firm’s products as ‘poor’ it is futile to salvage that product through the quality improvement program.
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Quality can always be improved: Firm must believe that there is scope for improvement in every product or service. The Japanese principle of “Kaizan” recommends “continuous improvement of everything and everyone”. “Benchmarking” that involves improving quality to the level of the best performers in the industry also helps in continuous quality enhancement.
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Quality improvement sometimes requires radical jumps: Today the market has become so competitive and unpredictable that continuous quality improvement is not enough. Firms in the present context should ‘work smarter’ and beat competitors through radical change in quality.
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Quality does not cost more: The notion that improving quality requires larger investments has become outdated. The extra investments on quality improvement programs can be easily recovered through reduction of wastages and increased customer goodwill.
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Quality alone is not enough: Quality is necessary but it is not enough to make a firm successful in the competitive market. Very often when a firm makes a breakthrough in the quality of its products, competitors also follow suit and neutralize its effects. To be successful in the competitive market, a firm should focus equally on other important marketing strategies.
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Unit 6: COMPETITOR ANALYSIS Meaning and Types of Competition Competition is a major environment variable in marketing. The organization to be successful in the market should be able to deliver greater customer value and satisfaction than its competitors. In evaluation of the competitive environment, the organization should determine the type, extent and level of competition in the market. Competition can come from domestic products as well as imported products. Competition can be generic, form, industry and brand. •
Generic competition results from companies that target the same purchasing power of buyers. Generic competition is very general in nature and does not seriously affect the marketing activity of the organization.
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Form competition results from products that satisfy the same needs. For instance, several types of drinks-‐hard, soft, hot, cold etc.-‐can satisfy the thirst need.
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The industry competition results out of similar products satisfying the same needs. For example, the thirst need can be satisfied by a variety of soft drinks in which the soft drink companies compete among themselves at the industry level. This type of competition affects the marketing activity of the organization to a large extent and should be evaluated by the organization while designing marketing program for its products.
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The most serious competition results at brand level where similar brands (Coke versus Pepsi or Sprite versus 7up) compete against one another in the market.
Price and Non-‐price Competition Competitive level is determined by the number and types of competitive tools used. Competitive tools can be either price or non-‐price. •
Price competition is implemented by raising, lowering and manipulating prices. Price competition is obvious and easy to monitor than non-‐price competition.
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Non-‐price competition is more difficult to execute than price competition. It is implemented through a differentiation strategy practiced over the product, promotion and distribution. An organization generally creates different images for its product and tries to establish separate product position in the market to avoid direct competition.
Identifying Competitors and their Objectives The first step in building a competitor related strategy is to identify the firm’s competitors. Many firms know their main competitors through the market interactions. Firms in general watch the actions and reactions of close competitors. However, they neglect potential or latent competition. This is known as the ‘competitor myopia’, which is a very high risk strategy. Therefore, in the context of the highly competitive
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business environment a firm should not only watch the existing competition but also the potential competition. When the major competitors are identified the firm should assess their objectives. The firm should classify its competitors into ‘strategic groups’ based on similarity of product-‐market strategy. A strategic group will have similarity in some key dimensions such as price, design, customer groups, and channels. The competitors should be analyzed in terms of what they want to achieve in the marketplace: •
Profit maximization: This objective is normal and the firm should not be concerned about it.
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Sales expansion: This is also not serious as it is mostly short-‐term.
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Market share expansion: The firm should be serious about it because it may reduce the firm’s sales and profits.
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Domination of the market: This objective is very serious as it affects the survival of the firm.
Evaluating Competitors The second step in building competitive strategy is to assess the strengths and weaknesses of competitors in terms of their resources and capabilities. This strength-‐weakness (SW) analysis should be based on the following dimensions: •
Sales
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Market share
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Profit margin
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Return on investment
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Cash flow
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Research and development
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Capacity utilization
The SW analysis will place the various competitors in the following six categories: •
Dominant Competitor: The firm that dominates the market and influences the actions of all firms in the product category.
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Strong Competitor: The firm that is able to take independent strategic actions without facing serious reactions.
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Favorable Competitors: The firm that has more strong factors than weakness factors. Such a firm is capable of utilizing any opportunities arising in the market. It is also liable to face serious reactions from the dominant and strong competitors.
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Tenable Competitor: The firm that has a critical balance of strength and weakness factors. This firm is not able to take independent action and mostly work under the shadow of a strong firm.
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Weak Competitor: The firm which has more weakness factors than strength factors. They generally have unsatisfactory performance and barely surviving in the market.
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•
Nonviable Competitors: These are the dying group of competitors.
Dealing with Competitors: Market Attack and Defense Strategies Attack Strategies A firm needs to launch attack on competitors in order to increase sales and expand market share. Market leaders are found to adopt a strategy to build the total market size through product innovations, promotion of new use for the existing product and promoting more usage. Market followers generally launch attack on larger firms as well as small firms to build their market share. The attack may be launched by using any of the following weapons: •
Lower price
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Cheaper products
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Image products
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Product varieties
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New products
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Improved services
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Channel incentives
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Higher promotions
Types of Attack Frontal Attack: Attack on all fronts – product, price, distribution and promotion. Such attacks are very dangerous and competitors launch defensive strategies to lessen the effects of the attacks. Flank Attack: It is a attack on weak spots of a competitor such as weak market segments and weak products. Such attack does not invite strong reactions as the defending firm does not lose many sales. Encirclement Attack: It involves attacking on several fronts in selected market segments. In every market segment the attacker selects a different attack weapon. Guerrilla Attack: The firm launches small attacks on several market segments just to harass and demoralize the competitor. Bypass Attack: This type of attack is launched through technological improvements and new product development.
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Bypass Attack Flank Attack
ATTACKER FIRM
Frontal Attack
DEFENDER FIRM
Guerrilla Attack
Encirclement Attack
Defense Strategies A firm needs to design effective defense strategies when attacked by a competitor. Market share defense is a more critical issue as it affects the firm’s profitability. The major objective of a defense strategy is to: •
Avoid attacks
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Divert attacks into less sensitive areas
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Lesson the effects of attacks.
There are six types of defensive strategies Position Defense: Attackers often launch attacks on the firm’s position in the market by launching products in the same position. Such attacks are well defended by enhancing the brand image through increased promotion level. Flank Defense: When attack is launched on a weak market segment the defender has to correct the weakness. For instance, if the attack is on a market area, the defender may open a sales office in the weak market.
Flank Defense
ATTACKER FIRM
Position Defense
DEFENDER FIRM
Preemptive Defense
Counteroffensive Defense Mobile Defense (Market diversification)
Contraction Defense (Strategic withdrawal)
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Preemptive defense: This strategy involves launching a frontal attack on a competitor before the competitor attacks. It is targeted at reducing the attack capability of a competitor. Counteroffensive Defense: It involves quick reaction to the attack in order to reduce the impact of the attack. It also involves a frontal attack on the attacker. Mobile Defense: Under this type of defense, the defender moves away from the attacked market segment and enters into less competitive market. Contraction Defense: A large but weak firm is liable to be attacked on several fronts by other firms. The best option is to adopt a downsizing strategy by reducing the size of its operation and concentrating marketing resources in stronger market segments and products.
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Unit 7: MARKET ANALYSIS OBJECTIVES OF MARKET ANALYSIS 1. Evaluate Market Attractiveness: Market analysis is performed to evaluate the attractiveness of a market. The market attractiveness is measured in terms of long-‐term profit potential or long-‐term return on investment. The market analysis provides valuable inputs for product-‐market decisions – What products to be targeted at which markets? 2. Understand Market Dynamics: The market analysis is focused on understanding the following factors: •
Market Trends: Is the market going downward or upward?
•
Threats and Opportunities: What threats and opportunities are involved in the market?
•
Strategic Uncertainties: What are the uncertain factors in the market?
•
Key Success Factors: What factors (competencies and assets) are critical to work in the market?
DIMENSIONS OF THE MARKET ANALYSIS 1. Market Size: Estimation of the actual and potential size of the market The size of the important and potentially important market segments need to be evaluated. The evaluation can be based on: •
Total Sales Level Analysis: This analysis is based on the estimation of the total sales of a product in the target market. The source of information for the analysis may be Government data, trade associations, other published sources, and retail survey.
•
The User Gap Analysis: This analysis is focused on measuring the possibility of promoting the product to new user groups and possibility of promoting new uses of product. This analysis also provides information on size of the market. Firms need to watch for Ghost Potential i.e., the potential that may never be realized and focus on Micro-‐marketing that involves concentrating on small market segments which together provides high sales volumes.
2. Market Growth Market growth analysis involves evaluation of the future potential of the market or market segments. Market growth evaluations can be based on: •
Driving Forces Analysis: Identifying and predicting the factors that will affect the sales of the product, such as peoples’ income, tax, technology, costs, competition etc.
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•
Historical Sales Analysis: Identifying the historical sales of the product as well as profit (loss) patterns.
•
Growth in Sub-‐markets: Although the total market may not be growing (saturation) or have slow growth, sales may be growing in certain market segments. Such growths should be identified.
3. Market Profitability Analysis It involves estimating the investment value of the market. Michael Porter’s Threat Analysis can be used to evaluate the investment value of the market. The threat factors seriously affect the profitability of the market. i.
Threat of Intense Competition: The number of competitors, their relative sizes, product offerings, competition related strategies, cost structures and advantages, commitment, and size and nature of exit barriers should be evaluated.
ii.
Threat of Potential Competition: Possibility of facing new competitors need to be evaluated in terms of the size and nature of entry barriers. Entry barriers may be in the form of the size of the capital investment required; nature, cost and accessibility of technology; economies of scale; availability of distribution network; and product differentiation.
iii.
Threat of Substitute Products: This threat is weak but should not be underestimated. For example, the jute industry of Nepal has been wiped out by polythene bags.
iv.
Threat of Customer Power: Customers are likely to force the price down and demand more services thereby affecting the profitability. This threat is more serious in institutional marketing. Example: Government procurement.
v.
Threat of Supplier Power: When suppliers are few, concentrated and strong they can affect the profitability by influencing price and regular supply of inputs.
4. Cost Analysis This analysis focuses on analyzing the cost structures of the industry. It should be based on analyzing value-‐added in the various activities (production and marketing related) of the firm. The objective of cost analysis is to identify competitive advantages and the key success factors. 5. Distribution System and Market Trend Analysis
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The distribution system analysis is focused on the following aspects: •
Identification of the alternative channels of distribution: Channel alternatives range from one level to several levels. Access to efficient and cost effective channels is a competitive advantage and a key success factor.
•
Channel trends: The analysis focuses on evaluating the relative importance of the different channels of distribution in terms of Cost, Control and Coverage.
•
Growth of new channels: The analysis also focuses on new methods of distribution. For instance, the e-‐marketing and direct marketing have changed the conventional roles of middlemen.
•
Channel power structure: The analysis also focuses on evaluating the channel role and power structure in the channel system. Channel power emerges out of size, efficiency, experience, and desire to join the channel.
Market Trend Analysis It focuses on analyzing the change and the important elements (key issues) emerging in the market place. The key issues could be in any areas such as change in taste and preferences, demand levels, price sensitivity etc. IDENTIFICATION OF KEY SUCCESS FACTORS IN THE MARKET Identification of the key success factors is the output of the market analysis. Key success factors are assets and competencies and are the main basis for competition in the market. There are two categories of key success factors: 1. Strategic Necessities: Essential elements that do not provide the competitive advantage. These may be common across various types of operations and industries. 2. Strategic Strengths: Assets and competencies that is superior to those of competitors that provide a basis of competitive advantage. These differ from one industry to the other industry. The success factors also change over time. It is important for a firm not only to identify the current key success factors but also make prediction on key success factors emerging in future.
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Unit 8: PRODUCT STRATEGIES PRODUCT CONCEPT AND LEVELS The product is the core element of all marketing activities. In the long-‐run all strategies revolve around the product. Products satisfy customers’ needs and also provide benefits to them. Products are the main source of revenue for a business firm. In marketing, product is anything that is capable of satisfying human needs and wants. Philip Kotler provides a broad definition of product. According to him “a product is anything that can be offered to a market to satisfy a want or need".4 Viewed on a broad framework, product is everything that one receives in an exchange. Therefore, products include all entities such as goods, services, experiences, events, persons, places, properties, organizations, information, and ideas; and mixes of these entities. Levels of Product There are five levels of a product: core product, basic product, expected product, actual product and augmented product.
Core Basic Expected
Augmented
•
Core benefits: At the first level, there is core benefit and the essential utility attached with a product. Buyers purchase a product for the benefits and satisfaction attached with the product. For example, a woman buys beauty for herself through cosmetics; and a man buys high status and prestige through expensive cars.
•
Basic product: At the second level there is basic product. Marketers convert the core benefits into a basic product. For example, some chemicals are combined to manufacture face creams, lipsticks, and shampoo that provide beauty and personality to the users.
4
. Philip Kotler, Marketing Management, PearsonsEducation,11th ed. p. 407.
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•
Expected product: At the third level there is expected product that includes a set of attributes and conditions buyers normally expect in a product. Expected products are built over the core benefits and basic product. It has up to five attributes: a quality level, features, design, brand name and packaging. For example, Toscana shoes, Compaq computers, Ponds face cream, Sunsilk shampoo are examples of the expected product.
•
Augmented product: At the fourth level there is the augmented product with the totality of benefits a buyer receives or experiences in obtaining the product. A person buying a product is not merely buying the physical object and benefits but the whole range of services attached with the product. Such services include delivery, warranty, credit, advice and instructions. An augmented product provides a complete solution to the buyer’s problem.
TYPES OF PRODUCT Products can broadly be classified into two groups: consumer products and industrial products. This classification is based on the type of buyers who use them. Products purchased to satisfy personal and family needs are consumer products. Food items, clothes, cigarettes, cosmetics, refrigerator, cars etc. are examples of consumer products. Products bought for use in an organization or to make other products are industrial products. Fuel, raw materials, machines, tools etc. are examples of industrial products. Consumers buy products to satisfy their personal wants, while industrial buyers seek to satisfy their organizational goals. Thus, the buyer's intent and the ultimate use of the product determine whether a product is a consumer product or an industrial product. Very often, a product can be a consumer as well as an industrial product. For example, if petrol is used in a personal vehicle it is a consumer product, and if used in a commercial vehicle it is an industrial product. CONSUMER PRODUCTS Consumer products have been classified on a number of criteria. The major criteria used for classification are nature of goods; consumer's buying motives; the amount of involvement of the consumer in the buying process; and the overall buying behavior of consumers. •
According to the nature of the product, consumer products are classified into perishable, non-‐ durable and durable products.
•
According to consumers' buying motives a consumer product can either be a necessity product or a luxury product.
•
According to the involvement of consumers in the buying process, products can be classified into high-‐involvement products and low-‐involvement products.
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•
According to buying behavior of consumers, the consumer product is classified into four categories: convenience products, shopping products, specialty products and unsought products. 5This is the most popular form of stratification in marketing.
CONVENIENCE PRODUCTS Characteristics •
Convenience products are generally low priced items that a consumer buys frequently. These are mostly low-‐involvement products that are bought at the most convenient retail outlet.
•
The consumer does not plan the purchase of convenience products in advance. The product is bought whenever the need arises.
•
Convenience products are generally non-‐durable products that need frequent buying in small quantity.
•
The consumer has high brand awareness level, but very little brand conviction and loyalty. In case of unavailability of the usually purchased brand the consumer is ready to accept alternative brands.
•
Price and quality comparisons between brands are very low in the purchase of convenience products.
•
Examples of convenience products are razor blades, tooth-‐pastes, toilet soap, flashlight batteries, low priced confectioneries, salt, sugar, headache tablets etc.
Types Convenience products can further be classified into three types: staple products, impulse products and emergency products. •
Staple products: Staple products are regularly bought items, such as razor blades, tooth-‐paste, salt, sugar etc.
