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Chapter 1

Marketing in the 21st century........................................................................9

Marketing tasks..................................................................................................................9 Scope of Marketing.............................................................................................................9 The decisions marketers make ........................................................................................10 Marketing Environment...................................................................................................16 Marketing Mi ..................................................................................................................16 Company orientation to!ards the market p"ace..............................................................1# Target market....................................................................................................................20 Customer needs.................................................................................................................20 $rofita%i"ity.......................................................................................................................21 Company &esponse and 'd(ustments..............................................................................2) Marketer responses and ad(ustments*.............................................................................2+ ..........................................................................................................................................2+ Chapter 2 ,ui"ding Customer Satisfaction -a"ue and &etention...................................2. Customer -a"ue................................................................................................................2. Customer Satisfaction......................................................................................................2. Stakeho"ders / ' company shou"d strive to perform a%ove the minimum e pectations of a"" of it0s stakeho"ders1 inc"uding the emp"oyees1 customers1 supp"iers so that this dynamic re"ationship u"timate"y "eads to higher profits and hence stockho"der satisfaction........................................................................................................................26 &e"ationship marketing / ................................................................................................2# 2imensions of customer service* There are five dimensions..........................................)0 &e"ia%i"ity* the a%i"ity to provide !hat !as 3promised dependa%"y and accurate"y.......)0 'ssurance* the kno!"edge and courtesy of the emp"oyees and their a%i"ity to convey trust and confidence.........................................................................................................)0 Tangi%"es* the physica" faci"ities and e4uipment and the appearance of personne".....)0 Structure System.............................................................................................................)0 $eop"e Cu"ture...........................................................................................................)0 Chapter ) 5inning Markets * Market 6riented Strategic $"anning..............................)1 2efining the Corporate Mission / ..................................................................................)1 Esta%"ishing S,7s / ........................................................................................................)1 'ssigning &esources to each S,7 / ...............................................................................)1

$"anning ne! ,usinesses1 2o!nsi8ing o"d ones / .........................................................)2 Strategic '""iances............................................................................................................)) The va"ue de"ivery se4uence /..........................................................................................)+ Managing the marketing effort / ....................................................................................). Chapter + 9athering :nformation and measuring market demand...............................); The Marketing &esearch $rocess....................................................................................)# This is continuation of STE$ 2 * 2eve"op the research p"an.........................................+2 2EM'<2 ME'S7&EME<T..........................................................................................++ EST:M'T:<9 C7&&E<T 2EM'<2............................................................................+. EST:M'T:<9 =7T7&E 2EM'<2..............................................................................+6 Chapter . Scanning the Marketing Environment...........................................................+# 'na"y8ing <eeds and trends in the macro environment.................................................+# Shift from Mass market to Micromarkets.........................................................................0 Savings1 2e%t and Credit 'vai"a%i"ity...............................................................................2 :ncreased Energy Costs.....................................................................................................) :ncreased $o""ution >eve"s................................................................................................) Changing &o"e of 9overnments........................................................................................) ' <e! 9uard of 9reen C"eaners -ies for Concerned Customers...................................+ TEC?<6>69:C'> E<-:&6<ME<T...........................................................................+ 'cce"erating $ace of Techno"ogica" Change.................................................................... 7n"imited 6pportunities for innovation............................................................................ -arying &@2 ,udgets.......................................................................................................6 :ncreased &egu"ation of Techno"ogica" change...............................................................6 $6>:T:C'> / >E9'> E<-:&6<ME<T.......................................................................6 >E9:S>'T:6< &E97>'T:<9 ,7S:<ESS..................................................................; 9&65T? 6= S$EC:'> :<TE&EST 9&67$S.............................................................; S6C:'> C7>T7&'> E<-:&6<ME<T.........................................................................# Shifts of Cu"tura" -a"ues over time..................................................................................60 C?'$TE& /6 'na"y8ing Consumer markets @ ,uying ,ehavior................................61 $E&S6<'> ='CT6&S...................................................................................................61 6ccupation @ economic circumstances..........................................................................62 Stages in the =ami"y >ife Cyc"e.......................................................................................62

C?'$TE& ; '<'>AB:<9 ,7S:<ESS M'&CETS '<2 ,7S:<ESS ,7A:<9 ,E?'-:6&......................................................................................................................69 Environmenta"..................................................................................................................;1 6rgani8ationa"..................................................................................................................;1 :ndividua"..........................................................................................................................;1 :nterpersona".....................................................................................................................;1 Chapter # 2ea"ing 5ith the Competition........................................................................;. C?'$TE& 9 :dentifying Market Segments and Se"ecting Target Markets...................#2 >eve"s of market segmentation.........................................................................................#2 $atterns of Market Segmentation....................................................................................#+ SE9EME<T:<9 C6<S7ME& '<2 ,7S:<ESS M'&CETS....................................#. Methods of Segmentation.................................................................................................#. 9eographic........................................................................................................................#. 2emographic.....................................................................................................................#6 'ge.....................................................................................................................................#6 =ami"y si8e........................................................................................................................#6 =ami"y "ife cyc"e................................................................................................................#6 9ender...............................................................................................................................#6 :ncome...............................................................................................................................#6 6ccupation........................................................................................................................#6 Education..........................................................................................................................#6 &e"igion.............................................................................................................................#6 &ace...................................................................................................................................#6 9eneration........................................................................................................................#6 <ationa"ity ........................................................................................................................#6 Socia" c"ass........................................................................................................................#6 $sychographics.................................................................................................................#6 >ife sty"e...........................................................................................................................#6 $ersona"ity........................................................................................................................#6 ,ehavioura".......................................................................................................................#6 6ccasions..........................................................................................................................#6 ,enefits ............................................................................................................................#6 7ser status.........................................................................................................................#6

7sage rate.........................................................................................................................#6 >oya"ty status....................................................................................................................#6 &eadiness stage.................................................................................................................#6 'ttitude to!ards product..................................................................................................#6 2emographic.....................................................................................................................#9 6perating varia%"es..........................................................................................................#9 $urchasing approaches....................................................................................................#9 Situationa" factors............................................................................................................#9 $ersona" characteristics...................................................................................................90 ,usiness %uyer stages.......................................................................................................90 Measura%"e Su%stantia" accessi%"e 2ifferentia%"e 'ctiona%"e......................................90 Chapter 10 $ositioning the Market 6ffering Through the $roduct >ife Cyc"e.............9) Conformance Dua"ity.......................................................................................................9. 2ura%i"ity..........................................................................................................................9. &e"ia%i"ity..........................................................................................................................9. &epara%i"ity.......................................................................................................................9. Sty"e...................................................................................................................................9. 2esign* The :ntegrating =orce........................................................................................9. Services 2ifferentiation....................................................................................................96 6rdering Ease...................................................................................................................96 2e"ivery.............................................................................................................................96 :nsta""ation........................................................................................................................96 =ai"ures.............................................................................................................................9# Success..............................................................................................................................9# Communicating the company0s positioning* ................................................................100 $roduct "ife cyc"e marketing strategies..........................................................................100 =our stages of a product "ife cyc"e.................................................................................100 6ther shapes of the $>C................................................................................................101 Sty"e1 =ashion and =ad >ife Cyc"es...............................................................................102 M'&CET:<9 ST&'TE9:ES* :<T&627CT:6< ST'9E.........................................10) $ioneer advantage..........................................................................................................10+ Sources of pioneer0s advantage.....................................................................................10+ 2isadvantages of a pioneer............................................................................................10+

>ong &ange product e pansion strategy.......................................................................10+ The Competitive Cyc"e....................................................................................................10. E pand the num%er of %rand users %y...........................................................................112 Chapter 11 2eve"oping <e! $roducts...........................................................................11+ 2eve"oping <e! Market 6fferings................................................................................11+ 6&9'<:B:<9 <E5 $&627CT 2E-E>6$ME<T..................................................11. Managing the 2eve"opment $rocess..............................................................................116 Marketing Strategy 2eve"opment...................................................................................11# Managing the 2eve"opment $rocess* 2eve"opment to commercia"i8ation..................119 Market Testing................................................................................................................120 Commercia"i8ation..........................................................................................................121 The consumer 'doption $rocess....................................................................................122 C?'$TE& 1) $roduct @ $roduct Mi es......................................................................126 $roductE>ine 2ecisions..................................................................................................12; >ine fi""ing......................................................................................................................12# ,rand 2ecisions..............................................................................................................12# ,rand "adder...................................................................................................................129 ,rand parity....................................................................................................................1)0 & for ,rand '!areness* <ine ,rand Strengtheners ...............................................1)0 2esira%"e Dua"ities of a %rand name.............................................................................1)1 Chapter 1+ * 2esigning and Managing Services...........................................................1)+ Categories of Service Mi ..............................................................................................1)+ :nsepara%i"ity..................................................................................................................1). $erisha%i"ity....................................................................................................................1)6 Strategic Concept............................................................................................................1+0 Top Management Commitment ....................................................................................1+0 ?igh Standards...............................................................................................................1+0 Monitoring Systems........................................................................................................1+0 Satisfying Customer Comp"aints....................................................................................1+1 M'<'9:<9 $&627CT S7$$6&T SE&-:CES........................................................1+) T',>E 1+.2....................................................................................................................1+) 6==E&:<9 97'&'<TEES T6 $&6M6TE S'>ES................................................1++ Chapter 1. 2esigning $ricing Strategies and $rograms..............................................1+.

Target &eturn $ricing....................................................................................................1.) -a"ue $ricing..................................................................................................................1.. 9oing &ate $ricing.........................................................................................................1.. Sea"ed %id pricing...........................................................................................................1.6 '2'$T:<9 T?E $&:CE..............................................................................................1.; $rice 2iscounts @ '""o!ances.......................................................................................1.; $romotiona" $ricing.......................................................................................................1.# 2iscriminatory $ricing...................................................................................................1.# $roduct Mi $ricing.......................................................................................................1.9 &eactions to price changes.............................................................................................162 Customer0s reactions......................................................................................................162 Competitor0s &eactions..................................................................................................162 &esponding to competitors0 price changes....................................................................16) Chapter 16 Managing Marketing Channe"s.................................................................16. Channe" functions and f"o!s.........................................................................................16. Consumers marketing....................................................................................................166 'na"y8ing customer needs..............................................................................................16; Esta%"ishing channe" o%(ectives @ constraints..............................................................16; :dentifying ma(or channe" a"ternatives..........................................................................16; Eva"uating the ma(or a"ternatives..................................................................................16# Se"ecting Channe" Mem%ers..........................................................................................16# Training Channe" mem%ers...........................................................................................16# Motivating Channe" Mem%ers.......................................................................................16# Channe" conf"ict and competition..................................................................................1;2 Chapter 1; Managing &etai"ing 5ho"esa"ing and Market >ogistics...........................1;+ <arro!............................................................................................................................1;. Target Market.................................................................................................................1;6 5ho"esa"ing....................................................................................................................1;; Chapter 1# M'<'9:<9 :<TE9&'TE2 M'&CET:<9 C6MM7<:C'T:6<S......1#0 2esigning the Message...................................................................................................1#6 Se"ecting Communication Channe"s ...........................................................................190 'dvertising......................................................................................................................19+ Managing and Coordinating :ntegrated Marketing communications ........................196

Chapter 19 'dvertising and Sa"es $romotion...............................................................19; Message...........................................................................................................................19; Money..............................................................................................................................19; Measurement..................................................................................................................19; Mission............................................................................................................................19; Media...............................................................................................................................19; Setting advertising o%(ectives.........................................................................................19; 2eciding on ,udget........................................................................................................19# Choosing the message....................................................................................................19# Message Eva"uation and se"ection.................................................................................19# Message E ecution.........................................................................................................19# Socia" responsi%i"ity revie!............................................................................................199 ' summary of Current &esearch...................................................................................202 $7,>:C &E>'T:6<S...................................................................................................20+ M'F6& 2EC:S:6<S :< M'&CET:<9 $&................................................................20. Chapter 20 M'<'9:<9 T?E S'>ES =6&CE...........................................................206 Managing the Sa"es =orce.............................................................................................20# M6T:-'T:<9 S'>ES &E$&ESE<T'T:-ES............................................................210 Sa"es Duotas....................................................................................................................211 Supp"ementary motivators..............................................................................................211 Sources of :nformation a%out representatives..............................................................212 =orma" Eva"uation.........................................................................................................212 Chapter 21 Managing 2irect and 6n"ine Marketing..................................................21; 9ro!th of direct marketing and e"ectronic %usiness.....................................................21; The gro!ing use of :ntegrated 2irect Marketing.........................................................21# Mass marketing versus 6ne to 6ne Marketing.............................................................220 Mass Marketing..............................................................................................................220 M'F6& C?'<<E>S =6& 2:&ECT M'&CET:<9...................................................221 2irect Mai"......................................................................................................................221 Testing E"ements............................................................................................................222 6T?E& ME2:' =6& 2:&ECT &E$S6<SE M'&CET:<9.....................................22+ Marketing in the 21st century* EE commerce ...............................................................22+ 6<>:<E M'&CET:<9 '2-'<T'9ES @ 2:S'2-'<T'9ES..............................22.

Cha""enges of on"ine marketing.....................................................................................22# Ethica" issues in direct marketing..................................................................................22# C?'$TE& 22 Managing the Tota" Marketing Effort..................................................229 Evo"ution of the marketing department.........................................................................2)0 =unctiona" 6rgani8ation................................................................................................2)2 9eographic 6rgani8ation...............................................................................................2)) $roductE or ,randEManagement 6rgani8ation.............................................................2)) MarketEManagement 6rgani8ation...............................................................................2). $roductEManagementGMarketEManagement 6rgani8ation..........................................2)6 =igure* $roduct GMarketEManagement Matri System................................................2)6 CorporateE2ivisiona" 6rgani8ation...............................................................................2)6 Marketing &e"ations !ith other 2epartments...............................................................2)6 'ccounting......................................................................................................................2)# Strategies =or ,ui"ding ' CompanyE!ide Marketing 6rientation..............................2)#

Chapter 1

Marketing in the 21st century

Marketing tasks Three stages through which marketing practice might pass 1) Entrepreneurial marketing: Most companies are started by individual who live by their wits. They visualize an opportunity and knock on every door to get attention Ex. A person sold beer door to door and such direct selling. lowly he became market leader in selling his products. !) Formulated marketing: when small companies achieve success" they move to #ormulated marketing i.e. already laid down advertising methods" like thru T$ etc. %) Intrepreneurial Marketing: some companies rely on #ormulated marketing" without much success. They need to develop some creative out o# the box ideas to market their products. Scope of Marketing Marketing people are in ol ed in 1! types of entities: 1) !) %) ,) .) "oods like eggs" steel" cars &Maruti'''' (ow) Ser ices like airlines" hotels" barbers E#periences like (alt )isney world*s magic kingdom" at planet +ollywood E ents like -lympics" trade shows" sports events $ersons like celebrity marketing by making ma/or #ilm star as brand ambassador etc. 0) $laces like cities" states" nations to attract tourists" #actories" company head1uarters" and new residents" like we use TA2 or say 3ainital 4) $roperties like real state owners market properties or agent markets securities 5) %rgani&ations thru* 6orporate identity ads like by using tag line 78ets make things better*" or like 9ichard branson &virgin) or :hil knight o# 3ike are some identity ;) Information like thru encyclopedias" 6)s and visit the <nternet #or in#ormation. This is in#ormation marketing 1=) Ideas like the buyer o# a drill are really buying a hole. 6hurch should market itsel# as a place o# worship or a community center. A broadened view o# Marketing Tasks> :roduction and logistics manage supply and marketers manage demand

Eight different states of demand: 1) 'egati e demand> i# a ma/or part o# market dislikes the product and may even pay a price to avoid it ? vaccinations" gall bladder operations etc. Marketing task is to analyse why the market dislikes the product and whether a marketing program can change belie#s and attitudes. !) 'o (emand> Target consumers may be unaware o# or uninterested in the product. Ex. 6ollege students may not be interested in #oreign language courses. Marketing should look #or ways to bene#it others with their product and o# course thus sell their product %) )atent demand> Market #eels a strong needs #or some products like harmless cigarettes. Marketer needs to measure size o# this market and develop such goods ,) (eclining demand: market #or products etc declines. Then marketer need to know the causes and recti#y .) Irregular demand: )emand o# many products and services are seasonal. Marketer needs to devise ways called synchromarketing like #lexible pricing" promotions and other incentives 0) Full demand> sometimes #ull demand is there. Marketing task is to maintain current level o# demand in #ace o# changing consumer pre#erences and increasing competition. 4) % erfull demand: sometimes demand is higher than what organization can handle. Then marketing task" called demarketing is re1uired. 8ike thru raising prices and reducing promotion and service. elective marketing is reducing demand #rom some parts" say not so pro#itable" o# the market 5) *nwholesome demand: @nwholesome products will attract organized e##orts to discourage consumption. 8ike unselling campaigns against cigarettes" alcohol" and handguns. Marketing can use #ear messages like raising prices" reduced availability. The decisions marketers make Marketing managers #ace a host o# decisions" #rom ma/or ones such as what product to make" what #eatures" how many salesperson to hire etc. These 1uestions vary according to marketplaces. Consider following four markets 1) Consumer market: mass consumer goods and services such as so#t drinks" toothpaste" air travel etc. !) +usiness Markets: 6ompanies selling business goods and services #ace well trained and well in#ormed pro#essional buyers. They buy goods #or their utility or to make or resell a product to others. %) "lo,al markets: goods and services #or global marketplace. They have to decide which country to enter" how to enter" has to have a #it the cultural practices etc.

,) 'onprofit and "o ernmental Markets: goods to nonpro#it organizations like churches" universities" governmental agencies need to be priced care#ully. They have to #ollow long government procedures to get this market. Marketing Concepts and Tools: (efining Marketing: Social (efinition: Marketing is a societal process by which individuals and groups obtain what they need and want through creating" o##ering and #reely exchanging products and services o# value with others. &-ne marketer said that marketing*s role is to deliver a high standard of living) Managerial (efinition: -#ten described as the art o# selling. Marketing is not /ust selling. elling is only the tip o# the iceberg' $eter (rucker: The aim o# marketing is to make selling super#luous. The aim o# marketing is to know and understand the customer so well that the product or service #its him and sells itsel#. -merican Management -ssociation: Marketing &management) is the process o# planning and executing the conception" pricing" promotion" and distribution o# ideas" goods" services to create exchanges that satis#y individual and organisational goals. .otler: (e see marketing management as the art and science o# choosing target markets and getting" keeping and growing customers through creating" delivering and communicating superior customer value. Core Marketing Concepts: Target Markets and Segmentation: Marketers can rarely satis#y everyone in the market. o they start with 7 market segmentation*. <denti#y and pro#ile di##erent groups o# buyers. Target segments that present the greatest opportunity ? those whose needs the #irm can meet in a superior #ashion. Aor each chosen target market" the #irm develops a market offering" which is positioned as o##ering some central bene#it.

Marketers view the sellers as constituting the industry and the buyers as constituting the market.

Markets> 3eed markets &the diet seeking market) :roduct markets &the shoe market) )emographic markets &the youth market) Beographic market &the Arench market) -ther markets like voter markets" donor markets and labour markets. Marketplace vCs market space ? physical vCs digital Mohan awhney has proposed the concept o# metamarket to describe a cluster o# complementary products and services that are closely related in the minds o# consumers but are spread across a diverse set o# industries. Metamediaries Advantages o# eDcommerce> 6onvenience 6ost savings #or companies election :ersonalization <n#ormation ervices Booda and services ervices" money Money 9esources Taxes" goods Taxes 9esource markets

Manu#acturer markets

Bovernment markets

6onsumer markets

<ntermediary markets

Marketers and prospects: Marketer is someone seeking response in the #orm o# attention" purchase" vote and donation. The response is sought #rom prospect. 'eeds/ 0ants and (emand: 3eeds describe basic human re1uirements. Example need #or #ood" air" water" education" entertainment etc. 3eeds become wants when they are directed to speci#ic ob/ects that might satis#y the need. 3eed #or #ood DDDE (ant #or a +amburger )emands are wants #or speci#ic products backed by willingness and ability to pay. Marketers do not create needs. 3eeds preexist marketers. Marketers along with other social in#luencers in#luence wants. $roduct or offering: A product is any o##ering that can satis#y a need or want. Ma/or typed o# basic o##erings> Boods" services" experiences" events" persons" places" properties" organizations" in#ormation and ideas. A brand is an o##ering #rom a known source. 1alue and satisfaction: $alue is what customer gets and what he gives. 6ustomer gets bene#its and assumes costs. Fene#its include #unctional and emotional bene#its. 6osts include monetary costs" time costs" energy costs and psychic cost. Fene#its &#unctional and emotional bene#its) $alue G DDDDDDDDDDD G DDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDDD 6osts &include monetary costs" time costs" energy costs and psychic cost) $alue o# customer o##ering can be increased by> 9aise bene#its 9educe costs 9aise bene#its A3) reduce costs 9aise bene#its by M-9E T+A3 the raise in costs 8ower bene#its by 8E T+A3 the decrease in costs E#change and transactions: Exchange is one o# the #our ways in which a person can obtain a product. Exchange is core concept o# marketing.

Exchange involves obtaining a desired product #rom someone by o##ering something in return. Aor exchange potential to exist #ive conditions must be satis#ied> At least two parties Each party has something that might be o# some value to the other party. Each party is capable o# communication and delivery Each party is #ree to accept or re/ect o##er Each party believes that it is appropriate or desirable to deal with the other party. Exchange is valueDcreating process as it leaves both the parties 3-9MA88H better o##. Exchange is a process rather than an event. A transaction is a trade o# values between two or more parties. Monetary transaction> :aying money in exchange o# goods Farter transaction> Boods or services #or other goods or services. )imensions o# a transaction> At least two things o# value Agreed upon conditions A time o# agreement :lace o# agreement Transaction di##ers #rom trans#er. <n a trans#er A gives goods to F but does not receive anything tangible in return. Example> Bi#ts" charities" subsidies etc. 2elationships and networks: Transaction marketing is a part o# larger idea called relationship marketing. 9elationship marketing has the aim o# building long term mutually satis#ying relations with key parties ? customers" suppliers" and distributors ? in order to earn and maintain their longDterm pre#erence and business. 9elationship marketing builds string economic" social and technical ties among the parties. A marketing network consists o# companies and its supporting stakeholders &customers" employees" suppliers" distributors" retailers" ad agencies" university scientists and others). Marketing Channels: To reach a target market marketer uses three di##erent kinds o# marketing channels. 6ommunication channel> The marketer uses communication channels to deliver and receive messages #rom target buyers. These consist o# dialogue channels &e mail" toll #ree numbers).

)istribution channels> To display and deliver the physical product or service to the buyer or user. They include warehouses" transportation vehicles and various trade channels such as distributors" wholesalers" retailers etc. elling channels> They include not only the distributors and retailers but also the banks and insurance companies that #acilitate transactions. Supply chain: upply chain represents a value delivery system. (hen a company moves upstream or downstream" the aim is to capture a higher percentage o# supply chain value. Competition: 6ompetition includes all the actual and potential rival o##erings and substitutes that a buyer might consider. Aour levels o# competition> Frand competition> imilar products or services to the same customers at similar prices. <ndustry competition> All companies making the same product or the class o# product. Aorm competition> All companies manu#acturing the products that supply the same service. Beneric competition> All companies that compete #or the same consumer dollars. Example> 6ompany ? $olkswagen Frand competition> +onda" Toyota and other medium price automobiles <ndustry competition> All automobile manu#acturers Aorm competition> Automobiles I Motorcycles I Ficycles I Trucks Beneric competition> 6onsumer durables I Aoreign $acations I 3ew +omes 2-(-2 SC2EE'> Aor @ steel industry &as given in Jotler)

BE :lastics )ow :lastics Fethlehem 8T$ @ teel

.2apanese <ntegrated mills

Alcon

Marketing En ironment 6ompetition represents only one #orce in the environment in which the marketer operates. The marketing environment consists o# the task environment and the broad environment. The task environment includes the immediate actors involved in producing" distributing" and promoting the o##ering. The main actors are company" suppliers" distributors" dealers" and the target customers. <ncluded in the supplier group are material suppliers and service suppliers such as marketing agencies" advertising agencies" banking and insurance companies" transportation and telecommunication companies. <ncluded with distributors and dealers are agents" brokers" manu#acturer representatives" and others who #acilitate #inding and selling to consumers. The broad environment consists o# six components> demographic environment, economic environment, natural environment, technological environment, political-legal environment, and social-cultural environment. These environments contain #orces that can have a ma/or impact on the actors in the task environment. Market actors must pay close attention to the trends and the developments in these environments and then make timely ad/ustments to their marketing strategies. Marketing Mi# Marketers use numerous tools to elicit desired responses #rom their target markets. These tools constitute a marketing mix. Marketing Mix Aigure 1..

:roduct :roduct $ariety Kuality )esign Aeatures Frand name :ackaging izes ervices (arranties 9eturns

:romotion ales promotion :rice Advertising 8ist :rice ales Aorce )iscounts :ublic 9elations Allowances )irect Marketing :ayment :eriod 6redit Terms

:lace 6hannels 6overage Assortments 8ocations <nventory Transport

Marketing mi is the set o# marketing tool that the #irm uses to pursue its marketing ob/ectives in the target market. Mc6arthy classi#ied these tools into #our broad groups that he called the #our :*s o# marketing> :roduct" :rice" :lace and :romotion. The particular marketing variables under each : are shown in #igure 1... Marketing mix decisions must be made #or in#luencing the trade channels as well as the #inal consumers. Aig 1.0 shows the company preparing the offering mix o# the products" services and prices and utilizing a promotion mix o# sales promotion" advertising" sales #orce" public relations" direct mail" telemarketing" and internet to reach the trade channels and the target customers. Typically" the #irm can change its price" sales #orce size" and advertising expenditures in the short run. <t can develop new products and modi#y its distribution channels only in the long run. Thus the #irm typically makes #ewer periodDtoDperiod marketingDmix changes in the short run than the number o# marketingDmix decision variables might suggest. 3ote that the #our :s represent the seller*s view o# the marketing tools available #or in#luencing the buyer. Arom a buyer*s point o# view" each marketing tool is designed to deliver a customer bene#it. 9obert 8auterborn suggested that the seller*s #our :*s correspond to the customer*s #our 6s. Aour :s :roduct :rice :lace :romotion Aour 6s 6ustomer olution 6ustomer 6ost 6onvenience 6ommunication

(inning companies will be those who can meet customer needs economically and conveniently and with e##ective communication. ales Aorce 6ompan y :roducts ervices :rices Advertising ales Aorce :ublic 9elations )irect mails" telemarketing and <nternet )istribution 6hannels Target 6ustomer s

Company orientation towards the market place (e have de#ined marketing management as the conscious e##ort to achieve desired exchange with target markets. Fut what philosophy should guide a company*s marketing e##ortsL (hat relative weights should be given to the interests o# the organization" the customers and the societyL $ery o#ten these interest con#lict. 6learly" marketing activities should be carried under a wellDthought out philosophy o# e##icient" e##ective" and socially responsible marketing. +owever" there are #ive competing concepts under which organizations conduct marketing activities> the production concept" selling concept" marketing concept and societal marketing concept. The $roduction Concept: The production concept is the oldest concept in business. The production concept holds that consumers will pre#er products that are widely available and inexpensive. Managers o# productionDoriented business concentrate on achieving high production e##iciency" low costs and mass distribution. They assume that consumers are primarily interested in product availability and low prices. This orientation makes sense in developing countries" where consumers are more interested in obtaining the product than its #eatures. <t is also used when a company wants to expand the market. ome service organizations also operate on the production concept. Many medical and dental practices are organized on assemblyDline principles" as are some government agencies &such as unemployment o##ices and license bureaus). Although this management orientation ca handle many cases per hour" it is open to charges o# impersonal and poor 1uality service. The $roduct Concept: -ther businesses are guided by the product concept. The product concept holds that consumers will #avor those products that o##er the most 1uality" per#ormance" or innovative #eatures. Managers in these organizations #ocus on making superior products and improving them over time. They assume that buyers admire wellDmade products and can appraise 1uality and per#ormance. +owever" these managers are sometimes caught up in a love a##air with their product and do not realize what the market needs. Management might commit the MbetterDmousetrapN #allacy" believing that a better mousetrap will lead people to beat a path to its door. uch was the case when (ebT$ was launched during 6hristmas 1;;0 to disappointing results.

:roduct oriented companies o#ten design their products with little or no customer input. They trust that their engineers can design exception products. $ery o#ten they will not even examine competitor*s product. A Beneral Motors executive said years ago> M+ow can public know what kind o# cars they want until they see what is availableLN BM*s designers and engineers would design the new car. Then manu#actures would make it. The #inance department would price it. Ainally" marketing and sales would try to sell it. 3o wonder he car re1uired such a hard sell' BM today asks customers what they value in a car and includes marketing people in the very beginning stage o# the design. The product concept can lead to marketing myopia. 9ailroad management thought that travelers wanted trains rather than transportation and overlooked the growing competition #rom airlines" busses" trucks and automobiles. lideDrule manu#acturers thought that engineers wanted slide rules and overlooked the challenge o# pocket calculators. 6olleges" department stores" and post o##ice all assume that they are o##ering the public the right product and wonder why their sales slip. These organizations too o#ten are looking into a mirror when they should be looking out o# window. The Selling Concept: The selling concept is another common business orientation. The selling concept holds that consumers and businesses" i# le#t alone" will ordinarily not buy enough o# the organizations products. The organization must" there#ore" undertake an aggressive selling and promotion e##ort. This concept one assumes that consumers typically show buying inertia or resistance and must be coaxed into buying. <t also assumes that the company has a whole battery o# e##ective selling and promotion tools to stimulate more buying. The selling concept is practiced in the nonDpro#it area by #undDraisers" college admission o##ices" and political parties. A political party vigorously sells its candidates to voters. The candidates* #laws are concealed #rom the public because the aim is to make a sale and not worry about post purchase satis#action. A#ter the election" the new o##icial wants and a lot o# selling to get the public to accept policies the politician or party wants. Most #irms practice selling concept when they have overcapacity. Their aim is to sell what they make rather than make what the market wants. <n modern industrial economies" productive capacity has been built up to a point where most marketers are buyer markets &the buyers are dominant) and sellers have to scramble #or customers. :rospects are bombarded with T$ commercials" newspaper ads" direct mails" and sales calls. At every turn" someone is trying to sell something. As a result" the public o#ten identi#ies marketing with hard selling and advertising. Fut marketing based on hard selling carries high risks. <t assumes that customers who are coaxed into buying a product will like itO and i# they don*t" they won*t bad mouth it or complain to consumer organizations and will #orget their disappointment and buy it

again. These are inde#ensible assumptions. -ne study showed that dissatis#ied customers may badDmouth the product to 1= or more ac1uaintancesO bad news travels #ast. T+E MA9JET<3B 6-36E:T The marketing concept is a business philosophy that challenges the three business orientations we /ust discussed. The marketing concept holds that the key to achieving its organizational goals consists o# the company being more e##ective than competitors in creating" delivering" and communicating customer values to its chosen target markets. The marketing concept rests on #our pillars> target market" customer needs" integrated marketing and pro#itability. The selling concept takes an insideDout perspective. <t starts with the #actory" #ocuses on the existing products" and calls #or heavy selling and promoting to produce pro#itable sales. The marketing concept takes an outsideDin perspective. <t starts with a wellDde#ined market" #ocuses on customer needs" coordinates all the activities that will a##ect customers" and produces pro#its by satis#ying customers. Target market 6ompanies do best when they select their target markets care#ully and prepare tailored marketing programs. Customer needs A company can de#ine its target market but #ail to correctly understand the customers* needs. @nderstanding customer needs and wants is not always simple. ome customers have needs o# which they are not #ully conscious. -r they cannot articulate these needs. -r they use words that re1uire some interpretation. (e can distinguish among #ive types o# needs> tated needs 9eal needs @nstated needs )elight needs ecret needs 9esponding only to the stated need may shortchange the customer. 6onsider a woman who enters a hardware store and asks #or a sealant to seal glass windowpanes. This customer is stating a solution and not a need. The salesperson may suggest that tape would provide a better solution. The salesperson met the customers need" not her stated solution. A distinction needs to be drawn between responsive marketing" anticipative marketing" and creative marketing. A responsive marketer #inds a stated need and #ills it. An

anticipative marketer looks ahead into what needs customers may have in the near #uture. A creative marketer discovers and produces solutions customers didn*t ask #or but to which they enthusiastically respond. ony exempli#ies a creative marketer because it has introduced many success#ul new products that customers never asked #or or even thought were possible. (hy is it supremely important to satis#y target customersL Fecause a company*s sales each period comes #rom two groups> new customers and repeat customers. -ne estimate is that attracting a new customer can cost #ive times as much as pleasing an existing one. And it might cost sixteen times as much as to bring the new customer to the same level o# pro#itability as the lost customer. 6ustomer retention is thus more important than customer attraction. Integrated marketing: (hen all the company*s departments work together to serve the customer*s interests" the result is integrated marketing. @n#ortunately" not all employees are trained and motivated to work #or the customer. <ntegrated marketing takes place on two levels. Airst" the various marketing #unctionsD sales #orce" advertising" customer service" product management" marketing researchDmust work together. econd" the other departments must embrace marketingO they must also think customer. Marketing is not a department so much as a company wide orientation. To #oster teamwork among all departments" a company should carry out internal as well as external marketing. External marketing is marketing directed at people outside the company. <nternal marketing is the task o# hiring" training" and motivating able employees who want to serve the customers well. <n #act" internal marketing must precede external marketing. <t makes no sense to promise excellent service be#ore the company*s sta## is ready to provide it. Managers who believe the customer is the company*s only true pro#it center consider the traditional organisation chartD a pyramid with the president at the top" management in the middle" and #rontDline people and customers at the bottomDobsolete. Master marketing companies invert the chart. $rofita,ility The ultimate purpose o# the marketing concept is to help organizations achieve their ob/ectives. <n the case o# private #irms" the ma/or ob/ective is pro#itO in the case o# nonpro#it and public organizations" it is surviving and attracting enough #unds. A company makes money by satis#ying customer needs better than its competitors.

Top Management

6ustomers Aront 8ine :eople Middle Management Top Management

Middle Management Aront 8ine :eople 6ustomers Traditional -rganizational 6hart

Modern 6ustomerDoriented -rganisational 6hart

Most companies do not embrace the marketing concept until driven by circumstances. These are 1. ales )ecline> (hen ales #all" companies panic and look #or answers. Today newspapers decline as people are more replying on 9adio" T$ and <nternet #or the news !. low Browth> low sales growth leads companies to search #or new markets. They realize they need marketing skills to identi#y and select new opportunities %. 6hanging buying patterns> Many companies operate in markets characterized by rapidly changing customer wants. These companies need more marketing knowhow i# they are to track buyers changing values ,. <ncreasing 6ompetition> 6omplacent industries may be suddenly attacked by power#ul competitors. ATPT was 1uite complacent in a regulated marketDnaQve Telephone 6ompany until government allowed other companies to sell Telephone e1uipments. 6ompanies in deregulated industries all #ind it necessary to build up marketing expertise .. <ncreasing Marketing Expenditures> 6ompanies may #ind their expenditures #or advertising" ales" :romotion" marketing 9esearch and 6ustomer ervice to be poorly done. Management then decides to take a serious audit to improve its marketing 6ompanies need to attract and retain customers through superior product o##erings" which delivers the 6ustomer satis#action. This is also in#luenced by other departments who must cooperate in delivering this 6ustomer atis#action <n the course to converting into marketing orientation" a company #aces % hurdles -rganized 9esistance low 8earning

Aast #orgetting

ome company departments like 9P)" Manu#acturing" and Ainance etc. believe a stronger Marketing department threatens their power in the organisation. 9esistance is especially strong in the industries where Marketing is introduced #or the #irst timeDlike law o##ices" colleges" deregulated industries and government o##ices. Fut in spite o# resistance the 6ompany president establishes a Marketing department" marketing talents are hired and seminars conducted" Marketing budget increased and Marketing planning and 6ontrol systems introduced. 6ompanies #ace a di##icult task in adapting ad slogans to <nternational markets" many o# which are interpreted wrongly S%CIET-) M-2.ETI'" C%'CE$T> The ocietal Marketing 6oncept holds that the -rganizations task is to determine the needs" wants and interests o# target markets and to deliver the desired satis#action more e##ectively and e##iciently than competitors in a way that preserves and enhances the consumers and the societies well being. <t calls #or social and Ethical considerations in marketing. They must balance the con#licting criteria o# 6ompany pro#its" consumer want satis#action and :ublic <nterest. <n an age o# environmental deterioration" resource shortage" explosive population growth" world hunger and poverty and lack o# ocial ervices Marketers needs to be sensitive on these issues 6auseD9elated Marketing> Activity by which a company with an image" product or service to market builds a relationshipCpartnership with a causeCcauses #or mutual bene#it. This serves an opportunity #or 6orporate 9eputation" raise Frand Awareness" increase 6ustomer 8oyalty" :ress coverage and Fuild ales. )-66R. 3ow +usinesses and Marketing are Changing4 Market place is changing as a result o# ma/or societal #orces like Technological Advance Blobalization )eregulation 6ustomers increasingly want higher Kuality" 8ower :rice" ervice and 6ustomization. They perceive #ewer Frand 8oyalty and :roduct di##erences. They ca obtain Extensive :roduct in#ormation #rom the <nternet and other sources and shop intelligently. Frand manu#acturers are #acing intense competition #rom domestic and #oreign brands" rising promotion costs and shrinking pro#its. tore based retailers are su##ering #rom an over saturation o# retailing. mall retailers are succumbing to growing power o# Biant retailers and category killers. tore based retailers are su##ering #rom competition #rom catalog houses" )irect mail #irms" T$ direct to customer ads" Telemarketing" TeleDshopping etc. Company 2esponse and -d5ustments

+ere are some current trends 1. 9eengineering> Aocusing on Aunctional departments to reorganize the key business processes" each managed by multidiscipline teams !. -utsourcing> Arom making everything inside to buying more goods and services outside" to obtain them cheaper and better. Aew companies are outsourcing everything making them $irtual companies owning very #ew assets and there#ore extraordinary rates o# return %. ED6ommerce> Making all products available on the <nternet. 6ustomers can now shop online #rom di##erent vendors" have access to a lot o# :ricing and Kuality and $ariety in#ormation. 6lick and pay systems are evolving along with F!F systems and F!6 systems" with buyers and sellers in 9eal Time ystems ,. Fenchmarking> Adopting the best practices o# (orld 6lass per#ormers .. Alliances> 3etwork o# partners 0. :artnerD uppliers> Arom many suppliers to a #ew reliable suppliers who work more closely in :artnership relationships with the company 4. MarketD6entered> Arom organized around the product to organized around the Market segment 5. Blobal and 8ocal> Arom being local to being Blobally local and locally Blobal ;. )ecentralized> More intrapreneurship at the local level Marketer responses and ad5ustments: 1. 9elationship Marketing> Arom #ocusing transactions to building 8ong Term pro#itable 6ustomer 9elationships. The 5=D!= rule !. 6ustomer 8i#etime value> Arom making a pro#it on each sale to making :ro#its by managing 6ustomer 8i#etime value. 8ike the E)8: o# (alDMart %. 6ustomer hare> Arom #ocusing on gaining on Market hare to #ocusing on gaining 6ustomer mindDshare by selling a large variety o# goods and services" training employees to do 6rossDselling and @pDselling ,. Target Marketing> Arom selling to everyone to serving better well de#ined market segments .. <ndividualization> Arom selling the same o##er in the same way in the target market to individualization and 6ustomization. 6ustomers designing their own products on the web pages and all 0. 6ustomer )atabase> 6ustomer Jnowledge :ro#iling" )ata Mining" )ata (arehousing" purchase pre#erences" demographics 4. <ntegrated Marketing 6ommunication> Arom relying on one communication tool like advertising and :romotion to blending several tools to deliver a consistent brand image to customers at every brand contact 5. 6hannels as :artners> Arom thinking o# intermediaries as 6ustomers to treating them as :artners in delivering value ;. Every Employee as a Marketer 1=. Model based )ecision making> Arom making decisions on intuition to basing decisions on models and #acts

Chapter 2 +uilding Customer Satisfaction 1alue and 2etention


Customer 1alue o Customer 1alue or Customer (eli ered 1alue is the di##erence between Total 6ustomer $alue and Total 6ustomer 6ost. 6ustomer $alue G :roduct $alue I ervice $alue I :ersonnel $alue I <mage $alue o Total Customer 1alue is the bundle o# bene#its that the customers expect #rom a given product or service. o Total 6ustomer 6ost is the bundle o# costs customers expect to incur in evaluating" obtaining" using and disposing o# the product or service. Total 6ustomer 6ost G Monetary 6ost I Time 6ost I Energy 6ost I :sychic 6ost o 6ustomers make their purchases based on 6ustomer )elivered $alue or on the basis o# valueDprice ratio. $alue ? price ratio G Total 6ustomer $alue C Total 6ustomer 6ost o eller who is at a delivered value disadvantage has two alternatives> o <ncrease Total 6ustomer $alue> strengthen product" service" personnel and image bene#its o )ecrease Total 6ustomer 6ost> reduce price" simpli#y ordering and processing process" absorb buyers risk by o##ering warranty etc. Customer Satisfaction o Customer Satisfaction is a person*s #eelings o# pleasure or disappointment resulting #rom comparing a product*s perceived per#ormance &or outcome) in relation to his or her expectations o 6ustomer atis#action is a #unction o# perceived per#ormance and expectations o# the customer. o A company must develop a competitively superior value proposition and a superior value delivery system. o <t o#ten happens that customers are dissatis#ied because o# a wide gap between Frand value &product per#ormance) and 6ustomer value. o it is recommended that marketers pay as much attention to building brands as in in#luencing company*s core processes. o The goal o# a company should be to maximize customer satis#action" sub/ect to delivering acceptable levels o# returns to the other stakeholders within constraints o# its resources. Aour methods o# tracking customer satis#action> 1. Aeedback and uggestion Aorms !. 6ustomer urveys %. Bhost shopping ,. Analyze lost customers

'ature of 3igh $erformance +usinesses Stakeholders 6 A company should strive to per#orm above the minimum expectations o# all o# it*s stakeholders" including the employees" customers" suppliers so that this dynamic relationship ultimately leads to higher pro#its and hence stockholder satis#action. $rocesses 6 The trick lies in overcoming the problems posed by departmental organization. The success#ul companies are those that achieve excellent capabilities in managing core business process through cross ? #unctional teams. 6ore processes here could be newDprod development" customer attraction" order #ul#illment" etc 2esources 6 The ma/or businesses are nowadays trying to own and nurture only their respective core resources and competences" while out sourcing the rest o# the processes. 6ompanies are paying increasing #ocus on their core competences and distinctive capabilities. -ne should go in #or outsourcing" i# through outsourcing" 1. better 1uality can be obtained !. lower costs are incurred %. <# resources are less critical 6ore competence has % characteristics 1. )i##icult #or competitors to imitate !. ource o# competitive advantage i# it makes signi#icant contribution to perceived customer bene#its %. :otential breadth o# appl*n to a wide variety o# markets et strategies to satis#y key stakeholders Fy improving critical biz processes And aligning resources and organization takeholders :rocesses 9esources and -rganisation

%rgani&ation and %rgani&ational Culture 6 According to the article Built to Last" there are % commonalities amongst the visionary companies ? 1. They all held a core value system #rom which they did not deviate !. They expressed their purpose in enlightened terms %. They have developed a vision #or their #uture and they strive towards it. They communicated it to their employees and embrace a higher purpose beyond making money enior mgmt must encourage #resh ideas #rom % grps wrt strategy making a. Employees with youth#ul perspectives b. employees away #rom head1uarters c. employees new to the industry (eli ering Customer alue and satisfaction +ere are two important concepts #rom the customer value point o# view ?

1alue chain 6 Michael :orter de#ined ; processes as vital to a valueDbuilding network o# a company" viz. Primary Activities: <nbound logistics" -perations" -utbound logistics" Marketing ales and ervice. upport Activities: <n#rastructure" +9)" Technology development" :rocurement. A #irm*s task is to examine all costs and per#ormance o# these processes and try and improve them #or better valueDcreation. Also a #irm*s success depends upon how each o# these processes are coordinated to seamlessly per#orm the #ollowing core business processes ? D 3ew ? product realization D <nventory management D 6ustomer ac1uisition and retention D -rderDtoDremittance D 6ustomer service 1alue deli ery network 6 A #irm needs to partner with its suppliers" distributors and customers to gain signi#icant competitive advantages by creating a superior valueD delivery network. -ttracting and 2etaining customers Customer -c7uisition 6 This process is accomplished in % steps viz." Lead generation ! to generate leads" the company develops ads and places them in media that will reach new prospectsO its sales person participate in trade shows where they might #ind new leads and so on. All these produces a list o# suspects. 8ead 1uali#ication ? the next task is to 1uali#y which o# the suspects are really good prospects" and this is done by interviewing them" checking #or there #inancials" and so on. The prospects may be graded as hot warm and cool. The sales people #irst contact the hot prospects and work on account conversion" which involves making presentations" answering ob/ections and negotiating #inal terms. Computing cost of lost customers 6 Too many companies su##er #rom high customer churn namely they gain new customer only to lose many o# them. Today companies must pay closer attention to their customer de#ection rate &the rate at which they lose customer). The steps involved here are 1. A company must de#ine and measure retention rate !. The company must distinguish the causes o# customer attrition and identi#y those that can be managed better. 3ot much can be done #or customer who leave the region or go out o# business but much can be done about the customer who leave because o# poor service shoddy products or high prices. The company needs to examine the percentages o# customer who de#ect #or these reasons. %. Third" the company needs to estimate how much pro#it it loses when it loses customer. <n case o# an individual customer the lost pro#it is e1ual to the customers lifetime value that is the present value o# the pro#it stream that the company would have realized i# the customer had not de#ected prematurely.

,. #ourth the company needs to #igure out how much it would cost to reduce the de#ection rate. As long as the cost is less than the lost pro#it the company should spend the amount to reduce the de#ection rate. The key to customer retention is customer satis#action. A highly satis#ied customer > stays loyal longer buys more as the company introduces new products or upgrades existing products talk #avorably about the company and its products pays less attention to competing brand s and advertising and is less sensitive to price. -##ers product or service ideas to the company Importance of retaining customers 6 The #ollowing statistics are help#ul to this end 1. Ac1uiring new customers costs . times more than retaining old ones !. A .S reduction in customer de#ection can increase pro#its by !.S to 5.S %. 6ustomer pro#it rates tend to increase over the li#etime o# the customer. The two ways o# retaining a customer would be ? 1. "o erect high s#itching costs customers are less inclined to switch to another supplier when this would involve high capital costs" high search costs" or loss o# loyal customer discounts. !. $eliver high customer satisfaction 2elationship marketing 6 The task o# creating strong customer loyalty is called 9elationship Marketing. The steps in customer development process is uspects DE :rospects DE AirstDtime customers DE repeat customers DE 6lients DE members DE Advocates DE :artners. There might be de#ections #rom any o# these levels" in which case" relationship marketing works on customer winDback strategies. There are . di##erent types o# levels o# investment in customer relationship marketing ? 1. Fasic marketing > the sales person simply sells the product !. 9eactive marketing > the salesperson sells the product and encourages the customer to call i# he or she has 1uestions comments or complaints. %. Accountable marketing > the salesperson phones the customer a short time a#ter the sales to check whether the product is meeting the expectation. ,. :roactive marketing > the company salesperson contacts the customer #rom time to time with suggestion about the improved product uses or help#ul new products. .. :artnership marketing > the company works continuously with the customer to discover ways to per#orm better. There are also certain marketing tools that can be used #or added customer satis#action ? 1. Adding financial benefits - through #re1uency marketing programs and club marketing programs. 6lub membership programs to bond the customer closer to the company can be open to everyone who purchase the product or service" such as #re1uent #lier or #re1uent diner club" or it can be limited to the affinity group. !. Adding social benefits ! developing more social bonds with the customerO help make brand communitiesO etc.

%. Adding structural ties ! upplying customers with special e1uipment or computer linkages to help them manage their payrolls" inventory" etc. better. Customer profitability the ultimate test @ltimately" marketing is the art o# attracting and retaining pro#itable customers. The well known !=D5= rule says that the top !=S o# the customers may generate as much as 5=S o# the company*s pro#its. The largest customers who are yielding the most pro#it. The largest customers demand considerable service and receive the deepest discounts. The smallest customers pay #ull price and receive minimal service" but the costs o# transacting with small customers reduce their pro#itability. The mid size customers receive good service and pay nearly #ull price and are o#ten the most pro#itable. A company should not pursue and satis#y all customers. A profita%"e customer is a person" household" or company that over time yields a revenue stream that exceeds by an acceptable amount the company*s cost stream o# attracting" selling" and servicing that customer.

Implementing Total 8uality Management


T8M is an organization wide approach to continuously improving the organizations processes" products and services. <mportant prizes in di##erent countries to recognize best 1uality practices 2apan ? )eming :rize &named a#ter K. Edwards )eming)" 1;.1. )eming*s work #orms the basis o# many TKM practices @ ? Malcolm Faldridge 3ational Kuality Award &in honor o# the late secretary o# commerce)" mid 1;5=s Europe ? European Kuality Award &established by the European Aoundation #or Kuality Management)" 1;;% There is an intimate connection between the 1uality delivered by a company and the corresponding customer satis#action and company pro#itability. This is because higher levels o# 1uality support higher prices while delivering high satis#action at lower costs. 8uality is the totality o# #eatures and characteristics o# a product or service that bear on its ability to satis#y stated or implied needs. A company that satis#ies most o# its customers* needs most o# the time is called a %uality time. &onformance %uality is satis#ied i# all the units deliver the expected 1uality. Performance %uality, however" is di##erent in that it is based upon the grade.

Eg. A Mercedes and +yundai may both deliver 6on#ormance Kuality" but Mercedes can be said to deliver higher :er#ormance 1uality. The main responsibilities o# a Marketing Manager are ? 1. They must participate in #ormulating strategies and policies designed to give company total 1uality. !. They must deliver marketing 1uality aside production 1uality. <n implementing TKM" a marketer*s /ob could subsume the #ollowing ? 1. <denti#ying customer*s needs !. 6ommunicate these re1uirements to the product designers %. Ensure that customer*s orders are #illed on time and correctly ,. Ensure customer is trained enough to use the product well .. Ensure a#ter sales service and satis#action 0. Bet improvement suggestions #rom the customers" convey them to respective depts.. (imensions of customer ser ice: There are fi e dimensions 2elia,ility: the a,ility to pro ide what was 9promised dependa,ly and accurately -ssurance: the knowledge and courtesy of the employees and their a,ility to con ey trust and confidence: Tangi,les: the physical facilities and e7uipment and the appearance of personnel Empathy: the degree of caring and indi idual attention pro ided to customers 2esponsi eness: willingness to help customers and pro ide prompt ser ice $eople switch suppliers mainly ,ecause of poor ser ice: -ny ,ad e#perience;poor ser ice pro ision makes the customer "ap ,etween customer and supplier: pg <=>: Ser ice 7uality model Structure System $eople Culture Fridging the Bap between Expectation and :erception 6on#orming to 1uality 6ustomer satis#action Market perceived value P 1uality > bridges the gap 6ustomer value management

Chapter ? 0inning Markets : Market %riented Strategic $lanning


trategic planning consists o# % actions broadly ? 1. Managing a companies* port#olios !. Assessing each business* strength &skill" resource" competence) by considering the market*s growth rate and the company*s position #it in that market. %. Aormulating a game plan #or each o# its businesses to achieve longDterm ob/ectives. trategic :lanning is done in , levels ? 1. &orporate trategic Plan ! <t decides what resources to allocate to which business and what businesses to diversi#y into !. $ivision Plan ! <t decides how much #unds to allocate to the F@s. %. B' Plan ! (. Product Plan ! Corporate and (i ision Strategic $lanning This basically subsumes , activities ? 1. )e#ining corporate mission !. Establishing F@ %. Assigning resources to each F@ ,. :lanning new businesses" downsizing older ones (efining the Corporate Mission 6 A good mission statement provides employees with a shared sense o# purpose" direction and opportunity. A good mission statement has % characteristics ? 1. They #ocus on a limited number o# goals !. They stress on ma/or policies and values the company wants to honor %. They de#ine the ma/or competitive scope within which the company will operate. ome o# such scopes are > industry scope" products scope" geographical scope" etc Esta,lishing S+*s 6 6ompanies should de#ine business units in terms o# needs" not products. A business can de de#ined in terms o# three dimensions ? 6ustomer groups" 6ustomer needs and Technology. 6haracteristics o# an F@ are ? 1. <t is independent in terms o# the policies it needs !. <t has its own set o# competitors -ssigning 2esources to each S+* 6 The +C" -pproach @"rowthAshare matri#B 6 :lots the Market growth rate &S" HDaxis" = ? !=S) against 9elative market share &#raction" TDaxis" 1= ? =.1). The area o# the circle denotes the volume o# the business. Fased upon the position in the chart" the businesses are classi#ied as ?

1. Kuestion marks !. tars %. 6ash cows ,. )ogs A#ter plotting the matrix" the company can /udge the health o# its port#olio and can take one o# the #ollowing , actions to determine the budget to assign to each F@? 1. Fuild ? to increase market share" at the expense o# shortDterm earnings" i# necessary. )one on dogs !. +old ? to preserve market share. )one on cash cows %. +arvest ? to increase shortDterm #low" regardless o# longDterm e##ect. This generally diminishes the value o# the F@. )one so that the costs are reduced at a #aster rate than the #all in sales. )one on losing cash cows" dogs and 1uestion marks ,. )ivest ? to li1uidate the business. )one on 1uestion marks and dogs The "eneral Electric Model 6 :lots the Market Attractiveness &HDaxis" 1 ? .) against the Fusiness trength &TDaxis" . ? 1). Aor each business the two dimensions are calculated a#ter setting the values #or the parameters under each o# the two" and then using their weightage. The area o# the circle is the size o# the market" shaded part being the business*s share. The ; cells are divided into % zones ? 1. % cells on top le#t ? strong F@s in which the company should invest and grow !. % diagonal cells ? medium in overall e##ectiveness %. % cells in bottom le#t ? weak F@s. )ivest or harvest these. $lanning new +usinesses/ (ownsi&ing old ones 6 The company can try one the #ollowing % strategies to increase it*s business ? 1. <ntensive growth ? a review o# whether any opportunities exist #or improving the existing business per#ormance. This can be achieved in , ways &Ansho##*s Model) ? a) Market penetration b) Market development c) :roduct development d) )iversi#ication !. <ntegrative growth ? Fy backward <ntegration" Aorward <ntegration" or +orizontal integration. %. )iversi#ication growth ? Exploiting opportunities in new businesses. +usiness Strategic planning The unit strategic planning #or a business consists o# the #ollowing stepsD 1. +usiness Mission 6 Each business unit needs to come up with a mission within the broader company mission. !. S0%T analysis This is #urther carried out into parts )pportunity and threat analysis *+xternal +nvironment analysis,

<n general companies need to identi#y the ma/or macroeconomic #orces &demographic" economic" technological" socioDcultural" etc.) and the ma/or microeconomic #orces &customers" competitors" suppliers" distributors" etc) that have an e##ect on its pro#itability. Aurther" they need to trace trends in these #actors then identi#y which can be their opportunities and weaknesses. A marketing opportunity is an area o# buyer need in which a company can per#orm pro#itably. A threat is a challenge posed by an un#avorable trend which" in absence o# marketing action would lead to #all in pro#itability. A company needs to chalk out a strategy #or dealing with these threats. A#ter the opp and threat analysis is done" a business*s overall attractiveness can be identi#ied. trengths and -eaknesses analysis*.nternal +nvironment Analysis, A company*s internal strengths and weaknesses in various departments need to be identi#ied periodically. %. "oal Formulation Boals are developed to #acilitate the management in planning" implementation and control o# achieving the targets. Most businesses pursue a variety o# ob/ectives" which should ideally meet the #ollowing criteria D the ob/ectives must be placed hierarchically" in decreasing order o# priorities D they should be stated 1uantitatively D the goals should be realistic D the goals should be consistent with each other ,. Strategic formulation trategy is the roadmap #or achieving the envisaged goals. :orter de#ined strategy as Mcreation of a uni%ue and valuable position involving different set of activitiesN trategy can be #ormulated into % generic types ? )verall cost leadership ! here a business aims at delivering it*s products at the lowest prices in the market and win a large market share. uch businesses re1uire to be good at engineering" purchasing" manu#acturing and distribution. A disadvantage o# this strategy is that some other company will eventually emerge with still lower costs. $ifferentiation ! here a business aims at achieving superior per#ormance in an important customer area valued by a large chunk o# the market. <t could strive to be the service leader" the 1uality leader" the style leader or technology leader. /ocus ! +ere a #irm concentrates on one or more narrow market segments. <t #irst identi#ies such a segment and then pursues either cost leadership or di##erentiation in them. Strategic -lliances 6ompanies are discovering that to achieve leadership they need to #orm strategic alliances with domestic or multinational companies that complement or leverage their capabilities and resources. The strategic alliances could be in the #orm o# marketing alliances in the #ollowing ways ?

1. :roduct or service alliance ? one company licenses the other to produce its product" or two companies /ointly market their complementary product or a new product. !. :romotional alliance ? one company agrees to carry the promotion #or another company*s product or service %. 8ogistics alliance ? one company o##ers logistic services to another company*s product. ,. :ricing collaboration ? one more companies /oin in a special pricing collaboration. .. $rogram formulation A#ter developing the principal strategies" companies must work out detailed supporting programs #or them. A#ter #ormulating the marketing programs" the costs and bene#it scenario is calculated. Activity Fased 6osting should be applied to each program to determine whether the bene#its #orm it outdo the costs. 0. Implementation Aor the implementation o# strategy" McJinsey has come up with a 4D #ramework. The implementation part o# this #ramework consists o# D tyle > employees should share a common way o# thinking and behaving D kills > these should be in consonance with the strategy D ta## > includes hiring able people" training them and then assigning them to the right /obs D hared values > employees should share the same guiding values. 4. Feed,ack and Control A #irm needs to constantly track and monitor new developments in the internal and external environment. Aor when the marketplace changes" the company will have to rethink the implementations" programs" strategies" or even ob/ectives. A company*s strategic #ir with the environment will de#initely erode" because the market environment changes #aster than the 4D s. )rucker says it is important to Mdo the right thingN than Mdoing things rightN. The Marketing $rocess The alue deli ery se7uence 6 The traditional physical process se1uence assumes the company knows what to make and that the market will buy enough units to produce pro#its #or the company. Fut such a se1uence could only exist where the supplier calls the shots. <n the value delivery se1uence there are % parts 1. 0&hoose the value1 ? the marketing sta## does segmentation" targeting and positioning o# the market. !. 0Provide the value1 ? a#ter the T: process has chose the value" the product*s speci#ications and services should be detailed" the price decided and then the product should be manu#actured and sistributed. %. 0&ommunicate the value1 ? the customers are communicated about the value o# the product through the sales #orce" promotion and advertisement.

The marketing process consists o# analyzing markets" researching and selecting markets" designing marketing strategies" planning marketing programs and organizing" implementing and controlling the marketing e##ort. -naly&ing market opportunities 6 A company should identi#y long term opportunities given its core competences and market experience. This needs reliable market research and in#ormation systems. Foth the Macroenvironment" consisting o# demographic" socioDcultural" economic" technological" etc #orcesO and the Microenvironment" consisting o# suppliers" marketing intermediaries" customers and competitors should be considered. A way to do it is to divide the market into many segments and evaluate the segments to #ind which segment serves the company best. (e eloping marketing strategies 6 A#ter deciding upon the product the company shall have to decide upon the product positioning" then initiate the product development" testing and launching. Also the strategy #or the di##erent li#e stages o# the product> introduction" growth" maturity and decline have to be decided. $lanning marketing programs 6 <t consists o# deciding upon the #ollowing 1. 2arketing expenditure ! allotting the budget to meeting the marketing ob/ectives" and amongst the products" channels" promotion media and sales areas" and in the marketing mix. 3. 2arketing mix:roduct ? :rice ? the company has to decide upon the wholesale" retail pricing" discounts to be o##ered" allowances" etc. :lace ? identi#y" recruit marketing #acilitators to supply the products and service to the target market. :romotion ? Managing the marketing effort 6 This #inal step includes organizing the marketing resources and then implementing and controlling the marketing plan. Three types o# controls may be deployed ? 1. Annual plan control ! ensures whether the company is meeting the pro/ections o# current sales and pro#its. !. Profitability control ! manages the task o# measuring the actual pro#itability o# products" customer groups" trade channels and order sizesO and that o# di##erent marketing activities. %. trategic control ! evaluates whether the company*s strategy is appropriate to the market conditions. Contents of a marketing plan D executive summary and table o# contents ? presents a brie# overview o# the proposal D current marketing situation ? presents relevant data on sales" costs" pro#its" market" competitiors" distribution" and macroenvironment.

D D D D D D

opportunity and issue analysis D (-T ob/ectives ? de#ines the plan*s #inancial and marketing goals in terms o# sales volume" market share and pro#it marketing strategy ? presents broad approach to be used to meet the ob/ectives action programs ? presents the marketing programs to be used to meet business ob/ectives. pro/ected pro#it and loss statement ? #orecasts the plans expected #inancial outcomes control ? indicates how the plan will be monitored

Chapter < "athering Information and measuring market demand


The marketing environment is changing at an accelerating rate. Biven the #ollowing changes" the need #or real time market in#ormation is greater than at any time in the past> Arom local to national to global marketing Arom buyer needs to buyer wants Arom price to non price competition Components of a modern marketing information system Marketing information systemE consists o# people" e1uipment and procedures to gather" sort" analyse" evaluate and distribute needed" timely and accurate in#ormation to marketing decision makers. :nterna" records system The order to payment system cycle ales reps dispatch orders to #irm. ales dept prepare invoices and transmits copies to various departments. -ut o# stock items are back ordered. hipped items are accompanied by shipping to various depts. Most o# these are being automated lately. Sales information system :rovides upto minute in#ormation on sales" current accounts P customers. :rovides #eedback and reports. Marketing inte""igence system is a set o# procedures and sources used by managers to obtain everyday in#ormation about developments in the marketing environment. Steps taken to impro e 7uality of marketing intelligence: 1)Train and motivate sales #orce !)Motivate distributors" retailers and other intermediaries %)8earn about competitors by purchasing products" tradeshows ,) etup customer advisory panel o# largest or important customers .)purchase in#ormation #rom outside suppliers like A6 neilsen 0)Establish marketing in#ormation center to collect marketing intelligence Marketing &esearch is the systematic design and collection" analysis and reporting o# data and #indings to a speci#ic marketing situation #acing the company. Supp"iers of marketing research* 1) !) %) ,) inhouse marketing research dept engage bDschool students or pro#essors to design and carry out pro/ects use the internet #or public domain in#ormationat low cost checking out rivals through products" advts etc

.) 6ompanies also purchase research #rom > Syndicated service research firms > they gather research and sell #or a #ee Custom research firms > They design and carry out speci#ic pro/ects customized #or the company concerned Specia"ity "ine marketing research firm >provide specialised research services.Eg> #ield service #irm does only interviews.

Marketing research process

)e#ine a problem and research ob/ectives

)evelop the research plan

6ollect the in#ormation

Analyze the in#ormation

:resent the #indings

The Marketing 9esearch :rocess Step 1: (efine the $ro,lem and 2esearch %,5ecti es Management must not de#ine a problem too broadly or too narrowly. Example o# an ideal problem de#inition> M(ill o##ering an inD#light phone service create enough incremental pre#erence and pro#it #or American Airlines to /usti#y its cost against other possible investments American might makeLN peci#ic research ob/ectives> 1) (hat are the main reasons that airline passengers place phone calls while #lyingL !) (hat kinds o# passengers would be the most likely to make callsL

%) ,) .) 0)

+ow many passengers are likely to make calls" given di##erent price levelsL +ow many extra passengers might choose American because o# this new serviceL +ow much longDterm goodwill will this service add to American Airlines* imageL +ow important is phone service relative to improving other #actors such as #light schedules" #ood 1uality" and baggage handlingL

3ot all research pro/ects can be speci#ic. ome research is e#ploratoryD its goal is to shed light on the real nature o# the problem and to suggest possible solutions or new ideas. ome research is descripti eD it seeks to ascertain certain magnitudes" such as how many people would make an inD#light call at U!. a call. ome research is causalD its purpose is to test a causeDandDe##ect relationship. Aor example" would passengers make more calls i# the phone were located next to their seat rather than in the aisle near the lavatoryL Step 2: (e elop the 2esearch $lan This stage calls #or developing the most e##icient plan #or gathering the needed in#ormation. The cost o# the research plan must be known be#ore it is approved. )esigning a research plan calls #or decisions on the data sources" research approaches" research instruments" sampling plan" and contact methods. (ata Sources The researcher can gather secondary data/ primary data" or both. econdary data are data that were collected #or another purpose and already exist somewhere. :rimary data are data gathered #or a speci#ic purpose or #or a speci#ic research pro/ect. :rimary data is costly while secondary data provide a starting point #or research and o##er the advantages o# low cost and ready availability. The ((( is a power#ul source o# secondary data and can provide in#ormation on associations" business in#ormation" government in#ormation" international in#ormation. (hen the needed data do not exist or are outdated" inaccurate" incomplete" or unreliable" the researcher will have to collect primary data. :rimary data can be collected by individual and group interviews. - customer or prospect data,ase is an organized collection o# comprehensive data about individual customers" prospects" or suspects that is current" accessible" and actionable #or marketing purposes such as lead generation" lead 1uali#ication" sale o# a product or service" or maintenance o# customer relationships. (ata warehousing and data mining techni1ues are becoming increasingly popular. 6ompanies are using data mining" a set o# methods that extracts patterns #rom large masses o# data organized in what is called a data warehouse. A company could bene#it in several ways> Jnowing which customers may be ready #or a product upgrade o##er Jnowing which customers might buy other products o# the company Jnowing which customers would make the best prospects #or a special o##er

Jnowing which customers have the most li#etime value and giving them more attention and perks Jnowing which customers might tend to exit and taking steps to prevent this

Example> Marriott*s $acation 6lub <nternational has managed to reduce its volume o# mail and yet increase its response rate by developing a model showing which customers in its database are most likely to respond to speci#ic vacation o##erings. Fut data mining and data warehousing come with a heavy cost. 9esearch Approaches :rimary data can be collected in the #ollowing #ive ways> %,ser ational research> Aresh data can be gathered by observing the relevant actors and settings. The American Airlines researchers might meander around airports" airlines o##ices" and travel agencies to hear how travelers talk about the di##erent carriers. This exploratory research might yield some use#ul hypotheses about how travelers choose air carriers. FocusAgroup research> A #ocus group is a gathering o# six to ten people who are invited to spend a #ew hours with a skilled moderator to discuss a product" service" organization" or other marketing entity. This is a use#ul exploratory step. (ith the development o# the (((" many companies are now conducting onDline #ocus groups. Sur ey research> urveys are best suited #or descriptive research. 6ompanies undertake surveys to learn about people*s knowledge" belie#s" pre#erences" and satis#action" and to measure these magnitudes in the general population. +eha ioral data> 6ustomers leave traces o# their purchasing behavior in store scanning data" catalog purchase records" and customer databases. Much can be learned by analyzing this data. E#perimental research> This is most scienti#ic and captures causeDandDe##ect relationships. 2esearch Instruments There are ! main options> 8uestionnaires Mechanical Instruments 8uestionnaires ClosedAend 8uestions D Easier to interpret and tabulate

3ame )ichotomous MultipleDchoice )ikert scale Semantic differential

)escription ! possible answers &HesC3o) % or more answers AgreementCdisagreement scale &1 #or strongly disagree" . #or strongly agree) cale connecting two bipolar wordsDthe respondent selects the point that represents his or her opinion. American Airlines> 8arge DDDDDDDDDDDDDDDDDDDDDDDDDD mall cale that rates the importance o# some attribute &1 #or extremely important" . #or not at all important) cale that rates some attribute #rom MpoorN to MexcellentN cale that describes the respondent*s intention to buy

<mportance scale 9ating scale <ntentionDtoDbuy cale

%penAend 8uestions D @se#ul in exploratory research 3ame 6ompletely unstructured (ord association entence completion tory completion :icture )escription M(hat is your opinion o# American AirlinesLN M(hat is the #irst word that comes to your mind when you hear the word T9A$E8LN 9espondents complete an incomplete sentence 9espondents complete an incomplete story A picture o# ! characters is presented" with one making a statement. 9espondents are asked to identi#y with the other and #ill in the empty balloon. A picture is presented and respondents are asked to make up a story about what they think is happening or may happen in the picture.

Thematic -pperception Test @T-TB

2echanical .nstruments

Mechanical devices are occasionally used in marketing research. Balvanometers measure the interests emotions aroused by exposure to a speci#ic ad or picture. An audiometer is attached to T$ sets in participating homes when the set is on and to which channel it is tuned. A tachistoscope may also help.

This is continuation of STE$ 2 : (e elop the research plan ampling plan a#ter deciding on the research approach " the marketer researcher needs to draw up a sampling plan. Aor this he needs to make % decisions 1. sampling unit ? who is to be surveyed..L the target population to be surveyed so as to have the right kind o# population representation !. sample size ? how many people to be surveyedRlarge samples gives more accurate results but it may not always be #easible to sample the total population %. sampling procedure ? how should the sample be selected to have the right kind o# representation. :robability sampling methods with con#idence intervals #or sampling errors contact methods how to contact the sub/ect &ppl to be surveyed) mail 1uestionnaire telephone interviews personal interviewing arranged interviews online interviewing Attached with such interviews are incentives that should be given to respondents to attract them to answer such 1uestions TE: %. collect the in#ormation 6ollecting the in#ormation is most expensive and prone to error. +owever technology &computers etc) are making things easier and enhancing the process o# data collection and analysis. TE: , Analyse the in#ormation )evelop #re1uency distributions" averages" measures o# dispersion etc to analyse the in#ormation collected TE: . :resent the #indings :resent the main #indings to the marketing decision makers. -vercoming barriers to the use o# marketing research ? why companies #ail to use it su##iciently or correctly 1. narrow conception ? they see it as a #act #inding process.

!. uneven caliber o# marketing researchers ? hiring unpro#essional and less competent workers to do market research leads to unsatis#actory results resulting in disappointment. %. late and erroneous #inding by market research ? managers look #or 1uick resultsRthey are disappointed with high costs and the time re1uired #or such researches.. ,. personality and presentational di##erences D di##erences in the style o# line managers and marketing researchers o#ten get in the way o# productive relationshipsR Se en characteristics of a good marketing research 1. !. %. ,. .. 0. 4. scienti#ic method research creativity multiple methods independence o# models and data value and cost o# in#ormation healthy skepticism ethical marketing

Mktng (ecision Support SystemsD is a coordinated collecn o# data"systems" tools and techni1ues with supporting so#tware and hardware bu which an orgn gathers and interprets relevant in#o#rom business and environ. And turns it into basis #or mktng action eg brandaid" callplan"detailer etc (iff types of Statistical tools ? 1. Multiple regression D same as KM !. )iscriminant Analysis D DDDdoDDD %. Aactor Analysis ? techni1ue used to detrmine a #ew underlying dimensions o# a larger set o# correlated variables ,. 6luster anal . ? separating ob/ects into mutually exclusive groups o# speci#ied no. such that they are relatively homogenous .. con/oint anal. ? respondents rank pre#erences #or each attributeR 0. multidimensional scaling ? techni1ues to produce perceptual maps o# competitive productsCbrands Types o# Models ? 1. Markov process Model ? shows probability to move #rm current state to a #uture state !. 1ueuing model ? shows waiting times and 1ueue lengths %. new product pretest modelsD estimates #unctional relations between customer attributes in a pretest situation o# a marketing o##er ,. sales response models ? estimate relations bCw one or more mktng variables -ptimization routines ?

1. !. %. ,. ..

)i##. 6alculus ? #inds maxima and minima Mathematicl programming ? optimization tatistical decision theory ? concept o# decision tree game theory heuristics ? using set o# rules o# thumb to reduce timeCwork and #ind a reasonably good solution

Measures o# market demand ? )emand can be measured at 0 product levels" . space levels and % time levelsR < types of markets possi,le ? potential ? who show a speci#ic level o# interest to the o##er available ? have interst"income and access to the o##er servedDthat part which decides to pursue penetrated ? who are already buying A market is the set o# all actual and potential buyers o# a market o##er.

(EM-'( ME-S*2EME'T Market demand ? total vol. tht wld be bought by a de#ined customer grp. <n a de#ined geog. Area in a de#ined tie period in a de#ined mktng environ.under a de#ined mktng program. There is a min market demand which will occur without any mktng also. As we increase mktng expenditure" demand increases and will stagnate at a point. This is an expansible market. <# there is no e##ect o# mktng spending" it is a nonDexpansible market. -nly one level o# industry mktng expenditure will occur. The mktng demand corres. To this level is Mkt Aorecast.&kotler language) Mkt $otential ? <s the limit approached by mkt demand as expenditure reaches in#inity. Aor a given mktng environment. Company demand ? <s the company*s estimated share o# mkt demands at alternate levels o# company mktng e##ort in a given time period. Company sales forecasts ? is the level o# company sales based on a chosen mktng plan in an assumed mktng environ. Sales 7uota ? is the sales goal set #or a product line" company division or sales rep. <t is used to de#ine and push #or sales e##orts. <ts kept higher than #orecasts to give stretch targets.

Sales ,udget ? is a conservative estimate o# the expected vol o# sales. <ts used #or current purchasing"prodn and cash#low decisions. Company sales potential ? <s the sales limit approached by company demand as company mktng e##orts increase relative to competitors. Max is market potential. Estimation of (emand DDDD Total market potential D Froadly ! ways 1. Multiply potential no o# buyers with the avg 1ty purchased and the price !. 6hain ratio method ? Multiplying a base no by several ad/usting percentages. Foth essentially the same.They start with the population and keep reducing with assumed percentages w.r.t incomeCage groups and expenditures to arrive at a #inal #igure ESTIM-TI'" C*22E'T (EM-'( Marketing executives need to estimate total market potential" area market potential and total industry sales and market shares. Total market potential <t is the maximum amount o# sales that might be available to all the #irms in the industry during a given period under a given level o# industry marketing e##ort and given environmental conditions. A common way to estimate total market potential as #ollows> Estimate the potential no. o# buyers times the average 1uantity purchased by a buyer times the price. A variation on this method is the chain ratio method. <t involves multiplying a base number by several ad/usting percentages. uppose a brewery is interested in estimating the market potential #or a new light beer" it can be done as #ollows> )emand #or the new light beer G :opulationV personal discretionary in come per capitaVaverage personal discretionary in come spent on #ood V average personal discretionary in come spent on #ood that is spent on alcoholic beveragesV average personal discretionary in come spent on alcoholic beverages that is spent on beerV average personal discretionary in come spent on beer that is spent on light beer. -rea market potential 6ompanies need to measure the market potentials o# di##erent cities" states and nations. Two ma/or methods o# assessing market potentials are> the market build up method" which is used primarily by business marketers" and the multiple #actor index method which is used primarily by consumer marketers. Market build up method> <t calls #or identi#ying all the potential buyers in each market and estimating their potential purchases. This method gives us accurate results i# we have a list o# all potential buyers and a good estimate o# what they buy.

Multiple #actor index method> 8ike business marketers even consumer marketers also have to estimate the area market potentials. Fut the consumers o# consumer companies are too numerous to be listed. Thus the most common method is the straight#orward index method. Industry sales and Market shares: <denti#ying competitors and estimating their sales do this. The industry trade association will o#ten collect and publish total industry sales" using this in#ormation each company can evaluate its per#ormance against the whole industry. Another way to estimate is to buy reports #rom a marketing research that audits total sales and brand sales. These audits can give a company valuable in#ormation about its total product its total product category sales and its brand sales. <t can compare its per#ormance to the total industry andCor any particular competitor to see whether it is gaining or losing market share. Fusiness marketers have typically harder time in estimating sales than consumer goods manu#acturers do. ESTIM-TI'" F*T*2E (EM-'( $ery #ew products lend themselves to easy #orecasting. <n most markets total demand and company demand are not stable. Bood #orecasting becomes a key #actor in company*s success. The unstable the demand the more critical is #orecast accuracy and the more elaborate is #orecasting procedure. A threeDstage procedure is used to prepare a sales #orecast. They prepare a macro economic #orecast" #ollowed by a industry #orecast then by a company sales #orecast. Airms develop their #orecasts internally and externally as> Market research #irms" specialized #orecasting #irms and #uturist research #irms. All #orecasts r built on three in#ormation bases > what people say" what people do and what people have done. Sur ey of ,uyers intentions Aorecasting is the art o# anticipating what buyers r likely to do under a given sat o# conditions. The survey looks in1uires into the purchase intentions o# consumer" their present and #uture personal #inances and their expectations about the economy.This can be analysed and ma/or shi#ts in consumer pre#erences can be anticipated and production schedules and marketing plans changed accordingly. Composite of sales force opinions: (here buyer interviewing is impractical there companies ask their salespersons to estimate their #uture sales. Each o# them estimates how much each current and prospective customer will buy o# each o# the company*s products. To encourage better estimating the company could supply certain aids or incentives to sales #orce.the bene#its are > 1) Fetter insights into developing trends !) Breater con#idence in sales reps and more incentive to achieve targets. %) :rovides detailed estimates broken down by product" territory" customer and sales reps.

Fut some sales reps may use their #or ther advantage llike setting smaller #orecasts #orlow targets and sometimes they r not aware o# the recent ma/or economic developments. E#pert opinion 6ompanies also obtain #orecasts #rom experts including dealers"distributors"suppliers marketing consultantsa and trade associations.)ealer estimates r sub/ect to the same merits and demerits o# sales reps estimates.the expets estimates r done by group discussion method or pooling o# individual estimates method or )elphi method where every estimate is re#ined nad reDre#ined. $ast sales analysis ales #orecasting is also done on the basis o# past sales. Time series analysis &breaking down the the past data into trend"cycle"seasonal and erratic) "exponential smoothing &combining the past sales and recent ones by giving more weight to the latter) "statistical demand analysis & impact level o# each set o# casual #actors egRincome" price" marketing expenditure etcR) and economic analysis.

Chapter = Scanning the Marketing En ironment


MToday you have to run #aster to stay in the same placesN uccess#ul company take inside out view o# the their business. They recognize that environment is constantly spinning new opportunities and threats and understand the importance continuously monitoring the and adapting to the environment. The ma/or responsibility #or identi#ying signi#icant marketplace changes #alls to the company*s marketers. They must be trend trackers and opportunity seekers. Marketers have ! advantages. They have disciplined methods ? marketing intelligence and market research. They also spend more time with customers and more time watching competitors. -naly&ing 'eeds and trends in the macro en ironment uccess#ul companies recognize trend and respond pro#itably to unmet needs and demands. A trend is a direction or se1uence o# events that have some momentum and durability (e can draw distinction between fads1 trends1 and megaEtrends. A fad is unpredictable" short and without social" economic and political signi#icance Trends are more predictable and durable. <t reveals the shape o# the #uture ? has longevity" is observable across several market areas and consumer activities" and is consistent with signi#icant indicators occurring or emerging at the same time.& MegaDtrends have large social economic political and economical changes that are slow to #orm" and once in place they in#luence us #or some time &religious channels on T$" trade blocs as in E@" 3AATA). A new product is more likely to be success i# it is in line with the strong trends than otherwise. Identifying and responding to the ma5or macroeconomic forces: 6ompanies and their suppliers" marketing intermediaries" customers" competitors and public all operate in a macroeconomic environment o# #orces and trends that shape opportunities and pose threats. These #orces represent MnonDcontrollablesN which a company must monitor and respond to. <n the economic arena" companies and consumers are increasingly a##ected by glo,al forces. These include>

(orld trade enablers Asian economic power 9ise o# trade blocs <nternational monetary crises @se o# barter P countertrade Move towards market economies

MBlobalN li#estyles -pening o# MnewN markets Emerging transnational #irms 6rossDborder strategic alliances 9egional ethnic P religious con#lict Blobal branding

(ith rapidly changing environment" company must monitor six ma/or #orces. ? demographic, economic, natural, technological, political legal and social cultural. (emographic en ironment: The #irst macroeconomic #orces that the marketer monitors is the population because people make up the markets. Marketers are keenly interested in the size and growth rate o# population in di##erent cities" regions" and nations" age distribution and ethnic mix" educational levels" house hold patterns and regional characteristics and movements. -orld population gro#th. <t*s a ma/or concern because certain resources needed to support human li#e is limited. Also population is a concern because population growth is maximum in countries whch can least a##ord it. A explosive population growth has ma/or impact on business. <t does not mean growing markets unless these markets have su##icient purchasing power. 3onetheless companies that care#ully analyze their markets can #ind ma/or opportunities. $opulation -ge Mi# :opulation vary in their age mix. A population can be subdivided into 0 age groups > preschool" schoolDage children" teens" young adults &!.D,=)" middle aged adults &,=D0.) and older adults &0.I). Ethnic Markets 6ountries vary in ethnic P racial makeup. Each group has certain speci#ic wants and buying habits. Marketers must be care#ul not to overgeneralize about ethnic groups. Educational "roups The population in any society #alls into . educational groups > illieterates" high school" dropouts" high school degrees" college degrees" and pro#essional degrees. 3ousehold $atterns The Mtraditional householdN consists o# a husband" wi#e and children &and sometimes grandparents). Het in @ one out o# eight households today is Mnon traditionalN and includes single live alones" adult live togethers" single parent #amilies" childless married couples and empty nesters.

"eographical shifts in population This is a period o# great migratory movement between and within countries. :opulation movement also occurs as people migrate #rom rural to urban areas and then to suburban areas. 8ocation makes a di##erence in goods and service pre#erences. Shift from Mass market to Micromarkets The e##ect o# all this is #ragmentation o# the mass market into numerous micromarkets di##erentiated by age" sex" ethnic background" education" geography" li#estyle and other characteristics. Each group has strong pre#erences and is reached through increasingly targeted communication and distribution channels. 6ompanies are abandoning the 7shotgun approach* that aimed at a mythical average consumer and are increasingly designing their products and marketing programs #or speci#ic micromarkets. )emographic trends are highly reliable #or the short and intermediate run. There is little excuse #or a company*s being suddenly surprised by demographic developments. The inger 6ompany should have known #or years that its sewing machine would be hurt by smaller #amilies and more working wives" and yet it was slow in responding. <n contrast" think o# the rewards marketers reap when they #ocus on a demographic environment. ome marketers are actively courting the home o##ice segment o# the lucrative -+market. 3early ,= million Americans are working out o# their with the help o# electronic conveniences like cell phones" #ax machines" and handheld organizers. Aor example" Cinko0s copy centers: Aounded in the 1;4=s as a campus photocopying business" Jinko*s is now reinventing itsel# as the wellDappointed o##ice outside the home. (here once there were copy machines" the ;=! Jinko*s stores in this country and abroad now #eature a uni#orm mixture o# #ax machines" ultra #ast color printers" and networks o# computers e1uipped with popular so#tware programs an highDspeed internet connections. :eople can come to Jinko*s to do all their o##ice /obs including telecon#erencing. And as more and more people /oin the workDatDhome trend" Jinko*s" which charges U1! an hour #or computer use" is hoping to increase its share o# industry revenue by getting people to spend more timeDand hence" more moneyDat its stores. Fesides adding stateDo#DtheDart e1uipment" the company is talking to tarbucks about opening up co##ee shops ad/acent to some Jinko*s. The new business model #or the U1billion company is 7Hour branch o##iceCopen !, hours*. Economic En ironment> Markets re1uire purchasing power as well as people. The available purchasing power in an economy depends on current income" prices" debt" savings" and credit availability. Marketers must pay close attention to ma/or trends in income and consumerDspending patterns. Income (istri,ution> 3ations vary in level and distribution o# income and industrial structure. There are #our types o# industrial structures>

1.

ubsistence economies> Ma/ority o# people engage in simple agriculture" consume most o# their output and barter the rest #or simple goods and services. These economies o##er #ew opportunities #or marketers. !. 9awDmaterialDexporting economies> Economies rich in one or more natural resources but poor in other aspects. Much o# their revenue comes #rom exporting these resources. Examples are Waire &6opper) and audi Arabia &-il). These countries are good markets #or extractive e1uipment" tools and supplies" materialD handling e1uipment" and trucks. )epending on the number o# #oreign residents and wealthy native rulers and landlords" they are also a market #or (esternDstyle commodities and luxury goods. %. <ndustrializing economies> Manu#acturing accounts #or 1= to != percent o# B):. Examples include Egypt" <ndia and :hilippines. As manu#acturing increases" the country relies more on imports o# raw materials" steel" and heavy machinery and less on imports o# #inished textiles" paper products" and processed #oods. <ndustrialization creates a new rich class and a small but growing middle class" both demanding new types o# goods. ,. <ndustrial economies> Ma/or exporters o# manu#actured goods and investment #unds. They buy manu#actured goods #rom another and also export them to other types o# economies in exchange #or raw materials and semi#inished goods. The large and varied manu#acturing activities o# these nations and their sizable middle class make them rich markets #or all sorts o# goods. Marketers o#ten distinguish countries with #ive di##erent incomeDdistribution patterns> very low incomesO mostly low incomesO very low" very high incomesO low" medium" high incomesO mostly medium incomes. Market #or 8amborghinis that cost more than U1.="=== would be very small in countries with the #irst or second type income patterns" the largest would be third type &:ortugal)" which is one o# the poorer countries in (estern Europe" but one with enough wealthy #amilies to a##ord expensive cars. ince 1;5=" the wealthiest #i#th o# the @. . population has seen its income grow by !1S" while wages #or the bottom 0=S have stagnated or dipped. According to the 6ensus Fureau tatisticians" the 1;;=s have seen a greater polarization o# the income in the @nited tates than at any point since the end o# (orld (ar !. This is leading to a !Dtier @. . market" with a##luent people buying expensive goods and workingDclass people spending more care#ully" shopping at discount stores and #actory outlet malls" and selecting less expensive store brands. 6onventional retailers who o##er mediumDprice goods are most vulnerable to these changes. 6ompanies that respond to the trend by tailoring their products and pitches to these two very di##erent Americas stand to gain a lot. Examples> 1. The Bap> At Bap*s Fanana 9epublic stores" /eans sell #or U.5. <ts -ld 3avy stores sell a version #or U!!. Foth chains are thriving. !. The (alt )isney 6ompany> -wns the rights to A.A.Milne*s (innieDtheD:ooh and his makeDbelieve #iends and markets two distinct :oohs. The original lineDdrawn #igures appear on the china" pewter spoons" and expensive kid*s stationery #ound

in upscale specialty stores like 3ordstrom and Floomingsdale. The downscaled :ooh sells at (alDMart and other discount stores. %. The 3ational Fasketball Association sells #rontDrow seats in 3ew Hork*s Madison 1uare garden #or U1=== apiece. Fut #earing the loss o# #ans who cant a##ord the typical U!== #or a #amily night out at a sports event" 3FA marketers have launched an array o# much more a##ordable merchandise and entertainment properties such as traveling basketball exhibitions. Sa ings/ (e,t and Credit - aila,ility 6onsumer expenditures are a##ected by consumer savings" debt" and credit availability. 2apanese save about 1%.1S o# their income and Americans save ,.4S. The result is that 2apanese banks were able to loan money to 2apanese companies at a much lower interest rate than the @. . banks could o##er to @. . companies. +ence" 2apanese companies expanded #aster. @. . consumers have a high debtDtoDincome ratio" which slows down #urther expenditures on housing and largeDticket items. 6redit is available in the @. . but at high interest rates" especially to lowerDincome borrowers. Marketers must pay attention to ma/or changes in incomes" cost o living" interest rates" savings" and borrowing patterns because they can have a high impact on business" especially #or companies whose products have high income and price sensitivity. 'atural En ironment: The deterioration o# the natural environment is a ma/or global concern. <n many cities" air" chemical and water pollution have reached dangerous levels. 6hemicals create hole in the ozone layer and cause 7greenDhouse e##ect*. <n Europe" 7green* parties have pressed #or public action to reduce industrial pollution. <n the @. . watchdog groups like ierra 6lub and Ariends o# the Earth carried these concerns into political and social actions. teel companies and public utilities have had to invest billions o# dollars in pollutionD control e1uipment and more environmentally #riendly #uels. The auto industry has had to introduce expensive emission control in cars. oap industry has had to increase it*s product biodegradability. Marketers need to be aware o# the threats and opportunities associated with #our trends in the natural environment> the shortage o# raw materials" the increased cost o# energy" increased pollution levels" and changing roles o# governments. Shortage of raw Materials> Earth*s raw materials consist o# the in#inite" the #inite renewable" and the #inite nonDrenewable. <n#inite resources such as water and air pose no immediate problem. Environmental groups have lobbied #or a ban on certain propellants used in aerosol cans because o# the potential damage they can cause to the ozone layer. (ater shortages and pollution are already ma/or problems in some parts o# the world. Ainite renewable resources like #orests and #ood must be used wisely. Aorestry companies are re1uired to re#orest timberlands in order to protect the soil and to ensure su##icient wood to meet #uture demand. Fecause the amount o# arable land is #ixed and the urban areas are constantly encroaching on #armland" #ood supply can also be a problem. Ainite nonDrenewable resourcesDoil" coal" platinum" zinc" silverD will pose a serious problem as the point o# depletion approaches. Airms making products that re1uire these increasingly

scarce minerals #ace substantial cost increases. They may not #ind it easy to pass these cost increases on to customers. Airms engaged in 9P) have an excellent opportunity to develop substitute materials.

Increased Energy Costs -ne #inite nonrenewable resource" oil " has created serious problems #or the world economy. -il prices shot up #rom U!.!% a barrel in 1;4= to U%, a barrel in 1;5!" creating a #rantic search #or alternative energy #orms. 6oal became popular again and companies searched #or practical means to harness solar" nuclear" wind" and other #orms o# energy. <n the solar energy #ield alone" hundreds o# #irms introduced #irst generation products to harness solar energy #or heating homes and other uses. -ther #irms searched #or ways to make a practical electric automobile" with a practical electric automobile" with a potential prize o# billions #or the winner. The development o# alternative sources o# energy and more e##icient ways to use energy and the weakening o# the oil cartel led to a subse1uent decline in oil prices. 8ower prices had an adverse e##ect on the oil exploration industry but considerably improved the income o# oil using industries and consumers. <n the mean time" the search continues #or alternative sources o# energy. Increased $ollution )e els ome industrial activity will inevitably damage the natural environment. 6onsider the dangerous mercury levels in the ocean" the 1uantity o# ))T and other chemical pollutants in the soil and #ood supply" and the littering o# the environment with bottles" plastics" and other packaging materials. 9esearch has shown that about ,! percent o# @. . consumers are willing to pay higher prices #or green products. This willingness creates a large market #or pollution control solutions such as scrubbers recycling centers and land#ill systems. <t leads to a search #or alternative ways to produce and package goods. mart companies are initiating environment #riendly moves to show their concern. %M runs a pollution prevention pays program that has led to a substantial reduction in pollution and costs. )ow built a new ethylene plant in Alberta that uses ,=S less energy and releases ;4 percent less wastewater. ATPT uses a special so#tware package to choose the least harm#ul materials" cut hazardous waste" reduce energy use" and improve product recycling in its operations. Mc)onald*s and Furger Jing eliminated their polystyrene cartons and now use smaller" recyclable paper wrappings and paper napkins. 3ew concern over the toxic nature o# dry cleaning solvents has opened up opportunities #or a new breed o# green cleaners although theses new businesses #or an uphill battle. ee the marketing #or the Millennium M A new guard o# green cleaners vies #or concerned customers.N Changing 2ole of "o ernments Bovernments vary in their concern and e##orts to promote a clean environment. Aor example" the german government is vigorous in its pursuit o# environmental 1uality" partly because o# the strong green movement in germany and partly because o# the

ecological devastation in the #ormer east germany. Many poor nations are doing little about pollution largely because they lack the #unds or the political will. <t is in the richer nations* interest to help the poorer nations control their pollution" but even the richer nations today lack the necessary #unds. The ma/or hopes are that companies around the world will accept more social responsibility and that less expensive devices will be invented to control and reduce pollution. - 'ew "uard of "reen Cleaners 1ies for Concerned Customers Hou need to get your business suit cleaned #or a sales con#erence in Miami" and your #light leaves in !, hours. Are you going to go to the dry cleaner on the corner" which uses environmentally damaging" possibly carcinogenic chemicalsL -r are you going to go across town and use a wet cleaner" who will get your clothes clean without damaging you or the environment and make them smell a lot less toxicL <# you are like most consumers" you will choose convenience and the 1uick #ix over concerns about health and environment. :ercloroethylene" or perc the solvent used by the ma/ority o# dry cleaners" has been labeled a probable human carcinogen by the E:A. More conclusive reports on its damaging e##ects are expected soon. Het when it comes to products that enhance their own or their clothing*s appearance" consumers are notably indi##erent to environmental concerns. <n a 1;;0 survey o# %= dry cleaners in suburban :ittsburgh" )an Jovacks asked customers to their will being" @nable to think up alternatives most said they would /ust get clothes dry cleaned less #re1uently. Het a new guard o# environmentally #riendly dry cleaners is willing to bet that consumers will choose green over toxic i# green alternatives are readily available. There are already 0=== dry cleaning stores using alternative cleaning materials. About ;. S o# those use odorless petroleum based solvents" which actually get rid o# stains that seemed impervious to perc. A much smaller group o# stores are wet cleaners going back to soap and water basics. All the alternatives with names such as cleaner by nature" eco mat and greener cleaner are price competitive with their toxic counterparts. 6leaner by nature which opened up smack between two traditional dry cleaners in )enver broke even only six months a#ter opening. <ts owner 6hris com#ort plans a second store in boulder. Although dry cleaners are the 1uintessential small business" the green cleaning trend could open up opportunities #or giant multinational corporations. Exxon corporation has come up with a new petroleum solvent called )A !=== which is widely used in Europe. +ughes environmental systems" a unit o# 9ayteon corporation and global technologies" <nc" o# el egundo 6ali#ornia have teamed up to market a new method #or cleaning clothes using li1uid carbon dioxide. :rocter and gamble has introduced a perc #ree alternative #or home use" )ryel" which allows people to do their dry cleaning at home. Het as a testimony to the resistance #aced by companies in this burgeoning product category" :rocter and gamble advertises )ryel*s convenience" not its green advantage. TEC3'%)%"IC-) E'1I2%'ME'T -ne o# the most dramatic #orces shaping people*s lives is technology. Technology has released such wonders as penicillin" open heart surgery and the birth control pill. <t has released such horrors as the hydrogen bomb" nerve gas and the submachine gun. <t has also released such mixed blessings as the automobile and video games.

Every new technology is a #orce #or creative destruction. Transistors hurt the vacuum tube industry xerography hurt the carbon paper business autos hurt the railroads and television hurt newspapers. <nstead o# moving into the new technologies many old industries #ought or ignored them and their businesses declined. The economy*s growth rate is a##ected by how many ma/or new technologies are discovered. @n#ortunately" technological discoveries do not arise evenly through time the rail road industry created a lot o# investment and then investment petered out until the auto industry emerged. 8ater" radio created a lot o# investment" which then petered out until television appeared. <n the time between ma/or innovations the economy can stagnate. <n the mean time" minor innovations #ill the gap> #reeze dried co##ee" combination shampoo and conditioner antiperspirant deodorants and the like. Minor innovations involve less risk but critics argue that today too much research e##ort is going into producing minor improvements rather than ma/or breakthroughs. 3ew technology creates ma/or long run conse1uences that are not always #oreseeable. The contraceptive pill led to smaller #amilies more working wives and larger discretionary incomes ? resulting in higher expenditures on vacation travel" durable goods and luxury items. The marketer should monitor the #ollowing trends in technology> the pace o# change the opportunities #or innovation" varying 9P) budgets and increased regulation. -ccelerating $ace of Technological Change Many o# today*s common products were not available ,= years ago. 2ohn Jennedy did not know personal computers digital wristwatches video recorders or #ax machines. More ideas are being worked on the time lag between new ideas and their success#ul implementation is decreasing rapidlyO and the time between introduction and peak production is shortening considerably. 3inety percent o# all the scientist who ever lived are alive today and technology #eeds upon itsel#. The advent o# personal computers and #ax has made it possible #or people to telecommute that is work at home instead o# traveling to o##ices that may be %= or more minutes away. ome hope that this trend will reduce auto pollution bring the #amily closer together and create more home centered entertainment and activity. <t will also have substantial impact on shopping behavior and marketing per#ormance. *nlimited %pportunities for inno ation cientists today are working on a startling range o# new technologies that will revolutionize products and production processes. ome o# the most exciting work is being done in biotechnology" solidDstate electronics robotics and materials sciences. 9esearchers are working on A<) cures" happiness pills" painkillers totally sa#e contraceptives and nonD#attening #oods. They are designing robots #or #ire#ighting" underwater exploration and home nursing. <n addition scientists also work on #antasy products such as small #lying cars three dimensional television" and space colonies. The challenge in each case is not only technical but also commercial to develop a##ordable versions o# these products. 6ompanies are already harnessing the power o# virtual reality the combination o# technologies that allows users to experience three dimensional computer generated

environments through sound" sight and touch. $irtual reality has already been applied to gathering consumer reactions to new automobile designs" kitchen layouts" exterior home designs" and other potential o##erings. 1arying 2C( +udgets The @nited tates leads the world in annual 9P) expenditures &U4, billion) but nearly 0=S o# these #unds are still earmarked #or de#ense. There is a need to trans#er more o# this money into research on material science" biotechnology" and micro mechanics. 2apan has increased its 9P) expenditures much #aster than has the @ and is spending it mostly on nonDde#ense related research in physics" biophysics" and computer science. A growing portion o# @E 9P) expenditures is going into the development side o# 9P) raising concerns about whether the @ can maintain its lead in basic science. Many companies are content to put their money into copying competitors products and making minor #eature and style improvements. Even basic research companies such as )upont bell laboratories and :#izer are proceeding cautiously. Much o# the research is de#ensive than o##ensive. And increasingly research directed toward ma/or breakthroughs is being conducted by consortiums o# companies rather than by single companies. Increased 2egulation of Technological change As products become more complex the public needs to be assured o# their sa#ety. 6onse1uently government agencies powers to investigate and ban potentially unsa#e products have been expanded. <n the @ the #ederal #ood and drug administration must approve all drugs be#ore they can be sold. a#ety and health regulations have also increased in the areas o# #ood" automobiles" clothing" electrical appliances and construction. Marketers must be aware o# these regulations when proposing developing and launching new products. $%)ITIC-) 6 )E"-) E'1I2%'ME'T Marketing decisions are strongly a##ected by developments in the political and legal environment. This environment is composed o# laws" government agencies" and pressure groups that in#luence and limit various organizations and individuals. ometimes these laws also create new opportunities #or business. Mandatory recycling laws have given the recycling industry a ma/or boost and spurred the creation o# dozens o# new companies making new products #rom recycled materials> (ellman ? in 1;;%" (ellman introduced Ecospun post consumer recycled #iber &:69)" made #rom recycled soda bottles and sold 5===== pounds in that #irst year alone. Today" wellman boasts 1.m pounds in sales and is partnering with domestic #abric mills like Milliken P 6ompany" Malden and )yersburg. At the outdoor retailer winter market in 1;;5" wellman introduced its new Eco pun s1uared #iber" which has moistureD management properties and was designed speci#ically #or a per#ormance apparel market anxious to /ump aboard the recycling bandwagon.