•
Impulse products are bought by the consumer on impulse buying such as low-‐priced confectionery and magazines.
•
Emergency products: Emergency products are normally bought at the time of an emergency such as flashlight batteries and headache tablets.
SHOPPING PRODUCTS Characteristics •
Shopping products are less frequently purchased goods and services. The products are consumed slowly and one purchase will last for a number of years.
•
They are generally higher-‐priced than convenience products.
•
Consumers generally compare price, quality, suitability and style of the product at several stores before making the final purchase decision.
5
. Melvin D. Copeland classified consumer products into the first three categories: convenience, shopping and specialty products. The unsought product category was added by Philip Kotler in the 1990s.
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•
Consumers have low brand awareness, conviction and loyalty for shopping products. Thus, consumers undergo through information search and evaluation process during the formation of their buying decision.
•
Consumers show moderate to high-‐involvement in the purchase of shopping products.
•
Examples of shopping products are home appliances, furniture, clothing, shoes, hardware goods etc.
Types Shopping products can be further categorized into homogeneous products and heterogeneous products. •
Homogeneous products: In case of homogenous products, consumers perceive different brands as similar in terms of features and styles, but different in terms of price. Thus, consumers only compare the price of brands while buying the homogeneous products. Examples of homogeneous shopping product are refrigerators, gas tables, hardware goods etc.
•
Heterogeneous products: The heterogeneous shopping products are perceived by consumers as different in terms of major attributes. Consumers compare quality, features, styles, and prices of the brands while buying heterogeneous products. Examples of heterogeneous shopping products are clothing, shoes, furniture etc.
SPECIALTY PRODUCTS Characteristics •
Specialty consumer products are so special for the buyers that they are ready to put in extra effort to purchase the products.
•
The specialty products generally have unique features.
•
Specialty products may be found in high as well as low price segments. They may be frequently or infrequently purchased items. The products may be easy as well as difficult to locate.
•
It is the special and unique features perceived by the consumer that makes a general product a specialty product for the consumer. Therefore, every product has a chance of becoming a specialty product for a group of consumer.
•
Consumers show a very high degree of store and brand loyalty for specialty products.
•
Consumers do not make comparisons between various brands in terms of price, quality or services and is ready to discard any other brands for the patronized one.
•
Examples of specialty products are electronic equipment, jewelry, cameras, tailoring services, beauty saloons etc.
UNSOUGHT PRODUCTS Characteristics •
Unsought products are those consumer products that have very low consumer awareness and desire to purchase and consume.
•
They are generally high priced items.
•
Consumers generally show reluctance to buy these products unless approached by the marketer.
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•
Many of the new inventions are unsought by consumers until they become aware about its benefits.
•
Some products are known to consumers but they show very little interest to make any effort in buying them.
•
Examples of unsought products are life insurance policies and magazine subscriptions.
CONSUMER PRODUCTS: MAJOR ATTRIBUTES AND MARKETING CONSIDERATIONS Major attributes
Convenience
Shopping
and marketing
products
products
Specialty products
Unsought products
considerations Buying effort
Low
Involvement levels Low Purchase
High
Very high
None
Moderate to high
Low involvement
Low involvement
involvement
involvement
Frequent
Infrequent
Infrequent
Infrequent
Varies across
Varies across products
frequency Price
Low unit price Higher unit price
products Branding
Important
Not important
Highly important
Not important
Brand loyalty
Low
Low
High
None
Packaging
Important
Not important
Varies across
Varies across products
products Distribution
Extensive
Selective
Exclusive
Specific
Promotion
National
National & local
Direct advertising & Direct advertising and
advertising
advertising
Personal selling
Personal selling
INDUSTRIAL PRODUCTS Classification of industrial products is often difficult due to the large number and type of such products and the unlimited uses of the products. In marketing, industrial products have been classified into three broad categories: materials and parts, capital goods, and supplies and business services. MATERIALS AND PARTS Characteristics •
Materials and parts are unprocessed and semi-‐processed items that will be converted into the final product by a manufacturer.
•
In course of production, materials change their form and utility several times while parts will become an actual component of the finished product.
•
Materials are of two categories: natural materials and agricultural products. Natural materials are those lying in their natural state, such as minerals, oils, and products of forests and sea. The supply of natural materials is limited and cannot be substantially increased by its producers. The source of
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supply is controlled by few large producers. The producers can maintain a uniform level of production throughout the year. Natural materials are bulky in nature and command low unit price. •
Agricultural products are produced through farming, such as rice, wheat, tobacco, sugarcane, fruits, vegetables, milk, meat, wool etc. Their productions are seasonal. They are generally perishable in nature. The supply of agricultural raw materials can be altered to some extent but cannot be increased or decreased rapidly. The sources of supply are controlled by small producers scattered over a large area.
•
Parts do not change their form in course of production. Examples of parts are tyres, spark plugs, nuts and bolts used in a car, and buttons and zippers for the manufacture of a jacket.
INDUSTRIAL PRODUCTS: MAJOR ATTRIBUTES AND MARKETING CONSIDERATIONS Major attributes and
Materials and Parts
Capital Goods
Supplies and Business
marketing
Services
considerations Life-‐span
Short
Very long
Short
Unit price
Very low
Very high
Low
Purchase contract
Long-‐term
One time
None
Purchase frequency
Frequent
Very infrequent
Frequent
Standardization
None: Grading important
Custom designed
Important
Marketing channels
Direct
Direct
Retailers
Pricing
Negotiated
Negotiated
Fixed
Advertising
Not important
Company
Post-‐sale services
None
image Important:
promoted
promoted
Very important
None
Brand
CAPITAL GOODS Capital goods are fully manufactured products that are used in the production of other products or for providing services. There are two categories of capital goods – installations and equipments. Installations •
Installations are generally high priced capital products that have longer life-‐span and do not need frequent purchasing.
•
Installations directly affect the scale of operation in a manufacturing or service organization.
•
Type of installation varies according to the nature of the business. For instance, for an airline company an aircraft is an installation; for a power company the turbines and generators are installations; for restaurants ovens and refrigerators are installations; and for a manufacturing business the machines and factory building are installations.
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Equipment •
Equipment helps in the manufacturing process or in course of providing services to customers. They are not used directly in the production process but assist the production activity to run smoothly.
•
Equipment is less expensive, purchased routinely and treated as expense item.
•
Equipment’s life span is shorter than that of installation.
•
An organization owns several units of equipment.
•
Examples of equipment are tools, office machines, delivery vans, and computers.
SUPPLIES AND BUSINESS SERVICES Supplies and business services are short-‐lived goods and services. Supplies are of two types: operating supplies, and maintenance and repair items. Operating supplies •
Operating supplies help in production or in providing services to customers.
•
Operating supplies are the low priced, short-‐lived and frequently purchased industrial products.
•
They are often termed as convenience products of the industry because, the industrial users purchase them at the most convenient outlet.
•
Examples of the operating supplies are fuel, lubricants, paper, carbons etc.
Business services •
Business services include a variety of services required by an organization such as maintenance and repair services (facility maintenance, cleaning, and guarding) and advisory services (legal, management consultancy, and advertising).
PRODUCT LIFE CYCLE Meaning Products are like living beings: they are conceived, born, grow, achieve maturity and finally die. During the conception and development phase, the product is in their pre-‐natal stage that is explained by the new product development process. After its introduction (birth) into the market and until its final elimination (death) it passes through four stages: introduction, growth, maturity and decline. This process is popularly known as product life cycle (PLC). The product life cycle depicts the sales history of a product over time. The sales history of the product is presented graphically in the form a curve. INTRODUCTION The main features of the introduction stage are as follows: •
Slow growth of sales: The introduction stage of a product starts once the product is commercially launched. This stage is characterized by slow growth of sales. This is mainly because, buyers are
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not aware of the existence of the new product and they are reluctant to change their established buying habits. •
Market pioneers buy the product: During this stage only a small group of consumers known as market pioneers buy the new product.
•
Small production level: The firm is unable to predict the success of the product in the market and keeps the production at a low level.
•
Technological problems: Since the product is new there may be several technological problems in the product.
•
Higher price: Price of the product tends to be generally high due to high costs of production, distribution and promotion.
•
Negative profits: Due to high costs and slow growth of sales profits from the product tend to be negative.
•
No competition: The innovator firm does not face any competition during the introduction stage. Product Life Cycle
Sales & Profit
Sales Curve Profit Curve
Introduction
Growth
Maturity
Time
Decline
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FEATURES OF THE PLC STAGES Features
Introduction
Growth
Maturity
Decline
Buyer groups
Pioneers
Early adopters &
Early majority and
Laggards
early majority
late majority
Rapid
Slow growth and
Sales growth
Slow
Rapid decline
slow decline
Cost per buyer
High
Moderate
Low
Low
Profits
None
High
Eroding
Marginal
Competition
None
Some
Many
Some
GROWTH Many new products fail during the introduction stage because they can not gain buyer acceptance, or are economically and technically unfeasible. If the product can cross the critical stage of introduction, it enters the growth stage. The major features of the growth stage are as follows: •
Sales increase rapidly: Sales increase dramatically during the growth stage of the PLC.
•
New buyer groups: The early adopters continue to buy the new product and large numbers of new buyers from the early majority adopt the product.
•
Technological improvement and new features: The firm corrects technical defects in the production process and the product. It also adds new features and refinements on the product.
•
New market segments: The firm moves the product into new market segments.
•
Stable price and promotion levels: Prices tend to remain at introduction level or fall slightly. Promotion is also maintained at the previous level.
•
High profits: The high turnover and constant promotional costs give a high profit per unit to the firm.
MATURITY When the growth in sales slows down the product enters the maturity period. Initially, the product enters a growing maturity when the growth in sales is slower than in the growth period. When the sales stop to grow the product enters the saturation stage. Ultimately, sales start to decline slowly in the declining maturity phase. For many products, the maturity stage lasts longer than other stages. During this phase the organization may face several problems and requires major modification in strategies and tactics. The major features of the maturity stages are as follows: •
Early majority and late majority are major buyers: During the maturity stage, the major buyer group constitute of the early majority and late majority. Although this buying group is very large in number they are mostly price sensitive and seek products at lower price with several benefits.
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•
Tough competition: Attracted by the higher sales and profit during the growth stage many new firms enter into the market. As a result, the firm faces stiff competition from similar and substitute products.
•
Slower growth of sales: The competition and overcrowding of the market slows down the growth in sales. This usually creates over capacity in the production and marketing units.
•
Price cuts: Competitors reduce their prices forcing the organization into price cuts.
•
Heavy promotion: The organization spends heavily in sales promotion to attract new buyer groups.
•
Lower profits: The slow down in sales, higher marketing costs, and lower revenue result in gradual erosion of profits.
DECLINE Most products eventually enter the decline stage. The decline may be very rapid for some products while others may face slower decline. As sales start to decline, intelligent firms withdraw their products from the market. Those who continue rapidly reduce their prices and try to attract price sensitive buyers, particularly the laggards. Eventually, all products reach a stage of zero sales. CONCEPT OF NEW PRODUCT The term "new product" may convey several meanings when it is viewed from the perspective of firms, market, customers, and products. •
From the viewpoint of a firm is the product is new to the firm it is treated as a new product. Firms often consider copies of a competitor’s product as new. From the view point of a market if the product is new to the market it is treated as a new product.
•
Customer perspective suggests that newness of a product should be based on customers’ perception. If a customer group feels that a product is new it should be treated as new.
•
From the product perspective a new product is viewed on its disruptive effects on the current consumption pattern. This classification is more relevant and strategically important in marketing. It categorizes new product into three types – innovations, modified products, and copies or "me-‐ too products".
•
Innovations: Innovations are original products that are introduced to the human race for the first time. During the last half of the current century buyers have been bombarded with new innovations, such as computers, video-‐recorders, contraceptives, Polaroid cameras etc. Many innovative products are being introduced into the market every day. In the current decade alone the market has received several innovative products, such as the electric cars run by batteries, e-‐ mail and internet services, telephone-‐based on fiberoptics etc. Innovative products entail high costs and risks. Innovation involves considerable time as well as money. Currently, billions of dollars are being spent on the research to find cures for cancer and AIDS.
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The rate of failure of innovative products to gain buyer acceptance is very high. Research conducted in USA have shown that about 80 percent of new consumer packaged goods fail6 to gain consumer acceptance and about 33 percent of the industrial products fail during the introduction stage of the product life cycle.7 •
Modifications: Many organizations avoid innovation due to the high cost and risk factors and adopt a product modification strategy as long as possible. Modified product can be termed as a new product as it requires major change in the marketing mixes. Product modification entails quality modification, functional modification and style modification.
•
Copies or me-‐too products: Some organizations find the innovation and modification efforts too costly and risky. They adopt a product imitation strategy by copying and introducing successful products under a different brand name. Such products are introduced to capture a part of the market share of the original product. From the viewpoint of a market the imitated or me-‐too product may not be a new product, but from the organization's perspective it is a new product. An example of such an imitation could be the Podrez steel furniture, a good copy of Godrez.
REASONS FOR NEW PRODUCT FAILURES Firms today launch hundreds of products in the market. Some products become successful and many others fail to gain market acceptance. Marketers are forced to work in an uncertain environment. They often develop and launch products without knowing how consumers will react to the new products. Even with the support of market research new product failures have haunted companies ranging from large multinationals (New Coke) to small local firms. There have been several reasons for product failures, the common ones are as follows: Technology: The most common reasons for product failures have been technical problems resulting in less than satisfactory performance of the product in actual use situation. The solar powered vehicle, wind-‐ based power generation, and many drugs failed mainly because they could not perform as expected by the buyers. Buyer acceptance: Many new products fail to gain consumer acceptance and fail miserably in the market. Consumers often reject products if they are too complex to handle. This is the reason for the popularity of user friendly products such as the Microsoft software and aim and shoots cameras. Products that go against the culture and traditions of consumers are also rejected. For example, the soybean milk (Indreni Soya Milk) was rejected by the Nepalese consumers despite the success of the product in the international market. 6 7
. Christopher Power, "Flops", Business Week, August 16, 1993. . R. G. Cooper and E. J. Kleinschmidt, New Product: The Key Factors in Success, AMA, Chicago, 1990.
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Inadequate market demand: Firms often overestimate the market demand for new products. When the products are launched in the market firms find the demand to be very slow. The slow demand often forces financially weak companies to withdraw the new product from the market. Inappropriate marketing strategies: Many new products fail due to wrong selection of product positions, prices, and inadequate promotional support. Wrong positioning of a product often creates problems for new products. The failure of soymilk in Nepal was also due to positioning problem. The product could have been successful if positioned as an alternative drink rather than a substitute for milk. PRODUCT ADOPTION AND DIFFUSION PROCESS The success of a new product depends on how soon it is adopted by a large number of customers and how effectively it is diffused in the society. The process of accepting or rejecting a new product by a customer is explained by the adoption theory while the process of acceptance by the society as whole is explained by the diffusion model. Thus, the adoption is a micro process while the diffusion is a macro process. New Product Adoption Some customers adopt a new product early while others delay their adoption. Many customers may not adopt the product. The adoption process explains how potential customers learn about new products, try them, and adopt or reject them. According to William J. Stanton “the adoption process is the set of successive decisions an individual makes before accepting an innovation”. 8 The adoption process has six steps through which a potential customer passes through before a new product is adopted. •
Awareness: During the first stage a consumer is exposed to the new product through marketing communication. This exposure is neutral, for they are not yet interested to search for information about the new product.
•
Interest: If a consumer develops an interest in the new product he/she is likely to search for information and learn how he/she can benefit from the product.
•
Evaluation: Based on the available information, the consumer makes a “mental trial” of the new product. If the evaluation is satisfactory the consumer is likely to try the product. If the evaluation is unsatisfactory the product will be rejected by the consumer.
•
8
Trial: In this stage the consumer uses the product on a limited basis and determines its value.
. Stanton et. al. , op. cit., p. 227
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•
Adoption: The consumer’s experience with the product (positive or negative) determines its chance of adoption. If the experience is positive the consumer is likely to adopt the product. If the experience is negative the consumer is likely to reject the product.
•
Confirmation: Confirmation is the last stage of the process in which the consumer constantly evaluates and reevaluates his/her decision to buy the new product in terms of its delivered value. Positive confirmation leads a consumer to be a regular buyer of the product.
Diffusion of Innovation The diffusion of innovation process explains the spread of a new product (innovation) from its source (firm) to the consumers (market). According to William J. Stanton “Diffusion of a new product is the process by which an innovation spreads throughout a social system over time”. The diffusion of innovation process has four key elements – innovation, adopter categories, social systems, and time. The innovation An innovation can be of three types – continuous, dynamically continuous, and discontinuous. •
Continuous innovation involves minor modification on an existing product that does not require a major change in its consumption pattern.
•
Dynamically continuous innovation involves major modification on an existing product or creation of a new product based on an existing product. It disrupts the current use and consumption to some extent.
•
Discontinuous innovations are totally new products that require a new behavior patterns on the part of the consumer.
The adopter categories The adopter categories constitute of consumer groups who adopt a new product over the different periods of time. There are five adopter categories – pioneers, early adopters, early majority, late majority, and laggards.
•
Pioneers: The pioneers (about 2.5 percent of the market) are the first group of consumers to buy a new product. They buy the product during the introduction stage of the product life cycle. The pioneers are venturesome and show high risk taking behavior.
•
Early adopters: After the pioneers, the new product is adopted by the early adopters (about 13.5 percent of the market). The early adopters are opinion leaders and have high socio-‐economic status. They buy the new product at a high price during the market growth stage.
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ADOPTER CATEGORIES
Late Majority 34 % Early Majority 34 %
Early Adopters 13.5 %
Pioneers 2.5%
Laggards 16%
•
Early majority: The early majority (about 34 percent of the market) adopt the product before the average person. The first half of the early majority adopts the product during the growth stage and the second half during the maturity stage.
•
Late majority: The late majority (about 34 percent of the market) are skeptical group who adopts the product out of social pressure or for economic gain. The late majority adopt the product only when its price gradually declines during the maturity stage, particularly after saturation period.
•
Laggards: The last group of buyers popularly known as laggards (about 16 percent of the market) is tradition bound and highly suspicious of changes. They buy the product around the decline stage when the price of the product has drastically fallen.
The social system The diffusion of innovation usually takes place in a social setting. Past researches on innovation have shown that the upper levels of the society (high-‐income high status group) first adopt new products. The new products gradually move down the social hierarchy over time. Innovation theory also shows that new products are more easily diffused in modern social systems than in the traditional social systems. The modern social systems have positive attitude toward change; general respect for education, science, and technology; and open to new ideas. Time Time is the key element of the diffusion of innovation process. The time factor focuses on two aspects – purchase time and adoption time. •
Purchase time: Purchase time refers to the amount of time taken by a consumer to purchase a new product after being aware about the product. If the purchase time is short the diffusion process will be faster.
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•
Adoption time: Adoption time refers to the time taken for a product to be adopted by members of a social system. The faster is the adoption time the higher will be the probability of its larger acceptance as a necessity product.
PRODUCT STRATEGIES Product strategies are formulated at three levels of product aggregation: a product item, a product line and a product mix. •
Product item: A product item is a special version of a product that has a separate identity in the organization's range of product offerings to the market.
•
Product line: A product line includes the organization's closely related products. The products are closely related in terms of their basic characteristics, satisfaction of the same types of needs, are bought and used together by consumers or are marketed through the same channels of distribution.
•
Product mix: A product mix is the composite of products offered for sale by an organization. A product mix is composed of several product lines and a product line of several product items. For Nepothene Group, Tastea is a product item, the plastic products a product line, and tea, plastic, detergents, tooth-‐paste, biscuits and all other products the organization manufactures and markets are its product mix.
PRODUCT LINE AND MIX STRATEGIES Product Line Strategies In an organization that carries a product mix with several product lines, each product line is managed by a line manager, and each product item by a brand manager. The product line strategy involves four basic decisions: line length, line modernization, line featuring and line pruning. Product line length Product line managers are faced with the problem of maintaining an optimum product line in terms of costs, profits and competition. Organizations often expand their product lines attracted by profit potentials. However, if the product line becomes too long, it may result in higher costs and may require line contraction. Product line length decision involves decisions on line expansion, line contraction, trading-‐up and trading-‐down. 1. Product line expansion: Product line expansion is a major activity of most of the on-‐going business organizations. Line expansion involves addition of product items or product versions on the current product lines. Product line expansion is implemented through two methods: line stretching and line filling.
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Line stretching: Product line stretching is implemented in relation to price lining policy of the organization. It is also known as the trading-‐up and trading-‐down strategies. Normally, organizations maintain a price range for its various product items in a product line. Line stretching strategy is practiced in three ways: stretching downward, stretching upward and stretching both-‐ways. •
Stretching downwards or trading-‐down: The line manager may decide to launch a new product item at below the price range of the current product line. An organization may adopt trading down strategy for two reasons:
o
To meet the demands of economy-‐minded consumer groups.
o
To block competition at the low price segments.
The trading down is a very risky strategy. It may invite competitors' attack on the high price segments. Introduction of a low-‐priced item in the product line may also result in an erosion of the image of the organization. There is also a high chance of cannibalization in the product line as the new low-‐priced products eat away the sales of the product line's high-‐priced products. •
Stretching upwards or trading-‐up: Stretching upwards involve introducing new product items above the price range of the current product line. Trading-‐up strategy is implemented for three reasons:
o
To achieve higher sales and profits in the high-‐price segment.
o
To enhance the organization's image as a producer and marketer of prestige product.
o
To present the organization as a full-‐line manufacturer.
Sometimes, the addition of a new high-‐priced item in the product line may push the sales of the old low-‐priced items. Trading-‐up strategy also involves certain risks. When the organization is concentrating on the promotion of new high-‐priced items it may lose adequate defense on its low-‐ priced items. The organization may not be able to create the intended high image simply because the consumers are reluctant to believe that the organization is capable of manufacturing a high quality product. This happened in the case of Shree Distillery, an original manufacturer of low quality liquor, which brought Mt. Everest whisky in high price segment. •
Stretching both-‐ways: Sometimes, an organization may introduce new products at both ends of its current price range. Such a strategy is adopted by organizations that manufacturer and/or market mid-‐range priced products. This strategy may help an organization to enhance its image through trading-‐up and increase its sales by trading-‐down. However, this strategy is difficult to manage as
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it requires aggressive offensive attack on the new high-‐price and low-‐price segments and careful defense of its existing mid-‐range segments. 2. Line filling Line filling involves introducing a new product item to plug a gap in the current product line. Such a strategy is normally adopted by organizations who want to be a full-‐line manufacturer. Organizations often fill in the line to discourage competitors. Attraction of profit potentials also pushes an organization for filling in the line gap. 3. Product line contraction or pruning Just as line expansion is a normal activity in the organization, line contraction or pruning is highly essential to maintain an optimum line length. Optimum line length can only give the organization maximum sales and profits. Product line is reduced by dropping the production and marketing of product items. When a product item is losing money it is naturally dropped from the product line. Obsolete products are also easily dropped. Sometimes, profitable product items are also pruned from the product line because it does not fit into the organization's product mix. 4. Product line modernization Line modernization is an essential and regular process in every organization. Every organization needs to update its product lines in terms of new technology, market demand and competitive pressures. Product line modernization involves redressing the current product line through adoption of a new technology and production process, re-‐designing the product to modify its styles and packaging, and launching a new advertising theme to promote the products. 5. Product line featuring Line featuring involves introducing a low-‐priced or a high-‐priced product item to attract a specific group of consumers. •
Low-‐priced items are introduced to attract large number of buyers to the organization's products. They are popularly known as "traffic builders" that function as major attraction for price-‐conscious consumers.
•
High-‐priced items are added on the product line to attract class-‐conscious buyers. Line featuring is mostly a cosmetic strategy as the goal is to attract specific consumer groups rather than achieve actual sales.
Product Mix Strategies Marketing is concerned with satisfaction of buyers' needs and wants. In order to meet buyers' needs and wants an organization has to develop, modify, change and maintain an effective product mix. Product mix strategy involves decisions regarding product width, product length, product depth, and product consistency.
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Product width: Product width refers to the number of product lines the organization handles. Modification of the product width will involve an addition or a deletion of a new product line. Product length: Product length refers to the total number of product items the organization handles. Modification of the product line is possible by adding or deleting a new product item. Product depth: Product depth refers to the number of product versions (designs, styles, brands) the organization handles under a product line. Product depth can be modified by simply adding or deleting a product version under any of the product lines. Product consistency: Product consistency refers to the closeness of various product lines in terms of the consistency factors, such as end uses, production process, technology and distribution networks. Product consistency can be enhanced by adopting one or more common factors by the various product lines. When an organization visualizes a new profit opportunity in the market, it is bound to add a new product line that expands its product width. Many business houses in Nepal, such as Golcha Organization, Nepothene Group, Chaudhary Group has been regularly expanding their product widths. Golcha Organization has also maintained some level of product consistency by adopting common distribution network. Business organizations regularly modify their product lengths and depths by adding and deleting product items and product versions. SERVICE PRODUCT STRATEGIES Meaning of Service Service marketing is one of the major activities in the contemporary economy. More than half of the consumption expenditures are made for buying services. The demand for services expands with social development, cross-‐cultural exchanges and growth in per capita incomes of people. According to Philip Kotler "a service is any act or performance that one party can offer to another that is essentially intangible and does not result in the ownership of anything. Its production may or may not be tied to a physical product".9 Every offer to the market has some component of services. For instance, the offers to the market range from pure goods to pure services. Even pure goods provide basic services to the buyers. Most of the consumer durables are sold with accompanying services, such as delivery, installations, advice, repairs, maintenance, warranty etc. Hotel, restaurant, cinema and other entertainment and amusement services 9
. Op. Cit. , Kotler, p. 467.
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are marketed on the basis of tangible goods, such as the quality and variety of meals, the layout and decoration of the place and so on. Transportation services have to make heavy investment in tangible goods in order to provide the service. Even pure services, such as beauty and health care services need certain equipment to provide the service.
PRODUCTS AND THEIR SERVICE COMPONENTS Types of offers
Examples
Service component
Pure goods
Toilet
soap,
tooth-‐paste,
razor No explicit service attached but tangible goods
blades, sugar, salt etc. Goods
with Cars,
accompanying
refrigerators,
provide different services to the buyers. computers, Supplementary services such as delivery
television sets etc.
provided with the core goods.
services Hybrid services
Restaurant meals, hotels, cinema Customers etc.
Major
service-‐ Airline travel
consider
the
tangible
part
important purchase variable The major offer is service but the customer is
minor goods
provided with some minor goods.
Pure service
Insurance, banking, consultancy etc. The offer consist of pure services.
Nature of Service Services have up to four characteristics: intangibility, inseparability, variability and perishability. •
Intangibility: Services are intangible and they can not be seen, felt, heard, smelled and tasted before they are acquired. The only information consumer has about the service are the promises of satisfaction. Intangibility of the service causes a great deal of uncertainty for buyers. Buyers look at tangible components, such as people, place, equipment and communication to reduce the uncertainty factor to an acceptable level. Service providers also give emphasis on the tangible components to reflect the quality of their services.
•
Inseparability: Services are normally inseparable from the service provider. The place of production and consumption of services are not separate. Because of the inseparability factor, the provider-‐customer interaction is very important in service marketing. The interaction affects the outcome of the service transaction.
•
Variability: Services provided by different individuals and organizations widely differ in price and quality. The price and quality of service are dependent on: who provides the service, how they are provided and where they are provided? Service industries normally make substantial investment in training of personnel to make them competent to provide better services to customers. They
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also give adequate attention on staff motivation to maintain a consistent quality of services. Some service providers give at-‐home services to customers for higher prices. •
Perishability: Services are produced and consumed at the same time. Services can not be stored for future use. This poses problem for the service provider to manage the demand for services. Some services providers, such as telephone companies, airlines, hotels vary their prices according to time or seasons in order to shift the demand from peak to off-‐peak periods.
Service Marketing Strategies Marketing strategy for services is not very different from marketing strategy for goods. Service-‐marketing also operates under the same environmental variables as marketing for goods. Service marketing also involves the location of target markets through market segmentation strategy. It requires the assistance of marketing research activities to plan the service marketing strategy. Service is developed and planned in similar manner as goods. Service marketing is also based on the traditional strategies built over product, place, price and promotion. However, due to the unique nature of services three more variables (3 Ps) -‐ people, physical environment and process -‐ are added on the original 4 Ps. The following section briefly describes the 3 Ps of service marketing. People In service marketing, people are the critical variable as most services are provided through human resources. Therefore, the selection, training and motivation of employees are the important activities in service marketing. •
Internal marketing: Service marketing not only requires external marketing through the use of 4 Ps but also effective internal marketing. Internal marketing includes all those activities undertaken by an organization to train and motivate employees to serve the customers well. Service oriented organizations, such as hotels and airlines make huge investments in their human resources. They strongly believe that every rupee spent on their employees is a capital investment that will eventually be returned to the organization.
•
Interactive marketing: Besides internal marketing, service organizations also need to practice interactive marketing. Interactive marketing describes the employees' skill in providing the services to the customers. Since most services are marketed directly, the quality of the service is dependent on the quality of the customer-‐service provider relationships. Customer satisfaction is fully determined by how the service provider interacts with the customers. Thus, successful service marketing organizations focus their attention on both their employees and customers. In
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fact, there is a service-‐profit chain10 in operation that links service organization's profits with employee and customer satisfaction. This service-‐profit chain consists of five links. Internal service quality: Internal service quality is achieved through a high emphasis on careful employee selection, intensive training, a high quality of work environment, and a strong support for the front-‐line staffs who directly deal with customers. These activities are expected to result in satisfied and productive employees. Satisfied and productive employees: Satisfied, motivated, loyal and hard working employees are able to create greater service values for the customers. Greater service value: More effective and efficient customer value creations normally result in the development of a large number of satisfied and loyal customers. Satisfied and loyal customers: When an organization develops large number of satisfied and loyal customers, it can achieve healthy profits and growth. Healthy profits and growth: When it has more profit it can invest more on its employees that result in higher service quality. Physical Environment Most services are intangible and customers can not easily judge the quality of service until they buy and use the service. A service marketer also faces strong challenge to differentiate their services from competitors' services. Customers also find it very difficult to differentiate the services offered by various organizations. In this situation, service providers use physical environment to communicate to customers about the quality of their services. Hotels present physical evidences of quality through an elaborate decoration of front offices, glamorous picture of the environment, rooms, food, drink, and their personnel. Similarly, airlines highlight their seating, food, drink and employee competence to communicate about the quality of service. Even a barber shop presents comfortable chairs, clean towels, and large mirrors as physical evidences of quality. Process Service differentiation is also achieved through a difference of service delivery methodology or process. Service providers can adopt a variety of delivery processes and charge different prices for its services. For instance, restaurants can be fast-‐foods, buffet or candlelight. They may offer continental, Chinese, Indian or Nepalese food. They may have bars, or the drink may be served at the table. Similarly, hotels can be bed and breakfast, lodges, non-‐star classes, star classes, jungle lodges etc. They may have golf-‐courses, swimming pools, tennis courts, health clubs etc. 10
. Op. cit.,Kotler and Armstrong, p. 663.