)E"IS)-TI%' 2E"*)-TI'" +*SI'ESS Fusiness legislation has three main purposes> To protect companies #rom un#air competition To protect consumers #rom un#air business practices To protect the interests o# the society #rom unbridled business behavior Ma/or purpose o# business legislation and en#orcement is to charge businesses with the social costs created by their products or production processes. 8aws have been on an increase over the years. Example being> 3orway bans several types o# sales promotionDtrading stamps" contests" premiumsDas un#air instruments <n <ndia #ood companies special permission to launch brands that duplicate what already exists in the market 6entral concern> At what point o# time do the costs o# regulation exceed the bene#itsL Each law may ha e legitimate rationale ,ut may sap initiati e and retard economic growth: Marketers must ha e good knowledge of the ma5or laws protecting competition/ consumers and society: Companies generally esta,lish legal re iew procedures and promulgate ethical standards to guide their marketing standards: -s more and more ,usiness takes place in cy,erspace marketers must esta,lish new parameters for doing ,usiness ethically: America -nline has been highly success#ul but has lost millions due to consumer complaints regarding unethical marketing tactics. <n 1;;5 America -nline agrees to pay !.0 Million dollars penalty and revamp its business practices to settle deceptive marketing complaints brought by ,, state attorney generals. "2%0T3 %F S$ECI-) I'TE2EST "2%*$S 3umbers o# special interest groups have increased. :olitical Action 6ommittee &:A6s) lobby with the government #or various issues.eg minority rights" consumer and women rights. 6ompanies have established departments to deal with such groups. <mportant #orce a##ecting business ? 6onsumerist movement -rganized movement to strengthen rights and powers o# buyers in relation to sellers.

6ompanies in turn have set up consumer a##airs departments to help #ormulate policies and respond to consumer complaints. (hirlpool 6orporation is one o# the companies to have established toll #ree numbers #or its consumers. These groups have put more restraints on marketers. Marketers have to clear their plans with the legal" public relations" consumer a##airs and public a##airs departments. S%CI-) C*)T*2-) E'1I2%'ME'T Society shapes our ,eliefs/ alues and norms -ie!s of themse"ves* <n 1;0=D4= Mpleasure seekersN sought #un" change and escape. They bought dream cars" dream vacations etc. Today" people are more conservative in behaviors and ambitions. More cautious and value driven. -ie!s of others* :eople are concerned more about homeless" crime and other social problems. At the same time people are seeking there Mown kindN and avoiding strangers. These trends portend a growing market #or social support products and services that promote direct relations between human beings such as health clubs" cruises and religious activity. They also suggest a growing market #or Msocial surrogatesN" things that allow people who are alone to #eel that they are not. E.g. Television" chat rooms on the <nternet" video games. -ie!s of organi8ations* :eople vary in their attitudes towards organizations They are willing to work #or them in spite o# being critical about them There has been overall decline in organizational loyalty :eople see work as a chore re1uired #or money and not as a source o# satis#action This outlook has several marketing implications> 6ompanies need to #ind new ways o# generating employee and customer con#idence. 3eed to make sure that they are good corporate citizens and that their consumer messages are honest. +ence companies are turning to social audits and public relations to improve their image. -ie!s of society* Attitudes towards society can be as #ollows :reserversD who de#end it

MakersD who run it TakersD those who take what they can #rom it 6hangersD those who want to change it eekersD those who are looking #or something deeper EscapersD those who want to leave it Makers tend to be achievers who eat well" dress well and live well. 6hangers live more #rugally driving smaller cars and a simple li#estyle Escapers are a ma/or market #or music" movies" sur#ing and camping -ie!s of nature* ome #eel ub/ugated by it -thers #eel harmony with it And still others seek mastery over it :eople have awakened to nature*s #ragility. They recognize that it can be destroyed by human activities. 8ove o# nature leading to camping" boating" #ishing etc. Fusiness has responded with hiking boots" tenting e1uipment and other gear Tour operators are packaging more tours to wilderness areas Marketing communicators are using more scenic backgrounds Aood operators have #ound growing market #or MnaturalN products -ie!s of the universe* 9eligious conviction and practice has been waning through the years. 6hurch attendance has #allen steadily. ome impulse has been re directed to an interest in eastern religions" mysticism" occult and the human potential movement. Every trend also has a counter trend. An example being the rise o# religious #undamentalism across the globe. Cultural characteristics of interest to marketers: +igh persistence o# core values Existence o# sub cultures hi#ts o# values through time

+igh persistence o# core values> :eople living in a particular society hold many core belie#s and values that tend to persist.

Most Americans still believe in work" getting married" in giving to charity and being honest. 6ore belie#s are passed on by parents and are rein#orced by ma/or social institutions. econdary belie#s are more open to change. E.g. believing in the institution o# marriage is a core belie# whereas believing that people need to get marry early is a secondary belie#. Marketers must aim at changing and molding secondary belie#s rather than core belie#s. Existence o# ub 6ultures> These are groups with shared values emerging #rom their special li#e experiences or circumstances. E.g. tar trek #ans" Flack Muslims etc. To the extent that di##erent sub groups exhibit di##erent wants and consumption behavior marketers can choose particular subcultures as target markets. Marketers have always loved teenagers because they are trendsetters in #ashion" music etc. Arito lay says that it has seen a rise in chip snacking amongst grown ups. The reason being that they bought them while they were teenagers. Shifts of Cultural 1alues o er time Although core values are #airly persistent cultural swings do take place. Marketers have a keen interest in spotting cultural shi#ts that might being new marketing opportunities or threats. everal #irms o##er social cultural #orecasts. Aor example" the percentage o# people who value physical #itness and wellDbeing has risen steadily over the years. Marketers o# health #oods and exercise e1uipment cater to this trend with appropriate products and communications. <n 1;;. Taco Fell introduced a new lower #at MForder 8ights menuN. The center #or cience in the public interest" a consumer advocacy group in (ashington ).6 praise the menu as being Mmore than a marketing gimmickN

C3-$TE2 6> -naly&ing Consumer markets C +uying +eha ior


Model of consumer ,eha iour
Marketing stimuli Product Price Place Promotion

%ther stimuli
Economic Technological Political Cultural

Buyers characteristics Cultural

ocial
Personal

Psychological

Buyers decision process Problem recognition Information search Evaluation Decision

Buyers decisions Product choice Brand choice Dealer choice Purchase timing Purchase amount

Ma5or Factors influencing +uying +eha iour


Cultural Factors 6ulture > values" perceptions" pre#erences and behaviours. ubculture > nationalities" religions" racial grps P geographic regions. ocial 6lass > homogeneous P enduring divisions" hierarchically ordered" members share common values. <ndicated by occupation" income" education" etc.

Social Factors
9e#erence Broups > all groups that have a direct *membership groups, or indirect in#luence on attitudes or behavior. These groups 1. expose us to new behaviors P li#estyles !. in#luence attitudes P sel# concept %. create pressures #or con#ormity that in#luence brand choice

Aamily > Most important P in#luential primary re#erence group.


/amily of orientation ? parents P siblings /amily of procreation ? spouse P children

2oles and Statuses


A person participates in many groups ? #amily" clubs" and organizations. The person*s position in each group can be de#ined in terms o# role and status. A role consists o# the activities that a person is expected to per#orm. Each role carries a status. :eople choose products that communicate their role and status in society. Thus 6E-s drive Mercedes" etc. Marketers are aware o# the status symbol potential o# products and brands. $E2S%'-) F-CT%2S A buyer*s decisions are also in#luenced by personal characteristics. These include the buyer*s age and stage in the li#e cycle" occupation" economic circumstances" li#estyle and personality and sel#Dconcept.

-ge and stage in the life cycle :eople buy di##erent goods and services over a li#etime. 6onsumption is shaped by the #amily li#e cycle. Marketers o#ten choose li#e cycle groups as their target market. Het target households are not always #amily based> there are also single households" gay households and coDhabitor households. ome recent work has identi#ied psychological li#e cycle stages. Adults experience certain passages or trans#ormations as they go through li#e. Marketers pay close attention to changing li#e circumstances ? divorce" widowhood" remarriage ? and their e##ect on consumption behavior. %ccupation C economic circumstances -ccupation also in#luences a consumption pattern. A company can even specialize its products #or certain occupational groups. :roduct choice is greatly a##ected by economic circumstances> spendable income &level" stability" time pattern)" savings and assets &including the S that is li1uid)" debts" borrowing power" and attitude towards spending $s saving. Marketers o# incomeD sensitive goods pay constant attention to trends in personal income" savings and interest rates. <# economic indicators point to a recession" marketers can take steps to redesign" reposition" and re price their products so they continue to o##er value to target customers. Stages in the Family )ife Cycle 1. Fachelor stage> young" single not living at home Aew #inancial burdens Aashion opinion leaders 9ecreation oriented. Fuy>basic home e1uipment" #urniture" cars" vacations !.3ewly married 6ouple> Houng no children +ighest purchase rate P highest average purchase o# durables 6ars" appliances" #urniture" vacations %.Aull nest <> youngest child under 0 +ome purchasing at peak. 8i1uid assets low <nterested in new products" advertised products Fuy> washers" dryers" T$" baby #ood" vitamins" dolls" ,. Aull 3est <<> youngest child 0 or over Ainancial position better 8ess in#luenced by advertisements Fuy larger sized packages" multiple unit deals Fuy> cleaning material" bicycles" piano .. Aull 3est <<<> older married couple with dependent children Ainancial position still better 8ess in#luenced by advertising +igh average purchase o# durables Auto" boats" dental services" magazines

0. Empty 3est <> older married couple" no children living with them" head o# house in labor #orce +ome ownership at peak <nterested in travel" recreation" sel# education 3ot interested in new products Fuy> vacations" luxuries" home improvements 4. Empty 3est <<> older married couple" no children living with them" head o# house retired )rastic cut in income Jeep home Fuy> medical appliances" medical care products 5. olitary survivor> in labor #orce <ncome still good but likely to sell home ;. olitary survivor> retired ame medical and product needs as other retired group )rastic cut in income pecial need #or attention" a##ection" security

:sychological Aactors> , ma/or psychological #actors that in#luence a person*s buying choices> 1. Motivation> A person has many needs at a given time ? i. Fiogenic 3eeds ? Arising #rom psychological states o# tension such as hunger" thirst" discom#ort. ii. :sychogenic needs ? Arising #rom psychological states o# tension such as need #or recognition" esteem or belonging. iii. Motive> A need becomes a motive when it is aroused to a su##icient level o# intensity causing a person to act. Theories related to Motivation> i. Areud*s Theory> :sychological #orces shaping a persons behavior are largely unconscious. M8adderingN can be used to trace a person*s motivations #rom the stated instrumental ones to the more terminal ones. This helps the marketer decide at what level the messageCappeal is to be developed.

Motivation researchers collect consumer interviews #or insights using techni1ues like word association" sentence completion" picture implementation P role playing. Motivational positioning> The whisky example ? (hisky can attract someone who seeks social relaxation" status or #un. +ence whisky brands have specialized in these three kinds o# appeals. ii. Maslow*s theory> Maslow*s theory helps marketers understand how various products #it into the plans goals and lives o# consumers.

5. Self ctuali!ation "eeds #Self Development and reali!ation$ %. Esteem "eeds #self&esteem' recognition' status$ (. Social "eeds #Sense of belonging' love$ ). Safety "eeds #security' protection$ *. Physiological "eeds #food' +ater' shelter$

iii. +erzberg*s Theory> TwoD#actor theory )issatis#iers ? Aactors that cause dissatis#action. atis#iers ? Aactors that cause satis#action. The eller should do his best to avoid dissatis#iers. The manu#acturers should identi#y the ma/or satis#iers or motivators o# purchase in the market and then supply them. !. :erception> +ow a motivated person acts is in#luenced by his or her perception :erception is the process by which an individual selects organizes and interprets in#ormation inputs to create a meaning#ul picture o# the world. :erception is individual. elective Attention> i. :eople are more likely to notice stimuli that relate to current need ii. :eople are more likely to notice stimuli that they anticipate iii. :eople are more likely to notice stimuli whose deviations are large in relation to the normal size o# the stimuli

elective )istortion> <t is the tendency to twist in#ormation into personalO meanings and interpret in#ormation in a way that will #it a persons preconceptions. Marketers cannot do much about this. elective 9etention> :eople tend to #orget much that they learn but tend to retain in#ormation that supports their attitudes and belie#s. &Marketers use drama and repetitions in sending messages to their target market) %. 8earning> (hen people act they learn. 8earning involves changes in an individuals behavior arising #rom experience. 8earning is produced through interplay o#> i. )rives ? A strong internal stimulus impelling action ii. timuli iii. 6ues ? Minor stimuli that determine when" where and how a person responds iv. 9esponses v. 9ein#orcement ,. Felie#s and Attitudes> A belie# is a descriptive thought that a person holds about something. Felie#s may be based on knowledge" opinion or #aith. They may or may not carry emotional charge. An attitude is a person*s enduring #avorable or un#avorable evaluations" emotional #eelings" and action tendencies towards some ob/ect or idea +uying roles: <nitiator ? <n#luencer ? )ecider ? Fuyer ? @ser +uying ,eha ior: 6omplex buying behavior ? threeDstep process ? develops belie# about the product" attitude about the product and then makes a thought#ul choice. )issonance reducing buying behavior ? consumer is highly involved in a purchase but sees little di##erence in brands. Marketing communication should supply belie#s and evaluations that help the consumer #eel good about hisCher brand choice. +abitual buying behavior ? bought under conditions o# low involvement and absence o# signi#icant brand di##erences. $ariety seeking buying behavior ? characterized by low involvement but signi#icant brand di##erences. 3igh In ol ement Significant differences 6omplex buying behavior ,etween ,rands Few differences ,etween )issonance reducing buying ,rands behavior )ow In ol ement $ariety seeking buying behavior +abitual buying behavior

Stages of the +uying (ecision $rocess (ays to #ind out the buying decision process by marketers> 1) <ntrospective Method> they would think how they would behave !) 9etrospective Method> Ask people to recall their buying decision process %) :rospective process> Ask prospective customers to think aloud ,) :rescriptive process> Ask customers the ideal way to buy the product Fi e stage $rocess of Consumer +uying (ecision

:roblem 9ecognition

<n#ormation search Eval -# alternatives

:urchase )ecision

:ostpurchase Fehaviour

$ro,lem 2ecognition The buyin process starts when the customer #eels the need #or the product Information Search: An inclined customer wud look #or more in#ormation. At the #irst level it is called heightened attention. +e simply becomes more receptive #or in#ormation At the next level is the acti e information search lookin #or more in#ormation #rom #riend" reading material" etc. ources o# in#ormation #or the customer> :ersonal ources> #amily" #riends 6ommercial sources> Ads" sales people :ublic sources> Mass media

Experimental sources> +andling" examining

uccessive sets involved in consumer Fuyin decision process>

Total Set All the possibles choices

-wareness Set The brands that the consumer is aware o#

Consideratio n Set: ome initial brands that meet basic re1uirements

Choice Set: trong 6ontenders

(ecision: LLLL

E aluation of I(E-S The consumer is tryin to satis#y his needs " get some bene#its and #inally look at the product as a bundle o# bene#its. The consumer wud give weightages to the various attributes to the product and #ind out the total points to the product. ome methods which can help change the consumers perception o# the product 1) 9eal repositioning> redesign the product !) :sychological repositioning> Alter the belie# o# the brand %) 6ompetitive repositioning> Alter belie# about the competitor*s brand $urchase (ecision

Attitudes o# others Evaluation o# alternatives :urchase <ntention @nanticipated #actors :urchase decision

$ostpurchase ,eha iour: $ostpurchase Satisfaction> the customer may either be satis#ied" delighted or dissatis#ied a#ter the purchase. these #eelings make a lot o# di##erence to the customers perception and behaviour towards the company. $ostpurchase actions: the customer may take di##erent actions depending upon his satis#action level. The dissatis#ied customer may stop buying & e it opition, or the customer may be tell his #riends not to buy the product & voice optionH $ostpurchase use and disposal: Marketers need to monitor what the consumer does with the product a#ter purchase and how it is disposed o## to maintain environmental #riendliness o# the product.

C3-$TE2 D -'-)EFI'" +*SI'ESS M-2.ETS -'( +*SI'ESS +*EI'" +E3-1I%2


1: 0hat is organi&ational ,uying4 %rgani&ational +uying is the decision making process by which #ormal organizations establish the need #or purchased products and services and identi#y" evaluate and choose between alternative brands and suppliers. +usiness market ersus consumer market Business 2arket consists o# all the organizations that ac1uire goods and services used in the production o# other products and services that are sold" rented or supplied to others. Main industries comprising this are agriculture" #orestry" #isheries" manu#acturing" mining" banking" insurance" etc. Characteristics that contrast with consumer market Aewer buyers 8arger buyers 6lose supplierD customer relationship &customization) Beographically concentrated buyersD reduces selling costs" also because o# regional shi#ts o# certain industries )erived demandD ultimately demand is derived #rom that #or consumer goods" so one must closely monitor the buying patterns o# ultimate consumers <nelastic demandD not too a##ected by price" especially inelastic in short run because it is not easy to make changes in production methods Aluctuating demandD more volatile than that #or consumer goods and services. Acceleration e##ect> a certain rise in consumer demand can cause a much larger increase in the demand #or plant and e1uipment necessary to produce that additional output. :ro#essional purchasingD Fusiness goods are purchased by trained purchasing agents who must #ollow purchasing policies" constraints and re1uirements" #or example" re1uests #or 1uotations" proposals and purchase contracts. everal buying in#luencesD More people in#luence buying decisions. Fuying committees o#ten consist o# technical experts and even senior management. Multiple sales calls )irect purchasingD #rom manu#acturers instead o# intermediaries especially in the case o# items that are technically complex or expensive. 9eciprocityD buyers selecting suppliers who also buy #rom them. 8easingD instead o# buying heavy e1uipment.

+uying Situations There are three types> traight reDbuyD :urchasing department reorders on a regular basis. The buyer chooses #rom suppliers on an approved list. The suppliers make an e##ort to maintain product and service 1uality and propose Mautomatic reordering systemsN. The MoutDsuppliersN attempt to o##er something new or exploit dissatis#action with existing supplier. Modi#ied reDbuyD The buyer wants to modi#y product speci#ications" prices" delivery re1uirements and other terms. This involves additional decision participants on both sides. The MinDsuppliersN become nervous and MoutDsuppliersN try to o##er a better deal. 3ew taskD The purchaser buys a product or service #or the #irst time. tages in 4e# task buying> Awareness" <nterest" Evaluation" Trial and Adoption. Mass media have the greatest e##ect at the awareness stage" salesDpeople at the interest stage and technical sources at the evaluation stage. The new task situation is said to be the marketer*s greatest opportunity and challenge. ome companies use a 2issionary sales force consisting o# their best people #or this. "he numbers of decisions #or the business buyer are the #ewest in the straight reDbuy and the maximum in the new task. ystems buying and selling ystems buying is said to happen when business buyers buy a total solution to their problems #rom one seller" #or example" government soliciting bids #rom prime contractors &who can then subDcontract)O turnkey solutions" etc. ystems selling has been adopted by several sellers as a marketing tool" #or example" auto part manu#acturers selling whole systems such as the seating system" the door system" the breaking system" etc. ystems contracting is said to occur when a single supply source provides the buyer with his entire re1uirement o# M9- &maintenance" repair and operating) supplies. This helps the buyer lower costs in inventory &which is maintained by seller)" reduced time on supplier selection and price protection. This is a key strategy #or largeDscale industrial pro/ects.

2: $articipants in the ,usiness ,uying process "he Buying &enter The ,uying center is composed o# all those individuals and groups who participate in the decision making process" who share some common goals and risks arising #rom the decisions. <nitiators> Those who re1uest that something be purchased. @sers> Those who will use the product or service. <n#luencers> :eople who in#luence the buying decision. They help de#ine speci#ications and provide in#ormation about alternatives. )eciders> :eople who decide on product re1uirements or on supplies. Approvers> people who authorize the proposed actions o# deciders and buyers. Fuyers> :eople who have #ormal authority to select the supplier and arrange the purchase terms. Batekeepers> :eople who have the power to prevent sellers or in#ormation #rom reaching the buying center. (hen a buying center includes many participants the business marketer will not have the time or resources to reach all o# them. mall sellers concentrate on reaching the key buying in#luencers whereas the large sellers go #or multilevel in depth selling to reach as many participants as possible. 2a5or .nfluences The ma(or inf"uences on buying behavior are> Environmental" -rganizational" <nterpersonal and individual. En ironmental %rgani&ational D )e el of demand D -b/ectives A Economic outlook
D <nterest rate D 9ate o# tech. 6hange D :olitical and regulatory developments D 6ompetitive developments D ocial responsibility concerns D D D D :olicies :rocedures -rganizational structures ystems

Interpersonal Indi idual D <nterest


D D D D Authority tatus Empathy :ersuasivene ss D D D D D D D

Age <ncome Education 2ob :osition :ersonalit y 9isk attitudes 6ulture

Fusiness Fuyer

Environmental #actors> Fusiness marketers can do little to stimulate total demand in this environment. They can only #ight harder to maintain or gain market share.

-rganizational #actors> Every organization has speci#ic purchasing ob/ectives" policies" procedures" organizational structures and systems. <nterpersonal #actors> Fuying centers have several participants with di##erent interests" authority" status" empathy and persuasiveness. (hatever in#ormation the marketer can discover about personalities and inter personal #actors will be use#ul. <ndividual #actors> Each buyer carries personal motivations" perceptions" pre#erences as in#luenced by his age" income" education" /ob position" personality attitudes towards risk and culture. ?: The $urchasing;$rocurement $rocess: Fusiness buyers buy goods and services to make money or to reduce operating costs or to satis#y a social or legal obligation. Fusiness buyers try to obtain the highest bene#it package relation to a market o##ering*s costs. There are three companyDpurchasing orientations> 1. ,uyingD discrete transactions" relations are armsDlength and adversarial" buyer #ocus is short term and tactical. Fuyers assume that Mvalue pieN is #ixed" and they must bargain hard to maximize bene#its. Fuyers use two tactics> commoditization and multiDsourcing. !. $rocurementD Fuyers seek 1uality improvements and cost bene#its. More collaborative with smaller no o# suppliers working in close cooperation with customers. The goal is to establish winDwin relationship. %. Supp"y managementD :urchasing is more o# a strategic value adding operation. Aocus is on improving value chain #rom raw materials to endDusers. Fuyer behaves as a lean enterprise operating under demand pull rather than supply push.

Stages in the process


1. :roblem recognition> Most common events leading to problem recognition> company decides to develop new product" machine breaks down" purchased material turns out to be de#ective" purchases senses opportunity to obtain materials at cheaper price. !. Beneral need description: )etermination o# needed item*s general description and characteristics &viz reliability" durability" price) P 1uantity. Marketers may assist buyers in this stage. %. :roduct speci#ication>

Fuying organization will develop technical speci#ications #or the product and assign a product value analysis &:$A) engineering team to the pro/ect. :$A is an approach to cost reduction in which components are care#ully studied to determine i# they can be redesigned or standardized or made by cheaper methods o# production. ,. upplier search>

<denti#y the most appropriate suppliers. uppliers who lack the re1uired production capacity or su##er #rom a poor reputation get re/ected. Those who 1uali#y may be visited by the buyer*s agents" who will inspect supplier*s manu#acturing sites. A#ter this stage" buyer will end up with a short list o# 1uali#ied suppliers. .. :roposal solicitation> Fuyer invites proposals #rom suppliers. A#ter evaluating proposals" buyer will invite a #ew suppliers to make #ormal presentations. 0. upplier election>

Fuyer will #irst speci#y desired supplier attributes like price" reputation" reliability" #lexibility and assign weightages according importance. They will be rated then and the best will be identi#ied. Another decision to make is how many suppliers to have 4. -rder ? 9outine speci#ication> A#ter selecting supplier" buyer lays the purchase conditions related to #inal order" tech specs" delivery etc. a blanket contract is signed #or supplier to keep ready stock with the buyer over a speci#ied period o# time 5. :er#ormance review> Fuyer periodically reviews its suppliers using any o# % methods Ask end users #or #eedback

Evaluation suing weighted score method Aind out cost o# poor per#ormance and ad/ust price accordingly

Fuy Alow map describes ma/or steps in the business buying processes.

<: Institutional and "o ernment Markets <nstitutional markets consist o# schools" hospitals" nursing homes" prisons and other institutions that must provide goods n services to people in their care. These are characterized by low budgets and captive clienteles. The #ocus here is on 1uality and cost minimization and pro#it are not ob/ectives. &haracteristics Bovernments invite bids #or contracts and award to lowest bidder. Might make exceptions #or superior 1uality or reputation Aavor domestic suppliers over #oreign ones Bovernments have a lot o# red tape and bureaucracy which tends to put o## most people #rom doing business with them

Bovernments have traditionally never seen a whole package ? but have always bargained on price and used that as a decision #actor. They are moving towards web based procurement and more transparency in their dealings. Marketing people have realized that where product #eatures are advertised" di##erentiation doesn*t really help and similarly #or price as well.

Chapter G (ealing 0ith the Competition


1. Michael :orter*s . #orces> a) b) c) d) e) Threat o# intense segment rivalry &competition within the industry) Fuyers* power uppliers* power Threat o# potential entrants &threat o# mobility) Threat o# substitutes

!. <ndustry ? group o# #irms that are close substitutes #or each other. 6lassi#ied according to degree o# product di##erentiation" presence or absence o# entry" mobility" and exit barriers" cost structure" degree o# vertical integration" degree o# globalization. %. )egree o# di##erentiation D

:ure monopoly ? -nly 1 #irm provides a particular product or service in the region C country C area &regulated monopoly C unregulated monopoly) -ligopoly ? mall no. o# large #irms provide a range o# products or services ? highly di##erentiated or standardized. :ure oligopoly ? #ew companies" commodity markets. )i##erentiated oligopoly ? #ew companies" partially di##erentiated products along certain #eatures like 1uality C #eatures ? each competitor seeks leadership along one o# these ma/or attributes. Monopolistic competition ? Many competitors" di##erentiated &wholly or partially) products" competitors #ocus on market segments which can meet customer needs ina superior way and command a price premium. :ure competition ? commodity markets" many players" no advertising unless it can create psychological di##erentiation &e.g. cigarettes" cement) ,. Farriers

Mobility barriers ? barriers o# entry into new markets Exit barriers & many stay on as long as they cover all their variable and part o# their #ixed costs) .. 6ost structure

More modern e1uipment" greater e##iciency" lower costs 0. )egree o# $ertical <ntegration

Fackward C Aorward integration to lower costs and C or gain a larger share o# the value stream. A vertically integrated company can manipulate prices in various parts o# the value stream and earn more pro#its where taxes are lowest. 4. )egree o# globalization

6ompete on a global basis in order to achieve economies o# scale and keep up with the latest advances in technology 5. 6ompetitor analysis

-nce the primary competitors are analyzed" the company needs to ascertain the characteristics" i.e. strategies" ob/ectives &what is each company seeking in the marketplace ? history" management" #inancial situation" expansion plans etc.)" strengths" weaknesses" reaction patterns o# the competitors. A strategic group is a group o# #irms #ollowing the same strategy in a given target market. ix competitive positions o# a #irm in its target market ? dominant" strong &can take independent action without endangering its long term position regardless o# competitors* actions)" #avourable &more than average opportunity to improve)" tenable &satis#actory enough to continue" but improvement opportunity is less than average)" weak &change or exit)" nonDviable &divest). Three variables to monitor while analyzing its competitors ? hare o# market" share o# mind" share o# heart. 9eaction patterns o# competitors ? 8aidback competitor" elective competitor &reacts to certain types o# attacks)" Tiger competitor &reacts to every move)" tochastic competitor &no predictable behaviour) 6ompetitive e1uilibrium &Fruce +enderson) > <# competitors are nearly identical and make their living in a similar way" then their competitive e1uilibrium is unstable as di##erentiation is hard to maintain. <# a single #actor &e.g. a cost breakthrough or technical advancement achieved by one #irm) is the critical #actor" then competitive e1uilibrium is unstable as competitors can de#end their share only at a great cost. <# multiple #actors may be critical #actors" then it is possible #or each competitor to have some advantage and be di##erentially attractive to some customers. The more #actors that may provide a competitive advantage" the more competitors can coexist. The #ewer the number o# critical #actors" the #ewer the number o# competitors. A ratio o# ! to 1 in market share between any two competitors seems to be the e1uilibrium point at which it is neither practical nor advantageous #or either competitor to increase or decrease share. At this level" the costs o# extra promotion or distribution would outweigh the gains in market share. ;. Aour main steps to designing a competitive intelligence system>

etting up the system 6ollecting the data Evaluating and analyzing the data )isseminating in#ormation and responding 1=. electing competitors to attack and to avoid

6ustomer value analysis ? to reveal the company*s strengths and weaknesses relative to various competitors <denti#y the ma/or attributes customers value Assess the 1uantitative importance o# the di##erent attributes Assess the company*s and competitors* per#ormances on the di##erent customer values against their rated importance Examine how customers in a speci#ic segment rate the company*s per#ormance against a speci#ic ma/or competitor on an attributeDbyDattribute basis Monitor customers* values over time 11. 6lasses o# competitors

trong vs. weak 6lose vs. distant &companies should avoid trying to destroy their closest competitor ? Porter) Bood vs. bad &do not play by the rules" set unreasonable prices" try to buy share rather than earn it" take large risks" invest in overcapacity" upset the industrial e1uilibrium) 1!. A. 6ompetitive trategies Market 8eader trategies New demand 'ew users 'ew uses More usage Win market share 0in customers 0in competitors 0in loyalty Improve productivity Impro e costs Impro e product mi# Impro e added alue Defend position (efend staticly (efend proacti ely (efend reacti ely

(efending market share ? :osition de#ence &build an impregnable #ortress around one*s territory)" Alank de#ence &erect outposts" i.e. new productsC alternatives) to protect a weak #ront or serve as an invasion base #or counterattack" e.g. tarbucks co##ee launching nonD

co##ee products like tea and /uice &7teazzi*)" 6ountero##ensive de#ence &hit back to counter the competitor*s price cut or promotional blitz)" Mobile de#ence &stretch your domain over new territories that can serve as #uture centres #or de#ence and o##ence. Market broadening ? shi#t #ocus #rom the current product to the underlying generic need. )o not carry this too #ar lest you #ault upon the two #undamental military principles ? the principle o# the ob/ective &pursue a clearly de#ined" decisive and attainable ob/ective) and principle o# mass &concentrate your e##orts at a point o# enemy weakness.) Market )iversi#ication ? shi#t #ocus to unrelated industries. eg> Tobacco companies moving into beer" li1uor" so#t drinks" etc" as a result o# curbs on the cigarette industry. 6ontraction )e#ense ? :lanned contraction by large companies &strategic withdrawal) ? giving up weaker territories and assigning resources to stronger territories ? concentrate competitive strength ? pruning o# product lines ? eg> BE" +einz" etc. E#panding Market Share ? to improve pro#itability as it rises with its relative market share o# the served market. Eg> BE ? 3o. 1 or 3o. ! in every market. ome industries have a $Dshaped relationship curve between market share and pro#itability ? Aew large pro#itable #irms ? many small #ocused pro#itable #irms ? many mediumDsized low pro#itable #irms ? 8ooks at total market and not market segments <ncrease in costs as a result o# increase in market share beyond a point &say .=S). This is due to cost o# legal work" public relations and lobbying. :ushing #or higher market share not /usti#ied as a result o# #ew scale or experience economies" unattractive market segments" high exit barriers" etc. hare Baining companies outper#orm competitors in>

3ew :roduct activity 9elative product 1uality Market expenditures

(ays to protect and increase market shares derived #rom :PB and 6aterpillar> $C":

6ustomer Jnowledge 8ong term outlook :roduct innovation Kuality trategy 8ineDextension strategy FrandDextension strategy MultiDbrand trategy +eavy Advertising P Media pioneer

Aggressive sales #orce E##ective sales promotion 6ompetitive toughness Manu#acturing e##iciency ? cost cutting Frand Management system

Caterpillar:

:remium per#ormance Extensive and e##icient dealership system uperior service uperior parts management :remium price1 Aull line strategy Bood #inancing

Market challenger strategies 6 #irst de#ine strategic ob/ective and opponent&s)

Attack the market leader> high riskDhigh payo## strategy. Makes sense i# the leader isn*t serving the market well. Targeting unsatis#ied customers ? out innovate competitor across whole segment. Attack #irms o# its own size that are under per#orming and are under #inanced> they charge excessive prices" have ageing products" etc. Attack small P regional #irms>

"eneral -ttack Strategy: Arontal Attack> match opponents products" pricing" advertising P distribution. (in through sheer greater manpower P resources. Modi#ied Arontal Attack> price cutting visDXDvis opponent. 6an work i# market leader doesn*t retaliate or competitor can convince o# betterCe1ual 1uality products. Main principle o# o##ensive war#are ? M6oncentration o# strength against weaknessN Alank Attack> a) Beographical ? challenge opponent in spot areas where he is underpe#roming b) egmental ? serve uncovered market needs 9ush in to #ill gaps developing in market due to shi#ts. Alank attack is attractive to a challenger with #ewer resources than the opponent. Encirclement maneuver> capture a wide slice o# opponent*s market through a 7blitz*. 8aunch a grand o##ensive on several #ronts. 6an be pursued by #irms having superior resources.

Fypass trategy> bypass the enemy and attack easier markets to broaden resource base. % ways> a) )iversi#ying into unrelated products b) )iversi#ying into new geographical markets c) 3ew technologies to supplant existing products Buerilla Attack> small intermittent attacks to harass and demoralize opponents and secure permanent #ootholds. 6onventional P unconventional means ? selective price cuts" intense promotional blitzes" occasional legal actions. Specific -ttack Strategies: &Feyond the above broad strategies)

:rice )iscount 6heaper Boods :restige Boods :roduct :roli#eration :roduct <nnovation <mproved services )istribution innovation Manu#acturing cost reduction <ntensive advertising promotion

MarketAFollower Strategies :roduct imitation could be better than product innovation. <n industries with low image di##erentiation" comparable service 1uality" price sensitivity. There is high possibility o# price wars. trategy against short run gains but #or long term sustainability. Market #ollower ? know to hold on to current customers ? win a #air share o# new customers ? distinctive advantages in location" services" #inancing ? low manu#acturing costs ? high product P service 1uality ? new market penetration Aour Froad trategies>

6ounter#eiter> duplicate leader*s product P package ? sell it in the black market thru disreputable dealers 6loner> emulate leader*s products" name" and packaging" with slight variations <mitator> copy some things #rom the latter but maintain di##erentiation in packaging" advertising" pricing" etc. Adapter> take the leader*s products and adapt or improve them. 6hoose to sell to di##erent markets. Brows into the #uture challenger.

MA9JET 3<6+E9 T9ATEBH

This strategy involves avoiding competing with large #irms by targeting small markets which are low volume but highly pro#itable. The pro#its are higher because o# higher margin as compared to mass market. The specialization o# niche market can be o# #ollowing type. 1. End user specialist ? customized computer hardware and so#tware. !. $ertical level specialistD copper #irm producing raw mat or comp or #inished prod %. 6ustomer size specD small customer neglected by others ,. peci#ic customer specD selling entire output to BM or ears .. Beographic spec ? selling in one particular location 0. :roduct line spec ? lenses o# microscope or ties 4. 2ob shop spec ? customizing #or individuals " 6ustomized cars 5. Kuality price spec ? +: operated on high price and high 1uality ;. ervice spec ? bank accepting loans on phone and hand delivery o# money 1=. 6hannel spec ? so#t drink selling thru only gas stations -perating in one niche is dangerous so either shud continuously create new niches or multiple niches operation. 6ompanies can be 6ompetition oriented or 6ustomer oriented 6ompetitor oriented ? 6onstant watch on competitor and actions are more reactive. 6ustomer oriented ? identi#y new opportunities and make strategy " more proactive.

C3-$TE2 H Identifying Market Segments and Selecting Target Markets


A 6ompany cannot serve all customers in a broad market ? customers are too numerous and diverse in their re1uirements. The company needs to identi#y the market segments that it can serve more e##ectively. Many companies embrace target marketing where sellers distinguish the ma/or market segments" target one or more o# those segments" and develop products and marketing programmes tailored to each. <nstead o# scattering the marketing e##ort &shotgun approach) they #ocus on the buyers the have the greatest chance o# satis#ying &9i#le approach). Target marketing re1uires three steps> <denti#y and pro#ile distinct group o# buyers who might re1uire separate products or marketing mixes ? market segmentation. elect one or more market segments to enter ? market targeting. Establish and communicate the products* key distinctive bene#its to the target market ? market positioning. )e els and $atterns of Market Segmentation 8evels o# market segmentation Market segmentation is an e##ort to increase a company*s precision marketing. Mass marketing: <n this sellers engages in mass production" mass distribution and mass promotion o# one product #or all buyers. Model TD#ord" 6ocaD6ola etc are example o# mass marketing. Mass marketing creates a large potential market" which leads to the lowest cost" which in turn can lead to lower prices or higher margins. Fut with the increasing splintering o# the market" mass marketing gets more di##icult. Aour levels o# marketing> Segment Marketing: A market segment consists o# a large identi#iable group within a market with similar wants" purchasing power" geographical location" buying attitudes or buying habits. Aor example" #or an auto company might have #our broad segments> customers seeking basic transportation or high per#ormance or luxury or sa#ety. Each segment buyers are assumed to be 1uite similar in needs and wants. Anderson and 3arus urge to present flexible market offering instead o# a standard o##ering &Mone

size #its allN) to all members within the segment. A #lexible market o##ering consists o# two parts> o 4aked olution: :roduct and service element that all segment members value o )ptions: That some segment members value" each option carries extra chrge. Aor example seat" #ood and drinks o##ered to the economy class passenger o# an airline are naked olution while extra amount charged #or an alcoholic beverageC <nternet #acility to those who are ready to pay #or it would be option. Fene#its o# egment Marketing are> o The company can create more #ine tuned product or services o##ering and price it appropriately #or target audience o 6hoice o# distribution channel and communication channel becomes much easier o The company also may #ace #ewer competitions in a particular segment. 'iche Marketing: A niche is more narrowly de#ined group" typically a small market whose needs are not well served. Marketers usually identi#y niches by dividing a segment into sub segments or de#ining a group seeking a distinctive mix o# bene#its. 3iches are #airly small and attract very #ew competitors. 8arge companies loose pieces o# their market to nichers and )algic has labelled this con#rontation as MBuerrillas against gorillasN. 3iche marketing re1uires more decentralization and changes in the way normal business is done. 3iche marketers understand their customers so well that customer*s willingly pay a premium. Attractive niches are characterized as> o 6ustomers in the niche have a distinct set o# needs o They will pay a premium to the #irm that best satis#ies their needs o The niche is not likely to attract other competitors o The nichers gain certain economies trough specialization o The niche has size" pro#it and growth potential 8inneman and anton" MThere are riches in the nichesN Flattberg and )eighton" M3iches too small to serve pro#itably today will become viable as marketing e##iciency improves.N The low cost o# setting up shop on the <nternet is a key #actor on making it more pro#itable to serve even more seemingly miniscule niches. )ocal Marketing: Marketing programmes being tailored to the needs and wants o# local customer groups ? trading areas" neighbourhood" individual stores. )isadvantages o# local marketing are ? it drives up the manu#acturing and marketing cost by reducing the economies o# scale" logistical problems become magni#ied and a brands overall image may be diluted i# the product and message di##er in di##erent localities. Indi idual Marketing: @ltimate level o# marketing ? Msegment o# oneN" Mcustomised marketingN" MoneDtoDone marketingN. Tailors" cobblers etc. F!F marketing today is customised. 2ass customisation is the ability to prepare on a mass basis individually designed products and communication to meet each customer*s re1uirements. 3ew technologies such as computers" <nternet" databases" robotic production" email" #ax etc. permit companies to adopt mass customisation.

Aor mass customisation marketers need to set up ? toll #ree phone number and email ids #or customers suggestions" complaints" #eed back" involve customer more during the product speci#ication process" sponsor web pages containing #ull details about the products and services o##ered" guarantees and locations etc. :atterns o# Market egmentation (ay to build up market segments ? preference segments. Three di##erent patterns 3omogeneous $references: Markets where all customers have roughly same pre#erence. The market shows no natural segments. (iffused $references: 6onsumer pre#erences are scattered through out the space ? consumers vary widely in their pre#erences. The #irst brand to enter the market is likely to position itsel# in the centre to appeal the most people. A brand in the centre minimizes the total customer dissatis#action. Clustered $references: The market reveals distinct pre#erence clusters ? natural market segments. The #irst #irm to enter the market has three optionsD o Position in the center to appeal to all groups . <t will develop only one brand" competitors would enter and introduce brands in the other segments o Position in the largest market segment ? concentrated marketing o $evelop several products positioned in a different segment. Market segmentation procedure %Dstep procedure 1. ervice stage> the researcher conducts exploratory interviews and #ocused groups to gain insights into consumer motivations attitudes and behaviours. Then the researcher prepares a 1uestionnaire and collects data on attributes and their importance ratings" brand awareness and brand ratings" product usage patterns" attitudes towards product category and demographics" geographic" psychographics and media graphics o# the respondents. !. Analysis tage> under this he applies #actor analysis to the data to remove highly correlated variables then apply cluster analysis to create speci#ic number o# maximally di##erent segments %. :ro#iling stage> each cluster is pro#iled according to its distinguishing attitudes" behaviour" demographics" psychographics and media graphics and media patterns. Each segment is given a name depending on its dominant characteristics. Market segmentation should be redone periodically because they change. (ay to discover new segments is to discover the hierarchy o# attributes that consumers examine while choosing a brand. This process is called market partitioning. The hierarchy o# attributes can reveal customer segments. Fuyers who #irst decide on price are price dominant. Those who #irst decide on type o# car & eg sports" passenger ) are type dominant. Those who #irst decide on the car brand are brand dominant. Each segment may have di##erent demographics" psychographics and media graphics.

SE"EME'TI'" C%'S*ME2 -'( +*SI'ESS M-2.ETS +asis for segmenting consumer markets: ! broad groups o# variables are used to segment consumer markets. ome researchers try to #orm segments by looking at consumer characteristics> demographic" geographic" and psychographic. Then they examine whether these customer segments exhibit di##erent needs or product responses. Methods of Segmentation Beographic segmentation> it calls #or dividing the market into di##erent geographic units such as nations" states" regions" counties" and cities. The company can operate in one or #ew geographic areas or operate in all but pay attention to local variations. )emographic segmentation> in this the market is divided into groups on the basis o# variables such as age" #amily" size" li#e cycle" gender" income" occupation" education" religion" race" generation" nationality" social class. These variables are the most popular basis #or distinguishing customer groups. -ne reason is that consumer wants" pre#erences" usage rates are o#ten associated with demographic variables. Another reason is that demographic variables are easier to measure even when the target market is de#ined in nonDdemographic terms. The link back to demographic characteristics is needed in order to estimate the size o# the target market and the media that should be used to reach it e##iciently. "eographic 9egion :aci#ic" mountain" west north central 6ity or metro size @nder .=== etc )ensity @rban rural 6limate 3orthern" southern

(emographic Age Aamily size Aamily li#e cycle Bender <ncome -ccupation Education 9eligion 9ace Beneration 3ationality ocial class $sychographics 8i#e style :ersonality +eha ioural -ccasions Fene#its @ser status @sage rate 8oyalty status 9eadiness stage Attitude towards product

@naware" aware" in#ormed" interested" desirous Enthusiastic" positive" indi##erent

-ge and life cycle stage: consumer wants and abilities change with age. Berber realized this and began expanding beyond its baby #ood lines. 3evertheless age and li#e cycle can be tricky variables. "ender: gender segmentation has been applied to clothing hairstyling cosmetics and magazines. -ther marketers also noticed opportunity #or gender segmentation #or eg the cigarette market where brands like $irginia slims was launched to rein#orce #emale image. Income: it is a long standing practice in such product and service categories e.g. Automobile" clothing and cosmetic and travel. "eneration: Faby boomers born between 1;,0D0, Beneration T born between 1;0,D5, ? more sophisticated in evaluating products" turn o## by advertising that has too much hype or takes itsel# too seriously 6ohort segmentation> cohorts are groups o# people who share experiences o# ma/or external events that have deeply a##ected their attitudes and pre#erences.

Members o# cohort groups #eel the bonding with each other #or having shared the same ma/or experiences. Advertising to a cohort group should be done using icons and images prominent in their experiences. Social Class: has a strong in#luence on pre#erence in cars clothing home #urnishing" leisure activities reading habits and retailers. The taste o# social class can change with years. :sychographic segmentation> Fuyers are divided into di##erent groups based on personality and values. :eople within the same demographic group can exhibit very di##erent psychographic pro#iles. )ifestyle: people generally exhibit more li#estyle than are suggested by social classes generally the goods they consume express their li#estyle such as cosmetics" alcoholic beverages" #urniture etc. $ersonality: Marketers can use personality variables to segment markets. They endow their products with brand personalities that correspond to consumer personalities. 1alues: some marketers segment by core values" the belie# systems that underlie consumer attitudes and behaviours. 6ore values go much deeper than behaviour or attitude and determine at a basic level people*s choices and desires over long term. Marketers who segment by values believe that by appealing to people*s inner selves it is possible to in#luence their outer selvesD their purchase behaviour.

Fehavioral egmentation
Fuyers are divided into groups on the basis o# their knowledge o#" attitude toward" use o#" or response to a product. tarting points for constructing market segments %cassions: )istinguish buyers according to the occasions they develop a need" purchase a product" or use a product +enefits: Fuyers classi#ied on the basis o# the bene#its they seek

*ser status: Market segmentation into nonDusers" exDusers" potential users" #irst time users and regular users o# a product. *sage rate: Market segmented into light" medium and heavy product users. )oyal status: 6onsumers can be divided into , groups according to the brand loyalty status> +ardDcore loyals ? one brand all the time plit loyals ? loyal to ! or % brands hi#ting loyals ? consumers who shi#t #rom one brand to another witchers ? no loyalty to any brand Markets Frand loyal markets ? high S o# hardDcore brand loyal buyers

- company can learn a great deal ,y analy&ing degrees of ,rand loyalty


Analysis o#> +ardDcore loyals> the company can identi#y products* strengths plit loyals> company can pinpoint which brands are most competitive with its own. hi#ting loyals> company can learn about its marketing weaknesses and attempt to correct them. +uyer readiness stage: A market consists o# people in di##erent stages i# readiness to buy a product. tages o# readiness> Aware o# product <n#ormed about product <nterested in product )esirous o# buying the product <ntention to buy product -ttitude: Aive attitude groups can be #ound in the market> Enthusiastic :ositive <ndi##erent 3egative +ostile

MultiA-ttri,ute segmentation @geoclusteringB

Marketers no longer talk about the average consumer or even limit their analysis to only a #ew market segments. <ncreasing trend towards combining several variables in an e##ort to identi#y smaller" better de#ined target groups. Answers to the #ollowing 1uestions #or multiDattribute segmentation (hich clusters contain our most valuable customersL +ow deeply have we already penetrated these segmentsL (hichh markets" per#ormance sites and promotional media provide us the best opportunities #or growthL Beoclustering captures the increasing diversity o# the population" and marketing to micro segments has become accessible even to small organisations as database costs decline" :6s proli#erate" so#tware becomes easy to use" data integration increases and as the <nternet grows.

Basis for segmenting business markets


egmentation variables #or business markets>
(emographic .ndustry> which industries to serve &ompany si6e> what size companies to serve Location> what geographical areas to serve %perating aria,les "echnology> what customer technologies should we #ocus on 'ser or non-user status> should we serve heavy users" medium users" light users" or nonDusersL &ustomer capabilities> should we serve customers needing many or #ew sevices $urchasing approaches Purchasing-function organisation> should we serve companies with centralized or decentralized Po#er structure> shud we serve companies that are engineering dominated 4ature of existing relationships> shud we serve companies with which we have a strong relationships or simply go a#ter the most desirable companies 7eneral purchase policies: shud we serve companies that pre#er leasing or service contracts or systems purchases or bidsL Purchasing criteria: shud we serve companies that are seeking 1uality or service or priceL Situational factors 'rgency

pecific application> #ocus on speci#ic application rather than all applications i6e or order

$ersonal characteristics Buyer seller similarity Attitudes to#ards risk Loyalty +usiness ,uyer stages AirstDtime prospects ? pre#er to deal with a company rep 3ovices D ophisticates ? may want to conduct more o# their buying over electronic media

+usiness segments among ,usiness ,uyers Programmed buyers: view the product as not very important to their operation 8elationship buyers: regard the product as moderately imp and r knowledgeable abt competitive o##erings "ransaction buyers: see the product as v imp to their operations. :rice" service sensitive Bargain hunters: see the product as v important. )emand deep discounts and highest service.