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Differentiation implemented over the delivery process can contribute to build an image for the service organization. The image can also be used to communicate the quality of service to customers. BRAND EQUITY BUILDING Brands have existed for the last few centuries. However, it has become a major part of the marketing strategies since the 1980s. Brands and branding have not only become major focuses of marketing strategies but also part of the financial strategy as it is now recognized as one of the key intangible assets popularly known as brand equity. American Marketing Association defines brand as “name, term, sign, symbol, or design, or a combination of them, intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition”. Marketing professionals think that the AMA definition is too narrow to explain the current scope of branding. The definition only highlights the identification role of branding and they feel the AMA definition has “small-‐b-‐brand”, while their perspective of a brand has “big-‐B-‐Brand”. The Anatomy of a Brand Figure 1: THE ANATOMY OF A BRAND (Hankinson, 2000:483).
BRAND PROPOSITION
FUNCTIONAL ATTRIBUTES OF THE BRAND
SYMBOLIC VALUES OF THE BRAND
BRAND IMAGE AND POSITIONING
BRAND PERSONALITY
1. Brand Proposition: It is the totality of functional benefits, symbolic values, image values, and other psychic values that a consumer receives from using or owning a brand. 2. Functional Attributes: Functional attributes describes extrinsic, tangible properties of the brand. It mainly includes the appeal to senses and to reason such as durability (Mercedes Automobiles), health (Lifebuoy and Cinthol), and cost effectiveness (Duracell).
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3. Symbolic Values: Symbolic values include intrinsic and intangible properties of the brand such as beauty (Fair & Lovely), fun (Chocofun), fantasy (Smirnoff vodka), and thrill (Disneyland). Symbolic values appeal to the consumers’ emotions 4. Brand Image and Positioning: Brand image is how consumers perceive the brand in terms of its functional attributes and symbolic values. For example, consumers may perceive Nokia cellular phones to be well built (attributes) and reliable (benefits), while they may perceive Motorola as modern (symbolic values) and trendy (personality). Brand positioning is the strategy of the brand-‐ owner to place the brand in a unique position in relation to the competitive brands. Positioning is normally built around the images perceived by the consumers. 5. Brand Personality: Brand personality is the effort of the brand-‐owner to put life into the brand so that consumers will perceive it as “trendy”, “bold”, and “sophisticated”. BRAND BUILDING PROCESS Brand building is a very tough exercise that takes a longer period of time and heavy investments. There are several steps involved in the brand-‐building process. The process is directed towards building brand equity. Figure 3: THE BRAND BUILDING BLOCKS
BRAND RESONANCE BRAND JUDGMENT
BRAND PERFORMANCE
BRAND FEELINGS
BRAND IMAGE
BRAND AWARENESS THROUGH BRAND IDENTITY OR SALIENCE
Relationships What about you and me?
Response What about you?
Meaning What are you?
Identity Who are you?
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Brand Awareness: Identity or Salience Brand identity or salience can be achieved by creating brand awareness and positive experience among the customers. Brand identity is established through the brand’s name, logo, colors, tagline, and symbol. Brand awareness is measured though the following questions: •
How often the brand is evoked under various situations and circumstances?
•
To what extent is the brand “top-‐of-‐mind” of the customers?
•
How easily is the brand recalled and remembered?
•
What types of cues or reminders are necessary for recall?
•
How pervasive is the brand awareness?
Brand Performance Brand performance is associated with its functional attributes and benefits. Brands are expected to meet customers’ functional needs. Thus, it refers to the following intrinsic properties of the brand in terms of the product or service characteristics: Questions Asked by Customers
Performance Factors to be considered by
About the Brand
Marketer on the Brand
What is it made of?
Primary
ingredients,
basic
features,
and
supplementary features. How good is the quality and performance?
Product reliability, durability, and serviceability.
How can it be maintained?
Service effectiveness, efficiency, and empathy.
Does it meet the aesthetic needs?
Style and design.
Does it suit the affordability factor?
Price.
Brands are expected to perform according to customers’ expectations. Buyers are generally aware of the benefits or harmful effects of the basic ingredients. They also have a minimum expectation of the basic features. They look for supplementary features in their brand choice. Brand Image Brand image deals with the properties of the brand to meet customers’ psychological and social needs. Brand image is how people perceive a brand. It is mainly concerned with the intangible aspects of a brand. Brand image associations cannot be developed merely through promotional tools. Promotional tools must be combined with customers’ own experience with the brand. The brand campaigns at best can develop brand knowledge and brand preference. Brand images are not built by advertising and publicity alone but through brand experience. The intangible aspects linked to a brand can be of the following four categories: 1. User Profiles: Brand image associations are based on the type of people who use the brand.
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2. Purchase and Use Situations: Brand image associations are also based on the type of conditions or situations in which the brand is bought and used. 3. Personality and Values: Brands often take the personality trait and characterized as being modern or traditional, trendy or old fashioned, exotic or dull. Marketers try to develop their brand’s personality according to how people feel about the brand. 4. History, heritage, and experiences: Finally, the brand’s past performance history and customers’ past experience with the brand contribute to the development of the brand image. Experiences of friends, colleagues, neighbors, and acquaintances also contribute to the development of a particular brand image. It is important for a brand to have good image through positive associations. Brand images should be built around three key factors – strength, favorability, and uniqueness. Thus brand image should be strong and visible. The image should be positive and not comparable with competing products. Creating a strong, favorable and unique association is a very challenging task. Strong brands that we see in the market today have been successful in establishing favorable and unique associations with consumers. Some examples of such international brands are: Intel (performance and compatibility), Marlboro (Western Imagery), Coke (Americana and refreshment), and Nike (innovative and athletic performance). In Nepal’s market such associations have been established by Nanglo (good food), Group 4 Falk (trustworthiness), and Shikhar (achievement). Brand Judgments Brand judgments focus on customers’ personal opinions and evaluation with regard to the brand (Keller, 2004:88). Customers form brand judgments based on their brand performance experiences and brand imagery. Customers are likely to form different kinds of judgments on a brand. From the perspective of strategic brand management, judgments based on the brand’s quality, credibility, consideration, and superiority are very important. 1. Brand Perceived Quality: Among the various brand attitudes the most important is the perceived quality of the brand. Brand quality perceptions are mainly based on the perception of value and satisfaction. Customers form their brand attitudes based on an overall evaluation of the brand. Brand attitudes are very important in marketing because they are the bases of all positive actions (brand choice) and negative actions (brand rejection). 2. Brand Credibility: Brand credibility is mostly based on the reputation of the manufacturer or owner of a brand.
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3. Brand Consideration: Brand quality and credibility are very important for a brand. But what is more important is brand consideration. Customers should not only think whether a brand is of high quality and highly credible, for the success of the brand they should consider purchasing and owning the brand. 4. Brand Superiority: Customers perceive a brand as superior when they view a brand as ‘unique’ and better than other brands. A brand to be perceived as a superior brand should offer benefits and values that other brands can not offer. Therefore, in order to build superiority factors on a brand the marketer should be able to create unique and value-‐based brand associations. Brand Feelings Brand feelings are customers’ emotional responses and reactions with respect to the brand (Keller, 2004:90). Brand feelings are the set of emotions evoked by the brand. These emotions are developed through the marketing programs. The feelings not only appear during the exposures to advertisements but also during the brand purchase, consumption or use. Consumers may have positive and negative feelings at mild and intense levels. There are six types of brand-‐building feelings: 1. Warmth (soothing types of feelings): The brand makes consumers feel a sense of calm or peacefulness. Consumers may feel sentimental, warmhearted, or affectionate about the brand. 2. Fun (upbeat type of feelings): The brand makes consumers feel amused, lighthearted, joyous, playful, and cheerful. 3. Excitement (a different form of upbeat feeling): The brand makes consumers feel energized and feel that they are experiencing something special. Such feelings make consumers feel “being alive” or “sexy”. 4. Security: The brand produces a feeling of safety, comfort, and self-‐assurance. The brand reduces consumers’ worries and concerns. 5. Social Approval: The brand produces a feeling of other peoples’ approval. Consumers feel that family members, friends, colleagues, and neighbors would look favorably to the consumption and use of the brand. 6. Self-‐respect: Consumers feel that they gain self-‐respect from the consumption and use of the brand. Such brands evoke a feeling of pride, accomplishment, and fulfillment. Among the six types of feelings the first three (warmth, fun, and excitement) are experiential and immediate and increasing in level of intensity, while the latter three (security, social approval, and self-‐ respect) are mostly private and enduring, and increasing in level of gravity.
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Brand Resonance The final brand building block involves development of customer resonance – the ultimate relationship and level of identification that the customer has with the brand (Keller, 2004:92). Brand resonance refers to the nature of relationship between the customers and the brand. Harley-‐Davidson motorbike and Apple computers are found to have a very high brand resonance. Resonance refers to the psychological bond between the consumer and the brand reflecting in brand loyalty related behaviors (repeat purchase, brand advocacy, referrals, and recommendations). Brand resonance can be categorized into the following four dimensions: 1. Behavioral Loyalty: Behavioral loyalty is expressed either in terms of repeat purchase behavior of customers or the share of the brand in the total purchase of the customer. In other words, it relates to how often do customers purchase the brand and how much do they purchase? The life time value of behavioral loyalty is enormous. The endorsement value of behavioral loyalty is an added benefit to the company. 2. Attitudinal Attachment: For effective resonance, customers should develop personal attachment to the brand. Customers should go beyond having positive attitude and view the brand as “something special”. Customers should “love” the brand, describe it as “one of their favorite” possessions, and view it as a “little pleasure” that they look forward to (Keller, 2004:93). 3. Sense of Community: Brand resonance reaches its new height in its social dimension when consumers or users of a particular brand come close together and form a brand users’ club or society. Through such associations they develop a kinship or affiliation among the brand users. Such social networking is found among the users of Harley-‐Davidson motorbikes and Apple computer users. 4. Active Engagement: Finally, brand resonance reaches its highest point when brand users are actively engaged in investing time, energy, money or other resources in the brand. They may join the brand club, receive updates on the brand, remain in constant contact with other users of the brand, and formally or informally represent the brand. At the active engagement stage, the consumers regularly visit the brand Web site and participate in chat room. At this stage consumers play the role of “brand ambassadors”.
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Unit 9: PRICING STRATEGIES MEANING OF PRICE AND PRICING Price is the value placed on what is exchanged11. Something of value, usually purchasing power is exchanged for satisfaction and utility. Goods, services, ideas, advice, rights etc., are exchanged and their value measured by their price. Price is usually expressed in terms of monetary units. Price is expressed in different terms in different exchange transactions, such as Interest, Rent, Fare, Fee.
Pricing is the act of determining the exchange value between the purchasing power and utility or satisfaction acquired by an individual, group or an organization through the purchase of goods, services, ideas, rights etc. PRICING PROCESS Pricing involves many activities performed within an organization to determine the exchange value. Pricing is the most secretly performed activity in a business organization. The pricing process involves determination of pricing objectives, estimation of costs, estimation of sales at different prices, evaluation of competitors’ prices, and determination of the price of the product or service. 1. DETERMINATION OF PRICING OBJECTIVES The pricing objective reflects the overall goal of the organization. It describes what an organization wants to achieve through pricing. An organization may set its pricing objective in terms of profit, sales, or status quo orientations. (i) Profit oriented objectives Profit oriented objectives of pricing can be set in terms of profit maximization and return on investment. Profit maximization: Profit maximization is a very popular pricing objective. Profit maximization in
•
the short-‐run may project a bad image for an organization equating it with profiteering, high prices and monopoly. Practiced over the long-‐run, profit maximization is beneficial to the organization and the society as whole. Profit maximization leads to the healthy growth of efficient organizations and punishment to inefficient organizations. Since profit maximization poses operational difficulty in terms of measurement, many organizations prefer to set profit target goals. Return on investment: Manufacturing organizations make heavy investments to establish and start
•
their business. They usually manage pricing in order to achieve a specified return on investments in research, development, manufacturing and commercialization of the product. A target return objective enables the organization to establish the level of profit it requires to secure a satisfactory return on investment. 11
. Op. cit .Pride and Ferrel, p. 561.
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(ii) Sales oriented objectives Sales oriented pricing objectives are focused on increasing the market share and sales volume. •
Maintain or expand market share: Maintaining or expanding the current market share is a popular pricing objective for many organizations. Some organizations adopt the passive objective of market share defense in a highly competitive market. Many other organizations adopt more active objective of market share expansion.
•
Increase sales volume: Pricing objective may also be determined in terms of increasing current sales volume. Organizations adopting this objective believe that higher sales volume will lead to lower unit costs and higher long-‐run profits. In a price sensitive market, an organization may achieve healthy growth by pricing its products at the lowest possible point and achieve profits through the sales volume.
(iii) Status quo oriented objectives Status quo oriented objectives are targeted at maintaining the current situation of the organization. These objectives are very passive in nature, and the organization does not take any initiative in price change. Such objectives are survival, price stabilization and meeting competition. •
Survival: Organizations operating in a highly competitive market may set their pricing objective in terms of survival. This objective calls for maintaining a lower price profile in the market. The organizations following survival objective do not wish to change the existing price and face sharp reactions from competitors.
•
Price stabilization: Some organizations set their pricing objective in order to maintain the status-‐quo on the price, revenue and profit. They normally adopt a pricing that minimizes risk of loss. Such an objective is adopted by small follower organizations in a market dominated by a strong market leader.
•
Meet competition: In a highly competitive market, an organization may set the pricing objective with a view to meet competition. This objective requires the organization to follow the prevailing market price. In a market that has a market leader, the follower organizations watch and follow the price of the leader.
2. ESTIMATION OF COSTS Costs provide the lower limit for setting the price of a product. The product cost is a combination of different costs incurred during production and distribution of the product. It includes the following types of costs:
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•
Cost of product: the expenses incurred in the manufacture and packaging of the product. It includes costs on direct labor, materials, factory overheads, and management. Some of these costs are variable and some others fixed in nature. These costs are subject to some amount of management control.
•
Selling costs: the expenses for physical distribution, sales force management and incentives paid to channel members. These costs vary according to the physical design of the market, the size of the market and the bargaining power of the channel members. Management can exercise less control on these costs.
•
Promotion costs: the expenses for advertising, sales promotion and publicity. These costs vary according to promotional needs of the product. Marketers create different images for their brands in order to establish them in better competitive positions. The images may be based on economy, efficiency, prestige, status etc. Such brand images are often treated as assets (brand equities). Creation of different images involves different level of communication expenditures that must be included in the cost of the product. Management can exercise some control on these costs.
3. ESTIMATION OF DEMAND The market demand is a very strong factor for price determination. The market demand for the product sets the upper limit of the price. Buyers consciously or unconsciously calculate the value of owning the product. These values are generally expressed by buyers at a range rather than absolute amount. These values are the expected price of the product. The price setter has to determine the sales volume at the expected prices and arrive at an estimated demand for the product at different prices. The demand for a product is influenced by several factors, such as the nature of the product and intensity of buyers' need for the product. Necessity products do not respond as quickly to price changes as luxury products, and hence, marketers do not gain much by setting the price below the market level. When intensity of need (demand) for a product is high, buyers are ready to pay higher prices. 4. EVALUATION OF COMPETITORS’ PRICES As costs set the lower limits and demand the upper limits, the actual price point is determined by prevailing price level in the target market. Most of the undifferentiated products are sold at the prevailing market prices. Even in case of the differentiated products, the price setter can not go far beyond the prevailing market price. The type of competition the organization face in the market determines the price of the product. If the competition is at the level of product form, there are no close substitutes, and hence, there is more pricing freedom for the marketer. If the competition is in terms of generic product, the marketer has to closely watch the price and other offers of competitors before determining the price of the product. If the competition is at the level of brands, consumers can easily switch brands based on their relative price and
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values, and hence the marketer is forced to sell the product at the prevailing market prices for similar brands. An organization often has to consider the interests of the marketing intermediaries in the price. Resellers expect a fair share from the price as markups, commissions and incentives. Social concerns on prices are normally represented by the voices of consumer associations. Thus, in a market where these associations are working actively to protect consumers' interests, the marketer has to take into account their concerns and possible reactions in price setting. The consumer associations in Nepal are very weak, politically motivated, and less concerned with the consumer welfare, and hence, marketers need not take them as a pricing variable. 5. DETERMINE THE PRICE After careful analysis of the price factors, the firm can select the appropriate methods of pricing. Pricing methods are of three types: cost oriented methods, customer value (demand) oriented methods and market (competition) oriented methods. (i) Cost oriented pricing methods Cost oriented pricing methods are primarily based on the notion that the price should cover all types of costs and be able to give the organization a fair amount of profit. Cost oriented pricing methods include cost-‐plus or markup pricing, target return on investment pricing and target profit pricing. •
Cost-‐plus or mark-‐up method: This is the simplest method of pricing which involves a calculation of the fixed and variable costs per unit and adding the desired profit margin on the total cost. Cost plus pricing is effective and accurate only when the price setter can correctly estimate the production and sales volumes. It is popular among resellers mainly because they handle a product only to the extent of its demand during a specific time period. They do not hold large stocks either. Small manufacturers also can produce in small lots and are generally able to sell all of their outputs.