To be use#ul market segments must be &help) Measura,le Su,stantial accessi,le (ifferentia,le


Evaluation of mar,et segments

-ctiona,le

factors to ,e looked at : @aB segmentIs o erall attracti eness @,B companyIs o,5ecti es and resources Single market concentration> #irm gains strong knowledge o# segment*s needs and achieves strong market presence Selecti e speciali&ation: #irm selects a no. o# segments" each ob/ectively attractive and appropriate $roduct speciali&ation: #irm specializes in making a certain product that it sells to several segments Market speciali&ation: #irm concentrates on serving many needs o# a speci#ic customer group Full market co erage: #irm attempts to cover all customer groups with all the products they might need.

Selecting the mar,et segments

*ndifferentiated marketing: #irm ignores market segment di##erences and goes a#ter the whole market with one o##er ii. (ifferentiated marketing: #irm operates in several market segments and designs di##erent programs #or each segment Costs e#pected to ,e higher in differentiated marketing :roduct modi#ication costs Manu#acturing costs Administrative costs <nventory costs :romotion costs -dditional considerations: % other considerations must be taken into account in evaluating and selecting segments> Ethical choice o# target markets egment interrelationships and supersegments egmentDbyDsegment invasion plans <ntersegment cooperation

i.

Chapter 1! $ositioning the Market %ffering Through the $roduct )ife Cycle
6ompanies are constantly trying to di##erentiate their market o##ering #rom competitors*. They dream up new services and guarantees" special rewards #or loyal users" new conveniences and en/oyments. 3ow to differentiate <t is a %Dstep process> 1. $efining the customer value 2odel: The 6ompany #irst lists all the product and service #actors that might in#luence the target customers* perception o# value. !. Building the customer value hierarchy: , #actors come under this head. 6onsider a #ine restaurant a. Basic: the #ood is edible and delivered in a timely #ashion. b. +xpected: there is good china and tableware" a linen tablecloth and a napkin etc &These #actors make the o##ering acceptable but not exceptional) c. $esired: the restaurant is pleasant and 1uiet and the #ood is especially good and interesting. d. 'nanticipated: the restaurant serves a complimentary sorbet between the courses and places candy on the table a#ter the last course is served. %. $eciding on the customer value package: now the company chooses that combination o# tangible and intangible items" experiences" and outcomes designed to outper#orm competitors and win the customers* delight and loyalty. (ifferentiation Tools (ifferentiation is the act o# designing a set o# meaning#ul di##erences to distinguish the company*s o##erings #rom competitors* o##erings.

The +C" competiti e -d antage Matri#: The Foston consulting group has distinguished #our types o# industries on the number and available competitive advantages and their size.

Number of Approaches to Achieve Advantage


/e# Large 2any

Size of the Advantage

Volume

Specialized

mall

Stalemated

Fragmented

+ere we will examine how a company can di##erentiate its market o##ering along #ive dimensions> product/ ser ices/ personnel/ channel and image.

$roduct differentiation
:roduct di##erentiation can be made on the basis o# form/ features/ $erformance/ conformance/ dura,ility/ relia,ility/ repara,ility/ style/ and design:

Form
<t essentially means di##erentiating on the basis o# size" shape" physical structure. Although aspirin is essentially a commodity" it can be di##erentiated by dosage size" shape" coating" action time" and so on.

Features
These are characteristics that supplement the product*s basic #unctions. 2apanese car companies o#ten manu#acture cars at three Mtrim le elsJ: This lowers manu#acturing and inventory costs. Each company must decide whether to o##er #eature customization at a higher cost or a #ew standard packages at a lower cost.

$erformance 8uality
<t re#ers to the level at which the product*s primary characteristics operate. tudy sho#s a significantly positive correlation bet#een relative product %uality and 8).. "hree strategies are available:

a, -here the manufacturer continuously improves the product, often produces the highest return and market share. b, "o maintain product %uality at a given level. c, "o reduce product %uality through time. ome companies cut %uality to offset rising costs9 others reduce %uality deliberately in order to increase current profits, although this course of action hurts long-run profitability. 6on#ormance Kuality Fuyers expect products to have a high con#ormance 1uality" which is the degree to which all the produced units are identical and meet the promised speci#ications. The problem with low con#ormance 1uality is that the product will disappoint some buyers. )urability )urability" a measure o# the product*s expected operating li#e under natural or stress#ul conditions" is a valued attribute #or certain products. Fuyers will generally pay more #or products that have a longDlasting reputation. +owever" this rule is sub/ect to some 1uali#ications. The extra price must not be excessive. Aurthermore" the product must not be sub/ect to rapid technological obsolescence. 9eliability Fuyers normally will pay a premium #or more reliable products. 9eliability is a measure o# the probability that a product will not mal#unction or #ail within a speci#ied time period. 9eparability Fuyers pre#er products that are easy to repair. 9eparability is a measure o# the ease o# #ixing a product when it mal#unctions or #ails. <deal reparability would exist i# users could #ix the product themselves with little cost or time. tyle tyle describes the products look and #eel to the buyer. Fuyers are normally willing to pay a premium #or products that are attractively styled. tyle has the advantage o# creating distinctiveness that is di##icult to copy. -n the negative side strong style" does not always mean high per#ormance. (e must include packaging as a styling weapon" especially in #ood products" cosmetics" toiletries" and small consumer appliances. The package is the buyers #irst encounter with the product and is capable o# turning the buyer on or o##. )esign> The <ntegrating Aorce As competition intensi#ies" design o##ers a potent way to di##erentiate and position a company*s products and services. <n increasingly #astDpaced markets" price and technology are not enough. )esign is the #actor that will o#ten give the company its competitive edge. )esign is the totality o# #eatures that a##ect how a product looks and #unctions in terms o# customer re1uirements. )esign is particularly important in making and marketing durable e1uipment" apparel" retail services" and packaged goods. The designer has to #igure out how much to invest in #orm" #eature development" per#ormance"

con#ormance" durability" reliability" reparability" and style. To the company" a well designed product is one that is easy to manu#acture and distribute. To the customer" a well designed product is one that is pleasant to look at and easy to open" install" use" repair" and dispose o##. The designer has to take all these #actors into account.

ervices )i##erentiation (hen the physical product cannot easily be di##erentiated" the key to competitive success may lie in adding value added services and improving their 1uality. The main service di##erentiators are ordering ease/ deli ery/ installation/ customer training/ customer consulting/ and maintenance and repair: -rdering Ease -rdering ease re#ers to how easy it is #or the customer to place an order with the company. )elivery <t re#ers to how well the product or service is delivered to the customer. <t includes speed" accuracy" and care attending the delivery process. <nstallation <t re#ers to the work done to make a product operational in its planned location. )i##erentiating at this point in the consumption chain is particularly important #or companies with complex products. Ease o# installation becomes a true selling point especially when the target market is technology novices. Customer Training> 9e#ers to training the customer*s employees to use the vendor*s e1uipment properly and e##iciently. Customer Consulting> 9e#ers to data" in#ormation systems and advising services the seller o##ers to the buyers. Maintenance and 2epair> <t describes the service program #or helping customers keep purchased products in good working order. Miscellaneous Ser ices> 6ompanies can #ind other ways to di##erentiate customer services. They can o##er an improved product warranty or maintenance contract.

:E9 -33E8 )<AAE9E3T<AT<-3 6ompanies can gain strong competitive advantage through having better trained people. FetterDtrained personnel exhibit 0 characteristics> 6ourtesy> 9espect#ul" #riendly and considerate 6ompetence> kill and knowledge 6redibility> Trustworthy 9eliability> per#orm service consistently and accurately 9esponsiveness> Kuick response to customer problems 6ommunication> Make an e##ort to understand the customer and communicate clearly. 6+A33E8 )<AAE9E3T<AT<-3> 6ompanies can gain competitive advantage through the way they design their distribution channels* coverage" expertise and per#ormance. IM-"E (IFFE2E'TI-TI%': Fuyers respond di##erently to company and brand images. Identity and Image need to be distinguished. <dentity is the way the company aims to identi#y or position itsel# or its product. <mage is the way the public perceives the company and its products. An effecti e image does % things>

Establishes product character and value proposition 6onveys the character in distinctive way so as not to con#use it with competitors* )elivers and emotional power beyond mental image.

The image must be communicated #or it to work. The communication can be through> ymbols> 8ogos Media> to convey a story" a mood" a claimDsomething distinctive. Atmosphere> :hysical settings Events> Fy sponsoring o# events

(E1E)%$I'" -'( C%MM*'IC-TI'" - $%SITI%'I'" ST2-TE"E All products can be di##erentiated to some extent. Fut not all di##erences are meaning#ul or worthwhile. A di##erence is worth establishing to the extent that it satis#ies the #ollowing criteria> <mportant> the di##erence delivers a highly valued bene#it to a su##icient number o# buyers. )istinctive> the di##erence is delivered in a distinctive way. uperior> the di##erence is superior to other ways o# obtaining the bene#it. :reemptive> the di##erence cannot be easily copied by competitors. A##ordable> the buyer can a##ord to pay the di##erence. :ro#itable> the company will #ind it pro#itable to introduce the di##erence. Failures The (estin tan#ord hotel in ingapore advertises that it is the world*s tallest hotel. Fut a hotel*s height is not important to many tourists. Success Frands can sometimes di##erentiate on irrelevant attributes. :PB di##erentiates its Aolger*s instant co##ee by its M#laked co##ee crystalsN created through a Muni1ue patented processN. $ositioning is the act o# designing the company*s o##ering and image to occupy a distinctive place in the target market*s mind. The end result o# positioning is the success#ul creation o# a marketD#ocused value proposition" a cogent reason why the target market should buy the product. $ositioning -ccording to 2ies and Trout: :ositioning starts with a product. A piece o# merchandise" a service" a company" an institution" or even a personRR..but positioning is not what you do to a product. :ositioning is what you do the mind o# the prospect. That is" you position the product in the mind o# the prospect. A competitor has three strategic alternatives> 1. the #irst is to strengthen its own current position in the consumer*s mind. Avis acknowledged its second position in the rental cars business and claimed> M (e*re number two. (e try harder.N !. grab an unoccupied position. @nited 2ersey Fank" noting that giant banks were usually slower in arranging loans" positioned itsel# as Mthe #astDmoving bankN %. 9ies and Trout argue that" in an over advertised society" the mind o#ten knows brands in the #orm o# product ladders" such as 6okeD:epsiD96 6ola. The top #irm

is remembered best. The marketer should identi#y an important attribute or bene#it that a brand can convincingly own. ,. the #ourth strategy is the exclusive club strategy. Eg. ? the idea that it is one o# the big three. 9ies and Trout essentially deal with communication strategy #or positioning or repositioning a brand in the consumer*s mind. Het they acknowledge positioning re1uires that every tangible aspect o# product" price" place and promotion must support the chosen positioning strategy. 3ow many (ifferences to $romote Each company must decide how many di##erences &eg." bene#it" #eatures) to promote to its target customers. Many marketers advocate promoting only one central bene#it D a company should develop a uni%ue selling proposition&@ :) #or each brand and stick to it. Each brand should select an attribute and tout itsel# as Mnumber oneN on that attribute. 3umberDone positioning include best 1uality best service lowest price best value sa#est #astest most customized most convenient most advanced technology not everyone agrees that singleDbene#it positioning is always best. $ouble-benefit positioning may be necessary i# two or more #irms claim to be best on the same attribute. There are even cases o# success#ul tripleDbene#it positioning. mith Jline Feecham promotes its A1ua#resh toothpaste as o##ering three bene#its> antiDcavity protection" better breath" and whiter teeth. The challenge is to convince consumers that the brand delivers all three. <n doing this" Feecham McounterDsegmentedNO that is" it attracted three segments instead o# one. The companies must avoid , ma/or ma/or positioning errors> 1. @nder :ositioning> some companies discover that buyers have only a vague idea o# the brand. The brand is seen as /ust another entry in a crowded marketplace. !. -ver :ositioning> buyers have too narrow an image o# the brand. Eg. ? consumer might think that diamond rings at Ti##any start at U."=== when in #act ti##any now o##ers a##ordable rings starting at U1"=== %. 6on#used :ositioning> con#used image o# the brand resulting #rom the company making too many claims or changing the brand*s positioning too #re1uently.

,. )oubt#ul :ositioning> buyers may #ind it hard to believe claims in view o# the product*s #eatures" price or manu#acture.

tatistical analysis o# a company so as to decide the positioning is done to arrive at its perceptual map. Aor e.g.> in the case o# a theme park company the dots on the maps represented the tourist attractions. The closer the tourist attractions" the closer the tourist minds. The arrows showed the satis#actions that people look #or in tourist attractions. The di##erent positioning strategies that are available are> -ttri,ute positioning> 6ompany positions itsel# on attribute" such as size or number o# years in existence. +enefit positioning> D The product is positioned as a leader in a certain bene#it. *se or application positioning> D :ositioning the product as best #or some use or application *ser positioning> D :ositioning the product as best #or some user group Competitor positioning> D The product claims to be better than the competitor $roduct category positioning> D The product is positioned as the leader in a certain product category 8uality or price positioning> D The product is positioned as o##ering the best value 6ommunicating the company*s positioning> %nce the co: has de eloped a clear positioning strategy/ it must communicate that positioning effecti ely: $roduct life cycle marketing strategies To say that a product has a li#e cycle is to assert #our things>D :roduct has a limited li#e :roduct sales pass through distinct stages" each posing di##erent challenges" opportunities" and problems to the seller :ro#its rise and #all at di##erent stages o# the product li#e cycle :roducts re1uire di##erent marketing" #inancial" manu#acturing" purchasing and +9 strategies in each stage Four stages of a product life cycle

Introduction> A period o# slow sales growth as the product is introduced in the market. :ro#its are non existent at this stage because o# the heavy expenses done #or the product introduction "rowth> D period o# rapid market acceptance and substantial pro#it improvement Maturity>D period o# slowdown in the sales growth because the product has achieved acceptance by most potential buyers. :ro#its decline or stabilize (ecline>D ales show a downward dri#t and pro#its erode The :86 concept can be used to analyze a product category" #orm" a product itsel# and a branded product $roduct Categories have the longest li#e cycles. Many product categories stay in the maturity stage inde#initely and grow only at population growth rate. E.g.O D typewriters" newspapers" #ax machines etc. $roduct forms #ollow the standard :86 more #aith#ully. E.g.> D Electric and Electronic typewriters Standard products #ollow either the standard :86 or one o# its variants +randed products can have a short or long :86. E.g.O D <vory" 2ellD- have a very long :86 %ther shapes of the $)C "rowth slump maturity pattern. E.g.>D mall kitchen applications

CycleA2ecycle pattern: Typically characteristic o# pharmaceutical companies" it o#ten describes the sale o# new drugs. The company promotes its new drug and this produces the #irst cycle. 8ater sales start declining and the company gives the drug another promotion push" which produces a second cycle which o# smaller magnitude and direction.

calloped :86> ales pass through a succession o# li#e cycles based on the discovery o# newDproduct characteristics" uses or users. E.g ales o# 3ylon products because o# its many uses ? parachutes" hosiery" shirts" etc that continue to be discovered over time. Style/ Fashion and Fad )ife Cycles

Style> Fasic and distinctive mode o# expression appearing in a #ield o# human endeavour. tyles appear in homes &colonial ranch)" clothing &#ormal" casual" #unky) and art &realistic" abstract). tyle can last #or generations. Fashion: 6urrently accepted or popular style in a given #ield. Aashion pass through #our phases> distinctiveness" emulation" mass #ashion and decline Fads: Aads are #ashions that come 1uickly into public view" are adopted with great zeal" peak early and decline very #ast. Their acceptance cycle is very short and tend to attract only a limited #ollowing o# those who are searching #or excitement want to distinguish themselves #rom others. E.g. tattoos and body piercing MA9JET<3B T9ATEB<E > <3T9-)@6T<-3 TABE ales growth tends to be slow at this stage because it takes time to roll a new product and #ill dealer pipelines. The key reasons are>

)elays in the production capacity Technical problems )elays in obtaining ade1uate distribution through retail outlets 6ustomer reluctance to change established behaviour. :roduct complexity Aewer buyers

:ro#its are negative or low in the introduction stage because o# low sales and heavy distribution and promotion expenses because much money is needed to attract distributors :romotional expenditures are at the highest ratio to sales because> 3eed to in#orm potential consumers <nduce product trial ecure distribution in retail outlets :rices tend to be high because costs are high due to> 9elatively low output rates Technological problems in production +igh re1uired margins to support the heavy promotional expenditures trategies that can be pursued>

9apid skimming> 8aunching a new product at a high price and a high promotional level. This strategy makes sense when a large part o# the potential market is unaware o# the productO those who become aware o# the product are eager to have it and can pay the asking priceO and the #irm #aces potential competition and wants to build brand pre#erence

low skimming> 8aunching the new product at a high price and low promotional. This strategy makes sense when the market is limited in sizeO most o# the market is aware o# the productO buyers are willing to pay a high priceO and potential competition is not imminent. 9apid promotion> 8aunching the product at a low price and spending heavily on promotion. This strategy makes sense when the market is large" the market is unaware o# the product" most buyers are price sensitive" there is strong potential competition" and the unit manu#acturing costs #all with the company scale o# production and accumulated manu#acturing experience low penetration> 8aunching the new product at a low price and low level o# promotion. This strategy makes sense when the mkt is large" is highly aware o# the product" is price sensitive" and there is some potential competition.

$ioneer ad antage peeding up innovation time is essential in the age o# shortening product li#e cycles. 6ompanies that #irst reach practical solutions will en/oy M#irstDmoverN advantages in the market. Most studies indicate that being market pioneer gains the most advantage ? Amazon.com" 6ampbell" 6ocaD6ola. Sources of pioneerIs ad antage 6onsumers o#ten pre#er pioneers brands. :ioneers brand also establishes the attributes o# the product class should possess Economies o# scale Technological leadership -wnership o# assets (isad antages of a pioneer :roducts too crude <mproperly positioned :roduct development costs exhausted innovator*s resources 8ack o# resources to compete against a big #irm Managerial incompetence <nventor> :roduct :ioneer> Market :ioneer> Airst to develop patents in a new product category Airst to develop a working model Airst to sell in newDproduct category

)ong 2ange product e#pansion strategy M< :< :! M! M%

:% :G product MGmarket The pioneer should analyse the pro#it potential o# each segment as shown above singly or in combination and decide on a market expansion path.

The Competiti e Cycle Aive stages o# competitive li#e cycle>


ole supplier> 1==S production capacity and sales 6ompetitive penetration> 3ew competitor comes in and begins commercial sales hare stability> -vercapacity and cyclical slowdown 6ommodity competition (ithdrawal

$roduct life Cycle Characteristics


Sales Costs Profits Customers Competitors -ar,eting

Introduction 8ow ales +igh Dve <nnovators

"rowth 9ising sales Average 9ising Early Adopters

Maturity :eak sales 8ow +igh Middle Ma/ority table Maximize mkt share while de#ending pro#it )iversi#y brands items.

(ecline )eclining sales 8ow )eclining 8aggards )eclining 9educe expenditure and milk brand.

#ew growing 6reate :roduct Maximize /b0e Awareness and market share ctive trial
s

Strategies Product

-##er a product 6harge plus

Price

basic -##er product extensions" service" warranty costD :rice to penetrate market

:hase out weak and models 6ut price Bo selective> phase out unpro#itable outlets 9educe to level needed to retain hard core loyal

Distribution

Fuild selective Fuild intensive distribution distribution Fuild product awareness among early adopters and dealers @se heavy sales promotion Fuild awareness and interest in the mass market.

dvertising

:rice to match or best competitors Fuild more intensive distribution system tress brand di##erences and bene#its

Sales promotion

9educe to take <ncrease to 9educe to advantage o# encourage brand minimal levels. heave consumer switching demand

:ages %1!D%1.
-ar,eting -i. -odifications

:roduct managers may also try to stimulate sales by modi#ying other marketing mix elements.

$rices: (ould price cut attract new buyersL <# so" should list price be lowered" or should price be lowered through price specials" volume or early purchase discounts" #reight cost absorption or easier credit term. (istri,ution: can the company obtain more product support and display in existing outletsL 6an more outlets be penetratedL 6an the company introduce the product into new distribution channelsL -d ertising: hould advertising expenditure be increasedL hould message or copy be changedL hould the media mix be changedL hould the timing" #re1uency or size o# ads be changedL Sales $romotion: should the company setup sales promotionDtrade deals" centsDo## coupons" rebates" warranties" gi#ts and contestsL $ersonal selling: should the number or 1uality o# salespeople be increasedL hould the basis #or sales #orce specialization be changedL hould sales territories be revisedL hould sales #orce incentives be revisedL 6an sales call planning be improved. Ser ices: can the company speed up deliveryL 6an it extend more technical assistance to customersL 6an it extend more creditL Markets o#ten debate what tools are most e##ective during mature stage. Aor Example" would the company gain more by increasing advertising expenditure or sales promotion because the consumers have reached e1uilibrium in their buying habits and pre#erences and psychological persuasion &advertising). The ma/or problem with marketing mix modi#ications is that they can be imitated. The #irm may not earn that much and could still erode their pro#its.
-ar,eting strategies1 Decline stage

ales decline #or a number o# reason like technological advances" consumer tastes" increasing domestic or #oreign competition. All lead to overcapacity" increased price reduction and pro#it erosion. As sales and pro#it decline" some #irms withdraw #rom the market" others reduce number o# products in the market or withdraw #rom weaker market segments or cut down on product promotion. Fut most companies do not have a developed wellDthoughtDout strategy o# handling their product ageing where both sentiments and logic plays a role. 8ogic saying" sales would improve when economy improves or when marketing strategy is revised" or i# its contribution is covering costs i# not giving pro#its. @nless there are strong reasons to retain a product" it could prove very costly #or the #irm. E.g.> even i# the costs are covered" the weaker products take a lot o# management*s time which could otherwise have been used to make other products pro#itable. Also #ailing to eliminate weak products also delays introduction o# new products into the markets.

<n handling the ageing products" the company #aces the #ollowing tasks 1. Establish a system o# identi#ying weak products" e.g." use product reviews. !. ome #irms leave declining markets earlier that others depending upon the exit barriers. +arrigan*s #ive decline strategies 1. <ncrease #irm*s investment &to dominate market). !. Maintain the #irms investment level until the uncertainties are resolved. %. )ecrease #irm*s investment level selectively" by dropping unpro#itable customer groups" while strengthening the #irm*s investment in lucrative business. ,. +arvesting the #irms investment to recover cash 1uickly. .. )ivesting the business 1uickly by disposing o## its assets as advantageously as possible. Fut the appropriate decline strategy depends on the industry*s relative attractiveness and the company*s competitive strength.
2arvesting or divesting strategies

+arvesting calls #or gradually reducing a products or businesses costs while trying to maintain sales. 6ompany can reduce 1uality" sales #orce etc. <# the company were planning to divest" it would #irst look #or a buyer and would try to increase the business attractiveness. (hen a company decides to drop a product" it #aces #urther decisions. 8ike i# the product has a large goodwill" it may decide to sell it to another #irm.
Product life cycle concept1 Criti3ue

:86 is the best tool to interpret product and market dynamics. <t helps managers characterize the main marketing challenges in each stage o# product li#e cycle and develop more alternative marketing strategies. $)C criti7ues: 1. The li#e cycle patterns are too variable in their shape and duration. !. :86 lacks what living organisms haveD namely" a #ixed se1uence o# stages and a #ixed length o# each stage. %. A product may appear mature when it has only reached a plateau be#ore upDsurge. :age %10D%!1

Market Evolution ? As :86 #ocuses on what is happening to a particular product or brand rather than on what is happening to the overall market it yields a product oriented picture rather than a market oriented picture. Airms need to visualize a markets evolutionary path as it is a##ected by new needs competitors technology channel and other development. tages in marketing evolution <. Emergence ? <n this stage #irm tries to #ind the latent demand in the market #or the product and tries to develop that product. Aor e.g. during old days there was a need #or calculating devices batter than AFA6@ . (hen pre#erences o# buyer scatter evenly it is known as diffused preference market. The entrepreneur*s has three options a. 3ew product only #or one need ? single niche strategyDbetter #or small #irms b. Two or more products #or larger market &multiple niche market) c. :roduct #or middle market &mass market)D8arge #irm strategy <<. Browth ? (hen the market is in growing stage new #irms enter and they have three options o# launching new product a. 3ew product only #or one need ? single niche strategyDbetter #or small #irms b. two or more products #or larger market &multiple niche market) d. :roduct #or middle market &mass market)D8arge #irm strategy <<<. Maturity ? (ith entry o# competitor in each segment o# market reach maturity stage. As market growth slows down the market splits into #iner segments and high market #ragmentation occur &same is represented in picture in which each letter represent one company). This is #ollowed by a market consolidation caused by the emergence o# a new attribute that has a strong appeal &as shown by T in second picture). Example is :PB toothpaste 6rest that dominated market on attribute o# protecting tooth decay.
a! Market"fragmentation stage ,egins to decrease I1: (eclineA E entually demand for the present product stage either due decline in total demand or introduction of new replacement:
(

b! Market"consolidation

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&ynamics of Attribute (ompetition


6ompetition produces a continuous round o# new product attributes. Any new attribute 1uickly copied by competition. Each new attribute i# success#ul creates a competitive advantage #or the #irm" leading to higher than average market share and pro#its. Aour approaches to discover new attributes 1. Customer sur ey process ? what bene#it to be added and desired level. Then look into the cost o# developing and 6ompetition response !. Intuiti e $rocess ? 2ust based on gut #elling and experience without the help o# any research. %. (ialectal process ? Fy moving in opposite direction to where market is moving. E.g. making cheap /eans to #ashionable garments ,. 'eed 3ierarchy process ? 3ew attribute emerge #rom need hierarchy process &Masclow theory) we would predict that the #irst automobile would provide basic transportation and be designed #or sa#ety later it became #or social needs. M-2.ETI'" ST2-TE"IES: "2%0T3 ST-"E The salient #eatures o# the growth stage are> 1.9apid climb in sales. !.3ew competitors enter the market and introduce new product thereby expanding distribution. %.:rices almost remain the same. ,.:romotional expenditures remain the same.

..)ecline in :romotionDsales ratio. 0.:ro#its increase because o# promotion. 4.unitDmanu#acturing cost #alls. Strategies used at this stage: ustain rapid market growth through 1.<mproves product 1uality. !.Add new #eatures. %.Enter new segments. ,.<ncrease distribution coverage. ..8ower price to attract buyers. M-2.ETI'" ST2-TE"IES: M-T*2ITE ST-"E The salient #eatures are> 1. ales growth will slow down. !.This stage lasts longer. %.6hallenges to marketing management. ,.-vercapacity because o# sales slow down. ..<ntense competition because o# point , 0.<ncrease advertising and 9P) budgets. 4.(eaker competitors withdraw #rom the market. 5.Fasic market drive is to increase market share. ;.Abandon weaker products and concentrate on pro#itable products. Three sub stages in this stage> Browth phase> a. ales growth rate starts to decline. b.3o new channels o# distribution table phase> a. ales #latten because o# market saturation. b. Auture sales governed by replacement demand and population growth only. Maturity phase> a. Absolute level o# sales starts to decline b.6ustomer start switching to new products and substitutes.

Strategies The strategies #or the managers to #ace this situation is to adopt
A, 2arket modification B, Product modification and &, 2arketing mix modification

-B Market modification:

3ow in order to expand the market volume the company #ollows the strategy #ormulated as 1olume L num,er of ,rand users # usage rate per user E#pand the num,er of ,rand users ,y 1.Trying to convert nonusers. !.Enter new market segments. %.(in competitors customers. Expand $olume by 1.Bet the new customers to increase the usage. !.<nterest users to use more o# the product on each occasion. %.Try to discover new product uses and then convince people to use them.
+B $roduct modification:

This can be done through 1.<mproving 1uality This basically aims at increasing the product*s #unctional per#ormance through durability" reliability" speed and taste. !.Aeature improvement This aims at adding new #eatures like size" weight" additives" accessories etc." this expands product*s versatility" sa#ety and convenience. Advantages o# the strategy> a) Fuilds company*s image. b) (in loyalty o# market segments. )isadvantage> a) Aeature improvements are easily imitated. b) 3eeds #irst mover advantage. %. tyle improvement. This aims at increasing the product*s aesthetic appeal. Advantages are> a) This gives a uni1ue market identity. )isadvantages are> a) )i##icult to predict the liking o# people. b) 9e1uires discontinuing o# old style risking losing customers. CB Marketing mi# modification This is done through asking 1uestion on certain marketing mix elements. a) :rices> (ould a cut attract new customersL <s it better to raise price to signal 1ualityL b) )istribution> 6an more outlets be penetratedL 6an the company obtain more market supportL c) Advertising>

hould the expenditures be increasedL hould the media mix be changedL d) ales promotion> hould we set up sales promotionL e) :ersonal selling> hould the number or 1uality o# sales people be increasedL 6an we improve sales planningL #) ervices> 6an the company speed up the sales delivery. 6an we extend more creditL

Chapter 11 (e eloping 'ew $roducts


(e eloping 'ew Market %fferings &M-ho should ultimately design the product: "he customer, of courseN) A company can add new products through ac1uisition or development. The ac1uisition route can take three #orms. The company can buy other companies" it can ac1uire patents #rom other companies" or it can buy a license or #ranchise #rom another company. The development route can take two #orms. The company can develop new products in its own laboratories. -r it can contract with independent researchers or new product development #irms to develop speci#ic new products. Fooze" Allen and +amilton has identi#ied six categories o# new products> 1. 4e#-to-the-#orld products> 3ew products that create an entirely new market. !. 4e# product lines> 3ew products that allow a company to enter an established market #or the #irst time. %. Additions to existing product lines: 3ew products that supplement a company*s established product lines &package sizes" #lavors and so on) ,. .mprovements and revisions of existing products: 3ew products that provide improved per#ormance or greater perceived value and replace existing products. .. 8epositioning: Existing products that are targeted to new markets or market segments. 0. &ost reductions: 3ew products that provide similar per#ormance at lower cost. C3-))E'"ES I' 'E0A$2%(*CT (E1E)%$ME'T 6ompanies that #ail to develop new products are putting themselves at a great risk. Their existing products are vulnerable to changing customer needs and tastes" new technologies" shortened product li#e cycles" and increased domestic and #oreign competition. 5hy do ne! products fai"I A highDlevel executive pushes a #avorite idea through in spite o# negative market research #indings The idea is good" but the market size is overestimated The product is not well designed The product is incorrectly positioned in the market" not advertised e##ectively or overpriced )evelopment costs are higher than expected 6ompetitors #ight back harder than expected Severa" other factors that hinder ne!Eproduct deve"opment* hortage of important ideas in certain areas> There may be ways le#t to improve some basic products &such as steel" detergents). /ragmented products> Jeen competition is leading to market #ragmentation. 6ompanies have to aim their new products at smaller market segments" and this can be mean lower sales and pro#its #or each product.

ocial and governmental constraints> 3ew products have to satis#y consumer sa#ety and environmental concerns. Bovernments re1uire slowing down innovation in drugs" toys and some other industries. &ostliness of the development process> A company typically has to generate many ideas to #ind /ust one worthy o# development. Aurthermore" the company o#ten #aces high 9P)" manu#acturing and marketing costs. &apital hortages> ome companies with good ideas cannot raise the #unds needed to research and launch them. /aster re%uired development time> 6ompanies that cannot develop new products 1uickly will be at a disadvantage. 6ompanies must learn how to compress development time by using computerDaided design and manu#acturing techni1ues" strategic partners" early concept tests" and advanced marketing planning. Alert companies use concurrent ne#-product development, in which crossD#unctional teams collaborate to push new products through development and to market. horter product life-cycles: (hen a new product is success#ul" rivals are 1uick to copy it.

Factors for de eloping successful new products: 1. @ni1ue" superior product !. (ellDde#ined product concept prior to development %. Technological and marketing synergy ,. Kuality o# execution in all stages .. Market attractiveness M3ew product development is most e##ective when there is teamwork among 9P)" engineering" manu#acturing" purchasing" marketing and #inance. The product idea must be researched #rom a marketing point o# view and a speci#ic crossD#unctional team must guide the pro/ect throughout its developmentN EFFECTI1E %2"-'IF-TI%'-) -22-'"EME'TS 3ew product development re1uires senior management to de#ine business domains" product categories and speci#ic criteria. The Bould 6orporation established the #ollowing acceptance criteria> The product can be introduced within . years The product has a market potential o# at least U.= million and a 1.S growth rate The product would provide at least %=S return on sales and ,=S on investment The product would achieve technical or market leadership %2"-'IFI'" 'E0 $2%(*CT (E1E)%$ME'T 6ompanies handle the organizational aspect o# newDproduct development in several ways. The most common are> Product 2anagers> Many companies assign responsibility #or newDproduct ideas to product managers. <n practice" this system has several #aults. :roduct managers are so busy managing existing lines that they give little thought to new products other than

line extensions. They also lack speci#ic skills and knowledge needed to develop and criti1ue new products. 4e#-product managers> This position pro#essionalizes the newDproduct #unction. +owever" like product managers" newDproduct managers tend to think in terms o# modi#ications and line extensions limited to their product market. 4e#-product committees> Many companies have a highDlevel management committee charged with reviewing and approving proposals. 4e#-product departments> 8arge companies o#ten establish a department headed by a manager who has substantial authority and access to top management. The departments* ma/or responsibilities include generating and screening o# new ideas" working with the 9P) department" and carrying out #ieldDtesting and commercialization. 4e#-product venture teams> A venture team is a group brought together #rom various operating departments and charged with developing a speci#ic product or business. They are 7intrapreneurs* who are relieved o# their other duties a given a budget" a time #rame" and a 7skunkworks* setting. kunkworks are in#ormal places" sometimes garages" where intrapreneurial teams attempt to develop new products.

8ay#uture plans

The newAproduct de elopment decision process


Hes
1. <dea generation !. <dea screening

Hes

Hes

Hes

Hes

Hes

Hes

Hes

%. 6oncept ,. Marketing .. strategy Fusiness Analysis 0. :roduct 4. Market testing 5. 6ommercialization development and and development development testing

4es 3o 3o 3o 3o 3o 3o
Send idea back to develop . -ould it help to modify .

(2%$
Managing the (e elopment $rocess Steps: <dea Beneration <dea creening 6oncept )evelopment and Testing

Marketing trategy )evelopment Fusiness Analysis :roduct )evelopment Market Testing 6ommercialization Idea "eneration 6ustomer needs and wants are the logical place to start the search #or ideas 6ompanies can learn great deal by studying their lead users ? those customers who take most advanced use o# the company*s products and who recognize the need #or improvements be#ore other customers do Ask employees new ways o# improving production" products and services Aind good ideas by researching competitor*s products and services 6ompany sales representatives" intermediaries and top management are good sources #or ideas Even though ideas #low #rom various channels" the chances o# them being noticed depend upon persons in the organization taking the role o# product champion Idea Screening <dea to be submitted to idea manager and then to be reviewed by idea committee Must avoid two types o# errors> o )rop Error ? )ismissal o# an otherwise good idea o Bo Error ? :ermitting a poor idea to move into )evelopment and 6ommercialization Three types o# product #ailures> o Absolute :roduct Aailure ? :roduct loses money" sales do not cover variable costs o :artial :roduct Aailure ? :roduct loses money" sales cover variable costs and part o# the #ixed costs o 9elative :roduct Aailure ? :roduct yields a pro#it that is less than the company*s target rate o# return creening is done because product development costs rise substantially with each successive stage Executive committee reviews each idea against a set o# criteria> o -verall :robability o# uccess G &:rob. -# technical completion) T &:rob. -# commercialization given technical completion) T &:rob. -# economic success given commercialization)

Concept (e elopment and Testing Each concept represents a category concept that de#ines the product*s competition :roduct concept has to be turned into a brand concept 6oncept testing involves presenting the product concept to appropriate target consumers and getting their reactions The more the tested concepts resemble the #inal product or experience" the more dependable concept testing is 6oncept testing entails presenting consumers with an elaborated version o# the concept>

o A#ter receiving in#ormation about product" customer responds to #ollowing 1uestions> Kuestion :roduct )imension Measured Are the bene#its clear to you and 6ommunicability and believability believable (ill the product #ill your need 3eed 8evel )o other products currently meet Bap 8evel ? The greater the gap" the this need and satis#y you higher the expected consumer interest. 3eed 8evel T Bap 8evel G 3eed Bap coreR. +igher score means customer has strong need not being #illed by existing products <s price reasonable in relation with :erceived value value (ould you &de#initely" probably :urchase <ntention not" de#initely not) buy the product (ho would use and when and how @ser targets" purchase occasions" o#ten purchasing #re1uency 6on/oint Analysis ? a method #or deriving the utility values that customers attach to varying levels o# product*s attributes Marketing Strategy (e elopment -nce the testing is over" the next stage is development o# a preliminary marketing strategy plan #or the introduction o# the new product. The plan consists o# three parts. Airst ? describes the target market*s size" structure" and behaviorO the planned product positioningO and the sales" market share" and pro#it goals sought in the #irst #ew years. econd ? outlines the planned price" distribution strategy" and marketing budget #or the #irst year. Third ? describes the long run sales and pro#it goals and marketing mix strategy over time.

+usiness -nalysis
A#ter the management develops the product concept and the marketing strategy" it can evaluate the proposal*s business attractiveness. Management needs to prepare sales" cost" and pro#it pro/ections and to determine whether they satis#y company ob/ectives. <# they do the pro/ect concept can move to the productDdevelopment stage. As new in#ormation comes in the business analysis undergoes revision and expansion. Estimating total sales <t is necessary to estimate whether the sales will be high enough to yield satis#actory pro#its. Total estimated sales are a sum o# estimated #irst time sales" replacement sales" and repeat sales. ales estimation depends upon whether the product is a oneDtime purchase &a)" an in#re1uent purchase &b) or a #re1uent purchase &c). @aB A 8 E T<ME @,B @cB

Aor &a) the sales never reach zero i# new buyers keep entering the market. Aor &b)" the sales #orecasting calls #or oneDtime sales &blue line) and replacement sales &red line) Aor &c)" here 9epeat purchases are important. The plateau represents state o# steady repeat purchases. Management has to estimate the #irstDtime purchases in each periodO it has to research product*s survival-age distribution &the number o# units to #ail in year one" two" three and so on). Estimating costs and profits A#ter sales #orecast" the management estimates the expected costs and pro#its. 6osts are estimated by the 9P)" manu#acturing" marketing and #inance departments. The #ollowing type o# sales" cost and pro#it pro/ection is done 1. ales revenue &estimated #igure on the assumptions about market growth" company*s share and #actory realized price) !. 6ost o# goods sold &estimates) %. Bross margins ,. )evelopment cost &includes product development and market research cost) .. Marketing costs &advertisement" sales #orce and administration) 0. Allocated costs &overheads) 4. Bross contribution 5. upplementary contribution &)ragalong income and cannibalized income) ;. 3et contribution 1=. )iscounted contribution &at the rate o# 1.S per year) 11. 6umulative discounted cash #low -ther #inancial tools like Freak even analysis and 9isk analysis is also used #or this purpose. Managing the (e elopment $rocess: (e elopment to commerciali&ation $roduct (e elopment A#ter the business test the concept moves on to 9P) #or development o# physical product. This step involves huge costs. At this stage the company decides whether the idea can be translated in to a commercially #easible product. The /ob o# translating the target customer re1uirements into a working prototype is helped by a set o# methods known as 4ua"ity function dep"oyment &KA)). <t involves listing o# customer attributes &6As)" collected by market research" and turns them into engineering attributes &EAs). KA) improves communication between markets" engineers and the manu#acturing people. The 9P) #irst develops a prototype and ensures that it includes all that the customer wants. The 9P) people not only design the product*s #unctional characteristics but also communicate its psychological aspects through physical cues. Marketers in#orm the 9P) about the attributes customer seek and how consumers /udge whether these attributes are present. -nce the prototype is ready it undergoes rigorous #unctional and customer tests.

Alpha testing ? the testing done within the #irm to see how it per#orms on di##erent #unctions. Feta testing ? it enlists a set o# customers to use the product and give there #eedback on their experiences. This is mainly help#ul when the customers are heterogeneous and potential applications are not #ully known. 6ustomer testing can take a variety o# #orms" #rom bringing the customer into the lab to giving them samples to use in there homes. 6onsumer pre#erences can be measured in several ways. uppose there are three items A" F and 6. &ank ho"der method ? The consumer is asked to rank the three items in order o# pre#erence. <t is a simple method" but it doesn*t reveal the intensity to which the customer likes the product. $aired comparison method ? presenting pairs o# items and asking them to select the pre#erred item #orm each pair. This method gives more accurate results as it is easier to select between two items. MonadicErating method ? rating the liking o# each product on a scale. This gives the individual*s pre#erence order as well as the level o# liking. Market Testing A#ter management is satis#ied with #unctional and psychological per#ormance" the product is ready to be dressed up with a brand name and packaging" and put to a market test. The new product is introduced to an authentic setting to learn how large the market is and how consumers and dealers react to handling" using" and repurchasing the product.

ConsumerA"oods Market Testing


<n testing consumer goods the company seeks to estimate #our variables> Trial Airst repeat Adoption :urchase #re1uency The company hopes to #ind all these variables at high levels. +ere we describe the ma/or methods o# consumer goods market testing" #rom the least costly to the most costly. SalesA0a e 2esearch <n salesDwave research" consumers who initially try the product at no cost are reDo##ered the product" or a competitor*s product" at slightly reduced price. They might be reDo##ered the product #iveDsix times" with the company noting how many customers selected that company*s product again and their reported level o# satis#action. Simulated Test Marketing imulated testDmarketing calls #or #inding %= to ,= 1uali#ied shoppers and 1uestioning them about brand #amiliarity and pre#erences in a speci#ic product category. These people are then invited to a brie# screening o# both wellDknown and new commercials or print ads. This method has several advantages like Bives #airly accurate results horter time span $ery low cost

Controlled Test Marketing <n this method" a research #irm manages a panel o# stores that will carry new products #or a #ee. The company with the new product speci#ies the number o# stores and geographic locations it wants to test. <t allows the company to test the impact o# inDstore #actors and limited advertising on buying behavior. This techni1ue also exposes the product and its #eatures to competitor*s scrutiny. Test Markets The ultimate way to test a new consumer product is to put it into #ullDblown test markets. The company chooses a #ew representative cities" and the sale #orce tries to sell the trade on carrying the product and giving it good shel# exposure. +ere the management #aces several 1uestions like> ;o# many test cities: D Most test uses between two and six cities. The greater the maximum possible loss" the greater the number o# contending marketing strategies. -hich cities: ? Each company must develop test city selection criteria. Length of test: ? Market test last anywhere between a #ew months to a year. The longer the product average repurchase period" the longer the test period necessary to observer the repeat purchase test. -hat .nformation: ! (arehouse shipment data will show gross inventory buying but will not indicate weekly sales at retail level. tore audits will show retail sales and competitor*s market shares but will not reveal buyer characteristics. -hat action to take: D <# the test market shows high trial and repurchase rates" the product should be launched nationally. <# the product shows high trial rate but low repurchase rates" customers are not satis#ied and product should be redesigned or dropped. <n a #ast changing market place" the companies are eager to get to the market #irst. Test marketing slows them down and reveals their plans to competitors.

+usinessA"oods Market Testing


Fusiness goods can also bene#it #rom market testing. Expensive industrial goods and new technologies will normally undergo alpha testing and beta testing. )uring beta testing vendor*s technical people observer how test customers use the product" a practice that o#ten exposes unanticipated problems o# sa#ety and servicing and alerts the vendor to customer training and servicing re1uirements. Fene#its o# test customers are as #ollows> 6an in#luence product design Bain experience with new product ahead o# competitors 6an receive the price break in return #or cooperation Enhance their reputation as technological pioneers Commerciali&ation <# the company goes ahead with commercialization" it will #ace its largest cost to date. The company will have to contract #or manu#acture or build or rent o #ull scale manu#acturing unit. <t can build a smaller plant than called #or by the sales #orecast. Another ma/or cost is marketing.

0hen @TimingB <n commercializing a new product" market entry timing is critical. The company #aces three choices> /irst +ntry- The #irst entering the market usually en/oys the 7#irst mover advantage* o# locking up key distributors and customers and gaining reputation leadership. Parallel +ntry- The #irm might time its entry to coincide with competitor*s entry. The market may pay more attention when two companies are advertising the new product. Late +ntry- The #irm might delay its launch until a#ter the competitor has entered. The competitor will have borne the cost o# educating the market. 0here @"eographic StrategyB The company must decide whether to launch the new product in a single locality" a region" several regions" the national market" or the international market. Most will develop a planned market roll out over the time. 6ompany size is an important #actor here. 8arge companies will introduce their product into a whole region and than move out to the next region. Most companies design their product #or the domestic market. <# the product does well" the company considers exporting to other countries. To 0hom @Target Market $rospectsB A company must target its initial distribution and promotion to the best o# prospect groups. hould have already pro#iled the prime prospects with the #ollowing characteristics. a) early adopters b) heavy users c) opinion leaders d) reachable at a low cost 6%(ective* generate strong sa"es as soon as possi%"e to motivate the sa"es force and attract further prospects 3ow @Introductory Market StrategyB Action plan to #or launching a new product is a must. Example o# iMac #rom Apple" launched with a massive blitz 6oordination o# activities involved #or launch" network planning techni1ues can be used such as Critical path scheduling. )evelop master chart" showing se1uence o# simultaneous activities" etc. The consumer -doption $rocess +ow do potential customers learn about new products" try them and adopt or re/ect themL a) Adoption> individual decision to become a regular user o# a product b) 6onsumer adoption process > c) 6onsumer loyalty process Techni1ue ? mass market approach> distribute product everywhere and advertise to everyone on an assumption that everyone is a potential buyer. )rawback> 1) heavy

marketing expenditure re1uired and !) involved waste#ul expenditure towards people who may not be potential customers. 3ew approach to marketing> heavy user target marketing> D product is initially aimed at heavy users" i# such can be identi#ied and are heavy adopters. The early adopter theory states that 1) :ersons within a target market di##er in the amount o# elapsed time between their exposure to a new product and their trying it. !) Early adopters share some traits that di##erentiate them #rom late adopters %) E##icient media exist #or reaching early adopters ,) Early adopters tend to be opinion leaders and help#ul in advertising the new products to other potential buyers The theory o# di##usion and consumer adoption helps marketers identi#y early adopters Stages in the adoption process <nnovation perceived by someone as new 1) Awareness> consumer becomes aware o# innovation ? no in#ormation !) <nterest> timulated to seek in#ormation about innovation %) Evaluation> 6onsumer considers whether heCshe should try the new innovation ,) Trial> 6onsumer tires innovation to improve hisCher estimate o# value .) Adoption> )ecides to make #ull and regular use o# the innovation Factors influencing the adoption process Aollowing are the characteristics o# the adoption process> 1) di##erences in individual readiness to try new products !) e##ect o# personal in#luence %) di##ering rates o# adoption ,) )i##erences in organizations* readiness to try new products.

$eople differ in readiness to try new products

%,S Early Ma/ority

%,S 8ate Ma/ority

10S 8aggards

!..S <nnovators

1%..S Early Adopters

Time of adoption of innovations

)egree to which an individual is relatively earlier in adoption new ideas than the other members o# his social system. 6onsumption pioneers and early adopters are the two types o# members <nnovators> venturesome Early adopters> guided by respect" opinion leaders in their community and adopt new ideas early but care#ully. Early Ma/ority> Are deliberate" adopt new idea be#ore an average person" but are not leaders. 8ater ma/ority> are skeptical" adopt an innovation only a#ter a ma/ority has tried it. 8aggards> tradition bound" suspicious o# changeO mix with other tradition bound people 'ny firm shou"d research the demographic1 psychographic and media characteristics of innovators and ear"y adopters and direct communication specifica""y to them.

$ersonal influence plays a large role E##ect one person has on another*s attitude or purchase probability. This in#luence is o# greater signi#icance in some situations and #or some individuals than #or others. More in#luence on late adopters Characteristics of the inno ation affect rate of adoption ome products catch on immediately &rollerblades example)O others take a long time &auto engines etc). ome characteristics that determine this are> 1. 9elative advantage> the degree to which innovation appears superior to existing products. !. 6ompatibility> innovation should match the values and experiences o# the individuals

%. 6omplexity> The degree to which the innovation is relatively di##icult to understand or use ,. )ivisibility> The degree to which the innovation can be tried on a limited basis .. 6ommunicability> The degree to which the bene#icial results o# use are observable or describable to others. %rgani&ations also ary in readiness to adopt inno ations: Adoption is associated with variables in the organization*s environment D community progressiveness" community income ? the organization itsel# ? size" pro#its" and pressure to change ? and the administrators ? education level" age" and sophistication.