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Target return on investment pricing: This pricing method is popular among manufacturing organizations that need to recover a fixed target return (profit) on their investment from the price. Under this method, the desired return on investment is added to the total cost to arrive at the price. This method also suffers from the same shortcomings as the cost-‐plus method. If the quantity produced and sold during the period differs from the estimated quantity, the manufacturer will not arrive at the rate of return on investment as envisaged at the time of price setting.
(ii) Value (Demand) oriented pricing method Value oriented pricing methods are based on customers' value perception rather than costs of the product. A large number of companies are adopting this form of pricing. There are two types of value oriented
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pricing methods: perceived value pricing and customer value pricing. Perceived value pricing is mainly used for a new product, whereas customer value pricing is generally used for an existing product. •
Perceived value pricing: Perceived value pricing is gaining popularity for the pricing of consumer products. Under this method, the firm collects buyers' perception of value (price) of the product and fixes the price around the average perceived value. Cost and demand are secondary factor in this method of pricing. Organizations use non-‐price variables, such as packages, product quality, product image etc. to collect the price perceptions from buyers. Price perceptions are collected from a large number of consumers at different places and at different points of time. Price perception on a new product is collected during different stages of the product development process. Thus, perceived value pricing heavily depends on the market research techniques.
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Customer value pricing: Under this method, an organization may charge a very low price for a high quality product to create special customer value for the product. The price charged may sometimes be below the costs. Such method of pricing is adopted by those organizations that have substantial width and depth in their product line or mix. They adopt customer value pricing on only a few product items while most of the other products are sold at premium prices. They try to achieve higher sales of premium priced product items by attracting customer groups through the high-‐value lower priced products. This method of pricing may allow an organization to lower down the product costs of high customer value products through large sales volumes.
(iii) Market or competition oriented pricing methods The market oriented pricing methods are based on the competitors' prices. Under this approach the price setter does not consider costs and demand as major pricing factor. The price is changed only when the industry price level changes. An organization operating in a highly competitive market may price equal to the competitive level, slightly above the competitive level or slightly below the competitive level. •
Going-‐rate pricing: Under going rate pricing, the organization simply bases its price at the prevailing market price. An organization selling an undifferentiated product may determine the price equal to competitive level. This method of pricing is adopted by organizations operating in an oligopolistic market, where few large competitors serve a finite number of customers. Many of the industrial products are based on going rate pricing.
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Pricing above competition: If the organization has a product that can be differentiated to some extent, it may price the product slightly above the prevailing market price. If the marketer has a higher image or goodwill, it can afford to set the price above competitive level.
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Pricing below competition: Pricing below competition is a popular pricing method adopted by organizations that operate in a highly competitive market. Organizations who price below competition believe that more buyers can be attracted by the lower prices. However, this involves
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some amount of risk as buyers may equate the lower price with lower quality. Therefore, a lower price does not always create higher customer value. PRICING POLICIES AND STRATEGIES Pricing policies are the guidelines for management of price and pricing from a long-‐term perspective. The pricing objective determines the formulation of the pricing policies. On the other hand, pricing strategies are formulated under the policies to deal with changing situations in the market. PRICING POLICIES Pricing policies are formulated to guide the price setter and the marketer to take a particular course of action in handling the price while dealing with different market areas, customer groups, competitors, channel members and the organization's product line. Policies do not undergo frequent changes and are retained for a longer period of time. The major pricing policies are formulated to cover long-‐term issues in the areas of price flexibility, geographical pricing, price lining and channel members' incentives. Price flexibility policy: An organization has to determine its policy regarding the flexibility of the price. In this regard, it has two options: to follow a one price policy or a variable price policy under which the marketer practice price discrimination. Geographical pricing policy: Geographical pricing involves a policy decision on how the freight costs are adjusted on the price. The price is determined by a policy decision on who pays what part of the freight costs. Price lining policy: Organizations marketing different product lines have to determine whether they want to establish some logical price relationships among the products in a product line. Such relationships are maintained in terms of price steps or price points. PRICING STRATEGIES Pricing strategies are formulated under the parameters of the pricing objectives and policies. Pricing strategies help the marketer to deal with situations arising in the market as a result of competitors' actions or due to changes in marketing and environmental variables. Price management over the product life cycle Introduction Stage: Every organization needs to adjust the marketing mix for a product as it moves from one stage of the life cycle to the other stage. In course of the marketing mix adjustment, an organization needs to adopt different pricing strategies in the four stages of the product's life cycle.
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Pricing strategy during the introduction stage differs across innovative products, modified products and imitative products. For innovative products, marketers can adopt price skimming, while imitative products are sold under market penetration pricing. Modified products are sold under competitive pricing. Price skimming: Price skimming is an over-‐charging strategy. It involves charging a very high price during the introduction stage of the life cycle. This strategy is suitable only for innovative products that cannot be compared with any of the existing products, consumers are not aware of its real value, and there is a large size of market pioneers and early adopters who desperately want to own the new innovation. Price skimming is possible when there is no competition in the market and the entry barriers for new competitors are also high. Penetration pricing: Penetration pricing involves introducing a new product at a far lower than the competitive price level. This is an under-‐charging strategy. This strategy is normally adopted by an organization introducing an imitative or copy product that has many generic and brand substitutes in the market. When consumers are fully aware of the real value of such an imitative product, they can be persuaded to buy only under a very low price. Marketers adopt penetration pricing in the hope that they can achieve easy penetration and rapid market expansion during the introduction stage. Penetration strategy is viable only when the market for the product is price sensitive. Competitive pricing: Competitive pricing involves introducing the new modified product at a price that is close to the competitive price level. Marketers may offer good value for consumers by introducing a modified product with improved quality image at slightly lower than the competitive price. As an alternative, they can also create premium product value for consumers by offering the improved product with added benefits at slightly higher than competitive price. The higher price is maintained to convince consumers that the improvements are real, not superficial. Growth Stage: Market growth stage of the product life cycle is characterized by a rapid growth in sales. During this stage, marketers need to modify their introductory pricing strategies. Normally, organizations that adopted price skimming during introduction stage gradually lower their price in order to expand the product's market size. Maturity Stage: Products face excessive competition during the maturity stage of the life cycle. In this stage, most products face gradual but slow decline in the sales as there are fewer buyers interested in the product. During the maturity stage, the product is bought by consumer groups for logical reasons, such as good value reflected in the lower price or premium values reflected in extra benefits attached with the offer. In order to maintain sales levels, some organizations reduce their prices to create good value for consumers, while many others go for non-‐price competition to create premium values on the product.
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Decline Stage: Products face a rapid decline in sales and profits during the decline stage. All promotional tools become useless during this stage. Organizations can prolong the life of their dying products only through severe price reductions to appeal to laggards of the market. Other Pricing Strategies Psychological pricing: Psychological pricing is a useful strategy for marketing of consumer goods. This form of pricing encourages purchases on emotional responses. The major psychological pricing strategies are odd and even number pricing, prestige pricing, customary pricing, promotional pricing and superficial discounting. Odd and even number pricing: Odd and even number pricing is normally used at the retail level. The odd number pricing is used to imply economy or bargain. For instance, when a product is sold at Rs. 99.95, buyer perceives the figure as less than hundred, and therefore it is cheap. Even number pricing is used to enhance the quality image of the product. If prices are fixed at round figures like Rs. 500, Rs. 1,000 or Rs. 2000, consumers normally denote the price in terms of good quality of the product. Prestige pricing: In prestige pricing, the prices are set at an artificially high level to provide a prestige image to the product. Prestige pricing is frequently used in pricing of liquors, custom jewelry, perfumes, sports cars and fashion clothes. Some of the private schools in Kathmandu have based their fees on the prestige pricing strategy. Promotional pricing: Promotional pricing is mostly used by department stores and super markets. Under this strategy, the store sets very low price on one or two popular items. Buyers are drawn to the store through the low price. Once they are inside the store, they end up buying many more high priced items along with the promotional priced products. Sometimes, a store may announce special event prices to promote the product during festival months or New Year. Off-‐season pricing is another form of promotional pricing. Superficial discounting: Superficial discounting uses deceptive mark-‐downs on products. There are various methods adopted by retailers to create an impression on the buyers that the product has a discounted price, while in reality there are no discounts offered. The retailer may practice a fictitious comparative pricing by putting a new higher price tag on top of the original price and then crossing the higher price to convey a message that the current price is lower. Sometimes, the retailer may write "Was Rs. 300, Is Rs. 250" or "Last Week Rs. 300, This Week Rs. 200" for a prolonged period of time or hang a "SALE" sign outside the store throughout the year.
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INITIATING AND RESPONDING TO PRICE CHANGES Internal or external forces often lead an organization to change its prices. Price changes are often initiated by the organization. The organization also has to design its strategy to deal with price changes initiated by competitors. Initiating price changes An organization may initiate price changes to deal with new forces arising within the organization or the market. The price change may occur at both directions: increasing prices or lowering prices. Increasing price: Increasing price of a product is an attractive proposition for every business organization, since a small increase in the price results in huge increase in the revenue and profits. If an organization feels that the sales volume will not be affected by a small price increase, it may always be tempted to increase the price. Most price rises are the results of inflation that causes the organization's costs to increase. Costs often increase when the government introduces new taxes or raises the current tax rates. Increase in the price of any factors of production -‐ wage levels, raw material prices and interest rates -‐ cause the price to increase. Often, organizations anticipate such increases and may raise the price of its products in advance. Sometimes, an organization may increase the price in order to reduce the demand for the product. When an organization cannot increase the supply of its over demanded product, it may raise the price level to manage the demand at the current supply point. Lowering price: Several situations lead an organization to reduce the price of its products. Organizations with excess capacity try for extra sales in order to achieve higher capacity utilization rates. In such a situation, it may find lowering price the most easy method of achieving higher sales volume. Some organizations often lower the price to achieve higher sales volume, and thereby capture larger market share. These organizations believe that once they are able to dominate the market and hold to a large market share, the resulting sales volume may allow it to achieve economies of scale. Lowering price is a very risky strategy. It usually invites sharp reactions from competitors and often results into a price war. Responding to price changes An organization faces a strategic decision situation when competitors initiate price changes. Responding to the price change, particularly in the case of price cuts is a difficult question. The organization has to consider the objectives and time frame of the price change. The following clues are important in responding to price changes: •
If the price cut is has been initiated in order to use excess capacity or to cover rising costs, it does not warrant any response.
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If the price change is temporary or short-‐term, initiated to clear old stocks, there is no need for response.
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If the objective is to dominate the market and the price change is a long-‐term, the organization has to respond quickly and effectively.
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The organization should also evaluate the consequences of non-‐response to the price change.
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If the price change does not seriously affect it current sales and market share, there is no need for response.
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Before showing any response, it should carefully watch how other competitors react to the price change.
Responding to a competitor's price change is also influenced by the status of the organization in the market. Small follower firms are forced to follow the price changes initiated by a large organization that performs the role of the price-‐leader. The price leader normally establishes the market price that is adopted by several price-‐follower firms. Sometimes, the price leader is also troubled by smaller firms through severe price cuts. In such a situation, the price-‐leader has the options of response or non-‐response. The leader organization may not respond if it does not expect to lose any significant portion of its market share. If the price cut is expected to seriously hurt the market share and profit situation, the leader organization may take one or more of the strategic options: •
Option 1: Increase customers' perceived value of the product by increasing promotional level.
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Option 2: Increase the price complemented by an improvement in quality and features of the
product. This requires a re-‐positioning strategy to establish the brand at a higher price position. •
Option 3: Add a new lower price brand to the current product line and position it directly with the attacker's brand. This trading-‐down strategy helps the organization to maintain high quality image for the old brand.
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Option 4: As a last option, reduce the price to off-‐set the negative effects of the price attack.
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Unit 10: DISTRIBUTION STRATEGIES MEANING OF DISTRIBUTION Distribution is concerned with all the business activities revolving around the problem of getting the product from the place of manufacturing to the final consumer. Distribution deals with two aspects of product movement: marketing channels and marketing logistics. Distribution Components Distribution has three major components: Marketing channels: Distribution involves legal and financial activities performed in the transfer of
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title to the products. This part of distribution is concerned with the sale of products by a person or institution to other person and institution, and the subsequent payments for the products. This part of distribution is known as marketing channels or channels of distribution. Marketing logistics: Physical activities are performed for the movement and storage of products. This
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part of distribution is known as marketing logistics. Marketing logistics includes five major activities: transportation, warehousing, inventory management, physical handling and order processing. Channel management: Distribution involves some promotional activities directed at people and
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institutions involved in the distribution process. This part of distribution is known as channel motivation. It also involves management of channel conflicts. CHANNEL DESIGN AND SELECTION According to William J. Stanton, "a distribution channel consists of the set of people and firms involved in the transfer of title to a product as the product moves from producer to ultimate consumer or business user".12 The channel of distribution involves several individuals and institutions such as producers, suppliers, industrial users, brokers, agents, wholesalers, retailers and consumers. CHANNEL DESIGN FOR CONSUMER PRODUCTS There are four design alternatives for the distribution of consumer goods, ranging from a zero level to level three. •
Under zero level design, the producer may distribute the merchandise directly to consumers by-‐ passing all marketing intermediaries.
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Under one level channel design, the producer may use retailers to reach consumers.
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In two levels design, the product may reach consumers through wholesalers and retailers.
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In three levels design, the producer may use the agents to contact and execute the sales transaction to different categories of buyers.
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. Op. cit.Stanton et. al. , p.363.
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Producer -‐ consumer channel: If producers choose to perform all the distribution functions, they may distribute the product directly to consumers. •
Services are generally marketed through the zero level channels.
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Producers of merchandise may distribute directly to consumers through multiple shops and chain stores.
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Many producers market their products directly under the mail-‐order arrangement.
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Some producers have started direct marketing through the Internet services. Consumers can use inter-‐net services to order directly from producers and receive the product by the mail or courier. The payments for the products are arranged through credit cards, drafts or personal cheeses.
Producer -‐ retailer -‐ consumer channel: Some producers sell directly to retailers by-‐passing the wholesalers. Producers, normally try to avoid the marketing costs of selling merchandise in smaller lots. •
If a retailer orders in larger lots, the producer may be interested to sell directly. This way, producers can save a part of the usual discounts allowed to wholesalers.
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Producers generally follow one level channel to distribute products through large retail establishments, such as department stores, super markets and discount houses. A producer may adopt selective distribution policy and distribute through selected retail outlets
Producer -‐ wholesalers -‐ retailer -‐ consumer channel: In terms of channel use, the two levels channel that has both the wholesaler and the retailer in the channel design is the most extensively used. Most consumer goods are distributed intensively with the target of achieving widest possible market coverage. •
Merchandise can be distributed widely only when the producer uses wholesalers to reach large number of retail outlets in different market segments.