C3-$TE2 1? $roduct C $roduct Mi#es


)e#inition> A product is anything that can be o##ered to a market to satis#y a want or need $roduct )e els There are . #ollowing levels> 1: 2: ?: <: Core ,enefit: #undamental service or bene#it that the customer os really buying. +asic product: the #orm taken by the service or bene#it. E#pected product: a set o# attributes and conditions that expected by the buyer. -ugmented product: a product that exceeds customer*s expectations. This is the level at which all competition takes place &however in 8)6s competition takes place at the expected product level) =: $otential product: the scope encompasses all the possible augmentations and trans#ormations. This is the step #or innovation and di##erentiation. $roduct 3ierarchy 4 levels are> 1: 'eed family: core need. E.g. security 2: $roduct family: all the product classes that can satis#y a core need. E.g. savings. ?: $roduct class: a group o# products having a certain #unctional coherence. E.g. #inancial instruments. <: $roduct line: a group o# closely related product w.r.t &e.g. li#e insurance) A #unctions A same customers A channels A price range =: $roduct Type: a group o# items within a product line that share on o# the possible #orms o# the product. >: +rand: the associated name used to identi#y the source or character o# a product. E.g. prudential. D: Item: a distinct unit within a brand or product line. E.g. prudential renewable term li#e insurance. $roduct Classifications This has been done on the basis o# characteristics> 1: $urability < "angibility: a. 'onAdura,le goodsD tangible goods normally consumed in one or #ew uses. Make them available in many locations" charge a small markup and advertise heavily. E.g. beer" soap. b. (ura,le goodsA tangible goods that survive many uses. 9e1uire more personal selling P service" command a higher margin and guarantees. E.g. re#rigerators" clothing. c. Ser icesA intangible" inseparable" variable and perishable products. 9e1uire 1uality control" supplier credibility and adaptability. E.g. haircuts and repairs. 2: &onsumer-7oods &lassification: a. Con enience "oodsA purchased #re1uently" immediately and with minimum o# e##ort. E.g tobacco" soaps" newspapers.

b. Shopping "oodsA products are compared on the basis as suitability" 1uality" price and style. E.g. #urniture" clothing. c. Speciality "oodsA goods with uni1ue characteristics or brand identi#ications #or which the custimer is willing to make a special purchasing e##ort. E.g. cars" stereo" photographic components. d. *nsought "oodsA consumer does not know about or does not normally think o# buying. 9e1uire advertising and personal selling. E.g. smoke detectors" li#e insurance" cemetery plots" encyclopedias. Industrial "oods Classification: Mainly classi#ied in terms o# how they enter the production process and their relative cost lines. 1. Material C $artsA enter the manu#acturer*s product completely. E.g. raw material &#arm P natural) and manu#actured materials &component materials and parts). !. Capital ItemsA long lasting goods that #acilitate developing or managing the #inished product. <ncludes installations and e1uipment. %. Supplies C ,usiness ser icesA short lasting goods and services that #acilitate developing or managing the #inished products.

$roductA)ine (ecisions
$roductAline analysis :roduct line managers need to know the sales and pro#its o# each item in their line in order to determine which items to build" maintain" harvest or divest. ales < Profits A high concentration o# sales in a #ew items means line vulnerability. These items must be care#ully monitored and protected. 2arket Profile The product line manager should review how the line is positioned against competitor*s lines. The product map is use#ul #or designing productDline marketing strategy. Another bene#it o# product mapping is that it identi#ies market segments. A#ter per#orming a productDline analysis" the productDline manager has to consider decisions on productDline length" line modernization" line #eaturing and line pruning. $roductAline length A product line is too short i# pro#its can be increased by adding itemsO the line is too long i# pro#its can be increased by dropping items. A company lengthens its product line in two ways> by line stretching and line #illing. 8ine stretching occurs when a company lengthens its product line beyond its current range.

$o#n market stretch A company positioned in the middle market may want to introduce a lower price line #or any o# three reasons> 1. The company may notice strong growth opportunities in the down market as mass retailers attract a growing no. o# shoppers who want valueDpriced goods. !. The company may wish to tie up lowerDend competitors who might otherwise try to move upmarket. %. The company may #ind that the middle market is stagnating or declining. 'pmarket stretch 6ompanies may wish to enter the high end o# the market #or more growth" higher margins" or simply to position themselves as #ullDline manu#acturers. "#o-#ay stretch 6ompanies serving the middle market might decide to stretch their line in both directions.

Line filling A product line can also be lengthened by adding more items within the present range. There are several motives #or line #illing> reaching #or incremental pro#its" trying to satis#y dealers who complain about lost sales because o# missing items in the line" trying to utilize excess capacity" trying to be leading #ullDline company" and trying to plug holes to keep out competitors. )ine moderni&ation <n rapidly changing product markets" modernization is carried on continuously. 6ompanies plan improvements to encourage customer migration to higherDvalued" higherDpriced items. )ine featuring and line pruning :roductDline managers must periodically review the line #or pruning. The product line can include deadwood that is depressing pro#its. The weak items can be identi#ied through sales and cost analysis. Another occasion #or pruning is when the company is short o# production capacity. 6ompanies typically shorten their product lines in periods o# tight demand and lengthen their lines in periods o# slow demand. :age ,=, to ,=; F9A3) )E6< <-3

+rand (ecisions

0hat is a ,rand4 A ,rand is a name" term" sign" symbol or design" or a combination o# them" intended to identi#y the goods or services o# one seller or group o# sellers and to di##erentiate them #rom those o# competitors. A brand is essentially a sellerIs promise to deliver a speci#ic set o# #eatures" bene#its and services. A brand conveys up to 0 levels o# meanings.

Attributes Fene#its $alues 6ulture :ersonality @ser

Franding is important because


Fuyers are more interested in bene#its than attributes. 6ompetitors can easily copy attributes. 6urrent attributes may become less desirable later.

+rand E7uity The amount power and alue the brand has in the market place is called the Frand E1uity. -ther aspects are brand awareness" brand acceptability" and brand loyalty. The competiti e ad antages o# having higher brand e1uity are

9educed marketing costs. More trade leverage in bargaining with distributors. 6an charge a premium price over its competitors. 8aunch extensions will be easy under a brand name.

+rand ladder <n the past consumers viewed brands in a category arranged in a brand ladder with their #avorite brand at top and remaining brands in descending order o# pre#erence

+rand parity Frand ladder is now being replaced with brand parity" which means that consumers think that many brands are e1uivalent. <nstead o# a strongly pre#erred brand consumers buy #rom a set o# acceptable brands choosing #rom whichever is on sale on a particular day 6onsumers in today*s world are more priceDsensitive. 6ompanies have reduced their advertising budgets. The endless stream o# brand extensions and line extensions has blurred brand identity and led to a con#using amount o# brand proli#eration. 8eading brand marketers need to invest in heavy and continuous 9P) to bring out new brands" line extensions" #eatures" and 1uality improvements. They must sustain a strong Mpull advertising program to maintain high consumer brand recognition and pre#erence. They must #ind ways to partner with ma/or mass distributors in /oint search #or logistical economies and competitive strategies that produce savings Technology companies in particular have been adept at achieving levels o# brand recognition through less conventional marketing approaches. Examples> America -nline and un Microsystems 9x #or Frand Awareness> 3ine Frand trengtheners 1) )evelop 6reative Advertising ? e.g. @nited 6olors o# Fenetton !) ponsor well regarded events ? e.g. ATPT sponsoring gol# tournaments %) <nvite your customers to /oin a club ? e.g. +arley )avidson*s +-B 6lub ,) <nvite the public to visit your #actory or o##ices ? e.g. 6adbury*s Theme :ark .) 6reate your own retail units ? e.g. ony 0) :rovide wellDappreciated public service ? e.g. 3estle 3estops 4) Bive visible support to some social causes ? e.g. The Fody hop*s support #or helping the homeless 5) Fe known as a value leader ? e.g. <JEA ;) )evelop a strong spokesperson or symbol to represent the company ? e.g. 9ichard Franson &$irgin) +randA'ame (ecision Aour strategies are available> 1) <ndividual names> The advantage is that the company does not tie its reputation to the product. E.g. this policy is #ollowed by Beneral Mills. !) Flanket Aamily 3ames> )evelopment cost is less since there is no need to spend heavily on advertising to cause brand awareness. E.g. +einz and Beneral Electric %) eparate #amily names #or all products> 6ompanies o#ten invent di##erent #amily names #or di##erent 1uality lines within he same product class. E.g. ears" 6ra#tsman ,) 6ompany trade name combined with individual product names> ome manu#acturers tie their company name to an individual brand name #or each product. The company name legitimizes and the individual name individualizes the new product e.g Jelogg

(esira,le 8ualities of a ,rand name 1) <t should suggest some thing about the product*s bene#its" e.g. 6ra#tsman" FeautyD rest !) <t should suggest product 1ualities such as action or color" e.g. unkist" pic and pan %) <t should be easy to pronounce" recognize and remember" e.g. Tide" 6rest ,) <t should be distinctive" e.g. Jodak" Exxon .) <t should not carry poor meanings in other languages and countries" e.g. the brand name M3ovaN #or cars means Mdoesn*t goN in panish Brand name research procedures: 1) Association Tests ? what images come to mindL !) 8earning Tests ? how easily is the name producedL %) Memory Tests ? how well is the name rememberedL ,) :re#erence Tests ? which names are pre#erredL +rand Strategy (ecision Frand trategy )ecision involves #ive key choices.

)ine E#tension
This means existing brands extended to new sizes" #lavors" #orms" colors in the existing product category. ome companies also introduce branded variants that are speci#ic brand lines supplied to speci#ic retailers or distribution channels. 8ine extensions involve risks and have provoked heated debate among marketing pro#essionals. Fut line extensions have a better chance o# survival than brandDnew products. <t is also #ueled by #ierce competition in some cases. +rand E#tension This means brand names extended to a new product category. Frand extension strategy o##ers some o# the same bene#its like line extensions. Fut brand extension can bring with it disadvantages too. The new product may #ail and damage the image o# the old products. Frand dilution may occur i# the brand lose its speci#ic positioning in the minds o# the customers. Fut some brand extensions like that o# $irgin have been very success#ul.

Multi,rands
3ew brands introduced in the same product category. This happens sometimes when the company wants to establish di##erent #eatures or appeal to di##erent buying motives. A multibranding strategy also enables the company to lock up more distributor shel# space and to protect its ma/or brand by creating #lanker brands. Fut cannibalization can be a ma/or pit#all.

'ew +rand
3ew brand name adopted #or a new category product.

Co,rands
This means brands bearing two or more wellDknown names. <t is also called dual branding. 3ow cobranding can take variety o# #orms. -ne is ingredient cobranding" as when Fetty 6rocker*s brownie mix includes +ershey*s chocolate syrup. Another #orm is sameDcompany cobranding" 3estle advertises Maggi noodles and tomato ketchup together. till another #orm is /oint venture cobranding" as in Maruti Wen with Jenwood stereos. Ainally there is multipleDsponsor cobranding" as in Toshiba laptops with <ntel :entium <<< processors. +rand 2epositioning Frand repositioning is specially re1uired when the brand and the product associated with it reaches the decline stage. <t is also sometimes needed when the initial positioning was wrong.

$ackaging and >a%e""ing*


:ackaging includes activities o# designing and producing the container #or a product 6ontainer is called package" :rimary package ? Fottle o# -ld pice econdary ? 6ardboard box hipping package ? 6orrugated box <ssues ? Aactors a##ecting the increasing importance o# packaging 1. el# ervice ? :ackaging becomes an Mimpulse purchaseN stimulus !. 6onsumer a##luence ? :eople are willing to pay more #or attractive packaging %. 6o. and brand image ? contribute to brand recognition ,. <nnovation opportunity ? cope #or innovation Jey decidions > (hat the package should do Engineering testing 6onsumer testing ize" dimensions" attributes" etc

Emphasis should be given to environmental #actors such as bioDdegradable material" etc.

)a,elling : May be a simple tag" or #undu designed graphic. May contain only brand name" or loads o# in#o.

May per#orm any o# the #oll Aunctions> <denti#ies the product" grades the product" describes the product" promotes the product. 8egal issues become important in labeling" wherein -pen dating ? to describe product #reshness @nit pricing ? product cost in std measurement units Brade labeling ? rate the 1uality level :ercentage labeling ? percentage o# each important ingredient Are being demanded by consumer groups

Chapter 1< : (esigning and Managing Ser ices MEvery %usiness is a service %usiness* Aou are not a chemica" company you are a chemica" services %usiness0
ervice industry is 1uite varied. <t includes the govt. sector with its hospitals" police" post o##ice" schools etc. The private nonDpro#it sector with its colleges" hospitals" #oundations is also in the service business. Fusiness sector with its airlines" banks" hotels" insurance companies is also in service sector. Many workers in the manu#acturing sector such as accountants and legal sta## are really service providers. <n #act they make up the Mservice #actoryN providing services to the Mgoods #actoryN. (e de#ine a service as #ollows> A service is any act or per#ormance that one party can o##er to another that is essentially intangible and does not result in ownership o# anything. <ts production may or may not be tied to a physical product. ervices are also popping up on the internet. A little sur#ing on the web will turn up virtual service providers. Categories of Ser ice Mi# A company*s o##erings to the marketplace can be classi#ied as> 1. :ure tangible good> The o##ering consists primarily o# a tangible good such as soap" toothpaste. 3o services accompany the product. !. Tangible good with accompanying services> The o##ering consists o# a tangible good accompanied by one or more services. Aor e.g.> more technologically sophisticated goods &cars and computers) are more dependent #or its sales on 1uality and availability o# its accompanying customer services %. +ybrid> The o##ering consists o# e1ual parts o# goods and services. Aor e.g. 9estaurants are recognized #or both goods and services ,. Ma/or service with accompanying minor goods and services> The o##ering consists o# a ma/or service along with additional services or supporting goods. Aor e.g. Airline passengers buy transportation service and also get #ood" drinks etc. .. :ure ervice> The o##ering consists primarily o# a service. Examples include massage" baby sitting etc. Fased on these distinctions #ollowing generalizations can be made> 1. ervices vary as to whether they are e1uipment based &automated car washes) or people based &accounting services). :eople based services vary as to whether they are provided by unskilled or skilled pro#essionals. !. ome services re1uire client*s presence &brain surgery) and some do not &car repair). <# the client is present then service provider has to consider his needs as well.

%.

ervices di##er as to whether they meet a personal need &personal services) or a business need &business services). ervice providers develop di##erent programs #or personal and business markets. ,. ervice providers di##er in their ob/ectives &pro#it or non pro#it) and ownership &private or public). The marketing programs o# a private investor hospital will di##er #rom that o# a private charity hospital. Characteristics of ser ices C their marketing implications: ervices have #our ma/or characteristics that greatly a##ect the design o# marketing programs> intangibility" inseparability" variability and perishability. Intangi,ility: ervices are intangible. @nlike physical products they cannot be seen" tasted" #elt" heard or smelled be#ore they are bought. The person getting a #ace li#t cannot see the exact results be#ore the purchase and the patient in the psychiatrist*s o##ice cannot know the exact outcome. To reduce uncertainty buyers will look #or signs or evidence o# service 1uality. They will draw in#erences #rom place" people" e1uipment" price etc that they see. There#ore the service provider*s task is to Mmanage the evidenceN" to Mtangibilize the intangibleN. uppose a bank wants to position itsel# as a M#ast bankN. <t could tangibilize this positioning strategy through a number o# marketing tools> :lace> The physical setting must connote 1uick service. The exterior and interior must have clean lines. The layout o# desks must be planned care#ully :eople> :ersonnel should be busy. There should be su##icient number o# employees to share the workload. E1uipment> computers" copying machines" desks should look Mstate o# artN. 6ommunication material> test and photos should suggest e##iciency and speed. ymbols> The name and symbols should suggest #ast service. :rice> The bank could advertise that it will deposit U. in account o# any customer who waits #or . minutes. ervice marketers must be able to trans#orm intangible services into concrete bene#its. Insepara,ility ervices are typically produced and consumed simultaneously. This is not true o# physical goods which are manu#actured" put into inventory" distributed through multiple resellers and consumed later. <# a person renders the serviced" the provider is part o# the service. Fecause the client is also present as the service is produced providerDclient interaction is a special #eature o# services marketing. Foth provider and client a##ect the outcome. <n case o# entertainment and pro#essional services" buyers are very interested in the speci#ic provider. <t is not the same concert i# pearl /am is indisposed and replaced by

Mary -smond or i# a legal de#ense will be supplied by 2ohn 3obody because A 8ee Failley is unavailable. (hen clients have strong provider pre#erences" price is raised to ration the pre#erred provider*s limited time. everal strategies exist #or getting around this limitation. The service provider can learn to work with larger groups. :sychotherapists have moved #rom one on one therapy to small group therapy to groups o# over %== people in a large hotel ballroom. The service provider can learn to work #aster the psychotherapist can spend less minutes with one patient so that he sees more patients. The service organization can train more service providers and build up client con#idence" as +P9 Flock has done with its national network o# trained tax consultants. 1aria,ility ervices are variable. ome surgeons are not as dexterous as others are. ervice buyers are aware o# this variability and o#ten talk to others be#ore selecting a service provider. ervice #irms can take three steps towards 1uality control. The #irst is investing in good hiring and training procedures. 9ecruiting the right service employees and providing with excellent training is crucial regardless o# whether employees are highly skilled pro#essionals or low skilled workers. The second step is standardizing the service per#ormance process throughout the organization. This is helped by preparing service blueprint that depicts events and processes in a #lowchart with the ob/ective o# recognizing potential #ail points.The third step is monitoring customer satis#action through suggestion and complaint systems" customer surveys and comparison shopping. $erisha,ility ervices cannot be stored. The perishability o# services is not a problem when demand is steady. (hen demand #luctuates" service #irms have problems. asser has described several strategies #or producing a better match between demand and supply in a service business. %n the demand side : )i##erential pricing like weekend discount prices #or car rentals 3on peak demand can be cultivated. Mc)onalds opened a break#ast service" hotels developed minivacation weekends. 6omplementary services can be developed during peak time to provide alternatives to waiting customers such as cocktail lounges in restaurants 9eservation systems are a way to manage the demand levels Airlines" hotels and physicians employ them extensively.

%n the supply side : :art time employees can be hired to serve peak demand. 6olleges have part time teachers when enrolment grows up.

:eak time e##iciency routines can be introduced. Employees per#orm only essential tasks during peak periods. <ncreased customer participation can be encouraged. 6onsumers #ill out their own medical records or bag their own groceries. hared services can be developed. everal hospitals can share medical e1uipment purchases. Aacilities #or #uture expansion can be developed. Amusement parks buy surrounding land #or #uture development.

Marketing strategies for ser ice firms : @ntil recently" service #irms lagged behind manu#acturing #irms in their use o# marketing. Many service businesses are small and do not use #ormal marketing or management techni1ues. There are also pro#essionals service businesses &law and accounting #irms) that #ormerly believed it was unpro#essional to use marketing. -ther service businesses had so much demand or so little competition &hospitals) that they saw no need #or marketing. Fut this has now changed. Traditional #our :*s marketing approaches work well #or goods but additional elements re1uire attention in service businesses. Fooms and Fitner suggested three additional :*s #or service marketing > :rocess" people and physical evidence. Fecause most services are provided by people" the selection" training and motivation o# employees can make a huge di##erence in customer satis#action. <deally employees must exhibit competence" a caring attitude" responsiveness" initiative" problem solving ability and goodwill. ervice companies like Aederal Express and Marriott trust their people enough to empower their #ront line personnel to spend up to U1== to resolve a customer problem. 6ompanies also try to demonstrate their service 1uality through physical evidence and presentation. A hotel will develop a look and observable style o# dealing with customers that carries out its intended customer value proposition whether it is cleanliness" speed or some other bene#it. Ainally service companies can choose between processes to deliver their service. 9estaurants have developed some di##erent #ormats as ca#eteria style" #astD #ood bu##et" and candlelight service. ervice encounters are a##ected by several elements. 6ustomer when enters a bank #or loan also sees interiors" e1uipment" #urniture. The customer sees bank personnel and deals with the bank o##icer. All this is MvisibleN to the customer. 3ot visible is the whole backroom production process and organization system that supports the visible business. Thus the service outcome" and whether or not people will remain loyal to a service provider" is in#luenced by a host o# variables. Bronroos has argued that service marketing needs internal and interactive marketing also along with external marketing. <nternal ? the work to train and motivate employees <nteractive marketing is the employees skills in serving the client. +e should have the #unctional 1uality. There are three types o# 1ualities > 1. search 1ualities ? they are the characteristics the buyer can evaluate be#ore purchase !. experience 1uality ? characteristics that the buyer

can evaluate a#ter purchase and %. credence 1ualityD they are hard to evaluate even a#ter consumption ervices are generally high on experience 1uality and credence 1uality ervice companies #ace three tasks ? increase competitive di##erentiationO service 1uality O and productivity Increasing differentiation : +ard to achieve di##erentiation. :rice a ma/or #actor especially #or #airly homogeneous services The alternative to price competition is to develop a > (ifferentiated offer > various innovative #eatures. 6ustomers expect what is called primary service packaging and to this can be added secondary service packaging like airlines did it in case o# movies" #re1uent #liers" tie ups" etc. Many 6ompanies are using web to o##er the above The di##iculty is that most service innovations are easily copied but the #irst mover advantage is still there though low. (eli ery > A service company can hire and train better people to deliver its services. <t can even develop a more attractive physical environment where the service can be delivered e.g. Music world or design a better delivery process e.g. Mcdonalds. Image > service cos can di##erentiate their images through symbols and brading. 8ike AMET 6redit 6ards. Managing Ser ice 8uality A service #irm may win by delivering consistently higher 1uality service than competitors and exceeding customer expectation. These expectations are #ormed by their past experience word o# mouth and advertising. A#ter receiving the service customers compare perceived service with expected service. <# perceived service #alls below the expected service customers lose interest in the provider. <# the perceived service meets or exceeds expected service they are apt to use the provider again. A :arasuraman Weithaml and berry model #or service 1uality that highlights the main re1uirement. The model identi#ies #ive service gaps that cause unsuccess#ul delivery

)aps in Service /uality


-ord "of"mouth communications (ustomer '1pected service )A0 4 0erceived service Marketer )A0 7 Service delivery including pre" and post"contacts! )A0 5 )A0 8 2ranslation of perceptions into service 3uality specifications )A0 6 Management perceptions of consumer e1pectations '1ternal communications to consumers

0ersonal needs

0ast e1perience

"ap ,etween Consumer e#pectation and management perceptions of consumer e#pectation :A Management does not always correctly perceive what customers want. +ospital administrators may think patients want better #ood" but patients may be concerned more with nurse responsiveness. "ap ,etween management perceptions and ser ice 7uality specifications :A Management might correctly perceive customer expectation but not set a speci#ied per#ormance standard. +ospital administrators might tell the nurses to give #ast service without speci#ying it 1uantitatively. "ap ,etween ser ice 7uality specifications and ser ice deli ery :A The personnel might be poorly trained or incapable or unwilling to meet the standard. -r they might be held to con#licting standards such as taking time to listen to customers and serving them #ast. "ap ,etween ser ice deli ery and e#ternal communication :A 6onsumer expectations are a##ected by statements made by company representatives and ads. <# a hospital brochure shows beauti#ul room" but the patient arrives and #inds the room to be cheap and tacky looking" external communication have distorted customer*s expectations "ap ,etween percei ed ser ice and e#pected ser ice :A This gap occurs when nthe consumer misperceives the service 1uality. The physician may keep visiting the patient to show care but the patient may interpret this as an indication o# something is really wrong. The ame researchers #ound #ive determinants o# service 1uality. These are represented in order o# importance 2elia,ility :A The ability to per#orm the promised service dependably and accurately .

2esponsi eness :A The willingness to help customers and to provide prompt service -ssurance :A The knowledge and courtesy o# their employees and their ability to convey trust and con#idence. Empathy :A The provision o# caring and individualized attention to customers Tangi,les :A The appearance o# physical #acilities" e1uipments" personnel and communication material Exceeding customers highest hopes A service marketing checklist Ferry and parasuraman propose marketing managers ask the #ollowing 1uestion as they seek to manage and exceed expectations 1. )o we strive to present realistic picture o# our service to customersL !. < per#orming the service right the #irst time a top priority in your companyL %. )o we communicate e##ectively with customersL ,. )o we surprise customers during the service processL .. )o our employees regard service problems as opportunities to impress customers or as an annoyanceL 0. )o we continuously evaluate and improve our per#ormance against customer expectationsL

1arious studies ha e shown that e#cellently managed ser ice companies share the following common practices
Strategic Concept
Top service companies are customer obsessed. They have clear sense o# their target customers and their needs. They have developed distinctive strategy #or satis#ying these needs.

Top Management Commitment


6ompanies such as Marriot" )isney and Mcdonald have thorough commitment to service 1uality. Their management looks not only at #inancial per#ormance on a monthly basis but also at service per#ormance.

3igh Standards
The best service providers set high 1uality service standards. wiss air aims at having ;0S or more o# its passengers rate its service good or superior. 6itibank aims to answer phone call in 1= minutes and customer letters in two days. 6ompanies can be divided into those o##ering merely good service and those o##ering breakthrough service aiming at 1==S de#ect #ree services.

Monitoring Systems
Top #irms audit service per#ormance" both their own and competitors* on a regular basis. They use number o# measurement devices" comparison shopping" ghost shopping" customer surveys" suggestion and complaint #orms" service audit teams and letters to president. BE sends out 4===== response cards a year asking households to rate their people*s service per#ormance. 6<T<FA3J continuously checks A9T &accuracy" responsiveness" timeliness) .

(hen designing customer #eedback mechanisms such as surveys marketers need to ask right 1uestions as @nited :arcel ervice &@: ) #ound out @: always assumed that onDtime delivery was its customer*s paramount concern" and based its de#inition o# 1uality on results o# time motion and studies. Het when the company began asking broader 1uestions regarding how it could improve its service it discovered that what customers wanted most was more #aceDtoD#ace contact with drivers. <# drivers were less hurried and would answer 1uestions customers might get practical advice on shipping. ervices can be /udged on customer importance and company performance. .mportancePerformance analysis is used to rate the various elements o# the service bundle and identi#y what actions are re1uired. 8uadrant - shows important service elements that are not being per#ormed at the desired levels. Aocus on service department*s per#ormance on these elements. 8uadrant + shows important service elements that are being per#ormed well and the company*s need to maintain the high per#ormance. 8uadrant C shows minor service elements that are being delivered in a mediocre way but do not need attention. 8uadrant ( shows that a minor service element is being per#ormed in an excellent mannerO company should spend less on these elements. Extremely <mportant - 6oncentrate + Jeep the good work Excellent :er#ormance C 8ow :riority ( :ossible -verkill

Aair :er#ormance

lightly <mportant

Satisfying Customer Complaints


6ustomer are dissatis#ied by the purchases !.S o# the time but only .S complain. -# these .S only .=S report a satis#actory resolution. -n an average one satis#ied customer tells % people about a good product whereas a dissatis#ied to 11 people" thus bad word o# mouth can grow exponentially. Tax and Frown #ound that companies that are e##ective at resolving complaints>

)evelop hiring criteria and training programs that take into account employees* serviceDrecovery role. )evelop guidelines #or service recovery that #ocus on achieving #airness and customer satis#action. 9emove barriers that make it di##icult #or customers to complain" empowering employees to provide compensation #or #ailure. Maintain customer and product databases that let the company analyze types and sources o# complaints and ad/ust the policies. Satisfying +oth Employees and Customers Management carries out internal marketing and provides employee support and rewards #or good per#ormance. An important part o# satis#ying employees is helping them cope with their lives outside the o##ice. Managing $roducti ity even approaches to keep cost down and improve service productivity 6ompany can hire and #oster more skil#ul workers through better selection and training. <ncrease the 1uantity o# service by surrendering some 1uality. <ndustrialize the service by adding e1uipment and standardizing production. To reduce the need #or a service by inventing a product solution. E.g. wash and wear shirt no commercial laundry re1uired. )esign a more e##ective service. :resent customers with incentives to substitute their own labor #or company labor. E.g. sel#Dservice in restaurants. +arness power o# technology to give better service and workers more productive. "echnologies of customer empo#erment 9eal value is added by enabling customers to get in#ormation and interact with one another and with your data Content Creation: allowing customers to create their own content increases the value o# the business and lessen the workload. hared knowledge bases lead to increase learning and #aster cycle times. E.g. geocities Colla,oration: Aorums and bulletin boards #acilitate communityO con#erencing and messaging tools enable globalization o# activities. E.g. EDTrade Teaching: 2<T learning and pointDo#Dneed in#ormation distribution pays o## #or business because they improve and support user*s per#ormance. E.g. W)3et Commerce: -nline transaction that creates #rictionD#ree commerce is the goal. Control: Fy harnessing other devices to the web" companies can use agents and sensors to manage real word machinery or process remotely. 'ew $latforms: :ersonal assistants" cell phones" and dashboard computers will have the power and mobility to control all the other applications. 3ew

in#ormation devices and smart cards o##er great promise #or customer controlled applications. E.g. Audible.com

M-'-"I'" $2%(*CT S*$$%2T SE21ICES Manu#acturers o# e1uipment ? small appliances" o##ice machines" tractors" main#rames" airplanes ? all have to provide Mproduct support servicesN. <n #act" product support service is becoming a ma/or battleground #or competitive advantage. ome e1uipment manu#acturers" such as 6aterpillar tractor and 2ohn )eere" make over .=S o# their pro#its #rom these services. <n the global marketplace" companies that make a good product but provide poor local service support are seriously disadvantaged. (hen ubaru entered the Australian market" it contracted to use the Australian $olkswagen dealer network to provide parts and service. Airms that provide highD1uality service outper#orm their less serviceDoriented competitors. Table 1,.! provides evidence. T-+)E 1<:2 +igh Third in 8ow Third in )i##erence ervice 1uality ervice 1uality <n S points 4S D!S I;S D! 5 1 I5 I; I11

:rice index relative to 6ompetition 6hange in market share 0 :er annum ales growth per annum 14 9eturn on sales 1!

The strategic planning institute sorted out the top third and bottom third o# %"=== business units according to ratings o# Mrelative perceived service 1ualityN. The table shows that the highDservice businesses managed to charge more" grow #aster" and make more pro#its on the strength o# superior service 1uality. 6ustomer has three speci#ic worries> 1. They worry about reliability and failure fre%uency. A #armer may tolerate a combine that will break down once a year" but not two or % times a year. !. 6ustomers worry about do#ntime duration. The longer the downtime" the higher the cost. The customer counts on the seller*s service dependability ? the seller*s ability to #ix the machine 1uickly" or at least provide a loaner. %. 6ustomers worry about outDo#Dpocket costs o# maintenance and repair. +ow much does the customer have to spend on regular maintenance and repair costsL

A buyer takes all these #actors into consideration in choosing a vendor. The buyer tries to eliminate the life-cycle cost" which is the product*s purchase cost plus the discounted cost o# maintenance and repair less the discounted salvage value. (here reliability is important" manu#acturers or service providers can o##er guarantees to promote sales. A manu#acturer can o##er and charge #or product services in di##erent ways. Many companies o##er service contracts with variable lengths and di##erent deductibles so that customers can choose the service level they want beyond the basic service package. Jodak and %M designed e1uipment allowing user to MplugDinN to a central diagnostic #acility that per#orms tests" locates the trouble" and #ixes the e1uipment over the telephone lines. $ostsale Ser ice 8uality Most companies operate customer service departments whose 1uality varies greatly. <n providing service" most companies progress through a series o# stages. Manu#acturers usually start out by running their own parts and service department. As long as they are the only supplier o# the needed parts" they can charge a premium price. @ltimately" some large customers take over responsibility #or handling their own maintenance and repair. Ma5or Trends in Customer Ser ice )ele has noted the #ollowing ma/or trends in the customer service area> 1. E1uipment manu#acturers are building more reliable and more easily #ixable e1uipment. -ne reason is the shi#t #rom electromechanical e1uipment to electronic e1uipment" which has #ewer breakdowns and is more repairable. 6ompanies are adding modularity and disposability to #acilitate sel#Dservicing. !. 6ustomers are becoming more sophisticated about buying product support services and are pressing #or Mservices unbundlingN. They want separate prices #or each service element and right to select the elements they want. %. 6ustomers increasingly dislike having to deal with a multitude o# service providers handling di##erent types o# e1uipment. ome thirdDparty service organizations now service a greater range o# e1uipment. ,. ervice contracts&also called extension #arranties,, in which the sellers agree to provide #ree maintenance and repair services #or a speci#ied period o# time at a %FFE2I'" "*-2-'TEES T% $2%M%TE S-)ES speci#ied contract may diminish in importance. ome or new car warranties All sellers are legallyprice" responsible #or #ul#illing a buyer*s normal reasonable now cover -arranties 1=="=== miles increaseproduct in disposable or neverD expectations. are be#ore #ormal servicing. statements The o# expected per#ormance makes customers less inclined to returned pay #rom to 1=S o# the by#ail the e1uipment manu#acturer. :roducts under warranty can be to !S the manu#acturer price every year #or a service. or purchase designated repair center #or repair" replacement" or re#und. (arranties" whether ..expressed 6ustomer choices are increasing rapidly" and this is holding down prices or service implied" are legally en#orceable. and sellers pro#its o##er on service. E1uipment manu#acturers increasingly to returned #igure out Many guarantees, general assurances that the producthave can be how to make money on their e1uipment independent o##ind service contracts. i# its per#ormance is unsatis#actory. The customer should guarantees clearly stated and easy to act upon" and the company*s redress should be swi#t. Buarantees are most e##ective in two situations. The #irst is where the company or the product is not well known. The second is where the product*s 1uality is superior to the competition. The company can gain by guaranteeing superior per#ormance knowing that competitors cannot match its guarantee.

Chapter 1= (esigning $ricing Strategies and $rograms


4ou don5t sell through price. 4ou sell the Price. ll profit organi!ations and many nonprofit organi!ations set prices on their products or services. Price goes by many names1 Price is all around us. 4ou pay rent for our apartment' tuition for your education' and a fee to your physician or a dentist. The airline' rail+ay' and bus companies charge you a fare6 the local utilities call their price a rate6 and the local ban, charges and interest for the money you borro+. The price for driving your car on 7lorida5s Sunshine Par,+ay is a toll' and the company that insures your car charges a premium. The guest lecturer charges an honorarium to tell you about a government official +ho too, a bribe to help a shady character steal dues collected by a trade association. Clubs or societies to +hich you belong may ma,e a special assessment to pay unusual e.penses. 4our regular la+yer may as, for a retainer to cover her services. The price of an e.ecutive is a salary' price of a salesperson may be a commission' and the price of a +or,er is a +age. 7inally' although economists +ould disagree' many of us feel that income ta.es are the price +e pay for ma,ing money. Throughout most of history prices +ere set by negotiations bet+een buyers and sellers. Setting one price for all buyers is a fairly modern idea that arose +ith the development of large scale retailing at the end of the nineteenth century. 7. 8. 8ool+orth' Tiffany 9 Co.' :ohn 8anama,er' and others advertised a ;strictly one&price policy<' because they carried so many items and supervised so many employees. "o+ 0ust one hundred years later' the Internet promises to reverse the fi.ed pricing trend and ta,e us bac, to an era of negotiated pricing. The Internet' corporate net+or,s and +ireless setups are lin,ing up' machines' and companies around the globe = and connecting sellers and buyers as never before. 8eb sites li,e Compare.net and PriceScan.com allo+ buyers to compare prices 3uic,ly and easily. /nline auction sites li,e eBay.com and /nsale.com ma,e it easy for buyers and sellers to negotiate prices on thousands of items = from refurbished computers to anti3ue tin trains. t the same time ne+ technologies allo+ sellers to collect detailed data about customers5 buying habits' preferences = even spending limits = so they can tailor their products and prices. Traditionally' price has operated as the ma0or determinant of buyer choice. This is still the case in poorer nations' among poorer groups' and +ith commodity type products. lthough non&price factors have become more important in determining buyer behavior in recent decades' price still remains one of the most important elements determining company mar,et share and profitability. Consumer and purchasing agents have more access to price information and price discounters. Consumers shop carefully' forcing retailers to lo+er their prices. >etailers put pressure on manufacturers to lo+er their prices. The result is a mar,etplace characteri!ed by heavy discounting and sales promotion.

Price is the mar,eting&mi. element that produces revenue6 the others produce cost. Price is also one of the most fle.ible elements1 It can be changed 3uic,ly' unli,e product features and channel commitments. t the same time' price competition is the number one problem facing the companies. 4et many companies do not handle pricing +ell. The most common mista,es are these1 Pricing is too cost oriented6 pricing is not revised often enough to capitali!e on mar,et changes6 price is set independent of the rest of the mar,eting mi. elements rather than as an intrinsic element f mar,et&positioning strategy6 and price is not varied enough for different product items' mar,et segments' purchase occasions. Companies handle pricing in a variety of +ays. In small companies' prices are often set by the company5s boss. In large companies' pricing is handled by division and product&line managers. Even here' top management sets general pricing ob0ectives and policies and often approves prices proposed by lo+er levels of management. In industries +here pricing is a ,ey factor #aerospace' railroads' oil companies$' companies +ill often establish a pricing department to set or assist others in determining appropriate prices. This department reports to the mar,eting department' finance department' or top management. /thers +ho e.ert an influence on pricing include sales managers' production managers' finance managers' and accountants.

Setting the $rice


firm must set a price for the first time +hen it develops a ne+ product' +hen it introduces its regular products into a ne+ distribution channel or geographical area' and +hen it enters bids on ne+ contract +or,. The firm must decide +here to position its product on 3uality and price. In some mar,ets' such as the auto mar,et' as many as eight price points can be found Segment Example (Automobiles) ?ltimate >olls&>oyce @old Standard -ercedes&Ben! Au.ury udi Special "eeds Bolvo -iddle Buic, EaseCConvenience 7ord Escort -e Too' but Cheaper 2yundai Price lone Dia There can be competition bet+een price&3uality segments. 7igure *5.* sho+s nine price& 3uality strategies. The diagonal strategies *' 5' and E can all coe.ist in the same mar,et6 that is' one firm offers a high 3uality product at an average price' and still another offers a lo+ 3uality product at a lo+ price. ll three competitors can coe.ist so long as the mar,et consists of three groups of buyers1 those +ho insist on 3uality' those +ho insist on price' and those +ho balance the t+o considerations. Strategies )' ( and F are +ays to attac, the diagonal positions. Strategy ) says' ;/ur product has the same high 3uality as product * but +e charge less.< Strategy ( says the same thing and offers an even greater saving. If 3uality&sensitive customers believe these competitors' they +ill sensibly buy from them and save money #unless firm *5s product has ac3uired snob appeal$. Positioning strategies %'G' and H amount to overpricing the product in relation to its 3uality. The customers +ill feel ;ta,en< and +ill probably complain or spread bad +ord of mouth about the company.

The firm has to consider many factors in setting its pricing policy. 8e +ill describe a si.&step procedure1 #*$ Selecting the pricing ob0ective6 #)$ Determining demand6 #($ Estimating costs6 #%$ naly!ing competitor5s costs' prices' and offers6 #5$ Selecting a pricing method6 and #F$ Selecting the final price #7igure *5.)$. 7igure *5.* 7igure *5.)

Selecting the $ricing %,5ecti e


The company first decides +here it +ants to position its mar,et offering. The clearer a firm5s ob0ectives' the easier it is to set price. company can pursue any of the five ma0or ob0ectives through pricing1 survival6 ma.imum current profit6 ma.imum mar,et share6 ma.imum mar,et s,imming6 or product&3uality leadership. Companies pursue survival as their ma0or ob0ective if they are plagued +ith overcapacity' intense competition or changing consumer +ants. Profits are less important than survival. s long as prices cover variable costs and some fi.ed costs' the company stays in business. 2o+ever' survival is a short&run ob0ective6 in the long run' the firm must learn ho+ to add value or face e.tinction. -any companies try to set a price that +ill ma.imi!e current profits. They estimate the demand and costs associated +ith alternative prices and choose the price that produces ma.imum current profits' cash flo+s' or rate of return on investment. This strategy assumes that the firm has ,no+ledge of its demand and cost functions6 in reality these are difficult to estimate. By emphasi!ing current financial performance' the company may sacrifice long run performance by ignoring the effects of other mar,eting&mi. variables' competitor5s reactions' and legal restraints on price.

Some companies +ant to ma.imi!e their mar,et share. They believe that a higher sales volume +ill lead to lo+er unit costs and higher long run profits. They set the lo+est price' assuming the mar,et is price sensitive. Te.as Instruments #TI$ practices this marketpenetration pricing. TI +ill build a large plant' set its price as lo+ as possible' +in a large mar,et share' e.perience falling costs' and cut its price further as costs fall. The follo+ing conditions favor setting a lo+ price1 #*$ The mar,et is highly price sensitive' and a lo+ price stimulates mar,et gro+th6 #)$ production and distribution costs fall +ith accumulated production e.perience6 and #($ a lo+ price discourages actual and potential competition. -any companies favor setting high prices to ;s,im< the mar,et. Intel is a prime practitioner of mar,et&s,imming pricing. -ar,et s,imming ma,es sense under the follo+ing conditions1 #*$ sufficient number of buyers have a high current demand6 #)$ the unit costs of producing a small volume is not so high and they cancel the advantage of charging +hat the traffic +ill bear6 #($ the high initial price does not attract more competitors to the mar,et6 #%$ the high price communicates the image of a superior product.

company might aim to be the product&3uality leader in the mar,etIfor instance' -aytag. "onprofit and public organi!ations may adopt other pricing ob0ectives. university aims for partial cost recovery' ,no+ing that it must rely on private gifts and public grants to cover the remaining costs. nonprofit hospital may aim for full cost recovery in its pricing. non&profit theater company may price its productions to fill the ma.imum number of theater seats. social service agency may set a social price geared to the varying income of clients. 8hatever their specific ob0ectives' businesses that use price as strategic tool +ill profit more than those +ho simply let costs or the mar,et determine their pricing.

(etermining (emand
Each price +ill lead to a different level of demand and therefore +ill have a different impact on companies mar,eting ob0ectives. The relation bet+een alternative prices and the resulting current demand is captured in a demand curve #7igure *5.(JaK$. In the normal case' demand and price are inversely related1 the higher the price' the lo+er the demand. In the case of prestige goods' the demand curve sometimes slopes up+ard. perfume company raised its price and sold more perfume than lessL Some consumers ta,e the higher price to signify a better product. 2o+ever' if too high a price is charged' the level of demand may fall. 7igure *5.(

$rice Sensiti ity


2he demand curve sho9s the markets probable purchase 3uantity at alternative prices: ;t sums the reactions of many individuals 9ho have different price sensitivities: 2he first step in estimating demand is to understand 9hat affects price sensitivity: Nagle has identified nine factors<

*. Unique-value effect1 Buyers are less price&sensitive +hen the product is more distinctive. ). Substitute-awareness effect1 Buyers are less price&sensitive +hen they are less a+are of substitutes. (. Difficult-comparison effect1 Buyers are less price&sensitive +hen they cannot easily compare the 3uality of substitutes. %. Total-expenditure effect1 Buyers are less price&sensitive the lo+er the e.penditure is as part of their total income.

5. End-benefit effect1 Buyers are less price&sensitive the smaller the e.penditure is to the total cost of the end product. F. Shared-cost effect1 Buyers are less price&sensitive +hen part of the cost is borne by another party. G. Sunk-investment effect1 Buyers are less price&sensitive +hen the product is used in con0unction +ith assets previously bought. H. Price-quality effect1 Buyers are less price&sensitive +hen the product is assumed to have more 3uality' prestige' or e.clusiveness. E. nventory effect1 Buyers are less price&sensitive +hen they cannot store the product. number of forces' such as deregulation and the instant price comparison technology available over the net' have turned products into commodities in the eyes of the consumers and increased their price sensitivity. -ar,eters need to +or, harder than ever to differentiate their offerings +hen a do!en competitors are selling virtually the same product at a comparable or lo+er price. -ore than ever' companies need to understand the price sensitivity of their customers and prospects and the trade offs people are +illing to ma,e bet+een price and product characteristics. In the +ords of Devin Clancy those +ho target only the price sensitive are ; leaving money on the table< .

Estimating )emand 6urve


-ost companies ma,e some attempt to measure their demand curves. They can use different methods. The first involves statistically analy!ing past prices' 3uantities sold' and other factors to estimate their relationships. The data can be longitudinal or cross sectional. Building the appropriate model and fitting the data +ith proper statistical techni3ue calls for considerable s,ill. The second approach is to conduct price e.periments. n alternate approach is to charge different prices in similar territories to see ho+ sales are affected. The third approach is to as, buyers to state ho+ many units they +ould buy at different proposed prices. In measuring the price demand relationship' the mar,et researcher must control for various factors that +ill influence demand. The competitor5s response +ill ma,e a difference. lso if the company changes other mar,eting mi. factors besides its price' the effect of the price change +ill be hard to isolate.

:rice Elasticity o# )emand


-ar,eters need to ,no+ ho+ responsive or elastic demand +ould be to a change in price. If demand hardly changes +ith a small change in price' +e say the demand is inelastic. If demand changes considerably' demand is elastic. Demand is li,ely to be less elastic under the follo+ing conditions *. There are fe+ or no substitutes or competitors ). buyers do not readily notice the highest price (. buyers are slo+ to change their buying habits and search for lo+er prices %. buyers thin, that the higher prices are 0ustified by 3uality differences' normal inflation' and so on

If demand is elastic sellers +ill consider lo+ering the price. lo+er price +ill produce more total revenue. This ma,es sense as long as the costs of producing and selling more units does not increase disproportionately Price elasticity depends on the magnitude and direction of the contemplated price change. It may be negligible +ith a small price change and substantial +ith a large price change. It may differ for a price cut versus a price increase. 7inally' long run price elasticity may differ from short run price elasticity. Buyers may continue to buy from their current supplier after a price increase' because they do not notice the price increase or the increase is small or they are distracted by other concerns or they find choosing a ne+ supplier ta,es time. But they eventually s+itch suppliers. 2ere demand is more elastic in the long run than in the short run. /r the reverse may happen Buyers drop a supplier after being notified of a price increase but return later. The distinction bet+een short run and long run elasticity means that sellers +ill not ,no+ the total effect of a price change until the time passes.

E T<MAT<3B 6- T
Demand sets a ceiling on the price the company can charge for its product. Costs set the floor. The company +ants to charge a price that covers its cost of producing' distributing and selling the product including a fair return for its efforts and ris,

Types o# 6osts and 8evels o# :roduction


company5s costs tale t+o forms' Fi1ed and Variable' !ixed costs are costs that do not vary +ith production or sales revenue. A company must pay bills every month for rent= heat= interest= salaries and so on regardless of output: "ariable costs vary directly +ith the level of production. 7or e.ample each hand calculator involves a cost of plastic' micro processing chips' pac,aging and the li,e. These costs tend to be constant per unit produced they are called variable because their total varies +ith the number of units produced. Total costs consist of the sum of fi.ed and variable costs for any given level of production. verage cost is the cost per unit at that level of production1 it is e3ual to the total costs divided by production. -anagement +ants to charge a price that +ill at least cover the total production costs at a given level of production.

Accumulated :roduction
Suppose TI #Te.as Instruments$ runs a plant that produces (MMM hand calculators per day. s TI gains e.perience producing hand calculators' its methods improve. 8or,ers learn shortcuts' material flo+s more smoothly' procurement costs fall. This decline in the average cost +ith accumulated production e.perience is called e.perience or learning curve. E.perience = curve pricing nevertheless carries ma0or ris,s. ggressive pricing might give the product a cheap image. The strategy also assumes that the competitors are +ea, and not +illing to fight. 7inally the strategy leads the company into building more plants to meet

demand +hile a competitor innovates a lo+er cost technology and obtains lo+er costs than the mar,et leader' +ho is no+ stuc, +ith old technology. -ost e.perience curve pricing has focused on manufacturing costs. But all costs' including mar,eting costs' are sub0ect to learning improvements. If three firms are each investing a large sum of money trying tele&mar,eting' the firm that has used it the longest might achieve the lo+est telemar,eting costs. This firm can charge a little less for its product and still earn the same return' all other costs being e3ual.

)i##erentiated Marketing -##ers


Today5s companies are trying to adapt their offers and terms to different buyers. Thus a manufacturer +ill negotiate different terms +ith different retail chains. /ne retailer may +ant daily delivery in order to get a lo+er price. s a result' the manufacturer5s costs +ill differ +ith each chain and its profits +ill differ. To estimate the real profitability of dealing +ith different retailers' the manufacturer needs to use #ctivity based cost $#%&' accountin( instead of standard cost accountin() BC accounting tries to identify the real costs associated +ith serving the different customers. Both the variable costs and the overhead costs must be tagged bac, to each customer. Companies that fail to measure their costs correctly are not measuring their profit correctly. They are li,ely to misallocate their mar,eting effort. Identifying the true costs arising in a customer relationship also enables a company to e.plain its charges better to the customer.

Target 6osting
8e have seen that costs change +ith production scale and e.perience. They can also change as a result of a concentrated effort by the company5s designers' engineers and purchasing agents to reduce them. The :apanese use a method called tar(et costin() They use mar,et research to establish a ne+ product5s desired functions. Then they determine the price at +hich the product +ill sell given its appeal and competitor5s prices. They deduct the desired profit margin from this price and this leaves the target cost they must achieve. They then e.amine each cost element = design' engineering' manufacturing' sales = and brea, them do+n into further components. They consider +ays to reengineer components' eliminate functions and bring do+n supplier costs. The ob0ective is to bring the final cost pro0ections into the target cost range. If they can5t succeed' they may decide against developing the product because it couldn5t sell for the target price and ma,e the target profit. 8hen they can succeed ' profits are li,ely to follo+.

A3A8HW<3B 6-M:ET<T-9* 6- T " :9<6E A3) -AAE9


8ithin the range of possible prices' determined by mar,et demand and company5s costs' the firm must ta,e the competitor5s costs' prices and possible price reactions into account. If the firm5s offer is similar to a ma0or competitor5s offer' then the firm +ill have to price close to the competitor or lose sales. If the firm5s offer is inferior ' the firm +ill not be able to charge more than its competitor. If the firm5s offer is superior ' the firm can charge more than its competitor. The firm must be a+are ' ho+ever that competitors might change their price in response.