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In case of convenience products, the producer may hand over the product to a large wholesaler or dealer. The large wholesaler or dealer may sell the merchandise to area wholesalers, the area wholesalers to sub-‐wholesalers, and the sub-‐wholesalers finally sell the merchandise to the retail outlets.
Producer -‐ agent -‐ wholesaler -‐ retailer -‐ consumer channel: This extremely long marketing channel is used only in special circumstances. Producers try to avoid this design due to its high selling costs. •
This channel is mostly used in international marketing, in which the producer faces distance, language and other cultural barriers to deal directly with local wholesalers. In such a situation, the producer may use a local agent to contact a wholesaler and execute the sales transaction.
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CHANNEL DESIGN FOR INDUSTRIAL PRODUCTS Industrial products also have four alternative channel design options, ranging from level zero to level two. The channel designs for the industrial products are presented in the following diagram:
Producer -‐ industrial user channel: This zero level channel where there is direct marketing between the producer and the industrial user is the most extensively used channel design in industrial marketing. •
Raw materials, installations, fabricating materials and higher priced accessory equipment are directly marketed. Industrial users prefer to deal directly with producers to receive regular supply of products of consistent quality.
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Many installations and accessory equipment need regular maintenance and servicing that are provided by the manufacturers more easily if the products are ordered directly.
Producer -‐ industrial distributor -‐ industrial user channel: This one level channel is less frequently used in industrial marketing. •
It is specifically used for distributing low priced, less complicated industrial products, such as operating supplies and lower priced accessory equipment.
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Government and service marketing organizations often buy high priced equipment through the industrial distributors. Industrial distributors also provide regular maintenance and servicing to capital and accessory equipment.
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Examples of products sold through industrial distributors are photocopying machines, telecommunication-‐communication equipment, computers etc.
Producer -‐ agent -‐ industrial user channel: This one level channel is also less frequently used in industrial marketing. •
Producers use this channel when they need agents to identify, locate, contact and negotiate the sales of high priced capital equipment and raw materials to industrial users.
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This channel is mostly used when the negotiation period is very long.
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This channel is used when producers need agents to undertake the negotiation in foreign markets.
Producer -‐ agent -‐ industrial distributor -‐ industrial user channel: This two level channel is used occasionally. •
Producers who have to sell lower priced industrial products in foreign markets use this channel.
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This long channel design is also followed when the product needs to be distributed extensively and sold through a large number of retail outlets.
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Examples of such products are automobile components, tires, lubricants, paper etc.
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STRATEGIC CONSIDERATIONS IN CHANNEL SELECTION The channel selection is a very important strategic decision in marketing. Channel selection requires a consideration of three major factors: customers, distribution objectives, and channel constraints. Customers Identification of the target customers is the primary consideration in the channel selection. It is highly essential to know who are the customers; what are their demographic and psychographic characteristics; and where do they buy the different products. These factors are major determinants in the channel selection. The marketer has to use market research to identify the influence of these factors in the selection of the channel structures. Industrial and institutional customers generally order directly from the producer or use the agent's services. Consumers normally buy from the retail outlets maintained by the manufacturer or the retailer. In the consumer market, choice of shopping area and retail outlets significantly varies among the upper-‐ class, middle-‐class and lower-‐class buyers. The following customer considerations are important in distribution decisions: •
If buyers are status and prestige oriented, they prefer to buy from high-‐class outlets, such as specialty stores and department stores.
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If buyers are price conscious, they may prefer buying at super-‐markets and discount stores.
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If buyers are prepared to apply more time and effort in buying, the products may be distributed through fewer outlets.
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If buyers seek convenience in buying, marketers should be able to distribute extensively in order to sell the product close to consumers' shopping locations.
Distribution objectives Distribution objectives can be formulated in terms of: (i) exercise control over the channel, (ii) achieve larger market coverage, and (iii) minimize distribution cost. The marketer can not fully adopt all three objectives, as one objective moves contrary to the other. How the marketer formulates the distribution objective determines the selection of the channel structure. Channel control: If the firm wants to exercise control over the channel it should follow the short marketing channel. The manufacturer who distributes directly to consumers can exercise the greatest degree of channel control. The marketer loses control with each successive addition of channel levels. Market coverage: The market coverage is directly related to the intensity of distribution. The intensity of distribution desired by the firm affects the channel selection. •
In intensive distribution, the marketer has the objective of achieving widest market coverage and uses the longest possible marketing channels.
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In selective distribution, the marketer deliberately sets a limit on the number of customers and may distribute with the involvement of fewer levels of marketing intermediaries.
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In exclusive distribution, the marketer targets at a very narrow market coverage and serves selected customers. In such a case it may distribute directly or through one level of marketing intermediary.
Wide market coverage can not be achieved through the short marketing channels. A manufacturer who distributes directly to consumers can serve only a limited number of consumers. If the manufacturer by-‐ passes wholesalers and distributes through retailers it may achieve relatively larger market coverage. Very wide market coverage can be achieved only through the long marketing channels with active participation of wholesalers in the distribution system. Costs Distribution costs vary across different channel structures. The distribution costs include the channel costs -‐ commissions, discounts and incentives paid to channel members, and physical distribution costs-‐ the costs of transportation, storage, order processing, inventory control and product handling. •
In shorter channels, the marketer may be able to reduce product delivery and channel costs, but may suffer heavy inventory holding costs.
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Longer channels involve higher product delivery and channel costs, but may involve lower inventory holding costs.
Consideration of costs also affects the selection of the channel members. Channel costs vary across channel participants, as some channel participants demand higher commission and discount rates than others but may offer different cost saving facilities to the marketer. A marketer needs to evaluate the involvement of the different types of costs in the channel alternatives. The cost analysis is necessary in order to select the cost effective marketing channel in relation to the desired level of channel control and market coverage. In fact, channel selection is a trade-‐off decision on channel control, market coverage and costs. Channel constraints Channel selection is influenced by several constraints associated with products, intermediaries, competitors, and organization. The marketer needs to identify the major factors associated with these constraints and evaluate the effects of these factors in the selection of the channel structure. Product factors: Product factors affecting choice of marketing channel are nature, unit price and technical complexity of the product.
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Nature of the product is a major determinant in channel selection. Perishable products cannot be stored for long duration and need to be delivered quickly to the market. Marketers generally follow short channels for perishable products, while durable products can be distributed through the longer channels. Consumer products are normally distributed through the longer channels, while industrial products are distributed through the shorter channels. Services are also distributed through the short channels.
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If the unit price of the product is high, such as in the case of jewelry or installations, marketers normally adopt direct marketing. Low priced consumer items and operating supplies are extensively distributed through the long marketing channels.
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If the product is technically complex and requires servicing under the manufacturer's supervision, it is distributed directly. General consumable products are distributed through the long channels.
Intermediary factors: Intermediary factors affecting choice of channels are availability, range of services, and terms and conditions of the marketing intermediaries. •
Availability of a distributor is a major constraint. Many new innovations are dumped mainly because; the manufacturer cannot find anyone to take the risk of distributing the product. Therefore, during the introduction stage of the product life cycle, channel choice does not exist for many new manufacturers.
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Marketers also need to evaluate marketing intermediaries in terms of their physical distribution capabilities, experience, expertise and personnel.
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The range of services provided by the intermediary in the area of branding, packaging and financing becomes a major factor for small manufacturers.
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The terms and conditions for the use of an intermediary's service are also a major consideration as it affects the market's costs and profits.
Competitive factors: Competitive factors affecting choice of channels are competitors' channel policies and designs, and benefits provided by competitors to intermediaries. In a competitive market, the marketer has to select a channel design that is not only cost effective but also more efficient than that of the competitors. When a marketer has to share an intermediary's service with a competitor at the wholesale level, the channel choice is influenced by the competitor's commission, discounts and incentive policies. In such a situation, the marketer may have to provide similar or better benefits and services than the competitor. Organizational factors: The organization's overall objectives, its resources and experience in channel management are major factors affecting channel decisions. •
The channel structure of an organization should conform to the organization's overall objectives, marketing goals, policies and strategies.
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It should also be in conformity with the other elements of the marketing mix.
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Many manufacturers recognize the fact that channel management is difficult and needs special expertise, and therefore, hand over the distribution functions to marketing intermediaries.
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Funds and personnel availability for distribution also become a major constraint for many manufacturers who want to distribute directly.
CHANNEL DYNAMICS: ROLE, POWER AND CONFLICTS The channel system is dynamic. There are two types of dynamism in the channel system: structural dynamism and behavioral dynamism. The behavioral dynamism is reflected in the change in the behavior of channel participants resulting into new channel role, power, conflicts and cooperation. The behavioral dynamism refers to the change in role and power relationships in the channel structures resulting in cooperation and conflicts among the channel members. Behavioral dynamism results out of a transfer of channel role, power and leadership positions in the channel systems. Thus, channel dynamics are also concerned with the analysis of the roles, power and conflicts within the channel system. Channel role Each channel member has certain role to play in the channel system. Each channel member also has certain role expectations from other channel members. A marketing channel can function smoothly only when all channel members perform their respective roles. Individual channel members occupy distinct positions in the channel structure. Such positions may be of a channel leader and several channel followers. The channel system operates efficiently only if all participants perform their role without changing their respective positions. Channel power Channel power results out of the control exercised by the channel participants and the leadership position of a participant in the channel system. Control structure changes when one channel member intentionally affects the role of another channel member. The channel leader exercises its authority and power in order to achieve control over the channel system. Channel power may emerge from any of the five sources: •
Reward: A channel member gains reward power by providing financial and other benefits to other channel members. Mostly, manufacturers are able to exercise reward power through introduction of financial incentives directed at wholesalers and retailers. The marketing intermediaries who benefit from such incentives are easily controlled by the manufacturer.
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Coercion: Coercive power is exercised by a channel member by punishing another member. For instance, a manufacturer may exercise coercion by stopping supply of products to a dissident wholesaler or a retailer may exercise a coercive power by not selling a manufacturer's products or withholding sales money.
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Referent power: Referent power emerges from a channel member's desire to join a particular channel system. Many marketing intermediaries show strong desire to sell strong and popular brands. Thus, manufacturers can exercise referent power by owing strong brands. Some manufacturers also show strong desire to join a distribution network owned by a distributor and hence, the distributor in this case has the referent power.
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Expert power: Expert power is based on the belief that a channel member's knowledge and expertise can result in more efficient distribution system. Such expert power is generally assumed by the marketing intermediaries who have accumulated considerable experience and expertise to distribute a product in a particular market.
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Legitimate power: Legitimate power is based on the natural leader-‐follower relationships in the channel system. Such relationships may be based on the respective size of operations, financial strengths, and ownership of strong brands by the various channel participants.
Channel conflicts Channel efficiency depends heavily on the mutual inter-‐dependency between the channel members and effective cooperation in the achievement of channel goals. However, a channel system has several individuals and institutions with highly dissimilar characteristics and varied objectives, which often results in channel conflicts. If and when conflict arises, the channel system does not function smoothly. Conflicts arise mainly due to the following factors: •
Goal incompatibility: Conflicts arise due to the differences in individual member's goals that are mutually incompatible. Incompatible individual goals often result in the sacrifice of the overall channel goals. For instance, a manufacturer may want rapid penetration of the market under a low price, while the wholesaler may want higher discount on the product. When they adopt different positions and strategies for achievement of their incompatible goals, conflicts arise in the channel system.
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Role incongruence: Channel conflict often results from role deviance or malfunction of a channel member. If a channel member does not perform his expected role, other channel members feel bitter, which may lead to a channel conflict.
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Communication gap: Most channel conflicts arise due to a communication gap between the channel members. For instance, if a channel member makes certain policy change and fails to communicate to other channel members, it often results in a channel conflict.
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Perceptual differences: When a channel member perceives that another channel member is harming individual or common interests, conflicts may arise. For instance, a manufacturer may feel that the current discounts offered to the wholesaler is more than adequate, while the wholesaler may feel cheated by the manufacturer.
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Ideological differences: Most of the channel conflicts results due to differences in business ideology among the channel participants. A channel system is composed of institutions with a wide variation in size that often show differences in values, perceptions and attitudes adopted by channel members, which often result in conflict.
Resolution of the channel conflict Channel conflicts, whenever or wherever arises, need to be resolved as soon as possible. There are four methods for the resolution of the channel conflicts. •
Problem solving: Problem solving involves mutual consultations among channel members in conflict. The initiative for such consultations can be started by any of the channel participants. It is the best method of resolving a channel conflict.
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Persuasion: Under persuasion, the channel leader persuades the dissident channel member to work for the benefit of the channel system as a whole. The channel leader uses its power to convince the dissident follower member.
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Bargaining: Under bargaining method, the members in conflict negotiate with each other to arrive at a new agreement to resolves the dispute. Such bargaining tactics do not allow quick resolution of the conflict. One of the neutral participants has to play the role of a negotiator in order to bring the members in conflict to welcome mutually acceptable terms and conditions.
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Politics: Under politics, several channel members working at the same level of the channel hierarchy organize an association or coalition to change the current channel power structure. This tactic is mostly used by retailers who form their association to deal with wholesalers and manufacturers. They use coercive methods, such as total boycott of a product to force the manufacturer to accept their terms and conditions.
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Unit 11: PROMOTION STRATEGIES MEANING OF PROMOTION Promotion is one of the key elements in the marketing mix. Marketers match the product to the specific needs and want of the buyers. They put price on the product and distribute the product in the target markets. However, marketers may not achieve their objective of profit unless buyers are communicated about the product, its price and availability. Thus, promotion performs the major role of communicating to the buyers. According to William J. Stanton, "Promotion is the element in the marketing mix that serves to inform, persuade, and remind the market of a product and/or organization selling it, in the hopes of influencing the recipients' feelings, beliefs, or behavior."13 PROMOTION OBJECTIVES The major objectives of promotion are to inform, persuade, remind and reassure the market about the product, service or the organization. •
Informing: The primary task of promotion is to inform the buyers about the product, its price, availability, utilities, and benefits. The information develops a better awareness among buyers on products, their attributes and utilities. This function is useful to stimulate the primary demand for a generic product. Even consumerists and social critics generally applaud the information function of promotion since it aids the consumer in making more intelligent purchase decisions.14
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Persuading: Promotion seeks to persuade buyers to make purchase decision in favor of a product. Buyers generally can not be convinced to buy a product merely through supply of information. Persuasive communication seeks to influence buyers' feelings, beliefs, attitudes and behavior so that they would favor the organization's product, whenever they make a purchase decision. This role of promotion often meets resistance from consumerists and social critics. Persuasive promotions stimulate the secondary demand -‐ the demand for the brands rather than generic products.
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Reminding: Marketers believe that buyers have a short-‐lived memory and a limited capacity to remember brand and company names. They may forget the names unless they are constantly reminded about the product and the organization. Thus, most promotions seek to constantly remind the buyers about the brand and/or company names.
13
. Op. cit. Stanton et. al., p. 461. . Carl McDaniel Jr. , Marketing, Harper and Row Publishers, 2nd. ed. p. 486.
14
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Reassuring: Communication also plays the role of reassuring the buyers' on the quality and benefits of the product. This function of communication is very important in the post-‐acquisition phase of the buying process. It helps in reducing buyers' anxiety resulting from cognitive dissonance. Marketers often provide reassuring communication to provide increased satisfaction from the use of the product. This often results in repeat purchase of the product and also in favorable communication about the product through word of mouth.