E8E6T<3B A :9<6<3B MET+-)


@iven the three Cs& the customer5s demand schedule' the cost function and the competitor5s prices = the company is no+ ready to select a price. 7igure *5.F summari!es the three ma0or considerations in price setting. Costs set a floor to the price. Competitor5s prices and the prices of substitutes provide an orientation point. Customer5s assessment of uni3ue product features establishes the ceiling price. 2igh Price #"o possible Demand at this price$

Customers ssessment /f uni3ue Product 7eatures Competitors5 Prices and Prices of Substitutes Costs Ao+ Price #"o possible profit at this price$

FI"*2E 1=:>
2he 2hree (s Model for 0rice Setting Companies select a pricing method that includes one or more of these three considerations. 8e +ill e.amine si. pricing methods 1 mar,up pricing' target&return pricing' perceived value pricing' value pricing' going =rate pricing and sealed bid pricing.

Markup :ricing
The most elementary pricing method is to add a standard mar,up to the product5s cost. Construction companies submit 0ob bids by estimating the total pro0ect cost and adding a standard mar,up for profit. Aa+yers and accountants typically price by adding a standard mar,up on their time and costs. Defence contractors charge their costs plua a standard mar,up.

Suppose a toaster manufacturer has the follo+ing cost and sales e.pectations1 Variable cost per unit >7?

Fi1ed (ost
Expected unit sales
2he manufacturers unit cost is given by <

300,000
4?=???

?nit cost N variable cost O fi.ed costs ?nit sales

N P*M O P(MM'MMM 5M'MMM

N P*F

"o+ assume the manufacturer +ants to earn a )M percent mar,up on sales. The manufacturer5s mar,up price is given by 1 -ar, up Price N unit cost #*& desired return on sales$ N P*F N P)M *&M.)

The manufacturer +ould charge dealers P)M per toaster and ma,e a profit of P% per unit. The dealers in turn +ill mar,up the toaster. If the dealers +ant to earn 5M percent on their selling price' they +ill mar,up the toaster to P%M. This is e3uivalent to a cost mar,up of *MM percent. -ar,ups are generally higher on seasonal items' specialty items' slo+er moving items' items +ith high storage and handling costs' and demand =inelastic items' such as prescription drugs. ?nfortunately' those least able to pay for prescription drugs are often burdened by mar,ups1 uninsured individual customers and the elderly on -edicare. In the case of prescription drugs' generic drugs command e.traordinarily high mar,ups1

Target 2eturn $ricing <n target return pricing" the #irm determines the price that would yield its target rate o# 9-<. This method is used by Beneral Motors" which sets its prices to achieve an 9-< o# 1.D!=S and also by public utilities. Target 9eturn :rice G @nit 6ostsI Y&)esired 9eturn x <nvested 6apital)C&Estimated @nit sales)Z Example o# a toaster manu#acturer ?

<nvestment G U 1 million Target 9-< G !=S G U !===== @nit costs G U 10 Estimated @nit sales G .==== Target 9eturn :rice G 10 I Y&.!= x 1======)C.====Z G U != Fut what happens i# sales achieved do not reach estimated salesL To know what might happen at various sales levels" the manu#acturer might prepare a breakDeven chart" which will determine at what sales level" he breaks even. +e can even extrapolate the in#ormation and determine his pro#its &hence 9-<s) #or various sales levels. Freak Even $olumes G Aixed costsC&:rice ? $ariable 6osts) Total 9evenues (ollars Total 6osts

Aixed 6osts

Freak Even 8imitations o# this pricing mechanism> ales $olume

ales =olume

<gnores price elasticity and competitors* prices :ricing needs to be dynamic w.r.t competitors" :86" sales volume Manu#acturer should be on the constant look out #or reducing costs

Perceived =alue Pricing This method sees the buyer*s perception o# value" not the seller*s costs as the key to pricing. The seller uses advertising" sales #orce and other marketing mix elements &promotions) to build up perceived value in buyer*s minds. )u:ont also embeds each chemical into a larger o##ering so that it is not seen as a commodity but rather as a solution to a customer*s problem. E.g ATT9<F@TE T). -AAE9 :9EM<@M -AAE9 A))E) $A8@E

Kuality )elivery ystem <nnovation 9etraining ervice :rice

<mpurities less than <mpurities [ 1ppm 1=ppm [ ! weeks [ 1 week upply chemical upply total system only 8ittle 9P) support +igh 9P) support Train initially ales $olume 9etrain on re1uest Thru home o##ice 8ocally available purchases U 1== per lb U 1=. per lb

U 1.,= .1. .5= !.== .,= .!. U ..==

The key to this method o# pricing is to determine the market*s perception o# the o##er*s value accurately. ellers with an in#lated view o# their o##ering will overDprice their product" those who underestimate their o##erings can underDprice their product. Market 9esearch is a power#ul tool to determine perceived value. 1alue $ricing This kind o# pricing means companies charge a #airly low price #or a highD1uality o##ering so that the price should represent a high value to the customer. e.g the declining prices o# computers" :PB. To o##er value prices" :PB overhauled its entire system. <t redesigned the way it develops" manu#actures" distributes" prices" markets" and sells products to deliver better value at every point in the supply chain. $alue pricing is not a matter o# simply setting lower prices w.r.t competitors. <t is a matter o# reengineering the company*s operations to become a low cost producer without sacri#icing 1uality. Every day low pricing &E)8:) is a kind o# $alue :ricing where a retailer charges a constant" everyday low price with no temporary price discounts. E.g (almart. 9etailers adopt E)8: because constant sales and promotions are costly and have eroded consumer*s con#idence in the credibility o# everyday shel# prices. <n highDlow pricing" the retailer charges higher prices on an everyday basis but then runs #re1uent promotions in which prices are temporarily lowered below E)8: level. "oing 2ate $ricing The #irm bases its price largely on competitor*s price ? the same" more or less. E.g in a commodity market such as steel" paper" or #ertilizer" #irms normally charge the same price. The smaller #irms M#ollow the leaderN" changing their prices when the market leader*s prices change. ome #irms may charge a small premium or discount.

This method is used when costs are di##icult to measure or competitive response is uncertain. <t is thought to re#lect the industry*s collective wisdom as to the price that will yield a #air return and not /eopardize the industrial harmony. Sealed ,id pricing @nder this pricing mechanism" the #irm bases its price on expectations o# how competitors will price rather than its costs or demand. The #irm has to bid the lowest to win the contract" but cannot bid below its costs. -ne way the #irm can determine the optimal bid price is to calculate the pro#its out o# each bid price" anticipate the probability o# winning #or each bid and thus select the bid with the maximum expected pro#its &product o# pro#it and probability o# winning). uch a method can be adopted only when the #irm participates in many bids" so over a period o# time" the #irm will maximize pro#its. Fut i# a #irm has to win this contract badly" the expected pro#its method is not suitable.

SE)ECTI'" T3E FI'-) $2ICE


Selecting the final price depends on arious factors: 1. :sychological :ricing> !. The in#luence o# other marketing mix elements %. 6ompany pricing policies 1: $sychological $ricing Many consumers view pricing as an indicator o# 1uality. E.g egoDsensitive products" per#umes" cars etc. #or such products" price and 1uality perceptions may interact in the absence o# alternative in#ormation about 1uality. 9e#erence pricing ?Fuyers carry in their minds a re#erence price #or a particular product by noticing current prices" past prices or the buying context. ellers can manipulate these re#erence prices by" #or example" situating a product amongst expensive products to imply that it belongs to the same class. (hy most prices end with odd digitsLL A product priced at U!;; gives the impression o# being in the !== range rather than the %== range. -dd endings convey the notion o# discount or bargain. 2: The influence of other marketing mi# elements The brands 1uality and its advertising budget visDXDvis competitors also in#luence pricing. A study revealed that>

Frands with average 1uality but high adv budgets were able to charge premiums. Frands with high 1uality and high adv budgets had the highest prices The positive relationship between the high prices and high advertising budgets was stronger in the later stages o# the :86 ?: Company pricing policies

The price must be compatible with company pricing policies <: Impact of price on other parties 8ike distributors" dealers" sales #orce" competitors" suppliers" government etc :riceD#ixing" ie price #ixed in collaboration with competitors" is illegal. -(-$TI'" T3E $2ICE 6ompanies use a pricing structure that re#lects variations in geographical demand and costs" marketDsegment re1uirements" purchase timing" order levels" delivery #re1uency" guarantees" service contracts and other #actors. As a result o# discounts" allowances" and promotional supports" a company rarely realizes the same pro#it #rom each unit o# products that it sells. The #ollowing are various price adaptation strategies> "eographical $ricing @Cash/ counter trade/ ,arterB This involves in the company in deciding how to price its products to di##erent customers in di##erent locations and countries. Another issue is how to get paid. This issue is critical when buyers lack su##icient hard currency to pay #or their purchases. Many buyers want to o##er other items in payment" a practice known as countertrade. This countertrade can take several #orms> D Barter> The direct exchange o# goods" with no money and no third party involved. &ompensation deal> The seller receives some percentage o# the payment in cash and the rest in products. Buyback arrangements> The seller sells a plant" e1uipment" or technology to another country and agrees to accept as partial payments products manu#actured with the supplied e1uipments. )ffset: The seller receives #ull payment in cash but agrees to spend a substantial amount o# that money in that country within a speci#ied time period.

$rice (iscounts C -llowances The di##erent types are> D &ash $iscounts> <t is a price reduction to buyers who pay their bills promptly >uantity discounts> <t is a price reduction to those buyers who large volumes /unctional discounts> Also called trades discounts. These are o##ered by a manu#acturer to tradeDchannel members i# they will per#orm certain #unctions" such as

selling" storing and record keeping. Manu#actures may o##er di##erent discounts to di##erent channels. easonal discounts> <t is a price reduction to buyers who buy merchandise or services out o# season. Allo#ances> These are extra payment designed to gain reseller participation in special programs. TradeDin allowances are price reductions granted #or turning an old item when buying a new one.

$romotional $ricing everal pricing techni1ues can be used to stimulate early purchases> D Loss-leader pricing: upermarkets and department stores o#ten drop the prices on wellDknown brands to stimulate additional store tra##ic. +owever the manu#acturers do not encourage this as this practice can dilute the brand image o# that product and also bring complaints #rom other retailers who charge the retail price. pecial-event pricing> eller will establish special prices in certain season to draw in more customers. &ash rebates: 6ompanies o##er cashDrebates to encourage purchase o# manu#acturer*s product within a speci#ied time period. Lo#-interest financing: <nstead o# cutting price the companies can o##er lowDinterest #inancing. Longer payment terms: ellers" especially mortgage banks and auto companies" stretch loans over longer periods and thus lower the monthly payments. -arranties and service contracts: 6ompanies can promote sales by adding a #ree or lowDcost warranty or service contract. Psychological discounting: This strategy involves setting an arti#icially high price and then o##ering the product a substantial savings.

(iscriminatory $ricing <t occurs when a company sells a product or service at two or more prices that do not re#lect a proportional di##erence in costs. <t can take several #orms> &ustomer-segment pricing: )i##erent customer groups are charged di##erent prices #or the same product or service. Product-form pricing: )i##erent versions o# the product are priced di##erently but not proportionately to their respective costs. .mage pricing: ome companies price their products at two di##erential levels based on image di##erences. Location pricing: The same product is priced di##erently at di##erent locations even though the cost o# o##ering at each location is the same. "ime pricing: :rices are varied by season" day" or hour.

Aor price discrimination to work" certain conditions must exist. Airst" the market must be segmentDable and the segment must show di##erent intensities o# demand. econd" members in the lowerDprice segment must not be able to resell the product to the higherD price segment. Third" competitors must not be able to undersell the #irm in the higherD segment. Aourth" the cost o# segmenting and policing the market must not exceed the revenue derived #rom price discrimination. $roduct Mi# $ricing :rice setting logic must be modi#ied when the product is part o# a product mix. <n this case" the #irm searches #or a set o# prices that maximizes pro#it on the total mix. :ricing is di##icult because the various products have demand and cost interrelationship and are sub/ect to di##erent degree o# competition. Product-line Pricing: 6ompanies normally develop product lines rather than single products and introduce price steps. ExD men*s suit at .===CD to !.===CD )ptional feature pricing: many companies o##er optional products" #eatures" and services along with their main products. ExD Auto companies also o##ering accessories at extra prices. &aptive product pricing: ome product re1uires the use o# ancillary" or captive products. ExD low price #or razors but high price #or razor blades. There is a danger in pricing the 6aptive product too high in the a#termarket &market #or ancillary supplies to the main product). 6aterpillar #or example"" makes high pro#its in the a#termarket by pricing its parts and services high. This practice has given rise to MpiratesN" who counter#eit the parts and sell them. "#o part pricing: ervice #irms o#ten engage in twoDpart pricing" consisting o# a #ixed rate plus a variable usage #ee. Telephone users pay a minimum monthly #ee plus charges #or calls beyond a certain area. Amusement parks charge an admission #ee plus #ees #or rides over a certain minimum. The service #irm #aces a problem similar to captiveDproduct pricingD namely" how much to charge #or the basic service and how much #or the variable usage. The #ixed #ee should be low enough to induce the purchase o# the serviceO the pro#it can then be made on the usage #ees. By-product Pricing: The production o# certain goods o#ten results in byDproducts. <# the byDproducts have value to a customer group" they should be priced n their value. Any income earned on the byDproducts will make it easier #or the company to charge a lower price on its main product i# competition #orces it to do so. Product Bundling Pricing: ellers o#ten bundle their products and #eatures at a set price. An auto manu#acturer might o##er an option package at less than the cost o# buying all options separately. A theater company will price a season subscription at less than the cost o# buying all per#ormances separately. Fecause customers may not have planned to buy all the components" the savings on the price bundle must be substantial enough to induce them to buy the bundle. ome customers will want less than the whole bundle. uppose a medical e1uipment suppliers* o##er includes #ree delivery and training. A particular customer might ask to #orego the #ree delivery and training in exchange #or a lower price. The customer is asking the seller to MunbundledN or MrebundleN its o##er.

I'ITI-TI'" -'( 2ES$%'(I'" T% $2ICE C3-'"ES 6ompanies o#ten #ace situations where they may need to cut or raise prices. .nitiating Price cuts everal circumstances might lead a #irm to cut its prices. -ne is excess plant capacity> The #irm needs additional business and cannot generate it through increased sales e##ort" product improvement" or other measures. <t may resort to aggressive pricing. Fut in initiating a price cut" the company may trigger a price war. Another cicumstance is a declining market share. Beneral motors" #or instance" cut its subcompact car prices by 1= percent on the (est coast when 2apanese competition kept making inroads. 6ompanies sometimes initiate price cuts in a drive to dominate the market through lower costs. Either the company starts with lower costs than its competitors or it initiates price cuts in the hope o# gaining market share and lower costs. Fut a price cutting strategy involves possible traps> 8owD1uality trap> consumers will assume that 1uality is low. Aragile market share trap> A low price buys market share but not market loyalty. The same customers will shi#t to any lowerDprice #irm that comes along. hallow pocket trap> The higher priced competitors may cut their prices and may have longer staying power because o# deeper cash reserves. 6ompanies may have to cut their prices in a period o# economic recession. )uring hard times" consumers reduce their spending. ome possible company responses are given in the table below> MarketingDMix Alternatives trategic options 9easoning 6onse1uences Maintain :rice P Airm has higher customer maller market share. perceived Kuality. loyalty. <t is willing to 8owered pro#itability. Engage in selective lose poorer customers to customer pruning competitors. 9aise price P perceived 9aise price to cover maller market share. Kuality rising costs. <mprove Maintained pro#itability 1uality to /usti#y higher prices Maintain price P raise <t is cheaper to maintain maller market share. perceived Kuality price and raise perceived hort term decline in 1uality pro#itability. 8ong term increase in pro#itability. 6ut price partly and raise Must give customers Maintained Market share. perceived Kuality some price reduction but hort term decline in stress higher value o# pro#itability. 8ong term o##er maintained pro#itability 6ut price #ully and )iscipline and discourage Maintained market share. maintain perceived price competition hort term decline in Kuality pro#itability. 6ut price #ully and )iscipline and discourage Maintained Market share.

reduce perceived Kuality

price competition and Maintained margin. maintain :ro#it margin. 9educed long term pro#itability. Maintain price and 6ut marketing expense to maller market share. reduce perceived Kuality combat rising costs. Maintained margin. 9educed longDterm pro#itability. <ntroduce an economy Bive the market what t ome cannibalization but model wants higher total volume.

Initiating $rice increases


A success#ul price increase can raise pro#its considerably. Aor example" i# the company*s pro#it margin is % percent o# sales" a 1 percent increase will increase pro#its by %% percent i# sales volume is una##ected. This situation is illustrated in the table below> :rice @nits sold 9evenue 6osts :ro#it Fe#ore U1= 1== U1=== D;4= U%= A#ter U1=.1= 1== U1=1= D;4= U,= &a 1S increase) price

&a %%.%%S pro#it increase)

A ma/or circumstance provoking price increases is 6ost in#lation. 9ising costs unmatched by productivity gains s1ueeze pro#it margins and lead companies to regular rounds o# price increases. 6ompanies o#ten raise their prices by more than the cost increase in anticipation o# #urther in#lation or government price controls in a practice called Anticipatory pricing. 6ompanies hesitate to o##er longDterm price contracts. Another #actor leading to price increase is over demand. (hen a company cannot supply all o# its customers" it can raise its prices" ration supplies to customers" or both. The price can be increased in the #ollowing ways. Each has a di##erent impact on the buyers. )elayed 1uotation pricing> The company does not set a #inal price until the product is #inished or delivered. )elayed 1uotation pricing is prevalent in industries with long production lead times" such as industrial construction and heavy e1uipment. Escalator clauses> The company re1uires the customer to pay today*s price and all or part o# any in#lation increases on some speci#ied price index. Escalator clauses are #ound in many contracts involving industrial pro/ects o# long duration. @nbundling> The company maintains its price but removes on price separately one or more elements that were part o# the #ormer o##er" such

as #ree delivery or installation. Many restaurants have shi#ted #rom total dinner pricing to a la carte pricing. 9eduction o# discounts> The company instructs its sales #orce not to o##er its normal cash and 1uantity discounts.

<n passing :rice increases to customers" the company must avoid the image o# being a :rice gouger. 6ompanies also need to think o# who will bear the brunt o# increased prices. There are some techni1ues to avoid this image. -ne is a sense o# #airness must surround any price increase" and customers must be given advance notice so they can do #orward buying or shop around. harp price increases need to be explained in understandable terms. Making low visibility price moves is also a good techni1ue. Eliminating discounts" increasing minimum order sizes" curtailing production o# low margin products are some examples. And contracts or bids #or long term pro/ects should contain escalator clauses based on such #actors as increases in recognized national price indexes. 6ompanies can also respond to higher costs or overdemand without raising prices. The possibilities include 1. shrinking the amount o# product instead o# raising the price. !. substituting less expensive materials or ingredients %. reducing or removing product #eature to reduce cost ,. removing or reducing product services such as installation or #ree delivery .. using less expensive packaging material or larger package sizes 0. reducing the number o# sizes and models o##ered 4. creating new economy brands 2eactions to price changes Any price change can provoke a response #rom customers" competitors" distributors" suppliers and even government. CustomerIs reactions 6ustomers o#ten 1uestion the motivation behind the price changes. A price cut can be interpreted in di##erent ways. The item is about to be replaced by a new modelO the item is #aulty and is not selling wellO the #irm is in #inancial troubleO the price will come down even #urtherO the 1uality has been reduced. A price increase which would normally deter sales might carry some positive meanings too to the customers. The item is hot and represents an unusually good value. 6ustomers are most cost sensitive to products that cost a lot or are bought #re1uently. They hardly notice higher prices on lowDcost items that they buy in#re1uently. ome buyers are less concerned with price than with the total costs o# obtaining" operating P servicing the product over its li#etime. A seller can change more than competitors P still get the business i# the customer can be convinced that total li#eDtime costs are lower. CompetitorIs 2eactions A #irm contemplating a price change has to worry about competitor*s reactions. 6ompetitors are most likely to react where the number o# #irms are #ew" the product is homogeneous" and buyers are highly in#ormed. +ow can a #irm anticipate a competitor*s reactionsLL -ne way is to assume that the competitor reacts in a set way to price changes. The other is to assume that the competitor treats each price change as a #resh challenge and reacts according to sel#Dinterest at the

time. <n this case" the company will have to #igure out what lies in the competitor*s sel# interest. <t will need to research the competitor*s current #inancial situation" recent sales" customer loyalty and corporate ob/ectives. <# the competitor has a market share ob/ective" it is likely to match the price change. <# it has a pro#it maximization ob/ective" it may react by increasing the advertising budget and improving product 1uality. The problem is complicated because the competitor can put di##erent interpretations on a price cut> that the company is trying to steal the market" that the company is doing poorly and trying to boost its sales or that the company wants the whole industry to reduce prices to stimulate total demand. 2esponding to competitorsI price changes +ow should a #irm respond to a price cut initiated by a competitorL <n markets characterized by high product homogeneity" the #irm should search #or ways to enhance its augmented product" but i# it cannot #ind any" it will have to meet the price reduction. <# the competitor raises price in a homogeneous product market" the other #irms might not match it" unless the price increase will bene#it the industry as a whole. Fy not matching it" the leader will have to rescind the increase. <n non homogeneous product markets" a #irm has more latitude. The #irm needs to consider the #ollowing issues> &1) why did the competitor change the priceL <s it to steal the market or to utilize excess capacity" to meet changing cost conditions or to lead and industry wide price changeL &!) does the competitor plan to make the price change temporary or permanentL &%) what will happen to the company*s market share P pro#its i# it does not respondL Are other companies going to respondL &,) what are the competitor*s and other #irms* responses likely to be to each possible reactionL Market leaders #re1uently #ace aggressive price cutting by smaller #irms trying to build market share. @sing price Au/i attacks Jodak" Fic attacks Billette" and 6ompa1 attacks <FM. Frand leaders also #ace lower priced private store brands. Frand leader can respond in several ways> 1. Maintain price> The leader might maintain its price and pro#it margin" believing that &1) it would lose too much pro#it i# it reduced price" &!) it would not lose much market share" and &%) it could regain market share when necessary. The leader believes that it can hold on to good customers and give up the poorer ones. +owever the argument against price maintenance is that the attacker gets con#ident" leader*s sales #orce gets demoralized" and the leader loses more share than expected. The leader panics lowers price to regain share and #inds that regaining its market position is more di##icult and costly than expected. !. Maintain price and add value> the leader could improve its product" services and communications. The #irm may #ind it cheaper to maintain price and spend money to improve perceived 1uality than to cut price and operate at a lower margin. %. 9educe price> the leader might drop its price to match the competitor*s price. <t might do so because &1) its cost #all with volumes &!) it would lose market share because market is price sensitive" and &%) it would be hard to rebuild market share once it is lost. This action will cut pro#its in the short run. ,. <ncrease price and improve 1uality> the leader might raise it prices and introduce new brands to bracket the attacking brand.

.. 8aunch a low price #ighter line> add lower price items to the line or create a separate lower price brand. The best response varies with the situation. The company has to consider the product*s stage in the li#e cycle" its importance in the company*s port#olio" the competitor*s intentions and resources" the market*s price and 1uality sensitivity" the behaviour o# costs with volume" and the company*s alternative opportunities. An extended analysis o# company alternatives may not be #easible when the attack occurs. The company may have to react decisively within hours or days. <t would make better sense #or the company to anticipate possible competitors* price changes and to prepare contingent responses.

Chapter 1> Managing Marketing Channels

Managing Marketing 6hannels


5hat !ork is performed %y Marketing Channe"sI

:roducers delegate some o# the selling /ob to intermediaries" means relin1uish some control over how and to whom the products are sold" due to #ollowing reasons> Many producers lack the resources to carry out direct marketing <n some cases direct marketing is not #easible. An example is given o# the gum business which is completely impractical #or a gum producer to establish small retail gum shops throughout the world or to sell gum by mail order. :roducers who do establish their own channels can o#ten earn greater returns by increasing their investment in their main business. <# a company earns a != percent rate o# return on manu#acturing and only a 1= percent return on retailing" then it doesn*t make sense to undertake its own selling. Channe" functions and f"o!s Members o# marketing channel per#orm a number o# key #unctions> Bather in#ormation about potential and current customers" competitors and other #actors. )evelop and disseminate persuasive communications to stimulate purchasing. 9each agreement on price and other terms so that ownership can be e##ected. :lace orders with manu#acturers. Ac1uire #unds to #inance inventories. Assume risks connected with carrying out channel work. :rovide #or the successive storage and movement o# physical products. :rovide #or buyer*s payment o# their bills through banks and other #inancial institutions. -versees actual trans#er o# ownership #rom one organization or person to another. ome #unctions like>

:hysical" title P promotion etc.> Aorward #low o# activity

-rdering P payment etc> Fackward #low #rom customers to the company <n#ormation" negotiation" #inance and risk taking etc.> occur in both directions.

Channel )e els The consumer and industrial marketing channels diagrams are given in the ::T named as 6h 10Y1Z.
Examples o# various channels

Consumers marketing 1. Wero ? level channel> door to door sales" home parties" mail order" tele marketing" T$ selling" <nternet selling" and manu#acturer owned stores. !. -ne ? level channel> one intermediary" such as retailer. %. Two ? level channel> wholesalers and retailers. ,. Three ? level channel> wholesalers" /obbers and retailers. <ndustrial marketing is sel# explanatory in the ::T. An example o# ,ackward channel: 9ecycling o# solid wastes> including manu#acturers* everal intermediaries play a role in backward channels" redemption centers" community groups" traditional

intermediaries such as so#t drink intermediaries" trash collection specialists" recycling centers" trashDrecycling brokers and central processing warehousing. Service Sector Channe"s chools develop Meducational ? dissemnation systemsN and hospitals develop Mhealth delivery systemsN. These institutions #igure out agencies and locations #or reaching out a population spread over an area. Aire stations must be located to give rapid access to potential con#lagrations" voting booths must be placed so that people can cast their ballots without expending unreasonable amount o# time" e##ort" or money to reach the polling stations. 6hannel )esign decisions

)esigning a channel system calls #or D D D Analyzing customer needs Establishing channel ob/ectives Evaluating the ma/or channel alternatives

-naly&ing customer needs <n designing the marketing channel" the marketer must understand the service output level desired by the target customer. D 8ot size ? The no o# units the channel permits a typical customer to purchase on a occasion D (aiting time ? The average time customers o# that channel wait #or receipt o# goods D patial convenience ? The degree to which the marketing channels makes it easy #or customers to purchase the product D :roduct variety ? The assortment breadth provided by the marketing channel D ervice backup ? The addDon services provided by the channel. Esta,lishing channel o,5ecti es C constraints D D D D D D 6hannel institutions should arrange their #unctional tasks to minimize total channel costs with respect to desired level o# service outputs. 6hannel ob/ective vary with product characteristics. perishable goods re1uire more direct mktg. 6hannel design must take into account the strengths and weaknesses o# di##erent types o# intermediaries. 6ompetitor*s channels also in#luence channel design. 6hannel design must adapt to the larger environment. 8egal restrictions and regulations also a##ect channel design.

Identifying ma5or channel alternati es Types of intermediaries 'um,er of intermediaries D Exclusive distribution D elective distribution D <ntensive distribution Terms and responsi,ilities of channel mem,ers The main elements in the Mtrade relation mixN are D :rice policies D 6onditions o# sale

D D

Territorial rights And speci#ic services to be per#ormed by each party

E aluating the ma5or alternati es 6hannel alternative should be evaluated against Economic" 6ontrol and Adaptive criteria

6hannel Management )ecisions>


Selecting Channel Mem,ers The producers should select the channel members by determining the characteristics like number o# years in business" other lines carried" growth and pro#its record" solvency" cooperativeness and reputation. <# the intermediaries are sales agent" producers would look into the number and characteristics o# other lines carried and the size and 1uantity o# the sales #orce. <# the intermediaries want exclusive dealership" the producer would like to consider its locations" #uture growth prospects and type o# clientele. Training Channel mem,ers 6ompanies should conduct training programs #or their distributors and dealers because the end users would view them as company. Moti ating Channel Mem,ers A company needs to view its channel members in the same way as its end users. The company needs to determine the intermediary needs and construct a channel positioning such that its channel o##ering is tailored to provide superior value to these intermediaries. The company should provide training programs" market research programs and other capabilityDbuilding program to improve intermediary*s per#ormance. The company must constantly communicate its view that the intermediaries are the partners in the /oint e##ort to satis#y endDusing consumers. This should start with understanding their needs and wants. :roducers vary greatly in managing intermediaries. They can draw on the #ollowing types o# power to elicit cooperation> 1. 6oercive :ower> (hen the producer threatens to withdraw a resource or terminate a relationship i# intermediaries #ail to cooperate. This power is 1uite e##ective i# the intermediaries are highly dependent upon the manu#acturer but it can produce resentment can lead intermediaries to organize countervailing powers. !. 9eward :ower> (hen the producer o##ers intermediaries an extra reward #or per#orming speci#ic acts or #unctions. 9eward power typically produces better

results than coercive power but can be overrated. The intermediaries may start expecting reward every time the manu#acturer wants a certain behaviour to occur. %. 8egitimate :ower> (hen the manu#acturer re1uests a behavior that is warranted under contract. ,. Expert :ower> (hen the manu#acturer has special knowledge that the intermediaries value. This is an e##ective #orm o# power bcoz intermediaries would per#orm poorly without this. Fut it weakens once the expertise is passed on to the intermediaries. o manu#acturer must keep on developing new expertise to keep in#luencing the intermediaries. .. 9e#erent :ower> (hen the manu#acturer is so highly respected that the intermediaries are proud to be associated with him. Manu#acturers can gain cooperation best i# they resort to re#erent power" expert power" legitimate power and reward power and avoid using coercive power. <ntermediaries can aim #or relationship based on cooperation" partnership or distribution program. Manu#acturers can gain intermediaries cooperation through higher margins" special deals" premiums" cooperative advertising allowances" display allowances and sales contests. At time they may apply negative sanctions such as threatening to reduce margins. low delivery or terminate the relationship. More companies try to #orge a long term partnership with the intermediaries by de#ining what it wants #rom the intermediaries in terms o# market coverage" inventory levels" marketing development" account solicitation" technical advice and services and marketing in#o. There may be a compensation plan #or adhering to these policies. (istri,ution $lanning> Fuilding a planned" pro#essionally managed" vertical marketing system that meets the need o# both. The manu#acturer establishes a department within the company called distribution relations planning. <ts /ob is to identi#y distributor needs and build up merchandising programs to help each distributor work as e##iciently as possible. Foth o# them work /ointly. The aim is to make distributors #eel #or making money #rom the sale side rather than on the buying side.

Evaluating 6hannel members>


:roducers must constantly evaluate the channels per#ormance against such standards as sales 1uota attainment" avg inventory levels" customer delivery time" treatment o# damaged and lost goods and cooperation in the promotional and training programs.

Modi#ying 6hannel Arrangements>


A producer must periodically review and modi#y its channel arrangements. <t becomes necessary when the channel is working as per the plans" the consumers buying patterns changes" the market expands" new competition arises" innovative distribution channels emerge and the product moves into the later stages o# the :86.

Marketing Channels isANA is $)C: <ntroductory stage> pecialist channels 9apid growth stage> )edicated stores" department stores that o##er services Maturity stage> Mass merchandisers )ecline stage> 8ower cost channels like mail order" o## price discounters. The most di##icult decision is revising overall channel strategy. <t may become outdated and a gap would be created. Customer (ri en (istri,ution System (esign: 1. 9esearch target customers value perceptions" needs" and desires regarding channel service outputs. !. Examine the per#ormance o# the company*s and competitors existing distribution systems in relation to customer desires %. Aind service output gaps that need corrective actions ,. <denti#y ma/or constraints that will limit possible corrective actions .. )esign a management bounded channel solution 0. <mplement the recon#igured distribution system.

Channel (ynamics
The coDoperation" con#lict and competition between marketing channels.

$ertical marketing systems>


<n a conventional marketing system" with producer wholesaler and retailer" there is no member with substantial control over the other one. each seeks to maximize own pro#its. <n $ertical marketing systems&$M ) the % members act as a uni#ied system. The channel captain" controls the other members o# the channel. Anyone" the producer wholesaler or retailer can be captain" depending upon the power and dominance wielded. They achieve economies through size" bargaining power and elimination o# duplicate services. There is less chance o# con#lict as there is grp ob/ective and no individual goals. The % types o# $M > 1) corporate $M ? 6ombines successive stages o# production and distribution under single ownership. $ertical integration #or high level o# control. e.g ears obtains .=S o# goods #rom wholly or partly own subsidiaries. !) Administered $M

6oordinates successive stages o# production and distribution through size and power o# one o# its members. Manu#acturers o# a dominant brand can get strong trade cooperation #rom resellers. e.g Jodak" :PB " Billette. %) 6ontractual $M <ndividual #irms at the % di##erent stages integrating their programs on a contractual basis to achieve economies through size. M$alue added partnershipsN. % types> D (holsesaler sponsored voluntary chains (holesalers organize chains #or the or retailers to compete against the other large chain organizations "through standardized selling practices. @sing buying economies . D retailer cooperatives retailers take initiative and organize new business entity to carry on wholesaling and possible some production. members do /oint advertisement and concentrate purchases through their retailer coDop. pro#its are shared in proportion to the purchase proportion. 3onmembers can also but #rom the chain but no share in pro#its. D Aranchise organization Aranchisee and #ranchiser based system. Traditional method is the manu#acturerDsponsored retailer #ranchisee. E.g Aord Another method is manu#acturerDsponsored wholesaler #ranchisee" e.g. 6ocaD 6ola licenses its bottlers in various markets who buy its product concentrate ervice #irmDsponsored retailer #ranchisee is when the service #irm brings its service e##iciently to its consumers. E.g +ertz" Avis" mac)onalds The new competition in retailing is no longer between the independent business units but between whole systems o# centrally programmed networks competing against one another to achieve cost economies.

3ori&ontal marketing systems:


! or more unrelated companies put their resources together to exploit emerging marketing opportunities. <ndividual companies lack money" or know how or the marketing resources. Fut together they supplement each other. ymbiotic marketingR e.g ara 8ee and (alDMart ? they share market in#o" inventory levels and sales history" etc.

Multi channel marketing systems:

(hen single #irm uses two or more marketing channels to reach one or more consumer segments. 6ompanies gain through increased market coverage " can reach out to a new consumer segment by adding a new channel. They can lower the channel cost 6an customize the selling as per target consumer re1uirements.

Con entional (istri,ution Channel s: 1ertical Marketing Systems


(onventional marketing channel Manufacturer Vertical marketing channel Manufacturer -holesaler @etailer (onsumer

-holesaler @etailer (onsumer

There are . roles that a #irm in an industry can play> 1) <nsiders are members o# dominant channel !) triver are #irms seeking to be insiders %) 6omplementary are not part o# the dominant channel. :er#orm #unctions not done by the other members in the channel ,) Transients are outside the dominant channel do not seek membership. They are there only #or opportunities .) -utside innovators are challengers and disruptors #or the dominant channel.

Channel conflict and competition Types of channel conflict: $ertical channel con#lict ? within di##erent membersClevels o# the same channel. e.g BM in con#lict with dealers" 6oke in con#lict with bottlers.

+orizontal channel con#lict ? within di##erent members at same levels o# the same channel. e.g 6on#lict between di##erent Aord dealers Multi channel con#lict ? within di##erent members < di##erent channels in the same market e.g company selling through specialty showroom and through dealerships. This sets up di##erent prices within the same market.

Causes of Channel Conflict


Boal <ncompatibility @nclear rolesC)i##erence in :erception )ependence ? on manu#acturers 6on#lict between the #ollowing channels in <FM> 1) between national acc managers and #ield sales #orce !) between #ield sales #orce and telemarketers %) between #ield sales #orce and dealers

managing channel conflict:


1) adopt super ordinate goals ? decide on the #undamental goal whether market share or high 1uality !) exchange persons between ! channel levels %) cooptation is an e##ort o# one organization to win the support o# leaders o# other organizations by keeping them on their board. ,) 2oint memberships in and between trade associations There is diplomacy" mediation and arbitration in case o# a con#lict to resolve the issue. 8egal P Ethical <ssues in 6hannel 9elations Exclusive )ealing ? dealer should not handle competitors products Exclusive Territories ? producer will decide not to sell to other dealers in the same territory Tying Agreements ? producers o# a strong brand sell to dealer only i# he takes other products #orm him )ealers* 9ights ? producers can sell to dealers but cannot terminate the dealer agreements easily. -nly i# there is a cause but not #or non compliance in some illegal agreements.

Chapter 1D Managing 2etailing 0holesaling and Market )ogistics


1: 2etailing a. All activities involved in selling goods P services directly to #inal consumer #or personal" nonDbusiness use. 2: Types of 2etailers a. Specialty Store> 3arrow :roduct line with a deep assortment" such as apparel stores" #urniture stores" bookstores etc. b. (epartment Store: everal :roduct linesDtypical clothing" home #urnishings and household goods c. Super market: 9elatively large" low cost low margin" high volume" sel# service operation designed to serve total needs #or #ood" laundry and household maintenance products d. Con enience Store: 9elatively small store located near residential area" open long hours seven days a week and carrying a limited line o# high turnover convenience products at slightly higher prices e. (iscount store: tandard merchandise sold at lower prices with lower margins and higher volumes #. %ffA$rice 2etailer: Merchandise bought at less than regular wholesale price and sold at less than retailO o#ten le#t over goods" overruns and irregulars obtained at lower prices. ?: 2etailers can position themsel es as offering one of four le els of ser ice: a. SelfAser ice: <t is corner stone o# all discount operations. b. Self selection: 6ustomers #ind their own goods" although they can ask #or assistance c. )imited ser ice: These retailers carry more shopping goods and customers need more in#ormation and assistance d. Full Ser ice: ales people are ready to assist in every phase o# the locateD compareDselect process.

,. Fy combining these di##erent service levels with di##erent assortment breadths" we can distinguish the #our broad positioning strategies available to retailers a. +loomingdaleIs: tores that #eature a broad product assortment and high value added" :ay high attention to store design" product 1uality" service and image. :ro#it margin is high. b. Tiffany: 3arrow product assortment but high value added. 6ultivate an exclusive image and tend to operate on high margin and low volume. c. Sun glass hut: narrow prod assortment and low value added" such stores keep their costs and prices low by designing similar stores and centralizing buying" merchandising and distribution d. 0all Mart: Froad product line but low value added. Aocus on keeping prices low. +igh volume +road

Freadth o# :roduct line

Floomingdale*s

(alDMart

Ti##any 'arrow

Jinney shoe

$alue added

3igh )ow =: 'on store 2etailing falls into < ma5or categories: a: (irect selling ,: (irect marketing c: -utomatic ending d. +uying ser ices is a store less retailer ser ing a specific clienteleA usually employees o# large organizations" who are entitled to buy #rom a list o# retailers who have agreed to give them discounts in return #or memberships. >: Ma5or types of corporate retailing a. Corporate chain stores: Two or more outlets commonly owned and controlled" employing central buying and merchandising and selling similar lines o# merchandise. b. 1oluntary chainsO A wholesaler sponsored group o# independent retailers engaged in bulk buying and common merchandising c. 2etailer cooperati esO <ndependent retailers who set up a central buying organization and conduct /oint promotion e##ort d: FranchisesO e. Merchandising conglomerates> A #ree #orm corporation that combines several diversi#ied retailing lines and #orms under central ownership along with some integration o# distribution and management Target Market A retailer*s most important decision concerns the target market. :eriodic marketing research is a must to ensure that they are reaching their target customers. $roduct -ssortment and procurement Must match the target market*s shopping expectations. The retailer has to decide on productDassortment breadth and depth. The real challenge begins a#ter de#ining the product assortment in terms o# developing a productDdi##erentiation strategy. ome possibilities are> o Aeature exclusive national brands not available at competing retailers o Aeature mostly private branded merchandise o Aeature surprise or everDchanging merchandise

o Aeature latest merchandise #irst o -##er a highly targeted assortment Establish procurement policies" sources

Ser ices and store atmosphere )ecide on the services mix o :reDpurchase services like accepting telephone and mail orders o :ostDpurchase services like shipping and delivery o Ancillary services like parking" restaurants etc. Atmosphere $rice decision Most retailers #all into the highDmarkup" lowerDvolume group or the lowDmarkup" higherD volume group. $lace decision Beneral business districts 9egional shopping centers 6ommunity shopping centersC malls etc. Trends in retailing 3ew retails #orms emerge but most o# them #ace a short li#e span. They are rapidly copied and 1uickly lose their novelty. Browth o# nonDstore retailing> electronic age 6ompetition becoming more intertype or between types o# store outlets 9etailers moving towards becoming either mass merchandisers or specialty retailers )epartmental stores to malls" oneDstop shopping Marketing channels are increasingly becoming pro#essionally managed and programmed. 3ew store #ormats launched Technology as a competitive tool #or inventory management" #und trans#er etc. 9etailers with uni1ue #ormats and strong brand positioning are moving to other countries like Mc)onalds etc 9ise in establishments that provide a place #or people to congregate such as co##ee shops etc. 0holesaling <t includes all the activities involved in selling goods or services to those who buy #or resale or business use. (holesaling excludes manu#ac and #armers bcoz they r engaged primarily in production and it excludes retailers. (hen r wholesalers usedL (hen they are e##icient in> D elling and promoting D Fuying and assortment building D Fulk breaking D (arehousing

D D D D D

Transportation Ainancing 9isk bearing Market in#ormation Management services and counseling

Types o# wholesaling Merchant wholesalers> <ndependently owned businesses that take title to the merchandise they handle. They #all under two categories> a. Full ser ice wholesalers> carry stock" maintain a sales #orce" o##er credit" make deliveries and provide management services. There are ! types o# #ullDservice wholesalers> i) #holesale merchant> sell primarily to the retailers and provide a #ull range o# services. 7eneral line #holesalers carry one or two lines. pecialty #holesalers carry only one part o# line. ii) .ndustrial distributor sell to manu#acturer rather than to retailers and provide several services. b. )imited ser ice wholesalers> -##er #ewer services to suppliers and customers. +rokers and agents: do not take title to goods" per#orm #ew #unctions. +rokers -gents: Manu#act agents" selling agents" purchasing agents" commission merchants" ManufacturesI and 2etailersI +ranches and %ffices: ales o##ices" :urchasing o##ices Miscellaneous wholesalers: specialized wholesalers like agriculture assemblers" petroleum bulk plants 03%)ES-)E2 M-2.ETI'" (ECISI%' 1. Target Market !. $roduct -ssortment and Ser ices %. $rice (ecision ,. $romotion (ecision .. $lace (ecision 2A8?+" L)7. ".& <t involves planning" implementing and controlling the physical #lows o# materials and #inal goods #rom points o# origin to points o# use to meet customer re1uirements at a pro#it. Each market logistics system will lead to #ollowing costs M G TI A( I $( I M D Total market logistics cost o# proposed system T ? Total #reight cost o# proposed system A( ? Total #ixed warehouse cost o# proposed system $( ? Total $ariable warehouse costs &including inventory) ? Total cost o# lost sales due to average delivery delay under proposed system Market )ogistics (ecision <t should answer , 1uestions 1. +ow should orders be handledL @%rder processingB

!. (here should stocks be locatedL @0areAhousingB %. +ow much stock should be heldL @In entoryB ,. +ow should goods be shippedL @TransportationB %rder 2emittance cycle 6Time between an order*s receipt" delivery and payment tock level is called the order point :iggyback ? use o# rails and trucks #or transportation Aishy back ? (ater and trucks Train ship ? (ater and rail Air truck ? Air and truck

Chapter 1G M-'-"I'" I'TE"2-TE( M-2.ETI'" C%MM*'IC-TI%'S


J:ntegrated marketing communications is a !ay of "ooking at the !ho"e marketing process from the vie!point of the receiverJ The Marketing communications mix consists o# . ma/or modes o# communication 1. Advertising ? Any #orm o# nonDpersonal presentation and promotion o# ideas" goods or services by an identi#ied sponsor !. ales :romotion D A variety o# shortDterm incentives to encourage trial or purchase o# a product or service %. :ublic 9elations and publicity ? A variety o# programs designed to promote or protect a company*s image or its individual products ,. :ersonal elling ? Aace to #ace interaction with one or more prospective purchasers #or the purpose o# making presentations" answering 1uestions and procuring orders .. )irect Marketing ? @se o# mail" telephone" #ax" eDmail" or internet to communicate directly with or solicit a direct response #rom speci#ic customers and prospects T+E 6-MM@3<6AT<-3 :9-6E Today there is a new view o# communications as an interactive dialogue between the company and its consumers that takes place during the preDselling" selling" consuming and postDconsuming stages. 6ompanies must ask not only M+ow can we reach our customersLN but also M+ow can our customers reach usLN The #ollowing table lists numerous communication plat#ormsO both traditional media &newspapers" radio" telephone" television) as well as through newer media #orms &computers" #ax machines" cellular phones" and pagers). Fy decreasing communication costs" emerging newer technologies have encouraged more companies to move #rom mass communication to more targeted communication and one to one dialogue Table 15.1
-d ertising Sales $romotion $u,lic 2elations $ersonal Selling ales :resentations ales meetings (irect Marketing 6atalogs Mailings

:rint and 6ontests" games" :ress kits broadcast ads sweepstakes" lotteries :ackagingD outer :remiums and peeches gi#ts

:ackaging inserts Motion :ictures Frochures booklets :osters lea#lets )irectories 9eprints o# ads )isplay signs

ampling

eminars

Aairs and trade Annual reports shows and Exhibits 6haritable donations and )emonstrations ponsorships 6oupons 9ebates 8owDinterest #inancing Entertainment :ublications 6ommunity 9elations 8obbying <ndentity Media 6ompany magazine Events

<ncentive programs amples

Telemarketing

Electronic hopping Aairs and trade T$ hopping shows Aax mail EDmail $oice mail

:ointDo#D purchase displays Audiovisual TradeDin material allowances ymbols and 6ontinuity 8ogos programs TieDins

The product*s styling and price" the package*s shape and color" the salesperson*s manner and dress" the place*s d\cor" the company*s stationery ? all communicate something to the buyers. Every brand contact delivers an impression that can strengthen or weaken a customer*s view o# the company. The whole marketing mix must be integrated to deliver a consistent message and strategic positioning. Aigure 15.1

SE'(E2

Encoding

Messsage Media

)ecoding

@'(';V'@

'%ISE

Aeedback

9esponse

The starting point is an audit o# all the potential interactions target customers may have with the product and company To communicate e##ectively" marketers need to understand the #undamental elements underlying e##ective communication. Aigure 15.1 shows a communication model with nine elements. Two represent the ma/or parties in a communication ? sender and receiver. Two represent the ma/or communication tools D message and media. Aour represent ma/or communication #unctions ? encoding, decoding, response and feedback. The last element is noise &random and competing messages that may inter#ere with the intended communication). enders must there#ore know what audiences they want to reach and what responses they want to get. They must encode their responses in a way that understands how the target audience usually decodes messages. They must then transmit the message through e##icient media that reach the target audience and develop #eedback channels to monitor the responses. Aor a message to be e##ective" the senders* coding process must mesh with the receiver*s decoding process. The sender may not get his or her message through to the receiver. The target audience may not receive the intended message #or any o# three reasons> 1. elective Attention: :eople are bombarded by about 10"=== commercial messages a day o# which 5= are consciously noticed and about 1! provoke some reaction. This explains why ads with bold headlines have a high likelihood o# grabbing attention. elective $istortion: 9eceiver*s will hear what #its in with their belie# system. As a result receivers o#ten add things to the message that are not there& amplification) and do not notice other things that are there& leveling). The communicator*s task is to strive #or simplicity" clarity" interest and repetition to get the main points across.

!.

%.

elective 8etention: :eople will retain in longDterm memory only a small #raction o# the messages that reach them. <# the receiver*s initial attitude toward the ob/ective is positive and he or she rehearses support arguments" the message is likely to be accepted and have high recall. Fecause much o# persuasion re1uires the receivers* rehearsal o# their own thoughts" much o# what is called persuasion is actually sel#Dpersuasion. The communicator considers audience traits that correlate with high persuadability and uses them to guide message and media development. :eople o# high education are thought to be less persuadable. Aiske and +art have outlined some general #actors that in#luence the e##ectiveness o# a communication> The greater the monopoly o# the communication source over the recipient" the greater the recipient*s change or e##ect in #avor o# the source

6ommunication e##ects are greatest where the message is in line with the receiver*s existing opinions" belie#*s and dispositions 6ommunication can produce the most e##ective shi#ts on un#amiliar" lightly #elt" peripheral issues" which do not lie at the center o# the recipient*s value system 6ommunication is more likely to be e##ective where the source is believed to have expertise" high status" ob/ectivity" or likeability" but particularly where the source has power and can be identi#ied with

The social context" group or re#erence group will mediate the communication and in#luence whether or not the communication is accepted. (E1E)%$I'" EFFECTI1E C%MM*'IC-TI%'S There are eight steps in developing e##ective communications i. ii. iii. iv. v. vi. vii. viii. <denti#y the target audience )etermine the communication ob/ectives )esign the message elect the communication channels Establish the total communications budget )ecide on the communications mix Measure the communications results Manage the integrated marketing communications process

<)E3T<AH<3B T+E TA9BET A@)<E36E The process must start with a clear target audience in mind > potential buyers" current users" deciders or in#luencersO individuals" groups" particular publics" or the general public. The target audience is a critical in#luence on the communicator*s decisions on what to say" how to say it" where to say it and to whom to say it. Image -nalysis A ma/or part o# audience analysis is assessing the current image o# the company" its products and its competitors.

.mage is the set of ,eliefs/ ideas and impressions a person holds regarding an o,5ect: $eopleIs attitudes and actions on toward an o,5ect are highly conditioned ,y that o,5ectIs image The #irst step is to measure the target audience*s knowledge o# the ob/ect" using the familiarity scale> 'e er 3eard of/ 3eard of only/ .now a little ,it/ .now a fair amount/ .now ery well <# most respondents circle only the #irst two categories" the challenge is to build greater awareness. 9espondents who are #amiliar with the product can be asked how they #eel toward it using the favor-ability scale: 1ery unfa ora,le/ Some what unfa ora,le/ Indifferent/ Somewhat fa ora,le/ 1ery fa ora,le <# most respondents check the #irst two image categories" then the organization must overcome a negative image problem. The two scales can be combined to develop insight into the nature o# the communication channel Figure 1G:2

Aavorable Atttude +: 8ow Aamiliarity

:+igh Aamiliarity

:
C

:
( @n#avorable Atttude

uppose area residents are asked about their #amiliarity with and attitudes towards #our local hospitals" A" F" 6 and ). Their responses are averaged and shown in Aigure 15.!. +ospital A has the most positive image> Most people know it and like it. +ospital F is less #amiliar to most people" but those who know it like it. Those who know it view hospital 6 negatively" but &#ortunately #or the hospital) not too many people know it. +ospital ) is seen as a poor hospital" and everyone knows it'

Each hospital #aces a di##erent communication task. +ospital A must work at maintaining its reputation and high awareness. +ospital F must gain the attention o# more people. +ospital 6 must #ind out why people dislike it and must take steps to improve its 1uality while keeping a low pro#ile. +ospital ) should lower its pro#ile" improve its 1uality" and then seek public attention. Each hospital needs to research the speci#ic content o# its image. The most popular tool #or this research is the semantic differential. <t involves the #ollowing steps> 1. $eveloping a set of relevant dimensions: The researcher asks people to identi#y the dimensions they would use in thinking about the ob/ect. M(hat things do you think o# when you consider a hospitalLN !. 8educing the set of relevant dimensions: The number o# dimensions should be kept small to avoid respondent #atigue. These are three types o# scales> Evaluation scales &goodDbad 1ualities) :otency scales &strongDweak 1ualities) Activity scales &activeDpassive 1ualities) %. Administering the instrument to a sample of respondents: The respondents are asked to rate one ob/ect at a time. The bipolar ad/ectives should be randomly arranged so that the un#avorable ad/ectives are not all listed on one side. ,. Averaging the results: Each hospital*s image is averaged out and represented by a vertical Mline o# meansN that summarizes average perception o# that hospital. .. &hecking on the image variance: because each image pro#ile is a line o# means" it doesn*t reveal how variable the image is. )id everyone have a perception or was there considerable variationO is the image highly specific or diffused. Management should de#ine a desired image i# it di##ers #rom a current one. An organization seeking to improve its image must have great patience. )ETE9M<3<3B T+E 6-MM@3<6AT<-3 -F2E6T<$E -nce the target market and its perceptions are identi#ied" the marketing communicator must decide on the desired audience response. The marketer can be seeking a cognitive, affective or behavioral response. That is" the marketer might want to put something into the consumer*s mind" change an attitude or get the consumer to act. There are , bestDknown response hierarchy models. All these models assume that the buyer passes through a cognitive" a##ective and the behavioral stage" in that order. This MlearnD#eelDdoN se1uence is appropriate when the audience has high involvement with a product category perceived to have high di##erentiation" as in purchasing an automobile. An alternative se1uence" MdoD#eelDlearningN" is relevant when the audience has high involvement but perceives little or no di##erentiation within the product category" as in purchasing aluminum siding. A third se1uence" MlearnDdoD#eelN is relevant when the audience has low involvement and perceives little di##erentiation within the product category" as in purchasing salt. Fy

choosing the right se1uence" the marketer can do a better /ob o# planning communications. A#areness: <# most o# the target audience is unaware o# the ob/ect" the communicator*s task is to build awareness" perhaps /ust name recognition" with simple messages repeating the product name ?no#ledge: The target audience might have product awareness but not know much more. The company needs to learn how many people in the target audience have little" some or much knowledge about the product. Liking: <# target members know about the product" how do they #eel about itL <# the perception is un#avorable" the marketer has to investigate whyO whether there is a real underlying problem. Preference: The target audience may like the product but not pre#er it to others. <n this case" the communicator must try to build consumer pre#erence by promoting 1uality" value" per#ormance and other #eatures. The communicator can check the campaign*s success by measuring audience pre#erence a#ter the campaign. &onviction: A target audience may pre#er a particular product but not develop a conviction about buying it. Purchase: Ainally" some members o# the target audience might have conviction but not 1uite get around to making the purchase. The communicator must lead these consumers to take the #inal step" perhaps by o##ering a discount or letting consumers try it.

2esigning the Message The communicator develops an e##ective message .The message ideally should gain attention" hold interest " arouse desire and elicit action &A<)AD see #irst column o# #igure 15.,).The A<)A #ramework suggests the desirable 1ualities o# any communication. Aormulating the message re1uires solving , problems> (hat to say &message content) +ow to say it logically &message structure) +ow to say it symbolically &message #ormat) (ho should say it &message source) Message Content Management searches #or appeal" theme" idea or uni1ue selling proposition in determining message content. Appeals can be rational" emotional and moral. 9ational appealD will engage sel#Dinterest and claim that the product will produce certain bene#its. Examples ? messages showing 1uality" economy" value or per#ormance <ndustrial buyers are more responsive to rational appeals" since they are more knowledgeable about the product" trained to recognize value" and accountable to others #or their choices.

Emotional appeal ? attempt to stir up negative or positive emotions that will motivate purchase. earch #or the right emotional selling proposition &E :) The product will have uni1ue associations that can be promoted.&example +arley )avidson) 3egative appeals such as #ear" guilt and shame get people to do things &brush teeth" annual health check ups) or stop doing things. Aear appeal works better when the source credibility is high" communication promises to relieve" in a believable and e##icient way the #ear it arouses. :ositive emotional appeals used include /oy" love" humor" pride etc. +umorous messages attract more attention and create more liking and belie# in the sponsor. -thers maintain that humor can detract #rom comprehension" wear out its welcome #ast and overshadow the product. Examples> 2-E F-TE9 <n 1;45" 6alvin Jlein put male models wearing a new line o# white brie#s on billboards. & logan > wear clean underwear) AE) ET The largest air express carrier in the @ " but not overseas Aed Ex has long been associated with #unny ads. This includes the boss imitating his secretary to track a package. logan used was 7 The (ay the (orld (orks*. The $ice :resident o# Marketing says > M The most important message that we have to deliver is that we have become a global company .The global theme supercedes speci#ic messages #rom the past.N Moral appeals are directed to the audience*s sense o# what is right and proper. They are o#ten used to exhort people to support social causes. An example #or this is the appeal M ilenceG )eathN" a slogan by ActD@p" the A<) coalition to unleash power. Message Structure E##ectiveness depends on structure and content. The best ads ask 1uestions and allow readers and viewers to #orm their own conclusions .This might cause negative reactions i# the communicator is seen as untrustworthy" or the issue is seen as too simple or highly personal .)rawing too explicit a conclusion can also limit appeal and acceptance. timulus ambiguity can lead to a broader market de#inition and more spontaneous purchases. TwoDsided arguments that also mention shortDcomings may be more appropriate than oneDsided presentations" especially when some negative association must be overcome. These are more e##ective with more educated audiences and those who initially opposed. The order o# presenting arguments is also important. <n case o# oneDsided arguments" the strongest should be presented #irst to establish interest and attention. This is important #or

the newspaper and other media where the audience o#ten does not attend to the entire message. (ith a captive audience" a climatic presentation is more e##ective. <n twoDsided messages" i# the audience is initially opposed" the communicator might start with the other side*s argument and conclude with his strongest argument. Message Format <n print ads" decisions have to be taken on headline" copy" illustration and color. -n radio" the choice is about words" voice 1ualities and vocalizations. -n television or in person" all o# these elements and body language have to be planned. Aacial expressions " gestures" dress" posture etc are important. <# the message is being carried by the product or packaging" attention is needed towards color" texture" scent" size and shape. 6olor is important #or #ood pre#erences . Message Source )elivery by attractive or popular sources achieves higher attention and recall. 6elebrities are likely to be e##ective when they personi#y a key product attribute. The spokesman*s credibility is also important. They make messages more persuasive. :harmaceutical companies want doctors to testi#y their product bene#its because they have high credibility. The three most identi#ied #actors that underlie source credibility are expertise" trustworthiness and likeability. Expertise is specialized knowledge the communicator possesses to back the claim. Trustworthiness is related to how ob/ective and honest the source is perceived to be. 8ikeability describes the source*s attractiveness . The most credible source is one that scores high on all these three . A state o# congruity is said to exist i# a person has a positive attitude towards a message and a source" or a negative attitude towards both. <# a person has one attitude towards the source and another to the message" in the opinion o# -sgood and Tannenbaum" attitude change will take place in the direction o# increasing the amount o# congruity between the two evaluations. The principle o# congruity implies that communicators can use their good image to reduce some negative #eelings towards a brand but in the process might lose some esteem with the audience. Challenges in "lo,al -d ertising and promotion M36s need to #ace the #ollowing challenges in developing global communications programs. They must decide whether the product is appropriate #or a country. They must make sure that the market segment they address is both legal and customary . They must decide i# the ads style is acceptable or customary in all the countries involved. They must decide whether ads should be created at head1uarters or locally.

1.$roduct Feer " wine etc cannot be sold in Muslim countries. 9estrictions on tobacco in many countries" @J wants to ban tobacco advertising and outlaw sports sponsorships by tobacco companies . Blobal harmonization o# cosmetic product regulations " known as Alorentine regulations" are being discussed. This will impact advertisers through impact on product labeling" sa#ety" animal testing etc Avon 6hina was #orced by 6hinese government to stop selling directly to 6hinese customers and open retail stores" needing new advertising and promotion campaigns to reposition the company as a retailer. !. Market Segment 6oke has a pool o# di##erent commercials #or di##erent national market segments. 8ocal and global segments managers decide which commercials work best #or which segments. 9ecently" in a reverse o# the usual order" coke commercials developed #or 9ussia was shown in the @ . Many @ toy makers were surprised to learn that in countries like 3orway and weden" no T$ ads may be directed to children under 1!. weden is lobbying to extend the ban to all E@ member nations. To play it sa#e" Mc)onalds advertises itsel# as a #amily restaurant in weden. %. Style The style o# the ad is also important because comparative ads" while acceptable in @ and 6anada" are less commonly used in @J" unacceptable in 2apan and illegal in <ndia and Frazil. :epsi6o #ound that its comparative taste test in 2apan was re#used by many T$ stations and led to a lawsuit. 6hina has restrictive censorship rules #or T$ and radio advertising. Ads with the word best" those that violate social customs or present women in improper ways are banned. nickers got in trouble in 9ussia when it ran a barrage o# poorly dubbed American commercials to people not used to T$ advertising. ,. )ocal or "lo,al More and more M36s are attempting to build a global brand image by using the same advertising in all their advertising in all their markets. AedEx*s #irst global campaign was The (ay The (orld (orks. Ericsson spent U1== million on a global T$ campaign with the tag M Make yoursel# heardN" #eaturing 2ames Fond. Merging o# )aimler and 6hrysler involved running a threeDweek ad campaign in more than 1== countries .The tag was Expect the Extraordinary. Fut even i# a company #avors strong corporate standardizations " legal restrictions may #orce adaptations. 6oca 6ola*s <ndian subsidiary was #orced to end a promotion that o##ered prizes such as a trip to +ollywood because it encouraged people to buy in order to gamble" a violation o# the trade practices in <ndia .

Selecting Communication Channels The communicator must select su##icient communication channels to carry the message .:harmaceutical companies salespeople cannot get more than 1= minutes o# a physician* s time and so their presentation must be 1uick" crisp and convincing. ales calling is thus very expensive here. The industry has to ampli#y its communications channels. These include placing ads in medical /ournals" sending direct mail" #ree samples" telemarketing . They can sponsor clinical con#erences " etc. All o# these channels are used in the hope o# building physician pre#erence . 6ommunication channels are o# ! types> personal and non personal. Each have several sub channels. $ersonal Communication Channels These involve two or more persons communicating directly with each other #ace to #ace" person to audience" over the phone or through email. E##ectiveness stems #rom the opportunities to individualize the presentation and #eedback. There is a distinction between advocate" expert and social communication channels . Advocate channels consist o# company salespeople contacting buyers in the target market. Expert 6hannels consist o# independent experts making statements to target buyers. ocial channels consist o# neighbors" #riends" #amily and associates talking to target buyers. There is a huge power in 7word o# mouth* . 6ompanies are seeking ways to stimulate social channels to recommend. 9egis McJenna advertises a so#tware company launching a new product to promote initially in trade press" opinion luminaries who supply #avorable word o# mouth" and then to dealers and #inally customers. :ersonal in#luence is also crucial in two situations . -ne is when products are expensive "risky or purchased in#re1uently .buyers are strong in#ormation seekers. Also when the product re#lects a user*s status . teps to stimulate personal in#luence channels > <denti#y in#luential individuals and companies and devote extra time to them .<n industrial selling" the entire industry must #ollow the market leader in adopting innovations . 6reate opinion leaders by supplying certain people with the product on attractive terms .

(ork through community in#luentials such as local disc /ockeys " class presidents and presidents o# women organizations . when Aord introduced Thunderbird " it sent invitations to executives o##ering them a #ree car to drive #or the day . @se in#luential or believable people in testimonial advertising )evelop advertising that has high M conversation valueN . Ads with high conversation value o#ten have a slogan that becomes part o# the national vernacular. )evelop wordDo# ?mouth re#erral channels to build business . :ro#essionals will encourage clients to recommend their services .. Establish an electronic #orum . Toyota owners use online service such as A-8 to share experiences.

3ow to de elop 0ordAofAmouth 2eferral Sources to ,uild ,usiness (hen a recommendation is made" the recommendor has potentially bene#ited the service provider as well as the service seeker. 6hie# bene#its o# developing re#errals or word o# mouth sources are > 6onvincing The only promotion method that is o# the consumer" by the consumer and #or the consumer . atis#ied customers are repeat buyers and also walking talking billboards #or your business 8ow cost Jeeping in touch with satis#ied customers and making them providers costs the business little. The business might reciprocate by re#erring business to the re#errer or giving enhanced service or discount. Michael 6a##erky*s (ord o# Mouth Marketing Tips gives the #ollowing suggestions > 1. <nvolve your customers in the process o# making or delivering your product or service . !. olicit testimonials #rom your customers that serve as silent sales #orce you can have complete control over. -ne strategy is to use a customerD response #orm that asks #or this type o# #eedback and permission to 1uote it . %. Tell true stories to your customers ? company brochures and newsletters ,. Educate your best customers . This enhances loyalty and goodwill . Hou can become the source o# credible " upDtoDdate in#ormation perhaps through the company website .. -##er #ast complaint handling to customers to prevent negative word o# mouth . 'on personal Communication channels These include media " atmospheres and events . Media consists o# print media &newspapers" magazines" direct mail)" broadcast media & radio" T$) " electronic media & audio" video " 6) ?9-M " (eb pages ) and display media & billboards" signs " posters) .Most non personal messages come through paid media .

Atmospheres are 7packaged environments 7 that create or rein#orce the buyers leanings towards product purchase. @se o# chandeliers in luxury hotels are an example. Events are occurrences designed to communicate particular messages to target audiences . :9 departments arrange news con#erences " grand openings and sports sponsorships to achieve speci#ic communication e##ects with a target audience. Mass media might be a ma/or means o# stimulating personal communication . They a##ect personal attitudes and behavior through a twoDstep #lowDo#Dcommunication process .<deas #low #rom media to opinion leaders and #rom them to lesserDinvolved population groups. This has several implications > The in#luence o# mass media on public opinion is not as direct" power#ul and automatic as supposed . <t is mediated by opinion leaders . <t challenges the notion that consumption styles are primarily in#luenced by a trickleDdown or trickleDup e##ect #rom mass media .people act primarily in their social group and ac1uire ideas #rom opinion leaders in their group . Two step communication suggests that mass communicators should direct messages speci#ically to opinion leaders and let them carry messages to others. 6ommunication researchers are moving towards a social ?structure view o# interDpersonal communication. They see society as cli1ues" small groups whose members interact #re1uently . Members are similar and their closeness #acilitates e##ective communications and also insulates the cli1ue to new ideas. A liaison is a person who connects two or more cli1ues without belonging to either. A bridge is a person who belongs to one cli1ue and is linked to a person in another cli1ue .

Esta,lishing The Total Marketing Communications +udget


-ne o# the most di##icult marketing decisions is how much to spend on promotion. 2ohn (anamaker said M < know hal# o# my advertising is wasted" but < don*t know which hal#*. Aour common methods to decide the promotion budget > -fforda,le Method Many companies set the promotion budget at what they think the company can a##ord .This method completely ignores the role o# promotion on sales volume. <t leads to an uncertain annual budget " which makes long range planning di##icult. $ercentage of sales method: here the promotion expenditure is speci#ied as a percentage o# sales or o# the sales price. The advantages are> Makes sure that the expenditure is closely related to the movement o# corporate sales over the business cycle. Encourages managers to think o# the relationship among promotion cost" selling price and pro#it per unit"

Encourages stability as the competing #irms almost spend the same percentage o# their sales on promotion

<t is still not a pre#erred mechanism as results the budget to be a decider o# the allocation o# #unds rather than the market opportunities. There is actually no logical basis #or using this method. Also the yearDtoDyear #luctuation in sales inter#eres with the long term planning. Competiti e parity method: some companies set their promotion budgets to achieve a parity o# share o# voice with the competitors. The arguments #or the method are <t prevents promotional wars The competitor*s budget represents the collective wisdom o# the industry. 3one o# the above are actually valid. %,5ecti e and task method: the promotion budget is done by de#ining speci#ic ob/ectives" determining the task that must be per#ormed to achieve these ob/ectives and estimating the costs o# per#orming these tasks. The ma/or steps involved in doing the same are> Establish the market share goal )etermine the percentage o# the market that should be reached by advertising )etermine the percentage o# aware prospects that should be persuaded to try the brand )etermine the advertising impressions per 1 percent trial rate. )etermine the number o# gross rating points that would have to be purchased )etermine the necessary advertising budget on the basis o# the average cost o# buying a gross rating point. <t has the advantage o# re1uiring management to spell out its assumption about the relationship among the dollars spent" exposure levels" trial rates and regular usage. The weightage that promotion should get as against the allocation #or new product development" lower prices" or better service depends on the :86" whether the product is a commodity or highly di##erentiable" whether it is routinely needed or have to be sold etc. (eciding the Communication Mi#: The company needs to decide on the mix o# the #ollowing #ive communication tools> Advertising ales promotion :9 ales #orce )irect marketing 8ets look at them one by one.

-d ertising The 1ualities noted are> :ublic presentation> o##ers a kind o# legitimacy to the product and suggests a standardized o##ering. ince the same message goes to all the buyers" we know what motivated purchase :ervasiveness> one can repeat message. 6ompare the messages o# various competitors. Also large scale advertising says something positive about the #irms size" power and success. Ampli#ied expressiveness> opportunity #or dramatizing the company and its products <mpersonality> audience not obligated to pay attention or respond to advertising <t allows the company to build a long term image There are relatively newer advertising mediaD like the advertorials Dprint ads that have editorial content" in#omercials ? T$ commercials etc. Sa"es promotion* +e distinctive bene#its are> 6ommunication> they gain attention and usually provide in#ormation that may lead to the consumer to the product. <ncentive> incorporates some concession. <nducement" or contribution that gives value to the consumer. <nvitation> they include a distinct invitation to engage the transaction now. The company uses sales promotion tools to draw a stranger and 1uicker buyer response. ales promotion can be used #or short run e##ects such as to dramatize the product o##ers and boost sagging sales. $u%"ic re"ations and pu%"icity* The three distinctive 1ualities are> +igh credibility Ability to catch the buyers o## the guard )ramatization $ersona" Se""ing* Most e##ective tool at the later stages o# the buying process" particularly in building up buyer pre#erences" conviction" and action. Three distinctive 1ualities are> :ersonal con#rontation> immediate interactive relationship between two parties and ability to observe the other*s reaction at close hand. 6ultivation> permits all kind o# relationship to build up" ranging #rom a matter o# #act selling relationship to a deep personal #riendship. 9esponse> makes the buyer #eel under some obligation #or having to listened to the sales talk

2irect marketing* <t is> 3on public 6ustomized @p to date <nteractive Factors in setting the marketing communication mi#: Type of product market* 6onsumer marketers spend on sales promotion" advertising" personal selling and public relations in the order. The Fusiness markets spend on personal sales" sales promotion" advertising" and public relations in that order. :ersonal selling is used more with complex" risky and heavy goods and in markets with #ewer and larger sellers. 8ole of advertising in business markets: Awareness building 6omprehension building ? embodies new #eatures" some explaining can be e##ectively per#ormed by advertising E##icient reminding ? i# prospects know about the product but are not ready to buy it then it is better to use reminder advertising as it is more economical than calls. 8ead generation> brochures are e##ective ways to generation o# leads #or sales representatives. 8egitimization> can use tear sheets o# the company and products 9eassurance> can remind the customers how to use the product and reassure them about their purchase. 6ompany*s reputation improves the sales #orce*s chances o# getting an e##ective #irst hearing. Bood presentations are an edge #or a sales person. <mportant contributions o# a trained consume sales #orce> <ncreased stock position> the sales reps can persuade dealers to take more stock and devote more shel# space to the company brand. Enthusiasm building> sales rep can build dealer enthusiasm by dramatizing planned advertising and sales promotion backup Missionary selling> signing up more dealers Jey account management> take up responsibility #or growing business with the most important accounts.

$ush s: $ull strategy: The promotional mix is heavily in#luenced by whether the company chooses to a push or a pull strategy. A push strategy involves the manu#acturing using sales #orce and trade promotions to induce the intermediary to carry" promote and sell the product to end users. <t is generally important when the product is in low brand loyalty in a category" brand choice is made at the store" or the product is an impulse item. A pull strategy involves the manu#acturing using advertising and consumer promotion to induce the consumers to ask intermediaries to order it. This is especially appropriate #or high brand loyalty products and the categories with high involvement. +uyer 2eadiness stage: Advertising and publicity play the most important roles in the awareness building stage 6ustomer comprehension is a##ected by the advertising and personal selling. 6ustomer conviction is mostly in#luenced by personal selling 6losing the sale is in#luenced by the mostly by personal selling and sales promotion 9eordering also a##ected by mostly by personal selling and sales promotion and somewhat by reminder advertising

$roduct )ife cycle: <ntroduction stage> advertising and publicity have the highest cost e##ectiveness" #ollowed by personal selling to gain distribution coverage and sales promotion <n growth stage all the tools can be toned down because demand has own momentum through word o# mouth. <n the maturity stage sales promotion" advertising" and personal selling all grow more important in that order <n the decline stage sales promotion continues strong advertising and publicity are reduced and sales people give product only minimal attention.

Managing and Coordinating :ntegrated Marketing communications <M6 is de#ined by the American Association o# Advertising Agencies as M a concept o# marketing communications planning that recognizes the added value o# a comprehensive plan that evaluates the strategic roles o# a variety o# communications disciplines ?#or example" general advertising" direct response" sales promotion and public relations ?and combines these disciplines to provide clarity" consistency " and maximum communications impact through seamless integration o# discrete messages.

Chapter 1H -d ertising and Sales $romotion


-d ertisingD any paid #orm o# no personal presentation and promotion o# ideas" goods or services by an identi#ied sponsor. <n developing a marketing programme <denti#y the target market and buyer motives. Make #ive ma/or decisionsD . M*s o Mission ? advertising ob/ectives o Money ? amount to be spent o Message o Media o Measurement ? evaluation o# results Message Mssg generation Eval n selction Execution ocial responsibility Media 9" A" < Ma/or media types peci#ic media vehicles Media timing Beog media allocation

Mission ales goals Ad ob/ectives

Money Aactors to be considered D stage in :86 D mkt share n customer base D competition D ad #re1uency D product substitutibilty

Measurement 6ommunication impact ales impact

Setting ad ertising o,5ecti es :rior decisions to be taken are Target market Market positioning Marketing mix

An advertising ob/ective is a speci#ic communication task and achievement level to be accomplished with a speci#ic audience in a speci#ic period o# time. They are o# #ollowing types .nformative advertising ? is in pioneering stage o# a product category where primary demand has to be built. Persuasive advertising ? important in competitive stage where the main ob/ective is to build selective demand #or a particular brand. 6omparative advertising is used in some places where there is comparison o# brand attributes. 8eminder advertising ? important #or mature products. -ne related #orm in rein#orcement advertising" which seeks to assure current customers that they have made the right choice. (eciding on +udget Advertising has a carryover e##ect that lasts beyond the current period. <t is an investment that builds o# an intangible asset called brand e%uity. The entire advertising cost is written o## in the #irst year. This reduces the company*s reported pro#its and hence limits the number o# launches o# new products Aive #actors to be considered when setting the advertising budget tage in product li#e cycleD new products receive large budgets to build awareness Market share and consumer base ? high market share companies re1uire less advertising expenditure as a percent o# sales. 6ompetition and clutter Advertising #re1uency ? number o# repetitions needed :roduct substitutability ? commodity class need heavy advertising. $idale and (ol#e*s model 8arger advertising budget" higher the sales response" higher the sales decay rate" higher the untapped sales potential. Choosing the message teps to develop a creative strategy Message generation ? the product 7bene#it* message should be decided as a part o# developing a product concept. -vertime it mat change. To generate possible appeals" creative people proceed inductively by talking to customers dealers etc.there is indepth interviewing. )eductive #ramework is also used. Message E aluation and selection A good as normally #ocuses on one coreDselling proposition. Twedt suggested that messages be rated on desirability" exclusiveness and believability. Message E#ecution Message*s impact depends not only upon what is said but how it is said. 9ational positioning Emotional positioning

8abeling ? consumer is labeled as the type o# person who is interested in the pro/ect. <n preparing an ad campaign" the advertiser usually prepares a copy strategy statement describing ob/ective" content and tone o# the desired ad. 6reative people must also #ind a cohesive style" tone" words and #ormat #or executing the message. 6reativity is re1uired #or headlinesD news" 1uestion" narrative" command" 1D!D% ways and howDwhat ?why. The #ollowing characteristics #or ads scored above average recall and recognition <nnovation tory appeal Fe#ore and a#ter illustration )emonstration :roblem solution <nclusion o# relevant characters Social responsi,ility re iew The advertising shouldn*t overstep social and legal norms. (eciding on media measurement and effecti eness Media selection involves #inding the most cost ?e##ective media to deliver the desired number o# exposures to the target audience. <# the advertiser seeks a product trial rate T" it will be necessary to achieve a brand awareness level o# A. the next task is to #ind out how many exposures E will produce a audience awareness o# A. the e##ect o# exposures on audience awareness depends on the exposures* reach" #re1uency and impact. 9each& 9 ) ? the number o# di##erent persons or households exposed to a particular media schedule atleast once during a speci#ied time period. Are1uency &A) ? the number o# times within the speci#ied time period that an average age person or household is exposed to the message. <mpact &<) ? the 1ualitative value o# an exposure through a given medium.

Trial

Awareness

Awareness

9each

uppose planner has average advertising budget o# 1====== and cost per thousand exposures is .. Then advertiser can buy 1===== C&.C1===)G !======== exposures. Total E G 9 V A. This is called B9: &gross rating points) (eighted number o# exposures&(E) ? this is the reach times average #re1uency times average impact. (E G 9 V A V < (ithin a given budget the most costDe##ective combination o# A" 9 and < has to be #igured. Choosing among ma5or media types Media planners make their choice among media categories considering the #ollowing variables> Target audience media habits :roduct Message 6ost <deas about media impact should be reexamined periodically. ome media types> 1. T$> now e##ectiveness is reducing due to increased commercial clutter. Also T$ advertising costs rose #aster than others. !. Advertorials> print ads that o##er editorial content and are di##icult to distinguish #rom newspapers or magazine contents. %. <n#omercials> T$ commercials that appear to be %= minute T$ shows but are advertisements #or products. ,. tore> space #or logos etc. .. books" sports arena etc. displaying ads 0. )igital magazines i.e. digizines &cheaper to start and operate) 4. <nteractive T$> ! way communication possible through combination o# technology. 5. Aax on demand> allows users to store in#ormation in a #ax technology program. 6ustomers who need in#ormation call on a toll #ree number. Thus demise o# traditional media approaching. The media planner should search #or cost e##ective media vehicles within each chosen media type. Audience size has various possible measures> 6irculation> number o# physical units carrying the advertising. Audience> The number o# people exposed to the vehicle.

E##ective audience> The number o# people with target audience characteristics exposed to the vehicle. E##ective Ad ? exposed audience> The number o# people with target audience characteristics who actually saw the ad.

Media planners calculate the cost per thousand persons reached by a vehicle. everal ad/ustments have to be applied to this. Audience 1uality Audience attention probability Editorial 1uality Ad placement policies and extra services (eciding on media timing 1. Macro scheduling pro,lem> cheduling ad in relation to seasons and business cycles ! models Aorrester> <ndustrial dynamics ? to test cyclical advertising policies. Juehn> timing ads #or #re1uently purchased " highly seasonal" low cost grocery products. i. 6arryover > re#ers to rate at which the e##ect o# an advertising expenditure wears out with the passage o# time. ii. +abitual behaviour> how much brand holdover occurs independent o# the level o# advertising. !. Micro scheduling pro,lem> calls #or allocating advertising expenditures within a short period to obtain maximum impact. The most e##ective pattern depends upon communication ob/ectives in relation to the nature o# the product" target customers" distribution channels etc. The timing pattern should consider the #ollowing % #actors>

Fuyer turnover> rate at which a new buyer enters the market. :urchase #re1uency> number o# times during the period that the average buyer buys the product. Aorgetting rate

<n launching a new product" the advertiser has to choose among> 6ontinuity 6oncentration ? spending al money in single period Alighting ? seasonal advertising :ulsing ? continuous advertising at low weight levels rein#orced periodically by waves o# heavier activity. (eciding on "eographical -llocation )ecision regarding space and time.

3ational buys> ads on national T$ C magazines pot buys> T$ time in #ew markets or regional editions o# magazines. These are called A)<s or )MAs ? areas o# dominant in#luence C designated marketing areas.

E aluating -d ertising Effecti eness Communication Effect 2esearch: called copy testing" it can be done be#ore an ad is put into media or a#ter. % ma/or methods o# advertinig pretesting )irect 9ating Method> consumers to rate alternate ads :ort#olio tests> test consumers recall level by exposing to plethora o# ads 8aboratory tests> uses e1uipment to measure physiological reactions These tests measure attention getting power but reveal nothing about impact on belie#s and attitudes. ales E##ect research> this is harder to measure than above. A company*s share o# advertising expenditures produces a share o# voice that produces a share o# minds and hearts and ultimatelt a share o# market. 9esearchers try to measure the sales impact through analyzing +istorical Approach Experimental design - summary of Current 2esearch :ro#essional researchers have drawn some general conclusions that are use#ul to marketers. <mapct o# advertising on brand switching E##ect o# surroundings> congruency with surroundings E##ect o# positive versus negative responses. Sales $romotion
;t consists of a diverse collection of incentive tools= mostly short term= designed to stimulate 3uicker or greater purchase of particular products or services by consumers or the trade:

-d ertising offers a reason to ,uy and sales promotion offers an incenti e to ,uy:
Factors contributing to the rapid gro9th of sales promotion= particulary in consumer markets:

<nternal #actors> o Acceptance by top management o :roduct managers more 1uali#ied to use it

o Breater pressure to increase sales External Aactors> o <ncrease in number o# brands o @se by competitors o imilar brands o :rice oriented consumers o More deals #rom manu#acturers o )ecline in advertising e##iciency due to rising costs o Media clutter o 8egal restraints

:romotion clutter born> consumers might start tuning out' Purpose of sales promotion

Attract new triers o users in same category o users in other categories o #re1uent brand switchers ? not likely to turn loyal <n case o# high brand dissimilarity" sales promotion can alter market shares permanently.

ome conclusions by Frown>


S$ yield #aster and more measureable responses in sales than advertisingdoes. )onot attract loyal customers 8oyal brand buyers tend not to change their buying patterns as a result o# competitive promotion. Advertising appears to be capable o# deepening brand loyalty.

There is also evidence that price promotions donot build permanent total category volume. mall share competitors o#ten #ind it advantageous to use sales promotion because they cannot a##ord to match the market leaders* large ad budgets. 3or can they obtain shel# space without o##ering trade allowances or stimulate consumer trial. Aarris and Kuelch ? conclude S$ enables to ad/ust short term variations in supply and demand. Enable manu#acturers to test how high a list price they can charge because they can always discount it. Trial is induced 8ead to varied retail #ormats Breater consumer awareness o# prices +elp manu#acturers adopt to di##erent consumer segments.

2A@)8 $+&. .)4 .4 AL+ P8)2)".)4

Esta,lishing %,5ecti es > The speci#ic ob/ectives #or sales promotion vary with the target market. Selecting Consumer $romotion Tools > The promotion planner should should take into account the type o# market" sales promotion ob/ectives " competitive conditions "and each tools & eg.samples"coupons etc.) cost e##ectiveness. Selecting Trade $romotion Tools > o To pursuade the retailer or wholesaler to carry the brand o To persuade the retailer or wholesaler to carry more units than the normal amount o To induce retailers to promote the brand by #eaturing " display" and price reductions o To stimulate retailers and their sales clerks to push the product Selecting +usiness 6 and Sales Force $romotion Tools (e eloping the $rogram : <n deciding a particular incentive "marketers should consider the size o# the incentive" establish conditions #or participation"duration o# promotion"choose a distribution cycle" timing o# promotion P the total sales promotion budget. $retesting the $rogram Implementing and Controlling the $rogram > <mplemention planning must cover lead time P sellDin time.8ead time is the time necessary to prepare the program prior to launching it. ell ?in time begins with the promotional launch and ends when approx ;.S o# the deal is in the hand o# the customers. E aluating 2esults

$*+)IC 2E)-TI%'S :9 involves a variety o# programs designed to promote or protect a company*s image or its individual products.:9 )ept generally per#orms the #ollowing #unctions>

:ress 9elations :roduct :ublicity

6orporate 6ommunication 8obbying 6ounseling

M-2.ETI'" $*+)IC 2E)-TI%'S @M$2B <t plays an important role in the #ollowing tasks>

Assisting in the launch o# new products Assisting in repositioning a mature products Fuilding interest in a product category <n#luencing speci#ic target groups )e#ending products that have encountered public problems Fuilding the corporate image in a way that re#lects #avorably on its products.

M-P%2 (ECISI%'S I' M-2.ETI'" $2

Esta,lishing the Marketing %,5ecti es > M:9 can contribute to the #ollowing ob/ectives> o Fuild awareness o Fuild credibility o timulate the sales #orce and dealers o +old down promotion costs

$2 e#pert ):3arris o##ers suggestions #or how :9 and direct response marketing can work together to achieve speci#ic marketing ob/ectives.>

Fuild marketplace excitement be#ore media advertising breaks Fuild a core comsumer base Fuild a one to one relationship with consumers Turn satis#ied customers into advocates <n#luence the in#luencials Choosing Messages and 1ehicles Implementing the $lan E aluating 2esults

Chapter 2! M-'-"I'" T3E S-)ES F%2CE ix di##erent positions sales representatives cover &McMurry)> 1. )eliverer ? delivery o# products !. -rder taker ? inside order taker &behind the counter) outside order taker &calling on customers #or orders) %. Missionary ? build goodwill and educate the user ,. Technician ? high level o# technical knowledge .. )emand creator ? creative methods o# selling products C services 0. olution vendor ? solving customers* problems (esigning the sales force ales #orce is company*s personal link to the customers. 6are#ully need to consider the #ollowing issues in sales #orce design ? development o# sales #orce ob/ectives" strategy" structure" size and compensation. ales /orce )b5ectives And trategy 3eed to de#ine speci#ic ob/ectives to be achieved by the sales #orce. peci#ic tasks to be per#ormed> :rospecting> searching #or prospects or leads Targeting> decide how to allocate their time among prospects and customers 6ommunicating> in#ormation about company*s products and services elling> approaching" presenting" answering ob/ections and closing sales ervicing> providing di##erent services ? consultation" technical assistance" arranging #inance" expediting deliveries <n#ormation gathering> market research and intelligent work Allocating> deciding which customer will get scarce products during shortages -ther roles the sales person needs to do ? allocating the product" counseling the unhappy customers" communicating company plans #or remedying shortages" selling company products that are not in shortage. )uring product abundance" trying to win customer pre#erence. 6all right customers at the right time in the right way. ales representatives work with customers in several ways> ales representative to buyer ales representative to buyer group ales team to buyer group 6on#erence selling

eminar selling ? educational seminar #or customers

More and more need #or teamwork. upport #rom other personnel like top management" technical people" customer service representatives" o##ice sta## etc. Maintain market #ocus" should know how to analyze sales data" measure market potential" gather market intelligence and develop marketing strategies and plans. 3eed analytical marketing skills. A company can use ? )irect sales #orce ? #ull time or part time paid employees working exclusively #or company. <nside sales personnel and #ield sales personnel. 6ontractual sales #orce ? manu#acturer*s reps" sales agents and brokers. :aid commission based on sales. ales /orce tructure Most common sales #orce structure> Territorial> Each sales rep assigned to exclusive territory. Advantages o# this ? 6lear de#inition o# responsibilities <ncreased incentive to cultivate local business and personal ties 8esser travel expenses Territory size ? designed to provide e1ual sales potential or e1ual work load. E1ual potential gives same income opportunities means to evaluate per#ormance. 6an vary widely in size as the customer density varies with territory. E1ual work load so that the territory can be covered ade1uately. Territory shape ? #ormed by combining smaller units to give e1ual sales potential or workload. Must take into account the natural barriers" compatibility o# ad/acent areas" ade1uacy o# transport. <n#luence cost and ease o# coverage. 6riteria such as compactness" minimum travel time and e1ual load or potential. :roduct> structure along product lines. ales reps should know their product. :roducts are technically complex" highly unrelated and very numerous. Market> along the industry or customer lines. Advantage is that each sales #orce becomes knowledgeable about speci#ic customer needs. )isadvantage is need #or extensive travel as customers are spread throughout the country. 6omplex> wide variety o# products" many types o# customers" broad geographical area. 6ombined specialized structure. ales /orce i6e and compensation (orkload approach to establish sales #orce size ? 1. 6ustomers grouped into size classes according to annual sales volumes.

!. Establish #or each class desirables call #re1uencies &no o# calls on an account per year) %. Total workload #or the country in sales calls per year G no o# accounts in each class multiplied by corresponding call #re1uency ,. )etermine average calls a sales rep can make per year. .. 3o o# sales reps G total annual calls C average annual calls per sales rep Attractive compensation package. ales #orce would like income regularity" extra rewards #or above average per#ormance and #air payment #or experience and longevity. Management would like to achieve control" economy and simplicity. Aour components o# sales #orce compensation ? Aixed amount ? salary. atis#y income stability $ariable amount ? commissions" bonus or pro#it sharing. To stimulate and reward greater e##ort. Expense allowance ? enable to meet expenses involved in travel" lodging" dining and entertaining. Fene#its ? paid vacations" sickness or accident bene#its" pensions" li#e insurance. :rovide security and /ob satis#action. 4=S #ixed I %=S in other elements. Aixed compensation more emphasis in /obs where higher ratio o# nonDselling to selling activities" technically complex selling task" involves teamwork. $ariable compensation more emphasis in /obs where sales are cyclical and depend on individual initiatives. Three basic types o# compensation plans ? traight salary ? secure income" more willing to per#orm nonDselling activities and less incentive to overstock customers. Administrative simplicity and lower turnover. traight commission ? higher sales per#ormance" more motivation" less supervision" control selling costs. 6ombination o# two giving bene#its o# both reducing disadvantages.

Managing the Sales Force


9ecruiting 9ecruitingP P -nce a company has established ob/ectives" strategy" structure" size and compensation it selecting sales selecting sales has to move to recruiting" selecting" training" supervising" motivating and evaluating its representatives 2rai representatives 2rai sales representative ning ning sale sale Sup Sup ss ervi ervi repr repr sing sing ese ese sale Moti sale ntati Moti ntati vati ves vati ss ves ng ng repr sale repr sale 'val ese 'val ese uati ntati ss uati ntati ng ves ng repr ves repr sale sale ese ese ntati ntati ss ves ves repr

ese ntati ntati ves ves

2ecruiting and Selecting Sales 2epresentati e The top !4S o# sales #orce bring in .!S o# the sales. Feyond this is the great waste in hiring and training the wrong person .The average turnover in all industries is about !=S. A sales #orce with new people is #ar less productive" the #inancial cost only being a part o# it" apart #rom the #ringe bene#its and cost the new sales man has to produce gross margins too which at least cover the costs electing them> D Asking 6ustomers what they would like to see in a salesperson e.g. honest" reliable knowledgeable etc 8ook #or common traits o# very success#ul salesmen E.g.> DA high level o# Energy" abounding sel# con#idence" chronic hunger #or money" well established habit o# the industry and a challenging state o# min 6onclusion is that two ma/or characteristic a salesman should have is empathy i.e. the ability to #eel as the customer does and ego drive A#ter the management has set a selection criteria" it must start its recruitment .To encourage selling as a pro#ession organizations give additional perks. Training Sales 2epresentati e 6ustomers expect salespeople to have deep product knowledge to add to customer operations and to be e##icient and reliable" so what we have is more inv in training. Today a #ew months is spent in training them !5 weeks #or industrial companies" 1! in service and , in consumer products Training time varies with complexities o# work ands sales The goals> D They need to know and identi#y with the company They need to know their company products They need to know their competitor and their products They need to know how to make e##ective presentations They need to understand #ield procedures and responsibilities

ales automation is a new technology move and interactive trainings are in vogue Super ising Sales 2epresentati e 3ew salesperson is given a territory compensation and training and A8 - supervision 4orms on customer calls +ow many calls to makeL And whom should they #ocus on 4orms on prospects calls Time spend in prospecting a new account Another tool is timeDandDduty analysis" which helps reps understand how they spend their time and how they might increase their productivity. ales rep spend their time in> :reparation> getting in#ormation and planning strategy Travel> sometimes amounts to .=S o# the time Aood P breaks (aiting> outside customer*s o##ice elling Administration As a result #ace to #ace selling time reduced to as little as !.S o# total working time. To improve sales #orce productivity companies are adopting methods like training sales rep to use phoneDpower" using computer to develop call and routing plans an to supply customer and competitive in#ormation. There has been a growth in the internal sales #orce due the escalating cost o# outside sales calls and the growing use o# computers and innovative telecommunications e1uipment. <nside sales people are o# % types> Technical support people ales assistants> clerical backup #or outside sales persons Telemarketers <nside sales #orce #rees outside reps to spend more time selling to ma/or accounts and other external tasks. -utside sales reps are paid on incentiveDcompensation basis while internal on a salary P bonus basis. Another dramatic breakthrough is the new highDtech e1uipment. alesperson has truly gone MelectronicN. M%TI1-TI'" S-)ES 2E$2ESE'T-TI1ES @nlike some sales persons who are ambitious and sel#Dstarters" ma/ority o# sales rep need encouragement and incentives especially in the #ield o# selling because> Aield /ob is one o# #re1uent #rustration Most people work below capacity in absence o# special incentives" such as #inancial gain or social recognition

9eps are occasionally preoccupied with personal problems

+igher motivation leads to greater e##ort which leads to greater per#ormance leading to greater rewards resulting in greater satis#action which again rein#orces motivation. Thus" ales managers must be able to convince salespeople that they can sell more by working harder or by being trained to work smarter. ales managers must be able to convince salespeople that the rewards #or better per#ormance are worth the extra e##ort. 9eward with highest value was pay while liking " respect were least valued. <mportance o# motivation varied with demographic characteristics> Ainancial rewards were most valued by older" longerDtenured people and those with large #amilies +igher order rewards &recognition" liking" respect" etc) were most valued by young" unmarried or having small #amilies sales people. Sales 8uotas Many companies must set sales 1uotas prescribing what reps should sell during the year. Kuotas can be set on dollar sales" unit volume" margin" selling e##ort or activity" and product type. 6ompensation is o#ten tied to degree o# 1uota #ul#illment. Kuotas are set higher than the sales #orecast to encourage managers and sales people to per#orm at their best. <# they #ail to make their 1uotas" the company nevertheless makes its sales #orecast. % schools o# thought on 1uota setting> +igh 1uota school sets 1uotas higher than what sales reps will achieve but that are attainable to spur extra e##orts. Modest 1uota school sets 1uotas that a ma/ority can achieve $ariable 1uota school thinks that individual di##erences among sales reps warrant this kind o# 1uota also #or some. Benerally the salesperson*s 1uota should be atleast e1ual to the person*s last year*s sales plus some #raction o# the di##erence between territory sales potential and last year*s sales. Supplementary moti ators Additional motivators to stimulate sales #orce e##ort. Eg periodic sales meetings as a social occasion" chance to meet and talk with the Mcompany brassN and identi#y with a larger group. ponsoring sales contests with promise o# reward to the winners but #or #airplay the contest period should not be announced in advance.

E aluating sales representati es


Aeed #orward aspects o# sales supervisionD how management communicates what the sales #orce should be doing and motivates them to do it. Bood #eed #orward re1uires

good #eedback" which means getting regular in#ormation #rom reps to evaluate per#ormance. Sources of Information a,out representati es uch as sales reports" personal observation" customer letters and complaints" customer surveys and conversations with other sales representatives. ales reports are divided between activity plans and write ups o# activity results. A best example o# the #ormer is salesperson*a workplan" which sales reps submit a week or month in advance. The plan describes intended calls or routing. This report #orces the sales reps to plan and schedule their activities" in#orms management o# their whereabouts" and provides a basis #or comparing their plans and accomplishments. ales reps can be evaluated on their ability to Mplan their work and work their planN Many companies also want sales reps to develop an annual territory marketing plan in which they outline their program #or developing new accounts and increasing business #rom existing accounts. This type o# report casts sales reps into the role o# market managers and pro#it centers. ales managers study these plans" make suggestions and use them to develop sales 1uotas. ales reps write up completed activities on call reports. ales representatives also submit expense reports" new business reports" lost business reports and reports on local business and economic conditions. These reports provide raw data #rom where sales managers can extract key indicators o# sales per#ormance. Eg average no. o# sales calls per sales person per day" average sales call time per contact" average cost per sales call" entertainment cost per sales call" percentage o# orders per sales call" no. o# newC lost customers per period. Formal E aluation -ne type o# evaluation is to compare current per#ormance with past per#ormance. This can be evaluated against sales increase across products" gross pro#its" sales expense" lost customers" trend in sales and gross pro#its per customer" annual number o# calls" etc and then analysed. The customer*s opinion o# the salesperson" product and service can be measured by mail 1uestionnaires or telephone calls. Evaluation can asses the sales person*s knowledge o# the company" products" customers" competitors" territory and responsibilities. :ersonal characteristics can be rated such as general manner" appearance" speech and temperament. The sales manager can also review any problems in motivation and compliance. ales manager can check whether the representative knows and observes the law. Eg representaive*s statements must match advertising claims" giving bribe to in#luence sales" industrial espionage" disparaging competitors through lies.