THE PROMOTION MIX The promotion mix or blend is a combination of promotional tools such as personal selling, advertising, sales promotion, publicity and public relations. The marketing executive has to decide what combination of the available promotional tools it intends to use to promote the product to a target market. SLAES PROMOTIONS
ADVERTISING
PROMOTION MIX
PUBLICITY & PUBLIC RELATIONS
PERSONAL SELLING
Figure: PROMOTION MIX ADVERTISING The American Marketing Association defines advertising as "any paid form of non-‐personal presentation of goods, services or ideas for action, openly paid for by an identified sponsor."15 If we analyze this definition we can derive the following features of advertising: Advertising involves costs: Advertisement involves various costs that are paid by the sponsor of the advertisement. The major cost items in advertising are research expenses, development and production expenses, media costs and administrative expenses. Advertising is impersonal: Advertising is communicated through words, signs, symbols or illustrations. Although many people are involved in the conception, design and presentation of the advertisement it does not require the physical presence of a person to communicate the message. Advertising can be in various forms: Advertising can take various forms according to its geographical coverage, intended target group, and type of desired impact. 15
. Glossary of Marketing Definitions, American Marketing Association.
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Advertising uses various media: There are various media options available to the advertiser. The advertising media can be grouped into the four broad categories: indoor media, outdoor media, direct media and display media. Advertising promotes goods, services and ideas: Marketing firms advertise to promote goods, services and organizational images. Political parties use advertising to promote political ideology and candidates. Social organizations often advertise to promote public awareness (anti smoking, anti alcohol, safe driving, literacy, environment, and family planning). Advertising is targeted at some actions: Organizations use advertising to achieve definite objectives. The objective may be to inform, persuade, remind, add value or achieve sales. Advertising objectives Advertising is launched by the marketing firm with clearly stated objectives or goals. Without advertising objective the firm is likely to spend huge amount of money in the development and launching of advertisement campaigns yet fail to realize good results. Advertisement can be developed and launched to meet one or more of the following goals: •
Brand recognition and acceptance: Most advertisements are targeted at achieving recognition and acceptance of the brand name by the buyers. This is the basic purpose of advertising. All organizations like the potential buyers to recognize their products available in the market.
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Trial purchase: Advertisements launched during the introduction of new products in a market are targeted at achieving the trial purchase. Such advertisements induce the general buyers to try the product at least once.
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Influence at sight of buying decision: Advertisements strategically placed in the retail outlets seek to influence the buyer to buy the advertised brand if the buyer has not made prior brand purchase intention. All point of purchase materials, such as mobiles, posters, and counter cards serve this purpose.
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Value addition: Advertisements add value to the product through image enhancement exercises launched through special advertising campaigns. This is targeted to achieve higher price level for the advertised products.
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Aid in personal selling and sales promotion: Advertisements are sometimes designed to support door to door salespersons by informing the potential buyers about their home or office visits. Advertisements are often launched to inform buyers about the sales promotion campaigns.
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Remind: Some advertisements are built just to remind the buyer about the organization and its products. Most of the display advertisements serve the purpose of reminding.
PERSONAL SELLING William J. Stanton defines personal selling "as the personal communication of information to persuade somebody to buy something."16 According to William M. Pride and O. C. Ferrel "personal selling is a process of informing customers and persuading them to purchase products through personal communication in an exchange transaction."17 The two definitions highlight the following features of personal selling. •
Personal selling is personal communication: Personal selling involves a personal contact between the seller and buyer. It involves a communication process between the two parties. As presented in the following diagram, the salesperson is the source of the communication and the buyer the audience. Between these two points, there is the process of encoding, message transmission, decoding and response.
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Personal selling is targeted at informing and persuading: Personal selling is mainly directed at two promotional goals: informing and persuading. The salesperson provides a variety of information to the buyers on the product attributes, benefits and use possibilities. Through interpersonal skills the salesperson may persuade the buyer to purchase the product. The salesperson may also provide the primary reassurance to the buyer on the merits of the purchase decision.
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Personal selling is a process used in an exchange transaction: Personal selling is a process in which the salesperson has to move through different stages in order to execute the sales transaction. The sales process involves seven stages: prospecting, pre-‐approach, approach, presentation, meeting objections, closing the sale and follow-‐up.
Objectives of personal selling Personal selling has the following objectives: •
Personal contact: Personal selling can be used if the size of the market is small and personal contact is essential to persuade customers on the merit of the product or service. Organizations selling specialty products or services generally use personal selling mainly because they need personal contact to execute the sales.
16
. Op. cit. Stanton et. al., p. 480. . Op. cit. Pride and Ferrel, p. 511.
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Stimulate buyers' needs: When potential buyers have their needs in an aroused state, advertising is enough to promote the product. But, when marketers need to stimulate a dormant or latent need they need to use personal selling. Personal selling is more useful than advertising when the potential buyers have unique problems to solve and demand different products or services specifically tailored to their needs or problems. The health and beauty care services, tailoring services, installations (aircraft, ships, production units etc.) are marketed through personal selling mainly because they have to meet the specific needs of the customers.
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Tailor presentation according to buyers' characteristics: When buyers have very different demographic and psychographic characteristics a standard message transmitted through advertising is not suitable. Personal selling can modify and mould presentation according to the characteristics of the buyer.
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Overcome buyer resistance: Personal selling aims to overcome buyers’ resistance to purchase the product. Buyer resistance is generally strong while buying high-‐priced luxury items and unsought products. For instance, marketers normally use powerful salesmanship to sell high-‐priced furniture, jewelry and life insurance policies.
SALES PROMOTION Sales promotion refers to activities of non-‐recurrent nature that are used to reinforce personal selling and advertising for stimulating consumer purchasing and dealer effectiveness. According to Philip Kotler, "Sales promotion consists of a diverse collection of incentive tools, mostly short term, designed to stimulate quicker and/or greater purchase of particular products/services by consumers or the trade." 18 This definition suggests the following features of sales promotion. •
Sales promotion includes incentive tools: Advertising and personal selling use communication that provides customers with reasons to buy a product. On the other hand, sales promotion is more aggressive and provides the direct incentives to buy the product.
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Sales promotion is mostly short-‐term: Unlike advertising and personal selling, sales promotions are normally implemented for a shorter period of time. Most of the sales promotion schemes are non-‐cyclical and are normally not repeated within the same year.
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Sales promotion is targeted at quicker and/or greater sales: Sales promotions are basically targeted to achieve either faster sales or higher sales volumes of a product. Various sales promotion incentives induce new customers to buy the product and existing customers to buy more of the product.
18
. Op. cit. Kotler, p. 661.
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Sales promotion is directed either at consumers or at the channel members: Sales promotion is either directed at consumers or at the dealers. Consumer promotions include sample, premiums, contests, demonstrations, coupons, special displays, temporary price reductions. Dealer promotions include cash discount, quantity discount, displays and advertising allowances, gifts and prizes and extra free product.
Objectives of sales promotion The basic goal of sales promotion is to achieve faster and higher sales of a product during the promotion period. However, sales promotional tools vary in terms of their specific objectives. The specific objectives of various sales promotion tools are as following: •
To attract new buyers: Marketers use various price and non-‐price incentives to attract new customers to their products. Such new customers may be new users of the product or brand switchers who buy those brands that offer higher incentives.
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To introduce a new product: Although most of the sales promotion tools are used for matured products, marketers may use sampling, demonstrations, exhibitions and trade fare participation to introduce a new product to the market. Such promotions have more educational value than actual sales of the product.
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To encourage more use of a product: Most of the sales promotional tools used for matured products are directed at achieving higher sales volumes. They are targeted at the existing customers who are induced to buy more of the product during the promotion period. Such tools provide incentives to customers for higher than normal volume purchases.
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To educate customers on product improvements: When a matured product is reintroduced to the market in an improved form, marketers may use sales promotion in order to educate customers about the product improvements.
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To draw buyers to the retail store: Retailers may use specific promotion tools such as coupons and temporary price reductions to attract buyers to visit the store.
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To stabilize fluctuating sales: Marketers often launch sales promotion to achieve a regular sales volume and cash flow round the year. Sales promotions launched during off-‐seasons are targeted at stabilizing a fluctuating sales pattern.
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To increase resellers' inventories: Sales promotions are also targeted at resellers to provide them incentives to buy more of the product. Such promotions reduce the inventory holding costs of the manufacturer and shift the costs to resellers through cash and non-‐cash incentives.
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To counter competitors' incentives: Very often an organization may launch a sales promotion scheme in order to combat or offset competitors' incentives to resellers and/or consumers. Such schemes are launched in order to prevent brand switching in favor of competitors' brands.
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To obtain better product displays in retail stores: Marketers provide incentives to retailers in order to secure a strategic placement of the product in the shelves. Some promotional schemes are also directed to push competitors' product in the back shelves.
Methods of sales promotion The sales promotion methods can be grouped into consumer promotions and trade or dealer promotions. Consumer promotion methods Consumer promotion methods encourage consumers to visit a particular store, purchase a particular brand and purchase it in more quantity. Consumer promotions are launched by retailers as well as manufacturers. The choice of tools also varies between new products and existing products. Consumer promotion methods for new products •
Demonstrations: The product is demonstrated to general public in its use situation.
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Free samples: Free samples are distributed to consumers for free trial.
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Coupons or trading stamps: Coupons are certificate of purchases awarded to buyers that can be redeemed into cash or another product. Retailers use trading stamps based on the total amount of purchases while manufacturers distribute coupons on the units of products bought by the consumer.
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Money refunds or rebates: Money refunds or rebates are generally used by manufacturers to reward consumers for the purchase of a product. When consumers buy the product they are required to mail a proof-‐of-‐ purchase directly to the manufacturer. On the receipt of the proof-‐of-‐ purchase, the manufacturer refunds the rebate amount promised in the deal.
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Trade fair and exhibition: Trade fair participation provides a very wide exposure to the product among potential users.
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Point of purchase displays: Point of purchase (POP) displays are normally placed in the retail outlets. They can be in the form of posters, cutouts and mobiles.
Consumer promotion methods for established products •
Premiums: Premiums are items offered for free or at minimum costs as a bonus for a purchase of a product.
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Price-‐offs: Price-‐offs offers the product at a reduced price.
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Consumer contests: Consumer contests invite consumers to participate in a contest to win various prizes using their analytical and creative skills.
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Consumer sweepstakes: Consumers participate in sweepstakes (lotteries) by entering their names as participants. Consumers are required to send in several empty packages along with their names.
Trade or dealer promotion methods Trade or dealer promotion methods are directed at the resellers. They are targeted to increase inventory level of resellers and build sales traffic at the retail level. The methods also encourage resellers to actively participate in the promotion of the product at the local level. •
Buy-‐back allowances: Buy-‐back allowances are bonuses paid to resellers. The amount of bonus is calculated on the purchase of a product by a reseller during a specified time period.
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Free merchandise: The resellers are offered more units of the product at the regular price.
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Buying allowances: Buying allowances are temporary price reductions offered to the resellers for purchasing a specified quantity of the product.
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Merchandise allowances: Merchandise allowances or push money is paid to resellers for undertaking special promotional efforts at the local level.
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Manufacturers may also launch cooperative advertising with resellers under which the costs of local advertising are partly paid by the manufacturer.
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Sales contests: Sales contests are organized between resellers to recognize and reward the most efficient channel members.
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Dealer loader: Dealer loader is a gift provided to efficient resellers who purchase a specific quantity of the product during a specified period of time. Gifts may be provided to retailers for their special display efforts.
PUBLICITY According to William J. Stanton, "publicity is any communication about an organization, its products, or policies through the media that is not paid for by the organization." 19 Publicity is a vital part in the organization's promotion mix. Publicity is communication about the organization or its products. The publicity material is communicated to the general public through the mass media. Publicity does not involve open costs. It seems as if publicity provides free promotion for the organization and its products. In fact, publicity is not possible without good public relations that involve various types of costs. However, publicity is less expensive than advertising.
19
. Op. cit. Stanton et. al. ,p. 524.
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Publicity provides more exposures to the communication since consumers are more interested to read or listen to neutral viewpoints than one-‐sided advertisements. Publicity materials may provide more detailed information to general public that may help in building up the organizational image. Objectives of publicity •
To announce new products: Publicity is a major tool to build public awareness about a new product.
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To announce new policies: Organization can use publicity to announce a change in the company policies.
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To announce technological breakthrough: When an organization adopts a new technology, it may announce it to the general public through the mass media
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To report performance: An organization may communicate its performance to the stockholders through the mass media.
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To counter negative rumors: Competitors often spread negative rumors about the organization's financial health, management problems or product defects. Publicity is a very effective tool to counter those negative rumors.
Types of publicity There are four major types of publicity tools: news releases, feature articles, press conferences and sponsoring of social events. •
News releases: An organization may issue news releases to mass media so that the media people can prepare interesting report on the new developments in the organization. A news release may be based on any positive developments, such as the introduction of a new product, adoption of a new technology, company mergers etc. The media people prepare interesting reports based on the news release and publish or broadcast them to the general public.
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Feature articles: An organization may use the service of an expert or a journalist to write interesting feature on the organization and its products. Once the feature article is ready it is forwarded to a specific media for publication or broadcast.
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Press conferences: An organization may request business reporters from important media to attend special press conferences where the new developments are communicated to the mass media. Press conferences are more effective than news releases since it allows the organization's executives to interact directly with the media people. The reporters may be invited to tour the production facilities and personally observe the developments within the organization.
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Sponsorship of social events: An organization may receive a very good publicity if it sponsors social events. Many organizations sponsor sporting events, cultural gatherings, seminars and symposiums to get favorable publicity in the mass media. Such sponsorships build an image of the organization as a socially responsive establishment. They also provide direct advertising medium.
PUBLIC RELATIONS Marketing has to take care of the interests of various types of publics such as media, government, pressure groups, local people, general public, and internal staff. Activities targeted at maintaining good relations with the publics are known as public relations. Traditionally, public relations (PR) activities were less recognized in marketing. The PR function was handled by a small department placed directly under the top management. In this situation, the marketing department often was in conflict with the PR department. The recent trend is to integrate the traditional PR department into the marketing department and form marketing public relations (MPR) department. The MPR concept has brought the publicity function under it. Thus, today in many organizations, publicity is part of marketing public relations. According to William J. Stanton, “Public relations is a management tool designed to favorably influence attitudes toward an organization, its products, and its policies”.20 According to Philip Kotler, “Public relations involves a variety of programs designed to promote or protect a company’s image or its individual products”. 21 Objectives of public relations The major objective of MPR is to build favorable relationship with the publics. The specific objectives of MPR are as follows: •
Build market place excitement before product launch: It involves using media to announce new product with its unique features and benefits. This prepares the marketing intermediaries and consumers for the new product.
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Build and maintain customer loyalty: MPR aims to maintain, build, and enhance the firm’s relationships with the customers – the resellers and final consumers. This relationship helps the firm to win customer loyalty towards the firm’s products and brands.
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Build direct relationships with consumers: MPR is borrowing tools and techniques of direct response marketing to build direct relationship with the firm’s consumers. MPR people are increasingly using telephone hot lines and Internet for direct contact with the consumers.
20 21
Ibid. p. 523 Op. cit., Kotler p. 617
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Build relationships with opinion leaders: MPR focuses to establish and build relationship with key opinion leaders and professionals who are likely to influence the sales of the firm’s product and the firm’s public image.
An insight: What MPR can do? Viagra and Senator Dole Former US senator Bob Dole appeared on Larry King Live show (CNN) and revealed that he had taken Viagra following prostrate surgery. He also appeared in television advertisement on the drug. Three years after the launch, Pfizer (manufacturer of Viagra) sold over 240 million pills of Viagra. Methods of public relations Marketing public relations activities are focused on establishing, maintaining, and enhancing a favorable image of the firm and its products (services) among its various publics – customers, shareholders, employees, local people, and government officials. For this purpose, MPR uses three major methods: •
Media relations: It uses the local, national, and international media to place favorable news stories about the firm and its products. The news may be based on a press release, company events (conferences, release of annual reports, and new product or service launch), and sponsorship programs of the firm.
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Group relations: The MPR people may work with local community groups, employee groups (labor unions), customer groups (wholesaler associations and retailer associations), and social institutions (Red Cross, cancer societies etc.) to solve various social problems. These works are again highlighted in media through publicity measures.