:rinciples o# personal selling> Three ma/or aspects o# personal selling> ales pro#essionalism 3egotiation 9elationship marketing $rofessionalism: All sales training approaches try to convert the salesperson #rom a passive order taker to an active order getter. There are ! approaches in training salespersons to be order getters> ales oriented approach> The sales oriented approach trains the person in highDpressure techni1ues. This #orm o# selling assumes that customers are not likely to buy except under pressure. 6ustomer oriented approach Trains salesperson in customer problem solving. The person learns how to listen and identi#y customer needs and come up with sound product solutions This assumes that customers have latent needs that constitute opportunities and that they appreciate constructive suggestions and that they will be loyal to sales reps who have their long term interests at heart Ma/or steps in e##ective selling :rospecting and 1uali#ying Most companies leave this to sales person. Fut now companies are taking this on and leaving salespersons to spend their expensive time selling 6ompanies can generate leads thru Examining data sources like newspapers in search o# names :utting up booths at trade shoes to encourage drop bys <nviting current customers to drop names o# prospective 6ultivating re#erral sources 6ontacting organizations and associations to which prospects belong )ropping in unannounced on various o##ices &6old canvassing) :reapproach The sales person needs to learn as much as possible about the prospective company and its buyers and decide about the best approach to approach the prospective customer Approach The sales person should know how to greet the buyer to relationship o## to a good start. :resentation and )ocumentation

The salesperson now tells the product story to the buyer #ollowing the A<)A #ormula o# getting attention" holding interest" arousing desire and obtaining action. The salesman uses A AAF$ approach that is #eatures" advantages" bene#its and value approach Aeatures> basic characteristics Advantage> why #eatures are advantageous Fene#its> economic technical etc advantage $alue> ummative worth 6ompanies have three di## styles o# sales presentation 6anned approach> which is a memorized sale talk covering the main points. Fased on stimulus response thinking Aormulated approach> also uses stimulated response thinking. +owever it identi#ies the buying style and then uses a #ormulated approach to this type o# buyer 3eed atis#action approach> starts with a search o# the customers real needs by encouraging customer to do most o# the talking -vercoming ob/ectivesO 6ustomers always pose ob/ections during presentations or when asked to order. :sychological resistance includes resistance to inter#erence" pre#erence #or established supply sources o# brands" apathy" and reluctance to give up some association etc 8ogical resistance is customers ob/ections to price delivery scheduled etc. 6losing 3ow the salesperson attempts to close the sale. alespersons need to recognize closing signs #rom a buyer. Aollow up and maintenance> This is important to ensure customer satis#action and repeat business 4egotiation Marketing is concerned with exchange activities and the manner in which the exchange is established. <n routinized exchange administered programs o# pricing and distribution establish the terms <n negotiated exchange price and other terms are set via bargaining behavior. The skills re1uires in bargaining situations are preparation and planning skill" knowledge o# sub/ect matter being negotiated" ability to think clearly. (hen to negotiate According to 8ee and )obler> (hen many #actors bear not only on price but also on 1uality and service (hen business risks can not be accurately predicted (hen a long period id re1uired to produce the items purchased (hen production is #re1uently interrupted because o# numerous change

3egotiation is appropriate whenever a zone o# agreement exists that is when there are simultaneously overlapping acceptable outcomes #or the parties. The seller has a reservation price that is the lowest we will accept and the buyer has a reservation price that is the maximum he will pay. Aormulating a negotiation strategy A negotiation strategy is a commitment to an overall approach that has a good chance o# achieving the negotiators ob/ectives. Aisher and @ry propose a strategy o# Mprincipled negotiationN , points under the same eparate the people #rom the problem> understand each others view point Aocus on interests not on positions> the distinction between positions and interests is the similar to that between solutions and desired outcomes or means and ends <nvent options #or mutual gain> search #or a larger pie than #ighting #or each others share <nsist on ob/ective criteria> this approach avoids a situation in which one must yield to the position o# the other. <nstead both reach amiable solutions. Fargaining tactics are maneuvers made at speci#ic points in the bargaining process. <# the other party is stronger use FAT3A> best alternative to a negotiated agreement 6lassic bargaining tactics> -cting cra&y: demonstrating @r position thru emotional commitment to @r position +ig pot: leave ursel# a lot o# room to negotiate. tart with high demands 7et a prestigious ally The well is dry: you have no more concessions to make. )imited authority: u pretend to act on someone*s behal# 0hipsaw;auction: u let them know < are negotiating with competitors at the same time )ivide and con1uer> sell one member with ur proposals Bet lostCstall #or time (e noodle> give no emotional or verbal response to the opponent Fe patient> outwait @r opponent 8ets split the di##erence> the person who suggests this has less to loose Trial balloon> u release ur possible decision through a so called reliable source be#ore the decision is already made urprises 8elationship marketing 6ompanies aim at creating long term relationships with their customers. 3eil 9ackham adopted the :<3 selling that is ituation problem implementation" needDpayo##. +e trains salesperson to raise , types o# 1uestions with a prospect ituation> ask abt the buyers present situation :roblem 1uestions> deal with problems di##iculties and dissatis#action that the buyer is #acing

<mplication 1uestionsO they ask abt the conse1uences or e##ects o# a buyers problems di##iculties 3eed :ayo## Kuestions> these ask about the value or use#ulness o# a proposed solution. More companies are moving #rom transaction marketing to relationship marketing. 9elationship marketing is based on the premise that 6ustomers need #ocused and continuous attention.

Chapter 21 Managing (irect and %nline Marketing


02ore of todayAs marketing is moving from marketplace to cyberspace1 Explosion o# mediaD direct selling without intermediaries ExistingD print" broadcast" catalogs" direct mail and teleDmarketing 6omplemented byD #ax machines eDmail" the <nternet and onDline services. @sage> )irect Market and identi#ying new prospects. ?target o##ers and measure results more e##ectively. )e#inition o# )irect Marketing> )irect Marketing is an interactive marketing system that uses one or more advertising media to e##ect a measura,le response andCor transaction at any location. EmphasisD measurable responseD typically a customer order thus" )irect Marketing is also called direct order marketing. Froader 9ole> building long term relationship &direct relationship marketing). Firthday 6ards" <n#ormation materials" #re1uency award programs and club programs. "rowth of direct marketing and electronic ,usiness ales through direct marketing channels growing rapidlyD 4S in 1;;4 @ " retail sales %S 6onsumer market> .%S F!F market !4S 6haritable institutions !=S 6atalogue sales> U%!5 billion Annually :er 6apita Annual )irect ales> U0%= 2easons of growth in direct marketing Market Mdemassi#icationN ? ever increasing number o# market niches ? distinct pre#erences Aactors that Encourage +ome hopping> +igh costs o# driving" tra##ic congestion" parking headaches" lack o# time" shortage o# retail sales help" 1ueues at checkout counters 6onsumers appreciateD !,C4 availability o# toll #ree numbers and commitment to customer service.

Many retail chain storesD dropped slow moving specialty itemsDopportunity #or direct marketers. Browth o# a##ordable computer power and customer databases Fusiness marketers ? direct marketing increasedD high marketing costs #or reaching out to business markets though sales #orce. Explosive growth in electronic communication" McJinsey estimates eDcommerce sales could grow to U%!4 billion by !==!. M<n#ormation superhighwayND revolutionizing eDcommerce. EDbusinessD electronic meansD 9esearch" communicate and potentially transact EDmarketsD sponsored websitesD describe products and services o##ered by sellersO allows buyers to search in#ormation" identi#y their need" place orderG physical delivery o# goods.

Fene#its o# direct marketing> +uyers +ome shoppingD #un" convenient and hassle #ree" time saving" larger variety. 6omparative shopping possibleD browsing through online catalogues. omebody else other than buyer can order goods. Fusiness customersD learn about new products P servicesD time saved in meeting sales people.

ellers Fuy mailing listsD any group > le#t handed" overweight" millionaires :ersonalize and customize the messagesD build continuous relationship with customers 3estle*s baby #ood divisionD database o# new mothers" mails 0 personalized package o# gi#ts and advice on key stages in baby*s li#e. 9each prospects at the right timeD direct marketing material ? higher readership D timing Testing o# media and messagesD most cost e##ective trategy is less visible to competitors Measure responses to their campaign ? which is most pro#itable

The growing use of Integrated (irect Marketing Although online and direct marketing is booming" a large no. o# companies relegateD lower importance. Advertising and salesDpromotion budgetsD most communication dollars Threat to sales #orce 6ompaniesD increasingly recognizing the importance o# integrated marketing communications

6hie# <n#ormation -##icer I 6hie# 6ommunications -##icer GE supervises specialists in advertising" sales promotion" public relations and directDonline marketing. -verall communication budgetD right allocation. ingle tool #or one shot marketing e##ortD signi#icantly lower costs 9esponse compressionD multiple media deployed in a tightly de#ined time #rame" increases message reach and impact. ? deploy a se1uence o# messages with precise timing intervals in the hope o# generating incremental sales and pro#its to exceed the costs involved. )irect marketing techni1ues a driving #orce in general marketing processO a #ull partner. MaximarketingD a comprehensive set o# steps to reach a prospect" making the sale and developing a relationship 1. Maximized targetingD de#ine identi#y best prospects !. Maximized media ? examine exploding media variety %. Maximized accountability ? evaluating campaigns ? cost per prospect response ,. Maximized awarenessD searching messages which will a##ect the prospect .. Maximized activation ? advertising must trigger responseC measurable higher stage o# buyers* interest. 0. Maximized synergy ? doing double duty with advertising 4. Maximized linkages callsD linking advertising with sales" concentrating on prospects and converting them. 5. Maximized sales database building callsD cross selling" upgrading etc. ;. Maximized distribution building additional channels to reach prospects and customers . 6iticorp" <FM" AtPT" <FM " Aord and American AirlinesD used integrated marketing pro#itably 6ustomer )atabases and )irect Marketing Jnowing individual customersD customize their product" o##er" message" shipment methodD maximize the customer appeal. 6ustomer database is an organized collection o# comprehensive data about individual customers or prospects that is current" accessible and actionable #or such marketing purposes such as lead generation" lead 1uali#ication" sale o# product or service or maintenance o# customer relationships.

)atabase marketing is the process o# building" maintaining and using customer databases and other database &products" suppliers" resellers) #or the purpose o# contacting and transacting. Mailing listD simply a list o# names" address and telephone numbers. 6ustomer )atabaseD more in#ormation" Business to business: purchasing history" team members*" current status" share o# customers* total business etc." strengths and weaknesses in servicing that account. &onsumer 2arketing: demographics" psychographics" past purchases and other relevant in#ormation. )atabase marketing > #re1uently used in business marketing and service retailers 8ess used by packages goods retailers and consumer packaged companies. (ell developed customer database ? a proprietary assetD competitive edge. )atabase in#ormationD target market precision &much more that it can by segment marketing" mass marketing or niche marketing) 6ompany can identi#y small groups o# customers who receive #ine tunes marketing o##ers and communications. )ata warehousing and )ata mining to do that. Mass marketing ersus %ne to %ne Marketing Mass Marketing Average customer 6ustomer anonymity tandard product Mass production Mass distribution Mass advertising Mass promotion -ne way messages Economies o# scale hare o# market All customers 6ustomer attraction %ne to %ne Marketing <ndividual customer 6ustomer pro#ile 6ustomized market o##ering 6ustomized production <ndividualized distribution <ndividualized message <ndividualized incentives Two way messages Economies o# scope hare o# customer :ro#itable customers 6ustomer retention

6ompanies use their database in #our ways>

1. To identi#y prospects !. To decide which customers should receive a particular o##er> etting up critical criteria describing the ideal target customer #or an o##er. %. To deepen customer loyalty> build interest and enthusiasm by remembering customer pre#erencesO by sending appropriate gi#ts" discount coupons" and interesting reading material. ,. To reactivate customer purchases> company can make attractive or timely o##ers through automatic marketing like birthday mailers M-P%2 C3-''E)S F%2 (I2ECT M-2.ETI'" The di##erent channels are> 1) !) %) ,) .) 0) AaceD to Aace elling )irect mail 6atalog Marketing Telemarketing T$" kiosk marketing -nDline channels

Face to Face Selling


-riginal and oldest #orm> )irect #ield sales call 3owadays companies use pro#essional sales #orce (irect Mail ending an o##er" announcement" reminder" or other item to a person at a particular address. +ighly selective mailing lists employed. eg> letters" #lyers" #olders etc This is a popular media because> :ermits target selectivity 6an be personalized <s #lexible Allows early testing Allows response measurement Types o# mailers> 1. :aper based !. Aax mail %. EDmail ,. $oice mail
For an effective direct mail campaign= direct marketers must decide on their obAectives= target markets B prospects= offer elements= means of testing the campaign and measures of campaign success<

*b+ectives, Main aim is to receive an order from prospects: Success is Audged by the response rate: Cther obAectives include producing prospect leads= strengthening customer relationships= and informing and educating customers for later offers:

Tar(et markets and prospects, ;dentify characteristics of prospects Apply @FM formula< @ecency= fre3uency= monetary amount for rating B selecting customers (an also be identified on the basis of age= se1= income= education= previous purchase= occasions 0rospect in b6b marketing is a group of people including both decision makers and multiple decision influencers:

6ffer E"ements E 1) The product !) The o##er %) The medium ,) The distribution method .) 6reative strategy <n addition to the above o##er elements the direct mailer has to decide on #ive components o# the mailing itsel#. These are> The outside envelope which is more e##ective i# it contains an illustration" a picture or a catchy headline The sales letter which should use a personal salutation and start with a headline in bold type A color#ul circular accompanying the letter will increase the response rate by more than its cost Fetter results are obtained when the reply #orm #eatures a tollD#ree number and contains a per#orated receipt stub and guarantee o# satis#action The inclusion o# a postage #ree envelope will dramatically increase the response rate. Testing E"ements -ne o# the advantages o# direct marketing is the ability to test" under real marketplace conditions" the e##icacy o# di##erent elements o# an o##er strategy 9esponse rates typically understate a campaign*s longDterm impact To derive a more comprehensive estimate o# the promotion*s impact" companies should measure impact on awareness" intention to buy and word o# mouth

Measuring Campaign Success* >ifetime -a"ue Fy adding up the planned campaign costs" the direct marketer can #igure out in advance the needed breakDeven response rate This rate must be net o# returned merchandise and bad debts. 9eturned merchandize can kill an otherwise e##ective campaign Fy analyzing past campaigns" direct marketers can steadily improve their per#ormance A#ter assessing customer*s li#etime value &expected pro#it made on all #uture purchases net o# customer ac1uisition and maintenance costs)" company can #ocus its e##orts on the more attractive customers.

Catalog Marketing This occurs when companies mail one or more product catalogs to selected addresses. They may send #ull merchandize catalogs" specialty consumer catalogs and business catalogs usually in print #orm or even 6)s video" online. The number o# catalogs streaming into the consumers mailboxes not the only measure o# growth in this business +uge boost #rom the internetD about ] o# catalog companies present merchandize and take orders over the internet uccess depends on a company*s ability to manage its customer lists so care#ully that there is little duplication or bad debts" to control its inventory care#ully" to o##er 1uality merchandize so that returns are low and to pro/ect a distinctive image. American companies #lourish in 2apan because they o##er high 1uality merchandize aimed at speci#ic groups Fy putting their entire catalogs onDline and on the <nternet" catalog companies have better access to global consumers than ever be#ore.

Telemarketing )escribes the use o# telephone operators to attract new customers" to contact existing customers" to ascertain satis#action levels or to take orders. 9outinely taking orders is called telesales. ystems are totally automated ? Automated dialing and recorded message players &A)9M: ) can dial numbers" play voiceDactivated advertising messages and take orders #rom interested customers. <ncreasingly used #or business as well as consumer marketing. As telemarketing improves with the help o# videophones" it will increasingly replace" expensive sales calls E##ective telemarketing depends on choosing the right telemarketers" training them well and providing per#ormance incentives

Biven privacy issues and higher cost per contract" precise list selection is critical.

%T3E2 ME(I- F%2 (I2ECT 2E$S%'SE M-2.ETI'" )irect marketers us all o# the ma/or media to make direct o##ers to potential clients )irect marketers in three ways to promote direct sales use T$ 1. (irectAresponse ad ertising: Ae.g. <n#omercials i.e. ads like documentaries &1uit smoking etc) which have testimonies etc.these ate very pro#itable and are used to good e##ect to sell high ticket items. They share the products story and bene#its with other bene#its at cost per lead that usually matches that o# direct mail or print ads !. -t home shopping channels: AE.g. tele shopping network &T 3) %. 1ideote#t and interacti e T1: D6onsumers T$ is linked to the sellers catalog by cable and consumer can place order through special lines and special keyword .iosk Marketing: A ome companies have designed a 7customer order placing machine 7 called kiosks and place them in airports etc where they can place orders Marketing in the 21st century: AE commerce <t*s a wide variety o# electronic plat#orm such as the sending o# purchase orders to suppliers via electronic data interchange E)<" eg ATMs mart cards" internet shopping All these involved doing business in market space as compare to a physical marketplace. @nderlying two basic phenomenons> )igitalization and connectivity )igitalization consists o# converting text" data sound image into a stream o# 7bits* that can be dispatched at a high speed 6onnectivity is through Extranet and <ntranet creating an in#ormation highway Most regular sales on the net are airline tickets" so#tware and hardware. Fusiness transaction over the <nternet is at higher volume and covers a greater variety o# goods and services The e commerce channels are of two types: A &ommercial channels: -nline in#ormation and marketing services that can be accessed by those who have signed up at a monthly #ee. These provide in#ormation" entertainment and shopping opportunities &AME9<6A -38<3E) "he .nternet: <t*s a global web o# computer network and has made a decentralized and instantaneous global communications i.e. the www worldwide web. <nternet is #ree and easily accessible

<nternet search engines like yahoo give consumers access to varied in#ormation sources" making them better in#ormed and more discerning shoppers. Fuyers gain the #ollowing> -b/ective in#ormation #or multiple brands including costs" prices" #eatures" and 1uality <nitiate re1uests #or advertising and in#ormation #rom manu#acturers )esign the o##erings they want @se so#tware agents to search #or and invite o##ers #rom multiple sellers Thus exchange process in the age o# in#ormation has become customer initiated and customer controlled. Marketers and their representatives are held at bay till the customers invite them to participate in the exchange. Examples to show how people can use internet to buy automobiles or get home mortgage loans>

Edmunds &www.edmunds.com)> This site provides unbiased" third party in#ormation and advice on buying autos. +omeowner &www.homeowner.com)> :rospective home buyers can research home mortgage rates and interest trends" use #inancial tools to analyze loans" and sign up #or an eDmail service that keeps them in#ormed o# trends in loan rates.

%')I'E M-2.ETI'" -(1-'T-"ES C (IS-(1-'T-"ES % ma/or bene#its to potential buyers> 6onvenience <n#ormation Aewer hassles Fene#its to marketers> Kuick ad/ustments to market conditions 8ower costs 9elationship building> dialog with consumers Audience sizing> how many visited their site Marketers are adding onDline channels to #ind" reach" communicate and sell. . advantages o# online marketing> mall P large #orms can a##ord it 3o limit on ad space Aast <n#ormation access P retrieval ite can be visited by anyone anywhere hopping can be done privately and swi#tly The internet is less use#ul #or products that must be touched or examined in advance. Fut an exception to this is buying and selling computers #rom )ell or Bateway. Another example is 6alyx P 6orolla &6P6) a direct #loral retailer where orders can be placed on phone or on web site.

&onducting on-line marketing


Marketers can do onDline marketing by creating an electronic presence on the interDnetO placing ads onDlineO participating in #orums" newsgroups" bulletin boards" and (eb communitiesO and using eGmail and (ebcasting.

Electronic presence

Thousands o# businesses have established a presence on the <nternet. Many o# these (eb sites o##er users a wide variety o# services. A company can establish an electronic presence on the (eb in two ways> <t can buy space on a commercial onDline service or it can open its own (eb site. Fuying a location on a commercial service involves renting storage space on the onDline service*s computer or establish a link #rom the company*s own computer to the onGline service*s shopping mall. The onGline services typically design the store#ront #or which the company pays the onDline service an annual #ee plus a small percentage o# the company*s onDline sales. Alternatively" tens o# thousands o# companies have created their won (eb sites" typically aided by a pro#essional (eb design agency. These sites take two basic #orms> 6orporate (eb site> A company o##ers basic in#ormation about its history" mission and philosophy" products and services" and locations. <t might also o##er current events" #inancial per#ormance data" and /ob opportunities. These sites are set up to answer customer 1uestions by eDmail" build closer customer relationships and generate excitement about the company. They are designed to handle interactive communication initiated by the consumer. <ronically" a recent study has revealed that the #astDmoving ilicon $alley #irms" which pushed the <nternet revolution" #all down in providing basic corporate in#ormation. The lesson #or marketers> :ay attention to the basics" such as providing names" phone numbers and dates and making it easy #or customers to purchase products onDline. Marketing (eb site> This kind o (eb site is designed to bring prospects and customers closer to a purchase or other marketing outcome. The site might include a catalog" shopping tips" and promotional #eatures such as coupons" sales events" or contests. <n order to attract visitors" the company promotes its (eb site in print and broadcast advertising and through banner ads that pop up on other (eb sites. A key challenge is designing a (eb site that is attractive on #irst view and interesting enough to encourage repeat visits. Early (ebsites were mainly text based. They have increasingly been replaced by graphically sophisticated (eb sites that provide text" sound" and animation. To encourage revisits" companies run #resh news and #eature stories" contests" and special o##ers. 3ot only must companies make sure their (eb sites are well designed and in#ormative" they must also be certain they are not unwittingly stranding sur#ers ? and potential customers ? in cyberspace. Most marketers plaster the same @98 on all their promotional literature. Het i# someone is drawn to the site in search o# speci#ic product in#ormation" he usually has to wade through several irrelevant pages &e.g. company mission" 6E-*s address etc). This problem has led many companies to develop MmicrositesN ? small"

specialized (eb sites #or speci#ic occasions or products. Fig motion studios create separate (eb sites #or di##erent movies. -thers too are considering something similar> new product launches" promotional campaigns" contests" recruiting" crisis communication" etc. 6ompanies should consider developing a microsite #or any situation in which speci#ic" detailed in#ormation needs to be made available 1uickly and easily.

Advertising Cn"line
6ompanies can place onDline ads in three ways. They can place classi#ied ads in special sections o##ered by the ma/or commercial onDline services. Ads can also be placed in certain <nternet newsgroups that are set up #or commercial purposes. Ainally" the company can pay #or onDline ads that pop up while subscribers are sur#ing onDline services or (eb sites. These include banner ads" popDup windows" tickers &banners that move across the screen) and roadblocks &#ull screen ads that users must click through to get to other screens). (eb advertising costs are reasonable as compared with those o# other advertising media. till" sur#ers ignore most banner ads. -ne measure is the MclickDthrough rateN showing how many computer users point their mouse at an ad and ask #or more in#ormation. (hen rates get to be less than one percent" advertisers worry that they have picked the wrong site. Advertisers are clamoring #or better measures o# advertising impact. (eb advertising is still playing only a minor role in the promotion mixes o# most advertisers.

Forums= ne9sgroups communications:

bulletin

boards

and

-eb

Aorums are discussion groups located on commercial online services. A #orum may operate a library" a Mchat roomN #or realDtime message exchanges and even a classi#ied ad directory. 3ewsgroups are the <nternet version o# #orums. +owever" these groups are limited to people posting and reading messages on a speci#ied topic. <nternet users can participate in newsgroup without subscribing. Fulletin board systems &FF s) are specialized onDline services that center on a speci#ic topic or group. Marketers can participate in newsgroups and FF s but must avoid introducing a commercial tone into these groups. (eb communities are commercially sponsored (eb sites where members congregate onD line and exchange views on issues o# common interest. -nDline buyers increasingly create product in#ormation not /ust consume it. They /oin <nternet interest groups to share productDrelated in#ormationO with the result that M word o# (ebN is /oining Mword o# mouthN as an important buying in#luence.

'"mail and -ebcasting


6ompanies can also sign on with any o# a number o# (ebcasting services. Aor a monthly subscription #ee" customers can sit back while the (ebcaster automatically delivers

in#ormation o# interest to their screens. 6alled MpushN programming" onDline marketers see this as an opportunity to deliver in#ormation and ads to subscribers without the subscriber having to make a re1uest. (ebcaster must be care#ul however not to overload subscribers with M/unk eDmailN. A company can encourage prospects and customers to send 1uestions" suggestions and even complaints to the company via eGmail. 6ustomer service reps can 1uickly respond to these messages. Th company may also develop <nternetDbased electronic mailing lists. @sing the lists" onDline marketers can send out customer newsletters" special product or promotion o##ers based on purchasing histories" reminders o# service re1uirements or warrantly renewals" or announcements o# special events. +owever" one must guard against developing the reputation o# a M pammerN ? pam is the term #or unsolicited eDmail. (eb communities are commercially sponsored web sites where members congregate online and exchange views on issues o# common interest. (ebcasting ? a service that automatically downloads customized in#ormation to the recipient*s :6. Aor a monthly #ee" subscribers can get in#ormation on their topics o# interest automatically downloaded. A #orm o# Mpush programmingN Challenges of online marketing 6onsumers ability to order direct will hurt groups like travel agents" stock brokers" insurance salespeople" car dealers" book store owners. <n#omediariesD online intermediaries who help consumers shop more easily and obtain lower prices. -ther challenges are> 8imited consumer exposure and buying kewed demographics and psychographics 6haos and clutter ecurity Ethical concerns 6onsumer backlash ? consumers have more power through a means o# expressing their disgruntlement. Email marketing model is centered on permissionD based marketing. For successful email marketing: Bive the customer a reason to respond :ersonalize the content o# your emails -##er something the customer could not get via direct mail Ethical issues in direct marketing <rritation ? people #ind it bothersome.

@n#airness )eception and #raud <nvasion o# privacy

C3-$TE2 22 Managing the Total Marketing Effort


The marketing organization will have to rede#ine its role #rom managing customer interactions to integrating all the company*s customerD#acing processes. 2he main responses of business firms to a rapidly changing environment have been< 2eengineering: Appointing teams to manage customerDvalue building processes and trying to break down department walls between #unctions. %utsourcing: A greater willingness to buy more goods and services #rom outside vendors when they can be obtained heaper and better this way. +enchmarking: tudying 7best practice companies* to improve the company*s per#ormance. Supplier partnering: <ncreased partnering with #ewer but larger valueDadding suppliers Customer partnering: working more closely with customers to add value to their operations.

Merging: Ac1uiring or merging with #irms in the same industry to gain economies o# scale and scope. "lo,ali&ing: <ncreased e##ort to both 7think global* and 7act local*. Flattening: 9educing the number o# organizational levels to get closer to the customer. Focusing: )etermining the most pro#itable businesses and customers and #ocusing on them. Empowering: Encouraging and empowering personnel to produce more ideas and take more initiative.

The role o# marketing in a networked enterprise is to integrate all customerD#acing processes so that customers see a single #ace and hear a single voice when they interact with the #irm.

E olution of the marketing department


Stage 1: Simple Sales (epartment mall companies typically have a ales $ice :resident who manages a sales #orce and also does some selling. Aor marketing research or advertising" the $: hires help #rom outside. :resident ales $:

ales #orce

-ther marketing #unctions &hired #rom outside)

Stage 2: Sales (epartment 0ith -ncillary Marketing Functions As the company expands" it adds certain #unctions. (hen the company needs to enter new markets" it re1uires market research to learn about customer needs and market potential. <t will have to advertise its name and products in the area. The ales $: will hire a marketing research manager and an advertising manager to handle these activities. +e may hire a Marketing )irector to manage these and other marketing #unctions. :resident ales $:

ales #orce

Marketing )irector -ther marketing #unctions &internal sta## and external support)

Stage ?: Separate Marketing (epartment The continued growth o# the company will warrant additional investment in marketing research" newDproduct development" advertising and sales promotion and customer service. Fut the ales $: normally #ocuses time and resources on sales #orce. Eventually the 6E- sees the advantage o# establishing a separate marketing department headed by a Marketing $:. At this stage" sales and marketing are separate #unctions that are expected to work closely together. :resident

ales $:

Marketing $:

ales #orce

-ther marketing #unctions

Stage <: Modern Marketing (epartment Although the sales and marketing $:s should work together" their relationship is o#ten strained and marked by distrust. Modern Marketing )epartment is headed by a marketing and sales executive $: with managers reporting #rom every marketing #unction" including sales. :resident

Executive $: o# marketing and sales

ales $:

Marketing $:

ales #orce

-ther marketing #unctions

Stage =: Effecti e Marketing Company -nly when all the employees realize that their /obs are created by customers does the company become an e##ective marketer.

Stage >: $rocess -nd %utcome +ased Company Many companies are now re#ocusing their structure on key processes rather than departments. <n the interest o# achieving customerDrelated process outcomes" companies are now appointing process leaders who manage crossDdisciplinary teams. As a result" marketing personnel may have a solidDline responsibility to their teams and a dottedDline responsibility to the marketing department. 6rossDdisciplinary team with process leader

Marketing )epartment

Marketing personnel

%rgani&ing the Marketing (epartment Functional %rgani&ation <t consists o# #unctional specialists reporting to a Marketing $:" who coordinates their activities. 6espedes has urged companies to improve the critical inter#aces among #ield sales" customer service and product management groups because they collectively have a ma/or impact on customer satis#action. -d antages: Administrative simplicity (isad antages: A #unctional organization o#ten leads to inade1uate planning #or speci#ic products and markets. :roducts that are not #avored by anyone are neglected. Each #unctional group competes with the other #unctions #or budget and status. Marketing $:

Marketing Administration Manager

Advertising P salesDpromotion manager

ales Manager

Marketing 9esearch Manager

3ew products Manager

"eographic %rgani&ation A company selling in the national market o#ten organizes its sales #orce along geographic lines. The national sales manager may supervise #our regional sales managers" who each supervise six zone managers" who in turn supervise eight district sales managers" who supervise ten sales people. 6ompanies also have area market specialists to support sales e##orts in highDvolume distinctive markets. <mproved in#ormation and marketing research technologies have also spurred regionalization. )ata #rom retailDstore scanners allow instant tracking o# product sales" helping companies to pinpoint local problems and opportunities. Mc)onald*s spends about .=S o# its total advertising budget regionally. American Airlines realized that the travel needs o# 6hicagoans and outhwesterners are very di##erent during the winter months. AnheuserDFusch has subdivided its regional markets into ethnic and demographic segments" with di##erent ad campaigns #or each. 9egionalization may be accompanied by a move toward branchising. Franchising means empowering the company*s districts or local o##ices to operate more like #ranchises. The branches resemble pro#it centers and local managers have more strategy latitude and incentive. $roductA or +randAManagement %rgani&ation 6ompanies producing a variety o# products and brands establish a product or brand management organization. <t makes sense only i# the company*s products are 1uite di##erent" or i# the sheer number o# products is beyond the ability o# a #unctional marketing organization to handle. The product management organization does not replace the #unctional management organization but serves as another layer o# management. Jra#t uses product management in its :ost )ivision. eparate product category managers are in charge o# cereals" pet #ood and beverages. (ithin the cereal group" there are separate subDcategory managers #or nutritional cereals" children*s presweetened cereals" #amily cereals and miscellaneous cereals. :roduct and brand managers have these tasks> )eveloping a longDrange and competitive strategy #or the product :reparing an annual marketing plan and sales #orecast (orking with advertising and merchandising agencies to develop copy" programs" and campaigns. timulating support o# the product among the sales #orce and distributors. Bathering continuous intelligence on the product*s per#ormance" customer and dealer attitudes" and new problems and opportunities. <nitiating product improvements to meet changing market needs. -d antages: The product manager can concentrate on developing a costDe##ective marketing mix #or the product. +e can react more 1uickly to problems in the market place than a committee o# #unctional specialists can.

The company*s smaller brands are less neglected because they have a product advocate.

(isad antages: Typically product managers are not given enough authority to carry out their responsibilities e##ectively. They have to rely on persuasion to get the cooperation o# advertising" sales" manu#acturing and other departments. They are burdened with a great amount o# paperwork. :roduct managers become experts in their product but rarely achieve #unctional expertise. :roduct management system o#ten turns out to be costly. :roduct managers are appointed #or even minor productsO each overworked product manager pleads #or an associate brand manager. Meanwhile the company continues to increase its #unctional specialists in copy" packaging" media" sales promotion etc. oon" payroll costs climb and the company is saddled with a large and costly structure. :earson P (ilson have suggested . steps to make product management work better> 6learly delineate the limits o# the product manager*s role and responsibility. Fuild a strategyDdevelopment and review process to provide a #ramework #or the product manager*s operations. Take into account areas o# potential con#lict between product managers and #unctional specialists when de#ining their respective roles. et up a #ormal process that #orces to the top all con#lict o# interest situations between product management and #unctional line management. Establish a system #or measuring results consistent with the product manager*s responsibilities. A second alternative is to switch #rom product managers to product teams. There are % types o# productDteam structures in product management. 1ertical $roduct team: The product manager is the leader and deals with other managers to gain their cooperation. The associate product manager assists in these tasks and also does some paperwork. The product assistant carries out most o# the paperwork and routine analysis. :roduct Manager &:M) Associate :M :roduct Assistant Triangular $roduct team: :roduct manager and ! specialized product assistants one who takes care o# marketing research and other" marketing communications. Eg. +allmark 6ompany :M

9 :M ? :roduct Manager 9 ? Market 9esearcher 6 ? 6ommunication pecialist

3ori&ontal $roduct team: :roduct manager and several specialists #rom marketing and other #unctions. %M has teams consisting o# a team leaser and representatives #rom sales" marketing" laboratory" engineering etc. :roduct Manager 9 6 ) A E

? ales Manager ) ? )istribution pecialist A ? AinanceC Accounting pecialist E D Engineer A third alternative is to eliminate product manager positions #or minor products and assign ! or more products to each remaining manger. This is #easible where ! or more products appeal to a similar set o# needs. A #ourth alternative'' <s to introduce category management" in which a company #ocuses on product categories to manage its brands. Eg. "eneral Motors &6adillacs" Fuicks" :ontiacs" 6hevrolets" -ldsmobiles)" .raft MarketAManagement %rgani&ation (hen customers #all into di##erent user groups with distinct buying pre#erences and practices" a market management organization is desirable. E.g. 6annon selling its #ax machines to consumer" business" and government markets. A markets manager supervises several market managers *also called marketdevelopment managers, market specialists, or industry specialists,. Market managers develop longDrange and annual plans #or their markets. They analyze where there market is going and what new products their companies should o##er to this market. :er#ormance is /udged by their market*s growth and pro#itability. 'dvantage* 1. Marketing activity is #ocused to meet the needs o# distinct customer groups rather than #ocused marketing #unctions" regions" or products per se. Many companies are reorganizing along market lines and becoming market-centered organi6ations. E.g. Berox has moved #rom geographic selling to selling by industry. .B2 has organized its !%.=== employees into 1, customerD#ocused divisions.

$roductAManagement;MarketAManagement %rgani&ation 6ompanies that produce many products #lowing into many markets tend to adopt a matrix organi6ation. E.g. )u:ont was a pioneer in developing the matrix structure. The product managers plan the sales and pro#its o# their respective #ibers. The market managers estimate how much o# each #iber can be sold in each market at a proposed price. Market Managers Men*s wear (omen*s wear +ome #urnishings <ndustrial Markets

9ayonV AcetateV CProduct managers Figure: $roduct ;MarketAManagement Matri# System A matrix organization desirable in a multiproduct" multimarket company. The problem is in the cost and that it o#ten creates con#licts. Two dilemmas o# these organizations> 1.+ow should the sales #orce be organizedL !.(ho should set the prices #or a particular product or marketL CorporateA(i isional %rgani&ation As multiproduct" multimarket companies growO they o#ten convert their larger product or market groups into separate divisions. The divisions set up their own department and services. This raises the 1uestion what marketing services and activities to be retained at corporate head1uarters. 3o corporate marketing Moderate corporate marketing> A #ew tasks such as assisting top management with overall opportunity evaluation" providing divisions with consulting assistance on re1uest etc trong corporate marketing> <n addition to above activities also provide various marketing services to the divisions Marketing 2elations with other (epartments 9elationship o#ten characterized by deep rivalry and distrust. <nterdepartmental con#lict a result o# di##erences o# opinion on the company*s best interests" based on real tradeDo##s between departmental wellDbeing and company well being. Marketing viceDpresident has two tasks 1.coDordinate the company*s internal marketing activities !.coDordinate marketing with #inance" operations and other company #unctions to sere the customers

8<$: Marketing and 9P) have di##erent cultures. 9P) technically brilliant people" love challenges" not much concerned about immediate sales payo##s. 9P)Dmarketing coDordination can be #acilitated in several ways> ponsor /oint seminars Assign each new product to #unctional teams including an 9P) person" marketing person Encourage 9P) participation into the selling period (ork out con#licts by going to higher management" #ollowing a clear procedure E.g. Merck recognizes a strong connection between the two Engineering Engineers interested in technical 1uality" cost economy and manu#acturing simplicity. 6om in con#lict with marketing over new models re1uiring customization as opposed to standard components. The problem less evident in companies where marketing executives has engineering backgrounds. Purchasing 9esponsible #or purchase o# right 1uantities and 1uality o# components and materials at the lowest possible cost. At loggerheads with marketing because o#O <naccuracy in #orecast leading to inventory" purchasing small 1uantities o# several components #or di##erent models 2anufacturing Manu#acturing responsible #or smooth running o# #actory. .n 2anufacturingdriven companies, everything is done to ensure smooth production and low costs. The company pre#ers simple products" narrow product lines and high volume production. <n marketing-driven companies" the company goes out o# its way to satis#y customers 3eed is a balanced approach. 6all #or /oint seminars" /oint committees and liaison personnel exchange programs. )perations Term operations used #or industries that create and provide services. 3eed to ensure that people delivering the service maintain the service level. /inance At loggerheads over control o# #unds and need to invest in long term marketing development plans by the marketing. 9e1uirement is to give marketing people more #inancial training and #inance people more marketing training.

-ccounting Accountants #eel that marketing people are lax in providing sales report in time" dislike the special deals made by marketers since it calls #or special accounting procedures &redit )ecide creditworthiness o# a potential customerO #eel that marketers will sell it doubt#ul ones too. Marketers #eel that credit standards are too high and Mzero bad debtsN is e1uivalent to lost sales and pro#its. Strategies For +uilding - CompanyAwide Marketing %rientation 6ompanies are attempting to become market driven #rom being product or sales driven. teps that a 6E- takes to create a market and a customerD#ocused company> 1. 6onvince the senior management team o# the need to become customer #ocused. !. Appoint a senior marketing o##icer and a marketing task #orce. %. Bet outside help and guidance ,. 6hange the company*s reward measurement and system. .. +ire strong marketing talent. 0. )evelop strong inDhouse marketing training program. 4. <nstall a modern marketing planning system. 5. Establish an annual marketing excellence recognition program. ;. 6onsider reorganizing #rom a product centered to market centered company. 1=. hi#t #rom a department #ocus to a process ? outcome #ocus. Marketing Implementation: is the process that turns marketing plans into action assignments and ensures that such assignments are e#ecuted in a manner that accomplishes the plantIs stated o,5ecti es: A strategy addresses the MwhatN and MwhyN o# marketing activities" implementation addresses the MwhoN" MwhereN" MwhenN and MhowN. -ne layer o# strategy implies certain tactical implementations assignments at a lower level. Fonoma identi#ied #our sets o# skills #or implementing marketing programs> 1. )iagnostic kills> (hat went wrongL !. <denti#ication o# company level> <mplementation problems can occur at % levels namely the marketing #unction" the marketing program" and the marketing policy level. %. <mplementation kills ,. Evaluation kills The skills needed to implement a marketing plan #or nonDpro#it organizations are the same as those needed #or the commercial organizations.

E aluation -nd Control: The marketing department has to continuously monitor and control marketing acti ities: Inspite of this/ many companies ha e inade7uate control procedures: The main findings of a study conducted on this were: 1. maller companies do a poorer /ob o# setting clear ob/ectives and establishing systems to measure per#ormance. !. less than hal# o# the companies studied knew their individual products* pro#itability. About one third o# them had no regular review procedures #or spotting and deleting weak products. %. Almost hal# the companies #ail to compare their prices with those o# their competition" to analyze their warehousing and distribution costs" to analyze the causes o# returned merchandize" to conduct #ormal evaluations o# advertising e##ectiveness" and to review their sales #orce*s call reports. ,. Many companies take #our to eight weeks to develop control reports" which are occasionally inaccurate. Annual :lan 6ontrol> The purpose o# annual plan control is to ensure that the company achieves the sales" pro#its" and other goals established in its annual plans. The heart o# annual plan is management by ob/ectives. The #our steps involved are> 1. !. %. ,. Management sets monthly or 1uarterly goals. Management monitors its per#ormance in the marketplace. Management determines the causes o# serious per#ormance deviations. Management takes corrective action to close the gaps between the goals and per#ormance.

(hat do we want to achieveL

Boal etting

(hat is happeningL

:er#ormance Measurement

(hy is it happeningL (hat should we do about itL

:er#ormance )iagnosis

6orrective Action

Managers use #ive tools to check on plan per#ormance> sales analysis" market share analysis" marketing expense to sales analysis" #inancial analysis" and market based scorecard analysis. 1. ales Analysis> consists o# measuring and evaluating actual sales in relation to sales goals. Two speci#ic tools are used in sales analysis> ales $ariance Analysis> measures the relative contribution o# di##erent #actors to a gap in sales per#ormance. Microsales Analysis> looks are speci#ic products" territories" and so on and so #orth that #ailed to produce expected sales. !. Market hare Analysis> 6ompany sales do not reveal how well the company is per#orming relative to the competitors. Aor this purpose" management needs to track its market share. Market share can be measured in three ways> -verall market share is the company*s sales expressed as a percentage o# total market sales. erved market share is its sales expressed as a percentage o# the total sales to its served markets. <ts served market is all the buyers who are willing and able to buy its products. erved market share is always larger than overall market share. 9elative market share can be expressed as a market share in relation to its largest competitor. A rise in relative market share means that the company is gaining on its competitor. 6onclusions #rom Market hare Analysis> The assumption that outside #orces a##ect all companies in the same way is o#ten not true. The assumption that a company*s per#ormance should be /udged against the average per#ormance o# all companies is not always valid. <# a new #irm enters the industry" then every existing #irms market share might #all. hare loss depends on the degree to which the new #irm hits the company*s speci#ic markets.

ometimes a market share decline is deliberately engineered to improve pro#its. E.g management may drop unpro#itable customers or products to improve its pro#its. Market share can #luctuate #or many minor reasons. -verall Market hare G 6ustomer penetration V 6ustomer loyalty V 6ustomer electivity V :rice electivity 6ustomer penetration is the S o# all the customers who buy #rom the company 6ustomer loyalty is the purchases #rom the company by its customers expressed as a percentage o# the size o# the average customer purchase #rom an average company. :rice electivity is the average price charged by the company expresses as a S o# the average price charged by all the companies. %. Marketing Expense ? ToD ales Analysis> AnnualDplan control re1uires making sure that the company is not overspending to achieve sales goals. The /ey ratio to watch is marketing expenseDtoDsales. This ratio consists o# #ive components> Advertising to sales alesDpromotion to sales Marketing research to sales ales administration to sales The period to period #luctuations in each ratio can be tracked on a control chart. The behaviour o# successive observations even within the upper and lower control limits should be watched. This section describes the methods o# evaluation and control in marketing e##orts.

1. Market Fased corecard Analysis>


-nly #inancial per#ormance scorecards have been used till now. Kualitative score cards re#lect per#ormance and provide possible early warning signals 1. 6ustomerD:er#ormance scorecardDcustomer based measures are recorded 3ew 6ustomers )issatis#ied customers 8ost customers Target market awareness Target market pre#erence 9elative product 1uality 9elative service 1uality !. takeholder per#ormance corecardD )u :ont 6hart method ? to #ind out return on 3et (orth

3orms should be set #or each group and management should take action when one or more groups register increased levels o# dissatis#action.

!. :ro#itability 6ontrol
:ro#itability needs to be /udged on :roducts Territories 6ustomer groups egments Trade channels -rder sizes Marketing :ro#itability Analysis> teps> 1. Arom :P8 statement" #ind out the marketing related expenses

Sales Cost of goods sold @ross margin

PFM'MMM (E'MMM P)*'MMM

'atural -ccounts

E.penses Salaries PE'(MM >ent ('MMM !. <denti#y Aunctional expenses like salesC advt.Cpacking and delivery and divide the Supplies ('5MM expenditure under these heads *5'HMM "et profit Pac,ing and P5')MM Billing B

Total

Selling
P5'*MM

dvertising

Delivery

(ollecting
P*'FMM FMM )MM P)'%MM

Salaries >ent Supplies

PE'(MM ('MMM ('5MM -./0122

P*')MM %MM *'5MM P('*MM

P*'%MM )'MMM *'%MM P%'HMM

Q %MM P5'5MM

%. Measure how much o# each #unctional expense like selling etc. was attributed #rom each channel and #inding costCunit o# item sold.

Channel Type
2ard+are @arden Supply Department stores 7unctional e.pense R "o. of ?nits E3uals

Selling
)MM F5 *M )G5 P5'5MM )G5 P )M

dvertising
5M )M (M *MM P('*MM *MM P (*

Pac,ing and Delivery


5M )* E HM P%'HMM HM P FM

Billing and Collecting


5M )* E HM P)'%MM HM P (M

,. Make a :P8 #or every channel and #ind out which channel is most pro#itable

2ard+are
Sales Cost of goods sold @ross margin dvertising #P(* per E.penses advertisement$ P(M'MMM *E'5MM P*M'5MM
?!!!

@arden Supply
P*M'MMM F'5MM P ('5MM
12>!

Dept. Stores
P)M'MMM *('MMM P G'MMM
=<!

8hole Company
PFM'MMM (E'MMM P)*'MMM

Selling #P)M per call$ P %'MMM <G!! +illingCcollecting@Q?!;orderB 1=!! P *'(MM >?!
2<!! T-TA8 ET:E3 E 1.5== 4et ProfitD*loss, EFIF E3FF (EF *GHF,

$acking deli ery @Q>!;%rderB

)MM 2D!
1;,= E(M

P 5'5MM ('*MM

*'55M

1==.=

%51= F)M

(etermining Correcti e -ctions:


Marketing pro#itability analysis indicates the relative pro#itability o# the di##erent channels" products" territories or other marketing analysis. <t doesn*t prove best course o# action. <t only opens a door to evaluate options. Ask yoursel# 1uestions.

Direct vs. full costing


D 6hoice o# basisD +ere choice o# basis has been taken as 3umber o# sales calls to allocate elling expenses. A better base can be chosen D(hether Aull costs or only direct and traceable costs be used in evaluating marketing per#ormanceL +ere only simple costs have been taken" but the above % types o# costs have to be taken into account (I2ECT C%STS: That can be assigned directly to the proper marketing entity egg. ales 6omm. T2-CE-+)E C%MM%' C%STS ? That can be assigned only indirectly" but on a plausible basis to the marketing entities eg. 9ent '%'AT2-CE-+)E C%MM%' C%STS: A (hose allocation to marketing entities is highly arbitrary E.g. 6orporate <mage 6ost.even though all the goods may or may not be bene#iting #rom this. There is a controversy on the nonDtraceable costs" and a method where this cost is also included <s called Aull cost method. (eaknesses o# Aull costing method are> D 1.The relative pro#itability o# the marketing entities can shi#t radically when one arbitrary way to allocate 3on traceable common costs is replaced !. This arbitrariness demoralizes the managers" as their per#ormance may be /udged adversely. %. The inclusion o# nonDtraceable cost could weaken the control on real cost control. -perating mgmt. <s most e##ective in controlling the direct and traceable costs. @se o# A6T<$<TH FA E) A66-@3T<3B is increasing. -d antages: <t gives managers a clear picture o# how products" brands generate revenues and consume resources <t re#ocuses the management*s attention away #rom using only labour or material std. 6osts towards capturing actual costs o# supporting individual products.

Efficiency Control

Appointing a marketing 6ontroller> 3e performs financial analysis of e#penditures and


results: 3e e#amines adherence to profit plans/ ,udgets/ measures efficiency of promotions/ e aluate customer and geographic profita,ility and educate marketing personnel on the financial implications of marketing decisions

Measuring Sales Force Efficiency: Avg. no. o# calls per day Avg. call time Avg. revenue per call Sage o# orders per 1== sales calls 3o. o# new customers peer period 3o. o# lost customers per period ales #orce cost as S age o# total sales Entertainment cost per sales call -d ertising: Efficiency: Advertising 6ost per 1=== target buyers reached by media vehicles :ercentage o# audience who noted" saw or associated" and read most o# Each print ad 6onsumer opinions on the ad*s content and e##ectiveness Fe#ore and a#ter measures o# attitudes towards product 3o. o# en1uiries stimulated by the ad 6ost per en1uiry Sales $romotion efficiency: :ercentage o# sales sold on deal )isplay costs per sales dollar :ercentage o# 6oupons redeemed 3o. o# en1uiries resulting #rom a demo. (istri,ution efficiency: earch #or economies in <nventory 6ontrol (arehouse locations Tpt. Modes trong sales surge may cause dist. E##iciency to decline. This leads to Fad mouth and sales #all.

trategic &ontrol
Marketing effecti eness re iewO

The top management must review the annual business plans. <t should identi#y the strong and weak divisions and #ind out i# the div is practicing customer -riented marketing. +owever" the evaluation should not bee done /ust on the basis o# sales growth or market share Fut also the #act that a good leadership may also not be able to do well. <# the market itsel# is 3ot right. A division*s marketing e##ectiveness is re#lected in the degree to which it exhibits the . ma/or attributes o# marketing orientation> D Customer philosophy Integrated marketing organi&ation -de7uate marketing information Strategic orientation %perational efficiency

Marketing audit
<t is comprehensive" systematic" independent" and periodic examination o# a company*s or business units* ? marketing environment" ob/ectives" strategies" and activities with a view to determining problem areas" and opportunities and recommending a plan o# action to improve company*s marketing per#ormance. , characteristics o# marketing audit> 1) 6omprehensiveD e##ective in locating real source o# marketing problems !) ystematic %) <ndependent ? marketing audit can be conducted in 0 ways> sel# ?audit" audit #rom above" audit #rom across" company auditing o##ice" company task #orce audit" and outsider audit. Fest audit #rom outside consultants. ,) :eriodic

Marketing excellence review


An instrument used by the companies to rate their per#ormance against best practices o# high per#orming business. The % columns distinguish among poor" good and excellent business and marketing practices. $oor :roduct driven Mass market oriented :roduct o##er Average product 1uality "ood Market driven egment oriented Augmented product o##er Fetter than average E#cellent Market driving 3icheDoriented " customer ? oriented 6ustomer solutions o##er legendary

Average service 1uality End product oriented Aunction oriented 9eacting to competitors upplier exploitation )ealer exploitation :rice driven Average speed +ierarchy $ertically integrated tockholder driven

Fetter than average 6ore product oriented :rocess oriented Fenchmarking competitors upplier pre#erence )ealer support Kuality driven Fetter than average 3etwork Alattened organization takeholder

8egendary 6ore competency oriented -utcome oriented 8eap#rogging competitors upplier partnership )ealer partnership $alue driven 8egendary Teamwork trategic alliances ocietally driven

Management can place a check on each line as to its perception where the biz stands. The ethical and social responsi,ility re iew Ethical issues must be dealt with many aspects in a business" #or eg in selling issues &bribery" stealing trade secrets)" advertising issues &#alse C deceptive advertising)" channel issues &exclusive dealing" tying agreements)" product issues &1uality)" patent protection" price issues and competitive issues &barriers to entry" predatory competition) To raise level o# socially responsible marketingD 1) ociety must use law to de#ine illegal" antisocial" or anticompetitive practices !) 6ompanies must adopt written code o# ethics" build a company tradition o# ethical behaviour" hold their people #ully responsible #or observing ethical and legal guidelines. %) <ndividual marketers must practice a social conscience in their speci#ic dealings with customers and various stakeholders.

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