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Lobbying: Lobbying involves maintaining individual relationships with important people (legislators, government officials, and social leaders) to influence their individual opinion in favor of the firm and its products.
DIRECT MARKETING Direct marketing is one of the rapidly emerging concepts in the contemporary marketing world. Direct marketing is a form of non-‐store retailing in which the marketer uses non-‐personal media to introduce products to consumers and consumers purchase the product without visiting a store. Direct marketers contact consumers through radio, telephone, television, newspapers, magazines, catalogs, or direct mail. Consumers order products by telephone, regular mail, or e-‐mail. The ordered products are delivered to the consumers’ addresses.
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Direct marketing includes a variety of retailing practices such as the traditional methods of in-‐home retailing, mail-‐order retailing, telemarketing, and television marketing to the modern approach of database marketing and electronic marketing (dealt in the next section). Traditional Direct Marketing Methods •
In-‐home Retailing: This is the oldest form of direct marketing where the salesperson visits the customer’s residence or office with products or catalogs, takes order for the product, and finally delivers it immediately or on the next day.
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Mail-‐order Marketing: Mail-‐order marketing involves sending promotion materials such as letters, advertisements, and folders to prospects, the interested customer orders the product by the mail, and finally receives the ordered product by mail or courier. Mail-‐order business is still growing in developed countries where home videos, video games, computer software, and a variety of light-‐weight items are sold through the mail-‐order marketing.
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Catalog Marketing: Catalog marketing involves sending product catalogs to pre-‐selected target customers and receiving orders through telephone or mail. Catalog marketing is more popular on selling specialized items such as fashion jewellery, home tool kits, holiday travel packages, and toys. Catalog marketing is also popular in the business-‐to-‐business marketing where office equipments, stationary, and a variety of products are sold through catalog marketing.
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Telemarketing: Telemarketing mainly uses telephone communication to sell directly to consumers and business buyers. Outbound telephone is used to contact and communicate with prospects and toll-‐free (free of charge) inbound telephone lines are used for receiving queries and orders from the customers. This form of marketing is also growing very rapidly in the developed countries. In Kathmandu, a group of young entrepreneurs have started a firm named Subidha that receives orders for all types of household use products by telephone and delivers the products to consumers’ residences in a very short period of time.
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Television Marketing: In television marketing, the direct marketers air television programs (popularly known as infomercials) of about 30 minutes describing and demonstrating the use and benefits of the products. The interested customers use the given telephone numbers to enquire or order for the products. In Nepal, the Asian Sky Shop and Television Shopping Networks use television channels to sell a variety of products ranging from physical fitness gadgets to kitchenware through the television marketing. In USA specialized channels are available that are dedicated fully for home shopping.
Modern Methods of Direct Marketing Database Marketing: The latest development in direct marketing has been database marketing. Database marketing is the process of building, maintaining, and using customer databases and other databases
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(products, suppliers, resellers) for the purpose of contacting, transacting, and building relationships (Kotler, 2003: 53) In database marketing, the direct marketer collects and compiles a detailed database on the customer that includes his/her name, addresses, preferences, and other pertinent information such as past purchases, demographics (age, birthdays, income, and family size), psychographics (motivations, special interests, hobbies, and leisure time activities), behavioral (shopping behavior, brand preferences, product usage rates etc.), and media graphics (media habits). In USA and Europe markets, such databases are available for sale. The databases may also be compiled by a firm by announcing competition or lotteries among the customers filling in the database forms. Once the databases are collected it is stored in computers in the form of data warehouse. Every time the customer comes into contact with the firm the database is updated. Through data-‐mining, marketing statisticians can extract useful information about individuals, trends, and segments from the mass of data (Kotler,2003:54). E-‐commerce (Internet marketing): The e-‐commerce is a part of the larger e-‐business that involves using electronic means and platforms to conduct a company’s business. Today, many companies (Microsoft) claim to be operating paperless with the help of electronic means. E-‐commerce is more specific than e-‐ business and focuses more specifically on selling products and services electronically. Thus, e-‐commerce is the marketers’ effort to inform, communicate, promote, and sell its products and services through the Internet. The e-‐commerce is executed through on-‐line marketing. The on-‐line marketing is conducted through interactive on-‐line computer systems. The on-‐line systems link buyers with sellers electronically. There are two types of on-‐line marketing channels: commercial on-‐line marketing and the Internet. •
Commercial on-‐line marketing: Commercial on-‐line offers on-‐line information and marketing services to subscribers on the payment of a monthly fee. These services provide information, news, entertainment, shopping services, dialogue access (chat room, bulletin boards etc.), and e-‐mail services. On line subscribers can order a variety of products and services electronically from a variety of sources listed in the commercial on-‐line service sites. Customers can do on-‐line banking; make investments, reserve airline tickets, or book hotels. There are unlimited possibilities of on-‐ line marketing. Amazon.com, and Yahoo.com, the two most popular sites are examples of commercial on-‐line marketing.
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Internet marketing: The Internet is gaining popularity in recent years as an important direct marketing channel. The Internet is a vast and ever growing global web of computer networks. It connects most of the computer users around the world. Computer users around the world can obtain and share information on any topic, product, or service using the Internet. The application of user-‐friendly World Wide Web (www) browser software (Netscape Navigator, Microsoft
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Internet Explorer etc.) has made the surfing very easy. The use of Internet for e-‐marketing is practiced at four levels: •
Business to consumer: Business firms sell a variety of goods directly to consumers over the Internet. The most frequently sold products are books, music, computer software, air tickets, personal computer peripherals, clothing, home videos, hotel reservations, toys, flowers, and consumer electronics.
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Business to business: Use of websites targeted at business buyers is more than those targeted at consumers. Internet has changed the structure of the supplier-‐customer relationships. There are on-‐line B2B auction sites, spot exchanges, and product catalogs that facilitate business transactions.
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Consumer to consumer: The chat rooms allow a very large number of consumers to exchange information, share experience with products or services, and also buy or sell products through a mutually beneficial transaction. The e-‐mail which functions as a digital post office has enhanced the level of consumer to consumer communication. Consumers of a specific product or service have come together and formed their own web sites for sharing information and experiences. Consumers create enhanced level of product information and exert considerable buying influence through “word of web”.
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Consumer to business: The Internet has also facilitated to establish communication link between the consumer and the company. Consumers can access websites of the company that allows entering a call-‐me-‐button that connects to a company employee ready to listen to the consumer’s comments, complaints and suggestions. Consumers can also communicate with the company using the e-‐mail services.
SELECTION OF PROMOTION STRATEGIES The design and selection of the promotion mix are critical issues in marketing. Creation of the right promotion blend is highly essential for successful marketing. The following factors need to be considered in the selection of the promotion mix. Promotion objective and buyer readiness stage The promotion objective of the organization determines the design of the promotion mix. •
If the objective is to build awareness level among the buyers the promotion mix is dominated by advertising and publicity.
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•
If buyers are already aware of the product but do not exhibit liking, preference and conviction for the brand, the marketer needs to put more emphasis on personal selling which is more persuasive than advertising.
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If buyers have favorable attitude toward the brand, but do not show clear purchase intentions, sales promotions may provide incentives to undertake immediate actions. Buyers can be better reminded by display advertisements.
Size of the promotion budget The size of the promotion budget determines the selection of the promotion mix. Advertising requires heavy expenses as it has to be launched for a longer time period. Similarly, maintaining large sales-‐force for aggressive personal selling campaign is suitable for financially strong firms. Firms with small promotion budget prefer to use a combination of dealer promotions, on the spot displays, pamphlets etc. Nature of the market The structure of the market, particularly its geographical coverage affects the design of the promotion mix. •
In a small market, personal selling, consumer promotions and local level advertising is a good promotional blend.
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In large markets, a blend of advertising, dealer promotions and consumer promotions are more effective.
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Trade customers such as wholesalers and retailers are better approached with personal selling while consumers can be accessed through advertising.
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In industrial and institutional markets, advertising is less important than personal selling.
Nature of the product •
Convenience products are generally mass merchandised and supported with heavy advertising by the manufacturer.
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Shopping products require more emphasis on personal selling than on advertising.
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Specialty goods and services are mostly sold through good public relations.
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Although most of the industrial products are largely sold through personal selling, operating supplies are extensively advertised.
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Level of social risk involved in the purchase and ownership of the product also affects the promotion blend. Purchase of convenience items involves no social risk for the buyer. In high social risk products, such as jewelry and clothing some personal selling has to be added to high image advertising.
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Items that are a relatively small part of the organization's budget or the buyer's budget do not require salesperson to pursue and close the sale. If the product is expensive, technically complex and requires after-‐sales services, personal selling is more suitable and productive.
Product life cycle stage Promotion blend changes as the product moves from one stage to another stage of the product life cycle.
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In the introduction stage, personal selling and advertising go together.
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During the growth stage, personal selling has little use while advertising is continued with a change in its focus from awareness creation to building conviction among buyers.
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In the maturity stage, sales promotion plays the dominant role and advertising is used only to support the sales promotion campaigns.
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During decline stage, all forms of promotion become irrelevant.
Push vs. pull strategy The promotion mix is also affected by whether the organization adopts a push strategy or a pull strategy. •
Under push strategy the promotion is directed at the marketing intermediaries. The manufacturer persuades wholesalers to carry the product, while wholesalers convince retailers to sell the product to consumers. The retailer again "pushes" the product to consumers through word of mouth supported by point-‐of-‐purchase displays. Thus, push strategy need a heavy dose of personal selling and dealer promotions.
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Under pull strategy the manufacturers build consumer awareness and conviction through mass advertising. When consumers begin demanding the product, retailers place orders for the product to the wholesalers, and wholesalers to the manufacturer. Pull strategy, during the maturity stage of the product life cycle, is implemented through consumer promotions.
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Unit 12: MARKETING PLANNING AND CONTROL Marketing planning is based on the idea that specific marketing goals can be defined and a plan can be designed to achieve the goals. Marketing planning helps a firm to anticipate new challenges, trends, and opportunities in the marketplace. The plan blends the firm’s assets and competencies and designs mechanisms to capitalize on the market opportunities. There are two types of marketing plans – strategic plan and tactical plan. Strategic Plan: This is a medium term plan covering a period of two to five years. It is prepared by the top level management personnel with the input from the middle marketing personnel. It directs the course of action of the marketing department for the planning period. Tactical Plan: This is a short-‐term plan covering a period of one year. It is prepared by the middle marketing personnel with inputs from the field based staff. It directs the operational activities of the marketing department in the various market segments. Marketing Planning Process The planning is based on the following process: 1. Defining Business Missions: The business mission is the definition of the specific tasks of the firm. It defines the firm’s boundaries of operation. The mission statement should be written in short but complete form. The statements are written in terms of: •
What customer groups the firm will serve?
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What needs will it satisfy?
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What types of products and services will be offered to satisfy the needs?
2. SWOT Analysis: The planning should precede by a thorough analysis of its internal capabilities (strengths and weaknesses) and evaluate the strategic uncertainties (opportunities and threats) in the environment. Strengths and Weakness (SW) analysis focuses on the following factors: •
Marketing: Firm’s image and reputation, market share, customer satisfaction, quality perception, service quality, price of products, distribution network, promotional effectiveness, and sales-‐force effectiveness.
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Finance: Cost of capital, access to capital, cash flow, and financial stability.
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Manufacturing: Economies of scale, technology, production facility, and labor relations.
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Organizational: Leadership and vision, dedication of employees, organizational culture, process and systems.
Opportunity and Threat (OT) analysis should identify and classify the opportunities and threats and design a strategy to take advantage of the emerging opportunities and avoid threats. Opportunities are classified according to their attractiveness and success probability. Threats are classified according to their seriousness and probability of occurrence. The SWOT analysis poses the following strategic questions that need to be answered: •
Should the firm maintain its current strength and weakness status and try to capitalize on the new opportunity?
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Should the firm rectify its current weaknesses and capitalize on the opportunity with a higher confidence level?
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Should the firm consolidate its strengths and capitalize the opportunity more aggressively than its competitors?
3. Goal Formulation: The goals are specific targets to be achieved through the strategic planning. The goals should be in terms of sales, profitability, market share, risk, ROI, and innovation. 4. Strategy Formulation: It is the game plan for achieving the specific goals and the firm’s mission. The strategy includes product-‐market scope, positioning, and marketing mix. The strategy is designed in terms of obtaining SCAs, differentiation, low cost, focus, preemptive move, growth, diversification etc. The strategy must specify financial, social, and human resource costs and risks involved in the implementation of a particular strategy. 5. Program Formulation: It involves designing specific programs to support the strategy. The program includes areas of competitive advantages such as new product development, market research, marketing network, market development, human resources development, advertising, public relations, customer relations, and services. 6. Feed-‐back and Control: It involves designing the monitoring and control system for keeping the implementation in the right track. A system of performance measurement is also designed. The performance is measured in terms of profits, market share, sales, and costs. MARKETING CONTROL Marketing control provides a mechanism for corrective actions on any deviations from the plan during the implementation process. For designing an effective control system there is a need for effective information system. The control system is based on four components known as the control cycle.
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PERFORMAN CE STANDARDS
ACTUAL PERFORMANCE
CORRECTIVE ACTIONS
COMPARISON PROCESS
Establishment of performance standards: The performance standards are based on the plan targets. They are the minimum expected performance of a marketing unit and are stated in terms of sales, winning new customers, reducing customers’ complaints and so on. Evaluation of actual performance: The evaluation of the performance is made on information received from each marketing unit through the regular reporting system. Comparison of actual performance with predetermined standards: The actual performance received through the reports is compared with the performance standards and the discrepancies are noted. Taking corrective actions: The corrective actions are taken on the discrepancies in two ways. First, steps are taken to improve the performance. Second, if external factors prohibit the achievement of the standard the performance standards are reduced to a reasonable level. Sample Questions (Marketing MCA) Short Answer 1. What is marketing concept? How does it differ from selling concept? 2. How economic environment influences the design of the marketing mix? 3. What is marketing mix? How marketing mix differs for products and services? 4. What is marketing intelligence system? How can a firm arrange for the collection of information from the competitors? 5. What is database marketing? How database marketing has given power to marketers? 6. What is marketing research? Mention the major areas of marketing research. 7. What is market segmentation? Why should be a market segmented? 8. Briefly explain the demographic and psychographic segmentation of the consumer market. 9. What is niche marketing? How does it differ from customized marketing? 10. Explain the major criteria for segment evaluation. 11. What is customer satisfaction? How does a customer handle dissatisfaction? 12. What is relationship marketing? Explain the relationship building process. 13. Explain the concept and use of total quality marketing. 14. What are the different forms of competition? Explain the frontal attack and flank attack on competitors. 15. Explain the major types of industrial products.
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16. What is a new product? How new products are adopted by a consumer? 17. What is brand equity? Explain the steps in building the brand equity. 18. Differentiate between penetration pricing and market skimming. 19. What is channel conflict? How do they arise and how can they be resolved? 20. What is promotion mix? Point out the differences between advertising and publicity. Long Answer 1. What is marketing? Discuss the development of the various concepts of marketing in terms of their focus, means and ends. 2. Discuss the major challenges in modern marketing and explain how business and marketing is responding to the challenges. 3. What is Marketing Information System? Discuss the various components of the Marketing Information System. 4. What is product positioning? Discuss the major steps in the positioning process. 5. Discuss the major attack and defense strategies in a competitive market. 6. Describe the major components of the market analysis. 7. What is product life cycle? Describe the major marketing strategies in the various stages of the product life cycle. 8. What is a new product? Discuss the diffusion of innovation process. 9. Discuss the pricing strategies in terms of initiating and responding to price changes. 10. What is promotion mix? What factors influences the selection of the promotion mix? Discuss. 11. What is a marketing plan? Describe the steps involved in preparation of a marketing plan.
